Royal Dutch Shell's earnings plunged by 58 per cent in the first quarter of 2009, as oil prices tumbled from last year's record levels and the demand for energy faltered amid the economic downturn.

Profits before tax fell from $9.08 billion in the first quarter of 2008 to $3.48 billion in the three months to March — a rate of decline that exactly matched that reported by BP, its rival, yesterday which said its income dropped by 62 per cent to $2.5 billion.

Jeroen van der Veer, Shell's chief executive, conceded that "first quarter 2009 performance was affected by the weaker global economy, with a challenging upstream and downstream business environment".

The company gave little indication of the full year outlook, although Mr van der Veer did say that "industry conditions remain challenging" in a clear signal that there was little hope of immediate improvement. He said that the company would focus on "capital discipline and costs" as a result.

The oil major received an average of $42.16 for ever barrel of oil it sold, more than half last year's $90.72. Last July, oil prices peaked at $147 a barrel.

Shell produced 3,396 barrels of oil and gas a day on average throughought the period, and said that its production was "broadly similar" to last year — down 3 per cent — allowing for the impact of weaker pricing, OPEC restrictions and problems stemming from the security of its Nigerian fields.

Natural gas volumes were down 13 per cent to 3.06 million tonnes, again reflecting the problems in Nigeria. Elsewhere gas production was stable. Gas prices achieved were $5.57 per thousand standard cubic feet, compared with $6.52 this time last year.

A downturn in share prices meant that Shell's pension fund would also face some pressure. The company signalled that it would take a $1.1 billion charge this year, reflecting a writedown of assets held by the fund, which more than wiped out last year's $600 million gain.

Shell said that it would pay a dividend of 42 cents a year, an improvement of 5 cents in dollar terms, compared with earnings per share of 57 cents. Cash flow generated in the quarter totalled $7.9 billion, while capital investment was $7.1 billion.

Crude oil rose, set for a third monthly gain, as a surge in equity markets increased optimism that the global economy and fuel demand will recover soon.

Oil advanced as stock markets gained on better-than- expected earnings and speculation that the worst of the global recession may be over. The U.S. dollar rose for a third day against the euro, making commodities more attractive to investors as a hedge against inflation.

“The dollar is sharply lower and equities are still rallying on improving sentiment,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “Oil is tracking the gains in the broader market.”

Crude oil for June delivery rose as much as 97 cents, or 1.9 percent, to $51.94 a barrel. The contract traded at $51.58 at 9:53 a.m. London time in electronic trading on the New York Mercantile Exchange. It climbed $1.05 to settle at $50.97 a barrel yesterday. Prices have gained 4.4 percent this month and 16 percent this year.

European stocks rose as earnings at companies from Credit Suisse Group AG to Siemens AG beat analysts’ estimates and investors speculated the global economy may be recovering from recession.

The Dow Jones Stoxx 600 Index added 0.6 percent to 198.50 at 8:02 a.m. in London, extending its gain since March 31 to 12 percent, the biggest monthly rally since data for the index started in 1987.

The dollar fell 0.8 percent to $1.3372 per euro today from $1.3271 yesterday.

Economic Rebound

Crude oil in New York has traded between $43.83 and $53.90 this month as inventories climbed and equities rebounded on speculation the economy will recover later this year.

Brent crude for June settlement climbed as much as 52 cents, or 1 percent, to $51.30 a barrel on London’s ICE Futures Europe.

A rise in U.S. crude oil stockpiles to the highest since September 1990, reported by the Energy Department yesterday, failed to bring oil prices lower. Crude stockpiles jumped 4.1 million barrels in the week ended April to 374.6 million barrels, the department said.

The gain in crude stockpiles left supplies 15 percent greater than the five-year average for the period. Stockpiles were forecast to increase by 1.8 million barrels, according to the median response of 14 analysts surveyed.

U.S. gasoline stockpiles dropped as refiners cut back their output. Motor fuel supplies declined 4.7 million barrels to 212.6 million last week, the biggest reduction since September, the Energy Department said. Stockpiles were forecast to climb by 200,000 barrels, according to a Bloomberg News survey.

Refineries operated at 82.7 percent of capacity, down 0.8 percentage point from the prior week. Analysts forecast that operating rates would climb 0.2 percentage point.

Total daily fuel demand in the U.S. averaged 18.4 million barrels in the four weeks ended April 24, down 6.8 percent from a year earlier, the department said. Consumption of gasoline was down 0.5 percent and distillate use was 11 percent lower.

Oil could approach the record prices of last July as the global recession halts investment in exploration and energy projects, the Organization of Petroleum Exporting Countries (Opec) warned last night.

At a meeting in Toyko, OPEC, the cartel of oil-producing countries, and 13 Asian finance ministers, called for greater monitoring of global oil prices, claiming volatility is not in the interest of either producers or consumers.

The leaders expressed concerns in a joint statement that the world is heading for an oil price spike when it recovers from the economic crisis.

"Price extremes have been unjustifiable and unsustainable," said the Saudi Arabian oil minister, Ali al-Naimi. "I have often cautioned that if prices remain too low for too long, they can carry the seeds of future spikes and volatility."

Saudi Arabia, home of the world's biggest oil reserves, is leading an attempt to reduce production by 4.2m barrels per day below September output. Prices closed at $51.55 a barrel on Friday, which is 65pc below the record $147.27 a barrel reached in July 2008.

"The drying up of liquidity to fund projects underpinning economic growth in emerging and developing economies has been a significant consequence of the recession," said Mr al-Naimi.

OPEC decided against cutting production for a fourth cut since September last month, after worrying that about pushing up energy costs amid the global recession. The group, which supplies about 40pc of the world's crude oil, is due to meet again in May.

Oil giants involved in the exploitation of tar sand fields face calls this week to disclose future carbon liabilities. Co-operative Financial Services (CFS) and environmental charity WWF-UK are launching a campaign for a legal requirement for companies including Shell and BP to include this information in financial reporting.

The Co-op says tar sands activities threaten to create a new class of toxic investment that could push the financial system into deeper crisis, while WWF wants the UK to take the lead and make London the centre of green finance. Nearly £40bn of UK pension assets is invested in British-based oil and gas companies. Co-op and WWF say investors need disclosure so they can factor financial and environmental risks into their decision-making. Disclosure of the financial risks associated with tar sands should be a key part of a new transparent system.

The Co-operative Bank is already funding a legal challenge against oil companies by the Beaver Lake Cree nation in Canada's Alberta province. Chief Al Lameman claims caribou, elk, moose and other animals are being harmed and plants used in traditional medicine are threatened.

Paul Monaghan of CFS said: "The Co-op focused on the issue of unconventional oil in last year's Observer Good Companies Guide and highlighted the risks and need for improved transparency on environmental performance. Legislation encouraging better disclosure on carbon would be a good start."

