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Fellow Ministers, ladies and gentlemen, I am delighted to be speaking to you this morning at this very important conference.
I know that most of you in your own countries have ministerial responsibilities for energy and environmental matters but I speak to you here as a Finance and Economic Minister.
More than sixty years ago in 1944, the great British economist John Maynard Keynes laid down what he believed were the foundations of economic policy that it was for government to ensure the twin objectives of high and stable levels of growth and employment.
Today we know that there is a third objective on which our economies must be built and that is environmental care.
If our economies are to flourish, if global poverty is to be banished, and if the well-being of the world's people enhanced not just in this generation but in succeeding generations we must make sure we take care of the natural environment and resources on which our economic activity depends.
And we now have sufficient evidence that human-made climate change is the most far-reaching and almost certainly the most threatening of all the environmental challenges facing us.
As you know, the UK Government led by Prime Minister Tony Blair and by Margaret Beckett and Patricia Hewitt has made climate change one of the two central priorities along with global poverty of our 2005 G8 Presidency. And I want to explain today why I believe that climate change is an issue for finance and economic ministries as much as for energy and environmental ones and why all these parts of individual national governments and indeed all governments internationally must work together to tackle it.
Environmental issues including climate change have traditionally been placed in a category separate from the economy and from economic policy.
But this is no longer tenable.
Across a range of environmental issues from soil erosion to the depletion of marine stocks, from water scarcity to air pollution it is clear now not just that economic activity is their cause, but that these problems in themselves threaten future economic activity and growth.
And it is the poorest members of the community those most dependent on the natural world for their survival, and those with the fewest resources to buy their way out of unhealthy environments that suffer the most.
Indeed, it is in the issue of climate change that we can see this interaction of economic development, environmental degradation and social inequity most clearly.
As you know, the impact of climate change will depend on how far and how fast temperatures rise, and on the nature of accompanying changes to rainfall, sea levels and extreme weather events. But even at global mean temperatures of 1 degree centigrade above pre-industrial levels 0.2 degrees warmer than now the evidence now shows that economic impacts are likely to be significant. And at a global average of 2 degrees or more the consequences for agricultural productivity, water stress, ecosystems and human health become potentially devastating.
The Intergovernmental Panel on Climate Change suggest that the global economic costs associated with an increase in average global temperature of 2.5 degrees could add up to between 1.5 and 2 per cent of global GDP a year.
As these costs unfold, an unstable climate could lead to instability in some societies and economies. And as economic instability increases risk and undermines investment, so climate change will come to threaten our economic development and growth.
But climate change is an issue of justice as much of economic development. It is a problem caused by the industrialised countries, whose effects will disproportionately fall on developing countries.
Climate change is a consequence of the build up of greenhouse gases over the past 200 years in the atmosphere, and virtually all these emissions came from the rich countries. Indeed, we became rich through those emissions, although of course we did not know this then.
But at the same time it is now clear that the largest impacts of climate change will occur in the great land masses of Africa, Asia and Latin America. Indeed many are already occurring, from reduced rainfall in the Sahel to floods in Bangladesh.
So as the Commission for Africa concluded in its report published last week, economic development in the poorest countries is going to take place in the context of a changing climate, and development strategies are going to have to adapt to meet this new challenge. This is not a question of making climate change a priority over poverty reduction that would be absurd as well as immoral. It is precisely economic development and growth which will provide the resources and technological advance to enable economies to adapt to and mitigate climate change. The task is to ensure that poverty reduction strategies and our quest to meet the 2015 Millennium Development Goals are not overwhelmed and reversed by the impact of climate change.
At the same time we must acknowledge where the responsibility lies for tackling climate change. This was set out in the 1992 United Nations Framework Convention on Climate Change, agreed by over 180 countries. The Convention clearly sets out the principle of "common but differentiated responsibilities" that the industrialised countries must take responsibility first in reducing their emissions of greenhouse gases.
For the UK's part, we are aiming to meet not only our Kyoto target of reducing greenhouse gas emissions by 12.5 per cent by 2012. We have also set ourselves a stretching national target of moving towards a reduction in carbon dioxide emissions of 20 per cent over 1990 levels by 2010, and a longer-term goal to put ourselves on a path to cut the UK's carbon dioxide emissions by 60 per cent by 2050. And we are making progress.
