Taking responsibility - Why green government is inevitable

The government has taken a lot of deserved flak in recent months for diluting some of its key climate policies and generally talking down the net zero transition. But in many cases it has deferred or delayed green policies rather than scrapped them altogether. Regulations, rules, and frameworks that should ramp up pressure on businesses to curb their environmental impacts are still on the way, they will just take a little longer than originally hoped.  

This week provided another example of how significant new policy measures are imminent, in the form of Defra's confirmation it intends to lay legislation before Parliament this year that would enable new Extended Producer Responsibility (EPR) rules for packaging to come into force from January 1st next year.

These rules will have significant implications for packaging companies and the consumer goods giants they serve, with businesses asked to pick up more of the tab for the cost of recycling waste packaging. They were delayed once amidst concerns about the potential impact on the cost of living, and it is true they will lead to a very modest increase in costs for consumers. But they should also provide a clear financial incentive for firms to reduce levels of packaging and ensure the costs of waste management are paid by those producing the waste in line with the polluter pays principle.

What is particularly interesting about the move is the way a policy that has been in the pipeline for the best part of a decade is about to materialise. 

This pattern is repeated on multiple fronts. The deposit return scheme may have been delayed yet again, but it will almost certainly be introduced eventually. The EPR approach is set to be extended into further industries that contribute to the UK's waste mountain. The full introduction of the Clean Heat Market Mechanism may have been deferred, but it will start to bite eventually. The Zero Emission Vehicle Mandate is similarly on the cusp of having a real impact in the form of fines for companies that miss their targets. The long-awaited decisions on financing for new nuclear projects and subsidies for CCS and hydrogen projects will have to be made eventually, as will decisions on water and grid infrastructure funding.

Lobbyists may succeed in diluting or deferring some of these policies. Some of them may even be scrapped. But as the glacial but sustained progress of the EPR regime highlights, most of this wave of green policies will make it onto the statute book eventually. We are not waiting for Godot here, even if it can sometimes feel like it. 

There are two interesting implications arising from this phenomenon.

The first, somewhat parochially, is the question of what does the next Parliament do? If Labour forms the next government will it move swiftly to make policy decisions that could have some short term cost implications in the hope that the environmental and economic benefits start to materialise during the second half of the Parliament? Or will it emulate the current government and duck and defer any difficult or potentially unpopular climate policy decisions?

Equally, would the Conservative Party in opposition back the adoption of policies that it had gestated while in office? Or will it perform a cynical reverse ferret and start attacking Labour for signing off on the very EPR rules or CCS frameworks Conservative Ministers helped develop, arguing they will push up costs for consumers?

The second question is how should businesses respond? There is always a temptation to push back against changes that could lead to increased costs in the short term or require changes to business models or infrastructure. But the lobbying that has helped ensure these various policies are deferred is in danger of becoming a pyrrhic victory. These changes and many others will come eventually and the costs are likely to be higher the later they are adopted. 

In a must-read column in The New European yesterday, political commentator Matthew D'Ancona argues that whether politicians and the public like it or not we are entering an era of big government. The climate crisis and the energy transition - not to mention an ageing population and dangerous geopolitical tensions - mean there is no choice but for governments to become more interventionist.  

This view is not universally shared. Energy Security and Net Zero Secretary Claire Coutinho this week gave a speech in which she highlighted the dangers of excessive regulation - and she has a point that red tape and inflexible policies can stifle innovation. It is important to get the balance right. But the scale of climate-related risks and the complexity of the clean energy transition means the general direction of travel is going to be for more, not less, policy and regulation. Conservative Ministers do not like to mention it, but even the government accepts this fact.          

We've had to wait a long time, but policy frameworks for CCS, for hydrogen, for smart grids, for climate resilience, for circular economies, and for a whole lot more besides will come, because how can they not? Market failures need fixing and big economy-wide risks need managing. It is pretty to think a simple carbon price could solve everything, but it won't, and besides it is not going to happen any time soon. Decarbonisation policies may take a long time to materialise and they will face a lot of setbacks along the way, but most of them will get their eventually. That is why Extended Producer Responsibility rules for packaging will come into effect in the coming months, and it is why the G7 this week reiterated their commitment to phasing out coal power and transitioning away from fossil fuels. The climate theory of everything is gaining traction. Businesses and investors should plan accordingly.