Green Agenda

Baroness Worthington Excerpts

Thursday 12th January 2012 Lords Chamber

[Baroness Worthington]

My Lords, I thank my noble friend Lady Smith for securing this important debate. I would like to take a minute to respond to the statement made by the noble Lord, Lord Turnbull. It strikes me as not at all modest to suggest that we should stop our investment in alternatives to fossil fuels and wait for 10 years. If it happens that the noble Lord, Lord Turnbull, and similarly sceptical climate commentators are wrong, we are risking the future of the planet. If we turn out to be wrong, all we will have done is diminish our reliance on fossil fuels, which seems to me a good thing given that they will run out anyway and that they lead to lots of additional problems to do with air quality. It is not modest at all to say that we should stop; it is terribly arrogant to assume that we should risk the entire planet. Anyway, I am sorry—I shall return to my speech.

On the coalition’s record on stimulating green growth, I will come across as being quite negative, although I will end with a positive, as it is not all bad. What I want to focus on is where the main problem lies within government. It is not with DECC; in fact, I think that the Department of Energy and Climate Change has done quite a good job of continuing many of the policies that were introduced under our Government, with substantially less budget, so I think that congratulations are in order. The problem lies with the Treasury and particularly the hypocrisy of our Chancellor on this topic. He is responsible for introducing revenue-raising policies masquerading as green initiatives, which, in reality, push up the costs of energy prices while delivering no environmental benefit. Yet it is the same Chancellor who is undermining investor confidence and risking the increase of the cost of capital for investors by calling into question the UK’s green ambitions. This seems ludicrous.

I shall use a couple of examples. The carbon reduction commitment—I have to admit that it was never a very attractive policy—applies to downstream emissions of greenhouse gases from large commercial energy users. A large portion of these is already capped upstream, so it is, in effect, a duplicatory policy. However, it was at least designed to be an awareness-raising policy in boardrooms. It was also designed to be revenue neutral, with the proceeds of all the auctions being returned to the participants. One of the first actions of the coalition Government was to change all this by deciding that the revenue should be kept by the Treasury. This, of course, raises costs for all the participants, which in turn will be handed on to consumers. Does it deliver a significant environmental saving? No. As I have just mentioned, a large part of these emissions is already capped. Any savings will simply be traded away within Europe as a result of the way in which the Emissions Trading Scheme works. While the Chancellor may claim that he is putting the brakes on our getting too far ahead of Europe, it is in fact his department that is doing exactly that. He is adding additional costs relative to our European neighbours through his redundant policies.

The second and possibly more worrying policy is the carbon tax, which takes the form of a floor price in the carbon market. This policy applies directly to participants in the EU’s Emissions Trading Scheme, which applies to 50 per cent of the UK’s emissions and covers our largest point sources of emissions—our power stations and heavy industry. This flagship European policy is currently failing. It is not stimulating a significant investment in abatement—in reduction—in emissions because, for three of the four years during which it has operated, the cap on emissions has been higher than the emissions themselves. The regulation has, therefore, become almost redundant.

The solution is to adjust the cap to create greater ambition. That would rebalance the market, make sure that there were more buyers in the market than sellers and help to boost the price. That is the solution. It has not, however, been achieved to date. Sadly, that is partly because of this Government’s inability to control their Conservative MEPs, who, last July, voted against efforts to tighten the cap. While we see Conservatives in Europe blocking progress, we have a Chancellor at home deciding to take unilateral action to increase the cost of emissions allowances in the UK. This is the Treasury’s policy and it pushes up costs again relative to the rest of Europe. How can the Chancellor be putting a brake on our ambition? It simply does not add up.

The question is: to what end? There is certainly no environmental benefit to this policy. As I said, the way in which emissions trading works is that, if any reductions are achieved additionally in the UK, this simply frees up allowances to be sold to would-be polluters in Europe. It does not, therefore, have any additional environmental ambition, which can be achieved only if we remove the allowances, rather than just making them more expensive.

