The world will never be able to produce more than 89m barrels a day of oil, the head of Europe's third-largest energy group has warned, citing high costs in areas such as Canada and political restrictions in countries such as Iran and Iraq.

Christophe de Margerie, chief executive of Total, the French oil and gas company, said he had revised his forecast for 2015 oil production downward by at least 4m barrels a day because of the current economic crisis and the collapse in oil prices.

He noted that national oil companies, which control the vast majority of the world's oil, and independent producers, which play a key role in finding new sources, were "substantially limited in their ability to fund investments in the current [financial] environment".

Oil prices have fallen from a record $147 a barrel in July to about $35 a barrel today, with the world consuming84m barrels of oil a day. This year is expected to be the first when oil consumption fails to rise.

Mr de Margerie warned that the glut of oil caused by the dramatic reduction in demand would be short-lived and that, in spite of the economic crisis, in the long term demand would remain constrained by supply. Three years ago, the International Energy Agency expected consumption and production to hit 130m b/d by 2025. It has since dropped its forecast to a little more than 100m b/d by 2030.

Delays and cancellations in projects to extract oil from Alberta's tar sands and Venezuela's Orinoco belt - both expensive and environmentally difficult operations in which Total is active - will cut 1.5m b/d of supply that would have come on stream had oil prices remained strong.

The rest of the revisions from Total's mid-2008 estimates came from the more pessimistic view of the political situation in Iran and Iraq, which hold the world's second and third-largest oil reserves.

Meanwhile, Mr de Margerie now expects a faster decline in production at older fields, such as those in the North Sea. At lower price levels, companies will find it harder to justify the greater cost of keeping such fields pumping.

Total's chief executive has long been an outspoken advocate of maintaining investment, rather than repeating the mistakes of previous cycles by cutting costs so much that the industry is unable to meetglobal demand when economies recover. But he is also in the midst of trying to renegotiate contracts in Canada and is considering further investments in Venezuela.

Nobuo Tanaka, the IEA's executive director, said the squeeze was due to investment plans being shelved in the recession.

"Currently the demand is very low due to the very bad economic situation," he said. "But when the economy starts growing and recovery comes again in 2010 and onward, we may have another serious supply crunch if capital investment is not coming."

Mr Tanaka was speaking on the sidelines of a conference in London where he said he expected world demand for oil to rise by about 1m barrels per day from next year.

The comments from the IEA, which advises 28 industrialised countries, helped lift oil prices in London, up 29 cents to $45.10 a barrel, and New York, ahead 65 cents to $38.16.

However, those levels were a far cry from the near $150 a barrel reached last year when soaring demand from China and other emerging economies forced the price to record levels.

Mr Tanaka also warned recession and the slump in the oil price had conspired to slow investment in renewable and nuclear energy, which would create serious global problems in the future.

The news came as Opec warned it is likely to cut production next month if prices remain below $40.

Investments in the oil industry in the Gulf region have faced a major contraction due to the global financial crisis which could endanger the future of the industry, a survey claims.

The value of such investments fell dramatically as the economic downturn forced projects to be deferred, acting director general of OPEC Adnan Shehab-Eddin said in the survey.

The annual review, compiled by the Arab Petroleum Investments Corporation (APICORP), showed that the projected investments in the energy sector, mainly in the oil sector of the Gulf region, in the coming five years will hit $381 billion compared with $287 billion between 2008 and 2012, KUNA news agency reported.

But an average 20 percent of the projected total investments will have to be deferred as a result of the financial crisis, the survey said, indicating that the percentage could vary from country to country.

No projects in the oil industry in the Gulf region have been recently cancelled and the 20 percent of delayed projects was less than delays of projects globally which is estimated at 30 percent, according to the survey.

The review also said that the cancellation or postponement of projects risked cutting the oil supplies on the global market and could trigger sharp fluctuations in the oil prices which would not be in the interest of the oil exporting countries in the long run.

The study recommended that the national oil companies should reschedule their projects instead of cancelling them unless there were technical obstacles.

SAO PAULO - The China Development Bank and Brazil's state-run oil company Petrobras  are finalizing a deal for the bank to extend a $10 billion line of credit in exchange for future oil supplies, a Brazilian newspaper said on Wednesday.

Petrobras Chief Executive Jose Sergio Gabrielli said on Monday that the company was seeking financing from foreign governments to bankroll an aggressive investment plan, but he gave no details on the amounts or sources.

Brazil's O Estado de S.Paulo daily said China's vice president Xi Jinping would be in Brazil on Thursday to advance the negotiations on the $10-billion deal, which would not likely be formally announced until President Luiz Inacio Lula da Silva visits China in May.

The financing is in line with China's policy of attempting to shore up future supplies in natural resources such as petroleum, agricultural goods and minerals for its voracious economy.

On Tuesday, the China Development Bank, Russia's state oil champion Rosneft  and pipeline monopoly Transneft signed a $25 billion financing deal in exchange for future oil from the huge new East Siberian oil fields that China hopes will power its economy for the next two decades.

Petrobras said on Monday it was negotiating with up to four oil consumer countries to receive financing from them in exchange for future oil supply guarantees.

The company needs financing to help it cover the massive costs of exploring large new discoveries of high-grade light oil and natural gas. Analysts estimate the so-called subsalt reserves could contain up to 80 billion barrels of oil, catapulting Brazil into the top 10 of the world's oil producers.

This would be the first time Petrobras will have negotiated this type of financing, the company's finance director, Almir Barbassa, said earlier this week.

The state-run energy company announced last month it would raise its five-year investment plan by 55 percent at a time when large raw materials companies around the world are cutting back budgets in the face of falling prices and demand.

Petrobras said it plans to invest $174.4 billion from 2009 through 2013, compared with the $112.4 billion planned for investment for 2008-12. The company will invest $28.6 billion in 2009 alone.

Editing by Jim Marshall

Russia and China have signed a $25bn (£17.54bn) deal that will see Beijing supplied with oil from Siberian fields in exchange for loans to Russian firms.

China Development Bank will lend $15bn to Russian state oil firm Rosneft, and $10bn to pipeline firm Transneft.

In return Russia will supply 15 million tons - 300,000 barrels a day - of oil annually for 20 years.

China is the world's second biggest oil importer, and has looked to diversify its imports away from the Middle East.

'Lot of funds'

Chinese Premier Wen Jiabao said the deal was one of "political importance".

In recent years China has turned to Russia, Kazakhstan, and countries in Africa and South America, as it seeks new oil supply avenues.

Russia views China and Japan, another huge importer of oil, as key markets for its East Siberian oilfields.

"Rosneft and Transneft can't borrow easily, so China steps in...with a lot of funds to lend because of China's huge wealth funds," said Leo Drollas, deputy director and chief economist at the Centre for Global Energy Studies.

"They have trillions of dollars of reserves and they're saying 'we'll lend you this amount to develop the oil fields and the pipeline infrastructure needed' and it will be paid for by deliveries of oil," Mr Drollas added.

Britain faces an energy crisis next month as vital gas reserves run dry, top energy analysts warn. The unprecedented emergency, which exposes a gaping hole in the country's energy security, is expected to lead to sharp price increases.

Centrica, which owns British Gas, told The Independent on Sunday late last week that, on present trends, its main reserve would be totally depleted in a little over three weeks. And though extra gas can be imported from Norway and the Netherlands to make up any shortfall, serious breakdowns have hit pipelines from both countries in the past week.

