Climate Change: Aims for COP 28

Lord Callanan Excerpts

Tuesday 28th November 2023 Lords Chamber

[Lord Harries of Pentregarth]

To ask His Majesty’s Government what they aim to achieve at COP 28 this week.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, we want progress in five areas: ambitious new commitments and action, including a pathway to keep 1.5 degrees centigrade within reach of the global stock-take; scaling up clean energy through commitment to triple renewables, double energy efficiency and moving beyond fossil fuels; progress on finance reform, delivering on $100 billion for developing economies; building resilience to climate impacts, including doubling adaptation finance and establishing a loss and damage fund; and, finally, progress towards restoring nature.

[Lord Harries of Pentregarth (CB)]

I thank the Minister for his reply. As he will know, one particular focus at COP 28 is the agricultural sector, and in particular how it will be possible to reconcile feeding a growing world population and reducing the very extensive emissions from the agricultural sphere. Can he say a little bit more about what kind of agreement we are likely to see at the end of COP in relation to the agricultural area?

[Lord Callanan (Con)]

The noble and right reverend Lord makes an important point. Agriculture is one of the most difficult areas to decarbonise. It is of course linked into a lot of the action that has been taken on nature. It is one of our priority areas and we will be doing what we can to progress agreement.

[Earl Russell (LD)]

My Lords, information uncovered this week by the Centre for Climate Reporting purports to show that the UAE is planning to use its role as the host of COP 28 as an opportunity to strike a new generation of oil and gas deals in Africa and Asia. Does the Minister agree that the oil sustainability programme is completely contrary to the letter and the spirit of the global climate talks? What action will the UK Government be taking in considering this new information?

[Lord Callanan (Con)]

Obviously, the reports that we saw in the last few days were concerning, but of course we are not aware of what was discussed in private meetings. The UAE presidency was not appointed by us, but we support it in what it has said publicly in terms of advocating for an ambitious deal.

[Baroness Hayman (CB)]

My Lords, I declare my interests as set out in the register. The Government announced in September that they were renewing our membership of the Energy Charter Treaty. Does the Minister agree that the treaty, and our membership of it, does nothing to support the objectives of COP 28 that he has just outlined to the House? Will a decision be made before COP 28 meets to withdraw, as other countries have done, from this outdated and damaging treaty?

[Lord Callanan (Con)]

The noble Baroness makes an important point. As she mentioned, we are reviewing our membership. I do not know when a decision will be taken. I hesitate to use the word “imminently” after the last question, but I am sure that we will want to act as quickly as possible.

[Lord Lennie (Lab)]

My Lords, staggeringly, we lose more than 15 million trees globally each year due to deforestation. The Center for Global Development predicts that we will lose at least 1 million square miles of forested land by 2050. Can the Government give an update on their pledge to the COP 26 to reverse deforestation by 2030? Can the Minister tell the House whether the Government will use COP 28 as an opportunity to reconsider this key commitment?

[Lord Callanan (Con)]

The noble Lord makes an important point. We helped to secure an agreement on the Kunming-Montreal global biodiversity framework to halt and reverse biodiversity loss by 2030, and the agreement on marine biodiversity in areas beyond national jurisdiction. We were pleased to support that during our COP presidency and want to continue doing so.

[Baroness Bennett of Manor Castle (GP)]

My Lords, a big part of the UK’s COP 26 presidency during the Glasgow conference was the global methane pledge: the focus on methane and the fact that in the next 10 years, slashing our methane emissions will be crucial if we are to stay below the 1.5 degrees above pre-industrial levels. What progress do the Government expect to see on methane in COP 28? Will the Government be taking further progress in the UK, particularly on methane flaring from oil and gas installations, to the COP discussions?

[Lord Callanan (Con)]

The noble Baroness is right that action on methane is important. It is one of the focuses for discussion that we will take forward. I have answered questions on flaring before in this House. She will remember that we are taking action to eliminate flaring completely by the end of the decade. It has reduced considerably in recent years, but clearly we need to go further.

[Lord Sikka (Lab)]

My Lords, the richest 1% are responsible for more carbon emissions than the poorest 66% combined. We all know that a well-established principle is that the polluter must pay. The Government now have a choice. They can levy wealth taxes on the ultra-rich, to reduce their capacity to pollute, or let the climate crisis deepen. Which of these options will the Government exercise, given that they are keen to set the intellectual agenda for COP 28?

[Lord Callanan (Con)]

The noble Lord never disappoints in terms of his advocacy for more taxes on—well, everyone, effectively. He might want to talk to his own Front Bench about some of these policies. The UK is very proud of our record on decarbonisation and we are very proud of our record on helping the poorest communities. We have committed £11.6 billion of expenditure on international climate finance by 2025-26, including £3 billion to protect, restore and sustainably manage nature, and tripling the UK fund for adaptation to £1.5 billion by 2025—so we can be proud of our record.

[Lord Purvis of Tweed (LD)]

With regard to adaptation, nature and resilience, the Minister outlined the overall level of commitment, but in the latest rounds of ODA allocation this has been cut by £24 million for the most vulnerable countries around the world. This is a reduction of 49% to developing nations. Does the Minister agree that COP gives a superb opportunity for any UK representatives to give a statement that those cuts will be restored for the most vulnerable nations on earth?

[Lord Callanan (Con)]

Well, I just said in my previous answer that we have not reduced our commitment to international climate finance and all the various areas that it covers. The Prime Minister and senior Ministers are attending COP 28 and the noble Lord might want to watch for any announcements that are made at that point.

[Lord McNicol of West Kilbride (Lab)]

Perhaps I might ask the Minister: what does success at COP 28 for the UK look like?

[Lord Callanan (Con)]

I do not want to repeat the five points that I have made. Obviously, we want to make progress on all of them. That is probably unrealistic; it is a negotiation and there are many countries with different agendas going into it, but we will negotiate in good faith and the overall pledge to take action on 1.5 degrees is probably going to be the most important point, but there are a number of other important negotiating points as well.

[Baroness Sheehan (LD)]

My Lords, we get quite a lot of our gas from the UAE. What assessment have our Government made of the pollution caused by the flaring and venting of methane by that state?

[Lord Callanan (Con)]

Flaring and venting is something to be avoided by all member states. The noble Baroness is right that we do import a lot of liquid natural gas. Of course, if she and others were not so keen to halt the UK’s extraction of oil and gas, we would not need to import so much from the UAE. So perhaps she might want to indulge in a little bit of introspection.

[Baroness Bennett of Manor Castle (GP)]

My Lords, since there is space, an issue that is fast rising up the climate agenda is private jet flights, which of course have enormous levels of carbon emissions per passenger. Are the Government looking to examine the impact of those private jet flights, and indeed to take any action about flights into the UK?

[Lord Callanan (Con)]

The noble Baroness asks the question on the day that the first international flight with sustainable aviation fuel was launched by, I think, Virgin Atlantic, across to the US. Obviously, that is only one and there is a lot of progress to be made, but sustainable aviation fuel does offer one of a range of potential solutions. I know that the noble Baroness would just ban everything, but that is not practical in the real world. We want to show people that of course we can make progress on progressing the agenda against climate change, but not necessarily by banning everything they want to do.

[Lord Foulkes of Cumnock (Lab Co-op)]

My Lords, perhaps I might say how pleased I am, personally, to see that the Minister has escaped the recent cull. Does he agree with me that, on balance, it is probably justifiable to use all this energy travelling to the United Arab Emirates for the Prime Minister and senior Ministers to come to an agreement—maybe even for the First Minister of Scotland to go there, using up all this energy as well? But what is the justification for the leader of Glasgow City Council, and entourage, doing it?

[Lord Callanan (Con)]

When the noble Lord started off with praise, I was waiting for the “but” to come into the question. The noble Lord will be pleased to know that I am not going to COP. My Secretary of State is there, with a number of other Ministers from the Government. I do not know what council leaders are going for, or what their role is going to be; that is something that they will need to answer for to their own electorates.

Electricity Network Connection Action Plan

Lord Callanan Excerpts

Wednesday 22nd November 2023 Lords Chamber

[Baroness Whitaker]

To ask His Majesty’s Government when they intend to publish the electricity network connection action plan promised for the summer in Powering Up Britain: Energy Security Plan.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, the Connections Action Plan is published today. The plan will significantly reduce connection delays from the current average of five years to no more than six months beyond the date requested by the customer. It will release 100 gigawatts of spare capacity, equivalent to around a quarter of electricity needs in 2050. The plan also establishes an Ofgem-chaired monthly connections delivery board to ensure timely and effective implementation; that board will first meet on 6 December.

[Baroness Whitaker (Lab)]

My Lords, in declaring that I am in receipt of an IPT fellowship in wave energy, I thank the Minister very much for that reassuring news, but one consequence of the essential greater grid capacity could be many more unpopular and unsightly pylons. What thought have the Government given to supporting burying them, or to Andrea Leadsom MP’s proposed amendment to the then Energy Bill in the other place? The amendment said:

“Within six months of the passage of this Act, the Secretary of State must by regulations provide for a fast-track planning process for electricity pylons along motorways and rail lines”,


which would considerably lessen the visual impact.

[Lord Callanan (Con)]

I congratulate the noble Baroness on tabling her Question for today, which is a fantastic coincidence and shows her great foresight on this. She is right that the construction of new electricity infra- structure, particularly pylons, is a controversial matter, particularly in the communities that are affected. She will know that the Winser review made a number of recommendations as to how we can involve communities further and take them with us on these plans. We are taking forward all those recommendations.

[Lord Swire (Con)]

My Lords, the noble Baroness is precisely right in her Question. While I welcome the new generation of T-pylons, of which we are less visually aware, the visual impact provision scheme has £465 million from Ofgem to bury power lines. The truth of the matter is that National Grid is very against the burial of power lines. It is possible; if it was not, we would not bury them in areas of outstanding beauty and national parks. When will the Government recognise the fact that this huge explosion of interconnectors and power lines that we are about to witness needs to be taken seriously when it comes to destroying our beautiful, unrivalled landscapes?

[Lord Callanan (Con)]

I have a certain amount of sympathy with what my noble friend says, but the reality is that we need this new infrastructure and, unfortunately, it is not possible to say that no community will be affected. It is possible to bury power lines, of course, but it is up to 10 times more expensive and that cost will fall on the bill payer. As in many things, it is about getting the balance right.

[Lord Ravensdale (CB)]

My Lords, I declare my interests in the register. The future systems operator will be key to planning and rolling out network infra- structure. Now that we have the enabling legislation in place, can the Minister please update the House on the timescales and process for set-up of the future systems operator in the coming months, and the associated consultations?

[Lord Callanan (Con)]

The noble Lord is absolutely right: the FSO role is absolutely key, and we are progressing work on that as quickly as possible. It is really important to get it up and running, and relieve the responsibility from the national grid, which I think has had a number of conflicts of interest in this space.

[Lord Wigley (PC)]

My Lords, does the Minister accept that there is a pressing need for new interconnector links down the west coast of Wales to facilitate potential hydroelectric schemes? Is he aware of the uncertainty concerning the help to minimise the physical impact on houses nearby and on substations? Who will fund these payments, and who will determine the planning issues? Are the Government working in close co-operation with the Welsh Government to make sure that there is clarity on this issue and that they can move forward quickly?

[Lord Callanan (Con)]

Indeed, we are working with both the Scottish and Welsh Governments. There is tremendous public support for offshore wind; it has been our biggest expansion mechanism. But of course it requires a lot of onshore infrastructure as well, which is unpopular in the communities affected. There is a well-established planning process, looking at all these impacts, and we will continue to work with the devolved Administrations.

