Three reasons a weak pound is bad news for the environment

 

Dragon Claws / shutterstock

The day before new UK chancellor Kwasi Kwarteng’s mini-budget plan for economic growth, a pound would buy you about $1.13. After financial markets rejected the plan, the pound suddenly sunk to around $1.07. Though it has since rallied thanks to major intervention from the Bank of England, the currency remains volatile and far below its value earlier this year.

A lot has been written about how this will affect people’s incomes, the housing market or overall political and economic conditions. But we want to look at why the weak pound is bad news for the UK’s natural environment and its ability to hit climate targets.

1. The low-carbon economy just became a lot more expensive

The fall in sterling’s value partly signals a loss in confidence in the value of UK assets following the unfunded tax commitments contained in the mini-budget. The government’s aim to achieve net zero by 2050 requires substantial public and private investment in energy technologies such as solar and wind as well as carbon storage, insulation and electric cars.

But the loss in investor confidence threatens to derail these investments, because firms may be unwilling to commit the substantial budgets required in an uncertain economic environment. The cost of these investments may also rise as a result of the falling pound because many of the materials and inputs needed for these technologies, such as batteries, are imported and a falling pound increases their prices.

Aerial view of wind farm with forest and fields in background
UK wind power relies on lots of imported parts.
Richard Whitcombe / shutterstock

2. High interest rates may rule out large investment

To support the pound and to control inflation, interest rates are expected to rise further. The UK is already experiencing record levels of inflation, fuelled by pandemic-related spending and Russia’s war on Ukraine. Rising consumer prices developed into a full-blown cost of living crisis, with fuel and food poverty, financial hardship and the collapse of businesses looming large on this winter’s horizon.

While the anticipated increase in interest rates might ease the cost of living crisis, it also increases the cost of government borrowing at a time when we rapidly need to increase low-carbon investment for net zero by 2050. The government’s official climate change advisory committee estimates that an additional £4 billion to £6 billion of annual public spending will be needed by 2030.

Some of this money should be raised through carbon taxes. But in reality, at least for as long as the cost of living crisis is ongoing, if the government is serious about green investment it will have to borrow.

Rising interest rates will push up the cost of borrowing relentlessly and present a tough political choice that seemingly pits the environment against economic recovery. As any future incoming government will inherit these same rates, a falling pound threatens to make it much harder to take large-scale, rapid environmental action.

3. Imports will become pricier

In addition to increased supply prices for firms and rising borrowing costs, it will lead to a significant rise in import prices for consumers. Given the UK’s reliance on imports, this is likely to affect prices for food, clothing and manufactured goods.

At the consumer level, this will immediately impact marginal spending as necessary expenditures (housing, energy, basic food and so on) lower the budget available for products such as eco-friendly cleaning products, organic foods or ethically made clothes. Buying “greener” products typically cost a family of four around £2,000 a year.

Instead, people may have to rely on cheaper goods that also come with larger greenhouse gas footprints and wider impacts on the environment through pollution and increased waste. See this calculator for direct comparisons.

Of course, some spending changes will be positive for the environment, for example if people use their cars less or take fewer holidays abroad. However, high-income individuals who will benefit the most from the mini-budget tax cuts will be less affected by the falling pound and they tend to fly more, buy more things, and have multiple cars and bigger homes to heat.

This raises profound questions about inequality and injustice in UK society. Alongside increased fuel poverty and foodbank use, we will see an uptick in the purchasing power of the wealthiest.

What’s next

Interest rate rises increase the cost of servicing government debt as well as the cost of new borrowing. One estimate says that the combined cost to government of the new tax cuts and higher cost of borrowing is around £250 billion. This substantial loss in government income reduces the budget available for climate change mitigation and improvements to infrastructure.

The government’s growth plan also seems to be based on an increased use of fossil fuels through technologies such as fracking. Given the scant evidence for absolutely decoupling economic growth from resource use, the opposition’s “green growth” proposal is also unlikely to decarbonise at the rate required to get to net zero by 2050 and avert catastrophic climate change.

Therefore, rather than increasing the energy and materials going into the economy for the sake of GDP growth, we would argue the UK needs an economic reorientation that questions the need of growth for its own sake and orients it instead towards social equality and ecological sustainability.The Conversation

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This blog is written by Cabot Institute for the Environment members Dr Katharina Richter, Lecturer in Climate, Politics and Society, University of Bristol; Dr Alix Dietzel, Senior Lecturer in Climate Justice, University of Bristol, and Professor Alvin Birdi, Professor of Economics Education, University of Bristol. This article is republished from The Conversation under a Creative Commons license. Read the original article.

