17 February 2011

Check against delivery

Thank you very much.

The ‘perfect storm’ that gives this conference its name is now two years closer.

But are we any safer?

You have already heard from climate and environment experts.

Today, I will tell you what Government is doing to tackle climate change and boost our energy security.

Previous storms

In autumn 2000, more rain fell on England and Wales than had done for 230 years. 10,000 homes and businesses were flooded. 

The floods cost the UK insurance industry £1.3 billion. Taking the last 10 years compared with the previous ten, the cost of insurance claims for flooding has tripled.

In 2003, a heatwave gripped Europe. Drought and wildfires put health services and national infrastructure under huge pressure.

Thousands died. Forests were destroyed by fire and crops by drought. Energy and transport were hit.
The UN estimated losses from the 2003 heatwave at over 13 billion euros.

Probability and risk

We can’t say for sure that climate change caused these extreme weather events. But the science tells us that as our climate changes, the likelihood of these events also increases. 

In 2004, research suggested human action had doubled the risk of a European heatwave.

And now, for the first time, scientists have been able to say what role global warming played in a major flood.

Using new methods, researchers found that human greenhouse gas emissions may have roughly doubled the chances of the autumn 2000 floods.

That is a significant step up the ladder.

We can now clearly link extreme events and their effects to the rise in man-made greenhouse gases. And we can put a number on how much more likely they are.

Global solution

Although the UK is responsible for just 2% of the world’s emissions, the consequences of climate change will not respect our borders.

That is why we must do everything we can to secure a global solution.

We are making good progress. The UN climate change talks at Cancun were the most important since Kyoto.

For the first time, both developed and developing countries  made  a political commitment to take targets and actions to mitigate climate change.

We made good on the bellwether issues.

Agreeing that the average global temperature increase should be kept below 2 degrees.

Strengthening the reporting of emissions reductions with a genuine peer-review process.
Establishing the Green Fund, Adaptation Committee, Technology Mechanism and REDD+ mechanism.

The agreements at Cancun prepared the ground for a global deal on climate change.

We have reaffirmed our faith in the process; now we must make sure it delivers.

But we should be realistic: this will take time.

And after the mid-term elections in the US, Senate ratification of any climate change treaty is off the agenda for now.

But a deal will happen.

The evidence for human influence on climate change is even more compelling.

We have a chance to show through our actions that climate change is neither distant nor inevitable, but a clear and present danger – and one that we can do something about.

Why am I so confident?

Because around the world, there is already too much invested in tackling the problem. 

The future is here

Take China. In 2009, they poured $34 billion into their low-carbon economy.

China now leads the world in solar photovoltaic production. Six of the biggest renewable energy companies in the world are based in China.

Last year, 1 million people sat the Chinese civil service exam. The most popular post got 5,000 applicants. It was ‘Energy Conservation and Technology Equipment Officer’.

China will build 24 nuclear power stations in the time it takes us to build one. By 2020, their nuclear capacity will have increased tenfold.

They will complete 16,000km of high-speed rail in the time it takes us to go from London to Birmingham.

They have the most installed hydro capacity and the most solar water heaters.
And they are forging ahead on wind power, offshore and on.

So China knows what’s coming.

American dream

And despite what the mid-terms suggest, so does the US.

Last year, in the face of serious lobbying – and lots of money from special interests – the Californian public voted to overwhelmingly support the State’s ambitious climate change laws. The eighth-largest economy in the world is still committed to going green.

And the Northeastern States are leading the way on renewables, on emissions and on energy efficiency. They’re investing in renewable heat, trading carbon, and legislating for clean energy.

The US Navy will get half of its energy from non-fossil fuel sources by the end of this decade. Half of its bases will be energy neutral. They’ve already launched their first hybrid drive warship.

President Obama used his State of the Union speech to call for a reinvention of energy policy. He challenged the best minds in America to come up with clean energy ‘Apollo projects’. And he set a new goal: for 80% of America’s electricity to come from clean sources by 2035.

Conventional wisdom has it that China and the US are not signed up to the climate change agenda.

But if you look at what they do, not what they say, a rather different picture emerges.

Low-carbon future

That is because policymakers understand – like we do – that climate change is real, is happening, and is worth defending ourselves against.

