The Deputy Chairman of Committees (Lord Brougham and Vaux)
My Lords, good afternoon and welcome to the first day in Grand Committee on the Energy Bill. There will be no Divisions, so it will be an uninterrupted session.
Clause 1 : Decarbonisation target range
Amendment 1
Baroness Verma
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)
My Lords, I speak to the government amendments in this group, which I hope noble Lords will welcome. The amendments extend the decarbonisation provisions in Part 1 across the UK so that they cover the Northern Ireland electricity sector. The provisions currently extend only to Great Britain.
As set out in the other place, it has always been the Government’s ambition to extend this policy to Northern Ireland. However, since energy is a transferred matter with respect to Northern Ireland, it was appropriate that we first go through the formal process of seeking agreement from the Northern Ireland Executive. I am pleased to say that we now have this agreement and that they will bring forward a legislative consent Motion in due course.
I will briefly set out the effect of these government amendments and their benefits. Their primary effect is to extend the provisions in Part 1 to the whole of the UK. If and when the power is exercised, there will be a legal requirement on the Secretary of State to ensure that the carbon intensity of electricity generation in the UK as a whole is no greater than the upper end of the decarbonisation target range. This duty is intended to be met through the existing powers of the Secretary of State or through negotiation with Northern Ireland Ministers.
The provisions in Part 1 include a number of ways to ensure that there will be proper and full consideration of the impacts of any decarbonisation target range on the single electricity market, which is the wholesale electricity market operating in Northern Ireland and the Republic of Ireland. For example, Clause 2(2)(f) and (g), with our amendments, require the Secretary of State when setting or amending a target range to consider the impact of any target range on the Northern Ireland energy market and take into account the difference in circumstances between Northern Ireland and the rest of Great Britain.
Furthermore, Clause 4, with our amendments, will require the Secretary of State to consult Northern Ireland Ministers before setting or amending any target range, and if and when making further provision about the definition of grid carbon intensity under the power in Clause 4(4).
These amendments will mean that a decarbonisation target range could be set across the whole of the UK and, as a result, could help to provide greater investor certainty on the long-term trajectory of the electricity sector across the UK as a whole. This would complement our efforts in meeting our legally binding carbon budgets, which are also set for the whole of the UK, and provide further investor certainty as part of the contracts for difference framework which will apply in Northern Ireland.
Alongside other policy measures, this UK-wide decarbonisation target range could help us to meet our existing UK targets cost-effectively, and any targets set by the devolved Administrations, including Northern Ireland’s target of 40% of electricity consumption from renewable sources by 2020.
In brief, these amendments improve the Bill by ensuring that the provisions on decarbonisation extend to the whole of the UK in a manner consistent with the approach taken in the Climate Change Act. On this basis, I beg to move.
Lord Empey
My Lords, I welcome these amendments but want to ask the Minister about a couple of matters. I had responsibility for this area for three years. Long-standing availability contracts signed many years ago constrain the flexibility of the Northern Ireland energy sector. That is one of the issues. We have set ourselves very challenging targets for renewable sources but still need, and will continue to need, large amounts of availability from more traditional generating sources. We have also been encouraging the development of interconnection with the Irish Republic. Not only will that be a positive thing from the point of view of reliability and reinforcement of supply, it will mean that the Irish Republic will have a proportionately larger renewable sector than we are likely to have in the foreseeable future.
There is one technical point on which I would like the Minister to advise the Committee, or perhaps write to us about at some stage, which has arisen in other areas where we have national issues but powers are devolved. Assuming that there will be a legislative consent Motion—which I sincerely hope there will be—there is the issue of the Sewel convention and the Government’s response to that. In recent correspondence with the NIO on other issues, there seems to be a tremendous adherence to it. That effectively means that this Parliament does not wish to overrule or supersede a devolved Administration. It would apply equally to Scotland. We need to bear in mind how that particular issue will be dealt with if we sign up to international obligations, which we may very well do, as we have provisions in the Northern Ireland Act 1988 which mean that Northern Ireland must comply with the international obligations of the United Kingdom. However, if it is not covered by an international obligation, the Secretary of State here may set targets which he or she believes are appropriate for the UK as a whole.
Given that electricity supplies are provided through the private sector, and that there are availability contracts, I want to be assured that the Government will not allow themselves to be hampered by a very narrow implementation of the Sewel convention. We have to have flexibility. This is a hugely important area for our activities. Given that the electricity market in both Scotland and Northern Ireland is comparatively small, one can easily see why people ignore it. However, everybody has to do their bit and we all have to make a contribution. Perhaps the Minister could offer those assurances in her winding up or could write to us at a later stage. I believe that these amendments are positive and I fully support them.
Lord Whitty
My Lords, from these Benches, I, too, support the amendments and much of what the noble Lord, Lord Empey, has said. However, I have some serious queries. I have an amendment in this group—I will not press it because I think it is superseded by the Minister’s amendments—as it seemed to me that the requirement to consult Northern Ireland Ministers was not sufficiently reflected throughout the Bill.
I had better declare a past interest, in that last year I wrote a report on the Northern Ireland energy sector for the Consumer Council over there. It was a very good report and I recommend it to everyone—unfortunately the successor to the noble Lord, Lord Empey, did not entirely agree with it, but there we go. In the course of that, I saw that there were some very different features in the energy situation in Northern Ireland compared to over here. I therefore wonder whether the position is quite as simple as this amendment indicates. It is right that the decarbonisation target should apply to the UK—if the Northern Ireland Ministers and Executive are happy with it, Northern Ireland’s contribution to that can clearly be worked out. At present, as the noble Lord, Lord Empey, said, there is a very ambitious target for renewables in Northern Ireland—40% by 2020, which is far in advance of what we are likely to achieve in GB. On the other hand, there is still oil-fired generating capacity in Northern Ireland, at least partially, so it is a different situation. It is also a very different situation at the consumer end, which is presumably why the consumer regulations in here do not apply to Northern Ireland. Therefore, in relation to Part 1, I am fully in favour of adopting this amendment.
However, I am not entirely clear how the extent provisions in Clause 140, to which the Minister has referred, as regards particularly Part 2, and Part 3, will cover Northern Ireland. Because there is a different structure of electricity supply, it is difficult to see a clear read-across for the contracts for difference, or for that matter the investment contract provisions, with the situation in Northern Ireland. As the noble Lord, Lord Empey, and the Minister have said, there is a wholesale, all-Ireland electricity market for a start, which complicates issues. In relation to the capacity mechanism, it is also true that availability contracts are still outstanding and have been running for years in Northern Ireland and the Republic. In my judgment, consumers in Northern Ireland have probably paid too much for that capacity over the years and are continuing to do so.
It is difficult to see how the contracts for difference mechanism will apply there if we have an all-Ireland market and capacity which is differentially based in terms of existing capacity and ability to roll on existing capacity. Obviously, future new capacity would be available on an all-Ireland basis. Therefore, I find it difficult to understand quite how the mechanisms for contracts for difference would operate in Northern Ireland. I should be grateful if the Minister could get her officials, with the agreement of her Northern Ireland counterparts, to set out how she sees that working. For example, we are now talking about one counterparty but we have a different regulatory system in Ireland. I cannot really see how one counterparty can operate in the Northern Ireland context.
There are issues in relation to interconnection and contracts for difference can be for capacity which is not in GB. You could have wind farms in the Irish midlands or French nuclear power stations involved in the contracts for difference. But I do not think that that is what is meant in terms of using Part 2 to cover the Northern Ireland electricity market. I am not against trying to apply the same principles and I am very much in favour of the precise amendment which relates to the decarbonisation target. However, I feel that the totality of the position in Northern Ireland is much more complicated than simply writing in the Bill that Part 2 extends to Northern Ireland.
No doubt these things are still under discussion between London and Belfast. I suspect that quite a lot of details have to be sorted out and a number of legislative moves have to be made in the Assembly and here. But, given that this is early on in the debate and that we have the opportunity to register it, I register it now and will not repeat it as we go through the rest of the Bill. Perhaps the Minister and her officials could set this out clearly so that by the time we come to Report we understand the totality of the position.
Baroness Verma
My Lords, I am grateful for the noble Lord’s warm welcome of this amendment. I am very keen to make sure that we lay out clearly that this is work in progress. We are working very closely with the Northern Ireland Executive on these provisions to ensure that we cover the differences associated with their single electricity market and that we take account of that. We will continue to work with Ministers in Northern Ireland to ensure that those decisions applying to strike prices in Northern Ireland are on a coherent basis with what we are trying to deliver in the rest of Great Britain.
On the whole, the amendment in the name of the noble Lord, Lord Whitty, is very similar to mine and I am pleased to take on board that he broadly welcomes what we are trying to do. Of course, there will be intense discussions but, in putting these amendments forward, we have a wider picture to fulfil, which is to make sure that what we are doing is UK-based. On that note, I hope that the noble Lord will not move his amendment.
Lord Davies of Stamford
Will the Minister answer the very pertinent question asked by my noble friend Lord Whitty as to whether the contracts for differences regime will apply to generators in France or in the Republic of Ireland?
Baroness Verma
My Lords, I shall write to the noble Lord on that and make the letter available to Members of the Committee.
Lord Empey
My Lords, if the Minister is not in a position to address today my point on the Sewel convention, can she write to us on that and on any issues which it might create with regard to the Bill?
Baroness Verma
My Lords, energy policy is transferred in relation to Northern Ireland. Therefore, it is right that we should seek the agreement of the Northern Ireland Executive before making these amendments. We have sought their agreement in order to fulfil our obligations under the Sewel convention. I hope that that satisfies the noble Lord, Lord Empey.
Lord Empey
My Lords, I understand what the Minister says, but we have had a case recently where the National Crime Agency has been refused permission effectively to function in Northern Ireland. Ministers have said to me in correspondence that, because of the Sewel convention, they would not intervene. There is a fundamental contradiction in amending the territorial extent of a piece of legislation and then saying, “Well, if people aren’t prepared to do it, we’re not going to do anything about it”. Perhaps we could come back to this on Report, because there is a contradiction there which needs to be resolved.
Baroness Verma
My Lords, I am quite happy to take away the noble Lord’s concerns and, I hope, respond to him in writing.
Baroness Liddell of Coatdyke
Perhaps I may raise a tangential point that came to mind when my noble friend Lord Whitty was speaking about interconnectivity. There is a possibility of a large offshore wind farm being built in the Irish Sea. Would there be difference in the contracts related to where the energy was used; for example, whether it went to the Republic or Northern Ireland, then to be shipped to Great Britain, or operated in the other direction? I do not expect an answer just now—I have only just thought of the question—but I hope that when the Minister writes to Members of the Committee she might take a look at that issue.
Baroness Verma
Rather than give a brief response to that, I would prefer to give a more detailed one. On international eligibility, I refer noble Lords to the Government’s response of 27 June to the call for evidence on renewables trading. Final decisions will be made at the end of the year and will be set out in a public document.
Lord Oxburgh
Lord Oxburgh
My Lords, I shall speak also to Amendments 3, 4, 6, 9 and 14. I begin by declaring my interests as listed in the register, but with a small renewable energy company and a small energy efficiency company. It would also be appropriate to start by thanking the Minister and her team for the way in which they have made themselves available to brief any Member of the Committee who has approached them on the complexities of the Bill. It certainly is a complex Bill and, indeed, that is part of the problem. The complexity of the Bill arises from the multiplicity of its objectives, which are to achieve decarbonisation, to achieve energy security and to do both of those at the lowest possible cost.
Some of us had the opportunity yesterday, courtesy of the noble Viscount, Lord Ridley, to attend a briefing given by an investment manager on his view of the costs and complexity of the Bill. Although I think that not everyone agreed with everything that the briefer said, the talk was extremely informative in the sense that it emphasised the enormous capital that will have to be raised if the aspirations of the Government, as seen through the climate change committee, are to be achieved over the next 40 or so years. It also emphasised the relative unattractiveness of the UK utilities market compared with those in competitor countries and therefore the difficulty in persuading investors to put money into these proposals.
Of course, one of the problems is that the proposed way forward cannot be regarded as the cheapest way forward. In fact, it is relatively expensive by comparison with ways forward that do not decarbonise and which pay much less attention to security of supply. Given that investments in generation are long-term investments, for 30, 40 or even 50 years, investors have to be absolutely clear that the Government are of firm intent.
It was around 50 years ago that the late Lord Franks, in describing the inability of Oxford University to reform itself internally, introduced the expression “infirmity of purpose”, which occurred frequently throughout his reports. Fundamentally, the concerns of the investment community are that there may be a degree of infirmity of purpose between this Government and their successor Governments. Given the overall difficulty of investing in UK utilities, for the reasons that I have just outlined, the least we can do is to do everything possible to indicate that not only the present Government but, as far as possible, across parties, that subsequent Governments will support this approach.
That is the reason for putting forward this group of amendments. Because of the drafting of the Bill, they may appear a little complicated, but there are really only a couple of words that are important: the substitution of “must” for “may” in terms of the obligations of Ministers to declare a target range; and the insertion of the dates 2030 and 2014.
The obvious cause for inserting 2030 is that, although in one sense it is arbitrary, it is an extremely important date in the Government’s decarbonisation plans: if the 2050 target is to be achieved, there has to be really very substantial decarbonisation of electricity generation by 2030 because the second phase of achieving the 2050 target is pervasive electrification of the rest of the energy economy. Unless you have decarbonised your electricity generation before that, the second phase makes no sense. This is part of the reason for 2030 but it is also a matter of emphasising the Government’s firmity of purpose.
The reason for inserting 2014 relates, at least in part, to a second objective, which comes from Brussels and has to do with the proportion of renewables that we need to have in our generation by 2020. To digress for a moment, last week I spent several days reverting to my roots at an energy professionals’ conference in Edinburgh. Although shale gas was a very important topic of conversation there—probably the most important—a secondary topic of conversation was the failure of Governments to understand how long things take, to understand the timescales of change. One constructor said to me, “It’s fine. We can build a power station in three years, or put up wind turbines very quickly, provided we have all the components ready”. He said that the Government seemed not to understand the importance of the supply chain. An important development that may appear quick to implement may be delayed for several years if key components such as bearings are not available in the necessary timescale. The message was that if the 2020 target is to be achieved, it is extremely important that that should be made clear now, as soon as possible, so that those who will be involved in achieving it can start placing orders and can take their place in the queue for components to get the thing going. Two years’ delay would be extremely important. My second point is that if one leaves this to the last few years of the decade, there simply will not be enough civil engineering capacity to build the requisite generating capacity, whatever its character, in time.
Clearly there are broader questions of industrial competitiveness, which certainly have bothered me a lot. However, I will not touch on them now because amendments that we will debate later will provide a better opportunity to discuss them. So in conclusion, the only important point is that we cannot take investment in our energy sector for granted. It will be difficult, and we have to do everything we can to strengthen investor confidence. The amendments in this group do nothing other than strengthen that confidence, and there is no significant downside, given that the information that will be necessary for the Government to meet these commitments will be available to them by December this year. I beg to move.
Viscount Hanworth
My Lords, I strongly support the amendments tabled by the noble Lord, Lord Oxburgh. Amendments 2 and 6 are of prime importance. The Bill prevents the Secretary of State setting a carbon intensity target for the electricity industry before 2016, which is when the UK’s fifth carbon budget is due to be set. It states that the Secretary of State may set a target but does not compel him to do so. If he were to set a target, the earliest date from which the target range would be effective would be 2030. The amendments tabled by the noble Lord, Lord Oxburgh, would compel the Secretary of State to set a target by 1 April 2014. Here, we are revisiting territory that has already been fought over on Report in the House of Commons. An amendment with the same intentions and similar wording to the one we are considering was proposed by a cross-party alliance consisting of a Conservative ex-Minister, Tim Yeo, and the Labour MP Barry Gardiner. The outcome, after a long debate, was that the amendment was disagreed by 290 votes to 267. However, for the coalition it was a whipped vote, and it is clear that numerous Liberal Democrats, and quite a few Conservatives, defied the whip by voting in favour of the amendment. We may surmise, therefore, that a majority was in favour of the amendment, but that the expression of their opinions was limited by the imposition of the whip. One might wonder why the leaders of the Liberal Democrats agreed to the imposition of the whip. We must assume that it was a matter of political expediency, and that a quid pro quo was on offer.
Lord Jenkin of Roding
My Lords, I have listened to the two speeches on this with great interest. It is with some anxiety that I confess to differing from the view of the noble Lord, Lord Oxburgh. The intention is, as both speakers have said, to oblige the Government to declare the decarbonisation target for 2030 next year. In quarrelling with the proposals in this amendment, I make it clear that I entirely accept the scientific evidence on dealing with the long-term emissions of greenhouse gases. The evidence is overwhelming, it is accepted by the vast majority of scientists and one has to realise that it is part of the background of what we are considering. I wish that some of those who were putting it forward were a little more honest about the areas of uncertainty that still exist; nevertheless the evidence of the growing concentration of greenhouse gases in the atmosphere is compelling.
I believe that the origin of the proposal embodied in this amendment is a letter last February from the chairman of the climate change committee, the noble Lord, Lord Deben, to the Secretary of State, Ed Davey. It is a complicated letter which I do not propose to read. I would say only that the noble Lord, Lord Deben, was at one time my Parliamentary Private Secretary, and I am proud to see him rise to such dizzy heights. However, he made the same case as the noble Lord, Lord Oxburgh: that to fix the level would give greater certainty to investors. I think that many of my colleagues know that I do my best to keep in touch with a large numbers of the players in the energy field—I call it cultivating my sources. It often gives one a more accurate view of the likely implications of carrying through this policy, because many of these players are among those who will actually have to do it. Only one group has approached me on this matter: the representative body, RenewableUK. All I can say is: I understand why, but they would, wouldn’t they? None of the others has made any reference to this issue, and I think the argument about giving greater certainty to investors is being overplayed.
