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The price of a barrel of Brent crude this morning was around

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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.
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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.
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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
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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.
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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
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Siemens on what it is doing in this area, both as a provider of products and services,
and as a source of practical ideas.

				
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