Net Zero (Industry and Regulators Committee)
(1 year, 10 months ago)
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Lord Hollick
That this House takes note of the Report from the Industry and Regulators Committee The net zero transformation: delivery, regulation and the consumer (1st Report, Session 2021-22, HL Paper 162).
Lord Hollick (Lab)
My Lords, I am pleased to introduce this debate. I thank our team, Matthew Manning, Holly Woodhead, Dominic Cooper and Itu Osupeng, for their valuable contribution to the work.
Our work started 18 months ago and our report was published a year ago, just as Russia invaded Ukraine, sparking an energy bills crisis and showing what can happen when a country chooses to weaponise its energy exports. The impact of that invasion on energy security and prices strengthens the need to accelerate the transformation to a net-zero energy system that increases domestic production and reduces our reliance on importing fossil fuels from authoritarian countries. It will also lead to a material reduction in our ongoing energy costs.
The Government have set out a number of ambitious targets, including achieving net zero by 2050 and a decarbonised energy system by 2035, which will require a wholesale transformation of our entire energy system. The Climate Change Committee told us that, to achieve these targets, the level of investment will need to increase from £10 billion a year in 2020 to £50 billion a year from 2030 to 2050. Funding the cost of meeting these targets will rely heavily on the appetite of pension funds, overseas investors, the private sector and individuals to invest, and that depends on the Government putting in place policies to encourage and provide certainty for businesses to make these investments.
We asked the Government to set out a road map to deliver the energy mix they envisage for meeting their targets in a secure way, including setting out the funding structures and business models they aim to rely on. We called for clarity from them on the business model for hydrogen and its role in heating; business models for carbon capture and storage, long-duration storage technologies and small modular reactors; funding to support the energy efficiency of homes and the installation of heat pumps; and a review of the infrastructure challenges to deploying offshore wind. Given the potential for technology to develop in unforeseeable ways, this road map needs to be dynamic and adaptable.
We were told that gas will be needed as an energy source up to 2050. We asked the Government to explain the role they intend for gas in the future energy system, including from our own domestic resources. In their response, they promised a range of initiatives and guidance in 2022, few of which have materialised. We wrote to the Secretary of State in December requesting an update on the progress on 14 of those initiatives, to be provided in time for consideration in today’s debate. Unfortunately, Davos intervened and delayed the response until next week, but the evidence to hand shows that delivery is taking place at a snail’s pace—and this against a background of long lead times to build critical elements of the new energy system. Offshore wind infrastructure can take up to nine years and nuclear power stations can take 15 years or longer.
Then, there is the big question: who pays for the huge upfront capital cost of the transformation in order to provide certainty for businesses and households to budget? Currently, much investment in decarbonising the energy system is funded through charges on bills, including the costs of upgrading the grid and building new nuclear power stations. This funding is regressive, bearing down most heavily on those households that are least able to pay. We urged the Government to consider the full range of funding options, including the UK Infrastructure Bank, the British Business Bank, carbon pricing, co-investment, investment subsidies, investment tax relief and contracts for difference. We called on the Government to reconsider their opposition to the use of government borrowing, given its suitability for financing investments with high upfront costs that are to be followed by attractive returns over the following decades.
We found that the scale of the transformation requires urgent action across the economy and across a range of government departments and public bodies, including regulators. Currently, there is insufficient focus and co-ordination, as well as an absence of decisive leadership in government. We proposed creating an expert task force, following the example of the Vaccine Taskforce, that could take responsibility for strategic planning, departmental co-ordination and the monitoring of delivery by all government departments, agencies and business partners; the USA recently appointed a net-zero tsar to a similar role. We believe that this approach avoids unnecessary bureaucracy and provides the decisive leadership to deliver in a rapidly changing environment. The task force will need to address politically sensitive matters, including public spending commitments, so it must be at the heart of government and report directly to the Prime Minister.
Ofgem, the energy regulator, has an important role to play through its regulation of energy networks and suppliers and, of course, in setting prices for customers. Witnesses told us that Ofgem was overly cautious and slow to approve investments to make the energy system ready for the transformation. We therefore recommend that Ofgem’s duties be amended to include explicit reference to the Government’s net-zero target.
Ofgem must satisfy three main objectives of energy policy: keeping bills affordable, maintaining the security of supply and decarbonisation. Finding a balance between these three sometimes contradictory objectives comes down to questions of priorities and trade-offs that only a Government can decide. Since 2014, the Government have repeatedly promised, but so far failed to deliver, a strategy and policy statement to provide strategic guidance to Ofgem. Earlier this week, the Minister told us that it was “upcoming”, but when will it come?
The Government and Ofgem have the responsibility to inform and provide incentives to the public about the changes that they must make to their domestic energy systems. Consumers will want to spread the high upfront costs of heat pumps, for example, on a long-term contract basis, similar to mobile phone contracts. Electric vehicle batteries and other domestic appliances can be set automatically to operate when electricity is at its cheapest. The provision of these new products should form part of the drive to bring about greater competition between energy suppliers to provide added services.
Ofgem’s recent calamitous attempt to introduce competition between suppliers to promote switching has landed a surcharge on all customers to cover the liabilities, now estimated at £3 billion, of the failed new entrants. Fresh from that debacle, Ofgem has recognised the need to add financial and operational oversight to its regulatory duties, but its regulation must become more flexible to allow innovative products and services into the market. These products will help customers to reduce their energy demand, retrofit their homes—which could reduce energy usage by up to 20%—and introduce low-carbon heating, requiring financial support from the Government. Government needs to take the lead and clearly set out what it expects of the public and energy suppliers and what financial support it will provide to help to pay for the necessary changes and investment in our homes.
The Mission Zero review, chaired by former government Minister Chris Skidmore, was published a week ago. It echoes many of our conclusions, including the urgent need for the Government to develop and publish an overarching net-zero delivery and financial strategy and to establish an office for net-zero delivery. Chris Skidmore calls net zero
“the economic opportunity of the 21st century”
and proposes 129 recommendations to turbocharge the nation’s climate action. More than half of these recommendations need to be acted on this year. He notes that the UK Government are
“not matching world-leading ambition with world-leading delivery”,
and we agree.
