Monday, November 05, 2018

UK’s 25-Year Environment Plan - David Clayton

Guest post.
UK’s 25-Year Environment Plan:
Missing Dimensions and Historical Analogies

David Clayton,
Department of History, University of York[1]

Policy Recommendations:

·       Strengthen the incentives to divest from coal, gas and oil (including plastics) using holistic bespoke compensation packages that factor in adjustment costs borne by investors and workers.
·       Promote the transfer of carbon-neutral technologies overseas using the international aid budget.
·       Reduce personal consumption systematically using progressive taxes to internalise hidden environmental costs.

The Climate Catastrophe-Policy Mismatch
The UK government has a 25-Year Plan to improve the environment, a statement of intent. This essay argues that we must learn from historical analogies before reformulating and implementing UK environment policy. Let us address the current policy framework briefly before turning to history.

The government argues that future decision making by governments, producers and consumers should account for ‘natural capital’. It assumes that improved flows of information about the environmental consequences of human actions will even alter ‘small choices—which coffee to buy and in which kind of cup; whether to drive to work or take the train’.

The radical view on this initiative is that ‘putting a price on nature will only speed its destruction’ (Guardian, 16 May 2018). This is unfair. Improved knowledge of the environmental costs of systems of production and consumption will alter incentives and thus facilitate a transition to ‘clean growth’, but, the UK government’s market-enhancing strategy is cautious, based on voluntarism rather than compulsion.

Incrementalism would make sense if we had plenty of time to mitigate climate change. But the mainstream scientific community is of one voice: to avoid the risk of runaway warming we need to mitigate the worst effects of climate change NOW. The last World Economic Forum listed the four biggest risks to the world economy as extreme weather events, natural disasters, failure to halt climate change and water crises.

The UK’s ‘clean growth strategy’, announced in October 2017 before the 25-year Plan, aims to promote the uptake of carbon-neutral technologies by sharpening financial incentives. Leaving aside issues related to the scale of this intervention, this strategy is two-dimensional: it will be a necessary but insufficient condition for climate change mitigation.

What we need is a three-dimensional policy framework, which promotes:

1.)   Investment in clean energy:

That is:
·       the capture and storage of non-conventional less dense energy (and, if possible, any of their harmful by-products);
·       the creation of new national and international infrastructures to distribute intermittent flows of solar and wind.
·       AND, if we are thinking globally, as we must: the rapid transfer of clean energy technologies overseas;

2.)   Accelerated divestment from dirty energy

3.)   Drastic cuts in personal consumption

Let us derive some lessons from historical analogies drawn from contemporary British economic history to explore how we might implement this reformulated agenda.

1.)   Aiding the energy transitions overseas

In 2017 Prime Minister Teresa May stated that Britain had a ‘moral imperative’ to help poor countries overseas that ‘stand to lose the most’ due to manmade climate change (Guardian, 12 December). The UK government contributes to the International Climate Fund, which builds up the resilience of vulnerable communities overseas. It has also begun to use the overseas aid budget to help poor countries reduce their carbon emissions.

Is this action commensurate with the scale of the problem? The statistical evidence suggests not: only eight per cent of the aid budget is being spent on climate-change-related projects. There is a strong case to increase Britain’s commitment to international aid and to target expenditure on the energy transition overseas.

During this time of austerity, populists rally to damn overseas aid, and climate change projects have been signalled out as wasteful, of delivering ‘little benefit’ (Daily Telegraph, 12 March 2017). Let us cherry-pick a historical case to refute this argument.

The British aid budget was originally linked to an effort to improve and hold on to the British Empire. Using the export of capital (in the form of loans or grants) to compel people is wrong and ultimately self-defeating. But, under the right conditions, British colonial aid was helpful.

From 1945 an enlarged British aid budget was used to support colonial development, to build ports, roads, schools and hospitals, and, as recent research by Bowden, Clayton and Peirera has shown, it was even used to accelerate the take up of a luxury communication technology: the radio receiving set. In this particular case, British governments had a dubious motive: to control flows of information.

