Baroness Worthington
Main Page: Baroness Worthington (Crossbench - Life peer)Energy Bill
Baroness Worthington Excerpts
Baroness Worthington
My Lords, I am grateful to the noble Lord, Lord Oxburgh, for tabling this amendment and to the other noble Lords who have lent their name to it. It has been a springboard for a good and necessary debate this afternoon. In response to the question asked by the noble Lord, Lord Jenkin, on how we got here, I point out that under the previous Government, between 1997 and 2010, we saw 26 gigawatts of new capacity added to the grid. In the previous three years—2008 to 2010—we saw 7.8 gigawatts added. There was clearly a healthy investment system under the previous Government. What happened next is old news. We had a decision to reform the electricity market and in that process, which, let us face it, has been going on almost since 2010, there have been a lot of conflicting messages coming out of government. This has created an investment hiatus and an uncertainty that have led us to where we are today.
Let us not be overly dramatic. In 2010, we had historically high capacity levels. That has partly contributed to the hiatus and it needs to be cleared out for there to be a signal to the market to reinvest. Against the 26 gigawatts or 7.8 gigawatts that were added in the last few years of the previous Government, we have lost since then only 8 gigawatts of old coal. Much mention is made of this, but the LCPD—the large combustion plant directive—took out 8 gigawatts. That 8 gigawatts has already shut and the lights are still on. We must put this in perspective. I am convinced that there is an issue of long-term planning, but right now let us keep it in perspective. We are at the tail end of this Bill process, which has been going on an inordinately long time. Things, I am sure, should get better soon, but for that to happen we have to get this Bill right. I think that all noble Lords who have spoken today would agree that the key to get out of this now is to have a clear regulatory framework that will do the job of restarting investment in our energy infrastructure.
The other factors that have contributed to the hiatus, which I think it is fair to say no Government could have been fully aware of or on top of, were issues outside our control. One example is high gas prices. We have gigawatts of consented gas capacity in this country. Why is no one building it? They simply cannot afford to take that decision. Boards in energy companies all around the country are asking: “Will this pay back?”. They cannot give a definitive answer, because the price of gas is uncertain. They will also say: “We’re in the middle of an Energy Bill process. We’d be mad to commission something now. Wait until the dust has settled”. The Bill is partly in the Government’s control, but the price of gas is an unexpected issue that has arisen quite recently.
The second thing that has gone wrong, for which my party has some responsibility, is that we have dropped the CCS ball. We have been utterly hopeless at getting CCS away and demonstrated. That is partly because—and this where I have some sympathy with the noble Lord, Lord Oxburgh—we have been relying on civil servants to devise a strategy for picking winners to develop CCS in this country. Quite frankly, we have failed. A succession of wrong calls has been made. Our first call was that it should be post-combustion coal, because somehow we were going to help China. Well, it turns out that that is not what we need, so, understandably, those projects have not gone forward. There is a great need to address the future of CCS and to have more market-based commentary on that and less control from the Civil Service.
The third thing to have happened, which, again, has been outside any Government’s control, is that the economics of nuclear have changed. Fukushima was a disaster that happened on the other side of the planet and public attitudes towards nuclear remained remarkably resilient, but in Germany it was a completely different story, with the phasing-out of nuclear. That obviously has an impact here because we have two large German utility companies in this county. Having pulled out of nuclear in Germany, quite quickly, they pulled out of nuclear in the UK. That could not have been predicted, but it definitely contributes to the situation that we are in today, where we are reliant on only one nuclear project, certain aspects of which have proven difficult.
It is fine just to look back and to try to explain why we are where we are today, so I go back to my statement that the way out of this is to get this Bill right. The way to do that is to think about the regulatory framework that it creates. I have some sympathy with the proposal of the noble Lord, Lord Oxburgh, because there are echoes of it in the way in which we govern other aspects of our society. Perhaps the most obvious one is the Monetary Policy Committee. As the noble Lord, Lord Deben, pointed out, we also have the Committee on Climate Change. The creation of that independent body of experts, able to advise the Government publicly and to publish reports, was a major aspect of the Climate Change Act and one of its most successful components. It has depoliticised an issue that I am sure would otherwise have been more debated and undermined than perhaps would be appropriate.
There are, therefore, examples of how the creation of an independent advisory body can work, but I would argue that, if you are going to create such a body, you would want to give it clear parameters within which to advise. Advising on the totality of energy investment is a large task and I defy any group of experts, no matter how many are on the board, to get their heads around every aspect. Setting clear parameters within which you would require independent advice would help to give the body a purpose in providing the right level of scrutiny and advice for the Government.
The levers that the Bill creates are clear. We will have a capacity market, in which the Government will have to make decisions about the levels of capacity that they will try to secure through auctions. That could certainly benefit from advice. We have the decarbonisation obligation, which, I think it is fair to say, has not to date been handled in a suitable or effective way. The hard part has been put off, which is not what we want. I have great sympathy with noble Lords who have said that the tendency in government is to put things off; it is much easier simply to shrug your shoulders and wait for the next person to come and take the hard decisions. Unfortunately, that is what has happened with the decarbonisation obligation.
Another key parameter within which the Bill operates is the levy control framework and the amount of money that the Treasury has put aside. Again, that could do with some external scrutiny. It might be necessary for a body of experts to advise both the Treasury and DECC to depoliticise the issue and to create unity. The last parameter in the Bill, which we will discuss in more detail shortly, is the energy performance standard, which could also benefit from external advice to depoliticise it and underpin it with independent scrutiny and analysis.
Many noble Lords have commented on what such a body might look like and how it might operate. The key themes were that it should be independent, it should have a long-term view, it should issue its advice in public to both Parliament and Ministers and it should address energy efficiency—the noble Lord, Lord Teverson, spotted that that was missing from the list. I am sure that, as the noble Lord, Lord Oxburgh, would say, the amendment will stimulate debate and cause the Government to come forward with something more complete.
I think that the Government recognise that they need advice. They would not have created three specialist advisory groups commenting on aspects of the EMR and a technical advisory group to see them through this process if they thought that they had all the answers themselves or if they could go to Ofgem, the National Grid or any of the other agencies for advice. Clearly a deficit was recognised.
