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George Osborne: A sustainable Government; a sustainable economy

Thank you to Imperial for hosting today's speech. I was here eighteen months ago talking about how much more needed to be done to meet the threat of climate change and energy insecurity.

Since then: 150,000 square kilometres of rainforest have been destroyed; 45 billion more tonnes of CO2 have been put into the atmosphere; an estimated 1,500 species have become extinct.

Though we welcome the progress made towards a new international agreement, and we hold out hope for the Copenhagen summit next month, let's be honest: we have still not seen action - either at home or abroad - that is in any way proportionate to the scale of the environmental crisis that we are facing.

The Government is on course to miss every one of its major environmental targets.

The UK's total emissions are higher today than they were in 1997.

And the UK lags behind every major European country when it comes to using renewable energy.

This simply isn't good enough.

To borrow a phrase, we need to recognise the fierce urgency of now.

And we need to see the whole of the government pulling in the same direction to cut emissions and green our economy.
Climate change cannot solely be concern of the climate change minister.

To practice what we preach, six Conservative Shadow Cabinet Ministers - including William Hague - are this week each setting out how their department could play a greater role.

And it is significant that a Shadow Chancellor should be part of this.

For, quite frankly, when it comes to environmental policy the Treasury has often been at best indifferent, and at worst obstructive.

Watch an episode of 'Yes, Minister' if you want to know what happens - or what doesn't happen - when the Treasury isn't engaged.

How telling that Alistair Darling has not given a single major speech on the environment for two years now.

That attitude is going to change if the government changes.

I want a Conservative Treasury to be in the lead of developing the low carbon economy and financing a green recovery.

For I see in this green recovery not just the fight against climate change, but the fight for jobs, the fight for new industry, the fight for lower family energy bills and the fight for less wasteful government.

But we need the tools to do the job.

A new green investment bank to get new technologies out of the lab and into new businesses creating new jobs.

New Green ISAs so any member of the public can be an investor in the green technology revolution.

Paying families to recycle as incentive to encourage them, not stinging them with bin taxes to punish them.

A government prepared to lead by example and cut its own emissions by 10 per cent in one year.

And a government prepared to learn from companies like Tesco, BT and B&Q who have successfully cut emissions and energy use.

I want to talk about all these things and more.

And in my opinion, if you want any of these things to happen it's essential that the Treasury pulls its weight.

How does it do that?

By setting the price, encouraging the finance, demanding transparency and showing leadership.

Let me explain.

First, the Treasury should put a fair and predictable price on environmental externalities. 

As you know, an externality is an impact that is not fully reflected in the economic costs or benefits of a transaction or process.

A classic example of a negative externality is a polluting factory that does not have to bear the full cost of the damage it's causing to the environment.

And of course, positive externalities exist too, such as the spillover benefits generated when a researcher at Imperial discovers a new source of renewable energy or makes car engines more efficient. 

So there's a role for the Treasury is to ensure that these externalities, whether good or bad, are properly priced into the cost of doing things.

This logic applies equally to action at an international level.

As our thoughtful Shadow Climate Change Shadow Secretary Greg Clark has made clear, that is why a financing mechanism for protecting rainforests must be an integral part of any global agreement at Copenhagen.

Countries with rainforests, and the companies that chop them down, do not bear the full costs of deforestation - or all the benefits that rainforests provide.

So we need to ensure that nations that protect their rainforests do not lose out financially - but are instead rewarded for their contribution to our common wellbeing.

Here in the UK, dealing with externalities means developing market mechanisms that price in the true environmental costs of doing business.

One market-based approach is to use emission trading schemes, which can provide incentives for cutting emissions as well as for investing in new green technologies.

Here, the Treasury has a role in ensuring that any emission scheme is efficient and effective, which has not always been the case with the EU's Emission Trading Scheme so far.

We want to see the trading scheme succeed, and that is why we will auction carbon permits, instead of giving them away.

But in addition to trading schemes, and in order to put a predictable floor on the price of carbon, there is a role for green taxation.

As the Stern Review stated, it is a significant benefit of green taxes that they "can be kept stable, and thus do not risk fluctuations in the marginal costs that could increase the total costs of mitigation policy."

