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The Times by Ben Spencer

Britain has long considered itself to be the leader of the green transition. As the first country in the world to set legal emissions targets and the first to pass the target of “net zero” — decarbonising the economy — into law, we were ahead of the curve. The vision was for a bright green future: Theresa May promised we would “lead the world to a cleaner, greener form of growth”; Boris Johnson said we would be the “Saudi Arabia” of wind.

That vision is now in doubt. The rest of the world has caught up. A green arms race is under way and business leaders fear Britain will soon be trailing behind.

Tony Danker, director-general of the Confederation of British Industry, warned in a speech last month: “We’re behind the Germans on heat pumps, the French on electric-vehicle charging infrastructure and the US on operational carbon capture and storage projects. We are behind them now and seem to be hoping for the best.”

 

Our politicians’ biggest fear comes from across the Atlantic, where billions in new subsidies are now on offer. Joe Biden last year fired the starting gun with his Inflation Reduction Act (IRA), a $369 billion (£306 billion) stimulus package for clean energy and transport. Ursula von der Leyen, president of the European Commission, quickly promised to rival it with “unprecedented investment in clean technology” in the EU.

The basic fact is that the UK cannot compete — and the consequences are stark. Biden is offering as much as $40,000 in tax credits for companies that buy clean commercial vehicles, creating a huge potential market. So electric van-maker Arrival — which in 2021 secured the highest valuation yet for a UK company on its stock market debut — is shifting manufacturing from Bicester, Oxfordshire to Charlotte, North Carolina.

Investing in green technology used to be something to boast about to customers and put on press releases. It is now, in the US at least, a necessity. Republicans overwhelmingly opposed Biden’s IRA as it passed through Congress. Yet in Texas, the reddest of states, three times more wind, solar and battery storage is under construction than in California, a Democratic stronghold. Green economics is now, simply, economics.

No one doubts Biden’s scale of ambition in trying to take on the Chinese economic threat, securing well-paid jobs for Americans and turning the US into the world’s green technology hub.

But as an editorial in The Economist drily noted last week: “For better or worse, Mr Biden’s blueprint for remaking the economy will change America profoundly . . . but be under no illusions it is audacious to believe that the way to cope with three problems which are too hard to tackle separately is to deal with them all at once.”

Todd Tucker, an influential academic at the Roosevelt Institute, who helped shape the IRA, says Biden’s approach was shaped by Barack Obama’s failure to get climate policies through Congress. “This is a carrot-only approach, not a tax-and-regulate approach,” Tucker says. “The US tried the stick-based approach in the past but it failed in the Senate. This was designed to get through — it was the only way the US was going to be able to take meaningful climate action.”

But that has caused consternation in the UK, and more so in Europe, where for years climate policy has been based on the theory that emissions will fall if you make polluting expensive, by setting a carbon price and taxing fossil fuels.

Chris Stark, chief executive of the Climate Change Committee, an independent adviser to the UK government, says: “Rather than making the black stuff expensive, Biden said ‘Let’s make the green stuff really cheap’. That’s far more politically saleable. The reason we don’t have a good answer to what to do in response in the UK is that, culturally, it’s a very different approach.

“A good example is what we’ve done on electric cars: name a date by which to phase out the sale of petrol and diesel cars and the industry then progresses towards it without the need for those subsidies. Then the US comes along with nearly $400 billion of subsidies and it’s a big upset.”

And the issue is one of ideology as well as economics. Jeremy Hunt, the chancellor, said last month: “We have some concerns about the IRA and the reason is that we believe in free trade. I don’t think subsidy is necessarily the best way. I think what people want is creativity, innovation, ideas, a climate — a regulatory structure — that encourages investment.”

Kemi Badenoch, appointed trade secretary last week, said it would be a mistake to “copy and paste” US policy. “We can’t always just look at what America is doing and say . . . ‘let’s do the same thing’,” she told Sky News on Wednesday.

So how can Britain retake the initiative? John McCalla-Leacy, head of environmental, social and governance at the consultancy KPMG, says: “Businesses require certainty. While subsidies may provide important impetus to start investing, consistent national policies, setting out how net-zero commitments will be met, will better support the long-term understanding of how future markets will unfold, and therefore where to invest.”

Adam Berman, deputy director of Energy UK, agrees. “There has been a lot of political uncertainty in recent months — and years. That has had a systemic negative effect on investment.” Even offshore wind firms — a UK success story — are considering moving to the US, he says.

The planning system is a prime example of that uncertainty. For nearly a decade there has been a virtual veto on onshore wind. Liz Truss announced an end to that policy but turned instead against large-scale solar power on farmland. Rishi Sunak reversed her liberalisation of onshore wind and has been ambiguous at best on solar.

Sam Richards, former climate adviser to Boris Johnson and now chief executive of the Britain Remade campaign, says just two small wind turbines were erected across the whole of England last year. Development has been hindered in the name of protecting nature, but Richards says it has been unable to prevent the UK becoming one of the most nature-depleted countries in the world. “Biodiversity is in decline, and that has happened under the current system,” Richards says. “We’ve ended up with the worst of both worlds . . . a planning system that isn’t protecting nature [and is] stopping us building clean energy.”

It is a consistent message from green businesses. Brexit has not brought the promised deregulation and firms are still tangled in red tape.

Max Jamilly, co-founder of biotech start-up Hoxton Farms, says he is likely to start selling abroad long before he does in the UK. His product, lab-grown meat products for what is expected to be a £25 billion industry by 2030, is subject to tight regulation.

“In the US two years ago they established a regulatory framework for breeding cultivated meat,” he says, but in the UK since Brexit there has been little progress. “If we get it right, we could move extremely quickly. But due to uncertainty and, in some cases, excessively onerous regulation, we are prevented from building the companies the UK needs to build. We’re going much more slowly than other countries.”

Sunak last week overhauled Whitehall in an attempt to address this issue, splitting the Department for Business, Energy and Industrial Strategy into new ministries for science, energy and trade.

But Jim Watson, professor of energy policy at University College London, says the prime minister has to be strategic if he is to succeed in transforming Britain into the “science superpower” he promises — particularly in the green economy. “The only countries that can take the ‘all of the above’ approach and back all sectors are the US, China and the EU as a bloc,” Watson says. “We’re a medium-sized economy and I think we will have to choose. Some of it will involve making some bets, and they are not all going to pay off.”

Stark agrees. “It’s not possible for the UK to keep all the balls in the air,” he says. “[We’ll] have to pick those areas where we feel we have the greatest comparative advantage.”

That will mean investing in sectors in which the UK has an advantage — most obviously offshore wind and the financial services sector, which is increasingly involved in climate and sustainable investing, is another obvious example.

Stark says some areas will benefit from the subsidies approach, particularly heavy industry, where “there will almost certainly need to be some sort of public spending for them to decarbonise”. But with heat pumps and electric cars, the UK should stick to its guns, because there “the regulatory-first approach seems to work”.