It is vital that Britain prepares to provide far more of its own energy needs.

There is, as the managing director of Centrica said last week, “never a good time to raise prices”. Last week, the UK’s biggest energy company raised its gas prices by 18 per cent, and its electricity prices by 16 per cent. Centrica were following hot on the heels of Scottish Power with similar increases.

Winter may seem a long way off, but consumers are already feeling the chill as food and fuel prices erode household spending power. With 99 per cent of Britain’s energy supplied by just six companies, do not expect to find an easy escape.

Clearly, we must act. The first step is to understand the problem. Price hikes do not happen in a vacuum. They are symptomatic of fundamental ills in our energy system. Left untreated, they will return to damage our economy again and again.

Our fossil fuel habit leaves us hostage to global energy markets. The days of North Sea self-sufficiency are long gone. Today, we rely on imported fossil fuels to provide a third of our energy; in less than 15 years, it will be half.

This would not matter so much if we had a balanced energy portfolio where nuclear and renewables smoothed out volatile gas prices. But we are 25th out of 27 European countries for renewables, and have not built a nuclear power station since 1987.

Most of our electricity comes from gas-fired power stations, and 60 per cent of the world’s proven gas reserves are in Russia and the Middle East. Domestic bills track global prices. When wholesale gas prices rise, so does the cost of living in Britain.

Our ageing power stations also need replacing. Demand for electricity could double by 2050, as we opt for electric vehicles and heating. If we do not do something now, supply will not keep up and the lights will go out.

A quarter of Britain’s capacity will need replacing before the decade is out, as old coal and nuclear plants come to the end of their useful lives. It would not be safe, efficient or legal to prolong them.

Ofgem estimates that we need £110 billion of electricity investment by 2020. That is £30 million a day for 10 years – double the investment rate of the previous decade. It is the equivalent of 20 new power stations, together with the infrastructure to connect them to the grid.

This money has to come from somewhere. Not even the big six energy suppliers are big enough for the challenge. We need new blood in the electricity market. But businesses are not charities; they will not invest without a realistic expectation of return.

Inevitably, that will mean higher bills. If we were to leave the market as it is today, annual household electricity bills would rise by about the same amount as last week’s increase – about £200 higher by 2030.

What can be done? In the short run, we want consumers to take control. Energy companies must at present give consumers 30 days’ notice of price rises – rather than waiting more than two months before informing consumers that they are paying more for their energy. Ofgem calculates that consumers can save up to £200 a year by shopping around for the best deal. And just last month, I wrote to energy companies to ask them to provide better billing, letting customers compare their energy use – and the savings if they switched to cheaper tariffs.

For the most vulnerable consumers, such as the poorest pensioners, we are giving extra help. Our social discounts increase by 67 per cent compared with Labour. Nearly a million pensioners will benefit by £120 a year.

But we must also address the underlying problems of fossil fuel addiction and chronic dithering over investment. That is why the Coalition will today set out the most significant reform of our electricity market for 30 years. It will deliver secure, affordable energy for generations to come.

First, we will ensure the security of our energy supply by changing the way we contract for our back-up electricity. A “capacity mechanism” will make certain that when the nation’s kettles flick on at half-time, the system can cope.

Second, Chancellor George Osborne sent a clear message in the Budget that we should rely on clean electricity in future. His new carbon price floor will put a fairer price on carbon emissions and reinforce the underperforming EU scheme. This reduces uncertainty for investors, and provides an incentive to invest in low-carbon generation now.

Third, we will introduce a new system of long-term contracts to remove uncertainty and make low-carbon energy more attractive. Companies will be attracted to build new plants in our market because they will be able to plan for the price they will receive. Under our preferred option, if the market price is too low, they will get a top-up. But the good news for consumers is that if prices go sky-high, companies will pay back the difference.

Fourth, we will set a limit – an Emissions Performance Standard – on the pollution of carbon from new fossil-fuel power stations. This means that no new coal power can be built without a system to capture and store its carbon, but it will encourage new gas plants to keep the lights on in the short term.

Together, these reforms will secure our energy future. They will get us off the fossil fuel hook and on to clean, green and secure energy. Crucially, they will keep bills lower than they would be if we stuck with the existing arrangements.

Chris Huhne is Energy and Climate Change Secretary 

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The Telegraph 12 July 2011
 

With permission, Mr Speaker, I would like to make a statement on reform of the electricity market.

Since privatisation in 1990, our electricity market has served us well, delivering reliable, affordable electricity.

But in the years ahead, we face unprecedented challenges. The existing market was not designed to meet them.

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The Challenge

Over the next decade, around a quarter of our existing power stations will close, threatening the security of our electricity supplies.

Some £110 billion of investment is needed to replace them and to upgrade the grid. That is twice the rate of investment of the last decade, and the equivalent of 20 new power stations.

At the same time, demand for electricity could double over the next forty years, as the population increases, and we increasingly turn to electricity for heat and transport.

We also face ambitious carbon emissions and renewable energy targets, as we seek to build a cleaner energy future for Britain and the world.

To achieve our goals, we need to take decisive action now to increase low-carbon electricity generation – including nuclear, renewable energy, and carbon capture and storage.

None of these challenges can be met for free. We will have to pay to secure reliable, clean electricity for the future. And we cannot ignore the long-term trends in electricity prices.

Increases in wholesale costs and the carbon price are likely to lead to higher bills in the future, even without factoring in the huge investment needed in new infrastructure.

So it is vital that we put in place market arrangements that deliver this investment as cost-effectively as possible. The current electricity market is simply not up to the job. It cannot deliver investment at the scale and the pace we need.

Without reform, our reserve capacity – the power plants we can call on when demand surges – will fall to uncomfortable levels. We would face a much higher risk of blackouts by the end of this decade.

We would also be locked into a worrying reliance on fossil fuel imports, putting us at risk of rising and volatile prices. Consumers could end up paying more.

Mr Speaker, that is why I am putting before the House today a series of measures to reform the electricity market. Diversifying our generation mix, and boosting investment in secure, sustainable and home-grown low-carbon technologies.

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The Reforms

There are five key elements to our reforms.

First, the Chancellor announced in the Budget a new Carbon Price Floor, to put a fairer price on carbon. Reducing uncertainty for investors, and providing a stronger incentive to invest in low-carbon generation now.

Second, we will send a clearer message that low-carbon electricity is a key part of our future energy mix.

We will introduce a new system of long-term contracts, to remove uncertainty for both investors and consumers, and make low-carbon energy more attractive.

Contracts for Difference will be introduced for all forms of low-carbon generation. Lowering the cost of capital, and allowing clean technologies with high-up front and low long-run costs to compete fairly against traditional unabated fossil fuels.

This will build on the Carbon Price Floor, providing the additional clarity and certainty that investors need.

Third, we will introduce an Emissions Performance Standard, to send a clear regulatory signal on the amount of carbon new fossil-fuel power stations can emit.

This will reinforce the requirement that no new coal-fired power stations are built without carbon capture and storage, while ensuring that vital investment in gas can take place.

CCS is a key part of our plan to decarbonise electricity generation. It is the only technology that can potentially reduce emissions from fossil fuel-fired power stations by as much as 90%.

Fourth, to ensure security of supply in the future, we will introduce a new contracting framework for capacity, changing the way we secure our back-up electricity.

This Capacity Mechanism could mean centrally procuring capacity which is set aside from the market and used only when it is needed. Or it could mean a market-wide mechanism, in which all providers offering reliable capacity are rewarded.

Under both options, we plan to ensure fair and equivalent treatment between demand response, storage, interconnection with our European partners, and extra generation.

Shifting or cutting demand for electricity is likely to be more cost-effective than simply building more and more power plants. It complements our work to drive down demand through energy efficiency measures such as the Green Deal and Smart Meters.

Fifth, we will put in place transitional arrangements to ensure there is no hiatus in investment while the new system is set up. And we will create new institutional arrangements to deliver the reform package.

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The future

Mr Speaker, together these reforms will tackle the immense challenges facing the electricity market.

They will put in place the framework to deliver the capacity and demand side response we need to guarantee future security of supply.

