January 17, 2023
The Thin Shoots of Green Growth
Brian Sturgess, Chris Hill and Oliver Ontiveros

The Thin Shoots of Green Growth

 

Brian Sturgess, Chris Hill and Oliver Ontiveros

 

The United Kingdom has made considerable progress in decarbonizing the generation of electricity in recent decades. State intervention may have helped this transition, but the decline in the coal industry and the growth in wind power capacity through subsidy schemes have meant that the low-hanging fruit is all but picked and the real challenge and cost lie ahead as the transport, construction, and household heating sectors electrify. It has been estimated that electricity generation in the UK needs to rise to meet the demand from these sectors from around 300 TWh to around 550 to 680 TWh by 2050.

 

This will require a substantial investment in the country’s housing, EV charging, and electricity distribution infrastructure, education, and training all in a difficult economic climate. There is little in the way of a coherent nor transparent plan by the government to make and budget for this transition which will necessitate public spending at a time when resources are tight and interest rates are rising. The transition will also involve significant costs to households with a downward impact on living standards. [1] One important study on the hidden costs of net zero expects a direct bill to households of £410 billion, an average of £15,000 per household with an additional £56 billion cost of upgrading the distribution system (or £2000 per household).[2]There is only a naïve hope that the new businesses and skills created by this wave of creative destruction of the old energy system, and the knowledge and know-how acquired will provide the United Kingdom with significant countervailing economic benefits in new industrial output and employment. Unfortunately, the most recent official data on the size of the green economy released by the Office of National Statistics in 2022 shows that growth in output and jobs has been decidedly disappointing with few shoots of an all-encompassing green revolution showing above the ground.

 

There is also a widely held belief that the comparative advantage gained in the UK by transforming to a low-carbon economy will feed miraculously into exports which will bolster GDP growth. The Department of International Trade’s trade finance body UK Export Finance (UKEF) has estimated that Green cross-border trade could be worth £1.8 trillion by 2030 with the UK contributing around £170 billion of export sales in goods and services to Britain’s GDP by 2030, or an unimpressively small share global share of just over a tenth of one percent, far less than the country’s 3.2% share of all exports in 2019. Given the scale of this ambition, in its current form, Britain’s green economy and trade remain small. Recent data from the Office of National Statistics has estimated that the value of the output generated by ‘green’ economic activities was £89 billion in 2019, employing 395,000 people and generating exports of £12.7 billion.

 

Size of the Green Economy

 

Statistical estimates of the evolving green economy are in their infancy. The most widely used international comparisons are based on measurements of what is called the Environmental goods and services sector (EGSS) which consists of the output of a diverse set of producers of goods and services aimed at protecting the environment and the management of natural resources. According to Eurostat, Environmental goods and services are products manufactured or services rendered for the main purpose of:

  • preventing or minimizing pollution, degradation, or natural resources depletion;

  • repairing damage to air, water, waste, noise, biodiversity, and landscapes;

  • reducing, eliminating, treating, and managing pollution, degradation, and natural resource depletion;

  • carrying out other activities such as measurement and monitoring, control, research and development, education, training, information, and communication-related to environmental protection or resource management.

Measuring this sector is vital to monitor the progress of climate change-related initiatives such as Europe's transition towards a competitive climate-neutral economy as envisioned under the European Green Deal[3], the Biden administration’s Inflation Reduction Act[4], and the UK’s Ten Point Plan for a Green Industrial Revolution[5]. The EU overall appears to be making progress in its green transformation although there are wide intercountry differences. According to Eurostat estimates using the EGSS framework, employment in the EU’s green economy increased significantly by 41% from 3.2 million full-time equivalents in 2000 to 4.5 million full-time equivalents in 2019, more rapidly than jobs in the overall economy. The environmental economy generated an estimated €799 billion in output and €326 billion in gross value added in 2019 and as shown in Figure 1 between 2000 and 2019 green gross value added grew faster than in the overall economy.

 

Figure 1: Green Growth in the EU 2000 to 2019

 

 

Source: Eurostat

 

Currently, the United Kingdom produces two data sets: information on the Low Carbon and Renewable Energy Economy (LCRE) [6] and data on the broader Environmental Goods and Services Sector. (EGSS) [7] The two are not identical and we will base our analysis of the green economy and its trade potential on the latter given its international comparability. The LCRE, in contrast, is based on a dedicated business survey managed by the ONS identified as of interest from the perspective of domestic low carbon activities while the EGSS data is produced in line with international guidance from the United Nations and estimates cover 17 economic activities ranging from the production of renewable energy to the provision of environmental university education.

