Don’t enter green subsidy race with US and EU, influential think-tank tells UK Government

Conservative-leading think-tank Policy Exchange has advised the Government against blindly entering a green industrial subsidy competition with the EU and the US, which are both spending billions subsidising low-carbon industries.

Don’t enter green subsidy race with US and EU, influential think-tank tells UK Government

The call to action is contained in a new report released by the think-tank this week. It is penned by Sir Geoffrey Owen, the head of industrial policy at Policy Exchange and the former editor of The Financial Times.

In the face of recent global shocks, including the Covid-19 pandemic, the US-China trade war, and Russia’s invasion of Ukraine, the report highlights that the US and the EU have embraced interventionist industrial policies, such as the US’s Inflation Reduction Act and the EU’s Green Deal.

These policies aim to strengthen domestic industries and reduce dependence on external suppliers of key low-carbon raw materials and products.

The report questions whether the UK should follow suit, advocating for a more measured and deliberate approach, given that it cannot simply outspend these larger economies.

Instead of an attempt at mimicking these interventionist policies, the report advises the Government to adopt consistent and predictable policies that the business community and investors can rely on.

The report’s author Sir Owen said: “What is needed, in place of the erratic approach that has characterised UK industrial policy in the last few years…is an industrial policy around horizontal, non-sector-specific, measures which support investment in all industries.

“Any Government support for particular industries should be provided on a competitive basis, allowing scope for new entrants as well as established producers.”

Support for sector-specific industries

The report argues that any sectoral intervention should have clearly defined objectives, whether for national security, safeguarding critical materials, or promoting decarbonisation, and such interventions should be closely monitored.

Additionally, the Government has been advised to exercise caution when using the term “strategic” as a justification for sectoral intervention, clearly explaining why one industry is deemed more strategic than another.

Lastly, the report suggests that any Government support for specific industries should, as much as possible, be provided on a competitive basis, in a bid to foster opportunities for both new entrants and established producers.

Liberal Democrats’ science and technology spokesperson Lord Clement-Jones said: “In the fact of increasing protectionism, it is vital that the UK avoids being drawn into a costly subsidy race – and whilst it is important to support enabling technologies, such as batteries, this should be done in a way that supports competition and the entry of innovative new companies to the market.”

Last year, the Institute for Public Policy Research (IPPR) cautioned that the UK is missing out on economic opportunities arising from the global transition to a net-zero carbon future, primarily due to the absence of a well-defined green industrial strategy.

Studies indicate that overlooking the reinforcement of the industrial sector and addressing international competition may expose the UK to a potential loss of £224bn by the year 2050.

Related feature: Does the UK need its own version of the Inflation Reduction Act?

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