They will encourage investment in proven low-carbon generation technologies such as nuclear power. And they will give investors confidence that there will be a market for electricity generated with commercial carbon capture and storage. Confidence that will drive investment in both demonstration and commercial CCS plants.
Six energy companies supply around 99% of customers in the UK. Alongside action by Ofgem to improve liquidity, these reforms will boost competition within the market.

And they will make the UK a magnet for low-carbon investment, generating jobs and growth. This will help energy intensive industries. However, we are also committed to bringing forward a package of measures to ensure our continued international competitiveness.

Finally, the reforms I have set out today will achieve our aims at least cost to the consumer, with bills for households and businesses likely to be lower and less volatile over the period to 2030 than if we had left the market as it is.

They will enable us to build a flexible, responsive electricity system. One powered by a diverse and secure range of low-carbon sources. En route to a cleaner, greener future.

Insuring us against fossil fuel price shocks. Ending 25 years of policy dithering. Keeping the lights on – and bills down.

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The roadmap

Mr Speaker, alongside the electricity market reforms, I am also publishing today the Renewables Roadmap.

For too long, discussion about renewable energy has focused on barriers. Now, for the first time, we have set out a detailed step-by-step plan to overcome those obstacles.

The Roadmap sets out a comprehensive action plan to accelerate the UK’s deployment and use of renewable energy. It puts us on the path to increase our renewable energy consumption fourfold by 2020 while driving down the cost over time.

Growth on that kind of scale will be challenging, but necessary. The Roadmap identifies 8 technologies that have the greatest potential for the UK – such as offshore wind, where we have abundant natural resource and already have the world’s largest market.

Subject to further value for money assessment, DECC is setting aside up to £30million over the next 4 years to support technology development programmes to improve the efficiency and reduce the costs of offshore wind.

With industry, we are setting up a Task Force to drive the work to achieve cost-competitive offshore wind. The recently published Microgeneration Strategy also outlines the actions that the Government is taking to tackle the non-financial barriers which could prevent microgeneration from realising its full potential.

Together, the Renewables Roadmap and the Microgeneration Strategy will reduce costs for consumers, and enable mature renewables to compete against other low-carbon technologies in the longer term.

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Ofgem Review

I am also publishing today the final report of the Ofgem Review.

The Review reaffirms the Government’s commitment to a strong, independent regulator able to give confidence to investors, protect consumers and help meet our energy and climate targets.

The Summary of Conclusions was published in May; this final report provides further detail on how the Government will seek to strengthen the regulatory framework.

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Conclusion

Mr Speaker, the package of reforms I have announced today will yield the biggest transformation of the market since privatisation.

They will create an enduring framework for future investment, and will secure our electricity supplies for the future.

Providing our consumers with the best deal possible. Helping us meet our ambitious carbon targets.

And putting us at the forefront of low-carbon technological development. Ready to lead the world in the next energy revolution.

I commend this statement to the House.

 

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• White Paper to bring about biggest reforms since privatisation
• Renewables Roadmap plots out actions to meet 2020 target

Coalition measures to keep the UK’s lights on and consumer bills down, and shift the economy away from a high risk, high-carbon future, have been unveiled today.

With a quarter of the UK’s generating capacity shutting down over the next ten years as old coal and nuclear power stations close, more than £110bn in investment is needed to build the equivalent of 20 large power stations and upgrade the grid. In the longer term, by 2050, electricity demand is set to double, as we shift more transport and heating onto the electricity grid. Business as usual is not therefore an option.

The Electricity Market Reform White Paper published today sets out key measures to attract investment, reduce the impact on consumer bills, and create a secure mix of electricity sources including gas, new nuclear, renewables and carbon capture and storage. The Renewables Roadmap published alongside this outlines a plan of action to accelerate renewable energy deployment – to meet the target of 15% of all energy by 2020 – while driving down costs.

Secretary of State for Energy and Climate Change Chris Huhne said:

“We have a Herculean task ahead of us. The scale of investment needed in our electricity system in order to keep the lights on is more than twice the rate of the last decade. The fact is that the current electricity market is not able to meet that challenge. Without action, there is a risk of uncomfortably low capacity margins from around the end of the decade and a far higher chance of costly blackouts.

“This package will keep the lights on and bills down. It will insure us against shocks from volatile parts of the world like Libya, and end the dithering about our need for new plant.

“We have consulted widely and we believe our reforms represent the best deal for Britain. They will get us off the hook of relying so heavily on imported fossil fuels by creating a greener, cleaner and potentially cheaper mix of electricity sources right here in the UK.

“A new generation of power sources including renewables, new nuclear, and carbon capture and storage, along with new gas plants to provide flexibility and back-up capacity, will secure our electricity supply as well as bring new jobs and new expertise to the UK economy.”

Key elements of the reform package include:

• the announcement in Budget 2011 that the Government would put in place a Carbon Price Floor to reduce investor uncertainty, putting a fair price on carbon and providing a stronger incentive to invest in low-carbon generation now;
• the introduction of new long-term contracts (Feed-in Tariff with Contracts for Difference) to provide stable financial incentives to invest in all forms of low-carbon electricity generation. A contract for difference approach has been chosen over a less cost-effective premium feed-in-tariff;
• an Emissions Performance Standard (EPS) set at 450g CO₂/kWh to reinforce the requirement that no new coal-fired power stations are built without CCS, but also to ensure necessary investment in gas can take place; and
• a Capacity Mechanism, including demand response as well as generation, which is needed to ensure future security of electricity supply. We are seeking further views on the type of mechanism required and will report on this around the turn of the year.

Publication of the White Paper marks the first stage of the reform process. The Government intends to legislate for the key elements of this package in the second session of this Parliament, which starts in May 2012, and for legislation to reach the statute book by the end of the next session (by spring 2013) so that the first low-carbon projects can be supported under its provisions around 2014. The Government will put in place effective transitional arrangements to ensure there is no hiatus in investment while the new system is established. Once established, the White Paper sets out how the efficiency and effectiveness of the reforms will continue to be evaluated.

The electricity market reform package will minimise the impact on bills by insulating the UK from volatile fossil fuel prices and providing investors with the certainty they need to raise capital more cheaply. Estimates are that with the market left as it is now, domestic electricity bills will be around £200 higher in 2030 compared with today’s average annual household bill (about £500). The market reform packages published today limit this increase to £160 – £40 lower than it would otherwise be.

Electricity market reform will be underpinned by a series of measures to improve energy efficiency, including the flagship Green Deal programme – the first scheme of its kind in the world, aimed at cutting carbon and bills in millions of homes across the UK. Market reform will also be supported by a strategy for future electricity networks and work led by Ofgem to improve competition, to move away from the current position where around 99% of UK customers are supplied by only energy six companies. DECC has today published the final report of the Ofgem Review, following publication of the Summary of Conclusions in May. This final report provides further detail on how the Government will seek to strengthen the regulatory framework, bringing greater clarity and coherence to the distinct roles of government and the energy regulator.

The Government and Devolved Administrations are also today publishing the Renewable Energy Roadmap. The Roadmap sets out a comprehensive programme of targeted, practical actions to tackle the barriers to renewables deployment, enabling the level of renewable energy consumed in the UK to grow in line with our ambitions for 2020 and beyond. This will mean over a four-fold increase in our level of renewable energy consumption by the end of the decade.

Chris Huhne said:

“Growth on that kind of scale will be challenging, but will be necessary if we are to make the UK more energy secure, help protect consumers from fossil fuel price fluctuations, drive investment in new jobs and businesses, and keep us on track to meet our carbon reduction objectives for the coming decades. It will require industry to carry on making the case for renewables and Government and the Devolved Administrations to break through the barriers that are stopping new schemes being built.”

The Roadmap also indicates the UK should play to its strengths, identifying eight technologies that have either the greatest potential to help the UK meet the 2020 target in a cost-effective and sustainable way or offer great potential for the decades that follow. Energy from wind, biomass and heat pumps are the leading contributors, including offshore wind – where the UK has abundant natural resource and already has the world’s largest market. The Government’s intention is to maintain this position, ensuring the full economic and energy security benefits of offshore wind resources come to the UK rather than its competitors. Government will also take the power to trade with our European partners where this will reduce costs further or where the UK has the potential to export.

