EU: Energy Governance (EUC Report)
(8 years, 5 months ago)
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Baroness Scott of Needham Market
That this House takes note of the Report from the European Union Committee EU energy governance (6th Report, Session 2015–16, HL Paper 71).
Baroness Scott of Needham Market (LD)
My Lords, I am grateful to have the opportunity this evening to debate the sub-committee’s report on energy union governance. It is some six months since our report was published, although having just heard that the Digital Skills Committee has waited some 16 months for its debate, perhaps I should not grumble as much as I thought I would. However, I make the general point that Members of this House put a huge amount of effort into Select Committee reports, the staff work extremely hard, and outside witnesses and organisations take a great interest in the work we do, so it is a great pity when the House does not find time to debate these closer to publication. Nevertheless, I am pleased to be able to present the report this evening.
For any Government, nothing is more important than keeping the lights on, but we are trying to maintain a supply which is not only secure but affordable for consumers, whether they are individuals or businesses, and which is environmentally sustainable. That challenge—that trilemma—has focused minds on the benefits of co-operation as a means of achieving those goals, and the EU energy union is one vehicle for that co-operation.
I have had the privilege of chairing the EU Energy and Environment Sub-Committee for three years, and I can honestly say that it has been the most rewarding and fulfilling experience I have had in my 16 years in this House. But now I have, sadly, been rotated off. It is a painless but not entirely pleasant experience, and I shall miss the work a good deal. The members of the committee have always been immensely supportive, and one of the great joys of the work is that we have never been hampered by discussions or debates of a political nature. Our debates are robust at times but have always focused on the issues, and are all the better for that. I therefore extend my sincere thanks to each current member of the committee and to those who, like me, have been rotated off.
I also place on record my thanks to the noble Lord, Lord Boswell of Aynho, the chairman of the European Union Committee. His leadership, encouragement and personal support have been a great help to me. My noble friend Lord Teverson, who I see in his place, has now taken up the position of chairman of the committee and I have no doubt that he will enjoy the experience as much as I have and bring to it his great knowledge of the wide range of subject areas covered by the sub-committee. He served in the European Parliament and previously chaired an EU sub-committee. I wish him well. He, like all of us in this House, will be supported by efficient, knowledgeable and highly-skilled staff, whose commitment to our work, and indeed to the House, is absolute.
As your Lordships may know, the remit of the sub-committee includes agriculture, fisheries, environment, energy and climate change. The subject of the short report for debate this evening is firmly within the realm of energy. It is clear to most of us that energy policy in the 21st century cannot be formed from an isolationist perspective. The European Commission’s energy union strategy recognises this reality and attempts to ensure that Europe has a secure, affordable and low-carbon supply of energy. It aims to deliver energy security, reduce emissions and provide a better deal for consumers, and uses energy efficiency measures, the completion of the internal energy market and research and innovation to deliver this. An agreed EU energy governance framework will be essential to underpin the relationships between the EU institutions on the one hand and member states on the other. Such a framework will seek to meet the energy policy objectives of both the EU and member states but also to respect member states’ national sovereignty.
Before I go on to speak about the report itself I will make one or two comments about the background to it. The committee’s report was published in December and was the result of a short inquiry following a stakeholder seminar and a ministerial evidence session, as well as written submissions. The inquiry was timely; the European Commission published the first state of the energy union report last November and is expected to bring forward legislative proposals on energy governance later this year. Our report offers some thoughts and recommendations ahead of those legislative proposals. I extend my thanks to the specialist adviser to the inquiry, Antony Froggatt, whose comments and guidance on complex and rather technical matters were invaluable.
Our report called on the European Commission to ensure that the proposals for a future energy governance framework include legal clarity, a respect for member state sovereignty, a strong focus on security of supply, a commitment to the consumer, real ambition for decarbonisation, and increased regional co-operation. Indeed, we argue that the EU-wide binding 2030 renewables target will not be delivered unless it is backed up by a monitoring and enforcement mechanism which acts as a guarantor for the agreement and ensures that member states share the effort equitably.
The European Commission response was received on 3 March and was largely supportive. The UK Government’s response to the report was received on 29 February and was accompanied by a covering letter from Andrea Leadsom. It would be fair to say that the response has focused on current UK Government policy and the domestic measures which are already in place. In many cases the response simply avoids commenting on specific EU-level conclusions and recommendations. Overall, it lacks detail and comprehensive engagement with the arguments put forward by the report. I fear that this is due to current circumstances and that the Government are nervous about saying much at all because of the way things stand now. Nevertheless, I will make four points and I will be grateful if the Minister could reply to them at the end of the debate.
In paragraph C of the response, the Government avoid commenting on the report’s headline recommendation that the Commission should be able to propose new measures to guarantee existing EU-level commitments. The response contains a broad statement that agrees with the streamlining of reporting requirements. However, we argue that given the political importance of the EU-wide binding renewables target of 27% by 2030, it is noteworthy that there is no elucidation of the Government’s position. While we know that the Government are sceptical of the sort of enforcement measures proposed by the Commission, we would have hoped for some real engagement with the recommendation, even if only to disagree with it and to suggest what an alternative might look like.
In paragraph B the Government are silent on the committee’s recommendation that they should be transparent, timely and comprehensive in reporting their own progress against each of the dimensions of the energy union. Can the Minister say what the Government’s policy on this is?
In paragraph D the Government comment on bringing forward new renewable support schemes to bring forward additional offshore wind generation. However, they seem to have confused ongoing industry support with the more important need to maintain investor confidence through long-term and consistent policies. This point about investor confidence was a major theme in the committee’s 2013 report No Country is an Energy Island, and its conclusions are as valid now as they were then.
Finally, the Government’s comments on capacity markets are at odds with the view of the sub-committee in a number of areas. The sub-committee recommended that there should be a common framework at EU level to assess the need for and the means of achieving adequacy standards which secure availability of supply without escalating prices to consumers. The Government appear to disagree, arguing that this is a political decision that cannot take place until the internal energy market is completed. In fact, in the sub-committee’s view this is a technical task and would contribute to the completion of the internal market. The Commission agrees with the sub-committee that a common framework within the EU should be developed. Therefore are the Government really opposed to common adequacy standards? On measuring generation adequacy, the Government seem to agree with a common methodology at EU level but also seem to want national assessments. There seems to be an inconsistency here. Finally, on energy storage and demand-side measures the report argues that they should be given equal access to domestic capacity markets. The Government point out that these are already eligible to participate in the capacity market but do not comment on the inequality which we have highlighted.