This particular story did not end well: British colonialism continued to be repressive, supported by colonial radio stations that were propagandist. But what matters from today’s perspective was that, economically, this policy worked. Irrespective of prevailing income levels, British colonies that received pump-priming funds to develop radio infrastructures experienced higher rates of take up of radio receiving sets. The aid budget on radio broadcasting paid for equipment and skilled labour vital for the uptake of advanced technologies.

India today needs to leapfrog a stage of development, going straight to solar and missing out coal-fuelled growth. Like all developing countries, India needs more energy to enable its masses to escape poverty: it needs ‘clean growth’. We should aim to create a post-colonial, Indo-UK partnership to facilitate the exchange of clean technologies.

How to divest from dirty industries
A post-fossil fuel energy transition has to deliver energy-saving development at low social and environmental cost. Even without net subsidies, price shifts are encouraging investment funds to flow to renewables. We are hopefully already past peak coal. We need to accelerate this process, reaching peak dirty energy as soon as possible. This is important because of the problem of lock-in: unless these industries are shut down they will continue investing in what they are extremely good at—(i) sustaining dirty energy via innovation and (ii) PR to secure preferential policies and to sow confusion regarding climate change.

Divesting from dirty energy is a colossal task: it will require fundamental changes to systems of production which will certainly take generations to complete. Our current plans are completely inadequate, seeking to bolt renewables on to systems for fossil fuels.

Modern farming is a case in point. It is highly energy-inefficient and pollutes local and global ecologies. Let us cherry pick a metric by way of illustration: Bonneuil and Fressoz estimate that the number of calories obtained in food per calorie used in its production fell five-fold in Britain, 1826-1981. Older labour-intensive forms of production from the past may therefore provide practical tips about a future energy transition.

These are issues for agricultural and transport historians to delve into. Let us however consider another important issue: how to manage industrial decline.

The historical literature on divestment is thin, as historians focus on sunrise rather than sunset industries, but two contrasting cases from British economic history can be reverse engineered to provide general guidance on how to accelerate deindustrialisation at low social cost.

Case 1. The British cotton textile industry grew extraordinarily fast during the 19th century and experienced further investment booms in the early twentieth century. Capacity peaked in 1927. Thereafter the fundamental problem faced by the industry was how to reduce capacity in the face of a dramatic fall in demand caused by technological change (man-made fibres) and by globalisation (low-cost Asian production).

From the 1920s into the 1960s, as profit rates fell and market uncertainty rose, and as the industry lobbied for support, British governments used tax preferences on allowances and subsidies to encourage divestment and the modernisation of factories. As Higgins and Toms show the results were poor. Industrialists divested financially, by for example paying higher dividends to shareholders, but they did not prioritise the scrapping of plant.

The lessons from this case are that:
·       We must anticipate rent-seeking fossil fuel industries demanding preferential fiscal regimes. We might want therefore to ensure that compensation schemes for fossil fuel industries have a fixed start date, such as the signing of the Paris Accord.
·       We have to make the policy goal clear: is it to secure the modernisation of capacity (which will be needed for plastics) or is it the retirement of plant (as it must be for, say, oil refining)?
·       Government action has to be commensurate with the scale of the problem. In the case of the British cotton textile industry, from the 1930s to the 1960s, government initiatives were piecemeal, increasing uncertainty.
·       We need bespoke fiscal instruments for each industry that factor in the combined effects of tax and subsidies (and the expected responses of capital markets).

Case 2. The decline of coal production in Britain was slow, beginning c.1913, and nationalisation of the industry in 1947 did not halt this process. Indeed nationalisation allowed for a new moral economy of decline. During the 1950s and 1960s mine closures were negotiated between bosses and workers and miners gained assurances that they would be redeployed and that new industries would be relocated to areas that had been dependent on coal for generations. This holistic settlement, as detailed by Phillips, facilitated deindustrialisation at low social cost but it did not last long. Post-1973, the deindustrialisation of coalfields was achieved at high social cost: miners gained redundancy packages but local communities were hollowed out.

