The business leader's guide to the low carbon economy

Energy secretary Chris Huhne, in this government’s first annual energy statement, spelt out today how he thinks the low carbon economy will pan out over the next few years. Perhaps the most significant phrase for business in his statement is this:

Like the other industrial revolutions, the low-carbon revolution will be driven by entrepreneurs, the private sector, local communities, individuals, businesses, scientists and engineers – not by government.

Nevertheless Huhne acknowledges that government has a role to play:

However, industry needs stable policy and functioning markets. The role of government is to provide the policy framework and to act as a catalyst for private sector investment… we need to apply those principles to the challenge of changing fundamentally the way we produce and consume energy.

Click here for Chris Huhne’s full statement

Click here for Chris Huhne on You Tube

Despite the lack references to things green or low carbon in the Chancellor’s budget speech, the coalition government is still committed to being the greenest government ever, according to the secretary of state for energy and climate change Chris Huhne.  Speaking at an energy conference today he said:

‘I want Britain to be the best place in the world to do energy business. To lead the world in decarbonising the economy. To develop the unique products and processes that will power the second industrial revolution – the green revolution – just as steam, coal and iron drove the first.’

As to specific commitments, there were four in the budget report:

• To reform the climate change levy and create a floor price for carbon
• To create a green investment bank
• A green new deal, which would make the UK’s housing stock energy efficient
• Tax breaks for low and zero emission vehicles

More details on all four proposals are to follow in the autumn.

The Economist business magazine (or newspaper as it likes to call itself) has long advocated a carbon tax as the best way to deal with the threat of global warming. In preparation for its pre budget advice to chancellor George Osborne it commissioned an economic modelling firm, Cambridge Econometrics, to work out the likely effect on the UK economy of a carbon tax which raised about 1% of GDP by 2020. Such a tax would not only raise revenue – about £18bn by 2020 – it would also stimulate economic growth. Cambridge Econometrics calculated that output would be 1.2% higher with a simple carbon tax at around £30 a tonne of carbon, than with the present hotch potch of fuel duty, subsidies for renewable energy, and other measures.

Sadly, as we now know, Mr Osborne didn’t go for it. In fact, this budget is about the least green budget we’ve had for a long time. Apart from a vague promise to look at aviation tax (per plane rather than per passenger) and, if we’re being generous, a commitment to fund rail improvements in Newcastle, Birmingham and Sheffield, there was nothing there to justify his boss’s claim that the Conservatives were determined to make Britain a leading player in the low carbon economy.

Our new conservative/Liberal Democrat coalition government is committed to supporting the low carbon economy. But what does Prime Minister Cameron mean by that phrase?

In 2009 David Cameron set out his plan for the low carbon economy in a webcast and policy document, which you can find here. His key points were:

An electricity internet

A smart grid and smart meters in homes. This will allow demand and supply to be intelligently managed, and pave the way for large-scale use of renewable energy sources.

A system of feed-in tariffs

Decentralised energy production by paying people who produce energy from renewable resources.

A new national recharging network

This will enable Britain to lead the world in replacing traditional cars with electric and plug-in hybrid vehicles.

New low carbon energy sources

Biogas – methane produced from farm and food wastes – to replace up to 50% of our residential gas heating.

Low carbon buildings, transport and commerce

Including a new entitlement for every home to be fitted with up to £6,500 of energy efficient improvements.

It’s likely that the coalition with the Liberals will strengthen Cameron’s hand in his dealings with the back bench climate sceptics in his party. Time will tell how much support his government is willing to give to the low carbon economy.