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To The Fabian Society

The Rt. Hon. Alistair Darling MP,  Former Secretary of State for Trade and Industry
London,  05 June 2006

Today is World Environment day. A day when the United Nations stimulates worldwide awareness of the environment and the need for action to tackle climate change. The theme this year is Deserts and what is called "Desertification" and the impact of climate change and poor land management.

Deserts and dry lands cover 40% of the planet's surface and they are home to nearly 2 billion people. The Sahara Desert alone accounts for around 8 per cent of the world's land area. And in the last 50 years, as a result of poor land management and because of climate change, it has spread south to cover an extra 65 million hectares - an area well over twice the size of Great Britain.

It shows that we have to think about how the planet can best use its resources - and that's partly what I want to speak to you about today.

In many ways, the growing economic, social and environmental implications of increasing desertification are on a scale which is difficult for us to imagine. But it reminds us of the size of the problem we face.

And, importantly of the moral obligation on us all to do more to tackle climate change.

This afternoon, I want to talk about the Government's Energy Review and its contribution to tackling climate change, particularly the need to cut carbon emissions. The challenge to the environment is huge. And the need to cut carbon emissions is one big reason why we are carrying out the Energy Review.

Reduction in carbon emissions together with the need to ensure secure supplies of energy at an affordable price to industry and individuals, drive this Review.

It is wide-ranging - looking at what measures are needed by 2020 and beyond. That may seem a long time away - but it is not.

This is a problem that won't go away. Rightly we are concerned about climate change here and across the globe.

Now it's easy to talk green - the hard part is to do something about it. That means facing up to difficult decisions and looking at all the options available to us.

Let me look at the background against which we can plan.

Today we have secure and mainly reliable energy supplies  including a big leap forward in renewable generation. This wouldn't have happened without the Renewables Obligation we imposed in 2002.  And we continue to benefit from a balanced electricity generation mix with around 19% coming from nuclear, 33% from coal, 40% from gas, 4% from renewable and that total is rising.

For almost a decade, prices have been amongst the cheapest in Europe and we have reduced the number of people in fuel poverty. But because of a number of factors energy prices have risen substantially this year threatening this progress.  It's a big burden not just on businesses and individuals.

On the environment, estimates show we are well on track to meet our Kyoto target - indeed we have cut emissions 1990 levels. But we need to do more to meet our own UK target. Emissions are projected to be almost 20 per cent below 1990 levels in 2010 and in the Climate Change Programme we will have carbon dioxide levels in 2010 that are 14-17 per cent lower than in 1990.

However, in the longer term delivering our targets set in the White Paper in 2003, which set out our priorities, will demand a lot more from us all.  

The global economy is set to grow by 40% by 2015 and India and China will represent a quarter of total world output - which in itself will have a huge impact on the environment. This means that we need to redouble our efforts to build on Kyoto.  Every country needs to play its part, including the USA.

The challenge for us is to ensure that we maintain our competitiveness against China and India, and other emerging economies - as well as meeting our environmental obligations.

At the same time, we in the UK are now moving away from self-sufficiency in oil and gas supplies to a world of increasing demand, higher prices and a general concern about future security of supply.

There's still a lot of oil and gas in the North Sea - but field is mature and new reserves will be increasingly difficult to get.  But we will continue to support this industry, it remains very important to us.

But more than that, almost a third of our power stations may need to be replaced in the next 20 years or so. We need to decide how we replace them in the next few years.

Without action to curb emissions, global average temperatures are expected to rise by between 1.4 to 5.8 degrees celsius and sea levels could rise by up to three feet during this century.

And by 2020 we will be dependent on foreign imports of gas, mostly from the Middle East and Africa and Russia

That's why the as PM has said we've got to redouble our efforts to find a sustainable solution.

The size and complexity of this challenge is precisely why from the outset the energy review has been about both supply and demand for energy. You can't look at either in isolation.

Carbon reduction is both a function of a decarbonisation - that is moving from fossil fuels to renewables or nuclear for example, and of reducing demand for energy especially from carbon intensive sources. Both are crucial.

On the supply side, that means for example, renewables will continue to be essential.

We have already provided £500m for development of renewable and low carbon technology and in June last year, became one of only eight countries around the world to have installed 1.6 gigawatt of wind capacity. Enough to power nearly 1 million homes with electricity for an average year.

We are helping to bring on more small-scale renewables as well. Recent research has shown that micro-generation could potentially provide a third of Britain's total electricity by 2050, generating household CO2 reductions of more than 15% a year.

Geo-thermal generation too can be exploited far more via the use of ground source heat pumps. As part of the low carbon buildings programme, this an other micro-generation technologies received and extra £50 million in the budget, taking the programme to £80 million in total

We also need to look more into the generation of energy at sea - wave energy and tidal. This is yet  undeveloped and I think we can do a lot more. We have already made a start by improving the consents process for demonstration projects and putting £50 million in to the Marine Renewables Fund.

And we have within the last year we have provided other measures to reduce carbon emissions such as Carbon Abatement, biomass, hydrogen and fuel cell development. And we have also been one of the driving forces behind the EU emissions trading scheme.

We need also to have a grown up debate about planning processes. Accepting, for example, that electricity needs power lines to get to where it is consumed.

We need to continue to develop low carbon energy technology and ensure the distribution system is up to the job of handling tomorrow's energy mix.

Even if we exploit renewable technology to the full, it will not be enough. Not least because its supply is intermittent.

There remain many challenges for the renewables market but we are committed to making it a success. Renewables will play an essential part in tackling climate change and maintaining a diverse energy mix.

