Time for a Green New Deal, say British economists

By agency reporter
9 Dec 2009

As the UN climate change talks take place in Copenhagen, and in concert with the government's pre-budget statement, the second report from the authors of the original Green New Deal argues that the British Chancellor is likely to miss a historic opportunity to tackle public debt, create thousands of new green jobs and kick-start the transformation to a low-carbon economy.

'The cuts won’t work', the Green New Deal Group’s second report shows how, contrary to the policy of all the major political parties, cutting public spending now will tip the nation into a deeper recession by increasing unemployment, reducing the tax received and limiting government funding available to kick-start the Green New Deal.

Instead a bold new programme of ‘green quantitative easing,’ rather than simply propping up failing banks, could help reduce the public debt and kick-start the transformation of the UK’s energy supply while creating thousands of new green-collar jobs.

Drawing on evidence from the great depression in the UK and the USA, the Group show how cuts in public spending, made before the economy had recovered, tipped both nations deeper into depression.

Now, the Group say, the Chancellor must announce a plan that updates the lessons from history for the challenges of the modern world, and spend to reduce the public debt by investing in the long-term restructuring of the UK’s energy infrastructure needed to meet the challenges of climate change and the inevitable peak and decline of oil.

To illustrate the potential of ‘green quantitative easing’, new calculations produced by nef (the New Economics Foundation) for the Group reveal that:

A sample of £10 billion in green quantitative easing invested in the energy efficiency sector could:

Create 60,000 jobs (or 350,000 person-years of employment) while also reducing emissions by a further 3.96 megatonnes (Mt) of CO2 equivalent each year;
Create public savings of £4.5 billion over five years in reduced benefits and increased tax intake alone.

A sample of £10 billion in ‘green quantitative easing’ invested in onshore wind could:

Increase wind’s contribution to the UK’s total electricity supply from its current 1.9 per cent[i] to 10 per cent (39 terawatt hours);

Create over 36,000 jobs in installation and direct and indirect manufacturing.

This is a total of 180,000 job-years of employment - here we have described each ‘job’ as providing stable employment for an average of five job-years.

Create a further 4,800 jobs in the operations and maintenance of the installed capacity and other related employment[ii] over the entire 20 year lifetime of the installation (equivalent to 96,000 job-years)

And, if this directly replaced energy from conventional sources, it could decarbonise the UK economy by 2.4 per cent.[i] - reducing emissions from the power sector by up to 16 Mt[iii]CO2e[iv] each year This corresponds to a £19 billion reduction in environmental damage

Or, a sample investment of £10 billion could:

re-train 1.5 million people for the low-carbon skills of the future, bringing 120,000 people back into the workforce, and increase the earnings of those with a low income by a total of £15.4 billion.

The Group recommends:

A £50 billion programme in ‘green quantitative easing’ in the short term to rebuild the economy. This is the amount of annual spending recommended by some of the most comprehensive analyses to date of the amounts needed to re-engineer the UK economy to meet the challenges of a low carbon future;

Planning to begin for all of the new forms of bond finance detailed in the Group’s report to ensure the long-term stable funding needed for the long-term transformation of UK infrastructure.
Once spending on the green economy of the future has breathed life back into the deflated economy, the Green New Deal will require a whole new savings and investment infrastructure to meet its long-term investment needs and those of a new generation of investors who are fed up with all that has gone before.

This means secure new forms of saving which promise stable returns over the longer-term. The Group put forward a range of new measures to help public borrowing and encourage public investment by individuals, local authorities and companies in greening and reviving the economy. The foundations for these must be laid now. These include:

Measures on tax which are explicitly designed to re-gear the UK economy and transform energy infrastructure:

Tax incentives on green savings and investment, so that future ISA tax relief – costing more than £2 billion a year – is only available for funds invested in green savings (tax relief for ISAs was more than the whole green stimulus package announced in the 2009 Budget, estimated to be worth just £1.4 billion).

A general tax-avoidance provision to end the abuse of tax allowances. If just half of the tax avoidance in the UK was stopped by this provision, it would raise more than £10 billion a year.

A Financial Transaction Tax, commonly known as a “Tobin Tax”. Such a tax, applied internationally at a rate of about 0.05 per cent has the potential to raise more than £400 billion a year. This could be the basis for a Green New Deal in the Global South, playing a significant role in enabling the majority world to adapt to climate change as well as breaking the carbon chains of fossil fuel dependence.

New savings mechanisms that support the greening of the economy now, create thousands of new jobs and guarantee stable returns into the future.

Green bonds, which will be issued by the government with the explicit guarantee that the funds raised will be invested in new green infrastructure for the UK. The bonds will carry conventional rates of return for bonds.

Local authority bonds, to invest in energy efficiency and provide renewable energy for each of the country’s three million council tenants, as well as for all other local authority owned or controlled buildings, such as town halls, schools, hospitals and transport infrastructure.

Carbon linked bonds, to align investment returns with carbon saving and create a significant body of investors who will take the risk on there being carbon savings that can be secured.

A new publicly owned ‘Green New Deal Investment Bank’ to allocate the capital provided by green quantitative easing, and new bank lending to government.

The Green New Deal Investment Bank, a publicly owned bank, would hold and disburse capital provided by ‘green quantitative easing’. It would be used exclusively to fund companies and projects designed to accelerate the transition towards a low carbon economy.

Treasury Deposit Receipts, like those issued during the Second World War, a mechanism whereby banks were forced to use their ability to create credit to lend to government.

The Green New Deal Group believe that despite the appearance of calm, the need for the implementation of the Green New Deal is greater than ever. When the Group launched their first report, new analysis suggested that from 1 August 2008 there were, at most, 100 months in which to stabilise concentrations of greenhouse gases in the atmosphere before we hit a potential point of no return. The climate clock is still ticking and nothing like the scale of reform needed to rapidly re-engineer the economy has been implemented, anywhere.

This could be a real opportunity for the UK to show global leadership by implementing an interlinked package recognising the need for targeted public spending in a downturn. It would revitalise the productive economy and lay the foundations of the low-carbon infrastructure of the future rather than supporting an economy hard-wired into an ever increasing use of fossil fuels.

The opportunity for action is even more pressing than it was when President Franklin Roosevelt instigated his bold New Deal programme that touched almost every aspect of economy and society. The timescale is limited by the urgent need to stabilise concentrations of greenhouse gases in the atmosphere before the risk of uncontrollable global warming increases significantly.

Today, they say, there is a plan on the table that could revitalise our damaged economy while also radically restructuring it for a low carbon future. Now the vision is needed to implement it before it is too late.

New Economics Foundation (nef): http://www.neweconomics.org/

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