 

The picture presented by the official data, with the caveat of its potential inaccuracy given the early stage of compilation, is one of notable underperformance of the British green economy compared to the EU. Over the period of available data from 2010 to 2019, roughly covering the election of the Conservative-dominated Coalition Government to the landslide won by Boris Johnson with the intention of realizing Brexit. Comparing output, employment, and exports with UK GDP in index form in Figure 2 shows that throughout most of this decade green employment, exports, and employment grew more slowly than nominal national output.

 

Green economic output tracked GDP growth for most of this period while employment in green sectors was only 13% greater in 2019, the year before the pandemic struck than it was in 2010.  Green output growth only surged ahead of the overall economy in 2018, but a close inspection of the data shows that this acceleration was due mainly to an increase in renewable energy production which rose by 142% from 2016 to reach £20 billion in 2019. Renewable energy production, one of the green economic activities recorded in the EGSS database increased its output share of total green activities from 3.3% to 22.5% over the period analysed. From 2010 to 2019 the value of output generated from renewable energy production rose by 886%, much more than the 38.8% increase in nominal GDP. In fact, almost two-thirds of the expansion in the measured green economy since 2010 was due to an increase in electricity generated by renewable sources. This in turn has been due to the expansion in offshore wind and to a lesser extent solar capacity, a trend that is expected to continue until 2030 based on current investment plans. [8]

 

Figure 2: Nominal Growth in the Green Economy 2010 to 2019:

2010= 100

 

 

Source: ONS

 

The substantial future investment required to raise the proportion of electricity generated by renewables may be essential to attain carbon emission reduction targets, even though it will exacerbate the intermittency problems facing the grid, but renewable generation alone is not a sound basis for laying down the foundation of a green British economy to meet the coming challenges of decarbonization. Nor will there be a big impact on domestic employment from raising wind capacity apart from short-term erection and later management and maintenance work. The government and opposition politicians such as shadow chancellor Rachel Reeves spin the idea of a wave of green jobs, but there are few practical policies in place yet to facilitate this.

 

The main problem is that the bulk of the green economy is currently spread across a too-narrow range of economic activities, few of them of the scale or the degree of labour intensity capable of generating an employment transformation. Out of the 17 green activities surveyed by the ONS for the EGSS database, Figure 3 shows that nearly two-thirds of total output was accounted for by only four activities: Production of renewable energy, Wastewater, Water quantity management, and Waste.  Out of these four larger sectors, only the Production of renewable energy and Waste at 886% and 55% grew faster than nominal GDP at 39% over the period. Three other smaller-scale green activities grew more rapidly than the rate of growth of the economy: Environmental related education, at 235%; Management of forest ecosystems at 85%; and, Environmental low-emission vehicles, carbon capture and storage, and inspection and control, at 83%. Apart from the latter activity, accounting for just under 9% of all green output, these other sectors are still insignificant and are growing from a very low base with Environmental education accounting for only 0.4% of total output in 2019 and Forest management for 1.5% in the same year.

 

 

The 3: Share of Green Output by Activity

 

Source: ONS

 

 

Green Jobs

 

The lack of diversification in the green economy is also reflected in the employment data, but the long-term challenges to creating many sustainable green jobs are more pronounced. Despite the rhetoric, at the economic level growth in green employment in the UK has been extremely disappointing rising by only 13% from 2010 to 2019, a third of the rate of growth of GDP. Employment fell in 2019 by 5% before the disruption caused by the pandemic and is unlikely to have recovered strongly since then. During the Covid-19 lockdowns, the government set out its Ten Point Plan for a Green Industrial Revolution with a plan to support up to 250,000 new green jobs by 2030 and to seek a productive advantage for Britain in low-carbon economic activities. This was followed by the creation of a Green Jobs Task Force in November 2020 convened by ministers from the Department for Business, Energy, and Industrial Strategy (BEIS) and the Department for Education (DfE) which was composed of members from industry, trade unions, and the skills sector, although no economists. The Task Force produced a report in July 2021 [9] with a set of recommendations to manage the transition with sector and regional employment opportunities.