The US, China and the EU are investing heavily in net-zero technology and manufacturing. By contrast, our Government have yet to produce their net-zero industrial strategy. A modest number of investments have been made, but much more is required. Without that investment, we will remain importers of net-zero technology and miss out on the opportunity to create a domestic industrial sector, as the bulk of the significant demand created in the economy to source the new energy system will be spent abroad, only to widen our trade deficit still further. As the Committee on Climate Change noted in its last progress report to government, “important policy gaps remain” and
“Tangible progress is lagging the policy ambition”,
with “little concrete progress” on “cross-cutting enablers” of the transition.
The most important conclusion of these three reports —ours, Chris Skidmore’s and the Climate Change Committee’s—is that action is needed today. There are only 27 years left to undertake a fundamental change in the way that our economy works and to secure our energy supply at significantly lower prices, to the great benefit of all citizens and to provide a welcome boost to economic growth and social investment. The lack of a clear and consistent strategy and policy and the sluggish pace of delivery will lead to delay and missed opportunities. I beg to move.
Lord Reay (Con)
My Lords, it is an honour to follow the noble Lord, Lord Hollick, in a debate on our committee’s inaugural report. I thank him for his chairing of the committee and for this report, which highlights the significant challenges of meeting the Government’s target of net zero by 2050.
Although the UK has been more successful than most industrialised nations in reducing territorial emissions, and has done so by 28% since 2010, it is clear that a transformation in heating and travel, as well as substantial investment in new technologies, will be required. Equally, to cater for the anticipated manifold increase in electricity demand, the capacity and resilience of the grid will need to be significantly strengthened. To facilitate this and to help us meet the challenges of achieving net zero, the report recommends, as the noble Lord, Lord Hollick, has mentioned, the creation of an energy transformation task force. The task force, based within the Cabinet Office, would determine strategy, improve co-ordination across government departments and ensure effective implementation of decarbonisation policy.
For this vital new body to fulfil its mandate, detailed Treasury costings on achieving net zero should be sought. At present, forecasts vary significantly. The Climate Change Committee estimates costs of approximately £1 trillion by 2050. The national grid on the other hand, with figures covering only the decarbonisation of energy, estimates £3 trillion. The Treasury needs to come up with an independent view. Likewise, the consumer deserves to understand how these costs will be funded. How will the burden of cost be distributed? What will be required of the taxpayer and what of the consumer? What will be the sacrifices and the benefits? Without consumer buy-in, net zero stands little hope of success.
Quite rightly, the report stresses the key role that gas will continue to play in our economy. The International Energy Agency forecasts that by 2050 over 20% of our energy requirements will still be provided by fossil fuels. Further gas and oil exploration in the North Sea, our backyard, should be encouraged. Unfortunately, it is coming under twin attack. First, due to the net-zero and ESG commitments of commercial banks and insurance companies, finance for new exploration projects has been withdrawn. Secondly, as a result of the imposition of windfall taxes, investment has been discouraged—note, for example the recent announcements by Total and Harbour Energy about backing out of North Sea projects. It follows that investment in significant renewables projects is likewise threatened.
Russia’s invasion of Ukraine and the ensuing dramatic rise in energy prices highlighted the fragility of our energy system. We rely excessively on overseas supplies. On top of that, the UK system of calculating wholesale electricity prices relies on the cost of gas. This means that, at consumers’ expense, renewables producers and nuclear firms are currently receiving a windfall. The Government appear to have recognised the need to adjust this price calculation mechanism. I urge that reform is brought forth with speed.
Finally, as the House is aware, Ofgem’s role is to regulate the sector and protect the consumer. In the last 18 months, Ofgem has not covered itself in glory. Over 30 energy companies have failed, and these failures have cost the taxpayer £9.2 billion. This includes the £6.5 billion rescue of Bulb. Inexplicably, the terms of Bulb’s subsequent acquisition by Octopus remain shrouded in secrecy. Furthermore, why, in a recent review, did Ofgem decide not to introduce the ring-fencing of customer credit balances? Failing companies have been misusing these balances and surely Ofgem should act on this. I put it to noble Lords that Ofgem should reassess its persistent focus on switching—a once valid but now often self-defeating system.
Net zero by 2050 is an important target for the UK. It is essential that we march towards this goal with all our ducks in a row. The co-ordinating body, forecasts, funding, regulation and consumer protection should all be tightly in order so that the success of the project is as achievable as possible.
Baroness Donaghy (Lab)
My Lords, it is a pleasure to follow my fellow committee member the noble Lord, Lord Reay, and to thank the committee’s chair, my noble friend Lord Hollick, for his comprehensive introduction and his constructive and collegiate approach to our committee’s work. When you are planning something which has to happen in seven and 27 years’ time, and construction and operation take between five years, such as in the case of a battery factory, and 15 to 20 years for nuclear installations, that brings it home how urgent some of the decision-making is and how challenging those decisions are for any Government contemplating a general election within two years.
I will concentrate on our recommendation for a high-level task force to start the transformative changes needed, as already mentioned by the noble Lord, Lord Reay, what pump-priming, if any, the Government are prepared to support, and how the tension between the Treasury and BEIS can be solved. The Treasury focuses on new charges and revenue, whereas the Minister at BEIS has said that tax rises are not inevitable and that the priority is to bring people along with us.
First, a task force following the example of the vaccine task force is essential if there is to be any chance of reaching the net-zero target. A substantial majority of the witnesses who contributed to our inquiry were sceptical that the Government had in place the necessary strategic infrastructure. The Government’s disappointing response, saying
“Our current governance arrangements are effective”,
and then referring to the
“Government Priorities Delivery Committee (GPDC), chaired by the PM”,
just does not cut it. Will the Minister ask the Cabinet to think again?
Secondly, although it is apparent that there are plenty of willing investors around, there are some areas where the returns are not so obvious. The Government seem content to leave it to the private sector, with the honourable exception of some nuclear development which they have supported. It is important to create some strategic map to identify key areas of energy security or innovation where investors are not queuing up and where the state should intervene, at least in the short term—for instance, gas storage, interconnectivity, carbon capture, battery manufacturing and hydrogen, along with encouraging the development of the heat pump industry so that consumers have supportive infrastructure. At the moment, those costs need to be brought down.