[Lord Teverson (LD)]

My Lords, since the Government have just dabbled with changing the planning conditions for onshore wind in England, there has been no action whatever from the industry, in that it still sees the planning restrictions as a major barrier. When does the Minister expect the next connection into the grid by onshore wind in England so that households can benefit from the cheapest form of energy we can produce in this country?

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[Lord Callanan (Con)]

Of course, there are still some onshore wind connections being built in both Scotland and Wales, and a few in England as well. We are committed to looking at the barriers that exist and overcoming them.

[Baroness Blake of Leeds (Lab)]

Ofgem’s new mandate to prioritise the UK’s net-zero target comes into force on Boxing Day—welcome progress secured by an amendment to the recent Energy Bill. Given that the review on reform of the electricity connections system began before this change, what discussion have the Government already had with Ofgem to make sure that decisions are made in line with the new mandate, thereby ensuring that every opportunity it presents is taken to ensure progress?

[Lord Callanan (Con)]

I think the noble Baroness will find that Ofgem’s view is that it was already fulfilling that mandate—and, of course, the vast majority of the new connections are because of new renewable electricity, which is to fulfil our net-zero obligations. Ofgem is fully in line with that.

[Baroness McIntosh of Pickering (Con)]

My Lords, does my noble friend not agree that it would make more sense to keep locally the electricity that is generated in the North Sea and coming onshore in Scotland, the north of England and Humberside, which have some of the coldest and poorest-insulated households in the UK?

[Lord Callanan (Con)]

I am not sure I understand the point my noble friend is making. The reason we have a national grid is to distribute electricity around the country so that all communities get the chance to benefit. If you had a much more localised system of grids, it would be much more inefficient. The whole idea or principle of the national grid is that the whole country can benefit from all our renewables infrastructure.

[Baroness Hayman (CB)]

My Lords, I declare my interests in this area and very much welcome the Minister’s original reply. Does he agree with me that, as well as the expansion of the grid and connections, we need to look at the demand side and at reducing demand and increasing energy efficiency? The Government promised several consultations on this issue in different sectors and on building standards. Is the Minister confident that the timescales promised for those consultations will be kept?

[Lord Callanan (Con)]

I agree with the noble Baroness that energy efficiency is really important. It is much cheaper than building new energy infrastructure. She will be aware that we are spending £6.5 billion on energy efficiency and clean power over this Parliament, and we have already managed to secure £6 billion from the Treasury for 2025-28. We need to take forward all these measures. There are a number of key consultations coming up that will make a big difference, not least that on the future homes standard.

[Lord Blunkett (Lab)]

My Lords, today’s announcement is very welcome, but does the Minister agree with me —I am sure he does—that we are in a farcical situation where a charging point off the M1 in West Yorkshire has to rely on diesel-driven generators to supply the electricity to electric vehicles?

[Lord Callanan (Con)]

If that were the case then, yes, I would agree with the noble Lord that it is a farcical situation.

[Lord Howell of Guildford (Con)]

My Lords, the excellent document Powering Up Britain talks about a 100% increase in national grid capacity to deliver an all-electric economy by 2050. National Grid itself talks about a much larger figure: a 200% or 300% addition in the national grid. Can the Minister guide us on which he thinks is the most reliable of those estimates? Can he also tell us how it is all to be financed and, indeed, how the planning system will be sped up so that we can achieve anywhere near that by 2050?

[Lord Callanan (Con)]

My noble friend asks good questions. The figures are that peak demand for electricity is expected to increase from 47 gigawatts in 2022 to between 90 and 120 gigawatts in 2035, as transport, heating and industry electrify. We think that this will require between 260 and 310 gigawatts of generation capacity connected to the network by 2035. To do all these things, we of course need to reform the planning system, which we are doing through national policy statements and through the action plan announced today.

[Lord Grantchester (Lab)]

My Lords, there are considerable problems with capacity issues within local circuits in the distribution network from the transmission lines, especially in rural areas. There are reported delays even to the 132-kilovolt networks, as renewable schemes are being held in the queue to be connected until 2037. How can that help to decarbonise the power sector by 2035? I declare an interest as being involved in such a scheme. Will the plan published today help to resolve this queue and reappraise the first-come-first-served basis for supply connections?

[Lord Callanan (Con)]

The noble Lord points to the main problem that we have, which is that there is a large queue of projects running into many hundreds of gigawatts. The whole purpose of the action plan is to look at which of those projects are likely to go ahead and to prioritise those that are likely to proceed—a lot are in the queue and probably not likely to proceed—and have the investment and backing, and will decarbonise and deliver the upgrades as quickly as possible. I am not familiar with the particular project that the noble Lord referred to, but if he wants to send me the details, I will certainly look at it for him.

Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2023

Lord Callanan Excerpts

Monday 20th November 2023 Grand Committee

Moved by

[Lord Callanan]

That the Grand Committee do consider the Greenhouse Gas Emissions Trading Scheme (Amendment) (No. 2) Order 2023.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, this order was laid before the House on 19 September. The UK Emissions Trading Scheme—the ETS—was established under the Climate Change Act 2008 by the Greenhouse Gas Emissions Trading Scheme Order 2020 as a UK-wide greenhouse gas emissions trading scheme to encourage cost-effective emissions reductions, contributing to the UK’s emissions reduction target and, of course, ultimately our net-zero goal.

The scheme is run by the UK ETS authority, which is a joint body comprising the UK Government and the devolved Governments. Our aim is to be predictable and responsible guardians of the scheme and its markets. In doing so, we will ensure that the scheme remains a cornerstone of our ambitious climate policy.

We have brought forward this SI to implement a number of necessary changes and improvements to the scheme. The changes relating to aviation free allocation rules and to the treatment of electricity generators follow the announcements made by the UK ETS authority in July in our response to last year’s consultation on developing the UK ETS. The final change remedies an inconsistency around free allocation and carbon capture at UK ETS installations. On aviation, this SI will cap the total amount of aviation free allocation that operators are eligible to receive at 100% of their verified emissions.

This SI makes technical changes to free allocation rules regarding the electricity generator classification for industrial installations. It will amend the electricity generator classification to consider only electricity exports in the baseline period, instead of all electricity exports since 2005, allowing operators to change their installation’s electricity generator classification if they have put a stop to the export of electricity. Electricity exports represent no more than 5% of the total produced allowances and will also be excluded from consideration in this classification.

The SI will amend the electricity generator definition to exclude installations that have produced electricity for sale if that electricity was produced by means of a high-quality combined heat and power plant, operating as part of an operator’s industrial activity. This will limit reductions in free allocation entitlements and provide further encouragement for industrial operators to achieve improved efficiency for their combined heat and power plants.

The SI also makes an operational amendment to the electricity generator classification. The SI will allow electricity generators to be eligible for free allowances after the application date if they can demonstrate that they produced measurable heat by means of high-efficiency co-generation during the allocation period.

The SI also remedies an inconsistency in the legislation to make it clear that carbon capture and other types of regulated activity may be carried out on the site of the same installation. The SI will allow provision of free allowances to industrial installations at the same site as a carbon capture plant.

As the Northern Ireland Assembly is not sitting and cannot consider affirmative legislation, this statutory instrument therefore covers only Great Britain. Officials in Northern Ireland have agreed that that none of the provisions currently affects operators in Northern Ireland.

These changes deliver on commitments made by the UK ETS authority and improve the operation of the scheme. For aviation, the SI will ensure that aviation free allocation is distributed appropriately until full auctioning for the aviation sector in 2026. This follows the decision announced in July that aviation free allocation will be phased out by 2026.

On free allocation technical changes, the SI will ensure that installations classed as electricity generators, whose eligibility for free allocation is limited, are able to change their classification if they are no longer exporting electricity. The SI will also ensure that industrial installations with high-quality combined heat and power plants which export excess electricity to the grid are not classified as electricity generators so as to not limit eligibility for free allowances.

On the electricity generator operational amendment, the SI will ensure that electricity generators can become eligible for free allowances during an allocation period if they meet the eligibility criteria. On free allocation rules around carbon capture, the SI will prevent industrial installations being disqualified from receiving free allowances if they are on the same site as a carbon capture plant—a situation that could pose a risk of disincentivising the uptake of carbon capture technology.

These changes either follow appropriate and comprehensive consultation with stakeholders or did not require consultation. In developing the UK ETS consultation in 2022, the UK ETS authority considered what technical improvements can be made to the current aviation free allocation methodology until free allocation is phased out. The responses to the consultation called for an end to the overallocation of aviation free allocation. In addition, the policy intent of aviation free allocation is to mitigate the risk of carbon leakage, and the policy did not intend for aircraft operators to receive more allowances than their verified emissions. To that end, in July the UK ETS authority announced the decision to cap aviation free allocation at 100% of verified emissions.

In the consultation on developing the UK ETS, we considered technical changes to free allocation rules regarding the electricity generator classification. The majority of respondents agreed with our suggested amendments, and the UK ETS authority announced that it would proceed with changes to the electricity generator classification. A consultation was not carried out for the CCUS free allocation amendment as this is a clarification of existing policy intention and not a change in policy.

In conclusion, these alterations to the UK Emissions Trading Scheme will support its role as a key pillar of the UK’s climate policy. They show that we will take action to improve the scheme where necessary and continue our record of delivering on our commitments. I therefore commend this order to the Committee.

[Lord Teverson (LD)]

My Lords, perhaps I may make a few comments in front of the crowd here. I welcome the SI generally , obviously, and want to try to ensure that it works properly. I have a couple of specific questions.

I am interested in understanding how the free allocations were allocated or what the baseline was for the airlines. Also, in the scheme as a whole, what proportion of units are free issue these days? I would be very interested to hear that for the current period, which I think goes up to 2026.

The Minister referred to the UK ETS as the cornerstone of ambition in terms of net zero, but of course, that cornerstone is crumbling at the moment. I would be very interested to hear, more strategically, how the Minister sees the fall in the carbon price per tonne, which has moved this year from around £100 at one point down to under £50.

To me, that seems to be, in the words of Energy UK, a major disincentive to investment in the renewables sector. As I understand it, it has threatened the Treasury to the tune of £1 billion so far this year and will mean a hit of something like £3 billion on the Treasury per annum if that price continues. As we know, there is also a threat from the European Union’s move to a carbon border adjustment mechanism—particularly in 2026, when those measures will really start to bite. There is a feeling that UK industry’s exports to the European Union could be threatened by some £500 million per year if that price remains as it is. I want to know the Minister’s understanding of why the price has fallen so much. My economics A-level tells me that, with supply and demand, when demand stays roughly the same but the price goes down, there is an all-round surplus in the supply of those units. However, there is also a volatility there, perhaps through a lack of liquidity in the scheme as a whole.

Looking again at the trade and co-operation agreement, particularly the area of energy in 2025, I would be interested to understand whether this is an opportunity to bring those trading schemes more together again, which was a target that the Government sought to achieve when that agreement was first made. Clearly, the fall in price strongly affects the renewables and clean energy industries. It seems to me that, not just from a Treasury point of view but from an industry and net zero point of view, we need to get that price back up again. I would be interested to hear the Minister’s comments on how that can be achieved—or indeed whether the Government wish to achieve it.

