Lord Giddens
Main Page: Lord Giddens (Labour - Life peer)EU: Energy Infrastructure (EUC Report)
Lord Giddens Excerpts
Lord Giddens
My Lords, I join other noble Lords in congratulating my noble friend Lord Carter on his excellent chairmanship of this committee. We now have a no less excellent chairperson with us here today. I also thank Alistair Dillon, Aaron Speer and Kate Chapman for all the work that they put into the report. We pretend that we produced it but, unless it is illegitimate to say so, they wrote it and produced some of the ideas that we incorporated as our own. Perhaps we could ask to strike that out of Hansard if we are not allowed to say it; I am not sure.
As noble Lords have said, investment in energy is crucial for the EU and its member states. The reasons can be set out briefly and easily: first, there is the need to combat climate change; secondly, energy security is elemental to wider security in the EU; and, thirdly, as noble Lords have said, this is a crucial moment in European history in terms of economic recovery, and anticyclical investment to promote recovery demands that energy should form a core part of that. The interesting thing about the report is that it shows that these three are in tension with one another. This is the famous energy trilemma, which I assure noble Lords has now entered the energy hall of fame; since I read a lot about energy, I have now seen many references to it, for which certain figures sitting behind noble Lords should perhaps take the credit.
I am pro-European—not just “broadly speaking”, as my noble friend Lord Whitty is—and I believe that climate change is one of the most dangerous threats that we face in the 21st century. It is quite right that the EU has sought to combat this with its “20-20-20” targets and its offer, which has not so far been taken up, to increase one of those to a 30% emissions reduction target.
However, as other noble Lords have said, there is a really big range of problems with European policy in terms of both climate change and energy. Other noble Lords have drawn attention to at least some of the issues. I shall mention three in the area of climate change policy, which I suppose is my prime specialty. First, although I know the noble Baroness, Lady Parminter, probably will not agree, the precautionary principle, on which Europe has based a good deal of its environmental policy, is actively incoherent and has had unfortunate consequences for European policy. This was well demonstrated in a celebrated book by an American author, Cass Sunstein, called Laws of Fear, in which he thoroughly deconstructs the precautionary principle. Basically, the precautionary principle prioritises the everyday statement, “Look before you leap”. That is a good enough principle but, as with every popular saying, it has its opposite—such sayings are very handy for so-called common sense because with them you can make sense of everything after the event—which is, “He who hesitates is lost”. In my view the United States is right never to endorse the precautionary principle. It has an inherent conservatism, which follows from the fact that you are simply using one everyday saying and not the other.
This has had consequences for the EU’s attitudes to biotechnology and to shale gas, which has an amazing history. We read about it for years and now suddenly shale gas is on everybody’s lips. You cannot open a newspaper without a mention of shale gas. I hope someone will ban the word “fracking”. It is such a stupid word. All the newspapers have headings such as “Not Fracking Likely”, and so forth. They should call it “shale gas” or “shale oil”. That is much more down to earth.
I had a certain disagreement over shale gas with the committee, because it is truly transformational. Europe cannot stand aside from it because it affects energy prices so much. My noble friend Lord Carter said that it is impossible for Europe to resist its impact. It has a very direct impact on European competitiveness at the moment, for example vis-à-vis the Americans. Therefore, shale gas will have a transformative effect even if the Europeans do not drill lots of wells themselves, which they probably will. Europe will have to import gas, probably from Algeria, where it exists in large amounts. The price in Algeria will probably come down a lot, and will tend to meet the American price. I see it as being a transformative thing whether you like it or not.
I will not spend a long time on the second problem with climate change policy: the failure of the ETS. This was much discussed by other noble Lords who contributed to this debate. It is a big test for Europe. Can it get its act together on this? The temptation is just to fiddle with it, and to do backloading and so forth. That is hopeless. It has been a failure in the core terms in which it was established. It is all very well to have a floor, but it should probably have a ceiling. The danger is that the ETS will be an example of how not to do it for the rest of the world as they start their own schemes. California’s scheme seems to me to be much better thought-out, with a floor and a ceiling and more chance of being effective. Whether Europe can get its act together on this is a big thing. It is not at all easy to do.
Thirdly, as other noble Lords mentioned, there is the return of coal in Europe. As someone who is deeply concerned about climate change, to me this is very important. Coal is returning, not only in terms of heightened production but also the import of coal from the United States, extraordinary though it would have seemed a few years ago. You would never have believed it would be possible. Cheap coal is coming from the United States because of shale gas.
