Speech

The Rt Hon Chris Huhne MP's speech to CentreForum - 3 March 2011

This speech was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

A blueprint for our energy future In autumn 2000, more rain fell on England and Wales than at any time for 230 years. 10,000 homes and businesses…

A blueprint for our energy future

In autumn 2000, more rain fell on England and Wales than at any time for 230 years. 10,000 homes and businesses were flooded.

In 2003, a heatwave gripped Europe. Drought and wildfires put health services and national infrastructure under huge pressure.

Thousands died. Forests were destroyed by fire, and crops by drought. Energy and transport were hit hard.

We can’t say for sure that climate change caused these extreme weather events. But the science tells us that as our climate changes, the likelihood of these events increases.

In 2004, research suggested human action had doubled the risk of a European heatwave.

And now, for the first time, scientists have been able to say what role global warming played in a major flood.

Using new methods, researchers found that human greenhouse gas emissions may have roughly doubled the chances of the autumn 2000 floods.

That is a significant step up the ladder.

We can now clearly link extreme events to the rise in man-made greenhouse gases. And we can put a number on how much more likely they are.

Costs of climate change

We can also see just how costly they will be.

The floods in 2000 cost the UK insurance industry £1.3 billion. Since then, the cost of flood damage has tripled compared with the previous decade.

In 2009, the Association of British Insurers said - and I quote - ‘our assessment of climate change convinces us that the threat is real and is with us now’.

If there’s one thing insurers know about, it’s risk. When they say it’s time to take action, we should sit up and take notice.

Global deal

Of course, the UK is responsible for fewer than 2% of the world’s carbon emissions. But this does not let us off the hook. The consequences of climate change will not respect our borders.

Food security, water shortages, environmental refugees; the potential knock-on effects are on a global scale.

That is why we must do everything we can to secure a global solution.

We are making good progress.

The UN climate change talks at Cancun were the most important since Kyoto.

For the first time, both developed and developing countries made a political commitment to cut emissions below their present path.

We made good on the bellwether issues:

  • agreeing that the average global temperature increase should be kept below 2 degrees
  • strengthening the reporting of emissions reductions with a genuine peer-review process
  • establishing the Green Climate Fund to get resources to developing countries
  • moving forward on forests and land use

The agreements at Cancun prepared the ground for a global deal on climate change. But we must be realistic: this will take time.

And after the mid-term elections in the US, Senate ratification of any climate change treaty will be difficult.

But a deal will happen.

Why am I so confident?

Because around the world, there is too much invested in tackling the problem.

It would be crazy not to prepare for a low-carbon future.

In fact, in many ways it is already here.

The future is here

In 2009, the world’s biggest energy consumer poured $34 billion into its low-carbon economy.

China now leads the world in solar photovoltaic production. Six of the biggest renewable energy companies in the world are based in China.

Last year, 1 million people sat the Chinese civil service exam. The most popular job was ‘Energy Conservation and Technology Equipment Officer’. 5,000 people applied.

China will build 24 nuclear power stations in the time it takes us to build one. By 2020, their nuclear capacity will have increased tenfold.

They will lay 16,000 kilometres of high-speed rail track in the time it takes us to go from London to Birmingham.

They have the highest installed hydro capacity and the most solar water heaters in the world. And they are forging ahead on wind power.

So China knows what’s coming.

And despite what the mid-term elections suggest, so does the US.

Last year, despite serious lobbying - and lots of money from special interests - the Californian public voted decisively to support the State’s ambitious climate change laws. The eighth-largest economy in the world is still committed to going green.

And the Northeastern States are leading the way on renewables, on emissions and on energy efficiency. They’re investing in renewable heat, trading carbon, and legislating for clean energy.

The US Navy will get half of its energy from non-fossil fuel sources by the end of this decade. They’ve already flown fighter planes powered by biofuels, and they’ve already launched their first hybrid power ship.