The crisis reveals an extraordinary failure to plan for the future as supplies of gas from the North Sea have run down, turning Britain into an importer of the fuel. Though now dependent on overseas supplies, it keeps only about a quarter as much gas in reserves as France, Germany and Italy, making it uniquely vulnerable to shortages and price hikes.

Three-quarters of the country's reserves are stored by Centrica in an old North Sea gas field, called Rough, some 9,000ft below the seabed off the East Yorkshire coast. Surplus fuel is injected into the reservoir in the summer when demand is low, and withdrawn between October and late March.

This year – thanks largely to the cold weather – its gas has been pumped at record rates. It is now 24 per cent lower than at this time last year, and 49 per cent less than the year before.

Centrica said: "Rough is being drawn down at a very fast rate. As of now, it would just last 22 days." Everything depends on the weather and – though depletion has slowed with milder conditions – the Met Office expects the cold back by the beginning of March.

The crisis is compounded by failures in vital pipelines. A compressor on the one from the Netherlands broke down a week ago and is expected to be out of action for a long time. Though the pipeline can still operate with two remaining ones, there is now no safety margin against further failure.

Late last week an electrical failure shut down a pipeline from Norway to Scotland. Extra gas has been sent down another one that comes ashore in Yorkshire, but again Britain is precariously vulnerable to further interruption.

Craig Lowery, of the EIC energy consultancy, said: "We could see the price of gas rise quite sharply." Consultants McKinnon and Clarke, who advise businesses on energy costs, said: "If the contribution from Rough is exhausted before the winter is out then, at best, things will be very tight and subject to price volatility."

The National Grid said: "We are not really seeing anything to cause us concern".

But David Hunter of McKinnon and Clarke retorts: "It is the coldest winter in the past 13 years and there is still a month and a half left of the traditional withdrawal period from reserves. There must be cause for concern."

Britain’s shortage of gas storage capacity is driving up wholesale prices, leaving businesses and consumers facing higher bills in the future, energy analysts have warned.

During the recent cold snap, the gas price on the wholesale market leapt to 62p a therm, up 55 per cent from 40p in November. It eased on Friday to 45p.

Ian Parrett, of Inenco, the energy consultancy, said that the price changes reflected the fact that Britain had been drawing almost the maximum daily flow from its largest gas storage facility, at Rough in the North Sea – about 45 million cubic metres a day – to help to meet total UK demand of about 380 million cubic metres a day.

At the same time, the UK has had to compete with the rest of Europe for extra gas supplies piped in from the Continent. Supplies from both storage and piped-in imports are more expensive than the dwindling supplies from the North Sea, Mr Parrett said.

Boosting the total of storage would cut the premium on stored gas and cut Britain’s reliance on imports during periods when prices are at their highest. The Rough storage facility is down to 31 per cent of its total capacity at present.

John Hall, an independent energy analyst, said: “Compared with other European countries, the UK has hardly any storage at all. Whenever there is unusually cold weather, this becomes a problem.”

Britain’s gas storage capacity is 4.3 billion cubic metres, providing no more than 15 days of supply, against 99 days in France. The facility at Rough, 18 miles off the East Coast, accounts for most of it – three billion cubic metres of the total – but it can pump only 45 million cubic metres a day, meaning that in periods of peak demand the UK could run out of gas relatively quickly as demand outstripped supply.

Mr Parrett said that the shortage of storage is likely to force Britain to top up domestic supplies by importing gas via pipeline or ship as liquefied natural gas. In both cases, this would involve paying at a premium, pushing up costs for British consumers.

The European Union faces two obstacles to its project to pipe gas via a southern corridor from the Caspian region and thus reduce western Europe’s dependence on Russian supplies: Turkey’s attitude and the Balkan activities of Gazprom, the state-controlled Russian oil monopoly.

After receiving less than a warm embrace by the EU, Recep Tayyip Erdogan’s administration and the Turkish public are not eager to jump on the EU bandwagon when it comes to the southern gas corridor. Ankara’s objective is to turn Turkey into a regional energy hub. This means that Turkey would not be a transit state, but a buyer and reseller of Caspian gas to European customers. Of course, Mr Erdogan is playing hardball to get this status for Turkey. But it is a proposal the EU must refuse.

There is no added value in buying Turkish gas when we can be buying Azeri and Turkmen gas directly from the producers.

European energy supply security has been suffering partly because of the problems that exist between the producing countries and transit states. The most recent example is the Russian-Ukrainian “gas war three”.

Turkey is dispensable as a transit state. To get to the Caspian gas, Europe can go across the Black Sea and connect Georgia and Romania. A connection between Azerbaijan and Georgia already exists. Romania has been subtly making a case for itself as a viable alternative to Turkey, but the Georgian option is not risk-free.

How can we forget the Georgia-Russia August war that has seen the birth of two new semi-states – Abkhazia and South Ossetia?

A Moscow-controlled Abkhazia could pose a problem in building a secure gas connection from Azerbaijan through Georgia. But if Turkey keeps digging in its heels on the transit of Azerbaijan gas to Europe, even the Abkhazia problem will find a solution.

The Turkish offer to the Azeris for gas is around $144 per 1,000 cubic metres – a price so low when compared with the $400-plus market price in Europe that the offer cannot be taken seriously in Baku. For the difference in the price Caspian producers can pay off the Abkhaz authorities to make sure they do not interfere with the gas terminals on Georgia’s Black Sea coast close to the Abkhazia border.

The bottom line is clear. The preferred way to get gas from Azerbaijan to Europe is via Turkey, but not under any condition.

Mr Erdogan has to be flexible, and Europe, too. He is right to say the EU should open the energy chapter in membership negotiations with Turkey before talking to him about the transit issue. Part of the blame is on the shoulders of Cyprus and other EU states, such as France, who are blocking the energy chapter.

It is time to get serious about the southern corridor, lest Azerbaijani gas be sold to Russia and Iran. Both have expressed interest. If Baku sells its gas elsewhere, what will be the incentive for Turkmenistan to sell to Europe?

An attractive offer should be made to Turkey – something to the effect of the unlocking of the energy chapter in return for a transit agreement from Ankara. This is a deal the Czech EU presidency should bring when it next meets Mr Erdogan – hopefully soon.

On a separate note, Russia’s Gazprom has just concluded a deal with Serbia and bought NIS, the Serbian national oil and gas company. With NIS in its pocket, Gazprom now has access to all the downstream markets of the former Yugoslavia. Serbia was a gas hub in the past and the networks are still there, if a little rusty. By refilling them with cheaper-than-market-price Russian gas, Gazprom can establish control over the south-east European gas market in no time.

This will not necessarily derail the southern corridor option, but it can complicate developments further. With the south-east European gas market in the hands of Gazprom, what are the incentives for the Caspian producers to look for alternative options to the Russian one to deliver their gas to Europe? If they sell the gas into the Russian grid at market price minus transit, or straight to Gazprom at a competitive price, why bother with bogus alternatives? Their profits will be large and they will not have to worry about getting the gas to the market and all the complications along the way.

Europe is losing its grip on the southern gas corridor. If no quick fixes are pursued – which above all means signing a deal with Ankara on transit of Azerbaijani gas this year – it is best that we learn to deal with Russia as the only supplier of gas from the east.

The writer is director of the Institute for Strategic Studies, Brussels

Growth in US natural gas production is expected to continue rising in the first quarter of 2009 before beginning what could be a dramatic decline, as producers complete projects started under last year’s capital budgets and more favourable market conditions.

