The eco-crunch: Can Britain still afford to go green?

The housing market is in decline, fuel costs are soaring – and the worst may be yet to come for the global economy. It’s little wonder that politiciansare backing away from electorally unpalatable green policies. Paul Vallely investigates the hard choices facing consumers and environmentalists

There was a cartoon in Private Eye recently, showing a woman at breakfast reading a headline in the Daily Mail about falling house prices. "I feel so silly," she says to her husband. "Only a week ago I was sitting right here, worrying about climate change." When the going gets tough, the environment goes out of the economic window. Such is the received wisdom among many in business and politics. The logic is clear: protecting the environment is a luxury and it's one most of us just can't afford in an economic downturn. With oil prices up tenfold in the space of a year, green policies look set to be jettisoned by left, right and centre.

There is evidence everywhere: firms that once trumpeted sustainability initiatives are now talking only about "profitable growth", "staff retention" and "customer focus", while oil companies have begun digging up tar sands – which produce three times more CO2 than crude oil – to increase supply. Those who oppose the new Manchester congestion charge say the introduction of the scheme when roads are being blockaded by petrol-price protesters is "an act of political suicide".

There has been, in the words of the leading Oxford economist Professor Dieter Helm, a "shift back to the safe territory of concrete and jobs". Despite politicians' continuing green rhetoric, he adds, "it is a sad fact that the environment is one of the first things to suffer" when it comes to actual policy as we tighten our belts in the face of a looming economic slowdown.

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We have been here before. The seasoned green lobbyist Jonathon Porritt recently wrote: "This all feels very much like one of those periodic crunch moments for the sustainability agenda. Fuel-tax protests. Rebellious backbenchers. The kind of febrile atmosphere we last saw in 2000. The Tory press on the warpath."

Eight years ago, haulage firms and farmers blockaded key oil facilities in protest against the fuel-tax escalator. Within a few weeks, the Government caved in. Mondeo man, feral and unforgiving, stalked the Treasury's corridors of impotence. So how does it look now? "My instinct is that politicians will take this as an opportunity to go slower on green initiatives," Porritt says. "I'm nervous. Any opportunity to go slower they will treat as manna from heaven. Climate change is still tough for politicians to sell."

It's worse than that, according to another green veteran, Tom Burke, who has been director of Friends of the Earth, adviser to three environment secretaries and now is green watchman for Rio Tinto plc. "There has been quite a shift of mood inside the Government already," he says. "People are getting very anxious about economic security amid the fear that a deeper and a nastier downturn is on the way. Vulnerability to oil price hikes is very high on the agenda. Green markets may actually take a harder and longer hit than mainstream markets, more for psychological than economic reasons. When confidence evaporates, price and safety dominate."

There is some good news, perversely, in the bad news. A faltering economy can be good for the environment because, as demand falls, factories slow and use fewer resources. This can help slow global warming as the break-up of the former Soviet Union did, bringing global CO2 emissions down by 3.6 per cent – and as 9/11 did in the United States. Today, a global downturn could do the same in China.

But the British government is desperate to resist that. Gordon Brown's immediate reaction to the current crisis was to try to get Opec to increase the flow of oil to bring prices down. It led, says the economist Ian Christie of the Green Alliance, to "a crescendo of self-contradiction as ministers tried to maintain their line on the urgency of climate action, even as the Prime Minister was begging Opec and North Sea producers to increase oil production, so that prices might fall, enabling us all to emit more CO2 and do more damage to the climate".

Simon Bullock of Friends of the Earth puts it like this, "They've been saying for years that climate change is the biggest problem facing the world. And then at the first sign of trouble they revert to the old paradigm."

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What we need, is to have it both ways, says the Conservative leader David Cameron, in the way that opposition leaders do. Last week, he gave a major speech on the environment and the economy, promising to "take forward our green agenda in a way that strengthens the economy – not 'green' or 'growth', but both". He called this "realistic environmentalism", and spoke of "not ignoring economic realities and just pressing on regardless but . . . using them as a spur to innovation and imagination". That meant "reconfiguring our whole economy and overturning our whole hydrocarbon dependency". Or as his environment spokesman Peter Ainsworth put it, "Green policies become more important in times of economic stress, not less."

