What does the Industrial Strategy say about a low carbon strategy in the UK?

To a rather muted fanfare, the British Government published its industrial strategy green paper last month. As far as the energy and climate change audience were concerned, in the run-up to the publication of the strategy, the Business Energy and Industrial Strategy Department (BEIS) – a department still in its infancy - was essentially facing two challenges:

would it showcase BEIS as a major Whitehall player in a way that one of its predecessor departments, DECC, was never able to convince?
would the strategy place the low-carbon economy at its heart?

The jury remains out

On the first item, the question remains unanswered. The reception given to BEIS Secretary of State Greg Clark on the strategy’s launch raised one and a half cheers at the most. After varying degrees of “the market knows best” from Conservative, Labour and coalition governments over the last three decades, the introduction of an industrial strategy was broadly welcomed by various business organisations, on the understanding that it promoted a role for government as a framer and enabler in a competitive, globalized world. So, credit is due to Clark on this point, although we have to see what Treasury and No 10 really make of this revised approach.

There was however widespread criticism about the somewhat sprawling nature of the 132-page document (notwithstanding that it is a consultation document) and the public messaging surrounding the launch. The principal reservations were:

1)It lacked focus and tried to appeal to too many business sector constituencies

2) It contained many more questions than answers, and left the impression that there is much to do before the Government is in a position to take forward a coherent strategy

3) It failed to carry the courage of its convictions and that, if not for the necessity of having to tackle Brexit, the Government would still have “bottled it”, for fear of offending the pro-market purists – hence the concentration on productivity. The Government’s follow-up to the launch has not really dispelled those criticisms.

Low-carbon at the heart? Or not

On the question posed by this article – whether the green paper presages an ambitious and active agenda that promotes a powerful low-carbon future for the UK – the draft strategy has two relevant overarching objectives. First, it highlights the challenge of building on the UK’s business and research strengths and excellence for the future. Second, the interesting point made about not protecting the position of incumbents, in the context of maintaining and growing a competitive economy, could well apply to the low-carbon and clean energy sector - where the falling costs of technologies and digitization are combining to accelerate an energy transition which continues to surprise by its speed and scale – and offers scope to build on.

However, once you go into the detail of the green paper, the ten “pillars” which the Government believes will be important to “drive forward” the industrial strategy may be logical but simultaneously they appear to be pitched at too high a level; sectoral strategies are fine, but will there be one for every single business sector? This section lacks granular rigour and above all gives no tangible sense of where the Government’s priorities will lie.

It’s also noticeable that “affordable energy” is listed among the pillars. While the Government and BEIS continue to delay in setting out a joined-up energy policy vision (see below), that reference gives a strong enough hint about which of the energy trilemma’s legs the May administration will place most importance on. This reference tees up the passage in the strategy on affordable energy (and, for good measure, “clean growth”) in order to reinforce the message about keeping down the costs of decarbonisation.

The green paper also lists priorities, in the energy section, as the need to address the modernization of the grid arising from challenges such as smart metering and the advent of low-emissions vehicles, and harnessing opportunities from new technologies. But the section on climate change, where the Government promises to meet its legal obligations (and little more than that) strikes an uneasy and not very reassuring note. In all, it hardly – for all Greg Clark’s enthusiasm about electric cars in the public launch – amounts to a ringing endorsement of a core low-carbon strategy. The strategy also fails to grasp sufficiently just how fast the costs of mature renewables technologies are coming down (cf the recent report from Carbon Tracker and Imperial College on the disruptive power of low-carbon technologies).

While the UK remains a member of the EU, it will have obligations to meet 2020 emissions reductions and related clean energy targets. The European Commission has just reported on the progress of member states towards these targets and, while the UK certainly has a good emissions record, it is still one of those European countries whom the Commission has singled out as needing to increase its domestic energy sources, specifically in the renewables sector. Inevitably the British Government is going to take less notice of anything the Commission says as the departure from the EU comes closer, but this latest report is a reminder that the UK is not (emerging market of offshore wind apart) a world leader on clean energy and is indeed some way off that.

Looking at the post-Brexit world

This seeming lack of ambition also jars somewhat with the aspirations that Theresa May’s government are advertising for the UK’s post-Brexit world. In his introduction, Greg Clark talks about “preparing a new strategy for the UK to earn a prosperous living in the years ahead”. In her foreword to the Government’s new Brexit White Paper, the Prime Minister places great emphasis on the opportunities for a “stronger, more global Britain”. But the laconic statement in the White Paper about “meeting legal obligations” on climate change also reads across to the wider challenges and the UK’s place in the wider world; and the Government’s noises about being a global leader and climate ambition might resonate more if BEIS had been prepared to push the industrial strategy in the direction of a Sweden or California on low-carbon.

One of the most welcome announcements of the past 12 months came when David Cameron’s Government, still reeling from the result of the EU referendum last June, confirmed that it would accept the advice of the Climate Change Committee on the Fifth Carbon Budget, setting the UK’s emissions reductions targets from 2028-2032. But that decision, made without fuss in what looked like an attempt by Cameron and his then Secretary of State to lock in his successor (unknown at that stage in the immediate febrile post-referendum aftermath), has subsequently been gradually eroded by the passage of time and by inaction. However, there are four good arguments for why Theresa May’s administration should now go on the front foot on the low-carbon sector:

1) Surveys of activity and confidence indicate that investor confidence is low. The industrial strategy green paper doesn’t provide the necessary direction and specific signals to reassure, let alone excite, the investment community;

2) A number of individual consultations (the phase-out of coal; smart flexible energy systems; the industrial strategy itself) are now in train. But still we await an over-arching energy strategy from the May government over six months into its term;

3) The Government’s Emissions Reduction Plan – how it would deliver on the 2028-32 carbon targets – keeps being postponed. First, we heard it would be published by the end of February, then by the end of Q1, now possibly until later in the year. A hurried plan is usually a bad one in any walk of life. But this delay now risks undermining BEIS’s credibility and exacerbating the investor concerns;

4) The Government will need all the leverage it can diagnose once it enters the Brexit negotiations. Energy and climate policy, where the UK has consistently been at the forefront of European ambition and thought leadership, is one of those areas where the EU will miss British commitment and ingenuity. A fresh UK low-carbon agenda could be a win-win in terms of its influence on those negotiations, apart from being in UK economic and commercial interests.

This is also not to mention other germane factors such as air quality and the circular economy.

In Conclusion

In summary, the industrial strategy green paper (despite a recognition that the creation of BEIS is a good thing and that Ministers are committed and have a relevant track record) did disappoint, and seemed to signal that the Government doesn’t see the low-carbon economy as the cornerstone of its post-Brexit new world that it could be.

Given her comments about the “just about managing’ sector of British society, it is understandable why Theresa May would want to place a high premium on energy affordability. However, provided her ministers at BEIS can be bold (facing down the wing of the Tory Party who parrot the “green crap” lines too easily) and be prepared to set out a cogent economic argument for a low-carbon strategy, the watery focus of the industrial strategy green paper in January can still be turned into an autumn white paper which rouses the investment community and sends a confident pro-business message to the wider world. Accelerating the production of the Emissions Reduction Plan would also be a big help.