President Obama used his State of the Union speech to call for a reinvention of energy policy. He challenged the best minds in America to come up with clean energy ‘Apollo projects’. And he set a new goal: for 80% of America’s electricity to come from renewable sources by 2035.

Conventional wisdom has it that China and the US are not signed up to the green agenda.
But if you look at what they do, not what they say, a different picture emerges.

Policymakers around the world understand that climate change is real, is happening, and is worth defending ourselves against.

Low-carbon future

The best thing we can do to help adapt to climate change is to stop it happening in the first place. An ounce of prevention really is worth a pound of cure.

So although we must keep pushing for a global deal on climate change, we must also do everything we can at home. We can’t expect to convince other nations of the need for change if we can’t change ourselves.

That is why we have to move further and faster to a low-carbon economy.

This makes obvious environmental sense. Today, I will set out why it makes economic sense.

But first, let us understand our destination.

What does a low carbon economy look like?

Saving energy

First, it does not waste energy.

We have the oldest and least efficient housing stock in Europe. We use more energy heating our homes than Sweden, which is nearly 5 degrees colder on average.

Our homes may be our castles. But they shouldn’t cost a king’s ransom to run.

Across the country, boilers are firing up earlier than they need to. Burning more gas than they have to. Producing more emissions than they should do.

And all because our homes leak heat and waste carbon.

A quarter of the UK’s carbon emissions come from the home. Our housing stock is costing us the earth.

That’s why the Green Deal is our flagship programme. It’s a self-financing home improvement scheme to bring our houses into the 21st century.

Householders will pay nothing up front. Businesses will do that for them, getting their money back from the savings on energy bills not just from the present occupier but from the next tenant or owner as well. And the Green Deal will be targeted at trigger points - like when people move home and do lots of work anyway - to encourage uptake.

Right across the country, homeowners and tenants will get deep energy efficiency improvements without having to front up the cash.

From 2012 onwards, when the Green Deal begins in earnest, energy saving packages worth thousands will be installed in millions of homes.

And there will be a subsidy for hard to heat homes, and those in fuel poverty. No-one should fear winter - or winter energy bills. We are determined to tackle the root causes of fuel poverty, not just stick plasters on the symptoms.

And we are looking at how we can apply the Green Deal model to businesses, too - enabling them to cut carbon, and cut costs.

It is the most comprehensive energy saving plan in the world. There has never been anything quite like it.

Have no doubt: this can make a real difference. Heating is the second biggest driver of energy demand in Britain.

And British Gas research shows that householders who put in energy efficiency measures cut their gas consumption - and their bills - by 44%.

Better insulated buildings will do much of the work for us. But we must also look at renewable heat technology.

More electric air and ground-source heat pumps, drawing warmth from the outside world to heat the indoors. More biogas boilers, and more solar thermal.

Electric future

So the first principle of the low-carbon economy is that it saves energy.

The second is that it will be overwhelmingly electric.

A century ago, the streets of New York were served by a thousand electric taxis. Since then, cheap oil and technological change drove electric cars off the roads.

Now, the pendulum is swinging back.

Every month, new electric cars are coming to market. The shift from the petrol pump to the electric plug is already underway.

In the low-carbon economy, we will turn to the grid to heat our homes and charge our cars.

Meeting demand

That means a big increase in our demand for electricity. It could double by 2050.

And that demand must be met with secure, affordable low-carbon supply.

But our current energy system is not up to the job.

We will lose a fifth of our generating capacity over the next 10 years, as our ageing power plants shut down.

We cannot afford to replace them with more of the same.

By the end of this decade, the UK must cut our carbon emissions by 34% on 1990 levels.

We must generate 15% of our energy from renewables by 2020, up from 6.7% in 2009.

With long lead-in times and high capital costs, we must act now to secure a low-carbon supply.

Otherwise, we face an energy crunch.

Three pillars

Our plan for low-carbon electricity rests on three pillars.

The first pillar is renewable energy. Like onshore and offshore wind, biomass, energy from waste, solar, marine and micro hydro power.

The second is new nuclear - without public subsidy.

