Thank you very much Dr Brooks for your kind introduction. I’m delighted to be here at the American Enterprise Institute.
You are rightly regarded as one of the most influential think tanks. The work that you do here has a real-world impact. Papers become policy. In Republican and Democrat administrations.
I also welcome the AEI board members who are here today. The fact that so many influential and busy individuals regularly take the time to hear not only from external speakers, but also from AEI scholars, is testament to your reputation for high quality and relevant work.
I haven’t come here by chance. I have come here by choice – because I want to make an argument to a conservative audience: first, that it is wholly consistent with conservative values to tackle the challenge of climate change; and second, that those conservative values can show us how best to deal with that challenge.
As I said in my speech in Boston last year, for too long, we’ve allowed the debate about climate change to be dominated by purists and idealists – many of whom operate on the left of the political spectrum – who actively promote the notion that they and only they, have the answers to the climate challenge; and that we have to sacrifice economic growth and prosperity in order to meet it.
I reject those arguments. I reject them first of all because wanting to protect the world we inherit, to pass it on intact to the next generation is a fundamentally conservative instinct. As long ago as 1988 former Conservative Prime Minister, Margaret Thatcher said, “the last thing we want is to leave environmental debts for our children to clear up… No generation has a freehold on this earth. All we have is a life tenancy – with a full repairing lease.”
And I reject those arguments secondly because I do not accept that we have to choose between our future prosperity and safeguarding the future of our planet. This is not a zero sum game. As conservatives, we choose both.
The starting point for any discussion on climate change must be the threat it poses. Now of course, no-one is 100% certain of every aspect of the science. And no-one is 100% certain of the precise effects of man’s activity on our climate. But the evidence in favour of taking action to curb carbon emissions has been steadily mounting for decades. Uncertainty about the exact effects of climate change, or the role of man’s activity in delivering it, is not an excuse for inaction. In every other facet of life, we assess the risks and where the risk of occurrence is high and the impacts are potentially catastrophic, we act to mitigate and to prevent. Our approach to climate change should be no different.
That is exactly the precautionary approach that President Reagan took decades ago when the world faced a similar challenge.
In the 1980s, the majority of the world’s scientists were deeply concerned about the environment: in that case, about the depletion of the Ozone layer.
There were some doubters, but President Reagan concluded that the risks of doing nothing were too great. It was a core part of his conservative principles to take bold action when necessary. He displayed leadership, galvanising business and the international community to agree what became the Montreal Protocol, to phase out the use of damaging CFCs.
President Reagan described it as a “magnificent achievement”. And he was right to do so: we now know the worried scientists were right; and as a result of the Protocol, the ozone layer is now recovering.
I recognise the concerns of those who worry that the costs of tackling climate change will prove too great; that the attempts to do so might ruin our economy.
This is a reasonable concern.
And if it really was a choice between economic growth on the one hand, or lower greenhouse gas emissions on the other, then I too would be cautious.
But I shall argue that it is not.
And in doing so, the first thing I need to stress is that the cost of doing nothing is not … nothing.
Nearly a decade ago, the then UK government commissioned a review by one of our leading economists, Nicholas Stern, to ask what the cost of doing nothing might be. That Review estimated it could be equivalent to losing 20% of global consumption.
Since then, as our knowledge has developed, we have come to see this as not only an underestimate, but also a narrow way of looking at the problem. Many of the losses caused by climate change could be irreversible, regardless of our resources.
Unchecked climate change, even under the most likely scenario, could have catastrophic consequences – a rise in global temperatures similar to the difference between the last ice-age and today, leading in turn, to rising sea levels, huge movements of people fuelling conflict and instability, pressure on resources, and a multitude of new risks to global public health.
The worst case is even more severe: a drastic change in our environment that could see heat stress in some areas surpass the limits of human tolerance, leaving as the legacy of our generation an unimaginably different and more dangerous world for our children and grandchildren.
So the costs of doing nothing are, potentially, catastrophic – beyond anything that can easily be quantified in economic terms.
But even that argument would be vulnerable if the immediate cost of taking the necessary actions was economically ruinous. So the second thing we need to consider is what really are the costs of the necessary action?
And we should be honest. We should not pretend that acting on climate change does not involve hard choices. Even as the economy as a whole has more to gain than to lose from embracing the low-carbon agenda, there will be losers. Some sectors – particularly coal – are in for a difficult time, and we will need to think carefully about how we manage the impact on communities that have depended on these industries for generations. Their contribution to our economies has been a great one, and we should not abandon them now.
