Published in ENDS Report (Issue 402, p54), in July 2008

New Labour’s core proposition to voters has been: “Elect us and we will make the economy work well to provide the financial resources to improve public services and reduce poverty.” The founding premise of this proposition has now collapsed. The global credit crisis has coincided spitefully with a resource crunch to shake the foundations of prosperity.

For half a generation we have taken that prosperity for granted. Easy times make for easy minds. The rise of a celebrity-obsessed culture preoccupied by carefree consumption was – humans being what we are – probably inevitable. Anxiety about rising prices, higher interest rates and the growing prospect of job losses are refocusing voters’ attention. The spectre of economic insecurity is back and will loom larger in the months to come.

This is both a threat and an opportunity for the environmental community. The threat is that in the present panic politicians and editors will seize the moment to drop all this difficult environmental stuff. There are clear signs of this happening. Items are already appearing in the media asking if we can still afford to go green. The government is coming under backbench pressure to lay off on the allegedly green fuels and vehicle taxes proposed in the budget.

These febrile reactions bring a deeper problem into sharp focus. The government believes the way to deal with climate change is to put a continually rising price on carbon and let the ‘market’, whatever that might be, work out how to reduce the emissions. It has never explained how this policy would work while it was simultaneously doing everything in its power to drive the price of energy down for competitiveness and fuel poverty reasons.

The steep rise in oil prices has shone a bright light into this yawning credibility cavern in Britain’s climate and energy policy.

It is now clear that currently proposed emissions caps are not going to create a sufficiently robust carbon price to deliver the transformational energy investments needed to avoid dangerous climate change. As economic security comes to dominate the political agenda more demanding caps are ever less likely.

So now what? Only two other effective policy tools are in the box: technical standards and investment incentives. The British government has a profound reluctance to use either. Yet that is just what it needs to do to begin lifting the gathering gloom over the economy.

Investing to reduce our dependence on imported oil is essential to improving economic security. The faster we do this, the faster we immunise our economy against further oil price shocks. And there will be further oil price shocks. Put another way: to ensure our economic security we need to make a rapid transition to a low-carbon economy, which is exactly what will ensure our climate security.

Energy-efficient buildings and an overhaul of transport and electricity generation systems are the key. Some of this can best be done by precisely targeted regulation. California’s Governor Schwarzenegger is showing the way. The bulk of the emissions reductions in the state’s groundbreaking climate action programme will be achieved by regulatory means with emissions trading being used to sweep up the rest.

But much of what needs to be done in Britain will require investment. It is wishful thinking to imagine that this investment will mostly come from the private sector. It will certainly play its part, perhaps even a dominant part, but significant amounts of investment will be needed in energy infrastructure to take advantage of low-carbon technologies. This is the 21st century equivalent of the motorway network and is no more likely than it to be built by the private sector alone.

For the government to invest, it must finance that investment. But the cupboard is bare. Even without the economic downturn depressing revenues the government was in some trouble with its finances. The public and political aversion to further taxation is high and reinforced by a strong sense that this government has been sneaky in the way it has manipulated the tax system – green taxes especially.

We are in for a period, perhaps prolonged, of belt-tightening. We can tackle it two ways. We can do very little and hope to tough it out without becoming so weakened as to be unable to benefit fully when better times return. Or we can take vigorous, if temporarily painful, action now – aiming to be much better-placed for that happy day.

The latter course of investing in the transition to a low-carbon economy is where the opportunity for the environment lies. The government can do two things to make this possible. It can raise honest green taxes and it can auction the permits to emit CO2.

Taxation is formally classified in three ways: by its intent, its effect or its yield. The intent of a tax is anything the government says it is and many taxes, those on tobacco for example, have unintended beneficial effects on the environment. What makes a green tax distinctively green is what you do with the yield. Honest green taxes are those – and only those – where the yield is used to invest in improving the environment.

Currently the permits under the emissions trading scheme are given away. This has generated billions of pounds of windfall profits for the electricity generators. These permits will now be auctioned. The proceeds of the auctioning should only be used to pay for the energy technology investments essential to our climate security.

There is a clear political choice to be made. Dig deeper into the ditch of oil dependence, economic insecurity and climate catastrophe or strike out for the high ground of freedom from oil, a shock-proofed economy and a liveable-with climate.

Or we could dither.