PV Technology

Production and Cost, 2009 Forecast

Table of Contents

1 PV Through 2012: The Anatomy of a Shakeout
1.1 Introduction: Will 2009 Be an Inflection Point for PV?
1.2 Report Methodology and Scope
1.3 Key Findings
1.4 Report Structure

2 PV Technologies
2.1 An Introduction to PV
2.2 A short History of PV
2.3 The PV Value Chain
2.4 PV Technology Options

• 2.4.1 Crystalline Silicon (c-Si)
• 2.4.2 Thin Films
• 2.4.3 Multi-junction and Concentrating PV
• 2.4.4 Emerging Materials

2.5 Feedstock Issues

• 2.5.1 Commodity Materials
• 2.5.2 Polysilicon
• 2.5.3 CdTe Feedstocks
• 2.5.4 CIGs Feedstocks
• 2.5.5 Amorphous Silicon Feedstock

2.6 Efficiency
2.7 Why and When Does Efficiency Matter?

3 Manufatcuring Production and Capacity
3.1 Production vs. Capacity
3.2 Actual Versus Producible Supply
3.3 Estimation Methodology for Capacity and producible production
3.4 PV Industry in 2008
3.5 Worldwide Projected Capacity
3.6 Worldwide Producible Production

• 3.7.1 Cells and Module
  
• 3.7.2 Wafers
  

3.8 Production by Region (Production Location)
3.9 Production by Technology
3.10 Polysilicon Supply as a Limiting Factor for PV Production

4 Manufacturing Costs and Prices
4.1 Modeling Costs
4.2 Module Cost Structure
4.3 Feedstock Price
4.4 Conversion Non-Cash Costs
4.5 Conversion Cash Costs
4.6 Fully Loaded Module Manufacturing Costs and Prices
4.7 Costs by Technology/Location, Across Time (2008–2015)

• 4.7.1 Crystalline Silicon Technologies
• 4.7.2 Thin-Film Technologies

4.8 Breaking Out Manufacturing Costs Along the PV Value Chain
4.9 Costs and Prices by Time (2008–2015)

• 4.9.1 A Note on Prices
  
• 4.9.2 Price and Cost Estimates, 2008
  
• 4.9.3 Price and Cost Estimates, 2010
  
• 4.9.4 Price and Cost Estimates, 2012
  
• 4.9.5 Price and Cost Estimates, 2015
  

5 Supply Curves
5.1 Adjusting Our Technology/Location-Based Costs for Scale
5.2 Global PV Module Supply Stacks, 2008–2012
5.3 Normalizing Supply Stacks for Efficiency Differences
5.4 Normalized Supply Stacks, 2008–2012

6 Concluding Thoughts
7 Company Profiles
Adema (E-ton), Aleo solar, Ascent solar, Avancis, Bangkok solar, Baoding Tianwei Yingli, Best Solar Hi-Tech, Bp Solar,
Calyxo GmbH (Q-Cells), Canadian Solar, CEEG Shanghai SST, Centrosolar, China Sunergy, Conergy, Daystar Technologies, Delsolar, E-TON Solar, EPV Solar, Ersol Solar, Evergreen Solar, First Solar, Flexcell (VHF Technologies SA), Fuji Electric,
G24 Innovations, Gintech, Global Solar, Gloria Solar, Glory Silicon Energy, Green Energy Technology,
Heliovolt, Honda Soltec, Hyundai Heavy Industries, Isofoton, JA Solar, Jiangsu Shunda, Jinglong Solar, Kaneka Silicon PV, Kyocera, Kyungdong Photovoltaic Energy Corp. (KPE), LDK,
M. Setek, Masdar, MEMC, Miasolé, Microsol International, Mitsubishi Electric, Mitsubishi Heavy Industries, Moser Baer, Motech, Nanosolar, Neo solar, Neosemitech, Nexolon, Ningbo Solar Electric, Pevafersa, Photovoltech, Photowatt, Primestar Solar (GE), PV Crystalox, Q-Cells, Qs Solar, REC, Renesola,
Sanyo, Scheuten Solar, Schott Solar, Shanghai Comtec Solar Technology,
Sharp Showa Shell Sekiyu, Signet Solar, Sino-American Silicon, Smart Applications, Solaicx,
Solar Semiconductor, Solar-Fabrik, SolarDay, Solarfun, Solargiga Energy, Solaria Energia, Solarworld, Solibro GmbH, Solland Solon solyndra, Sovello (Everq - GMBH), Sulfurcell, Sumco, Sun Well Solar (CMC), Sunlight Group, Sunpower, Suntech Power, Sunways, Symphony Energy,
T-solar, TATA, BP Solar, Titan Energy Systems, Trina Solar, Tynsolar, Wacker Schott Solar, Webel Wuerth Solar GmbH, Yangguang solar