This industry will not progress unless consumers are convinced that they will get servicing support, but housebuilders are not necessarily helping here. A relative of mine who bought a new-build house showed me an airing cupboard which was not an airing cupboard—it was full of machinery—and a garden shed which was not a garden shed but was the pump itself, taking up a considerable amount of garden space. How are the Government going about approving, if your Lordships will excuse the pun, these pump-priming projects?
Thirdly, what is the Government’s thinking on the use of government borrowing, as recommended in our report and referred to by my noble friend Lord Hollick, and the need to set out explicitly the distributional consequences for any funding proposals? The recent energy cost crisis revealed the limitation of consumer resilience.
Finally, applications for the 33rd UK offshore licensing round closed last week. Can the Minister indicate when announcements are likely to be made?
Lord Burns (CB)
My Lords, I too thank the noble Lord, Lord Hollick, for chairing the committee during the investigation and for his introductory remarks. I also thank the Government for their detailed reply to many of the questions that were put by the committee and for their description of the Government’s approach. However, as has been mentioned, this still leaves us without a clear road map of the major decisions that remain to be taken, the degree of uncertainty that surrounds the plans or how the changes are to be funded.
I accept the Government’s broad ambitions and the general principles of how to reach them. If we are to reach net zero, we will need a much larger decarbonised electricity system, well in advance of 2050. Increased amounts of wind power and solar energy will be required, as will alternative capacity to deal with intermittency issues. Unless developments with carbon capture and long-duration storage are unexpectedly successful, we will need natural gas for some time. In addition, a viable nuclear power industry will have to make an important contribution.
The system’s operator will be the body tasked with ensuring that local power grids can handle this increased variety of sources and uses of clean energy. It will also be required to keep the system in balance continuously, which I suspect will not be straightforward. Persuading households and companies to move to low-carbon methods of transport and heating could be equally complicated; they will respond to taxes, subsidies and signals about whether these new technologies will be successful.
We already see concerns about the inability to purchase cars powered by petrol or diesel after 2030, and, similarly, about the prohibition of new gas boilers after 2035. There are concerns about the lack of rapid chargers for cars and about whether ground source pumps work as well as gas or oil boilers work now. I also note the concerns about the shortage of engineers for installing and maintaining heat pumps and that we are not improving the energy efficiency of older houses as quickly as is necessary. That range of concerns, it seems, could easily lead people to postpone decisions. If we want to see a major switching to electricity-based vehicles and heating systems, as well as improving the energy efficiency of older houses, we need to see a convincing campaign and strategy about the practicalities of switching and fitting, and refitting, and the performance and economics of these technologies.
The Government’s response to the committee’s call for a detailed road map is that decarbonising the economy requires new technology and an energy mix that we do not know yet. Instead of a road map, they offer an annual update with progress reports and a description of what has changed. I understand those uncertainties and accept that any road map would have to be dynamic and would have to adjust and respond to events, possibly frequently. But that should not prevent the Government being much more adventurous in setting out scenarios, with timings, of how this drive to decarbonise might develop and the mitigations that could be available if some of the plans they have do not survive contact with reality.
Those uncertainties and complications are why the committee called for a transformation task force within government to act as both a co-ordinator and monitor of progress. The Government’s response is to say that existing governance arrangements are effective and that the path to net zero should be via ministerial forums, with established governance at official level. I have my doubts; it seems that, like the vaccine task force, this is a job for a focused team whose sole task is to deliver that policy and to help households through the transition. It is complicated, it will take time and it could be costly. From time to time, there will be setbacks; some of the plans will require adaption and there will be noisy opposition to some of the proposals. This is not business as usual, so the governance of this transformation should not be considered business as usual either.
Lord Whitty (Lab)
My Lords, I thank my noble friend Lord Hollick for the report. I remember that, when it first came out, I was deeply impressed by it. Since then, we have had a global energy crisis, and in this House we have considered, but have yet to complete, two enormous and constantly changing energy Bills to try to set out government policy more clearly.
Regrettably, those Bills do not answer many of the problems which the report originally raised. That includes, as others have said, the storage of gas and the production of renewable energy; the early deployment of carbon capture and storage; our much clearer nuclear strategy, including the role of small modular reactors; and the question of whether hydrogen will play any role in the heating of housing and other buildings, and the business model needed to support hydrogen. No decision has been made on the connectivity of the various arrays of offshore wind, the funding for heat pumps or the enhanced money for energy efficiency in homes to ensure that energy efficiency both benefits consumers and reduces the use of gas in our homes. There is also the question of how that will be paid for, whether by private or public funding, and in which way that will be delivered.
Those strategic questions have yet to be answered. The two Bills we have had since then have done some useful things, many aspects of which I agree with, but they have not answered many of these fundamental questions, including the role of the regulator as we go forward. This report focuses very much on the regulator and we do not yet have a clear indication about the relationship between Ofgem’s central role of looking after consumers and the net zero strategy. In Committee on the current Bill that is still going through—Committee has not yet finished—I tried to add a commitment where the role of Ofgem is extended to the consumers of heat networks. This is much needed, I agree with that, but we need to write into the terms of reference of Ofgem and other regulators the need to support and not to undermine the Government’s net zero strategy.
Like other regulators in the wake of privatisation, Ofgem was given the responsibility of looking after consumers, quite rightly, but that has to be expanded. We have to be clearer than we are in the current regulations and the Bill that is now going through about the relationship between Ofgem and the proposed future systems operator for the energy sector. It is important that not only Ofgem but the rest of our regulators have a relationship with the net zero strategy. Ofcom and Ofwat, in particular, need to have a relationship with net zero, as, frankly, do the financial regulators, to ensure that we are deploying finance and our whole financial system to support the overriding importance of net zero. Although this report rightly relates to Ofgem, we need to take the wider lessons on how regulation now operates in this day and age.
