The business of powering world growth

Cheap products manufactured in the developing world will be crucial to establishing lower carbon economies in developed countries

The global business community is the crucial link that will enable the world to get to grips with the energy challenge of the coming decades. Governments will set the framework, scientists will invent the technologies and consumers will adapt to a less energy-intensive world, but it is business that will develop, deliver and apply the technologies at every level. How successful it is will determine how successfully the world copes.

This is a critical issue for the UK and Europe, but we have to approach it with a global mindset. The recession has cut energy use throughout the developed world, but as growth returns so will the pressure. Meanwhile, the fastest-growing economies are in the developing world. The largest of these are Brazil, Russia, India and China, which are all currently experiencing rapid growth despite their differences. Indeed, the two biggest, China and India, experienced no recession at all.

From an energy perspective, the two most important developing economies in the world are China, which has just passed the US to become the world’s largest emitter of carbon, and Russia, which last year was just ahead of Saudi Arabia as the world’s largest oil producer. The steps China takes to limit its energy use and the manner in which Russia continues developing its oil and gas resources in a sustainable manner therefore have a huge impact on all of us.

However, while the balance of importance has shifted away from the established developed economies to these “new” ones, it would be wrong to assume that what Western business does is less important. Quite the reverse – it matters more. For a start, much of the technology that the emerging economies are now applying has been developed in the West and, in many cases, is being supplied by European and North American corporations. Other technology is being made available under licence. This applies not just to high-profile, low-carbon products, such as wind turbines, but towards many less glamourous items, such as more efficient diesel stand-by generators. We are also exporting services, such as designing low-carbon cities in China. It represents a huge export market.

There is also the two-way aspect of this trade and investment. Cost is a crucial factor in increasing the availability of low-carbon technologies. The lower their price to consumers, the better they can compete against established power sources. This means they can be rolled out faster and without artificial subsidies. Since most low cost products are emerging from Asia, they are an obvious source of supply for the developed world and Western businesses are particularly interested in areas such as cheap solar panels and longer-life battery technology.

Business can also do a lot at home to promote the low carbon energy economy and the community has a vital role to play in spreading best practice between companies. Even without new investment, many companies could trim their energy use by up to 10 per cent. But much larger savings become possible with investment.

Even more interesting, some firms have found the act of improving energy efficiency brings unexpected benefits in terms of higher productivity and better quality output. Ask your employees to think about ways in which energy can be saved and they come up with ways of streamlining the production process. Companies that have a green reputation also find it easier to recruit high-quality staff. Few young graduates want to work for a dirty company. So it is win, win.

That leads to a final point. It may be in the business community’s own interest to be as energy-efficient as is practicable, but following that path requires financial commitment and investment in management time. Large corporations have these resources to deploy, but small and medium-sized enterprises will find this much tougher. Part of the effort in the coming years will be to help these companies make cost-effective investment in conservation.

There is no magic wand that will make this happen. We have already seen the limits to state action under the previous government, which tried many initiatives with, at best, uneven results. Besides, there is no state money to throw at things any more. So perhaps the best way forward will be for larger companies to pioneer the shift towards energy conservation right through the economy. They have the capacity to help and it is very much in their self-interest to do so. The power utilities are already finding ways of helping customers use less energy – a unique example of companies seeking to sell less of their output, rather than more. A series of schemes, small in themselves, to help UK companies become more efficient actually helps large companies too. You can expect to see a lot more of this in the coming years.

From a national perspective, the UK is quite well positioned on the path to a lower-carbon economy. We have a lot of corporate competence and the Government supports the quest. In particular, we have started to create better financial incentives to nudge corporate and personal consumers towards lower energy use. We also have a general appreciation of the importance of heading down this path. This journey is not without dangers and we have to be realistic about what can be achieved – we must be aware of the dangers of pressing companies into too swift an adjustment. But we should also be encouraged by what has been achieved already.

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