PV THROUGH 2012: THE ANATOMY OF A SHAKEOUT

E.1 Will 2009 Be an Inflection Point for PV?
The story of pv’s meteoric rise in recent years is by now well known. Having languished through the 1980s, it was resurrected during the mid-1990s as rising energy prices, growing concerns about the impacts of climate change and the depletion of fossil fuels drove governments around the world to promote the adoption of solar generation on a large scale. The results have been there for all to see. Fueled by aggressive policies and generous subsidies in Germany, Japan, the u.s. (especially California) and spain, worldwide demand for photovoltaics has grown at a remarkable pace over the last decade: global installations have ballooned from a mere 125 MW in 1999 to 4.5 GW in 2008, a CAGR of 47 percent for the last 10 years (see Figure E-1).

Figure E1

As policy-led demand outstripped the ability of manufacturers to keep up, module prices reversed a decades-long trend of declining prices and increased from 2004 to 2007 by as much as a third. simultaneously, manufacturing costs continued to fall steadily, driven by continuous echnological innovation and process improvements, while profit margins increased dramatically for manufacturers. Not surprisingly, manufacturers both old and new announced gigawatts in capacity expansion plans and vC capital flowed to new technologies in order to cash in on this rapidly growing and lucrative market. Although some industry watchers and participants expressed concern over the potential for a resulting oversupply, those concerns were dwarfed by the lure of profit potential and easy access to investment capital. Most assumed any supply-demand imbalance would be relatively modest, and would be quickly absorbed by further growth in the marketplace. With attractive project returns, fossil fuel prices on the rise, and supportive policy, the market believed that strong secular pv demand growth was here to stay.

But that was then, and this is now. over the last six months, the global pv market has witnessed a perfect storm of headwinds emerge: a global financial crisis has unfolded; the world’s largest economy has officially entered into a recession; equity markets have shrunk and credit markets have tightened severely; spain, the fastest growing pv market in 2008, has lost its solar appetite, and other markets could follow suit. The industry has been thrust into a period of uncertainty: Amid the news of slowing demand, idling lines, and cancellations of capacity additions, concerns over modest oversupply have escalated into fears of a full-blown shakeout, and a growing number are convinced that 2009 will finally see pv transition from a period of secular growth to a cyclical downturn.

Our work at GTM Research and The prometheus Institute, therefore, was cognizant of the singular and unprecedented array of questions and challenges facing the industry. Accordingly, this report and its sister publication—2009 Global pv Demand Analysis and Forecast—are far more than an annual update on the state of the market. Although technologies, supply, costs and manufacturers are discussed in great depth as always, we have radically rethought both the modeling and the meaning of our analysis to account for these changing market conditions. our ultimate goal is to comprehensively lay out the causes and implications of recent dynamic shifts within the pv industry over the next few years. specifically, we seek to identify which technologies and companies will be in a position of strength to weather the storms, and those perhaps most likely to be at risk from a variety of global shakeout scenarios.

E.2 Report Methodology and Scope
In driving towards answers to the questions above, accurate estimates of supply, demand and prices are crucial. Most “traditional” analyses of these key variables, however, are unlikely to be robust enough for the job. Essentially, in the past, “supply-constrained” world, market analyses often consisted of little more than applying growth rates consistent with recent trends to historical data, assuming that past trends serve as precedent for the future.

The flaws intrinsic to such an approach are all too apparent, now more than ever, when market
dynamics look to be headed towards an inflection point: They do not take into account suppliers’
response to changing market conditions and cost improvements (on the supply side), as well as interest rates and shifting government incentives (on the demand side). They cannot adequately deal with the issues of over-capacity that a “demand-constrained” world necessarily entails. Moreover, they are not sufficiently granular to provide insight into how specific technology options or individual companies will fare in the event of a downturn in the business cycle. shifting times, therefore, call for more rigorous and accurate measures.