I have one final point about the UK Government’s overall approach to regional co-operation. The previous report authored by the sub-committee on regional marine co-operation, The North Sea Under Pressure, concluded that no existing body or mechanism has a sufficiently broad remit to facilitate the political co-operation required to make the necessary step change in management of the North Sea basin, and we argued for the re-establishment of a North Sea Ministers’ conference. This recommendation was rejected by government on the grounds that such co-operation was taking place elsewhere. I fear that our calls have fallen on deaf ears. Last week the Vice-President for Energy Union and the Commissioner for Climate Action, with Ministers from Belgium, Denmark, France, Germany, Ireland, Luxembourg, the Netherlands, Norway and Sweden, signed a political declaration and action plan on North Sea co-operation. The declaration will facilitate the building of missing electricity links and allow more trading of energy and further integration of energy markets. Reinforcing regional co-operation will help reduce greenhouse gas emissions and improve security of supply.
The UK was, sadly, absent. The announcement, like much these days, was reported on Twitter and there were lots of comments asking, “Where’s the union jack?”. I fear I know the answer to that but, even if the UK felt that in the current circumstances it was not able to be highly visible, I would like to think that we are engaged in this process. After all, if that well-known maritime nation Luxembourg thought that it was worth while attending and co-operating, it would seem very odd for the UK not to be there. The benefits of co-operating and the savings that come from it are enormous, so it really makes sense to do so.
Energy is crucial for all of us and the objective of secure, affordable and low-carbon energy can be aided by co-operation across borders. The EU has a really important role to play in bringing member states together, whether in a legislative framework or in a spirit of voluntary co-operation. The UK Government need to do more to demonstrate that they are serious about leading in this endeavour, whatever the outcome of 23 June.
Lord Selkirk of Douglas (Con)
My Lords, I am delighted to follow the noble Baroness and to say how much those of us on her sub-committee appreciated her splendid leadership and commitment to producing this and other extremely good reports. The contribution that she made as chair and the work of all the members and the clerk helped to produce a really good report, whose conclusions and recommendations will stand the test of time. I wish her successor, the noble Lord, Lord Teverson, every good fortune. I served under him on another sub-committee dealing with foreign affairs and defence, and he, too, in my humble opinion, produced extremely good reports. They were very well thought out and, similarly, have stood the test of time.
I am glad to have the opportunity to say a few words this evening. Perhaps I should mention a past interest: I was a Minister for the Environment in Scotland for five years. I recall that speaking on the subject of how to protect the environment and sustainable development felt a little bit like preaching against sin: some people listened and some did not. Today’s debate is very different because an abundant and affordable supply of energy can be a life-saving measure in circumstances of extreme cold. Whatever the outcome of the referendum, it is extremely likely that continuity of gas supply for heating purposes will be enormously important for the health of our nation, as well as for the health of other European Union nations.
Inevitably, it makes sense to be prepared for unforeseen developments either through emergencies caused, for example, by floods or by nations cutting off the energy they supply or charging enormous fees for it. So it seems to me that developing EU energy governance is necessary to safeguard continuity of supply. In some ways, it is rather like taking out an insurance policy in respect of possible events that may never take place.
I ask the Minister to confirm that the Government will give full support to Recommendations 19 and 20. Recommendation 19 states:
“The Commission should ensure that proposals for a future energy governance framework include legal clarity, a respect for Member State sovereignty, a focus on security of supply, commitment to the consumer, real ambition for decarbonisation and increased regional co-operation”.
Fulfilling those aspirations is likely to be a substantial challenge. For that reason, it is appropriate that the final recommendation—Recommendation 20—takes into account the different timescales that may be applied by different countries. It is therefore right that Recommendation 18 states:
“Regional co-operation”—
the noble Baroness referred to very recent happenings—
“should be far more prominent in governance discussions”.
Similarly, it is right that Recommendation 20 lays down:
“The Commission and Member States should work together on a governance framework that recognises the different timescales that are involved and ensures policy coherence between short and long term targets and objectives”.
Perhaps the Minister will also confirm that on this one aspect of providing sufficient warmth to many millions of people, the Government should be, and should remain, sensitive to the needs of consumers throughout Europe.
It was Napoleon Bonaparte who is believed to have called our countrymen and countrywomen a nation of shopkeepers. According to Napoleon’s surgeon, the defeated emperor later explained his remarks in the following terms:
“You”—
by which he meant all of us—
“were greatly offended with me for having called you ‘a nation of shopkeepers’. Had I meant by this that you were a nation of cowards, you would have had reason to be displeased, even though it were ridiculous and contrary to historical facts; but no such thing was ever intended. I meant that you were a nation of merchants, and that all your great riches and your grand resources arose from commerce, which is true”.
He went on to say that no man of sense should be ashamed to be called a shopkeeper. Nowadays, of course, we would add, “and no woman”. Today, trade and commerce and the selling of goods and services in our country remain every bit as important as they were in Napoleon’s day.
This report is a good one. It has been well received by the European Commission, which, in its positive response, stated that national policies should contribute to member states working better together to meet the challenges of ensuring,
“secure, competitive, safe, affordable and sustainable energy to all consumers”.
I therefore commend this report as being worthy of the Government’s serious and sympathetic consideration and support.
Viscount Hanworth (Lab)
My Lords, several reports of the European Union sub-committees of the House of Lords have been scheduled for debate prior to the crucial date of 23 June, when the referendum will be held to determine whether Britain has a future as a member of the European Union. It might seem that such reports would become irrelevant if our membership of the Union were to cease. Indeed, the very existence of the European Union Committee would be in doubt. However, it is a misapprehension to imagine that, in that event, the committee’s reports would become irrelevant. In any circumstances, we shall be tied to Europe, and the needs and problems to which the reports draw attention will be only exacerbated if we leave the European Union.
The need to which the report on energy governance draws attention is for an orderly and integrated system of energy supply throughout the European Union that transcends national boundaries. The three aims are to achieve carbon reduction in line with agreed commitments, to ensure security of supplies, and to achieve efficiency and affordability. The European Union imports 53% of its energy supplies. For their imports of gas, the member states depend heavily on a single supplier, which is Russia.
There are mounting anxieties over the security of supplies. There is a growing dependency on renewable resources for generating electricity, and these can be intermittent and unreliable. These problems can be addressed and partly overcome by enhancing the interconnectedness of the network of supply. The intermittency of the electricity generated by wind and solar power can be mitigated if the network of interconnections is wide enough to comprise regions of greatly differing climatic and meteorological conditions.
Britain faces the same problems as many of the other nations of the Union. After spending most of the previous 25 years as a net exporter of energy, the UK became a net importer in 2004. The gap between imports and exports has increased since then, and it looks set to continue to increase in future. Our imports of energy now amount to 40% of our consumption. The narrowing margin in our capacity to meet the demand for electricity is compelling us to seek external supplies via enhanced connections with neighbouring countries.
The need for concerted action across the European Union to deal with the problems of energy supply is increasing at a time when its ability to act in concert is in doubt. Thus, whereas the European Commission is keen to declare common objectives, it is hesitating to define the means by which they can be achieved.