 

Total green employment in the EGSS database itself is also concentrated with only five activities accounting for 65% of total full-time equivalent jobs in 2019: Waste, 29.3%; Environmental related construction, 11.2%; Water quantity management, 10.8%; Environmental charities, 8.5%; and, Recycling, 5.5% as shown in Figure 4. Of these only one EGSS economic activity in Waste grew faster than GDP over this period, with productivity of £122,000 per employee, and as a result, its share of total green employment expanded marginally over the period studied. Despite being the fastest growing and now the largest sector by the value of output generated the production of renewable energy activity is capital intensive generating 16,700 full-time equivalent jobs in 2019, only 4.2% of the total green employment in the EGSS database. Furthermore, labour productivity in this activity has been steadily rising from £596,000 per employee in 2010 to £1.2 million in 2019 and is expected to continue doing so as more generating capacity is added negating the potential of any green energy jobs miracle arising from an expansion of large-scale renewable generation alone.

 

 

Figure 4: Share of Green Employment by Activity


Source: ONS

 

Each of the 17 EGSS activities’ employment shares, output growth over the period 2010 to 2019, output share, and average productivity over the period is shown in Table 1 ranked by average output per employee.

 

 

Table 1: Green Activity, Productivity, Employment and Growth

 


Source: ONS

 

A major problem faced by the green economy is that too many resources are concentrated in low growth – low productivity activities a reflection of the growth challenges faced across the entire UK economy. For example, compared with the output of the renewable energy generation sector, nearly twice as many green jobs, 33,600 in 2019, were in the Environmental charities sector, 8.5% of green employment, but this was less than 3% of total output This is essentially a static sector showing virtually no growth over the period in output, but more than doubling the numbers employed rising by 114%. The sector’s productivity of £115,210 over the period has declined from £146,000 for the average employee in 2010 to £68,000 by 2019. Environmental-related construction, an extremely important activity for the UK’s decarbonization future, accounted for a further 11.2% of green employment, but the value of output in this sector at £5.7 billion was 34.2% lower in 2019 than in 2010 and with estimated full-time equivalent jobs at 44,100 down by 17.4% over the period.

 

 

Ready Aye Ready

 

The official data shows that the performance of Britain’s green economy, up to 2019 at least, has been decidedly anaemic. The recovery from the pandemic in 2021 and the economic challenges and political chaos of 2022, with three Secretaries of State for The Department for Business Energy and Industrial Strategy (BEIS), means it is unlikely that the UK will enter 2023 with any vibrant shoots showing. This is extremely unfortunate since apart from generating more energy from renewable sources, investing in battery storage, upgrading the grid, and electrifying transport, achieving net zero will also require considerable investment in existing buildings and in training skilled workers to facilitate the necessary spending.

 

The UK Green Building Council has estimated that up to 95% of emissions over the next 30 years are likely to come from existing buildings so decarbonization will require an energy-efficiency retrofit of around 27 million residential and two million non-residential buildings. The Committee on Climate Change (CCC) has estimated a cost of £254 billion for domestic and £108 billion for a non-domestic retrofit by 2050, although some estimates place this as much higher. There is already a deficit in the specialist skills needed to repair, maintain, and improve traditional buildings because of Brexit and the pandemic lockdowns. According to Construction News, more than 240,000 workers left the building industry between the first quarters of 2019 and 2022, and apprenticeship starts fell by 22% between 2018/19 and 2020/21.[10] Decarbonizing existing buildings will exacerbate these labour shortages. A report by the Construction Industry Training Board (CITB) in a report in 2021 estimates that an additional 350,000 Full-Time Equivalent (FTE) workers will be needed in the construction industry by 2028 simply to deliver improvements to existing buildings to reduce energy demand. [11]

 

It is particularly concerning that the evidence shows that the output and human capital in the essential green activities needed for the upgrading of buildings have regressed. The three activities relevant for decarbonizing the stock of real estate in the UK, Environmental related construction, Insulation activities, and Energy saving and sustainable energy systems, accounted for 9.2% of green output in 2019 and 16.6% of employment, but the aggregate sum for these three activities output at £8.2 billion was 16.5% lower in 2019 than in 2010. Furthermore, total employment had fallen by 10,300, a reduction in the labour force in these essential activities of 13.6%. Despite the impact of the energy crises of 2022 on households and businesses so far, the response of the government to this looming problem has been paltry. In November 2020, the Ten Point Plan was published which promised:

 