Yet does that speak to economic reality? Certainly, investors are steering away from alternative-energy projects. In the first quarter of this year, global investments in clean energy were down nearly a third to $2.7bn (£1.37bn). Private equity investment was down nearly two-thirds, according to the analyst New Energy Finance. The market for solar energy remains strong, thanks to steady technological improvements. But wind-power investments have dipped and biofuels have fallen following the controversy about their role in the global food spike. It may get worse. Shell recently pulled out of the world's biggest planned wind farm, the London Array, after booming crude prices made oil far more attractive than long-term investment in renewables. Elsewhere, risk-averse investors are looking for swifter returns and shying away from green projects. But there are important indicators pointing in the opposite direction. Pessimists predicted that organic food would take a knock because of the gloomy economic talk. But there is no sign of that. On the contrary, we are becoming greener in our eating habits.

The Soil Association, which certifies more than 80 per cent of UK organic products, sees no dip in demand. Sainsbury claims that its organic sales, at £7m a week, are fuelling its current growth spurt. Despite the credit crunch, the analyst Mintel predicts the market will grow 44 per cent by 2012. This is for a number of reasons. "It's a myth that organic food is always dearer," says the Soil Association's director, Patrick Holden. Organic tomatoes in Tesco are now cheaper than its Finest brand. As oil prices increase, organic will be come cheaper, relatively, because nitrogen fertilisers and pesticides are made from oil. "Organic uses 26 per cent less energy than non-organic per kilogram of food, which should give organic food a competitive advantage." Growing-your-own costs even less. Seed sales are up this year, the Soil Association says, with an interesting shift from flowers to vegetables; some 60 per cent of seeds sold are now veg, up from 50 per cent last year. Waiting lists for allotments are also growing.

Retail analysts aren't seeing any decline in organic sales in volume or value. Indeed, they grew 13.4 per cent in the past year across Europe, says grocery analyst IGD, up from 9.3 per cent in 2007. "Twenty years ago, organic food was seen as a fad. Now it's a £1.1bn industry in double-digit growth," IGD's chief executive Joanne Denney-Finch told The Grocer magazine. "Every year, it seems, will be the last for organic's expansion. And every year it proves the doubters wrong." IGD predicts a further 10 per cent growth this year, and quadruple that in the general food market. Mintel says that despite the credit crunch, it expects the organic market to grow 44 per cent by 2012.

Why is this? "Because," says Denney-Finch, "people hate to compromise on food. Food is not the first place that most people look when they tighten their belts. If you have been buying organic milk for years, then there are other, less guilt-inducing ways to economise – [like] cutting back on a second car or taking a cheaper holiday."

In any case, despite all the doom-laden economic talk in the media, we are shopping more, not less. Retail sales rose by 3.5 per cent last month. Even yacht sales are still doing well. But there may be early indicators of shifts within what we buy. Demand for Sainsbury's Basics range is booming, with rice sales up 50 per cent, frozen peas sales doubling and dried pasta up 300 per cent. And posh shoppers are now to be found in Aldi, Netto and Lidl, rather than just in Waitrose. Even so, we are shopping more selectively rather than cutting back on green goods.

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So which is right? Are we becoming less green, or more? Until we know whether the public sees the present economic downturn as a blip or a more permanent shift in the global economy, it may be hard to say. "It will be one or two years before you can see any direct effects of the credit squeeze," according to Michael Grubb, chief economist at Carbon Trust. And at the moment, it's a blip feeling, not a doom-and-gloom one. Which may explain why, despite all the indications that the era of cheap travel is coming to an end, holidaymakers are having one last fling like drunken dancers in the saloon of the Titanic. Thomas Cook reports "robust" demand as travellers cling to their foreign holidays, but it has advanced-purchased 90 per cent for its jet fuel for the rest of the year and hedged 100 per cent of its currency needs. And early warning signs of trouble are there. Fares to a long-haul destinations such as the United States are increasing week by week. Some operators, including Virgin, are introducing fuel surcharges. In the US, so often the bellwether for what will happen over here, Continental Airlines has cut capacity by 11 per cent and United Airlines is grounding 100 planes. Around the world, 24 airlines have gone bust in the past six months. Even the low-cost Ryanair is predicting 5 per cent price rises next year on a business plan that may only break even. Some have already turned their backs on foreign holidays, with English tourist websites reporting a doubling of traffic.

Yet even if a recession were to set in – and we are a long way off that – some sectors would be far worse hit than others. Those who suffer in a recession include house builders, estate agents, car manufacturers, restaurants, DIY retailers, banks and insurance, engineers and architects, advertising agencies, newspapers and commercial television companies. US economists speak of the "latte factor" – industries that rely upon non-essential regular spending. The impact of this is selective, particularly in terms of the effect on green behaviour. We are already driving less. UK petrol sales have fallen by 20 per cent and the urban 4x4 is becoming an endangered species. Business executives are flying less and doing more video-conferencing. Expect to see more carpools and packed lunches at work, and in Tupperware, not plastic bags. Much of this could be positive in green terms.