This is why the Government is announcing up to £30m, subject to value-for-money assessment, to support innovation in the production of components over the next four years. This builds on the recent announcement from the Energy Technology Institute to provide £25m for a new drive train test facility at the National Renewable Energy Centre.

The Government has also asked a new industry-led task force to reduce the costs of offshore wind to £100/MWh by 2020. That level of cost reduction will unlock the full potential of the UK’s offshore resources, making it possible to deliver up to 18GW by 2020 and open up the 30 – 40GW of low carbon generation that will be necessary in the 2020s to keep the UK on track to deliver the 4th Carbon Budget.

Alongside these actions the Government is also announcing the signing of a new Memorandum of Understanding between Government departments, aviation organisations and industry to mitigate the potential impacts of wind power on radar infrastructure that it is estimated could impact up to 5GW of onshore and 7GW of offshore wind capacity.
 

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NOTES TO EDITORS

1. The following documents have today been published:

• Electricity Market Reform White Paper
• Electricity Market Reform Impact Assessment
• Emissions Performance Standard Impact Assessment 
• Renewables Roadmap
• Ofgem Review Final Report 

2. The Consultation on Electricity Market Reform was published on 16 December 2010 and ran until 10 March 2011.

3. Following an HM Treasury consultation on a carbon floor price also published on 16 December 2010, the Chancellor announced in Budget 2011 that the carbon floor price will start at around £16 per tonne of carbon dioxide in 2013 and move to a target price of £30 per tonne in 2020.
 

11 July 2011

Chris Huhne has written about why the Coalition Government has set an ambitious fourth carbon budget. The article appeared in the Germany newspaper Frankfurter Allgemeine Zeitung on 4 July and the French newspaper Les Echos on 5 July.

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In fifteen years’ time, the UK’s net carbon emissions will have halved.

This is no idle ambition: it is law. The Coalition Government has just committed the United Kingdom to the most ambitious act of environmental business planning in our history.

We have just set our fourth Carbon Budget, for 2023-2027. By the time it is complete, we will be responsible for 50% less greenhouse gas emissions than we were in 1990.

It was not an easy decision. No other country has binding legal targets into the mid-2020s. Environmentalists and sceptics alike have lobbied hard – for more ambition, or for less.

But amidst the noise, a simple truth has gone unnoticed: the path we have chosen leads toward growth. The fourth Carbon Budget sends a clear and cogent signal to investors: the
UK is now sure ground on which to build a sustainable business.

Why? Because we have established a clear line of sight to 2027.

The downward carbon trend is now written in law. Businesses can plan for the future. Nascent industries can grow; established ones can adapt. Our economy will be better balanced – and our consumers will benefit from clean, secure energy at the least cost.

Yet pervasive myths about controlling carbon persist, in the UK and throughout Europe.
It is uneconomic, say the doubters. It will curtail growth and ruin industry. Now is not the right time.

This is simply wrong. Decarbonisation need not mean deindustrialisation for the EU, or putting planet before profit. For us, it is about looking to the next global growth sector.

Let us take the arguments in turn – and put the tired myths to bed. 

First, some claim ambitious emissions targets will make Europe less attractive to inward investment – damaging growth and risking jobs. Going too far too fast threatens our competitive advantage. 

History suggests otherwise.

In the 1980s, billions of pounds – and hundreds of thousands of jobs – were invested in chlorofluorocarbons.

CFCs were used in thousands of products and processes; the alternatives were thought unworkable or wildly expensive. Industry lobbyists fought to maintain the status quo.
Yet before the decade was out, a treaty banning CFCs was in place, and the global economy was prosperous still.

Environmental regulation drove innovation; new products came to market that rendered the harmful gases economically irrelevant.

Many of the arguments deployed against the ban on CFCs are now being given a second hearing. Yes, change brings risk; and yes, some sectors are more exposed than others.

For energy intensive industries, the low-carbon transition must be managed carefully. Rising electricity costs pose a key risk to these sectors which are critical to our growth agenda. Known risks can be planned for, and government can help. We are drawing up measures to support those industries that face competition and fear ‘carbon leakage’. We will, by the end of the year, take steps to reduce the impact of government policy on the cost of electricity for these businesses, thereby allowing them to continue to play their part in delivering our green industrial transformation.

Longer-term, the picture is not one of destruction, but change. We see it on our own trading floors; many of the companies listed on the FTSE100 today did not exist twenty years ago. This natural churn is what drives the economy, not what threatens it.

The industries of the future are coming on strong. Globally, the low-carbon sector is worth over £3 trillion; it has been growing faster than world GDP.

In the UK, we believe that we can become a global hub for green investment – in wind, wave and tidal power – as well as carbon capture and storage. By investing in energy efficiency for our buildings and supply chains for low-carbon goods like electric vehicles, we can gain early-mover advantage.

The second line argument concerns not principle but timing: we cannot cut emissions now, the recovery is too fragile. It cannot bear the weight of another percentage point or two. We should act later, and trust in technology to save us.

But if not now, then when?

People have a tendency to discount the future: dividends today are more alluring than the promise of profits tomorrow. At this stage of the business cycle, it is natural to wonder where the growth will come from. 

We cannot simply rely on old industries to pull us out of recession. It will be emerging industries that lead the way – just as it was in the 1930s, when new electrical goods and cars brought Britain back from the Great Depression.

In fact, now is the perfect time to set Europe’s economy on a more sustainable path.
That’s the approach we’re following in the UK. With a quarter of our existing power stations set to close before the fourth Carbon Budget begins, investment in clean energy and energy efficiency is as essential for energy security as it is for cutting emissions.

We want our economy to be less reliant on imported energy, less reliant on any single technology – and more resilient against fossil fuel price spikes.

By setting a long term target, we are giving business the time and space it needs to adjust to the changes the country needs. By showing ambition, we can delink carbon emissions from economic growth. Together with our neighbours and partners in Europe and the world, we can make the low-carbon transition an irresistible force.

The decisions the EU takes over the next few years will be central to determining how other major powers act. That’s why the carbon budget encourages the EU to raise its sights, and its emissions reduction target –  to 30 per cent by 2020, rather than 20 per cent. 

When the UN meets to talk about climate change solutions, we can show through our actions that the low-carbon transition is not just affordable, but desirable.

This is not an altruistic gesture; nor one designed to give us a little extra muscle at the negotiating table. Instead, it is in our own naked economic self-interest.

For promise of the green economy is real and growing. From renewable energy to home insulation, dynamic new markets are emerging. The third Industrial Revolution is underway; we each stand to gain from it.

Fifteen years from now, we want the UK to have a vibrant, low-carbon economy – with more electric vehicles, more renewable energy, and more efficient buildings.

Some countries are further down the low-carbon path than us. But the fourth Carbon Budget is a statement of intent. It supports people, profits – and the planet. So forget the myths, and see it for what it is: a budget for growth.
 

Responding to this morning’s price announcement by British Gas, Energy and Climate Change Secretary Chris Huhne said:

“This announcement will be tough for consumers who are already struggling to meet their bills. The uncomfortable truth is Britain’s consumers are being buffeted by the violent and unpredictable winds of global fossil fuel prices.

“I refuse to stand by and watch this happen.

“I’m pushing the big six suppliers to help their customers overhaul their draughty homes and understand the best tariffs on offer, and I’m backing new entrants to bring more competition to the market.

“But there’s a way out of this. Look at how the French benefit from only relying on fossil fuels for a fraction of their power – bills there are only expected to rise by 3% this year.

“The UK electricity market has to change, so that we escape the cycle of fossil fuel addiction. Alternatives like renewables and nuclear power must be allowed to become the dominant component of our energy mix.

“Only radical reform now will give us the best chance in the long run of keeping the lights on at a price that doesn’t wreck our economy over and over again.”

