Low Carbon Economy In Action

I was at the launch of the London Clean Tech Cluster (LCC) which took place at the law firm Taylor Wessing last Wednesday evening.

I have been helping the LCC since Clive Hall, the founder came to see me in the spring of last year. Clive has been a whirlwind of energy and has pulled together a really impressive list of supporters. 
 

The aim of the LCC is to:

-          support cleantech businesses in the London region and attract new cleantech businesses to London

-         support exports and attract foreign investment into the cleantech space

-         encourage the uptake of cleantech across London and the Southeast.

There is quite a buzz around the eco-tech/clean-tech space at the moment, and I am hoping that this sector's continued growth will overcome some of the ridiculous prejudices held by the uniformed.

Labelling it as the "green economy" is unhelpful in the extreme- this allows the foolish to conjure up images of crystals and tepees. Whereas cleantech actually spans the industrial spectrum from catalytic chemistry, through advanced composites, past power systems to civil engineering. 

A rather dysfunctional view of business and industry is one of the prejudices that clouds rational discourse in this area, especially from those individuals who have a sub-conscious image of industry as being Victorian era dark satanic mills. 

Clean-tech with its SME base located in light industrial units and on university campuses does not accord with this image, which may explain serial policy failures to engage with the sector over the last 10 years.

However, you can't argue with the power of the market (although my previous post does mention policy risk holding back investment). The bottom line is that in an increasingly urbanised world, a world that will soon contain 9 billion people, demand for efficient and effective solutions to the problems of energy supply, clean water and air pollution is only going to increase.

The City of London is very interested in the market opportunities this presents- Venture Capital, investment, insurance and of course legal services- particularly around Intellectual Property Rights.

The UK has a choice- it can either throw its weight behind the domestic companies who are developing this technology and reap the rewards of enhanced exports, or it can let them wither on the vine and be forced to buy in expensive solutions ten years down the line.

I am a natural optimist, but given our past track record (jet engines, radar, television, lean burn engines, the computer boom of the nineteen eighties) sometimes even I struggle to see the light at the end of the tunnel. 

Anyhow, through partnerships with the LCC, Imperial Colleges' wonderful KIC and joint programmes with the Aldersgate Group and the London Accord, the City of London Corporation intends to keep the eco-tech flame alive in the City of London.

I will let you know how things progress.

The Rise of Corporate Leadership

I suppose that now the dust has settled I should say a few words about Rio plus 20, which has been universally slated as a failure.

I did not go to Rio- in these straightened times, I did not think I could justify the expenditure. However, I did go to the Johannesburg Earth Summit back in 2002 as I had put together the UK Government submission on Financial Services.

Ten years ago, in Johannesburg I was struck by the lack of ambition of the official delegates- it was almost as though world leaders had been carried away with enthusiasm at the original earth summit, and their successors (and the army of minders accompanying them) were determined to avoid making even the slightest concession which would commit them to action of any kind.

 It was a bizarre bunker mentality- reminiscent of a spinster at the County Fair who is so determined not to be swindled by hucksters, that she sits in the refreshment tent nursing a cold cup of tea and completely missing out on the sunshine and fun. 

What struck me was how completely at odds this was with the drive and enthusiasm of the attendant circus of NGOs and Corporates, who clashed and cooperated on a massive range of initiatives designed to keep the flame of sustainability alive.

One particular exchange really stuck in my mind. It was a side event on corporate social responsibility in the minerals extraction sector. The CEO of a major mining firm with interests in West Africa, had stood up to make a speech, when he was interrupted by a group of protesters, decrying his company's record (if memory serves me, they wanted to give him an award for "greenwash").  However, they in turn were interrupted by an immensely dignified African who in a mesmerising baritone, quietly stated-





"It was not a company who jailed me for eight years for daring to organise a union. It was not a company who arrested and beat my colleagues when they questioned why the millions of dollars flowing into my country from mining were not being spent on schools and hospitals. It was a government." (Check out African Arguments for a fascinating insight into these issues)

 



 Now, I am not for a minute going to claim that companies are not culpable- through inaction and through collusion- for corruption, environmental destruction and abuse of human rights. However, I do believe that these issues are firmly on board room agendas.

Why? Well the driver is altruistic self-interest- these issues affect bottom line performance, and scandals concerning human rights, corruption or pollution show up clearly on balance sheets. 

