U.K.'s Low Carbon Economy Goals Present Political Challenges Rather than Policy Challenges

John Ashton

This is a critical moment in the response to climate change. They tell us that we can now see the gap between what we know we need to do and what we're actually doing more clearly than we ever have before. And we know that the choices that we make over the next few months will determine whether the world spends the next ten years arguing about what's fair and how much we can afford to do or deciding about how to do what we need to do.

We need to understand the true essence of this problem. Many of my colleagues in the world of diplomacy still see it as a diplomatic problem; it's a problem of how a country negotiates the treaty that will galvanize this movement. But actually, that doesn't get to the heart of the matter. This is primarily an investment problem. It's about what happens to the $20 trillion of investments that these national energy agencies expect to be investing in energy and transport and infrastructure over the next 25 years or so. Nearly all of that $20 trillion will be private capital, or in the case of countries like China, quasi-private capital. So the people whose decisions determine whether it's a high carbon world or a low carbon world will be people sitting in boardrooms, people who are accountable to their shareholders.

Governments can't do this on their own. Governments need to put the policy framework in place that will intensify those decisions—the decisions that will, in the end, determine whether we get that or not. One way of looking at this challenge is that this is about building the most ambitious public-private partnership that has ever been attempted in order to get to the low carbon future that we know we need to achieve. The good news about that public-private partnership is that we know that we can do it. The more analysis that gets done by, for example, people like Nicholas Stern, my former colleague who recently published his review on the economics of climate change, the clearer it becomes that we have the capital to do this...We have the technology—most of the technology we need or will need for the next 10-15 years, either technologies being deployed in the markets already or that are very close to commercialization. We know that the overall costs are not overwhelming. There are some costs that will be slightly higher than the costs of energy if we're not wise enough to get moving quickly....

...The bad news is that, despite the natural economic feasibility of this transition, the politics is really difficult. This is about transforming the way we produce and consume power, the way we achieve mobility, the way we use land—you could not have three more fundamental processes to the way the global economy operates. Within that macroeconomic picture, there will be enormous distributional stresses. And of those who might lose out in the transition, they'll try to minimize their losses, and increasingly, others will try to maximize the opportunity. So this is not a policy challenge any more than it's a diplomatic challenge. It's a political challenge. The challenge for political leaders is to lead and bring shareholders, taxpayers, and consumers together behind their collected efforts in which the rewards exceed the costs.

All of the economies have the confidence to set a clear goal and to say, "We will now build the coalition that we need to meet it." They have the confidence to make promises not only to their own citizens but also to the world, that they will do what it takes to achieve those goals, even if we can't, at the moment, see what that trajectory looks like. And the trajectory will vary according to the circumstances of each economy. In all of the economies, the issue has transcended the traditional demise of politics. It's a bipartisan issue. One of the most significant things, as an observer and a friend of California, is how this has become a bipartisan issue in California as it certainly is in the United Kingdom... ...There is no real difference in the level of ambition among the three political parties in the U.K. It isn't just a challenge for politicians and government; it's also an immense challenge to business.

The businesses will only take the decisions that will shift the flow of that private capital if they know that their shareholders will support those decisions. And their shareholders won't support those decisions unless the political leadership is there, unless they believe that this is something that is now inevitable in the economy, unless they see those European governments provide examples of the opportunity of cost between taxpayers, citizens, and shareholders... ...Governments can do three things: they can put a price on carbon—you're developing the beginning of a cap-and-trade approach in California that will enable you to do that. Governments can regulate and set technology standards that will drive innovation and market penetration of low-carbon technologies. And they can make public investments to accelerate deployment of key technologies. We're going to have to do all of those things. In some quarters of Europe, in many finance industries, for example, there is an almost obsessive focus on carbon funds as the single instrument for this. As I said, it doesn't need to be a carbon tax, but it needs to be part of a portfolio, because it's not going to drive the transition quickly enough by itself, even though, already, the carbon market has grown up to about $30 billion a year and the cap-and-trade could be leveraged.

But there's a problem in creating that confidence between boardrooms and shareholders because what I see is a very low quality of communication between government and business; they might almost be on different planets. The governments don't really have an understanding of this level of ambition, this scale of transition and transformation and urgency of transformation; they don't have a very clear understanding of the policy signals that will drive capital decisions in exactly the direction that those capital decisions need to go. And businesses don't have a clear understanding of the processes in government that drive the establishment of the policy. Here, there's one challenge that is absolutely critical in this whole economy: How do we achieve a higher level of resolution in the conversation between governments and businesses, where businesses say, "If you put those policy frameworks in place, we will shift our capital in that direction"? We need to build that, and we need to have a lot more listening, a lot more high-quality listening across the invisible but nevertheless tangible barriers between boardrooms and government....