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Notes for editors

1. Next week Chris Huhne will publish a White Paper on Electricity Market Reform, a critical moment in keeping the lights on, consumer bills down and shifting the UK economy away from a high risk, high carbon future.

2. DECC Ministers have taken a number of other recent steps aimed at ensuring consumers get a better deal:

7 July 2011: Chris Huhne and Charles Hendry held a small suppliers summit to discuss barriers to new competition in the market

29 June 2011: Chris Huhne wrote an open letter to energy suppliers calling for improved billing to help households move to the best tariffs available

22 June 2011: Chris Huhne backed Ofgem’s proposals to overhaul the retail gas and electricity markets

17 June 2011: Chris Huhne highlighted the energy savings still available for homes that are not properly insulated

13 June 2011: Charles Hendry announced that red tape will be slashed for small suppliers to help them compete with established energy companies

2 June 2011: Greg Barker set out consumer protection measures as part of Green Deal legislation

10 May 2011: Chris Huhne announced minimum energy efficiency standards for the private rented sector as part of Green Deal legislation

14 April 2011: Chris Huhne announced the reopening of the Warm Front scheme, to help 90,000 more low income householders including pensioners cut their energy bills

21 September 2010: Chris Huhne warns energy companies not to block changes to give energy consumers 30 days advance notice of bills

Speech to Future Maritime Operations Conference at the Royal United Services Institute, London 

Introduction

Thank you all for coming along today, to listen the second in a series of three speeches.

Last week, I talked about the economics of climate change. Next week, I will look the science of climate change, and the international negotiations. 

Today, I want to focus on the geopolitics. Not what causes climate change, or how we might stop it; but what it will mean for our world, and our way of life, if we do not stop temperature rising. In this speech, I will look at the effects of global climate change on food, water, health and security.

Understanding the risk

For many people, climate change remains an indistinct threat. It is seen as something that is far-off – and far away. We hear something about polar bears, and long-term temperature trends, and subconsciously discount the threat. Like car crashes or alcoholism, it does not happen to us.

Wrongly, we conclude that if we stop using plastic bags and unplug our phone chargers we’ll be fine.

This kind of thinking is seductive. No wonder; the illusion is a comforting one. It suits the vested interests and their lobbyists who seek to turn doubt into profit. The sceptics who enlist uncertainty in the fight against the scientific consensus.

But indulging this thinking paints us into a dangerous corner.

As a people, we have at best a surface understanding of climate risk. The reality is that the risk is much deeper.

Climate change is a systemic threat. With luck, the UK may well escape the worst physical impacts. But in a connected world, we will be exposed to the global consequences. And they are both alarming and shocking. 
 

The scenario

A changing climate will imperil food, water, and energy security. It will affect human health, trade flows, and political stability.

And the resulting pressures will check development, undo progress, and strain international relations.  

These risks will not be neatly divided. Different countries will face different challenges. Political solutions will become harder to broker; conflicts more likely. A world where climate change goes unanswered will be more unstable, more unequal, and more violent.  

The knock-on effects will not stop at our borders. Climate change will affect our way of life – and the way we order our society. It threatens to rip out the foundations on which our security rests.

Today, I will look at each of those foundations in turn, beginning with the most basic of all: food.

The picture I will paint presupposes two things: that population growth remains steady, and that high carbon emissions result in dangerous climate change – both of which are likely if we do not tackle carbon emissions globally by 2020. 

In such a scenario, the coming decades will bring higher temperatures, rising seas, droughts, heat waves, floods, and variable rainfall. Each of these changes will affect our ability to grow the crops we need. 
 

Food

Demand for food is predicted to grow by 70% by 2050 [1]. For developed economies, this will mean higher prices; for agrarian economies in the developing world, it could be catastrophic.

Changing temperatures will alter crop distributions – and crop yields. Consider maize. It’s critical to sub-Saharan Africa; it provides more than half the daily calories in Lesotho, Malawi and Zambia. [2]

A recent study of African maize found that each day above 30 °C reduced the final yield by 1%. If temperatures were to rise by just one degree – a rise so small you could barely feel it – then 65% of maize-growing areas in Africa would be less productive. [3]

Changing rainfall affects the ability to grow staple crops. Some 96% of all cultivated land in sub-Saharan Africa is rain-fed; the severe drought in the Horn of Africa shows the fragility of these lands when rains fail. Ten million people are facing a severe food crisis.

Desertification will accelerate as temperatures rise and rainfall changes. Two billion people in developing countries, most of them below the poverty line, rely on drylands, which support half the world’s livestock. [4] When life is balanced so precariously, further land degradation can be catastrophic.  

Climate change will mean natural disasters will become more frequent, and more intense – damaging harvests. The 2003 European heatwave caused a record loss of 36% crop yield for corn in Italy; and the floods in Pakistan destroyed half a million tonnes of wheat.

According to the World Food Programme, over the past decade, hurricanes have caused an average loss of cultivated land of 10% in the coastal states of Mexico. [5]

These myriad pressures on production not only affect subsistence farmers; they also push up prices. Last year, cereal prices rose by 71%. That has a direct effect on us in developed countries. It also edges vulnerable people ever closer to malnutrition. According to the UN Development Programme, the impacts of climate change could push another 600 million people into malnutrition by 2080. [6]

The impacts will not be equitably distributed. Mozambique has been projected to lose more than a quarter of its agricultural productive capacity, while North America gains at least 3 percent. [7]

The balance between powerful states with money and poor states with land is changing. In 2008, the United Arab Emirates bought 324,000 hectares of farmland in Pakistan; China bought 100,000 hectares in Zimbabwe; South Korea has acquired more than a million hectares in Sudan, Mongolia, Indonesia, and Argentina.[8]

As the Secretary General of NATO said, food scarcity ‘like all the effects of climate change… will hit hardest on the people and countries least able financially and organisationally to cope’ . [9]

In such countries, people are acutely sensitive to cost of living increases. Volatile prices fuel instability. In 2008, cereal prices hit a 30-year peak. Riots broke out from Bangladesh to Egypt. Food inflation contributed to riots and revolutions in North Africa this year.

Even in more resilient countries, supply shocks and price increases will hit the poorest hardest. Like many other countries, the UK imports around 40% of its food. We are dependent on healthy markets to keep our population fed. When prices rise – as they did in 2008 and 2010, following extreme weather events – poorer households end up spending more of their income on food. 
 

Water

Closely related to food is water. Climate change is changing the dynamics of water supply; while population change is driving demand.

We are using more water than ever before. When I was born in 1954, the world’s population was 2.7 billion. Now it is 6.9 billion. [10] This growth is extraordinary. We are close to the point at which more human beings will be alive than have ever lived before. And water use is growing twice as quickly as population. [11] The chair of the World Economic Forum’s water security council put it well:
 

 

“Take one world already being exhausted by 6 billion people. Find the ingredients to feed another 2 billion people. Add demand for more food, more animal feed and more fuel. Use only the same amount of water the planet has had since creation… Stir very carefully.” [12]

In just fifteen years’ time, 1.8 billion people will live in countries or regions suffering absolute water scarcity: that means not enough clean, accessible water to support lives and livelihoods. [13] A quarter of India’s harvest could be threatened by loss of groundwater.

Tensions over water will threaten internal security. Water politics in the Jordan river basin aggravate Arab-Israeli conflicts. Most alarming is the coming conflict over water between China and India. Together, they represent 36% of the earth’s population. [14]  And their major rivers – the Indus, Ganges, Yangtze and Yellow – rise on the Himalayan plateau, and are fed by glaciers. The timing and speed of glacial melt is uncertain, but the direction of travel is not.

Globally, the pattern is a familiar one. Changing climatic conditions and rising populations are putting further stress on unsustainable supplies. Multiplying existing pressures on resources, and creating new ones. And effects that hit hardest in the poorest countries. 
 

Health

Let us now turn to health. Vulnerable people will bear the brunt of climate change. It will be the elderly, the young, and the poor who face the greatest risk.