The opportunities for and limits of green growth in cities

Prof Andrew Gouldson of the University of Leeds ESRC Centre for Climate Change Economics & Policy, came to visit the Cabot Institute on 10 October 2013 and gave a talk entitled Towards low carbon, climate resilent cities? The opportunities for and limits of green growth. Here I outline some of the key points made by Andrew and whether green growth is a viable way to grow the economies of cities whilst undertaking decarbonisation initiatives, using facts and figures taken from Andrew’s talk.

The emergence of green growth

There has been a rapid emergence of green growth over the last few years but there has also been a big debate around whether green growth is a valuable way to tackle climate change.  Andrew himself said that responses to climate change should be scientifically justified, socially supported, technologically possible, economically viable and politically acceptable.  It could be said that green growth really emerged from the publication of the infamous Stern Review which changed the political landscape on climate change.  The Stern Review, published in 2006, is the most widely known publication properly costing the impacts of climate change on the global economy.

Andrew pointed out that Stern’s work looked at the global scale whereas his research looks at the economic impact of climate change on the local or ‘city’ scale.   Andrew asked himself is there a similarly compelling economic rationale for action on climate change in cities?

Why cities?

There are several good reasons why we should be looking at economic impacts of climate change on cities.  Cities are home to over half of the world’s population, they are rapidly growing and 70% of GDP is generated in these big urban spaces.  Cities are also major growth poles and drivers for economic growth.  Any climate change impacts are going to be felt hard by the vast populations that live there.

With this in mind and the fact that cities account for 70% of global energy consumption, cities seemed a good place for Andrew and his team at Leeds to conduct a ‘mini Stern review’ resulting in the publication of a report called The economics of low carbon cities.  The city of Leeds was looked at as a starting point, but this initial report led to looking at other UK cities and now other cities around the globe including Kolkata in India.

The economics of low carbon cities report has built a baseline that develops scenarios based on the continuation of current trends, for example, water use in the city. Realistic data is collected on costs, benefits and scope for the deployment of each carbon saving measure in a city.  For example, how many south facing roofs are there in the city which can be fitted with solar PV panels? How much would it cost to install the panels? What are the benefits and how much could be saved on energy bills?  This valuable information can be collected and presented to city councils to show them how they could decarbonise their city, and how householders could save on energy bills in the long run.

Case study: Birmingham

In Birmingham, Andrew suggested that approximately £5.1 billion left the city economy in 2011 just from the payment of the energy bill.  If Birmingham invested £3.6 billion into green growth, this would cut energy bills by £950 million a year and would pay back investments in only four years.  This could potentially cut carbon by almost 11% (read the Birmingham report for more information).  Obviously much bigger carbon savings are to be had with more investment and by tackling the decarbonisation of the National Grid, increasing energy prices and utilising further cost-effective and cost-neutral measures within the city.

Looking at energy use in the UK, it has actually decreased by 15% in the last 4 -5 years.  Two reasons could be the recession and rising energy costs.  Recently there have been announcements by energy companies to increase their energy bills even further, some by over 8%, and it is estimated that this increase could lead to a 22% cut in energy usage.  This is all good for decarbonisation targets but not good for energy justice.  This is why it is imperative that green growth receives investment in all UK cities so that having ways to save energy and produce your own energy are embedded into the structure of cities and people’s households.  This makes households more resilient to rises in energy prices.

Can we decarbonise cities in the next 10 – 20 years?

There is definitely potential for green growth in cities however this will not happen unless institutions innovate and unlock the potential for decarbonisation and there is governance right from the start of early stage transitions.  It would be sensible to realise that green growth may only lead to partially decarbonised and mildly carbon resilient development in cities due to our current political and economic resources.  Andrew suggested the sobering conclusion that the benefits of green growth are likely to be eroded by continued growth and by on-going climate change and this is the crux of the limits to green growth.

Eventually as we transition our cities towards decarbonised goals, cities will have to be future proofed.  As Andrew pointed out, this means drastically changing their structure, function and efficiency.  It is up to us to create the future of cities by embracing decarbonisation and encouraging our local governments to invest in decarbonisation projects such as retrofitting and changing people’s behaviour.  As Andrew concluded, it’s no good having an A-rated home if there is an F-rated person living in it!

Listen again to Andrew Gouldson’s talk.

This blog was written by Amanda Woodman-Hardy, Cabot Institute Administrator, University of Bristol.
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Amanda Woodman-Hardy