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The Week in Green: What Brown can learn from Arnie
It is sometimes easy for those within the clean tech sector to look at the latest kinetic powered gadget, the billions of dollars flowing into carbon capture, the revitalisation of rail and sail power, and the emergence of affordable solar power, and forget quite how big the challenge is that they still face.
Nowhere has the scale of this challenge been more clearly illustrated this week than in the reaction to the government's new renewable energy strategy.
To read most of the headlines you'd think that the whole affair was cooked up with the sole intention of driving up energy bills.
These headlines were supported by a raft of "experts" wailing about fuel poverty, the impact on the countryside of thousands of wind turbines and the strategy's £6bn a year price tag. Even the CBI - a vocal supporter of attempts to tackle climate change on most occasions - put the boot in, arguing that such a rapid increase in renewables capacity would not prove "cost effective".
The renewables industry and environmentalists did their best to kick back against this chorus of disapproval, praising the government to the heavens for finally developing a comprehensive strategy that combines the correct level of incentives with genuine commitments to remove the technical and planning obstacles blocking so many projects.
But sadly the media had decided on their angle and we were going to hear about little besides higher fuel bills, like it or not.
Never mind, that all the reports claiming that electricity bills would rise by up to 13 per cent and gas bills would climb by up to 37 per cent were based on the government's "worst case scenario". Never mind, that the projected increases in bills won't come on line until 2015. Never mind, that these calculations were based on the absurdly optimistic assumption that oil will cost $70 a barrel in 2020 and that as such the actual increases are likely to be far, far lower. And never mind, that in return for these higher bills the increase in renewable energy investment will create 160,000 jobs, bolster UK competitiveness internationally, and, most importantly, kick start the transition to a low carbon economy.
The problem for the government is that if it thinks these protests are loud now it ain't heard nothing yet.
Virtually every policy measure designed for driving the transition to a low carbon economy is governed by the principle of price signals. Whether its green taxes or plans to extend the EU's cap-and-trade scheme the end goal is to make carbon intensive activities more expensive in order to discourage people from undertaking them. This means that energy bills are going to get a lot higher, not as some unfortunate side effect of these policies but as the intended end product.
Businesses need to be aware that it is not just the renewables strategy that will drive up energy prices. The Carbon Reduction Commitment, changes to the European Emission Trading Scheme, the continued increases in the Climate Change Levy, the need for energy companies to pay for carbon capture systems and the natural effect of dwindling fossil fuel supplies are all going to contribute to higher prices.
The issue for the government is how to make the case for such measures in the face of protests that will only grow more intense. To shrug its shoulders and admit it is trying to raise bills on carbon intensive fuels at a time when people are struggling to make ends meet will only appear callous and will undoubtedly lose it yet more votes.
Instead the government needs to try and find the positives, while doing as much as possible to ease the transition to lower carbon technologies. The CBI is right in its contention that energy efficiency measures are more cost effective than renewables as a means of initially cutting emissions - a view echoed this week by one Tony Blair - and as such the government must support the renewables strategy with a hugely ambitious efficiency programme. It also needs to make sure that measures are in place to insulate the least well off against rising energy prices and provide smaller businesses with the help they require.
But most of all it needs to be brave.
The government's thinking on climate change is arguably well behind where it needs to be, but it is still ahead of much of the public and many businesses. In this light, it must resist the temptation to water down policies that contribute to higher energy bills and it needs to keep making the point that acting now is more cost effective in the long run. It also needs to make an example of those businesses that have understood the reality of both climate change and higher energy bills and are now providing evidence that it makes great business sense to identify means of cutting energy use sooner rather than later.
If Gordon Brown wants guidance on how all this can be achieved he need look no further than California, which this week unveiled a hugely ambitious strategy for cutting carbon emissions 30 per cent by 2020.
Amidst all the praise that routinely heads California's way it is easy to ignore the fact that this programme (which far outstrips much of what is on offer in Europe) has faced concerted opposition from both the federal government and many less enlightened industry groups.