It is clear that all parties, with some notable exceptions in this Grand Committee, have accepted the case for long-term decarbonisation in order to avoid the hazards of climate change. However, it should be possible to hold to that, and to convince the players of that, without necessarily going to this rather damaging intermediate step. The noble Lord, Lord Oxburgh, referred to the three objectives—and I was present at the lecture which he attended last night—of security, carbon reduction and affordability. In the brief I received from the Energy Networks Association, it was called the “energy trilemma”, a phrase I like. It is the Government’s job to try to balance those three objectives, because it is becoming clear that they cannot all be achieved, whatever the Secretary of State may have said in his press release last week.
For my part, the question of security of supply has to take top place. At the moment, the burden of all these things is falling primarily on consumers. As we were told last night, the purpose of much of the policy in this Bill, and of the Government’s policy generally, is to shift the risk from producers to consumers, and one is seeing the result in electricity bills. The Government’s Fuel Poverty Advisory Group, with which I have been in touch, estimates that the social and environmental costs per customer will rise from about £90 per annum to £220 per annum by 2020. If one takes that into account with other energy costs facing households, I submit that this is quite early on becoming quite unsustainable. The burden falling on customers really cannot be tolerated. I notice that the noble Lord, Lord Turnbull, in an article in House Magazine, made much the same point and was surprised that elements of the coalition seemed prepared to go along with it. I understand the point that he is making. However, not only domestic customers, but businesses are increasingly complaining about being hit by rising costs of energy for industrial and commercial users.
Therefore, I ask myself whether the Government have got the balance wrong. Is balancing out these three objectives sustainable? As I have said, my top priority is energy security, which is often expressed in the phrase, “keeping the lights on”. But it is far more than that. We now live in a civilisation that has become almost wholly dependent on electricity for almost everything that goes on. The consequences of any significant interruption of supply create enormous hazards for every part of the community, which, to my mind, has to be avoided. We really must have a secure and dependable electricity supply. In passing, one has to note that last week’s Electricity Capacity Assessment Report by Ofgem indicated,
“that margins will decrease to potentially historically low levels in the middle of the decade and that the risk of electricity customer disconnections will appreciably increase, albeit from near-zero levels”.
This is not the occasion to explore the reasons for that or how it has come to pass but simply to note the fact. I was the Minister for Energy in 1974 when the country faced widespread disconnections, not for want of capacity but because of industrial action. Whatever the reason, I have to tell my colleagues that it caused acute embarrassment to the authorities, of which I suppose I was one, and resulted in the loss of the general election that immediately followed. We have to recognise that that is an essential feature.
If the rising burdens for consumers are, as I believe, becoming increasingly unsustainable, and if we fail to give adequate priority to ensuring security, something will give. To my mind, in the present circumstances and, I emphasise, in the short term—not as part of a long-term policy—what must give is the current, very rapid and expensive priority accorded to fighting climate change. If we insist on setting ourselves ever higher carbon reduction targets to be fixed by law for many years ahead, are we not simply locking ourselves into the present unsustainable balance?
As I have said, I do not challenge the longer-term policy on climate change. But we face the choice now either to require, as the amendment proposes, the Government to fix the decarbonisation target for 17 years ahead or, as the Bill stands, to allow Ministers to set the target three years from now after the climate change committee has given advice on the fifth carbon target and in the light of the circumstances at the time. The Government must be allowed the flexibility to do that. That is what the Bill provides in its present form. Not least must they take account of the impact on consumers’ bills.
Lord Oxburgh
Perhaps I might ask the noble Lord whether the provisions of the Climate Change Act and in the present Bill that allow Ministers to change targets and adjust things in the light of changed circumstances are not sufficient to meet the real questions that he has raised.
Lord Jenkin of Roding
I can only reply that if the noble Lord thinks that that is all that is necessary, I cannot think why he has moved the amendment. He is quite right. The committee of my noble friend Lord Deben recommends but does not decide. It is the Government who decide. As I said a moment ago, I want to leave the Government with the flexibility to make decisions in the light of the latest circumstances. However, at the moment the customer is bearing all the risk, and this is unsustainable.
Lord Davies of Stamford
I regret that I was not able to follow very clearly the logic of the remarks of the noble Lord, Lord Jenkin. He seemed at times to be saying that he was in favour of the decarbonisation target and at other moments that the target placed intolerable burdens on the economy. Of course a balance has to be struck, but he did not produce any arguments at all to suggest that, if a decision is simply postponed, we will be better able to get the balance right.
I was particularly surprised that the noble Lord said that of course it is important to give investors certainty but that that argument had been overused. However, he did not deny the validity of the argument. He then said that there was a contradiction between the need to provide investor certainty, the need to provide security of supply and the need to protect consumers’ interests. There is no contradiction at all. It is very much the opposite way around. If one reduces the uncertainty to investors, one reduces the cost of capital and one will see more investment projects approved. One will therefore have greater capacity and greater security of supply.
Equally, if we have greater capacity because there is less uncertainty and because the cost of capital is lower, we will have lower prices. Therefore, consumer interests will be better preserved. Far from there being a contradiction between these considerations, it is extremely important for consumer interests and security of supply that we provide the maximum degree of investor certainty.
Here, I am mystified by what game the Government are playing. The purpose of the Bill, as presented in public up to now, is to provide a framework for investors, and the maximum degree of investor certainty. If they want to do that—it is of course a very sensible purpose to have in mind—why did they introduce into the Bill elements of gratuitous uncertainty that are being addressed by the amendments before us? Why say in one subsection that the Secretary of State must ensure that any decarbonisation target is respected, and in the very next subsection place doubt on whether or not there even will be a decarbonisation target, saying that,
“the Secretary of State may by order”,
instead of “must”? Why are the Government resisting “must”? It is not clear to me at all.
Equally, with regard to the dates, why say that a decarbonisation target may not be set for 2030, leaving open the possibility that there would not be a decarbonisation target even as late as that? Under this Bill, a decarbonisation target cannot be set before 2030 but it does not have to be set by 2030. Again, that is a deficiency that is remedied by the amendments before us. What is the purpose of this Bill if it is not to maximise, within the range of all reasonable practicality, clarity and certainty for investors? If the Government are intending to do that, why in the name of heaven have they gratuitously introduced these elements of uncertainty? It is completely unclear to me what they are doing.
The issue of whether the decarbonisation target should be set for 2014 or 2016 is not quite so important. If that amendment is pressed, I shall probably vote for it, but there could be arguments for waiting until 2016, partly to get the benefit of the advice of the Committee on Climate Change but more especially because there may be a chance of getting EU agreement on a decarbonisation target by that point. It would not be sensible to legislate for a precise figure before we knew whether or not there was a real prospect of getting such agreement, which would be highly desirable.
However, by the same token, anything that contributes to investor certainty contributes to the achievement of those two other objectives: greater security of supply and, ultimately, lower prices for the consumer. The Government really ought to look again at these amendments and I hope that here in the Lords they will accept them.
Lord Stephen
My Lords, I want to follow up on some of the comments made by the noble Lord, Lord Davies, because I think they were important. I refer to my entry in the Register of Lords’ Interests. I support the noble Lord, Lord Oxburgh, in his Amendments 2, 3 and 4 and will also speak to my Amendment 7. Amendment 7 explores the issue of the date and whether it should be 2014 or 2016.
First, it is very important that there is now a decarbonisation section of this Bill. Noble Lords should remember that when this draft Bill was first published, there was no decarbonisation section, so it is a very important shift. It sends out a very powerful message to the industry and those who are concerned about climate change that the United Kingdom is not only concerned about this issue but wants to be leading the argument in favour of decarbonisation and decarbonisation targets. It was a very considerable success for the new Secretary of State, Ed Davey, to have agreed the insertion of this decarbonisation section.
Coming from Scotland, I am very interested in the politics of coalition. The noble Viscount, Lord Hanworth, referred to this earlier. I was in government for eight years in Scotland in a coalition with the Labour Party. I must say, I smiled a little when I heard criticism being made of whipped votes, and the idea that the Labour Party would ever play any of these devilish games made me reflect on some of the very tough and difficult negotiations that I was involved with in Scotland, some of them on energy matters. When we reached an agreement, it was important that we were able to deliver that vote in the Parliament. I think every politician here understands that principle, as do the Cross-Benchers.
In the United Kingdom, we are still relatively new to coalition politics and we should be open about it. We should try to explain more often and more clearly some of the negotiations and difficulties involved in reaching agreement. One way to find the areas of greatest difficulty is to look at the wording. When you see more words, or more complex wording, on a particular issue, you know that there has been tough coalition discussion—that is probably the safest way to describe it.
Here, you see the extraordinary sight of us introducing a decarbonisation section, but some of the wording is really quite complex, most clearly in Clause 1(5), where we are trying to fix a date. It states:
“The earliest year in relation to which a decarbonisation target range may be set is 2030”.
That is pretty straightforward and simple, but the next bit is not, stating that,
“the first decarbonisation order may not be made before the date on which the carbon budget for the budgetary period which includes the year 2030 is set by virtue of the duty of the Secretary of State under section 4(2)(b) of the Climate Change Act 2008”.
I am particularly curious about the words “may not be made”, because, as the noble Lord, Lord Jenkin, said, this should be about flexibility and empowering. Why, then, are we saying that the decision “may not be made” until after 2016? Why not give flexibility to the Secretary of State? I suspect that it is because there was a difficulty in the negotiations. A lot that was achieved by Ed Davey, the Secretary of State, is in the Bill, but not everything. That is no secret; there has been quite a lot in the media about how difficult the negotiation has been. In fact, the negotiation involved delay and a lack of clarity, and some really quite central issues to do with the support to be given to the renewables sector were thrashed out between the Conservative side and Liberal Democrat side of the Government. All that pushed the Bill back and it led to criticism.
In this area, therefore, it is clear to me that some sort of compromise was pulled together. I do not say that in a derogatory way—compromise is the very essence of reaching agreement in coalition—but it left us with the possibility of delay in introducing a decarbonisation target. The noble Lord, Lord Davies, correctly pointed out that that is not the most concerning aspect, but there is also the fact that the whole of the first part of Bill, which is on decarbonisation, effectively becomes optional. That is the greatest concern that I have as a Liberal Democrat. Looking at the negotiations and wondering about how these compromises were reached, I am left hanging on to the belief that this important decarbonisation part of the Bill should not be left optional.
I support the amendments in the name of the noble Lord, Lord Oxburgh. I would be very happy if a decarbonisation target was set in 2014, but I would not die in a ditch over it; I would be prepared to see a later date. There are good reasons, to do with the European Union and the report from the committee, why 2016 could be a reasonable date. By tabling Amendment 7, I wanted to test the view of Parliament on all this—not today obviously; today, I just want to put the argument out there. The amendment states:
“A decarbonisation order must be made by 31 December 2016”.
That does not prevent an order being made next week—it could be 2014; it could be sooner—but it gives reasonable flexibility to the Secretary of State and allows confidence to be given to the industry that we are serious about this Part 1 and about decarbonisation.
That is what industry is looking for. I was very influenced by the comments of the noble Lord, Lord Kerr, at Second Reading. He was quite right in what he said about industry in the United Kingdom. I think that ScottishPower, SSE and a number of companies that are based here would be relatively relaxed about the date being fixed in 2016. However, overseas investors such as Gamesa, Siemens, Mitsubishi and Samsung which are making commitments to this country, are looking all the time at how this is playing out in the media. They are getting briefings and reports back and are looking at what the renewables sector, the Government and parliamentarians are saying. This issue now has a very high profile. I go out of my way to explain that the decarbonisation target is not some totemic issue that is absolutely central to the Energy Bill. It was bought in at the initiative of the Secretary of State to try to strengthen the Bill. It can be a very important part of the Bill but I do not think that it should be used as some sort of battering ram to undermine its foundations which relate to the contracts for difference, the balancing payments and so on. The important message that we have to get out to the industry not only in the UK but throughout the world is that we are serious about moving forward the renewables sector, we want to move to this new system as quickly as possible and that there has already been too much delay.
Lord Turnbull
My Lords, as noble Lords may be aware, I have strong reservations about the Bill but on this issue I side with the Government. The agenda to which we are working had its genesis 10 to 15 years ago when continued growth in the world seemed secure, real incomes were rising, global temperatures were tracking quite closely the rise of CO2, which is not the case today, when there was optimism about an international agreement, public money to fund the expansion of renewables was plentiful and peak oil was pretty much a received wisdom. None of that is true today. Indeed, the world is still in a state of flux. Therefore, a moratorium on specifying new commitments seems a sensible response.
The noble Lord, Lord Oxburgh, referred to infirmity of purpose. Some would say that there is such infirmity, partly for the reasons given by the noble Lord, Lord Stephen, partly because the world is uncertain, but, principally, because the Government have not yet made up their mind on how to resolve the trade-off between conflicting objectives. Until they do that, they cannot make this commitment sensibly.
We have impaled ourselves on a set of targets and timescales that are forcing us in desperation to undertake a number of responses that we could avoid if we had a more measured view of the sense of urgency. It is a truism that in commercial negotiations, the party with the deadline is the one in a weak position, yet we are engaged in probably the biggest commercial negotiation the Government have ever undertaken, with a variety of energy suppliers. We should not allow them to exploit this urgency, which is what is happening at the moment. For those reasons, the Government—not just out of political funk but for good reasons—are delaying the timing of these commitments.
Lord Howell of Guildford
My Lords, I apologise to colleagues and to the Minister for not being at Second Reading. I had inescapable commitments elsewhere. I declare my interests as president of the Energy Industries Council, in succession to my noble friend Lord Jenkin, whose superb speech we have just heard, president of the British Industry of Energy Economics, chairman of the Windsor Energy Group and as an adviser to Mitsubishi Electric. I apologise also for the fact that I appear to be sitting on the wrong side of the Committee. The truth is, I strongly oppose the amendment and believe that it is completely wrongheaded, but I am not over the moon about the Government’s policy, either—so perhaps I am sitting in roughly the right place.
The noble Lord, Lord Oxburgh, is a very wise man with whom I usually agree on everything. However, in this case I do not agree with him. He said that this is a very complex Bill. Of course, there is a mass of interventionist detail in it, a great deal of which will never work, but the basic aim is quite simple. It is to get investment in new plant as quickly as possible, and get plant of one sort or another up and working before we have serious interruptions, given that we are closing other plants at a great rate for all sorts of reasons, not least to do with EU directives. The noble Lord said clearly that if we put this additional target definitely in place by 2014, rather than perhaps in place later, we will overcome infirmity of purpose. I can only offer my experience. It may sound cynical, but I have been in and out of government over a long time, so perhaps it is the same thing. Targets do not do that.
In some of the ministries in which I served—I hope that this does not sound too awful—the saying was that targets were set to be missed. They are not an inspiration, and a lot of shrewd investors and financiers know perfectly well that if they put too much faith in targets, they will be wrong-footed. What they should watch of course is technology. I advise both the Committee and the Government to do as much as they can to put their faith in technology and to back every kind of technological advance, because technology rather than targets will deliver the objectives that most of us want, including decarbonisation, affordability, security of supply and so on.
When I see the suggestion that we should put another target into the pattern—an early one, at that—on top of the targets for 2050, and for 2020 for renewables, which we are stuck with the moment, I worry that I am seeing yet another example of a rather dreadful trend, which is to rush at decarbonisation much too fast. It is all question of pace and politics. While I am as anxious as the next man to see a greener, cleaner world, and while I accept the horrors of global warming, whether or not their cause is scientifically established, the rush and overambition of the Committee on Climate Change, of the recommendations and of the zealots will upset our targets and ensure that we do not get the decarbonisation that we need. It is going to distort decisions and undermine the green cause. It will lead us to absurd situations towards which we are rapidly heading now, where we are actually burning more coal and not less, the opposite of what we want, and where we are getting, as my noble friend Lord Jenkin has rightly said, eye-watering price increases and minimum prices fixed for years ahead to encourage renewables. So much for lower prices—there are not going to be lower prices. Households are now paying average prices twice as high as they were paying five years ago, and some forecasts—perhaps too gloomy—are saying they will be paying two or three times as much as that by the mid-2020s.
Baroness Worthington
Does the noble Lord agree that it is quite clear the reason for those price increases is the high price of gas?
Lord Howell of Guildford
No, I would not agree at all. I look at my bill, and I do not know whether the noble Baroness has looked at hers recently, and find that 20% stuck on the bill as a result of green policies and green taxes. It may be that gas contract prices have been rising, but spot prices, and indeed some contracts around the world, have been falling. The noble Baroness knows well that in the United States, for very special reasons which may become global reasons, the price of gas is about a quarter of what it is here. So I do not agree with that proposition, and would certainly disagree with it even more in the future.
Baroness Worthington
Will the noble Lord therefore explain why gas bills have been rising when they do not carry any of the costs of the renewables obligations, as on electricity? There is very clear evidence in the public domain that up to two-thirds of the increase in prices is because of the underlying price of gas.
Lord Howell of Guildford
Obviously the bulk of a market price is the price at which gas is purchased: either contract or spot. However, if the noble Baroness is asking me to agree with the proposition that gas prices are now, or will be be, the driving force in raising prices, and that we should ignore the additional pace at which extra costs are placed on the consumer, I am afraid I cannot. The consumer is paying more. Energy prices in this country—I do not want to wander off the amendment too far—are very high, almost as high as in Germany. This is not good for our industry, and the pace at which people can be asked—it is a question of pace, not principle—to bear additional costs, particularly poor families, has to be handled with great care and calibration by policy makers.
