The use of industrial policy to meet emissions reductions: is it enough?

While the UK’s industrial strategy is an important step in meeting the 2050 net zero carbon target set under the Climate Change Act, there are limits to these policies.

One of the final ambitions of the now ex-British Prime Minister, Theresa May, was to commit the UK to net zero emissions by 2050. Meeting climate targets has been broadly successful since the publication of the 2008 Climate Change Act, as the previous two carbon budgets (2008-2013 + 2013-2017) outlined in the Act have been achieved and the UK is on course to meet the third (2018-2022). However, despite impressive progress, the limitations of the UK economy are expected to surface as it approaches the fourth budget (2023-2027), which lends itself to the observation that if the UK cannot meet shorter term targets, setting unprecedented long term goals may be an overly-optimistic, albeit admirable, ambition.  

Decarbonisation of the UK economy can be largely credited to a successful move away from coal-generated electricity. In addition, the UK economy’s reliance on the finance sector for more than three quarters to UK GDP has been attributed for a 30% reduction in its territorial footprint. On the one hand, it could be argued that a reliance on the service sector has yielded a de-materialisation of the economy, sparring the UK additional emissions output from productive processes. On the other, the UK can be accused of simply ‘off-shoring’ its emissions. Given the service sector driven economy, the value of UK imports is around triple that of its exports, the transportation and production of foreign goods have been estimated to incur around 70% more emissions than commonly stated.

Irrespective of the emissions output of its current structural form, the prospect of missing the fourth budget is evidence of the need for industrial reorganisation; and not one which simply internalises externalities through the market mechanism, but one which departs from a ‘financialised’, import-dependent economy model towards one which returns productive and low carbon capacity to UK industry. In publishing the 2016 Industrial Strategy, the government presented its most coherent indication of its ambition to reorient back towards the ‘real economy’ by identifying four grand challenges to create ‘green’ jobs through investment in skills, industries and infrastructure.

Of the four grand challenges identified in the strategy; namely artificial intelligence, ageing society, future of mobility, and clean growth, the fourth is contingent upon the diffusion of the following three technologies:

Offshore wind

The UK is considered to lead the world in this field after generation from offshore wind has grown considerably in the UK, from producing no wind energy  in 1990 to 29.1 terawatt-hour (TWh) in 2017. Levels of growth in offshore wind have been made possible by a number of fiscal measures; most notably in the form of green levies placed on energy bills to the sum of £11.3bn in 2018. The increased generation of energy through renewable means is crucial in helping to reduce the UK’s reliance on an energy mix which includes oil, gas and nuclear power, but also to create new green jobs. It is the government’s ambition to create 27,000 jobs by 2030, with more to come further down the supply chains.

Electric Vehicles

Like many other countries, the UK has committed to banning petrol and diesel vehicles. The decline of British automobile manufacturing since British Leyland is indicative of the broader de-materialisation of UK industry, but with emerging trends in the automobile market comes the opportunity to reassert British manufacturing on the global market. Inevitable changes to the dynamics of the global automobile sector presents the UK with an opportunity to capture productive capital from emerging trends in low carbon mobility. Yet despite various UK research institutions, including the Centre into Electric Energy Storage & Application (CREESA) here at Sheffield pursuing innovate designs in battery storage, there are no plans for large-scale battery manufacturing facilities in the UK at present.

Smart meters

In order to realise the true benefits of the two preceding technologies, energy demand must be managed by a smart grid. Following the Energy Act 2008, the government planned to install this grid by 2020, but with a year to go only 14.3 million has been installed. By virtue of being in receipt of an £11bn investment, the alarming shortfall in smart meter installation serves as evidence that low carbon technology requires substantial financial support. 

After announcing the 2050 target, Theresa May stated that ‘the UK led the world to wealth through fossil fuels in the industrial revolution, so it was appropriate for Britain to lead in the opposite direction’, but is the industrial strategy enough to change course? The emergence of new social movements, such as Extinction Rebellion and School Strike 4 Climate, speaks to waning confidence of government policy, especially amongst younger voters. In response, more radical policy proposals are beginning to gain traction, such as free public transport, a meat tax, banning private jets and reducing the need to consume goods by instead ‘accessing’ them as services.

Scepticism over the government’s environmental agenda has been borne out of a realisation that despite the government lending its support to ambitious climate objectives, it simultaneously continues to allow fracking, the expansion of Heathrow, the opening a new coal line in Cumbria and the removal the subsidies for solar, electric vehicles and home insulation, which had contributed to previous progress in emission reduction.

The Industrial Strategy may indeed bring productive capacity back to the UK, and may create green jobs as the economy is weaned off its dependence on the finance sector. However, it  alone will prove insufficient, for it fails to address the need for structural change. It fails to address questions over the credence given to GDP as the predominant indicator of national prosperity, which is perversely magnified by the cost of externalities produced by the economy. Whether these emerging technologies may empower labour through new models of ownership, such as Community Investment Partnerships (CIPs) remains to be seen. Ultimately, decarbonisation is contingent upon how ‘value’ to the economy is defined, insofar that the environment cannot remain ancillary to growth, but instead must be entwined, lest growth give way to the precedence of the environment.  

Macroeconomic change demands macropolicy, but if the industrial strategy is to be the extent of the government’s ambition, any date for decarbonisation will reach the same insipid end.