The tendency is well illustrated by the programme for carbon reduction. In 2007, the leaders of the European Union agreed climate and energy targets for the year 2020. These included a 20% cut in greenhouse gas emissions relative to 1990 levels. The Commission mandated a 20% provision of energy from renewable sources and a 20% improvement in energy efficiency. Targets were declared for individual member states. In 2014, the European Commission adopted targets for 2030 that included a 40% reduction in greenhouse emissions relative to 1990 levels, a 27% target for renewable energy and an energy efficiency target of 27%. However, no targets were declared for individual member states, for fear of their being resisted.
Such apparent weakness of purpose has led, in some quarters, to the disparagement of the European Union. However, in an alternative perception, it highlights the need for concerted action. The need to act in concert is evident in view of the threat to supplies of gas. Russia, which is the principal supplier of gas to the European Union, is inclined to use its position as a means of achieving its political aims. The Russian intentions have become clear recently in connection to the Nord Stream 2 project, which proposes to link Germany directly to Russia via a gas pipeline under the Baltic Sea. This would bypass Ukraine, thereby denying it the tariffs for transporting the gas, as well as threatening its own gas supplies.
It is rumoured that the five western companies co-investing in Nord Stream 2 have been told by Gazprom, the Russian state energy company, that, as a condition for participating in the project, they must cease to receive gas supplies via Ukraine. The project has been heavily criticised by central and eastern European nations that are dependent on Russian supplies that come via Ukraine and that are fearful of Russian aggression. The European Commission had reacted by proposing that mutually supportive groups of member nations should be established with the aim of pooling and protecting their supplies of gas.
It is notable that the former Soviet Baltic states of Lithuania, Latvia and Estonia are pressing for the creation of a single gas market with no internal borders. They have grave anxieties concerning Russian intentions. However, Latvia, the gas supplies of which remain in the hands of Gazprom, has rejected the opportunity to import gas from Lithuania, and Estonia is pursuing its own projects, including co-operation with Finland. This makes regional co-operation difficult, and it is incumbent upon the European Union to try to amend this situation.
The project for unifying the European energy market is beset by political, technical and economic difficulties. The economic difficulties concern the design of an integrated market and the raising of the necessary funds for establishing or enhancing the interconnections, and for enhancing other aspects of supply.
The Union has adopted many of the nostrums of the neoclassical economists who inspired the Conservative Governments of Margaret Thatcher, and which also prevail among the Conservatives at present. The document declaring the framework strategy of the European Commission for a resilient energy union makes it clear that the Commission expects the necessary investment funds to be provided by private enterprise. It declares that a centralised, supply-side approach is an outdated business model, and it evinces the belief that private firms in competition can be relied upon to cope with the complexities of an integrated market.
To some degree, interconnectedness can be seen as a public good; the public in question being the people within the realms of the interconnected nations that form the European Union. Since public benefits would not be included in their cost-benefit analysis, there is a risk that private investors will underinvest relative to the size of the investment that would maximise the public good. In view of the differing interests of groups in different member states, there is a need for an overarching policy negotiated at European Union level.
The belief of the economics pundits, who tend to be neoclassical economists and free marketeers, is that the appropriate outcomes can be engineered by establishing incentives for private investors. I have a different opinion. To expect to achieve the optimal outcome in a hands-off manner strikes me as foolishly optimistic. Not only must one identify the appropriate outcome but, in order to fashion the incentives, one must make an accurate assessment of the likely responses of private investors. There is a strong possibility that the incentives will be misjudged.
We had a recent experience of this in connection with the energy market reforms of the present UK Government, which are intended to be mediated by so-called contracts for difference. A similar “cap and floor” regime has been proposed by Ofgem for mediating the returns to private investment projects, aimed at enhancing the UK’s connections to the electricity supplies of Norway, Denmark, France, Belgium and Ireland. The regime sets a maximum and a minimum amount of revenue to be derived by the interconnector, and it proposes to add to or subtract from their actual revenues according to their shortfall or their excess.
In the UK, the policy of placing investments in power generation entirely in the hands of willing commercial providers has been a disaster. The willing providers of the next generation of nuclear power stations have not been readily forthcoming. We will have to rely on French and Chinese nationalised corporations to undertake the task of building our nuclear power stations, at an exorbitant cost. At present, their commitment to this task is in doubt. I wish to argue in favour of initiatives for which the finance has been provided by central government, and in which the Government, supported by expert opinion, have the oversight of the associated technologies.
The incentive to rely on the private funding of infrastructure projects has been to remove the costs from the Government’s budget and to prevent them impacting on the levels of the Government’s deficit. A fallacy of this approach is to imagine that the discount rate by which the present value of future costs and benefits is calculated, and on which the rewards of the private investors are based, can or ought to be the rate that applies to commercial investment projects. That rate, according to the Government’s methodology of levelised costs, is at an exorbitant 10%, which is appropriate only to high commercial risks. Investment in national infrastructure is not associated with commercial risks, and the risks that there are should be borne by the Government.
This is recognised in the advice that is embedded in the so-called Treasury Green Book for the appraisal and evaluation of investment projects by central government. There, we find that the discount rate for social investment is deemed to be 3.5% per annum. This is a high figure when compared with the current prime lending rate of 1.5%, which is the average rate of interest charged on loans by major commercial banks to private individuals and companies. The consequence of funding energy infrastructure projects in the manner of the UK Government is that the deferred benefits of the projects will accrue largely to private enterprise, when they ought to accrue to the public good.
The European Commission has adopted similar nostrums to those of the present UK Government. However, whereas the Commission is in a position to promulgate an agreed agenda, it is not and never has been in a position to dictate how it might be fulfilled. The documents of the Commission openly concede this point. It behoves us at present to recognise this truth and to gainsay those critics who suggest that our membership of the European Union in some way diminishes our national sovereignty. We are free to make our own decisions on how to reach common objectives. Our membership of the Union can only empower us.
Viscount Ullswater (Con)
My Lords, first, I pay tribute to the noble Baroness, Lady Scott of Needham Market, for her chairmanship of the EU Energy and Environment Sub-Committee. Her knowledge of the workings of the Brussels machine is of immense practical use when considering matters of this nature. I thank her for her sure hand and guidance with this report, together with the help and assistance of the clerk to the committee, Patrick Milner.
I believe that the report is a fair reflection of the evidence we heard about the Commission’s intention to create an energy union and some form of underpinning governance framework. The Commission’s guidance on the preparation of member state national energy plans is a helpful nudge in the right direction and the concept of regional co-operation is sensible.
However, I wish to concentrate my few remarks on energy security and the duty of member states to provide that security with the technology that suits them best. I am pleased that the Commission’s response acknowledges the right of member states to determine their own energy mix. We have come a long way in recent years from relying on large, coal-fired generating stations sited conveniently beside deep mining pits to provide the bulk of our electricity supply. The North Sea gave us a plentiful supply of natural gas, which provided an alternative source of energy, and more recently we have developed renewable resources, whether it be wind or solar power.