Our approach to providing the necessary insight was to construct module supply and demand curves for different periods from the ground up—company by company, technology by technology, year by year—and estimate clearing prices based on reconciling these, creating global supply stacks that demonstrate relative ability to meet necessary price and performance characteristics that the market desires.

This report focuses on the improved methodology and conclusions on the pv wafer, cell and module supply side of the problem, including current and future costs, production capacities and potential production volumes aspects. Its final goal is to build global module supply stacks from 2008 through 2012 with all technologies—including those with different performance and value-propositions to the customer—being represented within a single global framework. Each of the steps required to do so was dealt in a separate section in the report. In order, these are:

1. Estimating capacity and producible supply by company
2. Estimating company-specific manufacturing costs based on technology, location and manufacturing scale
3. Attaching costs to producible supply to construct supply curves
4. Adjusting those supply curves to account for differences in efficiency and value to make supply curves representative of real customer allocation decisions

The production volumes developed for the purpose of constructing supply curves are not meant to represent actual production numbers; rather, they are potential or producible volumes estimated completely independent of feedstock and demand limitations, taking into account wafer, cell and module conversion. In reality supply will be trimmed to match eventual demand, but to assess what could be produced if feedstocks were amply available and demand was not a constraint is the only way to understand the potential of the supply chain and how each of the individual companies compare to each other.

While demand limitations, and the resulting conclusions, will be dealt with in 2009 Global pv Demand Analysis and Forecast, the polysilicon forecasts independently developed in our prior report, polysilicon: supply, Demand and Implications for the pv Industry can be incorporated to show how feedstock availability will act as a gating factor for actual production, at least through 2010. Figure E-2 displays global producible pv module output by technology, factoring in polysilicon constraints. This chart represents the true supply potential of the global pv industry after feedstock limitations are included.

Figure E2

E.2.1 Estimation Methodology for Capacity and Producible Production
This section details the methodology used to project company-specific capacity and producible
production volumes through 2012 (wafers, cells, and modules). The following are the key features of the estimation process:

1. As a starting point, primary data collection was undertaken, using a combination of surveys,publicly available data (press releases, announcements, investor presentations, and filings),and communications with company representatives.
2. At the conclusion of the primary data collection, a partially complete set of capacity data was obtained. The “holes” originated from two sources. In some cases, primary data was available for only one or two out years, with gaps between the most recent historical year (2008) and then. Here, data for the years falling in between was estimated using linear interpolation.
3. Secondly, our forecast period was out to 2012, and few companies are willing or able to project out that far with any accuracy. In many cases, decisions about manufacturing scale in 2012 will not be made for a few years, and will incorporate much more relevant data about market conditions, costs, and capital availability at that time. Here, we applied a capacity “ramp multiplier” to project capacity beyond the last available year’s data. This multiplier is meant to incorporate factors such as the state of development, projected demand for the technology offering, and limits to growth the company might encounter.
4. For companies participating in multiple components of the value chain (wafers, cells, modules), often data was provided for only one of these (most commonly cells). To estimate manufacturing capacity for other components in such cases, we used appropriate derate (i.e., conversion) factors where applicable to account for yield and efficiency losses (5percent for wafer-to-cell and 12.5 percent for cell-to-module).
5. The last step was derating the announced capacity data to obtain final estimates. As many capacity announcements were made prior to evidence of deteriorating market conditions as a result of the credit crunch and a global macroeconomic slowdown, it was necessary to temper the announced capacities with a bit of realism. Thus, the capacity estimates made per the methodology above were derated to account for probable delays and cancellations as a result of suppliers’ response to changing market conditions and possible difficulties obtaining financing. As most capacity expansion for the next two years is already in progress, derates were focused on years 2010 and beyond.
6. Once this was done, we estimated producible volumes (or production) from capacity. In doing so, we assumed: (1) complete utilization of the previous year’s ending capacity; (2) linear ramp of new capacity additions over the course of the year; (3) a linearly increasing production run rate from the added capacity; and (4) some effect of downtime and imperfect yields. Figure E-3 displays the various steps in the modeling process graphically.