“In the same way you don’t start production overnight, you don’t stop production overnight,’’ said John Richels, president of Devon Energy, the country’s biggest independent oil and gas company, which has two-thirds of its portfolio in natural gas.

The natural gas rig count is down to 1,150 from a peak of just over 1,600, but the decline has been in the traditional vertical rigs – not the horizontal and directional drilling, which are used for targeting highly productive shale and tight gas supplies, according to Jen Snyder, principal of Wood Mackenzie North American Gas Research.

So the big production declines have yet to come. Mr Richels expects falls in US production – from the world’s fastest growth rate in 2007 and 2008, at 4.3 per cent and 6 per cent, respectively – to take shape in the final two quarters of 2009 and into 2010. In 2006, the increase in US natural gas production was 2.3 per cent.

The sharp drop in natural gas prices from a high last year of $13.50 per million British thermal units in July to below $5 has stopped many new projects. But those companies with the finances to continue investing in the sector are focusing resources on longer-term development projects and to delineate new discoveries further so they can be closer to production when the cycle turns.

“These are the times, if you’re a strong company, you can do very well,’’ Mr Richels said.

Devon has more than $3bn in available credit.

The collapse of natural gas prices is presenting the world’s largest oil and gas companies, which are cash-rich after the run-up in both oil and natural gas prices to record levels last year, with an opportunity to fill the gap in their portfolios of limited positions in US natural gas.

The majors had left natural gas in the US to small exploration and production companies, never anticipating that new technology, at increasingly economic prices, would make viable fields that were off-limits only a few years ago.

Phil Dodge, Stanford Financial Group’s lead oil and gas analyst, considers US natural gas to be a “gap’’ in the majors’ portfolios.

Switch on the light. Is the filament glowing because of a heavy gust of wind, or is it nuclear fission?

If you flick a switch today, the light goes on because of coal. Almost half the power generated in Britain on Tuesday came from coal and a bit more than a third from natural gas. Nuclear power stations were contributing 17 per cent and windmills provided 0.6 per cent.

It's a day's work in the power industry and it is 16 years since the Kyoto conference on climate change, when this country signed up to a process that would seek to avert global warming by weaning the world off the combustion of oil, gas and coal. Since then we have had two Energy White Papers, one Energy Review, the launch of European carbon trading, the decline of North Sea gas, the promotion of wind farms and the eleventh-hour rescue of Britain's nuclear industry. After all the politics, we are breathless as our bright new whirligigs stand motionless on a beach horizon.

The wind has failed, as it does during periods of intense heat and cold, and although we have built, with enormous subsidy, enough wind turbines to generate 5 per cent of our electricity, no more than 1 per cent is operational when we need it. Like Coleridge's ancient mariner, the nation is becalmed, a painted ship on a painted ocean and we have gone back a century, hewing the same coal that first put Britain on the fast track to the Industrial Revolution.

The reason why we are still stuffing black lumps of carbon into furnaces is simple: it makes economic sense and the financial markets are shouting this message louder than ever before.

Everyone loves to hate financial markets — casinos operated by spivs, jungles filled with rapacious speculators — but they provide warnings when things are about to go wrong and the carbon market is no exception. The price of European Union allowances to emit carbon dioxide has collapsed and it has reached a level where even the greenest of utilities might be tempted to flirt with a hod of dirty brown coal.

Mills and factories throughout Europe are dumping their allowances on the market and grabbing the cash. You will remember that the allowances (EUAs) were issued free to power companies and other carbon emitters, but the volume was capped to ensure scarcity and that was expected to drive up the price, forcing polluters to reduce emissions or pay for expensive permits.

Recession has changed the equation and energy consumption is falling. Factories are running at half-capacity, the suppliers are demanding cash up front, the banks are not lending and somebody in the Treasury found a bundle of certificates, EUAs. In July, a tonne of carbon sold for €35, but today it fetches less than €9. Too bad, thinks the finance director, dump them anyway. If the politicians are still quacking about the climate in two years' time, we will buy them back, if we still have a business.

If you believe that to be cynical or just pragmatic, consider the behaviour of the Government of Japan, which is doing a carbon trade with Ukraine. Under the Kyoto Protocol, governments are able to sell surplus rights to emit carbon to other nations. Like emissions trading between companies, it means that governments that succeed in reducing carbon emissions can sell “surplus” carbon to struggling nations.

No one thought that the whole process might go backwards. The benchmark against which Kyoto's carbon world was pegged was 1990 and since then the former Soviet satellite has struggled to stay upright. Desperate for cash and with its economy in freefall, Ukraine, too, has found some certificates in the bottom drawer. Japan is offering to buy Ukraine's “surplus” carbon for €300 million. Should we begrudge Ukraine the opportunity to pledge the planet's future to a Japanese pawnbroker? If Ukrainians are lucky, the money earned will not be squandered and might help to pay the bill for imported Russian gas over the rest of the winter.

We should not be too critical, because Europe is about to face a big decision over coal. The fuel is abundant and at present very cheap, the main reason why power stations love it. The margin earned from burning coal, according to Société Générale, is about €15 per megawatt hour, compared with €7 from natural gas — and those figures include the cost of the EUAs.

At Deutsche Bank, Mark Lewis, the head of carbon research, fears that the price may have fallen to a level at which some utilities may be tempted to invest in conventional coal-fired power stations. The carbon trading system was developed to stimulate investment in clean technologies, such as carbon capture and storage (CCS). “A price at this level won't deliver what the carbon market was intended to deliver,” he says. Carbon needs to be four times as expensive to make CCS plausible.

Meanwhile, the UK must make a huge decision. We have promised to shut down seven old coal plants by 2015 because they emit too much sulphur. These can supply 12 gigawatts, or a sixth of UK capacity. Ideally, we would fill the gap with nuclear power, but EDF has made it clear that the first new British nuke won't be ready until 2017, supplying less than 2 gigawatts.

It is self-evident that we must carry on burning coal for the time being and politicians must stop telling lies about energy. They must begin to set plausible targets, explain their true cost and how they will be achieved. The impact of recession on industrial demand is one reason why the carbon price is weak. The other reason is credibility.

Engineers on the Sleipner East platform in the North Sea can lay claim to a unique environmental honour. Each year for the past decade they have pumped a million tonnes of carbon dioxide into an old gas field below their rig, a helpful contribution to the easing of global warming.

But there is more to the project, run by the Norwegian energy company StatoilHydro, than providing the world with some short-term climatic action. The engineers have also been studying the fate of that CO2 once it has reached its subterranean home. To their delight, the gas has stayed there, trapped in the pores of the field's sandstone rock.

"We have pumped millions of tonnes of carbon dioxide into underground fields," said project leader Tore Torp. "We see no signs of any escaping."

This lesson is crucial, say scientists. The world's longest-running carbon storage experiment has been a success and has shown that the technology is safe, effective and ready for implementation. Carbon dioxide from fossil fuel plants could soon be extracted before it reaches the atmosphere and be stored safely out of sight, a process known as carbon capture and storage (CCS).

"The idea is simple," said geologist Stuart Haszeldine, of Edinburgh University. "If you have CCS, power plant operators can still burn fossil fuels - without emitting carbon dioxide."