The stated aim of the policy is that it should create investor confidence, which will lead to the building of new infrastructure, particularly in the power sector. That is a laudable aim, but is this the best policy to achieve it? I would say that, if such large amounts as are being raised by this tax are being raised, there should be at least some guarantee that they will be spent on something that is actually built. The renewables obligation definitely adds to energy bills also, but it is designed in such a way as to ensure that something is actually built. There is no such guarantee with the carbon floor price. It is simply a means of raising revenue for existing players in the market. The main beneficiaries of the carbon floor price are the owners and operators of existing low-carbon infrastructure, who receive a large windfall as a result of not being exposed to the unilaterally inflated carbon price. This translates to British Energy and EDF. The income that they will receive from this policy may or may not be spent on the building of new nuclear reactors, or it may simply disappear into the company coffers.

The clearest indication that this policy is not delivering what is claimed is the fact that, on top of this, the Government are currently consulting on radical changes to our electricity market. If this un-green carbon tax were doing what it was supposed to do, why would we need to consult on a long-term fixed price contract for new build, which is part of a proposed package of reforms to our electricity system? It seems to be a belt and braces approach, which indicates that perhaps one of these policies, at least, is not needed. If the Chancellor is concerned about green policies and the fact that they might be putting an undue burden on our economy—when, in fact, they are probably stimulating growth and investment—he really only has himself to blame. His policy is the least useful and most expendable among the mix.

This leads to strange outcomes. Unfortunately, the Business Secretary, Vince Cable, was very damning about the UK’s carbon budgets, but in fact they are a sensible policy and he would have been far more effective if he had focused his ire on the carbon floor price and the changes to the CRC scheme, which directly raises costs for the businesses that he represents. His intervention has led to a conditionality being applied to the carbon budgets, which now sends mixed signals. The UK’s landmark Climate Change Act is seen as an example by many around the world of solid leadership on climate change. Indeed, earlier this week I was lucky enough to take part in a meeting hosted by Globe with a delegation of Chinese lawmakers who had come over here keen to learn from our experiences as they draft their own legislation on climate change. Sadly, we have gone from a good policy to the introduction of a review clause that muddies an otherwise crystal-clear policy that can create good, sound investor confidence.

The other serious issue that I want to raise in relation to the Government’s performance is their handling of policies that are designed to stimulate investment in clean technologies. I will not dwell on the feed-in tariff fiasco, which my noble friends have already touched on. My concern is a more general one. The Government appear not to be able to see the difference between winners and losers in the race to develop new low-carbon technologies. They seem to be enslaved by slightly flawed economic models of how the world should behave and are not applying themselves to noticing how it does behave in reality. If we are guided purely by these models, my fear is that we will continue to be forced to cut off at the knees industries that are starting to blossom while vainly clinging to the notion that some of the tried and failed technologies will one day come and rescue us.

I want to mention the renewable heat incentive and the renewable transport fuels obligation, which are both examples of policies that can lead to the stimulation of jobs in new industries. However, we must learn the lessons from our experience of the feed-in tariff and have sufficient flexibility to ensure that, if those policies introduce changes, we can give sufficient notice to the industries concerned.

I shall end on a discussion of whether the tried and failed technologies that we talk about a lot will deliver, and by that I mean the current generation of nuclear reactors. We often hear the promise that we are going to build eight or even 10 new reactors to replace the ones that are closing. My reading from those whom I speak to in the industry is that there is a great deal of cynicism about this. It is very unlikely that we will see the scale of build that the Government are anticipating because our current reactor designs are simply not attractive. As one executive who had looked at both designs put it to me, “They are both pretty awful and we do not like them”. I think that a nuclear renaissance is possible and indeed desirable, but it will have to be achieved by looking at the full range of new generation nuclear reactors. It will come as no surprise that I shall mention thorium molten-salt reactors, because of all the technologies that I have looked at in relation to climate change this one has huge potential. If we were able to match the amount of money that we are currently spending on nuclear fusion, there is no doubt that we would develop a technology that had massive potential for export. I would like to mention the Lords Science and Technology Select Committee report on nuclear research and development. It is an excellent report and I hope that the Government will respond to it, because we really do need to look again at our spending.