We also need to take up the point of cross-government co-ordination. That was repeated in the report just recently received from Chris Skidmore, and I hope that, while he may not be able to give a reply today, the Minister will be able, by the time the noble Baroness, Lady Hayman, has her QSD on Thursday, to give us an indication of how the Government will respond to Chris Skidmore’s report.
Lord Bilimoria (CB)
My Lords, I thank the noble Lord, Lord Hollick, and his committee for The Net Zero Transformation: Delivery, Regulation and the Consumer. I note that the date it was ordered to be printed was 23 February, the day before the sad war in Ukraine started last year, from which the global energy crisis resulted. In its report on net-zero transformation, the committee has said right up front that the current plans lack the necessary level of policy detail, and it makes lots of recommendations.
It should be noted that in 2021, after the Government had legislated in 2019 for a net-zero emissions target by 2050, they set two additional interim targets: a net- zero power system; and emissions reduced by 78% by 2035. Some 113 countries and over one-third of the world’s largest companies, including our FTSE 100 companies, have also set net-zero targets. The Government have set various policies, including: ending the sale of new petrol and diesel cars; the use of sustainable aviation fuel; investing in clean electricity and hydrogen production; providing funding for households to switch to low-carbon heating systems—the noble Lord, Lord Burns, spoke about that; incentivising farmers to use low-carbon farming methods; and planning to triple the rate of woodlands creation in England. They talk about bold commitments to meet these ambitions; energy technology policies, including long-duration storage technologies; a business model for carbon capture, usage and storage; and the potential for new nuclear, including small modular reactors.
I have asked time after time, like a stuck record: why are these small modular reactors not starting? Rolls-Royce says that it can produce reactors producing 500 megawatts for just under £2 billion. They would power about a million people, versus large Sizewell C for £22 billion and 3,200 megawatts. What is the delay? Rolls-Royce says that it can produce 16 of these clean, sustainable, low-cost, repeatable and scalable SMRs. Can we please start these as soon as possible?
Can the Minister also update us on the Cadent pilot that is taking place on using hydrogen to heat homes? One of my proudest moments at COP 26, when I was there as chancellor of the University of Birmingham and as president of the CBI, was the HydroFLEX. The University of Birmingham developed the world’s first retrofitted hydrogen-powered train and that was up and running. I chaired a meeting of transport leaders on that train in conjunction with business and government. That was universities, government and business working together.
Funding is addressed by the report, as is institutional architecture. It suggests an energy transition task force. What about a national centre for the decarbonisation of heat? This proposal is centred at the University of Birmingham in the West Midlands to implement the Government’s heat strategy. I chaired the heat commission when I was president of the CBI. The report also talks about price controls. The government response, which came pretty swiftly on 27 May, talks about SMRs moving three projects to a final investment decision. Have those decisions been made? Regarding gas, the Government stated that in meeting net zero by 2030, the UK might still need a quarter of current gas use, but this is a very important point. This is a transition. It is not an on/off switch.
This transition will create hundreds of thousands of jobs around the country and this is great news. The point that is not addressed in the report is: what about the potential for cross-border collaboration in this area, particularly with countries such as India, that are world leaders in solar power and solar technology? Should we not aim for much more cross-border collaboration in this area?
Lord Birt (CB)
My Lords, the on-the-button report that we are discussing today, and the more recent Skidmore review, with its 1,112 granular paragraphs and 129 detailed recommendations, well illuminate a true scandal. As a nation, we have declared a widely supported net-zero goal and then, in effect, walked off to the pub, leaving behind a black hole where detailed policy and a plan of implementation ought to be in place. The Government’s response to the committee is not that plan.
There are scores of challenging issues, many already mentioned, that remain unresolved. These include: creating a reliable, accessible EV charging network; decarbonising the heating of homes and buildings; incentivising insulation; reconfiguring the electricity grid to create greater capacity to deliver locally and to enable access for local generation and stored power; a major transformation identifying the precise mix of generating technologies, including nuclear, wind and solar and how to store that surplus power for intermittency; pinning down the as-yet unsettled economics of hydrogen and carbon capture and storage; taxing carbon more coherently; setting out a strategy for our extensive national gas network; and many more.
Valuable as it is to have the Skidmore review, it was an extraordinary act for the Government to commission it. Doing so was, in effect, an overt declaration that the Government were not wrestling with and resolving the host of unsettled issues that the Skidmore review identifies. Both reviews make similar recommendations, which we have heard echoed today, of what the Government now must do; namely, to create effective machinery in the Cabinet Office to co-ordinate policy-making and action across Whitehall and the country at large.
Short of running a war, net zero is the biggest issue that government will ever have to manage. I suggest that what is needed—again, echoing others to a degree—is a dedicated unit in the Cabinet Office with a professional project management team; the capacity to frame policy where more than one Whitehall department is involved; political leadership, I suggest from the Deputy Prime Minister chairing a committee of all relevant Ministers; critically, a Minister of State for net-zero delivery, with no other responsibilities; and, finally, formal annual reporting of progress towards net zero, what policy issues have been resolved and what are yet to be resolved—there will be many.
The Minister performs a heroic job in this House representing BEIS on these matters, but I hope that he will be able, in due course, to report to us that fit-for-purpose machinery will indeed be put in place—we have heard that plea from all sides of the House—to supercharge the whole of government to meet our existential net-zero goals.
Baroness Hayman (CB)
My Lords, I join others in congratulating the noble Lord, Lord Hollick, and his committee on a powerful and compelling report. I declare my interests as set out in the register, particularly as a co-chair of Peers for the Planet.
It is a pleasure to follow the rallying cry of the noble Lord, Lord Birt. Like him, I think that the theme that has emerged from the debate today is around strategic leadership, both on policy and resolving very knotty policy issues, and on delivery and a focus on a vehicle that will be successful in not only resolving issues but co-ordinating across departments. At the moment, Bill after Bill comes to this House without any net-zero lens being applied to it. From the Back Benches, we try to put that right, but it is ridiculous that this should be done on such a haphazard basis. This is an area on which the committee report really focuses and on which the Government should really focus.