However, the more we learn, the more the evidence is shifting in favour of action. Because that evidence is showing that many of the measures to reduce climate risk will, in fact, stimulate economic growth.
Our experience in the UK bears this out. We have already reduced our emissions by more than a quarter since 1990. And over the same period of time, our economy has grown by more than 60%. Just last year, we registered a reduction in the carbon intensity of our economy of more than 10% - the steepest drop achieved by any country in the last six years. At the same time we had the fastest economic growth rate in the G7.
Not only that, but the growth in the low carbon sector of the UK economy is now outpacing the growth rate of the economy as a whole. In the UK, firms engaged in low carbon goods and services employed over 460,000 people and contributed 45 billion pounds to the UK economy in 2013. This is an increase of almost 30% in just 3 years.
And the global trends are in the same direction. The global low carbon economy is already worth 6 trillion US dollars, and is growing at between 4 and 5% a year. In 2013, additions to the world’s renewable energy generating capacity exceeded those to the fossil-fuelled capacity for the first time ever.
And the price of renewable generation is falling fast: the price of solar panels has fallen by 80% since 2008, and the price of wind turbines has fallen by more than a quarter since 2009. This is increasingly allowing these energy sources to compete on cost with fossil fuelled power generation, without the need for subsidy.
Our businesses in the UK are looking at these trends, and telling us that we should be a leader, not a back-marker; that we should be at the forefront of these developments, taking advantage of the opportunities.
The final argument against tackling climate change that I want to address today is the argument that if we take action, it will put us at a disadvantage to competitors who don’t.
Again, this is a perfectly reasonable concern. But, with countries representing 85% of the world’s emissions signed up to national contribution targets ahead of COP 21 in Paris, the reality is, all significant potential competitors are now headed in the same direction. And in any case, the UK’s experience so far is that a robust climate policy, even during a period when others have been uncommitted, has had no noticeable impact on our overall competitiveness. Businesses remain attracted to the UK’s openness to investment, flexible labour market, and highly skilled workforce.
In fact, it is increasingly clear that the economy of the future will be a low carbon economy. Studies suggest that by stimulating greater innovation and efficiency, climate policies will increase our economic competitiveness.
Two weeks ago, I was in the United Arab Emirates giving a speech on climate change as it happens. They have the world’s seventh largest reserves of gas and oil. Despite this, they are already planning for a future without hydrocarbons. They are investing in some of the world’s largest solar power plants, and are at the forefront of innovation in technologies such as high-efficiency solar-powered desalination.
And that is not only happening in the Middle East. China is now the world’s leading investor in renewable energy. In the next five years alone, it will add more wind power than the entire generating capacity, from all sources, of the UK. China has efficiency standards for its vehicles similar to those of Europe and America, and woe betide the Chinese official who rigs the test, and is increasingly planning its cities to be low carbon and resource efficient. Seven regions of China are already putting a price on carbon and in another two years, this will spread to cover the whole of the country.
So in summary, the world is moving towards a low carbon economy; I would suggest that there may now be more risk in being left behind than there is in taking the lead.
The threat is great, and the costs of dealing with it are now manageable. But the question remains: how best to respond to the challenge?
What are the appropriate mechanisms?
What are the conservative solutions?
How best can we tackle the principal cause of climate change: carbon emissions?
Of course there are those on the left who have seen the need for action on climate change as a justification for large scale “mobilisation”; for a regulatory bonanza and a bigger state. And, if a purely regulatory approach was the answer, I have no doubt that economic growth would suffer.
But it isn’t. The answer, as even the Chinese have realised, is to harness the power of the marketplace. To let the “hidden hand” of market forces loose on the challenge we are facing. And watch it deliver solutions – as it has delivered solutions to every other problem we have faced and resolved in our history.
We should be well placed in this regard. Free markets have shaped both our countries. New York and London host the world’s two most important stock exchanges; London, New York and Chicago the world’s most important commodity exchanges.
And it’s my confidence in markets that drives my approach to the economics of climate change.
In the UK we placed a price on carbon. This is completely in line with conservative economic values: a carbon price corrects a market failure: that we have allowed CO2 emissions to be a “free good” to the polluter even though they impose costs on society. With any other waste, we pay for it to be taken away. We don’t let people just dump it in the street.
Moreover, a market solution is simple and gives business the certainty that they’re asking for. Alongside 70 governments, over 1,000 businesses signed a declaration calling for carbon pricing last year. And rather than waiting for government, many businesses are taking matters in to their own hands by bringing in an internal carbon price to guide their investment decisions. The number of multinational businesses taking this approach has tripled over the past 12 months, tripled. Even oil companies, including BP, Shell, Statoil and Total, have come out in favour of carbon pricing. Major US companies that either already use internal carbon pricing, or intend to introduce it within the next two years, include Google, Microsoft, American Express, Coca-Cola, Monsanto, Wal-Mart, and Yahoo.