An ounce of prevention is worth a pound of cure. The best thing we can do to help adapt to climate change is to stop it happening in the first place.

That means yes – we must keep pushing for a global deal on climate change. But we must also do everything we can at home: moving further and faster to a low-carbon economy.

Saving energy

What does that mean?

First, we must stop wasting energy.

A quarter of the UK’s carbon emissions come from the home. Our housing stock – the oldest in Europe – is costing us the earth.

So we have set up the Green Deal, a national refit to bring our homes into the twenty-first century. Businesses will pay the upfront costs of energy efficiency improvements, getting their money back from savings on energy bills.

Have no doubt: this can make a real difference. After transport, heating is the second biggest driver of energy demand in Britain.

British Gas research suggests that householders who put in energy efficiency measures cut their gas consumption by 44%.

Better insulated buildings will do much of the work for us. But we must also look at renewable heat technology.

More combined heat and power schemes, putting waste heat to better use. More district heating schemes.

And more electric air and ground-source heat pumps, drawing warmth from the outside world to heat the indoors.

Better insulation, smarter homes, and more efficient heating can help us cut our energy demand.

Meeting demand

So can the next generation of vehicles.

Every month, new electric cars are coming to market. The shift from the petrol pump to the electric plug is revolutionary. And it is already underway.  

So the second point about the low carbon economy is that it will be overwhelmingly electric.
The next decades will see a massive increase in our demand. Electricity use could double by 2050, as we turn to the grid to charge our cars and heat our homes.

That demand must be met with secure, affordable low-carbon supply.

But our current energy system is not up to the job.

We will lose a fifth of our generating capacity over the next 10 years, as our ageing power plants shut down. We cannot afford to replace them with more of the same.

But with long lead-in times and high capital costs, we must act now. Otherwise, we face an energy crunch.

Our plan for affordable low-carbon electricity rests on three pillars.

The first is renewable energy. Like onshore and offshore wind; Wave, tidal stream, and micro-hydro power; solar, biomass, and energy from waste like anaerobic digestion.

The second is new nuclear – without public subsidy.

Half of my Department’s annual budget is spent cleaning up after past generations of nuclear and coal. Next year, it will reach two-thirds.

Never again. That is why we have passed the cost of nuclear liabilities on to developers, who will pay the full cost of waste disposal and decommissioning.

And the third element is clean coal and gas, delivered by carbon capture and storage. Giving us flexible and reliable backup without the carbon consequences.

Cost and portfolio

No-one knows what the most successful low carbon technology will be in thirty years time.

The only way to ensure a secure, affordable low-carbon energy supply – to keep the lights on and the skies clean at the lowest possible cost – is to build an energy portfolio.

It is exactly the same principle as a pension fund. When we’re planning for the future, we don’t put all our eggs in one basket.
It would be irresponsible for us to try and play god with the country’s energy future.

So we must create a policy framework that lets us discover and then use the lowest cost options.

That means thinking about a range of scenarios.

At one end may be a world where fossil fuel prices are exceptionally high. We will rely overwhelmingly on renewables and nuclear. With pumped storage to meet peaks in demand.

At the other end, some argue that plentiful gas from unconventional sources will cause gas prices to tumble. Then we would rely much more on clean gas, with carbon capture and storage.

Our policy is about keeping our options open between technologies, but ensuring that we are on the road to the low carbon economy.

We have set a direction. We don’t yet know which particular technology will get us there.

But we know that the fundamentals of the low carbon economy are not going to be expensive.

Nick Stern estimated overall costs at no more than 2 per cent of GDP by 2050.

If our economy doubles in forty years, that means a 98 per cent increase instead of a 100 per cent increase.

Even that simple calculation depends on other factors.

If we relied on oil and gas, and the price stayed relatively low at $80 a barrel then consumers will pay more under our policies – about an extra 1 per cent on their bills by 2020.

At the oil price reached this month – $100 a barrel or more – consumers will pay less through low carbon policies than they would pay for fossil fuel policies.

And if the US administration is right, and the price is $108 a barrel in 2020, then our consumers are winning hands down.

Green economy

Energy security is about price as well as supply. Without both, we have neither.

So there’s another economic advantage, one that makes a powerful case for the low-carbon revolution: insulation from oil and gas price shocks.

