- Department of Energy & Climate Change and The Rt Hon Chris Huhne
- Part of:
- Greenhouse gas emissions and Energy industry and infrastructure licensing and regulation
- 17 November 2010
- Delivered on:
- (Original script, may differ from delivered version)
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Thanks very much, Roger It’s my pleasure to be here today, and to be part of this distinguished lineup. Richard Lambert and I spent some time…
Thanks very much, Roger
It’s my pleasure to be here today, and to be part of this distinguished lineup. Richard Lambert and I spent some time together in China last week, and he is a powerful advocate for British business at home and abroad.
His foresighted decision to set up the CBI Climate Change Board helped put British business at the centre of the climate change debate. And you have helped us internationally to show that a pro-climate policy can be a pro-business policy too.
I am sure that John Cridland will continue this valuable work. As we look towards business to drive us from recovery to prosperity, the CBI will be lucky to have such an experienced and enthusiastic hand at the tiller.
And I am also glad to see the title of today’s event: ‘tackling climate change in the new economy’. As a former businessman and an economist, I have been quite firm in my belief: that we must build a new kind of economy.
It must be cleaner, greener and more sustainable. It must secure the economic recovery, promote growth, and meet the challenge of climate change.
And it must deliver jobs, investment and profits.
To build this new economy, we will need to co-operate across sectors. We will need to create the right conditions to foster investment and opportunity. And we will need to make some difficult choices.
You have heard the view from business. Today, I will show you what the Government is doing to tackle climate change and promote green growth.
The scale of the challenge
But first, let me set out the scale of the challenge.
Climate change poses a unique threat to our security, and our prosperity. From mudslides in China to forest fires in Russia, extreme weather events are becoming more frequent.
Food security, water shortages, climate-driven migration, energy conflicts; the potential knock-on effects are on a global scale.
The UK may be responsible for just 2% of the world’s carbon emissions, but the consequences of climate change will not respect our borders.
We also face a shifting landscape of public opinion; where doubt and disbelief in science itself threatens to undermine collective will for action.
7 in 10 people think ‘it is too late to do anything about climate change’.
1 in 4 believe ‘it is not worth Britain trying to combat climate change because other countries will just cancel out what we do”.
Faced with a problem of such seriousness, and a system of such complexity, fatalism can easily take hold.
From carbon markets to emissions reductions targets, it can be difficult to pick a path when faced with uncertainty and risk.
Exactly how fast carbon emissions are changing our climate - and exactly what that change will mean - may be unknown.
But uncertainty is no excuse for inaction.
And actually, the search for certainty is misguided.
Rather than being caught up in absolutes, we should prefer to think in terms of probability - and risk.
One of the clearest lessons from the financial crisis was the importance of risk; understanding it, and planning for it. Business pages around the world have devoted countless column inches to risk management.
Around the world, companies devote time and capital to managing their risk portfolios. Increasingly, they include exposure to climate risk - a liability unknown just a few decades ago.
I believe in the power of the market to uncover the world of truth; what the American economist Paul Samuelson called ‘revealed preference’.
And whatever the state of the public debate about the science, the state of the markets speaks for itself.
Investors are subjecting opportunities to ever greater environmental scrutiny. Sustainable investment, as Stephen Green made clear in a speech last summer, ‘has joined the mainstream’.
Consider the insurance business.
We have the third largest insurance industry in the world. It manages investments comprising a quarter of the UK’s net worth. Risk assessment is at the very core of their business.
Last year, Stephen Hadrill of the Association of British Insurers said that ‘our assessment of climate change convinces us that the threat is real and is with us now’.
The 2007 floods cost the industry £3 billion.
According to the ABI, if global temperatures were to rise by 2 degrees, average annual insured losses from inland flooding would rise by 6%. And the losses from an extreme weather event would rise by 18%.
That would mean higher premiums for businesses and homeowners. But it could also restrict the flow of capital.
Insurers hold around 15% of stocks on the London Stock Exchange. The kind of flood that strikes once every 200-years, for example, would need over a billion pounds of additional capital to cover higher than expected losses.
With extreme weather events becoming more frequent, not less, those odds shorten dramatically.
And the global economy would also feel the heat.
According to the Economics of Climate Adaption Working Group, current climate risks cost emerging economies between 1 and 12% of annual GDP. If we exceed the 2 degree limit, that could rise to 19%.
The rise of specialist climate reinsurance by firms like Swiss Re is a sign of just how seriously businesses take climate change.
It is also a valuable indicator of the vitality of the low-carbon sector, a global market expected to reach £4 trillion by 2015.
Because after all, businesses tend not to commit capital to ideology.
They are not investing billions in reinsurance and managing climate risk portfolios out of blind belief.
Instead they have judged, as we have, that the probability is so great that inaction is simply not an option.
Clearly, it is worth taking precautions. If science said there was a 90% chance of your house burning down, you would take out home insurance. And that is what climate change policy is - home insurance for the planet.
The challenge is to make sure we take the right policy measures. To protect not just our society, but our prosperity.
As we become more aware of the scale of the challenge and the size of the solution, so the unthinkable becomes a little more palatable.
That is why over the summer we published our 2050 Pathways calculator. It gives people the chance to figure out what kind of technology mix they would choose to help us achieve a sustainable energy supply.
But when it comes to interventions which affect businesses, previous Governments have failed to ask themselves a simple question:
What does business want?
Clarity. Certainty. Direction, not endless directives.
Like many of you, I was shocked by the complex web of initiatives that made up DECC’s policy framework.
Brick by brick, a crooked house of overlapping initiatives was built. With good intentions, but no overall strategy or sense of direction.
The result? A Byzantine structure, onerous for business, unworkable for government - and inefficient where it counts.