I hope that the Government will come forward with positive words about considering this proposal in greater detail, as we have heard eloquent arguments about why something such as this might be necessary. I hope that they will at least concede that they have created bodies to advise them. Those bodies have been doing a short-term task, but we are asking for the creation of a body that takes a slightly longer-term view, working within parameters. Perhaps they could also consider whether the bodies that they have created already need to be converted into something more permanent. If a clear process is established for what they will do, how they will advise us and the parameters within which they will operate, that would go a long way towards answering many of the concerns that have been raised today. I thank all noble Lords who have spoken and I look forward to the Minister’s response.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)
My Lords, I, too, thank the noble Lord, Lord Oxburgh, and all noble Lords who have spoken to the amendment, which proposes the establishment of an energy investment advisory board within DECC. We already have a number of advisory boards and I would like to go through my speaking notes and lay out why we think that, at this moment in time, this could add another layer, as my noble friend Lord Teverson said. I will also respond to some of the questions and points raised.
First and foremost, we attach great importance to ensuring that we consider the long-term views of the UK’s energy needs. DECC therefore has many forums for industry and energy experts to contribute and scrutinise policy on energy and climate change. I will highlight some of these to noble Lords. The main forum that DECC has with industry is the energy leaders forum. This is a quarterly event that brings the DECC Secretary of State, Ministers and senior officials, including the Permanent Secretary, together with the CEOs of vertically integrated and independent generators and suppliers. It is jointly organised by DECC and Energy UK, whose members make up the industry attendance. The high-level and wide-ranging discussions help government and industry to anticipate and respond to existing and future issues in energy policy. Importantly, the forum also discusses how industry and government can attract investment to the UK to ensure that we have secure low-carbon and affordable sources of energy now and tomorrow.
We have a flexible structure of academic and industry experts who are also able to advise the department on a much wider range of topics, including our major programmes from the Green Deal to the electricity market reform. For example, there are EMR expert groups for each policy area and we have set up an independent panel of technical experts to provide the Secretary of State with specific technical advice on the national system operator’s analysis. The Infrastructure UK unit within the Treasury exists to develop the UK’s long-term infrastructure priorities and secure private sector investment. Other important forums include the Science Advisory Group, which is a group of external academic and industry experts who challenge and support the Chief Scientific Adviser and DECC. It also helps to guide the department’s scientific priorities and strategy.
I welcome the noble Lord’s point about skills in the department. We are actively strengthening our systems for prioritisation of resources. We are developing key specialist skills, including ensuring that the department has sufficient corporate memory and leveraging the capability of our delivery partners. As set out in DECC’s annual report, we consider delivery skills essential as the department moves to implementation and delivery as well as policy development.
In addition, we have an internal governance structure. We have a departmental board whose role is to monitor performance and delivery of DECC’s work and to provide strategic and operational leadership for the department. The board has non-executive members who provide advice, support and challenge to the department. The board is supported by sub-committees, most notably the executive committee that closely monitors departmental strategy and delivery of objectives. In light of the existing structures that have proven successful, I do not believe that it is necessary or desirable to set up a new advisory panel.
I am also concerned that the introduction of a board with explicit responsibility for long-term energy strategy could reduce ministerial accountability. The department regularly reports to Parliament on the progress that it is making on energy and climate change. As we have discussed previously, the coalition agreement states that we will give an annual energy statement to Parliament to set strategic energy policy and guide investment. This must be laid before Parliament by 31 December each year. The statement provides a clear, succinct description of the Government’s energy policy within the context of DECC’s overall strategy. We also report to Parliament specifically on security with the statutory security of supply report and, on Report in the other place, we introduced a statutory annual update on EMR.
We report on climate change via the government response to the Committee on Climate Change’s annual report. The Committee on Climate Change consists of independent experts and is a statutory body established under the Climate Change Act 2008. Its purpose is to advise the Government on emissions targets and to report to Parliament on progress made in reducing greenhouse gas emissions and preparing for climate change. I therefore reassure noble Lords that we already have in place forums and structures to deliver the significant changes that we need in the energy system.
A couple of points were raised during the debate. My noble friend Lord Jenkin asked whether we had enough capacity to keep the lights on over the next few years. My noble friend also asked about investment. I can reassure him and other noble Lords that through this Bill we are seeing the biggest reform of the electricity market in recent years and greater confidence from investors than ever before. Even with Ofgem’s new estimates, the risk of the lights going out is low and steps are being taken to ensure that sufficient reserves are in place in the short and medium term. Essentially the short-term measures are an extension of tools that National Grid and Ofgem have already used to contract additional short-term capacity in order to balance supply and demand.
My noble friend Lord Crickhowell said that these days Ministers take advice from officials rather than making up their own minds about policy issues and are not often able to say no to officials.
Baroness Verma
My Lords, if I choose to slightly disagree with my noble friend, that is perhaps a position that I will stand corrected on. However, given that we have so many forums and advisory groups in place, I do not believe that we need a further one. If I am allowed to get to the end of my speaking notes, noble Lords may be relieved to know that, having noted the significance attributed to this advisory group by noble Lords, I may go back and reflect on what has been said in Hansard. I see that the noble Baroness wishes to intervene at this point.
Baroness Worthington
It is just a small point, which is that part of the problem is the plethora of advisory boards. People are asking for a sense of cohesion to be created and a hierarchy, so that you pull one expert body together. Also, you try to create something with independence, because many of the advisory boards that you rely on today are, by necessity, made up of people with vested interests. Something more transparent, more publicly accountable and at a higher level would be beneficial.
Baroness Verma
The important thing is that noble Lords know how the governance of existing structures works as a whole. Rather than trying to explain the role of each forum now, I will, if the Committee allows, write to noble Lords on how each forum, advisory group and committee works to support one another in advising government. We have these forums under review all the time. We work to ensure that all views are taken into account. As I said, I have taken on board the seriousness of what the Committee has said and would like to go away and reflect on today’s debate, perhaps responding to noble Lords in writing. With those remarks, I hope that the noble Lord, Lord Oxburgh, will withdraw his amendment.
Lord Jenkin of Roding
My Lords, I was happy to add my name to the amendment. I see it more as a vehicle for promoting a short discussion, which I think we shall have, rather than something that ought to be added to the Bill; I think the noble Lord, Lord Oxburgh, has made that clear.
I have in the past debated in successive energy Bills the need for the United Kingdom to increase its storage capacity. We have far less than other countries. I have always been met with the argument, to which the noble Lord, Lord Oxburgh, referred, that we have so many different sources of supply that we do not need the same levels of storage as other countries. The mistake that we have been making, and I certainly plead guilty to this, is that we have seen it in terms of security of supply, whereas—as I think the noble Lord, Lord Oxburgh, makes clear and I would argue—we are really arguing about price, not supply.