Petroleo Brasileiro SA, Brazil’s state-controlled oil company, may be hurt by a rig shortage as it begins development of the Tupi field, the largest discovery in the Americas since 1976, according to Jefferies & Co. Inc.

The company expects to almost double the numbers of rigs operating in deepwater offshore Brazil to 68 by 2012, from 38 today, according to Jefferies analyst Jud Bailey.

It’s “questionable” whether six of these rigs can even be built because the contractors are “small marginal´´ players, Bailey said April 24 in an interview from Houston. Others rigs may be delivered as much as a year late, he said.

Tupi, which starts pumping oil on May 1, and other Santos Basin fields may contain about 100 billion barrels of oil, according to Marcio Mello, head of Brazil’s petroleum geologists association. That’s enough to supply all needs in the U.S., the world’s largest consumer, for more than 13 years, according to BP Plc. Petrobras is scouring the world in search of billions of dollars to finance the fields’ development.

Demand for vessels that can drill in ocean depths up to 10,000 feet is growing faster than the supply of rigs, forcing oil companies to pay escalating rates even after crude lost two-thirds of its value in the past nine months. Producers are betting subsea discoveries will tap pools of crude so large that they will be profitable regardless of oil prices.

Anadarko Rates

Anadarko Petroleum Corp. agreed this month to a 7 percent increase in the rate it’s paying for Transocean Ltd.’s Deepwater Millennium rig off Brazil. Devon Energy Corp. agreed to a 9 percent fee increase for Geneva-based Transocean’s Deepwater Discovery drillship, which is also exploring Brazilian coastal waters, according to a public filing.

A drop in oil prices has made it difficult for small rig builders to complete orders as margins narrow, Bailey said. Brazil’s government has also required Petrobras to hire local builders, who are not necessarily capable of building the rigs or don’t have the money to do it, he said. Petrobras would have to step in and “backstop” some of these companies financially to allow them to produce the equipment in time, he said.

“The down side for Petrobras is that the world capital crunch will make it hard for many companies to finance new ships and drill rigs,” Peter Ping Ho, an oil and gas analyst with Planner Corretora De Valores in Sao Paulo, said April 24.

Rio de Janeiro-based Petrobras, whose Tupi field is the largest discovery since Mexico’s Cantarell, is tapping overseas partners to help fund a $174.4 billion five-year investment plan. Chief Financial Officer Almir Barbassa was last week touring Asia to persuade equipment manufacturers and shipbuilders to expand their operations in Brazil.

Brazilian Government

“The Brazilian government is pushing them to build the rigs in Brazil,” Bailey said. “If they do that there will definitely be delays.”

Tupi may hold as many as 8 billion barrels of oil. The field and nearby deposits in Brazil’s so-called pre-salt may almost double Petrobras’s oil reserves, the company said in January. The company is targeting a 53 percent increase in production to 3.66 million barrels a day through 2013.

Petrobras will start pumping as much as 30,000 barrels of oil a day to test Tupi. A pilot 100,000 barrel a day project is scheduled for 2010. The oil is 320 kilometers (200 miles) off Brazil’s coast beneath almost 2,000 meters of water and another 5,000 meters of rock and salt.

“Because we are so big, we have cost and other advantages,” Petrobras Chief Executive Officer Jose Sergio Gabrielli said in an interview April 20. “Those who want business will have to do business with us.”

Brazil Markets Last Week

Brazil’s real rose 0.5 percent to 2.1838 reais to the dollar. The yield on the government’s zero-coupon, fixed-rate bond due Jan. 1, 2010, climbed 1 basis point to 9.965 percent from last week.

Brazil’s Bovespa index of the 65 most-traded stocks on the Sao Paulo stock exchange increased 2.2 percent. Rossi Residencial SA was the biggest gainer, with a 23 percent increase for the week after Brazil’s government announced incentives for construction.

Natural gas fell to the lowest price in more than six years in New York on concern supplies of the heating and industrial fuel will overwhelm demand this year.

Gas futures have plunged 41 percent since the end of December as orders for goods at U.S. factories decline, prompting companies including General Motors Corp. to shut down production. Industrial and power plant gas consumption each account for 29 percent of U.S. demand.

“Until demand picks up and domestic gas production starts to come down more rapidly we’re going to be in this situation,” said Scott Hanold, an analyst at RBC Capital Markets in Minneapolis. “We’re going to have above-average storage levels for the rest of the year.”

Natural gas for May delivery fell 11.2 cents, or 3.3 percent, to settle at $3.297 per million British thermal units at 3:03 p.m. on the New York Mercantile Exchange, the lowest closing price since Sept. 11, 2002.

Prices dropped 12 percent this week, the biggest decline since the week ended March 27.

Orders for U.S.-made durable goods fell 0.8 percent in March, the Commerce Department said today in Washington. The government revised February figures to show a 2.1 percent gain in orders, smaller than previously reported.

Gas consumption by factories may drop 7.4 percent this year as the recession cuts demand, the Energy Department said in a report on April 14.

Stockpiles of gas increased 46 billion cubic feet in the week ended April 17 to 1.741 trillion cubic feet, the department said yesterday. Supplies were 23 percent higher than the five- year average.

Stockpile Outlook

“We’re heading into a situation we’ve never been in before” as supplies will press available storage capacity, Hanold said.

Hanold expects inventories to build to a record 3.63 trillion cubic feet by Oct. 31 to start the peak winter-demand period. The current record is 3.545 trillion cubic feet reached on Nov. 2, 2007.

“Commercial and industrial demand for energy will remain weak through the summer,” Stephen Schork, president of the Schork Group Inc., an energy markets consulting company in Villanova, Pennsylvania, said in a note today. “Demand destruction will still outpace supply destruction through this summer and into next winter.”

A move below $3.38 per million Btu indicates prices will probably head to $3.323, Schork said. Prices below $3.323 may prompt offers down to $3.207 per million Btu.

The number of onshore gas rigs seeking new deposits in the U.S. has dropped 54 percent since September as prices collapsed, data published by Baker Hughes Inc. showed.

Gas rigs fell by 18, or 2.4 percent, to 742 this week, the lowest since the week ended Feb. 7, 2003, The count is down from a peak of 1,606 on Sept. 12.

Factory Demand

Industrial gas use this year will probably fall to about 16.8 billion cubic feet a day, the Energy Department said in its monthly Short-Term Energy Outlook on April 14. The estimate was down from 17.1 billion in the March outlook. Total gas demand will fall 1.8 percent, the April report showed.

“I keep thinking we’re going to get a bargain-hunting bounce, but we keep trickling lower,” said Brad Florer, a trader at Kottke Associates Inc. in Louisville, Kentucky. “The fundamentals are terrible. We have record levels of gas and no sign that demand is going to come back online anytime soon.”

The economy probably shrank 5 percent in the first three months of this year, the median estimate of 30 economists surveyed by Bloomberg News.

“There’s not a whole lot of love out here for the bulls,” said Florer. “I am a seller of rallies until I’m shown otherwise.”

