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Is supporting green investment for the UK really a growth strategy?
Reported by Ruby Haji-Naif, University of Cambridge
The UK needs to urgently rethink and implement investment strategies to grapple with the need for growth and climate change mitigation. This Cambridge Zero Policy Forum workshop was aimed at guiding the development of a report for ministers and policy makers, especially at His Majesty’s Treasury. It delved into whether supporting green investment could be a viable growth strategy for the UK. The workshop was uniquely interdisciplinary, bringing together policy makers and academics from disciplines including climate science, economics, political science, history and behavioral psychology. This multidisciplinary event aimed to identify existing evidence of the potential and challenges to policy makers of transitioning to a green economy.
The growth strategy debate
The workshop's central question was whether green investment can drive economic growth and productivity in the UK. Historically, addressing climate mitigation and adaptation have often been viewed as a trade-off with economic growth. However, participants from different disciplines challenged that notion through concrete data as well as current and historical case studies, positing that green investment could lead to prosperity.
The workshop sought to assess whether green investment is an environmental necessity and an economic opportunity. The UK can stimulate job creation, spur innovation, and enhance productivity by redirecting capital towards sustainable industries and technologies. The potential for such investment to serve as a prosperity plan rather than a trade-off with growth was a key point of interest and consensus.
Policy implications
The workshop highlighted several critical policy implications. Participants stressed the UK's need to act swiftly to foster innovation and avoid locking into assets that are likely to become devalued. They pointed to examples such as China, which is heavily investing in green technologies and positioning itself as a global leader in the green economy. The UK, they argued, risks missing out on significant economic and political opportunities if it does not follow suit.
To foster the right investment, policy decisions must manage upfront costs and create a conducive environment for sustainable innovation. This includes rethinking subsidies, taxation, and public sector accounting practices. For instance, some participants highlighted reviewing differential rates of Value Added Tax (VAT) on energy to encourage green investment.
Analytical tools and frameworks
A significant part of the discussion focused on the need for new analytical tools and frameworks to capture the complexities of investment better. Participants discussed the limitations of traditional appraisal frameworks in the context of dynamic systems, highlighting that cost-benefit analysis is best suited to appraising marginal changes. The government’s guidance on policy appraisal and evaluation (the Green Book) has an annex on transformation, systems and dynamic change (2022). This highlights tools that can be used when assessing non-marginal changes where early interventions can shape new markets and induce cost-cutting innovation. Participants discussed the value of adopting dynamic risk-opportunity analysis (ROA), which can more effectively account for the uncertainties and potential long-term benefits of green investments. Participants discussed what evidence would best assist policy makers to make more use of these approaches to appraise economic opportunities and risks.
The call for a broader set of analytical tools recognises that standard economic models often fail to capture the full spectrum of societal and economic benefits of sustainability initiatives. This includes accounting for systemic changes and long-term macroeconomic impacts, for example on underlying productivity growth and global competitiveness, which are crucial for making informed fiscal decisions.
Interdisciplinary perspectives
The workshop's interdisciplinary approach provided a holistic understanding of the investment landscape. Participants discussed the need for political leadership in making transformative decisions regarding climate change and future-proofed economic strategy. In particular, participants strongly agreed that providing civil servants with the right tools and capacity was important for best delivering the aims of ministers.
The role of politics and ideology in driving change was also noted, along with the need for effective communication, and promoting values beyond GDP. The importance in driving deployment of and innovation in new technologies was highlighted, as were broader self-reinforcing network effects and feedbacks. New evidence from behavioural psychology on the significance of engaging both the supply chain and demand side in climate action was raised. Participants discussed the political psychology concept of the snowball effect, which can be a strategy to transition from minority to majority acceptance of climate actions. Participants heard about the challenge of pluralistic ignorance, where, for example, individuals mistakenly perceive their interest in climate mitigation and adaptation as being a minority view, which can hinder policy acceptance. This can be challenged by leveraging static norms, such as current opinion polls, and dynamic norms reflecting trends over time. A participant highlighted the importance of addressing collective efficacy by instilling hope and emphasising the potential for collective action to address transition effectively. They also pointed out the issue of psychological distance, wherein delayed benefits of climate policies diminish public urgency and support, suggesting strategies to make climate benefits feel more immediate and local, such as linking energy independence to green energy initiatives in response to current geopolitical events.
These potential snowball and expectation augmented outcomes underlined the need for an ROA approach, reflecting the fact that risks are likely to be path-dependent and correlated: for example, the risk of tighter climate policy, and regulation and social pressure to address climate issues is higher when clean technology costs are falling, and vice versa.