But at the same time we have to acknowledge that no country can solve this problem on its own. The UK is responsible for only 2 per cent of global emissions of greenhouse gases, so our actions will have little impact on climate change unless they are part of a concerted international effort.
That is why the UK supports the Kyoto Protocol which came into force last month. And why we are working with other countries to establish both a consensus around the need for change and firm commitments to take action to reduce carbon emissions worldwide. The European Union accounts for about 15 per cent of carbon emissions; the G8 as a whole about half. So the action of the richest countries can make a huge difference on their own.
However in due course, as the UN convention recognises, we will need a comprehensive global response. We will need the cooperation of all countries with significant energy needs and emission levels if for the benefit of all of us we are going to tackle this global challenge comprehensively and cost effectively. In a globally competitive economy a multilateral approach is the only way forward.
Now, controlling greenhouse gases requires policy action in a number of areas but for the remainder of my remarks today I want to focus on energy policy.
I believe that economic policy makers now need to pay much greater attention to this not just because the pace of global economic growth is demanding investment in energy supply and distribution on an unprecedented scale, but because new challenges have emerged in energy policy in the last few years:
Every nation today is concerned about energy security.
Higher energy prices are requiring industry and commerce to examine the costs and efficiency of energy use.
The growing evidence of climate change is forcing attention on carbon emissions and their reduction.
And in terms of policy these challenges all point now in the same direction: towards a reduction in the carbon intensity of energy production and greater efficiency in its use.
Over the next 25 years, the International Energy Agency estimate that global economic growth and development will require investment in the world's energy infrastructure of some 16 trillion dollars. Around 1500 large generating plants will be built, most using fossil fuels, over a third of them in China alone. And, with the lifespan of a power station itself at up to 40 or 50 years, the decisions we make now, and over the next two decades, will affect our energy options and the climate change impacts these will have for at least the next half a century.
So the task facing the world is to ensure that the energy investment decisions we make now contribute to addressing these challenges, and do not exacerbate them.
Over the last few years the United Kingdom government has set our energy policy on such a path.
In particular, we have used a variety of market-based policies designed to stimulate energy efficiency and to encourage the development of low-cost renewable sources of energy supply:
Through these and other measures we have sought to reduce carbon emissions in the most cost-effective way, stimulating technological innovation, and harnessing entrepreneurialism.
And overall, the UK Government is on course not just to achieve but to go beyond its Kyoto target.
But in fact the greenhouse gas emission numbers do not tell the whole story. Since 1997 the British economy has enjoyed high growth, averaging growth of 2.8 per cent a year, or 17 per cent in total. In the same period carbon dioxide emissions have remained about the same. So the carbon intensity of the British economy carbon emissions per unit of GDP has fallen by nearly 15 per cent.
This is not to be complacent. We know that we have much further to go. But it is to point to one of the crucial lessons of the UK's and other countries; experience over the last eight years --- that climate change policy is compatible with strong economic performance.
For well-designed policies can actually stimulate innovation and improve productivity, particularly in the field of energy efficiency.
The evidence shows that in the UK most businesses and public sector organisations could easily achieve up to 20 per cent reductions in their energy bills in short payback periods, often without any capital investment at all -- which in turn would have a positive effect on profitability and competitiveness.
So the first task of climate change policy is to release these productive benefits.
Many companies have already taken action in response to the policies that we have put in place to encourage more efficient use of energy. But others have not. In the global economy, as pressure on global resources and prices increase, I believe that no business can now ignore this challenge. For the UK my ambition is that British businesses should become world class in their energy efficiency performance, in the same way that they must become world class in their performance in productivity, skills and research and development.
And yet, as our Energy Efficiency Innovation Review has found, there is a clear market failure in energy efficiency in this country. There are profitable, cost-saving measures which can be taken in the management of energy which are currently going to waste. In most of our economy and in most of our public sector we continue to buy and sell energy rather than energy services the heat, light and power which are the real outputs. So I can announce today that the Treasury will host a summit in the coming year to explore how Government and business can remove barriers to the development of energy services markets in the UK.
And in making climate change a key priority of the UK's Presidency of the EU in the second half of this year, I want the energy efficiency and productivity of the European economy to be a principal focus.