....This is not an environmental issue. This is not about being green. If we think of it as something to do with being green, we won't do enough, quickly enough. This is about our core interests—in jobs, in growth, in prosperity. Because once we get macroeconomic distresses ripping through the economy, as I said, it becomes grave for either the government or for businesses to understand the landscape of risk that they have to navigate. And the more difficult it is to define the risk, the more difficult it is to invest in the future...

David Abel: What is the possibility and potential of policy collaboration on climate change and carbon emissions between the U.K., California, and the other behemoth in the equation, China?

The nexus already exists, actually, both with California and with China. When former Prime Minister Blair came here one year ago, the agreement that he signed with Governor Schwarzenegger opened up what is now a flourishing portfolio of activity so that we, in essence, are learning as much as we can from each other's experiences, both at the political level and at the technical level. How do you build sensible regulatory frameworks? How do you make cap-andtrade regimes operate in a way that achieves their objectives without too many perverse consequences? How can we build a shared understanding of the nature of the policy challenge that we face? There's a lot of osmosis in both directions, and today is part of that process.

Where do you see an opportunity on fuel standards, which is an issue in Europe, California, and China? Even in L.A. we're breathing the particulate matter from China.

Fuel standards are a very interesting issue. Transport is one of the key pieces of this jigsaw. In California, I think it's something like 41 percent of your emissions; it's not quite that much in Europe. The interesting thing about it in China is that it's growing so fast; China is putting 7,000 new cars on the streets every day, so the technology choices they're making today are having a big lock-in effect on their future emissions profile from transport. What that means is that we all need to build a central, common purpose about taking carbon out of the transport system, and we're approaching that from different directions in our different realities.

I would like to see a convergence of fuel standards and emissions standards from vehicles between those three markets. The market is starting to understand that if China, Europe, and California are all going in the same direction on their fuel standards, then that, in effect, would be setting the global technology standards for the automobile industry. We need to have conversations about how to do that, how to send that very clear signal that this is the direction that that particular sector is going in. California is a leader in that. California is the one that is already exposing itself to very heavy-duty legal resistance from some of the other interests in this country. The outcome of the case over the Pavley legislation is going to be of global significance, it seems to me. We are having similar struggles in Europe with some of the auto manufacturers resisting the pressure for stronger mandatory framework that would be set by the European Commission. But again, we need to come out of there with a very clear sense of direction.

Where is the resistance coming from? Is it that it's technically infeasible or not economically infeasible?

I think, in the end, it's inertia. Change is very difficult. Change is very challenging, particularly for big institutions. Sometimes it's easier to pretend that there isn't a problem or that the problem is insuperable than it is to say, "Now we need to address this problem." The chair of Porsche, the German auto manufacturer, recently said in public that the proposal from the European Commission about emissions standards in Europe was against the laws of physics. That's just a sign of what seems to me is that inertia. We could say that, from now on, we're only going to sell vehicles that have emissions that are well below what the current proposal from the commission is. The technology is there. But you need a critical mass of the industry to say, "This is where it's going to go, and we're going to drive it forward."

I was in Japan recently, and I got a sense from the Japanese auto manufacturers— which was quite interesting, because they're at the forefront of low-carbon vehicle technology—that they don't yet send a signal that says, "We're actually going to drive this, we're going to get ahead of where consumers are, we're going to put a new generation of products onto this market, again and again, to drive this transition." I think we need to see a stronger concerted push from auto manufacturers in the U.S. and Japan and Europe, because otherwise we will just not make sufficiently rapid progress in that sector. If I may say so, I don't think it's one of the most progressive sectors in this whole business, and that's why California is so important, because you're challenging auto manufacturers to be more progressive.

If we were to have a discussion in a couple months at the GreenXchange Global Conference, or a year from now, what will we be talking about? How dynamic is this conversation?

I think we would be surprised at how many of the short-term challenges that we stand in front of right now, we have been able to overcome. As I said, I was very struck by, three years ago, the number of people who told me that the renewables target that L.A. was establishing were unachievable, that it was just posturing, that it was just rhetoric. To discover on this visit that L.A. is actually making good progress is quite interesting. Sometimes, the problems that we face look much bigger before we start to tackle them than once we do that. The example of Tesco—once you start to engage, there is an enormous energy that you can build through the right kind of engagement with your customer base or client base, with the people who are building the policy framework that you need to respond to. It's getting leadership and a coherent effort that we need to release that energy.