Half of my Department’s annual budget is spent cleaning up after past generations of nuclear and coal. Next year, it will reach two-thirds.

Never again. That is why we are passing the cost of nuclear liabilities on to developers, who will pay the full cost of waste disposal and decommissioning.

And the third pillar is clean coal and gas, delivered by carbon capture and storage. Giving us flexible and reliable energy - without the carbon consequences.

The portfolio approach

Together, these technologies will power Britain to 2050 and beyond.

So why haven’t we picked one or two?

Because the future is uncertain.

No-one knows what the most successful low carbon technology will be in thirty years time.
The only way to keep the lights on and the skies clean at the lowest possible cost is to build an energy portfolio.

It is exactly the same principle as a pension fund. When we’re planning for the future, we don’t put all our eggs in one basket.

It would be equally irresponsible for us to try and play god with the country’s energy future.

Prepared for the future

So instead, we must create a policy framework that lets us discover and then use the lowest cost options.

That means thinking about a range of scenarios.

At one end may be a world where fossil fuel prices are exceptionally high. In that scenario, we could rely more on renewables and nuclear.

At the other end of the spectrum, some argue that plentiful gas from unconventional sources will cause gas prices to tumble. Then we might need an energy mix with more clean gas, with carbon capture and storage.

Open options

Our policy is about keeping our options open between technologies, but ensuring that we are on the road to the low carbon economy. We have set a direction; we will let innovation get us there.

So we will put our money on the table.

Funding innovation and research, in DECC and in the business and transport departments.
Through the Green Investment Bank - a new institution to fund the scaling up and deployment of green technology and clean energy projects.

EMR

And through our consultation on electricity market reform, which sets out how we will encourage low carbon investment, guarantee security of supply, and provide British consumers with the most affordable electricity.

Under our proposals, all low carbon technologies will benefit from support by virtue of being low carbon. That is the compensation for what Nick Stern calls the greatest market failure of all time. A guaranteed feed-in tariff for all.

There must also be a premium payment for early stage technologies. Pioneer technologies will benefit from extra support in the prices that we pay for electricity, just as they do now through the Renewable Obligation. Those furthest away from full commercialisation will get the most.

Our consultation also proposes a capacity payment, to make sure we can meet peaks in demand - like the infamous ad break in Coronation Street, when everyone gets up to put the kettle on. This will support all four ways of keeping the lights on: Water pumped up hills off peak and released on peak, interconnection with European partners which have different peaks, demand management from companies arranging short-term switch-offs of freezers or fridges, and cheap gas and coal plant - with carbon capture and storage.

We will also send out a clear signal with an emissions performance standard, to keep our power plants clean.

And the Treasury is consulting on a carbon price floor, to underpin our signal to the marketplace - and to encourage low-carbon use of existing plants.

Cost horizons

Getting those signals right will be critical.

It is difficult to overstate the scale of the investment challenge. Ofgem estimates we need £200 billion of new investment over the next decade to secure our supply as our ageing nuclear and coal power plants shut down.

We need to make sure as much of that investment is low-carbon as possible. It will be a historic missed chance if we lock in a new generation of high carbon electricity plant.
If we get the market framework right and give energy companies certainty, they will provide that low-carbon investment. But they are not the Salvation army. They will need to convince big investors - like pension funds - that the UK energy market IS not just stable, but also offers a good return.

We must be clear about this: there will be a cost to the consumer.

But it will still be cheaper than the alternatives.

And in the long term, the fundamentals of the low carbon economy are not going to be expensive.

Nick Stern estimated that the overall costs of avoiding dangerous climate change at no more than 2% of GDP by 2050. So if our economy doubles in forty years, that means a 98% increase instead of a 100% increase. It would barely be noticeable.

Even that calculation depends on other factors.

If we relied on oil and gas, and their prices were around $80 a barrel and its equivalent for gas, then consumers would pay more under our policies - about an extra 1% on their bills by 2020.

But the oil price reached $100 a barrel in January, which just happens to be the point at which our economists calculate the British consumer breaks even. And the oil price, as we see, could well be higher.