MangistauMunaiGaz is a name to conjure with, but the sale last week of Kazakhstan's fourth-largest oil company probably did not rock your world. The Central Asian firm controls reserves of about half a billion barrels of crude and output of 113,000 barrels per day - big, but not hugely significant. It might have raised an eyebrow, however, had you known that the successful joint purchaser was China National Petroleum Corporation (CNPC) and that the competing investors were Oil and Natural Gas Corporation, of India, and Gazprom Neft, the oil unit of the Russian gas giant.

In the West we wring our hands over the collapse of capitalism, but in Central Asia they are fighting over the spoils. The economy of Kazakhstan was badly beaten by the credit crunch and its banking system came close to collapse. This month President Nazarbayev of Kazakhstan went cap-in-hand to Beijing and came back with a $10billion (£6.8billion) loan.

Half of the money will be used to diversify the Kazakh economy, but the other half will bolster the energy sector and make possible the $3.3billion acquisition of MangistauMunaiGaz, to be shared equally between CNPC and KazMunaiGas, the state-controlled energy company. In return for propping up the Kazakh Government's investment, the Chinese get half of the oil. The Chinese loan will also help to build a pipeline to take gas from the Caspian region to the south of Kazakhstan, a strategic move that brings gas closer to the Chinese border.

This is the moment that China has been waiting for - global financial mayhem, commodity price weakness, governments in disarray and a war chest of $2trillion in foreign currency reserves. Recession has not distracted the officials who manage China's sovereign wealth funds. Half of China's oil is imported and the need will rise to two thirds by 2020. This is the time to buy cheap reserves of oil, gas, copper and iron ore and they are busy scooping up every spare tonne, ounce, barrel within reach.

In February China propped up the finances of Russia's debt-burdened oil exporters with $25billion in loans secured against 20 years of oil exports. China is promised 300,000 barrels per day and included in the deal is a new pipeline that will deliver crude to China's northern refineries. In the same week, China agreed a similar credit-for-oil deal with Brazil under which Petrobras, the Brazilian state oil company, would receive $10billion in loans in return for delivery of up to 100,000 barrels a day to Sinopec and 60,000 barrels per day to PetroChina.

Such long-term contracts are less certain than a stake in the ground and China has long coveted what lies beneath Central Asian soil. The Chinese company is laying a 7,000km (4,350-mile) pipeline that will move gas from Turkmenistan to China via Uzbekistan and Kazakhstan. It is a huge undertaking, but the TurkmenGaz president insists that the pipeline will begin to ship gas to China's northwest frontier by the end of this year.

The economics of these mammoth Chinese energy export projects remain obscure. There is increasing competition for Turkmenistan's gas. Until now, Gazprom has virtually controlled Turkmenistan's resource, using it as a cheap reserve tank, sucking in cheap Turkmen gas to fuel Russian homes while exporting Siberian gas to Europe at five times the price.

But Turkmenistan is asking for higher prices and President Berdymukhamedov is using the Chinese and European hunger for energy to bait the Russians. Europe would like to import Turkmen gas, but investors fret about the cost and political complexity of shipping gas such long distances across so many borders.

No such flies trouble the Chinese, as these energy ventures are in no sense private sector projects, requiring good returns. This is about control of resources and the strategy is developed at a higher level.

China's biggest and most powerful companies are merely arms of sovereign wealth funds. CNPC, like China Mobile and Industrial and Commercial Bank of China, is controlled by SASAC, China's Assets Supervision and Administration Commission. Alongside SAFE, the State Administration of Foreign Exchange, and CIC, China Investment Corporation, SASAC pulls the strings of investment policy at China's big corporations. It is almost certain that SASAC moulded the strategy behind Chinalco's share-and-asset-purchase deal with Rio Tinto and the same body, which hires and fires the executive board of Chinalco, will hire and fire the boards of the steel companies that buy iron ore from Rio Tinto.

While we in the West gaze at our navels and ponder the future of capitalism, people in the Far East are getting on with a much older game, mercantilism, the pursuit of advantage in trade.

Not everyone in China is in agreement. There is mounting tension within these Chinese funds between the need to show returns and the pursuit of collective goals: more access to energy and to resources.

SAFE already has stakes in 40 important UK enterprises, including holdings in BP, National Grid, Shell and Prudential. In boastful mood, Lou Jiwei, the chairman of CIC, said that his fund was scouting Europe for bargains and he joked that CIC was grateful for last year's protectionist flap about sovereign wealth funds, which stayed his hand and meant that CIC had avoided losses. CIC is now spoilt for choice - everything is cheap in dollar terms but the political cost is rising.

Russia will help pay for supplying enough gas to ensure transit to European consumers via Ukraine, but supply risks have not yet been eliminated, Russia's senior energy official was quoted as saying on Thursday. "From our point of view, risks remain," Deputy Prime Minister Igor Sechin said during a meeting with European Union Energy Commissioner Andris Piebalgs, Interfax news agency reported.

"We have not yet reached guaranteed stability and we are prepared to clarify our position on this issue," Interfax quoted Sechin as saying.

"When we say there's a problem, we also propose a solution. We have even agreed to co-financing," Sechin said.

The supply of "technical gas" to Ukraine -- the gas needed to ensure transit supplies are pumped through its pipeline system -- was a major sticking point in the stand-off that led Russia to sever supplies to Europe for two weeks in January.

At the time, Ukraine said Russia should supply this gas free of charge, a demand that was rejected by Moscow.

In a sign relations might be thawing, Ukrainian Prime Minister Yulia Tymoshenko, visiting Moscow on Wednesday, welcomed Russia as a key partner in the EU-backed renewal of its gas pipeline network.

Moscow in turn agreed not to exact a $2 billion fine from Kiev for using less gas than agreed. Russia was angered by its omission from the pipeline overhaul plan presented by Ukraine in Brussels in March, citing its role as the main gas supplier.

Editing by Peter Blackburn

National Grid said it was considering its legal options after failing to overturn a record fine for breaching competition rules in its UK gas metering business.

The Competition Appeal Tribunal yesterday shaved more than a quarter off the company's original penalty of £41.6m, ruling that £30m was a more appropriate fine level.

However, it backed an earlier regulatory finding that National Grid's long-term, exclusive metering contracts with energy suppliers restricted competition and harmed consumer choice.

National Grid, which transmits and distributes gas and electricity, inherited a gas metering market monopoly when it bought Transco, owner of the gas transmission network, in 2002.

National Grid spent two years renegotiating contracts with gas suppliers.

"We continue to believe that our gas metering contracts have not harmed consumers, competition or gas suppliers," said Mark Fairbairn, National Grid executive director. "We will now thoroughly review the judgment and consider our next steps."

A big expansion of nuclear power was launched on Wednesday as a German consortium bought two sites for building new reactors and committed itself to a huge investment programme.