If one looks at the UK gas market over the past two years, 2011-12 and 2012-13, it is pretty level for most of the season. The price rises slightly towards the autumn, and then in December, February and March there are sudden spikes and it goes up to sometimes two and a half times the normal rate. That is what happens to world gas markets during the winter: the demand substantially exceeds the supply and the result is that the price goes shooting up—not for long but it does—and the companies have no option but to pay it and immediately pass it on to the consumers in higher prices.
If you had a level of storage whereby you could build up the supplies during the summer and release them during the winter so that you are not dependent on the huge spikes in world gas prices, it would protect consumers. I see this whole question of storage as being much more about protecting the consumer market against sudden spikes in prices, rather than any shortage of supply. I do not see any risk of there being a shortage of supply but it is perfectly clear that we have had very substantial spikes in prices.
I took the advice of somebody who is very much involved in all this. I will quote what he said to me:
“If we had had sufficient gas storage last winter to maintain gas prices close to average winter prices (~70p/therm) rather than seeing prices spike to over £1.50/therm it would have saved costs to the UK economy of between £300-400 million. This is the sort of saving/protection that should be foremost in the Government’s mind”.
This is something that should not be ignored. I am not suggesting that there is any particular solution to this. If the market could be persuaded that this is a proper thing to do—I have heard of a project involving storage in a depleted offshore gas field; I think it is called Deborah—that could provide the vehicle for the kind of storage that we are talking about, which would save consumers the kind of price hikes that they have had to face in the past.
There is another interesting point. A very interesting study was published this morning—there may have been reference to it in the press—by a very well known academic, Nick Pidgeon at Cardiff University, who looked at public attitudes to all this. His synthesis report is called Transforming the UK Energy System: Public Values, Attitudes and Acceptability. It is a long report and I do not propose to read more than one sentence of the executive summary—well, two sentences—but it has relevance to the discussion we are having. The report says:
“While ‘energy security’ as a term was not salient to people, the range of concerns that it encompassed (geopolitical issues, energy shortages, black outs, unaffordable prices) did evoke strong reactions. Energy security is particularly closely linked in public perceptions to affordability because it relates to concerns about personally not being able to access energy services, while concern about national level insecurity in supplies of fossil fuels was seen as a symptom of the problems of fossil fuel dependency”.
In other words, security is not seen primarily as “We are going to run out” but as an issue of affordability. This is spelt out at some length in Nick Pidgeon’s report. It is the product of more than a year’s work by him and a team of academics, and it is something to which we should give some attention.
So, in addition to the general point that the question of storage relates to price rather than to capacity or the question of running out, so it is also associated in the public mind with affordability. That is why, if we can level out the prices by encouraging the industry to invest in more storage, we would find it valuable on both accounts: it would be valuable in terms of reducing cost but also in reconciling public opinion to some of the difficulties that we have faced in the past of sudden spikes in energy prices.
Baroness Worthington
My Lords, I am grateful to the noble Lords, Lord Oxburgh and Lord Jenkin, for tabling this amendment. I confess that this is not an area where I have a great deal of expertise, so really I just have some questions to add to the debate. I am sympathetic to the desire for government oversight to ensure that gas prices can be levelled out. Demand seems to be very seasonal and storage is an obvious way of helping to smooth out prices. I suppose my question is: to what extent has the department done any analysis of why the private sector is not doing this? It should be in its interests to secure cheaper prices, so you would expect there to be an incentive to invest in more storage.
My second question, which is related to that, is: to what degree do the powers of the regulator—our party’s views on the regulator are well known, but this is a genuine question—extend upstream? Does Ofgem have a power to look at fairness of pricing in the supply of gas, meaning before it reaches the distribution network? There is a high degree of vertical integration in the energy sector, and there are some companies that control the extractive processes, the distribution and then the use of the product. When you have that degree of vertical integration, there is the potential for unfair pricing, or self-serving that could lead to less transparent pricing. That is a genuine question. Does the regulator consider the potential for those vertically integrated companies, right the way up to extractive? Does it cover that? If it does not, it should. I look forward to the answer on that.
I am increasingly being exposed to ideas around renewable gas, by which I mean syngas, which is generated from other carbon sources than the hydrocarbons found in natural gas. This area seems to have been overlooked by successive Governments. It would be helpful to hear the latest thinking on renewable gas, particularly its role in helping to hedge against high natural gas prices. My understanding is that gasification technology and pyrolysis in particular are now maturing as technologies and helping to deliver alternative sources of heating gases for the variety of uses that you can use gas for. Those are my questions.
Baroness Verma
My Lords, I am grateful to the noble Lord, Lord Oxburgh, and my noble friend Lord Jenkin for prompting the debate on gas storage. The noble Lords’ proposal is timely, coming precisely as the Government are thinking about these issues. The GB gas market is one of the best functioning and most liquid in the world, and has brought forward significant investment in the past decade. This has expended our infrastructure to the point where our input capacity alone can meet 189% of our annual needs, and it has spare capacity to respond flexibly to price signals to deliver gas to our market from a diverse range of sources and routes. It has also increased storage in terms of overall capacity, where we have seen a 25% increase in the past decade, and even more so in terms of deliverability—the amount of gas that can be delivered to the grid each day to cope with volatile demand. Once two recently completed fast-cycling storage projects are counted, along with a further two projects under construction, storage deliverability has doubled in the past 10 years. The growth in input, capacity and flexible storage delivered by the market provides the additional flexibility we will need to help meet variable demand for heating requirements on peak winter days in severe weather conditions, or for the power sector, where gas is likely to be called on to respond flexibly to intermittent generation sources such as wind.
The Government are not complacent or averse to making appropriate legislative changes to improve our gas security. Indeed, it was part of our coalition agreement to do so. In relation to gas security, the Energy Act 2011 conferred on Ofgem new powers to sharpen the incentives on gas market participants to secure gas supplies. Ofgem has been consulting on potential reforms and is due to announce its final proposals very shortly. We are also working within the EU to ensure adoption and implementation of a variety of measures to enhance gas security through a well functioning, integrated and transparent European gas market. For example, the implementation of the third energy package has already improved market integration across the EU, so that storage in other countries such as Germany can respond to price signals sent by our own market. In addition, the development of common gas codes provided for by the third package will facilitate further gas trading across borders according to pricing signals. The EU regulation on security of gas supply requires member states to undertake regular assessments of their gas security and prepare plans to mitigate the risks they face, as well as meeting supply and infrastructure standards.
