Green tech and ‘picking winners’

There is a received wisdom in orthodox economics and treasury theology that argues against governments ‘picking winners’. The classic example that this is not a good idea would be Concorde – a winner ‘picked’ by the UK and French governments which went massively overbudget, and never succeeded in claiming more than a very small niche market with few commercial spin-offs.  

So why are both the recent UK Budget and net zero and so called ’powering up’ announcements  and the Labour Party’s ‘five missions’ both committing heavily to picking the winner of green (particularly net zero) technology. And have the government in particular gone too far in injecting quite large amounts of cash into hydrogen, carbon capture and storage, modular nuclear and heat pumps, without a compelling analytical rationale?

Short term thinking

From a classical economics standpoint, we are taught that government intervention should be the answer to market ‘failures’. Examples include the need to regulate natural monopolies (such as water) to avoid overpricing (and underinvestment in Research and Development), protection of the environment, addressing ‘barriers to entry’ and ‘information asymmetries’, and  the provision of ‘public goods’ such as the road network. 

A further rationale for intervention is that individuals (and companies) have been shown to undervalue the long term and have a tendency to think excessively short term: in theory at least (and political cycles notwithstanding) governments can fill this gap by taking a long-term view. 

While picking individual technologies might not always be sensible or fair, there are credible arguments using the above rationale for government action, for saying that the government should indeed promote green technology in some way or other. 

Some of the technologies are concentrated in the monopoly parts of the energy networks, which would otherwise underinvest and research. The technologies are long term, so the private sector may underinvest in them. 

And it is entirely reasonable to say that net zero technologies will in all probability be an increasingly important part of the global marketplace in years to come, so, particularly in a post-Brexit world, it may well be prudent to promote the UK as an early mover in technologies and services in an area where we know there will be future demand. This is particularly true where the UK has a comparative advantage such as offshore wind.

Ad hoc investments

All of this is a classic component of what should be covered in the green technologies part of a national  industrial strategy – the IS part of what used to be BEIS.     

So how can the government promote green technologies, without bias or ‘picking winners’? 

What is needed crucially is transparency and consistency about the government’s aims in addressing net zero, and how it intends to get there. We (and more importantly the climate change committee in its sixth carbon budget) have argued for a clear framework against which decisions can be made: perhaps using the sustainability principles which we as a think tank have been developing for several years. 

This is where the government’s specific announcements  – for example the investment in carbon capture and storage and in modular nuclear with only modest investment in proven energy efficiency solution - seem at best ad hoc (and quite possibly sub optimal). Despite a methodological annex to the powering up documents we are little the wiser as to why the government has opted for these solutions or how they have decided the quantum of investment or the way they have chosen to fund them.

The material does not answer the analysis in the sixth carbon budget that a net zero strategy concentrating on infrastructure and technology would drive up average costs significantly compared to a balanced portfolio of actions including meaningful behaviour change. Indeed, this has been  largely ignored – despite the success during Covid, behaviour change solutions still tend to be underinvested in across the economy (see for example the reluctance to introduce road pricing).

Coherent framework

Furthermore, why choose ringfenced funding for nuclear over, say, placing tidal power with the wider competition framework for renewable funding – when nuclear technology is largely imported and the UK has a major advantage in the form of the tidal variation in and around the Bristol channel (and tides are not ‘interruptible’ in the sense that wind power is). There may be a coherent reason but we haven’t heard it. (Interestingly, the Welsh Government appear to be prepared to invest directly in tidal development, without competition with other renewables, albeit on a small scale.)

And why put billions of your eggs in the Carbon Capture Storage (CCS) basket, even allowing for the fact that the North Sea and Morecombe bay gas fields give a ready potential carbon store, without major investments too in energy storage and a balanced investment in other forms of carbon fixing?

We don’t disagree with a government role in promoting the green technology sector. But we would argue strongly for a coherent and consistent framework within which individual and business decisions can be taken and government decisions justified: this would in the past, and really should in 2023, have accompanied the Budget statement. 

At a minimum perhaps some key questions need answering on each investment in a given technology:

  • Is this likely to be lowest cost?
  • What is the rationale for government intervention?
  • Are there systemic interventions (e.g. a carbon tax) which could avoid some of the need to pick winners
  • Is this a sector where the UK has a comparative advantage in and what is the strategy for exploiting these and growing export products and services?
  • How have we balanced investment against the proven case for behaviour change and managing demand
  • How do these measures work with existing announcements on electric cars etc
  • What is the full answer to decarbonising heat and how do the proposed investments in and the case for CCS sit against this 
  • How have any significant environmental disbenefits of CCS/nuclear/hydrogen – such as water use and creation of very long-term waste – been taken into account 

And we haven’t even addressed the crucial issue of equity or a just transition to net zero.

Despite commitments to net zero by 2050, we are still to a fairly large extent unclear about how exactly the government will achieve this – the existing policies seem still to fall short. 

Martin Hurst is an Associate at Sustainability First (This email address is being protected from spambots. You need JavaScript enabled to view it.)