Today the Treasury is publishing a paper showing that to succeed in the global economy Europe needs to be more flexible, more adaptable and more enterprising. Facing the expansion of global competition and the explosive nature of technological change, and with developing countries on course to produce half the worlds manufacturing exports, no country or continent can take its future prosperity for granted.
Countries and continents will rise and fall depending upon their ability to adapt to change. The advanced industrial countries have important choices to make. And as our Budget study published today on the restructuring of the global economy makes clear, their future cannot be founded upon low skill levels and low technology. All need to invest in science infrastructure and human capital.
So to meet the challenge of the global economy Britain and Europe must remove unnecessary barriers to enterprise and make the necessary public investments in education and infrastructure.
And one area where Britain and Europe excel is in environmentally friendly technologies.
It is now clear that as well as renewable sources of energy cleaner fossil fuel technologies, including the capture of carbon dioxide and its long-term storage underground, are likely to become crucial elements of carbon reduction strategies over the next few decades, particularly for emerging economies. These technologies have the potential to provide a step change in reducing emissions.
I can therefore announce today that as part of the UK Government's continuing support for research and development in this field we will now examine the potential of economic incentives to encourage carbon capture and storage.
And in tomorrow's Budget I will also set out proposals for a new high level energy research platform which will bring together public and private funders of energy research to enhance opportunities for collaboration and to set shared priorities for research.
I believe that in both energy efficiency and the development of low carbon energy sources there are major economic opportunities for business. But climate change policy must also take into account its impact on business competitiveness. This must therefore be carefully monitored and managed. I know that, for business investment, certainty in the long-term policy framework is very important. I am therefore issuing a challenge today to the business community, in the UK and beyond: to join us in putting in place a long-term framework to meet our climate change goals in the most cost-effective way and with the lowest impact on competitiveness.
It is clear that a key requirement of this will be to work internationally. And that it is why the Kyoto Treaty and the EU Emissions Trading Scheme are so important. They make the economic opportunities of a climate friendly energy policy real and tangible. Carbon now has a price. Carbon saving is now a way of making money. And as the EU trading scheme sets Europe on course to meet its Kyoto targets, businesses across the continent have an unprecedented opportunity to benefit from carbon reduction and through the Kyoto Treaty mechanisms this is as true for countries in the trading of carbon credits as it is for firms.
The UK is a strong advocate of carbon trading and of the economic opportunities it brings. I am delighted that the City of London has become a centre of carbon trading activity. And having seen the interest in cap and trade schemes in the north eastern states of the US and in California, and elsewhere, I hope that in due course that we can extend the hand of trading from Europe to other parts of the world.
And while we take these measures in the UK and in Europe, I also believe we must support emerging economies and developing countries in their efforts.
As the Commission for Africa demanded, we must help the poorest countries adapt to those effects of climate change which are already occurring and which cannot be avoided to ensure that all the Millennium Development Goals are met not at the cost of economic growth but to achieve it.
And we must offer assistance where it is wanted to emerging economies whose emissions are rising, such as those represented at this conference today, to help them provide energy for development and for poverty reduction not at the cost of economic growth but to achieve it in ways which contribute to tackling, rather than exacerbating, the problem of climate change. And so I am delighted that Chinese Minister Liu is here to speak following me on this subject.
It is clear that both technical assistance and financing will be part of this: and there are barriers to both that must be overcome.
We want to develop, through the G8 process, a package of practical measures, focused on accelerating technological development, to cut emissions.
And we must look at what more support the International Financial Institutions, including European institutions like the European Investment Bank, can provide to promote greater investment in climate-friendly energy production and energy efficiency.
So, in conclusion, I believe we must build our economies on a platform of economic growth, full employment and environmental care. We must make climate stability, energy investment and energy security central to economic policy.
I believe this is within our power, if we have the will. But it will require us to act together and I hope that this conference can be the start of a process to bring together, not just energy and environment ministries from our countries, but finance and economic ministries too, to explore how we can together address these issues.
In the mid 20th Century, John Maynard Keynes played a key role in shaping the new international institutions the United Nations, the IMF, the World Bank believing that international cooperation was the only way to solve the economic challenges of the post war world.
I believe that today at the start of the 21st century international cooperation is again the only way forward.
Here, as elsewhere, we must live up to the ideal of an international community acting for the public good for the present generation, and for generations to come.
Source: HM Treasury
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