Speech given by the Prime Minister at the London Energy Conference, 19 December 2008.
PM calls for action on volatility
Chairman:
Your Royal Highness, Your Excellencies, Ladies and Gentlemen, can I welcome you to this London Energy Meeting and I am delighted to see such a wide group of countries represented here, we have 27 countries represented here this morning. And I am also delighted that we have been joined by the British Prime Minister, Gordon Brown, who will now formally open the meeting.
Prime Minister:
Your Royal Highness, Excellencies, Ladies and Gentlemen. Let me say first of all how pleased I am to welcome representatives of 27 countries to London today, pleased to resume the vital work that we began in Jeddah in June. Because I believe it is only through our continuing global dialogue, dialogue between oil producers and oil consuming countries, that we can lay the foundations for more stability in global energy markets for the future with a credible commitment to a more stable and transparent oil market in the years ahead so that volatility can give way to greater certainty, and in place of instability there is stability and strength.
I believe that three challenges have come together as one: the need to have stability in the energy market, recognising the continuing role of oil, but the need for more diversification; the urgency of meeting our climate change ambitions; and the need to ensure energy security without becoming protectionist.
Now the dramatic spike in oil prices over the last year had an enormous and damaging impact on the global economy. A report from Oxford Economics, commissioned for this conference, estimates that the high oil price took around $150 billion out of world economic output this year alone, and because of the impact on inflation high oil prices kept interest rates higher for longer than would have otherwise been the case.
But today with prices falling it is clear that our most pressing challenge now and for the future is oil price volatility. As everybody here knows, in the last 12 months oil has risen from $60 a barrel to a peak of $147, before falling back to around $40 today.
Such volatility is in no-one’s interest. Wild fluctuations in market prices harm nations all round the world, they damage producers and consumers alike. So let us begin with something I believe that everybody round the table can agree with, that even as we move to a low carbon economy the world will continue to need large oil for the foreseeable future. This in turn will mean that oil producers, particularly those with the lowest cost reserves, will need to continue to invest in capacity. But at the same time volatile oil prices make that investment less certain, sowing the seeds for future volatility of the future.
So the risk now is that investment in oil and other energy sources will once again stagnate, supply capacity will begin to tighten just as demand responds to improved economic conditions. As the Oxford Economic Report I have mentioned shows clearly, if producing countries were to fail to invest in supply, the impact would be felt not only in the consuming countries as prices rose, but by the producing countries as demand dropped away. Indeed projections suggest that the cost to the world economy as a whole could be as high as $1.5 trillion a year by 2030.
So volatility hurts consumers through its impact on prices and incomes, and producers through its impact on revenue and on future production and demand. It is therefore in all our interests to address this.
In June, and with oil prices still soaring, King Abdullah of Saudi Arabia showed great statesmanship when he took the vital first steps towards the response we need. It was an unprecedented conference to build a genuine producer-consumer dialogue. There in Jeddah industrialised countries, emerging economies and oil producers all agreed that what was happening in oil markets was damaging to the world economy and it was against the long term interests of producer and consumer nations too.
Together therefore we called for greater transparency about supply and demand to provide the stable platform for investment in future energy supply. We agreed on stronger efforts on the part of consumer countries to increase energy efficiency, we agreed to reduce barriers to energy investment, and of course we also agreed more precise help for poor countries most adversely affected by high prices.
But above all we have recognised our common interest in lower less volatile and more stable prices, and of course we agreed to meet in London again before the year was out.
In the run-up to the London Economic Summit of the G20 in April it is essential that energy producing and consuming countries reaffirm their commitment that we will act together on energy issues as a crucial part of promoting growth and stability in the world economy.
That is why we are here today, to maintain the momentum generated in Jeddah, to continue our efforts against market volatility and to move towards a global energy policy that is both fit for the future and consistent with climate change objectives.
In Britain, while acknowledging the continuing importance of oil, we are now diversifying our energy economy. Through investment in nuclear power, in renewables and in greater energy efficiency we are I believe creating a more stable market for the future, reducing the exposure of consumers and businesses to energy shocks and volatility in the price of any single energy source. And we are all pressing on with the work to improve the fuel efficiency of vehicles, to demonstrate also carbon capture and storage technology and to invest in the potentially transformative field of energy science.
