Green economy policy commission report (UCL GEPC)

Green economy policy commission report / February 2014

The UCL Green Economy Policy Commission brought together a diverse group of academics with expertise in economics, the built environment, engineering, political science, innovation, and resource efficiency to consider how the UK might implement policies that will support a green economy.

The report concludes the government has a major determining role in whether the UK moves towards a green economy:

As the UK economy emerges from recession, the direction it takes in recovery will largely determine whether it is robust in a world increasingly characterised by concerns about climate stability and resource availability, and generates growth and competitiveness through addressing those concerns; or whether it is increasingly desperately trying to sustain unsustainable sources of prosperity.

While recognising it is currently difficult to define what a green economy is the report presents several features of what it could look like:

It has very low levels of carbon and other emissions to the atmosphere, and does not pollute the land, fresh water or seas. It delivers high levels of human value, measured in money or other terms, for low throughput of energy and material resources.

Three crucial dimensions will be

Climate stability – mitigating climate change now can be cost-effective
Resource security – tackling resource constraints
Environmental quality – a healthy environment is crucial for the economy and our wellbeing

A strategy for a green economy therefore aims to catalyse a direction of travel, moving the economy systematically towards increasing its resource productivity, reducing its greenhouse gas emissions, and maintaining its stocks of natural capital in a way that generates satisfying work and high living standards. Such a strategy is necessitated not only by climate change but also by the vulnerability of the economy to degraded natural capital and to resource constraints and associated price volatility – in recognition of the importance of the environment and of natural resources in directly supporting wellbeing.

Many of the structural reforms required for a green economy would be necessary even if the environment was much less of a concern.

It’s main conclusions are:

1) The UK has a “window of opportunity” to shift to a green economy which would put it “decisively on a trajectory towards low-carbon prosperity, resource security and environmental quality”.

2) Moving to a green economy now will provide a good basis for the recovery (economically and environmentally) and can strengthen the UK economy in the long-term by increasing investment in infrastructure and innovation.

3) The government should take a proactive role in promoting green innovation through a new green industrial strategy to help the UK secure a comparative advantage in key sectors such as energy and resource efficiency.

Successful innovation, and especially green or eco-innovation, is the result of intelligent and sustained public-private partnership rather than the exclusive operation of markets.

4) The government should prioritise infrastructure projects that are “compatible with long-term green economy objectives”.

These criteria would include green criteria, enabling a prioritisation of those infrastructures that are required for a green economy (such as sufficient transmission capacity to incorporate renewable electricity into the power system); a ‘smart grid’ to facilitate its management; and materials management facilities to delay or prevent resources from becoming wastes. They would also encourage the greening of other infrastructures that are not inherently green, such as water infrastructure.

5) New national accounting and corporate reporting practices are needed that fully recognise the importance of the environment e.g. a system of natural capital and material flow accounts

A new information infrastructure about material and resource use that enables economic actors and policy makers to understand and manage the resource and environmental basis of the economy and businesses. Without such information it will be difficult to steer the economy in a broadly green direction.

On the role of government the report says:

It has become customary to frame the rationale for state action in terms of market failures. Our view of state action goes beyond this, and recognises that government has a role in long-term strategic policy direction. Government plays a fundamental and inescapable role in defining and framing the market. The language of whether government should or should not ‘intervene’ in markets misses the point – government is an unavoidable part of the economic structure.

We argue that policy credibility is expressed through long-term objectives of macro-economic strategy, industrial strategy and environmental tax reform. This credibility provides the foundation for the three major conceptual and practical pillars of public-private co-operation which allow the green economy to be constructed: innovation; infrastructure, and the associated investment; and information.

There are important choices to be made in respect of infrastructures of supply and demand, of energy, water, construction and transport, and of the information and communications infrastructure that will to a large extent determine how they are operated. Government and public policy has a crucial role to play in all the important choices in this area if UK businesses and consumers are not to be locked in to high-carbon, resource-intensive patterns of economic activity that become a growing liability in a world increasingly concerned about, and feeling the effects of, climate change and escalating demands for resources of all kinds.

Environmental tax reform, involving the systematic shift of the tax base from labour and capital to resource use and pollution, and ensuring that infrastructure and innovation spending is targeted to support a green economic recovery. Taxes should be placed on road use and congestion, waste, air pollution and a wide range of other environmental externalities. In addition move towards increasing VAT on household energy use.

The full report sets out the policies and institutional frameworks required to move towards a green economy in much more detail.