Thanks very much for that introduction. The last CBI event I spoke at was the annual climate change conference, back in November. Under Richard Lambert's stewardship, the CBI went from strength to st...
Thanks very much for that introduction.
The last CBI event I spoke at was the annual climate change conference, back in November. Under Richard Lambert’s stewardship, the CBI went from strength to strength.
Now there is a new man in charge. And although I’m a little late, I’m delighted to be able to congratulate John publicly on his appointment.
With his experience and commitment to business interests, I know he’ll build on the CBI’s reputation for thoughtful advocacy.
We’re looking to him to keep the green agenda firmly on the table. I’m convinced it’s good for British business.
Why consumer behaviour matters
The report published today is a good sign. In exploring how we can make the consumer case for low-carbon, it makes a valuable contribution to the debate.
Because consumer behaviour matters. British consumers will spend nearly a trillion pounds this year. What they spend it on - and where - makes a real difference.
70% of our greenhouse gas emissions can be linked to consumer action. So consumers, and the choices they make, will play a huge role in taking carbon out of our economy.
We can’t meet our climate change goals without changing the way we choose goods and services.
Decisions at the till filter up to business planning, and feed back into product development.
At each stage - from design to delivery - there’s a chance to inject a little green thinking.
We should seize that chance.
People feel good about buying things that do good. But in the current environment, we can’t rely on the charitable impulse.
We have to make it easier for people to make green choices. We have to get people thinking green at the critical decision points.
That means making sure there are alternative products that consumers want and need.
That they are signposted and supported by clear and consistent information.
And that they are encouraged by the right blend of regulation, standards and incentives.
Today, I want to look at how we can grow a low-carbon consumer market. And at the roles of government, businesses and consumers in delivering a greener future.
Let’s start with a simple question: what affects people’s buying behaviour?
Tools available to change it
Firstly, events can change what consumers are looking for, and what producers manufacture.
Take fuel efficiency.
Between 1975 and 1984, the fuel economy of light vehicles in the US rose by 62%. In less than a decade, motor manufacturers used better design to squeeze an extra 7.6 miles per gallon out of domestic vehicles.
This great leap forward was an engineering response to the oil supply and price shocks in the 1970s.
Higher prices at the pumps meant the emphasis shifted toward economy. Petrol was expensive; people wanted more efficient cars; businesses wanted to provide them.
Second, governments can force change by intervening in the market - through regulation, subsidies and standards.
Look at what happened in Europe. A voluntary agreement by car manufacturers wasn’t delivering lower tailpipe emissions. So in 2009, the European Commission stepped in. The Council of Ministers legislated, setting standards for new car emissions.
The result? The cars on our forecourts in 2010 produced 20% less C02 than they did in 2000.
And finally, businesses can drive consumer choice through innovation.
By bringing new products to market, businesses can reframe the options open to consumers - as Toyota did with the Prius.
They made the solution that got people thinking about the problem.
It’s the ‘Field of Dreams’ approach: if you build it, they will come.
So businesses, governments, and events can all drive choice.
But ultimately, the decision rests with the individual.
We need to get over the barriers stopping consumers from going green.
That means getting past worries about performance or quality of the sustainable option.
It means understanding why some people are reluctant to pay a little more now to save a lot more later.
Buying something because it is green is reason enough for some. But for everyone else, the focus must be on the benefits for consumers.
Like lower energy bills. Improvements in the environment. Better public health.
In tough times, a clear steer on these benefits becomes even more important. So having the right information at hand can make a critical difference.
Take the fuel economy labelling scheme. By bringing together fuel consumption, carbon emissions and estimated fuel costs, the voluntary labelling scheme is a perfect example of how information can affect choice.
Instead of giving people another system of arbitrary categories or another impenetrable dataset, it has a clear rating system and - crucially - a price, in pounds, of running the car for a year.
And it works. 75% of new car buyers said the labels had given them information that influenced their purchase choice.
That’s because it makes the critical connection between carbon and cost. Setting out how much it costs to own a product, rather than simply to buy one.
We also know that people care more about what they pay now rather than what they save in the future.
But we need to get people thinking about price across the lifetime of a product. The key is to make costs real and tangible, rather than abstract.
The labelling scheme makes it easy to factor in fuel costs when you’re buying a car. And with dashboard fuel economy readings, people can easily grasp the running costs of their vehicles.
But although energy ratings on white goods are well understood, there’s little awareness of how much it costs to run a kettle, a TV or a fridge - each day, each year, or each use.
Until you put a price on it, it’s easy to ignore.
But once you tell people that they could save £25 a year by choosing a more efficient fridge/freezer, or £150 over five years by choosing a greener TV, or 6p for every load of washing by using a smarter washing machine - then the smart money is on the green choice.
