27 May, 2008

HRH The Prince of Wales, Rt Hon John Hutton MP, Secretary of State for Business, Enterprise and Regulatory Reform and senior UK & EU business leaders met this week (Tuesday 27 May) at British Antarctic Survey to discuss climate change implications for business and society.  The event was organised jointly by the University of Cambridge Programme for Industry (Prince of Wales Corporate Leaders Group on Climate Change) and British Antarctic Survey.

Secretary of State John Hutton addressed the audience with the following speech:

Introduction

Good afternoon. Thank you to the Corporate Leaders’ Group on Climate Change for this opportunity to speak today.

Your work to build a powerful business case for action on the global challenge of climate change has been invaluable. As a result, ideas are on the move and many businesses are now responding to the reality of climate change. Some are looking to exploit new markets and technologies. Others are looking to become more energy efficient. Many more are acting to enhance their corporate image and reputation.

Whatever the reason, the consequences can only be positive. One thing is clear – given the scale and urgency of the challenge ahead, I believe your leadership amongst the business community can only increase in importance.

I especially want to thank you for your work ahead of last year’s UN Climate Change Conference – in particular publishing the Bali Communique. Bringing together 150 business leaders to call for an urgent response to climate change and the agreement of a comprehensive and legally binding international framework.

The Challenge

The scale of the task in front of us is enormous – to tackle climate change while meeting increasing demands for energy reliably, at competitive prices and in a way that looks after the needs of those on low incomes.

To complete the UK’s transition to a low-carbon economy will demand nothing less than a revolution in our energy systems at home and abroad. The world needs cleaner energy. But it must have access to affordable energy as well – to spur growth and the progress that comes with it.

The urgency of climate change and the re-emergence of a new politics of energy has combined with surging demand from the new economies of Asia to present the biggest challenge to global energy systems since the oil price rises of the 1970s.

Then, the world faced comparable price volatility. Some economies had the vision to diversify and innovate. California blazed a trail, invested heavily in exploiting its natural resources and is today a world leader in renewable innovation and power generation. California effectively hedged itself against high oil prices. Today its energy consumption per capita is almost half the UK average. This should be the inspiration of responsible governments today.

Energy prices and in particular the price of oil, are impacting the world economy – feeding inflationary pressures in many OECD countries; shifting the global balance of fund-flows and impacting on consumer and business expectations. Its true effects dampened in the short term by subsidies in a number of major economies that artificially keep the price down for consumers.

Most worryingly from a climate change perspective, there appears to be little relationship between the current spike in the price of oil and the demand for oil.

Further capacity to increase the supply – that could potentially offset the increase in oil demand – is constrained by the need for substantial capital and technical investment that cannot flow, partly because of national Governments restricting investment in, and access to, new oil production.

Central Argument

The Prime Minister has been clear that further reform is needed to the global system of oil production. And this issue has to be centre stage of G8 energy ministers in June.

What is needed is a shared understanding between the oil producing and consuming countries about the long term nature of the challenge we face. There are steps that we can and must take to increase the supply of oil in the short to medium term. Encouraging greater investment, transparency of data of production and supplies.

But in the long term, the only effective way to insulate ourselves and other oil consuming countries from future oil price rises is a new drive on energy efficiency and further action to minimise our dependency on oil. And we must do this in a way that recognises the need for a shared acceptance of both the problem and the solution between oil producing and consuming counties.

So we will need a revolution in our transport systems. It accounts for 70 per cent of oil production.

We will need a revolution in energy efficiency. Global implementation of the IEA’s energy efficiency recommendations – proposed at the G8 Summit – would save 15% of global oil demand by 2030 – mainly through tighter vehicle emission standards.

We will need a revolution in the effectiveness of pricing and market regimes around the world to get a greater match between demand and supply of energy products.

None of this will be easy. But putting our energy and climate systems on a sustainable footing has never been more cost-effective – with high fossil fuel prices, which will make investments in alternative technologies, energy efficiency, changing public attitudes and better functioning markets more profitable.

There will be costs in the short-term. But the price of inaction is bound to be far higher.

Working with Business

That’s why I believe business involvement and investment is so critical.

And the potential opportunities it presents to you and other UK companies, across sectors are immense.

In just over thirty years, the low-carbon industry could be worth $3 trillion per year and employ over 25 million people world-wide.

As one of the world’s largest manufacturing economies – with some of its leading hi-tech manufacturers and universities; a world class centre of energy expertise and leading location for inward investment – the UK has the potential to capitalise on this new generation of green collar jobs. We must make this focus on new jobs and wealth creation – two of our principal goals, as we make the transition to becoming a low carbon economy.

Later this year, we will publish our plans to help UK manufacturers better compete and lead in green markets. And next month, I’ll be hosting a low-carbon economy summit to discuss further action on these and other low-carbon business opportunities.

But today, I want to focus on how else we take forward the job of decarbonising our energy system.

I believe the role of Government in this process is three-fold.

First, we must create the right incentives to stimulate the deployment of new technologies.

Secondly, we must establish the right planning and regulatory frameworks to guarantee we can make the progress we need over the shortest possible timeframe.

And thirdly, and perhaps most importantly, we need to generate the necessary climate to maximise investor confidence.

Transport

Car ownership in China and India combined could potentially total almost half a billion extra cars by 2030. So, that means a revolution in new transport technology, urban planning and public transport systems around the world. And these emerging economies have to be the primary beneficiaries of this technology.

Within a generation I believe we will see very-low emission vehicles become the mainstream of car production. The King Review supports this view.

And Government is now working, with business, to ensure our car industry can make that transition and the UK lead in the development and production of these vehicles.

Energy Efficiency

A revolution in energy efficiency needs everyone to take more action.

And, domestically, we have put in place a comprehensive package of policies and measures on energy efficiency – most recently updated in last year’s UK Energy Efficiency Action Plan – to help individuals and organisations take the steps they need to reduce energy waste.

These include the Carbon Emission Reduction Target (CERT) – an obligation for energy suppliers. This aims to help consumers, in the household sector, cut carbon emissions and benefit from better energy efficiency and microgeneration.

Over the next 3 years, a further 5 million more homes will be insulated as a result – helping family budgets and the environment at the same time.

The Carbon Reduction Commitment Cap and Trade Scheme, which from 2010 will introduce carbon trading in the UK for large, but less energy intensive businesses.

And Energy Performance Certificates – which provide consumers with a summary of the energy performance of properties being sold in England and Wales and suggest tailored cost effective measures to boost the energy efficiency of the property.

Competition and Market

But at the heart of the low-carbon revolution must be a renewed commitment to competitive markets. They are the key driver of climate change and energy security solutions in the UK, Europe and the rest of the world.

It’s all too tempting, however, in the face of high energy prices and the urgency with which we need to decarbonise our economy, to look towards regulation and not markets as the main instrument of change.

The transformation of global energy systems will require an enormous amount of investment.

Essential to its generation is creating the most stable, predictable and attractive regulatory environment that allows the market and investment community to respond to this challenge.

From the UK’s perspective – whether it’s in new nuclear, renewable energy or clean coal – we’re competing for that investment. We have no right to believe it will come to the UK. So every action we take must be seen through the prism of whether regulation will improve investor confidence or not.

With this in mind, we must hold true and fast to cap and trade mechanisms like EU-ETS to see them become THE effective mechanism in the figh