The reaction of Governor Schwarzenegger has been an unwavering commitment to press on with reforms that he regards as right, necessary and economically beneficial. Instead of trying to triangulate his position and appease the doubters he has simply continued clearly and simply make his case.
The result is that not only is the state now the world's premier clean tech hub, but a man who was elected amidst predictions that he would prove little more than one a term joke has emerged as one of the most respected and popular figures in global politics.
Schwarzenegger provides ample proof, as if it were needed, that support for green measures can be mustered if the case is made clearly and proposals are backed by strong, unwavering leadership.
Sadly, as we've all learned in the past year, these are not amongst the prime minister's strongest suits.
Right, I'm off to try and wangle me a test drive in one of those all electric Range Rovers.
Have a good weekend,
James
The Week in Green
How many reports do we need highlighting the link between demand for biofuels and soaring food prices before the government does something about it?
Well, we could be about to get an answer.
According to The Guardian, the government's official Gallagher Review into biofuels could make extremely uncomfortable reading for those within Whitehall who perhaps hoped they would be able to stick with their proposed target of ensure five per cent of fuel comes from renewable sources by 2010.
Apparently, the review, which is due for publication next week and was commissioned by the Department for Transport itself, concludes that demand for biofuels has had a "significant" impact on world food prices and that the current targets require an urgent rethink.
The only surprise is that anyone should be surprised.
The simple fact is that with food shortages leaving over 100m people hungry and food prices soaring any agricultural land used to grow energy crops that could be used to grow food is only exacerbating the situation. You can cut the economics any which way you like, that is the situation.
The biodiesel industry can wail all it likes about the fact that its investments are being undermined and that governments are failing to take a consistent position, but anyone who invests in clean technologies accepts on the way in that while the rewards can be potentially massive some technologies will unfortunately fall by the way side.
To stick by an approach that has seen over a third of US corn and half of EU vegetable oils turned into biofuels at a time when food prices are soaring borders on the obscene. Moreover, anyone insisting, like the US and Brazilian governments, that the diversion of these crops into the tanks of people's cars is having a negligible impact on food prices are clearly deluding themselves.
It is painfully obvious that what is required is a major overhaul of global biofuel policy that ensures the only biofuels produced come from sources where it can be proved the crops have not displaced existing agricultural land or contributed indirectly or otherwise to deforestation.
That means the only biofuels authorised for use must be derived from waste organic matter, such as corn stalks or wood chips; crops that can be produced in an industrial context, such as algae; and perhaps crops such as switchgrass and jatropha that can be grown on marginal agricultural land not used for food production, although even here guarantees would be required that the crops do not spread onto established agricultural areas.
However, the chances of any of this being agreed any time soon still look remarkably slim given the the oil tanker-esque turning circles that tend to characterise shifts in governments' environmental policies.
No one wants knee jerk reactions from political leaders, but when it comes to tackling the biofuel issue in particular and the climate change challenge in general we do need a level of urgency that is currently lacking.
Fears over the wider impacts of biofuels first appeared in the mainstream media midway through last year and the research vindicating these fears emerged by the end of the year. And yet despite much rhetoric the government's official review is only appearing now and we can still expect it to be another six to 12 months before the controversial biofuel targets get changed - assuming that is that the government does the right thing and listens to the review's recommendations.
A similar thing is happening now with regards to renewable energy policy whereby countless reports, including one study this week from a parliamentary select committee and another from the government's own Renewables Advisory Board, have labelled the UK's renewable energy policy as inadequate. Yet the official review will not begin until later this summer and the full blown strategy designed to address the problem won't emerge until early next year.
In the meantime, renewable energy projects are still being blocked and other countries are stealing a march in the pursuit of the low carbon economy.
Whitehall is hardly renowned for its panther-like agility and it could be argued that the biofuel saga provides ample evidence of the dangers associated with rushing out environmental policies. And yet, at a time when business leaders are actively demanding bolder action it seems perverse that no brainer decisions such as the revision of the UK's renewable energy targets, the introduction of a feed in tariff for microgeneration and the suspension of current biofuel targets are not being taken.
Right I'm off to try and build me a solar printing press, 'cos those things are going to change the world.
