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Labour will be taking a risk sticking by its £28bn green energy plan. It should do it anyway | Larry Elliott

It’s official: 2023 was the hottest year since records began and by some distance. The Earth is now 1.48C warmer than it was before the dawn of the industrial age and rapidly approaching the target limit of 1.5C set by the international community in Paris in 2015.

The movers and shakers who will pitch up in Davos to attend next week’s World Economic Forum (WEF) are worried – as well they might be. The WEF’s global risks survey is unequivocal: in a highly dangerous world, the threat posed by the climate emergency is the one that gives most cause for concern in the long term.

There is money to be made out of global heating and the battle for low-carbon market share has become part of the new cold war between Washington and Beijing. In the final three months of 2023, Tesla was toppled from its position as the world’s biggest carmaker by the Chinese company BYD. In future, countries that fail to manufacture their own green products will end up importing them.

In Britain, meanwhile, the economy has barely grown for the past two years. Living standards are barely higher than they were when the banks almost went bust in 2008. That was the moment the economy lost its mojo, never to regain it.

The economic weakness has been most marked in Britain’s old industrial towns, which, despite the hollowing-out of the past four decades, remain the heartlands of manufacturing. These towns – once solidly Labour but which swung decisively to the Conservatives in 2019 – will be a key battleground in the coming general election.

A report from the Industrial Communities Alliance – the all-party association of local authorities in the industrial areas of England, Scotland and Wales – highlights the extent of the challenge. More than 15% of all adults of working age in Britain’s older industrial towns are on out-of-work benefits – a total of nearly 1.6 million people. Over the last decade, job growth in older industrial towns has been much slower than in the main regional cities. Median earnings are 10% below the national average.

So if you are a political party faced with all this, what’s your next move? One option would be to say “enough is enough” and reject growth altogether. But “degrowth” is not an option that either of the two main parties would want to take, as it would be a tough sell at home and an even tougher one in the developing world.

Another option would be to put the decarbonisation of the economy at the heart of a new industrial strategy in the hope that the result will be faster growth and the revitalisation of communities that have been left behind. There is nothing new in this idea. Those of us who formed the Green New Deal group have been banging on ever since the global financial Crisis of 2007-08 about how investment in the low-carbon industries of the future could provide an engine for levelling up.

There is one other option. With an election looming, the green transition can be put into a box marked “too difficult” and so delayed until another day. If you are Rishi Sunak, you announce plans for new fossil fuel oil and gas production in the North Sea and push back the deadline for phasing out cars powered by fossil fuels. If you are Keir Starmer, you might think about watering down your party’s commitment to a £28bn green prosperity fund.

Starmer, to be fair, has denied he has any such intention. Publicly, he has expressed a willingness to slug it out with the prime minister. But such is Labour’s paranoia about suffering a fifth consecutive election defeat it would be naive to rule out the possibility that the opposition will scale back its ambition. It has, after all, already done so once. When she first announced the “green prosperity plan” in 2021, Rachel Reeves pledged Labour would invest £28bn a year, warning (quite correctly) that the costs of climate change would be greater if the government failed to take action now. But with higher interest rates making it more expensive for the government to borrow, the commitment was weakened. Currently, Labour is committed to reaching the £28bn a year target by the end of the next parliament, provided the country can afford it. Financial stability is everything.

Sure, Labour would be taking a political risk if it stuck by the current iteration of its green prosperity plan. It would give the Tories a chance to reprise one of their favourite themes: Labour is a spendthrift party that can’t be trusted with taxpayers’ money.

But the arguments for holding firm are much more compelling. First, Labour would be fighting the next election on its own terms rather than those dictated by the Tories. Ceding to pressure from Sunak to abandon the the plan would betray a lack of intellectual self-confidence.

Second, Labour says it will be able to increase spending on public services without raising taxes because it will run the economy at higher levels of growth. Good luck with that. Raising the economy’s underlying growth rate even modestly is going to be devilishly difficult and will require much higher levels of private sector investment. The green prosperity plan is no magic bullet, but it would certainly send a signal to business that a Starmer-led government was serious about the green transition.

Finally, there is the bigger picture. The message from the WEF risks report is that the world is approaching the point of no return when it comes to the climate emergency. Paring back Labour’s green spending now would be the most egregious example of short-termism: bad economics, bad politics and – it should go without saying – bad for the planet.

  • Larry Elliott is the Guardian’s economics editor