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Finally, new exemptions from the ineligibility of electricity generators are made for operators with on-site combined heat and power plants, where electricity was produced by means of CHP plants that are quality assurance certified and electricity generators can demonstrate that they have produced heat by high-efficiency cogeneration. The latter is confusing, because this was already the case, but with no mechanism to demonstrate a change in reduction. One wonders how many operators were wrongly accepted on this basis. The Explanatory Memorandum says that there will be “no substantial direct impacts”, so can the Minister enlighten us as to how this could be?

[Lord Callanan (Con)]

I thank the noble Lords, Lord Teverson and Lord Lennie, for their contributions. As I said in opening, the SI will implement a number of necessary changes and improvements to the scheme. The UK ETS is a cornerstone of our climate policy and it sets a cap on emissions in the sectors covered—currently, about a quarter of the UK’s emissions. In doing so, it guarantees that these sectors will reduce their emissions in line with our overall net-zero target. The carbon price generated by the need to acquire allowances within this cap incentivises the investment in decarbonisation that is needed to make sure that we can build a thriving net-zero economy.

In July, the UK Government and the devolved Governments, who all comprise the joint UK ETS authority, set out a comprehensive package of reforms to the scheme. These reforms increase the ambition of the UK ETS, setting its cap on a path to net zero. As set out in that package of reforms in July, a wide range of changes is required to ensure that the ETS remains a key part of the UK’s approach to achieving net zero.

As part of the UK ETS authority, with the devolved Governments, we are determined to run and develop the scheme in the most effective way possible. Our aim is to be predictable and responsible guardians of the scheme and its markets. That is fundamentally why the changes in this SI are being brought forward: to deliver on our previous commitments and make essential improvements to the scheme. The alterations to the scheme that this SI brings about will support its role as a key pillar of the UK’s climate policy. They demonstrate the value of the detailed consultation that we have carried out with scheme participants. We are committed to listening to views and implementing changes where necessary to make the scheme run as efficiently as possible, so that it ultimately achieves its aims. The changes to aviation free allocation and technical changes to free allocation follow the comprehensive consultation on developing the UK ETS carried out last year. They deliver on commitments made in the response to that consultation in July.

I will now pick up on the points made in the debate, first in response to the noble Lord, Lord Teverson. We have decided to cap the total amount of aviation free allocation that operators are eligible to receive to ensure that aviation free allocation is distributed appropriately until full auctioning in 2026. In 2021, the level of aviation free allocation issued to operators surpassed the sector’s verified emissions, primarily due to the impacts of Covid-19 on aviation activity. However, even prior to the impacts of Covid-19, under the EU ETS, a number of operators received more free allocations than their verified emissions.

The current aviation free allocation methodology calculation is based on 2010 activity data, which is now of course inconsistent with current aviation activity and creates competitive distortions between participants. Not capping the amount aircraft operators are eligible to receive therefore effectively shields them from the price signal and provides an opportunity to benefit from the scheme, which, I am sure we would all agree, was not the intended aim of the policy. To answer the noble Lord’s question, in 2022, the proportion of UK ETS emissions covered by free allocations was approximately 36%.

On the noble Lord’s point on the fall of the UK ETS price, it is of course a market mechanism, and the price of carbon allowances in the emissions trading scheme is ultimately set by that market. However, in line with the net-zero cap that we announced in July, the supply of emissions allowances entering the market will fall significantly every year from 2024. Using the noble Lord’s supply and demand analogy, we can probably predict—without saying it—what will happen to the price in such circumstances.

[Lord Teverson (LD)]

Is the Minister happy that the price has fallen by half this year?

[Lord Callanan (Con)]

As it is a market mechanism, I have some sympathy with the noble Lord’s point of view, but it would probably not be wise for me to comment on the overall price. I will let the market determine what it should be. If I say what I think the ideal target price should be, that would clearly be interfering in the market, which the noble Lord can understand I should not do.

We are committed to continuing to deliver these changes, as shown by our legislating to amend the supply of allowances over the coming years and the publication of the auction calendar for 2024. The authority has also committed to exploring measures for the future of the UK ETS market, including examining the merits of the supply adjustment mechanism, which would be a means of amending the supply of carbon allowances in response to market conditions.

The noble Lord, Lord Teverson, asked about the impact of the EU CBAM. We are of course following developments closely and engaging with the Commission to discuss the technical considerations relevant to UK manufacturing because, even though EU CBAM charging does not start until 2026, companies will have to report on their emissions from 2024 to 2026, prior to charging. We will see whether the EU proceeds with charging, but it will clearly have a significant effect on many UK companies supplying into the EU market, given the additional bureaucracy they will have to go through. Noble Lords should watch this space: I am sure the Government will have more to say on this shortly.

As I said, UK ETS prices are set by the market, as it is ultimately a market mechanism. The UK market is clearly separate from the EU market. It is therefore possible that prices will fluctuate and differ, although it is worth saying that both have similar levels of ambition. We will continue to work domestically and internationally to find solutions to any risk of carbon leakage and our ambitious climate commitments rightly require our industries to decarbonise. This includes our running a consultation earlier this year on domestic measures to mitigate carbon leakage, including a potential UK CBAM and mandatory product standards. We are looking at all these issues holistically to see which is the most appropriate carbon leakage mitigation across a number of policy designs. The response to that consultation will be published—to use the phraseology—in due course, and a further consultation on free allocation policy is due later this year.

On the point of the noble Lord, Lord Lennie, on linking the UK ETS and the EU ETS, as he correctly pointed out, under the terms of the TCA, the UK and the EU agreed to consider linking our respective carbon pricing schemes and to co-operate on carbon pricing. We are open to the possibility of discussing linking the UK ETS internationally with other schemes—it is not just the EU’s; there are a number of other schemes across the world—and we will continue to work collaboratively with other jurisdictions to tackle shared challenges and learn from the experience of others as we continue to develop the UK ETS. Indeed, I attended a meeting with a number of other jurisdictions only last week to discuss that very topic.

On the point raised by the noble Lord, Lord Lennie, on carbon capture and storage, there is currently an inconsistency in how capture activities and installations are dealt with in the ETS legislation, and that does not currently reflect the department’s policy. Some areas of the legislation recognise that capture and other regulated activities might occur at the same installation, but in other areas it is assumed that capture activities will be self-contained. The amendments clarify that carbon capture may take place on the same site as other UK ETS installations or regulated activities without the loss of free allocation in respect, of course, of non-capture activities. There has been no negative impact to date, as this technology is still very new and CCUS activity is not yet taking place, but the amendment will help incentivise the uptake of CCUS technology in the future and ensure that no negative impacts occur as it continues to develop.

On the electricity generator amendments and the impact of the previous baseline period, these rules were simply carried over from the existing EU ETS for consistency and we are now amending them to tailor them to the UK system. I hope I have answered all the points I was asked about and commend the order to the House.

Motion agreed.

Green Gas Support Scheme (Amendment) Regulations 2023

Lord Callanan Excerpts

Monday 20th November 2023 Grand Committee

Moved by

[Lord Callanan]

That the Grand Committee do consider the Green Gas Support Scheme (Amendment) Regulations 2023.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, the regulations were laid before the House on Monday 16 October 2023. They make a set of changes to improve the administration of the green gas levy, which is charged to licensed gas suppliers in Great Britain, and to ensure that it works in line with the original policy intent. The legislation will ensure that the levy operates as intended and seeks to minimise the burdens arising from it for the scheme’s administrator, Ofgem, and for the gas suppliers that have to pay it.

The green gas levy, as noble Lords are aware, funds the green gas support scheme, which is a Great Britain-wide tariff-based scheme supporting new biomethane plants injecting biomethane into the gas grid. It facilitates ongoing investment in the biomethane industry and enables the development of new production plants. The green gas support scheme is expected to contribute 3.7 million tonnes of CO₂ equivalent of carbon savings over carbon budgets 4 and 5, and 8.2 million tonnes of CO₂ equivalent of carbon savings over its lifetime. During the peak years of production, biomethane plants incentivised by the GGSS will produce enough green gas to heat around 200,000 homes.

All funds raised by the green gas levy are used to fund the green gas support scheme. The GGL funds both tariff payments to plants on the GGSS and the scheme’s administration by Ofgem. The levy is charged to suppliers based on the number of meters they supply. Currently, the cost is relatively low, at 45p per meter in 2023-24. It will increase in the coming years as deployment of the green gas support scheme increases, with costs expected to peak at around £7.50 per meter in the late 2030s.

--- Later in debate ---

[Lord Lennie (Lab)]

The noble Lord has high expectations. As with the scheme we just discussed, we were very supportive of this scheme when it came out and we still are. Supporting the injection of biomethane into the gas grid, replacing other gases, produces substantial carbon savings and is very welcome indeed. As such, I will not speak for long on this instrument, which simply makes changes to improve the administration of what is already a very positive scheme.

The extent of these changes is to improve the administration of the green gas levy, as the Minister said, to reduce the administrative burden for Ofgem and the gas suppliers that pay it, and to ensure a maintained link between the regulations and policy intent. We welcome the lower administrative burden for Ofgem. It is due, not least, to successful efforts during the passage of the Energy Bill, and it now has a specific mandate to support the Government to meet their net-zero obligation.

I have a few questions, which may help the noble Lord, Lord Teverson, in his curiosity about this. Where the instrument changed the green gas levy formerly, it implied that gas suppliers were paying too much due to how interest on funds is allocated. Specifically, interest that had accrued in Ofgem’s account was added to the levy collection target rather than deducted from it, which makes little sense. How did that apparent mistake happen? While it feels peculiar arguing against more money for a scheme that we support—for once, I am not suggesting that gas suppliers’ profits should be better used—it is important that such a scheme is administered fairly. What happened to the previous levies that were collected at too high a rate?

[Lord Callanan (Con)]

They were not taken.

[Lord Lennie (Lab)]

The instrument also allows the Secretary of State to review and update the maximum levy amount to ensure that the levy remains able to sufficiently finance the GGSS after 2008-09, as the Minister said. This of course makes sense, as it is a good scheme and should be financed, but I am cautious on both sides of the argument. If the Secretary of State is to have this new power, why was the scheme not initially created with it written in? Also, if the predicted funding requirement increase is in part predicated on a welcome increase in biomethane production, do the Government foresee a situation where the other reason for the increase—inflation, which I should note was previously caused by the Government—could make a decision to increase the MLA difficult? If so, what happens to the scheme and, if not, could the MLA not increase automatically?

I am curious about the de minimis payments the Minister mentioned. Is this expected to make a net loss or profit for the levy, and has any review been done of the administrative functions that make small payments disproportionately burdensome?

As the Minister said, the other changes are minor, so I will conclude, other than to restate that it is welcome that this positive scheme is being further improved.

[Lord Callanan (Con)]

I thank the noble Lord, Lord Teverson, for his very brief contribution and his support. I will come on to the questions from the noble Lord, Lord Lennie, in a moment.

As I said, the green gas levy is charged to licensed gas suppliers in Great Britain to fund the green gas support scheme. These policies make an important contribution to achieving our emissions reduction target by incentivising the production of biomethane and its injection into the gas grid. This reduces the emissions intensity of the UK’s gas supply and ensures the capture and use of emissions from waste, which is used as feedstock for green gas production.

The SI will ensure that the green gas levy can run optimally and will reduce administrative burdens for Ofgem and gas suppliers, thus reducing costs. It will also ensure that the levy is set as intended by altering the collection formula and by adding flexibility to the setting of the maximum levy amount. Overall, this will help the delivery of a cost-effective levy, benefiting policy administration and gas suppliers and, therefore, bill payers.

