1 Richard Lambert speech to Siemens Sustainability Conference Monday 23 June 2008 The price of a barrel of Brent crude this morning was around $136 – or roughly double where it stood a year ago. You can look at that figure in two ways. You can see it as a trigger for worldwide inflation, and for a slowdown in the pace of economic activity just about everywhere. And that is certainly likely to be true, at least for the short term. Or you can regard it as a driving force for change in the way the global economy works. Something that should shift us towards a different kind of world – one that is powered by low carbon sources of energy that are innovative and highly efficient. A much more sustainable world, where the long established relationship between economic growth and greenhouse gas emissions has been decisively changed. A world which, at least in outline terms, is already beginning to take shape. High energy prices are being driven by rising demand from the emerging economies, which is unlikely to go away. That means the economic as well as the environmental and political case for developing alternative sources of energy is becoming more compelling by the day. A recent study by McKinsey estimated that $170 billion a year could be invested from now until 2020 around the world in productivity opportunities that would yield an internal rate of return of at least 10 per cent. That’s an economic opportunity on a scale that has not been seen before. And what policymakers need right now is practical guidance to help them make informed decisions about the different ways forward towards a sustainable society. So I strongly welcome the study on London, which is published today with the support of Siemens. It takes a holistic approach, covering water and waste as well as greenhouse gas emissions. It focuses on the key determinants of urban environmental performance, something which will make it of real value to policymakers in both the public and private sectors. London is the natural centre for the international market in carbon, which is set to grow substantially in the coming years. Benchmarking the city’s own environmental performance against those of its international peers is a brilliant idea, and this work provides an invaluable starting point. 2 The analysis reinforces the key messages of a report on climate change published at the end of last year by a task force of senior business leaders, which was pulled together by the CBI. These are: Urgent action is required now if the UK is to play its proper part in cutting greenhouse gas emissions. The solutions are known, deliverable and affordable, and they present opportunities to society as well as challenges. A new relationship is required between government – which sets the policy agenda – business, which has to develop new low carbon products and services, and consumers – who in the end will determine whether the desired outcomes are achieved. The job is getting both tougher, and more urgent. Tougher, because our economic growth is slowing down. And this appears to have replaced the environment as the major source of worry for most people. An Ipsos Mori poll published just yesterday showed that there is still a huge job to be done to persuade British people of the need for action to avert climate change. The Siemens report suggests that London could meet its goals at a cost equivalent to less than 1 per cent of its total economic output over the next 20 years, or under Euros 300 per inhabitant. That seemed a no-brainer when the national economy was growing at 3 per cent or more a year. It feels rather different when annual growth is down to nearer 1 per cent, and family budgets are already being squeezed by rising food and energy bills. And the job has become more urgent, because the UK has now agreed to a EU target for renewable energy which – to put it mildly – will be very stretching indeed. The Government will be setting out its strategy on this front later in the week, and it’s not going to make comfortable reading. If the target is to be met, then one way or another we will have to find ways of generating roughly two-fifths of our electricity from non nuclear renewable sources by 2020. The Prime Minister said yesterday that meeting the target would require investment of up to £100 billion. In addition, it seems increasingly likely that the UK’s carbon reduction target for the year 2050 is going to be lifted from 60 to perhaps 80 per cent. And rising food prices have increased concerns everywhere about the sustainability of biofuels. All this adds up to an extremely challenging agenda. Let me suggest some priorities. The first, of course, is energy efficiency – which is made all the more important by oil at $136 a barrel. 3 Today’s Siemens report confirms the message of the CBI taskforce, which is that the majority of the investments that will be required to reduce greenhouse gas emissions in London will actually pay for themselves over time, largely by reducing energy costs. The study shows where we can make big savings in both financial and carbon terms – for instance, by improvements in insulation and lighting, condensing boilers and vehicle energy efficiency. But high energy prices will not, by themselves, be enough to drive investment away from cheap, carbon intensive energy sources and into more sustainable alternatives. The cost curve for London published in today’s report - it’s on page 11 – shows just how expensive alternatives like offshore wind are in comparison with conventional energy. So the key to delivery of a low carbon energy mix over the long term has to be the establishment of a meaningful price for carbon – one that will drive new investment into low carbon products and services. And the main mechanism for delivering such a price right now is the European Emissions Trading System, which is my second priority. The world’s largest scheme of its kind, it caps the overall level of emissions that are permitted, and allows participating companies to buy or sell emission allowances so that cuts can be achieved in the most cost efficient way. Getting the process to this point has been a huge achievement for Europe. And the CBI is publishing today its proposals for the next phase of the ETS, which kicks in after 2012. Our ideas are intended above all to ensure that the ETS delivers the steep fall in carbon emissions which we believe are both necessary and achievable. We want to provide a degree of certainty for business planning; to show that emissions can be reduced without damaging competitiveness; and to support the growth of international carbon markets. A third priority is to set in place the process changes