Nearly a fifth of the UK’s carbon emissions are generated by businesses. With global emissions expected to be just 4% lower than in 2019, urgent action is required across all sectors to achieve net zero goals. But how can we push businesses to sustainability when their bottom line is at stake? Here, Professor Jonatan Pinkse, from the Manchester Institute of Innovation Research, outlines the policy changes needed to support the business community’s transition to net zero.
- The ten-point plan has been devised to drive a Green Industrial Revolution. However, green initiatives and jobs don’t necessarily go together;
- By thinking ‘jobs’ first, then climate change, you forgo the opportunity to address the climate crisis;
- Governments need to prioritise sustainability policies, that in turn will drive a green recovery by creating new market demand;
- A three-pronged policy mix is required: strict targets through bans; incentives through subsidies; and crucially, support to drive business model innovation, which will deliver economic and environmental benefits across industries.
Green initiatives and jobs don’t necessarily go together, and the ideal of a win: win situation is not always possible.
Of course, there are parts of the ten-point plan for a green industrial revolution that will lead to job creation. For example, offshore wind requires many skilled workers. Likewise, there are sustainable practices that will lead to profit, such as in the case of energy efficiency improvements. But there are also issues like biodiversity where there isn’t a clear business case, and it’s precisely for that reason that biodiversity has been ignored by most companies for a long time.
However, if we continue to think ‘jobs’ first, then climate change, we are forgoing the opportunity to really address the environmental issue. The climate crisis is so critical that we need to look for environmental solutions that, in some cases, will not create many jobs, but will reduce a lot of greenhouse gas emissions. Carrying out these solutions is both a sensible thing to do for climate change, and a crucial thing to do for future generations.
But how can we do that? Investors expect a payoff, and immediate returns aren’t guaranteed when you go for low carbon. This is precisely where governments need to play a role; it’s only when governments step in and say that you can’t use certain technologies that you create a market for alternatives. This is the power of governments, and this is why a ban on new petrol and diesel cars will be more powerful than a thousand subsidies on electric vehicles. People will have to buy electric vehicles whether they like it or not because the option they would normally go for is no longer possible.
We have to quickly get to the stage where government is not afraid of just banning certain things. There will always be pushback from businesses saying the technology is not ready. However, a lot of that is just spin in an attempt to oppose strict targets. Why has Germany been more successful with its energy transition targets? Simply because they’ve just been stricter and more willing to make bold policy decisions.
Governments need to put in place bans that will deliver environmental gains, confident that by generating new market demand, they are also generating opportunities for start-ups to make money in the supporting infrastructure.
That said, it is always about the policy mix. There is never one instrument that fixes all. In addition to the ban, you need incentives for electric cars, to get consumers to trade in their old diesel and petrol engines.
Accompanying this, you have to stop subsidies for fossil fuels, while creating subsidies for renewables. You have to do both – incentivise and ban – because otherwise you end up with a lot of contradictions. Critically, when talking about addressing the energy agenda, it’s not just about bringing in new technologies. It’s imperative that we also think about new business models. The policy mix must also include business model innovation if we are to drive a long lasting, green recovery.
We need to think about what people actually want, what kind of value are they looking for, and how that can be delivered.
The idea that energy is a boring commodity has changed. For example, we have seen a shift in customer behaviour where people are happy to pay more for green, locally sourced energy because they want to feel like they are contributing to the local energy market, while supporting environmental change. As a result, energy has become an interesting product where people have other values, which in turn translate into value for investors.
Consequently, we are seeing the business model for energy supply changing because the platform business model is making its entrance. Vandebron, which translates to “from the source”, is a Dutch start-up stealing headlines because they allow customers to buy local energy straight from the source. It’s intermediaries like Vandebron, the ‘Amazons’ of the energy world, that have the opportunity to become the biggest players because they are able to source energy from all over the place and present the options to customers, who can get exactly what they want.
The type of business model innovation required depends on the industry. So, for cars, innovation will focus on the move from ownership to subscription (mobility-as-a-service) as the realities of increased urbanisation change what people are looking for.
So, with innovation bespoke to each industry, how can policymakers support business models? By reviewing what is in proposed policies. With each new policy we need to ask: are these new policies purely looking at new technologies, or are they supporting long-term change in the market?
Which means, for example, if customers need to be empowered to play a part in the energy market, information disclosure policies need to be introduced, forcing companies to share the CO2 emissions for every option. Information disclosure policies, which are an old instrument, can actually become really powerful, in terms of both enabling customer empowerment, and also in providing the market demand that small start-ups rely on.
Ultimately, it’s the application of foresight in policy, in supporting business model innovation, that will drive business to adopt sustainability practices and achieve a green industrial revolution.
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Energy is one of The University of Manchester’s research beacons. Our energy and climate change researchers are at the forefront of the energy transition, collaborating with governments, businesses and institutions to develop innovative, real world solutions to drive a green recovery and help achieve next zero. As the UK prepares to host the COP26 climate summit, read our collection of blogs on climate change for more evidence-based policy solutions.