Brexit: Energy Security (European Union Committee Report)

Lord Grantchester Excerpts

Wednesday 6th June 2018 Lords Chamber

[Lord Grantchester (Lab)]

My Lords, I thank the noble Lord, Lord Teverson, for his excellent introduction of the committee’s report, which is the subject of the debate today, and I thank noble Lords who have spoken. I congratulate the noble Lord, Lord Teverson, on his chairmanship and on the work of his committee. As evidenced here, he is very adept at identifying and choosing important issues for investigation, often at an early stage of debate. This report was prescient in raising many of the issues that have arisen concerning Euratom and the Nuclear Safeguards Bill. His opening speech was mirrored by the interesting closing remarks of his colleague the noble Baroness, Lady Featherstone.

The report brings forward 43 well-thought-through recommendations and by and large the Government have given comprehensive answers in their response, with detailed replies outlining the latest up-to-date position on the Government’s Brexit energy programme at the end of March, following the conclusion of the EU-UK discussions on the implementation period. However, it can be argued that the Government continue to reveal complacency about the seriousness of the issues in this report. What comes across on nearly every page is the industry’s anxiety should the UK be required to leave the internal energy market, with the implications and possible consequences following that, not the least of which may be increased costs to consumers.

The public debate that has raged between the Brexiteers and the Government over the single market, regulatory alignment and hard borders could be replicated across the energy market. To the Government’s credit, they are getting on with dialogue over the energy sector, which may reflect that there is much less contention that the UK’s national interest lies in continued participation in the EU’s internal energy market, as the Government state at paragraph 33 of their response. When the UK’s energy security, a fundamental aspect of everyday life, is at stake, it is in everyone’s interest to ensure the least disruption and that the lights stay on at the least cost and at maximum efficiency. The wider the participation and the exchange of energy across the continent, the more effective and secure energy supplies will be.

However, the Government still have a long way to go to achieve a successful Brexit. The report brings up interconnectors and the future expansion of their use as a case in point. They formed a crucial part of the remarks of my noble friend Lord Rooker on Ireland and of the challenges from the noble Baroness, Lady Sheehan. The report quotes National Grid’s estimate that the levels of electricity interconnection planned by 2020 could meet 35% of the UK’s peak electricity demand, making interconnectors an indispensable asset base for providing energy security. While it is understood that the UK will become a third party in EU internal arrangements, the report stresses, and the Government endorse, that there should be no new trade barriers; that the UK will look to remain in certain EU agencies, as the Prime Minister expressed in her Mansion House speech on 2 March; and that it remains a key ambition for the UK to form a new deep and special relationship with the EU, as the Government’s response at paragraphs 54 and 57 reveals, including the fulfilment of a single energy market on the island of Ireland, as set out in paragraphs 84 and 87 of the report.

Given that emphasis and that there are no interconnectors, planned or not, other than to the EU or member states in the EEA, how strong a weighting are the Government putting on continuing membership of the internal energy market as a negotiating priority with Europe? Have the Government undertaken any activity or proposals as an alternative for the UK to continuing participation in the IEM, and what does that look like? Some time ago, National Grid quantified the risk of exclusion from the IEM at £500 million per annum by the early 2020s.

Less efficient trading is likely to increase UK consumers’ bills, and my noble friend Lord Davies expanded on that considerably throughout his remarks. In their response to the report, the Government outline measures that they are already taking to reduce costs to consumers. Paragraph 21 mentions the Domestic Gas and Electricity (Tariff Cap) Bill, which is due to have its Committee stage next week, as evidence. However, the Government have not addressed concerns around potentially higher energy prices resulting from any changed relationship with the EU. Have they given this any thought in the legislation that is still progressing through your Lordships’ House? How are they going to ensure that Brexit does not result in undue increases in consumer energy bills? This could well be the subject of an amendment next week.

The importance of the nuclear industry to energy security was underlined tonight by the noble Lord, Lord Teverson, my noble friends Lord Hunt and Lord Hanworth, and others, especially in relation to the arguments expressed—or not—at the time around the Brexit vote. As was to be expected from the timing of this report, the committee examines the UK’s position in respect of Euratom and makes 11 recommendations. To a large extent, the discussions undertaken during the passage of the Nuclear Safeguards Bill have taken this up. From the outcome of that Bill earlier today and the Government’s response to the report, the position has been addressed—notwithstanding that there is still a lot of activity to be successfully pursued to secure a robust and effective conclusion. The House will appreciate that the Minister will be making Statements as the situation develops and that the UK will continue in its relationship with Euratom as we develop UK safeguards.

While the report has been comprehensive in addressing the current position of the UK’s energy security, by its own admission it largely excludes an examination of the EU’s emissions trading scheme as this was the subject of another report, Brexit: Environment and Climate Change. The noble Lord, Lord Krebs, spoke eloquently on climate policy and decarbonisation. As well as the serious questions that he posed, there are some pertinent questions to ask the Minister on the EU ETS. Could he outline what contingency plan is in place to manage the UK’s exit from the EU ETS in the case of no deal, and how the interests of UK companies with obligations under the ETS will be protected? Has the Minister’s department undertaken any plans for a stand-alone UK ETS that could be linked to the EU ETS to provide continuity in carbon trading arrangements and certainty for companies?

Lastly, I shall mention two aspects of energy security that the report does not examine: demand-side response and energy efficiency. Both are critically important. It should be pointed out that the market development of goods continues to improve through innovation. When most household equipment gets replaced, be it a washing machine or a boiler, it is usually with a new, more modern and more efficient piece of equipment. There is a passing reference at paragraph 74 of the Government’s response to demand-side response, DSR, regarding battery storage as evidence of achievements secured through the capacity market—but it is not expanded on.

There is much mention of energy efficiency in the IEM and other developments, but no analysis of energy efficiency measures as part of national infrastructure. Your Lordships’ House only recently concluded its assessment of what is now the Smart Meters Act, which has huge potential to rationalise household energy use. Both subjects could fill an entirely new debate. Perhaps I could pose questions to the Minister regarding the Government’s commitment for the UK to mirror EU standards, which could at least ensure that the UK will maintain similar levels of response to innovation to those that would occur through EU regulation. However, the challenge remains that the UK is yet to develop a comprehensive policy over demand-side energy reduction and energy efficiency measures. In his reply to the debate, will the Minister respond to the challenge and outline the Government’s ambitions in these two regards? In conclusion, this is an excellent report that has triggered excellent responses from noble Lords all around the House.