But the public are more than a little suspicious that so-called 'green taxes' are usually just bitter stealth taxes with a sugar coating.

Because that is exactly what we've seen for the last twelve years - with the result that public trust is, quite understandably, broken.

I make you this promise.

A Conservative Chancellor will not try to pretend that a tax increase to raise money is really a green tax to help save the environment.

That's the way to rebuild trust.

Here's another way. 

Actually use green taxes in a clever way that helps councils cut household bills.

Let me explain how.

Today, UK households generate around 35 millions of tonnes of waste a year.

Only a fifth of that is recycled - less than half the proportion recycled in Germany.

The rest is incinerated or goes to landfill, with all the knock-on environmental damage that causes.

In a speech just over a year ago, I mentioned a company called Recyclebank, which had successfully increased recycling rates by up to 200% in 500 cities and communities across America.

They had achieved this by paying the public to recycle - without the need for any extra government spending.

The reason they could do this is that in America, just as in the UK, local councils have to pay landfill tax for every tonne of waste they fail to recycle.

And what companies like RecycleBank do is say to councils and city administrations: if we reduce your landfill tax bill by pushing up recycling rates, then how about we split the savings?

Recyclebank then use this money to pay households up to £20 a month for their recycling.

And the more they recycle, the more they get paid.

In that speech last year, I suggested we should try the same approach in the UK.

But I didn't just make that statement and leave things there.

After the speech, my office got in touch with Recyclebank.

We put them in contact with Windsor and Maidenhead Council, and worked closely with them to get a pilot project off the ground.

I'm pleased to report that that pilot is now up and running.

And I'm even more pleased to say that it's already delivering fantastic results.

Leading companies like Marks and Spencer have signed up as partners.

Over half of all eligible households have chosen to participate.

And recycling rates have increased by an incredible 30%.

I want Conservatives to change the way we think about environmental action.

At the moment it's all about pain not gain.

If you don't recycle enough, Labour ministers say, "We will punish you with bin taxes."

But we all know that carrots work better than sticks.

So I say reward people who do recycle with £130 a year on average for every family that does their bit.

We've shown on the ground in one area of the country that this approach works - so let's make it happen across the country.

Let's show that it pays to go green.

We are going to share with councils across Britain the detailed information they need to implement the scheme themselves. 

The Conservative Group at the Local Government Association have agreed to help me do this.

But the Treasury has to do its part by setting out a clear, long term price on dumping waste.

On Sunday, David Cameron announced that a newly elected Conservative government would hold a Budget within 50 days of coming to office.

I can today tell you that if win the election, in that very first Budget I will put a floor under the announced 2013 level of landfill tax until 2020.

This will guarantee that the landfill tax will not fall in real terms for 10 years.

This would be the most long-term tax commitment ever made by a Chancellor, will send a powerful signal to councils around the country that paying the public to recycle is the right way to go.

If responding to environmental externalities is the first way that the Treasury should be acting to tackle climate change, catalysing finance for green technologies and companies is the second.

Financing the recovery after a credit crunch is a huge task.

A recent survey by the Renewable Energy Association, for example, found that more than three quarters of Britain's green energy companies are now facing severe difficulties in accessing loans and investment.

This is in large part because financial institutions, acting in their rational self-interest, often lack sufficient incentives to invest in these technologies and businesses.

This may be because other companies are less risky, or because of the pressure from shareholders to generate short-term returns on capital.

So the role of the Treasury in this area is to design frameworks that provide the certainty and incentives to attract private sector investment in green technologies.

If we don't attract this private sector investment, we will simply not have the funds we need to green our economy. 

A recent Policy Exchange paper estimated that building a low carbon energy infrastructure in the UK could cost over £250 billion by 2020.

At a global level, it is similarly imperative that we stimulate investment in climate change adaptation, particularly in some of the poorest countries.

This might take the form of green bonds, or some other type of securitised financial instrument.

And it certainly requires reforming the Export Credit Guarantee Department, as our International Development Minister Andrew Mitchell has said.

This is the department that provides government guarantees to companies looking to sell their technology overseas.

So by reducing risk in this way, the guarantees make it cheaper and easier for British companies to borrow money to export their goods overseas.

The problem right now is that the Government have used this department to guarantee carbon intensive and environmentally damaging energy projects around the world.

