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Theresa May can reduce carbon emissions or protect British jobs – not both

August 24, 2016

By Paul Homewood

 

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http://www.telegraph.co.uk/news/2016/08/22/theresa-may-can-reduce-carbon-emissions-or-protect-british-jobs/

 

David Green, who is director of think tank Civitas, writes:

 

The "proper industrial strategy" being advocated by Theresa May faces some immediate tests. The first is climate change: carbon reduction destroys jobs and a "proper industrial strategy" will have to choose jobs over carbon reduction. The second is the exchange rate, which has been ignored for decades, even though an over-valued currency can wipe out all the efforts of our companies to reduce prices by improving their productivity.

In her Birmingham speech Mrs May said she wanted an energy policy that "emphasises the reliability of supply and lower costs for users", and she voiced her commitment to greater prosperity in which everyone shares. The problem is that job creation, raising productivity and encouraging higher wages are not compatible with carbon reduction.

After the 2008 Climate change Act, the Government’s climate-change policies have added to the cost of electricity and destroyed thousands of high-paid jobs. Between 2010 and 2015, two British aluminium smelters closed because of the Government’s energy policy, leaving only a small factory in Scotland that uses hydro-electric power. The steel industry has suffered closures and job losses because of the cost of energy and remains under threat.

 

A local plays football at high tide on Redcar beach in the shadow of the Corus Steelworks in Teeside, on July 21, 2008, in Middlesborough, England The Corus steelworks in Middlesborough were mothballed in 2015 Credit: Christopher Furlong/Getty

 

A proper industrial strategy will need to end policies that add significantly to the cost of production. Until 2008 the policy was to be among the cheapest three energy producing nations, but our own energy department has reported that electricity costs for manufacturers are about twice as high as in Germany. The Government could start by scrapping the carbon price floor, a UK scheme that deliberately increases the cost of energy above the market price under the EU emissions trading system. And it should press on with fracking to increase home-produced energy.

Economic self-harm does not make any difference to global warming. UK emissions are less than 2 per cent of the world total. Whether we think that carbon emissions are a serious problem or that global warming concerns are alarmist, closing down our aluminium industry has not reduced total emissions. They just happen elsewhere.

 

A second test will be the exchange rate. The eurozone is our biggest export market and the European Central Bank is currently manipulating its exchange rate downwards at our expense. After the Brexit referendum the pound fell against the euro, but the Government should pursue a strategy to ensure a continuing competitive rate. We have a large trade deficit with the EU and we are entitled to ensure that the exchange rate stays low until balance is restored.

One approach would be to widen the goals of monetary policy. The American equivalent of our Monetary Policy Committee is charged with maximising employment as well as keeping inflation within certain bounds. An alternative strategy could declare three overlapping policy goals: low inflation, maximum employment consistent with low inflation, and preventing the exchange rate from being over-valued according to independent benchmarks such as the Real Effective Exchange Rate (REER) published by the World Bank.

Each goal is intimately related to the others, but a balanced pursuit of all three would be more likely to lead to widely-shared prosperity than inflation targeting alone. The policy could be pursued by a technical committee like the Monetary Policy Committee, or it could be pursued by a government department.

A few commentators have called Mrs May’s ideas a version of Milibandism, but it seems more likely that she has been reading not only Adam Smith’s Wealth of Nations, but also his Theory of Moral Sentiments, in which he compared two attitudes to government: first, a "public spirit" that was founded upon the love of humanity and a desire to prevent hardship, and second a "spirit of system". The ‘man of system’, Smith said, was "apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it."

Many economists today are in thrall to this spirit of system. They live in an abstract world in which the equations always work out. It looks as if Mrs May is in the process of developing a pragmatic approach which recognises that free enterprise requires active government not the minimal state.

Adam Smith would have seen in it the public spirit that looks, not at the theoretical purity of policy, but at its impact on real lives. Ronald Reagan was making the same point when he joked that economists were people who argued that what worked in practice could not possibly work in theory.

http://www.telegraph.co.uk/news/2016/08/22/theresa-may-can-reduce-carbon-emissions-or-protect-british-jobs/

2 Comments leave one →
  1. Gerry, England permalink
    August 24, 2016 12:43 pm

    Something worth reading from the Telegraph. I noticed the problem in Clark’s first speech as a minister for the new department where he wanted to worship climate change and have an industry obviously not realizing that you can’t do both. At least by putting energy together with industry news just might get through as to how the cost of energy is hitting our industry.

    As for reading for May – Hayek might be better.

  2. A C Osborn permalink
    August 24, 2016 12:46 pm

    Some one who gets it : “carbon reduction destroys jobs”.

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