Hill+Knowlton Strategies

While the Chancellor’s freeze on fuel duty is likely to grab the headlines, on deeper reflection this afternoon’s Budget announcement is indicative of the Coalition Government’s struggle to fulfil its goal of reducing emissions at the same time as it looks to squeeze spending.

With DECC and the Treasury having fought a running battle over the Green Investment Bank’s ability to raise funds, it looks – as had been anticipated – as though the Treasury has got its way. This will undoubtedly be viewed as a setback for Secretary of State for Energy and Climate Change Chris Huhne, and his Liberal Democrat colleagues.

So much for ducks quacking and banks borrowing eh?

Worries about rising energy prices are also behind the decision to slash the CCS Levy, while the Government has clearly taken note of the need to incentivise the Green Deal at a time when most consumers are more concerned with making ends meet than lowering their carbon footprint (a subject that Huhne spoke about at the launch of the CBI report ‘Making the Consumer Case for Low Carbon’ which was held at H&K 2 weeks ago)

In this context, green campaigners and investors in green technology look set to be disappointed. Many have already begun to argue that the carbon floor price will not drive investment into the more conceptual forms of clean energy or improved efficiency at the proposed level. Nuclear looks like the winner in this regard at the moment, but events in Japan may well put the brakes on the new build programme in the UK as they have elsewhere.

Ultimately for all those involved in the energy sector, whatever their sentiment towards today’s announcements, the 2011 Budget serves as a stark reminder of the difficulties that lie ahead for the Coalition in its quest to become ‘the greenest government ever’ in an age of austerity.

Yesterday, PetroChina Co. agreed to buy a 50 per cent stake in Encana Corp’s gas assetts, culminating in a massive 7.5% initial rise in the Canadian company’s share price.

The deal – which has been described as ‘expensive’ by analysts – is yet another step forward for PetroChina in its’ quest to become a world-renowned international, integrated oil company, and is indicative of Chinese oil companies’ willingness to pay top dollar for access to unconventional gas assets.

The reason for this is two-fold. Firstly, China is hell-bent on reducing its reliance on coal, but leaders need a way to satisfy the energy hunger of the world’s second largest economy. The country sees gas as part of the answer, and has set a goal of tripling its’ use over the next decade. With China now emiting more CO2 than the US and Canada put together – up by 171% since the year 2000 – this will also serve as a timely message to the outside world.

Secondly, the deal will allow for the migration of technology back to China for use in developing domestic unconventional oil and gas resources. This rationale is not unique to PetroChina, however, and forms part of a growing trend which is common amongst a number of national oil and gas companies (NOCs).

In a bid to ensure energy security, countries such as China, India, Brazil and Korea are aggressively backing their NOCs to expand their global prescence using inorganic growth as the key strategy. National companies are increasingly looking to enter deals with established players in order to acquire the technological know-how that will allow them to exploit unconventional reserves at home.

This trend shows no signs of slowing, and it will be fascinating to watch the growth strategies of NOCs over the coming decade as they look to topple established oil majors from their long-held position of dominance in the industry.

Amid concerns that energy companies are enjoying widening profit margins at the expense of their customers, Ofgem has announced that it will launch a review into the retail energy market.

With British Gas, Scottish and Southern Energy, and Scottish power all announcing price hikes in recent weeks, resentment has been growing as many home owners struggle in a difficult economic climate.

This Tweet sums up the general feeling nicely:

While many have welcomed Ofgem’s decision, there has also been significant scepticism in terms of what the review will mean in reality. In truth, this is not the first time that the market has been investigated in this manner, and as a spokesperson for Energy UK said today:

“The review is the latest in a long line of investigations into the energy market in recent years and no previous investigation has found anything to concern the competition authorities.”

While Sara Vaughan, head of energy policy at Eon, today heralded the beginning of a new era of ‘interactive relationships’ between energy companies and their customers, consumer groups are more sceptical.

As Adam Scorer of Consumer Watchdog pointedly stated, energy companiues “do not feel the hot breath of competition on their necks”. With the market closed to new entrants as a result of the dominance of the ‘big six’, market structure rather than conspiracy and cartels seem to be to blame for consumers’ current predicament.

If this is the case, then Ofgem’s investigation will merely provide lip service to the public’s bitterness, and could ultimately prove a further irritation rather than a solution. Watch this space.