Have a good weekend,
James
The Week in Green
I was fortunate enough to interview Bob Hertzberg this week for an upcoming BusinessGreen.com podcast.
Hertzberg is chairman of UK solar start up G24i and founder of clean tech venture capital firm Renewable Capital, as well as the living embodiment of American can do brio. As a former Speaker of the California State Assembly and candidate for Los Angeles Mayor he also has a great insight into the relationship between environmental legislation and investment.
One of Hertzberg's top tips when looking for a clean tech investment is to be extremely wary of sectors that are only operating as a result of subsidy and legislative leg ups. He argues, not unconvincingly, that the best and indeed only way to transition to a low carbon economy is to make damn sure that green products are better and more cost effective than their traditional counterparts.
That is why he is enamoured with solar power in general, which advocates claim could soon compete with coal on price, and G24i's technology in particular, which the company, fresh from receiving $20m in venture funding, is seeking to integrate into mobile devices, providing them with a constant stream of power and removing the need for them ever to be recharged.
As Hertzberg observes if you have a Blackberry or mobile phone that never needs recharging and as such is far more convenient than conventional models people will want the device not just because it is greener but because it is better.
It is a philosophy that is hard to argue with and is all the more appealing because it envisions a scenario where if you develop the right product the switch over to a low carbon alternative can be achieved within a couple of years as opposed to a couple of decades. For investors it raises the possibility of backing the next Google, for the rest of us it offers the enticing prospect that we can genuinely decarbonise our economy relatively quickly.
There are signs in some sectors that this is beginning to happen. The recent shift in demand in favour of fuel efficient vehicles is a factor not of environmental concerns or legislation, but the simple fact that in a world of high fuel prices smaller cars are simply better.
Equally, it would be easy to dismiss the decision by developers of the Freedom Tower to install 12 fuel cells as a green publicity stunt, but if you believe the company providing the technology, UTC Power, the latest fuel cells are now cost competitive with the grid even before you consider the benefits you accrue from lower carbon emissions and not having to dig up the road to lay the electricity cables in the first place.
And who wouldn't want the washing machine unveiled this week that requires next to no water, uses little energy, doesn't shrink your clothes and doesn't require them to be hung out to dry afterwards. It's green, but is also in many respects just plain better than traditional models.
None of this is to suggest that legislation is not required to accelerate the transition to lower carbon technologies and business models in sectors where embedded economies of scale, decades long replacement cycles and cultural conservatism make it far harder for green alternatives to break through. And in this light it is encouraging to see political leaders in Japan, Europe and the US, including even President Bush, this week emphasising their commitment to more stringent environmental rules and regulations.
However, it is perhaps even more encouraging that if green businesses get their products spot on there is every chance of them forcing traditional counterparts out of the market with the same speed with which iPod's put paid to portable CD players. Not because they are greener, just because they are better.
Right, I'm off to try and work out how intense my carbon is feeling.
Have a good weekend.
Cheers,
James
Why I hate the RSPB
OK, so hate is a bit of a strong word.
I'm sure they're kind to their mothers, save lots of birds, are upstanding for the national anthem, etc.
But what I find more than a little disdainful is the mind-bendingly bizarre value system that sees the organisation, and others like it including WWF-UK and the National Trust, lobby against the proposed Severn Barrage.
The RSPB and seven other green groups have this week released a report they commissioned from consultancy Frontier Economics which concludes that the proposed Severn Barrage would prove significantly more expensive than other forms of renewable energy and could not be justified on economic grounds.
They appear to have decided that the government will play deaf to their pleas not to evict 68,000 odd birds by flooding their homes and have instead argued that the project should be blocked for economic as well as ecological reasons.
It is hard to know where to start when assessing how wrong headed all this is, but if the RSPB and co want to talk economics let's start there.
The fact is that all forms of large scale renewable energy projects are "exorbitantly expensive" when compared to fossil fuels and that is not about to change any time soon. You can argue that we should ditch the Severn Barrage project in favour of other forms of renewables on cost grounds, but if cost is the only consideration then you should ditch all renewables in favour of coal.
