Green policies are not driving UK businesses abroad as critics claim, say leading academics
Energy-intensive industries are most likely to move abroad
By Megan Darby
Fears that green policies could make businesses flee the UK are unfounded, researchers from a leading London university have concluded.
The UK government is reviewing its medium term emissions limits in response to concerns they could make British industry uncompetitive.
A report published by the London School of Economics on Monday said that concern is not backed up by the evidence.
Studies show that climate change policies could, in theory, drive a small number of British companies overseas to countries with looser regulations.
In practice, the researchers found carbon prices had not been high enough to prompt “any detectable re-location”.
The report says: “Existing data suggest that the impact of current policies is small or negligible, dwarfed by a range of other economic factors.”
Fourth carbon budget
The policy paper comes as government considers increasing the volume of greenhouse gas that may be emitted from 2023 to 2027, under the UK’s fourth carbon budget. Ministers are due to announce a decision this summer.
It follows chancellor George Osborne’s resolution in October 2011 to cut carbon emissions “no slower but also no faster than our fellow countries in Europe”.
He said at the time: “We’re not going to save the planet by putting our country out of business.”
The argument is that clamping down on emissions faster than other countries will push up the cost of energy and cause businesses to move abroad – known as carbon leakage.
Announcing the fourth carbon budget review in December 2012, the Department of Energy and Climate Change said it would revise emissions limits upwards if “our domestic commitments place us on a different emissions trajectory than the EU ETS trajectory agreed by the EU”.
The Committee on Climate Change, an independent body set up to advise government on emissions targets, said there was no basis on which to change the budget. This latest study supports that argument.
Heavy industry
Researchers Samuela Bassi and Dimitri Zenghelis said rising carbon prices could have “serious implications” for a small group of energy-intensive industries.
They argued that targeted compensation could be used for those sectors without weakening overall climate ambition.
“Domestic, as well as international, carbon prices are expected to increase, and with time this could have serious implications for a small group of energy-intensive businesses,” the report said.
“Some businesses will naturally exit the market as demand for carbon-intensive goods and services is expected to gradually fall. But policy tools are available to ensure that strategic vulnerable sectors are not put out of business prematurely by the application of more ambitious domestic climate change policies.”
In the long term, green policies can increase the competitiveness of the UK, by encouraging greater innovation and efficiency.
“Well-designed climate change policies could offer business opportunities in fast-growing global markets, as countries, such as the United States, China and member states of the European Union, implement ever more stringent carbon reduction and energy efficiency policies,” the report said.
“The UK is well-positioned to benefit from a global transition to a more resource-efficient and renewable economy, provided flexible structural policies allow it to use its comparative advantages.”