RWE and Eon, two German-owned companies that are already large energy suppliers in Britain and have teamed up to build new nuclear plants, bought the sites at Wylfa in Anglesey and Oldbury in Gloucestershire in an auction held by the government’s Nuclear Decommissioning Authority.

They said they planned to build 6,000 megawatts of nuclear generation capacity, implying four to six new reactors on the two sites.

RWE plans to invest up to £15bn ($22bn) in Britain in nuclear and other power plants.

However, Andy Duff, chief executive of RWE’s UK business, warned he had been “very very concerned” about the government’s energy policy in recent years, and delivering the new reactors on time relied on “an energy policy that is low on surprises and high on predictability and stability”.

The German consortium’s announcement gives Britain a second strong nuclear generator to compete with EDF of France. Last year, EDF bought British Energy, owner of most of the working nuclear power stations, for £12.4bn, and said it planned to build 6,400MW of new nuclear capacity in four reactors, probably at Sizewell in Suffolk and Hinkley Point in Somerset.

In total, the French and German plans meant that new nuclear power stations could generate more electricity than the ageing reactors they would replace, the government said.

The NDA’s auction of three sites suitable for new nuclear development – the third at Bradwell in Essex – closed on Wednesday, raising £387m for the government to help pay for the costs of cleaning up nuclear sites.

One of the bidders, a consortium of Iberdrola of Spain, which owns ScottishPower; GDF Suez of France and Scottish and Southern Energy of the UK dropped out after deciding that the bidding had gone too high.

That consortium said on Wednesday it was still interested in investing in nuclear power, but would look at other sites put up for sale by the government.

Mr Duff said he planned to have the RWE/Eon consortium’s first new reactor operational by 2020, but that depended on staying on the “critical path” for planning approvals, the licensing of reactor technology by the Nuclear Installations Inspectorate, and a long-term solution being found for the disposal of nuclear waste.

It is a dazzling vision of a clean energy future. An entire continent powered by solar panels, wind and wave turbines, geothermal and hydroelectric power stations — and all stitched together by a European “supergrid” stretching from the sunbaked deserts of the south to the windswept North Sea, from the volcanoes of Iceland to the lakes of Finland.

It may sound like the stuff of science fiction but this is a vision that the European Union wants to make a reality. The concept is gaining ground among policymakers, including leaders such as President Sarkozy and Gordon Brown, who are concerned about Europe's carbon emissions and its steadily growing dependence on Russian gas.

Adam Bruce, chairman of the British Wind Energy Association (BWEA), is convinced that a European supergrid that could eventually banish polluting fossil fuels altogether, is only a matter of time.

“We are only limited by our own ambition,” he says. “The capacity is there. There is the potential for wind alone to supply 50 per cent or more of our energy needs.”

Gregor Czisch, a German academic at the University of Kassel who developed the concept, claims it would cost €45 billion (£40.5 billion) to build. The numbers add up, he insists, and all of Europe's electricity supplies could eventually be harvested from the wind, water and the sun.

Such dreams of renewable energy certainly catch the imagination but for Britain, which generates just 1 per cent of its electricity from renewables — the least in the European Union after Malta and Luxembourg — the gap between ambition and reality seems particularly stark.

The truth is that, despite the Government's talk of a green energy revolution, Britain's renewable energy industry is in crisis.

About 40 per cent of the UK's power stations were built before 1975 and urgently need to be replaced. But the combined impact of the credit crunch, falling oil and coal prices and the weaker pound now threaten to hold up wind projects just as the UK has raised its commitment to green electricity.

“The economics a year ago were already tight but the cost of capital and the foreign exchange movement have made it much harder,” says Sarwjit Sambhi, director of power generation at Centrica, one of Britain's Big Six power companies, which is trying to build a 250 megawatt (MW) wind farm off Lincolnshire, big enough to supply 170,000 homes. “We are not going to make investments below our return on capital so my goal will be to spend as little as possible until the economics improve,” he said.

In last week's Budget, the Government announced incentives designed to bolster investment in huge offshore windfarms and ensure that Britain hits its target of raising the share of electricity produced from renewable sources to 35 to 40 per cent by 2020.

So will they work? Not according to Jim Skea, director of the UK Energy Research Centre. He has just undertaken a big research project into how the UK can slash its carbon emissions by 80 per cent by 2050. “In none of the scenarios we looked at were renewables picked up nearly fast enough to meet the 2020 targets,” said Professor Skea. “It will be a big struggle. We are not spending nearly enough.”

Wind power, easily the most economically attractive form of renewable energy in the UK, remains hugely expensive when compared with gas and coal.

A recently approved gas-fired station in Pembroke will cost £1 billion and will be the largest in the UK, producing 2,000MW. It would cost six times as much to build a windfarm of similar capacity.

While a strengthened subsidy regime and up to £4 billion of extra funding from the European Investment Bank (EIB) announced in the Budget are welcome, Professor Skea believes that far more radical action will be required, including huge increases in research spending to accelerate the development of better technology, and a dramatic rise in the price of traded carbon emissions, up from £13 presently to £200 a tonne.

But that is not all. Sceptics scoff that wind, wave and solar power are inherently unreliable. A solution could lie in back-up gas and nuclear plants and a far smarter grid that includes technology to balance the load at moments of reduced supply.

This could range from sophisticated centralised networks right into homes, where chips embedded in non-essential appliances could force them to switch off for brief periods as and when the grid demanded it.

Such technology exists but it is a world away from today's grid, some of which dates back to the 1930s, and it will require vast investments and sweeping regulatory change to accomplish.

Until Europe's governments grapple with the fine detail of these issues, the Continent's dreams of a supergrid and a future free of fossil fuels are likely to remain in the realms of science fiction.

Ultimately, according to Professor Skea, an international deal at the UN climate talks in Copenhagen in December will be critical to achieving the political momentum required to achieve all of this.

Nevertheless, the BWEA's Adam Bruce remains upbeat: “It's certainly a challenge but these problems are not insurmountable. The more renewable energy you create the less it costs. People focus on the upfront capital cost but not the longer-term benefits.”

Wind turbine-maker Vestas Wind Systems is to cut 1,900 jobs - mainly in the UK and Denmark - despite reporting a 70% rise in quarterly profits.

It will be closing its UK turbine plant on the Isle of Wight, cutting 450 jobs.

The Danish firm blamed the headcount reduction, which represents 9% of its workforce, on market oversupply.

It came as Vestas reported a net profit of 56m euros ($73m; £50m) for the first three months of 2009, up from 33m euros for the same period last year.

The company also said it planned to raise funds through a share issue.

Vestas said that supply of wind turbines exceeded demand in Northern Europe, despite the drive of governments including Germany and the UK to increase the amount of electricity generated by green energy alternatives.

'Strong numbers'

Quarterly sales at the company, which is the world's largest manufacturer of wind turbines, rose 59% to 1.11bn euros.

It also said it was sticking to its full-year sales targets.

Analysts broadly welcomed the results.