Many of the more forward sighted corporates are now using sustainability as a management tool, horizon scanning to identify threats to profitability from resource shortages, or opportunities for new products or services to meet demands arising from global challenges.

The financial research on the London Accord website nails the economic drivers- not all corporates have woken up to sustainability yet- but those that have are significantly out-performing their rivals.

Which brings me back to Rio+20- governments may have abrogated their responsibilities and stepped back from leadership on sustainable development, but corporates are stepping up to the batting plate-  The Corporate Sustainability Reporting Coalition and the Principles for Sustainable Insurance are a case in point.

The latter of these initiatives presents a particular irony- it is entirely industry driven, and it aims to ensure that investors can price sustainability risk accurately when assessing the value of equities. Where is the government led initiative calling for agreed reporting standards for nations so that sustainability risk can be priced into sovereign debt?

I am not naive, I am aware that there are ample examples of appalling corporate behaviour, and there is a long way to go before Corporate sustainability is the rule, rather than the exception. However, I firmly believe that attitudes are changing- the agro-commodity sector is viewing water shortages and land degradation with alarm, the manufacturing sector is accutely aware of resource depletion, climate change and rising energy prices, and the financial services sector is begining to price climate risk.

Furthermore, the conversations I have with Corporates reveal increasing disquite with the failure of policy makers to develop clear and stable policy within these fields.

What I hear is a repeated mantra- "We can take account of environmental and social risks, we can factor legislation and regulation into our business models- but policy risk is pure poison- how can you commit millions of dollars of investment, when a programme can be killed with one speech by a politician pandering to a partisan audience?" 

  

The MEMO Project

As promised I want to tell you about my evening at Adjaye Associates which is related to the fabulous MEMO Project.

I first came across MEMO when I met Sebastian Brooke late last year.

Sebastian is the driving force behind MEMO, a monument to biodiversity which is being planned at Portland in Dorset. MEMO is fantastic- a one hundred and twenty metre high open structure, coiled like a titanic ammonite eroded from the Jurassic coast.

Visitors will be able to climb the monument using the spiral ramp, whilst admiring the thousands of carvings of plants and animals, designed by school children from across the UK.



This is a scale replica of the Hooke Bell

 At the heart of the monument will be the Hooke Bell a massive bronze bell (planned to be the largest in Europe), cast from bronze using a portland stone mold. The bell will be like the Lutine Bell in Lloyds of London and will be struck on Earth Day to celebrate biodiversity and commemorate species which have become extinct.  

Planning for the £20 million pound project is well underway. Dorset County Council have granted planning permission, and Adjaye Associates have drawn up detailed plans for the monument and the visitors centre, which will bring much needed economic development to this part of Dorset.

So what was I doing at Adjaye Associates? Well the City of London has a strong connection to Portland as many of the buildings in the City of London are built with Portland Stone. We also have a strong connection to biodiversity- not only do we manage a third of London's best loved open spaces, but Robert Hooke, the father of biodiversity was City Surveyor from 1666 to 1674 and oversaw the re-building of the City following the Great Fire in 1666.

Sebastian contacted me to see if I could help him spread the word on MEMO project in order to get support and sponsorship. I have been putting him in touch with various people in the City.

The event at Adjaye Associates was an opportunity to meet some of the other project supporters and hear about the latest developments. I was tremedously impressed by the callibre of people who were there Sir Tim Smit (who created the Eden Project),  Sir Ghillean Prance (former director of Kew) and a brace of other well know faces from the worlds of politics and the environment. The Duke of Edinburgh has also made a personal commitment to the project and will be hosting a fund raising dinner at Buckingham Palace.

I will let you know how the project develops.

Peak Stuff?

A busy evening yesterday- I had to do the introduction for Mark Lynas (Author of the very excellent "Six Degrees" and "The God Species") at a Just Share Event at St Mary Le Bow Church, following which I was dining in very august company at Adjay Associates. (I will tell you about the latter in a seperate post.)

Mark was charming, and the Just Share event was well attended- by an exceptionally well informed crowd. The first half of his talk was an engaging canter through the concept of environmental limits, the topic of his latest book. We certainly see eye to eye on many topics, such as nuclear energy and GM.

