The storms lashing our economy have been mirrored by the battering the green transformation has taken these last few weeks. Grasping a straw from the Uxbridge by-election, prime minister Rishi Sunak has retreated on, well, just about everything
Government has misread the room here big time. Investors worth over £13trn immediately expressed their dismay. Almost every business sector from cars to construction has said it will carry on transforming its companies to thrive in a low-carbon economy despite Sunak’s dog-whistle political flip-flops. And polls are tipping overwhelmingly against his retreats.
A breathtaking cherry on the cake was fellow Tory Chris Skidmore’s searing adieu as the government dismembered one of his signature ideas, the high-profile private-public pas-de-deux that was the Energy Efficiency Taskforce. Skidmore said the suggestion that the net zero transition was at odds with economic prosperity was patently false, and that the UK risked being left behind if it failed to attract innovative firms in what he called the “cost of not zero”.
Chest thumping over, the key question: is government support a necessary condition to innovation, or does innovation blossom sufficiently, organically? Must industry have national policies and financing as tailwinds, or can it transform in spite of their absence?
Wielding substantial financial resources and regulatory might, which can be harnessed to catalyse research, development and green transformation, government is best placed to incentivise the risk-taking required to innovate. The greatest entrepreneur of all time lives in Washington, not Silicon Valley. Think GPS, genomic sequencing, nanotech and the rest. Cheers Uncle Sam.
Here in the UK, however, government has rarely been the life of the innovation party. It has been criticised for selling off the UK Green Investment Bank, and the state-owned UK Infrastructure Bank, now in operation for two years with a net-zero-focused remit, has faced scepticism about its effectiveness. Initiatives like UK Research and Innovation and Innovate UK funnel government funding into clean-tech companies. While well intentioned, their track records suggest that merely pouring money into the eco-ecosystem doesn’t guarantee success. Government-backed funding must be strategic and accompanied by effective regulatory frameworks. Systemic.
Responsible for 8% of global greenhouse gases, steel manufacturers face immense pressure to reform. Recent milestones of Boston Metal and Sweden’s H2 Green Steel in removing fossil fuels from steel production are innovation ripples causing industry to take note. Perhaps spurred on by the Inflation Reduction Act, Boston Metal secured an impressive $262m (£217m) in venture funding for its electricity-based technology, while H2 amassed €1.5bn (£1.3bn) in equity to build its first hydrogen-powered plant.
Yet, even assuming they hit their ambitious production goals, neither firm would rank among the 2021 top-50 steel producers. The numbers hint at the scale of capital required to transform steelmaking into a low-carbon future. Deploying any new technology widely enough to make a dent in emissions requires trillions of investment. Enter: government.
Notwithstanding its mixed track record as innovation ringleader, here in the steel sector, government may just have got it right. It recently announced a £500m subsidy to save Britain’s biggest steelworks at Port Talbot, more than matched by Tata’s own £1.25bn commitment to green steelmaking. Top-down support remains pivotal and we must water these shoots of green government finance.
The steel industry serves as a microcosm of the broader sustainability challenge. In total, Oxford Economics estimates that the growth in demand for the new green goods and services represents a $10.3trn (£8.5trn) opportunity per year by 2050, equivalent of 5.2% of global gross domestic product. To get there is no free ride: estimates put the capital investment need at between $50trn (£41trn) and $100trn (£83trn) over the period. Sunak or not, this requires a collective effort from government, industry, investors, consumers and everyone else.
In the grand scheme, the government support versus industry innovation debate is a classic ‘and not or’. Government policies must strike a balance between catalysing innovation and providing clear air in which industry-driven initiatives can breathe.
To this end, the Institute for Public Policy Research has called for a Dragons’ Den-type approach to supporting enterprises, specifically aimed at accelerating green manufacturing projects. In exchange for financial backing, the state would become a part-owner of the business and share in their success and future profits – a win-win.
The journey toward a sustainable future needs a harmonious blend of government support and industry-driven innovation. An environment that fosters innovation, with clear regulatory guidelines and – most importantly – a stable policy regime. Without that, businesses end up like a cat following the red dot.
The climate crisis is the greatest economic opportunity of our generation, as well as the greatest challenge. Ultimately, there is no future economy without a green economy, and the UK must continue to seize the net zero opportunity with both hands. For this to work, we need brave, ambitious policymaking. Not political cowardice.
Basil Demeroutis is managing partner at FORE Partnership
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