The future of the UK’s trade with the EU and beyond is currently uncertain. What is certain is that the UK will need to secure trade deals to guarantee its future prosperity post-Brexit. But what exactly does the UK have to trade? Maria Carvalho (LSE) explores how exporting more low-carbon services could enhance the UK’s future prosperity.
The government’s post-Brexit customs proposals, published on 15 August, recognised that one of the biggest opportunities for the UK is in trade in services. The second largest exporter of services worldwide, with services accounting for 45% of UK exports in 2016, the UK already has a head start on its competitors. Last month Liam Fox, UK Minister for International Trade, said in his Beyond Brexit speech that “the greatest prize within our reach is the liberalisation of the global trade in services”.
Certainly with an economy that is 80 per cent services-based the government should be exploiting the UK’s considerable skills in this area, to capitalise on export potential. And there is a clear opportunity to promote low-carbon services: UK market size for this sector could grow by almost 15 per cent every year to 2030.
The global low-carbon economy is coming, and with it opportunities for the UK
The Paris Agreement commits 164 countries (including the EU) to implement plans to decarbonise, moving away from fossil fuels. However, many countries do not yet have the necessary technologies, services or expertise to support their low-carbon transition. Demand will grow, and therefore lucrative new markets for buying and selling low-carbon goods and services will grow too – rapidly, in fact, presenting significant opportunities for the UK.
Just how big is the opportunity? It is estimated that by 2030 the market for low-carbon goods will be worth more than £1 trillion a year – an increase of seven to 12 times on today – an important opportunity for the UK. Markets for low-carbon services will grow in tandem. For example, by 2020 it is anticipated that the 50 per cent increase in investment in renewables (on 2012 levels) will likely more than double spending on insurance for the sector.
Countries that have undertaken early efforts to decarbonise will be positioned to gain the biggest market share, so the UK needs to take action. A two-pronged approach will be needed to expand export opportunities for low-carbon services: nurturing and developing strengths in services at home and securing access to export markets.
Electric car at recharge meter in London, Image: Public Domain.
The UK can increase export of specialist services in climate finance, accountancy and law
The UK already has ‘home advantages’ in some low-carbon service sectors. The City of London is the global hub for climate finance skills and the UK is a world leader in law and accountancy, with further strengths in IT and telecommunication services, engineering consulting, and the development of standards – all skills vital to supporting the low-carbon transition.
Given the growing need and desire for companies and investors to disclose climate-related risks, demand is likely to increase in particular for the UK’s specialised accounting and assessment services. Grantham Research Institute analysis has shown that to finance low-carbon growth and innovation the UK government must increase the scope, and standardise requirements, for companies and investors to disclose climate-related risks. Other global economies, such as France, are also standardising such disclosure (PDF), along with increasing the number and type of actors who need to disclose. British firms should be able to export accounting and assessment services to other countries who eventually adopt mandatory disclosure requirements too.
Services to support low-carbon goods also offer opportunities for UK export expansion
These services are just the tip of the iceberg. The low-carbon transition also offers a wealth of opportunities for services that support new low-carbon technologies.
For example, the UK government has recently announced that it will invest £20 million to support vehicle-to-grid (V2G) technologies that ‘allow plug-in electric vehicles (EVs) to provide demand-response services to the power grid’. Bloomberg New Energy Finance estimates that the global EV market will take off after 2025, with EVs accounting for over 50 per cent of new car sales in 2040.
The government’s investment in V2G technologies and commitment to ban the sale of new diesel and petrol cars by 2040 could foster innovation in low-carbon vehicle technologies and services.
The UK’s EV sector is good at low-carbon innovation and has some advantages over its competitors though the UK is still behind in manufacturing and market size. Globally the market for EV is larger and rapidly growing. Obtaining even a small market share, in terms of exporting both electric vehicles but also support services ― for example, building vehicle-to-grid software infrastructure ― would, therefore, constitute a substantial export opportunity for the UK.
The UK should negotiate the removal of trade barriers for low-carbon goods and service exports
In Liam Fox’s July speech, he drew attention to “plurilateral negotiations underway which aim to help tackle climate change, through the liberalisation of trade in environmentally friendly goods”. Reducing tariffs on such goods via the finalisation of the Environmental Goods Agreement would be an important first step to removing trade barriers for British exporters of low-carbon goods. The UK will also need to reduce trade barriers for low-carbon goods that are not covered by the EGA (such as electric vehicles).
Most free trade agreements focus on removing trade barriers to goods but do not address potential trade barriers involved with services. Even if tariffs on trade in low-carbon technologies are lowered, associated services involved with installing, operating and maintaining those goods can still be subject to non-tariff barriers (e.g. lack of harmonisation of licensing rules). Britain’s low-carbon growth potential would be seriously hampered if low-carbon exports in either goods or services were subject to tariffs or non-tariff barriers.
Mr Fox also said that “some [World Trade Organization] members have also been engaged in negotiations on what should be the most ambitious services agreement to date”. The UK Government can play a key role in WTO negotiations around the Trade in Services Agreement (TiSA). Currently, TiSA focuses on reducing barriers around global services involved with telecommunications, financial services, e-commerce and maritime transport. In the case of low-carbon services, TiSA can increase transparency and reduce barriers by harmonising rules around the movement of natural persons who are temporarily staying in foreign countries to provide a low-carbon service.
Government departments should work together to identify new opportunities to share low-carbon expertise in services
The Department for International Trade and the Foreign and Commonwealth Office (FCO)should coordinate on cross-Whitehall initiatives which could identify and promote low-carbon services – initiatives like the Prosperity Fund, which seeks to increase economic growth in developing countries by improving their business environment and supporting institutional reforms. Without jeopardising the primary objective, cooperation across government departments (including the Department for International Trade, Department for Business, Energy & Industrial Strategy, Department for International Development and the FCO) would help link UK firms with international markets, help them understand international low-carbon needs, and advance the low-carbon transition globally.
This post also appeared on the LSE Grantham Institute site and it represents the views of the author and not those of the Brexit blog, nor the LSE.
Dr Maria Carvalho is a Policy Analyst at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics and Political Science.