Some argue that our commitment to reducing oil market volatility is in conflict with our goals on climate change. I disagree. The challenge of meeting our climate change commitments and reducing an over-dependence on oil are complementary and require stable and predictable oil market conditions.
As long as our climate change ambitions are predictable and unambiguous, they should lead not to more but to less uncertainty over future oil demand. And following last week’s agreement at the European Council I believe our energy trajectory is now far clearer. The 27 countries of the European Union have committed themselves not just in statements, but with legislation, to move towards a low carbon economy. They have undertaken to cut emissions overall by 20%, to secure 20% of our energy from renewable sources by 2020, to improve our energy efficiency by 20% by 2020, and to strengthen the EU Emissions Trading Scheme so that investors have confidence in a continuing price for carbon.
Perhaps most significant of all, Europe agreed to make around nine billion Euros immediately available to support the commercial demonstration of carbon capture and storage. This is a transformative technology that every major economy will need to ensure that they can continue to use oil, coal and gas responsibly and without causing climate change.
Britain was the first country in the EU to launch a competition for a commercial scale demonstration of carbon capture and storage, and we are now working with Norway, Australia, Canada, France, Spain and the Netherlands on how to achieve not just demonstration but deployment of carbon capture and storage by 2020. And I can announce that Britain will be bidding for at least one of the new European funded carbon capture and storage demonstration plants. This could potentially be worth over £1 billion to the UK, creating new jobs in a global industry which I believe Britain can and will lead.
There is no doubt that these new European targets are challenging, but they also present us with huge and enormous opportunities, supporting every country’s goal of greater energy security, by driving economic growth too as new jobs and new investment reduce our global dependence on traditional fossil fuels.
But to take full advantage of all these new opportunities together we will need a new partnership between oil producing and oil consuming countries. Because as with the global financial crisis, this global crisis in our energy markets cannot be solved by one nation or one continent alone, but demands a truly international response.
Our recent economic history bears the scars of our failure to move beyond the traditionally adversarial relations between producers and consumers. Our whole world is damaged by the absence of a stable path to a low carbon future. The scale of the task before us now demands a truly global new energy policy.
So I today want to propose for discussion a number of measures to increase transparency, accountability, to enhance investment and to dampen market volatility.
First, transparency. When world leaders met in Washington in November we agreed we needed to strengthen the regulatory regimes in global financial markets, increasing transparency and accountability and enhancing regulation, promoting integrity and reinforcing international cooperation. And given the crucial importance of energy, both to the world’s economy and to individuals in business, and against the backdrop of the ferocious volatility of the past year, nowhere is that truer than in the market for commodities and oil. Our analysis of oil price developments over the past year - which we are publishing today - shows clearly the interaction between the physical and the financial markets for oil. So in reviewing global financial governance arrangements, it is only right that we consider the adequacy of the current regulatory approach to global commodity markets. And I therefore welcome the creation by the International Organisation of Securities Commission of a new global task force to examine the existing framework.
As Chair of the Task Force, Britain is committed to driving this agenda forward, and I expect that in the London Summit and the run-up to in April, the Task Force will bring forward specific proposals to increase market transparency, to ensure regulatory oversight and to improve global regulatory cooperation.
The second measure, to help combat the damage inflicted by excessive market volatility and to protect producers and consumers around the world from wild fluctuations in prices, I believe the time is now right to examine how best we together can work in the future. Governments have long recognised the strategic nature of the oil market and the need for international action. That is why in order to cope with disruptions in supply, consuming countries have tended to maintain substantial stocks. The International Energy Agency stocks alone amount to a total of 13% of annual global demand. But in today’s world where disruptions to supply and excessive price volatility can do tremendous damage, and where oil prices are set not just in physical but in future markets, we need to consider urgently how we can work together to reduce that volatility.
So I want to propose today an international expert group to consider what we might do to enhance the international institutional structure to promote the consumer-producer dialogue and thus to help bring greater stability and less volatility to the oil market.
The third proposal is that investment in all sources of energy need to be examined. As I have stated, and then as an analysis from Cambridge Energy Associates that we are also publishing today shows, the world needs to expand our investment in the energy sector, and energy and resource rich countries need to be able to invest abroad to diversify their own economies. At a time of global economic downturn the last thing the world needs is higher barriers to trade and investment. So a global energy policy should see all sides opening up to rising investment across the energy sector, both in oil and in other non-oil forms of energy.
