John CridlandJohn CridlandDeputy Director General, CBIDeputy Director General, CBI

Economic growth – driving sustainable Economic growth – driving sustainable investmentinvestment

ContextContext

Challenging environmental targets are here to Challenging environmental targets are here to stay...stay...

UK emissions will grow & miss UK emissions will grow & miss targets under BAUtargets under BAU

UK total GHG emissions (MtCO2e)UK total GHG emissions (MtCO2e)

Business as usual abatementsTargets

0

1,000

250

500

750

2002

2020

2030

2050

Frozen 2002 technology

Source: Global abatement model; U.K. abatement model; team analysis

ContextContext

• Challenging environmental targets are here to stayChallenging environmental targets are here to stay

• Business increasingly recognises that targets are justified on Business increasingly recognises that targets are justified on their own meritstheir own merits

• But if public support for such environmental goals depends on But if public support for such environmental goals depends on combining growth with environmental progress combining growth with environmental progress

• CBI believes that political momentum behind environmental CBI believes that political momentum behind environmental targets can be catalyst to create a policy response that targets can be catalyst to create a policy response that drives business investment in sustainable development drives business investment in sustainable development

• But even smart policy in this area not always cost-free – trade But even smart policy in this area not always cost-free – trade offs must be recognised and madeoffs must be recognised and made

November 2007 - two major reportsNovember 2007 - two major reports

• Report of CBI Climate Change Task Force Report of CBI Climate Change Task Force Climate change: everybody’s businessClimate change: everybody’s business

• Report of Commission on Environmental Report of Commission on Environmental Markets and Economic PerformanceMarkets and Economic Performance

Building blocksBuilding blocks

Getting environmental policy rightGetting environmental policy right

‘‘Loud, long and legal’ policy framework Loud, long and legal’ policy framework

• Credible goals that give business clear sense of Credible goals that give business clear sense of direction of policydirection of policy

• Market mechanisms/price signalsMarket mechanisms/price signals

• Regulation: Avoid over-specifying the solutionRegulation: Avoid over-specifying the solution

• Level playing field Level playing field

Nurturing investor and consumer Nurturing investor and consumer demanddemand

Investors:Investors:

• Growing investor interestGrowing investor interest

• Reliable, clear disclosure on environmental impacts Reliable, clear disclosure on environmental impacts (CBI project)(CBI project)

Consumers:Consumers:

• Rising consumer awarenessRising consumer awareness

• But clearer information and support needed to But clearer information and support needed to convert interest/good intentions into purchasing convert interest/good intentions into purchasing actionaction

Combination of: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

+Right

environmental policy

framework

Increasing consumer and

investor demand for

green products / services

Innovation policy: market pullInnovation policy: market pull

• Public procurement Public procurement

• Local action – innovative, cost-effective Local action – innovative, cost-effective solutions to local environmental needssolutions to local environmental needs

• Deployment support – for products (e.g. Deployment support – for products (e.g. centrally generated electricity) that are hard to centrally generated electricity) that are hard to differentiate and need extra support (e.g. RO)differentiate and need extra support (e.g. RO)

Innovation policy: supply pushInnovation policy: supply push

• UK public funding of energy R+D only 1/3 of EU UK public funding of energy R+D only 1/3 of EU average vs ‘picking losers’average vs ‘picking losers’

• Need for better co-ordination of public funded Need for better co-ordination of public funded green R+D capabilitygreen R+D capability

• Govt should prioritise technologies for support Govt should prioritise technologies for support which have greatest potential economic and which have greatest potential economic and environmental benefitsenvironmental benefits

The business response...The business response...

• global market could be worth $1 trillion in early yearsglobal market could be worth $1 trillion in early years

• opportunities in climate change adaptation as well as mitigationopportunities in climate change adaptation as well as mitigation

• range of UK strengths e.g.:range of UK strengths e.g.:

financial services financial services AIM, insurance, emissions tradingAIM, insurance, emissions trading

high VA engineering high VA engineering transport, energytransport, energy

system-wide applications system-wide applications ICTICT

adaptation adaptation climate science, pharmaceuticalclimate science, pharmaceutical

• SMEs as well as big business - £3 billion market in UK by 2010 eg:SMEs as well as big business - £3 billion market in UK by 2010 eg:

commercial buildingscommercial buildings

renewable electricityrenewable electricity

renewable road transport fuelsrenewable road transport fuels

domestic energy efficiency & housingdomestic energy efficiency & housing

Costs and scale of additional UK Costs and scale of additional UK greenhouse gas reduction measuresgreenhouse gas reduction measures

Cost of abatement2002 real €/tCO2e

Floor insulation

CCS (early retired gas)

Industrial motor systems

40 €/tCO2e50

0

-150

-50

Fuel substitution

550

Zero-carbon homes

Wind on-shore

CCS (gas)

450

350

-400

Solar water heating

-100

600

500

Solid wall insulation

400

Engine and non-engine efficiency (cars)

Lighting

Condensing boilers

Nuclear

Building structure Cavity wall

Biofuels

Abatement potentialMtCO2e

0 10050 250200150

Abatement required to meet 2030 target

Source: McKinsey UK cost curve; team analysis

Action needed across all sectors to Action needed across all sectors to cut emissionscut emissions

* Major contributors are lighting, PCs/other office appliances, stand-by losses, water heating, washing and drying

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

MtCO2e

Source: McKinsey UK cost curve; team analysis

Building structure improvements

Appliances and lights*

Nuclear

CCS

Wind

Fuel efficient technology

Biofuels, plug-ins and hybrids

Motor systems

Non-CO2 gas emissions

Fuel substitution

BuildingsPower

TransportIndustry

0 20 40

Green tech: UK potentialGreen tech: UK potential

Green tech: UK potential contdGreen tech: UK potential contd

Northern IrelandNorthern Ireland

• Avoid target one-upmanshipAvoid target one-upmanship

• Renewables – opportunity but also cost issue Renewables – opportunity but also cost issue given NI energy prices = tricky balancegiven NI energy prices = tricky balance

• In a small economy, can’t do everything. But In a small economy, can’t do everything. But imported green technology still benefits imported green technology still benefits economy, e.g. enhances energy efficiency.economy, e.g. enhances energy efficiency.