Then there is the question of time-scale. "In the short term, the credit crunch will affect people's enthusiasm for making choices based on environmental considerations," concedes Ben Stewart at Greenpeace, "but in the long term, people will look to energy efficiency to improve things." Such measures are more important than is often recognised. "Energy efficiency will do far more than nuclear power or carbon capture. Power stations waste two-thirds of the heat they produce; we need to capture that." In that sense, argues, Ian Christie, "The present turmoil is not a crisis for green arguments – it is a vindication of many of them." The idea that we will automatically go less green is a "shallow and wrong-headed analysis". The downturn and the credit crunch present "a crisis for neoliberal ideology, banking deregulation and credit-based consumerism, not for the alternatives to all of these ideas."

Those alternatives will become increasingly manifest in the behaviour of individuals, companies and governments. For individuals, the veteran Labour environmentalist Michael Meacher believes that the anticipated rise in domestic fuel prices will accelerate the switch to renewables. "It will quite soon be economic to install ground heat pumps – pipes drilled 10 to 15 feet into the ground that will produce enough heat from that depth to heat your house with underfloor heating," he says. "Or air heat pumps which extract heat from the air using a device that operates like a fridge in reverse and which will heat your house and all your hot water." People on average and higher than average income may find that economic now, Meacher believes; he is in the process of installing air-heat pumps in his own home. "But not the poor, unless there are subsidies, which the Government has so far failed to deliver".

Big business will be no less green, believes another veteran eco-politician, the Tory John Gummer. "Firms like Tesco and Coca Cola have decided this is now a permanent feature in the marketing landscape," he says. "They are taking the view that there will be no diminution in the expectation of the public that they should be green."

He is not alone. The public relations firm Chime Communications estimates that 25 to 30 per cent of a company's stock price is related to its reputation, and there is good evidence, it says, of rising consumer spending on green goods or goods from companies with a green bent.

Opinion polls back that up. "It's true that the economy, which was for years eighth or ninth on the list of things people worry about, is now back near the top," says Bob Worcester of Ipsos Mori. "But greenery is well-embedded. Economic gloom can knock it back, but it will return, and each time, it returns more strongly." It is a two-steps-forward-and-one-step-back dynamic.

"It grew from a 6 per cent rating to a 30 per cent one until 1992, when the last economic crisis knocked it back. But it was knocked back, not to 6 per cent but to 22 per cent," Worcester says. And even now, the economy is far from the top of the nation's worry list. "At present, if you ask people what is the top issue, without prompting them," adds Worcester, "45 per cent say immigration, 40 per cent say crime, 24 per cent say the economy, 23 per cent say the NHS and 19 per cent say the environment."

Things have to get really bad for the economy to be at the top of that list. People are not losing their jobs and homes as they did in the downturn of 1991-92. Indeed, job vacancies are at their second highest level ever. And though we have the end of a credit boom and the bursting of a housing bubble, as in the early 1990s, there is a big difference. Those years had a backdrop of low energy and food prices. Ours have rocketed.

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High energy and food prices change a lot of things. Not least, says Gummer, "the old-fashioned notion that greenness is expensive and that non-greenness is cheaper. If energy is at the heart of the issue, that is no longer true." On that, there is cross-party consensus. The Environment Secretary, Hilary Benn, says: "Successful countries, like successful companies, are going to have to switch to a low-carbon future. It's one of the first questions investors in any business now ask. The resource crunch is not an excuse to put off action." And that's not his view, he insists, but that of the whole Government: "The science and the economics point in the same direction; the Stern report showed that the cost of action will be less than the cost of inaction."

So where might we see that begin to shape how green our daily lives are to become? In four areas: energy efficiency, renewable sources of energy, transport and power generation on a national scale. The Government has begun to focus on energy conservation and efficiency investments in homes – loft insulation, cavity-wall filling, double glazing and the rest. But its rhetoric has not yet been backed by extensive action. "Energy efficiency measures are ill-publicised and do not bring enough financial incentives," explains Ian Christie. "The scale of the investments on offer is unlikely to be adequate."

A major announcement on renewables is to be made tomorrow. Spurred by a huge decline in North Sea gas production for the second year in a row, the Government will outline a massive £100bn programme to generate energy by wind, solar and biomass. It is designed to produce 15 per cent of UK energy from renewable sources by 2020.