Thanks to a decade of missed opportunities on renewables, our energy import dependence could double by 2020.

I asked economists at DECC to look at how a 1970s style oil price shock would play out today. They found that if the oil price doubled, it could lead to a cumulative loss of GDP of around £45 billion over 2 years.

And this is not just far-off speculation: it is a threat here and now.

The Office of Budget Responsibility forecast that if oil prices rose by 20% – as they have since October – the total cost to the economy would be four and half billion pounds.

Oil and gas will play an important role in the low-carbon shift. But in the long term, getting off the oil hook will make our economy more independent, more secure and more stable.

Britain can lead the way. Our scientific, research and engineering strengths will stand us in good stead.

Look at our record on CCS, where British scientists top the tables when it comes to academic citations.

We can turn that laboratory lead into an economic success story.

But we must be more ambitious. Pushing hard for a higher EU emissions target – a 30% reduction by 2020 – to drive innovation in Europe.

Showing business that the EU is serious about a low carbon transition. Securing investment in green technology and infrastructure, so we can compete with fast emerging economies who are investing billions today. 

Sending a clearer signal through the carbon price. And working towards that binding global deal at the UNFCCC.

Conclusion

This is an exciting journey.

By moving to a low-carbon economy, we can build a shelter against energy price and security storms. And we can tackle the defining threat of our age: climate change.

We are already making progress.

Carbon emissions are down. The international negotiations are back on track.

The low carbon transition has begun. It is up to us to see it through.

Thank you very much.
 

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Yesterday I was asked to share my practical tips on how to get a Board involved, and to stay involved in sustainability. The venue was the M&S Plan A supplier conference; the audience, was, well, M&S suppliers, big and small – and more than 1000 of them – an impressive turnout.

My top tips should be just as effective if this is the first time you are taking sustainability to the Board – your business might be an ambitious late entrant. They should also be useful if you want to create a step change in how your Board approaches sustainability – in this instance your business might be a leader stepping up.

Whatever the context, the route to success is to encourage your Board to think, feel and do things differently. And, in my experience, there is typically a four stage process to rewiring your Board’s view of sustainability.

Step one – get them interested

There are two keys ways to do this:

1. Present sustainability as an opportunity. The key to success here is to understand how your Board make decisions – what is the balance between emotional, rational and political decision-making?
   For the rational decision-makers, be brutal about the business case. Make sure you have compelling facts and figures on eco-efficiency savings, for example, and explain how sustainable products and services can build market share, and how sustainability can build brand equity, as well as improve retention.
   For the political decision-makers, the opportunity here is to show leadership within the organisation, to convince your senior player that sustainability will create profile and a personal legacy. Or demonstrate that there is the opportunity to create better relationships with policy makers and therefore influence enabling regulation. And there’s always an opportunity to show sectoral leadership.
   For those with a strong emotional decision-making compass, the opportunity is very simple: help create a sustainable future – for your friends and family. This is the riskiest strategy – usually starting with rational and political arguments is lower risk. If get this opportunity wrong, there is a risk you might be dismissed into the wilderness of tree-hugging land.
2. Unleash the competitive streak. Spark your Board’s interest in sustainability by sharing snippets from competitors. Communicating how they are getting ahead can be a very effective way of whetting your Board’s appetite for sustainability. My experience here is that sharing this information can often prompt howls of derision or be instantly dismissed – but is very rare that a senior decision-maker is not interested in what the competition is up to. What’s more, after such an encounter some researcher somewhere will likely be dispatched to do a hasty bit of competitor benchmarking.

Step two – get them excited

So, you’ve stimulated enough interest and you have an opportunity to make the case for sustainability in front of the Board. This is a precious opportunity, one to be carefully thought through. Here three things to get right.

