The UK government has assigned itself with the tasks of boosting productivity in left-behind areas and transitioning to a net-zero economy. In this blog, Professor Jonatan Pinkse explores how the UK can simultaneously improve its standards of productivity regionally while transitioning to a net-zero economy. His policy recommendations include securing green jobs and not using them as bargaining chips to attract green investments from abroad and making the north-west a more attractive place to work by investing in green mobility.

• Tackling net-zero can lead to more investments, and new market creation tackles the “low-investment” component of the UK’s productivity puzzle, but this all depends on how cost efficient any new technology will be.
• Without government support, increased investment in low carbon technology would not be path-breaking.
• While France and Germany spent €7 and €9 billion, respectively, the UK only invested €0.27 billion.
• Place-specific support will be pivotal in helping left-behind places to make the transition towards higher productivity and lower carbon emissions.

The UK government wants to create a high-skill, high-wage, and high productivity economy. The recently published Levelling Up White Paper puts the need to boost pay and productivity, especially in left-behind places, as its main priority. At the same time, the UK needs to transition to a net-zero economy to avoid the detrimental impacts of climate change. Clearly, the two must work in tandem. In Boris Johnson’s foreword for the Government’s Net-Zero Strategy this opportunity mantra sounds loudly: “And everywhere you look, in every part of our United Kingdom, there will be jobs. Good jobs, green jobs, well-paid jobs, levelling up our country while squashing down our carbon emissions.” Some estimates suggest goods and services that enable a net-zero transition could be worth £1 trillion to UK businesses by 2030.

Does going green mean boosting productivity?

Will a green transition bring better jobs and improve productivity to left behind parts of the north-west and contribute to the levelling up agenda? The Net-Zero Strategy shows a government that is a big believer in the potential to create green jobs. However, it says much less about productivity. HM Treasury’s Net Zero Review has more to say on productivity, but it is a mixed message. Treasury warns about reduced productivity growth if no action is taken to curb climate change. It also echoes the opportunity mantra that net-zero investments could improve productivity and long-term growth. The Levelling Up White Paper also identifies the green transition as an opportunity to boost productivity in left-behind places. The thinking is simple, net-zero mainly refers to carbon-intensive industries which are mainly located outside the south-east. But how exactly can these dual ambitions be achieved?

Treasury believes net-zero investments will have positive spillover effects like improved air quality which will “allow for a healthier and more productive workforce.” Tackling net-zero should lead to more investments, and new market creation tackles the “low investment” component of the UK’s productivity puzzle. However, overall productivity will depend on how cost efficient any new technology is. Treasury has no faith in carbon capture, utilisation, and storage (CCUS), for example, believing it will raise operating costs. This outlook may be considered pessimistic, and Treasury has been criticised for focusing on the costs of a green transition only, dismissing potential benefits. However, with how much certainty can we say that there will be benefits? We don’t yet know. For many sectors it is too soon to say what the costs and benefits will be. They have only just started investing in net zero.

Let’s first have a look at the productivity potential of net-zero investments. The Ten-Point Plan forms the cornerstone of the green industrial revolution. Offshore wind is clearly the UK success story here. The UK government just launched a new £160 million fund for floating offshore wind as a follow-up to last year’s Offshore wind manufacturing investment support scheme. Hydrogen and CCUS are other areas that have received a recent push from government. For example, HyNet North West, which aims to create one of the first low-carbon clusters in the UK, was awarded ‘track one’ status from the CCUS scheme. This status improves HyNet’s chances to obtain major investment.

How can we disrupt the cycle of old and dirty technology?

But will these investments improve productivity? This very much depends on how well the new low-carbon technologies can compete with the old, dirty technologies. In a market that rewards short-term returns, investing in old technologies is a safer bet, so without government intervention these old technologies will continue to attract more investment. This is a classic case of path dependence: success breeds success. Perhaps the new technologies will produce enough positive spillovers, such as improved air quality, to make them an interesting proposition for business. Again, this is not clear just yet. Treasury seems sceptical about CCUS for exactly this reason. So, even if there is increased investment in low-carbon technology, will it be enough to be path-breaking? Without government support, it may not be. Government needs to stop supporting old technologies and abolish fossil fuel subsidies. Each year, governments around the world pour around half a trillion dollars into artificially lowering the price of fossil fuels – more than triple what renewables receive. The UK government still seems to be in denial that it is subsidising fossil fuels. A first step would be, therefore, for UK policymakers to have an honest conversation about how to abolish hidden support for fossil fuels instead of denying their existence.