This is a journey of technological advancement and it will not stop here. Civil nuclear power has been delivered by a whole range of reactors, which have provided the base load for the UK for decades. We are perhaps on the edge of the shale gas revolution at this very moment, and the development of small-scale nuclear reactors seems just round the corner. To quote from a recent policy digest weekly report sent to me by email on 3 June:
“The UK just experienced a historic milestone. For the first time since 1882 and on several occasions during last month, the UK power system was powered without coal. Earlier this year, solar also outstripped coal in electricity generation for a full day”.
Whether it is the stimulus provided by the acknowledgement of climate change and global warming, the drive for energy efficiency, or the goal of affordable energy prices, we must not neglect the importance of research and innovation.
Solar power is perhaps in its infancy in this country, but other techniques, such as systems involving the concentration of solar power by the use of parabolic mirrors, are being developed commercially in Spain. We are surrounded by the sea on all sides, yet have not been able to harness this resource in any meaningful way, although we have a mature hydroelectric industry, mostly located in the north. It is this variety that I believe is so important. Whereas I appreciate that perhaps Poland has an overreliance on coal and France on nuclear, I am not persuaded that Brussels should try to dictate which technologies should be developed and where.
The Commission’s desire to oversee the development plans of member states should be strictly limited, for, if geopolitical situations and the differing national energy mixes are ignored, the energy governance framework will never command support or function adequately. I am pleased that the Minister told us in her evidence:
“The core theme running through my evidence is that member states should be given every bit of leeway to determine their own energy mix and their own way of meeting their legally binding targets”.
I share the Department of Energy and Climate Change’s view when it said that,
“the Government does not currently foresee a need for the governance system to be enshrined in legislation”.
I hope the Minister can confirm that the Government will hold firm to that stance.
As I said at the outset, I see this initiative being useful for taking stock and sharing information around member states and perhaps for the greater development of interconnectors. But we live in very exciting times for the future generation of electricity, particularly in this country, and I would not wish to see any curtailment of the freedom to innovate.
Lord Teverson (LD)
My Lords, I congratulate my noble friend Lady Scott on her work on this committee. I have not been a member of it but I have heard many stories of its effectiveness under her chairmanship. My family comes from Suffolk, but I must admit I have never been to Needham Market. The great and the good there should offer my noble friend the freedom of the town in full recognition of her work over the last three years—something that would be very difficult for me to do equally well. Not having been a member of the committee during this inquiry, I will just make a few comments on the report itself, concerning governance.
Something most of us would agree on is that the twin areas of energy and, in particular, climate policy are absolutely the right things for the 28 sovereign member states of the European Union to start acting far better together on to ensure that we have energy security, in the context of the energy trilemma, and meet our climate goals, which we share with the European Union. In the plans for an energy union, we have not just the three points of the energy trilemma, but two additional points. One is making the single energy market work properly, which we all want in terms of efficiency, security and consumer power.
Another important area is research and innovation. As the noble Viscount, Lord Ullswater, has just said, we are not going to do what we need to do on energy and the climate with existing technologies alone: we need to move forward, work with new technologies and make sure that they are inventive and innovative, so that we can meet targets in the best way at the lowest cost. With its eighth framework programme, Horizon 2020, the European Union is one of the research powerhouses globally. Energy is one of the areas where member states and science communities work best together.
I welcome the national energy and climate plan concept, which I will talk more about later, but we must remember that the energy union debate is not just about electricity. All too often, we talk just about electricity generation, but that represents only about one-third of energy consumption and use. We also have heating, in which gas plays a major role both in this country and across Europe, and transport. Although that is not covered directly by this energy union, it is something we must not forget.
Lastly, as the chairman has said, investor confidence is key right across Europe. I was interested to read in the report that €200 billion needs to be invested over the next decade. Given that we have said many times in this House that the UK itself requires €100 billion, we have a large part to play in making sure that that happens.
On national plans, I completely agree with the noble Viscount, Lord Ullswater, about getting the right balance in energy policy between European intervention and management and national choice, which is absolutely critical in this area. We should have national plans and climate plans as recommended, but we need to make sure implementation is at national level. National choice should be there but must be compatible with overall European objectives and with those plans, as they work together. If Germany wants, as it did, to rid itself of nuclear power after Fukushima, it should have the ability to do so. It caused some chaos in various ways and did not help its decarbonisation targets, but that is its prerogative. What the UK does is up to us.
I find it difficult when we have an EU target and we do not translate it into a national target. I question whether it is worth having an EU renewables target of 27% if we do not have national targets to achieve that. That is a contradiction, and setting something up to fail.
The regional plans are a good way forward, but we should not think that they will change everything. Interconnected worlds and interconnected regions can also add instability. I think back to financial systems and the crisis of 2008, when everyone was having the same difficulties at the same time. If we all have the same problems with systems requiring energy, those regional interconnections can cause instability. I congratulate the Government on the work they are doing on interconnections, but we need to make sure they are stable. The report says that the Commission should be the body that manages the area of regional co-operation, which is absolutely right. The last thing Europe needs at the moment is another institution. That is a strong recommendation, which should be adopted.
I have some questions for the Minister on the capacity market and the UK. How successful has progress on demand-side management been so far? Where interconnection is continuing, how successful has that intervention been so far? Lastly, we should not forget the cold economy. I chaired a commission by the University of Birmingham that looked at keeping people not warm but cool, which already accounts for some 12% to 14% of energy consumption. We need increasingly to take that into consideration in a European energy strategy.
We should never forget that the answer to the trilemma—security, low cost to consumers and carbon reduction—is energy efficiency. It was a great disappointment that energy efficiency was the one 2020 target that was not legally binding. Energy efficiency across Europe needs to be the fundamental cornerstone of European energy policy.
Lord Howell of Guildford (Con)
My Lords, I declare my interests as in the register on energy connections and matters, and I congratulate the noble Baroness, Lady Scott, on her very interesting report. I was not a member of the team, but I read it with the greatest of interest. I am sorry that she has been rotated off. I hope that she is rotated on to something else fairly soon by the mysterious forces that do the rotating. As my qualification, I spent the war years as a child in Suffolk. I seem to remember that we relied on old-fashioned windmills to survive at all in those days.
The report raises so many interesting questions and I have confined myself to two observations. First, this is one of the fascinating areas where we need a lot more Europe and a lot less Europe at the same time. That is a complicated thought and it does not fit in at all with the current Brexit debate, which reduces everything to polarised simplicities, but then hardly anything fits into the current Brexit debate that is of a serious and real kind. The “more”, as noble Lords have rightly perceived and as the report fully recognises, is in the area of physical interconnectors, gas and electricity and the appropriate grid systems, and the regulations, which are immensely complex, needed for the transmission of power or the travelling of gas across borders. We could then have a genuine competitive market in Europe, in which gas and electricity can be priced in a competitive way. We are very far from that. The funding and the organisation of that can only be a pan-continental system, including the UK. We do not have that yet and we have to move towards that to achieve all kinds of objectives in Europe, certainly that meet the trilemmas of reliability, affordability—which we do not have at present—and lower carbon.
