The business leader's guide to the low carbon economy

One of the reasons we need so many power stations in the UK is that we must always have enough power to meet peak demand – even if that demand lasts only a few minutes. Click here to see the kind of pressure the UK national grid comes under when East Enders finishes and 1.75m people put on their kettles.

Smart grids could change all that. If domestic appliances could switch themselves off and on according to the nationwide demand for electricity, and if the grid could draw more power from small scale renewables, and sometimes even from the batteries in electric cars, we could get by with fewer big power plants. That’s why smart grids are being piloted in Liverpool, Leeds and the North East.

The world’s largest offshore windfarm opened today off the coast of Kent. The 100 turbine, £740m project will provide 300mW of power to the grid, bringing Britain’s total wind capacity to around 5GW – about the power produced by five medium sized coal or nuclear power stations. Swedish company Vattenfall, which operates the facility, can expect at least £30m a year in government subsidies, in addition to the money it makes from selling the electricity.

Less than 2% of the UK’s energy is from renewable sources: more than 80% of Iceland’s is. To be fair, Iceland has two significant advantages over Britain: it’s small – with a population of only 320,000 its total energy consumption is just 1% that of Britain’s; and it is situated on one of the most tectonically active places in the world, which means there are plenty of hot springs and active volcanoes (like, Eyjafjallajökull which caused disruption to European airspace in the summer of 2010)

The hot springs are a great source of geothermal energy, which Icelanders use to heat homes and offices, and to generate electricity. With abundant hydroelectric power, Iceland would be close to being self sufficient in energy and carbon neutral if it weren’t for the oil needed to fuel cars and trucks. The country is working on this though, by developing a hydrogen fuelled transport system. The hydrogen is produced by electrolysis powered by geothermals.

Until recently geothermal was thought to be practicable only in places like Iceland where the geology allows hot steam to rise near the surface, but a newish technology called Hot Dry Rock (HDR) may allow geothermal power to be accessed anywhere. In essence, if you drill a hole deep enough (around 3 – 5 km down) you get to rocks hot enough to boil steam to drive a turbine in a power station. At the moment this is technically very difficult and the resulting energy very expensive. But more than 50 companies worldwide are working on making it easier and cheaper to extract this heat from the earth’s core. As the cost of conventional fuels rises, and governments become keener to promote renewables, the time may come when geothermal can be added to the mix of wind, water, solar and biomass as a feasible source of renewable energy.

Energy secretary Chris Huhne, in this government’s first annual energy statement, spelt out today how he thinks the low carbon economy will pan out over the next few years. Perhaps the most significant phrase for business in his statement is this:

Like the other industrial revolutions, the low-carbon revolution will be driven by entrepreneurs, the private sector, local communities, individuals, businesses, scientists and engineers – not by government.

Nevertheless Huhne acknowledges that government has a role to play:

However, industry needs stable policy and functioning markets. The role of government is to provide the policy framework and to act as a catalyst for private sector investment… we need to apply those principles to the challenge of changing fundamentally the way we produce and consume energy.

Click here for Chris Huhne’s full statement

Click here for Chris Huhne on You Tube

In 1965 the world produced about a million tonnes of cereal, which went a long way towards feeding the then world population of about 3.3 billion. By 2010 the population had doubled to 6.7 billion but the amount of land harvested remained the same. However, this same acreage of land was now producing over two million tonnes of cereal. How come?

All sorts of things have changed in agriculture since 1965 – more mechanisation, better pesticides, selective breeding of higher yield cereals, but the biggest single difference between 1965 and now is the intensive use of nitrogen based fertiliser. And where does this come from? Fossil fuels.

It’s predicted that the world population will peak out at around 9 billion in about 2050. In order to feed this many people we’ll need a lot more fossil fuel based fertiliser. If this isn’t available we really only have two choices. One is to return to organic, fertiliser free farming. As organic farming produces around half the yield of intensively fertilised farming, we’d need to double the amount of land available. Alternatively, we could make more use of genetically modified crops to produce higher yields with less fertiliser. Whichever way you look at it, food is a fossil fuel problem.

A 1.5 tonne aeroplane, the Solar Impulse, has just set a new world record for the highest and longest flight by a solar powered aircraft. It landed near Bern, Switzerland, this morning, after flying for 26 hours and reaching 8,700m. Charging on board lithium ion batteries from sunlight in the day enabled it to stay aloft during the night, so in theory a solar powered plane could stay in the air indefinitely. The team’s next goal is to fly non stop around the world, probably in 2013.