that will be necessary in order for us to be able to access low carbon energy sources in a timely manner. And that, above all, means changes in the planning process. A couple of weeks ago, I attended a conference for the offshore wind industry. There was a palpable feeling of excitement in the air, and the audience was twice as big as it had been a year earlier. It felt rather like a gathering of the UK offshore oil industry, back in the early days. A few days later, there was another conference – this time for the nuclear industry. Here again there was a sense that the UK could be on the brink of a new era of industrial opportunity as it rebuilds and extends its nuclear fleet. But none of this will happen in a timely manner without reforms to a planning process which in its present form seems designed to block rather than promote progress towards a sustainable low carbon economy. The next few days will be critical in this respect, as the planning bill bumps on its troubled path through Westminster. Those who oppose it are putting at risk both our 4 energy supplies over the short term, and the urgent policy actions that are required if the UK is to have any chance of meeting its targets for reducing greenhouse gas emissions by 2020 and beyond. Today’s report confirms what others have said before. The longer we wait to make the investments necessary to avert the risk of climate change, the more costly those investments will have to become. That leads on to a fourth priority, which is that the climate change agenda has to be set in the context of the nation’s overall energy security and economic competitiveness. The key point to remember here is that the clock is ticking. Existing generating capacity is becoming obsolete, and the economy is still growing. The consensus is that without significant new capacity, the UK will be running short of electricity supplies in around ten years time. Let me put a number on this. Of the UK’s existing 75GW of electricity generation, roughly 15-20 GW is likely to be retired by 2015. We will need several new gas or coal-fired power stations to go through the planning process in the near future to meet this gap. Politicians need to balance this threat against their proper concern with environmental sustainability. Last week, the Conservative leader David Cameron made an important speech about the economy and the environment. There was a strong and welcome message that the economic slowdown was no reason for going slow on the sustainability agenda. To the contrary, he said, “For the sake of our future prosperity and our current cost of living, we must wean ourselves off our dependence on fossil fuels, and go green.” He had a number of good ideas, such as taking money from auctioned ETS credits to fund demonstration projects for carbon capture and storage. But when it came to new energy sources, the emphasis was on the need for decentralised energy, micro generation and tidal power. Important stuff, but not the source of major mitigation that will be required in the crucial next decade or two. The speech was light on the nuclear power question. And it proposed new standards which would amount effectively to a ban on new coal fired stations – even the more efficient latest designs - unless they had carbon capture technology. The reality is that we don’t yet know the cost and feasibility of full scale carbon capture and storage. And with the tough emissions trading cap to which industry is signing up, we already have a mechanism for ensuring that generators meet their carbon targets without the need to ban particular generating technologies. Mr Cameron also set his face against a third runway at Heathrow, which business believes is a very important part of our future economic infrastructure under the right environmental conditions. 5 These are big issues that have to be debated, and business has a leadership role to play. It is well placed to provide innovative solutions; to drive change up its supply chains; and to provide its customers and employees with the information and incentives they need to make low carbon choices. Business also has to reach out to policymakers to help develop technical rules and standards, and to support the necessary investment in new technology. The Energy Technology Institute, a joint venture between public and private finance, is one example of what is possible – and much more will be required. In particular, we need more investment in carbon capture and storage, the source of such high hopes for policymakers and generating companies alike. The technology needs to be tested at scale, and its costs need to be brought down if it is to play any significant role much before 2030. That’s why energy security and climate change are right at the top of the policy priority list for the CBI, and will remain there over the long run. Stuff happens in politics to distract the focus of attention. But we know that the scale of this challenge must make it a business priority for the next 30 years. So to reflect this, we have translated the commitments of our climate change report into a three-year programme of activity, and have asked members of the task force to join a Climate Change Board to oversee this work. I am very happy to announce today the launch of our Climate Change Board, which will be chaired by Ben Verwaaywen, who did such sterling work on the original report, and which will – I’m delighted to say – include a chair for Siemens. Our aim is to deliver policy solutions, to promote best practice among businesses, and to hold both government and ourselves as the business community to account for progress on this front. This new board will oversee our work, which among other things in the coming year will: Produce proposals to green the current tax system. Provide a set of proposals to support new low carbon technologies coming to market. Develop consensus on a standard methodology for reporting corporate carbon emissions. Work with sister federations in Europe and elsewhere to develop a business consensus for addressing the global climate change challenge. We are keen to invite as many businesses and business groupings as possible to join with us on this work, and to share ideas and best practice. And we would also like to work with all the major political parties to exchange ideas and information about the development of policy in this crucial area. The message of today’s report is that bringing stakeholders together and encouraging them to collaborate in this way is critical to success. I congratulate 6 Siemens on what it is doing in this area, both as a provider of products and services, and as a source of practical ideas.