So we must also consider the contribution which other section of the industry can make.

The review is also considering the role of coal - especially clean coal, gas because it will play a very significant part  and nuclear power.

Nuclear cannot be ignored.  It generates a substantial part of our electricity now - much of it baseload.

Yes - there are problems - waste for example. This is something we've got to deal with and will be looking at further in the CORWM report.  So nuclear power has to be and is being considered as part of this review.

Meeting our challenges is not just a question of new technology and energy supply, but also ensuring a substantial reduction in the demand for energy.

Actually energy efficiency is a safe and cost effective way of meeting our energy policy goals.  But on its own it is not nearly enough, but it is nonetheless essential.

Whilst increased energy efficiency cannot make finite natural resources, like oil and gas, last forever, it can help maximise the resources remaining, reduce carbon emissions and improve security of supply by minimising the need to rely on imported energy.

And efficiency moves the climate change and energy debate away from International organisations to the  choices we as individuals are making every day.

Just over a quarter of the UK's annual carbon emissions come from the energy used to heat and light our homes. But it is estimated, for example, that over 10 million homes in the UK have insufficient insulation - that's nearly 40% of all homes.

So 40% of all heat lost in the average home just disappears through the roof and walls. This is enough to heat three million homes for a years. Making the average home responsible annually for more carbon dioxide than the average car (and yes, transport too needs to make its contribution).

We need to do more to increase awareness about the true costs to consumers of their energy use and tackle the misconception that making changes will be too difficult or expensive.  

This was why the recently published Climate Change Programme included £20m of funding over the next two years for a major new initiative to increase uptake of energy efficiency measures.

So reducing demand is essential. It will also help tackle problems caused by higher prices.

The Government's aim is to eliminate fuel poverty in all vulnerable households by 2010 and to remove all households from fuel poverty by 2016.

And of course people on low incomes, cannot afford to insulate their homes.That's why we are helping people on low incomes to reduce the amount of energy they consume.

If we can reduce energy demand - in absolute terms - we could reduce the need for some of new power stations that we will otherwise need, with carbon emissions and energy security benefits.

And it is demand reduction, not just energy efficiency has to be our real goal. Energy efficiency is in fact just a means - the real end has to be to reduce demand. We have to continue to do this but on its own it is not enough.

That's why we need:

• Lower energy use
• Lower carbon emissions
• Lower cost to the economy through lower prices

An achievement like this would be huge.  But the scale of such an ambition is equally large.

We need to think radically about how we do this.  When we talk about demand reduction, up until now we have put the onus mainly on individuals.

There are 60 million consumers in 30 million homes, many of whom are already using low energy fridges, installing low energy lightbulbs, making sure their lofts are insulated and their pipes lagged.  But many are not and will not - not because they don't care - its just human nature.

We need to improve the information available to consumers.  Most people want to be able to reduce their energy use to save money and do their bit for the environment.

Real-time information on the amount of energy being consumed by appliances and the cost to the consumer are now available.  And we are looking at how real-time displays can be extended.

We are also looking at the bills that consumers receive so that they can include information on how consumers are using energy and advice on how to make reductions.

We also need to look at how to transform the building industry.  Over 50% of carbon emissions come from buildings.  These emissions can be radically reduced through high-quality insulation, and microgeneration of energy through heat pumps and photovoltaics.

We should look at how we can move to all new homes becoming carbon neutral.  Over a third of the homes that will stand in 2050 have not yet been built so improving the standards of new homes could make a major impact on emissions.

We also need to look at the role of public procurement in reducing energy demand. 

The UK's energy suppliers have already made successful a pioneering scheme to deliver energy efficiency in the home through the Energy Efficiency Commitment. This requires electricity and gas suppliers to promote energy efficiency improvements in the home.

And by 2011 this will be delivering carbon savings of over 1 million tonnes per year.

Across Europe we need greater efforts to reduce energy demand. No country has yet succeeded in breaking the link between GDP growth and the demand for energy, at best they have stabilised energy demand or reduced it slightly.

In the UK we have succeeded in stabilising energy demand over past few years, emission reduction that we have achieved so far has been through energy efficiency. But we risk seeing an increase in energy demand to meet projected growth in GDP.

But we need to ask not only what we as consumers can do but what the producers can do possibly more effectively.

We need to transform the energy market.  We need to turn conventional wisdom on its head. 

Today companies have the incentive to sell as much as they can and our inefficiency unintentionally creates more demand for energy.

So why not give producers incentives to reduce demand - get companies to insulate to make homes more energy efficient.

So we are looking at how to create a shared incentive between consumers and energy suppliers to reduce energy use.

We must look at how we can change from just selling units of electricity to providing energy services - heating and lighting homes - making it their business to increase energy efficiency and cut demand.

If we're going to reduce demand we need to turn current thinking on its head and put the incentives on the power companies to reduce demand. Not just to supply your electricity, but perhaps to supply insulation, double-glazing or other things that save us from wasting energy.

Energy supply companies that deliver outcomes such as heat and light and earn profits either through efficient supply of energy or reducing demand.

It can be done.  But the regulatory and business model needs to change.  It will take time but we're already talking to the industry about how we can do this.

Across all industrialized countries, economic growth and rising energy demand have gone hand in hand.  This model is increasingly unsustainable, economically and environmentally.

So it is time we asked ourselves if we can go further.  Whether we can sustain economic growth while reducing energy demand in absolute terms.  This would be  a major achievement, it will also be a major challenge.