That is why this idea of targets represents a danger, encouraging more over-ambition and more speedy decisions which distort incentives. Furthermore, technology is changing all the time, and all kinds of developments can take place which wrongfoot those who have established targets for years ahead. I know about that because in the 1970s and 1980s I was the Energy Secretary, and we launched a huge programme looking 50 years ahead for replacing our nuclear fleet, which, if we had done it, would have saved a lot of problems today. Although we announced that we were going to have nine new pressurised water reactors by 1990, we only actually built one. Today, those reactors would have been built and would be working excellently, producing low-carbon electricity. Alas, that did not happen.
So if the aim of this amendment is to bring greater firmity of purpose, and to reduce infirmity of purpose, it is not going to succeed. The aim of the Bill is to get more investment and to get the investors putting their money into new machinery, whether it is renewable, nuclear or gas turbines. That investment is not coming forward. It is not happening, and if people say it is about to happen, I have to ask—and this is where I am going to sound disloyal to the Government—why are Ministers rushing around talking about de-mothballing existing plant to fill likely gaps in our power supply in the next few years? Why is the National Grid talking about interruptible contracts? These are very frightening things. These are not going to increase certainty; they are vastly decreasing certainty. The oil companies and energy companies that come to me are not at all impressed by this Bill. They do not believe that it will create the investment certainty they need and they wonder when the politicians are going to show more finesse and care, and when the proponents of green energy, of which I am certainly one, are going to show more sense of pace in pushing forward these issues.
If we continue at the present rate, if we continue to install targets that apparently commit Governments—but of course time passes and they change—and if we continue to believe in targets driving investment and pricing decisions, we will create precisely the kind of political backlash that we now have. We will see poorer performance on CO2 than other countries that avoid all these sorts of targets, such as the United States, which has a brilliant performance on CO2. We are going to see less security, less affordability and more damage to our country, its competitiveness and, above all, the poorest families in the land. These targets are not only undesirable but dangerous and I very strongly oppose them.
Lord O'Neill of Clackmannan
My Lords, in his meandering tour d’horizon, the noble Lord, Lord Jenkin, said that the only approach he had had in support of this amendment was from the renewables lobby. I have certain misgivings about renewables, as I stated at Second Reading, but there is a degree of oversimplicity in the approach that a number of people have taken towards this amendment. The blanket opposition to almost all kinds of targets that we have just heard from the noble Lord, Lord Howell, is symptomatic of this condition.
This amendment does not suggest that the target will require nuclear power stations to be built tomorrow. Some of us would like them to be built today—yesterday, in fact—but that is not a possibility. But there are a number of small and medium-sized projects, about which there is probably greater investor uncertainty because of their size and disparate character, which would take encouragement and reassurance from amendments of this kind. Rather than the somewhat cautious approach of the noble Lord, Lord Stephen, I think that the dates suggested by the noble Lord, Lord Oxburgh, are more realistic.
We are grateful to the noble Lord, Lord Stephen, for his insight into how coalitions work. Certainly, as far as decarbonisation is concerned, it seems that the bus has set off on the way to Damascus. What some of us want is for it to arrive there. One of the sure signs that it would be at least within the environs of that city would be if we were to get acceptance of this amendment and an early possible date. There are dangers in targets at times but on this occasion this is a nudge—not a massive shove—in the right direction. It would be a very significant amendment if it were carried on Report—I know that none of these amendments is going to be pushed to a vote at this stage.
In summary, we are not considering all forms of generation and all projects as being triggered by an amendment of this kind. We are saying that a number of small-scale investments would be given a significant push if there were to be appropriate targets within a reasonable timescale. These amendments meet both those objectives. We could remove a degree of uncertainty. I do not think that we are going to get security of supply from these targets today, or a massive degree of decarbonisation, but we will get some. If we get a bit more security of supply, perhaps we will get a degree of affordability.
A lot of pious nonsense is spoken about affordability and security of supply. For the fuel poor, there is no security of supply because they cannot afford to pay for it. They self-disconnect and do not use it—they have to make very difficult choices. We need far more radical measures than this modest amendment to try to secure objectives of that character. However, for the purposes of the moment, this is an appropriate and sensible amendment to start the passage of the Bill in this House. If we were to get a broad spread of consensus at this stage, we could hopefully look to going into the Chamber and securing the kind of majority that a modest amendment of this character merits and deserves.
Lord Deben
My Lords, it gives me some concern to disagree with both my former Secretary of State—for whom I was a loyal and, I hope, reasonably efficient PPS—and my former Permanent Secretary, both of whom have spoken against this amendment. I always find these discussions difficult, because people move to extremes, and I hope that your Lordships will not mind me suggesting that there have been some examples of that today. The reason why the climate change committee advised that there should be such an interim target is that, by law, we are charged with ensuring that we meet the statutory target of reducing our emissions by 80% from 1990 by 2050. That is a statutory provision.
At the moment, we face a situation in which business has certainty up to 2020 and has it again in 2050. I declare an interest as a chairman of the climate change committee and, although I do not have business interests in the areas that we are talking about, I have had them in the past. The reality is that business needs to feel that there is a continuing mood, so that if it invests now it will be secure at least from government vacillation. No business can be assured of everything else—all kinds of things can happen in these circumstances—but the one thing that makes this very difficult is the natural fact of government intervention. My noble friend talked about the interventionist nature of the Bill. The real problem with the subject that we are dealing with is that it is necessary to have some intervention. The argument is in large part about how much.
As to whether industry needs this, we had the powerful suggestion from my noble friend Lord Jenkin that industry did not want it except for the renewables. I have a list here of 50 major companies, including Scottish and Southern, EDF, Alstom, Doosan, Mitsubishi, Siemens—I could go on—all of which have specifically asked for this because they are concerned not only about their own investment but about the supply chain. We are pressing this not because of climate change but in order to get the benefit of what the UK is doing because of climate change. If you do not do this, all the money that we are going to spend—£7.5 billion—between now and 2020 in order to begin the decarbonisation of our electricity supply is imperilled, in the sense that the businesses that should grow and produce will not come here if they feel that there is no certainty beyond that. My noble friend Lord Jenkin said that it was all very difficult and we ought to put it off. My problem with that is that climate change does not wait until we find it convenient to meet the problems. Every year we put it off, the cost is greater and the problem is bigger. We have to take that into account when making these decisions.
We also have to recognise a serious new factor, which is the reverse of what used to be true. It used to be thought that Britain was in the vanguard. We had this wonderful Bill and we were doing all this, and other people were not. Anyone who looks at the GLOBE International report, produced with the London School of Economics—and I declare an interest as the president of GLOBE—will see that over the last year some 30 countries are now embarking on serious investment in this area. So we are now competing with other countries that are also seeking this investment.
The problem for the British Government is that, however much they talk about these issues, around these tables today are others who keep on saying, “Well, it is not going to be like that”. Every newspaper throughout the rest of the world repeats the comments of the climate change dismissers, who are always suggesting that just around the corner all this nonsense will stop and we will go back to business as usual.
The trouble with that is that people will go to countries to invest where that is not the case and where Governments have given long-term assurances. We need therefore to take this fact seriously for the British economy and for the green jobs that we have sought to create. This is why I think that the Government have been mistaken in doing this and why I have some sympathy with this proposal, although of course I have no inside knowledge of the kind produced by the noble Lord, Lord Stephen, as to what may have led to this decision.
Then we have the question of the cost to the consumer. When the newspapers see a rapidly rising cost of energy, they do two things. First, they want an easy answer as to why that is happening, particularly one that they think they might be able to affect. Secondly, they will not think ahead as to whether this is going to go on and what we do as far as the future is concerned.
I suggest to your Lordships that the biggest problem of the cost is actually the basic cost. It is true that gas prices have risen—that is much the biggest amount. The additional cost to the average family in Britain at the moment from our green measures is £60 a year. It will rise to £100 a year in 2020. If we do what is suggested and set a carbon-intensity target, the bills for the average consumer—as far as we can do this work; we have to rely on the best evidence that we have—will between 2020 and 2030 have risen by £20 more than they would have done. After that, of course, because electricity will have been decarbonised, private energy costs will fall significantly.
We ought to keep this in some sort of proportion, rather than blaming all the rises on the fact that we have what is actually a limited cost. That cost is, in my view, a cost of insurance. I am sorry to repeat it—I have said it before because I think it is important—but there is not a Member of your Lordships’ House who does not insure his home against fire. Yet there is a 99.8% chance of that house not burning down. That insurance costs £140 a year. That is more than twice what we are charging as a nation for people to protect themselves in the future.
The insurance cost that we are talking about is sensible and it insures us against three things: it insures us against dangerous climate change; it helps to ensure our energy sovereignty; and it insures us against rising gas prices. Some people believe that gas prices will not rise. The international energy body certainly thinks that they will rise. I certainly would not like to bet my future, or my children’s future, on the idea that gas prices are going to fall. That does not seem sensible to me. Replacing our present dependency with a portfolio of mechanisms by which we produce our energy is an essential insurance against that, because energy is so crucial, as my noble friend Lord Jenkin has said.
I end with a reminder to your Lordships. The noble Lord who is a former Secretary of State for Energy said that he had had a great plan for nuclear power, and what a great thing it would have been if it had gone through. He did not get it because people were not prepared at the time to face realities, needs and long-term decisions. He is now asking us, on the basis of that experience, to repeat the mistake. He is asking us again to say that this is not the right moment and that we must not rush into things and make these decisions because, for one reason or another, we should wait.
I say to the noble Lord, Lord Turnbull, that we have not impaled ourselves. We have taken on a necessary and absolutely essential burden. It is the burden of this generation ensuring a future for the next. The sense of urgency is there because, if we do not do it but put it off, we will always put it off. That is the lesson of our failure to invest in nuclear power when we should have and it is why the noble Lord’s speech should have been the other way round. He should have said that we should learn from that disaster and do now what we need to do. The pace does not seem rushed to the public; it seems very reasonable.
Lord Howell of Guildford
My noble friend has missed the point. The danger of targets such as the one proposed now is that they distort investment decisions. It is not that they prevent all kinds of investment but that they distort investment decisions through their urgency and through their aim at a particular target, in ways that lead to counterproductive results. The results now before us are a growing hostility among the public to the higher prices that they have to pay, a feeling that there is redistribution from the poor to the rich, which is not at all welcome, and difficulties about deciding what strike price to give for our replacement fleet of nuclear power stations.
My experience in the 1970s and 1980s was that the investment decisions were all askew. They were not clear at all. The long-term determination, backed by the then Prime Minister, Mrs Thatcher, to support an entire nuclear replacement fleet was undermined by all kinds of alternative views and distortions. The same distortions will result from this target. That is all I am saying.
Lord Deben
I find that very difficult to follow. This is not a prescription for the means by which we will meet the requirement of a carbon-intensity target. It is an assurance that we are going to stick to that target so that everybody can use whatever mechanisms they have. This is a non-prescriptive concept, of which I approve. It does not say that we have to use this, that or the other. It is a portfolio approach. I still think that the parallel is very clear. If we had been able to stick to our proposition, we would be in a better place today and we would not have to do many of the things that we seek to do today. To ask us to repeat that mistake seems to me a great sadness.
I come back to my first point. The reason we believe that there should be an interim carbon-intensity target is that it is necessary if we are to reach our statutory requirement in 2050. It is necessary for the United Kingdom plc because it gives certainty to people about the parameters within which they will work. If we do not do it, all the noise around what the Government are doing, and the determination to put off to beyond the next election the carbon-intensity target that is now admitted by the Bill, will do a great deal of harm. It will mean that the supply chain that could come to this country will not come and that the jobs and prosperity that should come from our far-sighted decisions will not be gained and earned. We will do very much better to take the advice that will lead to a serious system in Britain that will make us competitive with the rest of the world.
Lord Cameron of Dillington
My Lords, like the noble Lord, Lord Deben, I support the amendments in the name of the noble Lord, Lord Oxburgh, in favour of setting a 2030 decarbonisation target in 2014 and not waiting until 2016. I declare my interest as a farmer and landowner with a very small interest in a renewable energy scheme on my farm.
As I said at Second Reading, we desperately need to invest now in new sources of power to keep our lights on and our economy running efficiently. Of course, I am referring to the long term because it is probably already too late for the short term, although we are not going to be discussing that today; nor are we discussing incentives for the generators themselves. Their incentives are contained in the contracts for difference, which help them to overcome the problems and the risks of the huge upfront capital costs of renewable energy schemes, where, on the whole, the fuel or the power source is free—which, as the noble Lord, Lord Deben, says, makes them very cheap and good value to the consumer in the long run.
What we are discussing today is the need for supply chain investment, as the noble Lord, Lord Oxburgh, said. We are seeking to give a degree of certainty to the Gamesas, the Vattenfalls, the Siemenses and the Vestases of this world that, yes, they can invest billions in production plants to produce the turbines and blades for offshore wind—they can invest in the UK economy. These amendments are trying to give them the confidence that their plant will not produce up to the cliff-edge that is 2020 and then have to sit while the UK Government adopt one of the options in last December’s gas strategy that makes gas a central, core part of our energy policy. This amendment is about giving confidence to the supply chain for renewable energy.
Some people might ask—as the noble Lord, Lord Jenkin, did—who could doubt the UK’s commitment to a decarbonisation agenda? It is a rational certainty. After all, our Climate Change Act gives us the tightest emissions reduction target on the planet for 2050. After all, the Government’s own sponsored impact assessment shows that a 50 gram target could have the benefit, among other things, of reducing consumer bills between 2016 and 2030, depending on international gas prices. After all, the Government have virtually admitted that the whole point of this part of the Bill is to bring in a target in 2016, so all we are doing here is arguing about a two-year pause—what possible difference could that make?
A 2030 target is a rational certainty, yet 2016 brings us beyond the next election and who knows who will be in charge then? As has already been said, this Bill does not quite commit the Government to setting a target in 2016, only some time possibly after 2016. Therefore, Amendment 7, in the name of the noble Lord, Lord Stephen, is a possible fallback position.
In the light of all this rational certainty, what is preventing the Government committing themselves now? Is it the need for ongoing gas generation to provide the capacity reserve that everyone knows will still be around well into the 2040s, pumping out 300 grams of CO2 for every kilowatt hour produced? Or is it the possibility of more dramatic changes in the energy market? No one can deny that in the United States shale gas was a revolution in terms of the price of power there, and the rest of the world is looking to see whether it can join the club, as it were, including the United Kingdom. I think that a revolution from our shale gas is pretty unlikely and that the international price of gas will carry on going up.
If the Government cannot commit amid all this certainty, why on earth should business, its investors, its banks or backers commit? This is an investment landscape totally driven by the political agenda. Without government commitment, it is hard to see why industry should commit. This is such a golden opportunity for creating a whole new economy for jobs and growth in this country. As the Chief Secretary to the Treasury said,
“we just need to have a very, very clear position and a very, very clear plan”.—[Official Report, Commons, Energy Bill Committee, 5/2/13; col. 468.]
However, that is not apparent as yet.
Various noble Lords who attended a very interesting talk last night by Peter Atherton, an investment analyst, have made reference to it. I have heard similar talks before. When I sat on Sub-Committee D, we looked at the European power sector. We were informed, in much the same language, that it was going to be very hard to produce the power and the investment. Indeed, there has been such a lack of political leadership on the continent, which I think is fairly important, that the continental power companies’ shareholdings have sunk almost out of sight and very little investment is happening in that sector. It has not happened yet in this country but the question of political leadership is important here.
The essence of Peter Atherton’s message was that a 50 gram target by 2030 would cost far too much and be impossible to deliver in the current UK and EU financial markets. That is quite apart from the extreme difficulty of building the physical structures needed to deliver a 50 gram target on time. Clearly, the Government and the climate change committee should listen to him and others on the practical difficulties and expense for consumers of delivering a 50-gram-per-kilowatt-hour target by 2030. He convinced me that perhaps a 50-gram target by 2030 was a step too far but he did not convince me that we do not need a target at all. It could be that 75 grams or 100 grams would be enough to convince the investors that their investment in the supply chain would be safe. The point is that if we believe in climate change and the need to act sooner rather than later—it appears that all political parties in this country do—we have to commit ourselves sooner rather than later, which is why I support this amendment.
The Government say that they are waiting for the fifth carbon budget before they commit, but I do not find that a very convincing excuse. Such a budget applies to the wider economy and is not set to specific. I realise that the power sector is responsible for some 27% of the nation’s carbon emissions. Therefore, it could not expect to escape totally untouched by such a carbon budget but there is unlikely to be the total clarity within these general targets to provide the certainty for investors in the power sector.
In conclusion, it would appear that over the past 200 years our society has developed a form of lock-in to fossil fuels and fossil-fuel power. We have got better and better at extracting these fuels, and better and better at using them. They have become cheap, convenient and reliable. But now we realise that we have to make a step change, which will not be easy—indeed, it is proving to be very difficult—as a nation or even as a species, to getting better and better at deploying and harnessing non-fossil technologies. I believe that over time we can learn to make renewable technologies also cheap, convenient and reliable. But for that to happen, and for us to create this whole new economy and these new jobs, we need commitment from our Government. These amendments give our Government the opportunity to take that lead.
Lord Dixon-Smith
My Lords, I hesitate to intervene in a debate between titans but I wish to speak as an innocent customer. I have been paying my fuel bills for my business for three months short of 55 years and have seen the price go up 6,000% in that time. If I have seen the price rise like that, so has the community. The first tribute I must pay is to the community at large for its enormous adaptability over very difficult and rapidly changing times.
I come back to the amendment we are discussing. I was delighted to listen to my noble friend Lord Jenkin, who for once was on the same side of the fence as me, because I do not think that the amendment is appropriate, but perhaps for slightly different reasons than have been mentioned. I wholly support the target in the Climate Change Act. We already have a basket of technologies which, if put in place, would enable us to hit that target. Perhaps the necessary initiative and determination on the part of some of the participants in the debate are not there but the technologies already exist. What I do not know, of course, is what the unknown unknowns are, to borrow a phrase from a rather notable American.