Figure E3

E.2.2 Modeling Costs
The key variables that determine manufacturing cost for pv are technology, location, and manufacturing scale. To account for variations in technology and location, seven different pv archetypes or “buckets” were created, and each component of the module cost structure was estimated independently for a standardized 250-MW manufacturing line to facilitate apple-to-apple comparisons. scale adjustments were then made on a company-specific basis and will be examined in a later section. The key considerations in creating this system of classification were twofold:

1. Exhaustiveness: It should be possible to classify major pv manufacturers under this system as belonging to a particular archetype without difficulty.
2. Exclusivity: The archetypes thus created should be sufficiently different so that no ambiguity exists in classifying a manufacturer.

The archetypes created are the following:

• A global vertically integrated (polysilicon to module) multicrystalline silicon manufacturer
• A European multicrystalline manufacturer, integrated from wafer to module
• An Asian multicrystalline wafer-to-module manufacturer
• A high-efficiency monocrystalline (or “super mono”) wafer-to-module manufacturer
• A CdTe-based module manufacturer
• A CIGs-based module manufacturer
• An amorphous silicon-based module manufacturer

All thin film archetypes assume a vertically integrated manufacturing process, from production of the feedstock to module production, which is representative of the bulk of thin film companies.
Figure E-4 summarizes the cost archetypes, along with examples of major manufacturers coming under each bucket.

Figure E4

E.2.3 Module Cost Structure
In order to understand the relative cost structures of manufacturing modules for the various existing pv technologies, it is important to break down and examine the major components.
Where crystalline silicon-based technologies are concerned, an intuitive framework for module cost structure is to break it out by costs incurred at various stages of the value chain—i.e., feedstock, wafer, cell and module costs. However, since thin-film modules are generally manufactured in a continuous process, a more useful framework that provides for an apple-to-apple comparison is detailed below:

Figure E5

• Feedstock price is simply the price of the material comprising the absorber layer, which would be polysilicon for the crystalline silicon technologies, and the relevant thin film for thin-film technologies.
• Conversion non-cash cost is the capital expenditure for the equipment, depreciated over its useful life.
• Conversion cash costs include all other costs incurred excepting feedstock and capital costs.

Note that for mono or multicrystalline technologies, conversion cash and non-cash costs are calculated for all steps of the value chain beyond the feedstock stage—i.e., wafers, cells, and modules.

E.2.4 Adjusting Our Technology/Location-based Costs for Scale
As mentioned earlier, the three most important determinants of pv manufacturing cost are technology, location, and scale. By modeling costs by technology and location for a standardized line size (which allowed for apple-to-apple comparisons), our cost analysis thus far has only taken the first two into consideration, which means it is leaving out a key factor – the benefits of economies of scale. All else equal, a company that has a manufacturing capacity of 1 GW should have a lower cost per watt than a company with a capacity of 100 MW, as the fixed costs are spread over higher volumes.

To connect our cost estimates to company-specific producible volumes, it is thus necessary to adjust our technology/location-based costs for manufacturing scale. To do so, we took the variable component of our “raw” cost estimate for a given year as is, and scaled the fixed cost component by projected manufacturing capacity for that year relative to the standardized line capacity of 250 MW. We then attached these company-specific scale-adjusted costs to our projected producible volumes to obtain the supply stacks for different years.


Shyam MEHTA, GTM Research
Travis BRADFORD, The Prometheus Institute

About the Authors

Shyam Mehta
Shyam Mehta is a senior Analyst at Greentech Media, focusing on global solar markets. Before joining Greentech Media, shyam was a Financial Analyst at Goldman sachs Global Investment Research where he covered equities in the alternative energy sector, primarily solar companies. prior to Goldman, shyam was a Research Analyst at the Brattle Group, an economic consulting firm, where his work focused on problems within the electricity industry. shyam received his Bachelor’s in Mathematics from UC Berkeley.

Travis Bradford
Travis founded the prometheus Institute in 2003 prior to founding the prometheus Institute, Travis was a partner at steel partners II, LP, a hedge fund based in New york investing in publicly traded and privately owned businesses. In this capacity, Travis served as a board member and active management participant in businesses ranging from industrial filters to fertilizer distributors.
Travis is the author of solar Revolution: The Economic Transformation of the Global Energy Industry (MIT, 2006). He has worked for the Federal Reserve Bank, has lectured at top universities including Columbia university, Duke university and New york university on finance and entrepreneurship, and is co-author of a paper in the Journal of Applied Corporate Finance entitled Private Equity: Sources and Uses. He is also a partner at Atlas Capital, a hedge fund based in Cambridge, MA.

