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

Lord Lennie Excerpts

Monday 20th November 2023 Grand 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.

[Lord Lennie (Lab)]

My Lords, when the UK ETS was established due to the UK’s participation in the EU ETS ending, the Opposition supported it. It is essential that the UK has a robust carbon price to help reduce emissions. So when the UK ETS was launched, we expressed a preference for a link with the EU ETS. Indeed, the EU-UK Trade and Cooperation Agreement states that both parties

“shall give serious consideration to linking”,

which would lower the cost of decarbonisation through more price efficiency discovery and easier trade. Most importantly, it would ensure that UK exports of high-carbon products to the EU are exempt from the EU’s carbon border adjustment mechanism. This remains our preference, to support UK businesses in remaining competitive and retaining trade access to critical markets. Can the Minister tell the Committee whether an update on any such consideration is still being considered? Can he also say whether the Government have made any projections on the impact that the CBAM will have on our exports? What is welcome is the seriousness with which the Government are treating this while we remain unliked.

I turn to the instrument itself, which amends the ETS in five areas; I will touch on each of them but do not oppose any of them. As these changes do not seem simply to be updates on the system, I am keen to hear from the Minister how foreseeable the situations that led to them were and what impact the delay in implementing them, from when the UK ETS was established, has had.

First, as we heard from the Minister, the instrument implements a cap on the maximum amount of free allocation that aircraft operators are eligible to receive at 100% of their verified emissions. Not only does this seem to be common sense but, for the next two years, by 2021’s figures, it will save around a fifth by putting an end to overallocations in the sector. That is welcome. Again, by 2021’s numbers, this will prevent around £100 million of potential profits from operators selling these overallocations. Do the Government have any projection for 2024-25 or are the figures on pounds and percentage of emissions expected to be roughly the same? Going back to the first question, could this not have been seen from the start, or was it by design?

Energy Bill [HL]

Lord Lennie Excerpts

Consideration of Commons amendments
Tuesday 24th October 2023 Lords Chamber

[Lord Teverson (LD)]

My Lords, I too congratulate the noble Baroness, Lady Boycott, on her persistence in this area. One of the strong messages that came out between Committee and Report in this House was the slow progress, and lack of progress, on community schemes. I very much hope that this consultation will reverse that trend. It seems slightly ironic, though typical, that the objection from the Commons is on there being a timetable, whereas we all know that for anything to happen, you need a timetable to focus.

On these Benches we are now keen to get this Bill on the statute book and that it becomes an Act. It has been delayed a number of times, mainly from the government side, as it has progressed through both Houses. There are a lot of important parts of this Bill that need to happen. I very much hope that the future systems operator will be quickly nominated and can move into action, so that a number of the strategic bottlenecks that we have in our energy sector can be swept away and solved. Again, I thank the noble Baroness for her persistence in this area, and I hope that consultation will move to action very quickly.

[Lord Lennie (Lab)]

My Lords, I thank the noble Baroness, Lady Boycott, for her persistence on this. I agree with what she is trying to achieve. The Minister came dangerously close to Rumsfeld-speak when he effectively said that we cannot know the unknowables. All that we and the amendment were suggesting was that a report needs to come forward and then we can determine how we need to act, which seems entirely sensible.

I agree with the noble Lord, Lord Teverson: it is time that the Bill got on to the statute book. The Bill has been far too long in digestion. Let us hope we can now eat it all and enjoy its flavour.

Climate Financing

Lord Lennie Excerpts

Tuesday 17th October 2023 Lords Chamber

[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.

Net Zero (Economic Affairs Committee Report)

Lord Lennie Excerpts

Monday 16th October 2023 Lords Chamber

[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.

Energy Bill [HL]

Lord Lennie Excerpts

Consideration of Commons amendments
Tuesday 12th September 2023 Lords Chamber

[Lord Lucas (Con)]

My Lords, I very much support the amendment from the noble Baroness, Lady Boycott, as I did in Committee. The reduction that she has achieved in her ambitions sits very well with what the Government have said are their ambitions. I would like to see my noble friend supporting this and saying that it is an opportunity. Giving us a tight, but not too tight, timescale to make this happen is a good way to demonstrate that.

[Lord Lennie (Lab)]

My Lords, I will make a few comments. First, I thank the noble Baroness, Lady Boycott, the noble Lord, Lord Teverson, and my noble friend Lady Blake for their amendments and will make our position on them clear. Secondly, I thank the noble Lord, Lord Callanan, for the welcome changes that he made to the Bill in the other place on the housing levy and on renewable liquid fuels.