New investments in physical infrastructure are being made available to enable gas to flow more freely around the EU. In addition, DECC is working to maximise sustainable gas production from our North Sea and unconventional gas resources. Furthermore, the Government have been conducting a detailed review of whether further reforms—in addition to those being considered by Ofgem—might be appropriate and we intend to announce our decision in the coming weeks. In reaching a decision, the Government will consider the physical and price security arguments for intervening in the markets and whether any of the potential interventions provide a cost-effective means of improving the security of our supply. Therefore, the Government may conclude that the interests of consumers are best served by not intervening in the market.
However, our assessment is that all measures being considered—these include the measures to promote gas storage envisaged by this amendment—can already be implemented using existing powers. In particular, Ofgem has powers under Section 7B(4)(a) of the Gas Act 1986 to introduce such licence conditions as it considers necessary or expedient, having regard to Ofgem’s duties, which include the promotion of the security of supply. It would also be possible for the Secretary of State to make a direction under Section 7B(5)(a) of the Gas Act 1986 setting out licenceholder obligations. Additionally, Ofgem can apply for an order to be made by the Secretary of State under Section 41C of the Gas Act 1986 to make a new activity such as gas storage a licence activity. Such an order made by the Secretary of State may also provide any consequential changes to primary and secondary legislation.
The noble Baroness, Lady Worthington, asked about the role of renewable gas. The Government have plans to maximise the production of gas from all sources: conventional, shale and renewable. She also asked whether the regulator considers vertical integration and impacts on pricing. Yes, Ofgem considers the impact on pricing in all its regulatory functions. Therefore, the Government do not consider these amendments necessary and I hope that, having found my explanation reassuring, the noble Lord, Lord Oxburgh, will withdraw his amendment.
Baroness Worthington
“( ) Section 47(1) does not apply to CCS plant until completion of the commissioning and proving period that shall last no longer than 3 years.”
Baroness Worthington
We are now discussing the part of the Bill that concerns the emissions performance standard. By way of background, I thought it would be useful to recount where these provisions arise from. It was in response to the Kingsnorth demonstrations, which were a green group response to the threat of a new unabated coal plant being built by E.ON. At that time, climate change concerns meant that there was a great deal of public opposition to the idea that we would be locking ourselves into many decades of unabated coal if a new plant were to be built.
The then Labour Government responded with a new planning restriction that meant that all new coal plants would have to fit at least 300 megawatts of carbon capture and storage, essentially closing the door on unabated coal. The then Opposition stated that they would move to rule out new unabated coal through the introduction of an emissions performance standard. That was prompted in part by a visit by one of the shadow Ministers to California, which is one of a number of US states that already have emissions performance standards in place. When he became Prime Minister, David Cameron stated that he would legislate—he would put an EPS into an energy Bill—and consultation on that began, in conjunction with the rest of the energy market reform package, in December 2010. Here we are today, talking about the detail of that proposal.
The Government did not get everything right in their first draft proposals. One loophole that was quickly identified was that the plan was to give exemptions to any plant fitting CCS. The fear was that this would mean that large plants could be built with only a small portion of the capacity being fitted with CCS. Representations were made. The Government did listen and have closed the loophole so CCS plants will now be caught by the EPS.
We have tabled a number of amendments concerning the EPS. This amendment addresses the concerns of the Carbon Capture & Storage Association. While accepting that plants with CCS will need to be compliant with the EPS, there is a fear that if the industry were required to meet those standards from day one, that would be unduly burdensome and could deter investors. The association has asked that a period of grace of three years be introduced during the commissioning and testing of the new plant, when there would be a derogation of the EPS. This amendment has been tabled to achieve that. We see that very much as part of a package of measures, in conjunction with the EPS. I will shortly talk to two more amendments that we support strongly, and I know that my noble friend Lord Hanworth is going to speak to his amendments too. There is much more to be said about the EPS, but this is a specific amendment and I beg to move.
Lord Oxburgh
My Lords, I declare an interest as honorary president of the Carbon Capture & Storage Association. This is an extremely important amendment if CCS is to go forward. It has not been easy to attract investment to this area; the investment required is heavy. This amendment simply minimises the risk for those who are introducing a new technology. As noble Lords will be aware, the Government’s decarbonisation plan is probably unachievable without CCS, so it is important that this kind of reassurance is given to the industry. I strongly support the amendment.
Lord Gardiner of Kimble
My Lords, I thank the noble Baroness, Lady Worthington, for introducing this chapter of the Bill. I hope that noble Lords will understand that when I first studied the Bill and saw that Clause 47 opens with a formula, I was rather bothered. Providing that we can all keep to layman’s language, I will try my best, but if we go into formulae, I may need more advice.
I thank the noble Baroness also for tabling this amendment, which seeks to provide carbon capture and storage projects with an exemption from the emissions performance standard during their commissioning and proving period, with any exemption limited to a maximum period of three years. I am grateful, too, to all noble Lords for their contributions to this interesting debate at the beginning of this part of the Bill. I continue to learn a great deal.
The Government believe that CCS will have a critical role to play in reducing emissions in our country, allowing coal and gas, including that produced from indigenous sources, to continue to be part of our future low-carbon energy mix. The Government share the noble Baroness’s enthusiasm for CCS and want to see it deployed at scale in the 2020s, competing on cost with other low-carbon technologies. Our CCS programme is designed to drive forward the rapid commercialisation of CCS and includes £1 billion of capital funding for the first projects under the CCS competition. I note that we have two preferred bidders, Peterhead and White Rose; obviously, we will need to consider their progress.
My noble friend Lord Jenkin talked about CCS working abroad. It is advancing particularly in America and Canada. Those projects are combined with enhanced oil recovery, which improves the economics of the projects. Some of the circumstances of Europe and this country may be different, but those examples suggest that progress is being made around the world.
The noble Baroness will no doubt be aware that the original draft Bill contained provision for giving CCS projects supported under our CCS competition an exemption from the EPS. The purpose was to provide CCS projects with some flexibility in relation to the limits imposed on the operation of a plant by the EPS in order to help manage the inherent risks associated with trials of a first-of-a-kind technology. However, during pre-legislative scrutiny of the Bill, concerns were raised around the scope of the exemption provisions, in that the use of broad exemptions could undermine the purpose of the EPS. The Government looked at this again and decided, on balance, that these concerns could be addressed by managing any EPS-related risk through the CCS project-funding contract issued to a project under our CCS competition.
However, there have been a number of developments since last year with our CCS competition, which has stimulated industry to bring a number of proposals for CCS projects. The Government are therefore keen to encourage the development and deployment of CCS, irrespective of whether it is part of the CCS competition, so we have already been considering options for how we might provide CCS projects with some flexibility under the EPS during the early commissioning phase.