In the medium term, the US Department of Energy forecasts $108 a barrel by 2020.
If oil prices continue on this trend, and gas prices rise to meet them, then our consumers will be winning hands down.

Paying less through low carbon policies than they would pay for fossil fuel policies.

Green economy

There’s another economic advantage, one that makes a powerful case for the low-carbon revolution: insulation from oil and gas price shocks.

I asked economists at DECC to look at how a 1970s-style oil price shock would play out today. They found that if the oil price doubled, as from $80 last year to $160 this year, it could lead to a cumulative loss of GDP of around £45 billion over two years.

This is not just far-off speculation: it is a threat here and now. And the faster we move to a low carbon economy, the more secure and stable our economy will be.

Opportunities too

This transition to the low carbon economy does not just protect against the threats. It opens up a world of opportunity.

The global low-carbon market is worth more than £3 trillion. It is projected to reach £4 trillion by 2015. The UK share of that market is currently worth more than £112 billion. It could be much larger.

At home and abroad, the opportunities are huge. For jobs, exports, and growth, the future is green.

We are already feeling the benefits.

In the Humber, where Siemens have taken the first steps towards building wind turbines on British shores, with 700 jobs.

And nationwide. Last year, British Gas announced its plan to ‘go early’ on the Green Deal, investing £30 million and creating 3,700 new jobs.

As the Green Deal kicks in, it will bring a significant economic boost, driving growth in manufacturing and supply chains across the country.

The number of people employed in insulation alone could soar; from 27,000 now, to 100,000 by 2015 - eventually rising to a peak of 250,000.

Recovery from a deep recession is not a respooling of the same old movie. The old industries do not just bounce back. It’s about new industries leading the way - just as it was in the 1930s, when manufacturing of cars and electrical goods helped us fight our way out of recession.

Britain can lead the way. Our scientific, research and engineering strengths will stand us in good stead.

Look at our record on Carbon Capture and Storage, where British scientists top the tables when it comes to research.

We can turn that laboratory lead into an economic lead.

The International Energy Agency predicts the world will need 3,400 new coal and gas plants by 2050 if we are to keep global warming below 2 degrees.

That’s why we must lead the way in demonstrating that CCS works on a commercial scale. It will be a major new export opportunity

Low-carbon leaders

And green growth is why we are pressing for greater EU ambition on emissions.

The carbon price set out by the EU Emissions Trading Scheme is not high enough to drive the change we need. It must be higher.

We want to see a much stronger emissions target. Instead of a 20% cut in emissions by 2020, we should aim for a 30% cut.

Two years ago, we had already made it to 17%. Going to 30% will add just 11 billion euros to the costs that were originally estimated of going to 20%. In an economy the size of Europe’s, that’s small change.

This is not to send some global signal. It is not negotiating by putting a new concession on the table. It is in our own economic interest.

The faster we move, the bigger and better our low-carbon industries will be, and the greater the share of that expanding world market. Clear green signals will spark more green investment.

A recent report from the Potsdam Institute for Climate Impact Research found that more demanding greenhouse gas targets could increase Europe’s GDP by more than €600 billion, creating six million jobs. Why? Because there is spare capacity and unemployed people. Green growth will fuel the recovery.

Growth is going ex-carbon.

Conclusion

We must be realistic: rebuilding our energy infrastructure and rebalancing our economy will take time.

Because the capital investments are so huge, and the replacement cycle so long, change will sometimes seem glacial.

But it will come. And in the long term, getting off the oil hook will make our economy more independent, more secure and more stable.

Because the cost of investing in low-carbon energy and security of supply pales in comparison to the costs of dangerous climate change and energy dependency. And there are real economic opportunities up for grabs.

Already, we are making progress.

Carbon emissions are down. The international negotiations are back on track. The Green Deal is on the way. We are rebuilding our electricity market. Green growth is here to stay.
The transition to the low-carbon economy is underway.

It is up to us to see it through.