Research Assistance
Roger NAUTH, GTM Research
David J. LEEDS, GTM Research

Davos'u Tarih Yazacak !

Orası kesin, ama ne yazacak!

Başbakan Erdoğan, Davos’ta ‘yapması gerekeni yaptığını’ belirterek, ‘Şimdi bunu konuşmam istismara girer. Satmam onu. Gerisini tarih yazacak. Ama şunu söyleyeyim, Türkiye’nin diplomatik gücü zayıflamadı, arttı’ dedi. Erdoğan seçimlerin ardından yeni Anayasa için çalışmaları hızlandıracakları müjdesini de verdi.

Başbakan Erdoğan Sivas mitingi dönüşü uçakta gazetecilerin sorularını cevapladı. İşte Erdoğan’ın gündemdeki konular hakkındaki değerlendirmeleri:

‘Ben Davos’ta Türkiye Cumhuriyeti Başbakanı olarak yapmam gerekeni yaptım. Sayın Peres’in yaklaşım tarzı bir cumhurbaşkanına yakışan tavır değildi. Onun bağırıp çağırmasına rağmen ben soğukkanlılığımı koruyarak, normal tonda ama gerçekleri anlattım. Toplantının moderatörü ise, terbiye ve edep sınırları dışında el-kol hareketleri yapınca, ben de yapılması gerekeni yaptım. Ancak daha fazlasını konuşmam doğru olmaz. Konuşmam istismara girer. Satmam onu. Gerisini tarih yazacak, değerlendirecek.’

Gücümüz azalmadı, arttı

‘Davos çıkışının Türkiye’nin diplomatik gücünü zayıflattığı doğru değil. Tam tersine. Türkiye’nin gücünü kavraması gerekir. Bunu her olayda hissettirdik. AB’ye hissettirdik tam üyelik müzakerelerine başlayarak. Türkiye BM’de 151 ülkenin oyuyla Güvenlik Konseyi geçici üyeliğine seçildi. Pakistan-İsrail temaslarına arabuluculuk yaptık, Suriye-İsrail görüşmelerinin ilk 4 turunu tamamladık, Filistinliler arasında uzlaşmaya yönelik çabalarımız var. Güney Osetya krizindeki girişimlerimiz, Kafkas İstikrar ve İşbirliği Platformu, Ermenistan’la ilişkilerin düzeltilmesi yolundaki temaslar, Yukarı Karabağ sorununun çözümüne desteğimiz, Irak’ın barış ve istikrara kavuşmasına katkımız ortada. İKÖ Genel Sektererliğini Türkiye’nin ikinci dönemdir üstlenmesi, KKTC ile ilgili attığımız adımlar hep bu ‘Gücümüzün hissedilmesi’nin sonuçlarıdır. Sayın Mehmet Ali Talat uluslararası camiada resmi kabul gördü. Pakistan’da, Avrupa’da, Körfez ülkelerinde devlet başkanı protokoluyla ağırlanıyor. KKTC 19 ülkede diplomatik temsilcilikler açtı.’

Star' dan alındı.

What is low carbon economy?

The low-carbon economy is a carbon constrained economy. One in which our use of fossil fuels is cut dramatically. The Climate Change Act requires an 80 per cent cut in carbon emissions by 2050.

The move to a low-carbon economy requires a technological revolution in energy use and supply – a revolution in goods and services that will transform the economic landscape.

Since the publication of Climate change - everyone’s business the CBI has urged government to speed up the pace of action on climate change.

This revolution will also be driven by volatile and rising fossil fuel costs and concern about fuel security, particularly if oil production peaks1. As oil and gas prices increase, the economic incentives to develop low-carbon goods and services intensify.

There are a range of new markets that will characterise a low-carbon economy; new financial markets in carbon trading; new markets in renewables and low-carbon energy sources; markets in energy efficiency; research and development opportunities, for example in transport technology.

There will be impacts on existing sectors – forestry and agriculture, construction and refurbishment, travel and tourism, distribution and logistics. Public services will need to be climate proofed – for example, our schools, hospitals and care homes need to offer more effective cooling during extreme summer heat.

The markets are considerable. The environmental goods and services sector is estimated at £25bn and around 400,000 employees and projections have suggested that the market will grow to £46bn by 20152.