We generally welcome the passage of the Bill. It has been a long time in gestation—15 months or more—with hundreds of changes and more today. We welcome all those too, although they probably could have been made earlier.

I turn to the three amendments. First, on coal, the new new Labour Party is no longer in favour of coal. We absolutely support what the noble Lord, Lord Teverson, said about the coal industry, and it is time to put this in legislation. It is not enough to say that we are no longer committed to coal; we need to legislate for it and so we will be supporting this amendment.

On my noble friend Lady Blake’s amendment on energy efficiency, I will restate the facts. First, the UK has the least energy-efficient homes in Europe. Domestic energy-efficiency measures have fallen 95% since 2012 and are 20 times lower than they were when Labour was last in power. The Resolution Foundation estimates that 9 million households are paying an extra £170 a year as a result of these failings.

The Minister said that the amendment is unnecessary, because it is partly in the net zero strategy and the Powering Up Britain publication, but this is legislation, and it should state what the Government propose to achieve and by what timescale. Therefore, we support the amendment.

On community energy, the noble Baroness, Lady Boycott, set out very clearly her proposal to commit the Government to finding out what the barriers inhibiting the development of community energy are, and to bring forward a plan to overcome them. That is a very modest amendment from where we were the last time around, and I can see no reason whatever for the Government not to support it. We will support those three amendments should the Members wish to test the opinion of the House.

[Lord Callanan (Con)]

My Lords, I thank all noble Lords who have contributed to the debate. I will start on the last issue raised by the noble Baronesses, Lady Boycott and Lady Meacher, and others: that of community energy.

The Government launched the £10 million fund this summer, and it is larger than its predecessors. From what I have seen so far, it has been welcomed across the community energy sector. It will fund projects such as Congleton Hydro, which received £73,500 in funding from the former rural community energy fund—this fund will do a similar job. Thanks to that funding, it is producing affordable, clean and secure electricity from a local weir, enough to power the equivalent of 60 homes. Not only is the project reducing emissions in the area but its success has led to the creation of an annual £5,000 fund for local community projects.

Amendments 274A and 274B aim to commit us to a consultation on the barriers preventing the development of community energy schemes. The amendments set out with whom we should consult, and commit government to bringing forward proposals to remove identified barriers to community energy. But as I referred to earlier, the Government have already committed to consult on the barriers that the sector faces when developing projects. As part of this process, we will of course involve the community energy sector in designing the consultation, through the Community Energy Contact Group. We continue to believe that it is more appropriate to allow the small-scale export market to develop with minimum intervention than to introduce a support scheme that specifies minimum prices or contract lengths for generators.

I know that the House is keen on supporting community energy, and we are the same, but it has to be done in a cost-effective manner, because the cost is borne by every other bill payer. It might be advantageous to certain islands or rural community villages, but if there is a cost in excess of the system, it is borne by every other bill payer in the country. The amendments would place an additional obligation on government to bring forward proposals to remove these barriers within a specified timeframe.

In Committee in the other place, Energy UK submitted evidence recognising the role of community energy but cautioning:

“The additional context of developing roles for future energy system operation, reform of competition in delivery of network infrastructure, and wider reforms of electricity markets including energy retail”


mean that the consideration of community energy needs to take into account this much wider context, rather than considering community energy “in isolation”, and that we need

“to give the Government, the regulator, and the industry time to fully consider”

all those issues. We must be careful not to disadvantage the majority of the population to benefit a very small minority.

We obviously cannot be sure what the consultation will conclude until we have carried it out, so in our view it is not appropriate to make a commitment to do something the outcome of which, and what barriers or proposals will come forward, we do not know at this stage. But I reassure the House that the Government will continue to work closely with the sector and the wider industry on the best way forward.

I now move on to the somewhat contentious issue of coal. Amendment 272A, on prohibiting coal extraction, was raised by a number of noble Lords, including the noble Lords, Lord Teverson and Lord Lennie, and of course the noble Baroness, Lady Bennett. I was particularly interested to hear the comments of the noble Lord, Lord Lennie, because of course we both come from the north-east of England, and there are still sitting Labour MPs in the north-east, whom the noble Lord, Lord Lennie, knows well, campaigning in favour of opening new coal mines. It is interesting that the Labour position seems to be developing from that.