Over the long term we will need to see all countries, but especially those with substantial oil revenues, investing in low carbon emissions energy both at home and abroad.
International cooperation to enable such investment is in the interests of all of us. Already in agreements that we have made with countries - Qatar, Abu Dhabi - we are seeing investment by oil producing countries in alternative energy sources overseas, in this case in Britain, contributing both to energy and to economic diversification: affordable energy from a variety of sources, crucial for all countries to underpin energy security.
My fourth point is that as we agreed in Jeddah, we need a shared analysis of future trends in supply and demand. I believe there is even greater agreement and mutual understanding today than there was even at our meeting in Jeddah, a belief strengthened by the papers that are presented to this conference here today. And the British paper which we are publishing today, which brings together in a joint analysis the IEA and Opec forecast for supply and demand, is our contribution to this dynamic and important continuing debate.
I also want to see us do more to deliver on our pledge in Jeddah, to do more to help poor oil importing countries. High and volatile oil prices impact on economic growth and living standards for people in countries everywhere, but nowhere more harshly than on the hundreds of millions of people surviving on a dollar a day, or less, people for whom price increases can mean going without the fuel for cooking or the transport that enables them to work.
We cannot allow our recent achievement in lifting hundreds of millions of people out of poverty to be [indistinct]. At the Jeddah meeting King Abdullah proposed, as a welcome first step, an Energy for the Poor Initiative that will aim to provide immediate support for poor families, to help them cope with the high cost of fuel, as well as providing long term support to help developing countries invest in sustainable energy systems.
I can announce that Britain will be allocating up to £25 million from our £800 million Environmental Transformation Fund, to the new scaling up renewable energy programme within the Climate Investment Funds. And this could include the development of energy plans in low income countries to move them to a lower carbon development path, and it could mean reforms to stimulate private sector investment in these countries in renewable energy.
Already this year we have pledged £800 million to the World Bank Climate Investment Funds, a significant proportion of which will be channelled into low carbon energy for people in some of the poorest countries in the world.
Thanks again in no small part to the leadership of the Saudi government we now have the opportunity to reach for an even bigger prize - developing a broader framework that enables poor people to make ends meet in the face of future energy shocks. The new IDA Crisis Response Fund, coupled with special funds for food and energy prices, are welcome examples of how as international partners we have come together quickly to address a shared challenge. And I look forward to working with the Saudi government, the Bank and other partners, to develop a more comprehensive framework that could provide energy support to the poorest in difficult times.
Whether these difficult times stem from high energy or commodity prices, harvest failure or global recession, in the coming months Britain will be discussing these ideas with the World Bank and our key partners, and I hope the London Economic Summit will be able to set out a clear way forward.
Now Ladies and Gentlemen, each one of these initiatives - increasing transparency, deepening our dialogue, sharing our analyses, diversifying away from oil, investing in renewable energy sources, coordinating government action on price stability and working with the IMF and the World Bank to help people in the poorest countries can I believe play a significant part in tempering the negative effects of the fluctuating global price of oil.
But each of them relies on building international cooperation, building consensus, building agreement between ourselves. It would be a huge mistake for us now to fall back into the old ways of the past because far from being a zero sum game, the process that began in Jeddah can yield benefits for every one of us. Both consumer and producer countries benefited from the ground breaking initiative of Saudi Arabia when world prices were high. Now as we see world prices decline and demand fall, both producers and consumers stand to gain from a continuing dialogue that recognises the legitimate interests of all concerned, and at the same time addresses our global priorities.
At a time of visionary internationalism, when all across the world we are seeing the power of political will to deliver global action in the face of a global financial crisis, we must also maintain the spirit of our Jeddah meeting, and have the courage and the conviction not only to continue but to deepen our dialogue, for only thus can the global market begin to reap the benefits of the stability they so urgently need.
They say that as President Truman of America kept one sign on his desk, and that said ‘The Buck Stops here’. But he also had a second sign on his desk which was: ‘Always Do Right’. This will gratify some people and astonish the rest.
And so it is for us. The oil producing countries and the oil consuming countries who have come together here today to do right and to take the action we need to protect families and businesses across the world from the worst excesses of price fluctuations.
Six months after Jeddah, the buck really does stop here. This is the true importance of our meeting today. Oil producing and oil consuming nations, coming together to make a difference to the world by creating stability out of volatility.
Thank you very much.
delicious
digg
facebook