The “less” part is more controversial. It is that the EU’s detailed direction in the past—which was even more detailed than now—about how each country should decarbonise and resolve the dilemma has been far too extensive and intrusive and has had very perverse consequences. The report rightly recognises this, but one could be even more frank and point for instance to the German situation. It is the worst example of excessive attempts to meet low carbon leading to higher carbon, to lignite being burnt on massive scales and more coal stations being built, which is the very reverse of what was intended. It is a classic example of good intentions paving the way to we know where. Indeed, the latest figures for CO2 show that German CO2 is actually rising again after all its efforts. That is a special situation, I know, because Mrs Merkel decided to close down nuclear power, which would have been one of the contributions to a low-carbon future for Germany.
In this country we have done somewhat better, although at a much bigger cost than some of the optimists forecast when they said that energy transformation would be quite cheap. It will not be quite cheap: it is proving and will prove colossally expensive. It has also raised the shadow of power shortages and narrow safety margins, as is mentioned by almost every paper every day, including this morning. As to the CO2 side of things, on the production front we have done rather well and there has been a significant UK reduction of CO2, but that excludes all the leakage effect of the carbon that is included in our vast import and consumption-based emissions. That is one comment I wanted to make about the more and less.
The interconnectors themselves are very important not only to the whole of Europe and the competitive market but particularly to this island. I had the opportunity when I had responsibility as Energy Secretary 40 years ago to be in office when the French connector, which was operative from the 1970s, was enlarged and strengthened. I now read that we are to go for a second, which is extremely good news and very much part of our future capacity. It will indeed help to save us from very severe challenges to the reliability of our power supplies and the danger of the lights going out, as was mentioned insistently by Ministers in their evidence to the committee.
It is not the only one. The Danish connector Viking system is under way. The link with Belgium is under way. The possibilities are there for a much longer link with Norway, which will be particularly attractive because it would not be intermittent, spare electricity. As a result of Norway’s hydropower and storage capacities, it would be electricity on demand, as needed at any time. The Danish one would be very intermittent because the Danes have a huge surplus of wind power and are anxious to transmit it whenever it would otherwise upset their entire grid balance. Then there is Iceland, where we could draw on volcanic energy, which would be extremely green and attractive but would again require a considerably long connector system and complicated switching stations either end. But all in all, for Britain alone, we can draw on a minimum of 7 gigawatts extra of electricity, which will be a blessing when one thinks of the dangers of the narrowness of the margins in our own system in the near future, which I will comment on a little more in a moment.
My second observation is that the report talks about energy and climate national plans. The noble Lord, Lord Teverson, has a mastery of these things and said that he welcomed them. My difficulty is that I cannot see that here in the UK we have an energy plan. We have an energy hope that we will muddle through to 2018-19, and that is largely thanks to the brilliance and ingenuity of National Grid, which has set out the ways in which somehow, by hook or by crook, it will manage supply by particular arrangements and incentives, all of which I should say are extremely costly, and by manipulating demand through entering into contracts where demand can be interrupted. In these ways it hopes to get through the next three years without a power crisis. That is the plan. But of course beyond 2019-20 we simply have to build new gas turbines for the simple reason that we have seen 11 major closures of coal-fired stations in line with the policy of both the previous and the present Government. If we are to cover supplies through the early 2020s and have an adequate margin instead of the very narrow one that we are heading for now, and until nuclear kicks in—we hope—in the late 2020s or early 2030s, we need enormous skill on the part of National Grid and we will need more gas turbines.
The hope, not the plan, is that this will be done by greatly increased energy efficiency—the noble Lord, Lord Teverson, rightly says that that is absolutely the key—by reduced energy intensity which is necessary to help with the low-carbon aims, and by much more local generation and a whole range of new technologies, some of which we cannot even foresee at the moment, although we will need them within the next five or six years. It is also going to be done through better capacity arrangements that we have now because so far they have not produced any of the new-build combined-cycle gas turbines we need. I hope—again it is only a hope; talking to the would-be investors it is very much a hope—that the new arrangements will encourage them to come forward and invest.
The reality is different. So far the gas turbines have not been built and instead old plants have been subsided and even diesel has been boosted. Moreover, as the noble Viscount, Lord Hanworth, rightly reminded us, the nuclear future lying at the end of the 2020s is looking extremely wobbly. I have hopes that it will survive and that we shall get through the period, but the very name Hinkley Point C produces frowns on many faces. It is hard to see how all that work is going to be completed in line with the wishes of the French and British Governments unless they take the obvious route of halving the size of it and building a single reactor as at Flamanville, and thus halve the enormous capital costs. I suspect, although it is only a guess, that that is where they will come to in the end.
What the EU should be doing in terms of governance is rather different from what it is doing now. The energy union is mentioned in the report. It was a document of immense length and I know that there were good intentions behind it. It sought partly to increase the security of the Gazprom-threatened eastern and central Europeans, which in the case of two or three countries has been very serious because they were 90% to 100% reliant on Gazprom. It was a progress policy, and in part it was to continue the anti fossil fuel policy by encouraging the move away from dependence on fossil fuels generally in Europe. Of course, as is often the case with these sorts of attempts, it did not please either side. It took up a great deal of print and to this day people are still arguing about what it really means and where it is going to lead. But that is not where the real need lies. It lies in giving maximum encouragement to new technologies and reduced renewable costs; that is, new technologies in all fields, including the cleaner burning of existing fossil fuels and of course going for physical connectors, as I have said.
European Union governance should also be giving maximum encouragement to the storage technologies already mentioned by noble Lords. There may be a breakthrough quite soon, which will be very exciting and will transform many prospects. There is the issue of CCS which we have talked about again and again: how do we get the costs down? The present situation has left one feeling that the whole technology is still too expensive to be brought into the commercial range. I urge those in charge of EU governance to do something that may surprise your Lordships, and that is to look at what the Indians are doing. They are building hundreds of new coal-fired stations, but they are not unaware of their responsibilities—the Paris commitments and what the world requires of them. They cannot afford CCS and must have cheap power for the hundreds of millions of Indians with neither electricity nor water, so it is desperately needed for development. They say that if they can work with off-the-shelf technology for ultra-supercritical boilers, they can achieve a 45% efficiency increase in their coal-burning capacity; that is, they can get 45% more electricity out of the system for every tonne of coal burned. That would have a distinct impact, perhaps not a welcome one to purists, in lowering carbon emissions.
The third area, aside from CCS, that needs much more attention is at the refinery end. We have too many refineries that are higher carbon than necessary, and of course we are importing a lot of fuel into Europe from areas where the refineries operate with substantial carbon emissions—far higher than some European refineries, which find themselves in great economic difficulty. It is a completely messed-up situation and it needs to be reorganised.