Suddenly there’s no need to do environmental targeting, because you can let price targeting do the work for you.
But we’re not yet giving customers the chance to make meaningful price comparisons - at least, not consistently across sectors.
So the challenge for household goods manufacturers and retailers is to think about how they can bring the same clarity to their consumer information schemes as the automotive sector.
The government wants to work together with business on this; so let’s get together and start talking about how we can deliver better information for consumers.
Together, we can make it easier for consumers to buy energy efficient products; from providing useful advice in-store and online to developing set of consistent messages.
And a simple, consistent, voluntary labelling system setting out real-world costs can make a real difference.
It can save consumers money, encourage competition on energy efficiency - and refocus consumers on the more sustainable options.
Because at the moment, energy consumption isn’t well understood.
Cost per unit
And neither is energy supply.
Opaque pricing structures, a cost per unit that most people can’t explain, a lack of real-time information on consumption - the net result is that running costs remain abstract.
That’s where smart meters and the smart grid come in.
Smart meters are about giving consumers the tools to engage with their energy use. We’re finalising plans to roll them out across Britain.
As part of this process we’ve been doing a lot of work with consumers and consumer groups to make sure we get it right. And we’ll be publishing our conclusions shortly.
Smart meters can help people keep an eye on their energy use, and their energy bills. With a quarter of the UK’s carbon emissions coming from the home, that kind of awareness will be critical.
But to really capitalise on smart meters, we also need to look ahead to the next step - enabling consumers to play a more active role in balancing electricity demand.
Two years ago, IBM ran a smart grid pilot project in North Carolina.
With a wireless data connection and a software control panel, they found that homes could save up to 40% of their energy.
Homeowners could check their energy consumption, set daily use profiles, select a monthly target bill amount, and even let the local authority cycle off their appliances during peak times - and all with nothing more than an internet connection.
The right information - presented in a way that allows meaningful comparison - can affect people’s buying behaviour.
Armed with better information, people can make more informed choices - demanding higher standards, driving markets onward, and sparking innovation.
Clearly, information is critical. But who do people trust to provide it?
Tucked away in the CBI’s report is a graph that makes depressing reading. It asks people which source of information they found most reliable - government, scientists or Which? Magazine.
In the 15-24 age group scientists lead the way, with government close behind.
In middle age, things take a turn for the worse. Trust in government and scientists collapses, and Which? magazine soars ahead.
And by retirement, only one in five people trust government to provide reliable information.
Usually, journalists and politicians are closely matched in the race to the bottom of public opinion.
But when it comes to parting with their cash, people trust the consumer champion to give them the information they’re most likely to use when making a purchasing decision.
We have to overcome this credibility gap - because we’re about to embark on the single biggest intervention in home energy since the birth of the National Grid.
The Green Deal is our flagship programme to boost the energy efficiency of the UK’s building stock.
It’s a nationwide, self-financing mechanism that allows tenants and homeowners to install energy efficiency measures like cavity wall insulation and loft lagging without paying any upfront costs.
It will be supported by businesses and delivered by partnerships across the country.
Consumers will be engaging with trusted high street brands, who will carry out the advice, installation and financing of Green Deal measures under a Government-appointed accreditation body.
The warning from the CBI’s research is clear: consumer confidence lies outside the reach of government alone.
So we’re looking carefully at exactly how we can best communicate the benefits - and how we can reassure consumers that in this instance, we really are on their side.
We need to make sure the information and messaging is spot on, so that people can clearly see the benefits.
We need to be certain that the accreditation and standards are absolutely rock-solid, so that people know the Green Deal is credible.
And we need to work with businesses to identify innovative - and workable - ways of delivering it.
Today’s report talks about businesses having a responsibility to inform consumers about green choices.
But with great responsibility comes great opportunity.
The low-carbon and environmental goods and services sector is vast; £3.2 trillion and counting, with growth predicted to outstrip world GDP. Those who move first, and move fast, stand to make huge gains.
In setting coherent standards and giving people the means make informed choices, businesses can create a vibrant marketplace in which to prosper.
Through the Green Deal and smart meters we have a unique opportunity to engage people with the way they use energy - and what the consequences are.
It’s also a chance to change the story on green products. Rather than a sacrifice you make to feel better about yourself, we can make it clear that the green choice is also the smart choice.
On information, standards and innovation, we can begin to reframe the way consumers make choices, ushering a new concept of value.
One that takes account of the lifetime costs and carbon consequences of a product.
In so doing, we can make a very real contribution to the UK’s energy and climate change ambitions.
Thank you very much.