By Will Farrell, CEN Youth Ambassador and Co-Chair of Tories for Climate Action
Current predictions expect climate and environmental catastrophe within decades. The answer, however, is not to halt polluting production at the cost of livelihoods and living standards. Such anti-business sentiments in the climate debate are, in fact, dangerous. A ‘world-saving’ economic shutdown would bulldoze economic growth’s track record of alleviating hunger and poverty worldwide, as evidenced by the fiscal nightmare of our current lockdown.
Instead of stifling businesses, as sought by ‘degrowth’ movements and even Extinction Rebellion, we should be working across industry and science to encourage the technological innovation required to decarbonise production. The private sector is the only feasible facilitator of this innovation to reach net zero by 2050, especially under the looming fiscal pressures of recession and greater unemployment.
Energy and technological innovation
Offshore wind is a major feat of government-initiated, business-led innovation. With its record low prices (as low as £39.65/MWh in the most recent auction) proving its worth to those who dismissed wind as unaffordable, it is now the cheapest source of electricity generation and a prime example of how decarbonisation can produce the jobs and skills of the future.
The Green Investment Bank (kick-started by the Conservatives in 2012) made significant strides in proving the viability of offshore wind as an asset of lucrative private sector value. In tandem with auctions for offshore wind held throughout the 2010s, offshore wind’s growth has propelled renewables to overtake fossil fuels in electricity generation for the first time ever this year. This exemplifies the significance of private sector innovation in delivering decarbonisation alongside energy cost savings. Investor-led technologies have also radically improved the reliability of wind (modern wind turbines now have a factor capacity of above 65% compared to 35% a decade ago) and the feasibility of wind power at greater ocean depths, including floating offshore turbines.
A green recovery plan should seek to leverage such innovation with similar government-initiated projects, given the cost-effectiveness for taxpayers. The Green Investment Bank, for example, leveraged private investment four times the level of public funds invested, exhibiting the value of the private sector for saving taxpayers’ money.
Fresh calls for a new government-backed infrastructure bank have been ignited by the Covid-19 crisis. These state-backed banks are able to offer concessional finance, which can help risky, nascent sectors that are important for delivering public policy outcomes get access to cheap capital - essential to building back better with investment in innovation.
Finance sector innovation
The breadth of finance sector involvement in sustainability renders it a key mechanism to incentivise business decarbonisation. In OECD countries alone, $100 trillion of assets are under management in the finance sector, with 80% of asset managers subscribing to Environmental, Social and Governance (ESG) considerations. With London one of the world’s leading sustainable finance hubs, we are in a unique position to encourage sustainability via the finance sector and to promote this expertise globally at COP26.
Retrofitting is one such way finance sector innovation must be encouraged post-pandemic. The Chancellor ought to look at funding retrofitting schemes as a cost-effective fiscal stimulus, especially given the finance sector’s role in energy efficiency. If, for example, the government funded the retrofitting of social housing and public buildings, this would provide employment, incentivise up-skilling schemes, reduce energy bills, and aid the decarbonisation of the energy grid. Vitally, this process would establish the necessary supply chains, proving the viability of energy efficiency investments and facilitating private sector take-up of wider retrofitting schemes.
The Green Finance Institute, for example, has already laid out financial mechanisms by which investors could capitalise on retrofitting, such as green mortgages. Such take-up by the finance sector in retrofitting would propel far greater investment in energy efficiency than would ever be conceivable as a fiscal stimulus package alone. Indeed, energy efficiency retrofits lend themselves to finance solutions, as they yield lower energy costs for consumers and increase property values.
The resulting warmer homes can also help reduce susceptibility to winter illnesses. This would be of particular benefit to low-income households and pensioners, with an obvious consumption boost for the economy. Wider sectors, from manufacturing to research, would also benefit from the market growth initiated by this minimal fiscal stimulus. Certainly bang for buck.
Government policy should also look to encourage greater transparency of corporate climate-related risk analyses and ESG assessment practises, as would be welcomed by investors and environmentalists alike. The Task-Force on Climate-Related Financial Disclosures already offers a framework for companies to voluntarily adopt and former Bank of England Governor, Mark Carney, has been pushing for this reporting framework to be made mandatory. Such transparency equips financial actors with greater information, translating well-intentioned investments into the most sustainable ventures, and comes at no cost to the taxpayer.
COVID-19 should focus the minds of policymakers even more on the private sector as the catalyst for decarbonisation. The harnessing of a business-led ‘green’ recovery could deliver the economic bounce-back we need while mitigating the real and impending long-term risks of climate change. At the heart of such a recovery will be innovation. We have an opportunity, as host of next year’s G7 and the UN Climate Conference COP26, to lead. For short-term economic recovery and for long-term climate risk mitigation, we must get on track to net zero.