We all know in the end that Asia is the epicentre of climate disasters and that, if we are serious about combating climate change, the answer really lies in diverting India and China from cheap coal. There is a long way to go. We are making some progress and last year world carbon intensity actually fell by 2.8%, which is extremely good news. But the fact is that it needs to fall by 5.5% every year for the next 20 years to get anywhere near the Paris goals. Our contribution here in Europe is bound to be mainly by example and by what we can do by putting our shoulder to our resources and all our firepower into new technology. On those we are not doing well enough. EU governance should be supporting us with new priorities instead of pursuing overly prescriptive energy policies. That needs a new mindset in Brussels—a move into the digital age of less centralisation and standardisation to more individualisation, if you like. It is about the progressive nationalisation of energy policies which the digital age allows for but was not conceived of at the beginning of the European Coal and Steel Community, EURATOM or the foundations of the modern European Community. We need the kind of fundamental EU reform that many of us hope for and for which the United Kingdom should be pushing. We are left with the thought that we can do that, unless of course by some awful error we are not there, in which case we will not be able to do anything at all.
Lord Suri (Con)
My Lords, I thank the noble Baroness, Lady Scott, for bringing forward this debate. The report is timely given that we have only a little more than a week to go until the most critical poll that probably any of us will know in our lifetime. I hope that the British people, with their infinite sensibility, will opt for the safer choice rather than retreating from the world and the globalisation that has made us all richer, safer and more harmonious.
The report touches on one of the most pressing and serious issues that we face, not just us as Britons but as humanity. Climate change mitigation cannot be settled at national level. Greenhouse gases and rising sea levels do not respect national borders, and we and our European allies sensibly use the EU as a forum to decide what action to take.
As it happens, I support the EU proposal that greenhouse gas emissions should be reduced by at least 40% from 1990 levels by 2030 and by 80% to 95% by 2050. We have the Climate Change Act to compel the Secretary of State to work towards this target, too, but it is useful to have similar controls in the 2009 renewable energy directive. I am glad to see that the authors of this report endorse that responsibility.
It is important, however, to take account of the geopolitical nature of energy policy. As the report says, one can draw a perhaps depressing comparison between Germany and Poland. While Germany has the luxury of not being overly dependent on coal or Russian fuels, Poland is heavily dependent on both. It would be unfair to Poland and other Visegrád countries to expect full implementation of all the relevant directives and regulations. Indeed, it would be a good idea to attempt to reform this peculiarity in the next reform agenda. Preferably, this would happen during the upcoming UK presidency of the Council.
Another salient point raised pertains to the integration of the market with regard to capacity market designs. Much like climate mitigation, EU member states are deeply interdependent when it comes to interconnectors. With a wide range of capacity market designs, the relevant authorities, on both the national and European level, run into difficulties. Power systems can become overloaded if supply is insufficient to meet demand in particular localities. Given that the House of Lords Science and Technology Committee has warned about the danger of concurrent overloads, action is required on the European level to remedy this. There are other benefits beyond just keeping the lights on, as investment markets can be calmed by increased security, thereby ensuring price stability. In the light of this, I look forward to seeing the Commission bring forward proposals in the area of market design and regulation in 2016.
To touch on a final topic, I feel that one of the problems the British public have with the EU and the institutions is that they feel overly bureaucratic and inefficient. Earlier, I mentioned the importance of oversight in the legal requirements for member states. There will of course need to be some authority tasked with this. I recommend that a new institution is not necessary. The Eurosceptics in European Union countries would have a clear case to make about the wasting of public money. The European Environment Agency could easily deal with a broadened oversight remit or the Commission could deal with it itself. But setting up a new institution, with a new building, more civil servants and its own acronym, would just hand more ammunition to those who are chipping away at European solidarity and co-operation.
Lord Grantchester (Lab)
My Lords, this has been a very interesting report, reflecting the challenges of integrating a wider EU approach to energy policy, taking into account energy security and decarbonisation plans in response to climate change goals. I am grateful to the noble Baroness, Lady Scott of Needham Market, for her committee’s concise report and for her introduction.
The committee’s recommendations were very much accepted and taken on board in the Government’s response. The policy direction towards greater co-ordination and harmonisation of EU capacity markets, open to cross-border mechanisms such as interconnectors and greater regional integration, underlines the clear conclusion that the UK would certainly benefit from continued membership in the EU following next week’s referendum. I agree with the noble Lord, Lord Teverson, that energy policy is a clear candidate to be developed in a European context.
As the noble Lord, Lord Suri, said, working with Europe enables us to raise ambitions on climate change, not just in the UK and Europe, but throughout the world through our participation in the Paris agreement last year. This is an agreement signed up to by not just the western powers, but all the peoples of the world. From within the European Union we can influence events and set the pace towards a collective goal of building a carbon-neutral global economy in a generation, with all countries agreeing to raise their ambition on clean energy every five years. While the binding commitments made are not yet sufficient to limit temperature rises well below the 2-degree limit, this agreement should take us much closer to climate safety.
It is interesting to reflect that this report, published in December last year, provides an interesting critique of policy actions by the Government since. Several debates on the Energy Bill and renewable energy last Session highlighted the need for the Government to be aware of the effects of their lack of a clear and consistent plan. The recommendation at paragraph 62 reads:
“Rapid and unexpected changes in policies … create policy uncertainty and may undermine investor confidence”.
Paragraph 63 states:
“The UK Government should be clear about its own renewable energy strategy and target for 2030 as part of its decarbonisation and energy security objectives”.
The report continues with a call for the Government and member states,
“to meet the Commission’s deadline for the preparation of the first National Energy and Climate Plans by 2018”.
In their response, the Government give their commitment to meeting the Commission’s deadline and state that work is already under way. This is excellent. On this side, we consider this crucial to mitigate the damage done recently to investor confidence. Will the Minister give the House any further details on workstreams and reports for consideration coming over this winter?
The Paris agreement was secured through close working over several years, identifying that using cleaner and more efficient technologies can bring benefits when co-ordinated across Europe. In the referendum debate we would like to see the Minister and his colleagues in the department clearly promote these benefits. Recommendation 12 at paragraph 63 argues that the Government,
“should be clear about its own renewable energy strategy and target for 2030 as part of its decarbonisation and energy security objectives”.
Does the Minister agree with paragraph 69, which says:
“The UK Government should go to greater lengths to explain to consumers the financial and security benefits of a more integrated EU energy market”?
I am sure that he will endorse the fact that the UK has played a leading role in shaping an energy strategy for the EU and must continue to do so by voting to remain in the referendum.
We support the EU 2030 energy and climate change package, which includes the headline commitment of a 40% reduction in greenhouse gases against 1990 levels. On the EU-wide commitment to 27% of energy coming from renewables by 2030, we agree that there should be clarity to ensure how this is to be achieved. We agree with and welcome the flexibility offered to member states to develop their own plans to meet energy and climate objectives in ways most appropriate to their natural contexts. Consumer interests should not be segregated in energy policy. As the report states,
“the interests of industrial, business and domestic consumers should be considered in energy governance framework discussions”.
Will the Minister outline the Government’s plans to consult consumers and stakeholders during the development of the UK’s national energy and climate plan?