As Friends of the Earth has put it, the ECGD is "effectively a subsidy for fossil fuels".

It doesn't make much sense that taxpayers' money should be used in that way.

So in a Conservative government, the Treasury will ensure that the ECGD will never again support " dirty" fossil fuel power stations.

Instead it will go out of its way to target and support green technology companies - and this long-term framework of certainty will help British companies raise finance and export their technologies around the world.

No wonder the WWF has hailed this policy as a "truly decisive step".

But I think we can go even further in catalysing green finance in the UK.

In my speech here at Imperial last year, I proposed the creation of a new green trading market, which would stimulate investment in environmentally friendly companies and technologies.

After that speech, I set up a working group to work alongside with the London Stock Exchange to take the proposal forward.

They took the idea and ran with it.

Working with our dynamic Shadow climate change minister Greg Barker, they marshalled support, got companies on board and did the detailed work needed to implement the policy. 

I want to thank them for that.

As a result, this summer I was able to launch the Environmental Opportunities Index - the first green trading market of its type anywhere in the world.

Today, almost one hundred companies have signed up, attracting finance and investment from all over the world.

In that speech here last year, I also said that we would go away and work up a plan on Green ISAs, a new savings product in which all the funds invested would help green our economy.

As I said at the time, this would not only unleash new sources of finance for green firms, but it gives everyone a chance to be an investor in our low carbon future.

Today we are publishing a report by an independent working group led by Emma Howard Boyd of Jupiter Asset Management, one of Britain's leading investment companies.

This report sets out some of the key issues involved, and provides a roadmap for implementing this new savings vehicle.
It enables me to commit a future Conservative government to introducing Green ISAs  and to make them a priority for any increase in ISA tax-free saving limits.

This is will provide a boost for green finance and help build the companies of the future.

But before I move on, there's one more announcement on green finance that I would like to make.

We know that the majority of new jobs created over the next decade will come from small companies - many of which haven't even been started yet.  

And we also know that one of the fastest growing sectors of the global economy is green goods and technologies.

Unfortunately, while this sector has grown exponentially over the past decade, Britain has failed to take advantage.

According to official government figures, the UK has less than a 5% market share of this market.

That's less than France, Germany, Japan and the United States.

These official government figures also show that the market shares achieved by Germany and France, normalised to their  GDP, are around 50% higher than the UK's share.

So if we're going to create the green companies and jobs of the future here in the UK, we going to need a break from the past.

We've already said that we will use government guarantees to launch a new green deal, that will mean trusted companies will fit up to £6,500 of energy saving equipment to people's houses, and recoup the costs by sharing with families the long-term benefits of lower bills.

But there's more that we can do.

I can today announce that we are consulting on the creation of a Green Investment Bank, which will invest in the next generation of green British businesses.

Instead of the current system of multiple sources of government funding for green investment projects, we will look to roll up these funds into a single bank that can leverage private sector investment and fund new green start-ups.

As Professor Dieter Helm of Oxford University puts it:

"The prize is an institution which facilitates the introduction of private sector capital without crowding it out, finances itself with a government guarantee and aims to break even with any dividends reinvested."

Similar banks have been set up in Germany, Australia, France and Spain.

If we're to compete in the technologies of the future, and come out of this recession with a more balanced economy, then Britain needs to play catch up.

Our Green Investment Bank will help us do precisely that.

It will help deliver the green finance we need for new growth and new jobs in every region of the country.

And it will help us to decarbonise our economy and compete for business around the world.

The third policy lever that the Treasury needs to use in the fight against climate change is transparency.

This will help people get the information they need to go green.

At an international level, transparency is just as vital.

For example, openness is essential to ensure the fair operation of global mechanisms designed to combat climate change.

In particular, emission trading systems need to be made much more transparent, particularly the Clean Development

Mechanism that allows developed countries to offset their emissions against emission reductions in developing countries.

Without this type of transparency, we risk losing the public confidence needed to take global action.

In the UK, we can help drive transparency as part of the fight against climate change.

A Conservative Government will ensure that smart meters are offered to every home in Britain.

These smart meters make energy consumption much more transparent, for example allowing you to check precisely how much energy each of your household appliances is using.

