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CHRIS HUHNE: ‘THE GREEN ENERGY FUTURE ECONOMY’ - Speech in full

October 4, 2011 7:12 PM
Originally published by Newcastle upon Tyne Liberal Democrats

CHRIS HUHNE: 'THE GREEN ENERGY FUTURE ECONOMY'

Introduction

Thanks very much. I'm delighted to be back in Newcastle. My last visit here featured a trip to the borehole in the city centre - definitely one of the more interesting holes in the ground I've had the chance to look at! And one with enormous promise, of course, for harnessing geothermal energy.

I'm particularly pleased to be able to give this lecture in the Centre for Life, an institution which does such a good job of conducting and communicating the science on which our future depends.

The last few months have been dominated by arguments over economics. At the global level - will the developed economies tip back into recession? At the European level - what are the prospects for the Eurozone? At the national level - what is Britain's outlook for growth? And at the personal level - how do people cope with the rising cost of living, particularly in the price of energy?

Today, I want to set out three key arguments about the way in which policies aimed at tackling climate change - at reducing carbon emissions - can make a major contribution to growth and prosperity.

First, they can help us get off the oil and gas hook - and on to clean, green growth. The science of climate change demands it. Our survival requires it. And our living standards will benefit from it.

Second, this low-carbon revolution can offset fiscal tightening and turbo-charge growth in employment. It is a large part of the answer to the question of where the jobs and growth are coming from.

And third, our economy will be more stable and secure as energy imports fall. Every business will benefit from moderating boom and bust. Every household will gain from greater energy efficiency and secure sources of heat and power.

Together, these arguments make up the case for 'green growth': investment in the infrastructure, industries and technologies that can change our economic future for the better.

The economic background

Sixteen months ago our first priority was dealing with the deficit.

When we came to office, our economy was unbalanced. Bubble finance had inflated property and other asset prices.

Government spending was sustainable only if taxes and GDP were sustainable, and they were not.

Consumers had borrowed on an unprecedented scale to keep the merry-go-round turning. And then the music stopped.

More than a quarter of the rise in income - in GDP per head - between 1997 and 2007 was reversed during the financial crisis and recession.

Our economy was also suffering a deeper malaise: manufacturing's share of economic output halved between 1990 and 2010.

Britain's share of world exports fell from 4.4 per cent in 2000 to 2.8 per cent in 2009.[1] Our exporters had been hit by a decade of high sterling.

The current problems in the Eurozone demonstrate clearly how necessary it was to take action to cut public spending. Many countries now suffering from the debt crisis - Portugal, Spain, Italy - had smaller budget deficits than us.

Yet we succeeded in saving Britain's credit rating - with the result that today businesses can borrow money at lower rates than at any time in the last three hundred years.

Now our task is to chart the path to future prosperity.

In the Coalition Agreement, we promised 'to build a new economy from the rubble of the old'.

But what kind of economy do we want - and how do we want to build it? It is not enough to get out of the danger zone. We need a roadmap to recovery.

New directions

Unemployment is now nearly 8 per cent. More than 80,000 young people under the age of 24 have been out of work for more than six months.

Our economy has brains and brawn to spare. The cost of capital is low. Global savings are at record levels.[2]

To stay internationally competitive, we must seize this opportunity to rebuild our economy on firmer foundations. As Winston Churchill once said of his period as Chancellor: 'I would rather see finance less proud, and industry more content'.

The solutions that worked in the past are blocked off. We cannot pump-prime the economy as we did in the fifties and sixties, because the deficit is too big.

Nor can we deregulate the financial system as our pathway to growth, spurring more credit as we did in the eighties. We can't afford another credit crisis.

Instead, we must turn to something else. A path that can deliver a dynamic, vibrant economy that is ready to compete in the strongest global growth sector.

I believe that green growth - investing in low-carbon technologies, industries and infrastructure - is the best way to rebalance our economy and build a better future for Britain.

Green growth boosts productivity, innovation and efficiency. It creates new markets, and builds investor confidence and stability. And it is in the UK's direct economic interest to encourage it.

There are four compelling reasons why.

Innovation and investment

Firstly, a low-carbon economy presents an opportunity, not a cost.

Investment in our clean energy future should not be mistaken for a cost to the economy, or the public purse. Instead, as Lord Stern has shown, it can be a strong driver of economic growth.[3] Boosting demand, and creating new supply in a sustainable way.

Globally, the low-carbon goods and services sector is worth £3.2 trillion, and employs 28 million people. It is growing by 4 per cent a year, faster than developed world GDP, and will accelerate.[4]

In the UK, there are almost a million jobs in low-carbon goods and services, and they are growing rapidly.