The noble Baroness’s amendment is tightly prescribed and would limit the duration of the exemption so that it was explicitly consistent with the overall purpose of the EPS. Undoubtedly there are positive advantages to the approach reflected in the amendment. As I understand the way of things, therefore, I would like to give much further consideration to the amendment ahead of Report. I repeat my thanks to the noble Baroness and ask her if she will consider withdrawing her amendment.
Baroness Worthington
I thank the Minister for his encouraging response and for saying that he will take the amendment away. Today’s contributions have underlined the importance of CCS. Here we stand a chance of the UK really capitalising on our natural assets, in terms of both the storage capability that we have in the North Sea and our engineering prowess and experience in offshore matters. I am hopeful that we will see CCS projects coming forward in the UK very soon.
In response to the question from the noble Lord, Lord Kerr, about whether or not CCS has been demonstrated anywhere, I refer him to the helpful report that the Government produced on CCS. Every three years the Government are legally bound to report on CCS developments. This Bill will actually repeal that but my noble friend Lord Grantchester is suggesting that the report should stay. In that helpful report we learn that investment is indeed going on today in CCS in the UK, and it details two plants that are very close to being commissioned in the US, due to come on stream in 2014. I am hopeful that then, at least, we will be able to put the lie to the idea to that CCS cannot be commercialised. If the US shows the way, I am sure that many others will quickly follow, including China, which, as we know, is investing in a number of CCS projects and, I am sure, is racing to get there too.
We need to up our game and get on with it, and this amendment is designed to ensure that there are no unnecessary hurdles in the way. I am encouraged by the Minister’s response so I am happy to withdraw.
Lord Teverson
Before the noble Baroness does so, the Minister mentioned 2020 in terms of commercialisation. Given the current stage of the tendering process, when might we perhaps predict that the first full-scale CCS demonstration project will be operating? Do we have a date for that now? I think we are all concerned. We all want this technology to win. We are aware, as the noble Baroness, Lady Worthington, has said, that it has taken a huge amount of time to get momentum, despite all the good will that there is for it.
Lord Gardiner of Kimble
I thank my noble friend. My understanding is that we may be working on this as early as 2015.
Baroness Worthington
Baroness Worthington
This amendment would also amend the EPS regulations. The consultation document issued on the EPS back in December 2010 started out with an important premise that we could all support, which was:
“The objective of the EPS is to ensure that while coal continues to make an important contribution to security of supply, it does so in a manner consistent with the UK’s decarbonisation objectives”.
It is important to remind ourselves of that because it was a very good starting point for this process. I note that it mentions decarbonisation “objectives”, and the plural there is very important. We are not faced with a legal requirement to decarbonise in a rush by 2050. A series of legally binding carbon budgets is set for us 15 years in advance. We know that that is the primary framework by which the Government are bound to deliver a decarbonised energy system.
When the July 2011 White Paper, Planning Our Electric Future, came out, the issue of grandfathering the EPS—meaning that the limits created in law should be allowed to be unchanged for plants below those limits—was discussed. It was proposed that the grandfathering should last for 20 years. I am grateful for a briefing from the think tank E3G, which pointed out that at that time the regulators said that 20 years of payback for a gas-fired power station was actually quite a long time and that 10 years was usual for payback on investment. They therefore suggested that a 15-year window for grandfathering would be more appropriate.
Fast-forward to Saturday 17 March 2012 and the surprise joint Statement by Secretary of State Ed Davey and the Chancellor, where it was announced that the EPS limit would remain unchanged at 450 grams per kilowatt hour, all the way until 2025—a considerable increase on that level of grandfathering, against what the regulator proposed and what was initially proposed in the White Paper. Why was this? What had happened in the intervening months? Quite clearly a grand bargain had been struck between the department and the Treasury, and that grand bargain has been the cause of a great deal of uncertainty. Essentially, it has allowed for two competing philosophies and energy strategies to emerge. One strategy is a dash for gas—unabated gas—which is obviously the Chancellor’s preferred option, and the other is much more sensible: the department’s policy of a mix of low-carbon generation. Somewhere along the line, though, the department clearly lost out in the arguments, and now we have an EPS that allows for unabated gas all the way to 2045.
The amendment seeks to change that by reducing the excessively long grandfathering period to the year 2029. We believe that this is consistent with the decarbonisation trajectory that we need to be on, and indeed with the Bill, which, we are told, is supposed to be setting a decarbonisation objective—it is not clear that that will be done, but we anticipate that it will— in 2016. How that can be set with gas being allowed to operate unabated all the way until 2045 is quite unclear to me.
The length of the grandfathering period seems to go against the existing requirement that all new thermal plants over 300 megawatts should be carbon capture and storage-ready. That provision was put in there for a reason: we anticipate meeting our targets through the application of CCS on thermal plants. If a completely unabated dash for gas is allowed to operate unimpeded until 2045, why should plants be made CCS-ready? It seems illogical to have that requirement but then not to use it.
I am sure that the Minister will come back with lots of arguments about this being a backstop measure and other policies being in place essentially to prevent us from exceeding our budgets, but I will speak to those when we come to the final amendment in this group. Those arguments, which I am sure will be around security of supply, costs and the like, do not stack up. As I said before, the amendments that we are proposing to the EPS clauses act as a package. We have been very encouraged by the warm words and the acceptance of the logic behind the CCS amendment that we have just discussed, and this is a part of that process. It is not just about allowing CCS to have a grace period and a proving period; CCS needs to have a market, and the market drivers are going to be these regulations.
Left to their own devices, generators will continue to build unabated plants. That is the cheapest thing that they can do. They will fit abatement equipment only when they are required to do so. The quickest, cheapest, most efficient way of doing that is through these regulations. These are an essential component in the Government’s armoury to ensure that we meet our carbon budgets and our legally binding carbon targets. I hope that the Minister will see that this is part of a package, and might be similarly receptive to this amendment and the thinking behind it. I beg to move.
Lord Gardiner of Kimble
I have said that I will study everything that all noble Lords have said. The point is that you would not have certainty, building in 2043, that the EPS level would stay the same beyond 2044. I think that probably helps to clarify that. However, I will consider all the points that my noble friend has made.
Baroness Worthington
I thank the Minister for his comments. It is incorrect to say that this amendment would introduce more uncertainty. It would introduce certainty of a different kind, one that is compatible with our legally binding targets on climate change. It is not introducing uncertainty because it is still primary legislation that tells the investor the framework within which they need to operate.
