James Cameron: If Britain is to survive economically, it must focus on low-carbon industry

Decisions that are being taken today to support investments that lock us into an old economic model will do little for future prosperity or growth.

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There are compelling strategic, economic and political reasons why we must transform the way we generate energy, ensure access to clean water and feed our growing populations. This is at the heart of the agenda at this year's World Economic Forum meeting in Davos.

The challenge is clear. There will be 3 billion new middle class consumers in the world within 20 years, according to the Organisation for Economic Co-operation and Development. There are only 1.8 billion today.

This unprecedented expansion - and the fact that the richer we become the more we consume - means that the pressure on resources we have witnessed over the last decade, which has seen a 147% real-terms rise in commodity prices since 2000, looks set to continue as emerging economies, such as China, India and Brazil, develop further.

Increasing resource scarcity and rising commodity prices pose significant strategic challenges for future prosperity that just can't be ignored, especially for an open, networked society such as Britain.  

But this permanent change in the global economy can also create opportunities, particularly for economic re-balancing and export generation. We can cement our emerging lead in resource efficiency and resource productivity and by doing so create a source of future growth, comparative advantage and economic strength. In fact, this may be the only way for developed economies like our own to grow in an increasingly resource-constrained global economy where we do not ourselves own or control access to commodities.

The transformation required to be competitive in the world we have entered will involve moving away from a 19th and 20th Century growth model that depends on heavily subsidised, finite fossil fuels that have an array of significant political, environmental and social consequences. The leaner, nimbler, and more prosperous societies we must create will be based on clean, renewable technologies, where lifetime costs are much lower because we can turn waste into the raw materials for growth and harness the fact that the wind blows and the sun shines for free.    

Being at the centre of this revolution by developing the technologies, building the infrastructure, and manufacturing the products required will create high value-added, complex and capital intensive economic output able to drive growth, employment and exports. At the heart of realising this opportunity will be harnessing Britain's genius for invention. We can combine our leadership in science and design to spark off new commercial innovations in materials science, advanced manufacturing and construction, amongst many other things.  

But, changes in the policy and rhetoric of government sometimes leads to increasing uncertainty for the private sector, which has further pushed up the cost of capital for investments in these areas. This is quite the opposite of what's needed.

Moreover, decisions that are being taken today to support investments that lock us into an old economic model will do little for future prosperity or growth and make achieving economic resilience in the future much more difficult. The UK's economic future must not lie in supporting industries where we have lost and will never regain a comparative advantage.

For example, while the UK as a whole remains the seventh largest economy in the world, for production we are now ranked only 18th for steel, 23rd for aluminium, and 29th for cement. This is a long-term downward trend that no amount of carbon price exemption or fuel-price subsidy is going to change.

Businesses in these polluting, incumbent, industries have already extracted considerable sums from the public purse, made hysterical claims about carbon pricing while profiting enormously from the over-allocation of carbon permits, and if there were no price for their pollution we would all be subsidising them long after they ceased to exist. These businesses know they can reduce their carbon emissions at relatively low cost, that even with a price for carbon the demand for their products will remain high for the next decade, and that there are alternatives emerging that are less wasteful and also have other attractive properties for their customers.

In complete contrast and despite its relative immaturity (and according to the Government's own figures), Britain now has the sixth largest low-carbon and environmental goods and services (LCEGS) sector in the world and this employs 910,000 people in the UK. It is also growing at over 4% a year – well above growth in the rest of the economy. In each LCEGS area the UK has a global share of between 3.2-3.8% and in carbon finance we have a share of 11.7%. These are going to be increasingly important areas for us to earn our way in an increasingly competitive global economy.

At the same time and just as importantly, this approach can help us make a significant contribution to preventing catastrophic climate change and the other serious environmental challenges we face. It takes courage not to trade off environmental imperatives against the financial crisis we are in. We must be much more determined to discover how to survive and prosper in the real world of resource competition and physical environmental risk. It's the only way we can have a growth strategy that actually delivers prosperity today, while also securing it for future generations tomorrow.

James Cameron is founder and vice chairman of Climate Change Capital and a member of the Prime Minister’s Business Advisory Group. Climate Change Capital is an environmental investment manager and adviser.

 

climatechangecapital.com

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