Prepare for the next technological revolution

The Times
December 1, 2008
Sam Laidlaw: Viewpoint

What's in a target? The Government's escalation of its 2050 greenhouse gas reduction target to 80 per cent shows very starkly the scale of worldwide action that it believes is necessary to prevent catastrophic climate change.
But to achieve such a cut in emissions of carbon dioxide and other gases, we would need a “carbon crunch” far greater in scale than most people imagine.
This seems certain to be underlined by the first report from Lord Turner of Ecchinswell's Committee on Climate Change, due to be published today. It was on the committee's recommendation that the target was moved to 80 per cent from 60 per cent.
Of course, targets are good, but we all have a responsibility to ensure they don't just become hot air - in this case, literally so.
So what action can be taken to not only deliver the nearer term UK target of 15 per cent of all UK energy from renewables by 2020, but also the further reductions required to reach the 2050 objective? And what policy frameworks must be in place?
In the energy sector, accounting for 40 per cent of carbon dioxide emissions, the changes required are seismic and will represent the next technological revolution in our lifestyles, after the internet.
Upstream, there is already a European Union timetable to eliminate some of our highest-emitting coal-fired power generation. About a quarter of the UK's generation capacity will be taken offline by 2015, creating an opportunity to decarbonise the sector by building replacement clean generation.
Gas-fired generation, while much cleaner than coal, will probably be reduced to a back-up role for times when the thousands of wind turbines that potentially will be built offshore are becalmed. The need to keep the “reserve margin” of back-up generation at an appropriate level may require a redesign of the power market.
And we will see the renaissance of zero-carbon nuclear generation, in which Centrica plans to invest.
The industry will need a stable regulatory framework in which a reasonable return can be made, such as the Renewables Obligation for large-scale wind generation. It also needs a high and stable price for emitting CO2 engineered through the EU's Emissions Trading Scheme - it must become more rewarding to be a low-carbon company than a polluter.
This is why it is critical that the British power sector, and much of Europe, should adopt 100 per cent auctioning of allowances to emit CO2 from 2013. We must see no slippage and no loopholes. Every tonne of carbon must carry a price tag.
Meanwhile, in people's homes and businesses, we will need a sharp reduction in emissions if the carbon targets are to be met.
This is why we're working hard on alternative technologies. These start with basic measures, such as insulation and low-energy lighting, and lead through to renewable generation in the home from solar photovoltaic panels, fuel-cell boilers and heat pumps.
It's not science fiction - many technologies are mainstream already in places such as Germany and Sweden - but government needs to incentivise companies to turn them into mass-market products and to use the carrot and stick to persuade homeowners to install them. Householders and businesses will require financial inducements, such as tax breaks on equipment, renewable heat incentives and “feed-in tariffs” to pay people for producing renewable heat or power. A further enabler will be the rollout of smart meters to measure and give credit for this.
Up front, it will be expensive. The Government has already put a £100billion tag on the delivery of its 2020 renewables target. These costs will be borne by us all. In the longer term, these changes should insulate us more from volatile global prices for gas and coal, meaning more stable consumer bills.
There is, of course, scepticism in some quarters that all this will happen. Those sceptics should remember that back in the 1970s there were misplaced doubts about British Gas's ability to convert 34million appliances in 17million homes to natural gas. The big mistake now would be to imagine that there is somehow a “one size fits all” solution. The secret will be to drive forward on multiple fronts.
It is critical that other industry sectors play their part, but they will rely on the energy sector to help them. For example, transport has much to do, given that it accounts for more than a fifth of CO2 emissions, but the increase in electricity usage to power cars and lorries will depend on the decarbonisation of generation.
We all recognise that the Government has a lot on its plate, given the present economic difficulties, but, as Lord Turner's report lands on desks in Westminster, it is important that our energy policy-makers remember the lessons of the credit crunch: control events before they control you.
- Sam Laidlaw is chief executive of Centrica