The lessons from this case are that:
·       To accelerate the decline of gas in particular, which employs thousands of workers, we need consensual political economies tailored to each industry that compensates redundant labourers with new jobs.  We need a “just transition” and one that those working in dirty industries accept.
·       Might we need therefore to consider the nationalisation of sunset industries, a mechanism by which the state kills off rather than saves declining industries?

Cutting Personal Consumption
High personal consumption reduces biodiversity and the macro-economic case to curb our spending on clothing and consumer durables is compelling because we need to transfer resources (via capital markets and via higher taxes) so that we can increase investment in post-fossil fuel technologies. The government’s plan is to improve the flow of information to embed environmental concerns within consumer decision making, but this is unlikely to deliver profound change NOW.

Ethical consumers demand that companies use ‘sustainable’ supply chains. And responsible companies signal that they have responded by labelling goods, inter alia, “fair trade”, palm oil free. This voluntary process will have a marginal effect on the transition to a post-fossil fuel future. Let us state some obvious problems with consumer-led behavioural change:

·       Most consumers prioritise non-environmental criteria (such as cheapness and fashionableness) over social and environmental ones;
·       Even environmentally-conscious consumers have poor proxies for making decisions: inter alia, the country of origin labels, ‘fair trade’ and ‘organic’ certification;
·       Voluntarism will never control the consumption of the hedonistic rich whose ostentatiousness saps the collective morale of the virtuous.

Let us consider radical policy reforms by drawing on the analogy between Climate Catastrophe and Total War.

In 1940, in preparation for Total War, the British government deployed two methods to cut back on personal consumption, a vital means of diverting resources to the production of goods needed to wage war: these were direct controls, in the form of planning and rationing, and indirect controls, in the form of prices manipulated by tax and regulatory changes.

Under planning and rationing, bureaucrats set consumer wants. Today, the case for using direct state controls over the whole economy is weak for political (as opposed to technical) reasons. No mainstream political party will advocate a carbon ration for citizens to ensure that Paris accord targets are met. But the case for extending planning and rationing selectively is strengthening. Let us cite two examples.

1.     In its 25 Year Plan, the UK government has committed to ensuring ‘interrupted water supply’ during periods of prolonged dry weather and droughts, which are predicated to occur because of climate change. The only way to do this equitably and efficiently will be by instituting water rations.

2.     Air travel is predicted to be the fastest growing source of UK and global emissions, and technologies to substitute the current stock of planes with electric ones will not alter the economics of air travel for generations. There is a case to give citizens an annual allowance for air travel.

Despite the UK’s long experience of healthcare rationing, restricting access to a wider range goods and services, especially those for which demand is rising, will be highly controversial and the rich and corrupt will seek to evade new regulations. Before introducing selective rationing, we need to learn from Roodhouse who shows that, underpinned by social norms regarding “fair shares”, rationing in 1940s Britain was successful because consumers and bureaucrats tolerated grey and black markets, creating flexible systems that delivered goods from petrol to potatoes at low social cost.

John Maynard Keynes, the liberal economist, argued in his text How to pay for the war, that the government had to increase direct and indirect taxes, including via compulsory saving schemes, as a way of diverting resources into war production and reducing inflationary pressures brought about by the war. Significantly, from our perspective, these ‘indirect controls’, continued into peacetime and smoothed the economic transition. The case for deploying such controls again to deal with the climate crisis is becoming compelling, and is on obvious way of implementing current government thinking on ‘natural capital’ accounting.  Let us highlight how two instruments used in the 1940s to substantiate this claim.

