John CridlandDeputy Director General, CBI Economic growth – driving sustainable investment
Context Challenging environmental targets are here to stay...
UK emissions will grow & miss targets under BAU UK total GHG emissions (MtCO2e) Frozen 2002 technology Business as usual abatements Targets 1,000 750 500 250 0 2002 2020 2030 2050 Source: Global abatement model; U.K. abatement model; team analysis
Context • Challenging environmental targets are here to stay • Business increasingly recognises that targets are justified on their own merits • But if public support for such environmental goals depends on combining growth with environmental progress • CBI believes that political momentum behind environmental targets can be catalyst to create a policy response that drives business investment in sustainable development • But even smart policy in this area not always cost-free – trade offs must be recognised and made
November 2007 - two major reports • Report of CBI Climate Change Task Force Climate change: everybody’s business • Report of Commission on Environmental Markets and Economic Performance
Getting environmental policy right ‘Loud, long and legal’ policy framework • Credible goals that give business clear sense of direction of policy • Market mechanisms/price signals • Regulation: Avoid over-specifying the solution • Level playing field
Nurturing investor and consumer demand Investors: • Growing investor interest • Reliable, clear disclosure on environmental impacts (CBI project) Consumers: • Rising consumer awareness • But clearer information and support needed to convert interest/good intentions into purchasing action
Increasing consumer and investor demand for green products / services Right environmental policy framework Combination of: + Should create the conditions for a significant business response. But for some markets not enough – innovation policy interventions may be needed as well
Innovation policy: market pull • Public procurement • Local action – innovative, cost-effective solutions to local environmental needs • Deployment support – for products (e.g. centrally generated electricity) that are hard to differentiate and need extra support (e.g. RO)
Innovation policy: supply push • UK public funding of energy R+D only 1/3 of EU average vs‘picking losers’ • Need for better co-ordination of public funded green R+D capability • Govt should prioritise technologies for support which have greatest potential economic and environmental benefits
The business response... • global market could be worth $1 trillion in early years • opportunities in climate change adaptation as well as mitigation • range of UK strengths e.g.: • financial services AIM, insurance, emissions trading • high VA engineering transport, energy • system-wide applications ICT • adaptation climate science, pharmaceutical • SMEs as well as big business - £3 billion market in UK by 2010 eg: • commercial buildings • renewable electricity • renewable road transport fuels • domestic energy efficiency & housing
Costs and scale of additional UK greenhouse gas reduction measures Cost of abatement 2002 real €/tCO2e 600 550 500 Abatement required to meet 2030 target 450 400 350 40 €/tCO2e 50 0 Abatement potential MtCO2e 0 50 100 150 200 250 -50 -100 Nuclear Floor insulation Wind on-shore Industrial motor systems -150 Building structure Cavity wall Fuel substitution -400 Lighting CCS (early retired gas) Biofuels Condensing boilers Zero-carbon homes Solid wall insulation Solar water heating Engine and non-engine efficiency (cars) CCS (gas) Source: McKinsey UK cost curve; team analysis
Key insights from analysis • 4 main areas for cutting carbon – buildings, power, transport, industrial processes • Abatements roughly 50/50 energy efficiency + low carbon energy • Cost by 2020 €60-€90/tMtCO2e falling to €40 /tCO2e in 2030 • This equates to £100 per household per year by 2030 Action needed across all sectors to cut emissions Buildings Transport Power Industry 0 20 40 MtCO2e Building structure improvements Appliances and lights* Nuclear CCS Wind Fuel efficient technology Biofuels, plug-ins and hybrids Non-CO2 gas emissions Motor systems Fuel substitution * Major contributors are lighting, PCs/other office appliances, stand-by losses, water heating, washing and drying Source: McKinsey UK cost curve; team analysis
Northern Ireland • Avoid target one-upmanship • Renewables – opportunity but also cost issue given NI energy prices = tricky balance • In a small economy, can’t do everything. But imported green technology still benefits economy, e.g. enhances energy efficiency.