Good news emerged from the recent Low Carbon Summit hosted by bailed-out £10bn loss-making bank, RBS. Peter Mandelson got covered in custard, and the government announced a new industrial strategy.
Apparently 400,000 new “environmental sector” jobs will be created by 2017, according to Gordon Brown, who reckoned 1.3 million people would by then be working in “green” jobs. According to Mandelson, “The huge industrial revolution that is unfolding in converting our economy to low carbon is going to present huge business and employment opportunities.”
But what are these jobs – and how did they get that number?
In order to make the argument for the ‘Green New Deal’, the Department for Business, Enterprise and Regulatory Reform (BERR) commissioned Innovas, a market analysis consultancy, to research the size of the green economy.
Innovas identified three fundamental areas of economic activity in the ‘Low Carbon and Environmental Goods and Services’ (LCEGS) sector – ‘Environmental’, ‘Renewable’, and ‘Emerging Low Carbon’. These break down into 4 further levels, only one of which is detailed in the documents published by BERR.
Each sector was surveyed to establish how many it employed, and its value and growth over 2007-2008. This growth was applied to the employment baseline to project the number of jobs in the LCEGS sector by 2015. So far, so rosy. But what lies beneath these figures, and what assumptions are behind these growth projections?
Garbage in, garbage out
Take the LCEGS ‘Waste Management’ and ‘Recovery and Recycling’ sectors, which together promise nearly 25,000 new jobs. In 1996, the Landfill Tax was introduced, creating substantial revenues for the Government, and ‘incentives’ for alternative disposal, including recycling. According to the Office of National Statistics (ONS), the Landfill Tax earned £900m in 2007-8.
In 2007, the tax on a tonne of rubbish was £24, but the existing £3 escalator was raised to £8 so that the tax on a tonne of rubbish will be £48 in 2010. Under the EU Landfill Directive, local authorities are subject to fines of £150/tonne for exceeding their allowances. This increasing expense has forced widespread and unpopular changes to refuse collection services. Regulation has been one half the story of this sector’s growth. BERR speculated last year that “up to £30bn will need to be invested across the [waste management] sector by 2020″ including £5-6bn by 2013 to achieve environmental targets for the disposal of municipal solid waste, “and a further £4-5bn to reach the 2020 target.” With a current market value of £11bn, it would be a surprise if £30bn investment, expensive targets and punitive measures over the next 11 years didn’t yield a (roughly) 25% increase in the size of the market. So if 25,000 extra jobs in these sectors are created, it will be at the cost of £1.2m per job. Not bad for the bin men, but terrible for us lumbered with the interest on PFI loans, inadequate refuse collection, and rising council taxes, for no tangible benefit.
Green growth or just mould?
Citing Innovas’s report, Secretary of State for Energy and Climate Change, Ed Miliband said that the global green sector is already a three-trillion-dollar industry set to grow by fifty per cent. Agriculture accounts for 4 per cent of the World’s GDP of around $70tn. Is it plausible that the world’s ‘green’ economy is larger than the agricultural economy? These big numbers raise questions about the meaning of ‘green’?
“We try to create as wide a definition as possible”, says John Sharp, MD of Innovas Solutions, “because that way we can capture the supply chain. We don’t count things like toilet roll and stationery.”
But it includes the manufacture, installation, supply, and distribution of battery testing equipment, and nearly the entire chain from development to decommissioning and decontamination of nuclear power stations.
Innovas’s analysis is useful under any definition of green, insists Sharp. Some environmentalists might want to reject the alternative fuel vehicles sector, or the entire ‘emerging low carbon’ sector on the basis that these activities aren’t green enough. But Miliband and Brown need the LCEGS sector to appear as broad and as potent as they can, in order to be able appeal to investors who want to see a return, and to the voter, who, in the month that unemployment level exceeded 2 million, wants to see jobs.
Miliband wants to give the impression that the global low-carbon sector’s growth is a spontaneous phenomenon emerging under its own steam. It’s inevitable, he believes. But this is a market created by legislation and international climate agreements that wouldn’t be necessary if this sector’s growth really was ‘inevitable’.
Carrot and stick power
Innovas estimates that the renewable energy sector is worth £31bn. Here’s another sector that has expanded due to intervention. The Renewables Obligation Order 2002 (RO), forces suppliers to provide an increasing percentage of electricity from renewable sources. If a supplier fails to meet the target, it is fined proportionately. The fines are redistributed to suppliers according to their performance. According to BERR, this props up the renewable energy industry by £1bn a year, which is passed on to the consumer.
This fact was acknowledged by the Department for Energy and Climate Change (DECC) in a consultation document on the UK’s renewable energy strategy last June.
Our current climate change policies […] make up around 14% of average domestic electricity bills and 3% of average domestic gas bills. […] Our existing climate change policies are projected to add around 18% to annual domestic electricity bills and around 55% to industrial electricity bills by 2020.
The subsidy is intended to drive progress in the development of renewable technologies, but some argue that it may be doing the opposite.
“The [RO scheme] accounts for about 60 to 70 per cent of the income of renewable generators”, says John Constable, Director of Research at the Renewable Energy Foundation. “It’s an artificial market.”
The capture of gas from landfill sites to produce energy has never needed subsidies, so the RO allowed generators “to cover themselves in money”. But the next best thing – offshore wind is “only market-ready if you exclude true costs and don’t make them pay their way”, Constable points out. In order to make wind attractive to investors, regulation forces a market for its energy. So what incentive is there to make wind actually work?
Horse, push cart
But is this, as Mandelson claims, an industrial revolution? A genuine industrial revolution should make it possible to produce things more efficiently, creating greater dynamism within the economy. But this green “industrial revolution” yields no net benefit. What are called opportunities are generated at a net cost, absorbing money and labour that might be better spent on producing real industrial development, or public services such as schools and hospitals. Stagnation is spun as progress. For example, it is China’s industrial dynamism, not the UK’s, which has created markets for reclaimable materials. It is only by intervention and legislation that the UK is even able to collect plastic bottles, never mind reprocess them.
“Are these new jobs in these new industries going to be wealth-creating ones, or are they simply going to be reliant on funding which has to come from somewhere else? You can’t just create new jobs in a sector which is politically appealing without there being knock-on effects further on in the economy,” says Tom Clougherty Executive Director of the Adam Smith Institute.
You don’t need to be a free-market advocate or climate sceptic to see the point. The green sector can’t yet stand on its own two feet. If we want to create more jobs, it might be more sensible to invest in sectors that are capable of producing wealth, rather than merely absorbing it.
Bootnote
Innovas told us that we’d need to sign an NDA (non-disclosure agreement) to see a more detailed analysis than the highlights BERR published. It was signed, but they didn’t send the analysis anyway. So you are unable to compare the growth in the green sector with what it receives in the form of benefits, or to establish the truth of the Government’s claims and the wisdom of its policies for yourself.
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