Speech

The future energy challenge

Visiting Foreign Office Minister delivers a speech outlining the UK’s approach to securing sustainable energy resources

“This afternoon I want to talk to you about the challenges we face today on energy security and how taking a geopolitical perspective can help navigate government and business towards a stable supply of energy. This is a subject close to my heart and one that I have been engaging with since the 1980s when I was Britain’s Secretary of State for Energy under Margaret Thatcher.

The energy challenge facing the world is how we balance meeting the increasing global demand for affordable and secure energy, while at the same time tackling climate change. Maintaining a sufficient supply of reliable, affordable and sustainable energy is essential for global growth and development. With world energy consumption expected to double in the first 50 years of this century, with the majority outside of OECD countries; access to resources becoming ever more difficult; and climate change increasingly urgent, the energy challenge we face is complex and multi-faceted.

Japan is a net importer of fossil fuels. The UK too is becoming more reliant on oil, gas and coal from overseas. We therefore share the pressures being exerted on world energy markets by the rapid growth of China and other emerging economies who are hungry for abundant and affordable energy. The importance of these countries will only grow - as both consumers and producers of conventional fuels and new technologies. Therefore engagement with them is essential.

At the same time, access to existing and untapped resources is becoming more difficult. And much of the world’s energy infrastructure lies in severe environments such as the Arctic. Even where physical access is easier - such as in Iraq’s huge and fully-proven oil reserves - political and security risks add heavily to the challenges, and the costs.

This new energy landscape requires a different, more agile diplomacy than in the past, to guarantee both our energy security and our wider safety. Energy issues are clearly both drivers of, and driven by, geopolitics. It is therefore right that energy policy is a high priority for our Foreign & Commonwealth Office. We recognise that the UK needs to work bilaterally and multilaterally to address the opportunities and challenges that the international environment poses. The present Middle East political turmoil presents an acutely vivid picture of the dangers to conventional energy patterns. Like Europe, Japan draws substantial oil supplies from that region. We must do all we can to ensure that legitimate aspirations for democracy and freedom are balanced with orderly political evolution in the countries and societies of the Middle East region, and to allow the peoples of the Arab world to work out their future in a context of stability.

Another key consideration around energy security is the threat of climate change. We have to recognise the dangerous impact of conventional fuels on the climate and look to a future of cleaner, more sustainable energy technologies. The UK’s Prime Minister, David Cameron has promised that our coalition government will be the greenest British government ever. I believe that our ambitions for energy security and greater climate security march together. If we lose sight of either of these goals we will sacrifice both.

A shared vision for energy security

The UK believes that security of supply and security of demand are equally important. As the world’s third largest consumer of oil Japan would no doubt share this view. We want to secure prices that are both predictable and affordable. We all remember oil prices reaching $147 per barrel in summer 2008 then crashing to less than $40 six months later. This kind of volatility creates uncertainty, affects the economy, and undermines investment. It is possible that we are again entering a volatile period as Middle East instability reacts on crude oil prices. As we emerge from global recession, high oil prices bring with them the risk of double dip recession. The UK is working with partners such as Japan through the G20, the International Energy Forum, the International Energy Agency and other international organisations to promote transparency and stability in global energy markets. In addition we are determined to remove drivers of excess demand, such as fossil fuel subsidies, which distort oil markets.

Unconventional gas

In the UK’s view gas has an important role in the transition to a low carbon energy mix. There is great potential in “unconventional” gas sources, especially shale gas. For example, in the United States unconventional gas has transformed the domestic energy market, with the US becoming self-sufficient in gas. Increased supply in global markets has lowered spot market prices. Other nations, including China and Saudi Arabia, are also believed to have vast, commercially recoverable reserves of unconventional gas.

If the US experience is repeated elsewhere, unconventional gas has the potential to end import dependency for many countries and regions. This transformation in relationships between producer and consumer countries could have a profound effect on the world energy scene and international relations.

Renewable energy

Domestic policy also plays a vital role in encouraging sustainable future energy supplies. The British Government recognises that for a secure energy future it must provide the right environment for investment in energy infrastructure and new technologies. Only with continued investment can we maintain access to, and distribution of, fuel supplies during the transition to a low-carbon energy base and beyond. In the UK we have an ambitious programme to upgrade, refurbish and replace most of our power generation plants and to achieve step-b-step a low carbon transition.

Indeed, the UK has a target of securing 15% of all its energy needs - for electricity, heat and transport - from renewable sources by 2020. The UK already has the world’s largest capacity of off-shore wind generation. But we cannot rely on wind technology alone. All effective forms of renewable energy will play their part.

I understand that Japan is at an early stage of implementing feed-in-tariffs, and that there are proposals to extend tariffs to wind and other energy projects, in addition to solar photo-voltaics. I believe that feed-in-tariffs can be an effective tool to encourage the necessary investment to make renewable energy supplies commercially viable. The UK last year introduced a feed-in-tariff to encourage investment in renewable energy generation up to 5MW and we are currently reviewing this scheme to ensure that the government support is being used most effectively.

