Ed Birkett is a Senior Research Fellow at Policy Exchange.
This week, Boris Johnson unveiled a tougher climate target, pledging to cut the UK’s carbon emissions by nearly 80 per cent by 2035 compared to 1990 levels. Green campaigners have welcomed this pledge, which aligns with advice from the UK’s independent Climate Change Committee; however, their focus is quickly turning to how the Government will deliver a greener Britain.
Many hope that Johnson will adopt the approach of Joe Biden, who has proposed $2 trillion of infrastructure spending with a focus on clean energy and climate change. Compared to Biden’s eye-wateringly expensive proposals, the Johnson Government’s investment plans are much smaller, with the Prime Minister’s Ten Point Plan for a Green Industrial Revolution committing to only £12 billion pounds of public investment by comparison.
For some, the Conservatives’ reluctance to spend big on climate suggests that they’re not up for the challenge of delivering Net Zero carbon emissions.
However, this overlooks the differing ideology and democratic constraints on each side of the Atlantic. In this context, it’s not surprising that Biden is reaching for the climate cash, whereas Johnson plans to rely on a mix of cash, regulation and schemes to attract private-sector investment.
On ideology, it’s easy to see why green spending is more palatable to Biden’s left-leaning Democrats than to Johnson’s right-leaning Conservatives. The Coronavirus pandemic forced governments of all colours to turn on the spending taps, with similar responses from Biden, Donald Trump, Emmanuel Macron, Angela Merkel and Johnson.
However, as the virus recedes, differences are emerging. Rishi Sunak’s Budget delivers higher spending this year to deal with Covid-19 but, in the medium term, the Budget will raise extra revenue to reduce the deficit through higher corporate taxes and by freezing income tax bands.
Biden is also planning to raise taxes, but he will use the funds to support higher spending; for example, he expects corporate tax rises to fund his infrastructure plan. As important as climate change is, it’s hard to see the Tories accepting it as a wedge that opens the door to a permanently larger State.
On top of these ideological differences, Biden’s climate spending is driven by domestic political constraints that leave spending as his preferred option. To pass new legislation, he needs the votes of 60 Senators to overcome inevitable ‘filibusters’ by the minority.
With the Senate split 50-50, Biden would have to convince ten Republicans to cross the aisle. If the last decade is anything to go by, then the Senate is unlikely to pass major climate legislation under his presidency. Without the legislative route, Biden’s options are severely limited: for example, he will struggle to implement powerful and cost-effective climate policies such as carbon pricing, similar to the UK and the EU’s emission trading schemes.
Alternatively, the Biden Administration could turn to regulation to clean up the US economy. However, as Barack Obama found out, regulation is vulnerable to challenges in the courts; for example, Obama’s landmark Clean Power Plan was quickly suspended by the Supreme Court. With limits on his regulatory options, Biden is constrained further.
Without major new laws or regulations, the President is left with public spending. Fresh from passing a $1.9 trillion stimulus package, he has proposed $2 trillion of infrastructure spending with a focus on clean energy and climate change.
For Biden, the benefit of spending is that it can pass the Senate with just 50 votes, plus Vice-President Harris breaking the tie, through a process known as ‘Budget Reconciliation’. The reconciliation process is still fraught with procedural complexities, such as whether particular spending actually counts as a budgetary matter, raising the prospect that his green spending will be mired in procedural wrangles, echoing the UK’s Brexit process.
There are also questions over whether government spending is the most effective way to go green. The most effective green policies often involve markets – for example carbon ones – which don’t require any Government spending and can even raise revenue. Because Biden is limited to green spending, the US transition is likely to cost more than it needs to, one reason why Johnson is right not to emulate Biden.
Unlike Biden, Boris Johnson sits on a healthy majority, giving him freedom to choose how he will meet his Net Zero pledge. On offshore wind, for example, the Prime Minister’s Ten Point Plan sets ambitious targets for new offshore wind farms, which will compete in auctions to minimise the cost to taxpayers. To complement these auctions, the Government is investing a relatively modest £160 million into ports and manufacturing to secure green jobs in places like Teesside.
Similarly, the Government can use targeted green regulations to push investors towards sustainable investments, as explained in Policy Exchange’s recent report, Capital Shift.
So whilst the UK’s public investment is often smaller than the US or the EU, the Government is compensating using market-based policies to unlock and redirect private investment. As we’ve argued at Policy Exchange, these market-based policies are a cost-effective way to reduce emissions from all sectors of the economy, including energy, transport and agriculture.
The challenge for Johnson is to show that the Tories’ approach can continue to deliver against their increasingly ambitious climate targets. The upcoming Net Zero Strategy, due to be published before the COP climate conference this autumn, is the next chance for Johnson to demonstrate that his green policies are as ambitious and more cost-effective than the coming splurge of spending across the pond.