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Interview: Lord Browne of Madingley on biofuels alarmism

October 23, 2008

Source: Times on line. October 20, 2008

To what extent can biofuels play a role in lowering global emissions? Given the evidence that they can influence food prices and lead to deforestation, which in itself causes significant emissions of carbon dioxide, how can they be justified as a solution to tackling climate change?

Biofuels are already playing a critical role in diversifying energy supplies – the correct response to both energy security and climate change. They are expected to supply the single biggest increase in liquid fuels production outside OPEC this year. But biofuels’ full potential is being hampered by media alarmism and mis-information, with a risk that poor policies will be put in place. There are four key principles that policymakers should bear in mind. First, stick to announced biofuels targets – otherwise risk destabilizing the investing environment in European renewables for a generation. Second, avoid picking winners and losers by feedstock. The right way to distinguish between good and bad biofuels is by using clear, stable and predictable CO2 and sustainability standards. Third, don’t let policy get ahead of science. An example is the indirect impact of growing biofuels on greenhouse gas emissions due to knock-on changes in land use. While this is important, it is not sufficiently well understood to be the basis of sweeping policy changes. Finally, recognize biofuels as an emerging global commodity. Imports must play a critical role alongside domestic production.

Is new technology required for them to fulfill their potential?

Governments should promote a suite of biofuels. That means ‘good’ first generation biofuels – which include the majority of bioethanol projects from Brazilian sugarcane and several cereal based fuels – as well as advanced biofuels. Cellulosic biofuels offer significant promise once their costs come down. But there are, as always, no silver bullets. Policymakers should avoid picking winning technologies, which could lead to unintended consequences. Instead, the best approach is to put in place clear and predictable standards and then let the market innovate within the rules.

Lord Turner called this week for the UK to slash its carbon emissions by 80 per cent by 2050. What kind of policy initiatives do you think will be necessary to meet such ambitious targets?

I strongly support the 80% target. It sends a clear signal and gives the UK credibility to lead at the EU level and on the global stage. To get there will require an all-encompassing approach: action in every sector of the UK economy and significant changes in consumer, government and business behaviour simultaneously. But clearly the two biggest challenges relate to the way we use and produce energy: taking energy out of our lifestyles, through a revolution in energy efficiency, and taking carbon out of energy, through fundamentally changing the energy mix we use in favour of low-carbon technologies. To achieve both will require a basket of fiscal and regulatory policies and public education. It won’t be simple or easy.

Is Britain taking enough of a leadership role on climate change?

The UK is leading the world in its understanding of the scientific and economic dimensions of the challenge and in designing the policies that are needed. Thanks to the work of David King, Nick Stern and many others, a clear blueprint of what needs to happen now exists. The challenge from here is translating policy prescriptions into action. And that is a question of politics: of managing tradeoffs between the present and the future, between winning and losing interest groups, and between climate change and other policy goals. The watchword is delivery and that will require political leadership that transcends electoral politics and short-term economic cycles. It will also require a great deal of hard, technical and politically unglamorous work.

What further actions would you like to see the UK and EU take to achieve a lasting and effective framework for cutting global emissions in Copenhagen in 2009?

There is an emerging consensus on the goals need to be agreed at Copenhagen, with the question of what steps large developing countries should agree to, and how to verify them, remaining the most difficult issue. But there has been less discussion of the institutional framework needed to deliver these goals. I believe the answer is not to reinvent the wheel but to broaden, deepen and knit together the institutions we already have. Several augmentations will be needed, however, particularly to facilitate enhanced international flows of carbon finance. A new body – call it an International Carbon Fund – should be created to provide liquidity in emerging international carbon markets and to supervise national and regional efforts, which have proliferated in the past decade. The Clean Development Mechanism will remain an important tool for engaging some developing countries. But it should be tightened and made less bureaucratic. Finally, carbon finance frameworks must urgently be adapted to include deforestation, which is responsible for a fifth of global emissions. The key first step is removing the ban on forestry credits in the EU Emissions Trading Scheme.

How do you think the current crisis in financial markets will influence global efforts to reduce carbon emissions?

Although the financial crisis is dominating the headlines, it is essential that climate change remains a political priority. Fortunately, there have been several clear signs in recent weeks that this is the case. Last week’s decision by national leaders to keep the EU’s ambitious climate change package on track, despite concern from several member states, sets a very good example. EU leadership on energy and climate is absolutely critical: something, I think, even Eurosceptics can agree on. Another positive sign is the inclusion of a $17bn renewable energy tax appropriation is the October 3rd bailout bill in the United States, despite the unprecedented fiscal constraints. Closer to home, the UK government’s decision to couple energy and climate in a new ministry is a very welcome move. Finally, there is the growing recognition everywhere of the importance of government intervention in directing markets. Treating markets as delivery units for carefully prescribed social goals strikes me as the right overall approach for tackling climate change.

How long do you believe fossil fuels will remain the world's primary source of energy?

Given the anticipated 50% increase in energy demand by 2030, all energy types – including fossil fuels – will grow. However low-carbon sources are likely to grow significantly faster, leading to a more diversified energy mix over time. Under several scenarios, coal and gas could cease to dominate power generation within the next two decades, instead being two of a number of competitive options on a carbon-constrained level playing field. Transport fuels are currently 95% reliant on oil-based fuels, so diversification is likely to take longer. Again, that is why biofuels are so important.

Do you believe oil prices have now peaked?

Oil is a commodity and the only things we can say for certain about commodity businesses are that they are cyclical and that prices will vary. At present, malaise from the credit crunch is leading to weakening demand expectations. This – coupled with the several hundred thousand barrels of non-OPEC production expected to come on-stream in the coming months – is leading to rising spare production capacity and therefore downward pressure on prices. There are, however, two factors likely to maintain a cost floor under prices in the long term. The first is oil production costs, which have approximately doubled since 2005, as the marginal barrel has become more technically difficult to extract. The other is OPEC’s ability to restrain its production, at a time its market share is trending upwards.

The IEA predicts global oil production will reach 116m bpd by 2030 - a level some have disputed. Do you believe production can rise this far? For how long can it be sustained?

I do not believe there are serious geological constraints in getting to that level. The biggest barriers are likely to be above ground, mostly stemming from politics associated with the growing concentration of oil and gas supplies. At the same time, oil demand is actually declining in the OECD – by 800,000 barrels or more this year. If a serious global slowdown occurs, demand growth will also fall in non-OECD countries. In my view, peak oil is more likely to occur because of falling demand rather than supply constraints.

- Lord Browne of Madingley is President of the Royal Academy of Engineering and Chairman of the Accenture Global Energy Board.

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