Oil shock could turn UK green
The Age
Saturday March 5, 2011
BRITAIN is facing a 1970s-style "oil price shock" that could wipe 45 billion ($A72 billion) from its economy, Climate and Energy Minister Chris Huhne warned in his first intervention on the issue since the start of the Middle East political crisis.Rising oil prices pushed petrol to a record 130 pence a litre at British pumps this week, and turmoil in the Middle East is putting intense pressure on Finance Minister George Osborne to ease the effect on motorists, probably by dropping previously announced plans to increase fuel duty.But in a speech on the impact of the oil crisis on Thursday, Mr Huhne argued that a price of $US100 a barrel transforms the economics of climate change in Britain.He disclosed that the Department of Energy and Climate Change's economists have warned that if the oil price rise turns into a 1970s-style crisis and "if the oil price doubled, as from $US80 last year to $US160 this year, it could lead to a cumulative loss of GDP of around 45 billion over two years. This is not just far-off speculation: it is a threat here and now."Oil is at a 2-year high and there have been predictions that if the political turmoil spreads across the Gulf, the price will rise further. The Libyan rebellion has shut down oil production in many parts of the country, and while Libya's oilfields produce only about 2 per cent of global supply, experts say the disruption is creating pressure elsewhere.The speech was in part an attempt to galvanise public support for tough measures to create a green economy after recent setbacks including attacks on the science of climate change and stalled international negotiations.The speech could also be seen as an attempt to burnish the coalition's green credentials after months in which the Department for Transport has declared an end to the "war on the motorist".Drawing on research conducted for the previous Labour government by Lord Stern, Mr Huhne argued that $US100 a barrel is the point at which the economics of climate change pivots, so that it becomes cheaper for British consumers and businesses to invest in green technology than remain with the status quo.He said that if oil only reached $US108 a barrel by 2020, as predicted by the US Department of Energy, then British consumers would "win hands down" by paying less through low-carbon policies than for fossil fuel policies.This is the moment to invest in green infrastructure, homes and transport, according to Mr Huhne.He said fossil fuels were now the costly, high-risk option for energy: it was "crazy" not to prepare for a low-carbon future.He argued that the government had made it possible for consumers and businesses to switch to green energy, through the green deal for homes, feed-in tariffs and new technologies such as electric cars, which are predicted to have a breakthrough year this year.In the low-carbon economy, he said, "we will turn to electricity to heat our homes and charge our cars, leading to a doubling in demand for electricity by 2050".Steve Holliday, chief executive of the National Grid, predicted this week that Britain would need to increase its installed capacity of electricity generation by 35 per cent by 2030.This in turn would require a rapid transformation of the British energy market, with long lead-in times and high capital costs.Mr Huhne said if Britain wanted to avoid an energy crunch by the end of this decade, "the UK must cut our carbon emissions by 34 per cent on 1990 levels. We must generate 15 per cent of our energy from renewables by 2020, up from 6.7 per cent in 2009.""Energy companies are not the Salvation Army and will need to convince big investors, like pension funds, that the UK energy market is not just stable, but also offers a good return," he said. As a result, consumers would face a cost, but it would be lower than not making the investment.
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