Radomir Tylecote: Greening the Blue - Why the Tories should drive forward environmental economic policy

Radomir Tylecote is a Partner at a Beijing-based green energy research company. He is also a member of the Tsinghua University advisory group on the financial development of Shanghai, and a founder member of the Conservative Party Human Rights Commission.

Environmental legislation and its reform is fundamental to economic forethought, its neglect symptomatic of strategic malaise at the heart of government. Way back in 1991, in his now seldom-quoted book The Green Economy, Michael Jacobs wrote, "'command and control', which economists commonly use to mean regulation... is evidently intended to give the impression of a draconian bureaucracy coercing powerless firms and consumers". Anyone familiar with the atrophied attitudes to environmentalism held by some conservative thinkers in Britain, could quite reasonably have penned these words at the beginning of 2009. 

At its crudest, conservative environmental scepticism portrays environmentalism as a left wing ploy and climate change as a deceitful third front from which to launch the Left back into mainstream politics. This is ironic, given the implication that capitalism and environmentalism do not mix; exactly the belief held by their adversaries. In any given week, one can still read scathing critiques of renewable energy for its apparent inefficiency, often suggesting that these technologies are in statis.

More ironic, despite scorning requests from renewable energy developers for better government support, these critics tend to support nuclear, which has always needed massive state subsidy. Tough anti-pollution regulations are apparently suspect as they constitute intervention "against" business. As Jacobs makes clear, this is wrong. Consumers in a market economy can respond to price penalties and incentives, while the government can adjust these incentives to prepare both economy and consumers for oncoming challenges. Imminent environmental degradation seems a reasonable challenge for which to prepare.

How can this be done without over-regulating business as conservatives fear? Would greening our economy, preferably ahead of foreign competitors, require an unbearable weight of tax on enterprise? Or necessitate a prying bureaucracy, beyond even that created in the last decade? Certainly not. Industrial pollution is a negative externality that ultimately needs to be priced for all polluters, so no single business is unfairly penalised. Such externalities can be factored into economic behaviour to create an environmental market system. Capitalism and the environment can thus be reconciled.   

Britain has started to price some environmental costs; unfortunately the more politically difficult remain largely untackled. Congestion charging in the capital returns the cost of the externality to the polluter. Widespread road pricing has not yet been attempted, but it should be, with different rules for electric and hybrid cars. Even before road pricing was initiated, the principle was already accepted as a necessary financial incentive to cut pollution: river polluters are penalised across the EU. Not only is the principle accepted by business and government, it works.

Countries with low-pollution regimes have an advantage as their businesses are better prepared for tightening standards for their operations in other countries. In 1991 Sweden became the first country to introduce a carbon tax. Subsequent economic growth to 2006 was 44%, while emissions fell by 9% and its green economy became world-beating. Now regarded as the greenest nation on earth, Sweden estimates that without the tax its emissions would have been 20% higher for the period. Firms are much better innovators than states. Higher environmental standards achieved by taxes or regulations should be seen as "technology forcing", promoting innovations that reduce costs. Creating the right incentive environment does not constitute draconian state action, rather acknowledgment of its proper place, supporting a creative private sector.

As the environmental crisis worsens, the centre-right's opportunity grows. The Conservative Party has moved ahead of the Labour Government by promising feed-in tariffs for renewable energy, a system the Chinese have had for some time. These price-supports will also apply to green microgeneration in homes and small businesses. So far so good. But incentives will need to go both ways, rewarding the green whilst also penalising the ungreen. So as Jacobs had it, these incentives are not harmful to our businesses, but are strongly to their advantage in the long term. Business will lead, but before it can do so government must chart the right course. 

Conservatives (with a small ’c’) should abandon once and for all the idea of environmentalism as a politically partisan concept. Green interventions by the state ultimately only nudge consumer choices in a greener direction within a free market. Indeed, those political systems have done the greatest harm to their environment are socialist, both past and present, Russia and China being cases in point. These polities have concentrated on providing state industries with cheap energy, while depriving their people of both financial incentives to reduce pollution through innovation, and the right to protest against their degraded quality of life. So as any conservative should realise, only free markets - guided by government - are capable of developing an environmentally sound economy.