Centrica : Climate, Energy and the World Order

I am both optimistic and deeply worried about the future with regard to climate change. I am optimistic about the accelerating changes in attitudes, politics and technology to address climate change. However, I remain worried that the pace of change is simply not enough and despite all of our efforts we are going to miss our decarbonisation targets.

The challenge is immense; the Paris Agreement calls for limiting temperature rise to 1.5C relative to pre-Industrial levels by the end of this century. The IPCC recently, however, said that even if all the pledges in the Paris Agreement were to be met, we would deliver 2.6C at best. In reality we are more likely on track for 3.1 to 3.5 C - a sobering fact which puts this debate between 1.5 and 2C firmly in the shade.

But since Rio in 1992, a lot of progress has been made and we have gone from visioning, to experimentation, to pragmatic action at scale. Economic growth has been decoupled from greenhouse gas production in the developed world. In 1980 the world used 0.59 tonnes of oil equivalent for every thousand dollars of GDP and in 2016 it used 0.17 - a reduction of two-thirds. In the UK this year, our emissions are going to be lower in absolute terms than they were in 1888.

In the EU, in 2005 the first Barroso government set up a high-level group for energy, environment and competitiveness. I was a member of this group and we advised that the nine commissions to 2050 would have to pass the baton in order to make consistent energy and climate policy. As the third of those commissions draws to a close, we have made huge progress. Very recently, a large majority of EU countries supported the objective of carbon neutrality by 2050. However, a small number of Eastern European countries have so far blocked it.

This is a microcosm of what is going on in the world. Someone is going to have to pay for the countries that have a high coal intensity and carbon footprint. Perhaps one of the most exciting things is the role of cities and the convening power they hold, integrating local interests and the population at scale that they represent. This is a real opportunity to make a step-change.

There are also other positive trends and Centrica's own strategy is based upon three trends. The first is the decentralisation of the energy system in response to climate change. This in turn is leading to the second trend of power being given to customers, whether they're consumers or businesses. And the third trend, digitalisation, is accelerating all these changes.

The key is how we harness changes in energy demand. It cannot only be about changes to supply. Demand is the critical factor that underpins our distributed energy business. Our order book is growing at 51% per annum, and it's accelerating because of the technological solutions to change the demand function.

After Paris, our company made some recent commitments to help our customers address climate change. Firstly, we are going to own the emissions of our customers, not every bit of them, but our customers are going to have to reduce their emissions by 25% by 2030 and we have committed directly to reduce three percentage points of the twenty-five and to influence as much as we can of the rest. We can't tell our customers how to live their lives, but we can influence the choices they make.

The second thing we are committing to do is help decarbonise the energy system through the deployment of 7GW of flexible, distributed, lower carbon generation. And thirdly, we have got to continue to reduce our own emissions. We have already cut our own emissions by 80% in the last decade and we have committed to cut them by another 35% in the decade to 2025. Perhaps the most important thing we are doing, is committing to limit our hydrocarbon production. We are shifting emphasis from hydrocarbon production to emissions reduction. We have also committed that by 2030, we will have a clear plan to be net zero by 2050.

Why are these commitments important? Well, we are the largest energy supplier in the UK, we are the largest energy supplier in Ireland, we are the second largest independent retailer of energy in the United States. We have all got to play our part - this isn't just bragging rights.

So, that's the optimistic part. However, is it's too easy to make incremental progress and allow politicians to celebrate it but not be anywhere near solving the problem. In short, short-termism is allowing us to kick the can down the road. And there are three huge challenges that are not being addressed.

Firstly, hard-to-abate sectors; steel, cement, oil refining, aluminium smelting, petrochemicals, and how to decarbonise heating and cooling. And yet everyone is talking about electric vehicles; they're important too, but heating and cooling really matters. My company owns British Gas and so people find it hard to imagine the owner of British Gas talking about decarbonising heating. Well, that's exactly what we are doing.

The second big challenge, is how to decarbonise unabated coal plants in the developing world, and importantly, who pays for it.

China and India by 2060 will represent 44% of the world's GDP. In the last ten years, China's emissions have grown by 2.5% per annum, and are now responsible for 27% of global emissions. India's have grown by 5.6% per annum, and they are now stand at 7% of global emissions.

So, 34% of global emissions come from just two countries, compared to 12% for the whole of the European Union and 1% for the UK.

The question is, who is going to deny these countries their economic growth even when their economic growth is being fuelled by one new coal power station every week? The challenge is to first replace coal with natural gas, and that's a good thing, and then replace the natural gas. The big issue remains; who is going to pay for it? I am afraid the answer is the developed world is going to have to pay for it and yet we have got Donald Trump in the White House, who is certainly not intent on that at this present time.

The third big challenge is communication and learning; how do we avoid governments making the same mistakes over and over again? We need to find a way to get governments, when they appoint new ministers, to not repeat the mistakes that have already been made. This is one of the objectives of the World Economic Forum's system initiative.

In summary, there are two paths we can go down, a passive path of incremental progress, or a path that leads to net zero by 2050 in line with the Paris Accord. If you compare this to the John. F. Kennedy 'Moon speech' in 1962, and the challenge is probably at least as large, at that time there were great questions that were unanswered. The same is true in climate change. In 1962 there were huge developments in scientific ability that needed to be harnessed to solve the problem. This is as true for climate change now as it was then for space exploration.

Although I am an optimist, I am deeply worried. To be an optimist, to truly be an optimist, we must be ambitious but pragmatic. We must be willing to ask and answer the difficult questions.

We must embrace the needs of the developed and emerging economies together. We must be willing to accept the scale of the challenge and find ways to pay for it. And we must be willing to accept, all of us, the role we can each play.