Government and the low-carbon economy

The response to Peter Mandelson’s rather obvious point that Government is going to have to take a more hands-on role in shaping a low-carbon industrial strategy has been extraordinary.

As if this marked some ideological reversion to old Labour at its command-and-control worst back in the 1970s!

Work it out, guys. In the shortest possible period of time, we’ve got to move from an economy almost totally dependent on fossil fuels to one in which fossil fuels will be bit-part players in the energy mix. A 34% reduction in CO2 by 2020 (which the Government will announce as its interim target tomorrow) is just a taste of things to come.

Which makes the debate about market-led or regulation-led interventions all but irrelevant. Markets only work when governments shape those markets to ensure the desired objectives – in this case, an ultra low-carbon economy. “Getting a realistic price on every tonne of CO2 “, to use Nick Stern’s phraseology, is of course a market mechanism – but getting us to that realistic price as fast as possible will be driven by governments not by markets left to their own devices.

On which point, cracking good piece by Nick Stern in the Times today, laying down the law for Alistair Darling in terms of tomorrow's budget. Any new coal-fired power stations to have “carbon capture and storage” mandated by government as a condition of planning; government to re-think the third runway at Heathrow if the Committee on Climate Change indicates it can’t be done within the new carbon budgets; clear government leadership on efficiency and renewables, and a clear commitment to use public expenditure to help drive the new low-carbon industrial strategy. A lot of public expenditure: up to 1.5% of GDP.

Part of which seemed to be what Peter Mandelson was saying about the need for a new kind of “low-carbon industrial activism”. However, I’m not sure he’s quite got Nick Stern’s equally powerful message about avoiding “lock-in” in terms of big, clunky, carbon-intensive infrastructure and investments.

But perhaps we’ll hear more about all that tomorrow.