I want to talk about a known unknown which has changed the nature of the game since the Climate Change Act was passed, and that, of course, is shale gas. I am well aware that shale gas emits carbon dioxide if you use it to generate electricity, but one of the things that has been going on in the background in this country for a very long time is consideration of the use of carbon capture and storage with the intention, if possible, of trying to keep the coal business in being. However, the fact of the matter is that the emissions from a coal-fired power station are so appalling that the cost of CCS is extremely high, the energy penalty is also extremely high and it is not going to work. The cost of cleaning up the emissions from a gas-fired turbine, however, is much less because the emissions themselves are cleaner, the cost of emissions per unit of electricity is already that much cheaper and you can get those emissions down virtually to zero. Therefore, if we had those supplies—that is the big question to which we do not know the answer—we would have what I choose to call a very useful potential interim technology. I put it no higher than that. Setting short-term targets now could lead us into a situation whereby we are forced to invest in high-cost technologies in order to meet these short-term targets. I do not think that is wise.
We are not dealing just with investor confidence here. It strikes me that the energy suppliers are playing a very good game of poker with us at the moment, which I think we should resist. We also have to deal with customer confidence. The difficulty we have with the whole question of shale gas is that we do not know yet whether we have it, can extract it and use it. To force a decision on the assumption that it is not there, because that is where we started the debate, would be totally wrong. We should not rule out possibilities. Another reason why I am against short-term targets is that we also have to face the possibility that there may be other game-changers out there that we do not know about. We shall have to be able to take them into account as we go along, so my personal prejudice is for keeping things as uncontrolled as possible for as long as possible, bearing in mind the absolute necessity of meeting the target in the Climate Change Act, which, as I say, is capable of being met if we have the political determination to do it.
I am sorry to say to my good friend Lord Oxburgh, because he is my good friend, that the amendment is one step too far or one step too soon—you can take your choice.
Viscount Ridley
My Lords, I, too, rise to oppose the amendment moved by the noble Lord, Lord Oxburgh—although I greatly appreciate some of the points that he has made—and, to some extent, to echo what the noble Lord, Lord Dixon-Smith, said. We have heard a lot about the importance of jobs, prosperity and giving certainty to companies—usually ones with Japanese and Scandinavian names, I notice. In response to the noble Lord, Lord Deben, I would say that we do not build power stations for the people who work in them and run them, we build them for the people who use the electricity that comes from them.
Last week, we heard that the Government have decided on a strike price for offshore wind of £155 per megawatt hour. A few years ago, the Government said they had the ambition of getting this down to £100 per megawatt hour. That now seems to have been abandoned, as the number has come down, with inflation taken into account, to only £135 in 2015, I think it is. These are extremely high numbers—three times the going rate for energy at the moment. What will happen to the people in the chemical, cement, steel, aluminium and heavy engineering industries? We know the answer to that. There is an industrial renaissance going on in the United States—a huge resurgence of manufacturing industry—because of shale gas and the effect it has had on energy prices.
Lord O'Neill of Clackmannan
The industries the noble Viscount has cited are wholly dependent on baseload generation. However, he is talking about interruptible generation. He is talking about two different sources. The industries will not be dependent on interruptible generation because they will require continuous baseload generation, 24/7, to conduct their industrial activities.
Viscount Ridley
My Lords, in the United States, shale gas has displaced coal. I should, by the way, declare my interest in coal even though, once again, I am speaking against it and in favour of its greatest competitor, gas. There has been a massive displacement of coal by shale gas, which brings me on to the next point. The effect of displacing coal with shale gas in the United States has been to cause the fastest drop in CO2 emissions of any western country. They are down to the levels they were at 30 years ago and down to the per capita levels they were at 50 years ago. These are extraordinary achievements and suggest that we have, in shale gas, a technology for short-term reduction in carbon dioxide emissions—not all the way down to 50 grams or anything like that but a good chunk of the way—that could be achieved and combined with affordability. The counterfactual to building a huge amount of offshore wind capacity and other industries is to allow the development of gas in this country. We know that the numbers would be much lower in terms of the cost to the consumer—it would be much more feasible and much more affordable. To throw away the flexibility of going for that possibility would be a potential mistake.
Lord Deben
I am sure that the noble Viscount knows this, but in the calculations that the climate change committee has made, it fully accepts the need for using that shale gas in the amounts that we generously expect will be used. We are not throwing it away, we are including it as one of the portfolio.
Viscount Ridley
Would the noble Lord accept that the figure that came out last week for the amount of shale gas under the UK is far higher than was assumed when his report was written? I went to talk to Cuadrilla at one point last year. I said that the 200 trillion cubic feet that they were talking about under Lancashire was being ridiculed as a very high number and asked whether they stood by it. They said, “Privately, we think it is much higher. It is about 300 trillion cubic feet but we dare not say so because people will not take that seriously”. Then an independent consultant, Nick Grealy, said 700 trillion cubic feet and everybody laughed at it. Now, the British Geological Survey has said there is 1,300 trillion cubic feet. This is the largest find of shale gas ever on the planet. The shale rock we are talking about, the Bowland shale, is in places 10 times as thick as the Marcellus shale in Pennsylvania.
I went to see shale gas extraction in the Marcellus shale in 2011 because I had heard about it and thought it was interesting. You could hardly find these well pads—they are tiny and hidden among the trees. There was a flock of wild turkeys running across the road on the way to one. I asked somebody for a calculation of just how much energy can come out of a small area when you are drilling for shale gas. The answer is that about 25 acres of well pad in Pennsylvania can produce as much energy from shale gas as the entire UK wind industry produces at the moment.
Baroness Worthington
I am sure that that is a fascinating discussion and one we will probably return to, but can the noble Viscount point to where in this part of the Bill there is anything that prevents shale gas contributing to the meeting of our decarbonisation targets? I would embrace it and would hope that it came along quickly if it could be done sustainably; there is nothing in this part of the Bill that prevents it.
Viscount Ridley
If we embrace within the next couple of years a decarbonisation target that is stricter than shale gas can help us to get to, I think that there will be a problem in the way of shale gas.
Perhaps I may turn briefly to climate change. This is not the time to re-fight the climate change debate, but others have brought it up. Given that shale gas offers the possibility of a slower rate of decarbonisation—not to as low a level of target as we are talking about—we need to retain the flexibility of that and to take into account where the climate change science has shifted to. It is simply not the case that the science has become more alarming in the past few years. There has been a series of studies of climate sensitivity in recent years by Otto et al., Aldrin et al., Ring and Searchinger and many others. The biggest of those, the Otto et al. study, which had 14 leading authors, two of whom are co-ordinating lead authors of the Intergovernmental Panel on Climate Change, concluded that transient climate sensitivity—that is, the number that we are likely to reach in about 50 years—is about half of what we thought it was. It is about 1.3 degrees centigrade, of which we have had nearly half already. It is not true to say that we are seeing damaging effects on weather from climate change. Weather is not climate change. The Intergovernmental Panel on Climate Change SREX report in late 2011 came to the very firm conclusion that you could not see a signal of climate change in current climate events, neither in droughts, floods, storms nor any of those kinds of things. Professor Roger Pielke at the University of Colorado has come to exactly the same conclusion. There is no evidence yet that we are seeing damage. Meanwhile, we are seeing clear damage from climate change policies. The denial of cheap electricity to people in poor countries and the effect of biofuels on food prices are having a demonstrable effect on both hunger and well-being in other parts of the world. We have to take these things into account.
I hasten to add that I accept the science of climate change. By that, I mean I accept that carbon dioxide has its full greenhouse effect. At Second Reading, the noble Lord, Lord Prescott, said that I was denying this, but I accept that it has the full effect. However, the full effect is only 1.2 degrees centigrade warming for a doubling of the quantity of carbon dioxide—it is there in section 8.6.2.3 of the latest report of the Intergovernmental Panel on Climate Change. The danger arises from the potential feedback effects from water vapour in the atmosphere. We can measure whether those are happening and it is clear they are happening more slowly than expected—that is what those papers I cited are all about.
This is not about saying that climate change is or is not happening; it is about saying that potentially the world is changing. We are finding flexibilities in the way in which the world is changing which mean that we should retain flexibility in policy. That is why I oppose the amendment.
Baroness Browning
My Lords, I shall speak briefly because I realise that it has been a long debate. I want to make just a couple of points. First, the Government are taking the most important step in putting in place the legislative framework to allow a binding target range to be set at the right time. I understand—perhaps my noble friend the Minister will confirm this—that there is nothing in the Bill to say that if circumstances change in the next two or three years the Government could not go ahead and make that announcement. I believe that that flexibility is in the legislation. When the decision is made—whether it is 2016 or before—the fact that the legislative framework is in place will mean that it can be implemented with more speed than if we had to come back to take this matter through Parliament. That in itself is an advantage. I therefore support what the Government are proposing.
Secondly, I want to press the fact that all Governments have required flexibility in this area of policy, as was mentioned so ably by my noble friend Lord Jenkin of Roding. I just share with the Committee a conversation that I had when I was a member of the Public Accounts Committee in 2005 with the then DTI Permanent Secretary who then had responsibility for energy policy, Sir Robin Young. During an evidence session, I pressed him on whether he would guarantee integrity of supply in the light of the Government’s failure to make an announcement on whether they would renew our nuclear plants, in particular as we were well aware at the time that the Magnox reactors were coming to the end of their life. In response to my question, he confirmed that a minimum lead time would be 15 years, so in 2005 we were getting quite anxious about where the policy was going. I asked him to guarantee integrity of supply. In his reply, he stated:
“The absolute guarantee is in the white paper”—
that was the Government’s 2003 energy White Paper—
“that a reliable competitive and affordable supply of energy is a number one priority for the government, of equal priority to the low carbon objective”.
Lord Lawson of Blaby
My Lords, the whole Committee owes a great debt of gratitude to the noble Lord, Lord Oxburgh, for having, through his amendment, sparked a most interesting and wide-ranging debate, which featured in particular an outstanding contribution from my noble friend Lord Ridley. His exposure of the facts put in its place the fantasies peddled by my noble friend Lord Deben and the noble Viscount, Lord Hanworth. There is no need for me to refer any more to them.
Lord Deben
I hope that the Committee understands that the “facts” that were presented would be denied by almost every climatologist in the world, and that they are entirely the same as those always put forward as regards those who dismiss climate change for the seriousness it has. We ought not to use the word “fact” so loosely.
Lord Lawson of Blaby
If my noble friend feels that anything that the noble Viscount, Lord Ridley, said was incorrect, he had the opportunity to say so. He is quite unable to do so. What the noble Viscount said is right. Another fantasy, since I am provoked by my noble friend, was his statement that it is not the case that we are going out ahead of the pack and that everybody else is going green, going renewable, in the same way. This is patently untrue. The major European countries that have gone in this direction, Germany and Spain, are both winding back as fast as they can on their subsidies and support for renewables. They realise that it is a blind alley, which is why, as the noble Lord, Lord Cameron, pointed out, the share prices of the renewables companies have collapsed. That is what is happening.
Baroness Worthington
Will the noble Lord explain, therefore, why there is currently a trade dispute between China and Europe on solar panel manufacture and why there have been disputes between the US and China on wind turbine manufacturing?
Lord Lawson of Blaby
That is an interesting question, which I will answer. The Chinese felt that the Europeans were so foolish that there was a big potential export trade sending solar panels to Europe. Their solar panel industry is in dire straits, so they have cut their prices to the bone, which is why there is this dispute. The noble Baroness may be interested to know more: China has a five-year plan. In that plan, how much of their electricity does she think would be generated by the solar industry by 2020? The answer is 0.5%. That is what China is doing. However, China thought that credulous Europeans would buy these panels and that there was a great export trade to be had. The winding-down, which I was referring to a moment ago, of the renewables industry in Europe has meant that their market is not nearly as big as they thought. So the Chinese are in a very difficult state on this front and that is the origin of the trade disputes. I am glad that the noble Baroness asked me that, because the answer is interesting.
Before I go on to the amendment tabled by the noble Lord, Lord Oxburgh, there is one thing that I hope we can change if we are going to debate this important issue in an honest and sensible way. We should get away from the idea of saying, “I am all in favour of clean energy”. Two noble Lords have said this already. There is nothing cleaner than carbon dioxide. It is a colourless, odourless gas whose main effect is to make the world habitable, because without it there could be no plant growth and without plant growth there could be no animal or human life. Scientists are agreed that the biggest single effect of carbon dioxide is to enhance plant growth; it is known as the fertilisation effect. There is nothing unclean about that.
Lord Lawson of Blaby
No, I have not finished. It is true that carbon dioxide in the atmosphere has a warming effect. How big a warming effect, as the noble Viscount said, is disputed among scientists, and the consensus is moving to a much lower effect than was previously thought. However, the sun has a much greater warming effect and I have not heard anyone referring to the sun’s rays as dirty. Therefore, can we get away from all this clean/dirty nonsense, which is emotive rubbish and has no place in a proper parliamentary, or any other, debate?
Did the noble Baroness wish to intervene? No, she has thought better of it.
One of the curiosities of this Government in this area is that we have not one energy policy, but two. This Bill represents one of them. Calling it an energy Bill is somewhat misleading; it should have been called a decarbonisation Bill, or maybe an anti-energy Bill. Nevertheless, ostensibly it is an energy Bill. That policy is out of date, if it ever was in date. The draft was produced in 2010 and the gestation goes back to the previous Administration in the era when the Climate Change Act was passed. That is one energy policy.
I will quote the other energy policy. In his comprehensive spending review Statement, my right honourable friend the Chancellor of the Exchequer said that we,
“will put Britain at the forefront of exploiting shale gas”.—[Official Report, Commons, 26/6/13; col. 310.]
A week earlier, at a European Council meeting, the Prime Minister, my right honourable friend David Cameron, said that we must make,
“the most of indigenous resources such as shale gas”.
Perhaps it is a consequence of coalition government that you have two separate energy policies. However, the other energy policy and the one in the Bill are in complete conflict. The purpose of this Bill is, through long-term contracts for difference of 15 years or even more, to lock this country into high-cost renewable energy and nuclear energy. That will leave very little space for shale gas, although, as my noble friend Lord Ridley pointed out, it is now clear that we have enormous reserves in this country. Having indigenous reserves is particularly important and, because of liquefaction, the cost of transporting gas across the ocean adds considerably to the cost of the gas.
We cannot have it both ways. We either go for shale gas, which is cheap, or we lock ourselves into high-cost energy. That is what worries me. The only way in which you can make sense of these two conflicting energy policies is if you think that the purpose of developing our resources of indigenous shale gas—we cannot use it here because of this Bill—is for it to be exported to our competitors so that they can have the benefit of the cheap energy that we are foregoing. That is the only way in which you can reconcile the two policies. Of course, it is complete rubbish, complete nonsense. It is the economics and the politics of the madhouse.
Finally, I come to the amendment about the target in the name of the noble Lord, Lord Oxburgh, on which I think that he is a little naive. As my noble friend Lord Howell said, just putting in this target does not give any guarantee to energy companies in the slightest, because things can change. No Parliament can bind its successor. As I said earlier, the Germans and the Spanish are changing all their subsidies and support for renewable energy. No businessman believes that this target means anything. It is true that the contracts for difference, which are legally binding, will bind us and lock us in. That concerns me, but this target is neither here nor there.
Since it is neither here nor there, I am very much tempted to support the amendment in the name of the noble Lord, Lord Oxburgh, for a good reason. This Bill is absurd and unworkable, but some people may not have realised quite how absurd and unworkable it is. Voting to include his amendment will make the full absurdity and unworkability of the Bill clearer. Nevertheless, I shall do my best to resist the temptation.
The Earl of Caithness
My Lords, I have no financial interest to declare. I suppose my interest to declare is that I now look out on 11 different wind farms that have been erected in the past six years. I do not believe that any of your Lordships has that either dubious pleasure or distinct disenjoyment that I have.
Like the noble Lords, Lord Cameron of Dillington and Lord Whitty, I had the privilege of serving on the House of Lords sub-committee that reported on energy last year. In the report, No Country is an Energy Island, we looked at the energy market within the EU. It is not just Britain that faces a problem; it is the whole of the EU, where a vast amount of money has to be spent. We came to the conclusion that,
“a clear and credible EU energy and climate change policy … is a pre-requisite for attracting”,
the necessary investment. However, what was absolutely clear in the evidence that we took was that every prognostication about the energy market made 10 years ago or even five years ago was already totally out of date and out of the window. It seemed clear to me that the one thing that was likely to happen was that our report was also going to be out of date pretty quickly.
I take the example of shale gas. So much more information about shale gas has come into the public domain than we had when we produced our report. As the noble Viscount, Lord Ridley, said, the potential supply is wildly in excess of any of the figures that we were given. It seemed to me at the time, and it is reinforced now, that our Government need to have the flexibility but also the drive to take action quickly when the opportunities come.
The evidence that we got on renewables and on targets for renewables was very mixed. Mr Atherton told us that setting the target in 2006—the UK signed up to it—locked us into immature, technically uncertain and expensive technologies. That is a concern that we ought to bear in mind. If there are new technologies that are going to produce decarbonisation, perhaps at a slower rate than some of the purists would like, that is something we should not ignore. It is something that this country stands to benefit from. If we have the unique geological structures under our ground that are perhaps more exploitable than we thought at the time we wrote our report—and I guess that our report would be very different now; I wonder whether the noble Lords, Lord Whitty and Lord Cameron, agree with me on that—I do not think that we ought to obstruct our Government from taking those opportunities.
