Private sector innovation — with powerful profit opportunities — is the only national and international driving force that can deliver affordable decarbonisation successfully, says Energy and Climate Change Secretary, Amber Rudd. Jon Herbert considers the implications.
With a series of deep environmental spending cuts announced hot on the heels of May’s general election, as well as accusations of vandalism destroying a decade of hard work that made the UK’s renewables industry “almost competitive”, the Government might be expected to be on the back foot over its green energy policy and global climate change ambitions.
Not so, according to Secretary of State for Energy and Climate Change, Amber Rudd.
In a recent keynote policy speech designed to set the tone for the current Parliament and beyond, she has laid out a long-term plan for global transition to efficient green energy.
This will also be the UK message at December’s UN Climate Change Conference in Paris where Britain will actively encourage the world to use sustainable energy — but less of it overall — with the private sector in pole position.
In short, climate risks are as great as ever. Government goals remain the same. Subsidies are out. Enterprise is in. The business prospects are simply too good to miss.
From the point of view of boards and managers in thousands of firms, ministers are handing over the reins for them to seek out viable competitive opportunities in world markets.
Unchanged environmental targets
Despite Greenpeace accusations that the Government is reneging on its 2010 boast of being “the greenest government ever” and becoming instead the “greyest government ever”, Amber Rudd has stressed that climate change is not only a direct environmental threat but one of the UK’s greatest long-term economic risks.
Whether the Government’s post-May cost-cuts are pragmatic or ideologically motived is likely to be a recurring debate.
However, the Energy Secretary pointed to hard evidence that energy use, emissions, energy efficiency and economic growth have all improved.
Where the Government now takes a very different line to its critics is that only private enterprise can deliver global solutions at a cost that the world economy can afford. It adds a further caveat that change can only come at a realistic practical pace.
Cuts and cost saving
Recent cuts have been withering. They include the end of onshore wind and largescale solar energy subsidies, reduced anaerobic digestion development funding, abolished zero-carbon housing rules, lower pollution taxes, no further discounted vehicle excise duty for greener cars, a clean energy tax, and most recently an end to Green Deal funding (Green Deal Finance Company).
Friends of the Earth head Craig Bennett accused the Government of “spending the last few weeks dismantling an architecture of low-carbon policies carefully put together with cross-part agreement over the course of two parliaments”.
Greenpeace head John Sauven added, “We are deeply shocked by the vandalism of the Government, which appears to be driven totally by ideology.” He went on to say that “they are destroying the UK renewables industry just at the point where it’s almost competitive — it’s madness”.
Even the CBI has warned that the changes are “creating massive uncertainty and risking inward investment into the UK”.
Ms Rudd has outlined an alternative scenario in which ministers provide the framework for private enterprise to do what it does best.
“Government can set the direction, set the vision, set the ambitions. We can create the framework, create the rules, provide the support, predictability and stability needed,” she says.
“But that support must help technologies eventually to stand on their own two feet, not encourage a permanent reliance on subsidy.”
There are encouraging reasons for optimism, she added. For the first time in 40 years, global economic growth has risen without an increase in energy-related carbon dioxide (CO2) emissions — a trend seen in the UK.
Provisional figures also show that UK economic growth grew by 2.6% in 2014 while CO2 fell by 10%.
In terms of energy efficiency, the UK economy now uses less energy for every pound sterling earned — even after temperature adjustments. During 2014, energy intensity in the economy fell by 5.6%, the largest drop in 10 years.
These will be a vital part of the message in Paris. The old link between growth and fossil fuel burning has been broken — a key argument in convincing developing nations that the December agreement is designed to help them to leap forward economically, socially and commercially.
Aware of the threat
Not that the climate change threat can ever be underestimated — a point made in a new climate risk assessment commissioned by the Foreign Office and published recently by the University of Cambridge. It warns that if anything we have undercalculated the economic risk of climate change on everyone’s lives.
