The great green roadblock in the path of recovery
7 October 2011 12:14am
DAVID Cameron wants the coalition to be the “greenest government ever”. But it is doubtful this aim is compatible with strong growth and economic recovery.
New Labour’s climate change targets were very ambitious but the coalition has now gone even further. The government has committed to targets that imply in just twenty years’ time nearly all the UK’s electricity will have to be generated by renewables or nuclear power. There will also be a radical change in transport – a major reduction in mobility and perhaps a shift to electric vehicles. The housing sector will be transformed, with new homes required to be ultra energy efficient and extensive subsidies deployed to insulate existing homes. Nearly every economic sector will be subject to even more stringent environmental regulations, and more activities will be covered by the EU’s Emissions Trading Scheme – effectively an extra tax on business.
The costs involved are staggering. Over the next decade alone, the government estimates that £200bn of capital investment will be required to replace fossil-fuel power stations with renewable and nuclear plants. And this figure assumes the mammoth cost overruns that have plagued previous big infrastructure projects will somehow be avoided. Upgrading the national grid to recharge millions of electric-car batteries could cost a further £100bn.
Energy markets are being manipulated to fund green investment. According to government estimates, electricity prices will be inflated by 26 per cent in 2015 as a result of these policies with gas up by 10 per cent. Consumers will be paying an estimated £11bn a year extra.
Energy-intensive manufacturing industries will suffer most. More production will migrate to China and India – one reason the government’s policies are unlikely to have a significant impact on climate change.
A range of anti-growth transport policies form another key element of the government’s green agenda. The government is favouring rail over air and road, despite the former requiring taxpayer subsidies of £5bn a year. If the coalition decides to support the High Speed 2 rail scheme, supposedly a green alternative to air and road travel, it will end up costing taxpayers an estimated £34bn on top.
Most worrying of all is the likely effect on private investment. Spending hundreds of billions on “green” infrastructure will crowd out investment in wealth-creating enterprises. Resources that would otherwise be used by businesses to improve productivity and satisfy consumer demand will be diverted to schemes that actually reduce economic efficiency and require ongoing subsidies.
British business is facing a green roadblock. Economic growth will be significantly lower as a result, and it will be far harder to reduce government borrowing. More moderate approaches to climate change are possible, given recent improvements in technology. By adopting a radical green agenda, the coalition risks suffocating growth at a time when a strong recovery is desperately needed.
Dr Richard Wellings is deputy editorial director at the Institute of Economic Affairs. www.iea.org.uk.
In other news
Graduates should be awarded point scores alongside the existing degree grades, a new report has said, something [Read more]
Banks are finally starting to lend to Britain's small and medium sized businesses new data has shown, suggesting [Read more]
Just eight years ago, there was no iPhone, while a mere decade ago, half of all Britain's internet connections [Read more]
The nationwide rail strike, called off at the 11th hour last week, has been rescheduled for next week. [Read more]
Women's teams will feature on the forthcoming Fifa '16 video games - marking the first time women's football has [Read more]
Just a day after the Queen's Speech confirmed what we knew the Tories would have to do, a bill has dropped into [Read more]
Avago Technologies has sealed a $37bn acquisition of fellow semiconductor company Broadcom to create an industry [Read more]
Russian President Vladimir Putin has accused the United States of meddling in affairs beyond its jurisdiction [Read more]
The UK's GDP increased by 0.3 per cent in the first quarter of 2015, according to the latest figures from the [Read more]
Five people were arrested after the anti-austerity protest in Whitehall and Trafalgar Square turned voilent yesterday. [Read more]
Claire Perry has said “at times, the delays and disruption that are occurring are simply inexcusable.” [Read more]
Like electing a boss of Fifa whose surname isn’t Blatter or extracting an apology from Thomas Cook, reforming [Read more]
Britain's FinTech sector is a particularly bright spot in the UK’s recovering economy. Investment in London [Read more]
Currency volatility did Kingfisher no favours in the first quarter of 2015, but investors have not been put off. [Read more]
Power systems manufacturer Rolls-Royce has signed an €80m (£57m) contract with General Dynamics European Land [Read more]
Tool hire giant HSS saw its shares rise yesterday after reporting first-quarter trading in line with expectations.