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The colour of growth Maximising the potential of green business The colour of growth: Maximising the potential of green business 3 Contents Forewords 4 Executive Summary 6 Recommendations 7 The low-carbon economy could be a real engine of growth in the UK 8 There is a risk that this potential will not be realised 14 Improved conditions are needed to drive low-carbon 18 markets and stimulate investment This should be underpinned by a strategic approach to 24 maximise economic value Conclusion: this smarter approach could come with an economic prize 30 Annex 32 References 33 Case studies Lloyds Bank – lending to sustainable projects in mid-sized businesses Sainsbury’s – improving their bottom line through energy efficiency Nissan – transforming the automotive market Sentec – innovative mid-sized business exploiting global markets Kelda Group – facing the complexity of the Carbon Reduction Commitment (CRC) Carillion Energy Services – gearing up for the Green Deal Atkins – exporting low-carbon expertise abroad 4 The colour of growth: Maximising the potential of green business Foreword John Cridland With the current levels of economic uncertainty, and Finally, we need to think more strategically if we are prospects of only modest growth in the UK, it is easy to make this low-carbon transition a reality and to understand why some people are fearful that ensure it works for all business sectors. If we cut ‘going green’ might further dent the economic carbon emissions, but harm those very energy- recovery. For me, this is a false debate. intensive industries at the heart of the low-carbon transition, then we will have failed. Helping them In this report, the CBI makes clear the case for with the impact of carbon prices is an integral part of tackling head-on the critical challenges of energy the low-carbon revolution. security, affordability and climate change. It isn’t a lofty ideal to aspire to – there is a hard-nosed If we can make the right choices, the UK has the economic argument that moving to a low-carbon potential to earn a significant prize – grabbing our economy can drive significant business investment share of a growing global market and injecting and create many new jobs across the country. around £20 billion into the economy. Let’s not waste this opportunity. This is happening now, in every sector, in every region, and if we can build on these foundations, it can be a catalyst to transform our export figures and rebalance our economy over the long-term. ‘Green’ and ‘growth’ can go hand-in-hand, but in the current situation there are no guarantees. If the UK is to reach its full potential as a global green market John Cridland leader, we have to be smarter in our approach. Director-General, CBI Building confidence in new technologies and markets is essential to get ahead of the game. But if we can’t be sure that the policies of today will be the policies of tomorrow, investors will simply spend their money elsewhere. The UK also needs to address the complexity of its policies – to encourage those ready to invest, rather than confuse them. The colour of growth: Maximising the potential of green business 5 Foreword Ben Verwaayen We believe that green and growth go together. In 2012, we stand by these three components and But that cannot just be a strategy – it must be believe the case for putting them at the top of the an execution deliverable. It is not enough that economic agenda is now more important than ever. business is simply convinced. It has to be We need to embrace change and new thinking. embedded and embraced by society too. Business is ready and forging ahead. We need As a business community of the leading companies government to help create the opportunity too. in the UK, we believe that tackling energy and The choice is really ours. climate change challenges is one of the single biggest opportunities for our century. It is not an obstacle which is conditioned by tough economic times. Business has proven that green can lead to growth through low-carbon investments and new innovation. And business investment in sustainable solutions can also create tremendous opportunities Ben Verwaayen for economies across the globe, particularly in Chairman, CBI Energy and Climate Change Board today’s connected world. and Chief Executive Alcatel-Lucent In 2007, we stated three components for success. Politicians must give greater priority to the triple challenge of decarbonisation, energy security and energy affordability, consumers have to be empowered to make the right decisions with facts, and business must become green to grow. 6 The colour of growth: Maximising the potential of green business Executive Summary Almost four years after the UK’s ground-breaking If we are to capture the full value of the low-carbon transition in the Climate Change Act was passed, and two years UK, we need to think about what a smarter approach looks like since the Coalition government stated its ambition within the context of a broader industrial strategy. We should look to be the ‘greenest government ever’, we now find to build up and promote UK strengths, identify strategic ourselves in a significantly different economic and opportunities and ensure that we have the right institutions and political climate. With a technical double-dip intellectual infrastructure to underpin these activities. In doing so, recession now a reality and private sector growth we can make sure that the UK is best placed to supply – and export at the top of the agenda, some are questioning – the solutions. whether there is still room for ‘going green’. The Joining all the dots in a coherent and strategic way could come with business response is definitive and emphatic: a significant economic reward, boosting the UK’s economy by just green is not just complementary to growth, but a under £20 billion and improving our trade balance by almost £0.8 vital driver of it. billion in 2014/15. With our eye firmly on the prize, government and One only has to look at the statistics to see the size of the business must work together in a proactive and pragmatic way to opportunity. In trying economic times, the UK’s green business has fully maximise the UK’s green growth potential. continued to grow in real terms, carving out a £122 billion share of a This report argues that: global market worth £3.3 trillion and employing close to a million people. And in 2014/15, it is expected to roughly halve the UK’s • The low-carbon economy could be a real engine of growth in trade deficit. Many of the case studies in this report illustrate the the UK commercial realities of the opportunities presented by tackling our • There is a risk that this potential will not be realised energy security and climate challenges. • Improved conditions are needed to drive low-carbon markets and However we mustn’t fall into the trap of assuming that we can sit stimulate investment back and watch this green growth flourish – global competition to grab these opportunities is fierce, and we cannot afford to take our • This should be underpinned by a strategic approach to maximise foot off the pedal. But while business wants to keep up the pace, economic value they are equally clear that the government’s current approach is missing the mark, with policy uncertainty, complexity and the lack of a holistic strategy damaging investment prospects. Getting it wrong on the low-carbon transition could lead to slower green growth, with a risk of losing almost £0.4 billion in net exports in 2014/15. With so much at stake, a smarter and more strategic approach is needed. This requires strong leadership and the right policy framework to unlock business investment, drive markets and excite consumers. This means consistency and certainty – both in policy and in government messaging – to allow businesses to invest with confidence. Decisions this year on Electricity Market Reform will be a key test: getting this policy right, and doing so quickly, is essential to ensuring secure, affordable, low-carbon electricity supplies. And, while this transition can be a good news story for the economy overall, there are costs to be managed. If we are to be market leaders, we need to show the rest of the world that we can do this in a way that works for all parts of the economy. The colour of growth: Maximising the potential of green business 7 Recommendations for government: Maintain the UK’s ambition Reflect the value of all 1 Ensure that the ambition of the 4th Carbon Budget is 6 maintained, if underpinned by a smart UK policy sectors in the economy Develop a long-term strategy for energy-intensive framework which follows the recommendations of this industries, including the further rollout of realistic sector- report, and matched with consistent messaging from all specific decarbonisation roadmaps, which will enable parts of government them to fulfil their role in the low-carbon transition Play a strong role in Europe Build upon the UK’s 2 and internationally 7 Be at the forefront of shaping the future of the EU strengths Play a more proactive role in aligning policy and Emissions Trading Scheme and global climate investment with existing UK strengths, and promoting negotiations these abroad Establish clear and stable Capture greater value from 3 market frameworks 8 Ensure that market signals – particularly within the green investments Identify opportunities to develop domestic capabilities reformed electricity market – have stability and longevity, through targeted interventions and longer-term with any adjustments made