The Economist Intelligence Unit and the Bank of England (BOE) have issued similar messages of late. The BOE’s One Bank research programme identifies significant climate change effects on financial markets and institutions that affect everybody, says Ms Rudd.
Therefore, the Government’s focus has to be not only responsible climate change action but also economic security.
“If we don’t act, it will become increasingly hard to maintain our prosperity, protect our people and conserve out countryside,” she said in her speech, adding that the economic impact of unchecked climate change would be profound in terms of lower growth, higher prices, a lower quality of life, as well as flooding risks for many properties and businesses during extreme weather.
“So I see climate action as a vital safety net for our families and businesses. Protecting our homes, our livelihoods, our prosperity. It is the ultimate insurance policy,” explained Ms Rudd. “That is why we are committed to meeting our climate targets.”
However, she added that it is important to “act in the right way by backing businesses and helping them grasp opportunities that clean growth represents — we actually improve our economic security, improve our prosperity, improve our way of life.”
A market-led approach, free enterprise and competition can force down climate change costs, and specifically the development of new technologies, she argued, with business “recognising the opportunity for growth, and yes profit too, that a clean economy represents”.
To emphasise the point — and debunk the idea that climate change is a left-wing concept and “some sort of cover for anti-growth, anti-capital, proto-socialism” — the Energy Secretary added, “Just like at home, the global low-carbon economy needs to be a profitable economy of entrepreneurs, competition, opportunity and growth.”
She noted that the Coalition Government also created the Levy Control Framework to support the development of renewables, nuclear, biomass and emerging technologies such as carbon capture and storage. By 2020, this will have provided some £40 billion to fund a clean energy boom.
Renewables alone are on course to supply more than 30% of the UK’s electrical power by the same year, up from 7% in 2010.
However, the levy is a capped pot paid for by households and businesses through their energy bills. The Government therefore sees it as its duty to keep both bills and emissions as low as possible, says Ms Rudd. This means firm control of subsidies and the tough decisions that have recently been seen.
Pace the race
Meeting these combined goals means making progress in pace with other world changes, the Secretary of State claims.
“Globally, the pro-growth, pro-market, business community has seized the climate change agenda. The last 10 years has seen a dramatic boom in global clean energy investment. Renewables accounted for nearly half of all new power generation capacity in 2014 with investment reaching $270 billion.
“The latest report from the New Climate Economy Commission published this month tracks the positive developments. Green bond investments tripled in the last year. Forty countries have adopted or are planning carbon pricing.”
She added that more than 150 multinationals, including oil companies, are using carbon pricing to guide their investment decisions. One of the most positive developments is the growing momentum to phase out inefficient fossil fuel subsidies that encourage consumption.
“As the Prime Minister told the UN last September, these fossil fuel subsidies are ‘economically and environmentally perverse’. The IEA have estimated that globally they run to almost $550 billion a year.
“The UK does not subsidise fossil fuel consumption, and we are working with the G20 and others to bring them down. International action needs to be well co-ordinated and ambitious, which is why I am looking at ways of taking this forward.
Ms Rudd used her speech to announce that the UK will be backing the Friends of Fossil Fuel Subsidy Reform Communiqué launch in Paris.
“All this pro-growth, pro-business climate action is now bearing fruit,” she added.
Clinching a global climate deal in Paris is one of Ms Rudd’s highest priorities, with three important caveats: first, the deal must keep world temperature rises to no more than 2°C; second, legally-binding international rules are essential to ensure compliance and confidence; finally, the UK wants regular five-year reviews so that climate ambitions can be raised to take advantage of lower renewable energy costs and advances in technology.
“By doing that, we will change investment incentives and unleash the private sector to lead the transformation that we need,” she concludes.
So far, the EU, USA, China, South Korea, Mexico, Russia and Canada are among 46 countries than have already made Intended Nationally Determined Contributions to lower carbon levels. Australia, Brazil and India are expected to follow.
Climate finance is important too. The UK is playing a leading role in supporting private sector investment in developing countries.
First published by Croner-i on 31 July 2015