Are investors living on a different planet? Do they not know about the climate change targets that have been set for us, the legally binding carbon budgets and the planning requirements on the very plants that they will be building—that they should be carbon capture and storage-ready? Do they think that we are simply going to give up on climate change and ignore all this and that they can be merrily emitting for ever? It beggars belief that investors are saying that this is an absolute necessity for them to invest. Twenty years is ample to get a return on investment.
As I pointed out, when this was first being mooted, a 20-year grandfathering was suggested. Where this 31-year grandfathering came from, who knows? But it is not good enough for the Government to be quoting the CBI as if it is somehow the world’s expert on this. We know that it is not the CBI that has demanded this; we know it is the Treasury, and it comes back to the very point that I have been making throughout these proceedings, that there are two strategies at play in government on energy. There is uncertainty and a lack of clarity because of that. To argue that this amendment somehow introduces more uncertainty is quite rich, frankly, and completely inaccurate.
As your Lordships can tell, I am very disappointed that the Government cannot see the logic of this. As the noble Lord, Lord Deben, has pointed out, these two factors are incompatible. You cannot have unabated gas being built right the way out to 2044 and then suddenly meet your carbon targets. It is simply not possible.
You are creating a legal framework which lacks credibility. There is nothing more uncertain than that; if you ask any investor they will say that. This will be challenged and changed. Investors know that because they are not stupid and live in the real world where climate change is increasingly an issue that we need to tackle and we have a legally binding framework that insists that we do so.
I suggest that this is taken away and looked at again. The suggestion that came in at the end of perhaps putting a clause in which stipulates that this applies to plant built before a certain date is potentially a good way. However, I would say that this amendment is a perfectly good way of doing it, too. I am very disappointed to be withdrawing the amendment, and it is almost certainly something that we will come back to on Report.
Baroness Worthington
My Lords, in speaking to the amendments tabled by the noble Viscount, Lord Hanworth, I will not go over what I have previously said. I feel strongly that this aspect of the Bill has not had the degree of scrutiny that it deserves. Our Committee has gone through it in far greater detail than was achieved in the Commons, where only a cursory debate was had. With the number of noble Lords who have spoken, we clearly have expressed concern that the Government have not quite got it right in their current formulation.
One of the problems is that this is primary legislation with an equation, numbers and dates written into it. That makes it an incredibly inflexible tool that would need more primary legislation to change. I do not believe that the levels here were the product of a great deal of consideration, analysis and thought; I believe that they came out of a hurried meeting between two departments with different views, and to have them enshrined in primary legislation seems reckless. I encourage the Government to think carefully before pushing for these matters to stay unamended in primary legislation. Perhaps it would be better for them to be dealt with in regulation.
Given the wide-ranging powers that the Government have given themselves on everything else with very little detail, it is odd that this rather unhelpful set of prescriptions is in primary legislation. There are lots of things here to be taken back and thought about. I will speak more on the coal issue when we come to those amendments as there are considerable issues about unabated coal in the future, but there is definitely merit in taking this away.
Lord Gardiner of Kimble
My Lords, I am grateful to the noble Viscount, Lord Hanworth, for his amendments, which have given us a further opportunity to consider these matters. As I have said, with my noble friend the Minister I will obviously consider what has been reported in Hansard. That is the important part of what we are doing in Committee.
The EPS focuses on helping us to meet our commitment to preventing new unabated coal-fired power stations being built by limiting the emissions of any new coal plant to around half of what they would otherwise be. The EPS supports the planning requirement that any new coal-fired power station must be equipped with CCS on at least 300 megawatts of its generating capacity, and will ensure that any new coal plant is constructed and operated in a way consistent with our decarbonisation objectives. Setting the limit at 450 grams per kilowatt hour will allow some flexibility to assist the economic optimisation of CCS demonstration projects and to manage the uncertainties associated with first-of-a-kind CCS projects.
We are concerned about going to a limit level of 300, which is below the emissions level of even the most efficient and cleanest new gas plant operating at base load, as proposed by this amendment, because of the major implications it may have for this country’s security of supply and impact on consumers’ bills. The 300 limit would restrict the running hours of new and cleaner gas plant that are needed to replace ageing capacity retiring over the next decade, impacting on the commercial viability of new gas plant and so deterring the much needed investment we need or increasing the costs of those investments.
In addition to introducing a significant risk to investors, the 300 limit could, under certain scenarios, lead to increased emissions and costs. For example, if new gas plants were restricted in their operating hours by the 300 limit, that could lead to the need to use less efficient coal or gas plants to make up the shortfall in operating hours in order to provide power for the country. This is a scenario that I am sure the noble Viscount does not intend to create through his amendment, but I think that there is a danger of that. Setting the EPS at 300 would also increase performance risk for CCS projects and, as a result, would increase the costs of projects that are currently coming forward now under the Government’s £1 billion CCS competition.
The noble Viscount’s Amendment 51KA would insert a provision into Clause 47 that would place a duty on the Secretary of State to publish and lay before Parliament a strategy for the phase-out of unabated coal generation within six months of Royal Assent. The measures in the Bill form part of a suite of policies designed to deliver the Government’s strategy for reducing carbon emissions, as set out in the Government’s carbon plan published in December 2011.
The Government have also published a number of low-carbon technology-specific plans, including road maps for carbon capture and storage and renewables. A reduction in unabated coal generation is therefore strongly implicit in these plans and policies, so I remain to be convinced that a strategy of the type proposed by the amendment is required.
Lord Teverson
My Lords, I take the emissions performance standard very seriously, as I did at Second Reading. An astounding fact, if we have one in terms of energy generation, is the resurgence of coal to its position of dominance of electricity generation in the UK. During 2012, 43% of electricity was generated by coal; gas, the previous number one, went down to 28%; and nuclear was at 20%. When the Climate Change Bill was passed into an Act, I do not believe that any of us would ever have expected that, as part of this programme towards a 2050 decarbonisation of our economy as a whole, in a few years’ time we would be looking at coal being so important to us in terms of our electricity generation and our economy. That concerned me greatly but we have had assurance that, due largely to the large combustion plant directive, coal will disappear over the next few years as the remaining coal plants in the United Kingdom have to close down, as a large number already have. We all felt very secure in that knowledge and in the fact that that would happen.
