Britain has no plans to respond to US and European Union subsidies for green industries because the country “has nothing to subsidize,” a leading environmental economist said.
Matthew Agarwala, economist at the Bennett Institute for Public Policy at the University of Cambridge, said the UK’s failure to develop a domestic manufacturing base for environmental technologies has left it in a reasonably safe place in the dispute between Washington and Brussels over clean-energy subsidies.
The EU has pledged as much as €300 billion ($326 billion) to counter the US’s $369 billion program of tax credits and prevent business moving investment across the Atlantic. But the UK has taken a different approach, calling for free and open trade and branding the US Inflation Reduction Act “dangerous” protectionism.
Business Secretary Grant Shapps and Chancellor of the Exchequer Jeremy Hunt told Bloomberg on Friday that they don’t think subsidies are the best way to get meet net zero on fossil-fuel emissions.
The UK risks being sidelined as other economic powers jockey for position in the green energy revolution. The US wants to compete with China, while the EU and India also aim to be green industrial hubs. However, the UK does not appear to want to build its own rival industry.
“We can afford to take a broader look at all this,” Shapps said, adding that were Britain still in the EU, it would have been a net contributor rather than beneficiary of any support package. Hunt added that there was no money for tax cuts or subsidies.
Britain is a leader in green energy roll-out and has some of the biggest offshore wind farms in the world, but it imports much of the expertise. The turbines are made by companies like Vestas Wind Systems A/S of Denmark and General Electric Co. from the US, while China dominates the supply of solar panels.
The most prominent green manufacturers in Britain include Britvolt Ltd., a battery maker that declared bankruptcy this month, and ITM Power Plc, which makes electrolizers and has issued a series of profit warnings as it struggles to ramp up manufacturing.
Figures from the Office for National Statistics show that in 2020 just 210,000 people were directly employed in low carbon and renewable industries in the UK. More than 100,000 of them work on energy saving products such as windows and insulation as well as nuclear.
Agarwala said the UK does not face the same threat from the US as the EU mainly because it hasn’t built up big companies making wind- and solar technologies or other items needed to reduce emissions levels.
“We are not responding because we have zero fiscal space,” he said. “But if we did, we wouldn’t have anything to subsidize as we don’t have any green manufacturing to speak of or workers to exploit it.”
Agarwala said car makers and the steel industry may need state support to prevent companies in those sectors diverting investment to the US and EU.
The government is reported to be in talks to provide around £600 million of state funding to help the steel industry decarbonize, and some for Britvolt.
Other UK opportunities that have been identified are in carbon capture and storage and tidal power as well as early-stage scientific development of future energy sources such as hydrogen, biofuels and nuclear fusion. But the funding required would be minimal compared with the multi-billion dollar subsidies for big manufacturing.
“I have absolutely no doubt that we will be able to announce a package that makes us highly competitive, but I don’t think subsidy is necessarily the best way,” Hunt said in an interview with Bloomberg TV on Friday. “What people want is creativity, innovation, ideas, a climate, a regulatory structure that encourages investment.”