It should be noted that the UK does not have a clear plan ahead to meet the 2020 target, let alone the 2030 target. The UK should meet certain reduction commitments through a balanced mix of low-carbon options, including nuclear, CCS, renewables, storage and greater levels of interconnection and demand management, together with the very important aspect of increased investment in energy efficiency.
The UK could face a 25% shortfall in meeting the 2020 clean energy target. After setting the fifth carbon budget, to be published by the end of 2016—this year—the Government have to present an emissions reductions plan to cover our targets up to 2032. As yet it is unclear how transparent and inclusive this process of developing the plan will be. Following the Paris agreement, what consideration will the Government give in their energy and climate plan to meet the ambition and the timetable set out that member states raise their climate target every five years? What further implications to policies do this Government foresee? In the light of the report does the Minister have plans to integrate proposals in conjunction with other member states?
There are already clear economic benefits of interconnections to EU energy markets, one of the other main recommendations of the report, referred to by my noble friend Lord Hanworth and the noble Lord, Lord Howell. The E3G study concluded that greater interconnection to EU energy markets allows the UK to bring cheaper energy from the continent and balance variable renewable generation across a wider area, which could save the UK £500 million a year by 2020. A 2014 National Grid report estimates that doubling interconnection capacity would bring benefits to every consumer, amounting to £1 billion a year—a saving of £13 a year off household bills.
This report has brought general agreement about the pathway the EU should be taking. The Government have responded positively. All speakers have highlighted important aspects of the report and the noble Viscount, Lord Ullswater, made an interesting contribution with his thoughts on the technology mix of energy sources. This excellent report underlines to the House that there is much work for the Government to do to live up to its expectations and to the hopes of the noble Lord, Lord Howell. We will certainly work with the Government to bring coherence to their plans.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change and Wales Office (Lord Bourne of Aberystwyth) (Con)
My Lords, I am most grateful for contributions to what has been an extremely wide-ranging debate, far beyond the issue of energy governance, as many noble Lords would acknowledge. It covered just about every aspect of energy policy, possibly apart from smart meters, so I will try to give those a mention as well as I go through. I will try to pick up all points brought up by noble Lords. I will ensure that officials and myself read a report of the debate, pick up every aspect of the debate and write to all noble Lords who have participated in what was, as I have said, a very wide-ranging debate.
First, I join with the thanks to the noble Baroness, Lady Scott, who has done an outstanding job over three years as chairman of this committee, and to committee staff and officials. The noble Baroness, Lady Scott, as she said, now rotates off and I welcome to the rotisserie the noble Lord, Lord Teverson, who follows her; she is obviously a very difficult act to follow. There must be something in the water in Needham Market, I think. I thank her very much for the work she has done and for this report.
I say at the outset, pursuant to what was said by the noble Viscount, Lord Hanworth, the noble Lord, Lord Grantchester, and my noble friend Lord Suri, that the position of the Government on the European Union is very clear: we believe that it is in the best interests of the United Kingdom that we remain members. That is certainly my view too and it colours some of what I will be saying as I go through the various points that have been made. On an international level, international points were made as well, highlighting the importance of the European Union, the relatively recent success in Paris and the role that the United Kingdom and the European Union made in that—we were part of the European Union negotiation team. My right honourable friend the Secretary of State, Amber Rudd, played a leading role in that. The leading official for the European Union was Pete Betts from our own DECC and we were very proud of the role that he played too. That is a clear example of the importance of the European Union in relation to climate change.
Energy and climate policy is an area where there is significant added value for the United Kingdom in working with our European partners, whether to shape the single market or to drive ambitious action on climate change in Europe and more widely. The Government support the energy union because it should help ensure that the Commission and all EU member states take a more holistic, long-term and strategic approach to energy and climate policy. I should say something at this stage about the Energy Council in Luxembourg a week ago today, to which the noble Baroness, Lady Scott, referred. The only reason we did not sign the agreement, the North Seas countries declaration, was simply purdah, as I made clear at the time and have since. I am absolutely clear that we will sign it, but we were not in a position to do so last week or this week. As soon as we are able to do so, we will.
The holistic approach I have referred to should cover all five pillars of the energy union. These are energy security, the internal market, energy efficiency, decarbonisation, and research and innovation. They are all central parts of UK government policy as well as energy union policy. At the heart of it, the energy union should support the delivery of a competitive, interconnected and fully functioning single energy market. The single energy market is the cornerstone of our ability to provide secure, affordable and sustainable energy supplies. That is the approach of the Government and I am very pleased to hear the support that the noble Lord, Lord Grantchester, offers to that approach.
The United Kingdom has long been a strong advocate of making the single energy market a reality, because it helps keep bills down and improves the energy security of all. Inside the EU it is cheaper and easier to buy and sell energy across borders. By 2030, a fully integrated EU energy market could save EU consumers £50 billion a year in energy costs. Therefore, we fully support the further development of the single energy market and are working with the Commission on its electricity market design proposals, a point raised by my noble friend Lord Suri. We understand your Lordships’ interest in common EU standards for capacity markets. However, until there is a fully functioning internal market, we do not think that such common standards are practically possible or, indeed, politically desirable. The development of capacity markets is a political decision which needs to take into account the circumstances of individual member states. It is not appropriate or desirable to be harmonised at European level, in our view.
It is, however, important that the effect of capacity markets on the working of the single energy market is kept to a minimum. That is why the United Kingdom, the first member state to receive clearance for our capacity market, supports agreed general principles for capacity markets and encourages member states to share best practice and to develop our common understanding of how capacity markets in different countries interact. Of course, we are happy and indeed keen to share our practice and our own experience in relation to that. Capacity markets are a very important part of dealing with the capacity that we have and the importance of security of supply, a point raised by my noble friend Lord Howell. I was at the National Grid this morning, discussing this. We actually have a slightly better margin than we have had for the past winter, but it is obviously something where capacity markets, demand-side reduction and interconnectors are all helping us to address the challenges: there are challenges, of course.
I move on to regional co-operation, a point raised by the noble Baroness, Lady Scott, and my noble friends Lord Selkirk and Lord Howell. The sharing of information, plans and best practice can also improve energy security for the United Kingdom and our partners across Europe. My noble friend Lord Selkirk of Douglas raised recommendations 19 and 20, which we unequivocally support, about balancing the need for EU frameworks with member states’ right to choose the best and most cost-effective way to meet their emissions reductions targets. We strongly support that and would strongly oppose any attempt to use the governance framework to impose de facto binding national or regional renewable targets.
As I think I have made clear, we also support increased interconnection. The United Kingdom plans to more than double the amount of electricity we can import over the next five years, saving consumers nearly £12 billion in energy costs over the next two decades, involving interconnectors with France, Belgium and Norway and so on. Combined with recent measures to facilitate cross-border energy flows, interconnection should improve energy security and give the United Kingdom access to continental electricity when it is cheaper.
