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What does the evidence say on place-based intervention for net zero?

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This Saturday marks Earth Day 2023, which, as for many years now, is set to be a sombre occasion.

March’s latest report from the IPCC hammers home the climate change challenge facing the world and the magnitude of the damage that will, or indeed already has, come with it. UN Secretary General António Guterres has evoked the Oscars best picture winner in saying that averting the most devastating effects now requires action on “everything, everywhere, all at once”.

Global efforts to prevent climate catastrophe may seem a universe away from the environs of UK local economic development, but those efforts are all local to somewhere, and increasingly we are seeing even the biggest green policy packages pay heed to what action means for – and can do for – local areas.

The Biden administration’s Inflation Reduction Act (IRA) is one such package, aiming to drastically cut US carbon emissions. The IRA places emphasis on how transition to net zero combines with local economic policy – it includes $60bn earmarked for infrastructure investments in disadvantaged communities, and its headline clean energy tax credits give significant bonus deductions for projects in low-income communities, brownfield sites, or areas previously dependent on the fossil-fuel industry. The European Union has also announced similar plans – its proposed ‘Green Deal Industrial Plan’ would see state aid relaxation to 2025, allowing member states to support zero carbon energy technology or net-zero related production. Additional support would be possible for ‘disadvantaged regions’.

There are calls for some kind of similar green strategy in the UK. The Chancellor will unveil a UK response in the autumn (though has indicated it will not feature quite the level of tax breaks and subsidies), and the Labour Party has stated that it would introduce a UK version of the IRA were it to gain power. Noting the IRA’s provisions focusing on supporting certain local areas, some commentators have suggested a UK version could include place-based policy linking to the Levelling Up agenda.

It seems likely that the local dimension of the shift to net zero, and the economic strategy that comes with this, will receive increasing attention in the UK. But what does the evidence say about the ability of green investment to deliver local economic benefits, and about which policies are effective in supporting green industry?

The evidence on green infrastructure and jobs

One of our rapid evidence reviews looks at economic outcomes from local green investments in active travel, energy efficiency, and natural capital infrastructure.

The evidence suggests that these investments can generate local employment, with many of the new jobs created directly through the delivery of the infrastructure. The nature of many investments like this, for example building cycle lanes or planting trees, means they are relatively labour intensive compared to other infrastructure investments. There is also some evidence that jobs are created in the associated supply chains.

Most of the research only considers short- to medium-term employment effects though, for example new jobs in construction, manufacturing, or installation of the infrastructure. These jobs are unlikely to be permanent, and the evidence is less clear on the potential for longer term employment effects arising from, for example, maintenance and servicing needs of green infrastructure.

So, while green infrastructure investments are no doubt important for net zero transition, more evidence on their longer-term employment effects would be useful, and they may not always provide a large number of sustainable jobs. One option might be to ensure that these kinds of investments are combined with transferable skills training for those employed around them in more time-limited positions, to help them move on to other jobs afterwards (although the effects of such policies are yet to be evaluated).

The evidence on supporting green business activity

Much of the support delivered through the IRA and the EU’s proposed plan comes through tax credits, or through more direct subsidies and grants, to encourage innovative activity – developing new clean energy solutions, or greener manufacturing processes. Our evidence reviews on R&D tax credits for innovation, and on grants, loans and subsidies for innovation, consider the evidence of supporting innovation with these interventions.

Evaluations suggest such policies increase R&D spending in businesses – and often have positive effects self-reported measures of innovation, and patent applications – with small businesses benefiting more than large ones. The evidence is less clear that this translates to local employment and productivity growth – at least in part because innovation benefits tend to ‘spillover’ to other areas. Local authorities need to think carefully about using their own resources to support such activity and be realistic about the spatial distribution of possible local economic benefits.

Why evaluation is essential

It goes without saying that success in transition to net-zero is important. Understanding which interventions work best at the local level to encourage innovative green activity is vital. It will be innovation that leads to new clean energy sources, or to greener products and production processes. With any new major packages to support this kind of innovation, a strong evaluation strategy will help to ensure that interventions can be continuously improved upon to secure the most impact for money spent. But the other key point is that only by evaluating the impact of green business support and infrastructure investments on outcomes like employment or wages in local areas can we understand their role in achieving a ‘just transition – one that moves us towards net zero while minimising the associated socioeconomic costs, and ensuring the benefits flow to disadvantaged areas as well as already thriving ones. The Paris Agreement’s preamble highlights the importance of a just transition, and many argue that it is key for the political sustainability of the path towards net zero. Robust impact evaluation to build an evidence base underpinning it cannot be ignored.