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The UK’s Race to Catch Up in the Green Industrial Revolution

The green revolution - painting of an electric concept car charging
As the global green arms race heats up, the UK is having a hard time getting to Net Zero and keeping up with other countries that are leading the way in the green industrial revolution. 

The Inflation Reduction Act (IRA) in the US has ignited a green arms race as Western governments actively pledge billions in public investment to cultivate their low-carbon economies. With the decline of the Washington Consensus on free trade, countries are progressively shifting towards state-directed reindustrialisation and decarbonisation. Consequently, the EU has launched its Green Deal Industrial Plan (GDIP), targeting 40% of its low-carbon technologies to be produced within its borders by 2030.

The ‘Made in America’ Initiative: Reshaping the Green Economy

The ‘Made in America’ initiative, part of the US’s Inflation Reduction Act, commits $369 billion in tax breaks for companies investing in low-carbon manufacturing with ‘local content requirements,’ where goods are sourced or assembled domestically. This strategy aims to encourage businesses to “reshore” to the US, with a target of 90% of domestic demand being met by domestic manufacturing supply chains by 2030, subsequently generating millions of high-quality jobs. Additionally, households can receive up to $28,500 in incentives to adopt lower-carbon appliances, electric vehicles, and energy-efficient upgrades. Since the IRA’s implementation, clean energy companies have announced over 100,000 new jobs across 31 US states, with investments totalling $89.5 billion—nearly ten times more jobs created in the last seven months than in the UK’s low-carbon and renewable economy over the past seven years.

Since the IRA’s implementation, clean energy companies have announced over 100,000 new jobs across 31 US states, with investments totalling $89.5 billion—nearly ten times more jobs created in the last seven months than in the UK’s low-carbon and renewable economy over the past seven years.

While the aggressive pursuit of domestic low-carbon manufacturing might appear to conflict with the broader net-zero growth agenda, it is crucial to recognise the importance of providing good working-class jobs within the clean energy sector. Transitioning to a green economy necessitates a just and equitable shift, where job opportunities and economic growth are not sacrificed for environmental goals. By fostering the development of the clean energy sector and generating high-quality employment opportunities for the working class, governments can demonstrate that the path to net zero growth can be both sustainable and economically viable, thus gaining broader public support for climate action.

UK’s Approach: Balancing Private Investment and Green Industrial Policy

On the other hand, the UK’s response to the IRA appears notably restrained. Chancellor Jeremy Hunt has asserted that Britain will not compete with the US and EU by providing billions in green subsidies and tax breaks. Instead, the focus will be on promoting private investment and establishing a pro-growth regulatory regime. However, critics contend that this approach falls short of attracting the necessary investments in renewable energy projects.

Falling behind in the green industrial revolution

There is growing evidence to suggest that the UK is at risk of being left behind by other countries in the green industrial revolution. For instance, the UK’s investment in renewable energy has been trailing behind that of other nations in recent years. Additionally, the country’s energy efficiency standards fall short of those set by some of its counterparts. Furthermore, the UK’s carbon emissions remain relatively high compared to those of other countries, indicating that there is much work to be done to catch up in this rapidly evolving sector.

To take advantage of the economic benefits of the “green arms race,” the UK should follow the US’s lead and combine regulation, more public investment, and green industrial policy.

Labour Party’s Green Prosperity Plan

When you look at how other countries are helping their green industries grow with large subsidies, the UK’s goal of Net Zero becomes harder to reach. Labour’s Green Prosperity Plan as a response to the IRA: Labour’s proposal is being positioned as a direct response to the IRA, with a £28 billion-a-year green investment pledge aimed at competing with other nations investing in the industries of the future. Similar to the US’s ambition to redevelop domestic industries, Labour’s plans for an initial £8 billion National Wealth Fund to invest in the green economy seek to generate returns for taxpayers while promoting “Made in Britain” initiatives. By learning from the US’s comprehensive approach that combines regulation, greater public investment, and green industrial policy, the UK can navigate the challenges of reindustrialisation and decarbonisation more effectively. The plan encompasses an initial £8 billion National Wealth Fund to invest in the green economy, mirroring the US’s ambition to redevelop domestic industries.

To take advantage of the economic benefits of the “green arms race,” the UK should follow the US’s lead and combine regulation, more public investment, and green industrial policy. Key lessons include providing certainty and policy stability through a long-term framework, focusing climate action on creating good-quality jobs, and employing conditionality to influence corporate behaviour.


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