“We will put our homes, workplaces, schools, and hospitals at the heart of our green economic recovery, supporting 50,000 jobs and building new supply chains and factories in the UK. Making our buildings more energy efficient and moving away from fossil fuel boilers will help make people’s homes warm and comfortable, whilst keeping bills low. We will go with the grain of behaviour, and set a clear path that sees the gradual move away from fossil fuel boilers over the next fifteen years as individuals replace their appliances and are offered a lower carbon, more efficient alternative.”[12]

 

Aside from the rhetoric, government intervention to meet the yawning skills deficit has been underwhelming. In 2021 the government invested a paltry sum of £6 million for Home Decarbonisation Skills Training through approved centres which provided 7,000 training opportunities. In December 2022, a further £9.2 million was made available to provide a further 8,700 free or heavily subsidized training courses for heat pump and energy efficiency installers to be delivered by 31 March 2023.[13]

 

Green Exports

 

The official statistics on the green economy demonstrate that the main driver of total output has been the increase in renewable electricity generation an activity growing many times faster than domestic output. Unfortunately, while making a major contribution to the GDP of the UK economy and reducing the reliance on imported fossil fuels, this success story will not help the employment growth necessary to create a green jobs miracle, nor will this investment do much for the capital account of the balance of payments. The ten largest manufacturers of wind turbines are all foreign: Vestas, the largest is based in Denmark; there are six in China, Goldwind, Envision, Mingyang, Windey, Shanghai Electric, and CSIC; one in Germany, Nordex; and one in Spain, Siemens Games; and finally, GE, based in the USA.[14] The electrification of the British economy needed to meet net zero will also have a significant economic impact on the green balance of payments with critical metals such as lithium, cobalt, and copper required to upgrade the distribution network and build grid level, building, and vehicle batteries.

 

Green exports could drive growth and employment by adding to aggregate demand, but while some countries such as Ireland see a future as an exporter of renewably generated electricity, the UK’s exports of renewable energy, the largest green sector by output while growing strongly stood at £389 million. Despite the strong growth of 508% in the value of exports of renewable energy over the period 2010 to 2019 this activity still constitutes a small part, only 3.1% of total green exports according to EGSS data shown in Figure 5 and Table 2.[15] The data in Table 2 shows export growth over the period 2010 to 2019, output share and employment share in 2019, and a proxy measure of a green activity’s export success or comparative advantage measured as the ratio of export share to output share. In this case renewable energy has a low ratio of 0.14 well below unity.

 

Figure 5: Share of Green Exports by Activity

 

 

Source: ONS

 

The government’s unofficial target for the value of green exports by 2030 at £130 billion would require a considerable rise in the range of green goods and services exported and a significant and unlikely acceleration in their rate of growth. The cumulative growth rate of total exports would have to rise from 8% per annum over the period 2010 to 2019 to 23.5% per annum to meet the target, which is still decidedly unambitious as a proportion of predicted global green trade. The main problem facing the UK green export sector is that three activities account for nearly two-thirds of the total value of £12.7 billion of green goods and services exported in 2019 and only one of these activities has been showing dynamic growth recently. Over the period 2010 to 2019, Waste exports  grew by 5.1% while Recycling increased by 2.9% compared to total export growth of 31.3%, but the volatility of both these activities helped contribute to a fall in total green exports of 26.0% between 2011 and 2015.

 

In contrast, the largest EGSS activity in terms of exports at £7.8 billion in 2019, or 36.7% as a proportion of total green exports, Environmental low-emission vehicles, carbon capture and storage, and inspection and control, has grown more rapidly. Export growth grew by 87.8% over the period 2010 to 2019 mirroring the growth in output of 79.2% and in employment by 44.4% to reach a total of 23,100 by 2019. This is a mixed sector of which the largest component is the sale of low-emission vehicles (LEV), but it also includes carbon capture and battery storage and while information on the latter is not separated in the ONS data, the entire sector is continuing to grow with analysis from the Society of Motor Manufacturers and Traders shows that between 2017 and 2021 [16] the value of the UK’s exports of Battery Electric Vehicles (BEV), Plug-In Hybrid Electric Vehicles (PHEV) and Hybrid Electric Vehicles (HEV) global exports increased from £1.3 billion to £7.9 billion rising from 4.1% to 36.1% of the value of all UK car exports. The value of BEV exports rose by 1,457%, from £81.7 million to £1.3 billion over the same period, but the parallel success in domestic sales is threatening new problems as charging infrastructure is failing to keep up with demand, but this will be the subject of another article.

