Building our Industrial Strategy - Response to the Green Paper

The development of a comprehensive industrial strategy for the UK is long overdue. The strategy is an opportunity to bring much needed coherence to economic and industrial policy, and to ensure that it works in tandem with the governments other policies and plans. It is particularly important that the strategy underpins the UKs transition towards a cleaner, low carbon economy. This will only be achieved if it is fully compatible with the Climate Change Act, and is integrated with the forthcoming Emissions Reduction Plan.

The Green Paper includes a welcome confirmation of the governments commitment to reducing greenhouse emissions to meet statutory targets, and to do so whilst meeting other important energy policy goals. Unlike previous statements of energy policy, we are pleased to see that the Green Paper adds a fourth policy goal alongside the familiar trilemmaof emissions reduction, energy security and affordability. Such an approach is common in many other countries, and the UK has been an outlier in the lack of focus on the employment and industrial benefits of the transition to clean energy.

To the extent that the UK government has developed industrial strategies in the past, this has traditionally focused predominantly on sectors. Whilst this sectoral approach has led to some positive developments, it risks supporting those industries that have the most resources to lobby for sectoral deals. As the Secretary of State argues in his introduction to the Green Paper, the job of industrial strategy must be to open up new opportunities, and not just to protect incumbents. The recent House of Commons BEIS committee inquiry on industrial strategy advocates an alternative approach. We agree with their proposal for a continuation of horizontal policies to support industrial development and innovation, combined with a focus on specific missions that are designed to meet societal goals. The transition to a clean, low carbon energy system is a good example of such a mission. It has the advantage of cutting across traditional sectors and including significant scope to support the new technologies and business models that will be required.

For the transition to a low carbon energy system, significant analysis has already been carried out by government to establish an evidence base for a set of priorities. This has been complemented by analysis by the Research Councils UK Energy Strategy Fellowship and other public bodies such as the Carbon Trust and the Committee on Climate Change. Taken together, this evidence base suggests a number of important criteria that should inform policy priorities. These include-

• the potentialUK and global market for different low carbon technologies;
• the potential for cost reductions, including the effect of UK policy on such cost reductions
• the potential value to the UK-based components of supply chains; and
• the extent of existing scientific and industrial capabilities.

Good examples of priorities that would advance the transition to a low carbon energy system include offshore wind, where the UK has considerable leadership in deployment, and UK policies have a significant impact on international innovation and costs); and smart energy systems, where the UK has been at the forefront of demonstration trials.

However, one drawback of this existing evidence base it that it tends to focus on discrete technologies, and pays less attention to the system innovations that will also be required (e.g. for smarter electricity grids andfor low carbon heating systems). Such system innovation will be a key feature of successful low carbon transitions. This is also a weakness of the Green Paper as it stands. Whilst it is right to highlight the significant opportunities in areas such as smart electricity grids and electric vehicles, the Green Paper pays too little attention to energy efficiency in homes and commercial buildings and to new systems for low carbon heating. There is also a gap in thinking about how the decline of incumbent industries such as offshore oil and gas will be taken into account, including any opportunities for existing skills to be transferred to newer industries for which they are still relevant.