I will pick up the first question from the noble Lord, Lord Lennie. As I said in my introduction, the interest is charged two years in arrears. There has therefore been no net effect from what was an administrative error when the regulations were tabled. We want this modification to the SI approved now so that, when those interest payments subsequently become due, they will be used to subtract and not add to the overall amount—as was originally stated in error.

The further changes will improve the administration of the levy by Ofgem and for all gas suppliers, and the instrument gives us the opportunity to make these changes. The levy was launched on 30 November 2021, and the intervening years to this point have given us the opportunity to identify one or two minor technical changes to the levy to help reduce the administrative burden. In answer to the noble Lord’s second question, again, we do not expect the de minimis level to make any difference to the overall rate—it is purely that for those very few gas suppliers that have a tiny number of meter points, the administration cost of the levy exceeds the sum raised, so actually it will probably save money in the longer term. However, of course it has no effect on all the big suppliers.

I have dealt with both questions from the noble Lord, Lord Lennie, and I commend this regulation to the House.

Motion agreed.

Biomass Strategy 2023: Cross Sectoral Sustainability Framework

Lord Callanan Excerpts

Wednesday 15th November 2023 Lords Chamber

[Baroness Boycott (CB)]

In begging leave to ask the Question standing in my name on the Order Paper, I draw attention to my registered interest as vice-chair of Peers for the Planet.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, the Government will consult in 2024 on the sustainability actions set out in the Biomass Strategy, including developing and implementing a cross-sectoral sustainability framework to enable greater consistency across sectors and to further strengthen our sustainability criteria.

[Baroness Boycott (CB)]

I thank the Minister for the Answer, but I draw the House’s attention to the fact that the UK’s single largest source of CO₂ emissions is a biomass power station. That fuel generates only 4% of our power and creates 13.1 million tonnes of CO₂, which is about 20% of the total that we emit as a country. But, as a nation, we subsidise it with our taxes. We call it renewable, so apparently it does not count. The recent task and finish report that the Government commissioned, looking at whether biomass could be called carbon-neutral, could not confirm that this was the case. Seeing that the evidence is pointing in the wrong direction, will the Government commit to moving away from this assumption that biomass is carbon-neutral, unless proven otherwise? Will they issue no new licences for generation and end their classification of this as a renewable power source?

[Lord Callanan (Con)]

The noble Baroness knows that I do not agree with her on this. The biomass that is used for generation in the two main plants is sustainable. There are very strict sustainability criteria attached to it, and the generators are measured against those criteria by Ofgem.

[Baroness Young of Old Scone (Lab)]

My Lords, I welcome the commitment to the cross-sectoral frame- work, provided that it is statutory rather than voluntary. Does the Minister regard this as a significant change from the Government’s previous position, when they decided to appoint a senior member of Drax management to the Climate Change Committee that advises government on biomass policy at a time when Drax had received £11 billion in public subsidy for biomass?

[Lord Callanan (Con)]

There has been no significant change in government policy. The sustainability criteria for biomass have existed for a while now, in concert with other biofuel strategies across government. Of course, if we can take the opportunity to make those criteria even better and even more sustainable, we will do so.

[Lord Bellingham (Con)]

My Lords, surely the answer to the noble Baroness’s question about Drax is to reduce the barriers to increasing domestic production of biomass in this country. Can the Minister say something about the biomass feedstocks innovation programme? Is it one that he feels strongly about, and is it actually going to be taken forward and have more money put into it?

[Lord Callanan (Con)]

Indeed, my noble friend makes a very good point. We have currently awarded £32 million of funding to projects as part of the Government’s £1 billion net zero innovation portfolio, because there is an awful lot that we can do to improve the availability of biomass feedstocks and look at deploying it more effectively.

[Lord Birt (CB)]

My Lords, the “Panorama” on Drax offered vivid and compelling evidence that fatally undermined Drax as a renewable proposition. The Minister has previously asserted that that was an accurate presentation, but as yet has offered no evidence to support his claim. Drax wrote to me almost four months ago, also claiming that the programme was a misrepresentation, and offered to present me with evidence. Despite prods from me and further promises from Drax, I have yet to receive that evidence. Is it possible that the “Panorama” was an accurate representation?

[Lord Callanan (Con)]

To slightly correct the noble Lord, I think I said it was an inaccurate portrayal, rather than an accurate one, as he said. We have debated this matter before, and the noble Lord has tabled a number of Parliamentary Questions to me on it. I cannot go any further than to repeat what I have already said: government officials have engaged extensively with forestry experts and Canadian officials following the “Panorama” programme, and we have found no evidence that wood pellet production in the region is unsustainable. We continue to believe that the narrative would have benefited from a much fuller picture of how harvesting decisions are made in practice.

[Baroness Sheehan (LD)]

My Lords, I declare at the outset that I have a biomass boiler, which came with the house I live in—but, honestly, we are trying to get rid of it. It takes trees between 44 and 115 years for sequestration of carbon. The lower estimate takes us well beyond 2050, the upper beyond the lives of anyone born today. So clearly biomass is not renewable within the timeframe needed to tackle climate change. Will the Government take that into account and ensure that the UK applies the precautionary principle and ends the ridiculous classification of biomass as a renewable power source?

[Lord Callanan (Con)]

I am pleased to hear that the noble Baroness has a biomass boiler. In fact, she does not need to get rid of it, because if she sources her pellets from the appropriate sources, that is a renewable resource. These are not pellets from virgin forests but by-products from the timber production process. There are very strict sustainability criteria attached to them and, even if those pellets were not used for biomass production, they would be a waste product because the timber would still be harvested for its other uses. So the noble Baroness does not need to feel so guilty.

[Baroness McIntosh of Pickering (Con)]

My Lords, will my noble friend look favourably on taking fast-growing willow coppice and miscanthus from local growers right across Yorkshire to give a constant stream of reliable, sustainable farm produce to Drax going forward?

[Lord Callanan (Con)]

I did not quite hear the start of my noble friend’s question, but if she is asking whether we want to source more sustainable biofuels from UK sources, the answer is yes, absolutely.

[Baroness Blake of Leeds (Lab)]

The transition to clean power will require a massive expansion of alternative energy sources right across the board, whether biomass, onshore wind, solar or others, which will also deliver energy security and hundreds of thousands of good green jobs. This cannot be achieved without reviewing the sustainability and economic competitiveness of each energy source and accelerating carbon capture and storage. How are the Government working comprehensively towards these two vital functions?

[Lord Callanan (Con)]

I absolutely agree with the first part of the noble Baroness’s question. She is right that there needs to be a variety of sources of power: renewable sources, biomass linked to carbon capture and storage, and long-term hydrogen production. Of course, in the net zero strategy we look at all these things in the round, linked to a long-term analysis of how the power needs of the UK are best met going forward.

[Earl Attlee (Con)]

My Lords, when wood decomposes, does it release CO₂ naturally?

[Lord Callanan (Con)]

I think it does, but I am not going to get into a scientific debate about it. It certainly does when it is burned, but of course it absorbs CO₂ when it is growing; that is the nature of it being sustainable.

[Lord Kamall (Con)]

My Lords, so far my noble friend the Minister has talked a lot about wood pellets and other things, but can he enlighten us on the Government’s strategy on third and fourth generation biomass and how they intend to encourage domestic producers in those two areas?

[Lord Callanan (Con)]

I am not sure I know what third and fourth generation biomass is. I will have to have a cup of coffee with noble Lords afterwards and we can have a chat about it.

[Baroness Sheehan (LD)]

Does the Minister agree that trees decompose only once they are felled?

[Lord Callanan (Con)]

I suppose, if we want to get into a debate about that, they absorb CO₂ when they are growing. If they are felled and just rot on the ground they emit CO₂, but also when they are burned.

[Baroness Bennett of Manor Castle (GP)]

Following on from that, does the Minister agree, particularly thinking about not just the products from Drax but local production, there is an alternative use of biomass, which can be put back into the soil to increase soil carbon and soil health? There is a real benefit there that needs to be considered when thinking about whether it is better to use that carbon or simply burn it.

[Lord Callanan (Con)]

I shall ruin the noble Baroness’s social media portfolio and agree with her this once: of course, we need to look at these things in the round and there are lots of alternative uses. It is the whole basis of the biomass strategy, because there are different uses that we can put it to and we need to look at what is most effective both for the environment and for UK power production.

Energy Bill [HL]

Lord Callanan Excerpts

Consideration of Commons amendments
Tuesday 24th October 2023 Lords Chamber

Moved by

[Lord Callanan]

That this House do not insist on its Amendment 274B, to which the Commons have disagreed for their Reason 274C.

274C: Because the Government has already committed to consulting on barriers to the development of community energy schemes and the Commons do not consider it appropriate to set a timeframe for bringing forward any proposals for the removal of such barriers.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, Amendment 274B was added to the Energy Bill during the previous consideration of Commons amendments. As the House will be aware, the amendment was debated in the other place last week and the Government Motion to disagree to the amendment was passed with a substantial majority.

I can confirm to the House that our position remains the same. The amendments would commit the Government to a consultation on the barriers preventing the development of community energy schemes. The amendment sets out with whom we would consult and commits the Government to bringing forward proposals to remove identified barriers to community energy within a brief six-month timescale.

I welcome the constructive engagement from across the House, in particular from the noble Baroness, Lady Boycott. I welcome her continued efforts throughout the passage of the Bill to ensure that the interests of the community energy sector are heard in this Chamber, but I reassure the noble Baroness that, on this issue, the Government have already made a clear commitment to the consultation.

As part of this commitment, we have outlined that we will engage in an open and collaborative way with the community energy sector, via the community energy contact group, to design the consultation. In fact, officials are already engaging on exactly that, and earlier this month held a very constructive discussion on the consultation with the group. Given our existing commitment to consult, and our ongoing engagement with the sector, we therefore believe that it is of no additional value to put the specifics in primary legislation.

In addition, there are further issues with the previous amendments that meant that we could not support their inclusion in the Bill. We clearly cannot commit to putting forward proposals to remove barriers that are preventing the development of community energy schemes before we know what barriers are raised in the consultation, or the implications of removing them. It would be remiss of us to agree to put that into primary legislation. Placing this obligation on the Government would be putting the cart before the horse.

However, I reassure the House yet again that the Government will carry out the consultation and continue to work closely with the sector to do so. I also reiterate the Government’s support in principle for community energy; we recognise the role that community groups play in our efforts to eliminate our contribution to climate change. I participated in a great visit to North Kensington Community Energy two weeks ago where I was able to see first-hand some of the important work that the sector does and to meet the contact group.

More widely, government support for the sector is demonstrated through existing support that we have already put in place, such as the £10 million community energy fund. I am pleased to tell the House that we aim to open applications to that fund as soon as we possibly can.

[Baroness Boycott (CB)]

I thank the Minister very much for his sort of co-operation through the passage of the Bill. It is hugely important. It was introduced about 16 months ago, and I do not wish to delay it any further. But I speak with great regret that the Government find themselves unable to agree to my simple and incredibly uncontroversial amendment, which just seeks to clarify the Government’s commitment to consult on the barriers that community energy schemes face. I am very pleased that the Minister went to visit one that was working, but I assure him that a lot are not.

While I welcome the steps the Government have taken to re-establish the community energy fund—for instance, reporting to Parliament and consulting—it is important to put a timescale on these plans; 18 months is fair and reasonable. Without a timescale there is a risk that this will not happen. It has been demonstrated that this issue has widespread support across both Houses. When we have something that we agree on, we ought to just get on with it and do it. I fear that this small but significant issue will get drowned out in next year’s general election. I would appreciate reassurance from the Minister that this is a needless worry and that the Government are committed.