The technology of photvoltaics will have to come a long way before there is any commercial application to flight. Viable alternatives to fossil fuels already exist for trains, motor vehicles and ships, but so far aircraft rely entirely on petroleum. Anyone who can come up with an alternative, non CO2 emitting means of powering an aircraft is going to become very rich indeed.

Yesterday a convoy of electric cars drove from Coventry to Birmingham, to publicise the fact that both cities now have a network of electric car charging points. The cars themselves are part of a year long experiment in London, Newcastle, and other British cities to see how ordinary drivers respond to electric cars for everyday journeys. Local government in the UK is very enthusiastic about electric vehicles – London Mayor Boris Johnson wants to see 100,000 electric cars on the streets of London within the next few years, and is busy installing more than 25,000 charging points throughout the city. National government is enthusiastic too, although Business Secretary Vince Cable has refused to confirm that the current administration will honour a Labour pledge to give a £5,000 grant to anyone who buys a new all electric vehicle from 2011 onwards.

Yes, this really is an electric car

Electric cars are far from perfect – the batteries are heavy, expensive and don’t last very long – but it’s already clear that electric cars will take over from petrol and diesel. At the moment electric cars are more expensive to build, but cheaper to run, than petrol. As the technology develops, and the price of oil continues to rise, sometime in the next five to ten years old fashioned petrol cars will simply be too expensive in comparison with their electric rivals. And even if you recharge your electric car from the national grid as it is now – ie mostly powered by fossil fuels – the overall emissions of CO2 per mile are still less than that of a typical petrol or diesel car.

Despite the lack references to things green or low carbon in the Chancellor’s budget speech, the coalition government is still committed to being the greenest government ever, according to the secretary of state for energy and climate change Chris Huhne.  Speaking at an energy conference today he said:

‘I want Britain to be the best place in the world to do energy business. To lead the world in decarbonising the economy. To develop the unique products and processes that will power the second industrial revolution – the green revolution – just as steam, coal and iron drove the first.’

As to specific commitments, there were four in the budget report:

• To reform the climate change levy and create a floor price for carbon
• To create a green investment bank
• A green new deal, which would make the UK’s housing stock energy efficient
• Tax breaks for low and zero emission vehicles

More details on all four proposals are to follow in the autumn.

The Economist business magazine (or newspaper as it likes to call itself) has long advocated a carbon tax as the best way to deal with the threat of global warming. In preparation for its pre budget advice to chancellor George Osborne it commissioned an economic modelling firm, Cambridge Econometrics, to work out the likely effect on the UK economy of a carbon tax which raised about 1% of GDP by 2020. Such a tax would not only raise revenue – about £18bn by 2020 – it would also stimulate economic growth. Cambridge Econometrics calculated that output would be 1.2% higher with a simple carbon tax at around £30 a tonne of carbon, than with the present hotch potch of fuel duty, subsidies for renewable energy, and other measures.

Sadly, as we now know, Mr Osborne didn’t go for it. In fact, this budget is about the least green budget we’ve had for a long time. Apart from a vague promise to look at aviation tax (per plane rather than per passenger) and, if we’re being generous, a commitment to fund rail improvements in Newcastle, Birmingham and Sheffield, there was nothing there to justify his boss’s claim that the Conservatives were determined to make Britain a leading player in the low carbon economy.

The world currently uses 85m barrels of oil a day, and we have to get it from somewhere.

The easiest and cheapest way is to drill for it on land. Most of the world’s oil still comes from oilfields below land, principally in the Middle East. If you run out of land based oil, you can start to drill offshore. Offshore production is a lot more expensive than on land, but worth it if prices are high enough. That’s why offshore drilling in shallow waters began in earnest after the oil price shocks of the early seventies. Offshore drilling in the relatively shallow waters of places like the North Sea is tough enough, but nothing like the challenge of extracting oil form deep waters like the Gulf of Mexico. BP’s Deepwater Horizon rig was designed to extract oil from more than two miles below the sea bed using a rig floating a mile above it. By any standards this was a difficult, dangerous and expensive undertaking. Since the rig failed on 20^th April, killing 11 of her crew and sending 3m barrels of oil into the sea, the costs have risen dramatically. BP had agreed to put $20bn into a fund to pay for damages and lost earnings; $100m into a fund to compensate oil rig workers affected by the suspension of normal operations; and may face another $17bn or so in fines.

Whether this accident turns out to be the of 9/11 of energy, as President Obama predicts, is not yet clear, but one thing’s for sure – the price of oil is going to be increasing substantially for the foreseeable future.

Will this mean that it continues to be profitable to extract oil not only from deep water but using other expensive methods like oil shales and tar sands? Or that we start to rein back on oil in favour of cheaper sources of energy? Time will tell.