CO-CREATE THE GREEN ECONOMY

1. CO-CREATE THE GREEN ECONOMY James Meadway New Economics Foundation

2. THE GREEN ECONOMY • Absolute necessity to move away from a high-carbon, high-impact world • Despite arguments that these are luxuries for when times are better • In practice, failure to change impact of economy on the environment will create immense costs • Critical question: how to make this transition occur?

3. THE COSTS OF GROWTH • Economic growth depends on throughput of energy and resources • Implies additional cost to each additional unit of output produced… • …this cost may not be registered in GDP • And therefore in individual company revenues • May often appear as a benefit • But nonetheless can have directly economic consequences • Stern Review, 2006: loss to GDP from climate change

4. CARBON COSTS • The presence of these costs is a constraint on economic activity • Carbon output is the most pressing, given overwhelming scientific case for anthropogenic climate change • Each $1 of GDP produced carries a carbon cost – its carbon intensity • 1979: global carbon intensity: 1kg/$GDP • 2010: 700g/$GDP

5. CARBON CONSTRAINTS • This cost becomes a major constraint if we expect two things • Rising population to 9bn by mid-century • A concern with equality, with living standards averaging that of Western Europe (GDP/capita) • Implication: GDP has to increase hugely • But we also think that there is a limit to the amount of carbon the atmosphere can safely absorb • Want to limit average warming to two degrees by 2100 • This is a planetary limit

6. TIGHT CONSTRAINTS • Improvements in efficiency • 1979: 1kg/$GDP globally • 2010: 700g/$GDP • However, to observe planetary limits, given rising population and a concern with inequality, we need 3g/$GDP carbon by 2050 (Jackson 2009) • Not remotely plausible with existing technology… • …not plausible with any future technology • No technological fix exists, therefore change how economy operates • A “low-growth” scenario • Ideally with high welfare

7. REGIONAL INEQUALITIES In output/head terms, UK has worst regional inequalities of any EU member

8. GOOD LOW GROWTH SCENARIO

9. BARRIERS TO THE TRANSITION • If the costs of inaction are widely accepted… • …not universally… • …why does the transition fail to occur? • Recent increases in carbon emissions • Economic theory can provide a guide

10. PATH DEPENDENCY • Current technologies and industries are costly to change • Infrastructure costs • Costs of education • Sunk costs of existing investment • Institutions • Produces situation of path-dependency • Future growth follows existing course

11. CARBON LOCK-IN • Arthur (1994): increasing returns to scale in existing technologies • Economies of scale • Learning effects (adaptive expectations) • Network economies (a single phone is useless…) • Combined with institutional lock-in • Produces lock-in to high-carbon technology (Foxon 2002; 2005)

12. BREAKING PATH DEPENDENCY • Carbon lock-in arrives when the current mix of institutions favourshigh-carbon technologies • Depends on a mix of institutional structure and individual behaviour • Changing it therefore requires a mixture of approaches • Private: behavioural change? • Public: government action? • Co-operative, social: new institutions? • Move from big picture to local actions

13. OWNERSHIP AND INCENTIVES • Property rights matter • Determine ownership of resources • Therefore who receives benefits • Institutions affect how property rights distributed • Private property may not be best at dealing with public problems • For economic transitions, shift in property rights necessary alongside shift in resources • Historic examples: Industrial Revolution 1760s, Japan 1960s, Finland 1990s

14. INNOVATION AND DIFFUSION • Innovation is not just the process of invention • Invention: creating new-to-the-world ideas • Diffusion of ideas matters • Diffusion: the use of ideas and products throughout society • Diffusion is biggest challenge in green transition • Changing behaviour and spreading low-carbon technology

15. DANISH WIND-POWER • World’s leading exporter of wind turbines • 50% of global market • 20% of domestic electricity source from wind • And exports surplus power abroad • Technology is well-known, reasonably reliable • Problem is diffusion of the technology • Need many units • Often sited in aesthetically appealing locations

17. DANISH WIND POWER STRATEGY • Strategy launched by government in 1970s to respond to concerns about oil dependence • Not climate change • Four elements from government: • Comprehensive R&D programme • Turbine certification to maintain quality • Initial capital subsidy • Mandatory pricing for electricity suppliers • However also allow “wind guilds”

18. THE WIND GUILDS • Local co-operatives whose members buy shares in turbines • Small equity investment allows share in profits • Encourages diffusion of windpower, overcoming local opposition • Today, over 100,000 Danish households are members of a wind guild

19. BAYWIND, UK • Windpower farm in Cumbria • Co-operatively owned, producing 2.5MW • Saving c.4,200 tonnes/CO2 per annum • Industrial and Provident Society legal structure • First in UK • Established in 1996, first turbine operational in 1997 • Further share issues enabled purchase of further plants • Now has two sites, 1,300 members

20. OTHER CO-OPERATIVES • Further wind co-ops established in UK • Westmill Wind Farm, Devon • 2000 members • Baywind establish Energy4All to promote co-operative ownership • Currently 4 projects in England, 1 in Scotland

21. MICRO-HYDRO • Small-scale generation from hydro power • Comparatively cheap, reliable technology • £130,000 typical cost for 100kW generator (enough for c.50 houses), very long lifespan • Some potential in UK • DEFRA estimate 1,692 sites in England Wales, for 248 MW • 7,000 sites in Scotland, for 1,260MW • Implies doubling current national hydro capacity (1.9%-4%) • Applications for schemes up from 33 in 2008 to 149 in 2011 • But issues reported with approvals in England and Wales

22. BARRIERS TO DIFFUSON IN THE UK • Very low research expenditure • R&D spend across utilities fell by 37% in real terms over 20 years • Attributed by Performance and Innovation Unit to “increased competition [shortening] the time horizons for R&D expenditure” • At same time, energy industries massively concentrated • “Big Six” supply 99% of electricity market • Tendency for renewables to remain in hands of large suppliers

23. BREAKING BARRIERS • Small-scale technology works best when managed on local basis • Co-operative ownership provides immediate return to locality • Overcomes cash barriers to investment • Overcomes hostility to loss of public good • Potential for regeneration through community ownership • Great potential in Wales • Financing is a problem • Legal forms, eg Industrial and Provident Societies, already exist

24. POLICIES? • At national government level • Increase R&D spend • Maintain/improve subsidies for renewables • At regional level • Support for regional banks • Sparkassen in Germany, recent proposals for Wales • Providing cheap, long-term investment credit • At local level • Use of wider forms of asset ownership