"It's a strong set of numbers and good operational performances - better than the street had expected," said Rupesh Madlani, analyst at Barclays Capital.

"Raising capital in this environment makes good strategic sense, so we're pretty positive."

Vestas has yet to indicate how much it hopes to raise from the share issue.

The EPA’s decision on greenhouse gases provides a boost for gloomy greens.THE decision on April 17th by the Environmental Protection Agency (EPA) that six greenhouse gases are a danger to the environment and to human health has come at a good time for the green lobby. It needed a boost; for hopes in Washington, DC, that Congress will pass legislation to control emissions before December, when the world gets together in Copenhagen to decide what to do when the Kyoto protocol runs out, are low—and falling.

The EPA has been mulling the harmfulness of greenhouse gases since 2007, when, in a case brought by a coalition of states, cities and NGOs, the Supreme Court ruled that it should regulate greenhouse gases if they were found to be toxic. As expected, the EPA, now run by Lisa Jackson, who brings to the job 20 years of experience as a regulator who’s tough on business, gave a provisional ruling that they were; a final decision will come after a 60-day period of public consultation.

Legislation to cap carbon emissions, though supported by the administration, is struggling to get through Congress. So greens are delighted, because the EPA’s decision allows emissions to be regulated under existing rules. Businesses and congressmen who dislike the idea of legislating to control emissions may now decide that a new law, over which they can have some influence, would be better than regulation through an old one. According to Edward Markey, co-author of the main cap-and-trade bill in the House, “it is no longer a choice between doing a bill or doing nothing. It is now a choice between regulation and legislation.”

But the decision is not as momentous as it seems. It applies principally to emissions from motor vehicles, which are responsible for under a quarter of man-made carbon-dioxide in America. Attempts to extend it to other sources of greenhouse gases may prove more difficult and would almost certainly face challenges in court. And environmental cases tend to drag on and on. Massachusetts v EPA, the case that led to this decision, was filed six years ago; the Exxon Valdez case took 19 years. “The Jarndyce v Jarndyce factor is very strong in America,” according to Paul Bledsoe of the National Commission on Energy Policy. Advocates of control understandably prefer a legislative approach.
 
Thanks to the energetic sponsorship of Henry Waxman, chairman of the Energy and Commerce Committee, the cap-and-trade bill has momentum in the House. But Mr Waxman’s bill, which is regarded as extremely green in Washington, may have to be watered down if it is to gain the approval of its many opponents from coal states, in the Democratic as well as the Republican Party. And if it gets through the House—which, in some form, it probably will—its chances in the Senate are slim. They are reckoned to have shrunk lately, as the administration is seen as focusing more on health-care reform, thus using up time and political capital which might otherwise have been allocated to climate change.

Going to the Copenhagen conference without legislation in place will be embarrassing for America, especially since other bits of the world are forging ahead. In December, in the face of much opposition, especially from eastern Europe, the European Commission got member states to agree to its “20-20-20” plan to reduce emissions to 20% below 1990 levels by 2020. China’s economic stimulus package includes twice as much green spending as America’s does. If America’s legislators threaten to send the country’s representatives into the conference room naked, the EPA’s decision, which means that tailpipe emissions at least are likely to be regulated, has provided them with a figleaf.

About three-quarters of the world's fossil fuel reserves must be left unused if society is to avoid dangerous climate change, scientists warn.

More than 100 nations support the goal of keeping temperature rise below 2C.

But the scientists say that without major curbs on fossil fuel use, 2C will probably be reached by 2050.

Writing in Nature, they say politicians should focus on limiting humanity's total output of CO2 rather than setting a "safe" level for annual emissions.

The UN climate process focuses on stabilising annual emissions at a level that would avoid major climate impacts.

But this group of scientists says that the cumulative total provides a better measure of the likely temperature rise, and may present an easier target for policymakers.

"To avoid dangerous climate change, we will have to limit the total amount of carbon we inject into the atmosphere, not just the emission rate in any given year," said Myles Allen from the physics department at Oxford University.

"Climate policy needs an exit strategy; as well as reducing carbon emissions now, we need a plan for phasing out net emissions entirely."

Forty years

The UN climate convention, agreed at the 1992 Rio Earth Summit, commits countries to avoiding "dangerous" climate change, without defining what that is.

The EU proposed some years ago that restricting the rise to 2C from pre-industrial times was a reasonable threshold, and it has since been adopted by many other countries, although some - particularly small islands - argue that even 2C would result in dangerous impacts.

Temperatures have already risen by about 0.7C during the industrial age.

Dr Allen's analysis suggests that if humanity's CO2 emissions total more than about one trillion tonnes of carbon, the 2C threshold is likely to be breached; and that could come within a lifetime.

"It took us 250 years to burn the first half trillion," he said, "and on current projections we'll burn the next half trillion in less than 40 years."

Inherent uncertainties in the modelling mean the temperature rise from the trillion tonnes could be between 1.3C and 3.9C, Dr Allen's team calculates, although the most likely value would be 2C.

Oil change

The "trillion tonnes" analysis is one of two studies published in Nature by a pool of researchers that includes the Oxford group and scientists from the Potsdam Institute for Climate Change Impact Research in Germany.
 
The second study, led by Potsdam's Malte Mainshausen, attempted to work backwards from the 2C goal, to find out what achieving it might mean in practice.

It suggests that the G8 target of halving global emissions by 2050 (from 1990 levels) would leave a significant risk of breaching the 2C figure.

"Only a fast switch away from fossil fuels will give us a reasonable chance to avoid considerable warming," said Dr Mainshausen.

"If we continue burning fossil fuels as we do, we will have exhausted the carbon budget in merely 20 years, and global warming will go well beyond 2C."

If policymakers decided they were happy to accept a 25% chance of exceeding 2C by 2050, he said, they must also accept that this meant cutting emissions by more than 50%.

That would mean only burning about a quarter of the carbon in the world's known, economically-recoverable fossil fuel reserves. This is likely to consist mainly of oil and natural gas, leaving coal as a redundant fuel unless its emissions could be captured and stored.

Both analyses support the view of the Stern Review and the Intergovernmental Panel on Climate Change (IPCC) in suggesting that making reductions earlier would be easier and cheaper than delaying.

But according to Potsdam's Bill Hare, a co-author on the second paper, some key governments appear to favour pledging milder cuts in the near term in return for more drastic ones in decades to come.

"We have a number of countries - the US, Japan, Brazil - saying 'we will emit higher through to 2020 and then go down faster'," he said.

"That might be true geophysically, but we cannot find any economic model where emissions can fall in the range that this work shows would be necessary - around 6% per year."

Major intervention

Myles Allen's group has made the argument before that focussing on humanity's entire carbon dioxide output makes more scientific and political sense than aiming to define a particular "safe" level of emissions, or to plot a pathway assigning various ceilings to various years.

Some greenhouse gases, such as methane, have a definable lifetime in the atmosphere, meaning that stabilising emissions makes sense; but, said Dr Allen, CO2 "doesn't behave like that".