‘We are in the game!!!’ roared Simon Hughes, very excitedly, as he tried (perhaps a little too hard) to convince the Lib Dem conference (and the media, no doubt!) that he is, in fact, a ‘rock solid’ supporter of the coalition. It is this sense of being ‘in the game’ after 65 years in opposition that has gone a long way to appease Hughes and many-a-concerned party activist’s worries about the coalition government over the last six months.

Still, with great power inevitably comes great expectation, and with green issues seen as the heartbeat of the party by many, Chris Huhne, the Secretary of State for Energy and Climate Change, addressing conference for the first time in his new role, was always going to be under great scrutiny by the masses In Liverpool this week.

In his speech to conference yesterday, supported by a carefully co-ordinated series of fringe events, Huhne set about outlining the coalition’s plans to tackle what he described as ‘the greatest challenge across Whitehall in peacetime’.

Addressing climate change, he said, is this Government’s most pressing task in the years ahead, while the UK’s overdependence on big oil means future price fluctuations have the capacity to drain billions from the UK economy. The two interrelated threats would be tackled, he said, by the ‘four pillars’ of the coalition’s energy policy:

1. The ‘Green Deal’ will see companies paying to insulate every home in Britain, allowing them to save both energy and money.
2. A ‘third industrial revolution’ of low-carbon renewable growth will wean the UK off fossil fuels and fulfil the country’s need for more electricity going forward (demand for electricity is expected to double by 2050).
3. Nuclear energy, funded entirely by private industry, will give the UK greater energy security.
4. Clean coal and gas will account for renewable energy’s variability and provide the UK with protection from future oil price shocks.

As I wrote yesterday, Huhne had two major challenges as he made his way to Liverpool this week. On the one hand, he needed to simultaneously reassure activists in his own party over their worries about nuclear while appeasing Conservative cabinet colleague’s concerns about the UK’s future energy security. In addition, he, like the rest of the Lib Dem leadership, needed to convince his party that liberalism has not been nullified by conservatism in the coalition.

It was interesting to see how he approached both.

‘A deal is a deal’, he said of nuclear, with a nod and a wink to the Tories during his speech to conference yesterday. Throughout this week, Huhne has spoke off ‘ending the standoff’ on nuclear energy and has insisted that he is ‘entirely comfortable’ with the coalition’s position on the issue. On first glance, it would seem like he has conceded much ground to the Conservatives on the issue, yet, having witnessed his less publicised conversations within small fringe meetings, I’m not sure that all is necessarily what it seems.

Speaking to worried party members in close confines, Huhne has been at pains to point out that £1.7bn of DECC’s £3.2bn annual budget is spent on clearing up after past generations who were lax on attributing responsibility for nuclear decommissioning. This, he says, is damn-right unacceptable. The great worry over nuclear amongst the Lib Dem faithful is that nasty corporate giants will invest in projects in the short term, before swanning off and leaving little old communities and the humble tax payer to pick up the tap for decommissioning. “No hidden subsidies for nuclear!” declared Huhne in his speech to conference yesterday, a pointed hint that he is on top of the issue.

Huhne addressed his second challenge by attempting to give the Lib Dems ownership over green coalition policy, just as Nick Clegg had done with a range of coalition policies in his speech on Monday. By linking energy and climate change policy with wider social issues – such as poverty, unemployment and consumer rights – he was able to relate coalition energy policy to classic Lib Dem values like internationalism, localism, and, most notably, fairness. Discussion of the Green Deal, for example, was hampered with footnotes over how reducing energy waste could help advance society by lifting people out of poverty.

With next year’s local elections approaching fast, Huhne has bolstered Lib Dem party stalwarts green arsenal as they take to the doorsteps, while he has addressed the nuclear issue with enough subtlety and craft to keep a number of competing voices at bay.

Big smiles all round then? Well, yes, but Chris Huhne will know that much more difficult challenges are yet to come. Giving ownership of green issues to a party full of environmentalists was never likely to be an overly hard sell.

Green plans are all well and good, but convincing investors, businesses and consumers to pick up the tab for the transition to a low-carbon economy will be much trickier, especially when the coalition’s spending cuts start to bite.

Departing Liverpool this week, Huhne will have reason to be positive. Equally, he will know that he has hardly scratched the surface of Whitehall’s ‘greatest ever’ peacetime challenge.

