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Climate Change - The Energy Challenge

The Rt. Hon. John Hutton MP,  Secretary of State for Business, Enterprise & Regulatory Reform
International Symposium on Sustainable Development, Tokyo,  06 November 2007

Good afternoon. I am honoured to speak to you today. And I would like to thank Nikkei BP for giving me this opportunity to talk about climate change and energy security.

As the British Minister for Business and Energy, ensuring clean, secure and affordable supplies of energy is of paramount importance to me. I believe this is also the key energy challenge for the next ten to fifteen years.

The problems we face are reported in the media every day. High, and rising, fossil fuel prices. Getting oil, gas and coal out of the ground and to consumers is a constant technical challenge. The costs of extraction and exploration are rising sharply. Prices are highly volatile. Demand is rapidly increasing. And climate change is now a reality.

So we also know that if we are to achieve long term environmental sustainability, our future energy supply has to be low carbon. That is why we need to increase all of our options through the expansion of renewables and faster deployment of safe and secure low carbon technologies.

A year ago, former Chief Economist at the World Bank, Nicholas Stern published an independent review of the economics of climate change.

He concluded that the scientific evidence was now overwhelming. Climate change is a serious global threat that demands an urgent, collective global response.

He was clear that the benefits of effective, early action on climate change far outweigh the costs. And that ignoring these issues could have serious consequences for economic growth, development, and the future existence of our planet and its people.

But Stern also emphasised that tackling carbon emissions can bring real economic benefits. IEA figures show that investments in cleaner energy would pay for themselves while simultaneously enhancing energy security and creating new employment opportunities.

The International Energy Agency's World Energy Outlook, to be published tomorrow, is likely to confirm that emissions are increasing rapidly and that governments need to take urgent action to tackle climate change.

In the UK, we believe a failure to tackle the issues of climate change and energy security would put at risk the future prosperity and peace of all countries. It threatens our environment and will limit the life chances of the generations that follow us.

In the first-ever debate on climate change in the UN Security Council, earlier this year, the potential consequences were clearly set out: flooding, disease, famine, drought and crop-failure. And flowing from that - increased human migration, with competition intensifying amongst nations for food, water and energy.

The science is no longer in doubt. Time is short. And it is clear we have to act now for both environmental and economic reasons.

How successfully each country makes the transition to a low carbon economy, while ensuring reliable, affordable energy supplies, will help determine its economic success, social well-being and security in the future.

And this transition offers huge opportunities for business which is why I think today's event is so important.

Japan has a great deal to teach the rest of the world on this subject.

Since the 1970s, Japan has built a record on energy efficiency which is second to none. Efficiency has improved by 35% and you are aiming to improve by another 30% by 2030. You are a world leader.

As the world's second largest economy, you are also home to many of the most innovative, knowledge driven companies. Your industries have led the way in the development of low carbon technologies.

By developing products such as hybrid vehicles and photovoltaics, you are contributing to global emissions reduction. You have shown it's possible to take care of the environment and still ensure strong economic growth

And with the Cool Earth 50 initiative, Japan has once again shown international leadership, proposing a global goal of a 50% cut in emissions by 2050. I think this is a tremendously encouraging step. But the question for all of us is will it be sufficient?

In the UK, we have been setting ourselves challenging targets too. Over the last 10 years, we've increased our GDP by nearly 30%, whilst reducing our emissions of greenhouse gases by almost 7%. That's evidence of real progress.

The goals agreed at this year's EU Spring Council a 20% reduction in greenhouse gas emissions, increasing to 30% if our international partners like Japan join in; a central role for emissions trading; and a 20% sourcing of renewable energy supplies by 2020 are all very ambitious goals.

The objective of these decisions was to set Europe on the fast-track to becoming the world's first competitive, energy-secure low-carbon economy.

In the UK, we have three pieces of legislation in development, which support this aspiration the Climate Change, Energy and Planning Bills. All are linked and designed to put in place the legal frameworks we need to achieve our long-term goals for dealing effectively with climate change and energy security.

For example, our Climate Change Legislation will impose a legally binding duty on the Government to set challenging 5 year targets to reduce the amount of carbon that is produced. We are the first country to take this step and it will drive our economy towards our domestic target of at least a 60% reduction in carbon emissions by 2050.

The Energy Bill tackles head on the issue of energy security. As our own oil and gas resources decline, the UK will inevitably become more dependent on imports. By 2020, for example, around 80% of our fossil fuels are likely to come from overseas.

But the measures set out in the Bill should ensure that electricity and gas consumption will fall significantly by 2020. This could help to bring down our gas import dependence by around 20% by 2020.

Amongst other measures, we also propose to strengthen the financial incentives to support renewable technologies, such as offshore wind. That will mean the percentage of renewables in our electricity generation tripling between now and 2015 to around 15%.

Much of this new energy is predicted to come from wind. It took 14 years for us to build the first gigawatt of power from wind energy in the UK, but only 20 months for the second.

But, of course, governments can't solve the challenges of energy security and climate change on their own.

The energy security that all businesses depend on can only be delivered by substantial private investment in the power sector.

The low carbon revolution we are seeking will only be achieved through an innovative private sector.

And the low carbon incentives for business are clear. Recent studies have shown that responding to climate change could be worth £30 billion to British companies alone over the next ten years. There could be a $500 billion world market by 2020.

The IEA estimates that something like $20 trillion will need to be invested in the energy sector by 2030. Much of this investment about $4 trillion - will happen in China alone.