Changing climatic conditions will have a direct effect on health. Many populations are unprepared to deal with rising temperatures and more severe, more frequent heatwaves. The 2003 European heatwave caused 35,000 excess deaths; and over 14,000 in France alone. [15]  And in England and Wales more than 2,000 excess deaths were attributed to the heatwave. [16] 

The secondary effects are just as lethal. Water problems – floods, droughts, and contamination – increase the risk of disease. Almost 90% of diarrhoeal disease – which kills more than 2 million people a year, often in the poorest parts of the world – is attributable to lack of access to safe water and sanitation. [17] 

Climate change will also change the distribution of disease. The World Health Organisation is unequivocal:
 

 

‘Some of the largest disease burdens are climate sensitive… undernutrition kills 3.5 million, diarrhoea kills 2.2 million, Malaria kills 900,000, extreme weather events kill 60,000. The WHO estimates that the climate change that has occurred since the 1970s already kills over 140,000 per year.’ [18]

Climate change will affect food, water and health. It will hit the poorest hardest, and the most fragile first.

This is as true of nations as it is of people. The poor are less resilient. They have fewer savings. They find it harder to cope with life’s setbacks, and climate change is multiplying the risk of those setbacks.   
 

Security

If we do not tackle climate change, what will this Hobbesian vision mean for our security?
The military perspective is instructive. Defence planners do not put much store by sceptics: their job is to identify, understand and prepare for threats.

We cannot be 100% sure that our enemies will attack our country; but we do not hesitate to prepare for the eventuality. The same principle applies to climate change, which a report published by the Ministry of Defence has identified as one of the four critical issues that will affect everyone on the planet over the next 30 years. [19]

Around the world, a military consensus is emerging. Climate change is a ‘threat multiplier’. It will make unstable states more unstable. Poor nations poorer. Inequality more pronounced, and conflict more likely. And the areas of most geopolitical risk are also most at risk of climate change.

The UK’s National Security Strategy concludes that climate change will be ’a wide-ranging driver of insecurity… exacerbating existing weakness and tensions around the world’. [20] A Ministry of Defence report says that – and I quote – ‘Climate change will amplify existing social, political and resource stresses, shifting the tipping point at which conflict ignites, rather than directly causing it’.

The Pentagon’s Quadrennial Defence Review Report notes that climate change will ‘shape the operating environment, roles, and missions’ that the US military undertakes. And the National Intelligence Council concluded that ‘more than 30 U.S. military installations were already facing elevated levels of risk from rising sea levels’. [21]

When the Pentagon and Greenpeace are on the same page, you know things are getting serious.

Climate change causes several security problems.

First, competition over resources will grow fiercer. Rising demand for finite resources and pressures on trade routes will once again provoke conflicts.

Territorial change will create new disputes. In May, 400 academics concluded that ‘the Arctic is experiencing unprecedented warming due to man induced emissions of global greenhouse gases. Arctic snow and ice are melting much faster than expected.’ [22]

No wonder the Russian Ambassador to NATO said in an interview:
 

‘The twenty-first century will see a fight for resources, and Russia should not be defeated in this fight … NATO has sensed where the wind comes from. It comes from the North.’

Climate change will not only open up new resources. It will also open up new trade routes – and intensify the pressure on existing ones.

A World Trade Organisation report suggested that climate change could alter patterns of trade: countries which have favourable weather and stores of natural resources will emerge stronger. Newly-found Arctic resources, and newly-opened Arctic trade routes, will improve the trade advantage of countries like Russia and Greenland. [23]

Critical trade infrastructure is at risk from natural disasters, as we saw following the Japanese tsunami. A shortage of parts meant Toyota, Honda and Nissan were all forced to cut production in British factories.

So the first aspect of climate security is to do with trade and resource conflicts.
Natural disasters will also change our military priorities, as humanitarian crises become more frequent and more intense.

Low-lying river deltas, which are at risk from flooding due to rising sea levels brought about by climate change, are home to nearly 300 million people: the Nile, the Mekong, the Ganges and the Rhine are all examples. A fifth of the world’s population live in river basins more likely to be flooded. [24]

In weak and failing states, food and water stress will compound or cause internal security problems.

Picture a map of the world. Picture the areas we’re most concerned about; where poverty, instability, and conflict meet. Parts of the Middle East and North Africa. Pockets of sub-Saharan Africa. Delicate borders on the Asian subcontinent. Now picture the areas where climate change will strike hardest. The overlap is uncanny –  and unnerving.

Climate change also threatens the security of our energy supplies.

All energy sources are vulnerable to interruption, but fossil fuel extraction chains are exposed. The 2004-2005 hurricane season – when Ivan, Katrina and Rita struck – destroyed 126 oil and gas platforms, and damaged another 183.

Climate sceptics regularly decry our reliance on rare-earth metals for wind turbine magnets. But the floods in Queensland stopped the coal production which fuels growth in Asia, forcing China and India to seek new imports.

A lot of our energy technologies rely on water: for cooling nuclear reactors to cleaning solar panels. During the European heatwaves in 2003, more than ten French nuclear reactors had to limit their output or shut down thanks to heat and water stress. And in Germany, the Unterweser nuclear power plant cut its power by 90%. [25]

Renewables are exposed to climate change, too. Hydropower needs water flow. Concentrated solar requires clear skies. And all energy technologies are dependent on trade in fuels and parts.

No wonder the UK military takes climate security seriously: we have our own Climate and Energy Security Envoy, Rear Admiral Neil Morisetti. And we work closely with the US Department of Defence on climate change and operational energy security. Germany, which has just taken over Presidency of the UN Security Council, is preparing to devote some of its valuable time to bringing climate back to the top of the global security agenda.

Climate change will amplify insecurity and accelerate instability. It will shape the geopolitics of the future and alter the balance of power between nations; not always as a cause, but always as a contributing factor. So what will that mean for our way of life? 
 

A more challenging world 

First, we must prepare for the political implications of climate change. What happens when island nations disappear? Dry countries become uninhabitable? The great Deltas waterlogged? Agrarian economies unproductive?

Climate migration is already happening; not short-term displacement following natural disasters, but long-term movements of people away from areas which are becoming less habitable. When ecosystems can no longer support people, they will move.  

Faced with changing patterns of migration, the international community cannot simply pull down the shutters. We must have the political will and institutional readiness to cope with greater numbers of people fleeing environmental change.

If we fail to reach a binding global agreement to limit emissions, we will not only have to cope with dangerous climate change; we will also face an extraordinarily difficult set of international relations.

The developed world, the current high emitters: we will be the ones who poisoned the well. That will bring diplomatic and development headaches. What challenges will the post-climate change era bring?

Many countries will be tempted to raise their defences against fleeing people. Barriers that will undermine a liberal world order that has served Britain well.

Second, we will have to contribute more of our own capital to help others cope with – and insulate ourselves from – the worst of climate change.

The UK’s latitude, climate and economy mean that the changes will be less profound here than in sub-Saharan Africa or the Pacific.

But our climate will still change.

We know that climate change made the floods in autumn 2000 – which cost £3.5 billion, and flooded over 10,000 homes – two to three times more likely. We know that climate change made the heatwave in 2003 twice as likely. And we fear that in less than forty years’ time, the summer temperatures that wreaked havoc will be the norm.

Being prepared will mean increasing funding for security and disaster response. Refitting our health infrastructure to cope with a surge in heat related illnesses. Boosting our energy, food and trade security by diversifying our supplies. Changing our land use planning legislation to allow flexibility for farming and reinforce water security. Investing in resilience and adaptation, not just for critical national infrastructure, but across the whole economy.

And not just in Great Britain, either. 200,000 people live in the British Overseas Territories; many islands rely on fishing and tourism. What price relocation and resettlement, if British citizens should find their land disappearing, or their economies crumbling? 
 

Conclusion

These are difficult questions. The way we choose to answer them will shape us as a society. Ours is a liberal democracy. We value the rights of the individual. We seek social justice at home, and we promote democratic values abroad. We have built institutions that reflect those values; yet climate change threatens them.

As we know from our own experiences in wartime, the worse the external pressures on our borders, the harder it is to hold to the values and freedoms that define us.