And not before time. According to energy experts, Britain now has no chance of meeting its climate change obligations and the planet has little prospect of tackling global warming without a means of stopping carbon emissions from fossil fuel plants. We can expand renewable power, build nuclear plants and improve energy conservation, but will remain at the mercy of power plants and factories that burn fossil fuels. The world is too dependent on carbon fuels to quit its addiction in a decade or two, it is argued. We need to deal with them directly and urgently, with prime emphasis on the most dangerous of all fossil fuels: coal.

According to Jim Hansen, the climate change champion and director of Nasa's Goddard Institute for Space Studies in New York, coal now rates as the greatest evil our planet faces. "Trains carrying coal to power plants are death trains," he says in an uncompromising opinion article in today's Observer. "Coal-fired plants are factories of death."

Many other scientists agree. Coal poses special environmental problems. It is dirty; burning it releases pollutants that cause acid rain; its combustion produces less heat than the burning of gas and oil, meaning that disproportionate amounts are needed to run power plants and factories. Yet in only a few weeks, the government is expected to approve construction of a massive new coal power plant at Kingsnorth in Kent.

Worst of all, however, is the simple fact that coal remains plentiful and cheap. "The world's oil and gas will probably run out in 50 years, but coal will last for hundreds of years," said Professor Dermot Roddy, of Newcastle University. "In Britain, with its two centuries of mining, we still have more than 100 years of coal supply. It will not run out overnight."

The fossilised remnants of 100 million-year-old plants, coal is still the world's major source of electricity, generating 41% of its power supply. Even in the United States, the most technologically advanced nation, almost half its electricity is generated this way. In rapidly developing nations such as India and China, new coal power plants are opened every month. For Hansen, the only solution is the introduction of a carbon tax across the globe. Companies would be taxed by national governments according to their levels of emissions. Any failing to set up such systems would have their exports taxed by the rest of the world. Fossil fuel plants, especially coal plants, would be priced out of existence.

But last week British energy experts warned that a system of carbon taxes had little chance of success, particularly in dealing with coal. "Coal is going to be available as a source of energy for at least another century and countries like China, India and Russia have particularly rich resources," said Mike Stephenson, head of science at the British Geological Survey. "It does not matter what we say in the west about they should do, they will always want to exploit their coal. If it is in the ground, people will always be tempted to use it. The only way round the problem is to make the use of coal safe and environmentally friendly."

In other words, only technology can save the day - in the form of CCS schemes. "The position is very simple," said energy expert Jon Gibbins, of Imperial College London. "The only way we can decarbonise our electricity production on the timescale needed to halt the worst effects of climate change is by setting up carbon capture and storage plants as matters of urgency." Nuclear and wind plants simply cannot be constructed in the time available.

This point was backed by the former cabinet minister Chris Smith in a lecture to the Royal Society for the Encouragement of Arts, Manufactures and Commerce this month. Carbon capture was, he said, the "perfect example of what can be done" and an opportunity to avoid repeating past mistakes.

"Twenty years ago, we lost out as Denmark and Germany shot ahead in developing wind-farm technology and now if we want to put big-scale offshore wind farms in place we have to buy most of the equipment from them," he said. "Let's not end up in the same position again."

Yet on its current timetable the government is destined to do just that. It is now assessing a number of small prototype projects, proposed by local authorities and power companies, that would be attached to power plants. A single winner will then be announced next year and given government support. Construction is expected to take three or four years and the plant would be then be run for several years. From the lessons learnt, the first major CCS plants would then be given the go-ahead, around 2020.

"That is simply too late," Stephenson said. "If we are to cut our carbon emissions by 20 per cent by that date, our only hope is through CCS. But if the government proceeds at its current pace, we will hardly be off the ground by then."

Only serious intervention will save the day. "We cannot expect power companies and local authorities to take all the risks," said Roddy. "We need some modest central commitment and investment for several full-scale projects in the next couple of years. Some plants will work better than others and we need to find out urgently which they are. And if, by some chance, CCS plants don't work, it is vital we know that as soon as possible.

"I am sure they will work, however. We know how to extract carbon dioxide on an industrial scale at petrochemical plants and we have learnt from projects like Sleipner how to store carbon dioxide underground. All we need to do is scale up proceedings. But we need to do that now, on a large-scale, at several sites, using different systems if we are to have a hope of getting CCS ready in time."

For Britain, the need to act swiftly over CCS is particularly acute. The nation possesses considerable North Sea oil industry expertise, a key advantage in developing expertise in CCS technology given that most projects are likely to be based near depleted, underwater oil and gas fields where leakage cannot affect towns or cities.

Thus the UK has a first-class opportunity to develop a technology with enormous industrial potential, not just as a means to hide CO2 from an overheating planet but as a technique for improving the recovery of oil. Pumping gas into a depleted field helps to push out its last reserves of oil. The technology is expensive, but combined with CCS could become increasingly viable.

Britain also has a moral obligation, say scientists such as Hansen. Per head of population, the UK has put more CO2 into the atmosphere than any other country. The nation that unleashed the industrial revolution has a lot to answer for, in other words. It is therefore clear that we should be taking a lead in the development of technologies that can fix the problem. "Certainly, we are in no position to tell China or India that they cannot burn coal," added Gibbins.

Exactly how CCS schemes would be funded is not yet clear. A carbon tax could still play a role, say experts - by making emissions costly enough to justify the price of building CCS plants.

Current estimates suggest it will cost at least £50 to bury a tonne of carbon dioxide. Given that a typical 800 megawatt power station will produce 5 million tonnes a year, it is clear this is not going to be a cheap technology. On the other hand, it is a technology that desperately needs validating, say energy experts. If it is not going to work, the world needs to know now before it places its faith in a dud saviour. On other hand, if it does work, as most experts predict, it needs to be implemented on a timetable that will give our warming world a chance to breathe as soon as possible.

Carbon controls
Three main types of carbon capture techniques have been developed:

Pre-combustion capture

Coal particles are mixed with steam, a reaction which produces hydrogen and carbon dioxide. The hydrogen is burned to drive turbines and the carbon dioxide is buried.

Post-combustion capture

Coal is burned normally and the carbon dioxide produced is then extracted and stored.

Oxy-fuel combustion

Coal is burned in pure oxygen, triggering high-temperature reactions which produce fewer polluting by-products.

Each system has its own advantages and disadvantages. Pre-combustion plants generate hydrogen, an extremely useful green fuel, but they can only be fitted to new plants. Post-combustion can be retro-fitted - a unit can be installed on to existing power plants. Oxy-fuel plants are expensive but generate little pollution. As a result, engineers argue that all three technologies need to be developed as speedily as possible and used where each is most appropriate.

The Iraq war was just the first of this century's "resource wars", in which powerful countries use force to secure valuable commodities, according to the UK government's former chief scientific adviser. Sir David King predicts that with population growth, natural resources dwindling, and seas rising due to climate change, the squeeze on the planet will lead to more conflict.

"Future historians might look back on our particular recent past and see the Iraq war as the first of the conflicts of this kind - the first of the resource wars," he told an audience of 400 in London as he delivered the British Humanist Association's Darwin Day lecture.

Implicitly rejecting the US and British governments' claim they went to war to remove Saddam Hussein and search for weapons of mass destruction, he said the US had in reality been very concerned about energy security and supply, because of its reliance on foreign oil from unstable states. "Casting its eye around the world - there was Iraq," he said.

This strategy could also be used to find and keep supplies of other essentials, such as minerals, water and fertile land, he added. "Unless we get to grips with this problem globally, we potentially are going to lead ourselves into a situation where large, powerful nations will secure resources for their own people at the expense of others."

