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Malcolm Wicks MP, Minister of State for Energy
Lehman Brothers, Canary Wharf, London, 05 April 2006
First, can I begin by thanking the organisers and our hosts for the opportunity to speak today. I would also like to thank the Royal United Services Institute and the Westminster Energy Forum for establishing their joint energy security programme and the range of highly relevant and informative conferences and seminars. As I’m sure you know, I’ve spent the last few weeks encouraging everyone to attend events like this and debate the issues as part of the energy review consultation.
The consultation, and the review itself, is about tackling the major challenges that lie ahead. Since 2003 there have been substantial changes to both the national and international context of our energy strategy.
First – the need for us and other countries to do more on emissions. We know much more has to be done if we in the UK are to meet our goal of a 60% cut in CO2 emissions by 2050.
Second - prices have been rising worldwide. Fossil fuel prices have gone up by more than 50% in the last three years and these increases are now feeding through to the UK – impacting on our competitiveness, and making it harder for the poorest to heat their homes.
Third - we are set to lose 30% of our generating capacity over the next 15 years as coal and nuclear plants close.
And finally – there are increased concerns about global energy security. We are already a net importer of gas. Soon, we will be a net importer of oil. We need to think through the implications of this carefully.
We have seen recent examples of some of these implications: supply disruptions, emerging trends in the pattern of global energy supply and demand and the impact of non-competitive markets in the EU.
The challenge of how we deliver secure, safe and sustainable energy for the next generation is one of the major political issues of our time. This is one of the reasons why we launched a review of our energy policy in the UK. We need to ensure that the UK has reliable, diverse and affordable supplies of energy; create the conditions for investment; and manage the risks posed by monopoly suppliers and political instability. As these complex, global challenges emerge, we need a long-term strategy to help navigate through them.
How can governments, individually and collectively, respond to these challenges?
To start, we need to recognise that energy security is less about the availability of resources and more about accessibility and for that we need to create the right investment conditions.
And the investment requirements are huge: we are all familiar with the International Energy Agency’s figure of 17 trillion US Dollars between now and 2030. The question is whether this investment will be forthcoming.
We have also seen our markets respond to our transition to being a gas importer. Acting commercially in a market environment and responding to market signals.
Energy companies are making huge investment in the infrastructure needed to import and store gas and in upgrading the national electricity distribution networks. And proposals for new electricity generating capacity are coming forward as well
Governments should not get in the way of the process, blunt or distort the signals coming out of the market.
Government sets out its energy, environmental and social goals and then allows the markets to play to their strengths in delivering these goals in the most economically efficient way. The liberalised market has nothing to fear from this review. We have seen huge benefits from market liberalisation. Our prices have been amongst the cheapest in Europe for the best part of a decade.
But there is a role for governments in setting frameworks domestically and internationally. Domestically we must be sure that our regulatory and consents frameworks are clear and stable. We should not change these frameworks unnecessarily; it should be for good public policy reasons and through transparent processes.
We must also make sure that our investment frameworks are open, and non-discriminatory. What does non-discrimination mean? It means that wherever in the world the best human and technological capital is located, it should be allowed to get on with the job of extracting, producing and trading energy.
We have the tools to hand. We have numerous international institutions and mechanisms for instance, the Extractive Industries Transparency Initiative – EITI – and the Energy Charter Treaty. Multilateral agreements that set out transparent rules for energy trade, investment and transit, are an important way to provide certainty. We must continue to push for the application of such agreements – this is a core UK objective at the G8.
We need to build new relationships to enhance diversity. Not just in the type of energy we generate, but in the countries our fuel comes from. £10 billion of investment from the private sector is already bringing. We need to make sure that new gas import and storage infrastructure to the UK arrives in time – and is reliable, responsive and comes from a range of sources
We know that certainty is vital. Business won’t invest in the kind of energy efficient infrastructure and power stations that we need unless they’re confident about policy frameworks, such as Emissions trading schemes, continuing well into the future.
