GRJ0064

Written evidence submitted by Alliance

About Green Alliance Green Alliance is a charity and independent think tank focused on ambitious leadership for the environment. Since 1979, we have been working with a growing network of influential leaders in business, academia, NGOs and politics to stimulate new thinking and dialogue on environmental policy, and increase political action and support for environmental solutions in the UK. This submission draws upon concepts and evidence set out in recent Green Alliance publications, including: Opportunities to tackle Britain’s labour market challenges through growth in the circular economy (2015) in collaboration with WRAP; Jobs and the circular economy: three scenarios for Scotland (2015); Added value: improving the environmental and social impact of UK VAT (2020); and Getting the building blocks right: infrastructure priorities for a green recovery (2020). These publications cover in greater detail topics relevant to this inquiry. Summary Green Alliance’s research in this area focuses on net zero and the circular economy. In this case, we will mostly be presenting evidence on the circular economy. Our key points include:

 The development of the circular economy presents an opportunity for the UK to create jobs while decreasing our material and carbon footprint. In 2015, we estimated that over half a million circular economy jobs could be created. Most of these jobs will be in remanufacturing, which can be located in previous industrial heartlands, which are undergoing a low carbon transition and typically have relatively high levels of unemployment.  To decarbonise the economy and develop the circular economy, the government must ensure that the labour force has the right skills, that there is adequate infrastructure investment, and of the right kind, to facilitate the transition. This should include a ‘net zero test’ at the heart of decision making.  Government also needs to create a clearer long term vision, with smarter targets and a roadmap to create a genuinely circular economy. So far, it has advocated for a ‘more’ circular economy, but mainly focused on end-of-life treatment and, lately, on . This approach does not give the private sector the right signals when it comes to activities like repair and reuse and misses out on the greater potential they offer in terms of resource and carbon savings, as well as greater employment.  The tax system must also be used to its full potential. The high cost of labour in the UK, combined with the relatively cheap price of resources in some instances, presents a major barrier to a successful circular economy. The current VAT system also results in several environmental perversities that prevent more sustainable industries emerging.

Detailed comments

1. What estimates are there for the jobs required to meet the pathway to net zero emissions, by sector, and other environmental and commitments? GRJ0064

1.1 Green Alliance and WRAP’s 2015 paper estimated that an ambitious transition to a circular economy could create 517,000 gross jobs in recycling, remanufacturing, reuse/repair and servitisation, which means it could account for around 1.5 per cent of the UK’s entire labour force.i This scenario assumed an 85 per cent recycling rate; a fifty per cent increase in remanufacturing; a 25 per cent increase in reuse; and a doubling of the servitisation industry. 1.2 Most of the jobs created would be in remanufacturing, which could build on a considerable starting base to support a further 312,000 new jobs. However, it is worth noting that those jobs created by activities like reuse and repair and recycling though lower in number are likely to be well dispersed geographically, as they would usually need to be located close to where products and materials are used to be economically beneficial, so would be needed in every locality.ii Remanufacturing has potential to be more concentrated, potentially at or near current or historic centres of . 1.3 The original research focused on net job creation, which of course will be lower, since some existing employment will be displaced, and some of the new jobs will be taken by the employed rather than the unemployed. In the most ambitious scenario, direct net job creation was expected to reach 102,000, though there would also be significant scope for indirect job creation, too. 1.4 The impact of COVID 19, though, means that the net jobs figure would likely be higher if the analysis was reconducted now. As unemployment rises, which may happen rapidly over the next year, circular economy jobs – and green jobs in general – are more likely to be taken by the newly unemployed, as opposed to those currently employed switching jobs. 1.5 What’s more, policies that would rapidly increase employment, in this instance in green industries, would likely be the most beneficial in the long term, as such an approach would prevent ‘scarring’, where workers who are unemployed for long periods lose skills and become disengaged, making it harder to find employment in the long term. 1.6 A Green Alliance review in 2020 identified jobs that could be created for ‘shovel ready’ projects in the UK related to environmental objectives. For renewable energy including solar and wind power and battery storage, Regen has estimated that there are 18GW of green energy installations that already have planning permission and, if they are accelerated, could create 200,000 jobs. The TUC has suggested that investing £1.2 billion to purchase 4,000 electric buses would create 10,000 jobs over two years and that ensuring half of all UK towns and cities have best practice cycle lanes and pedestrianisation would create 103,000 jobs over two years. Transition Economics has found that accelerating the roll-out of rural EV charging infrastructure to cover 56 per cent of rural businesses could provide 23,700 jobs in manufacture, installation and maintenance over the two-year stimulus period. And Wildlife and Countryside Link has estimated that 330 projects that are ‘ready to go’ and that would involve activities including habitat restoration and planting at least 4.5 million trees could provide 5,000 full time equivalent jobs in the environmental sector, and 5,000 jobs in delivery and the supply chain.iii 2. Does the UK workforce have the skills and capacity needed to deliver the green jobs required to meet our net zero target and other environmental ambitions (including in the 25-year environment plan)? 2.1 The potential skill needs by circular economy activity are presented in the table below.iv GRJ0064