It is also a sector driven by relentless innovation.

Between 1999 and 2008, patents for renewable energy increased by 24 per cent each year. Electric and hybrid vehicles were up 20 per cent. Energy efficiency up 11 per cent.[5] Nearly 2,000 clean energy patents were filed in the United States last year, nearly treble the previous year.[6]

Private finance is already rushing in. In the first half of 2010, green technologies accounted for a quarter of all US venture capital investments.[7] Globally, investment in renewables now outstrips investment in fossil fuels.[8]

This extra inward investment brings jobs and sets the conditions for growth. It also drives learning-by-doing: making companies and economies more productive.

Resource efficiency

The second reason to choose the low-carbon path is self-evident: it is more resource-efficient. It uses less energy and fewer resources per unit of GDP.

In the UK, businesses can save up to £23 billion a year from using raw materials, energy and water more efficiently.[9]

Let me give two practical examples I have seen recently. The Ford Transit plant at Southampton, on the borders of my constituency, cut its energy bill in just one year by £2.3 million, or 28 per cent, mainly by tightening seals on compressed air systems and turning unused machinery off.

But there are also leaps in technology. A rare earth precision laser can save 90 per cent of the energy cost of a traditional laser - one of the key tools in the modern factory.

And at the macro level, International Energy Agency projections show that 17 per cent extra global investment in low-carbon energy systems by 2050 would bring cumulative fuel savings of $112 trillion.[10]

Companies realise that locking in high-carbon technology is a risk for the future. Sticking with yesterday's fuels could be tomorrow's headache. With rising energy prices and finite supplies of fossil fuels, not many want to bet against low carbon.

Protection against shocks

There is a third reason to pursue green growth.

Businesses hate unpleasant surprises, as the first two global oil shocks showed.

Green growth can protect our economy - reducing our exposure to price shocks. That is good for every business in the land, from corner shop to conglomerate.

Dependence on oil for transport and gas for power puts us at the mercy of international markets over which we have no control - as we have seen in recent months, with rocketing world gas prices feeding straight through to electricity bills.

We cannot rely on the North Sea. We were once self-sufficient in oil and gas; now we import 27 per cent of our energy. That dependence on imports is projected to double by 2020.

And even home-produced oil and gas exists in a world market. It can still give us a nasty price shock.

The IMF's World Economic Outlook for 2011 devotes an entire chapter to oil scarcity. It notes that - and I quote -

'the persistent increase in oil prices over the past decade suggests that global oil markets have entered a period of increased scarcity. Given the expected rapid growth in oil demand in emerging market economies and a downshift in the trend growth of oil supply, a return to abundance is unlikely in the near term'[11]

Those emerging market economies - in Asia, Latin America and Africa - will be ready and willing to compete for scarce resources.

In extreme cases, control of hydrocarbons could become a matter for militaries, not treasuries.[12]

So what is to be done?

We should head off the challenge of price and supply insecurity by getting off the oil and gas hook - through energy saving, low-carbon electricity, renewable heat and transport fuels.

That way we can protect our consumers from high prices, and our economy from price shocks - which can not only impede recovery, but trigger recessions.

That means investing now to secure benefits in the future. The cost of our low-carbon policies by 2020 is just 1 per cent on the average household energy bill, and even that calculation by DECC economists presumes that we can buy oil at last year's cheap rate of $80 a barrel - with gas prices in line.

But the oil price reached $100 a barrel in January, which is the point at which our economists calculate that the British consumer breaks even. And the oil price, as we have seen this year, could well be higher - topping $120 a barrel in April.

In the medium term, the US Department of Energy forecasts $108 a barrel by 2020, and $125 a barrel by 2035.[13]

If oil and gas prices stay high then our consumers will be winning hands down from our energy policy. Paying less through low-carbon policies than they would pay for fossil fuel policies.

Tackling high energy prices

The demand for oil and gas, of course, does not come down easily whatever the price. We cannot simply stop using them overnight. People are committed to car journeys. Locked into fossil-fuel-using capital equipment. And reliant on an electricity market heavily dependent on gas.

Which is why we also need to take action to relieve the burden of high energy prices right now. Higher energy bills hurt. None of us should have to save on warmth in a cold winter. Some of the most vulnerable and elderly will shiver - and worse - if we do not help.

That is why this Government is boosting by two-thirds the discounts to help people in fuel poverty - and why our Warm Homes Discount is a statutory scheme, not a grace-and-favour handout relying on energy companies' good will.

