Passing Wind

Sky news reports that the world's biggest wind farm has opened off the coast of Kent and is now generating power. At a cost of £800m to build 100 turbines; it has the capacity to power more than 200,000 homes a year.

In response to the increased GHG level threat, there have been and continue to be shifts toward a low-carbon, resource efficient economy in the United Kingdom. The challenge is doing so in a cost-effective way, while also stimulating economic growth, competitiveness and job creation. The article touches on all three.

By supplying more of their own energy in the UK, they are now safer from shocks in the oil and gas markets. However, the UK is still behind in the renewable energy industry compared to other European countries. The wind farm has used Danish turbines and is run by a Swedish company, yet employs labour from Kent.

While we both agree that if the local government invested more into research and development it could deliver more jobs and a low-carbon industry by achieving a comparative advantage, there are still gains to be had from trade. Danish and Swedish companies have a comparative advantage at the moment in wind turbines. Thanks to specialization and division of labour, Kent can now use technologies and capital from abroad yet still employ UK workers. Job creation is a good thing.

Economics tells us that developing comparative advantage in a green business where none currently exists is more difficult than to exploit green advantages where comparative advantages already do exist.

Perhaps more focus should be given to understanding the drivers of comparative advantage which would allow businesses to develop green services in areas which they excel. Research we have previously looked at (while writing papers on the subject), leads us to believe that drivers influencing certain sectors to become green arise from demand side factors. These are things such as government regulation or changes in consumer behaviour. But the key which allows businesses to respond to these drivers likely lies more on the supply side; access to capital, investment in R & D, skilled labour force etc. Again, this is why the Danish wind sector does so well.

Surprisingly, there is already competition. Other developers are planning to build even bigger project close by. Case in point is the London Array site in the outer Thames estuary which boasts an expected 341 turbines with the potential to power 750,000 homes.

I would encourage anyone interested in climate change policy to carefully read Nicholas Sterns report “The "Stern Review" on the Economics of Climate Change”.