I would just like to get some clarity on a couple of points. What will be the basis of this annual report to Parliament? Is it simply to report on the progress of projects, or will it address the challenges that we face and the best route to sort them out? My amendment also sought to ensure that, should any consultation find that there are barriers—new barriers, for instance—the Government will commit to taking steps to address these. Being candid, we know that there are barriers, and I appreciate the argument that you should not legislate for the unknown, but I am simply trying to get an assurance that they would plan to lift barriers that we know are there—including ones that we do not know.

To return to the issue of the consultation, we have rehearsed what issues need to be resolved; thanks to the Bill committee in the other place, there are many views on record. I do not believe that much is likely to change in the next year. While I agree that we should follow due process here, it must not be used as a reason for delay. I urge the Minister to open this consultation ASAP, so that we can get this ball rolling.

--- Later in debate ---

[Lord Callanan (Con)]

I thank all Members who have contributed to this extremely brief debate. To have a brief debate on the back of a Bill that now has 335 clauses, one of the longest Bills that we have passed in this House for many years, is quite ironic but probably appropriate.

On the issue in question, I thank the noble Baroness, Lady Boycott, for her remarks. She spoke about the timing of the consultation. All I can tell her is that we will launch it as soon as we can; I am afraid I cannot put a specific date on it, but I hope it will not be too long away now. Officials need to continue their discussions with the community energy sector about the content of the consultation before we can launch it. I confirm absolutely that officials are working closely with the Community Energy Contact Group—I have met it myself —and we are keen to get on with this as quickly as possible.

Similarly, on the content of the consultation, until we finish those discussions we cannot commit to exactly what the consultation will include. That really would be putting the cart before the horse—unknown unknowns, as the noble Lord, Lord Lennie, referred to. On the commitment to publish an annual report on the community energy sector, which the noble Baroness, Lady Boycott, spoke about, I confirm that, as with the consultation, we will work closely with the sector to design exactly what the report will look like.

The noble Baronesses, Lady Bennett and Lady Boycott, asked me to commit to removing barriers. Until we know what those barriers are, it is impossible for me to give a vague commitment. If removing a barrier is simple and straightforward then of course we would want to do it, but we are talking in generalities without knowing what the specific issues are. Let us have a bit of patience and wait for the outcome of the consultation. The House can be reassured that we are committed to the consultation and keen to see the community energy sector go forward, which is why we have provided the new £10 million fund to aid it to do just that. In the personal discussions I had with the sector, it was extremely keen and enthusiastic to get on with some of the great work that it does.

As this will be the final time that I will be on my feet for this gigantic piece of legislation, I thank the Members from all sides who have contributed during the passage of this, frankly, huge piece of legislation. At every industry forum that I have done for the last six months, I have been asked the obligatory question, “When will the Energy Bill get Royal Assent?”. Whether it be the CCUS sector, the hydrogen sector or the smart meter sector, as well as the community energy sector, every stakeholder group in this area is keen to get this legislation on the statute book. I know the House had some concerns but in general the legislation has support from all sides, and I think everybody accepts that it will do great and noble things for the energy sector.

As well as Members of the House, I thank all the officials who have now spent a number of years working on this. There were several hundred of them so I cannot mention them all by name, but I particularly pick out Jeremy Allen and Jessica Lee, who have led the team fantastically over the last months and years. I am sure they will be lost without their little baby, as the Energy Bill becomes the Energy Act. They have done some great work, including on the Nuclear Energy (Financing) Act and the Energy Prices Act. I hope noble Lords will join me in thanking them for all the good work they have done, in the finest traditions of the Civil Service, in helping us to navigate our way through these important pieces of legislation.

Motion A agreed.

Climate Financing

Lord Callanan Excerpts

Tuesday 17th October 2023 Lords Chamber

[Lord Oates (LD)]

My Lords, I beg leave to ask the Question standing in my name on the Order Paper and in doing so I declare my interest as chair of the APPG for Africa’s inquiry into just energy transition.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, the UK COP 26 presidency published a delivery plan with other contributors showing that we would meet the $100 billion goal in 2023. At the Petersburg dialogue this May, developing countries confirmed that we are on track. We have worked with the Canadian and German Governments to publish an open letter at the UN General Assembly explaining upcoming milestones. The UK and other contributors are working with the OECD on a report by COP 28 on progress with regard to COP 21.

[Lord Oates (LD)]

I welcome the Minister’s Answer. Does he agree that the $100 billion target is just a fraction of what is needed? The capital requirement for just energy transition in Africa alone is estimated to be around $2 trillion to $3 trillion, yet the $100 billion target has been consistently missed in the past. Can the Minister tell the House what plans there are to make up past shortfalls, including the UK’s contribution, and what is the Government’s strategy to crowd in the additional private capital that will be so critical in meeting the challenges of energy transition and climate change?

[Lord Callanan (Con)]

The noble Lord makes some very good points. He may not have had the chance to see it yet, but we published a WMS this morning with details on our progress towards meeting the $100 billion target—so his question is very well timed. He makes a good point that, while government finance will be important, of course private finance is equally important, including in the UK and developing countries, towards meeting these goals.

[Baroness Sugg (Con)]

My Lords, women and girls are disproportionately impacted by climate change. A recent report from the UNFPA highlighted that rising temperatures have been linked to poorer maternal health and that extreme weather events are exacerbating inequalities because of the disruption to health services, including the loss of access to contraception. Does the Minister recognise this and will he also acknowledge that women are part of the solution, particularly when it comes to mitigation and adaptation? How are the Government ensuring that their climate finance properly addresses the needs of women and girls?

[Lord Callanan (Con)]

I know that my noble friend is a powerful advocate for women and girls, both in this House and in the work she did in government. She is of course absolutely right. The FCDO’s international women and girls strategy sets out our commitment to increase the proportion of our international climate finance that will be gender-marked and to integrate gender and social inclusion objectives into our climate finance programmes and strategies.

[Lord Watts (Lab)]

My Lords, all these measures will come to nothing unless we control the population of the world. What are the Government doing to help achieve that aim? Will they publish figures on their successes or failures?

[Lord Callanan (Con)]

The noble Lord asks a good question, which is slightly beyond the remit of the original Question. I point him to the answer that I just gave to my noble friend: empowering women and girls, giving them more control over their own reproductive rights, is very important in this area.

[Lord Howell of Guildford (Con)]

My Lords, I see that Janet Yellen, the American Treasury Secretary, estimates that it will take around $81 trillion—I repeat, $81 trillion—to get anywhere near the Paris targets by 2050. So, are we in the right ballpark at all in talking about £100 billion? If we are, is there not a need to concentrate on the gigantic coal burning of China, which is still around 1,000 times ours, as well as the huge coal burning of India and America? These account for 60% of the world’s emissions increases; is this not where the money should go?

[Lord Callanan (Con)]

My noble friend of course makes an important point. My reaction is that it is at least a start. Given the financial pressures on many developing countries, it is important to start the financing process. The £100 billion will be a commitment and will help many poorer parts of the world. He is also right that we need to work with China and the US to drive down their coal emissions. I am delighted that, in this country, coal will be completely gone from our power system by next year.

[Baroness Boycott (CB)]

My Lords, Britain has been very proud of its leadership position on climate change—something that has taken a bit of a dent in the last few weeks due to some of the rollbacks on climate change targets. Specifically, the CCC last week published an assessment of the Government’s recent net-zero announcements, stating that they

“were not accompanied by estimates of their effect on future emissions, nor evidence to back the Government’s assurance that the UK’s targets will still be met”.

Will the Minister commit now to publish the evidence for Members to scrutinise?

[Lord Callanan (Con)]

I must disagree with the noble Baroness. There has not been any rollback on the Government’s targets. There is a legally binding commitment, which we will maintain, and of course we have a number of legally binding carbon budgets, which we will also maintain. We are adamant that we are on track to meet all of them.

[Lord Teverson (LD)]

My Lords, I very much welcome the Minister’s confirmation of the UK’s role in international finance on climate change, but money is not the only thing. Technological transfer and transfer of expertise are equally important. Will the Minister tell us what the UK Government are doing to ensure the transfer of expertise and technology that we have in the UK, particularly in areas where we lead, such as offshore wind and other technologies? Are we working strongly to transfer that to economies in the south who can use it even more than we can?

[Lord Callanan (Con)]

The noble Lord is absolutely right. We are world leaders in many technological developments. Offshore wind is one example, floating offshore wind would be another, and a third would be the deployment of solar technology, which could be immensely valuable in many parts of the developing world. We share expertise through the good offices of the Foreign Office as much as we possibly can.

[The Lord Bishop of Sheffield]

My Lords—

[The Lord Bishop of Sheffield]

My Lords, it is reassuring to hear that the Government are confident of meeting the commitments made at COP 26 in relation to climate finance for adaptation and mitigation. Are the Government equally confident that commitments made at COP 27 in relation to the loss and damage fund will be not only met but made fully operational?

[Lord Callanan (Con)]

As far as I know, we are fully committed to meeting those targets. We are very proud of our record and all the progress that we have made, including at least £3 billion on mitigating, protecting and restoring nature. We are on track to meet all our commitments.

[Lord Lennie (Lab)]

According to the International Institute for Sustainable Development, over $1 trillion of public money has been poured into fossil-fuel subsidies since COP 26, mainly in response to the war in Ukraine. This eclipses tenfold the climate finance initiatives made at COP 26. Do the Government accept that this lack of long-term thinking about energy efficiency, onshore wind and solar has left us vulnerable to these outside forces?

[Lord Callanan (Con)]

I do not agree with the noble Lord. We have an extremely good record on energy efficiency. To take one of his examples, we have improved the number of properties that are EPC band C or above from 14% when we came into office up to nearly 50% now. Obviously, we need to make a lot more progress. We are spending £6.5 billion in this Parliament on energy efficiency and have already committed another £6 billion from 2025. We are doing extremely well in this area.

[Baroness Bennett of Manor Castle (GP)]

My Lords, the Minister may be aware that last week, coinciding with the IMF meeting on reform priorities for tackling debt, groups including Extinction Rebellion, Debt for Climate and Debt Justice were outside the Bank of England highlighting the $7.9 trillion in climate reparations that are due to the global south from the global north. He may also be aware that debt is preventing climate action in the global south: five times the amount of money is going on debt repayments than is going on climate action. Are the Government at the forefront of leading on action to deal with this debt crisis in the global south?

[Lord Callanan (Con)]

We are proud of our record on helping the global south to relieve its debts. We have one of the largest programmes of international aid alongside our programmes on international climate finance. Of course, there is always much to be done, but we can be very proud of the record that this country maintains.

[Lord Naseby (Con)]

My noble friend rightly mentions developing countries. He will well know that the emphasis that he gives is much appreciated. Within that, is he aware of the parlous state of the small islands and the worry that they have about their future? Is he prepared to make a commitment today that they in particular will continue to be a priority for His Majesty’s Government?

[Lord Callanan (Con)]

Of course I can give that commitment to my noble friend.

[Baroness Hayman (CB)]

My Lords, I declare my interests as set out in the register. Reform of the international financial order is going to be high on the agenda for COP 28. Do the Government support that reform and, in particular, the measures set out in the Bridgetown agenda?

[Lord Callanan (Con)]

The Government are interested in the conversations that are taking place on that. I cannot give the noble Baroness the commitment that she requires but I will come back to her in writing with the detail on that.

