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The UK must learn from US to deliver green growth

UK risks falling behind in global net zero investment race, but the government still has 'fingers in its ears,' according to think tank IPPR

Wind Turbine in grass

The government faces huge pressure to respond to the US IRA. Image via iStock.

The U.K. government must learn from the "unprecedented certainty and policy stability" offered to clean tech investors and green businesses in the United States through the Inflation Reduction Act (IRA) if it is to prevent Britain's falling behind in the global race to build a competitive, net zero emission and nature-friendly economy.

That is the stark warning contained in a new report from the IPPR think tank March 14, which joins a growing library of studies detailing how the White House's green subsidy blitz and subsequent response from the EU and China poses a major threat to the net zero strategies being pursued by the U.K. and other countries outside the world's three largest markets.

The think tank said the U.K. faces a near $30 billion gap in annual public investment between now and 2030 if it is to deliver on its climate and nature goals, warning that ministers are failing to back up targets to deliver net zero emissions and reverse biodiversity loss with commensurate policy measures and funding programs.

According to figures highlighted in IPPR's report, clean energy firms in the U.S. have announced over 100,000 new jobs across 31 states since the IRA passed last year, as investors from around the world rush to take advantage of the $369 billion in tax incentives and subsidies on offer for clean technologies and low carbon infrastructure. The U.S. green jobs boom is an order of magnitude larger than the estimated 11,500 new clean energy jobs that have been created in the U.K. over the past seven years, the IPPR said. Even taking account for the larger size of the U.S. economy, there is growing concern across the U.K. business and investment community that a host of strategically important green industries risk being left in the slipstream of the U.S. and the EU.

As such, the report from the IPPR is urging the government to learn from the IRA, as well as the EU Commission's planned response in the form of the upcoming Net Zero Industry Act, by setting out a clear, long-term framework that provides a stable investment environment.

Specifically, it calls for a "place-based industrial policy" focused on tackling the climate and nature crisis while also "leveling up" the country, noting that the north of England is particularly well-placed to lead the net zero transition due to its industrial and infrastructure expertise.

However, the report stresses that the U.K. needs to decide and focus on "what it wants to be good at" in the green economy of the future, and prioritize its resources and strategy around several key industries or challenges in order to reap the biggest benefits of the transition.

Similarly, while investment in the green economy promises to deliver up to 1.6 million jobs over the next decade in the U.K., the focus should be on the quality of those roles rather than just the quantity in order to maintain support for the transition and bolster the economic foundations of the nation, it said.

While our international competitors are deploying public investment and using industrial strategy to take advantage of the opportunities of the net zero economy, the UK government appears to have its fingers in its ears.

To that end, IPPR recommends establishing a "clean jobs guarantee" setting out standards on wages, terms and conditions for workers, as well as corporate safeguards to ensure society as a whole benefits from a booming green economy rather than simply watches on as rewards end up "in the pockets of shareholders."

Luke Murphy, IPPR's associate director for energy, climate, housing and infrastructure, said the U.K. was "in urgent need of renewal," and that the government should prioritize delivering public funding as well as a clear, stable environment for private investment to boost the green economy.

"The country faces a series of challenges from stagnation and inequality, risks to national and energy security, to the climate and nature crises," he said. "Together they threaten to undermine the U.K.'s path to a sustainable economic future."

He added that these risks were only exacerbated by the increasingly interventionist stance taken by other governments that are fully committed to accelerating the net zero transition. "While our international competitors are deploying public investment and using industrial strategy to take advantage of the opportunities of the net zero economy, the U.K. government appears to have its fingers in its ears," he warned. "If the government is serious about reaping the benefits of the transition and leveling up, it should learn from Joe Biden, scale up public investment and bring forward a serious strategy to build an economy that is prosperous, fair and green."

The think tank joins a loud chorus of politicians, business bodies, green groups and economists which has been calling on the government to urgently come forward with an ambitious suite of policies and funding commitments to accelerate the net zero transition in the U.K. and head off the risk of green infrastructure investment migrating to the U.S. and EU.

Chancellor Jeremy Hunt has acknowledged the major "competitive threat" to the U.K. posed by the IRA, as well as the EU and China's ongoing green policy efforts, and has promised the government is relentlessly focused on returning Britain's sluggish economy to strong growth.

The budget is expected to build on his recent promises to step up support for the green economy, with the Treasury expected to unveil plans for $20 billion investment over 20 years in carbon capture and clean energy technologies, as well as nearly $1 billion-worth of backing for 12 low tax Investment Zones around the U.K. designed to support green, technology, life science and creative industries.

Moreover, the government has been trailing plans for a freshened up Energy Security Strategy in the coming weeks, with a likely focus on ramping up investment in new nuclear power capacity and small modular reactors. And it is expected to publish an updated version of its Net Zero Strategy before the end of the month, after the High Court ruled the current version is insufficiently detailed.

However, industry groups remain concerned the government's plans remain badly underpowered, with the auto and steel industry this week warning urgent action is needed to unlock investment in clean technologies, and ministers continuing to face long-standing calls for them to revamp the U.K.'s energy efficiency programs.

Fresh YouGov polling found 84 percent of 2,000 British adults quizzed believe the government should provide more support to help people insulate their homes. The survey was commissioned by the Warm This Winter coalition of more than 40 charities lobbying for stronger support for energy efficiency and renewable electricity, which has secured the backing of politicians from across the political divide, including the government's net zero tsar Chris Skidmore MP.

"Expanding popular, common sense measures like home upgrades and building out clean renewable energy is the best way to permanently bring down bills, protect households long term and reach net zero," Skidmore said.

Meanwhile, Labour leader Keir Starmer highlighted the failure to do more to support green industries as evidence of the government's inability to stop Britain's move towards a period of "managed decline."

The government was considering a request for comment at press time. Speaking March 13, however, Hunt insisted the government's recent flurry of policy activity showed it was "delivering on our key priority to supercharge growth across the country."

Judging by much of the pre-briefing, the March 15 budget could be one of the greenest in modern times, with multi-billion pound new spending commitments designed to unlock an historic wave of low carbon infrastructure investment. But it is testament to the missed opportunities of the past decade and the severity of the competitive threat the U.K. faces that for many crucial parts of the U.K. economy it may still not be enough.

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