King was the UK government's chief scientific adviser in the run-up to the start of Iraq war in March 2003, but said he did not express his view of its true motivation to Tony Blair. "It was certainly the view that I held at the time, and I think it is fair to say a view that quite a few people in government held," said King, who is now director of the Smith School of Enterprise and the Environment at Oxford University.

However, before the war loomed he had made an effort to persuade the Bush administration to adopt more climate-friendly policies. "I went into the White House in 2001 to persuade them that de-carbonising their economy was the way forward. I didn't get much shrift at that time. What I can tell you is that, if I had managed to persuade the government of America that investing (instead of going into Iraq) in de-carbonising their economy with roughly a tenth of [the estimated $3 trillion the US spent on the war], they would have managed it."

Commenting on the idea of "resource wars", Alex Evans, of the Centre for International Co-operation at New York University, who last month wrote a report on food security for the Chatham House thinktank, said he believed King was right, but overly pessimistic. "You always get conflict over the allocation of scarce resources," he said. "The question is whether it is violent conflict ... If the political system can't cope, that's when it gets violent."

King's lecture - Can British Science Rise to the Challenges of the 21st Century? - also warned politicians not to allow the financial crisis to distract them from tackling climate change. "I would like to see [in] every speech Gordon Brown makes on the fiscal crisis, that he also includes the global warming crisis," he said, but added: "It's fine for the prime minister to make a good speech on climate change, but you need all members of the cabinet, because reducing carbon by 80% by 2050 will require every part of government to respond."

King summed up by saying that with growing population and dwindling resources, fundamental changes to the global economy and society were necessary. "Consumerism has been a wonderful model for growing up economies in the 20th century. Is that model fit for purpose in the 21st century, when resource shortage is our biggest challenge?"

A dramatic deterioration in the public finances is expected to be revealed on Thursday morning as official figures show extremely weak tax revenues in the crucial month of January and lay bare the cost of the government’s capital injections into Britain’s banks.

The Treasury is bracing for investor disappointment given expectations for a cash surplus of £16bn for January, only £9bn worse than the bumper receipts in the same month last year.

But the government injected £17bn of capital into the Lloyds Banking Group alone last month, making those market predictions far too optimistic.

Stripping out one-off hits to the public purse, government revenues are also likely to be hit hard in January, since it is the month when income tax is traditionally boosted by bankers’ bonuses and corporation tax receives the fruits of financial sector profits. All of these tax receipts will reflect the credit crisis and the recession for the first time on Thursday.

In the last few months of 2008, tax revenues started to fall dramatically below forecasts and the deterioration has been so rapid that the January figure for public sector net borrowing runs the risk of showing no surplus for the first time since comparable statistics were published in 1993.

Much of the distress in government financing stems from the banking crisis that has decimated profitability in the sector, which contributed 25 per cent of corporate tax revenues in recent years.

But the partial nationalisation of some banks will also make a big difference to the government’s books. The Office for National Statistics is engaged in a process of assessing how much of the liabilities of these banks be counted as government debt.

It has already decided that the Royal Bank of Scotland, Northern Rock and Bradford & Bingley are, in effect, public corporations because the government has significant control over their operations. It is likely to make a similar determination on Lloyds Banking Group in the near future.

When a bank goes on the government’s books all the liabilities count as public sector net debt, but complex accounting rules require the ONS only to net-off the banks’ most liquid assets. The result is that the headline level of public sector net debt is set to rise close to 250 per cent of national income – or £3,750bn – in coming months.

Neither the Treasury nor outside experts believe this figure accurately reflects what British taxpayers really owe. The Institute for Fiscal Studies has said in its Green Budget: “The focus for fiscal policy should be whether the public sector expects to make a profit or loss once these positions have been unwound.”

Ministers have yet to make an estimate of the likely ultimate liabilities but officials recognise it will not be zero. Goldman Sachs estimates the cost will be close to 8 per cent of national income – £120bn – while thinking within the International Monetary Fund suggests 13 per cent – just short of £200bn.

Inflation is more entrenched than many economists had imagined, easing only marginally in January as the weaker pound pushed up the price of imports and offset much of the benefit of lower fuel and housing costs.

The consumer prices index rose in January at a year-on-year rate of 3 per cent, down from a 3.1 per cent rate in December, official figures showed on Tuesday.

But retail prices – the measure of inflation felt by most households – defied economists’ expectations of a contraction, registering a 0.1 per cent year-on-year rise in January as rising prices of household goods offset some of the impact of falling mortgage interest payments.

Significantly, “core” inflation – a measure that excludes food, fuel, alcohol and tobacco – rose in January to 1.3 from 1.1 per cent.

Meanwhile, food price inflation, remained very strong at 10.1 per cent, only a modest drop from the 10.4 per cent rate in December. Economists at Goldman Sachs said the rise in core inflation might reflect a faster pass-through of higher import prices than many had expected.

“The sterling cost of non-oil goods imports rose by 14 per cent in the year to December and probably has risen further since then,” they noted.

Because food prices count for just more than 10 per cent of the CPI, and poorer households spend disproportionately more of their disposable income on it, they are closely watched. And in recent months, food producers and farming groups have been warning consumers not to expect the sharp run-up in prices seen last year to go into reverse.

John Bason, finance director at Associated British Foods, producer of Kingsmill bakery goods, warned recently that a poor harvest for milled wheat – the high quality grain used for breads – was forcing producers to import much more from Canada and Germany whose currencies have risen sharply against sterling. Although headline wheat prices are falling, those for top quality wheat are not.

Similarly, Unilever, producer of such household names as Walls ice cream, Flora margarine and Knorr soups, said that rapidly escalating input costs last year added €2.7bn to its cost base in the fourth quarter of 2008 – an unprecedented rise. Additional commodity costs were nearly €800m while other costs also added up to about €400m in the quarter alone.

Meanwhile, lower commodities prices have not been uniform. Cocoa prices are almost at a 24-year high, a rise that clearly filtered through into higher prices for chocolates and sweets, the official data show.

“Food price inflation is stickier,” said Tom Hind, head of economics and international affairs at the National Farmers’ Union. The price of vegetables, including potatoes, posted a strong rise in January, he said, in part because a significant percentage of broccoli and cauliflower was im-ported from Spain in winter.

The Office for National Statistics said that heavier discounting of goods in December ahead of the Christmas shopping period meant the large discounts often seen in January did not come through. Economists said the effect of the value added tax cuts might now be filtering into prices more slowly than in December.

The main surprise, they noted, was the more inflationary readings registered for several categories of goods that normally made up discretionary household expenditure.

“Given the deterioration in income and employment, we doubt these trends will prove durable,” the economists said.  

Average season tickets and day returns in the UK cost almost twice as much as the next most expensive country, according to a comprehensive study by the rail watchdog Passenger Focus.

A passenger on a short commute into London each day could expect to pay almost £2,000 for an annual season ticket, it said.

The annual cost of an equivalent commute in France would be less than £1,000 and in the cheapest countries, less than £500.

Its report also said the structure for long distance rail fares in Britain was "complicated and not logical" with huge variations in ticket prices, and passengers were "baffled" by huge gaps in fares on the same train.

It called on ministers to review their ambition to make passengers bear 75 per cent of the burden of paying for the railways by 2014, which threatens to make fares in Britain even more expensive.

This year, passengers have already been hit with above-inflation fare rises higher than any imposed since the industry was privatised in the 1990s.