The government has said that reaching a 15 per cent renewable energy target by 2050 will require investment of £100bn.

The framework for the low-carbon economy operates at the national level – the fiscal and regulatory framework set by government.

Our analysis shows that the opportunities for practical action to develop a low-carbon economy are likely to vary between functional economic areas.

why developing local low-carbon economies matters?

The environmental case for developing a lowcarbon economy is well rehearsed, and there is a growing awareness of the risks associated with dependence on imported fossil fuels and the threat posed by peak oil. As we write there is a stand off between Russia and the Ukraine
that has cut off gas supplies to many countries in Europe

There are six principal economic drivers for the development of local low-carbon economies.

First, the growth rates of markets in low-carbon goods and services are outstripping other sectors and offer a route out of the recession.

The environmental technology sector is likely to grow at a faster rate than the rest of the economy3. The low-carbon economy offers the potential to create new businesses, provide new opportunities for existing businesses, and in doing so create and support jobs.

Second, there are early indications that consumers are taking account of carbon footprints in their purchasing decisions, and there is evidence that positive political action on climate change will inform their voting preferences4. There may well be political and reputational benefits to those councils that ensure that their operations and areas are adapting well to the low-carbon economy.

Third, there will be winners and losers as the structural transformation to a lowcarbon economy takes place. Some national economies will secure a comparative advantage in the supply of particular goods and services.
This will apply at a local level too, where there could be advantages for those areas that move early. For example, the Kirklees Council’s domestic insulation programme is saving local householders around £1m a year off their energy bills and will continue to do so each and every year in the future. In those areas, where there is a concentration of carbon intensive industries, there will be greater risk.

Fourth, the opportunities will vary locally. Not every area will have the same opportunities to
generate renewable energy and benefit from the sector support and subsidies becoming more widely available5 – they will vary according to the local availability of wind and tidal power.
A major constraint on the growth of biomass generation is the logistics of fuel supply. The biggest biomass plant in the world will be operational in 2011 at Port Talbot – but the location of the plant enables it to import some of its biomass material from countries such as Canada and Estonia.

Fifth, many sectors including local government are adapting their operations to a low-carbon
economy, including focussing on energy efficiency in their buildings and fleet to reduce energy and fuel costs.

Sixth, the government will continue to bring forward legal, regulatory, fiscal and other measures to deliver the commitment to reduce carbon emissions in the Climate Change Act
(see table 1 below). From April 2010, many local authorities will be subject to a mandatory
cap and trade regime, the Carbon Reduction Commitment, capping their carbon emissions.

1 Preparing for peak oil – local authorities and the energy crisis, Oil Depletion Analysis Centre and Post Carbon Institute, 2008
2 Emerging markets in the environmental industries sector, UK CEED for the Department of Trade and Industry, 2006
3 The German Federal Environment Ministry has predicted a 4 per cent annual growth rate for the German environmental sector
4 Are there votes to be had in climate change, Local Government Association survey, 2008
5 UK Renewable Energy Strategy, BERR, 2008 http://renewableconsultation.berr.gov.uk/consultation/
consultation_summary

Climate change: everyone's business

A much greater sense of urgency is required if the UK is to meet its targets for reducing reenhouse gas emissions

The next two or three years will be critical. A much greater sense of urgency is required if the UK is to meet its targets for reducing greenhouse gas emissions at an affordable cost, and to establish an international leadership role in the low carbon economy of the future.

Already it is clear that the government’s targets for cutting greenhouse gases by 2020 are unlikely to be met solely through measures taken in the UK. Its longerterm goals for 2050 are also very challenging, and will not be achieved without significant additional effort.

Failure to act now will mean that the costs of tackling climate change in the future will be much
higher. The UK will also miss out on the commercial opportunities that will emerge on the pathway to a low carbon economy.

The CBI’s Climate Change Task Force has spent 10 months analysing this challenge. It is made up of business leaders from key sectors of the UK economy and whose companies globally employ nearly 2 million people, generating annual revenues of approximately £1000bn.

Informed by a major study commissioned from McKinsey, the Task Force has assessed the economic benefits and costs of different options for reducing greenhouse gas emissions. We have focused on what needs to be done by 2030 to be on track for the government’s 2050 target.

And its conclusion is that substantial changes will be needed in the way the economy works if the UK is to meet its goals. Many of the technologies and solutions that will be required already exist but are not yet commercially viable. The pace and scale of implementation must now be accelerated.