I turn to what the noble Lord, Lord Stephen, said about investment and jobs. There has been a huge investment, but I have not seen any of the jobs come to Caithness for all those wind farms that I look out on. Some £10.7 billion has been spent in this country on wind farms, but as little as £2.1 billion actually came to the benefit of the UK. What I do not understand is why agreeing a target now rather than in two years’ time is going to change that situation. I do not have any evidence that firms are going to come to the UK specifically because we have a decarbonisation date fixed in 2014 rather than in 2016. Indeed, it was on that point that the noble Lord, Lord Cameron of Dillington, was absolutely right. It is a question of two years. If in that time we are hopefully going to agree the fifth climate change package in the EU, is it worth pre-empting that—at potentially a huge cost—or is it worth waiting for that to be agreed and then setting a figure after that, which the Bill provides for?
My firm belief is that we should wait and we should use the potential that has been given to us by geology to explore whether shale gas can come to our aid. If we can produce cheaper energy, it is going to lead to one of the greatest revolutions of growth in this country, which will be of huge benefit not just to us but to the whole of Europe. For those reasons, tempting as it is to tick my green credentials and support the noble Lord, Lord Oxburgh, I think that we would be heading down the wrong track.
Lord Whitty
My Lords, the noble Earl has presented a view of the report that he and I were both party to, as indeed was the noble Lord, Lord Cameron—and I think that I saw the noble Lord, Lord Maclennan, come in just now. Does he not agree that the major conclusion of that report was that, whatever the technology, what industry requires in order to invest the sums of money that are needed in European energy is greater regulatory and policy certainty? Part of that must surely be to establish the trajectory of the decarbonisation pattern that Europe and the UK are embarked on.
There is now more evidence that we have more of shale gas than perhaps we thought a few months ago. Whether it is extractable at commercial prices and over what timescale is as yet unclear. But the point about shale gas is twofold. First, shale gas can help to contribute towards faster decarbonisation if it displaces coal and oil, but not if it delays the adoption of nuclear or renewable technologies. Again, it depends on the framework in which we are operating. The second thing that the report suggested and emphasised strongly, as I am sure the noble Earl will agree, was that shale gas plus carbon capture and storage could be a major contributor to decarbonisation. If we do not get carbon capture and storage into the 2020s, we have no chance of reaching that target, but shale gas is not necessarily the enemy of that target and could indeed be supported by it.
The Earl of Caithness
My Lords, with regard to the first question that the noble Lord, Lord Whitty, posed to me, yes, of course, I agree with him. I read out the sentence from paragraph 40 of our report. It was one of our conclusions that certainty was a pre-requisite for the investors. My question to my noble friend and the Committee was: is a delay of two years going to make that amount of difference when we have an EU target for 2028-32 to agree within a short timeframe ahead of us?
With regard to carbon capture and storage, I did not want to go down that track. I totally agree with the noble Lord but, again, we have limited evidence about it to date. I wish that there was much more that we could report to the Committee about the tests for carbon capture and storage. There are still some people who say that, despite what is going on at the moment, it will never become a commercial issue. With regard to nuclear, of course, having lived next door to Dounreay—as has my noble friend Lord Maclennan of Rogart—I regret the closure of that research centre. Dounreay had the potential to have got us out of the hole we appear to be about to fall into.
Baroness Worthington
My Lords, I am delighted to speak to Amendments 2, 3, 4, 6, 9, 10, 11 and 14. If your Lordships will permit me, I will speak to Amendment 22 when we discuss Amendment 27, because I think that they are very similar. Unsurprisingly, having put my name to these amendments, I support them.
I congratulate the Government on having introduced these measures into the Bill. As the noble Lord, Lord Stephen, pointed out, they were not there at the start of the process, but the Government have clearly listened to the representations from a large number of organisations requesting that they be put into the Bill. Here they are, and here we are debating them in detail for the first time. We have had a fantastically detailed and wide-ranging debate today and I would like to make some contributions to some of the issues that have been mentioned already, as well as a few additional points.
First, why do we need such a target and why should we support the amendments in the name of the noble Lord, Lord Oxburgh? It is simply the fact that investors want this and the country needs it. The noble Lord, Lord Jenkin of Roding, said that only one trade organisation had made representations to him, but he and I were both present at a joint meeting of the Nuclear Industry Association, the Carbon Capture & Storage Association and the Renewable Energy Association, and all three were united in calling for greater certainty and for a decarbonisation target to be set as part of the Bill. That is just three trade associations. An additional 23 trade associations support it. Another 83 commercial companies support it. In total, more than 200 organisations support this provision being in the Bill. It is absolutely certain that we need it; investors have said that they need it. Simon Howard, chief executive of the UK Sustainable Investment and Finance Association, has said:
“There is significant investor appetite for the UK to be a global leader in profitable low-carbon energy solutions, providing the high-quality innovation and jobs that the country needs to ensure a future economic recovery”.
Basically, people want to invest in the UK, but they need certainty.
Lord Teverson
I thank the noble Baroness for letting me intervene; I shall not intervene again. I do not want to get in the way of the thrust of her argument, but I would ask her to say, “Well, of course, those people would say that”. There is at the end of the day a whole bargain going on here where suppliers will try to get the best deal they can, so they are bound to say things like that. The difficulty of the Government’s position is in being able to assess, as we have seen in the negotiations for the nuclear strike price for Hinkley Point, what that balance of risk and proper price is.
No other industry, not even agriculture under the common agricultural policy in the 1960s and 1970s, has offered a fixed index-linked price for 15 years. I do not in any way want to undermine the noble Baroness’s general argument, because it is an important area, but I think that we have to be really careful in our negotiations about how much we have already given within this framework, given the very large businesses that have very good negotiators. I know that the noble Baroness is one of the least naive people, but I think that we on this side have to be slightly careful about being naive in these price arguments. The noble Lord, Lord Deben, made the strong point at Second Reading that we are in an international market—I absolutely agree with that—but we have to keep a sense of proportion about what else is being offered. I shall not interrupt the noble Baroness again.
Baroness Worthington
I thank the noble Lord for making that comment. I simply say that that is a complaint against the CFDs, which we will come on to discuss under Part 2 of the Bill. This is Part 1, which simply states the purposes of the Bill. There are many things that the noble Lord said with which I agree. If we had focused more on setting a framework of legislation, with clear outcomes and the right policies to create the link between those outcomes and the responsibilities placed on government and the commercial people who have to deliver on them, we would be in a much better place than we are. I said at Second Reading that I believe in markets. I believe that, as legislators, we should set a clear framework and allow the markets to live with the least-cost solutions. We are not in that position right now—that is not the Bill that we have in front of us—but this part of the Bill could be an important element in doing just that. The amendments would create that framework of certainty and guarantee a trajectory of travel. That is what is lacking in the Bill at the moment.
As others have said—I do not want to repeat it—the Bill does not set a decarbonisation target; in fact, it prevents a decarbonisation target from being set and seeks to tie the hands of future Governments. That is very regrettable. Moreover, it is simply enabling. It simply says that the Secretary of State “may”, if he or she chooses, set a decarbonisation target. Of course, that is going to create uncertainty. Why the discretion? Ministers in the Commons were keen to point out that they were in disagreement not about the principle but merely about the process and the timing. If that is true, why is there a need for discretion? Why the “may”? It seems to me totally illogical; it creates needless uncertainty. A number of noble Lords have used different phrases—“government vacillation”, “infirmity of purpose” and “gratuitous increase in uncertainty”. The discretion seems completely illogical and gratuitous and I hope that, at the very least, this process will bring some clarity to that issue.
However, we would go much further and, as other noble Lords who have spoken in favour of the amendments have said, require the target to be set now. There is no reason to delay it by two years. It unnecessarily politicises the issue and kicks it out beyond the next election when we have people lining up now to invest in the supply chain.
Baroness Verma
My Lords, I echo the noble Baroness in saying that this has been an excellent debate and, given the strength of arguments on both sides, I really believe that with our reasonable and measured approach to the decarbonisation target range, the Government have got it right. I agree that a decarbonisation target range, set at the right time, could provide further certainty for developing low-carbon energy. That is why, having heard many strong views on the matter, the Government brought these new clauses forward in the other place, which now form Part 1 of the Bill. This will enable us to be the first country in the world to set a clean energy target.
Having said that—and as a number of noble Lords have highlighted and illustrated with great skill—changing the Bill as proposed by these amendments would not be the best way of achieving what I believe are shared goals. I shall expand on this and hope to respond to some of the issues that have been raised today. The issue of when we set a target comes down to what will provide the greatest certainty for investors. The noble Lord, Lord Browne of Madingley, made the point at Second Reading that in his experience as a businessman and an investor:
“The incentive structures contained in the Bill are far more important than targets or aspirations, because they are the mechanism for action”.—[Official Report, 18/6/13; col. 192.]
My noble friend Lord Howell raised that point clearly.
We have recognised that investors need more details. That is why last week we set out additional details about our reforms. We have published some information about contract terms, which go to costs and thus value. We also published strike prices for renewable technologies to encourage investment in wind, tidal wave, biomass and large solar projects. We also confirmed the trajectory of funding for tripling support for low-carbon electricity up to 2020.
Those recent announcements have been welcomed by industry. For example, the CBI’s chief policy director said:
“The energy plans are a big step forward and should unlock the private investment we need to keep the lights on and costs down. The renewables strike price and capacity mechanism will enable investors to take their plans off the drawing board and on to building sites.”
Some of the arguments I have heard about not giving investors certainty are covered by this point: industry itself says that it recognises that it is now being given certainty. Looking beyond 2020, there are already legal targets in place that clarify the future of electricity in this country. There is the 2050 target, which is likely to require electricity to be virtually decarbonised, and there is the fourth carbon budget, which runs up to 2027 and requires the UK to halve emissions in the whole economy.
Baroness Verma
In order to make progress, if the noble Baroness has a question, perhaps I could take it after I finish. To provide further clarity out to 2030, the Government have committed to issuing guidance to National Grid on an indicative range of decarbonisation scenarios for the power sector to 2030, consistent with the least-cost pathway to 2050. Just last month the Government set out an ambitious position for 2030 at a European level, to urge Europe to set a binding emissions reductions target of 50% by 2030 as part of the ambitious global deal—and 40% even if we move unilaterally. Finally on this point, Amendment 4 has an unintended consequence, in that it would prevent targets being set for years beyond 2030.
This brings me to my second point: whether the Bill should provide a power or a duty to set a decarbonisation target range. Of course there is an attraction in saying in the Bill that the Secretary of State must set a target by a certain date, as both the noble Lord, Lord Oxburgh, and my noble friend Lord Stephen propose. However, my honourable friend, the Member for Wealden, Charles Hendry, pointed out in an article on this issue that it does nothing for any Government’s credibility to set out a target before they are in a position to say how they will achieve it. He stated:
“The challenge with a decarbonisation target set now for 2030 is that we cannot yet know how it can be met—or indeed, if it can be met”.
That is the argument that a number of noble Lords have raised today.
Baroness Worthington
My Lords, I would like to ask the Minister about her assertion that there are targets post-2020, citing the fourth carbon budget as one of them. I will just reiterate the point that those budgets are about emissions and take into account flows of emissions using trading. It is not true that they give any certainty at all about what will happen in the UK. What happens in the UK is governed by UK policies, which include the RO and other support mechanisms. After 2020, there is no visibility as to what will happen next. In moving towards the CFDs, we are creating a whole host of uncertainties, whereas under the RO there is a great deal of certainty. I would hope that she could concede that budgets are a completely different issue to the domestic policies that we are talking about today.
Baroness Verma
Of course, the point is that we have to make sure that this happens against the backdrop of what else is going on in the economy. We cannot set targets solely on one part of the economy. That is why we have been very clear that the investment in climate that we have made to 2020 through the levy control framework has already given certainty. We are putting £7.6 billion into low-carbon renewable energies to introduce that certainty to investors. We have already said that National Grid will be given an indicative range of decarbonisation scenarios for the power sector for 2030 consistent with the least-cost approach to the UK’s 2050 carbon budget. The fourth carbon budget will run up to 2027 and requires the UK to halve total emissions in the whole economy. We have set out in the carbon plan the likely implications for the electricity sector.
Lord Oxburgh
My Lords, I thank all those who have taken the time to give us a very interesting and rewarding debate this afternoon. I cannot possibly reply to all the comments that have been made and will refrain from discussing climate change, even though I would like to do so with certain noble Lords—perhaps we will do that in private.
Quite a number of noble Lords have made Second Reading points this afternoon rather than points which relate to this particular amendment. Be that as it may, it is worth commenting on shale gas, which has come up several times. It is worth pointing out that shale gas is about the most expensive gas to exploit that we know about on the face of the earth. You have to use a whole range of technologies which are mostly at the top of, or almost beyond, the range of conventional gas exploitation. The noble Lord, Lord Lawson, is absolutely right when he says—or implies—that gas is the least transportable of the fossil fuels. If you get your shale gas from abroad, you pay a premium of something close to $2 or $3. The real advantage of shale gas is to those who have it themselves and can put it straight into their national grid. If, in due course, we can do that, that will certainly be a help to the national economy. However, I do not see anything in this Bill that actually inhibits the future use of shale gas.
Lord Howell of Guildford
The noble Lord is an enormous expert on this but is he talking about just shale gas itself or about hydraulic fracturing and horizontal drilling technologies? The latter, of course, release all sorts of other resources as well, including oil, tight oil and other forms of offshore gas, which are going to be, by all current assessments and estimates, in very plentiful supply. The whole world will want to sell us this gas.
Lord Oxburgh
I was restricting my comments to shale gas, and in the interests of time I will continue to do so. However, there are other possibilities, as the noble Lord, Lord Howell, suggested.
The consensus view in the industry is that the price of shale gas in America, where there was effectively a bounce downwards associated with transient overproduction, will come back up to something like $7 from the $8 that it was previously. That will reflect the costs of extraction, with a modest premium for those who do it. The broader view is that shale gas will mean that there is more gas to go round. The result of its abundance will probably be that gas prices do not rise nearly as much as they would have done in its absence. However, I do not think that we can look forward to a great price reduction.
A number of noble Lords commented on technology. The first thing to recognise is that in the sorts of technology about which we are talking, the characteristic time between the inspiration of a new technology and its coming into use is about 20 years. That is the timescale in which we have to think of new technologies. There are two technologies that will transform the energy scene in this country and worldwide. The first is cheap and readily applicable carbon capture and storage, which we do not have yet. However, there is a range of possibilities in that area. I suspect that this is what the noble Lord, Lord Dixon-Smith, was referring to in his comments. Cheap carbon capture and storage, applied to gas, would be a transformative change. The other transformative change would be the ability to store energy. That would transform the role of our intermittent renewables, which at the moment have to be managed effectively on the grid.
To pick up a comment made by the noble Lord, Lord Jenkin, the price of energy and its security of supply are fundamental to the community and to the country as a whole. Politically, they are very important. Fundamentally, what the Government’s approach offers is somewhat higher prices than we would have preferred in the short term, but probably much more stable prices—and lower global prices—in the medium and longer term. It is a matter of whether we want jam today or jam tomorrow. The Government have sensibly decided that jam tomorrow is what a responsible Government should work for.
In conclusion, the main argument against our amendment has been Cornford’s principle of unripe time. If we defer this for another two years, we will be having exactly the same argument, with exactly the same reasons for procrastination presented. There is ample scope within the Bill—and, as I pointed out, within the Climate Change Act—for the Government to change. I will draw noble Lords’ attention to Clause 2(1) and (2) of the Bill, which state:
“The following matters must be taken into account by the Secretary of State in setting or amending a decarbonisation target range … scientific knowledge about climate change … technology relevant to the generation and storage of electricity”,
and so on. In other words, the powers to change this are there. For example, if, between 2014 and 2017, new technologies miraculously shot onto the scene—and I believe, for the reasons I have given, that that is very unlikely—it would be possible for the Government to change their position.
In conclusion, I come back to the noble Lord, Lord Jenkin, and one or two others who effectively implied that this amendment was otiose because investors do not care. However, I have learnt, not through a miracle of technology but through a note handed to me during this debate, that the chairman of a £5.5 billion investment fund has said, “I think that this amendment is very important to us”. I beg leave to withdraw the amendment.
Baroness Verma
Baroness Worthington
Baroness Worthington
My Lords, I do not wish to prolong this debate greatly although I am grateful to have this opportunity to speak to this amendment, which raises a different issue from the one we have just debated.
Almost in anticipation that the Government would use the setting of the carbon budgets as a reason not to agree to setting a decarbonisation target, I tabled this amendment to probe the logic of that. I have tried to explain, possibly in vain sadly, that carbon budgets and carbon intensity are not one and the same and should not be linked. However, I feared that I might not succeed in making that point, so tabled this amendment simply to show that the carbon intensity of electricity is a very clear indicator of progress in the implementation of the Bill. Carbon intensity is a value that is currently recorded and reported but, sadly, over the past decade has not fallen. It fell dramatically between 1990 and 2000 when we invested in CCGT gas plants which were more efficient and cleaner. The carbon intensity of power fell from around 950 to around 450 to 500. That was achieved in a decade.
Since then, I am sad to say that both the previous Government and this Government have utterly failed to deliver anything comparable and carbon intensities have been bouncing around pretty much at will, reflecting the global prices of the commodities involved—gas and coal. Last year, we saw almost a record high of 530 grams per kilowatt hour in the UK in 2012. This is just wasteful carbon emissions, I am afraid to say. Had we got a grip and introduced a proper energy policy that took into account the carbon intensity and managed it down, we would not have seen the high carbon burn that we saw last year, which is displacing gas.
Members of the Committee who are fans of gas ought to note that we have a common enemy in coal, particularly coal treated in old stations built 30 or 40 years ago, some of which are now fitted with filtration equipment that knocks their efficiency down even further. There is probably no worse way of generating electricity in terms of carbon emissions, yet there they were base loading all the way through last year, pushing up the carbon intensity to record levels. As I have mentioned previously, that can be addressed. The merit order of existing plants, if it operates optimally, could take 200 grams off overnight without the need to sign any long, expensive and hard to negotiate contracts—if we simply introduce the right policy framework.