We have gone backwards on this. I accept the idea of a task force as a delivery engine but, in their response to the report, the Government said that there were in fact two Cabinet committees, one led by the Prime Minister which would push forward the policies on net zero. We do not have two Cabinet committees; we have one domestic committee now, which is one of only three that is not chaired by the Prime Minister. That focus at ministerial level has gone, which is dangerous.
There are issues in the report that are legislative opportunities for the Government. On Ofgem’s remit and responsibility, there is a proposed amendment to the Energy Bill, which we spoke about at length in Committee, but obviously not persuasively as far as the Minister was concerned. I hope that he changes his stance given the support that there is throughout—from civil society, the industry itself, this committee, the Skidmore review—for Ofgem’s crucial role in this, which should be made explicit in its objectives, duties and responsibilities.
There are other opportunities on the Energy Bill, with the amendments on having the Government bring forward a strategic policy on energy efficiency and home insulation. We all know that these things are no-brainers, and yet we have stop-go policies that are inadequately funded. Year after year, we go on wasting money and energy because of the failings in our housing stock.
The last thing I will speak about are the costs. The committee and the report are very clear that there has to be transparency about costs, and there are very substantial costs involved. No one can deny that. However, less often mentioned are the costs of not taking action, in terms of lost opportunities and the huge costs of adapting and responding to the events that will happen if climate change is unabated. The OBR set that out very clearly a couple of years ago. The costs are also there for our children and our grandchildren, both economically and in terms of the lives that they will live. We boomers have been a very privileged generation.
I am stopping now, but I think it is really important that we take on our responsibilities here and move forward in the way the report shows us. In the terms of this Motion, I hope that the Government take very careful note of this report.
Baroness Northover (LD)
My Lords, I, too, congratulate the House of Lords Industry and Regulators Committee for its work and the noble Lord, Lord Hollick, for opening this debate so compellingly. It is a pleasure to follow the noble Baroness, Lady Hayman, who is seeking to make such a difference in this area as chair of the excellent Peers for the Planet.
It is excellent, of course, that the UK put in place the first Climate Change Act, committing Governments to change. That Act has been the model for elsewhere, and so has the Climate Change Committee, which scrutinises what the UK is doing and measures it against what needs to happen. The UK has made some impressive commitments, including ending the sale of new petrol and diesel cars by 2030; ending the sale of gas boilers, theoretically, from 2035; and reaching net zero by 2050.
If there was one positive thing to come out of Liz Truss’s brief tenure in Downing Street, it was surely commissioning Chris Skidmore to review how we were doing in meeting those commitments. It is all very well having these ambitions, but are the “guard-rails” in place—as he puts it—to deliver this? This is where a far less positive theme emerges, and it is echoed throughout this paper. The Government do not seem to have an effective strategy for delivering what they promise, as all noble Lords have said. As the committee says:
“We are not persuaded that the necessary level of policy detail is in place to achieve these commitments.”
The committee goes on:
“Given the scale of change involved in transforming the energy system by 2035, the Government must act urgently to make the necessary decisions and set out the detailed policies and funding models to allow investment to flow into the sector.”
As the noble Lord, Lord Reay, emphasised, this requires a major increase in funding. As the noble Baroness, Lady Donaghy, said, it also requires a transformation in planning and strategy. The noble Lord, Lord Birt, aptly described the Government going “off to the pub” on this.
The noble Lord, Lord Hollick, laid out some specifics of what is required, including a transformation task force within government and amending Ofgem’s duties to include explicit reference to having due regard to the net-zero target—something which Chris Skidmore’s review also recommends. The noble Lord, Lord Burns, emphasised that financial and strategic commitment is vital if investment and development are to be stepped up. The noble Lord, Lord Birt, the noble Baroness, Lady Hayman, and others emphasised that political leadership is vital.
As we have heard, the committee urged clarity and speed in a number of different areas, including long-term storage technologies; funding mechanisms for small modular reactors and carbon capture and storage; funding for energy efficiency and heat pumps; and that by the end of 2024 the Government should set out a road map of what they envisage the net-zero energy mix of the future to consist of. I am a member, as is the noble Lord, Lord Whitty, of the Environment and Climate Change Committee, which is looking at heat pumps. It is already very clear that ambition and reality are at huge variance.
This report was concluded almost a year ago. The Government published a weak response in 2022, mentioning reports that have not yet appeared. The committee followed up in December with a list of questions on specific areas which must be delivered at speed if net zero is to be realised and, as the noble Lord, Lord Hollick, mentioned, if we are not to fall behind the EU and the US. The collapse of Britishvolt does not augur well. The committee requested a response before this report was debated. As of yesterday when I looked, it was not forthcoming, so I gather it has not been produced. The noble Lord, Lord Hollick, told us that Davos intervened. The invasion of Ukraine might not have been anticipated, but Davos surely should have been.
There was a successful legal challenge to the Government over their not being on course to deliver net zero or their obligations under the Climate Change Act. The judge in that case required that the Government update their strategy by this spring. As the noble Lord, Lord Burns, said, it cannot be business as usual: strategy and commitment are urgently required, so the strategy had better not be warm words and plans alone. The committee’s report makes it clear that transformative actions are urgently required. I hope that the Minister will give some specific answers in his response; if he does not, it will further illustrate what the committee has been saying. I noticed that during the speech by the noble Lord, Lord Hollick, the Minister seemed to find either the speech or something else rather amusing. So, when the noble Lord, Lord Hollick, asks for a strategy—promised since 2014—I hope the answer will not be “soon” or “in due course”.
I might say this, might I not? But when Vince Cable put in place an industrial strategy which emphasised and, more to the point, supported the UK’s biomedical sector, having analysed the strengths and weaknesses of the UK’s industrial sector, it helped to lay the groundwork for our global position on vaccine development when the pandemic struck. It very much built on our academic strengths, to which the noble Lord, Lord Bilimoria, referred.
We are now facing an even bigger challenge. Do we have evidence of a strategic approach here? I am afraid that we do not. Maybe the Minister’s amusement, as also expressed during the speeches by the noble Lords, Lord Whitty and Lord Bilimoria, means that he will confound us when he replies with a solid strategy, backed by the Treasury, with specific answers to what this committee has rightly demanded. This is too important just to be met with warm words.