1. Understand your audience. Not only the context in which they make decisions, but their baseline awareness of sustainability issues. If you think it is lacking,encourage the key players to up their baseline knowledge ahead of your session. I know several CEOs who were dragged off to see An Inconvenient Truth or suddenly received an invitation from high places (such as from the Prince of Wales) to take part in a sustainability session (engineered by the sustainability/CSR person). Or, you could deploy a spot of CEO speed dating – arrange for them to see a peer in another sector to hear about how they tackled sustainability.
2. Repeat the opportunity stories that hooked their interest in the first place. Be brutal about the business case and layer in more opportunities. Sustainability can often provide a new perspective on perennial difficult issues (as it is, after all, a change management process). You can also use sustainability to build new partnerships and collaborations – look at the way Plan A prompted the exciting partnership between M&S and Oxfam around the clothing exchange, or the innovative partnership between B&Q and the London Borough of Sutton to make low carbon homes a reality.
3. Use the right language. Tailor your language to make the case as compelling as possible – use the language of business. So it’s ecosystem asset, not rainforest; it’s supply chain security, not running low on resources, for example.

Step three – get them going

Reach agreement on the level of ambition for sustainability – this is where we would typically use our Leader Business Spectrum, which classifies an organisation’s approach to sustainability according to four categories: beginner, performer, leader and pioneer. Try to achieve a shared understanding of ambition – where does the business want to be a pioneer? Where is it happy to sit among the pack? Without a shared and detailed sense of ambition the business will start pulling in several directions.

Also, agree a framework for the sustainability ambitions – usually a set of longer-term aspirations supported by shorter-term targets. Ideally have these integrated into the main business strategy; as we know, a business struggles to implement one strategy, never mind two. And these targets need to be owned by the Board.

Step four – keep them on track

Agree an implementation strategy with regular check-in points. I’ve experienced some great Board sessions where creative visions have been generated, but not followed-up so nothing really changes.

Think about using an external advisor to keep the Board focused and on track. This isn’t a bit of self-promotion, but often somebody from outside your organisation can provide an important independent perspective, bring insights from other companies – and can get away with saying what you can’t.

Embrace the journey

So, through exciting your Board, sparking their interest and getting them going, as well as keeping them on track, you will encourage them to think, feel and do things differently – and put sustainability at the heart of the business.

My last piece of advice is to be patient – this is a journey, there are obstacles, but the trick is to navigate around these. Be persistent – as they say, ‘if at first you don’t succeed, try, try and try again’.

What role should insurance play in looking after the future of our homes and businesses?

Insurance is arguably one of the most important tools we have, when it comes to protecting the planet’s most vulnerable communities against climate change. But, according to a paper by Forum for the Future, some developing countries could soon be regarded as ‘uninsurable’ – unless the insurance sector finds alternative ways to spread risk.

No modern economy could function without insurance – and, given our changing climate and its unpredictable impacts, none should. It’s a vehicle designed solely with the future in mind. It spreads risk over time and space, and offers a safety net in case of sudden turns of fortune.

Responding to the Challenge of Climate Change, by the Forum’s Director of Sustainable Financial Markets, Alice Chapple, argues that the huge risk that this represents has yet to be fully recognised by the insurance industry. Some countries and communities face more frequent losses from storms, floods, heatwaves and other catastrophic weather events. And so those which are less likely to be affected may prefer not to pool their risk with those which are more vulnerable.

Developing economies are particularly threatened, since everything is subject to unpredictable weather patterns, from homes and crops to businesses and energy supplies. For some countries, adequate insurance could be the difference between a viable future and economic collapse.

“Climate change is a global problem which requires global cooperation”, says Chapple. “We cannot expect developing countries to play their part if insurers refuse to support their economies by offering cover against the impacts of climate change.”

A more general problem is the focus of current insurance strategies on short-term risk. Few are equipped to take into account the physical, regulatory or market impacts of climate change. And even fewer reward businesses for taking action to reduce greenhouse gas emissions or limit climate risk. On the contrary, some even penalise it. So, for instance, clean energy providers using less proven technology face higher premiums than established producers of fossil fuel power.

Among eight recommendations to the industry, the paper suggests that insurers rate businesses according to how they contribute to climate risk. One possibility would be a ‘climate premium’ to discourage high-carbon activity, and fund action to limit and adapt to climate change. The paper insists on the critical role of the insurance industry in creating a low-carbon economy, and in preventing and managing climate risk. But, says Chapple, cross-industry collaboration and support from government are needed to fulfil this potential. – Anna Simpson

Responding to the Challenge of Climate Change can be downloaded here: www.forumforthefuture.org/projects/ClimateWise