"There are multiple levers acting on its concentration and it does tend to accumulate; also models have to represent the possibility of some feedback between rising temperatures and emissions, such as parts of the land turning from carbon sinks into sources, for example."

The Nature papers emerge in a week that has seen the inaugural meeting of President Obama's Major Economies Forum on Energy and Climate, a new version of a body created under President Bush that brings together 17 of the world's highest-emitting countries for discussion and dialogue.

During the opening segment, Secretary of State Hillary Clinton re-affirmed the administration's aim of cutting US emissions by 80% from 1990 levels by 2050 - a target espoused by some other developed countries.

But according to Malte Meinshausen's analysis, even this reduction may not be enough to keep the average global temperature rise within 2C, assuming less developed nations made less stringent cuts in order to aid their development.

"If the US does 80%, that equates to about 60% globally, and that offers only a modest chance of meeting the 2C target," he said.

Last week saw the publication of data showing that industrialised countries' collective emissions rose by about 1% during 2007.

Businesses are losing their enthusiasm for environmental issues, just as the government is ramping up its efforts to combat global warming, a new poll suggests, Fiona Harvey reports .

More than eight in 10 companies think the government's targets of cutting emissions by 80 per cent by 2050 are unattainable, according to a survey of 300 UK businesses by RWE npower, the energy company. The poll was carried out before the Budget when ambitious emission cuts were set out.

Iraq is open for business – such is the message from a stellar line-up including the Prime Minister, Nouri al-Maliki, and the two UK Cabinet ministers at the Invest Iraq conference in London today.

In the aftermath of 20 years of sanctions, strife and upheaval, the post-Saddam state has a pressing need for infrastructure investment – and an oil price back down to the $50-per-barrel mark has left the Baghdad government unable to fund the mammoth reconstruction on its own. But the recession battering economies around the world might just prove to be to the war-torn country's advantage. Notwithstanding the bomb that killed 150 people in the capital last week, the febrile security situation has improved. And with so much financial uncertainty elsewhere, Iraq's potential is attracting more attention.

Hussein al-Uzri, the president of the Trade Bank of Iraq (TBI) – who is also at today's conference – said: "We want to convey the message that Iraq is open for business and is a unique opportunity for investors. Until 2003, the private sector was on a very short leash, but it is now taking back its role in the economy. The last six years have been very difficult, everything in the country has been taken apart and re-made. But we are moving in the right direction."

The scale is vast. Iraq needs $400bn (£339bn) of infrastructure just to catch up with the needs of its existing population of 28 million. The wish list is endless: from power plants, to water systems, to road and rail networks. The country needs 25 megawatts of electricity but produces less than six; there have been no new hospitals for decades; some 7,000 new schools are necessary just for today's generation of children; 50 years ago Iraq was a net exporter of food, now 70 per cent is imported and it needs fertiliser plants, agricultural investment and food production businesses to restore the balance. Even the world-beating oil sector is sadly undernourished. Iraq's 119 billion-barrel oil reserves constitute the second largest in the world. But with no exploration since the 1980s even that may be a considerable underestimation, and yet sub-standard refinery capacity means the majority of oil products are imported.

Meeting the requirements of even a single sector would be enough to alter the economy radically, says Mr Uzri. The country needs 2.5 million new houses, for example. "That by itself will stimulate the whole economy because it will need cement plants, steel mills, labour, banking, mortgages," he said.

With oil at $147 per barrel last summer, the government in Baghdad had more options. But with less money sloshing around the public sector, a bigger slice of the pie will fall to commercial investors. Private investment has been growing since Saddam Hussein was toppled in 2003. The TBI – which is a state-owned bank established that year to facilitate international trade in the wake of the expired UN oil for food programme – has issued $9.1bn-worth of letters of credit in the past year alone and made a quarter of its $359m profits in 2008 from the private sector.

But tens of billions of dollars of Iraqi capital are still held outside the country – mainly in Oman, Beirut and Dubai – and part of the TBI's job is to convince investors that there are viable prospects behind the continual news reports of lawlessness, violence and chaos. "The role of the banking sector is to attract those funds back home," said Mr Uzri. Infrastructure projects are gathering pace. A new power plant in Erbil – which has upped Kurdistan's electricity capacity from just four hours per day to round-the-clock – is a case in point. Funded entirely from Iraqi capital, the power station went from letter of credit to producing electricity in just 18 months, and investors will see a return within two-and-a-half years.

There is also a major role for foreign investors – hence today's conference, which is expected to be attended by about 250 companies including Royal Dutch Shell, Rolls-Royce and GlaxoSmithKline.

Private equity groups are also sniffing around. Fairfax, a London-based fund, plans to put $200m into Iraq this year, and the TBI is putting together a $250m fund of its own on the strength of interest from sovereign wealth funds. Sir Claude Hankes, an adviser to the TBI, says the potential for Iraq – with its large population, educated middle class and trading ethic – is unmatched since the Far East of the 1970s. And investors are starting to pay attention. "The opportunities are enormous and unlimited," he said. "People were thinking: why have the problems and security issues in Baghdad when we can make billions somewhere else? But the rest of the world is changing, Iraq's security has improved and people are beginning to focus on the opportunities now."

The brave few have already taken the plunge, mainly companies from nearby Gulf states, Iran and Turkey. But Chinese groups are also showing a growing interest, as are the French. British companies are, so far, less well-represented, particularly outside the Basra area where UK troops were stationed. Part of the problem in establishing a secure trading relationship between the two countries is the difficulties Iraqis have in getting a UK visa. As a result, the UK is missing out, both on the huge market for training the Iraqi workforce, and on building strong links with the country's business class. "Not to be training as many Iraqis as we possibly can, right here and right now, is a fundamental error in terms of developing trade with Iraq," said Sir Claude.

But kidnappings and roadside bombs are not the concern for potential investors. A stable economy needs a stable banking sector. The TBI's rapid growth is emblematic of an improving situation. Annual results for 2008, published yesterday, reported profit growth of 41 per cent, total assets up 64 per cent to $10bn and share capital up by more than 340 per cent to $427m. But there is much to do. There are now six state-owned retail banks in the country, and about 32 private banks, including some international institutions such as HSBC.

But only about 2.7 million Iraqis have bank accounts, less than 10 per cent of the population. And between them, there are only about 600 branches in total, a very low per-capita ratio compared with a developed, Western economy. Iraq is still very much an "underbanked" country, says Mr Uzri. "In the UK there is around one bank branch per 1,300 or so of the population, in Iraq that is more like 45,000," he said. "Cash is still king. Most transactions are in cash, from buying groceries to buying buildings."

China has reported that it has been secretly increasing its gold reserves.

It was able to keep it secret by buying domestically produced metal, almost doubling the amount of gold it holds to more than 1,000 tons.

China has the biggest foreign exchange reserves in the world, totalling almost $2,000bn (£1.373bn).