As many as a quarter of British homes could be fitted with solar heating and thousands of wind turbines will be erected across the country. On transport, the shape of the future is more unclear. David Cameron spoke vaguely about making Britain the world leader in hydrogen fuel cell- or battery-powered cars. And Hilary Benn speaks of a pilot scheme by Renault-Nissan for a mass deployment of electric cars in Israel. But experts see the maximum medium-term reach of such technology as 25 per cent of the European market and 10 per cent globally.

Real politics on transport seems limited to rows about things like congestion charges and car tax. All of this splits even the green activists. Greenpeace, like the Tory party, does not have much time for the plans for a retrospective tax on old cars, which it says is penalising people for a choice they made seven years ago when the Government ought to be forcing car manufacturers to build more efficient vehicles. Friends of the Earth, on the other hand, insists the Government must stick by its car tax rises. "The Government must not resile from its tax disc reforms," says Simon Bullock: "7.5 million second-hand cars are bought every year. There should be a high tax on the gas guzzlers among them to encourage people to go for alternatives."

The row has undoubtedly damaged the idea of green taxes. As Jonathon Porritt puts it: "The essence of using fiscal instruments to change corporate and consumer behaviour relies on three things: transparency (so that people know what's coming down the track at them); fiscal neutrality (so as not to piss everyone off by using green taxes primarily to increase revenues); and fairness (so that the less well-off in society are not further disadvantaged)." Gordon Brown, he hints, has failed on all three points. Disguising stealth taxes as green taxes, says the Tory spokesman, Peter Ainsworth, has so "poisoned the well of public goodwill that I'm beginning to wonder now whether green taxes will ever be possible".

They can be redeemed, perhaps, only by moves such as allocating the cash raised to extra investment in public transport.

But the big issue is power generation. Tomorrow's announcement is expected to give ministers the powers to force businesses and householders install micro-technology to generate their own power. David Cameron, too, has talked about introducing a system of smart meters and "feed-in tariffs" by which householders would be paid for the energy they produce. This is small beer. Even in Germany, which has such a system, only 200,000 homes do this.

Then there's the question about power stations that divides the greens: should they be coal or nuclear? There is much talk about carbon capture and storage (CCS) to collect the carbon from coal-fired stations and bury it, cutting emissions by up to 85 per cent. The Government has announced a demonstration project. But CCS won't be operational for three decades, says Ben Stewart of Greenpeace "and the Government is indicating that it will go for coal to fill the short-term gap – by which it means the next 30 to 40 years. That could mean as many as eight new coal-fired stations of which Kingsnorth is just the first."

The decision on a new coal-fired station at Kingsnorth, Kent, to be announced in the autumn by John Hutton, Secretary of State for Business, is seen as a test case of the Government's seriousness on the green agenda. "The return to coal is extraordinarily short-sighted," says Michael Meacher. "The price of solar has come down 80 per cent and is falling; in 10 years it will cost the same as oil and gas and wind will then be cheaper than them."

Hilary Benn gives nothing away on the Kingsnorth decision. But he rejects the accusation that the Government is inconsistent in pressing for increased oil output and aiming to curb climate change. Critics are confusing the short and medium-term. "No one thinks that oil is going back to $20 a barrel," he says, "but we're trying to relieve some of those short-term pressures, such as the impact of the price of oil on the price of food. So it's not inconsistent to say that and talk about climate change."

In evidence, he says that the Government will be expanding the European carbon trading scheme, already the biggest in the world, with a Carbon Reduction Commitment will extend cap-and-trade to all firms with an annual electricity bill of £500,000 or more. Air transport will soon be included in the carbon cap. There is a raft of initiatives, Benn says, aimed at decoupling economic growth from high-energy technology. "I'm happy to be judged on the record of what we have done and what we are planning to do." His critics are not entirely impressed. The Government's record is "patchy", says Jonathon Porritt.

The real challenge, says John Gummer, is "to create a new language that links the environmental imperatives to a world in which people feel poor." That means, in the words of Tesco boss, Terry Leahy, making green cheap. "There's a puritan morality in much of the green movement," says Gummer, "which is less interested in outcomes and more in the process of being uncomfortable and wearing rough clothes. But if you stay in a hotel room where all the lights switch off automatically when you remove you room key, that produces the desired outcome. You don't have to feel high-minded about it. The economy needs to be organised so that doing the easy thing is also the green thing."

That would get over what disempowers many of us and stops us acting ecologically. Individual acts can seem futile and puny in the face of global ecological challenges and the persistent non-green behaviour of others.

"Being green can seem to be a mug's game if there is not visible supporting action from others," says Ian Christie. "We end up with a Mexican stand-off – in which government, business and citizens do little or nothing because they are waiting for each other to make the first move and thus legitimise their own action."

