UK risks losing out on post-Brexit trade in low-carbon goods and services

The UK could lose out on the global trade in low-carbon goods and services, which could be worth more than £1 trillion a year by 2030, unless the current Government’s Industrial Strategy persuades companies to spend more on innovation, warns a new report published today (12 April) by the Grantham Research Institute on Climate Change and the Environment and the ESRC Centre for Climate Change Economics and Policy at the London School of Economics and Political Science.

The analysis by Professor Sam Fankhauser and Dr Maria Carvalho concludes that the market share of most of the UK’s 15 largest industrial sectors, including spacecraft, aircraft and cars, could decline after departure from the European Union because businesses in other countries, such as Germany and Japan, are making a quicker low-carbon transition.

The report on ‘UK export opportunities in the low-carbon economy points out that the implementation of the Paris Agreement will drive greater demand across the world for low-carbon goods and services. Recent estimates for the Committee on Climate Change suggest that, as a result, global trade in low-carbon goods and services could reach at least £1 trillion by 2030, an increase of 7 to 12 times compared with today.

The report states: “The new Department for International Trade (DIT) has a key role to play in promoting the UK low-carbon sector internationally. Given their potential, low-carbon sectors should be at the core of DIT’s export promotion activities and its pursuit of free trade agreements.”

It calls for the current UK Government to use its new Industrial Strategy to help companies to capitalise on the increase in low-carbon export opportunities. The Department for Business, Energy and Industrial Strategy (BEIS) last week ended its public consultation on the Strategy.

The report states: “13 of the UK’s 15 largest industrial sectors – including aircraft and spacecraft, motor vehicles, and steam generators – are less effective than global competitors in low-carbon innovation. This should be a concern. This analysis suggests that large parts of UK industry are at risk of losing market share to cleaner competitors in Germany, Japan and elsewhere.”

The report highlights that the UK could increase its export share if firms can “commercialise their low-carbon know-how and reach scale”.

It adds: “The UK has the potential to export other technologies including low-emissions vehicles and batteries. While the UK does not currently have a comparative advantage in these sectors, they are large and rapidly growing markets. Obtaining even a small market share would therefore constitute a substantial export opportunity.”

The report also emphasises that the UK has the skills to support other countries to make the transition to a low-carbon economy and this also presents opportunities for exporting skills. The report says that the UK low-carbon services, led by financial services, have the potential to grow by 12 to 15 per cent each year by 2030.

The report states: “The low-carbon economy will encompass all sectors: consultants, lawyers and engineers will offer expertise to drive it; banks will finance low-carbon projects; architects will design low-carbon buildings. This increases the opportunities for UK firms, as many of these activities are key areas of UK comparative advantage, particularly high-value services.”

A second report published today on Mobilising green finance for the UK industrial strategy argues that the current UK Government will need to play a stronger role in securing the private sector investments required to implement the low-carbon Industrial Strategy.

The report states: “The UK’s Industrial Strategy offers the opportunity to harness the country’s strengths in sustainable finance to deliver clean and resilient growth.”  It adds: “The success of the Industrial Strategy will hinge on its ability to attract sufficient capital at reasonable cost.”

The report recommends that the current Government’s Industrial Strategy should provide “clear and forward-looking policy” to boost investor confidence and encourage large-scale private sector investment in low-carbon infrastructure and emerging clean technologies.

The report highlights:  “Reversals of policy on carbon capture and storage and zero-carbon homes in particular have led investors and project developers to question the Government’s commitment to low-carbon policies.” This has put the UK at an “all-time low” in terms of attractiveness to renewable energy investors and has led to a dramatic drop in planned projects.

The report also recommends that the current Government should develop a contingency plan to fund investments in key infrastructure projects and strategic sectors as the UK may not continue to receive funding from the European Investment Bank after departure from the European Union.

The Grantham Research Institute on Climate Change and the Environment and the ESRC Centre for Climate Change Economics and Policy also published their response to the Government’s consultation on the Industrial Strategy today.

The response drew attention to reviews announced in the Spring Budget 2017 to replace the Levy Control Framework and the level of carbon pricing. The response warns: “It is essential that these two reviews are not carried out in isolation from each other”.

It adds: “The level of subsidy required to support new low-carbon energy technologies depends largely on the extent to which fossil fuels are confronted with their real costs. There is a risk that direct subsidies for renewables currently need to compensate for relatively weak carbon prices in the UK.”

It continues: “There is a compelling case for the UK to remove completely the implicit subsidy for fossil fuels by applying a stronger carbon price uniformly across the economy. This would decrease, but not eliminate, the level of subsidies required to directly support low-carbon electricity generation.”

For a more information about this media release, please contact Victoria Druce on +44 (0) 20 7107 5865 or v.druce@lse.ac.uk, or Bob Ward on +44 (0) 7811 320346 or r.e.ward@lse.ac.uk

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NOTES FOR EDITORS

  1. The Grantham Research Institute on Climate Change and the Environment (http://www.lse.ac.uk/grantham) was launched at the London School of Economics and Political Science in October 2008. It is funded by The Grantham Foundation for the Protection of the Environment (http://www.granthamfoundation.org/).