Deputy Prime Minister’s speech on Energy Risk Management in Beijing
24 April
Thanks, Gary [DIRKS] for that introduction and for BP's sponsorship of
this event - and for your personal participation in the UK China Task
Force, which I appreciate very much. I am delighted to open today’s seminar
on Energy Risk Management. I want to thank Mr Xu Dingming, Vice Chair of
the National Energy Leading Group, and Brian Outlaw, of the China Britain
Business Council, for their support of this event. Today’s seminar is the
second in a series on risk management.
During the UK/China Summit in London in 2006, Premier Wen told Prime
Minister Blair that relations between China and the UK were the strongest
ever. We agree. The strength of this relationship is very important to the
UK Government and business. We continue to build on and strengthen this
relationship, and we see risk management as an important area for
co-operation.
This is my 10th visit in 10 years, and I have seen tremendous changes since
my first visit, shortly before the handover of Hong Kong. In the words of
our Prime Minister, Hong Kong became a bridge, not a barrier, to better
relations between our nations.
Year by year, China becomes more and more integrated with, and central to,
international economic and financial systems. I've just come from
Shanghai, which is becoming a powerhouse of international finance. So the
ways in which Chinese businesses and officials manage risks matters
enormously - not just for China, but also for major trading and investment
partners such as the UK.
British enterprises and organisations have developed considerable expertise
in risk management, which is now more and more important. You just have to
look at the issue of climate change to see the importance of managing risk.
The UK also has long experience in establishing institutions, regulations
and a legal framework that provide certainty for businesses and thereby
enable them to manage other risks more effectively. Again, to use the
example of climate change, following the Kyoto protocol on reducing
greenhouse gas emissions, we have seen how managing risk is no longer just
a matter for business, but requires the involvement of government and
governance to provide a framework for international, national, regional and
local action.
So these risk management seminars are as an opportunity for the UK and
China to share expertise and experience, and for experts and practitioners
from both countries to exchange views on issues of mutual concern.
The first seminar in the series was opened by Alistair Darling, our
Secretary of State for Trade and Industry, in China in November. Over the
next 12 months, UKTI plans to organise more seminars - drawing on UK
expertise in other sectors, such as financial services for which the City
of London is now the world’s leading centre.
Today’s theme is managing energy risk. As we've come to expect with all
aspects of China's economic growth, the figures are astonishing.
China’s overall energy consumption has risen by 60% in the last 5 years. In
2005, China consumed almost 15% of world energy. China’s total energy
demand is expected to grow by 6 to 9% annually until at least 2020, by
which time China will account for 30–40% of total world energy consumption.
As recently as 1993, China was a net exporter of oil. Today it relies on
imports for almost 50% of its crude oil supplies.
China’s demand for oil is predicted to rise at 7% each year. By 2020
China’s oil consumption may be twice the current level, and 60-80% of its
oil may be imported by that time. In these circumstances, it would be hard
to identify a sector or a country for which risk management is more
critical.
As you are aware, risks in the energy sector take many forms. There is the
risk of insufficient supply of energy to sustain economic growth and a high
standard of living. This is a risk which can affect nations. Even where
national supply is adequate, it can still affect groups within the nation.
As a nation with its own North Sea oil supply, we are well aware of that.
Our Government in the UK has taken active measures to tackle the risk of
fuel poverty - where low income households struggle to pay their fuel
bills.
There is a second set of risks associated with the steps taken by
Governments to ensure security of supply. Ever growing demand and
competition for the world’s limited resources can be a worrying source of
international friction. You do not have to look far back in history to see
how the struggle for resources has incited conflict, ranging from border
skirmishes to full-blown wars. Indeed, much of the early industrialisation
of colonial nations was achieved by acquiring resources by conquest.
There are technical risks for companies working in extraction and
transportation. This is a sector where a single mistake or failure can lead
to death and injury for those working in the industry and for citizens, and
massive damage to the environment.
There is reputational risk. A single serious failure can blight the
prospects of a business, or even an entire industry, for a generation.
There are financial risks. With energy deals worth billions of dollars,
financial risks include not only trading risk but also the risk of a rogue
trader, or a corrupt official, causing damage and suffering.
