Why The Treasury Should Go For Low Carbon Infrastructure - Regardless Of Climate Change

14/11/2016 13:28

It was George Osborne who, festooned with hard hat and high vis, proclaimed that 'we are the builders.' He looked a bit silly, but his message was serious. Building things is what real people do; it's where real economic growth happens; and it's a real investment in our shared future. Osborne invented the line, but it is Theresa May who is doing the building. As the BBC's business editor put it, "from beating ourselves up for not being able to build anything, the UK is suddenly building everything." Well, almost everything.

In the past three months, the prime minister signed off on the £18 billion Hinkley Point deal, reconfirmed £42 billion for HS2, and supported an £18 billion third runway at Heathrow. The chancellor is considering a further boost in infrastructure spending to stave off Article 50 induced economic troubles.

However, the biggest item in the Treasury's infrastructure pipeline, renewable energy, is in investment freefall. Private sector spending on renewables is due to fall by 96 per cent between 2017 and 2020.

This isn't just a problem for the climate. Infrastructure investment in renewables has supported growth across the whole economy. Between 2010 and 2014, if renewables investors hadn't been active, it's doubtful that any growth in business investment would have happened at all. This is a major component of overall economic growth and, looking ahead, the Treasury forecasts a £20 billion gap in infrastructure investment across this parliament. You can see why the new administration is so keen to sign off big projects.

If you want to stimulate economic growth, the type of infrastructure built matters enormously. Looking just at infrastructure already in the Treasury's pipeline, renewables are worth £22 billion between 2015 and 2020. By contrast, HS2 is only worth £15 billion because it will take a long time to build, and Heathrow's third runway will not begin construction until 2021, although Heathrow has made headlines by committing to £50 million - around two tenths of one per cent of the level of renewables spending - in advance of this. Even electric vehicle charging infrastructure investment could rise to £500 million per year by 2020. (The Treasury expects Hinkley to be worth about £5 billion before 2020, but assumed a final investment decision before this year.)

The fact is that renewables are better infrastructure than most other types, in even the most conventional sense: wind and solar have a proven record of being built on time and on budget, their costs have fallen so steeply that onshore wind is now the cheapest form of new power generation, and there is a huge pipeline of shovel-ready projects which could fill the investment gap this parliament. But our analysis, done jointly with Cafod, Christian Aid, Greenpeace, the RSPB and WWF, shows that policy is hindering investment in low carbon power, as well as transport and heat.

Unlocking this investment is simple. The autumn statement could announce auctions for all renewables so companies can get on and build them. It could also set out the level of support for projects that begin to generate power between 2020 and 2025, so supply chains can invest now. Our analysis suggests the government should commit an additional £2 billion by 2025 if we want to make renewables cheap enough to not need subsidy.

Despite the economic benefits, all infrastructure has a cost. And this is why we should care about what we build. Runways lock carbon emissions into the pattern of British growth. Renewables let us grow without worsening climate change. Late last year in Paris, the world agreed to a low carbon growth strategy. If we're going to spend on new infrastructure, it should be fit for the future. And building low carbon here gives us the expertise and supply chains to export to the rest of the world.

Theresa May's decisiveness on infrastructure represents a political break from Cameron and Osborne, but her messaging has the same political purpose: Britain will build its way out of trouble, and in doing so, it will make itself great. Low carbon is the best way to be great now, and for the next 50 years. After all, what we build today becomes tomorrow's infrastructure. We really are the builders.