Green capitalism

Published: April 6 2009 20:06

In proposing a “revolutionary road” to a low-carbon economy the CBI, the UK employers’ body, demonstrates it is in tune with popular culture and people’s preoccupations. The CBI’s proposals deserve a hearing – although the most self-serving parts should be filtered out.
Richard Lambert, the CBI’s director-general, complains that the government contradicts its rhetorical commitment to a low-carbon economy with slow planning procedures and inefficient or unpredictable regulation. If UK policy does not improve, he warns, private capital that could transform the energy sector will go to other countries.
His warnings are timely. The UK energy sector already suffers from structural problems; and the current recession exacerbates the difficulty of developing renewable energy sources. Falling production makes emissions targets look more easily reachable, but this benefit is illusory: when the world’s economies recover, so will emissions.
The necessary shift to more energy-efficient technologies is harder to achieve as fossil fuel prices have slumped: Brent crude oil trades at $53 after peaking at $148 in July. Renewable energy projects that once looked profitable are less attractive. Big energy players such as Shell and BP have slowed their commitments to alternative energy.
Stimulus plans should include “green” spending on such low-hanging fruit as reducing energy waste. But stimulus spending, no matter how green, will not by itself fix the fundamental problem that incentives for an efficient UK energy infrastructure remain weak.
Improving those incentives means reducing uncertainty and setting prices right. The CBI rightly calls for the government to do both. More transparent and predictable policy planning would make it easier to gauge the profitability of energy projects, and would help to co-ordinate private actors, such as grid companies and power generators.
To make prices reflect the true social costs of different activities, the government can either subsidise the good or tax the bad. The CBI protects its members’ interests by mostly preferring the former: its proposals include rewarding consumers who exchange an old car for a new one. Such subsidies should generally be avoided. It would be simpler, and healthier for the dismal state of public finances, to get prices right by taxing carbon-intensive activities more efficiently.
The CBI should be commended for pushing for reforms that make use of market forces to achieve a greener economy. Ministers have been warned: there is no need to wait for green shoots to take action.
Copyright The Financial Times Limited 2009