Friday, 9 March 2012

Two reasons why the private sector is slow to cut carbon

By Hubert Schmitz

This week we started a new IDS seminar series on Business and Climate Policy. The reason for bringing business into the climate change debate is clear. For the green transformation to happen it requires enormous investments. The International Energy Agency estimates that 85% will need to come from the private sector.

We ask our speakers (from the private sector) to address two issues:
  1. How is business influenced by climate policy?
  2. How does business seek to influence climate policy?
Our first speaker was Jonathan Shopley, Managing Director of The Carbon Neutral Company and Board Director of the Climate Markets & Investors Association. Shopley’s own work is concerned with accelerating green private investment but his excellent seminar served to keep a sense of realism about the pace of change.

My two main take-aways were:
  • Yes, billions of pounds have been invested in low-carbon industries, but remember that trillions of pounds remain invested in high-carbon industry.  Business in the latter industry will seek to protect its assets for as long as possible.
  • There are differences in organisational capacity between high-carbon and low-carbon business. High-carbon industry is highly organised and has very active business associations. In contrast, the low-carbon industry, being a much younger industry and including many start-ups, remains weakly organised and has yet to develop an effective collective voice and influence.
The latter is in fact an old dilemma for progressive policy makers. In order to bring about change they need to work with the private sector. The problem is that the sunrise industries they seek to support are poorly organised, while the sunset industries are highly organised in business association and have strong policy networks. The late Joerg Meyer-Stamer called this the ‘life cycle paradox’ of industrial policy*.

*Joerg Meyer-Stamer, ‘Paradoxes and ironies of locational policy in the new global economy’, in Hubert Schmitz (ed), Local Enterprises in the Global Economy, Cheltenham: Edward Elgar 2004, pages 326-348.