However, the second half of his talk focused on the "good news" on the environment and much of it was drawn from  Chris Goodall's work on "Peak Stuff".

Chris' work is a really insightful look at evidence that economic growth can be decoupled from unsustainable behaviour. He bases his hypothesis on the fact that the UK began to reduce its consumption of physical resources in the early years of the last decade, well before the economic slowdown that started in 2008.

Personally, I can see why the argument is an attractive one, but the figures Chris produces hide a wealth of complexity- one of the sets of data Mark picked up on was a drop in UK Total Material Requirement (TMR) which by 2009 had dropped to 81% of 2001 levels. On the face of it this is good news, as this drop coincided with a prolonged period of economic growth in the UK- so does this mean we can have continued growth without damaging the environment?

One problem I have with this figure is it is an aggregated number, which does not differentiate between "guns and butter" (or i-phones and cod if you prefer)- in other words, despite the drop in total TMR, you cannot determine whether it contains unsustainable consumption of rare earth metals and increased consumption of collapsing fish stocks.

If anything the drop in TMR is a validation of classical economics- "stuff" is getting more expensive to make because of rising resource costs, driven by reduced supply and increased demand. Manufacturers are using smart design to reduce the material requirements of their products- replacing metals with plastics and changing the composition of those plastics to make them lighter and stronger.

Don't get me wrong, this is to be welcomed, but I disagree with Mark that this is "good news", for me this is a sign that the environment is under increasing stress and the economy and society are being directly affected.

My problem with Mark and Chris' analysis is that whilst their work is  thoughtful and pertinent, the ill-informed (or mischievous) can cherry pick statements to support the weakening of environmental legislation and the continuation of environmentally damaging behaviour.

I am not, you probably won't be surprised to hear, a hair shirt wearing hippy, who thinks we should all go back to living in tepees, so I am not arguing that economic growth automatically results in environmental destruction. What I am saying is that we need to be a lot smarter about the way we measure growth so that the Government develop policies that deliver long term benefits..

This is why I am heartened current discussions around GDP plus. Check this website for further information http://www.beyond-gdp.eu/index.html

Run up to Rio



Admiralty House


I was at a pre-Rio event hosted by Nick Clegg yesterday evening, which pulled together the various contributors to the UK's Rio+20 submission.

I have been following the development of Paragraph 41 of the Zero Draft with interest- I hosted a business breakfast with Caroline Spellman back in February to help drum up support in the City.

(You can find a copy of the Rio+20 Earth summit draft text here- http://www.scribd.com/doc/96419644/Draft-of-UN-Rio-20-main-text)

The UK Government has asked Aviva to lead UK submissions on financial services at the Rio Summit and Aviva have established the Corporate Sustainability Reporting Coalition (CSRC), a group of organisations representing investors with assets of approximately $2 trillion under management, as well as civil society and international bodies.

The CSRC is asking the countries attending Rio +20 to develop national regulations requiring companies to report on sustainability issues. It is also asking for beefing up the ways in which investors can hold companies to account.

Why is this important- well if you don't know whether companies are managing sustainability risks effectively  (water, energy and raw material risks ), or are likely to be sued for exploiting or injuring workers or the local community, how can you work out whether your investment will pay off?

If you want to find out more about this, check out http://www.london-accord.co.uk/

Anyway UNEP have thrown their weight behind these efforts and a great deal of international diplomacy has gone on behind the scenes to pull countries behind the proposal. Needless to say there are still a few refuseniks, but with some tap-dancing around the wording it looks like there will be a positive move in this direction.

Dark Days Ahead?

In an age of austerity, when household incomes have dropped for the first time in a decade, anything that adds to household bills is unwelcome. However, with the publication of the Government’s Electricity Market Reform Policy Overview earlier this month, it looks likely that consumers will see a sharp hike in their energy bills over the next few years.

Some politicians have laid the blame at the door of overzealous pursuit of the green agenda to quote one- “we know that a decade of environmental laws and regulations are piling costs on the energy bills of households”

These comments draw rebuttals from the usual suspects, but is there any truth behind these assertions?

1990 the UK Government privatised the UK Electricity Supply Industry in England and Wales, a stable policy environment followed by similar measures led to a full deregulation by 1998, making the UK a pioneer in electricity deregulation.