The international negotiations on climate change rest on the principle of ‘common but differentiated responsibility’. Not all countries have contributed to climate change; not all countries have the tools to fight it. But all share a common interest in preventing it.

The obverse is also true. When it comes to climate change, we face common but differentiated risks. Some countries will face more frequent, more extreme weather events; others will face agricultural meltdown, or economic problems.

Bear this inequality in mind when people talk about responsibility for climate change. Britain does not emit much of the world’s carbon dioxide; but nor are our people dying from its effects.

For many of the earth’s citizens, climate change is not a matter of debate: it is a matter of life and death. A world where climate change goes unchallenged will be a Hobbesian world, where life for far more people is ‘nasty, brutish, and short’.

Imagine a state on the brink of dissolution. Fresh water supplies, scant to begin with, are critically low. Crop yields are down. Failing harvests are the norm, not the exception. The country’s staple grain no longer grows well.

Unyielding poverty and inadequate sewerage mean disease tears through towns and cities. Outside the population centres, things are hardly better. Arable land is turning to dust, as the desert claims what was once fertile land.

Desperate people take desperate measures. Instability is now a national problem; soon it will be a regional one. Migrants surge outwards, searching for survival.

This is the nightmare scenario. Yet it is already tragically familiar. We have already seen civil wars compounded by water stress, in Darfur. Regional conflicts fuelled by resources in the Democratic Republic of Congo. Food prices prompting riots in Bangladesh.

Climate change is the force that threatens to unify and magnify these pressures. It will focus and concentrate existing tensions, fracturing states and destroying societies. So far, we have not done enough to stop it. We still have time to mobilise: but that time is rapidly running out. Doing nothing is not an option.

If we have the courage to commit to ambition, the nightmare scenario will be nothing but a bad dream. But no-one should doubt the reality of the nightmare if we do nothing.

Next week, I want to look at how climate science is giving us clearer indication of the deadline for action – and what the prospects are for the international negotiations.

Thank you very much.

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[1] WEF Water Initiative: ‘Managing Our Future Water Needs for Agriculture, Industry, Human Health and the Environment’, 2009.

[2]http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2011/05/11/000158349_20110511144001/Rendered/PDF/WPS5659.pdf

[3] David B. Lobell, Marianne Bänziger, Cosmos Magorokosho & Bindiganavile Vivek, ‘Nonlinear heat effects on African maize as evidenced by historical yield trials’, Nature, 2011.

[4] UNCCD, ‘Desertification: a visual synthesis’, 2011.

[5] World Food Programme / Met Office, ‘Food Insecurity and Climate Change’, 2010.

[6] UNDP, 2008; in ODI, ‘Climate change, water and food security’, 2009.

[7] FAO, Climate change, water and food security, 2008.

[8] Oakland Institute, ‘The Great Land Grab’, 2009.

[9] Anders Fogh Rasmussen, speech on ‘Emerging Security Risks’, 2009.

[10] US Census Bureau, International Database:

[11] WEF Water Initiative: ‘Managing Our Future Water Needs for Agriculture, Industry, Human Health and the Environment’, 2009.

[12] WEF Water Initiative: ‘Managing Our Future Water Needs for Agriculture, Industry, Human Health and the Environment’, 2009.

[13] FAO, Climate change, water and food security, 2008.

[14] US Census Bureau, International Database.

[15] Dhainaut, J., Claessens, Y., Ginsburg, C., and Riou, B.: ‘Unprecedented heat-related deaths during the 2003 heat wave in Paris: consequences on emergency departments’ Critical Care, 2004

[16] Johnson H, Kovats R S, McGregor G R et al (2005) The impact of the 2003 heatwave on mortality and hospital admissions in England. Health Statistics Quarterly 25, 6–11.

[17] WHO, ‘Protecting health from climate change: connecting science, policy and people’ 2009. 

[18] Ibid.

[19] DCDC, Global Strategic Trends, 2010.

[20] UK National Security Strategy, 2009 Update.

[21] US Department of Defence, Quadrennial Defence Review Report, 2010.

[22] ‘The Arctic as a Messenger for Global Processes‘, Co-chairs’ statement, Copenhagen 2011.

[23] WTO-UNEP, ‘Trade and Climate Change’, 2009.

[24] FAO, Climate change and disaster risk management & Climate change, biofuels and land, 2009.

[25] Urban, F., and Mitchell, T., ‘Climate change, disasters and energy generation‘, 2011.

 

The Prime Minister today announced that carbon emissions from Government HQs and offices have been slashed by nearly 14% in just one year, and told Whitehall it would have to go further by cutting emissions by 25% by 2015.

It is estimated energy bills have been cut by £13 million as a result of bearing down on energy wastage in government departments. The 10% target covered around 300,000 civil servants in 3,000 buildings. Between 14 May 2010 and 13 May 2011 more than 100,000 tonnes of CO2 was saved.

The new 25% target for cutting carbon emissions will have an increased scope and include business-related transport.

Commenting on the 10% achievement, Prime Minister David Cameron said:

“A 13.8% cut in emissions in just one year is a great result and the civil service should be very proud of this achievement. But to be the greenest government ever we need to do more to stamp out energy waste in Whitehall, and make it easier for people and business to use energy more efficiently. That’s why I’m committing the Government to go further by reducing emissions by 25% by 2015.”

Energy and Climate Change Secretary Chris Huhne said:

“This achievement has shown that we’re serious about leading by example and, when we promise to cut carbon, we mean it. This is only the start and we’ve now got to get on and slash Whitehall’s emissions by a quarter by the end of this Parliament.”

Minister for the Cabinet Office Francis Maude said:

“Not only have we hit the Prime Minister’s ambitious target and reduced our carbon emissions, we have slashed government energy bills – driving out waste and inefficiency.”

Improving the energy efficiency of Britain’s homes, buildings and businesses is a vital part of making Britain more energy secure.

The Government also announced today a series of business-led trials aimed at making it easier for people to insulate their homes and reduce fuel bills. The energy efficiency trials, many of which will include joint working with local authorities, will begin in September and will test how best to encourage people to take up the Green Deal.

The Green Deal, which will start in autumn 2012 and is currently being discussed in Parliament, will mean households will be able to invest in home improvements at no upfront cost and repay through the expected savings on energy bills.

The trials are outlined in a new report from the Government’s Behavioural Insights Team – known as the ‘nudge unit’ – and will be carried out and evaluated in time for the national roll out of the Green Deal.

Commenting on the trials, Chris Huhne added:

“The Green Deal’s going to be a real hit and will be a fantastic way for people to upgrade their draughty and energy-wasting homes.

“But there are currently too many barriers standing in the way of people upgrading their homes – the cost, the hassle, and the lack of trust in the people who install the kit.

“It’s great that high street names are getting involved at this early stage to road-test these exciting ideas about how to make it easier for people to take up the Green Deal and insulate their homes from rising energy prices.”

Examples of the trials include:

• B&Q and Sutton Council are considering offering a subsidised loft clearance service to test whether removing the ‘hassle’ factor of insulation motivates people to make efficiency improvements. The unwanted contents of the loft clearance will be donated to local charities. B&Q will also test the impact of offering collective purchasing discounts to households for buying energy efficient products.
• Homebase and Carillion will team up with a local authority to test the impact of offering immediate rewards to residents for purchasing energy efficiency measures. The offer will include a one month’s council tax holiday or vouchers to spend in store.
• First Utility / Opower will be conducting a randomised controlled trial to investigate the effect of behavioural feedback – including comparative consumption – on consumer energy use.

Another trial will focus on helping people to reduce energy consumption through better information:

• Government will work with British Gas and Alert Me to investigate which channels of communication most effectively motivate consumers to save energy.

A new design of the front page of the Energy Performance Certificate was also announced today and will be launched from April 2012, with the information most likely to motivate an individual’s behaviour prominently displayed on the first page. The effects could be considerable: in the last 12 months nearly 1.4 million EPCs were issued.

Communities Minister Andrew Stunell said:

“We risk losing our battle against climate change unless we make the built environment more sustainable. So it’s right that homeowners and tenants across the country are given this opportunity through the Green Deal to make their homes warmer and cheaper to run.