That is also why this Government will make those in fuel poverty a top priority for the Green Deal, our home insulation programme, helped by our ECO subsidy. Improving people's homes cuts fuel poverty forever, while a discount only cuts fuel poverty for a year.

Of course, it is not just the fuel poor who need help - which is why I announced last week, at party conference, a new package to help the hard-pressed consumer this winter and every winter. We are determined to get tough with the big six energy companies to ensure that the consumer gets the best possible deal. We want simpler tariffs, requiring energy companies to tell you whether you could buy more cheaply on another tariff.

And you can save real money. Ofgem, the independent regulator, calculates that the average household could save £200 by switching to the lowest cost supplier - but fewer than one in seven households do so. Britain privatised the energy companies, but most consumers never noticed. The Times interpreted my comments as implying that consumers were lazy, but that is not what I said. It is just that consumers still think that they face the same bill whoever they go to. So I want to help households save money, with simpler charging, clearer bills, and quicker switching.

I also want more consumer-friendly firms - co-ops, partnerships, consumer charities - dedicated to doing the shopping around for consumers to make sure that you're always on the best deal, even if you do not have time to check yourself.

Ofgem should also have new powers to secure redress for consumers - money back for bad behaviour. Ofgem is already stamping out bad doorstep practices that lead to energy mis-selling, with the guilty companies suffering swingeing fines. And we will stop the energy companies from blocking action by Ofgem, which can delay matters by a year.

I remember when I was on the board of Which? the Consumers' Association that the best guarantee of a good deal is more competition for your pound. So we also want to encourage new small companies to come into the market. Cutting red tape so they can grow bigger. Making it easier for them to buy and sell electricity in the wholesale market.

And with Ofgem, we are cracking down on any bad practice that could smack of being anti-competitive. It's not fair that big energy companies can push their prices up for the vast majority of their consumers - who do not switch - while introducing cut-throat offers for new customers that stop small firms entering the market. That looks to me like predatory pricing; and it must and will stop.

These are short-term priorities while we lay the foundations for the long-term transformation to low-carbon. Switching the economy to low-carbon, protecting ourselves from price shocks, is not the work of a day, a week, or a year: we must free our economy from carbon addiction over the long haul.

Some countries already have a head start. Electricity prices in France are set to rise by just 3 per cent this year. Compare and contrast with Britain, where prices have risen by three times as much.

It is no surprise that France is the European country with the least reliance on fossil fuels, and enjoys some of the lowest prices - 9.4 per cent below ours.

We have a long way to go. But every long journey begins with a first step.

For us, that means saving energy, building cleaner power plants, and encouraging the electrification of heating and transport. These are the fundamental components of a strategy that will deliver green growth.

Timing is everything

The fourth and final reason to pursue such a strategy is simple: we cannot risk being left behind. Green growth is in our direct national interest.

Around the world, governments are responding to the green energy challenge. The race for the future is already under way.

One of the great myths surrounding the economics of climate change is that we are somehow going it alone. Why should we be the only ones to sacrifice, the sceptic says, when no one else is committing to carbon cuts or green growth?

Nothing could be further from the truth.

Some 89 countries now have renewable energy policy targets. By the way, almost all EU countries have more demanding targets than we do. Some 81 countries worldwide have feed-in tariffs, to reward small-scale generation. And 73 have biofuels mandates.[14]

China already has a target to reduce emissions per unit of GDP by 40 to 45 per cent between 2005 and 2020. It aims to produce 16 per cent of its primary energy from renewable sources by 2020; it already has six of the biggest renewable companies in the world. And it is upping its research and development spend to over 2 per cent of GDP by 2015.

By the time High Speed Two connects the 163 kilometres from London to Birmingham, China will have built 16,000 kilometres of high-speed rail. It wants new industries - including energy saving and clean energy vehicles - to rise from 3 per cent to 15 per cent of the economy by 2020.

Korea's National Strategy for Green Growth commits 2 per cent of annual GDP to green growth programmes and projects. The $46 billion Korea is investing in its 'Green New Deal' will create 960,000 jobs by 2012.[15]

Norbert Roettgen, the German Environment Minister, makes a convincing case:

'Germany's economy has come out of the crisis even stronger than before. This is partly due to our strength in exporting modern energy and environmental technologies, where we have up to 30 percent of the world market share. And this share is rising'[16]

Profound technological shifts favour countries that are well prepared. Change first drives productivity growth in the innovating sector. Lower prices for low-carbon equipment then drive greater investment, and production is increasingly reorganised around the new technology.

UK advantage

Those are all potential markets in which UK companies can thrive.