The amendment would require budgets to start to be set in 2020, when it would be possible to get emissions to around 200 grams per kilowatt hour with very little in the way of any extra investment. Simply using the investment that is already in the supply chain to meet our 2020 renewables targets, coupled with a change in the merit order, would take us there. Beyond that, we can look at a target in 2025 of around 150 grams per kilowatt hour. Again, there is no great need to invest in lots of new capacity to achieve that. It simply means continuing to invest in renewables on roughly the same scale as we are doing now, seeing the CCS demonstration projects get under way on gas and coal and seeing the biomass conversions. Essentially, this is not a hard trajectory. The point of putting down this amendment is to explain that the pathway from where we are today, with ridiculously high carbon intensity, to where we need to get to in 2030 to reach our legally binding targets cost-efficiently is not difficult. If you want to see the road map or the plan of how to get there, you need only refer to the CCC’s reports on the subject, which contain a huge amount of detail outlining this and explaining how existing kit and existing plant can be used to reach very much lower levels than we have today.
I also mentioned in my previous speech that we already have a carbon floor price. The Government should accept that targets need to be set that justify that policy. It is an incredibly distorting policy, with no environmental benefits. As I have said before, reductions that occur underneath the cap set in Europe are simply traded away. So it is not about carbon. It is meant to be about securing investment in UK plc. If that investment is not forthcoming—if, for whatever reason, the policies in this Energy Bill do not deliver—the public and Parliament have a right to be able to measure that. This is a significant piece of legislation, taking wide-ranging powers. It is matched in its size and significance by the existing carbon floor price. It is only right that we take it upon ourselves to deliver an outcome for these policies. That outcome must be a steady decline in carbon intensity.
Obviously, I would not recommend the setting of a series of targets starting in 2020 and going five years beyond that if I was not confident that we had the policies to deliver on that. If they work, CFDs are the mechanism which the Government hope will be used to achieve this. If the Government have confidence in their Bill and the measures contained in it, they ought to have the confidence to set these targets. Many people have made the point that flexibility is necessary, as we cannot predict the future and should not be technologically specific in our aspirations. I completely agree. I have said before, and will say again, that the market should decide how best to meet these targets. It will do it with much more efficiency than even the best minds in the Treasury can achieve.
I will stop there because I do not want to prolong this debate too much and I am grateful for being able to raise this separate issue. When we go through the Bill, I will speak to amendments concerning the energy performance standard because that is the mechanism within this Bill that could certainly deliver on these decarbonisation targets. Taken as a whole, these targets are actually very sensible: carbon budgets already exist and, knowing that, the Government can set them happily. There is nothing to stop the Government and it is something that should accompany this Bill. Consumers and wider society deserve some accountability for all these powers that we are giving to the Secretary of State.
Baroness Verma
My Lords, Amendment 8 raises questions about when a decarbonisation target range should be set. The noble Baroness has already said that the merit order in which generation is dispatched is a commercial decision, so the Government really should not interfere with that.
However, we are supporting decarbonisation, as the noble Baroness is aware, by making low carbon more attractive with the EMR provisions. When we come to the EMR part of the Bill, this issue will have a much fuller airing. Rather than fettering any future Government, this Government have taken the most important step of putting in place the legislative framework to allow a binding target range to be set in 2016. As I said earlier, it has to be set against a backdrop of a number of things and not taken in isolation. There are two issues that we must address: first, whether the Secretary of State should set future targets after the first target range is set; and, secondly, whether he should set a target range for a date earlier than 2030.
On the first of these issues, I agree with the noble Baroness that there is merit in the Secretary of State having the ability to set targets for years beyond the setting of the first target. After all, we are guided in this debate by the framework provided by the Climate Change Act, which looks out to 2050 and not 2030. I am pleased to say that the Bill already permits future target ranges to be set beyond 2030. On the second issue, I do not think that we should set a target as early as 2020 because we already have a suite of targets and measures that give very clear signals about the pace and trajectory of the power sector up to 2020. A further target at this stage would probably be very unhelpful and not very useful.
In addition, neither the Committee on Climate Change nor industry leaders have been calling for a decarbonisation target earlier than 2030. Their support is for a target that clarifies the long-term trajectory of the electricity sector. I think the noble Baroness accepts that that is a far better forward-looking view than shortening the timescale and adding uncertainty to industry by adding further targets to which it would have to adjust. Industry already has certainty until 2020. The issue about what more is needed, and when, beyond that date was aired fully in the previous debate.
This view was echoed at Second Reading by a number of noble Lords who argued that a decarbonisation target would be a way to provide certainty to investors. I think that I made the point clearly in the previous debate that we need to be able to set it with the fifth carbon budget and while looking at a whole range of other scenarios and mechanisms rather than setting it in isolation. We also need to look at what other countries are doing so that we do not put ourselves at a disadvantage competitively, ensuring that we are among the world leaders in the competitive race. I think it would start hampering industry if we keep adding targets to those it is already meeting. The noble Baroness’s colleague, the noble Lord, Lord Whitty, said:
“Most of the investment decisions that will be contemplated in the next two or three years will relate to a period beyond the current target of 2020”.—[Official Report, 18/6/13; col. 232.]
That provides a brief explanation of the Government’s view that the framework in the Bill is the right one and that it would be inappropriate either to set a target range for as early as 2020 or to set the range for 2030 before the setting of the fifth carbon budget in 2016. On that basis, I hope that the noble Baroness will withdraw her amendment.
Baroness Worthington
My Lords, I thank the noble Baroness for her response. I have to point out that at the moment we have a policy introduced by a Treasury, which is trying to achieve exactly what she said that the Government should not do; namely, to affect the merit order. She said that the merit order is subject to the market and that therefore we cannot do anything about it. Why then have the Government introduced a carbon floor price, if not to influence that merit order? That is exactly what it is designed to do and trying to encourage. Generators will internalise the price of carbon and therefore run their cleanest plant first. Let us be honest, the cheapest way in which we can hit our carbon targets is simply by supply companies switching to a cleaner station rather than a dirtier one. That is the lowest hanging fruit possible, which is why the carbon floor price has been introduced.
I do not think that the carbon floor price is a very good policy. It is not bankable. I know no one who is able to invest on the back of it. In fact, I have heard from suppliers that they are now no longer able to get PPAs for their thermal plant more than two years in advance because of the uncertainty of the carbon floor price. It is a suboptimal policy and it does make me wonder whether the Treasury is happy to throw its fine logic about not going further than Europe and always keeping with the pack out of the window the minute that the revenue starts to flow in. That is clearly what that mechanism is designed for.
It is scandalous that the Chancellor thought that it was insufficiently interesting even to mention it in his Budget, yet it will be raising billions—I repeat, billions—in revenue in the coming years. It has started already. There is a total illogicality here in the Government’s position. On the one hand, we are happy to introduce carbon floor prices and are trying to interfere with the merit order but, on the other hand, we are not prepared to give the consumer—the citizen—the reassurance that this is being done with the purpose of reducing the carbon intensity. That is the simplest, cheapest and most cost-effective way of reducing our carbon and meeting our targets.
I take the point about the 2020 target being quite soon. I put it at 2020 simply to point out that there is this 200 grams of carbon intensity that can be got at overnight. The Government should be spending every effort to try to make sure that that is achieved. I am afraid that the carbon floor price does not achieve that. It simply is not bankable and people do not feel confident to invest on the back of it.
I think that the 2025 target is necessary, partly because the fourth carbon budget which parallels it is subject to a complete lack of clarity. The Secretary of State’s report on setting the fourth carbon budget states quite clearly that the Government intend to make full use of flexibility and that if Europe does not change its targets in the ETS, we will revise that budget upwards. Where is the certainty there? There is none. A decarbonisation target would absolutely provide that certainty for 2025. We would then be in a much stronger position to meet our 2030 targets.
I will, of course, withdraw the amendment but I wonder whether the Minister would indulge me and perhaps ask her officials to consider a 2025 target and the advantages that might deliver. On that basis, I am happy to withdraw the amendment.
Lord Grantchester
Lord Grantchester
My Lords, I will speak also to Amendment 25 in this group. Amendment 12 ensures that, on a decarbonisation order being made, the existing requirement on the Government under Section 5 of the Energy Act 2010 to report on CCS developments every three years is not removed.
The Explanatory Notes state that,
“the repeal of the three yearly progress reporting requirement on decarbonisation and Carbon Capture and Storage contained in section 5 of the Energy Act 2010 … is to remove duplication, since the scope of these reporting requirements is covered by clause 3 of this Bill”.
However, that fails to recognise that under the Bill there is no certainty that there will be any reporting on CCS. Repealing the triennial reporting on both but bringing in requirements only on decarbonisation means that in effect there will be no reporting on CCS. This would be very unsatisfactory. Section 5(1)(a) maintains reporting on CCS.
The first and latest report on CCS was made in 2012. It is a very useful document which outlines the components of the Government’s CCS road map and the funding of research and development initiatives, including pilot projects. It outlines the development of the UK’s storage atlas, identifying nearly 600 storage sites across the UK. The report also puts into context UK action to support CCS by comparison with initiatives in other countries; for example, the US has two commercial-scale projects already under construction, with commencement of operation scheduled for 2014.
CCS is a hugely important technology for the decarbonisation of energy. My noble friend Lord Whitty has already mentioned EU Sub-Committee D. Its report emphasised the critical need for technologically and commercially viable CCS to be fitted to new coal-fired power stations in order to hit our carbon savings trajectory by 2050. While there has been slow progress at EU and UK level, the UK could yet achieve leadership through successful pilots, adequate resources and a clear regulatory framework. We have some of the best storage capacity in Europe. We have decades of offshore engineering experience that can be applied to this new sector.
Progress has certainly been unnecessarily slow. The introduction of contracts for difference in this Bill, together with the £1 billion made available to support demonstration projects, is intended to move things forward in the UK. We expect significant progress to be made in the coming years and regular reports on progress are therefore necessary. Future reports should continue to expand assessments of developments in other countries, including policy developments in the EU and projects under way elsewhere, such as in China, so that lessons can be learnt and our own strategy informed by the latest advances in other countries.
It is vital that Parliament is kept abreast of these CCS developments and we see no reason why the passing of the Energy Bill in 2013 should remove this useful requirement to report.
Amendment 25 would make the annual requirement follow the enactment of the Bill rather than as stated in Clause 3(3). The Energy Bill is intended to deliver a big increase in investment in low-carbon electricity in the UK. The measure of its success will be the rate of reduction of carbon intensity of electricity over time. This Committee has already debated the setting of targets for carbon intensity that are intended to give investors confidence by requiring that the Government maintain policies beyond 2020 to decarbonise electricity. However, we should not forget that there is a near-term challenge significantly to reduce carbon intensity in the UK as soon as possible.
As my noble friend Lady Worthington has pointed out already, there is significant potential to reduce carbon intensity simply by acting to ensure the merit order of existing plant is optimised. Unfortunately, a combination of low coal prices and high gas prices has led in recent years to a significant increase in carbon intensity. Between 2011 and 2012, carbon intensity rose from 450 grams per kilowatt hour to 530 grams per kilowatt hour as coal plants that would normally provide load-following capacity began to baseload.
Recent closures of plant due to sulphur restrictions under the large combustion plant directive should help to reverse this unfortunate trend. However, if we are serious about managing our carbon emissions and proceeding on a cost-effective path to our legally binding targets, we need a policy framework that rewards plant that are the cleanest and most efficient and that penalises the most polluting. Only then will the merit order be such that we are achieving our goals at least cost—knocking more than 200 grams off our carbon intensity without the need to subsidise any new plant at all.
The Government must not treat the carbon intensity of our electricity as an afterthought. It is one of the most important measures of progress and is how we can judge the success, or otherwise, of the Bill. The Minister may point to the annual reports contained in the Digest of UK Energy Statistics as a reason for not introducing annual reporting. However, this is a lengthy document, not intended for a parliamentary audience and, indeed, not even laid before Parliament. The triennial report produced in 2012 is a much more concise and useful document. It should be made an annual report, and this amendment seeks to deliver that.
While we are on the subject of the reporting of carbon intensity, does the Minister agree that, in the future, there will be demand for much more frequent reporting than annually? As the mix of electricity changes to contain more varying forms of power—from wind, wave and sun—there will be times of the year and times of the day when supply is high and prices will fall and also times when the opposite is true. Reporting the carbon intensity of electricity in real time will enable customers to see when it makes most sense, environmentally and economically, to use electricity. Reporting in real time would enable the development of tariffs that allow customers with flexible demand to profit from moving their demand to times when electricity is cheapest. The development of electricity storage solutions would also be facilitated as a business model, whereby demand is absorbed during times of high low-carbon supply and delivered back to the grid at times of low supply.
At the moment there are a number of applications that purport to report the real-time carbon intensity—GridCarbon and Realtimecarbon being just two. However, it is not clear whether these applications, which take data from the national grid and use them to calculate the carbon intensity of all the plant delivering electricity to the transmission, are accurate. A considerable volume of renewable generation—several gigawatts—is connected directly to the distribution network and may not be being captured by these grid-based applications.
It is time that the Government took a lead in developing a gold-standard methodology for providing this information and I would be grateful if the Minister could comment on whether her department can undertake this important task. I beg to move.
Lord Deben
My Lords, perhaps I might counsel the Minister to be very careful about accepting these amendments. They seem to confuse a range of different things. They also demand a degree of reporting that might get in the way of the action that I hope will be carried through. The reporting system we have at the moment was designed by Parliament. It stipulates that there should be reports from outside the ministry on the ministry’s and the Government’s performance. If there are areas where it is not done properly, I, as chairman of the climate change committee, would want to know that, in order to see whether we should produce reports in areas that we do not cover at the moment.
I am very concerned about the current desire to report so often as we go along that we do not actually do things. I see this throughout government. We have to be extremely careful. There are two kinds of issue here. The idea that we should have reporting more often than once a year, and that we should have real-time reporting, are issues of such concern that it would perhaps be better if we did not proceed down that route during consideration of the Bill, where there are many decisions to be made on specifics.
I am also unhappy about the proposed constant series of carbon intensity targets. That would be a totally different way of looking at the matter from the suggestion that we needed an interim target to give some kind of parameter and scale to what we are looking at. If we are going to start tying people down to very much closer targets, it will raise issues that go much further than the Bill, towards the way in which government and industry interrelate. I hope that on this occasion the Minister will feel that this is something that should be thought about more carefully before we take on board what is proposed.
Lord Oxburgh
My Lords, I will not take up much time. The noble Lord, Lord Deben, may be right that this level of reporting may be a little excessive at this stage. However, it is important that the Government should recognise, if they take seriously the 2050 decarbonisation target, that it is almost certainly unachievable without CCS. That is a crucial technology if the target is to be achieved.
Baroness Verma
My Lords, on Amendment 12, Clause 1(8) gives the Government the power to repeal the reporting requirements in Section 5 of the Energy Act 2010 only if and when the power to set a target range is exercised. If the power is exercised, Section 5 in its entirety could be repealed. Section 5(1)(b) of the 2010 Act requires the Secretary of State to report on the development and use of carbon capture and storage technology. If it was decided to repeal Section 5, we would expect any progress on carbon capture and storage to be included in the annual statement on the decarbonisation of the electricity sector as a whole. This would occur under the requirements of Clause 3.
The power to repeal Section 5 of the 2010 Act has intentionally been framed as a power. It reflects the need to leave open any decision in this respect, as we will be better placed to take the view at the time of making a decarbonisation order because of the greater level of information that will be available. For example, we could expect good progress to be made between now and the making the first decarbonisation order, which will further develop our understanding of carbon capture and storage, and of its future prospects for deployment. If in due course there are reasons to believe that retaining the duty in Section 5(1)(b) of the 2010 Act is appropriate, of course those reasons will be borne in mind when we consider whether to exercise the power to repeal Section 5.
Amendment 25 proposes that the reporting of grid carbon intensity should commence following enactment. The Government’s view is that it is logical for the annual reporting of grid carbon intensity to be triggered by the setting of a decarbonisation target range. Until such point as this is set in a decarbonisation order, the three-yearly reporting requirement under Section 5 of the Energy Act 2010 will remain, meaning that the Government will continue to report on grid intensity, even ahead of a decarbonisation target range being set.
The noble Lord touched on consumers getting real-time information on energy usage. He will, of course, be aware that the Government are working on the smart meter mass rollout, which will be completed by 2020. Consumers will have an opportunity to have real-time information on their energy consumption, helping them to control energy use, save money and reduce emissions.
Lord Oxburgh
I want to rectify an omission from my previous intervention. I should have declared a non-financial interest, as president of the Carbon Capture and Storage Association.
Lord Grantchester
My Lords, it has been interesting to hear the comments around the Committee this afternoon. I am interested in the words of the noble Lords, Lord Deben and Lord Oxburgh, on the subject. CCS is a very young technology and reporting does not necessarily mean that it will stop things happening. If we do not start monitoring this new activity, how will it inform and clarify actions? I am slightly hesitant to accept some of the Committee’s comments, but, nevertheless, the Minister gave a rather technical response to some of the issues. In large measure, she gave an explanation about supporting how reporting may change. I shall study her words in greater detail, reflect on the Committee’s comments and in the mean time, I beg leave to withdraw this amendment.
Baroness Verma
The Earl of Caithness
May I check with my noble friend that the inclusion of the words “the Department of Enterprise, Trade and Investment” is solely because of the connection with Northern Ireland? It looks a little odd to have two devolved Ministers of Scotland and Wales and a government department.