The report shows that by 2030, moving to low carbon sources of electricity and improving energy use in buildings can each deliver about 30 per cent of the additional cuts needed, with the remaining 40 per cent coming from transport and industry. For the longer term to 2050, further change is needed to more than double the level of energy efficiency and halve the carbon content of the energy used in the economy compared with today.

But most taxes and regulations were designed for the old economy. The report calls for a shift to a world where carbon becomes a new currency – so that consumers and businesses are rewarded for making the right choices. Carbon has to be priced according to supply and demand, under a system which leads to lower emissions, crosses national borders, and rewards good behaviour.

According to the McKinsey analysis, additional action needed in the UK to meet the government’s targets implies a maximum price of €40 per tonne of CO2 equivalent (tCO2e) by 2030 provided that the full range and scale of initiatives are implemented. The maximum
price would be higher in 2020 (€60-€90 per tCO2e and possibly more) given the higher cost of emerging technologies in the short term.

This translates into an investment of around £100 a year per household (under 1 per cent of GDP) by 2030. This investment will help pay for a more sustainable way of life and shift resources to those parts of the economy providing low carbon products and services. Some households would pay less than this, depending on things such as their current use of energy and how successfully they take up cost-effective measures to improve energy efficiency.

Changes on the scale needed and at affordable cost will only happen if government, business and consumers work together. Government cannot do the job by itself, nor can business: but together we can use our position as one of the world’s great trading nations to secure global action.

If we are to succeed, the climate change agenda must therefore become everybody’s business.
Our commitment is to help achieve that and work with others to implement the necessary actions at home and abroad.

The report sends out five clear messages:
• The government’s targets for 2050 are stretching but achievable and at a manageable cost – provided early action is taken. The three interdependent players are consumers, who drive change; government, which sets the framework and works with other countries to build international agreements for reducing emissions; and business, which invests and delivers.

• In the run up to 2020, the emphasis must be on much higher energy efficiency together with
preparations for a major shift to low carbon energy sources in the years to 2030 and beyond. The big opportunity here is that a third of our generating capacity will become obsolete over the next 25 years, and must be replaced. This opens the way to a smaller carbon footprint.

• Technology has a vital part to play in opening up sustainable solutions. The UK has a unique opportunity to prosper in key markets of the future by taking a lead in the development of low carbon technologies and services in power, buildings, transport and industry. Government must give higher priority to existing research and technology programmes in these areas, and support the launch of new programmes to develop emerging solutions.

• Empowering consumers to make low carbon choices is equally vital. Business and government must work together not only to encourage take-up of greener products, but also to promote new ways of doing things (such as smarter ways of working) which can help improve our quality of life as well as cutting emissions.

• Market forces will drive big changes, but they will not by themselves be enough to do the job. The full range of public policies must be deployed to create the right incentives. Priorities include promoting an effective market price for carbon; revenue-neutral tax reform (such as changes to business rates and council tax) to reward greener behaviour; and bigger, more focused research and development (R&D) programmes to finance new technologies and solutions until they become commercial.

Implementation is now the key. The pace of change in all areas of carbon reduction must be far higher than it is today. For example, the current rate of insulating the existing housing stock needs to triple over the next 20 years. This will only be achieved through much closer working between government, business and consumers, with the focus on delivery.

In some cases, the priority is to improve the existing wide range of public policies, for example, by building on welcome initiatives such as the EU Emissions Trading Scheme (EU ETS) or delivering on plans to improve the planning system. In other cases, business needs to take a lead, for example, in agreeing new standards for measuring corporate and product-related
emissions, to help drive continuous improvement. In all cases, key decisions must be taken in the next three years if the UK is to get on track to meet its emissions targets (see figure 1, page 3).

Trust between consumers, business and government is another critical ingredient for success. There would be no quicker way of destroying confidence in the climate change agenda than by using green excuses to bolster tax revenues. Consumers also need confidence in the information they are given about the environmental impact of different products and services.

Economic competitiveness must underpin climate change policy. This means giving priority to energy efficiency measures, which must deliver a substantial part of the needed cut in emissions. Sectors like steel or chemicals, which face intense competition from countries that are not yet seeking to cut their emissions, will also need special consideration.

