The challenge of creating a low-carbon future is a pressing one, yet the thinking and analysis behind it are not new. Today, some 20 years after the problems were first discussed, the contours of the solutions are clearer. I’ll suggest three.
First, international agreement. None of us can solve these problems by acting alone. Environmentalism in one country runs into the problem of creating an unlevel playing field for producers. Environmental threats are classic co-ordination problems. The social costs outweigh the private costs.
Second, people respond to incentives and prices. High energy prices are a very effective if sometimes painful mechanism for ensuring an industrial transformation. In the 1970s, they signalled the endof the gas guzzler, which meant retooling car factories everywhere. The idea of a tax on carbon is a rational response to carbon pollution.
A managed industrial transformation is my third priority in decarbonising our economy and this should be seen as an opportunity. Yes, we face a huge investment challenge, and that can mean economic costs. But it also means learning, innovation, the potential for greater energy security and cost savings through better energy efficiency. Besides, any calculation must include the serious costs to the environment that come from continuing to emit.
The Carbon Trust claims the global offshore wind market will be worth up to £170bn per annum by 2050
This summer we will publish our white paper on electricity market reform. While the price of using carbon will have to rise if the quantity used is to fall, the transition has to be managed carefully. Either consumers or taxpayers need to bear these costs. We need to be honest and transparent about this. Growth industries, such as wind and solar, will often rely upon energy-intensive inputs and we should be planning to boost them as part of our supply chain. Given the huge likely demand from new industries, such as wind power, and the extraordinary skills still present in places such as Sheffield and Teesside, we should be planning for expansion in steel, composites and biofuels a vast potential supply chain.
In many ways, low-carbon energy is a classic infant industry. According to the Carbon Trust, the global offshore wind market will grow by 10 per cent a year over the next 40 years to be worth up to £170bn per annum by 2050.
However, despite an urgent need for the government to think long term, I reject calls for us to return to the era of picking winners. We have to be technology neutral and keep open the option that low-carbon energy may, in due course, come from currently unfeasible or high-cost sources.
The Green Investment Bank will address structural gaps in finance. Other market failures exist within technological innovation, where ideas are still at an early stage and where there are compelling reasons to encourage the sharing of ideas and equipment to bring them forward. That’s why we fought hard during a difficult spending round to secure the science budget and to enhance the role of the Technology Strategy Board the main channel through which we will incentivise business-led technology innovation.
Transforming the UK into a low-carbon economy is a major industrial challenge. It’s one that I’m both optimistic and realistic about. Optimistic because I know we have overcome similar challenges before remember the problem of acid rain, and the depletion of the ozone layer? Realistic because I feel strongly that the genuine dilemmas we face must be confronted, not evaded.
Secretary of state for business, innovation and skills
1954 BA in natural science and economics, University of Cambridge
1957 PhD in economics, University of Glasgow
1966-68 Treasury finance officer to the Kenyan government
1974-76 Diplomatic service at the Foreign and Commonwealth Office
1976-83 Deputy director of the Overseas Development Institute
1983-90 Special adviser on economic affairs for Commonwealth secretary general, Sir Sonny Ramphal
1990-97 Economist at Royal Dutch-Shell
1997 Elected to parliament as Liberal Democrat MP for Twickenham
2003-10 Liberal Democrats treasury spokesman
2006 Elected deputy leader of the Liberal Democrats; acting leader after Menzies Campbell’s resignation
2010 Appointed business, innovation and skills secretary in the coalition government
This article was adapted from a speech given by Dr Cable in Liverpool