Passenger groups and unions are angry that commuters are being subjected to such high ticket costs when the train operating companies which run the routes are making multi-million pound profits.

Prepared at the request of ministers, the Passenger Focus study measured ticket prices for people travelling to the principal cities in the eight biggest economies in Europe. It found that:

• A commuter travelling between 10.6 miles (17km) and 25 miles (41km) each morning to London spent an average £1,859.96 on an annual season ticket, compared with £990 in the next most expensive country, France, and £443,69 in the cheapest country, Italy.

• A passenger travelling between 25 miles (41km) and 50 miles (80km) to London faced an average annual ticket cost of £3,188.68 compared with £1934.89 in the second most expensive country, Holland, and £683.20 in the cheapest, Italy.

• Unrestricted day returns to London for a trip of between 10.6 miles (17km) and 25 miles (41km) cost an average £11.57 but a similar journey was £6.88 in Germany and £3.63 in France.

• A walk-up day return to London, from up to 50 miles (80km) away, could cost more than £250, whereas no similar fare in France would exceed £100.

Liberal Democrat transport spokesman Norman Baker said: "This report shows British passengers are the most ripped off in Europe. Every year ministers are forcing above-inflation price hikes on passengers who are being forced to stand on increasingly overcrowded trains.

"There should be an immediate fare freeze, paid for by taking money from the road widening budget."

Passengers currently pay 50 per cent of the cost of improving and operating the rail network but the Government wants to extend the "user pays" principal, which would see them pay 75 per cent, and the taxpayer 25 per cent, in five years time.

This threatens to send rail fares even higher.

The total collected in fares is expected to rise from £5 billion a year to £9 billion by 2014 with about half the increased income supposed to be generated by higher passenger numbers.

Anthony Smith, the chief executive of Passenger Focus, warned however that passengers could no longer afford any more fare rises with the economy currently gripped by a deep recession.

He said: "This policy was born in very different economic times. Passengers cannot be expected to continue paying above-inflation fare increases year on year during a recession."

Gerry Doherty, leader of the TSSA rail union, described the Government's plan to make passengers pay more towards the cost of running the railways as "insane".

He said: "For too long, passengers have been regarded as cash cows by ministers and rail operators alike. That has to stop. The annual farce of inflation-plus fare increases must be scrapped."

Increases to regulated fares, which account for 40 per cent of tickets sold, are limited to 1 per cent above retail price index (RPI) inflation, but operators have been able to increase some by up to 11 per cent. Passenger Focus said the operators' ability to do that should be removed.

At the start of this year passengers were already hit with fare rises higher than any imposed since the industry was privatised in the 1990s.

Unions highlighted the profits made by companies running London's busiest commuter routes.

Go-Ahead Group, the parent company of Southeastern, Southern and London Midland, had an operating profit of £77.2 in the year to last June.

Stagecoach, which operates South West Trains, Britain's biggest commuter train network, had pre-tax profits of £105.2 million for the six months to September.

And First Group, which operates First Great Western and First Capital Connect, recorded an interim six-month operating profit of £48.3 million to September.

However, the train operators themselves claim they face a "potentially devastating" knock from the economic downturn.

Last month heads of the five largest companies – Stagecoach, National Express, Go-Ahead, Arriva and FirstGroup – called on the transport secretary, Geoff Hoon, to consider state funding for an extra 1,000 staff on the rail network, as well as rewriting franchise agreements.

Bob Crow, general secretary of the Rail Maritime and Transport union, said: "Rail passengers in Britain are the victims of a legalised scam that imposes inflation-busting fares increases year on year to feed the massive profits of private train operators."

Passenger Focus said measures to clear up confusion over ticket prices should include putting up posters at stations with the cheapest prices to different destinations and the travel restrictions.

Chairman Colin Foxall said: "Where else is a retailer not required to display prices to intending customers?"

It also recommended discounted travel for frequent commuters and facilities to spread the cost of an annual season ticket, and allowing advance purchase fares to be bought closer to the time of travel.

A spokesman from the Department for Transport said: "The Government is committed to sharing the cost of rail services fairly between taxpayers and passengers.

"It is estimated it would cost an extra £500 million a year to bring UK commuter fares in line with these other European countries, which are more heavily subsidised.

"Since 1997 regulated fares have fallen sharply relative to earnings, rising less than a quarter as much as disposable income. With inflation now falling, fares will follow suit."

Britain’s banks have done it. So have its carmakers. Are rail companies the next in line to receive Government assistance? That is set to be the big question facing Go-Ahead Group next week when the operator of the Southern, Southeastern and London Midland franchises kicks off the reporting season for the big five bus and train groups.

It is not an idle debate. Last month, representatives of all five companies sought a meeting with Geoff Hoon, the Transport Secretary. Although the subject of their talks remains undisclosed, measures to mitigate the impact of economic downturn are expected to have been top of their agenda.

That public transport operators – once considered one of the more defensive corners of the stock market – are susceptible to recession is already proved: falling passenger numbers, job cuts by the likes of First Group, National Express and Stagecoach, and, not least, their share price performance say as much.

But lower ticket revenues from commuter and intercity lines because of rising unemployment are only part of the problem. First, train companies face a hit from falling inflation. The majority of fares are struck on the annual formula of RPI plus 1 per cent, with January’s season ticket prices set on the basis of the official rate of inflation the previous July. That meant rises of about 6 per cent for 2009, but with RPI last reported at only 0.9 per cent, and predicted to turn negative by July, rail operators face the prospect of falling ticket prices next year for the first time since privatisation.

Although train companies also benefit from lower costs – not only from fuel, but track access charges, which are index-linked – the overall effect is modest.

Second, the timetable of franchise awards means that most were bid in the past few years – at what now is clear was the top of the market, and when forecasts assumed annual revenue growth of between 7 per cent and 10 per cent. Falling revenues are to be feared in light of the high operational gearing of rail franchises: about 80 per cent of costs are fixed. Even more so given that the newer the franchise, the more vulnerable they are to racking up losses.

The Department for Transport (DfT) operates a “cap and collar” mechanism, whereby the Government makes up part of the shortfall if a rail operator’s revenues undershoot their original projections. However, such risk-sharing agreements do not kick-in until the end of the fourth year of a franchise, meaning newly awarded deals that rely heavily on commuters have considerable scope to dent profitability. That spells pain for Stagecoach from South West Trains and for National Express from its East Coast line. Conversely, First Group is relatively protected. Its two big franchises – First Capital Connect and First Great Western – are both eligible for DfT revenue protection from April this year.

But according to Joe Thomas, transport analyst at Investec Securities, investors should be braced for the train to take the strain for some time to come – the rail industry faces a “potentially protracted period of large-scale losses”, he warns. Mr Thomas also cautions that, if history is any guide, rail passenger volumes are unlikely to regain their previous strength even after the recession ends. As his chart below shows, growth has returned after past disruptions – either economic downturn or, more recently, the aftermath of the Hatfield rail crash – but volumes have not resumed previous trends.

So what track might hard-pressed train operators take? The straightforward solution would be for rail companies to relinquish their most troublesome franchises. But that is not as easy as it sounds: under the DfT’s terms, if a franchisee defaults on one franchise, it must default on them all – which means junking profitable and unprofitable lines alike, and effectively forfeiting the right to participate in future franchise rounds. The answer might be for the five train operators to band together and default en masse, but securing unanimity is likely to be difficult given the differing importance of rail to each.

