UK climate change policies have not harmed economy, report says

The UK's climate change policies have not damaged business competitiveness, leading economists will say today.

A new report by Samuela Bassi and Dimitri Zenghelis of the Grantham Research Institute will argue that climate change policies have not hampered the performance of the UK's economy, and that these same policies can increase the competitiveness of the UK in the long term by encouraging greater innovation and efficiency.

The authors examined a range of studies suggesting that climate change policies could lead to some companies leaving the UK in favour of countries with less stringent emissions-reduction policies.

But it found recent papers documenting the actual impact of climate policies show that carbon prices have not been high enough to prompt "any detectable" re-location of carbon-intensive firms. As such, the papers challenge warnings that climate policies are leading to so-called "carbon leakage", whereby carbon-intensive firms respond to emissions-reduction initiatives by migrating overseas.

As a result, the new study says there is no reason to weaken the scale of ambition in the UK's fourth carbon budget, which sets out emissions reduction targets for the period from 2023 to 2027.

The fourth carbon budget was agreed by Parliament in June 2011, following the recommendation of the expert independent Committee on Climate Change (CCC) that it should require UK annual emissions to be 50% lower in 2025 compared with 1990.

But the Department of Energy and Climate Change announced in December 2012 that the government would review the fourth carbon budget in early 2014 and would revise it upwards if it found that "our domestic commitments place us on a different emissions trajectory than the EU ETS trajectory agreed by the EU".

Some politicians have argued that this is indeed the case and want the fourth carbon budget to be altered, even though leading businesses have called for it to be confirmed as soon as possible and the CCC has repeatedly argued there is no case for watering down the current targets. Any weakening of the budget is similarly rejected in the new report, although it concedes that as carbon prices rise in the future the government may need to offer temporary help to large energy users to prevent carbon leakage becoming a problem.

"Arguments in favour of revising the fourth carbon budget, based on concerns about competitiveness, do not appear to be supported by the evidence," the report states. "Existing data suggests that the impact of current policies is small or negligible, dwarfed by a range of other economic factors."

The report also finds there are real opportunities to improve UK competitiveness through carbon-reduction policies.

"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," it says. "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."