Net Zero Carbon Emissions: UK’s Progress

Debate between Ed Davey and Alex Sobel

Thursday 28th February 2019 Commons Chamber

[Sir Edward Davey (Kingston and Surbiton) (LD)]

I refer the House to my entry in the Register of Members’ Financial Interests and particularly to my involvement with community renewable energy and solar energy.

Many colleagues have talked about the huge challenge that is climate change, and they were absolutely right to do so. We must act much more quickly. If we are to do that, however, we must ask what is the real barrier. Of course there are political barriers, whether they are represented by President Trump in America, President Bolsonaro in Brazil or Brexit, and we need to break them down. There are also some technological barriers, such as the need to improve the efficiency of storage, although that is coming along much faster. But the biggest barrier now, in my view, is finance. We must change the way in which our financial system works.

Fossil fuels have been the energy leader for 200 years, so they have seeped throughout our society and our economies. Whether we are talking about the City, our banks, our pension funds or hedge funds, fossil fuels are entwined with their investments in a very deep, profound way. In our stock markets, we have Shell and BP, which are very successful companies, but a significant part of someone’s pension may well come from the returns expected from a BP or a Shell investment. That is the challenge that we face. If we are to green our economy, we really must get serious about finance.

In my experience—both my experience as Secretary of State for Energy and Climate Change and my experience of working in the renewables sector—too many of our financial institutions do not really get the fact that investments in renewable energy can be fantastic; nor do they get the fact of climate risk, which will cause investments in fossil fuels to fail. The so-called carbon bubble will burst and people who thought they would get returns from fossil fuels investment will have their fingers burnt, and that could affect the pensioners of the future.

[Alex Sobel]

Does the right hon. Gentleman regret signing off the Hinkley Point nuclear power station? Surely that will be a stranded asset in the future.

[Sir Edward Davey]

No, because Hinkley Point is a low-carbon asset—and I did not actually sign it off; I did the heads of terms agreement. It was the current Government who signed it off. We could have a discussion about nuclear, but the difference between Hinkley Point and the fossil fuels investment to which I am referring is that Hinkley Point is low carbon.

The real issue that I am trying to bring to the House’s attention is the huge number of vested interests in the fossil fuels sector that seep throughout economies and finance. If we are to be really radical, we need to decarbonise capitalism. We need new regulations and new laws to change the incentives completely, so that any investor will need to factor in climate risk. Let me give some practical examples.

I hope to meet the Governor of the Bank of England in due course. It will be a private meeting. What I want to say to Mark Carney—whom I consider to be a hero in this area—is that I think the Bank of England should include in its reserve requirements a requirement for banks to be weighted according to how carbon-intensive their investments and portfolios are. That will encourage banks to lend to green initiatives.

I want to ensure that the pension regulators are looking at the pension portfolios and determining which are low carbon and which are high carbon, and supporting the low-carbon initiatives. I want to ensure that, through corporate governance, there is complete disclosure in a company’s accounts and its assets and liabilities of how much of that involves fossil fuels, so that investors can decide whether they really want to invest in a company that is so exposed to carbon risk. I want to ensure that if a company wants to be listed on the UK stock exchange, it must be transparent and disclose how much of its activities will be in fossil fuels.

I want a new treaty to back up the Paris treaty. I would call it a fossil fuels non-proliferation treaty. It would be a global treaty, and it would say, “We have enough fossil fuels. We do not need any more. In fact, we will not be able to use those that we have.” That is the sort of radical change that we need if we are to tackle climate change. This is not just about the policies in this country, although we have made some real progress.