To make the transition, there are three key priorities that must be addressed.
Moving the world to a low-carbon economy requires decisive action, clarity and commitment from every nation. It is that clarity and action that is needed to unlock billions of pounds of investment to make the low-carbon economy a reality. But as we approach the 17th annual international climate change meeting, it is clear that the conditions to get the finance flowing have not yet been met. The political and diplomatic discussions around climate change mask the significant financial input that is required globally in moving to a low-carbon economy, especially during such difficult economic times.
In the U.K., current estimates suggest that we need £110bn ($173bn) over the next decade to make progress on decarbonising our electricity supplies. The International Energy Agency (IEA) estimates that the internationally recognised goal of limiting the rise in global temperatures to 2°C degree goal will require additional investment of $15,200bn in the energy sector up to 2035, above and beyond current ambition.
So there are three key priorities that we must address if we are to unlock the finance and make the transition: delivering confidence that an international climate change agreement will follow; encouraging governments globally to create the right environment for investment through policy clarity and financial support; and demonstrating that a low-carbon development pathway can be done sustainably and affordably.
First, we must put ourselves on the track to a legally binding international climate change agreement. Such an outcome will help businesses and countries plan for the massive transition and investment that is needed.
At Durban and ‘TLC'
Next week, I will travel to Durban where the U.K. will continue to push for a legally binding international agreement. The test for success is not purely about whether we get a comprehensive deal, but that we make progress across the breadth of issues that these negotiations cover.
At Durban, we want a clear commitment to this final deal from the big economies, alongside progress on the building blocks of the international regime — delivering international public finance, monitoring and reporting of global emissions and development of rules for accounting for countries' emissions. All of this helps provide the TLC — transparency, longevity and certainty — needed for businesses and governments to make sound investments in low-carbon technologies.
Second, there is now no excuse for governments to hold back from taking action in their own countries. Making the shift now will be cheaper in the long run, and U.K. business has a fantastic opportunity to capitalise on opportunities not only here but internationally.
Governments are vital in helping to tackle dangerous climate change. Without the right policy signals and financial backing we have no hope of making that shift to a low-carbon economy. Many countries are making significant progress already in terms of implementing their international pledges to tackle their emissions, but we need to encourage greater levels of ambition. The U.K. is determined to show that a lowcarbon economic strategy is not only affordable but can drive growth, support advanced manufacturing and reinforce the competitiveness of industry. This requires a new focus on costs, returns on investment and greater accountability to taxpayers and consumers alike.
By legislating for targets up to 2027 as part of the fourth carbon budget we are doing more than any other country in providing long-term certainty to those investing in the low-carbon economy. We are also undertaking radical reforms designed to create new markets and attract greater amounts of private investment into the U.K. For example, we have legislated for the Green Deal, the first scheme of its kind in the world, which will cut carbon and bills in millions of homes and businesses across the UK. And we are embarking on the biggest reform of the electricity market since privatisation to secure billions in investment for low carbon electricity.
But as well as the long-term vision, there has to be the financial discipline to get us there. Government has a crucial role to play in providing the right kind of support to lower risks in new technologies and to leverage the sort of multibillion pound investment that is needed. Despite the massive deficit that the U.K. coalition government inherited, we are putting our money where our mouth is: slashing Whitehall's own emissions by 13.8 per cent in our first year in government; investing £3bn of public money to create the world's first dedicated Green Investment Bank; £860m for the Renewable Heat Incentive; and £1bn to the development of carbon capture and storage.
Third, our domestic action helps make the international case for low-carbon development, showing that such a path is feasible, affordable and desirable. Helping developing countries in that shift benefits the U.K. For example, improving energy efficiency and moving away from a dependence on fossil fuels helps to reduce global energy prices and volatility. This is why we are providing £2.9bn of funding to international climate mitigation and adaptation measures over the next four years through the International Climate Fund. It is financing that we are determined will be effective, make a real difference and catalyse billions more in essential private sector financing, creating new opportunities for British exporters.
But we are also working to break down the barriers to financial investment in developing countries, which is why we set up the Capital Markets Climate Initiative, making the best use of the expertise of the City of London.
These three priorities will be crucial in the battle against dangerous climate change and in embedding a global low carbon economy. The U.K. has built an enviable reputation for leadership on climate change. Our policies must show that they can adapt to a volatile world but our commitment to an ambitious global deal is unwavering.
(The writer is the U.K.'s Minister of State for Energy and Climate Change. This article appeared in the Financial Times on November 25, 2011.)