Baroness Verma
My noble friend has raised the point about Northern Ireland. The relevant department in Northern Ireland responsible for energy policy is the Department of Enterprise, Trade and Investment. I cannot read the rest of that note, I am afraid.
Baroness Maddock
“( ) ensuring that any impact is consistent with the current aims of the Warm Homes and Energy Conservation Act 2000 by prioritising efficiency standards of fuel poor households by certain dates;”
Baroness Maddock
My Lords, this amendment is in my name and that of my noble friend Lord Teverson. I, too, welcome this decarbonisation section of the Bill. I strongly support the comments of my noble friend Lord Stephen. I also need to declare interests, as I did at Second Reading. I am president of the microgeneration group of the Micropower Council. I am also the vice-president of National Energy Action. In my Second Reading speech I mentioned the fact that we deal with fuel poverty, and that this was one of the issues I wished to deal with during this Bill: hence the amendment.
The other amendment that deals with this is Amendment 23. Both the noble Baroness and myself, in moving these amendments, have tried to find somewhere in the Bill where we can hang fuel poverty, so that we can get the Minister to show some recognition that it will affect people in fuel poverty and that we still need to do things to address that.
In this section, Clause 2 sets out the matters that must be taken into account in setting or amending a decarbonisation target range. Clause 2(2)(e) refers to social circumstances, in particular the likely impact on fuel poverty. My amendment seeks to link this to the aims of the Warm Homes and Energy Conservation Act 2000. The purpose of the amendment is to ensure that there is recognition of the scale of the impacts of the Bill on fuel-poor households, both now and in future Parliaments, and to facilitate the introduction of suitable, ambitious, mitigating policies.
I have probably strayed slightly into another section of the Bill, but it is difficult not to do so on this issue. Electricity market reform and the introduction of the carbon floor price will impose new and as yet unknown costs on low-income and vulnerable households. The noble Lords, Lord Deben and Lord Jenkin, in their earlier comments, tried to put some figures on what they thought might happen to bills as a result of some of the measures here, but we can only estimate what the effects will be. The Warm Front programme, which provided public funding for heating and insulation measures, to help fuel-poor households, came to an end in March this year, and its replacement, the warm home discount, is paid for by all energy consumers, including low-income households, some of which cannot benefit from the scheme. Interestingly, Scotland, Wales and Northern Ireland have continued, and in some cases expanded, their tax-funded energy schemes to help fuel-poor households.
With help for fuel-poor households falling, and the proposals in the Bill and elsewhere, there is little sign of bills reducing between now and 2016, the date by which fuel poverty should have been eradicated as far as is reasonably practicable. The consumer will almost certainly pay more in the short to medium term, but the Government are committed to meeting other relevant binding commitments, in particular the current aims of the Warm Homes and Energy Conservation Act 2000.
This is really a probing amendment to see where the Government think they can assist those in fuel poverty while at the same time introducing the measures in the Bill. I hope that the Minister will acknowledge the impact of proposals in this Bill on low-income and vulnerable households, and will indicate how some of the effects can be mitigated, particularly by prioritising the energy efficiency standards of fuel-poor households, and of course by keeping the Bill in line with other legislative commitments. I hope that the Minister will recognise that the Committee on Climate Change highlighted this need just last week in its fifth progress report to government.
This is a short intervention that I hope will give the Minister the opportunity to tell us how the Government view vulnerable customers, and how this Bill will affect people in fuel poverty. It may be that we will look rather more carefully at this on Report, depending on what the Minister has to say in reply. I beg to move.
Lord O'Neill of Clackmannan
I rise to support my fellow vice-president of National Energy Action. I should perhaps have mentioned that before, because I touched on fuel poverty in a previous intervention and did not declare my interest.
It is important that this issue is brought to the attention of Ministers at this stage, because I think that it is fair to say that the Green Deal has not been a great success so far. It may well be transformed over the summer, but, as far as improving the quality of energy-inefficient households is concerned, it has yet to make the impact that some of us were not sure about but others had perhaps undue faith in. None the less, it is at the moment the only government-led initiative on energy efficiency and it ought to have an impact on those households where the quality of the fabric of the house is a major contributor to what we call fuel poverty. Fuel poverty is currently defined as households in which more than 10% of the income is accounted for by energy prices. This may be subject to redefinition in the next few months, but, even if the definition were radically changed, I do not think that fuel poverty would disappear before 2016.
Much has quite correctly been made of the fact that all households will be paying for a lot of the green measures being taken. These green measures fall on electricity consumption. At the moment, some 8 million of the 26 million or 27 million households in the United Kingdom do not have gas. That means that, for the purposes of heating, they are dependent in the main either on electricity or on oil. They therefore pay a disproportionate amount of their energy costs in supporting these so-called green measures. We should give notice to the Minister that this will be a recurring theme, because households that are outwith the gas grid are disadvantaged at the moment. Those households are doubly disadvantaged because they have to pay what seems to be a disproportionate amount of money as far as electricity is concerned. This has been mitigated somewhat. At one time, there was an almost poll tax-style arrangement whereby every household paid the same amount; it is now going to be measured on consumption of units of electricity, so that is a slight improvement. However, there is a long way to go on this.
Those of us who are not antagonistic to this legislation—we may be in the Opposition, but we realise that many aspects of it are necessary for a variety of reasons—will nevertheless not look idly or sympathetically at it if it fails to address a number of glaring examples of bureaucratic mistakes and unintended consequences. We spoke earlier today about the need for investment. There will be a series of leitmotifs at the back of this legislation. One of those will be the disadvantage to which certain types of household are put, through no fault of their own, as a result of having to pay a disproportionate amount of money to fund a lot of the green initiatives involved in this legislation. Sometimes, such disadvantages are a consequence of previous legislation, but we need to keep this at the forefront of our minds.
I realise that, at this stage at least, this is a probing amendment. Aneurin Bevan once said that silent pain evokes no response. We have to remain mindful of the fact that a number of households in this country are suffering a great deal because of energy prices that have been rising, which are likely to rise even more and which, at present, we are not confident will get the kind of mitigation that we had hoped would come from the Green Deal because of the low take-up and the almost total indifference to it of the private landlord. Of all the disadvantaged groups, those in privately rented accommodation seem to get the roughest end of every stick directed at them.
Baroness Liddell of Coatdyke
My Lords, I will be brief because a lot of what needed to be said in this debate has been said by the noble Baroness, Lady Maddock, and my noble friend Lord O’Neill. However, at some stage we need to focus on fuel poverty issues. I declare an interest as a non-executive director of the Offshore Renewable Energy Catapult. I am very conscious that the change in the structure of the market proposed in this legislation is complex. I echo the words of the noble Lord, Lord Oxburgh, who said that the model is complex and relatively expensive. With my commitment to renewal energy, I know that we are talking in many respects of infant industries and that there will be additional costs. I have no doubt that in the long run we will see energy prices come down, not least through the introduction of nuclear energy, but, frankly, in the long run we are all dead. We need to try to find something now to mitigate the impact on the fuel poor of the possible side effects of this legislation.
As regards change in the energy markets, as a policy-maker I have always felt that no change is a change for the better if it means that someone else is worse off—the old concept of Pareto optimality that some of us who are in our prime will remember. Under this legislation there is a real risk that the most vulnerable will be worse off. The Government’s own figures estimate that 4 million people in England are fuel poor. Many of those are particularly vulnerable and are also affected by, for example, the bedroom tax and stringency in local authority budgets. They are the people who can least afford to have these increased costs placed upon them.
The Bill is about market manipulation. I do not have a problem with that. If you are to change the nature of an industry, you need to manipulate the market. What I am pleading for—I will return to this at a later stage—is that, in manipulating the market, we seek to mitigate some of its worst effects on the most vulnerable. I seek to put another weapon in the armoury of the Secretary of State so that he or she will be in a position in the future to draw upon instruments that will mitigate the impact on the fuel poor.
There has always been a consensus in this Parliament, certainly in the years that I have been here and certainly since 2000, on the need to act to protect the fuel poor. In a building such as this which is well heated and where we are well fed and looked after, we may not realise the impact that the inability to turn on a heater has if your house is cold and damp. In Coatdyke, where I and my title come from, people are issued with hypothermia meters for their houses to make sure that they do not suffer from hypothermia. I acknowledge that this provision does not directly relate to that part of the country, but whether you come from the north of Scotland, the Yorkshire dales, Derbyshire or wherever, it is a damning indictment of our society that poor people have to choose between putting on their heating or feeding themselves. That is a choice none of us should have to make in a civilised society. In 2000, we set targets that should be reached by 2015. The most recent work by the NEA suggests that we are going backwards. That is not a good position in which to be.
I urge the Minister to bear in mind the significance of fuel poverty and to give us some indication of whether the Government are looking at mitigating factors. I take the point about the Green Deal. As I pointed out at Second Reading, you need money to get into it. If you do not have money, you cannot buy into the Green Deal and get assistance, for example, to protect or heat your home, or to ensure that it is properly insulated.
This is a probing amendment. I will not seek to engage the Committee much longer. However, if we come to the end of the Bill and we have not done something about the poorest in our society, we will have let them down.
Lord Deben
The climate change committee raised some very important issues about fuel poverty. We have a commitment to do that. My noble friend Lady Maddock pointed to it. Has the Minister had a chance to register our concerns? They are specific and bear on the way in which the Green Deal is operating. It is important for us to take that into account. I hope that she will be able to help me here.
I am always concerned about the expression, “fuel poverty”. When I was chairman of a statutory water company—I am still chairman of a water company that has interests in the industrial area—I was very concerned about the poverty that meant that people found it difficult to pay their water bills. There is an issue around these fundamental necessities of life. I do not like to put it all to one side. I have stopped myself having anything to do with one part of a business that connects electricity of any kind—it is agnostic about the sort of electricity—but I try to keep in touch with the same issue that we knew in the water industry as it relates to the supply of fuel. There is an issue about some forms of help that we thought would be more extensive: for example, solid-wall insulation, which is a real problem in some of the poorest parts of the country. I very much hope that my noble friend will be able to say when she will look again at the effects of government policy in the particular areas to which the climate change committee drew attention.
Lord Teverson
My Lords, I put my name to the amendment of my noble friend Lady Maddock. In three areas of the draft Bill there were major omissions—omissions as opposed to emissions. One such area, which we will probably come to on day 7, 8 or 9, is demand-side management. We have started to discuss decarbonisation. The Government have started to rectify both those omissions. The third area is fuel poverty. I will not go through the arguments again. As the noble Baroness, Lady Liddell, said, 4.5 million people are affected. The figure is slightly lower than the previous year for which statistics are available, but it is still atrocious for a civilised society that expects a certain standard of living and of life for its citizens.
The other area, which is slightly more contentious, is the excess number of winter deaths. The figure for the winter before last is estimated at 24,000. That is an even greater indicator of a failure of policy, and a failure to look after the citizens of this country. As the noble Lord, Lord O’Neill, said, the Green Deal is absolutely the right instrument, but it is taking time. I can see that the noble Lord is looking sceptically at me. However, the Green Deal will not rely on national budgets if we can make it work. It will be primarily privately financed and self-funding, so at the end of the day political decisions will be taken out of it. However, it still has to prove itself.
One area of the Bill that has to be strengthened—I am aware that this is a probing amendment—is the fuel poverty agenda. It is mentioned in this one line. This amendment would strengthen it. But the Government have to take this back, not just to the Department of Energy and Climate Change but to other departments, and really try to balance this change in legislation within a context of rising energy prices. I believe that it will bring down those rising energy prices in the future, but they are certainly going to be there in the short term. As has been said, rightly, they discriminate against those who are stuck with a completely electric household in terms of heating.
I look forward to hearing from my noble friend the Minister how the Government want to approach this as the Bill proceeds through the House. I hope that we can find a way in which this can be taken into account when this Bill goes on to the statute book.
Lord Oxburgh
My Lords, I, too, am extremely sympathetic to the objective of this amendment. But perhaps I am alone in not really seeing why fuel poverty is different from other kinds of poverty. For example, why do the Government not put one point on the rate of VAT on fuel and simply direct the proceeds towards dealing with fuel poverty as part of the general poverty issue?
The difficulty here is that we already have a complex Bill and a complex situation, and we are making it even more complicated if we try to solve a real and very important social problem at the same time. Unless there is something that I have not seen about this, I would much prefer to see this dealt with directly.
Lord Whitty
My Lords, we on these Benches strongly advise the Government to accept something like this wording in this part of the Bill and to reflect on what has been said. Some greater reference to fuel poverty needs to appear at some point in the Bill, probably in Part 6, which deals with tariffs. I certainly will be coming back to it in that respect.
If memory serves, the noble Baroness, Lady Maddock, was one of the progenitors of the warm homes Bill. She says that Ministers should consider this amendment, which they absolutely should, and my noble friend Lady Liddell says if they find something is going wrong, they should do something about it. Again, if memory serves, my noble friend Lady Liddell and I were the two Ministers who signed off on the original fuel poverty strategy in 1999, and we did very well on it for about six years.
However, since about 2005, fuel poverty has been increasing by almost any measure. That was not due simply to the fact that I had left the Government and my noble friend Lady Liddell had disappeared to the Antipodes temporarily but that real fuel prices were going up and the effectiveness of interventions on the energy efficiency side were diminishing. As the noble Baroness, Lady Maddock, said, not only is the ending of Warm Front, CERT and CESP affecting the total resources available on fuel poverty but at the moment the ECO, which was supposed to replace them, is not being spent efficiently. It may improve, but the unit price of interventions is going up, supply companies are seriously concerned about the cost of meeting their ECO requirements, companies in the installation business are running out of work, installers and insulators are being laid off, and for many others who are currently working on the back end of the previous programmes, that work is going to run out within a matter of months or weeks.
We have a very difficult situation, which the Government need to address. I agree with the noble Lord, Lord Oxburgh, that it cannot be addressed directly in this Bill but at least when we are talking about the multiple objectives of energy policy, one of them must be the social objective of reducing fuel poverty. I hope, therefore, that the Government can accept something like the wording proposed here and we could perhaps look at the back end of this Bill to try to do something very substantial about fuel poverty. It is an appalling record for both the previous Government and this Government that we have failed to address this problem, which affects the most vulnerable of our citizens. I hope to get a positive response from the Minister.
Baroness Verma
My Lords, I agree that fuel poverty is a real and serious problem faced by many households today. It is one that this Government are determined to address. The intention of Amendments 15 and 23 is to require the Government to consider the impact on the fuel poor of setting a decarbonisation target and provide for mitigating action to offset any consequential impact. We have already taken significant action and I disagree with the noble Lord, Lord Whitty, when he says that ECO is not working. It is early days. ECO works alongside the Green Deal and ensures that help goes to low-income and vulnerable households to enable them to heat their homes more affordably. Energy efficiency measures have already helped 75,000 households this year. It is a long-term programme and, as with all programmes that are implemented over a long period of time, the results are going to be a lot slower than perhaps one anticipates. However, that is because there are a number of processes that people have to go through.
As part of the spending round, last week’s government spending review announced an increased budget of £320 million for the warm home discount in 2015-16, which I hope makes clear our commitment to continuing action to tackle fuel poverty. The warm home discount reaches 2 million households a year, including more than 1 million of the poorest pensioners. It offers direct support when and where it is needed the most. So we are already taking considerable action.
Fuel poverty is already covered, in part, by Clause 2(2)(e), which requires the likely impact on fuel poverty to be taken into account. However, I am sympathetic to the concern expressed by my noble friend Lady Maddock and the noble Baroness, Lady Liddell, that we must not lose sight of the impact on the fuel poor as we seek to ensure we have a safe, secure, low-carbon future. There are issues with the suggested amendments as drafted which mean I cannot accept them. However, I undertake to consider this issue further and hope, on that basis, that my noble friend Lady Maddock will agree to withdraw her amendment and that the noble Baroness, Lady Liddell, will not press hers when the time comes.
Baroness Maddock
My Lords, I thank the Minister for her reply and thank all noble Lords who joined in this short debate. I tried to keep my remarks fairly brief to begin with because I was conscious of the time but was very grateful that noble Lords who joined in all brought in really important points to make the case that I was trying to make. I am also grateful to the noble Baroness for indicating that, as we go through the Bill, we may be able to have something a little more definite.
What really concerned me was that we have all sorts of legislation around the area of energy and energy efficiency and I wanted to make sure that we are joining things up. That is why I mentioned the Warm Homes and Energy Conservation Act. The Government have obligations under that to do certain things, and those obligations will be affected by what is in this Bill. We need to be quite clear on how we are going to deal with it. As I and other noble Lords have indicated, some of the schemes that brought quite a bit of help to those with homes that were not energy efficient have changed.
In the light of where we are going in the future and in the light of this Bill, we need to be conscious of joined-up government, with particular regard to vulnerable people. In this case, of course, I am concerned with those who are vulnerable—one Member said they were not comfortable with the expression “fuel poverty”—in the sense that they cannot afford to keep their homes warm. As I said at Second Reading, it is something I have campaigned on for 40 years, and I am always disappointed. The NEA, the charity that champions the cause of the fuel poor, hoped when it was set up that it would not still be going 25 years later and that we could have done something about it. I hope that, at least in this legislation, we can recognise that we have not done too well and that we have to have regard to it. I look forward to what the Minister may come forward with at a later stage but, in the mean time, beg leave to withdraw the amendment.
Baroness Verma
Lord Turnbull
“( ) the extent to which competitor nations are committed to and are implementing carbon reduction strategies;”
Lord Turnbull
My Lords, I beg to move Amendment 18, which is related to Amendment 19. I expect the noble Viscount, Lord Ridley, will speak to the other amendments in this group, which I also support. Climate change can be thought of at three levels. First, level 1: do you accept the orthodox view of the relationship between CO2 and temperature? Secondly, level 2: do you accept what we are told about the impact of any given temperature increase on the planet? Thirdly, level 3: supposing you accept levels 1 and 2, do you believe that the right set of responses is being proposed in the right order? In other words you can buy in completely, as I think the noble Lord, Lord Jenkin, does, to levels 1 and 2 but remain largely a level 3 sceptic, which is where I started. Levels 1 and 2 are really about Second Reading things, which we probably have discussed enough, so we will concentrate on the responses in the Bill.