Baroness Blake of Leeds (Lab)
My Lords, I add my thanks to my noble friend Lord Hollick and the members of the Industry and Regulators Committee for their work. It was very interesting to hear the contributions from the noble Lord, Lord Reay, and my noble friend Lady Donaghy about what they think of this important work. The report is very detailed and far-reaching and, I think we all agree, has come up with some very practical suggestions which have been emphasised and built upon in today’s debate.
We have heard a great deal about the background, with an inquiry launched in June 2021 and a report published in March 2022. I can only sympathise with members as it must be frustrating, to say the least, to see the lack of progress on their important recommendations. It appears that there is ambition from this Government, as outlined by the noble Baroness, Lady Northover, in her contribution. But the calls that we have heard for urgent action, clarity of purpose, application of common sense and the practical steps needed, as outlined in the recommendations, continue to fall on deaf ears. This is despite the crisis caused by Russia and the wider security implications that has led to and, of course, the ongoing cost of living crisis—not to mention the rapid increase in extreme weather events.
As has been mentioned, we now have the substantial report from the former government Energy Minister, Chris Skidmore, published and ready for debate. It includes an urgent wake-up call that the UK will miss out on huge economic benefits if it does not grip the actions needed to achieve net zero by 2050 with immediate effect. We heard from the noble Lord, Lord Bilimoria, in particular about the creation of quality jobs that that will bring, and the noble Baroness, Lady Hayman, eloquently outlined the costs of lost opportunity. Her comments about the need for strategic leadership could never be more important than today.
How depressing it is therefore that the investments for major government spend through the levelling-up fund announced yesterday do not have a narrative of contributing to achieving net zero running through them—another missed opportunity to add to the very real concerns that they will not help reduce regional inequalities and about the lack of transparency around the decision-making process. Surely every government policy and major spending decision should, by now, have to account for its contribution to this agenda. Every department has a responsibility to assess its contribution to making progress to net zero by 2035 to 2050, recognising the institutional architecture, as discussed in the report, to deliver results.
The discussion about the need to establish the task force, as mentioned in the report, and perhaps to take it further into the heart of government has been very timely. As we have heard, there is a very large gap between the ambitious targets and the intensive investment required from businesses and individuals alike. Given the scale of change involved in transforming the energy system by 2035, the Government must urgently act to make the necessary decisions and set out detailed policies and funding models to allow investment to flow into the sector. We know that some of the technologies we will need are not yet established, but that should not be used as an excuse for delay.
The report clearly lays out that, if the power system is not decarbonised by 2035, reaching net zero by 2050 will be extremely difficult. I note the scepticism from witnesses to the committee around these targets, but I believe that, with the right commitment and leadership, this journey can be achieved. However, trade-offs will be required, and this needs to be managed at the highest level of government.
The coming decade is crucial to tackling the climate and ecological crises. The latest findings from the independent panel on climate change were the starkest warning yet that the crisis is here right now and is the biggest long-term threat that we face. The extreme weather events of recent months will become more frequent; urgent action is required to drive down emissions and adapt and protect communities from the changes to our climate that are already baked in. Tackling these crises requires not just words but action, political commitment, leadership, implementation and joined-up working between all levels of government.
I do not think that the approval of the new coal mine in Cumbria has been mentioned today, but it is an important issue to raise given the mixed messages that those sorts of decisions give out to the wider world and to communities across the country.
We welcome the change of heart, as we understand it, on onshore wind—we could never understand why that was left to one side—but we need to see more action around energy efficiency, which is discussed at every level.
Many challenges have been outlined today. Through the Energy Bill, the debate goes on, so there is an opportunity on Report for the Minister to respond to the concerns raised during Committee, in particular in relation to the improvements being made around the independent future system operator, ensuring that independence is indeed at the centre of the work.
Ofgem has taken centre stage in many of the points made today, and with good reason. It must learn from its failures, which have had a profound impact on people across this country. We argue that the Energy Bill should contain a remit for net zero. This is an interesting debate, and we think it is time to push as far as we can with Ofgem’s role and responsibilities.
The important matter of consumer protection is rightly at the heart of the report. As we go through the serious changes that we will need to bring about, we recognise just how important it is to take consumers and our communities with us. We do not have a sufficient level of communication from government explaining what the challenges are and what the possible actions can be to assist people. In some parts of the country, there has been close partnership working with people in local communities, with quite extensive results. Those examples should be looked at and learned from so that we can have a sensible debate, recognising the challenges from government around future costs and where the trade-offs might be between taxpayers and bill payers.
I think that we all recognise that we are at a serious, pivotal moment. Britain needs to step up to maintain its leading role. I hope that the Minister will be able to demonstrate a step change in the Government’s approach, fully recognising the urgency, the relentless focus and the leadership needed to grip the agenda. There is an opportunity to match ambition with action. As I have mentioned, we have the Energy Bill, and we look forward to some movement from the Government and the proposed amendments coming forward. However, we do not yet have evidence that the action required is about to happen. A starting point would be a positive response to the very sound recommendations laid out in the report of the Industry and Regulators Committee before us.
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, I thank the noble Lord, Lord Hollick, for the report from the committee and for securing this important debate. I am grateful also for many of the other contributions. I start by apologising to the noble Lord that the reply from Secretary of State is not with him. It is with the Secretary of State at the moment, who has been away in Davos this week. Nevertheless, it should not have been beyond the wit of government to get the reply to him by this debate. I am also grateful to members of the Industry and Regulators Committee, and to all those who provided written and verbal contributions, which enabled the preparation of such a thorough report.
Like other Members, I am proud that, under this Government, we were the first major economy in the world to enshrine net zero into legislation. We set out in the net-zero strategy a bold vision for a decarbonised economy by 2050 and a net-zero power system by 2035. That shows that we have not lost any of that ambition.