 

The success of the Environmental low-emission vehicles, carbon capture and storage, and inspection and control activity are illustrated in Table 2 which shows 11 of the 17 EGSS activities monitored by the ONS that export. The data in the Table can act as a guide to potential government policy to attain the aims of stimulating a green output and jobs revolution if the UK were to play a leading role in facilitating decarbonization across the world through international trade. Encouragement and support should be afforded to green activities with output growing faster than GDP with comparative advantage ratios more than unity given that it is widely recognized that the main barriers to exporting include lack of knowledge of opportunities and finance.[17] One of the main means of government support for green exports is the role played by UKEF which provides access to export finance. According to UKEF, the agency has provided over £7 billion of financial support for green and sustainable projects since 2019. [18] UKEF helps foreign countries finance important infrastructure projects if they commit to sourcing goods and services from the UK creating new export opportunities for UK companies and supporting jobs. Recent projects include the provision of £217 million of financial support to a 1.35 GW solar project in Turkey, £38 million for the construction of the Sharjah Environment Company LLC green headquarters powered by solar energy in the UAE, and £27 million for Aqua Africa providing clean water systems in Ghana using solar technology.[19]

 

Table 2: Export Data by Green Activity and Comparative Advantage

 


Source: ONS

 

The Long and Winding Road

Given the anticipated transformation of Britain’s economy as the country decarbonizes to meet its net zero targets the importance of accurate and timely data on the green economy will become paramount. Unfortunately, the official data available to measure progress are neither. This must be addressed as soon as possible. Increasingly international league tables will be used to measure the investment potential of countries using Environmental Social Governance Data (ESG) at the national, sector as well as corporate levels. Furthermore, the politicization of greening the economy by industrial strategies favouring home industries through subsidies and domestic purchasing policies will require improved and regular data on the green balance of payments and exports. Tensions are already rising between the USA, the EU, and China in this area. Britain, post-Brexit with an underperforming green economy faces a long road ahead since the only sector effectively contributing to exports and jobs is electric vehicle production.[20]


[1] https://www.theccc.org.uk/wp-content/uploads/2020/12/Sector-summary-Electricity-generation.pdf

[2] https://www.thegwpf.org/content/uploads/2020/07/Travers-Net-Zero-Distribution-Grid-Replacement.pdf

[3] https://commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal_en

[4] https://www.mckinsey.com/industries/public-and-social-sector/our-insights/the-inflation-reduction-act-heres-whats-in-it

[5] https://www.gov.uk/government/publications/the-ten-point-plan-for-a-green-industrial-revolution

[6] This is defined as "economic activities that deliver goods and services that are likely to help the UK generate lower emissions of greenhouse gases, predominantly carbon dioxide."

[7] This is defined as "areas of the economy engaged in producing goods and services for environmental protection purposes, as well as those engaged in conserving and maintaining natural resources."

[8] Nuclear @is ecluded @

[9] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1003570/gjtf-report.pdf

[10] https://www.constructionnews.co.uk/brexit/how-is-the-industry-coping-with-post-brexit-labour-changes-10-08-2022/

[11] https://www.citb.co.uk/media/vnfoegub/b06414_net_zero_report_v12.pdf

[12][12] https://www.gov.uk/government/publications/the-ten-point-plan-for-a-green-industrial-revolution/title#point-7-greener-buildings

[13]

[14] https://blog.bizvibe.com/blog/energy-and-fuels/top-10-wind-turbine-manufacturers-world

[15] https://www.en-former.com/en/irish-republic-targets-green-energy-exports/

[16] https://www.smmt.co.uk/2022/10/production-down-in-september-as-uk-auto-seeks-stability-to-sustain-record-7-9bn-ev-exports/

[17]https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1099826/barriers-of-exporting-businesses-and-the-role-of-export-promotion-in-addressing-them.pdf

[18] https://www.gov.uk/government/news/ukef-provides-36-billion-for-sustainable-projects-in-2021

[19] https://www.thetimes.co.uk/static/business-uk-government-export-finance-aqua-africa/#:~:text=Aqua%20Africa%2C%20with%20the%20assistance,people%20out%20of%20water%20poverty.

[20] https://www.theguardian.com/business/2022/dec/23/car-industry-leaders-warn-uk-could-lose-out-to-us-subsidy-scheme-inflation-reduction-act

 

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