An estimated two thirds is held in US dollars, though China has been backing away from the dollar as a reserve currency for a while.

Safe investment?

Three years ago Beijing broke the peg that linked its currency, the renminbi, and the dollar.

Then, just before the London G20 summit earlier this month, China suggested that the time might have come for countries to reduce their reliance on the US dollar as a reserve currency.

The Chinese move has given a small boost to the gold price, up $5.50 (£3.77) at $913 an ounce in London and a big boost to those traditional investors who believe that gold is still the safest store of value.

However, bullion market experts say China's gold holdings are still far smaller than those of the US and other developed countries, and it was still buying US dollars.

A PROPOSAL to ban sales of new petrol and diesel cars in Norway from 2015 could help spur struggling carmakers to shift to greener models, the state’s finance minister Kristin Halvorsen claims.

“This is much more realistic than people think when they first hear about [it],” Halvorsen said. “The financial crisis means a lot of those car producers that now have big problems. . . know they have to develop their technology because we also have to solve the climate crisis when this financial crisis is over. That is why we would like a ban from 2015.”

Under her proposal, carmakers could only sell new cars from 2015 that run fully or partly on fuels such as electricity, biofuels or hydrogen. Hybrids, which use fossil fuels and electricity, would still be permitted.

The 2015 proposal is unlikely to be adopted by the cabinet because it is opposed by, among others, labour prime minister Jens Stoltenberg.

Halvorsen said she knew of no other finance minister in the world arguing for such a goal.

“I haven’t heard about any ministers. I’m not surprised. We [the socialist left] are often a party that puts forward new proposals first,” she said. A 2015 ban had backing from many environmental groups as a way of cutting greenhouse gas emissions.

Halvorsen denied that her proposal would undermine the economy – Norway is the world’s sixth largest oil exporter.

She said many people in Norway initially misunderstood her proposal. “A lot of people thought this proposal would go after the cars we already have. That is not the case, it’s the new cars bought after 2015.”

Government plans to generate more than a third of Britain's electricity from green energy sources, such as wind and solar power, by 2020 are doomed to failure without a dramatic increase in state support, according to a leading energy research group.

Despite fresh incentives to increase investment in offshore wind parks announced in last week's Budget, the UK Energy Research Centre (ERC) said on Wednesday that it was virtually impossible for the UK to meet the target imposed by Europe of generating 15 per cent of total energy from renewable sources by 2020 — which equates to about 35 per cent of total electricity.

Jim Skea, research director, said: “Renewables can make a significant contribution, but if you look at the scale of what is required, I think that is very, very challenging and 2020 is almost tomorrow when you look at what needs to be achieved.”

Professor Skea said that Britain urgently needed to set a higher carbon price to hasten the adoption of low carbon technologies and to boost investment in energy research — which has collapsed from £700 million a year in the 1970s and 1980s to just £100 million annually.

He also said that sweeping new measures would be needed to encourage dramatic cuts in energy use.

Speaking at the launch of a new study on how the UK can meet its long-term goal of cutting carbon emissions by 80 per cent by 2050, the ERC said the carbon price would need to rise to £200 per tonne from £13. He said that this would equate to an increase in the price of petrol to about £5 a litre. Professor Skea said: “In almost every scenario we looked at, oil is driven out of the system. It would be cheaper for people to shift to biofuels or electric vehicles.”

Professor Skea said that the goal of cutting emissions by 80 per cent was achievable, but only with big changes in funding and in people's lifestyles, including a shift towards teleworking and phasing out petrol vehicles.

The ERC claimed that the cost of meeting these goals would be £17 billion a year — or £670 for every one of the 25 million UK households, which would be achieved through higher utility bills, extra transport costs and higher prices for goods and services.

The ERC, which consists of energy academics at universities across the UK, undertakes research that is supplied to the public sector and to government. It was established in 2004 after a recommendation from Sir David King, the Government's chief scientific adviser at the time.

Professor Skea said: “UK energy policy goals are extraordinarily ambitious. Meeting them will require efforts well beyond the bounds of historical experience. By looking at the energy system in the round, our researchers have shown not only that the goals can be met, but that it is possible to reconcile them with wider technological, social and environmental changes.”

The UK spends about £100 billion a year on energy, including domestic, transport and industrial use.

View full UK Energy Research Centre report

"Oh Lord, make me carbon-neutral, but not yet.”

If St Augustine were in charge of UK energy policy, he might utter such a prayer. The sheer scale and cost of putting Britain on the path towards zero carbon is only beginning to become apparent.

In its report, published on Thursday, the UK Energy Research Centre suggests that a carbon price signal of £200 a tonne, 15 times the present level, is needed if we are to reach the Government's target of an 80 per cent reduction in CO2 emissions by 2050.

Small wonder, then, that the centre is dismissive of the Government's aspiration of generating a third of electricity from renewables by 2020. That we have barely started — wind accounted for about 1 per cent of power generation last year — is reason enough to be sceptical. What is more important, however, is not whether we match some politically inspired timeline (always just beyond a minister's career horizon) but whether the practical steps that must be taken to get even halfway towards the desired goal are affordable.

Recessions have a way of concentrating minds over the nitty-gritty price tags that must now be stuck on policies dreamt up when we thought we were rolling in clover. We are almost a decade away from 2020. In the energy industry, a decade is the lifespan of one big project.

The notion that Britain has the engineering capacity to build 30 gigawatts of wind power in the time available is fanciful. It is highly doubtful, even after the recent increase in the value of the renewable obligation, that the private sector has the appetite to commit resources to such a gargantuan objective.

More relevant is the rarely asked question whether the public wants the British power industry to undertake this challenge, when the costs are fully understood. If we are to go down this road, we are more or less saying goodbye to a free market in energy. At present, power companies selling electricity generated from nuclear, coal or gas bid their capacity into the grid but must buy a certain amount of wind power — the renewable obligation.

Such a massive increase in wind-generated power is causing headaches for National Grid as it seeks to ensure that all those off-shore turbines have equal access to the system as the power stations sitting close to the economic centres in southeast England. To make matters worse, wind often does not blow, so the investment in expanding the grid is hugely inefficient. On average, wind turbines operate at 20 per cent of capacity, so we still need all those coal and gas power plants to fill the gap on cold, still days.

The solution, suggested by some, is to have a clever system that can prioritise wind. When it blows hard, the proposed 30GW of wind-generated power would become the base load. Every electron from every whirligig would be used — nuclear, coal and oil would pick up the slack.

That would make best use of the resource and it would cut out more carbon, but it would turn the market on its head. Instead of a system that rewards the most efficient and cheapest source of power, we would have a command to buy the most expensive and unreliable. By government diktat, the stuff that powered your fridge would be gold dust, not coal dust.

We can do these things, slowly, but must understand we are doing more than just building windmills. We are moving from a market economy to a planned economy. It will be hard to go back.