“Making information about the energy efficiency of homes readily available and easy to understand is a vital first step in this process, and I welcome these changes to the Energy Performance Certificate, which will help motivate more people to take action and make their homes greener.”

The Government has also announced today the launch of the Responsibility Deal, which invites business and others to make a public commitment to reducing energy use by a specific amount by a specific date in the future. 

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Introduction: Energy policy

This has been an eventful year for the nuclear power and the energy landscape as a whole. The unprecedented events in Japan and the impact of the earthquake and tsunami on the Fukushima nuclear power plant has raised the profile of nuclear safety and led to questions around the world about the need for nuclear. But over the last 15 months there have also been a number of other energy challenges that we have had to face: we have had Macondo and what that has meant in terms of oil and gas exploration; the crisis in the Middle East and what this has meant for our oil and gas security; and we have seen the coldest winter in 100 years.

There are potential risks with any energy technology. That is why our energy policy needs to be a mix of renewable, clean coal and gas and nuclear energy.

The challenge we as government face is to come up with an energy policy that delivers safe, secure, low-carbon and affordable energy to 2050 and beyond. And over the next decade up to £110 billion is needed to replace old nuclear and coal-fired power stations and upgrade the grid – that’s twice the rate of investment of the last decade. The equivalent of 20 new power stations is needed.

On nuclear, we did not need to be where we are now. We have emerged from a wasted decade – a decade of indecisiveness and dithering, where the investment and jobs went elsewhere. It is now 16 years since the last nuclear plant was built in the UK, at Sizewell B.

The UK has everything to gain from becoming the number one destination to invest in new nuclear. Nuclear is the cheapest low-carbon source of electricity around, so it can keep bills down and the lights on.

Lessons learned

We take what happened at Fukushima very seriously and nuclear safety is a top priority. There are lessons for both government and industry on how to continuously improve both existing and new-build nuclear power stations. This is why we asked the Chief Nuclear Inspector, Dr Mike Weightman, to provide a robust and evidence-based report on the lessons that we can learn.

The UK has a strong nuclear safety record and a robust regulatory regime. We have a world-respected independent nuclear regulator, who has recently led the UN investigations into the Fukushima crisis.

Dr Mike Weightman’s interim report confirms that the UK’s current safety regime is working and that the regulators and industry should work together to learn lessons so that we make continuous improvements to the nuclear safety of both existing nuclear and new build.

The events at Fukushima were a shock to us all. But I am confident that our reaction was sensible, proportionate and based on the facts.

I want people inside and outside of this room to be in no doubt – the Government’s response was not dreamt up, as reported by a junior official from another department, but has been based on solid evidence and the advice of the Chief Nuclear Inspector.

Role of nuclear

I am proud of the leadership we provided at a time the Germans, the Italians, and the Swiss took a different approach. They trashed the technology and chose party politics over pragmatism.

As the Prime Minister and Chris Huhne have both said, we want to see new nuclear as part of a low-carbon energy mix going forward, provided there is no public subsidy. The Chief Nuclear Inspector’s report reassures us that it can – as does the Climate Change Committee, which supports our view that nuclear is a safe power and the lowest cost, large scale, low-carbon electricity source.

Nuclear is vital for our energy security now, and we want it to be part of the energy mix in the future. We don’t just need one nuclear power station; we need a fleet of them that can help to provide secure energy and meet our climate change targets up to 2050.

Investors need certainty, and I want to make it clear that nuclear has a key role going forward, alongside renewables and clean coal and gas.

The UK is open for business. If we had done the same as Germany, Italy and Switzerland, it could have cost an extra £65 billion by 2050.

Today we have published the report that shows the costs of First-of-a-Kind nuclear reactors are not expected to be as high as we previously thought. This is partly down to the fact we are learning lessons from other developments around the world and due to the ability of developers to spread any costs across a fleet of new reactors. The report confirms that nuclear remains the lowest cost, large scale low-carbon generation technology.

Government action

Government is continuing in its efforts to ensure that the conditions are right for investment in new nuclear power in the UK.

I hope this is evident not least with the publication of the energy national policy statement including a list of the new nuclear sites. They have been laid before Parliament for approval and I hope they will be designated without delay. This will pave the way for energy companies to bring forward planning applications to develop new nuclear power.

Separately, the regulators are working with industry to take forward the Generic Design Assessment process for new reactors. They will need to factor Dr Weightman’s report into their assessment, but I am pleased to hear that both Areva and Westinghouse are progressing to clear as many issues as they can and working towards IDAC (interim design acceptance confirmation).

In addition, we are reforming the nuclear regulator. The Office for Nuclear Regulation (ONR) was launched as an agency of the Health and Safety Executive in April this year and we plan to bring forward legislation to create a new independent statutory body. The ONR will retain the best of current practice whilst creating a modern regulator based of transparency, accountability, proportionality and consistency. The ONR will be well placed to respond quickly and flexibly to current and future regulatory challenges.

In the coming months the Government will look to finalise the framework governing the financing of decommissioning and waste management for new nuclear power stations. This will ensure that operators make secure financial provision from the outset in line with the Government’s policy that there should be no subsidy for new nuclear.

We have also been clear that before new nuclear can come forward, we need to be satisfied that there will be arrangements in place to deal with the waste. Last week we published our first annual report to Parliament of the Managing Radioactive Waste Safely Programme, as well as a consultation on how potential sites for geological disposal will be indentified and assessed. This shows we are making good progress. But I still want us to be ambitious in our timescales for delivery by setting a goal of putting the first waste into a disposal facility by 2029. I have tasked the NDA to look at opportunities to achieve this.

Reform of the electricity market

But it’s not just the actions that we are taking for nuclear that will stimulate investment. We need to make changes to the current electricity market to show investors how they can make money by investing in the UK energy sector.

The process we are going through with electricity market reform is the most significant change to the market in 30 years and the most important work we are doing as a government department in this Parliament.

We recognise that as the companies we are appealing to are global companies with global opportunities, they have to find something that makes it attractive for them to come here or they will go somewhere else. So we must continue to make a compelling case – not just to the existing players, but new entrants as well, as competition is central to getting the best deal for consumers. We need to bring in new players both as generators and suppliers in order to drive down prices.

That is why the Government’s proposals to reform the electricity market are the best deal for Britain:

• getting us off the hook of relying on imported oil and gas by creating a greener, cleaner and ultimately cheaper mix of electricity sources right here in the UK
• nurturing a new generation of power sources including renewables, new nuclear, and carbon capture and storage
• bringing new jobs and creating new expertise in the UK workforce
• establishing a long-term role for hydrocarbons like gas as well, taking account of how the global market has changed over the years

Working with industry

The wider economic benefit cannot be over-emphasised – around 5,000 jobs could be on offer at each of the eight sites we listed as suitable for development, and as we develop a domestic supply chain, all parts of the country could gain from a nuclear resurgence.

This is an exciting time. We are on the brink of the biggest nuclear renaissance since the 1950s.

Government is playing its part to realise the massive opportunities that are on offer. Nuclear is a key industry for businesses and for providing highly skilled jobs. The16GW of new nuclear generation planned by industry equates to investment of around £50 billion, with the construction of each reactor delivering investment equivalent to that for the 2012 Olympics.

The Nuclear Industry Association (NIA) has previously estimated that with investment in facilities and the training of new personnel, the UK Industry could supply around 80% of the total requirements.

However, the challenge moves increasingly to industry. It is essential we see progress on all fronts so we can all be confident that development plans are real and will be delivered on time.

Already we are seeing that in the development at Hinkley C, £11.5 million is being spent in the local area – even before the preliminary works are underway – and EDF has 47 companies engaged and 800 people registered on their database.

The opportunities will only get bigger as the developments progress – EDF has shortlisted three joint ventures each with UK company involvement for the main civil’s contract for Hinkley, estimated to be worth between £1-2 billion. We expect to see similar opportunities replicated in the projects being taken forward by other developers.