Only politicians can break that gridlock. But it means there will be political capital for the party that says we'll make it easier for us to go green. "People's attitudes to the environment work on two levels: an intellectual understanding of the problem and an instinctive sense that it is not yet extremely urgent," concludes Jonathon Porritt. "What an economic downturn, with high oil and food prices, may do is bring home to them that something has to be done about the environment now." But he knows full well that it could go either way.

The view from the eco-experts

The fashion designer
Safia Minney, founder of People Tree

Our sales to ethical and fair-trade fashion boutiques have doubled on last year's figures, but a lot of our customers are tightening their belts – there is a chance they'll shift back to fast, cheap fashion. I'm sure the top brands will benefit, but companies such as ours are under threat. Even so, we're still doing well at the moment, because consumers are becoming more considered in their spending habits – they're buying less and buying better quality clothing. They're also re-styling existing clothes and accessorising – we've seen very strong jewellery sales, for example.

The green homeware expert
Edwin Lloyd, Managing director of www.mygreener home.co.uk

I've been able to capitalise on the growth of internet retailing and the green pound, and I think both those forces are still growing. So even if consumers begin to spend less, I can absorb the impact. There are two types of products that environmentally aware people buy. There are conscience items, such as recycled paper or bio cleaning products, which cost more but are greener. Then there are the energy-saving products, like those gadgets that stop you leaving your television on stand-by, or eco kettles that are not only green but save the consumer money. It's the conscience products that are under threat, while I think I'll be seeing increased demand for the energy-saving products.

The organic entrepreneur
Jo Fairley, co-founder of Green & Blacks and owner of Judges Bakery, Hastings

I think it would be very sad if the credit crunch meant people stopped buying organic food. I don't think it will happen – we buy organic because it fits with our principles, not as a lifestyle choice. Our tills are still ringing and I think people are prepared to make sacrifices – there are things they'll give up before they start depriving themselves of good food. We can cut grocery bills by relying less on meat and throwing less away – we bin 30 per cent of the food we buy. Waste is not green. I think the economic downturn could be the best thing that happened to the planet because we'll spend less money on the things that aren't important.

The eco-tourism trailblazer
Paul Giess, Director at Baobab Travel

Our bookings are the same as they were last year, but what we are noticing is that people are waiting until the last minute before committing. The main problem for us is the rise in fuel prices. Most of our holidays are at eco lodges in Africa and, for example, the cost of a ticket to South Africa has gone up £90 over the past month purely because of fuel duties. We're getting emails every day from our suppliers asking for more money. We've had to pass some of that on to our customers and the worry is that people will start going into high street agencies and buying package tours, staying in large hotels.

That would be a great shame, not only for us but for the countries they visit, because a lot of the money will go back to the UK and not stay on the ground, where green projects we travel to need it.

The green power generator
Mary Haddick, Managing director of Solar Power Scotland

We sell domestic thermal storage systems and have been busier in the past two weeks than we have for quite some time. Our systems absorb sunlight – even hazy sunlight – and use it to heat water, in some cases replacing the need for boilers and central heating altogether. They cost up to £6,000 to install, but you can expect to cut 70 per cent off your hot water bills over a year.

Most of our customers are not so much concerned about how quickly they'll make their money back as they are about saving on fuel bills straight away.

I suppose that people might be reluctant to make the investment if things get worse, but we're not there yet.

The politician
Alan Simpson, Labour MP for Nottingham South and green campaigner

Downing Street logic propels the Government to say it's too difficult to go green in the face of a recession, but my argument is that we're experiencing a series of global crises – climate change, the credit crunch, rising food and oil prices – that accelerate the case for going green. We're at the edge of a global systems meltdown and have to make huge changes in the next five years. Gordon Brown is going to have to make some sort of decision. If we had an ounce of vision, we'd understand that it's only the sustainable that's going to turn out to be affordable. My worry is that a recession will be used by those who've never wanted to go green as an excuse not to. The truth is that going green – and quickly – is the only way to counter a recession.

The eco-car importer
Steve Hartridge, Managing director of Goingreen, the UK importer of G-Wiz electric cars

It's really difficult to predict what's going to happen in the next year. Unlike some other green industries, the G-Wiz can be good for the pocket as well as making a statement. In some ways, the credit crunch is an opportunity for us. With rising oil prices and media hype about the cost of motoring, we can attract people who didn't have a second car to get a G-Wiz. Our cars are cheap to run, but they cost about £9,000 so I am worried that if people tighten their belts they might not spend, but I'm confident the G-Wiz will remain a viable alternative to a second car.