A full prohibition on coal extraction is likely to prevent extensions in existing operational mining—even where that extension could enable site restoration or deliver public safety benefits. It would cut across heritage mining rights in, for instance, the Forest of Dean, which is important to its tourism offer, and perhaps also in Beamish, another area that we know well. Importantly, it would prevent domestic coal extraction projects from progressing that seek to supply industries that are still reliant on coal, such as steel manufacturing. Again, the Labour Party loses no opportunity to lecture us on the importance of the steel industry. That industry is going through a transformation, but many parts of it still require access to coal, so I hope the Labour Party has cleared its position with the steel unions, which I suspect would not support an amendment such as this—I will leave that little domestic argument to different Labour members.

The phasing out of future coal-powered generation, which we do agree with, is a more proportionate response to moving away from coal use than a complete prohibition on coal extraction. Such a ban would deny the prospect of access to domestic coal reserves for future generations, regardless of the circumstances, regardless of the use it could be put to and regardless of the fact that it could perhaps play a role with CCUS in the future.

The Secretary of State for DLUHC’s decision on the mine followed a comprehensive planning inquiry that heard from over 40 different witnesses and considered matters including the demand for coking coal and its suitability. It went into all the issues that the noble Lord, Lord Teverson, recommended, the climate change impact and, crucially, the impact on that particular local economy. While the full reasons for the Secretary of State’s decision are set out in his published letter—which should perhaps be read in its entirety—he concluded that

“there is currently a UK and European market for the coal … it is highly likely that a global demand would remain”.

While coking coal may be required for steel production for quite some time—I assume the Labour Party is not proposing that we should close the steel industry down overnight; if so, that would be a fairly radical policy change from all that it has said before—to support the decarbonisation of that industry through its transition period, as well as other industries that still rely on coking coal, we have already put in place the £315 million industrial energy transformation fund. We think that is a better way to help industry move away from coal in the future, rather than just banning their fuel source, because you would be banning British coal—you would not be banning coal; you would just import those same supplies produced by miners in other parts of the world. This helps business, in our view, with their high energy use, to cut their energy bills and reduce their carbon emissions through investing in energy efficiency and low-carbon technologies—that is a more constructive way to proceed.

On sustainable aviation fuel, again the noble Baroness, Lady Bennett, got excited and condemned us for something that we are not doing. Sustainable aviation fuel is the most developed technology pathway for aviation decarbonisation and will play a key role along with the other technologies as outlined in the jet zero strategy. Many experts view sustainable aviation fuel as the only alternative to kerosene for long-haul flights up until 2050. If the noble Baroness does not want that, she should have the courage of her convictions and say to people that what the Greens really want to do is to ban flying completely, to prevent people going on business or on their holidays. If that is her agenda, she should say so, rather than try to put amendments forward to prevent us developing those sustainable fuels that we could use in the future to decarbonise the sector.

We recognise that there is uncertainty around feedstock availability and we will continue to work closely with colleagues across government to ensure that the most up-to-date evidence and modelling are reflected throughout the policy design of the SAF mandate and the revenue certainty mechanism. We have already confirmed that the sustainable aviation fuel mandate will not support crop-based biofuels and that SAF must meet strict sustainability criteria. These measures will prevent negative environmental consequences, such as the loss of biodiversity, deforestation and the clearance of land with high-carbon stock that could be associated with the cultivation of raw materials that may be used in certain SAF production.

On energy efficiency and energy statements, of course I understand noble Lords’ desire to go further. I am passionately committed to the cause of energy efficiency, but I do not recognise some of the characterisation put forward in this House. We are making good progress in this country. In 2010, some 14% of UK homes were at EPC band C or above. Now it almost 50%. We have a particularly difficult problem because we have the oldest housing stock in Europe, but we are making progress on this matter. We could go further and faster, and we are endeavouring to do so, but we do have a good record in this country. I want to put that on the record before I talk about the specific issues.

--- Later in debate ---

[Lord Kerr of Kinlochard (CB)]

The Minister waxed lyrical about the scheme to provide subsidies for energy-intensive industries. We were deeply moved by his enthusiasm. He was silent on the clause that follows. He was talking about Clause 177, but Clause 178 sets out how the subsidies are to be paid for—by levies on all electricity users. I do not want this moment to pass without making the old-fashioned comment that I think it is best that subsidies are paid for out of taxation, rather than by levies.

Subsidies are a political decision by the Government; they are absolutely entitled to make those political decisions. But all electricity users are, at the moment, suffering from the political decision to instruct Ofgem to prioritise competition, which has led to the collapse of more than 30 supply companies. The costs of these collapses are being borne by us all in the levies on our electricity bills. You can debate whether it is honest or dishonest for political decisions to be paid for in a concealed fashion of this kind, but what is certain is that it is regressive. I am therefore slightly less enthusiastic about the combination of Amendments 177 and 178 than the Minister was about Amendment 177.