To crash an SUV into a Toyota Prius is the ultimate environmental faux pas - and in a memorable episode of The West Wing, the President's adviser, Josh Lyman does just that. He organises a low-carbon summit to atone, but finishes demoralised. His summit participants all find reasons to attack each other instead of uniting around low carbon.

Too often, the energy debate in the UK feels the same. There is a temptation for people to justify opposition to each form of low-carbon power, but the truth is that on grounds of energy security and climate change, we cannot afford this luxury.

Everything we know suggests that there can be no comfort any more in a high-carbon energy policy. If we pursue this course, we risk finding ourselves unable to meet our climate change commitments and facing a more difficult and painful transition to low carbon in a world where prices have been pushed up, by both global demand and agreements to put a price on carbon. And as if that wasn't enough, we would also miss the huge low-carbon industrial opportunity for Britain.

So as well as improving energy efficiency, we need to pursue the trinity of low-carbon technologies: renewables, nuclear and clean fossil fuels. On renewables, we are already the country with the largest offshore wind generation in the world. More capacity is being built. But if we are to win the prize of low-carbon diversity, we need to look at other technologies too: tidal power, solar and wind power on land as well as at sea.

Of course, wind turbines will change the look of parts of our countryside. People are right that wind farms need to go through the proper planning process. But the truth is that the biggest threat to our countryside is not the wind turbine, it is climate change. Biodiversity, our coastline, our land - all are under threat from dangerous climate change.

That is why we need to examine our attitudes to onshore wind. Many local communities are taking a lead, and they should have a stake in local projects. That is why we are introducing a guaranteed price for people to feed locally produced renewable electricity back into the grid.

We also need to take on the arguments that people make about renewable power. To all those who scoff at the idea of wind making a difference, my reply is that last year enough power for all the electricity for two million homes came from wind power.

Similarly on nuclear. It's safe to say that I did not grow up in a household that was enthusiastic about nuclear power. Few people were in the 1970s and 1980s. Energy companies, not taxpayers, should pay the costs of clean-up - and that's now in legislation. But with safeguards on cost and safety in place, I believe, like many others seeing the threat of climate change and the need for a solid base of low-carbon power, that we should support new nuclear energy.

In Scotland, the Nationalists still repeat “no thanks”, refusing to contemplate nuclear and insisting on a one-club energy policy. They are putting roadblocks up to low carbon, even as Scottish voters appear to support new nuclear power.

From some people, however, even those keen on both renewable and nuclear power, the low-carbon power that receives the most scorn is, in fact, the one I believe to be the most important still to be developed: clean coal.

Consider this: the rich world must act first, but that won't stop dangerous climate change unless we help the poorest countries to act too, not to abandon growth but to move from high-carbon growth to low-carbon growth. In China and India, for example, coal provides two thirds of their power, and as their economies grow their coal use grows too. The problem of coal, the most polluting fuel on the planet, is a global one that needs a solution.

Even in the UK, a future without coal would most likely not mean more renewables, nor more nuclear, it would mean more power stations burning imported gas. Energy security comes from diversity, and coal provides an important part of that diversity.

That is why the most important technology the world can develop is the technology to capture carbon emissions and store them permanently deep underground.

Last week I had a surprising exchange on the radio with the leader of the Green Party. Most economists think that government should support R&D, where the market fails. The Greens took the opposite view and said we should leave clean coal to the energy companies alone.

Large, risky, projects, able to help save the planet and seed a whole new potential industry in Britain creating up to 50,000 jobs, cannot be left to the market alone - and that's why we are now going to support up to four big demonstration projects, each one ten times bigger than the largest currently running in the world. There will be a cost to this, but it is far better to prepare now for the low-carbon future, rather than being left behind in a high-cost, high-carbon alternative.

The Government has a role to play too in making sure that while the new technology is developing, the old technologies don't get locked in. That's why I proposed new rules to ensure that no new coal-fired power station can be built without capturing a proportion of its carbon from day one, and 100 per cent of it when the technology is ready.

Back in the fictional West Wing, summit completed, penance done, Josh Lyman took the view that low-carbon technologies “are the future... and they always will be”. Always for the future, never now.

The biggest barrier to preventing climate change is no longer denial, but defeatism: the technologies are at our disposal or within our grasp. In Washington today, President Obama is hosting negotiators from the major economies, preparing for the global summit on climate change in Copenhagen in December. With international co-operation and political will, we can make the shift to low carbon, protect our energy security and make the world safe from dangerous climate change.

Ed Miliband is the Energy and Climate Change Secretary

"All targets and no trousers" seemed to be the gist of the reaction from environmentalists to last week's Budget. Greens welcomed the introduction of new, legally binding, carbon-reduction goals but attacked the lack of a clear road map showing how they could be achieved.

Some applauded policies such as the extra subsidy for offshore wind and investment in building efficiency, but attacked overall funding of £1.4bn as miserly in comparison to the enormity of the climate crisis and recent financial bailouts.

But for those who are more worried about oil depletion, the Budget was utterly hollow. The car scrappage scheme came without efficiency conditions attached, the return to inflation-plus fuel duty increases was welcome but timid compared to the escalator that was killed off by the petrol protests of 2000, and tax breaks for North Sea operators will do little to stem the decline in output. Production has halved since its peak in 1999, and is now dropping at 7 per cent a year, dragging Britain ever deeper into import dependency.

Still less will the Budget improve the global oil outlook. The International Energy Agency forecasts a "supply crunch" early in the next decade, Shell predicts a production plateau from 2015, and the head of the Libyan National Oil Company sees peak oil looming.

In contrast, the big energy announcement of the week looked far bolder. The Energy Secretary, Ed Miliband, said new coal-fired power stations would only be approved if they included a demonstration plant for carbon capture and storage (CCS) from day one, and a commitment by the energy company to retrofit the entire power station once the Environment Agency judged CCS to be technically and commercially proven. This came beside plans to fund four of the new pilot plants through a 2 per cent levy on customers' bills.

The move was welcomed by environmental groups and is an advance on the Government's previous dither in this area. But it is also a spectacular gamble and has three obvious risks.

One, pilot plants will capture only a quarter of new power station emissions .

Two, the technology may not be viable, at least not in time, posing a dilemma in the mid-2020s: whether to close the power stations or sacrifice the climate.

Three, coal may be less abundant than the Government assumes. In 2000, the global coal supply was expected to last 277 years, but by 2006 that had plunged to 140 years as consumption rose and estimates of reserves were revised downwards. One forecasting group predicts peak coal as early as 2025, Mr Miliband's deadline for retrofitting CCS.

The Government seems too timid to confront peak oil publicly, but reckless enough to gamble on potentially unabated coal emissions and the coal supply.

Why not bet on true sustainability: get serious about energy efficiency, renewables, electrification of transport and a European supergrid, and commit the sort of money they have recently been throwing at the banking industry? The stakes are even higher.

The writer is author of The Last Oil Shock: A Survival Guide to the Imminent Extinction of Petroleum man