Losing out to Germany?

Our own research shows that the UK’s green recovery package simply fails to offer enough new money to put the economy on a green trajectory. The underinvestment that led to the productivity problem might well continue to be a barrier for making the green transition a productivity accelerator. The UK wants to be a leader in hydrogen, for example. However, our analysis shows that while France and Germany spent €7 and €9 billion, respectively, the UK only invested €0.27 billion. Moreover, unlike the other two countries, the UK did not specifically target ‘green hydrogen’, using green electricity for its production, but kept the door open for ‘blue hydrogen’ which still relies on fossil fuels combined with CCUS. Even if blue hydrogen could be a bridging technology, there is the risk that it locks the UK into a ‘not-so-green’ transition pathway. It might well create another subsidy for fossil fuels. If hydrogen is going to be the main productivity accelerator for a net-zero industry that is internationally competitive, then a more robust approach for support is needed. Otherwise, the UK will simply lose out against the likes of Germany.

Green jobs and better jobs?

Most evidence points in the direction that a green transition will lead to net job creation. Decarbonising the economy will increase demand for highly skilled workers with science, technology, engineering and maths (STEM) skills to further develop and scale up low-carbon technology, and for low and medium skilled workers with vocational skills to do retrofits and installation. A recent study by the World Resources Institute finds that green investments generally create more jobs per US$1 million than unsustainable investments. However, the study is far more inconclusive when it comes to the quality of these jobs. Due to the need to cut costs to be able to compete with dirty technologies, industry has an incentive to cut wages and not comply with health and safety standards, thus leading to a race to the bottom. Unfortunately, a green job is not a guarantee for a good, well-paid job. It will be imperative for government to uphold workplace standards and not consider these as bargaining chips to attract green investments from abroad.

Labour shortages and attracting the right people

Assuming that green jobs are indeed better jobs – and there is some evidence that this might be the case for the UK – how likely is it that the UK and especially the north-west will gain from a green transition? Optimistic projections show that “in 2030 across England there could be as many as 694,000 direct jobs employed in the low-carbon and renewable energy economy, rising to over 1.18 million by 2050” with 170,601 of these expected to be in the north-west. However, think tank Onward calculates that a total of 3.2 million people need to be upskilled. Labour shortages, which are currently widespread, are expected to be a systematic problem for the UK, especially for workers with STEM and vocational skills. However, Onward also expects the north-west to be amongst the regions that stand to benefit relative to other regions due to a high potential to decarbonise and a relatively skilled labour force. Local and combined authorities can further strengthen this place-based advantage by making the north-west a more attractive place to work and live by investing in green mobility which fits preferences of people working in the green sector. Supporting local SMEs to become green will also be vital as it creates a vibrant local ecosystem for large firms making green investments in the region. So, while there are promising signs that a green transition could boost productivity, they remain promises for now. Only when industry starts to make really significant, large-scale investments in low-carbon technologies, will we start seeing what the productivity impacts are. Besides, the government should not assume net-zero investments will automatically flow to left-behind places and do the job of levelling up. The green transition is a global phenomenon where countries are in stiff competition. The north-west is not competing with the south-east to become the go-to place for net-zero investments but with the rest of the world. Place-specific support will be pivotal in helping left-behind places to make the transition towards higher productivity and lower carbon emissions.

Policy recommendations

• To secure green jobs, government must uphold workplace standards and not consider these as bargaining chips to attract green investments from abroad.
• Local and combined authorities can make the north-west a more attractive place to work and live by investing in green mobility which fits preferences of people working in the green sector. Supporting local SMEs to become green a vibrant local ecosystem for large firms making green investments in the region.

The green transition is a global phenomenon where countries are in stiff competition. The north-west is not competing with the south-east to become the go-to place for net-zero investments but with the rest of the world. Place-specific support will be pivotal in helping left-behind places to make the transition towards higher productivity and lower carbon emissions.

This article was originally published in On Productivity, a collection of thought leadership pieces and expert analysis addressing the gaps in economic performance across the UK, published by Policy@Manchester.

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