Carbon Capture and Storage Infrastructure Fund

Lord Callanan Excerpts

Monday 16th October 2023 Lords Chamber

[Baroness Jones of Moulsecoomb]

To ask His Majesty’s Government how much of the Carbon Capture and Storage Infrastructure Fund they have awarded in contracts to companies involved in the oil and gas industry.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, no contracts have yet been awarded through the cluster sequencing process. The amount that may be awarded to individual projects is still subject to negotiations. Project sponsors are from a range of industries including cement, industrial gases, energy from waste, et cetera. In addition, up to £40 million of the CIF is being spent under the UKRI industrial decarbonisation challenge fund, which aims to deliver significant reductions in industrial carbon dioxide emissions.

[Baroness Jones of Moulsecoomb (GP)]

That is sort of good news, because I hope that this Government are not going to give any of that funding to fossil fuel companies, or to any other industry that has not only had tax breaks in the past and made massive profits but trashed the planet knowingly. Will the Minister give me any sort of promise that fossil fuel companies will not be entrusted with this sort of technology, which is already considered very risky and ineffective?

[Lord Callanan (Con)]

No, I will not give the noble Baroness that assurance, for a number of good reasons. First, in the real world, as opposed to in the noble Baroness’s fantasy green world, CCUS is an essential technology.

[Noble Lords]

Oh!

[Lord Callanan (Con)]

The Climate Change Committee has said that CCUS is essential and not an option if we are to meet our net-zero goal, which we wish to do. Secondly, in a number of industries—cement and energy from waste, et cetera—CCUS is the only option to decarbonise those industries. Unless the noble Baroness is saying that she wants them all to close down, so that we have no building in this country and import all our cement from overseas, what is her practical solution in the real world to delivering these technologies?

[Baroness Jones of Moulsecoomb (GP)]

I will send the Minister a manifesto.

[Baroness Northover (LD)]

My Lords, the Minister has just confirmed that no commercial plants are yet operational in Britain. Is the Government’s plan to capture 20 million to 30 million tonnes of CO₂ by 2030 not therefore unachievable? Why are the Government subsidising this with £1 billion, at the expense of proven renewables?

[Lord Callanan (Con)]

It is not one or the other; we need to do both. Of course we need to push ahead with renewables, and I have set out many times in this House how well we are doing. Almost 60% of electricity in the last quarter was delivered by renewables, but CCUS is also essential. We have committed £20 billion-worth of funding to CCUS over the next few years because everybody thinks it essential to meeting our goals. It also offers a massive export opportunity for this country, as we have expertise in many of these technologies. The estimate is that capturing 20 million to 30 million tonnes of CO₂ by 2030 could deliver up to 50,000 jobs, many of them in our industrial heartlands.

[Baroness Blake of Leeds (Lab)]

My Lords, the Government have only recently entered negotiations with track 1 clusters, despite the climate investment fund being announced three years ago. They have earmarked £0.3 billion of the £1 billion fund for this financial year. This does not leave much time for negotiating. Are the Government concerned that this deadline, caused by their own delays, will impact on their negotiating position? Is the Government’s priority using this money well or simply using it?

[Lord Callanan (Con)]

My Lords, this makes me think that we cannot win on this. One part of the Opposition does not want to award these contracts at all and the Labour Party thinks we should have done it earlier. The reality is that we are proceeding with negotiations. It is our aim to have the contracts let for the first 10 projects by quarter 3 of next year. This is a really exciting technology, but we need to do the negotiations properly and get maximum value for money for the taxpayer from what is an emerging new industry.

[Lord Geddes (Con)]

Can my noble friend bring the House up to date on the Government’s support for tidal power?

[Lord Callanan (Con)]

My noble friend is dogged in his pursuit of this, and I have answered his question before. As he knows, under the last contracts for difference round, a number of tidal projects were successful in receiving funding.

Net Zero (Economic Affairs Committee Report)

Lord Callanan Excerpts

Monday 16th October 2023 Lords Chamber

[Lord Teverson (LD)]

My Lords, I also declare my interest: it is in a company called Aldustria Ltd, which is into energy storage. I absolutely agree with the noble Lord, Lord Frost, that there are many issues around energy storage, particularly in the long term, on which I know the Government have done a number of consultations.

I congratulate my noble friend Lady Kramer on her introduction to this report. She is absolutely right: it has taken far too long to get it to the Floor of the House. As the noble Viscount, Lord Chandos, said, there have been three Prime Ministers since the report came out. The only thing that I would say is that it has actually managed to get to the end of its process slightly quicker than the Government’s Energy Bill, which started in the same month that this report was published but has still to be completed. I hope that that will happen before the end of this month. That shows the urgency that the Government wanted to put into their energy strategy but did not, particularly on electricity and carbon capture and storage.

I shall come back on energy costs for a minute, in response to the noble Lord, Lord Frost. The noble Viscount, Lord Chandos, is absolutely right about 2050. It is not about reaching net zero that year—you have to get it all the way through. I do not think that methane was mentioned in the report—I may be wrong—but that is one area where there may be some quicker wins.

I absolutely agree with the noble Lord, Lord Turnbull, about Rough storage, although I think that only a small amount of that facility is contracted to the Government. Centrica is hanging on to the rest of it, and there is no guarantee that it will be there long term. That is a real vulnerability.

As for new gas and oil and, particularly, coal facilities, I do not see any UK Government banning exports of those products. I do not see that ever happening, which is why I do not think that there is any effect on our energy security or, indeed, on global pricing for those new openings.

I shall come back on demand reduction in a minute in response to the noble Baroness, Lady Bennett, as it is an important area. But I just say to the noble Baroness, Lady Noakes, that I came up as a traditional economist, and it always seemed to me that it was really important to cost the idea of externalities into actual pricing systems. With carbon emissions we have huge externalities that are not priced into market competition—and that is why there have to be differences.

I also say to the noble Baroness that, of course, there is a huge kickback at the moment to the Government on contracts for difference through the Low Carbon Contracts Company, whereby at the moment actual market prices are hugely higher than strike prices. I would be interested to understand from the Minister—

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

It is not a kickback to the Government—it is a kickback to the consumer.

[Lord Teverson (LD)]

Yes, exactly. The Minister corrects me. That is even more to the point. I think it has got to several billion pounds in terms of coming back into that sector working the other way, which probably exceeds now the green costs that there were. That is quite an optimistic look at that.

It seems to me that one real problem in this area—because the world has moved on since last July—is with those recent announcements that my noble friend went through from the Prime Minister. They probably did not have as big an effect as some people said, but they did drive a horse and carriage through our international reputation, as indeed did the coal decision in Cumbria. Our being seen as a global leader in this area, which the report was keen to emphasise, has been trashed to a large degree, and has been seen as such by allies such as America and the European Union.

I want to come back to those announcements, one of which was to abolish the Energy Efficiency Taskforce. The Minister was chair of that, and I understand that four meetings took place. Whether you look at security or at cost, the most secure energy is the energy that you do not need. The energy-efficiency side is important in that area, as well as cost. I would be interested to understand from the Minister why he was made redundant by the abolition of that committee. The UK should be a real leader, and really move in this area. The report asks for an energy demand reduction strategy, and that is really called for. It is not just around buildings, as the Government’s response said that it was; it is around a much broader area, including appliances and other interests.

One thing that has been emphasised during this debate is private investment, which it is clear is absolutely essential to deliver net zero. I am not pessimistic about this. Most private investment takes place to reduce costs, not to increase them. Companies do not invest to increase prices; they invest to reduce prices, and that is what we should aim for with the net-zero strategy.

One problem with the Prime Minister’s announcement, and all the other issues that have happened, is that we have a wobble with investor confidence—absolutely we do. Those messages that go out to industry and the investment sector say that we are no longer reliable on our government policy or on the foundation of confidence going forward. That has an even bigger effect when we have the Inflation Reduction Act in the United States and the EU green deal industrial plan on the other side of the channel. I would be interested to understand from the Minister when the Government will really respond to that huge financial challenge, which really prejudices how we can deliver net zero through the private sector in future.

I will make one or two further points, as I am sure the House will want to move on. The noble Baroness mentioned the UK Emissions Trading Scheme. I have been very hopeful—not because I am pro-European but because of liquidity and various other areas—that there should be a tie-up between the UK Emissions Trading Scheme and the EU equivalent. I understood that that was a government objective, but now we have a huge divergence in prices. The UK ETS a year ago was about £100 per carbon tonne; it is now down below £40. In the EU, it was around €100 per tonne a year ago but is now down to about €80. A huge difference has opened up. I would be interested to hear the Minister’s reaction on how the carbon border adjustment mechanism will affect that, as Europe starts to develop it over the next few years. That price signal is so important in terms of taxation and disappearing incentives for investment in our economy.

I am glad to see the noble Lord, Lord West, is here, because one of the key issues in energy security at the moment is defence, which has not been mentioned in this debate. In Finland, we have seen potential interference with the explosion of one of its energy pipelines and we have seen Nord Stream 1 and 2 destroyed. We know from our intelligence that the Russian Federation is keeping a very close eye on our undersea energy and communication networks. The Minister may not have an answer to this, but it is one of our major concerns in energy security as we move forward and have more interconnectors offshore. I am sure he agrees that this is a major thing we must look at.

Finally, coming back to consumers, the energy companies and Ofgem estimate that, as we reach the end of summer and enter winter and higher bills, the outstanding energy bills from consumers will be about £2.6 billion. Are the Government happy with that? Do they think it is sustainable for low-income families? Do they intend to do anything about it? This is probably the biggest challenge of all. Although the noble Lord, Lord Frost, talked about the importance of gas, which will be important for many years, the gas price has driven inflation and the high costs to families of keeping warm. It has led to inflation, which has led to the failure of those offshore wind projects. It is important that we restart that, but the problem is not the technology and the price coming down in real terms; the problem is inflation. What will happen to families over this winter?

[Lord Lennie (Lab)]

My Lords, I thank the noble Baroness, Lady Kramer, and, through her, the noble Lord, Lord Bridges, and other members of the Economic Affairs Committee for producing this weighty report. July 2022 was also when the Government first announced their intention to legislate for the country’s future energy needs in the Energy Bill. The Energy Bill has now expanded to some 400-plus pages, has still not become an Act of Parliament and is due for further consideration by the other place later this week.

[Lord Callanan (Con)]

It would not if the Government acted as Parliament recommended.

[Lord Lennie (Lab)]

There is a process to go through. The amendments we made were to the benefit of the Bill rather than to take away from it.

There is some crossover between the Economic Affairs Committee report and the legislation but, sadly, nowhere near enough. The starting point of this report was back in February 2022, when the Economic Affairs Committee launched an inquiry into how the Government could support investment in UK energy to achieve greater security of supply, improve affordability and meet the UK’s net-zero targets.

The committee considered how the Government planned to achieve the following two separate but related objectives. First was the commitment in law to achieve net zero by 2050 alongside the target to decarbonise the system by 2035. The committee considered how this target might be achieved while ensuring the UK’s energy supply was “affordable and reliable”. It argued that encouraging private sector investment was the key to achieving net zero. However, the committee said there was

“a gap between the Government’s ambitions and the practical policy that is needed to provide confidence and clear market signals to investors”.

The second was the Government’s plans to mitigate the effect of rising energy prices exacerbated by Russia’s appalling invasion of Ukraine in 2022.

