3 March 2011
- Check against delivery
In autumn 2000, more rain fell on England and Wales than at any time for 230 years. 10,000 homes and businesses were flooded.
In 2003, a heatwave gripped Europe. Drought and wildfires put health services and national infrastructure under huge pressure.
In 2004, research suggested human action had doubled the risk of a European heatwave.
Using new methods, researchers found that human greenhouse gas emissions may have roughly doubled the chances of the autumn 2000 floods.
- Costs of climate change
The floods in 2000 cost the UK insurance industry £1.3 billion. Since then, the cost of flood damage has tripled compared with the previous decade.
In 2009, the Association of British Insurers said – and I quote – ‘our assessment of climate change convinces us that the threat is real and is with us now’.
- Global deal
Of course, the UK is responsible for fewer than 2% of the world’s carbon emissions. But this does not let us off the hook. The consequences of climate change will not respect our borders.
That is why we must do everything we can to secure a global solution.
For the first time, both developed and developing countries made a political commitment to cut emissions below their present path.
The agreements at Cancun prepared the ground for a global deal on climate change. But we must be realistic: this will take time.
Why am I so confident?
Because around the world, there is too much invested in tackling the problem.
It would be crazy not to prepare for a low carbon future.
- The future is here
In 2009, the world’s biggest energy consumer poured $34 billion into its low-carbon economy.
China will build 24 nuclear power stations in the time it takes us to build one. By 2020, their nuclear capacity will have increased tenfold.
They will lay 16,000 kilometres of high-speed rail track in the time it takes us to go from London to Birmingham.
- Saving energy
First, it does not waste energy.
We have the oldest and least efficient housing stock in Europe. We use more energy heating our homes than Sweden, which is nearly 5 degrees colder on average.
Our homes may be our castles. But they shouldn’t cost a king’s ransom to run.
Across the country, boilers are firing up earlier than they need to. Burning more gas than they have to. Producing more emissions than they should do.
And all because our homes leak heat and waste carbon.
A quarter of the UK’s carbon emissions come from the home. Our housing stock is costing us the earth.
That’s why the Green Deal is our flagship programme. It’s a self-financing home improvement scheme to bring our houses into the 21st century.
Householders will pay nothing up front. Businesses will do that for them, getting their money back from the savings on energy bills not just from the present occupier but from the next tenant or owner as well. And the Green Deal will be targeted at trigger points – like when people move home and do lots of work anyway – to encourage uptake.
Right across the country, homeowners and tenants will get deep energy efficiency improvements without having to front up the cash.
From 2012 onwards, when the Green Deal begins in earnest, energy saving packages worth thousands will be installed in millions of homes.
And there will be a subsidy for hard to heat homes, and those in fuel poverty. No-one should fear winter – or winter energy bills. We are determined to tackle the root causes of fuel poverty, not just stick plasters on the symptoms.
And we are looking at how we can apply the Green Deal model to businesses, too – enabling them to cut carbon, and cut costs.
It is the most comprehensive energy saving plan in the world. There has never been anything quite like it.
Have no doubt: this can make a real difference. Heating is the second biggest driver of energy demand in Britain.
And British Gas research shows that householders who put in energy efficiency measures cut their gas consumption – and their bills – by 44%.
Better insulated buildings will do much of the work for us. But we must also look at renewable heat technology.
- Electric future
So the first principle of the low-carbon economy is that it saves energy.
The second is that it will be overwhelmingly electric.
In the low-carbon economy, we will turn to the grid to heat our homes and charge our cars.
- Meeting demand
By the end of this decade, the UK must cut our carbon emissions by 34% on 1990 levels.
We must generate 15% of our energy from renewables by 2020, up from 6.7% in 2009.
With long lead-in times and high capital costs, we must act now to secure a low-carbon supply.
- The portfolio approach
No-one knows what the most successful low carbon technology will be in thirty years time.
The only way to keep the lights on and the skies clean at the lowest possible cost is to build an energy portfolio.
- Prepared for the future
At one end may be a world where fossil fuel prices are exceptionally high. In that scenario, we could rely more on renewables and nuclear.
At the other end of the spectrum, some argue that plentiful gas from unconventional sources will cause gas prices to tumble. Then we might need an energy mix with more clean gas, with carbon capture and storage.
- Open options
Our policy is about keeping our options open between technologies, but ensuring that we are on the road to the low carbon economy. We have set a direction; we will let innovation get us there.
Funding innovation and research, in DECC and in the business and transport departments.
- EMR
And through our consultation on electricity market reform, which sets out how we will encourage low carbon investment, guarantee security of supply, and provide British consumers with the most affordable electricity.
- Cost horizons
It is difficult to overstate the scale of the investment challenge. Ofgem estimates we need £200 billion of new investment over the next decade to secure our supply as our ageing nuclear and coal power plants shut down.
Nick Stern estimated that the overall costs of avoiding dangerous climate change at no more than 2 per cent of GDP by 2050. So if our economy doubles in forty years, that means a 98 per cent increase instead of a 100 per cent increase. It would barely be noticeable.
Even that calculation depends on other factors.
If we relied on oil and gas, and their prices were around $80 a barrel and its equivalent for gas, then consumers would pay more under our policies – about an extra 1 per cent on their bills by 2020.
But the oil price reached $100 a barrel in January, which just happens to be the point at which our economists calculate the British consumer breaks even. And the oil price, as we see, could well be higher.
In the medium term, the US Department of Energy forecasts $108 a barrel by 2020.
If oil prices continue on this trend, and gas prices rise to meet them, then our consumers will be winning hands down.
Paying less through low carbon policies than they would pay for fossil fuel policies.
- Green economy
I asked economists at DECC to look at how a 1970s style oil price shock would play out today. They found that if the oil price doubled, as from $80 last year to $160 this year, it could lead to a cumulative loss of GDP of around £45 billion over 2 years.
- Opportunities too
This transition to the low carbon economy does not just protect against the threats. It opens up a world of opportunity.
The global low-carbon market is worth more than £3 trillion. It is projected to reach £4 trillion by 2015. The UK share of that market is currently worth more than £112 billion. It could be much larger.
As the Green Deal kicks in, it will bring a significant economic boost, driving growth in manufacturing and supply chains across the country.
The number of people employed in insulation alone could soar; from 27,000 now, to 100,000 by 2015 – eventually rising to a peak of 250,000.
The International Energy Agency predicts the world will need 3,400 new coal and gas plants by 2050 if we are to keep global warming below 2 degrees.
- Low-carbon leaders
We want to see a much stronger emissions target. Instead of a 20 per cent cut in emissions by 2020, we should aim for a 30 per cent cut.
Two years ago, we had already made it to 17 per cent. Going to 30 per cent will add just 11 billion Euros to the costs that were originally estimated of going to 20 per cent. In an economy the size of Europe’s, that’s small change.
The faster we move, the bigger and better our low carbon industries will be, and the greater the share of that expanding world market. Clear green signals will spark more green investment.
- Conclusion
We must be realistic: rebuilding our energy infrastructure and rebalancing our economy will take time.
But it will come. And in the long term, getting off the oil hook will make our economy more independent, more secure and more stable.
Carbon emissions are down. The international negotiations are back on track. The Green Deal is on the way. We are rebuilding our electricity market. Green growth is here to stay.
The transition to the low-carbon economy is underway.