Racing for the bottom

Tweet The Welsh government frequently refers to the extent to which sustainability is seen as being its central principle in everything it does.  The idea is sound and it's a nice sound bite as well.  The problem arises in living the implications of making such a commitment.

Last week for instance, Tata steel, the operators of the Port Talbot plant, raised an issue over the price which they have to pay for energy.  Their European chief executive described high energy prices as an “obstacle" to growth.  Specifically he also complained that his company pays more for energy than competitors in France and pays business rate double those of competitors in Germany.  I have no reason to doubt either of those figures, but it's notable that his company would also be paying considerably less corporation tax on any profits in the UK than it would in either France or Germany.

Keen to support a major employer in South Wales Carwyn Jones, our first Minister, leapt to their support.  He called for what he referred to as a "level playing field" when it comes to energy prices, and urged the UK government to take steps to ensure such a level field.

What exactly he had in mind is unclear, but it seems reasonable to assume that what he was in fact calling for was government action to reduce energy prices.  That is, however, looking at only one factor.  And looking at one factor in particular is not giving proper consideration to the overall economic environment in which companies operate.

There is a question also over the extent to which Jones's call conflicts with his own government’s “central organising principle".  Indeed, he recognised the conflict when he said "Sustainability is important, but one of the main planks must be economic sustainability and sometimes they have to be trade-offs."

That sounds to me as though he is in fact saying that the commitment to sustainability applies only in so far as it does not conflict with the interests of major employers.  And such a commitment is no commitment at all.

There are indeed differences in energy prices between different countries.  And there are differences in tax regimes as well.  There is a danger in trying to be the lowest in order to compete in the interests of economic growth.  And that danger is that economic sustainability leads to environmental unsustainability.

I’m sure that Jones recognises that danger himself.  Indeed, some months ago, he argued that corporation tax should not be devolved to Wales because it would lead to a ‘race to the bottom’ as different parts of the UK sought to compete with each other for economic investment on the basis of a lower tax regime.  Up to a point, I agree with him.  That's part of the reason why I would argue for devolution of a range of taxes rather than considering a single tax in isolation.

Reducing energy prices to large consumers of energy to compete with other countries is another form of a race to the bottom.  But this isn't just an economic race to the bottom; it is also potentially an environmental race to the bottom, given the impact of energy consumption on emissions.

Now steel is going to be made somewhere.  It's an essential product to any developed or developing economy.  And we certainly would not want to create an economic environment which drives such industry elsewhere.  Solving our own emissions problems by moving them elsewhere is no solution at all. 

Creating an environment where companies are both successful economically and have incentives to reduce their environmental impact is a difficult balancing act.  But simply responding to their pressure for reduced energy costs is avoiding any attempt to do any balancing at all.