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CHECK AGAINST DELIVERY
I'm delighted to be here
today. When I helped set up the IPPR over ten years ago, I never dreamt that I would
one day address an IPPR event as Secretary of State for Trade and Industry and
Minister for Women.
IPPR has always sought to
stimulate debate on environmental policy. Back in 1989 I wrote the first of a
series of IPPR green papers on protecting the environment and conserving
natural resources. It looked at road pricing, transport policy and the
environment. It identified a new challenge for policymakers: how best to
integrate economic and environmental policy. That is a challenge I am now
seeking to address as Secretary of State for Trade and Industry.
IPPR's low carbon initiative
is making a very helpful contribution to the debate.
International experts warned
earlier this year that global warming is more serious than previously
predicted.
Globally we will have to
reduce greenhouse gas emissions to prevent dangerous climate change. The Royal
Commission on Environmental Pollution's report last year suggested that the UK
would need to reduce emissions by 60% by 2050.
This will require major shifts
in the way the economy and society operate, de-coupling economic growth from
the emission of greenhouse gases, particularly carbon fuels. It means looking
at energy policy very widely, including energy supply, energy use and
transport.
Our aim must be a low carbon,
high growth, high productivity economy.
The role of my Department,
Trade and Industry, is to help drive up UK productivity and narrow the
productivity gap between the UK and our major competitors.
In simple terms that means
getting the most out of what we put in: working smarter not harder, drawing on
people's skills in the labour force; getting the most out of capital
investment; getting more out of the natural and finite resources we have,
cutting waste and pollution.
Environmental productivity is
a central part of our mission to raise UK productivity.
All of Government has a part
to play. The DTI's priorities are:
· Promoting innovation
· Spurring
enterprise and
· Creating
competitive frameworks which deliver open and dynamic markets
Raising resource productivity
is an essential element of all three areas.
Above all, our role is to
create the competitive framework that helps the market develop low carbon
solutions.
First, Government must provide
the right fiscal framework. One that internalises externalities. Where the full
social and environmental costs of an activity are not incorporated in prices,
the Government can allow the market to adjust to efficient levels of production
by levying appropriately set taxation.
The climate change levy is
part of a long-term change in the fiscal framework to give businesses an
incentive to cut energy use and switch to low carbon alternatives - shifting
the tax burden away from beneficial things like employment and towards
undesirable things like pollution.
Some - particularly in
manufacturing - have voiced concerns about the Climate Change Levy. This is an
essential part of meeting our Kyoto international obligations.
Even though the proposal is
overall revenue neutral, I know there are real concerns and we are listening to
ensure the Climate Change Levy works in a sensible way.
We are, for example, exploring
the case for providing more favourable treatment for combined heat and power
(CHP) within the Climate Change Levy.
We are also on course to
launch the world's first economy-wide greenhouse gas emissions trading scheme
in April next year - last week we secured EU state aid approval for the scheme.
This will enable participants
to meet their targets at the lowest cost, either by reducing their own
emissions or, if it is cheaper, by buying emissions allowances from other
participants who have found it worthwhile to beat their targets.
My next point is that we need
to look at the broader design of energy markets.
Energy markets have a crucial
role to play in achieving a low carbon economy.
As many of you will know, the
Prime Minister has asked his Performance and Innovation Unit (PIU) to review
energy policy, with the aim of proposing a strategy that meets the challenge of
global warming whilst ensuring secure, diverse and reliable energy supplies at
competitive prices. The PIU is due to report to the Prime Minister by the end
of this year.
I am confident that the PIU
Review will place an increasing emphasis on the environment and the need for a
low carbon economy. There is huge potential for energy savings. They are
delivered most cost effectively through competitive markets that encourage
innovation - both in terms of delivery and technology development.
Our aim is to promote dynamic,
competitive wholesale and consumer energy markets, with the right incentives
and regulatory requirements to promote low carbon energy sources.
So we need to act on both
sides of the equation: reducing demand on one side and making supply cleaner
and less wasteful on the other.
Turning first to measures to
reduce demand.
The Energy Efficiency
Commitment will require electricity and gas suppliers to make significant
energy savings between 2002 and 2005 by encouraging and assisting their
domestic customers to reduce their household energy consumption. This should
achieve an annual ongoing energy saving worth almost £280 million for customers
by 2005 and cut carbon emissions by 400,000 tonnes per year.
This is a market approach.
Designed to tackle a real market failure in energy efficiency. It is driving
companies to make the best commercial use of the obligation, encouraging
innovation.
The Commitment will also
encourage companies to come forward with more innovative proposals for
providing energy services - selling energy and energy efficiency at the same
time.
At the same time we can also
tackle fuel poverty. We have been the first government to launch a fuel poverty
strategy, recognising that energy efficiency benefits not only the environment
but also helps us achieve our social objectives.
The commercial response has
been very positive. For example, TXU is already offering, with Stay Warm, the
first mass-market flat rate product for the elderly. By selling electricity and
gas on a subscription basis, the company has given itself a real incentive to
promote energy efficiency rather than consumption. I hope more suppliers will
follow.