This presents some great business opportunities, especially for countries such as Japan with historically close economic ties with China.

British business is very eager to grasp the low carbon agenda. They are urging the UK government to secure a strong international post-2012 framework on climate change and are shortly to publish their own report on why clean and green energy makes business sense. They want to be at the forefront of the low carbon revolution.

Globally, what is needed, perhaps, is the greatest public-private partnership of all time. It's clear that the companies who move early to invest in and develop clean energy technologies will be the companies that reap the most long-term competitive benefits.

Here in Japan we can find a number of examples of this kind of success, including a very competitive carbon capture technology, which could be used in demonstration projects all over the world.

And our two countries have been working successfully together. For example:

• Sharp Corporation will double its production capacity for photovoltaic modules during the coming year in North Wales.
• Yanmar with the help of a UK regional development agency (ONENorth-East) - will start the demonstration of Combined Heat and Power (CHP) by using 100 percent grade bio-diesel fuel for the first time in the UK.
• Rolls-Royce has established a laboratory at the National Institute of Material Science in Tsukuba last year to develop new high temperature alloys for turbine blades of more efficient engines.

I believe this is concrete evidence that the low carbon proposition makes business sense.

It also underlines that markets - both for energy and carbon are central to our strategy. Stern described climate change as the biggest market failure of all time. And in the UK we see properly structured, well-regulated markets as a significant component of our long term answer to climate change.

But, of course, markets function well by design rather than accident. They require Government and regulatory participation to build and sustain them. And to remove the barriers to innovation, so that entrepreneurs can deliver the solutions to meet our energy and climate change goals.

There are a number of areas where we need to take action. We need to speed up the adoption of the technologies that are most effective in cutting emissions. We must reward those who take action to reduce their emissions, and impose a cost on those who do not. Somehow, whether through tax, regulation, or cap and trade, we need to establish the principle that emitting carbon has a cost.

In the UK, we believe that legally binding carbon targets and an effective cap and trade scheme which establishes a price for carbon are necessary and will produce real emissions cuts in the most cost-effective way. We will continue to encourage the development of a market which sets an accurate price on carbon; ensuring energy prices reflect the true cost, including the environmental costs, of energy production and consumption. This will help the market send the right price signals to incentivise the adoption of climate friendly energy policies and technologies. And I agree that any such scheme has to be transparent, based on full and accurate information on emissions, and be free of unnecessary political interference.

We acknowledge, with respect, the Keidanren's voluntary emissions reduction programme, which is unique in terms of partnership with your government, its transparency and discipline. We know that in Japan these voluntary schemes can work, and work very well. But internationally, interest in mandatory cap and trade schemes is growing, as is the interest in linking domestic schemes together.

Indeed, last week in Lisbon, I attended the launch of the International Carbon Action Partnership, or ICAP as it is known. ICAP is aiming to link together regional trading systems such as the EU's trading system, US state-level schemes, and those in New Zealand and Norway.

It was clear to me in Lisbon that we now have a powerful and growing coalition of states, countries and regions driving forward with this approach. We firmly believe that Japan can also significantly benefit from trading given your high domestic mitigation costs.

The UK and Japan share some common goals for international action and our countries are working together closely to achieve them. That is why earlier this year, former Prime Ministers Tony Blair and Shinzo Abe signed a joint communiqué for Japan and the UK to collaborate on climate change and innovation.

We share a similar target for long-term global emissions reduction - at least a halving of global emissions by 2050, as outlined in "Cool Earth 50". We warmly welcome Prime Minister Fukuda's intention to take that initiative forward.

We also share the aim of taking all major emitters on board in the post-2012 framework. We appreciate Japan's efforts in working with China, India and other Asian countries to promote deployment of energy efficient technologies. This will be an essential building block on which future action will be based.

We should also be mindful of how fast the US is moving. Action at the federal level is central - but so too is the strong drive towards carbon trading on both Capitol Hill and in state-capitals. And as I found on my recent visit to California, US businesses are at the forefront of developing low-carbon business opportunities. They have no doubts where the momentum lies.

So I think this symposium therefore comes at an important time for the international negotiations on climate change, as countries gather at the UN conference at Bali in a few weeks' time.

The prize is a new, comprehensive global climate change deal with all major emitters playing a part to come into force from 2012.

So Bali will be a crucial moment for the world. The governments of the world will be judged on their ability to show that they understand what is needed: setting out clearly a path from Bali to a global and comprehensive agreement, rooted in the UN Framework Convention, on a post-2012 framework that will avoid dangerous climate change, and to do all that by December 2009.

The final deal will have to be ambitious. There is simply no point negotiating an agreement that will not avoid dangerous climate change. The UK strongly believes that we have to agree to reduce global emissions to at least 50% below 1990 levels by 2050.

To conclude, recent Nobel Peace Prize winner, Al Gore, has described climate change as a "true planetary emergency." No one country can deal with this emergency on its own. It demands that governments and businesses work together.

Progress is being made by those willing to take risks and to be creative. But more can and must be done.

Genuine opportunities exist to succeed in energy and carbon markets for businesses with the imagination and innovation to make the most of them.

The UK and Japan must as part of an international effort lead the way in moving to a low carbon economy and take action to secure clean, reliable energy supplies.

The window of opportunity to prevent dangerous climate change is closing rapidly. The time for action is now.

And we can be certain of this too: the cost of success will be smaller than the price we'll pay for failure.

Thank you.

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