I was very interested in the contribution from the noble Lord, Lord Burns, particularly given his former position. I am tempted to say it is a shame that he is not still in that position, given some of my recent discussions with that department, but perhaps that is a conversation we should have privately. He rightly focused on a road map to net zero. Although we do not yet know what the exact technology and energy mix will look like in 2050, we have a clear plan and a clear strategy for getting there—and, in doing so, we can manage at least some of the uncertainty he mentioned by forging the future ourselves.
We are working to make our clean energy future a reality with many brilliant and innovative British businesses, to help to industrialise emerging technologies, from British-built hydrogen-fuelled aircraft engines to small modular reactors that could each power 1 million homes. We are building on these success stories in the sectors where we already lead the world. Last year we completed the world’s largest wind farm at Hornsea 2, harnessing the high winds of the North Sea to deliver clean, affordable and secure energy for Britain, alongside the second- and third-largest wind farms, which are all in UK territorial waters and all done by us.
In the British Energy Security Strategy, we set out a new ambition: to deliver up to 50 gigawatts of offshore wind by 2030, including up to 5 gigawatts of innovative floating offshore wind. With the support of the offshore wind acceleration task force that we set up to drive forward delivery, alongside some of the measures in the Energy Bill to which the noble Lord, Lord Whitty, and others referred, I am confident we will succeed. It will be a challenge, because we have been so successful at rolling it out in this country that now the rest of Europe wants to do the same, which will of course present some inevitable problems with the supply chain. Nevertheless, it is a challenge that we are determined to meet.
Other noble Lords referred to another key challenge that we face, which, for a secure, cost-effective and low-carbon energy system, is storage. That is why we are committed to deploying enough large-scale and long-duration energy storage technologies to balance our overall energy system. To do that, we are working with industry to develop the best policy to enable investment by 2024. As noble Lords said, we are investing in nuclear, too, to complement the wind, solar, tidal and geothermal energy that we have, and play a vital role in beyond-the-grid applications, including the production of hydrogen and synthetic fuels for future use. Last year, we gave the green light to the development of Sizewell C, with a £679 million investment, which represented the first state backing for a nuclear project in over 30 years. This marks a milestone in a nuclear renaissance for our country as we pioneer new approaches to deliver not just reliable clean energy for Britain but new industries, new skills and, of course, new jobs.
The noble Lord, Lord Bilimoria, pointed to the exciting potential of SMRs, and we are working hard to set up Great British Nuclear and actively engaging industry to develop a delivery model and funding strategy for small modular reactors that addresses market needs, too, providing backing for a technology which, as the noble Lord said, promises to make nuclear quicker, cheaper, and easier to deploy. It is an industry in which the UK is very much at the very cutting edge globally.
My noble friend Lord Reay mentioned the important role of oil and gas. I also recognise, as I have stated many times in this House, the role of our own North Sea gas reserves, to ensure security of supply as we transition to net zero. As other noble Lords mentioned, it is a transition, and we will very much need gas during that transition. This exemplifies our whole-system approach to meeting our net-zero ambitions, where we tackle this most complex of challenges and drive forward technological developments on all fronts. That includes technologies such as carbon capture, usage and storage. The noble Lord, Lord Birt, highlighted the importance of CCUS, which does not just offer a green alternative for our heavy industries and a way of securing our electricity sector through decarbonising natural gas usage but opens up the possibility of delivering negative emissions through greenhouse gas removal.
As the Climate Change Committee has observed, CCUS
“is a necessity, not an option”.
We are determined to deploy it in a way that is designed to drive value for money for taxpaye1rs and consumers. It is a priority for this Government and we are progressing at pace. We will invest up to £1 billion to establish carbon capture and storage in up to four industrial clusters by 2030. The first two clusters have already been selected and, in August, we published a shortlist of associated projects taken forward into the track 1 due diligence phase. Further detail on the track 2 process will be set out later this year.
We are working to deliver the CCUS business models. In November, we published the dispatchable power agreement and, in December, we published the hydrogen and industrial carbon capture business models along with an update on carbon capture and storage network codes. CCUS also provides a way to power up the production of low-carbon hydrogen, a potential fuel of the future where, again, our expertise puts us right at the cutting edge. We have confirmed our intention to proceed with a producer-focused hydrogen business model, which will be critical to unlocking private investment in new low-carbon hydrogen production. We are supporting fuel switching to hydrogen in industry through nearly £400 million in energy transformation funding; we are also working with industry and regulators on hydrogen heating.
The noble Baroness, Lady Northover, noted the role of heat pumps. We are investing here and in the boiler upgrade scheme; I was happy to give evidence on that to the noble Baroness’s committee recently. The scheme provides financial support for the installation of low-carbon heat technology, primarily heat pumps, in homes and small non-domestic buildings to help support the transition away from fossil fuel heating. The scheme offers an upfront grant payment to help customers overcome the high upfront capital cost of low-carbon heating technologies, which will be crucial in the transition away from fossil fuel systems.
This winter has shown us just how important energy efficiency is for bringing down bills for British households. That is why the Government have so far committed to spending £6.6 billion in this Parliament on decarbonising buildings. Much of the work will be led by our new Energy Efficiency Taskforce, further details of which we will announce shortly. This will spearhead a new national effort to reduce energy demand and achieve our ambition to reduce the UK’s final energy consumption from buildings and industry by 15% by 2030.
In his opening speech, the noble Lord, Lord Hollick, recognised the crucial role of investment. Since March 2021, the Government have committed a total of £30 billion of domestic investment for the green industrial revolution. Over the next 15 years, we will work with the private sector to facilitate investment of something like between £280 billion and £400 billion in the power system in technologies such as offshore wind, hydrogen, energy storage and nuclear. Our Ten Point Plan for a Green Industrial Revolution, together with the Net Zero Strategy and the British Energy Security Strategy, are already expected to drive an unprecedented £100 billion of private sector investment and support 480,000 jobs by 2030. Bloomberg New Energy Finance estimates that, in 2021 alone, around £24 billion of new investment was committed in the UK across low-carbon sectors.
Last year, the Government published investor road maps on electric vehicles, hydrogen, CCUS and the aviation sectors. We are committed to publishing a comprehensive update to our Green Finance Strategy in the first half of this year. As noble Lords will know, we are also progressing the Energy Bill, which will help to liberate private investment in clean technologies, protect consumers and reform the UK’s energy system so that it is safe, efficient and resilient.
