Event Report: Budgeting for a Green Transition

Lord Chris Smith, Chairman of the Environment Agency welcomed everyone to the meeting and introduced the Secretary of State, Chris Huhne MP.

Lord Smith voiced his confidence that business understands the threat posed by climate change and recognises the part it must play in tackling it. He believed that the businesses, NGOs, industry organisations and MPs that form the membership of the Aldersgate Group (AG) are essential in ensuring that this happens. Government therefore, must provide assistance and certainty in the regulatory environment. Mr Huhne will be responsible for this being accomplished.

Chris Huhne MP, Secretary of State for Energy and Climate Change declared himself a "devoted fan" of the Aldersgate Group and voiced his pleasure at being asked to speak.

Mr Huhne said when he was working on the Liberal Democrat environmental policy he was fully aware of the Aldersgate Group's messages regarding the importance of using instruments other than public spending. "What very wise advice that is in the context of the Budget deficit that we're facing and the problems that we have."

Mr Huhne confirmed that certainty will be necessary "to continue that route march to a low carbon economy, and the prize if we get that right is enormous." The prize will be calculated in jobs, profits and in international competitiveness. Europe is currently in a world-leading position in terms of green technologies, but Mr Huhne warned that "I don't believe that's likely to be sustained unless we are ambitious both at a European level, and at a national level here in the UK."

The Coalition Government is therefore committed to encouraging the EU to increase its commitment of 20% cuts in emissions by 2020, to 30%, "which will of course mean the UK being even more ambitious and moving up to 40% or so."

Mr Huhne described how the UK must drive £200bn investment into its energy infrastructure over the next ten years. The government will also draw up the flagship bill on the Green Deal, to create a new industry capable of retrofitting our residential housing stock. Mr Huhne viewed the Renewable Heat Incentive (RHI) as "an absolutely key part of our commitment to meeting our carbon targets", but warned that the standard decision-making process would need to be followed before next steps could be outlined.

"We stand on the edge of what is, in effect, a new revolution in our industrial structure." Previous recessions show that part of our pathway out of downturn has been "the development of enormous new industries which meet new needs." The challenge today is "to repower the whole economy in the same way as when we moved from the early phases of the industrial revolution, from water power to steam, from steam power to gas, from gas to electricity. It's as fundamental a change as that."

Mr Huhne insisted that this administration is determined to be the greenest UK government in history, "and you have it on no less an authority than the Prime Minister himself, who [visited the Department of Energy and Climate Change and] described himself as the fourth minister in the department. He is totally committed to this agenda."

Mr Huhne then took questions, the first of which was from Mark Newbery of Herbert Smith, the evening's sponsor, who asked for Mr Huhne's view of what will replace nuclear, if it transpires that nuclear cannot answer the UK's energy requirements post-2015. Mr Huhne stated that an annual energy statement will be published in July which will develop a framework of incentives to allow the market to choose the most effective and economically viable way forward. Nuclear power is favoured by the majority of the House of Commons, notwithstanding the Liberal Democrats' reservations, but it has been agreed that there will be no further public subsidy to support it.

Andrew Raingold, Deputy Director of the Aldersgate Group (AG) highlighted three overarching themes from Group's latest report, Accelerating the Transition.

The report highlights the need for a sense of urgency to address climate change and resource depletion. Development of the green technology sector will be key in driving the country's economic recovery, stimulating growth, jobs and tax revenues. The Coalition Agreement made a number of positive commitments, from the introduction of a carbon floor price to energy market reform and particularly the aspiration to make this the greenest government ever.

Secondly, Mr Raingold argued that "the Green Investment Bank (GIB) has the potential to be one of the cornerstone policies of the new government and could go a long way to facilitate the estimated £260bn of investment required within ten years to achieve UK climate change targets." The AG welcomed confirmation from the Chancellor that new proposals for the GIB will be published after the spending review in October, and stated that legislation within a year could still be feasible. Capitalisation of the Bank should be in the region of £2bn per annum up to 2020 (£20 billion in all), which could largely be funded by auction receipts from the EU Emissions Trading Scheme.

Thirdly the AG welcomes the Government's drive to reduce red tape, but warns that this should not be at the expense of the benefits that regulation can bring. "It should be noted that 19 out of the 23 green policies in the Coalition Agreement will be delivered through regulation."

Mr Raingold concluded by thanking Herbert Smith, sponsors of the evening and new members of the Aldersgate Group.

Gordon Frazer, Managing Director of Microsoft UK announced he was pleased to be the newest member of the Aldersgate Group, and described the role that a technology company can play in a low carbon economy.

Microsoft believes that "IT is uniquely positioned to assist in dealing with the challenges of carbon emissions," not just in transmitting information which can lead to emissions reductions, but also in encouraging behavioural change.

Mr Frazer gave the example of how Microsoft has reduced its employees' business travel through promotion of telepresence conferencing. He estimated that the company had saved 100 million air miles, resulting in huge reductions in carbon emissions. Using technology to allow employees to work in different offices or from home carried similar benefits.

As a business, Microsoft believes it has typified the journey that all businesses should undertake to ensure their business practices are responsible. This covers assessment of energy sources, energy efficiency, retrofitting buildings and so on. Microsoft has been affected by new trends in the technological landscape, for example the shift towards cloud computing has required upscaling of datacentres around the world. Microsoft has recently opened a new datacentre in Dublin which can facilitate 95% of its cooling by making use of the Irish climate.

Tom Burke, Founder of E3G was in full agreement with the Secretary of State about the scale of the opportunity, both for the economy and the environment.

Mr Burke believed that we have two key goals: staying below 2 degrees in warming, and "getting out of oil." He proposed that the one answer to both problems is achieving a carbon neutral energy system. The road map for how to get there is fairly well known, requiring energy efficiency; carbon neutral power; carbon neutral transport and making maximum use of our carbon sinks.

The difficulty is that British energy policy "is full of policy cannibalism, where we've been arguing on the one hand that you have to drive the price of energy down to enhance our competitiveness and on the other hand you've got to drive the price of carbon up, in order to make the transition", which has caused anomalies. The amount of current subsidy to the fossil fuel industry is more than the amount of subsidy to the nuclear and renewables industry combined."

Mr Burke described the carbon price as essentially a tax on all British business and consumers, but he also believed it to be a distraction. The price of carbon is not as important as the price of capital required for a long term transition.

Rick Willmott, Group Chief Executive of Willmott Dixon welcomed Chris Huhne's comments but asked at what point a company or individual commits to sustainability. He suggested "it all depends on how quickly you can align the thinking."

There are two ways to align the thinking: induce behavioural change, or rely upon an individual or corporate to follow the moral compass. Although both can work, the former is more likely to succeed, because Mr Willmott argued that the "elephant in the room still remains how to engage in the creation of a low carbon future."

Willmott Dixon is a billion pound business which creates, improves and invests in the build environment, so "our operations have a larger than average impact on the wider environment, which gives us a great opportunity to grasp the low carbon initiative and effect some meaningful changes." The construction industry as a whole generates more than 30% of the UK's waste, so Willmott Dixon has set itself a zero waste target by 2012, which carries an environmental benefit, and an economic benefit for customers.

Mr Willmott is also driving his company to be carbon neutral and to engage with staff behaviour. An online sustainability training tool for staff and suppliers "had a profound influence on our staff and their view of low carbon and the role they have in helping us to achieve our targets."

This event was sponsored by Herbert Smith LLP.