This information will give people much greater control over their energy use, helping them to consume less and bring their energy bills down.

Let me give you another example of how transparency can help met our environmental goals.

In California, when households were given information about their energy consumption compared with their neighbours', it led to a significant drop in energy usage.

Why? Because people are often highly influenced by the people around them, if they discovered that they were using more energy than the average, they very quickly cut their consumption to come into line with the norm.

So simply by giving people a specific piece of information, overall energy consumption fell.

A Conservative government will use transparency in the same way.

We will require all energy bills to contain comparative consumption information, so people can clearly see how their energy use compares with similar homes.

This is a completely different approach to behaviour change to anything the Government has ever tried before.

It goes with the grain of human nature not against it.

The fourth and final role of the Treasury in combating climate change that I'd like to discuss today is in providing leadership.

We need leadership among the world's governments if we're to see a global agreement reached at Copenhagen.

But it's also crucial here at home.

After all, it's no good talking about companies and households cutting their emissions if the government can't get its own house in order.

That's not how you encourage others to do the right thing.

Unfortunately, that's precisely what's happened over the past decade.

In spite of the endless promises and initiatives from the current set of Ministers, the government is failing to meet its own modest target to cut public sector emissions.  

Think what that means.

Government Ministers are telling everyone else to meet their carbon emission targets when they cannot manage to do it themselves.

Given that the public sector generates as much CO2 each year as the entire waste disposal industry, this has got to change.

But this is not just a problem for the environment.

It's a problem for taxpayers too.

New research for the Conservative Party shows that the public sector energy bill is £3 billion per year. That's enough to pay the salaries of 90,000 nurses.

It doesn't have to be like this.

Some of Britain's largest and most successful businesses have shown that it is possible to exercise strong leadership and cut emissions and costs.

B&Q have cut their emissions by 10% in recent years. 

BT have reduced their CO2 emissions by 60% from 1991 levels, saving £100 million a year in energy costs.

And Tesco are on course to halve the amount of energy they use in their stores.

We will learn from these achievements.

And we will also take inspiration from the excellent 10:10 campaign, which, in the space of just a few months, has seen thousands of families commit to cutting their carbon footprint.

Who says the public aren't interested in going green?

This is social responsibility in action.

Businesses and charities have signed up as well - pledging to act to reduce their own emissions.

Now instead of lecturing others, government should lead by example and sign up too. 

So today I set the next Conservative Government this goal: we will cut central government emissions by 10% within 12 months of coming to office.

This will not only be good for the environment - but it'll save taxpayers £300 million a year by cutting energy costs.

The Director of the 10:10 Campaign has described this as a "truly remarkable announcement", that shows what "real climate leadership looks like".

Let me explain how we'll achieve our goal.

As I've said, BT, B&Q and Tesco have shown that it's possible to cut emissions across large organisations.

I'm pleased to be able to say that three companies have endorsed our ambitious plan to cut government emission, and they've agreed to help us make it happen.

They're going to share their expertise with us, so we can follow their lead and green the public sector. 

Under a Conservative government, the Treasury will no longer be the cuckoo in the nest when it comes to climate change.

If I become Chancellor, the Treasury will become a green ally, not a foe.

Departments will have to report to the Treasury on their energy consumption and emissions.

And let me make it clear: if any Department that does not cut their energy use, we will simply give them less money to spend on energy.

But in the post-bureaucratic age, we need to empower the public to ensure that we meet our goal.

So we will introduce the most radical energy transparency policy ever introduced by a national government, and publish online the real-time energy consumption of every building in Whitehall.

That way, the public can hold ministers and civil servants to account for their performance against the 10% target. 

That's how you bring about lasting culture change - and in one local authority, where this policy is being trialled, it has led to a 15% fall in energy consumption within just two weeks.

Creating a green trading market.

Paying the public to recycle.

Launching Green ISAs.

Cutting government emissions by 10% in 12 months.

Building Britain's first Green Investment Bank.

A Conservative government will green our economy and green the public sector.

We will do what it takes to build the green companies and technologies of the future.

We will help create the jobs the country needs.

And we will drive behaviour change throughout the public sector and beyond.

The Treasury needs to be at the heart of this historic fight against climate change.

If we form the next government, it will.

Thank you.

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