Further, it assumes that overseas operators, such as Deutsche Bahn, of Germany, or Nedrail, of the Netherlands, are unwilling to step in – which is far from a foregone conclusion given their previously expressed interest in the UK.

But Investec’s Mr Thomas also pinpoints a previously overlooked financial consequence of reversing out of rail. When a train operator wins a franchise, it lodges cash with the Government: a performance bond to cover the risk of withdrawal, and a season-ticket bond to safeguard the prepaid cash of its passengers. These can be substantial: about £158 million in the case of National Express, which already has borrowings of over £1 billion. On the basis of the sector’s existing indebtedness, Mr Thomas calculates that only Stagecoach and Go-Ahead could afford to quit. The other three would breach, or come close to breaching, their banking covenants.

A bailout of train operators is likely to be politically unacceptable; renationalisation too complex. A relaxation of RPI formulas would provide some relief. Even so, the risk is that, like a faulty signal, the big five’s rail returns get stuck on red.

LONDON Petrol prices rose about 5 percent over the past month to mid-February, rising more sharply than current inflation rate in the country, the Automobile Association said on Wednesday.

The average retail price of unleaded petrol rose 4.3 pence to 90.9 pence per litre from 86.6 pence in mid-January.

"Petrol prices have risen by nearly 5 percent in the past month, compared to the current UK inflation rate of 3 percent," the association said in a press statement.

On the key wholesale oil product market, gasoline prices have risen more sharply than crude oil over the past month.

Industry analysts have said that was because of relatively low levels of gasoline in Europe and the United States, the key gasoline export market for European oil companies.

On the other hand, inventory levels of middle distillate products, such as diesel, have been higher than last year.

The Automobile Association said the average diesel price rose more modestly.

Diesel rose by 2.1 pence to 100.8 pence per litre in mid-February from 98.7 pence in mid-January.

The price difference between unleaded gasoline and diesel fell 9.9 pence a litre from 12.1 pence over the same period.

Editing by Marguerita Choy

A report which says supermarkets are using excessive food packaging and should contribute towards the cost of dealing with it was branded "nonsense" and "naive" by the industry today.

The study by the Local Government Association (LGA) said people's efforts to recycle rubbish were being undermined by the stores they shopped in.

It showed that although the weight of supermarket food packaging had gone down over the past two years, almost 40 per cent of it still could not be easily recycled.

But the British Retail Consortium (BRC) said the survey failed to acknowledge the key role packaging played in preserving food and thereby reducing waste.

Its head of environment, Bob Gordon, said: "It's a nonsense to suggest that retailers swathe their goods in masses of unnecessary packaging. This would simply be a pointless cost. Packaging reduces waste by protecting and preserving products."

Jane Bickerstaffe, director of the Industry Council for Packaging and the Environment, added: "The report is naive and shows a singular lack of knowledge of the modern supply chain and what it takes to feed a nation of 60 million.

"Products have different supply chains and different amounts of transport packaging. Some products have a short shelf life, others are made to last longer. The amount of packaging has to reflect this."

The LGA report argues that supermarkets should contribute towards the cost of recycling and waste disposal services so they are encouraged to produce less packaging in general.

As well as making recycling easier and more affordable this would also ease the burden of landfill tax on local government, it says.

Landfill tax costs councils £32 for every tonne of rubbish they throw away - a figure that will rise to £48 a tonne by 2010 - meaning that by 2011 an estimated £1.8 billion will have been spent on it since 2008.

LGA chairman Cllr Margaret Eaton said: "Britain is the dustbin of Europe with more rubbish being thrown into landfill than almost any other country in Europe.

"Taxpayers don't want to see their money going towards paying landfill taxes and EU fines when council tax could be reduced instead.

"At a time when we're in recession and shoppers are feeling the pinch, we have to move on from a world that tolerates cling filmed coconuts and shrink wrapped tins of baked beans. Families are fed up with having to carry so much packaging home from the supermarket."

She added: "If we had less unnecessary packaging it would cut costs and lead to lower prices at the tills. When packaging is sent to landfill, it's expensive for taxpayers and damaging for the environment.

"Supermarkets need to up their game so it's easier for people to do their bit to help the environment. If retailers create unnecessary rubbish, they should help taxpayers by paying for it to be recycled."

The British Market Research Bureau (BMRB) was commissioned by the LGA to look at eight supermarkets and the type and weight of food packaging they used in a typical shopping basket.

The survey found Sainsbury's had the highest level of packaging that could be easily recycled (67 per cent) while Lidl had the lowest (58 per cent).

Waitrose had the heaviest packaging and Tesco had the lightest. The LGA said since its first survey in October 2007 the weight of food packaging had been reduced overall but the proportion that could be recycled had changed little.

The British Retail Consortium's Mr Gordon said: "Retailers pay over £5 billion a year in business rates towards local authority funding. The biggest barrier to recycling is local authorities' failure to agree on which materials they're prepared to recycle."

A Waitrose spokeswoman added: "Waitrose has cut product packaging weight by over a third since 2001.

"We were disappointed the LGA did not allow us to see a copy of the Report or provide us with a right to reply to the claims before it was issued.

"We are currently going through the report and believe it to be misleading. It fails to use accurate comparisons - a 500g tomato punnet at Waitrose is compared to a 250g punnet at most other stores. An accurate way to assess packaging would be by comparing per 100g of a product."

David Cameron today invokes the spirit of an unlikely political force, Labour's warrior of the left, Tony Benn, as he pledges to end decades of Whitehall centralisation which has undermined local communities.

In a Guardian article to launch what is being dubbed by the Tories as the most radical decentralisation plan in a century, Cameron says he hopes to learn a lesson from one of Labour's most combative figures in the modern era.

"Tony Benn once spoke about wanting a fundamental shift of power and wealth to working people," Cameron writes in the Guardian today. "I too want that fundamental shift – to local people and local institutions."

Cameron's article comes ahead of today's launch of a Conservative green paper on decentralisation which the leadership regards as a key step on the road to power.

In a speech in Coventry Cameron will outline a series of measures that are designed to set him apart from what he regards as the "top down" approach of Gordon Brown and the centralising tendencies of Margaret Thatcher. These led to the abolition of the Greater London Council and rape capping on profligate local authorities.

A Tory government would:

• Hold referendums in England's 12 largest cities outside London – including Birmingham, Manchester, Bristol, Nottingham and Newcastle – to allow voters to decide whether they would like a directly elected mayor modelled on London

• Abolish Whitehall capping powers and give greater powers to local people, who will be given the right to hold referendums to veto high council tax rises

• Create an incentive for local authorities to build more housing by allowing them to keep a greater proportion of council tax receipts from new homes

• Allow local authorities to offer tax discounts to struggling local businesses

• Give greater financial powers to local authorities by allowing them to take a higher proportion of taxes from new businesses

• Scrap the new Infrastructure Planning Commission, designed to speed up major projects such as the third runway at Heathrow, and instead use national policy statements to parliament to speed up planning enquiries.

Cameron writes in the Guardian: "Over the last century Britain has become one of the most centralised countries in the developed world as more and more power has been sucked to Westminster...When one-size-fits-all solutions are dispensed from the centre, it's not surprising that they very often fail all-shape-all-size local communities."

Cameron anticipates a possible line of attack from Labour by insisting that rolling back the central state is not "some romantic attachment to the patterns of our past". But he describes decentralisation as "absolutely essential to the economic, social and political success of our future".