On the strategy and policy statement, as noble Lords would expect, the Government have prioritised work in relation to high global gas prices recently. We are making progress and have now completed the first-stage consultation with the devolved Administrations and Ofgem. Since the change of government, we have restarted work on the statement and are preparing for a public consultation in the spring.
My noble friend Lord Reay highlighted the critical role of Ofgem. The report also recognises Ofgem’s important role in enabling the net-zero transition. Its primary statutory duty is to protect the interests of existing and future consumers, which of course includes their interests in the reduction of greenhouse gases. The Government continue to maintain that an additional net-zero duty for Ofgem is not necessary.
I agree with the noble Baroness, Lady Donaghy, and others on the Industry and Regulators Committee, about the importance of effective scrutiny and effective governance arrangements. Our current governance arrangements are effective, and we continue to evolve and strengthen our overall approach, taking into account the recommendations of the committee’s report, the Public Accounts Committee, the NAO and other bodies.
I hope that the noble Baroness, Lady Blake, appreciates that I cannot say too much about the Cumbria mine, but I assure the House that I understand the strength of feeling of many Members on that.
The noble Lord, Lord Whitty, commented on energy prices and reflected on how the world has changed since the report was published. Since then, we have stepped in to support the British people and households with unprecedented support to help them to pay their energy bills. On fairness and affordability, the Government’s plan to publish a call for evidence was somewhat superseded by the turn of events and the announcements on energy price support over the last six months, including the decision to suspend the so-called green levies through the energy price guarantee.
The noble Lord, Lord Bilimoria, asked about the programme of hydrogen village trials. In May, the Government and Ofgem announced that Cadent and NGN’s proposals for potential hydrogen village trial locations in the two shortlisted areas, one in Redcar and one in Whitby, near Ellesmere Port, would be developed in more detail. We expect to make a decision on the location of the selected village trial later this year.
The noble Lords, Lord Whitty and Lord Birt, and the noble Baroness, Lady Blake, commented on and noted the publication of the Skidmore report, which was commissioned and welcomed by the Government. We will of course reply to that later this year. The Government remain committed to achieving net zero by 2050 by pursuing a pro-business and pro-growth approach to meeting our target and ensuring that the costs, as well as the benefits, are shared fairly, protecting consumers, workers and businesses. The target remains a government priority, and, as many Members observed, the net-zero transition will provide huge opportunities for jobs, investment, innovation and exports.
We have already achieved a lot on our road to net zero: between 1990 and 2019, we have grown our economy by 76%, at the same time as cutting emissions by over 44%, decarbonising faster than any other G7 country. I know that many noble Lords want to go further and faster, but we should recognise that we have already achieved a lot. The Government will carefully consider the proposed recommendations and will respond to the review later in the year.
The noble Lord, Lord Whitty, mentioned the role of the future system operator. Net zero is creating new challenges for our energy system, and it is crucial that the system is managed in a way that promotes a safe and secure energy system and that the best possible advice is available to inform the many crucial decisions that will be needed. The FSO will also have responsibilities in both the electricity and the gas systems, which will bring together the planning of both systems to drive competition and maintain a robust and secure system during the important transition to net zero. The FSO will be regulated by Ofgem and will provide accountability and a known framework for sector engagement. Its funding will be allocated through the price-control process, also managed by Ofgem. It will serve as an expert body, with comprehensive understanding of the system and its inner workings, adopting a holistic view to achieving net zero while maintaining energy security.
The Government are committed to ensuring that the costs of the UK’s energy transition are fair and affordable for all energy consumers. Recent rises in wholesale energy prices have added pressure to energy bills. The Government understand the difficulties that households and businesses face, and we have taken comprehensive action to support energy consumers. Our focus continues to be on providing robust support for energy consumers: for households, through the energy price guarantee until March 2024, plus further targeted support for the most vulnerable households, and for non-domestic consumers through the energy bills relief scheme until March 2023, and the energy bills discount scheme for the following year.
The Government are extending the energy price guarantee from April 2023 until April 2024 so that the typical household will pay an average yearly energy bill of £3,000— we emphasise that that is an average, not a cap—and are continuing to support UK businesses through the energy bills discount scheme. Alongside support for households and businesses, the Government are working to ensure that energy bills remain affordable in the long term. Our exposure to volatile gas prices underscores the importance of the plan, which I think the whole House agrees will build a strong, home-grown renewable energy sector. The Climate Change Committee agrees that our net-zero strategy and the British energy security strategy represent comprehensive and viable plans for reaching our world-leading target of eliminating our contribution to climate change by 2050, which we are well on the road to implementing.
This Government have a clear vision and a clear strategy for a transformed clean energy system, and the drive to continue that, delivering for the British people.
Lord Hollick (Lab)
I thank all speakers today for their contributions. There is a theme of “Get on with it. Don’t go down the pub”. I think the Government have indicated—the Minister did in his remarks—that after a regrettable delay, we will receive a letter responding to the queries we made. I hope that will be an opportunity to discuss and debate the responses further.
The Minister also indicated that the strategy and planning document and the fairness and affordability work are under way and that we can expect them shortly. He mentioned that there was a consultation process that included the regions to be involved. One of the things that comes through very strongly from the debate and the work we have done is that this is quite the biggest challenge the country has faced. It is on an enormous scale and is going to last 27 years. It is unlikely, I hope, that the same Government will be in office throughout those 27 years, so it is very important that we build a cross-party coalition for this. That is essential if we are to attract investment from overseas. Our reputation as a reliable, safe and predictable country to invest in has, over the past few years, taken a bit of a knock, so it is important that when the Government publish their plans, they reach out across Parliament and across the nations and regions of the UK to get buy-in and to make sure that everybody knows that we are all heading in the same direction. Of course, the details will change and technologies will change and develop, but I urge the Government to hurry up and to make sure that they have consulted and got broad support from the nations of the UK and the other parties, but also that they have reached out to consumers and have them on board.