And fundamental to a market-based approach is letting our entrepreneurs and our innovators show the way.
Your organisation is dedicated to preserving and strengthening the foundations of a free society, including “competitive private enterprise”.
I agree wholeheartedly with that aim. Far too often, business is cast in the role of villain when it comes to climate change. But as Margaret Thatcher said in her speech to the UN General Assembly back in 1989:
“We must resist the simplistic tendency to blame modern multinational industry for the damage which is being done to the environment. Far from being the villains, it is them on whom we rely to do the research and find the solutions.” And she could have added: “make the investments”.
And again, the UK and US are well-placed to lead. We have some of the most innovative businesses, and our entrepreneurs are already leading the way. For example, UK firms build more Formula 1 racing cars than any other country, and they are pushing the boundaries of technology to harness the energy from braking, and release it back into acceleration through electric motors. The US firm Tesla is leading the world in developing battery technology for road cars, and increasingly for homes too – giving them independence from the grid, and moving us closer to the time when renewable generation is matched by effective storage to give round-the-clock access to renewable power.
We have the best research institutes in the world. If you look at a list of the top universities in the world, you will find that last year all of the top 10 were either British or American. (And, by the way, we think the 4/6 split UK/US is pretty reasonable, given your population is five times ours!).
The UK leads the world in offshore wind energy: we have installed more capacity than any other country in the world, and this is increasingly creating jobs as firms export their products and services. Meanwhile, companies such as Google are leading in developing the big data capabilities which will allow the supply and demand for energy to be matched more intelligently, reducing waste and cost.
I believe that our countries need to accelerate the pace of innovation in all of these technologies. In particular, we should focus on crossing the critical frontier of large-scale, high efficiency energy storage – giving the prospect of cost-effective renewable storage, not just round-the-clock, but through the seasons. If our innovators and entrepreneurs can solve this challenge, and bring the cost of clean energy with storage below the cost of fossil fuelled power generation, then the need for intervention will have passed and we can step back and leave the market to do the rest. Renewables will become the energy of choice – clean, competitive and secure.
If we take all of this action, we will reduce the cost of energy and the risks of climate change. We will create jobs, and enhance our energy security.
So if Britain and the US move ahead, we can reap the rewards. But of course, we cannot solve climate change alone. Only effective global action will achieve that.
That’s why the international community is negotiating right now what I hope will be a strong, effective and binding deal at the Paris meeting next month.
The Paris deal is important because it will give all countries confidence in the direction of travel. It will level the playing field, confirm once and for all that climate action does not create competitive disadvantage, catalyse investment, and spur innovation.
Over 150 countries have already made commitments to reduce their emissions over time ahead of the Paris meeting. It is likely that every significant country in the world will have done so, by the end of this year. These are not just rhetorical commitments. Many include strong substantive elements, such as China’s commitment for clean energy sources to make up a fifth of its energy consumption by 2030. Independent analysis estimates that this commitment could give China a renewable energy capacity of a thousand gigawatts by 2030 – roughly equivalent to the United States’ total electricity generating capacity today. This huge increase will fundamentally change world energy markets by expanding economies of scale, and accelerating technological innovation.
Our history shows us that when the US and the UK take a lead, we can persuade the world to follow. And we must take that lead.
Through our world-beating innovation, our trust in markets and our leadership on the world stage, we can show the world how to counter the threat of climate change at the same time as growing our economies.
As conservatives, we know the responsible thing to do is tackle threats when we see them, and to do so in ways which preserve our future security and prosperity.
And we know the smart thing to do is harness the power of the market to tackle the challenges of climate change.
Because if we do not lead, others will decide the way forward. And their solutions may not be conservative ones.
But if we do take the lead, we can ensure the global response is founded on the force of markets, the power of technology, and the institutions of capitalism.
To get there, leadership is required and not just that of Government. Think tanks, academia, businesses - all have a crucial role to play. The papers you write here at AEI; the policies you promote; the investments business make: all of these things together will determine whether and how we choose to address the challenge of climate change.
Taking action to combat climate change is the right thing to do;
The conservative thing to do.
And we have the power to ensure that as the world embraces the challenge it does so by harnessing the power of markets and the institutions of capitalism – the very things that have delivered for us time and time again throughout history.
I look forward to working with you to seize this opportunity.