The report produced by the committee recommended that the Government should take the following measures over the next three to five years—now two to four years. First, they should publish a net-zero delivery plan which would detail how the UK could achieve net zero in an orderly way. Secondly, they should publish an energy demand reduction strategy which would include measures to increase incentives for investment in energy efficiency measures for buildings and to support the development of resilient supply chains and workforce skills—as the noble Lord, Lord Teverson, pointed out, this has not happened. Thirdly, they should increase the deployment of renewable energy sources to reduce the UK’s dependence on gas markets, including onshore wind, which it describes as

“one of the cheapest and fastest ways to increase renewable energy generation”,

despite the reservations of the noble Lord, Lord Frost. Fourthly, they should maintain existing energy generation in the immediate future while extending the life of nuclear power stations over coal power stations, as this would result in lower carbon emissions. Finally, they should seek to reach agreement with other European countries to manage energy supply emergencies. Have any of these measures been taken on board?

The committee also recommended that the Government should take action to increase investor confidence to make more private capital available to support the transition to net zero, by setting out a cost analysis of their targets to achieve 24 gigawatts of nuclear capacity. As the noble Baroness, Lady Kramer, pointed out, this figure is more than double the capacity assumed by the Climate Change Committee. Can the Minister explain the variance between the two? It also recommended they provide more detail on the capacity, timeframes and expected costs of increasing long-duration energy storage, outline the market structures and mechanisms that would be used to support increased hydrogen production and support carbon capture and storage by fulfilling their commitment to develop four low-carbon industrial clusters. They should also design “market models” to provide information to investors on the types of technology required, to give potential investors greater confidence in the long-term viability of carbon capture and storage. Is there any sign of this happening?

Since the report was published, a number of government changes have affected energy policy. The Energy Bill was introduced in 2022 under Prime Minister Boris Johnson. It included measures intended to leverage investment in clean technologies, protect customers and maintain the safety, security and resilience of the energy system. It reached Committee on 7 September 2022 and was thereafter paused by the new Prime Minister, Liz Truss. Following Liz Truss’s resignation, in December 2022 Committee started again and, under Prime Minister Rishi Sunak, the House of Commons is now scheduled to consider Lords amendments on 18 October. In February 2023, BEIS was replaced, with responsibility for energy policy transferred to the Department for Energy Security and Net Zero. Grant Shapps served as Secretary of State for Energy from February to 31 August; currently, the Secretary of State is Claire Coutinho, but for how long is anyone’s guess.

Chris Skidmore published his review Mission Zero: Independent Review of Net Zero on 13 January 2023. It concluded that the UK was not on track to meet all its targets towards achieving net zero and stated that the Government needed to do more to make the most of the economic opportunities arising from the transition to net zero. The Government have published a series of policy updates on their plans. In March 2023, Powering Up Britain was Secretary of State Grant Shapps’s launch of the new Government’s energy strategy. In the same month, Mobilising Green Investment: 2023 Green Finance Strategy updated the previous green strategy. In this, the Government committed to commissioning an

“industry-led … review into how the UK can enhance our position and become the best place in the world for raising transition capital”.

Has it happened?

On 20 September 2023, Rishi Sunak, still the PM, gave a speech in which he announced some changes to government policy on achieving net zero. While working towards meeting their overall 2050 net-zero target, he said that policies including the ending of the sale of petrol and diesel cars and vans, plus the sale of new gas boilers, would be pushed back by five years to 2035. How does this help achieve net zero? Its effect has been to deter investment by undermining the commitment and consistency required by business, as the noble Lord, Lord Teverson, and the noble Baroness, Lady Kramer, said.

This is the framework in which the Economic Affairs Committee report is being considered. Of its 38 recommendations, only a small handful have been taken forward. However, the Government’s initiatives to secure private capital by certainty and leadership are woefully inadequate. In the meantime, more changes have been confirmed. Alok Sharma, chair of COP 26, is standing down. Chris Skidmore is not going to contest his seat in the next general election. The offshore wind auction attracted no bids because the strike price was wrong.

Tony Blair once said:

“I’ve not got a reverse gear”.


It is a pity the same cannot be said of Rishi Sunak. The report rightly states that the Government cannot be expected to accurately predict what is going to happen in the future. Surely, though, we can expect more than what is currently on offer.

Labour would establish Great British Energy. It would invest in order that Britain can lead the world in carbon-free energy and technologies. Labour will ensure that we have the grid we need to rewire our country. Our public investment will stimulate private investment to bring prosperity to every part of Britain.

[Lord Callanan (Con)]

First, I add my thanks to the noble Baroness, Lady Kramer, for securing this debate, as well as thanking noble Lords for their insightful contributions.

It was a bit rich for the noble Lord, Lord Lennie, to criticise us for not getting the Energy Bill on to the statute book. The reason we have not done that is because the Opposition—despite saying that they support it—have supported largely irrelevant and superfluous amendments to the Bill. If the noble Lord is so keen to get it on to the statute book, he has the opportunity to prove it next week when it will come back to this House. I hope the Opposition will agree with the passage of the Bill, rather than just saying that they support it. We will then be able to get it on to the statute book and proceed to the secondary legislation, which will result from the primary powers, on things such as hydrogen, CCUS, et cetera.

[Lord Lennie (Lab)]

I think it is a bit rich for the Minister to say that the Opposition parties are responsible for the delay to the Energy Bill. It was paused by the Government for three or four months, when they went absolutely silent. We were knocking on the door asking what was happening with the Energy Bill, but nothing was forthcoming.

--- Later in debate ---

[Lord Callanan (Con)]

We would have had the Energy Bill on the statute book by now if it was not for the amendments the Opposition had supported. My point remains.

As the Prime Minister made clear in his recent speech, it is extremely important that we chart the fairest credible path to net zero, bringing people with us through democratic debate. As several noble Lords have mentioned, we have shifted to less drastic targets on phasing out fossil fuel cars and boilers because of the potential for sharp upfront costs to families already struggling with the cost of living.

The 2035 target for decarbonising the power sector, however, remains in place. Why is that? It is not just because this a critical bridge to net zero by 2050—which, I remind the House, we have a legal obligation to deliver —but, in response to my noble friend Lady Noakes, because wind and solar are the cheapest forms of electricity, which is also the reason why I, as a fiscal conservative, am in favour of them.

Against that, and as the noble Lord, Lord Turnbull, noted, international fossil fuel markets are volatile as they are driven by geopolitics, and our own reserves are now declining. Yes, the price of offshore wind has now risen from a historic low, but it remains well below that of gas, nuclear or gas with CCUS. In response to my noble friend Lady Noakes, we are going hard for clean electricity because it is not in tension with cheap electricity; nor is there tension in such electricity having the security of being produced domestically. It is, if you like, electricity with a UK flag plastered upon it.

The UK energy system in 2035 and beyond is going to be a mixture of tried and trusted technology and new innovation. We have connected approximately 40 giga- watts of renewable electricity—primarily wind and solar—to the grid since 2010. The point made by the noble Lord, Lord Teverson, is completely valid: with the high price of electricity, driven primarily by gas, the vast majority of those contracts for difference are now paying back into the system and subsidising consumer bills. It is not the case that the amount of renewables we have on the grid is contributing to the high price. It is driven entirely by international gas prices, and the problem is that we do not have enough of it connected to the grid. If we had more, prices would be lower.

On the nuclear side, Hinkley Point C and Sizewell C are under development, and we have set up Great British Nuclear, whose first objective is to support small modular reactor development, which my noble friend Lord Howell will, no doubt, be pleased to hear.

My noble friend Lord Frost raised an issue about wind and solar. Wind and solar are clean, cheap and homegrown. Of course, my noble friend is right to say that they currently rely on unabated gas as back-up. UK gas usage has declined in the past decade as wind power has proportionately increased. Of course, it is true to say that we need a portfolio of technologies to replace unabated gas, including power CCUS; hydrogen; short- and long-duration storage; renewables, such as tidal and geothermal; interconnection; energy efficiency; and demand side flexibility. We need all these technologies. My noble friend Lord Frost and the noble Lord, Lord Teverson, will be pleased to hear that there is currently nearly 38 gigawatts of electricity storage in its various forms in the planning pipeline.

Resilience comes from having diversified sources of supply and strong relationships with trusted partners and allies. We will work closely with the EU and bilaterally on both short- and long-term energy security. As the noble Viscount, Lord Chandos, will be pleased to hear, I was delighted recently to launch a UK-German hydrogen partnership with German State Secretary Nimmermann, where we are working on a broader energy and climate partnership.

Of course, investing in energy security is about demand as well as supply. We have made great progress in upgrading what is probably the oldest housing stock in the world. Despite what the noble Baroness, Lady Bennett, would have us believe, residential emissions in this country have fallen by something like 31% since 2010; that is the second biggest improvement in the G20.

The noble Lord, Lord Teverson, was concerned about the decision to discontinue the Energy Efficiency Taskforce. The body was formed very much around Dame Alison Rose as my co-chairman and, without her, we believed it was better to streamline its function into existing work. We remain extremely grateful to the members of the task force, who produced some excellent work and recommendations; I continue to meet them regularly and we will continue to listen to their wise and trusted advice on the importance of energy efficiency.

The noble Lord, Lord Lennie, mentioned demand management. I can inform the noble Lord that the National Grid is planning to run its demand flexibility service again this winter—subject to Ofgem approval—as it proved so successful last winter.

The noble Lord, Lord Teverson, asked about the UK ETS, and that remains a cornerstone of our climate policy. It remains the fact, though, that the price is set as a market mechanism. The UK ETS is a separate market to the EU ETS so it is possible, as we have seen, that prices will fluctuate and differ, although both do have similar levels of ambition. The noble Lord will have noted that in the summer, we decreased the cap and aligned it with our net-zero ambitions. This means that the number of permits we issue in the future will continue to decline in line with our net-zero ambitions.

A number of noble Lords raised the important issue of nuclear, and our current nuclear fleet is of course ageing. While the Government have no direct involvement in the decision to expand lifespans, we are pleased that extensions are happening where the technology is performing above original expectations, and I am pleased that the noble Baroness, Lady Kramer, is in agreement on this point. On new build, we are continuing towards taking Sizewell C to final investment decision this Parliament.

The noble Baroness, Lady Kramer, did however note her personal opposition to Rosebank, as did a number of other noble Lords. Notwithstanding the shift towards renewables, it is important to remember the total UK energy use in 2022 was still 77% oil and gas. Following extensive scrutiny by regulators, including environmental impact assessments and a public consultation, we have granted new licences, including for Rosebank. As the noble Lord, Lord Turnbull, alluded to, domestically produced gas is around four times cleaner than imported liquid natural gas. Oil and gas production also provides around £17 billion to the UK economy each year and supports around 200,000 jobs.

Let me address directly the point made by the noble Baroness, Lady Bennett. New licences will merely slow the already inbuilt decline in UK production levels, rather than see them increase above current levels. Even with continued exploration and development, oil and gas production is expected to decline by 7% per year. This decline is faster than the average global decline needed to align with the UN 1.5 degrees centigrade pathway. Even with new licences, the amount of oil and gas produced in the UK sector will continue to go down as these fields come to their natural end.

I will deal with the point on the AR5 auction round. It was successful in broadening contracts to both tidal and geothermal projects, but, of course, we were disappointed by the lack of offshore wind bids. That was because developers were experiencing unprecedented economic conditions. However, as we have now moved to an annual process, in less than a year AR6 will open, and we will of course incorporate the lessons learned and ensure that AR6 reflects the most recent evidence.

