Britain’s finance Minister, Alistair Darling, will present Britain’s budget on Wednesday 22nd April. It is likely to be very tough, since Britain is in real financial trouble – deficits, debts and a reluctance of markets to buy Government bonds. This budget, because it is likely to be a major green budget, may also be a template for many other European countries and other nations in terms of the implications of “the green stimulus” for growing an economy.
First, the bad news. According to independent forecasters, the British government budget deficit in 2009/10 will likely be £160bn ($287 billion). This will lead to higher taxes – lower personal allowances, higher tax rates for “big” earners and reduction in tax credits. It may also lead to a reduction in government supported services, probably achieved through a five year freeze of spending at current levels, which is effectively a 15% - 18% reduction. Public sector pay may also be frozen. Stimulus indeed, but this is what happens when, in the name of “stimulus”, the government mortgages its future.
Then there will be the other news. The Government, which has made significant commitments to environmental stewardship and climate change mitigation, will announce in this budget how it plans to green Britain’s economy and create green jobs. Several interesting things are likely to happen here. Like Germany, Britain is likely to announce financial incentives for trading in an old car and buying a new, lower emissions, vehicle – figures of £2,000 ($3,600) per car are being proposed by the Society for Motors and Manufacturers. The British government has already said it will provide £5,000 ($9.000) for each person wishing to buy an electric car – there are currently 180 electric cars on the road in Britain amidst the 2.12 million cars driving those narrow lanes and byways.
The more significant commitments will come in the Governments regulation of greenhouse gas emissions and in its support for renewable energy. Britain has committed to fifteen percent of its distributed energy coming from renewable sources by 2020, with a very strong commitment to offshore wind power. This despite the fact that the wind industry in Britain currently employs just 700 people and that the contribution of the wind power system to energy supplies in Britain during the recent cold periods was between .04% and .06% of distributed energy - coal kept people warm this past winter. To get to 15% by 2020, according to a recent report by the Institute for Public Policy Research, the industry needs subsidies and incentives. A total of £650 million a year for the next ten years is being sought by the rent-seeking wind power industry – financial and tax incentives for constructing offshore wind farms, a guaranteed feed in price for the energy produced and the use of “allowed” protectionist measures to ensure a high degree of local content in the manufacture and construction of these facilities. Under these heavily subsidized conditions, the study claims, some 23,000 jobs could be created.
One of the examples used to justify this kind of subsidy is Spain. It is claimed that Spain has successfully used wind power to create jobs and reduce CO2 emissions – app. 10% of distributed energy in Spain comes from wind power. While wind power jobs have increased in Spain, it is at a net loss of jobs in the economy directly linked to higher energy prices and the displacement of energy jobs in other sectors. One estimate is that, when subsidies and total economic costs are accounted for, each “green job” has cost Spain some €570 million and lead to the loss of 2.2 jobs for every green job created. What is more, green energy has had a major impact on energy prices in Spain – they have increased by 31%, though remain subsidized to protect consumers and slow the growth of energy poverty. Renewable energy accounts for some 5.6% of all corporate taxes collected in Spain.
Well, you may say, it’s a small price to pay for reducing CO2 emissions. If only this were the case. Greenhouse gas emissions in Spain increased by 50 per cent between 1990 and 2007, the last year for which data is available. The government of Spain now calculates that it needs to buy emission rights to at least 159 million tons of CO2 to make up for its excess. So the real benefit of wind power in Spain will be the several eastern European countries, who will sell them the credits.
Britain is also planning to offer subsidy to households wishing to install solar and wind turbines, especially if they wish to sell surplus power to the electricity grid. The Conservative Party, in its bid to be greener than its traditional Tory blue, suggests that each home wishing to convert should be given £6,500 ($11,700) to support them and should receive a guaranteed price for selling spare power to the grid.
Green means more debt, subsidized industry and job loss with little or no impact on greenhouse gas emissions – some strategy. But it will be a big feature of the 2009 Labour Party budget – potentially their last - and is likely to create expectations for budget provisions in Canada and elsewhere in the future. We should keep an eye not just on what happens next Wednesday but what the reaction it – we may be looking at our own future too.