We must make good on our competitive promise. Britain has a strong engineering, research and science base. We have significant renewable resources in wind, wave and tidal stream. And we have a proud history of converting innovation into commercial success.

Newcastle is one of the best places I could choose to make this point. From yesterday's engineering giants - Joseph Swan and the electric light bulb, William Armstrong and water-powered machinery, Charles Parson and steam turbines - to today's cutting-edge research in Newcastle and Northumbria Universities and the Durham Energy Institute, to industrial innovation support in NAREC, to forward-looking companies such as Nissan, producing the all-electric Leaf at Sunderland, or TAG Energy Solutions, whose plant in Billingham I've just come from - this region has always lain at the heart of Britain's manufacturing strength. And it has a great future in low-carbon industries.

In areas like offshore wind, wave and tidal power, where we can consolidate our considerable natural resources and competitive advantages.

I was disappointed, of course, to hear of Clipper Windpower's recent decision not to go ahead with the Britannia offshore wind project, but as I understand it the decision was based on problems of timing, rather than any lack of interest in offshore wind per se. My officials have been talking to Clipper just this week about their future plans.

Britain remains the world leader in installed offshore wind capacity. And we are developing a robust supply chain for the sector - TAG, for example, has adapted its experience in the oil and gas sector to design and construct offshore - and onshore - structures for renewables.

The UK is also one of the world leaders when it comes to carbon capture and storage - which is why we persuaded the Treasury to invest £1 billion in the first commercial scale CCS plant. CCS is a key future technology. We need it to deal with peaks and troughs in a more variable energy system, and we need it to provide baseload power where coal is abundant.

Indeed, IEA analysis shows that carbon capture and storage will have to deliver around 20 per cent of global emission reductions by 2050.That's around 3,400 CCS plants by 2050, a fast-expanding market where UK technology puts us in pole position.[17] Independent analysis suggests export opportunities for the British economy could reach £3bn to £10bn a year by the late 2020s.

So what could all this mean for Britain? The recent Potsdam-Oxford study for the German government found that more ambitious emissions targets bring considerable benefits for the UK economy: a 7.3 per cent GDP boost, the 3rd highest of the 27 EU member states.[18]

We have a clear incentive for aggressively pursuing green growth. Greater investment will raise our long-term productivity and improve our infrastructure. This is the safe foundation for sustainable growth.

Josef Ackermann, the chief executive of Deutsche Bank, puts it plainly:

'Make no mistake: a new world order is emerging. The race for leadership has already begun. For the winners, the rewards are clear: Innovation and investment in clean energy technology will stimulate green growth; it will create jobs; it will bring greater energy independence and national security'.[19]

We would be mad to miss this boat. Turning our backs on the next global growth sector when the world's economic dynamos are pursuing it so strongly would be economically suicidal.

Green growth will make our economy more efficient, more secure, and more competitive.

So how can we encourage it?

Our approach

Everyone has a role to play. It is for government to set the right framework to allow growth to prosper. Markets will follow long-term policy signals. Government can unlock private investment at scale.

Let me give you three examples.

Firstly, we are using policy instruments to create new markets.

The industrial revolution in the nineteenth century would not have happened without the innovation in Britain of the joint stock company, and the limitation of shareholders' liability to their initial capital in the 1855 Act.

The biggest projects would simply not have been financeable. Rich individuals would not have been prepared to take on unlimited liability. We would all have been losers.

In the same way, we are creating new markets today that will also stimulate investment.

The Green Deal is our pioneering programme to refit British buildings, offering energy efficiency improvements with no up-front costs to consumers.

When the Energy Bill becomes law in a few weeks' time, business will be able - for the first time - to make their returns back over the lifetime of the improvements, as the twenty-year payback will be attached to the electricity bill even when the householders move on.

Millions of homes and businesses right across the country will benefit. The Green Deal could cut our energy imports by up to £3 billion per year, save households up to £400 per year in gas and electricity costs, and help us cut our carbon emissions. It will start to tackle - permanently - the scourge of fuel poverty.

It will also create a whole new market in energy efficiency, with implications for supply chains across the country. The number of people employed in insulation alone could soar from 27,000 to 100,000 by 2015, and 250,000 at its peak.

We are now talking to manufacturers about the opportunities of the Green Deal: now that the market is Tesco and not Harrods, the sky is the limit. Big scale means big savings on heat exchangers, wall insulation, and heat pumps. And big chances for suppliers.

Secondly, we are making existing energy markets fairer, clearer and more stable.

Take electricity market reform, where we published the white paper setting out our proposals in July. Over a quarter of Britain's ageing power plants will close over the next decade. OFGEM estimates that over £200 billion must be spent to secure our energy supplies by 2020. This is double the normal level of energy infrastructure investment needed, a key part of our growth story.