And we know that competition is vital. The UK has the most competitive energy market in the European Union. But other member states have yet to put liberalisation into practice. Following the European Council held at Hampton Court during our Presidency, the Prime Minister agreed with other Heads of State that we needed an Energy Policy for Europe. The Commission has now responded to this by publishing a Green Paper on a European Strategy for Sustainable, Competitive and Secure Energy.
The Green Paper identifies the challenges Europe faces on energy - our rising import dependency, rising global demand, rising prices and the fact that the European Union has not yet fully developed a competitive internal energy market.
It prioritises the completion of the internal energy market - ‘sustainable, competitive and secure energy will not be achieved without open and competitive energy markets’.
It highlights the need for market information and transparency to allow all market actors to reach a common understanding of EU and international infrastructure needs.
It calls for more effective unbundling and the development of consistent regulatory frameworks in regional markets as a first step towards creating a true single market. And it calls for a coherent strategy that engages Russia and other major energy providers and transit countries, in order to secure diversity of energy suppliers and supply routes.
The UK will continue to support the reform of international energy markets and the Commission’s efforts to bring this about.
In its external relations, the EU can achieve a collective influence that we would not have at individual state level. This was evident during both the EU-OPEC dialogue meetings and EU-Russia Permanent Partnership Council on energy last year.
With energy interdependence increasing, the deepening producer-consumer dialogue – both at a bilateral and multilateral level - is important in promoting greater market stability, transparency and understanding.
But we need to articulate very clearly what we mean by consumer-producer dialogue – it isn’t about managing markets, it isn’t about managing prices. It is about enabling price signals to work – either to bring forward more resources, or to stimulate the development of new technology.
It is about enabling markets to work at their most efficient. And such international co-operation is essential if we are to absorb shocks to the market. Last year the market had to react to the disruption caused by hurricanes Katrina and Rita. The multilateral, co-ordinated response, led by the IEA, helped to cushion the impact on the market.
The International Energy Forum in Doha in April represents the most important mechanism in the global producer-consumer dialogue. The biennial event is the largest gathering of energy ministers, commercial operators and multilateral organisations. Energy security will be the central theme at this year’s meeting. I will lead the UK delegation to the Forum and one of the things I will be pressing for will be more reliable market information.
Consuming countries have responsibility to give reliable information about factors which may affect their energy use.
Producing countries also have a responsibility; to give information about the availability of natural resources; likely investment in extracting resources and in their transportation. In both cases, there is a question about whether there is sufficient information and whether there is sufficient information and whether it is detailed enough.
How can we tackle this challenge? Well, take JODI, for example, the Joint Oil Data Initiative. This is a simple idea – to provide regular data on oil stocks, oil production and oil demand. We shouldn’t underestimate the importance of this kind of information to the market.. The project is important partly because it encourages us to ensure that data for international use can be compared easily and accurately. JODI covers oil. But what about gas? The IEA projects that demand for gas will grow faster than any other fossil fuel, largely because of its environmental benefits relative to coal. We need to publish the right level of data; at the right time; and widely enough for it to be useful. If we can get that balance right, private sector companies participating in the market should be well-placed to judge business opportunities.
Energy efficiency could be an important contributor to energy security - energy saved is less energy supplied. Much can be achieved simply by more thorough application of existing technologies. Innovation will make a vital contribution in the areas of emerging renewable energy, you might have seen I recently published a strategy for microgeneration, putting energy supply in to the hands of the individual, energy efficiency and cleaner technologies. And in competitive, open markets, innovation thrives.
The Gleneagles Plan of Action agreed a package of practical measures on energy efficiency, clean power generation, R&D networks and financing. We look forward to the next Ministerial meeting in Mexico in the Autumn.
To summarise. We need to promote competitive energy markets, identify supply risks, understand demand issues, and improve energy efficiency, to reduce energy poverty, improve energy security and to work towards a global approach to achieving a sustainable lower carbon future. The UK simply cannot deliver all of this alone. These issues are fundamental to our economy and way of life. Few policy issues could be more important.