UK policy, such as it was, could be referred to as ’sweating the assets’. Our power stations provided affordable electricity, fuelled by relatively cheap coal and gas. Electricity and gas prices stayed low, and everyone was happy.

Needless to say this state of affairs was too good to last. Our infrastructure – power stations, and transmission networks – is now crumbling. More than 40% of our power plants will close within the next ten years.

For those of you in touch with their inner geek www.industcards.com has wonderful “Top Trumps” style pictures of UK power stations and I challenge you to find a coal fire station built after 1973.

It is against this backdrop that, in 2009, Ofgem undertook Project Discovery, which was an effort to map out the scenarios for delivering the UK’s future energy requirements. Central to this challenge was a ‘trilemma’ – how to make our energy future sustainable, affordable and secure.

On their own, any one of these goals is relatively straightforward however, the imperative to deliver all three is going to define energy prices for the coming decade and beyond.

At present the UK vision for the future of energy is dominated by renewables, with baseload provided by a backbone of nuclear and “clean coal”. However, there are a number of problems associated with this approach.

1.   Renewables need balancing plant- gas, nuclear or coal and investment in smart grid technology.

2.   The lead-in times for coal and nuclear power stations (generally in the order of 10-15 years ) mean that we should start planning and building these now- and the planning hurdles facing developers are huge.

3.   Ofgem based their modelling on an assumption that peak demand will remain at around 60 GW. But it is clear that the UK’s net population is set to rise, electric cars ownership will increase, and the gadget count in homes is only going to rise.

It is therefore highly likely that the short term will see a second “dash to gas”, particularly as fracking appears to offer a tempting solution to energy security.  

Industry analysts seem to universally accept that ‘raw’ energy prices will rise in the long term as a result of increasing demand by countries such as China and India. As a result some models predict that retail electricity in the UK will be as much as 40-50% higher by 2017.  

Against this it is estimated that at present “green tariffs” comprise about 2% of energy bills, though the current policy trajectory means that this is likely to rise to 4% over the next few years.

Whilst it could be argued that any additional burden on businesses or consumers is unwelcome, on the plus side, this money is re-circulated into direct investment into UK energy generation (through Renewable Oblication Certificates and other measures).

This raises two interesting questions- firstly with the energy industry in the UK dominated by six large companies, is too much profit going overseas at the expense of investment in UK infrastructure? And secondly is there a case for re-regulation of energy markets- rewarding companies for generating capacity and punishing those who fail to invest?

Ultimately, it is difficult to force companies to invest- and the woeful state of UK energy policy as well as continuing uncertainty regarding the fiscal and legal environment act as powerful deterrents to desperately needed investment.

Our rising energy prices are unfortunately, the result of the same type of short sighted policy environment which gave us the credit crash and the world recession. We did not invest in our assets and we took easy “credit” in the form of low energy prices for the best part of two decades, we are now paying the price.

Politicians may hold views on windmills but, regardless of the technology used, the UK is tilting against giant problems- investment in in energy supply and generation infrastructure is unavoidable, and inevitably the costs will be passed on to the consumer.  Whilst, the optimists- whichever side of the climate fence they sit on- may see this as an opportunity for investment and growth, we will have to brace ourselves for the long term reality: Lighting our homes and powering the economy is going to cost much, much more in the years to come.

Flood Insurance

London Climate Change Partnership meeting on Monday.



Fascinating discussion on the potential blight facing hundreds thousands of properties in the UK who will struggle to get flood insurance after June next year, which is when the insurance industry's voluntary flood agreement with the Government ends. Progress in coming to an accommodation with DEFRA is slow, according to my source in the ABI.

This has serious implications, as the affected homes will find it virtually impossible to get mortgages.

I suggested that Weather Derivatives, might provide a way around the problem- these are basically bets on the weather- you take out a position that rainfall on a catchment area will not exceed a certain level. If it does you get a payout (regardless of whether you suffer a loss).

Because the transaction costs are lower (no need for claims adjusters and no possibility of fraudulent claims), these can be provided cheaper than standard flood insurance.

Weather derivatives have been around for years- they are the basis of the "snow guarantee"  you can take out on your skiing holiday, and are even used to insure communications satellites against solar storms!

I have promised to set up a meeting between the Environment Agency and some derivatives traders to explore this further.