We want to make things easier.
This is not just about smaller government or less red tape. Instead, it is about making government work smarter - for British business, and for the taxpayer.
Our job is to create the right framework. One that can meet our challenging emissions reductions targets, but also allow innovation and growth to flourish.
Not all the changes will be popular. But they are essential for a profitable and sustainable future.
Progress on the CRC
Take the CRC Energy Efficiency Scheme.
The principle is sound: saving energy, reducing emissions and improving competitiveness through a clear and transparent nationwide programme.
But the implementation fell short of the ideal.
We share many of your concerns about the CRC. That is why we have made a commitment to simplify it.
The decision not to proceed with revenue recycling was a difficult one, taken against a background of unprecedented pressure on the public finances.
We had to focus on getting the best value for money - and sending a clearer price signal to participants.
Given a blank slate, we would do things a little differently.
But for now, you have my assurance that we will engage with all of our stakeholders to make the scheme work better - for you, and for us.
Today, we have published a UK wide consultation on delaying the start of Phase II of CRC. This will mean that participants won’t need to register for Phase II until 2013.
This will create a window for us to engage in a proper dialogue with participants about what we need to do to improve it.
We can also reduce the administrative burden on businesses.
Today, I can reveal that we are proposing to exempt over 12,000 information declarers from the scheme. We now have enough feedback from the first stage of the CRC to remove obligations on information declarers without compromising the scheme’s environmental aims.
The government believes the CRC can be a valuable tool for businesses to cut carbon, and boost efficiency.
We need to stop thinking about carbon as a bolt-on, and more as an integral part of a company’s profile.
Investors require a comprehensive picture of a company’s health to make decisions.
As with financial reporting, clear and consistent carbon reporting can boost investment, not hinder it.
The need for clarity extends to the big picture, too.
Yes, markets are uncertain; that uncertainty drives innovation and profits alike.
But to secure energy investment on the scale we need to match our carbon reduction ambitions and keep the lights on, business need to know what kind of marketplace they operate in.
The current market framework is not fit to deliver the investment we need.
That is why, later this year, we will set out our plans to reform the electricity market.
The challenges are huge. We must replace a quarter of our old power stations by 2020. Largely decarbonise the electricity sector in the 2030s. And prepare for a possible doubling in demand for electricity by 2050.
Left untouched, the electricity market would allow a new dash for gas, increasing our dependence on a single fuel, and exposing us to volatile prices. It would lock carbon emissions into the system for decades to come.
We have a once-in-a-generation chance to rebuild our fragmented market, rebuild investor confidence, and rebuild our power stations. Like privatisation before it, this will be a seismic shift; securing investment in cleaner, greener power.
Cleaning up the supply of energy is a huge part of my Department’s work. But we are also determined to do something about energy demand. Energy saving is the cheapest way of closing the gap between demand and supply.
Energy efficiency can also offer real opportunities for businesses to save money, increase competitiveness, cut carbon, and access new market opportunities.
The Green Deal is our answer to the challenge of our ageing housing stock; a nationwide refit to bring our homes up to 21st century efficiency standards.
We’re designing the Green Deal to work for business, too.
Allowing businesses to pay for energy efficiency improvements through a charge on their energy bill, and with the level of expected energy saving being higher than the cost of repayment. Spreading the cost of repayment over time, and addressing capital barriers.
The opportunities are breathtaking. Not just for the insulation industry, which could quadruple in size, but for supply chains across the country, from Penzance to Perth.
Better energy efficiency for small and medium sized enterprises can help reduce our dependence on expensive imported energy.
Security for the future
And after all, in a world of growing demand and finite resources, the pressures on fossil fuel supplies will only increase.
It is only 160 years since kerosene was first distilled from petroleum. Yet already we are drilling 2 miles beneath the ocean’s surface in search of oil.
It is a testament to the relentless pace of engineering, scientific, and economic progress. It also speaks to the power of scarcity. The age of oil will last but a few centuries.
So my challenge to you is this: commit to the industries of the future.
After all, the low-carbon sector is still in its infancy. Its rapid growth - 4% annually - is testament to that.
Britain accounts for just £112 billion of the global trade in low-carbon and environmental goods and services. With our deep reservoirs of engineering and scientific expertise, we can do so much more.
As we begin to shift towards a new kind of economy, the smart money will be on emerging technologies.
So be forward-thinking in your investment decisions.
Help us deliver carbon-capture and storage.
Get behind the Green Deal.
And last but not least, don’t forget to challenge us. Speak up for your members, and for your businesses.
And we will continue to speak up on the international stage.
In Europe, where we will continue to push for a more ambitious emissions reduction target. That will firm up the carbon price and send clear market signals about the low-carbon economy.
And in the UNFCCC, where we will continue to make the case for a binding global agreement to halt runaway climate change.
Although we do not expect such a deal to come in December, it will come.
From trade to CFCs, the history of international agreements suggest that although the journey may be long, and the road may be arduous, the destination is worth it.
So in Cancun, we can start to bring emissions offers made since Copenhagen into the UNFCCC process.
We can develop the framework for cutting emissions from deforestation and forest degradation.
We can make progress on a measurement, reporting and verification system to ensure emissions reductions are transparent.
We can show leadership on climate finance, encouraging others to deliver on FastStart, and building on the Green Fund commitment made last year.
Together, these achievements build on the headline political agreement made in Copenhagen.
It is important that we get these pre-conditions right. Because as the CBI knows well, business did not stop when the Copenhagen summit did.
By pushing sustainable growth from the margins to the boardroom, business can and will help create the political momentum we need to get international negotiations back on track.
That could help turn what Nick Stern dubbed ‘the greatest market failure of all time’ into a market success story.
Thank you very much.
Published: 17 November 2010