Above and beyond all these risks, there is the risk of global warming.
Climate change is now recognised as the greatest global challenge facing
mankind. Climate change is directly linked to our energy consumption. We
also need our energy companies to invest in the innovation and technology
we need to manage and avert the risk of global warming. As a European Union
negotiator at the Kyoto convention on climate change in 1997, and since
then, I have been active in the global political debate on how to tackle
climate change.
The United Kingdom was instrumental in launching the Kyoto Protocol on
climate change which now covers more than 160 countries and over 55% of
global greenhouse gas emissions. Since Kyoto, the momentum for
international cooperation and action on climate change has been growing
relentlessly.
The latest report of the Intergovernmental Panel on Climate Change on the
science of climate change removes any remaining doubt that climate change
is happening, that its environmental and social impacts are dramatic, and
that human activity is a significant cause of global warming.
In the past 6 months, we have seen the publication in the UK of 2 major
reviews concerned with the consequences of climate change: "The Stern
Review on the Economics of Climate Change", produced by Sir Nicholas
Stern for the UK Government, and the report on the Urban Environment by the
Royal Commission on Environmental Pollution.
The Stern Review concluded that the world has to act now on climate change,
or face devastating economic consequences. The impact of carbon emissions
on global temperatures is already around half a degree Celsius, and, if no
effective action is taken on emissions, global temperatures could rise by
as much as 5 degrees Celsius. The environmental and economic impact of this
would be devastating, resulting in dramatic falls in crop yields and a fall
in global economic output of up to 10% - with the poorest suffering most.
And the Royal Commission reports on the urban environment highlighted the
effects of the increase in temperature on urban life - especially in the
context of cities acting as heat islands, with temperatures between 1 to 6
degrees higher than the countryside.
Stern, however, emphasised that action can be taken now to stabilise
emissions over the next 20 years, and that such action is affordable –
costing in the region of 1% of gross domestic product (GDP), considerably
less than the cost of doing nothing.
The risks that we all face from climate change places a great
responsibility on every Government, on every enterprise, and, indeed, on
all of us. The British Government has taken a leading role in developing
new policies to achieve a low-carbon economy. China also recognises the
threat of climate change. In particular, the Government here has set 2
targets, which could have a significant impact on reducing the growth in
emissions. These targets are to reduce the energy intensity of China’s
economy by 20% by 2010 and to increase the use of renewables from 5 to 15%
of energy production by 2020.
China’s 11th Five Year Plan, like the UK’s own Sustainable Development
Strategy, seeks to ensure that the environment is integrated into national
policies.
This common approach reinforces our co-operation under the UK-China
Sustainable Development Dialogue, which I signed with State Councillor Tang
in London in November 2005.
The nations of the world collectively have yet to take sufficient steps to
avert global warming. Governments can set targets, but they depend on
others to deliver. Energy companies not only supply the resources for
economic growth, but can also make a significant contribution to solving
the problems which come from economic growth.
Companies such as BP have demonstrated that they have the capability and
commitment to meet the challenges. BP and others have started to show the
way through technical innovation. This includes cleaner, lower-carbon
fuels; renewable energy technologies; increasing the energy efficiency of
plant and equipment; technologies to reduce emissions; and developing the
capability for carbon capture and storage.
Today's seminar will examine many other important types of risk
associated with energy markets that need to be carefully managed. I hope
you will have a productive exchange of views and the opportunity afterwards
to apply the best practice that will be discussed today.
But I also hope that as you consider these risks, you do not lose sight of
the risk we all face from climate change. It’s still possible to avoid the
worst impacts of climate change but it requires strong and collective
action, nationally and globally. Delay will be costly and dangerous.
That is the biggest challenge facing this planet in which we are all
affected and in which we all must agree to secure a sustainable planet
Earth for ourselves, for our children, and for their children. Yes, it will
be difficult. Yes, it will be controversial. Yes, it will require courage
and leadership. But we do have a moral obligation to pass on our planet and
our cities to future generations in a better shape than we found them. I
wish you a successful event. Thank you.