We strongly believe in an energy union and that it is important to strike the balance between national interests and the way the energy union will operate in the interests of the whole community. That is what we seek to do. Indeed, based on the experience of last Monday, I think that is what other member states seek to do. I forget which noble Lord made the point about differing national interests and differing national energy mixes—I think it was my noble friend Lord Selkirk although it may have been my noble friend Lord Howell or somebody else—with Germany ruling out nuclear, France being strongly nuclear and the United Kingdom being somewhere in between. The nuclear issue arose at the recent Energy Council and was dealt with. It seems that most states in the energy union take a different view from that of Luxembourg, Austria and Germany, which are fairly strongly anti-nuclear. Member states have different national interests and should have the right to determine the way in which they reach decarbonisation targets.
If the single market works well, the overall effect will be to reduce prices. The energy union should also give investors the greater policy certainty—many noble Lords mentioned this—that they need to make the long-term investments in energy infrastructure projects required to continue to deliver secure, affordable and clean energy in the future. Investor certainty is certainly important. A very clear signal was given in Paris. We should keep at the very forefront of our minds the importance of that clear message. I say “should” in relation to the energy union giving investors that greater policy certainty because we are at a very early stage in the development of thinking about the energy union, what it means and how it can best be implemented. This was discussed last Monday and clearly things will move on. This is why the report and indeed this debate are so timely.
Discussions are beginning in capitals and in Brussels to determine what an energy union governance framework should look like and how to develop an approach that works for countries not used to taking a holistic approach to energy and climate policy, and for countries such as the United Kingdom which have done so for many years. Given what is at stake, it will be vital to develop the right framework for the governance of the energy union, one that seizes the opportunity to enable all member states to have a clear and credible road map for decarbonisation of their economies over the long term. That point was made by many noble Lords, including my noble friends Lord Howell and Lord Ullswater and the noble Lord, Lord Teverson. The framework should support those member states that will be producing national energy and climate plans for the first time. We shall proceed on the basis of the carbon plans that we are already producing, so this will form the basis of our own national energy and climate plans. However, it must respect those member states such as the United Kingdom which have produced such plans for many years. We believe that the United Kingdom can play a strong leadership role here, continuing to share with other member states the experience we have gained from the complex cross-government work required to both produce and implement our carbon plans.
We have set out our position on ending energy from coal. We are unique in the European Union and in developed countries in that regard. That highlights the differences that often exist in this field. My noble friend Lord Howell referred to the importance of the marine possibilities that we have such as hydro, which is important at the moment. Tidal lagoons are being looked at and we need to move that forward. We believe that with our experience we can help others develop long-term, robust, credible national plans and so ensure a level playing field across the EU.
However, the arrangements for energy union governance need to be flexible. Member states must be responsible for developing and delivering their own national plans. Crucially, member states’ right to determine their own energy mix must be respected. With this in mind, we do not believe that national renewables targets in particular should be part of the 2030 framework. This should not surprise noble Lords as this has been a very clear stance of the Government for a considerable period.
The United Kingdom is a world leader in offshore wind deployment and we recognise the role played by the 2020 framework to kick-start renewables deployment and drive down costs in the United Kingdom, across Europe and globally. But for the period after 2020, it is right that member states have the flexibility to decarbonise in the most cost-effective way. Energy union governance should not create unnecessary burdens or constraints, nor restrict member states’ policy choices on those issues best addressed at national level. I briefly mention nuclear, which has come up. I do not want to get bogged down in a discussion about Hinkley. That is perhaps for another time. I am happy to pick that up in correspondence but will say that the increased cost of Hinkley is an increased cost for EDF and the Chinese Government. That is not reflected in the strike price. In decarbonising, the contribution of nuclear is important not just from Hinkley and developments at Wylfa, Moorside and so on but also from small modular reactors.
In policy terms this means balancing the need for EU frameworks on issues such as market integration and emissions reduction with preserving national flexibility to choose the best and most cost-effective way to meet national greenhouse gas targets. It also means balancing the need for certainty and predictability with the need to adapt as the market changes and technologies develop. It has also been mentioned in the debate that there will be developments that we may not even anticipate at the moment—known unknowns. With an eye to the better regulation agenda, the energy union should not create additional burdens for countries such as the United Kingdom which are ahead of the pack. We will be arguing strongly for a flexible template for member states to use in completing those national plans.
As regards DECC’s goals, clearly there is the trilemma. Our first priority is energy security—as I think noble Lords know—affordability and, of course, the importance of clean energy and decarbonisation. We are strongly committed to those goals. Nobody can doubt that, having seen what we did in Paris with the commitment to decarbonisation.
I apologise for picking up other points made by noble Lords in a somewhat random way but they were not perhaps central to the report. The challenge of security of gas supplies in Europe is certainly a central one and—to be fair—comes up in relation to the energy union. That obviously is linked with not just the energy union but also the energy community in south-east Europe and, indeed, the energy charter which governs the former Soviet Union, the European Union and a few others in terms of ensuring that we have security there. That clearly is important. I have mentioned some of the other issues relating to nuclear. I think I have covered the importance of interconnectors. Energy efficiency is certainly important. We hope that that can contribute to demand-side reduction. It is already bringing down demand, as has been acknowledged today in relation to the national grid. Demand is an important point in ensuring that we have that security of supply. We are now getting the demand-side reduction on the industrial business side. We can expect to see that delivered through smart meters and smart grids on the domestic side as they roll out to 2020 and, indeed, beyond.
CCS is vital. We discussed that very recently in New York when signing the international treaty and when discussing bilateral arrangements with other states on the importance of coming together to see whether we can pool resources in terms of research and data on CCS. That work will be ongoing. Therefore, an awful lot is happening. I restate my thanks and those of the Government for the report, which is timely and well thought through. We largely accept it and welcome it, as noble Lords are aware. I am very grateful for it. I thank the noble Baroness once more for all that she and the committee have done and wish them all the best in the future.
Baroness Scott of Needham Market
My Lords, I am very grateful to all noble Lords who have taken part in the debate this evening and particularly to those who said nice things about me. I have reached that age where my gratitude is much greater than my modesty, so I thank them for their comments.
I also tried very hard in my introduction not to mention the R word but of course the referendum is the backdrop against which all these debates take place. I thought it was interesting that there was consensus, certainly among this evening’s speakers, on the challenges we face in producing a supply of energy that is environmentally sustainable, secure and affordable for everyone—and consensus that these objectives can be met only by co-operation of a number of kinds between countries. The challenge is about how we create a governance framework that delivers the strategic objectives while allowing it to reflect member states’ very different traditions and preferences for an energy mix. If the European Union can get this one right, it will also be a very useful template for other areas of endeavour where there are advantages in working together but we still want to maintain some freedoms and flexibilities.
I was particularly struck by the point on innovation and making sure that such a framework does not stifle innovation, because I think we are on the cusp of an energy revolution. We are not very far away from that and would not want to stifle that sort of innovation and change. With that, I again thank all noble Lords, particularly the Minister, and I beg to move.