Growth is back: not as a feature of our economy, but in politics. Everyone is talking about growth again, and for the first time in decades those conversations are exposing genuine ideological divides. Liz Truss has kick-started a debate whose implications will almost certainly outlast her, and not just on the podcasts she hates so much. The most consequential may be the role that net zero will play in growing the economy.
Environmental action has long been characterised as at odds with economic policy, something we could only do when times were good. Like many things during the Cameron-Clegg coalition government, investment in climate mitigation such as home insulation or carbon capture, was cut in search of short-term deficit reductions.
At best, like in the former chancellor Rishi Sunak’s Build Back Better plan, action to address climate change was seen as a beneficiary of growth. A bit like properly funding the NHS, reducing carbon emissions was pitched as something we could only afford to do if we earned the money to do it. But like any other area of policy, the interaction of net zero and growth is about choices. Deep in the current crisis, we need to choose a path.
Liz Truss’s first attempt at growth has now been unwound by the new chancellor Jeremy Hunt, but the unfunded tax cuts of the Truss-Kwarteng budget were just one problem within a wider misdiagnosis that the economy needed growth at any cost. It was at best ambivalent about the environment.
Truss says solar panels are a weapon of the “anti-growth coalition” that must be stopped at all costs, despite Green Alliance polling that found that three-quarters of the public want more solar. The UK’s stagnant productivity is the principal cause of our sluggish growth, yet Liz Truss’s plan to ban farmers from using solar panels on the same land they use to create food would stop farming raising its productivity by killing off a possible new income stream. Doubling down on North Sea oil and gas or economically unviable fracking may accelerate profits for fossil fuel companies and will continue to waste public and private spending on sky-high gas prices.
At the other end of the spectrum, the small but vocal “degrowth” movement on the fringe of the environment sector wants to turn away from growth altogether. But authors like Jason Hickel, the standard bearers for the actual anti-growth coalition, have more in common with Trussonomics than it seems. They argue that any form of economic growth is incompatible with protecting people and planet, despite the wealth of evidence from both developed and developing countries that it is possible to sever the link between GDP and emissions growth.
Both these directions—Trussonomics and degrowth—underestimate the scale of the challenge and the economics involved in reaching net zero. The UK is not on track to reach net zero by 2050. We don’t have time to wait for a new political and economic system before we can act.
Study after study shows that failing to act on climate change now will have huge implications for the economy. Costs of adaptation for example will soar, with the Office for Budget Responsibility forecasting debt to be 23 per cent higher and GDP 3 per cent lower if we delay action to mitigate climate. No further action at all would mean debt reaching 289 per cent by 2050 (good luck to the Bank of England in that scenario). On the ground, higher temperatures exacerbate health conditions and damage worker productivity. Dealing with extreme weather events like floods, droughts and fires sucks up financial and physical resources. Flooding in between November 2019 and March 2020 alone cost the economy £333m.
The rest of the world is marching ahead. The net zero transition is underway across the world economy, and so anyone arguing against it risks the UK being left behind. If the government doesn’t act fast, this country will be like the diner holding a fork for the soup course, selling drilling rigs in a world of wind turbines and solar panels.
Trussonomics and degrowth are both wrong: arguments that we should stop growing the economy to tackle climate change or that we should go for growth at all costs both misunderstand that actions to reduce emissions or restore nature now generate growth. As the price of imported gas skyrockets, renewables already offer the same energy, at a lower price, with the promise of higher domestic skill levels for energy-sector workers in this country. Electric cars and public transport are more efficient than fuel combustion or congested roads.
As our joint Nesta and Green Alliance report Climate for growth shows, in some areas—notably heavy industry, aviation and agriculture—improving productivity while also protecting the planet will be more difficult. But Britain’s best minds are already working on these challenges, and time and again innovation in green technologies has outstripped expectations, from the price of renewables to the market share for electric vehicles.
Even the normally conservative Treasury recognises this potential, pointing to investments in green infrastructure delivering 2.5 times the financial or growth returns than those in fossil fuels. The future of industries is increasingly green. For the City of London, the UK’s central sector, sustainable investments are growing faster and delivering stronger returns than traditional funds. In manufacturing, Sweden is proving that green steel is viable. The UK has a choice: invest now to capture growing markets like this, or leave it to others and miss out.
And central to green growth is not just the GDP number but what can accompany it—falling emissions, energy and national security, high-skilled jobs in engineering and clean manufacturing, a healthier natural environment and cleaner air.
It won’t be easy to raise the growth rate to 2.5 per cent, but the most effective path to that goals would be to go with the grain, to continue forward but faster. Green growth isn’t guaranteed to get us there, but it is currently our best chance of both growing the economy and protecting the climate.