2.2 Crucially, circular economy jobs can generate a wide range of job types from low to high skilled occupations, especially if developed in conjunction, as there are differences between the skills required for different circular economy activities. 2.3 Remanufacturing, in common with original manufacturing, requires skilled workers. This is the circular economy area with the largest potential increase in green jobs, but also the largest need to invest in training to upskill the workforce to deliver it. 2.4 For recycling, particularly open loop recycling, low-skilled jobs in activities like collection and sorting are likely to dominate, which would require minimal training, although semiskilled and skilled jobs would emerge for technical sorting systems and logistics. Similarly, reuse would be likely to generate low to mid-skilled employment in centres handling secondhand goods and repair shops. 2.5 Servitisation would create some new skilled jobs in engineering and servicing activities, as well as creating employment in areas where transferable skills are likely possible, including professional, IT and leadership roles. Servitisation is also likely to require the development of digital marketing platforms, social media, and other sales and marketing channels for these innovative services.

4. What measures should the Government take to ensure that its proposals to meet environmental targets do not by default lead to jobs in affected industries being exported? 4.1 One way that the government could decarbonise the economy while keeping or even creating jobs domestically, is by adopting a consumption-based emissions approach and ensuring that this is much more prominent on the global scale. This would move with the trend in scientific bodies including the UK’s Committee, as well as the IPCC, whose Working Group III on mitigation will be giving consumption based emissions equal billing to territorial emissions in their 2021 report.v 4.2 Currently, the UK is well placed to lead on this agenda, given its role hosting the UN climate summit in November, as well as the relatively developed state of accounting for our consumption based emissions. At the same time, there is a clear moral reason for the UK to lead, as the country’s consumption-based emissions are high. Consumption emissions are approximately 50 per cent higher than our production- based emissions, and between 1997 and 2013, offshoring manufacturing to other countries accounted for nearly 40 per cent of reductions in UK territorial emissions.vi This does not lower global emissions unless the producing country has lower carbon production. Addressing this would likely be a double edged sword for the countries that currently manufacture many of our goods, as the impact on the environment would likely be positive, but the impact on the economy could be problematic, unless the move is carefully managed to create more sustainable economies abroad, as well. These issues should be on the agenda at COP26. GRJ0064

4.3 Another development that should be pursued, preferably in partnership with international allies, is the creation of a border carbon adjustment mechanism. This would increase the impetus for all trading partners to lower carbon emissions and prevent carbon leakage, which would have a knock on effect on jobs. 4.4 Many types of circular economy jobs and jobs in energy efficiency, meanwhile, would be resilient to offshoring. Where broken products could once mean importing new ones, the circular economy can now provide employment to fix them locally.vii Circular repair services, like jobs in energy efficiency provision, are likely to be local and therefore cannot be exported by their nature. 5. What risks are there to meeting the Government’s ambitions for green job creation in both the public and private sectors? What should the Government do to create the conditions to ensure its commitments are met by both sectors? 5.1 Infrastructure investment will drive green employment or lack thereof. As a first step, the government must avoid further investment in high carbon industries and infrastructure. Government should put net zero at the heart of all infrastructure decisions, with a ‘net zero test’ embedded across the board for the government's decision making process. This would ensure all public spending and policy decisions are aligned with the net zero goal and mitigate the risk of investing in high carbon infrastructures and locking in high carbon employment. 5.2 Our research has shown there is an £11.4 billion gap in investment for net zero infrastructure across transport, buildings, natural infrastructure and the circular economy in 2020-21 alone.viii 5.3 To deliver employment and carbon savings that could be achieved through the circular economy in particular, government needs to lead with an overarching vision and a long term delivery strategy, and this greater certainty will help the private sector make the right investments. 5.4 So far, it has embraced the theory behind a circular economy, but this vision remains, for the most part, vague, and usually constrained to Defra, rather than cross- governmental. Often, government documents indicate a simple desire for ‘more’ circularity with no clear end goal or roadmap to achieve it, and piecemeal, economy- wide targets are unlikely to deliver on its potential. What’s more, the policy proposals that have emerged from the 2018 resources and waste strategy still rely on recycling as the main mechanism for driving action, which misses out on the greater potential of activities like reuse and repair, in terms of resource and carbon savings, as well as greater employment. 5.5 Infrastructure in this area, guided by the government approach, is perpetuating the linear economy. Defra’s Waste Infrastructure Delivery Programme through which £3 billion has been committed by government and industry to 2042, is dedicated to residual waste treatment, predominately generating energy from waste. There is no major government funding for recycling, resource efficiency or circular economy infrastructure, and these installations are not even effectively tracked.ix 5.6 The Green Investment Bank, when it was government owned prior to 2017, also dedicated the vast majority of funds in resources and waste to end of life treatment; this is despite the government’s claim that the bank would address “market failures which are constraining the flow of finance”, and calls from the Environmental Audit Committee for it to “finance innovative technologies to support a circular economy”. Nearly all its investments went towards residual waste treatment. Companies offering solutions to avoid waste, such as disruptive design, new business models and reuse, received no funding at all. GRJ0064

