Politicians seem to be waking up to the need to take serious and immediate action to mitigate the magnitude and effects of climate change. A recent run of bushfires, powerful hurricanes and typhoons, floods and record hot years have made it harder to argue that climate change isn’t now manifesting itself more regularly in the weather.
It also seems a pivotal moment in the intra-generational battle, with climate change denying boomers like Trump, Bolsano and Farage ranged against younger grassroots movements like Extinction Rebellion – typified in this clip from a recent BBC programme:
Against this backdrop, parties in the UK general election on 12th December will be making their pitch to govern the country for the first half of the roughly ten year period now emerging as the consensus date to deal with the risks before we enter the unpredictable world of a greater than 2C rise in average global temperatures.
In attempting to address these issues there are three inter-related dilemmas that parties will face – trading off meeting the emergency with inflation, immigration and other priorities. The big temptation will be for parties to ignore the dilemmas until forced to confront them, but unless confronted and answered early there is a big risk that ambitious plans to tackle climate will be derailed.
In framing this article I am of course not outlining the massive benefits and avoided costs associated with preventing uncontrolled climate change because these benefits occur in the long term, or accrue in the short term to parties other than the Government. To meet the challenge we must change the overall direction and drivers of the economy, which entails an upfront and immediate cost. If this wasn’t so, we’d have done it already. This isn’t an argument against taking action on climate change, merely recognising that the <strong>transition</strong> from a high to a no carbon economy is not cost free, especially as we have left it very late to start, and we need to plan to meet these costs if we are to succeed. Like most worthwhile investment, there is an initial cost to reap later and longer terms benefits.
The most recent set of recommendations on how to tackle the climate emergency in the UK has been made in the Labour Party commissioned 30 by 2030 Report (https://labour.org.uk/wp-content/uploads/2019/10/ThirtyBy2030report.pdf). The main thrust of the recommendations would be the same regardless of the party commissioning the report (although the resulting policies to deliver them may be radically different) – namely a massive retro-fit of housing to improve efficiency, completing the decarbonisation of electricity, and decarbonising heat. In addition transport, strangely muted in the recommendations, needs to be decarbonised.
All of these require massive capital investment, huge programmes of work requiring people, materials and resources, and large amounts of project management and policy focus. It’s the need to do these programmes in the short time available that creates the dilemma.
As an illustration, the cost of meeting decarbonising the economy by 2050 is estimated at 2% of GDP, which is the equivalent of the cost of Apollo programme to the US economy but carrying on for three times the ten years it actually lasted. Achieving the same goal in ten rather than thirty years will require a much greater adjustment more akin to the re-orientating of an economy in wartime, with the attendant higher Government direction of the economy.
The Capacity – Inflation Dilemma
The issue with trying to rapidly increase activity in any area, especially involving capital expenditure, is that you are going to need more skilled people and more resources than are immediately available.
If a business wants to expand capacity quickly, it has the option to acquire existing capacity belonging to someone else – not an option for a whole economy especially in an environment where most other developed countries are also increasing demand.
The speed of capacity growth required to meet the climate emergency challenge means coming up against real limits on the numbers of potential employees, skilled workers and manufacturing that exist in the UK economy. Overall employment rates are low (albeit with many people under- rather than un- employed), there are already skills constraints in the construction industry, and the UK is not a global manufacturing leader in wind turbines, PV or building materials. A fast expansion of activity will lead to a premium being placed on all these things, and the scale of the expansion will mean this effect will be economy-wide. For example electrical engineers will be diverted from the railways and other infrastructure into grid flexibility and renewables.
Capacity will respond to the increased demand, but there is a lag – it takes time to find and train the additional apprentices and engineers, time to set up new manufacturing and supply chains, and time to develop the project management infrastructure. There will always be a lag between the demand and the ability of the economy to meet it. The effect of this will be to increase inflation in the economy as a whole.
The dilemma for Government is how to respond to this. One option is to slow the rate of change so that capacity can grow organically in a less inflationary way, but this will increase the risk of missing the 2030 target. This leaves the three main levers used to control inflation:
- Monetary policy – increase interest rates to reduce demand, although this will also affect the costs of meeting the climate emergency so may be partially self defeating. Interest rate rises might also be needed to prevent currency depreciation increasing the costs of imported materials.
