Good morning from New Economy Brief.
Last week the Government announced delays to critical net zero targets, to widespread condemnation from business leaders, climate experts, cross-party MPs and trade unions alike. Why did they do this?
This week’s New Economy Brief explores the economics and the politics of climate delay and explains why the government’s risky electoral strategy to pit net zero against the cost of living crisis may backfire.
Net zero targets delayed. Last week the government outlined its “new approach to net zero” which was widely perceived as “a string of U-turns” on legal targets - the 2030 ban on sale of new petrol and diesel cars was delayed to 2035, phasing out gas boilers was similarly delayed, and the PM scrapped plans to require landlords to meet new energy efficiency regulations. Alongside these reversals, the government did increase the heat pump subsidy grant from £5k to £7.5k and change the rules about grid connections so new renewables projects can connect faster, but despite this the announcement met widespread condemnation from corporate leaders, business groups, MPs from all parties, climate experts, trade unions and the rest of civil society.
Economics of crowding-in. Many economists have argued that clear policy signals and ‘missions’, such as decarbonising housing and transport, can help to ‘crowd in’ private investment into strategically vital areas (see our previous Briefing for an explainer of ‘mission-led’ industrial strategy). As UCL’s Green Innovation Policy Commission found “green innovation can dramatically bring down the costs of low-carbon technologies”; increased investment means more technical innovation, allowing firms to find efficiency gains so the cost of production reduces and consumer demand grows. But certainty is a key part of this equation, and the legal targets underpinned that certainty, giving industry and investors confidence about the direction of travel for government policy and de facto creating new markets for products, like heat pumps and electric vehicles. It is easy to see why the UK car industry and other sectors feel that ripping up those targets with little warning and no consultation undermines the whole process. For example, most people will buy second-hand electric vehicles, and whilst prices have been dropping, a later target of banning the sale of petrol and diesel cars means fewer people will switch to newer electric vehicles and the second-hand market will struggle to supply enough used EVs to meet eventual demand.
So why are the Conservatives doing this? The economics of the government’s “new approach to net zero” may be questionable at best, but what about the politics? Though most of the public wants more action from the government on climate change, even more people care about their personal finances, and sowing conflict between climate policies and cost of living priorities could help the Conservatives win the support of crucial swing voters. This seems to be the lesson that the Government has drawn from the Uxbridge by-election, where fears around the future cost of climate policies contributed to a shock Conservative hold.
Private affluence and public squalor. Economist Stewart Lansley explores the “paradox” that as societies get more prosperous overall, rising numbers cannot afford the very basics. Lansley describes how wealth could serve the common good, through regulation, taxation, common ownership and collectively owned citizen’s wealth funds.
Deep poverty. Research by the Joseph Rowntree Foundation explores the factors that increase people’s risk of very deep poverty, and those that protect them from it. It identifies a “vicious cycle between poor mental health and very deep poverty”, with a quarter of those starting to suffer the worst deprivation already suffering from mental health problems.
Feminist monetary policy. In light of the Bank of England’s decision to maintain the base interest rate at 5.25%, the Women’s Budget Group has argued that high interest rates will “continue to hurt millions of women struggling with mortgage payments and debts”. The think tank also highlights how positive news about wage growth “masks significant differences” between sectors, with earnings rising more slowly in industries dominated by women than in male-dominated sectors such as finance.
Breaking the doom loop. Mission-oriented investment is the key to breaking the current economic “doom loop” and achieving “innovation-driven, inclusive and sustainable” growth, argues economist Mariana Mazzucato. Policy options that are usually seen as an expense, like school meals and tackling climate change, should instead be “recognised as an investment” that can drive innovation.
The cost of the ecological crisis. Climate change is causing global shortages of everything from Barbie dolls to natural gas, argues James Meadway, with the Panama Canal “a microcosm of the new world economy: resource conflict, rising costs and geopolitical conflicts, all overdetermined by the rolling ecological crisis”.
A UK clean industrial strategy. Without an “active net zero industrial strategy, the UK economy will be left behind, our industries will become less competitive and many jobs will be put at risk”, argues the TUC. It also sets out what’s needed to ensure that green jobs are good ones, such as collective bargaining agreements.