Furthermore, if we are going to focus on cost the most cost-effective form of renewable energy currently available is onshore wind farms, which, you've guessed it, have also faced occasional opposition from the RSPB for shredding birds and destroying habitats.
In fairness to the RSPB, it has been far more supportive of the wind energy sector than nimby-motivated countryside groups and has supported the development of many wind farms, including the Thames Array. But it also recently secured victory in its campaign against plans for a 181 wind turbine development on the Isle of Lewis in Scotland, claiming it would damage ecologically important peatlands.
It is worth observing that if its sole concern when it came to the UK's renewable energy mix was cost then the RSPB would have supported the Lewis wind farm and opposed the far more expensive offshore Thames Array.
The fact is that cost is not the only consideration when looking at the pros and cons of the Severn Barrage. Yes, it would be far more expensive than other forms of renewable energy, but it would also deliver significant benefits: it would generate almost five per cent of the UK's energy in one hit at a time when attempts to build countless smaller projects are constantly hampered by local planning problems and the clock is ticking on the EU's renewable energy targets; it would provide a genuine flagship tidal energy project, underlining the UK's positions as a leader in marine energy and providing it with invaluable technologies and expertise that could be successfully exported; and it would provide a far more reliable source of energy than those turbines and solar panels that the RSPB et al are now advocating, but are at the mercy of changing weather conditions.
These benefits will have to be weighed up against the financial and environmental costs and it is exactly this work that the government is undertaking right now through its feasibility study.
Let's not kid ourselves here, the opposition of this coalition of green groups to the Severn Barrage is driven not by concerns for the tax payer but by their fears for our feathered friends - and it is this that I find so perverse.
Just so we're straight I do not hate birds. As a country boy born and bred I am well aware of the huge ecological, aesthetic and economic value of the biosphere - and that is precisely why I am so in favour of large scale renewable energy projects.
Climate science tells us that if by the end of this next decade we have not made significant progress towards decarbonising the economy then every single one of the habitats that wildlife groups campaign to protect will be irrevocably damaged. Yes, 60,000 birds could lose their homes as a result of the Severn Barrage, but if all such projects are stopped or even slowed down by concerns over local wildlife then the long term impact on the biosphere will be catastrophic.
And let's remember when we talk about the biosphere we are talking about human beings too.
It is hugely simplistic to try to position the Severn Barrage as a debate over the loss of wildlife in the Severn Estuary against the loss of human life in countries already being impacted by climate change, but at its most fundamental level that is what we are talking about.
It is hard to completely shake the feeling that somewhere along the line the opposition to many renewable energy projects undertaken in the name of wildlife conservation is underpinned by a sense that animals are more important than people. A view, which personally, I can't even begin to comprehend.
I spoke with Martin Harper, head of sustainable development at the RSPB, yesterday and he argued vehemently that the organisation "passionately supported renewable energy". It is just that it believes there are more sustainable options than the Severn Barrage and that the low carbon energy revolution that is required should be "achieved in harmony with the natural world".
But while that is all well and good in an ideal world, we have just 10 to 15 years to deliver significant cuts in carbon emissions and the sad truth is that to achieve the requisite changes at the requisite scale we will have to be far less precious about those still relatively small parts of the natural world that will get trampled on in the process. The RSPB and groups like it claim they support more sustainable renewable energy developments, but even where they do not explicitly stand in the way of projects the hugely onerous and long winded environmental assessments that developers are made to carry out only result in further delays.
If you accept the analogy that the fight against climate change needs to be treated with the same urgency as a World War - as many environmental groups and politicians do - then what opponents to projects such as the Severn Barrage are suggesting is that you call a halt to a battle for fear that some moorhens end up as collateral damage. Personally, I'm willing to sacrifice the birds.
The Week in Green
It's been a pretty good week for the renewables sector.
Of course, if you're feeling pessimistic on this fine Friday afternoon you could counter that every week needs to be a good week for the renewables sector when the International Energy Agency claims that we need to invest $45tr in alternative energy by 2050, building 17,500 wind turbines a year in the process. But let's try to look at the positives.