These amendments highlight two concerns about these policy responses. The first is the pronounced unilateralism of the UK’s approach, based on a statutory duty to reduce carbon intensity of economy, which is equivalent to reducing CO2 per unit of GDP by more than 90% in just over 40 years. The second is the issue in the amendment in the name of the noble Viscount, Lord Ridley, as to whether some of technologies are all that they are claimed to be in terms of cost CO2 per tonne abated.
Six years ago during the passage of the Climate Change Bill, I expressed some concerns about the Government’s approach. I said:
“First, the target set for 2050 appears to be largely unconditional and unilateral. The UK will commit itself to this target irrespective of the performance of other nations. The reality, however, is that our own contribution by 2050 is unlikely to be crucial, so we are”—
relying—
“on the exemplary effect: in other words, we cannot carry conviction in international debate if we do not carry our full share of the burden. There is genuine validity in this, but we should not be naïve and rely on it too heavily. If we fail to persuade other nations, we could be left in 40 years’ time having paid heavily to decarbonise … and still incurring the costs of rebuilding our sea defences and water resources. The Bill should therefore contain a duty to work actively internationally for more demanding targets”.—[Official Report, 27/11/07; col. 1156.]
To be fair, Her Majesty’s Government worked actively for an international agreement with demanding targets but the landscape has changed because their efforts were unsuccessful. The Kyoto accord has expired and has not been replaced. Negotiations continue but a global agreement is looking more and more forlorn. In my view, China and India will never agree to binding limits on their emissions while they have hundreds of millions of their citizens yet to be lifted put of poverty. Although China aims to reduce the carbon intensity of its output, its growth is so fast that its emissions will continue to rise for many years, as was made clear by its negotiator at Doha. Between them, India and China are planning some 800 new coal stations. Without these two countries, the US will never join, although it is doing very well at reducing its emissions on its own. Canada has opted out of this process and Russia, which signed up last time, will not join a second time.
Even among those which did sign up, the sound of backtracking is becoming a roar as economic realities begin to bite and the case for such rapid adjustment is questioned. Subsidies for renewables are being cut back sharply in Germany and Spain. Germany has held up new targets on vehicle emissions and the EU specifically declined the opportunity to shore up the failing ETS.
Fortunately, the penny has begun to drop in some parts of the coalition. In 2011, in his Autumn Statement, the Chancellor of the Exchequer said:
“We are not going to save the planet by shutting down our steel mills, aluminium smelters and paper manufacturers. All we will be doing is exporting valuable jobs”—
out of Britain, and that,
“we should not price British businesses out of the world economy. If we burden them with … social and environmental goals, however worthy in their own right, not only will we not achieve those goals, but the businesses will fail, jobs will be lost, and our country will be poorer”.—[Official Report, Commons, 29/11/11; col. 807.]
I could not put it better myself.
In his 2012 Budget the Chancellor said:
“I will always be alert to the costs that we are asking families and businesses to bear”.—[Official Report, Commons, 21/3/12; col. 798.]
One can detect some backtracking here in the UK, such as reining in overgenerous feed-in tariffs and the refusal to set a 2030 target, which we have just discussed—although the Liberal Democrat end of the pushmi-pullyu is still driving on regardless.
Perhaps the best example—after the noble Lord, Lord Jenkin—of the level 3 sceptic is Professor Dieter Helm. In an article last October headed “UK Energy Bill is Fiasco in the Making,” he wrote:
“The result is that the government instead is picking its chosen ‘winners’ amongst the low carbon technologies, in part driven by the EU Renewables Directive. This has resulted in some of the most expensive technologies being picked first, notably offshore wind and roof top solar. Not only does this result in far higher bills than are necessary to British customers, but it makes almost no difference to global warming”.
In March this year DECC produced a paper on the extra costs of energy and climate change policies, which I commend to you. The table on page 53 shows that a large user, who consumes some gas and some electricity, faces additional costs of 21% to 48% by 2030. If other countries do not follow similar policies with the same zeal, the results will be very damaging for the UK. The purpose of this amendment is to address the unilateralist problem explicitly so that we can put an end to this attention-seeking and self-harming behaviour. In the matters to be taken into account in Clause 2(2), I suggest that the vague,
“circumstances at European and international level”,
be replaced by a reference to the extent to which competitors really are reducing carbon emissions.
The next amendment would require the Secretary of State to report on what he has discovered on all these “take into account” items before moving on to lay a decarbonisation order. These issues will not go away and I look forward to the Minister responding to them and explaining how we can have information that would enable us to judge our true relative position.
Lord O'Neill of Clackmannan
For the convenience of the Committee, would the noble Lord tell us for how much longer we will go on this evening? I was under the impression that we would finish at 7.30 pm, but we also had a target number of clauses to reach. The target is still some distance away and we are now well past 7.30 pm. Could we have some indication of what is happening?
Lord Gardiner of Kimble
My Lords, that is the estimated rising time and we agreed with the opposition Whip that we would continue with this last group because we are behind schedule in terms of the clause target. This is the last group that the Committee will consider today.
Viscount Ridley
My Lords, I support Amendments 18 and 19 from the noble Lord, Lord Turnbull, but I will mainly address my remarks to Amendment 20. I declare my interests as detailed in the register, which include not just coal, but also wood, which I shall criticise. The purpose of Amendment 20 is simple and I hope helpful to the Minister. It is to check that we do not buy the wrong technologies. The only reason for investing in wind is to cut carbon emissions. After last week’s strike price announcement, it cannot be to cut electricity bills. If one were to assume that every megawatt hour from wind displaces one from coal, the cost of carbon reduction from wind will still be exceedingly high—well over £100 a tonne.
However, can we even make this assumption? There is now good evidence from other parts of the world that wind does not achieve anything close to the emissions cuts assumed by the Government. National Grid recently announced that wind power had saved 11 million tonnes of CO2 emissions here over 18 months and little back-up fossil fuel was burned to compensate for the intermittency of wind. Even if this were true, it is just 1.5% of our emissions, but it is a most misleading calculation. It assumes that the only fossil fuel needed to back up wind was that needed to compensate for the discrepancy between forecast wind speed and actual wind speed. That is only half the story.
For a more realistic result we must take into account studies in Colorado, Texas, Illinois, Holland and Australia, all of which show far smaller CO2 savings than expected. More recently, I understand that another study soon to be published, from Ireland, finds that the actual savings of CO2 due to wind turbines are less than half of those assumed by the National Grid, DECC and others. The intermittency of wind results in more start-ups and shutdowns of gas plants, which uses fuel less efficiently and so produces more CO2. This problem is bound to get worse in the future because, as wind capacity increases, it has to be backed up by plants that are less good at starting up and shutting down.
Lord Flight
My Lords, Amendment 21 is in my name. I apologise that I was unable to attend Second Reading. This is an empowering amendment to address an issue that could be of benefit to government going forward. As many noble Lords may be aware, an economically viable and clean fuel solution for HGV fleet operators has been pioneered by a company called Gasrec, and is now being followed by others. I should make it clear that I have no interests to declare, and gain no remuneration from these sources.
The new fuel is bio-LNG, which is an alternative to diesel. It is gaining significant support in the logistics sector, with Tesco, Sainsbury’s, Waitrose, UPS, DHL, B&Q and Eddie Stobart all participating. It is a blend of liquefied biomethane and liquid natural gas, and it is cheaper than diesel. It is also sustainable and fully compliant with the sustainability criteria for biofuels, as per the EU renewable energy directive 2009. It has the lowest carbon intensity of any vehicle fuel and, so far, the LBM in the blend remains the only way to address CO2 emissions in HGVs. It is therefore rather concerning that the delivery of bio-LNG production is currently undermined by the UK subsidy system.
As noble Lords will be aware, over the past 10 years the incentive schemes for bioenergy have offered different levels of incentive, depending on end use. Bio-LNG has been available only for the past 18 months, and its feedstock for production—biogas from large anaerobic digestion plants—is likely to be diverted by the terms of the existing renewable heat incentive regime away from bio-LNG to renewable energy and heat, for which of course there are many alternative renewable energy sources.
The RHI regulations adopted in 2001 create a system of incentives designed to promote renewable heat, including in particular the injection of biomethane into the gas grid. The threat to bio-LNG production arises from the current higher incentives for developers of large AD plants to inject biomethane straight into the gas grid. The RHI is set at 7.1p per kilowatt hour for direct injection, with no reduction for larger AD plants benefiting from economies of scale, compared with only 2.18p per kilowatt hour for LNG production.
The effect of these incentives is to encourage large operators to plunder the RHI pot for super-profits, somewhat reminiscent of solar FIT tariffs back in 2011, at the expense of smaller AD developers and farmers, for whom the RHI funds were particularly intended, and the loss of biogas from larger AD plants that are ideal for the production of LBM and thus bio-LNG fuel because of their scale. It is not practical or economical to source an aggregate biomethane from small AD developers for bio-LNG because of the logistical problems with collection. It is thus impossible for producers of bio-LNG to offer large AD developers financial super-returns, which are presently available from direct grid injection as a result of the subsidy regime.
The 2001 regulations notified by the Government to the European Commission under Articles 107 and 108 of the Treaty on the Functioning of the European Union, covering state aid, were amended in 2012 and final approval was given this year. However, development of bio-LNG was not contemplated at the inception of the RHI programme. The Commission was not aware of the distortion of competition that subsidies would lead to in the market for AD biogas, particularly regarding large producers, or of the super-returns large AD developers would enjoy for grid injection at the expense of the taxpayer and smaller developers, for whom the subsidy was essentially designed and approved by the Commission.
The distortions are now clear and ought to be notified to the European Commission but there is a better solution for the Government to address the distortions of competition, which normally would necessitate further secondary legislation, in the opportunity provided by the passage of the Energy Bill to re-establish the principle of a level playing field. The level playing field principle in the 2011 regulations could be established without significant impact on the architecture of the Bill.
Following establishment of the principle of non-distortion, the Secretary of State would have to consider how regulations might be amended to reflect it. This is what Amendment 21 is designed to achieve. I hope that the Government will take heed of the points that I am making and might consider adopting this amendment. If not, as is likely to be the case, I am seeking some undertaking from the Minister to introduce the Government’s own amendments or other measures to achieve the desired outcome. Refusal to address this issue would be commercially foolish and certainly anti-green in terms of what the Bill is seeking to achieve overall.
Lord Grantchester
My Lords, Amendments 18, 19 and 20 all deal with the way in which the Secretary of State will come to a decision on the target level to set, and the level of scrutiny given to this process.
We agree that a greater degree of transparency and independent underpinning is needed in this process. We have already debated amendments in the name of the noble Lord, Lord Oxburgh, and my noble friend Lady Worthington that would ensure this decision is guided by the highest level of independent expert advice—that of the Committee on Climate Change. These amendments would also ensure that should the Secretary of State not follow the scientific advice, the reasons for this decision would be publicly available for scrutiny.
However, Amendment 20 seems to suggest that another independent study should be made. The noble Viscount, Lord Ridley, did not make it clear who would undertake this independent study and what would be the situation were it to come to a conclusion that was different from that of the Committee on Climate Change. But, of course, the Committee on Climate Change already produces the data and it is undoubtedly independent. One only has to look at its continued calls, in the face of government opposition, for a resetting of the decarbonisation target now to secure investment. We are certainly interested in what the noble Viscount believes would be lacking from the advice of the Committee on Climate Change that could feasibly be provided in an alternative independent study, albeit he may claim such a study would be more rigorously scientific and independent in nature.
I humbly suggest that Amendments 18 and 19 are unnecessary and misguided. The Climate Change Act enacted by the previous Labour Government was the first legislation of its kind anywhere in the world. It provides concrete, legally binding evidence to the market and the rest of the world about the UK’s commitment to achieving its climate change mitigation targets. Earlier, the noble Lord, Lord Deben, spoke powerfully about climate change and said that the global network on climate change has shown that 33 countries have already passed climate change legislation, and that this number is growing. The United Kingdom is the world leader in climate change legislation and we must send the strongest possible signal to the market that we wish to continue to lead in low-carbon power by legislating for a decarb target that would bind the Secretary of State and provide certainty for investors as soon as possible.
The extent to which other countries are implementing their carbon reduction strategies is, of course, a concern in global emissions terms, but it should not be a block on the UK taking action. It was said earlier that China is not interested in climate change strategies. However, we contend that it certainly is and is investing huge resources in developing and commercialising low-carbon technologies, as is America. We only have to look at President Obama’s words last week, when he stated that,
“we have to look after our future; and we have to grow the economy and create jobs. We can do all of that as long as we don’t fear the future; instead we seize it”.
On Amendment 21 in the name of the noble Lord, Lord Flight, our understanding is that there is an issue regarding the potential overpayment of support for producers through the RHI, and therefore of funds not flowing through to the transport market. Producers claim that there is an imbalance with an excess going into the natural gas grid. Clearly, it is regrettable that renewables and low-carbon producers should feel at odds with each other in this situation. Therefore, we will be very interested to hear the Minister’s response as to whether any more could be done through the RTFO to support and incentivise the use of biomethane as a transport fuel.
Lord Oxburgh
My Lords, I had not intended to contribute to this debate but several remarks have been made which ought not to go unchallenged. I subscribe to a number of the points made by the noble Viscount, Lord Ridley, but seriously question his methodology. However, that is something we can pursue more effectively outside this Room. It is extremely difficult to talk about the cost in carbon or cash of any single element of a multicomponent system without defining the system as a whole and then looking at its performance with or without the element with which one is concerned.
Baroness Verma
My Lords, the concern behind Amendment 18, proposed by the noble Viscount, Lord Ridley, and the noble Lord, Lord Turnbull, is a familiar one: that, if we move too fast and too aggressively in reducing UK emissions, we will leave ourselves open to competitive distortions in the market or drive carbon-intensive industries offshore.
It is a valid concern to which the Government have given great thought. It was in response to it that we announced that £250 million would be made available to help energy-intensive industries to manage the cost of complying with emission-reduction legislation and to avoid competitive distortion.
Amendment 18 is concerned with the provisions in the Bill relating to a decarbonisation target range. I reassure noble Lords that it is the Government’s clear view that, while it is vital that we meet our legally binding goals on reducing emissions, we should do so at least cost to the economy, the taxpayer and the energy bills of households and businesses. We will continue to provide clear and public analysis of this in all our considerations of the pathway towards 2050.
Amendment 19 draws our attention to the need to ensure that we really are getting the emissions reductions that we expect from the deployment of low-carbon electricity generation technologies. The emissions associated with generating electricity are a function not only of what type of technology is being used but of how efficiently that technology is operating, the load factor at which it operates and other factors. That is precisely why the Bill is drafted as it is. Rather than being predicated on the emissions of a particular technology at a particular point in time, the Bill defines the decarbonisation target range in terms of carbon intensity of the sector as a whole, as defined in Clause 4(1).
I hope this will reassure noble Lords that it is not necessary to require additional research on the emissions of specific technologies. The Bill already requires the Secretary of State to consider the actual emissions intensity of the power sector as a whole. This requirement applies both when setting the target and in determining progress towards it.
I turn to Amendment 21 in the name of my noble friend Lord Flight. I recognise his concern to ensure that we make the best use of sustainable bioenergy as a resource. The Government share this ambition and bioenergy certainly has a vital role in achieving our legally binding targets on both renewable energy and greenhouse gas emissions. Getting the balance of support for bioenergy under different mechanisms is important and my noble friend is correct that at present the level of support in the heat and power sectors is relatively higher than with regard to transport. This recognises that the barriers and costs to deployment are different across the economy. We need to maximise renewable energy in all sectors in order to meet our legally binding target of sourcing 15% of our energy from renewables by 2020. We will continue to work across government in implementing the renewable energy directive to consider the best deployment of renewables.
Amendment 19 would require the Secretary of State to lay a report before Parliament on all factors listed in Clause 2(2) prior to making a decarbonisation order. It is certainly right that the Secretary of State’s reasoning and the Government’s approach to decarbonising electricity in the UK should be transparent. However, I hope I can persuade my noble friend that there is already sufficient transparency in the Bill. Due to time, I do not want to list all the measures laid out in the Bill but if noble Lords require a list, I am happy to make that available in the Library or in a letter.
All that is included in the Bill with a view to ensuring that there is ample opportunity for public transparency and parliamentary scrutiny before and after a target range is set. On that basis, I hope noble Lords can agree that the Bill offers sufficient opportunity for scrutiny and will not press their amendments.
Lord Turnbull
I am grateful for the Minister’s answer on Amendment 19 as regards the assurance that an adequate commentary on all the items to be taken account of will be provided. I certainly will not press that amendment. As regards Amendment 18, it is interesting that some see the glass half full and some see the glass half empty. That is precisely what makes the case for better commentary on what is happening in other countries, about which there is a continued argument. I hope also that that can be provided in the information that will come with the Bill.
As regards the response of the noble Lord, Lord Grantchester, there is a Catch-22 situation here. If we are a world leader in climate change, the more we advance this claim, the more the danger that we are overdoing it. Hence, the greater the case for some check just to see that we are not going too far. The whole question of our relative position is one that will not go away. It will need to be dealt with but it can be dealt with later in the Bill or in the responses that the Government are making. I therefore beg leave to withdraw Amendment 18.
Lord Gardiner of Kimble
My Lords, perhaps I may suggest that this is a convenient moment for the Committee to adjourn.