We need a level playing field for UK manufacturers in the green revolution
As two former Secretaries of State for Energy and Climate Change, we can see clearly the extraordinary journey the UK has taken on climate policy over the last 6 years. Huge leaps of progress have been made by successive Conservative Prime Ministers.
From David Cameron instructing Amber in 2015 to “keep the bills down and get me a deal in Paris”, and just 4 years later, under Boris, Andrea refocusing the strategy of the entire BEIS department to tackling global climate change and building our green economy, there is no doubt that the UK’s commitment to Net Zero is now at the heart of all government policy.
But a big lesson that we’ve learnt is that the first phase of cutting emissions didn’t do enough to benefit UK companies and workers. As we look to the next phase of decarbonisation, we must do more to grow jobs in the UK. To do this, the UK Government should seek the agreement of the G7 to develop a common Carbon Border Adjustment Mechanism, which would ensure that UK manufacturers of offshore wind turbines and electric vehicles can compete on a level playing field with producers in countries with higher carbon emissions.
Like so many across the country, our shared commitment to decarbonisation has survived our sometimes bad tempered disagreement over Brexit! And also, like many across all 4 nations of the UK, we are firmly of the view that the UK’s post Brexit future lies in making the most of our unique selling points – our brilliance in science and technology, our pre-eminence in global finance and our global soft-power influence.
Over the next few months we will be co-Chairing a body of work with leading think tank Policy Exchange that will explore in detail some of the extraordinary opportunities for the United Kingdom that lie beyond COP26.
Looking back, it is hard to believe that only 6 years ago the politics of decarbonisation were still raging – thankfully we won policy battles to develop offshore wind around the UK and, to much consternation, to announce taking coal off the electricity system by 2025; but we lost the battle to keep Treasury funding in place to develop carbon capture. Six years on, the strong commitment of our Government is heartening. In particular, the policy win on offshore wind is paying off magnificently where already there are regular periods of time when no coal power is required to provide our electricity needs.
However, the Government must go further to promote the development of full UK supply chains for low-carbon technologies like electric vehicles and offshore wind. On offshore wind, the Government has relied on voluntary commitments from the offshore wind industry. Sadly, they haven’t really worked. There has been only a limited pipeline of new business for UK manufacturers of foundations, towers and the many other components that make up turbines.
This has to change – and fast. Back in 2015, when calling for the full carbon footprint of the manufacturing processes to be taken into account when deciding eligibility for subsidies, we were told that EU procurement rules stood in the way. Now there are no such limitations. Yet we continue to allow the purchasing of wind turbine components manufactured using coal-fired power stations and delivered via diesel-fuelled shipping.
We are encouraged by the Government’s offshore wind sector deal and the recently-announced plans for a new offshore wind manufacturing site in Teesside. However, the Government can and should go further by including the full carbon footprint of manufacturing processes as part of the offshore wind auctions.
Once way to achieve this is via a Carbon Border Adjustment Mechanism, which would ensure that UK companies are no longer unfairly undercut by countries with lower ambitions on climate change. We will need international cooperation to make a carbon border adjustment work, and the G7 is the natural forum to do this.
The Chancellor Rishi Sunak has already secured a historic agreement from G7 Finance Ministers to ensure that digital services are taxed fairly, something that many argued was unachievable. The G7 has also agreed reforms to the financial system that will require companies to report their exposure to the risks posed by climate change.
In this context, the stage is set to for the G7 to agree an ambitious system of carbon border adjustments to ensure that the global transition to Net Zero is compatible with thriving low-carbon manufacturing sectors in developed and developing countries alike.
A carbon border adjustment should also be part of the Government’s industrial strategy for electric vehicles. We welcome the Government’s commitment to phase out the sale of new petrol and diesel cars by 2030, echoing the pledge that we made in Government to phase out coal-fired power stations by 2025. But we must ensure we put UK jobs at the heart of the mission for cleaner transport.
The Government should look to international leaders like California, where a ‘Zero-Emission Vehicle mandate’ has put the State at the heart of the manufacturing revolution for electric vehicles. Under a ZEV mandate, manufacturers would be required to sell a rising share of electric and other zero-emission vehicles, or to buy credits from those who do.
A ZEV mandate is therefore a form a carbon pricing; an approach that worked so successfully in the electricity sector to push coal off the system. Importantly, a ZEV mandate applies to all cars sold in the UK, rather than just those manufactured here, so there’s equal treatment of cars made in the UK and those that are imported.
As Policy Exchange has previously recommended, a California-style ‘ZEV mandate’, combined with appropriate industrial strategy, can help attract the Teslas of the world to set up shop in the UK and help to reinvigorate our car manufacturing sector.
The Prime Minister is rightly committed to levelling up and encouraging green jobs and growth across Britain. A Carbon Border Adjustment Mechanism will promote proper UK supply chains for low-carbon products like offshore wind and electric vehicles, which will surely help deliver his ambition for growing the economy while decarbonising.
Once the cost of carbon is properly accounted for, UK manufacturers will be able to compete on a level playing field with overseas competitors. We can start with offshore wind and then move into other industries. This is the kind of global leadership the UK should be showing, as we gear up for COP26 and look beyond it to the race to Net Zero. We may have been on opposite sides of the Brexit debate, but we can both see a great opportunity that would see the UK taking back control, showing global leadership, and making us all stronger, safer and better off.