However, there is a significant concern if the price of coal stays very low in comparison with gas. I see no reason why gas prices should come down in the short term. Whatever happens with shale or whatever else, it seems pretty likely that gas prices will continue to go up. There will then be incentives for generating companies that own coal plants to modify them to comply with the large combustion plant directive through getting rid of their sulphurous and nitrous gases. Of course, that directive does not deal with carbon emissions. They are completely separate. But there is an avenue, and now a potentially economic avenue, for those coal plants to comply with that directive. They can continue under this Bill to generate coal well into the future until finally they need to have their boilers replaced, at which point the Bill very effectively says that you have to comply with 450 grams until 2044. Therefore, we have had a pathway. The way out of that was meant to be carbon capture and storage. If we had abated coal and it went below that emissions limit, that was a way forward and coal was legitimate within that context. Therefore, I am very concerned that this potential loophole—or gap, or pathway—for coal generation to continue needs to be sealed once and for all.
I was very pleased indeed that my noble friend the Minister, if I could quote him from a couple of amendments ago, said, “No more coal without CCS”. Absolutely—that is what we are here for. For some reason we cannot put that plain language in the Bill. We could just say that, could we not? But we are not; we are giving it a fair chance but trying to make it impossible. I am asking the Minister if he would doubly make sure that that is impossible by looking favourably on this amendment. I beg to move.
Baroness Worthington
I thank the noble Lord, Lord Teverson, for tabling this amendment, to which I have added my name.
I have previously described the measures that have been put down as a package. This is an essential component of that. I go so far as to say that I would be less concerned about the gas grandfathering if this amendment was accepted. This amendment addresses a very real risk and need. My worry about our current policy on coal is that a degree of complacency has started to take root, based on the idea that all the old coal is simply going to shut up shop and quietly disappear from the grid. Having worked for a power company that owns coal-fired power stations, I can tell your Lordships that these are incredibly profitable assets and the companies will do all they can to keep them operating for as long as they can.
A lot has been said, in the media and elsewhere, and in statements from the Government, about the lights going out and about this terrible problem of coal-fired power stations closing. Actually, as I have said before, the 8 gigawatts of coal that was required to close under the large combustion plant directive has already gone so we do not have a problem in the short term. In fact, we have 20 gigawatts of old coal carrying on. That is made up of 12 plants—the dirty dozen—that will be carrying on.
When the process of the Bill started, the premise was that new coal was the greatest threat. In fact, it says that in the consultation document. But that is fundamentally wrong. When it comes to managing carbon, old coal is far and away the worst source of emissions. These plants were built in the late 1960s and early 1970s—some of them are older than I am—and they have well paid back their initial investments. They have made the successive companies that have owned them a lot of money and it really is time to let them retire gracefully.
Lord Deben
Does the noble Baroness agree that the reporting of the dangers of the lights not being kept on is much encouraged by those who would wish to continue to use very old, very highly emitting generating plants? Will she remind everyone that those emissions are changing our climate as we speak and that the quicker they are phased out, the safer it is for our children?
Baroness Worthington
I could not agree more. These dirty dozen plants have very low efficiency and very high carbon intensity. They have been made more carbon-intensive by the fitting of scrubbing equipment to meet the requirements of the large combustion plant directive, so these are some of the worst possible sources of electricity when it comes to carbon.
The assumption was that those plants would be closing under the next round of air quality standards. However, the world is moving quite quickly and gas prices are at such a level and coal prices so low that it is now increasingly likely that these plants will refurbish, fit filters and seek to carry on.
I am sure there will be many arguments in the Minister’s notes that will tell him that closing the plants is something that the Government could not possibly do and there are too many risk associated with it. The first will probably be, “Oh, well, the lights will go out”. That would absolutely and categorically not be a result of the amendment. The amendment would merely place a carbon constraint on plants that are seeking a significant life extension beyond the period for which we currently anticipate them to operate. This would put us much more in line with the Californian legislation that we have based the EPS on. The Californian provisions apply if a company makes a significant investment in an existing plant that would seek to extend its life beyond five years. That is an important provision that is missing here, in our interpretation of the EPS.
It is not a question of the lights going out. As we have discussed, the EPS is drafted in such a way as to allow flexibility. It is an annual limit that is averaged out, so these plants would not necessarily close but they would not be able to base-load. That is the significant difference. Plants investing in life extensions today must accept that they cannot base-load indefinitely through the 2020s and into the 2030s.
Another note that I am sure the Minister will receive will say: “Well, they’re old plants; they’re reaching the end of their lives”. I would just point out that Uskmouth power station, owned by SSE and built in 1961, will be 60 years old in 2020. These plants can and do operate for very long periods, and they do not need boiler replacements in order to do so. They could replace every other element of the station and still be allowed to operate without being required to reduce emissions under the EPS.
I am sure that the other question that will be raised is that the amendment is not needed: “We do not need this to apply to old coal because we have other mechanisms designed to force coal off the system”, and among them I am sure the carbon price will be listed. I would just say that the carbon price is not a credible policy when it comes to investors making decisions on the lives of their coal plants, for a number of reasons: it is a financial Bill measure, it has no longevity and it has no future path beyond two years. I have heard from former generators that they cannot even sell their power on a PPA two years in advance from thermal plant because of the degree of uncertainty about carbon pricing. That is not going to force these plants to close.
Even if the price were maintained, the reason why they will not close is that these dirty dozen are equally distributed among the existing vertically integrated companies. The reason why that is significant is that if one of them opts one plant in, they may as well all opt them in because the companies can all just pass the cost of carbon through to their customers. As we have previously discussed, there is no genuine competition, so as soon as one opts in the other five may as well follow. Actually, it is five out of the six; Centrica has no coal. The other five, though, can all safely opt in a plant and pass on the costs without fear of competitive distortion. So, even with a price, that is not going to work with regard to ensuring that they are constrained.
People will say, “Well, you’re simply going to push up the costs to the consumer. Coal is cheap and we need to keep it running”. Actually, this is the cheapest way of staying within our carbon budgets. I have mentioned it before but the climate change committee has identified that we can save between 200 grams and 250 grams per kilowatt hour by doing nothing other than reversing the merit order of gas and coal. That is exactly what we are seeking to do. People say this will push the costs up but it in fact it is much cheaper than overinvesting in new capacity if it is not necessary.
It is also true that the carbon floor price is already pushing up the price. The difference between the two is that with the carbon floor price you have to pay the money irrespective of what happens; there is no guarantee that the carbon floor price will deliver any new investment or indeed any switch in the merit order. With the EPS, though, the price would go up only if coal was being driven off, so you would pay only if something was actually being delivered.
I am sure that there will be notes saying, “Well, the regulatory risk that this will create means that investors will never invest in Britain again because the rules have changed”. I am afraid that if you own one of these dirty power stations and you have been sweating this asset for so long, and then you think that you will never invest in Britain again because you are asked to comply with a carbon constraint, you are not living on the same planet as I am, or indeed as the majority of people are.