So what’s to be done?
Consumers are the essential driver for change. Combining the emissions for which they are directly responsible with those that they influence through their purchasing decisions, they have an impact on some 60 per cent of UK emissions. As voters, they have a powerful influence on public policy. They need the information, the incentives, and the opportunity to make low carbon choices. They will require:

• Reliable and consistent information about the consequences of their choices.

• Much wider access to low carbon products and services than is on offer today.

• Incentives to make low carbon investments. For example, consumers could already be making worthwhile cost savings through improved insulation of their homes – but they do not, because for them the payback period is too long. Government and business must look for creative ways to bridge this timing gap.

The UK government has done more than most others to set a framework for change. We welcome the proposals in the Climate Change Bill as important elements of a framework to promote significant cuts in emissions. But it must now focus on implementation as a matter of urgency. It must go with the grain of the market wherever possible, by removing barriers to change. This means it must:

• In the coming 12 months, pass the legislation needed to rebuild the UK’s power generation capacity in a timely manner, with a diverse, low carbon energy mix. All options will have to be available, including renewable energy and nuclear. Early reform of the planning system is essential.

• Push for agreement early next year on the post-2012 design of the EU ETS, which will be vital in establishing an effective long-term carbon price.

• Prioritise investment in relevant research and technology. That means re-allocating existing
resources, and adding new funds where necessary. The aim should be at least to match the EU average for investing in energy and climate change technology.

• Empower consumers through education, communications and incentives.

• Provide incentives, regulation and tax structures which stimulate a low carbon economy, and ensure consistently supportive policies.

• Take a leadership role in international negotiations for climate change agreements.

Business has already made significant progress in responding to the climate change agenda. It is well placed to make an early and decisive contribution to finding and implementing solutions to the challenge of climate change. Its priorities now must be to:

• Incorporate climate change policies into its DNA. Consumer demand will stimulate competition to produce greener alternatives to current products and services, and reward those businesses that take a lead. In the low carbon future, companies will have to be green to grow.

• Redouble efforts to improve energy efficiency, by focusing on areas such as transport and buildings.

• Work with employees and the supply chain to reduce emissions, and adapt the current workplace to cope with the climatic and other changes that are already likely as a result of past CO2 emissions.

• Measure its carbon footprint, and develop reporting systems to benchmark performance.

• Provide consumers with the reliable communications and product developments they will require. Members of the Task Force are committed to meeting the challenge. With a global carbon footprint from their operations of close to 370 mtCO2e, or roughly 1 per cent of global emissions, they readily accept their responsibility to take positive action.

Companies represented on the Task Force have already taken significant action to tackle emissions. Equally, they recognise that more must be done. Their first priority therefore is to ensure they deliver their existing corporate commitments to further emissions reduction.

In addition, they are now pledging to:

Develop new products and services that will enable all households in the UK to cut their emissions in half by 2020. Task Force companies provide a wide range of products and services to millions of customers. We will work with others to draw up an action plan and milestones which will build on existing initiatives to reduce emissions in homes, appliances and personal travel. One initiative, led by Barclays, will develop green finance products: other products will follow.

Work with our 2m employees to help them reduce their greenhouse gas emissions at work and at home. Our aim is to begin by identifying and promoting action to save 1 mtCO2e within three years. We will coordinate this work with our efforts to help all households cut their emissions.

Promote effective reporting procedures that set the benchmark for reporting carbon emissions.* We will work with others, including the Carbon Trust, to promote a standard that could be adopted by all companies above a certain size, and we will develop a small and medium enterprise (SME) friendly version.

Work with government to co-ordinate and manage the implementation of emission saving projects and to improve the effectiveness of spending on R&D of new technologies. Our goal is to create the framework through which government and business can collaborate together to build a low carbon economy.

Audit and cut emissions from company car fleets and buildings. Our ambition is to do better than the government’s own targets as set out in its Sustainable Procurement Action Plan.

Provide resources over three years to strengthen the CBI’s work on climate change in the UK and internationally, and oversee the deployment of this resource.

This report is therefore a call to action. For companies on the Task Force, it marks the latest stage of a journey which builds on their existing commitments to tackle climate change. For the CBI, it marks the start of greater engagement on this agenda with all its members as well as the international business community and other stakeholders. Together with government and consumers, our goal is to work towards a greener and more prosperous planet.

* This specific commitment excludes the London Stock Exchange in relation to the companies on its markets.