A participant with expertise in economic theory, technologies, and policy analysis, emphasised the importance of considering assumptions about future costs and resource deployment in low-carbon transitions, particularly the need for a systems approach in government to address structural changes effectively. These diverse perspectives collectively underscored the significance of integrating various disciplines to inform comprehensive and effective strategies for policy implementation.
Historical insights
Learning from history was another pivotal theme. Those focusing on history at the workshop drew parallels between the current transition to a green economy and past structural revolutions such as the adoption of canals, railways, and the internet. These historical shifts required significant investment and policy support, showing the need for proactive measures to drive substantial economic changes.
The historical perspective covered at the workshop included Britain's pivotal role in advancing green investment. Participants reflected on how policies such as incentivising renewable energy production by the Blair administration and power sector reforms by the Conservative–Liberal Democrat administration laid the groundwork for a burgeoning green economy. This historical insight underscored the UK's legacy as a trailblazer in sustainable development, setting a precedent for other nations to emulate. In discussing bilateral engagements, emphasis was placed on leveraging diplomatic channels to amplify Britain's environmental initiatives on the global stage. They highlighted David Cameron's government's substantial commitment of £9.2 billion towards bolstering resilience in vulnerable regions. Projects focusing on flood and coastal defences exemplified Britain's dedication to addressing domestic and international climate challenges, reinforcing its historical leadership in green investment and sustainable development.
Concrete case studies and strategic guidance
One of the workshop's key objectives was to provide strategic guidance and concrete advice on case studies that could inform the report. One example economists pointed to was the recent energy crisis in the UK, caused by soaring natural gas prices, as a stark reminder of the economic risks associated with dependency on fossil fuels. This crisis highlighted the potential financial benefits of investing in zero-carbon energy sources.
Participants shared innovative approaches from climate development reports, advocating for scenario analysis to drive policy action. By focusing on plausible worst-case outcomes, such as significant GDP losses, they demonstrated this approach's effectiveness in capturing policymakers' attention and prompting swift action.
Bridging rhetoric and action
A recurring theme was the discrepancy between political rhetoric and tangible action on climate change. Political scientists critiqued past government spending decisions where a focus on long-term sustainability was not achieved, such as the tens of billions of pounds in public money recently transferred to fossil fuel energy providers to cap energy prices without addressing energy efficiency.
Green technology advocates argued that substantial global subsidies masked the economic burden of fossil fuels and highlighted the importance of clear communication in conveying these arguments to policymakers and the public.
Moving forward
The workshop underscored the necessity of aligning rhetoric with real action. Participants called for a shift in the economic system to adequately value ecosystems and human well-being. They criticised the current macroeconomic models for assuming an equilibrium that does not exist during a transitional period and advocated for a systems-based approach to economic policy.
Systems thinkers argued for incorporating feedback mechanisms in policy design and emphasised the need for governance structures that promote low and zero-emission technologies. This multidimensional approach can more effectively guide political and economic decisions, ensuring that policies are ambitious and actionable.
Conclusion
Supporting green investment was viewed as a viable growth strategy for the UK, with the potential to drive economic prosperity and sustainability. The workshop's interdisciplinary insights highlighted the importance of revisiting traditional economic models, fostering innovation, and ensuring equitable outcomes. Effective communication emerged as a key idea, with participants advocating for simplified yet compelling messages that blend economic and climate risks through clear, impactful case studies.
The discussion highlighted the value of a broader set of tools for economic appraisal and further developing risk-opportunity analysis as a framework for policy assessment. Stakeholder engagement emerged as an important principle, emphasising ongoing collaboration with government entities while sidestepping partisan rhetoric to sustain broad-based support. Culturally and strategically, a shift towards recognising humans as integral parts of nature was advocated. Finally, addressing political economy barriers and distributional effects, coupled with qualitative risk assessment to complement quantitative methods, emerged as critical in policy implementation. This inclusive and strategic approach aimed to mainstream green investment, grounded in interdisciplinary collaboration and forward-thinking policy initiatives.
Cambridge Zero Policy Forum
The Cambridge Zero Policy Forum is a multidisciplinary community of senior academics contributing evidence and expertise to public policies for the transition to a sustainable, inclusive, and resilient net zero society. The Cambridge Zero Policy Forum is led by Director Prof Emily Shuckburgh, Dr Rob Doubleday, Executive Director of CSaP, and Emily Farnworth, Director of the Centre for Climate Engagement at Hughes Hall. The secretariat to the Policy Forum is provided by CSaP.