Reports urge boom in low carbon infrastructure to boost economy

15th August 2016

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Record low interest rates provide the opportunity for the government to borrow to invest in sustainable infrastructure for energy, transport and cities, according to an economic expert.

Two reports from the Grantham Research Institute on Climate Change and the Environment conclude that, rather than pursue austerity to reduce public debts, the government should invest in infrastructure to boost growth, reduce the risk of price bubbles in the housing market and help stabilise public finances.

The strategy could also bridge any shortfall in investment arising from the vote to leave the EU, the reports argue.

The analysis was written by Dimitri Zenghelis, co-head of climate policy and political science at the institute, which is part of the London School of Economics and the Centre for Climate Change Economics and Policy (CCCEP). Zenghelis has also worked for the Global Commission on the Economy and Climate; headed the Stern Review on climate change and the economy; and is a former head of economic forecasting at the Treasury.

Institutional frameworks should be reformed to promote decisions in the public interest, which are free from short-term political interference, Zenghelis recommends. The creation of the business, energy and industrial department (BEIS) provides the opportunity for more coherent energy and industrial strategy, he said.

He notes, however, that, although the department in charge of policy, it is the Treasury that determines public expenditure, and it can shift policy significantly. He gave the example of the Treasury’s abandonment of the government’s carbon capture and storage competition last year despite years of work by the axed energy and climate department (Decc) and significant investment by industry.

Responsibility for complex decisions should instead be devolved to experts operating transparently and independently of the political arm of government, but who remain fully accountable to parliament. This could help give credibility to policy and draw private sector investment and expertise, Zenghelis says.

He backs the recommendation of the Natural Capital Committee that the National Infrastructure Commission should launch an investment programme to support natural assets that provide clean air, water and food. The commission should also encourage investment in assets that will boost decarbonisation and adopt natural capital accounting, he argues.

Zenghelis also wants the government to provide the Green Investment Bank with more money and provide guarantees to reassure private investors that their money would not be at risk from sudden and adverse policy changes after the institution is privatised.

Zenghelis said: ‘Any government investment in large infrastructure needs to be fit for the future and allow the UK to stay competitive by shifting resources to fast-growing low-carbon markets.

‘Infrastructure investments will last 20 years or more and so must be designed to avoid locking in to, stranding and possibly scrapping, carbon-intensive assets, networks and behaviours,’ he added.


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