This is probably the most lethal thing in terms of emissions. If you believe that climate change is dangerous, you must reduce emissions. This shows that it is a mistake simply to suppose that if you have a certain proportion of renewables, you are thereby reducing emissions. It depends on what you do with the rest of your energy mix. It may therefore be a bit unfortunate that the EU took on a renewables target, because it should also have set a coal target. There is an EU policy on coal, of course, but it is not functioning.
Moving on to energy itself, there are major problems to which other noble Lords referred. The main one is simply the structural difficulty of the European Union. It wants to implement grand plans, and at this point in its history it needs grand plans. However, it does not have the capability to do so because most policy in key areas is in the hands of member states. This is particularly true of energy. There is an unbelievable diversity to the energy mix of European countries. Poland gets 70% of its energy—not 70% of its electricity but 70% of its energy—from coal. That is really archaic in contemporary terms. Sweden, on the other hand, gets 49% of its total energy from renewables. It is extraordinary. France has the highest proportion of nuclear energy in the world, while Germany is phasing out its nuclear altogether. It is a horrible mix for the EU to have to deal with, and it will hamper investment.
We need large-scale investment, as other noble Lords said: really big investment. I am not at all convinced that the markets will supply it. In the EU we will probably have to add quite a lot of direct intervention. The EIB is too small and does not have the resources to provide it. The ECB is unable to do so. Therefore, the dilemmas are huge. I do not see where investment on the scale demanded will come from. It seems to be another bit of paper. The European Commission has these massive goals, but in the mean time the whole thing is limping along.
I will pass over modernisation of the grid. My main difference with what other noble Lords said is that I do not think that it has proceeded very far at all. There has not been much progress. We still have energy islands in the middle of the European Union. The Baltic states are an energy island. They get almost all their energy from the former Soviet Union. There are several energy islands. The most important interconnections have been made where states have particular driving needs. I refer, for example, to what is happening in Germany at the moment.
I will finish with two questions for the Minister. The Government made a very detailed and good response to the report, but when the response discussed the ETS, it stated that it had worked and had served to reduce carbon emissions. I hope the noble Baroness will forgive me when I say that that is a ludicrous thing to say. The mechanism has not been there to reduce carbon emissions. It may have made an impact in its very first phase, but carbon emissions have come down for a cluster of other reasons, including the recession. A big thing facing Europe is what will happen when we get an industrial renaissance. Europe is not really prepared for the expansion of emissions that will come from that.
Secondly, in the light of what the noble Lord, Lord Maclennan, said, I would like to hear the Minister’s response on German Energiewende: energy transformation. What view do the Government have of that? One reads so many things that suggest that the Germans are stupid to try to reduce their energy system to large-scale renewables. They are not stupid. I have studied this in some detail. They have a very sophisticated policy. They have thought about all the things such as interdependence. You can get the most amazing technologies that transfer intermittent energy at the borders of countries and normalise it. Germany has a well worked-out plan. It might not work, but I would be very interested to hear the Government’s view of the German experiment.
Lord Kerr of Kinlochard
My Lords, I need to mention that I am on the boards of a mining company that digs up coal and uranium and a power company that sells gas and electricity, and I was on the board of an oil and gas company.
I wish I could say it is a pleasure to follow the noble Baroness, Lady Parminter, but I would be lying because her expertise shows up mine, which does not match my stated interests. I greatly enjoyed this report and I am grateful to the committee for producing it and to the noble Lord, Lord Carter, for his masterly introduction. I am also grateful to the Government for what seems to be a rather thorough and clear response, which helps our discussion.
I am particularly grateful to the noble Baroness, Lady Rawlings, for she is, I think, apart from me, the only non-member of this committee who is speaking in this debate. I approached it with tremendous trepidation, surrounded by all this expertise, experience and knowledge. She of course sailed straight in with style, panache and daring, so I am following in the wake of her battleship.
I want to say something in general about energy policy, then concentrate on five points in the report, and then come on to shale gas and comment on what the noble Lord, Lord Giddens, said. My general point is that if the three aims of energy policy are to cut costs, cut emissions and keep the lights on, the country seems to be doing quite well on the second, rather badly on the first—partly because we are setting the pace in Europe on the second—and risking serious trouble on the third, as far as I can see and as far as Ofgem seems to be telling us, because of lack of investment.
I have to admit that I am not convinced that the Energy Bill, on which the Grand Committee is working so hard, will change the picture much. It seems to maintain the current balance between the three objectives and is a bit of slow-burner, with capacity payments—whether or not they are a good thing—not coming in for another five years. Nor do I believe that achievable changes in EU energy policy would make a great difference either, although some of those proposed by the committee make obvious good sense; for example, it is clear that the ETS badly needs reform and that the most obvious reform is the backloading of the auction of allowances, which I really hope will be agreed second time round.