‘It’s the same old Lib Dem conference, except this year it feels … different’.

Those were the words of David Grossman as he recorded footage for Newsnight following Nick Clegg’s speech to the party faithful yesterday. He’s right.

Despite significant losses in recent opinion polls, this year’s conference in Liverpool has attracted more people than ever before – 6000 are said to have descended on the city this week. Largely though, the increase in numbers is a product of a dramatic rise in business and media interest rather than an inflated number of party members.

Sure, the bearded, sandal-wearing loyalists remain, but they have been diluted by a mass of suited young corporate types. Meanwhile, paparazzi swooped on Nick and Miriam Clegg in a manner that would have been quite unheard of six months ago. As ordinary members make their way through new airport-style security, they seem a little uneasy that their annual get together has been gatecrashed.

Still, they’ve got bigger fish to fry. As is well documented, Lib Dem activists are increasingly concerned that their leader has jumped into bed with the Tories, with many grumbling that Clegg, a centrist ‘Orange book’ Liberal, has become disconnected with the left-leaning mainstream.

Yesterday morning, The Guardian’s Patrick Wintour argued that, in order to proclaim this year’s conference a success, Clegg needed to do two things. He must reassure the party that liberalism is not being crushed by the ‘juggernaught of Conservatism’ within Government, said Wintour, all the while restating the cause for the deficit programme in a convincing manner.

Not easy. And it didn’t get any easier. By early afternoon the party’s leadership had been defeated in a conference vote over their support for ‘free schools’ on the grounds that a currently ‘unfair’ school system would be made more unequal under coalition plans, worsening educational outcomes for the majority of children.

The stage was set for Clegg, and, despite an outright refusal to criticise his Conservative coalition partners, an upbeat and defiant speech saw the leader leave the main auditorium at Liverpool’s ACC to a rapturous standing ovation. ‘Stick with us’ he said, urging the party to ‘hold our nerve’ and play the long game. A list of liberal achievements in power precluded a staunch defence of coalition plans to cut the deficit immediately. The 2010s, he said, would not be a return to the 1980s. This time around, public sector cuts will be made on a practical rather than an ideological basis, and will be intertwined with a sense of ‘fairness’.

Some, undoubtedly, will remain sceptical, especially with the argument over the timing of cuts (given the leader’s u-turn on the timing of deficit-reduction measures). Nonetheless, Clegg did succeed in generating a feeling of euphoria with the faithful that has not been seen since the lofty days of ‘Cleggmania’ during the general election campaign. While his words will be painted by many outside the party as desperate pleading, to a membership that has waited so long to taste power, they were received as a welcome unifying battlecry.

Clegg departed the conference last night as the UN beckoned. But the show will go on. Today, the Energy and Climate Change secretary, Chris Huhne, will take to the stage as he looks to showcase the coalition’s record on green issues. A range of energy-related fringe events are set to provide the perfect backdrop.

With environmental activism the apple of many-a-Lib Dem eye, there is sure to be close scrutiny. Nuclear will undoubtedly remain the elephant in the room. While the party remain opposed to the development of nuclear power stations, the coalition is encouraging private investors to drive nuclear new-build despite a reluctance to subsidise investors with public funding.

Speaking on a panel that included EDF CEO Vincent de Rivaz, Huhne last night reiterated that he ‘is not theologically opposed to nuclear’. But many in the party are. Huhne will have to tread carefully on this thorny issue, all the while considering the pro-nuclear views of his Conservative colleagues in Government. Having rattled a few Tory feathers already this week by expressing his opposition to a like-for-like replacement for Trident, he is likely to want to play down the nuclear issue as much as possible.

Elsewhere, members are concerned that the party is not doing enough to push green issues in Government. With next year’s local elections drawing ever closer, local party stalwarts are pushing for a radical environmental campaigning platform. Yesterday the rank and file pushed through an amendment to a policy motion on ‘green taxation’ that set a target of securing no less than 10% of its taxes from environmental revenue by 2015. Ministers had urged voting members to pass the motion with no amendment.

Huhne’s challenge, then, is to build on Clegg’s speech yesterday, showcasing a radical liberal commitment to green issues that sets the party apart from the ‘Conservative juggernaught’. For a party still basking in their first taste of power, this is likely to be enough to quieten dissenting voices over the deficit-programme for now. Nevertheless, as rhetoric takes a back seat to tangible cuts over the next twelve months, next year’s conference may be a different story.