- Fiscal Policy – Higher taxes can be used to take the heat out of the economy. Most people accept that taxes need to rise to pay for meeting the climate emergency, but if this is immediately invested in measures then the tax rises will be broadly fiscally neutral
- Supply Side Reforms –These will undoubtedly be carried out to enable productivity and capacity increases in any case. The issue here is that the inflation problem is caused because supply side reforms cannot keep pace with the increased demand.
How Governments tread the line between keeping inflation at a reasonable level and meeting the 2030 deadline will be key to whether the target can be hit at all, and if it is whether the economy will suffer an extended hangover from its binge.
The Capacity – Immigration Dilemma
One lever that exists to overcome the lag between demand for new skilled workers and the economy’s ability to train them would be to source those workers from elsewhere.
This is a common solution to skills constraints – about one in eight nurses in the NHS have non-UK nationalities (https://researchbriefings.parliament.uk/ResearchBriefing/Summary/CBP-7783) and this fills the gap between demand and UK trained nurses. This is also a phenomenon that pre-dates the EU and freedom of movement – much of the UK’s canal and railway network was built by migrant Irish manual labour (the “navvies” were seen as such despite Ireland being part of the United Kingdom at the time).
In UK politics at the moment, migration is seen as a divisive issue. Large numbers of skilled migrant workers coming to work on large programmes of home improvement or renewables will increase the tensions across this division. Governments wishing to take advantage of the availability of skilled overseas workers will need to make the case for increased migration, and crucially plan to ensure that the benefits of using them is invested in ensuring that public services are equipped to support them.
The second issue with relying on workers trained overseas is that the climate emergency is not a UK specific problem. Many countries are gearing up to hit the 2030 target and these workers will command a premium. In fact a proportion of new skilled workers trained in the UK will prefer to seek higher premiums elsewhere.
Government will need to trade off the benefit of using overseas skilled workers to ease capacity constraints with the political cost of doing so. It’s clear that meeting the climate challenge requires Government making a strong positive case for more immigration.
The Climate – Everything Else Dilemma
However Government chooses to tackle the climate emergency, any credible plan will involve a large commitment of resources and materials to succeed. It will also need focus – high level policy will need to be translated into detailed policies and legislation, frameworks and processes. Many questions of detail will need to be considered and answered for policy objectives to be delivered.
Labour’s People’s Power plan addresses just one of the 30 recommendations but as my last three posts show, there is a lot of detail to be worked through to make the policy a success.
The small scale FIT scheme was implemented in a hurry by a Labour administration concerned about losing power before the scheme could be introduced. Consequently the scheme lacked stabilisers to correct the tariffs, had unclear rules on compliance and was open to gaming by unscrupulous operators. Much of the scheme’s design was overhauled by the Ofgem and the subsequent Coalition Government.
All this is to say that large and ambitious programmes have an overhead of political and organisational time required to ensure the scheme designs are well thought through, and sufficient resource in implementation to ensure that problems that arise can be solved effectively. The time required grows with the speed and ambition of the programme.
However, for a Government political focus is a finite resource, and spread too thin will mean a lot of things will be delivered badly and inefficiently. Parliamentary time is also a finite resource.
Governments will need to prioritise their focus.
The challenge for Governments faced with the climate emergency, and a recognised under investment in other services such as health, education, social care and defence / security is that hard choices will need to be made about where finite ministerial and Government time is spent. An incoming Government will need to be clear where its priorities lie – it’s a recipe for failure to have large ambitious programmes in all parts of Government if there are no identified priorities for when conflicts inevitably arise. Politically of course it will also be challenging to make the case that legislation enabling wider roll out of, say, PassivHaus building standards should be prioritised over legislation delivering a policy objective in health.
Kicking the Can
These three dilemmas are real and will quickly manifest themselves for any incoming Government serious about tackling the climate emergency. In evaluating the manifestos of the parties, now all published, we should be asking ourselves two questions –
- is what they propose enough to meet the targets and the challenge
- have they the clarity of thought to make the tough decisions and trade offs required – will they have the focus?
With manifestos published we can begin to judge whether our aspiring governments are up to the job.
An Energy View 