What is low carbon economy?

The low-carbon economy is a carbon constrained economy. One in which our use of fossil fuels is cut dramatically. The Climate Change Act requires an 80 per cent cut in carbon emissions by 2050.

The move to a low-carbon economy requires a technological revolution in energy use and supply – a revolution in goods and services that will transform the economic landscape.

Since the publication of Climate change - everyone’s business the CBI has urged government to speed up the pace of action on climate change.

This revolution will also be driven by volatile and rising fossil fuel costs and concern about fuel security, particularly if oil production peaks1. As oil and gas prices increase, the economic incentives to develop low-carbon goods and services intensify.

There are a range of new markets that will characterise a low-carbon economy; new financial markets in carbon trading; new markets in renewables and low-carbon energy sources; markets in energy efficiency; research and development opportunities, for example in transport technology.

There will be impacts on existing sectors – forestry and agriculture, construction and refurbishment, travel and tourism, distribution and logistics. Public services will need to be climate proofed – for example, our schools, hospitals and care homes need to offer more effective cooling during extreme summer heat.

The markets are considerable. The environmental goods and services sector is estimated at £25bn and around 400,000 employees and projections have suggested that the market will grow to £46bn by 20152.

The government has said that reaching a 15 per cent renewable energy target by 2050 will require investment of £100bn.

The framework for the low-carbon economy operates at the national level – the fiscal and regulatory framework set by government.

Our analysis shows that the opportunities for practical action to develop a low-carbon economy are likely to vary between functional economic areas.

why developing local low-carbon economies matters?

The environmental case for developing a lowcarbon economy is well rehearsed, and there is a growing awareness of the risks associated with dependence on imported fossil fuels and the threat posed by peak oil. As we write there is a stand off between Russia and the Ukraine
that has cut off gas supplies to many countries in Europe

There are six principal economic drivers for the development of local low-carbon economies.

First, the growth rates of markets in low-carbon goods and services are outstripping other sectors and offer a route out of the recession.

The environmental technology sector is likely to grow at a faster rate than the rest of the economy3. The low-carbon economy offers the potential to create new businesses, provide new opportunities for existing businesses, and in doing so create and support jobs.

Second, there are early indications that consumers are taking account of carbon footprints in their purchasing decisions, and there is evidence that positive political action on climate change will inform their voting preferences4. There may well be political and reputational benefits to those councils that ensure that their operations and areas are adapting well to the low-carbon economy.

Third, there will be winners and losers as the structural transformation to a lowcarbon economy takes place. Some national economies will secure a comparative advantage in the supply of particular goods and services.
This will apply at a local level too, where there could be advantages for those areas that move early. For example, the Kirklees Council’s domestic insulation programme is saving local householders around £1m a year off their energy bills and will continue to do so each and every year in the future. In those areas, where there is a concentration of carbon intensive industries, there will be greater risk.

Fourth, the opportunities will vary locally. Not every area will have the same opportunities to
generate renewable energy and benefit from the sector support and subsidies becoming more widely available5 – they will vary according to the local availability of wind and tidal power.
A major constraint on the growth of biomass generation is the logistics of fuel supply. The biggest biomass plant in the world will be operational in 2011 at Port Talbot – but the location of the plant enables it to import some of its biomass material from countries such as Canada and Estonia.

Fifth, many sectors including local government are adapting their operations to a low-carbon
economy, including focussing on energy efficiency in their buildings and fleet to reduce energy and fuel costs.

Sixth, the government will continue to bring forward legal, regulatory, fiscal and other measures to deliver the commitment to reduce carbon emissions in the Climate Change Act
(see table 1 below). From April 2010, many local authorities will be subject to a mandatory
cap and trade regime, the Carbon Reduction Commitment, capping their carbon emissions.

1 Preparing for peak oil – local authorities and the energy crisis, Oil Depletion Analysis Centre and Post Carbon Institute, 2008
2 Emerging markets in the environmental industries sector, UK CEED for the Department of Trade and Industry, 2006
3 The German Federal Environment Ministry has predicted a 4 per cent annual growth rate for the German environmental sector
4 Are there votes to be had in climate change, Local Government Association survey, 2008
5 UK Renewable Energy Strategy, BERR, 2008 http://renewableconsultation.berr.gov.uk/consultation/
consultation_summary