You must expect to face a constraint on carbon. You cannot operate these inefficient coal stations and expect to be immune from carbon regulations. This back-stop power is exactly what you would expect to be introduced, especially as this is how it is currently enforced in America, where this idea came from originally.
Lord Gardiner of Kimble
I hope the noble Baroness knows that I do not like anyone being disappointed, bur it is the realities. I want to acknowledge straight away the concerns that my noble friend and the noble Baroness seek to address through the amendment, and the need for future levels of carbon emissions from coal generation to be consistent with our decarbonisation objectives. However, to plan the EPS in the way proposed by the amendment has certain difficulties.
The amendment would extend the EPS to existing coal plants, which currently—I emphasise “currently”—make up a significant and reliable proportion of our generation capacity, and are needed to play a continuing and important role in the transition to a low-carbon electricity system, which we all wish for. However, the role of coal over the coming years needs to be consistent not only with our decarbonisation objectives but with ensuring that our electricity supplies are secure and affordable. That is why I am happy to repeat for my noble friend that we have a policy of no new coal without CCS, which the EPS reaffirms.
The measures under our electricity market reforms are designed to achieve these objectives. The introduction of contracts for difference will bring forward investment in increasing amounts of low-carbon capacity, with the carbon price floor improving the economics of gas generation relative to coal. The effect of this will be that we see a gradual decline in generation from unabated coal as it is displaced by lower-carbon forms of generation, including renewables and new gas.
The noble Baroness mentioned the 12 existing coal plants. Our gas generation strategy analysis has shown that no more than two of the existing coal power stations will operate beyond 2025, and none by 2030. It also shows that total generation from coal will be 3% by 2025. That indicates what our direction of travel needs to be.
However, by linking the EPS directly to operators’ decisions in respect of the industrial emissions directive, we risk deterring investment in equipment to reduce harmful pollution and undermining the purpose behind the directive; that is, the reduction in harmful emissions.
Baroness Worthington
I tried to cut that off in my comments to stop the Minister using it. It is illogical to say that you want plants to fit filters to get lower emissions. If the plant closes, those emissions go to zero. If it fits filters, some of the units might be down at 100; others will be at 300. You will have more emissions if you allow old coal to continue operating, so I am afraid that the Minister cannot pray in aid the air quality excuse. It is clear in the IED that member states are at liberty to go further than the directive in pursuit of lower emissions and, specifically, low carbon emissions. Therefore, you would be in compliance and you would have better air quality.
Lord Gardiner of Kimble
Surely, even if a few coal plants carried on until 2025 or 2030, would it not be a good idea to reduce their emissions from existing levels so that we could improve air quality while those coal stations were in being? Whether one likes it or not, they will be in being for a little longer.
There is also the question of investor confidence—I know that the noble Baroness has mentioned this as well and we may have to take differing views. Imposing the EPS on existing plants in a way which is detrimental to those assets is likely to have negative consequences for wider investor perceptions of the UK. I know that that will not please the noble Baroness, but I think that those are points that other people think are important.
Furthermore, under the national policy statements for planning, a “significant extension” to an existing coal-fired power station triggers a requirement that the station be equipped with CCS. That prevents developers circumnavigating the CCS requirement by building additional or replacement capacity on an existing power station.
Schedule 4 will therefore allow the EPS to be applied to an existing coal station in the event it is upgraded in a way that extends its technical lifetime for a period comparable to that of a new plant, but it does not trigger application of the EPS by way of the planning regime.
The Government are working to reduce the country’s reliance on unabated coal in a way which is cost effective for both industry and consumers. The noble Lord, Lord Oxburgh, is not in his place, but in the balance that we are seeking for the new technologies and the way forward for low-carbon technology we have also to be mindful of consumers. That is why consumers should have priority alongside the other matters that the noble Baroness and my noble friend have articulated so strongly. However, I hope that in this circumstance my noble friend will feel able to withdraw his amendment.
Baroness Worthington
My Lords, the Minister mentioned in his reply that under the gas strategy only two plants would be operating. I am rather dismayed to hear that. I am not a great fan of the gas strategy at any time but that has made me even less confident in its analysis. It is absolutely clear that already four plants have opted in to fit, to be compliant with the IED regulations. That is considerably more than two. Once they have fitted that filtration equipment, they will have a capital cost that they will want to see returned. They are not going to suddenly decide to shut up shop in 2025. There is a high degree of complacency, based on the fact that the analysis and the modelling that were done did not take into account the following important factors. Coal prices are low and are going to stay low. If you own a coal-fired power station today, you can see pound signs ringing in your register for many years to come and that is a huge incentive to comply and go forward with the air quality standards. Also, the filtration equipment is very likely to come down in cost, making that equation even more favourable. Finally, with capacity market payments coming—we will have a chance to debate that on Thursday—that is another financial incentive to keep these plants running. The Government are being complacent and I urge the Minister to think again.
Lord Teverson
I thank the noble Baroness for her expert comments on this amendment. I admit I am perplexed by my noble friend’s response and I will go through it in a very moderate way. All this amendment would do is to put everything back to where the Government actually want it to be, where the large combustion plant directive, conveniently, gradually but fairly imminently shuts down unabated coal. It seems that that has always been a government assumption. However, because of the high price of gas to coal, suddenly being compliant with that directive becomes economic and so we have a different situation. All this is doing is putting it back to where we thought it was, probably when this Energy Bill started out in its long course through the department and stages of consultation and into Parliament.
It also seems to me that ironically, in this area, it is a win for the Treasury and a win for DECC. From the Treasury’s point of view, if there is certainty about coal going out, there is much more certainty for gas investors coming in—far more than probably a 2044 guarantee on investment. From a DECC point of view, we are actually making sure that those high carbon emissions that come out of old coal and that we were not expecting at least fall out of the system pretty quickly. Therefore, we have a win for all those sides as well as for climate change and we get back to what the Government’s policy originally seemed to be.
As the noble Baroness mentioned, we have the added benefit that in terms of energy security, because of the way that the EPS works, these plants can still be available over short periods of time, but not base load, to meet potential blackouts or brownouts within the electricity markets. So we have a win there as well. While I understand my noble friend’s arguments, I just think that they do not actually reflect government policy—not Treasury policy, DECC policy or the coalition agreement policy. Somehow we need to get out of that. However I am very keen to continue discussions, particularly in this area. In the mean time, in anticipation of that, I withdraw my amendment.