The Tory leader adds: "If our local economies are vibrant and strong we are far less vulnerable to global shocks or the failures of a few dominant industries. If people know that their actions can make a real difference to their local communities, they're far more motivated to get involved and civic pride is revived."

Cameron's decision to mention Benn, who famously stood down as an MP in 2001 to "devote more time to politics", does not mean that the Tory leader has decided to flirt with the hard left. He hopes that invoking the spirit of Benn will give a taste of how radical the Tories would be in government.

ONE of Britain’s biggest privately funded eco-projects could be on the verge of collapse. British Telecom said last week that it was preparing to pull the plug on a £250m plan to build electricity-generating wind farms because of a rule change by the Department of Energy and Climate Change (DECC).

BT, whose shares hit a record low in trading last week, planned to build 100 turbines on 20-30 sites in England and Scotland capable of generating 25% of its power needs. At a cost of £250m it represented the biggest investment in renewable energy by any British company apart from energy businesses.

But last week the scheme was in disarray, with BT and the government each blaming the other for the impending collapse. BT claims that new rules make the project unviable and that the government is now in effect discouraging companies from switching to renewable energy.

At the root of the dispute is a row over government-issued credits called Renewable Obligation Certificates (Rocs).

“Overall, we support what the government is trying to do to promote energy efficiency, but the ruling on Rocs means there is no sense in us building wind turbines,” said Chris Tup-pen, BT’s chief sustainability officer. “It is a perverse ruling that will also affect a number of other big businesses that are trying to act responsibly.

“We planned to build wind turbines that would generate a quarter of BT’s electricity by 2016. Without the subsidy that will not go ahead.”

A spokesman for the DECC blamed the problem on BT’s plans to profit from the wind farms by selling electricity and reducing its CO2 footprint at the same time as claiming subsidies, thus “having its cake and eating it”.

“It’s an accounting thing but it’s very important,” a government spokesman said. “We have to be very tough on it. The Roc is not a subsidy. If you sell the energy to the National Grid it is used to offset the grid’s emissions. You can’t both claim the money and use it to offset the company’s own emissions. That’s double accounting.”

Ed Miliband, the energy and climate change secretary, is expected to announce a consultation on its so-called carbon-reduction commitment (CRC) – the scheme that blocks BT from claiming credits at the same time as counting its green energy against its CO2 footprint – in late spring. BT and other firms are already lobbying to block it or change it.

Among them is Tesco, which is becoming increasingly interested in renewable-energy generation. David North, community and government director at Tesco, said: “I can see why the civil servants see this as double counting but the effect is to hold up renewable-energy initiatives. The government needs to find a way around this, perhaps by creating other incentives to help companies that are not power generators or other large fossil fuel users to switch to renewable energy.”

So where did it all go wrong? Hailed as an example of how businesses and government could work together to reduce carbon emissions, BT’s wind-power project was welcomed by the government when it was revealed two years ago. But the row now illustrates the fiendish complexity of the subsidy regimes devised to encourage the expansion of renewable-energy generation.

Rocs are issued by Ofgem, the energy regulator, to companies that produce green energy and can be sold on to third parties such as power generators, who have to prove – via the Rocs – that they gain a percentage of their power from renewable sources.

By selling the Roc, a company such as BT in effect gains a government subsidy on its green power. The government says BT is not entitled to that subsidy if it also exploits the fact that it produces renewable energy to reduce its overall carbon footprint.

BT says its proposed wind farms were planned on the assumption that it could sell Rocs in this way, and that the government has now back-tracked, making the project uneconomic.

The new CRC regulations make clear that businesses can either trade their Rocs or claim the carbon saved against their overall footprint – not both. It is this change that has infuriated BT.

“All sides are acting with good intentions but the result is that a plan that would make substantial cuts in CO2 emissions could be cancelled by BT’s board,” said Sir Michael Rake, chairman of BT. “We’re very disappointed and we would like the government to rethink these rules.” There are mounting concerns that the economic downturn is forcing companies to scale back or to scrap altogether environ-mental initiatives. Last month Vestas, the world’s biggest wind turbine manufacturer, reported a drop in demand that left it with 15% excess manufacturing capacity, while Wall Street analysts said 2009 would be a tough year for wind and solar supplying firms.

BT has also been buffeted by the markets: shares fell 7.8% to 97p – an all time low – last week after the group warned of further writedowns on its troubled corporate telecoms infra-structure division.

This is not just energy, this is M&S green energy

WHILE BT wavers on its green plans, Marks & Spencer is today announcing a multi-million-pound contract with Npower as part of its Plan A to be carbon neutral by 2012, writes Kate Walsh.

Under the six-year deal the energy supplier will provide M&S with 2.6TWh (terawatt-hour) of renewable electricity – enough to power all the retailer’s stores and offices – from April.

The deal in itself is worthy, but a caveat that stipulates that a quarter of the energy must come from small-scale generators makes it unique. In simple terms this means M&S is offering contracts to UK farmers to feed renewable energy into the grid, which it will then buy from Npower.

The retailer has already awarded five contracts to small farmers, and this has enabled them to get financing for building wind turbines, anaerobic digesters and small-scale hydro systems.

Grant Mackie, an Aberdeenshire grain and cattle farmer, won an M&S energy contract in 2006. He said: “A wind turbine costs about £1m upfront and unless you have a five-year contract the banks are not interested in providing the capital. The longest contract we could get before M&S was two years at a push. There was a disconnect, and M&S bridged that gap.”

Mackie now has three wind turbines on his 500-acre farm.

Richard Gillies at M&S said: “Mackie has wind blowing over his land, which we can use, but can still do what he likes at ground level, be that growing grain or rearing cattle.”

The Government today unveiled long-term plans for "green" makeovers of hundreds of thousands of homes a year to slash carbon emissions.

Officials said the package of measures to roll out insulation and low-carbon technology such as solar panels to seven million homes by 2020 would help homeowners who take up the scheme to cut their bills.

Concerns have been raised that the package, which includes a levy on fossil fuels, will see millions of families facing an increase in heating bills to pay for the expansion in green energy.

Under the proposals, finance packages would be offered to householders to install energy efficiency measures and low-carbon heating technology - with repayments paid for by savings on energy bills.

There would also be guaranteed cash payments for homeowners who generate their own heat energy through technology such as solar panels, biomass boilers and ground source heat pumps, funded through a levy on fossil fuel energy supplies.

But there are concerns that these costs could be passed on to consumers in their bills.

A spokesman for the Department of Energy and Climate Change (DECC) said the measures would have a "negligible impact on bills" and there would be "benefits across the board".

He said the levy, the Renewable Heating Incentive (RHI), intended for introduction in 2011, would not affect today's household bills.

He said: "We have to consult on how it will work and, in fact, our proposals would have little impact on prices for many years, apart from cutting billing for those who take up the offer of help.

"If we are going to protect consumers from the rapid increases in energy prices, this is how it is going to happen, by improving energy efficiency and improving energy security."

Energy and Climate Change Secretary Ed Miliband said: "We need to move from incremental steps forward on household energy efficiency to a comprehensive national plan - the Great British refurb.

"We know the scale of the challenge: wasted energy is costing families on average £300 a year, and more than a quarter of all our emissions are from our homes.

"Energy efficiency and low-carbon energy are the fairest routes to curbing emissions, saving money for families, improving our energy security and insulating us from volatile fossil fuel prices."

View report