5.7 This is a problem, not least as there are many more jobs in materials recycling, repair and reuse than in waste treatment and disposal. For every thousand tonnes of material, there are between two and ten jobs in recycling as opposed to 0.1 job in waste treatment and disposal. Reuse and remanufacturing generate many more jobs – with some estimates suggesting they could reach 20 jobs per tonne of material handled.x This is not to imply that these activities are less efficient: reuse and repair maintain and create greater value for the economy. For highly engineered products, in particular, the vast majority of the value lies in the whole product, which reuse and repair maintain, rather than the materials it contains. 5.8 To promote infrastructure investment that will enable the circular economy and create jobs to support it, Green Alliance recommends that the government carries out an infrastructure stocktake for all materials and waste streams and sets up a materials database within five years. This should be used to assess the current situation as a first step towards establishing a vision and a plan for a genuinely circular economy – should include sector specific partnerships and plans to capitalise on potential. In the very short term, we have also suggested it creates a £400 million circular economy starter fund.xi 5.9 The tax system also needs to play a much greater role in delivering this vision, which has likewise been grasped at least on the theoretical level with the Treasury’s Net Zero Review. 5.10 Currently, only seven per cent of UK tax revenue comes from environmental taxes, which is fairly average for OECD countries but falls well short of potential demonstrated by countries like South Korea or Croatia, where environmental taxes account for 11 per cent of revenue. In the UK, 45 per cent of overall tax revenues, come from taxes on labour, through income tax and national insurance contributions.xii 5.11 The high cost of labour in the UK, combined with the relatively cheap price of resources in some instances, presents a major barrier to a successful circular economy. This is especially the case because VAT is charged on both labour and capital, which disadvantages activities that are labour intensive, including those that would benefit the environment. For example, high labour costs for repair services is a major factor that deters people from mending broken items, and prevents the industry developing. 5.12 The government should seek to implement environmental tax reform that shifts the burden of taxes from goods like labour to bads like resource use, and carbon. Shifting taxes to natural resources would incentivise more careful use of these resources, empowering a circular economy and helping to deliver on net zero. The cost of human resources (manpower, craftsmanship and ingenuity) would come down, which would bring opportunities in labour intensive sectors like repairs and maintenance, and remanufacturing. Such environmental tax reform has proponents including the IMF, the World Bank and the OECD. 5.13 In addition, the government needs to urgently address the current perversities to VAT that are preventing the effective development of long term energy efficiency sectors and a larger renovation industry, as well as repair. Green Alliance’s initial report for our TransformTax project showed the discrepancy between new build and renovation encourages the demolition of useful buildings and misses out on 100,000 jobs, according to Experian analysis. The reduced rate fossil fuel subsidy for home gas use, meanwhile, means the Treasury misses out on £2.2 billion a year that could be targeted at tackling fuel poverty without damaging the country’s chances of reaching net zero.xiii The stop-start approach to energy efficiency, which could more effectively tackle fuel poverty than subsidising high carbon fuels, also means that a GRJ0064

stable, long term industry to maintain the UK’s housing stock has not emerged. Ending the reduced rate VAT, then, could help consolidate the short term impact that the Green Home Grants will have. January 2021

i Green Alliance and WRAP, 2015, Opportunities to tackle Britain’s labour market challenges through growth in the circular economy ii Green Alliance, 2020a, Added value: Improving the environmental and social impact of UK VAT iii All figures appear collated in the annex to: Green Alliance, 2020b, Getting the building blocks right: infrastructure priorities for a green recovery, available at: https://www.green- alliance.org.uk/resources/Getting_the_building_blocks_right_annex.pdf iv Green Alliance and WRAP, 2015, op cit v Speaking at a Green Alliance event in 2018, Professor Jim Skea, who Co-Chairs the IPCC Working Group III, noted of the group’s 2021 report: “The consumption based concept has got in there very squarely and has got equal billing with the territorial emissions.” Consumption emissions, and the need to tackle them are also featuring more prominently in CCC advice, including for the 6th Carbon Budget. vi Green Alliance, 2020c, Balancing the energy equation: three steps to cutting UK demand vii Green Alliance, 2015, Jobs and the circular economy: three scenarios for Scotland viii Green Alliance, 2020b, op cit ix Green Alliance, 2019, Building a circular economy: how infrastructure can support resource efficiency x Green Alliance, 2014, More jobs, less carbon: why we need landfill bans xi Green Alliance, 2019, op cit xii Office for Budget Responsibility, March 2020, “Economic and fiscal outlook” xiii Green Alliance, 2020a, op cit