As stated, we remain committed to the challenging but deliverable target of decarbonising the power sector by 2035, while at the same time, and most importantly, maintaining security of supply, which is absolutely critical. The Government are supporting investment, innovation and regulatory reform across the full range of technologies that will need to be developed and deployed in concert.

Climate Change Policies

Lord Callanan Excerpts

Wednesday 20th September 2023 Lords Chamber

[Baroness Hayman (CB)]

My Lords, I beg leave to ask a Question of which I have given private notice, and in so doing declare my interest as chair of Peers for the Planet.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, the UK is leading the world on climate change. We are committed to net zero by 2050 and the agreements that we have made internationally. The Prime Minister will make a statement on this issue later this afternoon.

[Baroness Hayman (CB)]

My Lords, that really will not do. We have all read what the proposals are. I understand that it is very easy to see on WhatsApp the paper on this issue put to the Cabinet this morning at its emergency meeting. I also understand that the plan was not to have Parliament sitting at all and to make these major announcements on Friday. Instead, because they were leaked, we at least have some opportunity in this House to question the Minister, but I hope he will not hide behind waiting for 4.30 pm, when the Prime Minister will talk to the press and not to Parliament.

In New York today, the UN is underlining that no country has done enough to meet the challenges of climate change, so it is both ironic and depressing that the UK Government are proposing such a damaging retreat from our global leadership position. What is the Minister’s response to the horrified reception these proposals have received from business leaders, who see delaying the transition to net zero as the complete opposite of what they need—ambition, certainty and commitment?

Is it not deeply disingenuous to suggest that rolling back our climate commitments is in the interests of hard-pressed families, when slowing down ambition on home insulation, for example, will only be, as the CEO of E.ON UK put it,

“condemning people to many more years of living in cold and draughty homes that are expensive to heat, in cities clogged with dirty air from fossil fuels, missing out on the economic regeneration this ambition brings”?

Finally, can the Government explain why they are disregarding all the advice from the Treasury, the OBR and others that delays to the actions essential to achieve net zero by 2050—to which the Minister says they are still committed—will make the task more difficult, more chaotic and more expensive?

[Lord Callanan (Con)]

My Lords, there were a number of questions there. In essence, I think the noble Baroness is asking whether the Government are really committed to net zero. As I said in the original Answer, the answer is yes. More importantly, we have the track record to prove it. The UK has overachieved on all our carbon budgets to date; we have reduced emissions faster than any other major economy; we are home to the first, the second, the third and the fourth-largest offshore wind farms in the world; and renewable power reached a record share of 48% of total generation in the first quarter of 2023. All those matters have been achieved under a Conservative Government. It is our record and we are proud of it.

[Lord Deben (Con)]

My Lords, the Climate Change Committee and Chris Skidmore, who was the Government’s own adviser, say that the Government cannot at this moment reach net zero, even before they cut back. Last week, the Government failed the offshore wind industry. This week, it appears that they are making car manufacturers unable to do their jobs. How are this Government going to restore the confidence of investors, businesspeople and the general public that they will stick to their word?

[Lord Callanan (Con)]

Yet again, the noble Lord is wrong in his statements. As he well knows, we have the largest offshore wind industry in Europe and the second largest in the world. Other European countries are racing to catch up with our record. We have over- achieved in meeting our carbon budgets, and I remind the House that these are legally binding commitments. We are on track to overachieve on carbon budgets 4 and 5. We are also on track to achieve carbon budget 6, which does not start until 2033, so I am afraid the noble Lord’s statements are wrong.

[Baroness Blake of Leeds (Lab)]

My Lords, it is worth emphasising the comments from Ford UK in its response to today’s news:

“Our business needs three things from the UK government: ambition, commitment and consistency. A relaxation of 2030 would undermine all three”.


These are not isolated comments; many businesses have made more. Why are the Government content to hurt working people by selling out British business and the long-term future of our economy in this way?

[Lord Callanan (Con)]

The noble Baroness makes a number of statements before she has even heard what the Prime Minister has to say later; perhaps she might want to read what the Prime Minister actually announces and revise her statements in light of that.

[Lord Teverson (LD)]

My Lords, the Minister has provided a list of things that all of us have been proud of in the past, but the point is that is the past. This announcement is a tragedy for this nation because that leadership that we had globally, of which we all were proud, is about to disappear. The Prime Minister is likely to say that the target of net zero still exists, which is a fabrication. We know from the Climate Change Committee, the Government’s own adviser, that we are already behind that in terms of policy. This will kill that objective.

We have the IRA in the United States and the green investment plan in the EU. We are now retreating from international investment. The question I ask the Minister is where the investment will come from to get us to net zero, but the question I really want to ask is how come any Ministers are still in the department for net zero. They should have all resigned this morning.

[Lord Callanan (Con)]

As the noble Lord knows, net zero is a legal commitment imposed on us by Parliament; it is the duty of Ministers to meet that commitment, and we will do so. As I have said, we are currently overachieving on carbon budgets 4 and 5; carbon budget six does not start until 2033. I have sat down with policy officials, and we are confident that we are on track to meet that as well. We are attracting record amounts of inward investment into this country. I talked earlier about the windfarm industry; we could talk about hydrogen or CCUS—the UK is world-leading on all those policies and many global companies are rushing to invest in the UK. Our difficulty is prioritising some of that investment.

[Lord Framlingham (Con)]

My Lords—

--- Later in debate ---

[Baroness Bennett of Manor Castle (GP)]

My Lords, in responding to the noble Baroness, Lady Hayman, and a number of others, the Minister has come out with a list of the Government’s claimed achievements. He has not mentioned once the issues of home insulation and energy efficiency, on which the Government’s record is disastrous. As the noble Baroness, Lady Hayman, said, this means that people are in cold, impossible-to-heat and unhealthy homes. Can the Minister reassure me that we are not going to see back-pedalling this afternoon on home insulation and energy efficiency?

[Lord Callanan (Con)]

It is always a pleasure to hear from the “noble Green lady”, even though she sounds increasingly red sometimes. I am very happy to talk about our record on home insulation. In 2010, under Labour, 14% of homes had an EPC rating of C or above. It is now almost 50%. Clearly, we need to go further, which is why we are investing £6.5 billion over this Parliament on home upgrade retrofit measures. The Treasury has already committed £6 billion from 2025 onwards—the noble Baroness shakes her head; she should listen to the facts. Last week, I was pleased to announce the Great British insulation scheme— £1 billion over three years. Even if the noble Baroness wishes to, she can apply for it online as we speak.

[The Lord Bishop of St Albans]

There is no doubt that His Majesty’s Government have done many good things, and we need all sides of the House to work on this vital area. However, this is not just something which affects some groups; it particularly affects those parts of our nation where air quality is so bad that it is materially affecting the health of many young people and causing huge additional costs to the NHS. What assurances can the Minister give us about the progress of moving to electric cars, to try to make a tangible difference to air quality in our urban areas?

[Lord Callanan (Con)]

The right reverend Prelate asks a very good question on electric vehicles; let me give him the facts on that. The UK had among the highest battery electric vehicle sales in 2022. We are registering a new EV every 60 seconds. Full-battery EV sales are up 88% year on year. Most of the UK’s emissions cuts have of course come under this Government; we are very proud of our record on electric vehicle sales. We are seeing record investments from BMW, Nissan, Tata and Jaguar Land Rover. Again, the UK has a record we can all be proud of.

[Baroness Boycott (CB)]

My Lords, I hate to disagree with the Minister, but just this morning on the Environment and Climate Change Committee we heard from car manufacturers that they absolutely did not want these targets delayed, because that is what they were doing and they needed that certainty. I have two questions. Does this announcement have anything to do with the ULEZ row that took place at the recent by-election? Secondly, everyone agrees on one thing about climate change: the more you delay, the harder the measures are going to have to be to get us to net zero by 2050, which I am glad the noble Lord still agrees on. Have the Government commissioned the OBR to do a thorough cost analysis of what these delays are going to mean, not for us today but for people in five, 10 and 15 years’ time?

[Lord Callanan (Con)]

The answer to the noble Baroness’s first question is no. With regard to the OBR, I am not quite sure why the OBR has a role in this. We obviously have our Climate Change Committee which gives the Government advice, but, to be frank, lots of other external organisations send me more advice on this subject every day, so we are not short of helpful academic advice on all the topics under consideration. As I said, we are looking towards the future. The Government are still committed to our legally binding climate change targets. That means sticking to the legally binding carbon budgets that we have overdelivered on, and we are on track to deliver on the next one.

[Baroness Bloomfield of Hinton Waldrist (Con)]

My Lords, it was Nuclear Week in Parliament last week, which showcased a myriad of gigawatt and small, advanced and microgenerating nuclear power. Can my noble friend the Minister reassure me not only that the Government are still committed to investing in nuclear but that they understand the urgency of doing so if the UK is to benefit from both the supply chain and the employment possibilities in areas of the country that desperately need levelling up, such as north Wales?

[Lord Callanan (Con)]

The noble Baroness has been resolute in her support for nuclear and does a fantastic job in advocating for it. I am very happy to give her the reassurance that she is looking for. Of course, again, the nuclear industry was left to decay under the last Labour Government. We have resumed it through building Hinkley Point, and we are about to take a final investment decision on Sizewell. I know the noble Baroness is particularly keen on the announcement of Great British Nuclear. These are all contributing towards our climate change goals. Nuclear will provide us with cost-effective, CO-free power for many years into the future.

[Baroness Young of Old Scone (Lab)]

My Lords, the Government have a track record on stuff like this. In 2015, George Osborne cancelled zero-carbon homes about six weeks before it was due to be implemented and when housebuilders had already geared up for its implementation. We lost 10 years of opportunity for net zero-compliant homes and warmer homes for people. The Tory Government have done it again with a major U-turn on their policy on home insulation, boilers and electric vehicles, against the advice of everyone, including the manufacturers and business. What will the Minister say to his colleague, Chris Skidmore, who did the net-zero review for the Government? He came to the conclusion that not enough was being done and is incandescent with rage at the likely announcements this afternoon. What is plan B when we are going to lose another 10 years on the path to net zero?

[Lord Callanan (Con)]

We will not lose another 10 years on the path to net zero. I outlined our policies earlier. For the sake of repeating them again, we are still committed to net zero and to meeting the carbon budgets; we have an excellent record. We are committed to meeting the 2050 target. We will continue to advance on that path, but we will do so in a fair and proportionate manner that takes people with us rather than by imposing things on them.

[Baroness Parminter (LD)]

My Lords—

--- Later in debate ---

[Baroness Parminter (LD)]

My Lords, a third of all emission reductions to get us to our net-zero target will need to be made by people adopting new technologies, choosing new products and services or going for less carbon-intensive consumption. As the noble Baroness, Lady Boycott, said, all the evidence to our committee’s EV, boiler upgrade and behaviour change inquiries showed that what people and industry want is policy certainty, consistency and clear leadership from the Government. In the clear absence of those this afternoon —as I am sure we will see—how on the earth will the Government achieve their net-zero goals?

[Lord Callanan (Con)]

The key phrase in the noble Baroness’s question was people choosing green alternatives. We want to help them to do that, and we want them to do it voluntarily. We want to make the choices attractive, which is why we provide incentives for insulation schemes. I refer once again to the Great British insulation scheme that I announced last week, which offers £1 billion over three years to help people in council tax bands A to D to upgrade their homes. If the noble Baroness has a little patience, in the next 20 minutes she will be able to listen to the Prime Minister and I think that she will find at least some announcements that she will like pertinent to some of her recent inquiries.