Prior to the era of Donald Trump, tweeting was an unusual way to make a government announcement. But a tweet from the UK team at the 2014 UN climate summit in New York declared David Cameron’s intention to “phase out existing coal over the next 10-15 years”.
Just two and a half years later and UK coal use has fallen by record levels: by 52 per cent in 2016. The rapid decline of coal use is due to a number of factors – low gas prices and the expansion of renewables among them – but one of the biggest driving forces has been the UK’s carbon price floor, which tops up the tax paid on carbon emissions from the power sector. This is an example of ‘phase out’ policy, an instrument designed to destabilise incumbent high carbon practices, in this case by increasing the economic pressure on coal-fired power stations.
All of this is great news for the climate, of course, but phase out policies like the carbon price floor also play a crucial, and often overlooked, role in innovation. A new policy briefing published today by researchers at the Centre for Innovation and Energy Demand (CIED) highlights the importance for innovation of phasing out incumbent technologies and practices that are incompatible with long term climate goals.
Governments can play a major role in this process through policy. Examples include market mechanisms, like the carbon price floor; regulations, such as mandatory energy efficiency requirements; targets, like the UK 80 per cent carbon reduction target; and the withdrawal of subsidies or tax breaks for high carbon activities. To drive the transition to a low carbon economy, policy makers should have a balanced policy portfolio that includes policies on both sides of the equation: those that support the new and those that phase out the old.
Phase out policy encourages investment
While it is tempting to focus on the measures needed to nurture and support emerging low carbon technologies, for instance, funding for R&D activities or subsidies for new technologies, phase out policies can be a surprisingly effective at bringing forward innovation.
A survey of German renewable energy manufacturers and suppliers showed that of all the policy instruments aimed at supporting the sector, the target to phase out nuclear power by 2022 was the biggest factor in driving investment in renewable energy. This was because the commitment to ending nuclear gave credibility to the government’s ambitions to scale up renewables, and provided investor confidence.
Back in the UK, in a rare example of joined-up policy making, the government recently announced on the same day both the plans for the next round of support for renewables and plans to phase out coal. This dual approach is to be welcomed and hopefully signals a new style of policy making.
And it is needed: CIED research shows that, of the UK’s low carbon innovation policies, 68 support the creation of innovations, but only 19 aim to phase out high carbon technologies or practices. The difference is particularly stark in the heating and mobility sectors, which each have only four identifiable phase out policies, compared with 28 and 36 policies respectively supporting the creation of innovations.
Other countries are leading the way
If the UK is serious about moving to a low carbon economy, phase out policies are necessary across all sectors of the economy, not just for electricity. Other countries are leading the way. Norway and the Netherlands have recently considered policies to phase out internal combustion engine vehicles. And Denmark has a target to be independent of fossil fuels by 2050.
As the UK government looks for ideas for its new Industrial Strategy, it should consider not just what it wants to support in terms of low and zero carbon innovation, but also whether its existing arrangements and policies might actually be a barrier to green growth.