Innovative services like this
demonstrate that resource productivity is about more than just reducing inputs
to make more efficient use of resources. It is also about taking a more
innovative look at outputs. The conventional approach was to assume that people
wanted to buy electricity and gas. Actually what people want is heat and light.
The development of a market
for energy services in the UK is one response to this challenge. We also need
to look at the construction of homes.
At how people can generate
their own renewable energy in their own home or premises. The ultimate
competitive, low carbon market is one where everyone can generate their own
power, for example through micro CHP and photovoltaics.
Government has a role to play
in demonstrating the benefits. We have launched a micro-scale combined heat and
power pilot involving up to 6,000 households. We're funding solar photovoltaics
in 32 housing projects, involving over 500 homes. And we will build on this
with a Major PV Demonstration Programme, which will put us on course to catch
up with the Japanese and German PV roofs programmes - installing PV systems in
around 3,000 homes and a couple of hundred large non-domestic buildings over
the next 2 to 3 years.
We also need to look at other
forms of innovative construction. Houses which are just well insulated enough
not to need a full central heating system are cheaper to build than either
conventional ones or even more highly insulated ones.
Now that responsibility for
the construction industry is with the DTI, I am talking to business about how
we can work through the supply chain, from architects to final build, to ensure
we become a world leader in energy efficient homes and buildings.
One way of achieving this may
be to set targets for energy efficiency and sustainable homes - providing a
clear aim for Government and the industry. I look forward to seeing what the
PIU say about action in this area.
Turning now to electricity
supply.
New Electricity Trading
Arrangements provide for a competitive wholesale market for electricity
generation. Some of the smaller generators, including Combined Heat and Power
and renewables, have expressed concern that they are unable to participate
fully in the new wholesale electricity market. Both renewables and CHP have a
vital role to play in reducing our carbon emissions. That's why we have
consulted on the issues and are setting up a working group to identify
solutions by the end of January.
Early next year we will
introduce an obligation for 10% of all licensed electricity supplies to come
from renewable energy sources by 2010.
The obligation has been
designed in a pro market way. Because there is strong competition in the retail
market, there is a big inventive for companies to meet the obligation at the
lowest costs, harnessing the power of the market to meet the wider environmental
agenda.
The PIU have consulted on the
possibility of a higher renewables target to take us beyond 2010. I know the
IPPR has made its own contribution to this debate.
Clearly we need to set a
challenging - but achievable - target. And to work with the industry and OFGEM
to deliver it.
Finally, I want to look at the
broader issue of innovation.
We have excellent examples of
businesses responding, through innovation, to the challenge of climate change.
There is a growing realisation
amongst businesses that the need to cut greenhouse gas emissions - once thought
to be costly and a threat - is, in reality a huge business opportunity.
Businesses can save money by
reducing their energy costs, making themselves more competitive and
safeguarding profits and jobs.
At the same time, businesses
can grow by developing products using low carbon technologies. With 180
countries signed up to the Kyoto Protocol there is a huge potential market, a
very real prize for companies and countries that get ahead of the game.
The global market for
environmental goods and services is projected to rise to £440 billion by 2010,
and renewable sources of energy could take a large part of that market.
But it is still a minority of
businesses that are spotting the market opportunities.
Innovation is key to achieving
a low carbon, sustainable economy.
A central part of the Review I
have been leading of DTI has been how we can make the most of the work we have
been doing over the last four years in strengthening our science and technology
base - to ensure that UK science, engineering and technology expertise is
exploited by new and existing businesses.
Within DTI, as part of our
reorganisation, there will be a new division for Science, Technology and
Innovation - and part of its core purpose will be to promote the take up of
environmental technology throughout UK business.
Innovation is about developing
and applying new ideas and technology - in products, services and processes.
So in providing a competitive
framework, we must ensure that market regulation encourages and does not hinder
innovation. We must work with the regulators and with business to ensure that
the commercial environment is right for bringing existing and new low carbon
technologies to market.
We must also encourage new
developments in industry, creating more environmentally friendly products.
For example, the UK car
industry is already leading major technological developments towards low carbon
transport.
Yesterday, my colleague Brian
Wilson - together with colleagues in DTLR, DEFRA and the Treasury - launched
the Government's draft strategy, 'Powering Future Vehicles' , setting
out how we aim to lead the global shift to the low-carbon automotive economy.
Setting ourselves challenging targets. And on this, we're looking at the
possibility that the proportion of low-carbon vehicles, including hybrid and
fuel cell vehicles, could make up 8-12% of new car sales, within a decade.
We can only set and achieve
the right goals if we work with business, and the not for profit sector.
That's why we have set up the
Carbon Trust, Government backed but business led. It has a remit
directly from the Prime Minister to "take the lead on low carbon
technology and innovation in this country and put the Britain in the lead internationally".
We know we have a lot to do.
I look forward to continuing
to work with all of you, in all sectors, public, private and voluntary, to
ensure we become the low carbon, high productivity economy which we have set as
our central goal.
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