I want to see developers, vendors and the UK supply chain build on the engagement that has already taken place through initiatives such as the sc@nuclear programme and the establishment of the Nuclear Advanced Manufacturing Research Centre. I want to see these relationships grow in a way that works for developers, vendors and UK companies in taking forward new build nuclear in the UK and beyond.

Good collaborative working can be seen in projects such as Bridgewater College’s Energy Skills Centre, where training is provided in science and engineering and there is a realistic working environment to give students hands-on training in decommissioning and operating nuclear power stations. The £8 million Skills Centre is jointly funded by the National Skills Academy for Nuclear, the NDA, the College and a commitment of £3m from EDF energy. These projects are crucial in attracting young people to the growing industry on their doorsteps and we need to see more of this.

It is crucial to see industry’s investment in these important education projects. For example, government has invested to expand facilities at the Dalton Institute at Manchester University and its partnership with the Nuclear Advanced Manufacturing Research Centre, where academia and industry work together and support the technological and skills requirements of the sector.

We have some of the world’s leading academic brilliance right here in our own backyard at universities like Manchester, Imperial and Birmingham. This needs support and we must see more working models like that at Dalton, where academia and industry work together for mutual benefit. And I urge industry to continue to support apprenticeship schemes that encourage small companies to benefit from apprenticeships.

Industry must also take steps to embed best practice in the delivery of a new nuclear fleet in the UK – not just on individual projects, but also to maximise benefits across the whole UK new nuclear build programme. Last October I launched a report by Engineering the Future, into lessons learned from real nuclear construction projects in the UK and overseas, and I am pleased to say that the first stage of this work is now complete and will be presented to this conference tomorrow.

Conclusion

So I hope you are in no doubt about the Government’s commitment to new nuclear. We must go forward with new nuclear. We will be a darker, less prosperous nation without it.

My goal as Energy Minister is to make Britain the most attractive place to invest in energy. I want to continue to work with those in this room today to make sure we are able to deliver nuclear energy as part of the future energy. We all play a key role in making sure we make this a country that has secure, low-carbon and affordable energy for the decades in the future.
 

Energy Secretary Chris Huhne will hold a top level meeting with new energy suppliers tomorrow to find out what help they need to break the dominance of the Big Six gas and electricity companies, boost competition and keep energy prices for households down.

This follows hot on the heels of the announcement that red tape is to be slashed for small energy companies to help them break into the market.

Chris Huhne said:

“Our energy market has been too cosy for too long. I’m calling a summit of independent energy suppliers so the small guys have an equal chance to bid for your business. We need more competition to keep bills down – it is madness that 99% of people get their energy from the Big Six.

“Over the next decade we need double our normal energy investment to replace old power stations and keep the lights on. Doing nothing isn’t an option – addiction to more foreign gas will put us at risk of oil and gas price shocks.

“The current market simply can’t deliver, so we need more companies and more competition to keep price rises as low as possible.

“By meeting directly with the up-and-coming small energy suppliers we can ensure they have a fairer shot at breaking the dominance of the Big Six. I’ve told my officials to knuckle down with Ofgem and make reforms so consumers can have more choice and better deals for their gas and electricity.”

Energy suppliers including Ecotricity, Co-op Energy, First Utility, Good Energy, Ovo Energy, and Utilita are expected to attend tomorrow’s meeting with Energy Secretary Chris Huhne, Energy Minister Charles Hendry, Ofgem Chief Executive Alistair Buchanan, and officials at the Department of Energy and Climate in Whitehall. The meeting will be an opportunity for them to set out what they regard as the barriers to entry and growth, offer suggested solutions, and to explore issues such as wholesale liquidity in the electricity market, the impact of government environmental and social programmes, and market complexity.

The summit comes days before the Government is due to publish its White Paper on electricity market reform, which will promote competition and set out the biggest shake-up of the electricity market in a generation to deliver the gigantic £110bn+ investment needed over the next ten years to upgrade the UK’s electricity system and keep the lights on.

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Notes for editors

1. On 13 June 2011 the government announced that smaller gas and electricity suppliers will benefit from a cut in red tape. Firms with 250,000 customers or fewer will not have to take part in two government programmes – the Carbon Emissions Reduction Target and the Community Energy Saving Programme. This follows a consultation which originally proposed a threshold of 100,000 customers
2. The Government will shortly publish a White Paper on electricity market reform, following the consultation launched on 16 December 2010

Last year in the Annual Energy Statement my Rt Hon Friend, the Secretary of State, announced that we would consider the future of the Climate Change Agreements and review the CRC Energy Efficiency Scheme. We did this because we wanted to ensure that the policies we had inherited from the previous Administration were fit for the future, and that any regulations we retained were less burdensome for business, and more practicable.

Today we will set out our initial conclusions following a helpful dialogue with business, the public sector and regulators. As part of this, we have considered radical options including the possibility of scrapping either or both of the schemes to simplify the landscape. We have concluded that in order to achieve our objectives whilst at the same time minimising burdens on business, we will retain and simplify both the CRC and CCAs, with a particular emphasis on ensuring the overlaps are removed and the schemes are each streamlined.

The first reporting year of the CRC is now over, and many organisations are, for the first time, identifying and recording their entire energy use. Over this period we have seen the importance of the CRC for stimulating the market for new low-carbon goods and service industries – including in energy measurement, in voltage optimisers and in low-energy lighting. I expect this to continue.

Today my Department, together with the Devolved Administrations, publishes a vision for the way ahead in simplifying the CRC scheme. This document sets out the main simplifications that we would like to propose for formal consultation early next year. These proposals will provide greater business certainty by continuing the fixed price sales into the second phase (rather than auctions of allowances in a capped system), as recommended by the Committee on Climate Change and requested by stakeholders.

Our proposals will provide business with greater flexibility by allowing organisations to participate as natural business units. They will also reduce the administrative burden; for example by reducing the number of the fuels which are subject to the scheme from 29 to 4. We will also reduce the complexity of the scheme by removing the 90% rule and CCA exemption rules, whilst achieving broadly the same outcomes and remove any overlap between schemes at registration. In particular, businesses covered entirely by CCAs will not need to register and we will no longer require EU ETS installations to purchase allowances for electricity supplies.

Some have suggested that we should replace the CRC with a conventional tax. After considering this, and other policy alternatives suggested by stakeholders, we have decided to retain the CRC, in a simplified form. We believe that the tailored combination of reputational, financial and standardised energy measurement and monitoring drivers remain the most effective way to tackle the barriers to the uptake of energy efficiency. We have ample evidence that price alone does not ensure non-energy intensive organisations implement cost-effective energy efficiency measures that are available to them. Therefore, we consider the simplified CRC – alongside the Green Deal – is the best way to achieve greater energy efficiency and contribute to meeting our carbon budgets in the relevant sectors.

These proposed changes provide the basis for a simplified CRC and certainty for the future. We will review CRC and its fit with other policy measures in 2017.

Following the Budget announcement to increase CCA participants’ tax relief and extend the scheme until 2023, and as part of the considerations to streamline and simplify the policy landscape, we have also considered options for the future of CCAs.

We will shortly publish a consultation on revisions to the scheme to reduce its administrative burden on participants. We are exploring moving the future administration of the scheme to the Environment Agency, to exploit the synergies with the EU Emissions Trading System and the CRC Energy Efficiency Scheme, already administered by the Agency. This will give industry a one-stop shop for energy efficiency regulation. Target negotiation will remain a matter for Government and the sectors.

Finally, we have looked at the interplay between the EU Emissions Trading System and UK regulation, in particular how the UK can best implement the provisions in the Directive that allow for small emitters to opt out. My officials are continuing to discuss options with the European Commission and are developing proposals on the “equivalent measures” as required by the Directive. These discussions have not yet concluded. I am grateful for the assistance my Department has received from the UK Emissions Trading Group in making the case to Brussels for proportionate implementation of the Directive.

In order to ensure our CRC proposals maximise the simplification opportunities, and take account of all the lessons learned in the first full reporting cycle, DECC and the Devolved Administrations will continue the informal dialogue with participants throughout this autumn. My Department and the Devolved Administrations will welcome comments on our proposed way forward published today. We will then formally consult on legislative proposals early next year.