Experts highlighted the UK’s exports of green services and the need for a cohesive industrial strategy that empowers UK regions as integral to achieving net zero at an economics conference yesterday (31 January).
Speaking on the ‘Making an economic success of net zero’ panel at UK in a Changing Europe’s (UKICE) economic conference, McKinsey’s director of research and economics Tera Allas, University of Birmingham’s professor David Bailey and University of Cambridge’s professor Sarah Hall discussed the opportunities and risks inherent in the green transition.
‘Incredible competitive advantage’
Allas highlighted services exports as a revenue-driving aspect of the green transition, touting the UK’s “incredible competitive advantage” when it comes to selling services internationally, as the second largest exporter of services in the world after the US.
Explaining the scale of investment being undertaken around the world in order to facilitate net zero, she noted the strength of the UK’s position to sell its expertise overseas.
“One person’s cost is another person’s revenue… if other countries are going to be investing in nuclear power stations and offshore wind, new infrastructure and optimisation systems, we can sell services to them.
“Every other country in the world is going to be investing – McKinsey estimates there’s going to be US$4.5trn extra of capital investment required to make the net zero transition and so that investment means someone is going to have to provide a service, make some kind of profit and create some jobs around it.”
Despite the grand scale of the investment, she said that opportunities in services couldn’t be characterised as a “free-for-all” and that in order be successful countries would have to provide services that are competitive.
The UK’s “cost-effective, cutting-edge” services that could see it capture as much as 3% of the projected US$4.5trn global capital investment, according to research from McKinsey.
Green finance
Green finance was identified as key to the transition but also as a route towards services growth, with Hall commenting “it would bolster the position of the UK as a leading financial services provider”.
London is currently the leading green financial centre in the world, although it faces stiff competition from several EU countries.
Hall pointed out that one strength of the EU’s approach is a clearly defined ‘green taxonomy’ – a list of rules outlining what meets the criteria for the ‘green’ to prevent products falsely overstating their environmental benefits (‘greenwashing’). The UK is yet to produce a similar set of criteria.
Asked by event chair, UKICE’s Jill Rutter, whether the UK is likely to “diverge or converge” with Europe’s rules, Hall didn’t commit to a definitive answer, instead noting importance of remaining “competitive”.
“When it comes to the green transition and the whole question of meeting net zero it crosses boundaries.
“If you’re imposing additional costs on investors by making them comply with different regulatory regime that’s going to disincentive to investment.”
Industrial strategy needed
Bailey levied criticism at successive governments for failing to create a cohesive industrial policy that could support the delivery of net zero.
While he praised the recent introduction of the Critical Import Strategy to ensure the resilience of UK supply chains, a nascent battery strategy and the allocation of funding towards electric vehicle manufacture through the current government’s five ‘growth areas’, Bailey added that “it doesn’t add up to strategy and the sums on offer are a fraction of what’s available in the EU, US and China”.
He praised the £28bn that Labour initially committed to green projects last year, but noted it’s since been “rowed back to an aspiration over two Parliaments, if conditions allows”.
He concluded that substantial investment will be required to fund the UK’s transition in any instance, adding that the crucial aspect politically is the “need for a credible plan for how the money will be well spent, if financial markets are to finance borrowing”.
Empowering regions
Bailey went on to say that greater devolution could support the delivery of net zero and that this goes beyond combined authorities.
“We need much more of a regional focus and a regional industrial policy to do this and it's about bringing technology, sectors and places together.”
He emphasised the importance of speaking to workers within areas affected by the green transition, giving examples of research undertaken in the West Midlands and North East of England to understand their perspectives on the feasibility of a shift towards electric battery production.
He added that: “There are great opportunities, we need to empower the regions to push that forward.”
‘Joined-up’ thinking
Allas also made policy suggestions for how the UK could better deliver net zero, namely joining up policy so that in addition to the overtly economic – “tax breaks and subsidies” – other areas, like research and development, planning, skills and immigration, are aligned to maximise progress.
Anticipating criticism around the feasibility of the approach, she used the Covid-19 pandemic as an example of when coordination of government departments, and international cooperation, towards a single goal yielded impressive results.
“We were able to deliver the Covid-19 vaccine because it was the number one policy for absolutely everyone, absolutely everywhere.
“We need to create a similar kind of pressure, alignment and focus on net zero and sustain it.”