Things are looking bleak. As the Government continues to predict that it will become ‘the greenest ever’, it is increasingly realising that – as Liam Byrne so eloquently put it – ‘there is no money left’.

Yesterday afternoon the Committee on Climate Change (CCC) released details of a new report that claims the UK risks failure in its quest to pioneer a low-carbon future unless it takes measures to protect and increase spending.  Low-carbon initiatives, it said, must continue to get Government support or risk falling into the ‘valley of death’ where they never reach the market.

The timing of both announcements is sure to grate on Chris Huhne and co, who, just last week took steps to cut £34m from the country’s low-carbon technology programme. Difficult questions are sure to be asked.

But this perceived ‘lack’ of investment is nothing new. The CCC claim that Britain already lags behind other developed nations in terms of the proportion of GDP spent on projects to help the country meet its carbon-reduction targets. While Japan invests 0.9% of GDP for example, Britain invests just 0.1%.

Last week I visited the Sustainable Futures exhibition at London Design Museum and witnessed first hand the role innovation and creative thinking has to play in developing the next generation of green technology.

Focussing on using local, natural resources to create and maintain a low-carbon footprint, designs range from those focussing on large communities – such as city developments in Abu Dhabi and Brazil – to ideas that help you monitor your own carbon footprint (Carbon Ration Book anyone?).

(My personal favourites include the ‘Virtual Water Footprint’ and ‘Changing Habbits’ initiatives – worth checking out)

Notably, designs from the UK were in relatively short supply. Those that did begin life in British brains remain pretty much unknown – coincidence? Perhaps. But surely this is a chance we can no longer afford to take.

As Buckminster Fuller once said, ‘the best way to predict the future is to design it’. Britain’s green future rests on giving those with innovative solutions the tools they need to make them fly. Only time will tell whether the Government’s recent cuts will damage its chances of developing a sustainable future for the UK.

This morning I attended a breakfast briefing with Alistair Buchanan CBE, the Chief Executive of Ofgem. As I took my seat and glanced at the title of the briefing – ‘Keeping Britain’s lights on: the challenges’ – I began thinking about the great wave of anxiety that is sweeping through the energy sector.

The roots of the current concerns are varied and wide-ranging. While consumers shudder at the threat of rising energy bills, CEOs of large energy companies are increasingly at pains to convince key stakeholders that they hold the key to powering the future. Nonetheless, to my mind, the overarching concern surrounding the sector has shifted in recent months. Column inches that were previously filled with talk of Copenhagen and the impending destruction of the world as we know it are now discussing the crisis of energy security that apparently sits just around the corner.

Judging by the outlook of the recently released coalition agreement, the new Government is equally preoccupied by the idea of Britain’s lights going out. And so they should be. A combination of the financial crisis, the breakdown in carbon trading, and Britain’s changing world status in terms of gas supply has dramatically increased the chances that the lights will indeed start flickering.

Buried in this ongoing conversation about energy is an issue that strikes at the heart of concerns about supply, and has only recently started to raise its head; it is being reported that a genuine shortage of suitably qualified personnel exists in the UK capable of staffing the new era of power generation.

Crammed into a busy train carriage last weekend, I flicked through a special supplement in The Sunday Times’ on future energy skills. In it, Alan Copps discussed a recent report that was commissioned by the government and revealed 200,000 new engineers are likely to be needed in the next 5-years, expressing grave doubts as to whether companies will be able to find suitably qualified candidates. On top of this, the CBI recently found that teachers view engineering as for ‘the less academic’ (unbelievable since I genuinely can’t remember ever seeing an engineering student without their head buried in a book at uni!), while parents consider it a ‘dying industry’. What’s more, clean energy companies are facing an uphill struggle to compete for talent with the oil and gas industry, which regularly offer three times the salaries.

Perception is everything, and as I consider my friends and family views on the energy sector, I can appreciate how graduates are put off entering an industry that is often regarded as uninspiring and dull. Having said that, clean energy and environmental engineering really do present enormously exciting opportunities for future careers; marketing these opportunities to an increasingly environmentally-aware generation of young people will be crucial. A failure to do this will leave us all in the dark. And then who will be on hand to turn the lights back on?