The UK government's dream of powering every home in the country from offshore wind farms took a major step towards becoming a reality this week when the Crown Estate outlined plans to license large swathes of the seabed to wind farm operators.
The business models behind such developments may still be dependent on generous subsidies and there may still be huge infrastructure challenges to overcome, but that has not stopped a number of firms already expressing an interest in the licenses. Moreover, the British Wind Energy Association is convinced that a number of new start ups are also poised to enter the offshore market soon.
Meanwhile, the solar sector is also continuing to go from strength to strength with DuPont predicting solar sales will hit $1bn a year by 2013 and Bosch shelling out €1.1bn to break into the market with the acquisition of ersol.
If last week I argued that soaring fuel prices would mean that alternative energy technologies would become cost competitive far faster than many expect, then the sheer scale of the emerging renewable energy companies provides the flip side of that equation. They may be getting a leg up from generous subsidies and new legislation, but the economies of scale that they are building combined with the support they are now receiving from established multinationals such as Bosch should soon begin to impact production costs, bringing grid parity ever closer.
Right, I'm off to try and work out if drinking fizzy drinks really could save the world.
Have a good weekend,
James
The Week in Green
Could OPEC save us from ourselves?
The global oil cartel may not be to the tastes of many environmentalists, what with its penchant for fossil fuels and all, but there is a very real chance that the actions of OPEC over the next few years could be the deciding factor in precipitating the emergence of a genuinely low carbon economy.
In an open letter to King Abdaullah of Saudi Arabia, environmental campaigner and some time pursuer of alleged war criminals George Monbiot urged the head of state to resist US calls for OPEC to increase oil production, arguing that a continuation of high oil prices represents the global economy's best hope of weaning itself off carbon intensive energy.
He has a point. The longer OPEC refuses to increase supply - and let's leave aside the on-going debate as to whether or not it has the reserves to do so - the higher oil prices will climb and the more attractive both alternative energy and energy saving technologies will look.
Much has been written about the time it will take many clean energy technologies to become cost competitive with conventional alternatives and solar manufacturers and electric car firms are currently focusing on the speed with which they can exploit economies of scale to bring their own costs down. They will get there in the end, but it is worth remembering that if the cost of fuel continues to rise at its current rate they will reach the Promised Land of cost parity far quicker.
Given the current outlook all those alternative energy firms pledging cost parity within five to ten years, must be revising their timelines downwards at a rapid rate of knots.
The longer the price of oil remains high the easier it will become for clean tech firms to make their business cases and secure investment.
Of course, the upward trend in energy prices could be reversed. With complaints over rising fuel prices becoming ever more vocal governments can seek to slow this process by cutting green taxes on energy. But such a move would not turn the global tide of rising oil prices and would attract fierce criticism from environmentalists, including the head of the UK government's climate change committee Adair Turner who last week defended the principle of green taxes on fuel.
Moreover, assuming it has the reserves OPEC could eventually open the taps and increase supply, prompting a short term drop off in oil prices. But again you have to ask if any increase in supply can keep pace in the long term with booming energy demands from the emerging economic giants of China and India.
Faced with this prospect of a sustained perion of high oil prices, the energy sector has two options, neatly embodied this week by ExxonMobil and Abu Dhabi.
The short term option is to make hay while the sun shines and exploit the high oil price for all its worth. But as that price continues to climb alternative sources of energy begin to look ever more attractive to both investors and customers, and as the group of dissident shareholders who were defeated in a vote at the company's annual meeting last week warned, should those clean technologies develop at a pace comparable to the IT revolution of the last two decades it will "seriously undermine Exxon's assumptions in demand for petroleum".
Meanwhile, the oil rich state of Abu Dhabi has taken a markedly different approach, investing billions of its oil wealth in the development of alternative energy sources such as solar power. The country will undoubtedly continue to benefit from the high price of oil, but should that price get too high and economies begin to switch to alternative technologies it will be ready to meet that demand too.
If I were an investor with even the smallest understanding of risk I know exactly which approach I'd be backing.
Right, I'm off to try and work out why everyone's so obsessed with offshore wind.
Cheers,
James