However, there is not a great deal that the EU can do given that the treaty makes it clear that each country’s national energy mix is a matter for it alone. Like the committee, I think that there could be rather greater stress on interconnection in energy grids and energy pipelines, for oil as well as for gas and electricity—the report is curiously silent about oil, which is likely to remain the principal transport fuel for Europe for some considerable time to come. If you look at countries such as Bulgaria, which, as the report points out, is still 100% dependent on Russia for its gas, and the Baltic states, where most links still run back to old Soviet suppliers, it is clear that interconnection should be a priority. It increases competition, reduces costs and volatility, and increases security, in political as well as security terms, if you look at things from Vilnius, Tallinn or Riga.
I hope that the Commission will not stop trying to encourage member states to overcome their reluctance to accept common carrier obligations. Europe’s fractured energy market would be much more efficient if pipelines and grids were subject to the same sort of rules as apply in the UK domestic market or in the EU transport market.
In general, however, I would not want the Commission to be too ambitious this year. The committee is rather more expansive, and the points that I shall now make on the report are where I think it is asking either for a little too much or for the wrong thing. Sometimes, its enthusiasm has run away with it. I give five examples: first, paragraph 54 recommends that the Commission should require member states to submit obligatory annual reports on national energy policies and should assess those reports for the compatibility of such policies with the EU’s state aid rules.
It would be very good if the EU did have a single market in energy rather than 27, as the noble Lord, Lord Whitty, pointed out, but it does not. If energy were widely traded across national frontiers, it would be reasonable—indeed, essential—to apply the competition rules assessing the fairness of national support schemes, but I am not sure that member states, including the UK, are quite ready now for the Commission to step in. For example, with regard to the announcement last month that the strike price for offshore wind in the UK might be as high as £155 per megawatt hour, would we want the Commission to tell us that that was potentially a breach of European competition rules?
The point is that it is no accident that the treaty says what it says now, which results from a long process of negotiation and is as far as the member states were prepared to go. They have not conferred on the Commission the power to run a real energy market. I therefore agree with the Government’s rather guarded response to this recommendation, and I think that the Commission is quite right to be pretty reticent about applying the rigour of state aid rules in the energy sector.
Lord Giddens
I thank the noble Lord for giving way. There is an interesting discussion to be had about having a parallel to the European semester in energy. The European semester appears to have achieved quite a large rate of acceptance, obviously because it originated in the eurozone, but it is not completely implausible to suppose that you could have some kind of analogue to that which would be to everyone’s benefit, precisely because we are, or we want to be, using interdependent energy, and it would make sense to get the same kind of information-sharing that the European economic semester provides.
Lord Kerr of Kinlochard
I entirely agree with the noble Lord. An exchange of ideas of the kind that the noble Lord, Lord Maclennan, was talking about, would be highly desirable and moderately helpful. However, the committee’s report talks about the application of the state aid rules. We are moving on from something like the European semester on economic policy to something like the entity talked about in the French-German paper at the end of May, which would have fiscal rules enforceable with sanction powers. That is not likely to happen in the short term, but I do not think that full application of the rigour of state aid rules is either necessary or desirable at the present stage of the development of EU energy policy.
Paragraph 98 deals with nuclear power. The Commission is trenchantly urged by the committee to address outstanding issues, particularly liability, waste and, again, state aid. Why? Is it plausible that the Commission could find a solution that would satisfy the nuclear French and the now anti-nuclear Germans? What are we supposed to do? I do not understand the purpose. Do we need a single common answer? Provided that safety rules and high safety standards are enforced across the whole of the Union so that safety is assured—remember that the closure of their Chernobyl-style plants was a precondition for accession countries joining the European Union—subsidiarity should apply. I do not see why there need be an EU regime for waste or a particular EU level of liability rules, let alone state aid rules. I note that the Government’s response passes over this recommendation in silence. I find that silence sensible and eloquent.
On the subject of border taxes, I know that what we are talking about are global border taxes, but that seems like the argument that a financial transaction tax would be fine if it was global, when we know that it is not going to be. Paragraph 133 talks about the idea that imports from countries with low energy costs and environmental policies that we deem inadequate should be subject to an import tax in order to reduce carbon leakage. The Commission opposed this, citing huge administrative complexity. I agree, and I would also cite higher costs for our businesses and consumers, the certainty of retaliation against our exports and the probability that the precedent would prove interesting to those on the French left, for example, who regularly call for restrictions on imports from countries where labour costs are low.