Energy Transmission &Smart grids

Diversified supplies of energy can, of course, pose a new challenge of maintaining reliable supply. The development of smart grids and transmission systems is arguably as important as developments in power generation itself. Again, this is an area where the UK and Japan are each exploring new ideas. In the UK we have established a £500 million fund for smart grids trials, are supporting eight pilot projects for electric vehicle infrastructure, and aim to install smart meters in every household in the UK by 2020.
I am impressed by the smart communities initiatives that the Ministry for Economy, Trade and Industry, supported by NEDO, has begun within Japan and overseas. I believe that our two countries can share findings and expertise, and collaborate on projects jointly. Indeed on Monday I had the pleasure to attend a UK-Japan seminar on smart grids hosted by the British Consulate General in Osaka. Participants in this event included policy makers, academics and business representatives from both countries, and I expect the seminar to lead to further expert-level cooperation in the coming months.

The UK is also working to ensure that investment in renewable energy and smart grids is encouraged throughout the EU. We support initiatives such as the North Sea Grid, an integrated offshore energy grid which links wind farms and other renewable energy sources across the North Sea. And we hope that a European Super Grid, which would pool power supplies from diverse energy sources, will one day become a reality. We want to see a competitive energy market in Europe which requires energy to be transmitted without impediment.

Nuclear power

The UK also believes that nuclear power has a central role to play in a low carbon energy mix because it can provide a steady baseload without the risks of intermittency that come with some renewable energy sources. Nuclear power is the obvious longer-term route both to meeting emissions reductions targets and securing the reliable, low-cost and abundant electricity supply that our own societies - and the developing world - will demand.

The British Government’s commitment to nuclear power can be seen in a new generation of ten nuclear power stations. It will be a challenge to ensure that they produce electricity competitively, safely and in a way that is commercially viable.

But the UK is not alone in taking up the nuclear challenge. The International Atomic Energy Authority is now following the construction of 60 new reactors worldwide. It would not be an exaggeration to say that a nuclear “renaissance” is underway. The UK wants to be a part of this renaissance in order to contribute to our own energy security and climate change targets.

Back in the 1980s when, as Secretary of State for Energy, I sought to launch a nine-station nuclear reactor programme in the UK, the plan was thwarted by international factors, including a collapse in oil and gas prices. But by pricing in the true cost of carbon, nuclear energy should be able to compete on a fair footing with oil and gas. Cap-and-trade schemes such as the European Emissions Trading System ought to be able to give private capital the confidence to invest in the nuclear and low carbon technologies of the future, although there are still many problems to overcome on this front.

Carbon Capture &Storage

Nevertheless, as fossil fuels are likely to remain an important part of the global energy mix for the medium term, the development and deployment of Carbon Capture and Storage for both coal and gas will be critical to reducing CO2 emissions from power stations by up to 90%. The individual elements of CCS technology are available to us today. Transport, capture, reinjection, and underground storage are all immediately deployable. But to succeed we need to also prove their economic viability on a commercial scale to producers and consumers alike.

We are pleased to be working towards this with Japan in such fora as the Carbon Capture Use and Storage Action Group of the Clean Energy Ministerial process, and the Carbon Sequestration Leadership Forum.

Energy efficiency

Like Japan, the UK recognises that in addition to new sources of energy we need to use energy much more efficiently. Energy efficiency needs to become a core part of domestic life; business and industry; as well as a central task for the power production and transmission industry. We believe that government has a vital role in ensuring a framework is in place to encourage energy efficiency and the necessary investments into it at every stage of the energy chain.

I know that developing better energy and energy-efficiency technologies has long been ingrained in Japan’s DNA. Your industrial sector remains the world’s most energy-efficient. The UK can learn a considerable amount from Japan in this regard. In return, I believe the UK has a comprehensive programme for energy efficiencies in buildings which could be helpful to Japan as you examine how to respond to increasing emissions from households. I hope a UK-Japan bilateral Energy Dialogue later in the year will help us tackle together the challenge of developing new energy frameworks and put both our countries at the forefront of a low carbon transition.

Conclusion: the opportunities in a low carbon energy transition

I want to finish by reflecting on the roles our countries can, indeed must, play in the move towards low carbon energy and the opportunities that lie ahead. The position Japan takes towards a low carbon economy has the power to change markets and develop the breakthrough technologies that will be needed worldwide beyond 2020. Indeed, Japanese know-how - whether in wind power, solar power, electric vehicles, nuclear reactors or other technologies - will be critical to the UK’s own low carbon transition.

But the transition must also be harmonious - which means that it must avoid inflicting hardship and be affordable, both for hard pressed households with their energy bills and for industry struggling to compete in world markets.

The concept of a low-carbon energy framework is not a gimmick. It is a pillar of developing sustainable growth in mature economies at a time of unprecedented pressure on resources. Secure and affordable energy supplies are fundamental to our social and economic well-being and to our security infrastructure at home and overseas. How we - the UK and Japan - respond to the coming energy challenges will determine our future prosperity.

The UK believes that all of these developments in energy technologies bring significant opportunities for UK companies. Not only in exploration and production of oil and gas, but also in supply chains, downstream industries, and the research and development of low carbon technologies. Japan’s world leading technological expertise means that you too have much to gain from these developments.

Government needs to be helping industry to make the energy business easier and more transparent, including for long term investment. This means providing a clear framework for operating and investing. It also means actively engaging with the many countries - both producers and consumers - which are critical to sustained UK and global energy security. Japan is among the most important of these countries, and that is why it has been my great pleasure to talk to you today. I believe we are in dangerous times and that we must work together in facing this challenge.”

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