·       Between 1945 and 1951, the Labour government imposed progressive purchase taxes on luxury items of consumption. In the late 1940s, there were three bands, and the top one doubled prices! Could we reform Value Added Tax so that it is fit for a new purpose: internalizing the hidden environmental costs of consumption?
·       The government created ‘Utility’ products that economised on materials and which were cheap because they were exempt from purchase taxes. Should we create state-approved ‘carbon-neutral’ goods to internalize the high transaction costs faced by virtuous consumers wanting to be ‘green’ but having to choose between products claiming to be ‘natural’ and ‘ecological’? The UK’s new ‘Natural Capital Committee’ will generate more sophisticated measures than ‘carbon footprints’ to aid this intervention.
Even in the 1940s indirect controls were not comprehensive. They targeted luxuries but did cover items of consumption far more prevalent today, such as eating out and long-distance travel. To meet carbon reduction targets using indirect controls we would have to be much more radical than in the 1940s. Taxes would need to rise on a wide range of ‘high carbon’ footprint activities, inter alia, indoor swimming, playing golf, eating animal products and owning a carnivorous pet!

Preconditions for action
In 2016 and 2017 rhetoric about a ‘dementia’ tax and ‘taking back control’ had a large impact on electoral outcomes. Any proposal to tax Britain’s millions of pet owners and thousands of golfers would be similarly spun. Any political party advocating eco-austerity in the next four years would commit an act of electoral suicide. And the political analogy with 1940s austerity is not going to alter these calculations.

In 1951, the Labour party narrowly lost the General Election to a Conservative party promising to give power back to consumers. Conservative Party propaganda was effective because austerity Britain was dire for spenders. Despite high pent up demand due to war damage and depreciation, and despite rising incomes, real levels of consumption only increased five per cent from the late 1930s to the early 1950s.

The outcome of the 1951 election demonstrates the power of rhetoric. But the Conservative critique of Labour’s austerity was deeply unfair. By 1950, because of austerity, the economy was stable, on the road to a sustained recovery; the government had also revamped international aid and implemented a solution to endemic industrial unrest in the coal fields, nationalisation. Post World War I the transition from an economy geared to winning the war led to a deep economic recession in the early 1920s that culminated in serious social conflict, the General Strike of 1926.

In the 1940s, austerity was in the national interest. Today, eco-austerity is also in the national interest, enabling us to deliver a reformulated three-dimensional 25-year plan.

The UK’s 25 Year Plan already commits us to taking ‘all possible action’ to mitigate climate change and so we must have a proper debate NOW about eco-austerity. Aided by the press and by mass political parties, we must seek answers to the following questions:
·       Can voters be persuaded to back reforms to VAT that might factor in ‘natural capital’ accounting?
·       How can the populist view on overseas aid be defeated?
·       To what extent and how should we bail out declining industries from the public purse?
·       How do we create a new just fiscal settlement? If we introduce higher taxes on consumption should we hike wealth taxes and lower income taxes, perhaps via a tax-free citizen’s income?

Bonneuil, Chrisophe and Jean-Baptiste Fressoz, The Shock of the Anthropocene: the earth history and us, trans. David Fernach (London, 2017)
Bowden, S. ., D. Clayton and A. Pereira, ‘Extending Broadcast Technology in the British Colonies during the 1950s’, European Review of Economic History, 16, 1, pp. 23-50, 2012
Higgins, David, and Steven Toms, ‘Public subsidy and private divestment: the Lancashire cotton textile industry, c.1950-c.1965’, Business History, 42, 2000, 1,
HM Government, A Green Future: Our 25 Year Plan to Improve the Environment (2018)
Phillips, Jim, ‘The Moral Economy and Deindustrialisation in the Scottish Coalfields, 1947-1991’, International Labor and Working Class History, Ixxxiv, 201, pp. 99-115
Roodhouse, Mark, Black Market Britain: 1939-1955 (Oxford, 2013)

[1] The author is a member of Greenpeace but writes in a personal capacity. He acknowledges the valuable insights of Matt Carmichael, David Moon, Chris Prior and Mark Roodhouse on early drafts of this essay.