The aim of the proposals set out in the white paper - which amount to the most radical reform of the electricity market since privatisation in the 1980s - is to ensure that as much as possible of the new capacity that will be built is low-carbon.

Our reforms will reduce the risks for investors in low-carbon by setting out a clear and stable investment framework - creating the right conditions to attract the capital needed to transform the system.

By offering certainty and clarity, we can secure the scale of investment we need. By attracting in new investors, we also increase competition in the UK energy market.

The next time someone asks where the growth is coming from, you can tell them. Green energy.

And third, we are creating new means of unlocking new sources of capital. The Green Investment Bank will be the world's first national development bank dedicated to the green economy. Open for business in 2012, it will use public money to unlock private investment in the companies that will deliver green growth.

Its reach will extend far beyond the City of London: steering major new sources of capital towards low-carbon projects, including offshore wind and energy efficiency.

Local government too has a key role to play in constructing the low-carbon economy: promoting local green businesses, creating market opportunities by installing renewable energy, procuring green technologies and services, or delivering the Green Deal, bringing together entrepreneurs and educators and citizens in planning the route to the low-carbon future.

Newcastle under the previous - Liberal Democrat - administration had a proud record here too, coming top of the Sustainable Cities Index twice, in 2009 and 2010. The new council has firm foundations on which to build.

Conclusion

We need a vibrant, new economy.

One that is resource-efficient. That saves money. That boosts productivity. Where British innovation and research can deliver new success in engineering and manufacturing. With dynamic low-carbon markets driving the products and processes that will build the future.

There is no credible alternative.

The strong recovery from the last great recession of 1929-31 was not led by the old industries like textiles, iron, coal and shipbuilding.

It was unleashed by carmakers, electrical appliance makers, light manufacturers. It will be the same in this recovery from deep recession. Our economic success will depend on the industries of the future, not the past.

We must own this opportunity to change. We must win the future.

In so doing, we can redefine climate economics. We can and should move the argument from costs to benefits. And we can break the chains tying pollution to progress.

Delinking carbon and growth is the biggest structural shift in the global economy for decades. The most important since the information revolution. And we are already doing it.

In Britain, we have grown by 48 per cent since 1990. But our carbon emissions have fallen by 28 per cent. We are already showing the way.

The future will be about green growth. We need resourcefulness, not resources. Respect for nature, not rapaciousness. Renewal, not retreat.

Our low-carbon economy will be more efficient, more competitive, and more resilient.

By getting off the oil and gas hook, we can deliver clean, green growth. We can offset fiscal tightening and turbocharge jobs. And we can make our economy more secure.

We will face stiff competition: green growth is the hottest ticket in town.

But no one ever won a race by starting last or running slowest. Let's get going.



[1] HMT/BIS, 'The Plan for Growth', March 2011

[2] Zenghelis, D., 'A Macroeconomic Plan for a Green Recovery', 2001

[3] Romani, M., Stern, N. and Zenghelis, D., 'Policy brief: the basic economics of low-carbon growth in the UK', 2011.

[4] BIS, 'Low-carbon and environmental goods and services: an industry analysis', 2009

[5] OECD, 'Towards Green Growth', Summary for policy makers, 2011

[6] CEPGI, Clean Energy Patent Growth Index, 2011

[7] OECD, 'Towards Green Growth', Summary for policy makers, 2011

[8] UNEP, 'Global Trends in Green Energy', 2010

[9] HMT/BIS, 'The Plan for Growth', 2011

[10] IEA, 'Energy Technology Perspectives: Scenarios and Strategies to 2050', 2010

[11] IMF, 'World Economic Outlook', 2011

[12] "Control and access to hydrocarbons will remain important and major powers are likely to use their defence forces to safeguard supplies". Ministry of Defence, DCDC Global Strategic Trends 4th Report, 2010

[13] DOE, Annual Energy Outlook 2011

[14] 'The Geopolitics of Clean Energy', Michael Liebrich, Chief Executive Bloomberg New Energy Finance, 2011.

[15] OECD: 'Towards Green Growth', A summary for policy makers, 2011.

[16] German Federal Environment Minister Norbert Röttgen's speech to UNFCCC Cancun, 2010.

[17] IEA: 'Energy Technology Perspectives', 2008.

[18] 'A New Growth Path for Europe: Generating Prosperity and Jobs in the Low-Carbon Economy', 2011.

[19] Josef Ackermann, address to Global Metro Summit, Chicago 2010.