[Lord Lennie (Lab)]

All I would like to say is that, in response to the comments by the noble Baroness, Lady Bennett, we are interested in keeping the lights on and we are interested in nuclear being part of the mix of fuels that will keep the electricity going, particularly now that coal will no longer be part of the electricity production in this country.

[Lord Callanan (Con)]

I thank all noble Lords for their contributions. I will first deal directly with the points by the noble Lord, Lord Kerr. What should I say about this? He is, of course, prescient in his observations, but this has been a long-standing policy—effectively of the Treasury, which is unwilling to fund many of these policies from general taxation. Therefore, a lot of previous subsidies, such as the warm home discount, are levied on energy bills. That has been a long-standing policy through a number of Governments and different Treasuries. I wish the noble Lord luck in his campaign to change the mind of His Majesty’s Treasury on these matters.

Moving on to the other issues, let me deal first with the points made by the noble Baroness, Lady Bennett. The problem for the Greens on this is that any sensible energy system in the UK—this is recognised also by the Opposition and we are grateful for their support—needs nuclear power, because it is a source of carbon-free electricity. Of course, many Greens, the more progressive Greens who have looked at our energy system properly, also support the use of nuclear power. I would point the noble Baroness to a very interesting website that I was looking at, called Greens for Nuclear Energy. This is a statement from a series of members of the Green Party who take a sensible and progressive view about this. Looking at the needs of the energy supply system and the need for decarbonisation, they have come to the same conclusion as many other sensible experts: that there is a need for nuclear power in this country.

The website says:

“Greens For Nuclear Energy seek to influence the Green movement’s key organisations and institutions”


in favour of nuclear energy because

“We need every available low carbon power source to combat catastrophic climate change”.


They therefore believe that

“the increasingly urgent need to deal decisively with our emerging climate crisis makes continued opposition to nuclear energy irrational for environmentalists and reduces our chances of averting a climate catastrophe.”

Perhaps the noble Baroness would want to go away and look at some of the more sensible members of her own party.

The invasion of Ukraine and the subsequent rise in global energy prices have demonstrated the paramount importance of accelerating our homegrown power and strengthening our national energy security. This is in addition to the significant contribution, as I have just said, that nuclear would make to achieving our net-zero objectives because it is very low carbon. Nuclear technology generates zero direct carbon or other greenhouse gas emissions and has one of the lowest life cycle emission rates among generating technologies. The Committee on Climate Change, the International Energy Agency and the UN Economic Commission for Europe—alongside some sensible Green members—have all highlighted the role that new nuclear electricity generating capacity, in partnership with renewables, can play as part of our diverse energy mix while helping us to achieve net zero.

Great British Nuclear will de-risk new nuclear developments by, among other things, co-funding selected technologies through their development. This will provide greater certainty for investors to develop projects over the long term required to deliver new nuclear generation capacity on to the electricity grid. We intend to fund Great British Nuclear’s initial operating costs via grant in aid. It will be subject to standard NDPB reporting and accountability requirements, which will be set out in Great British Nuclear’s framework document.

The terms of investment in development projects will be bespoke and negotiated on an individual basis. The key goal will be to deliver on the Government’s commitment to increase nuclear energy capacity in Britain, while of course ensuring, as always, value for money for the taxpayer and the bill payer. We are legislating to ensure that Great British Nuclear has the long-term operational mandate needed to carry out the role that government intend for it. The amendments set out the framework within which Great British Nuclear shall operate in facilitating the deployment of nuclear reactors in Britain.

I spoke earlier about the comments of the noble Lord, Lord Kerr. The EII support levy, like the other measures in the British Industry Supercharger, would simply constitute a rebalancing of existing electricity costs away from EIIs and on to other energy users, who have traditionally received more protection from higher energy prices than some in industry.

At the end of these debates, I am grateful to all noble Lords who have contributed. In particular, I thank my colleague in the other place, Andrew Bowie, for guiding the Bill through the House of Commons. I also thank the department’s Bill team and all the other policy and legal officials across various government departments who have been involved in this huge and landmark piece of legislation. They who have worked tirelessly to deliver it. I particularly thank the House authorities, parliamentary staff, clerks and doorkeepers, and all noble Lords who have contributed to the evolution of this landmark Bill.

Offshore Wind

Lord Lennie Excerpts

Monday 11th September 2023 Lords Chamber

[Lord Callanan (Con)]

The noble Baroness asks a very good question. Eleven tidal stream projects were consented in this allocation round, totalling about 41 megawatts. The price for that is currently higher but we need to develop this technology. I hope, as has been the case with offshore wind, that if we continue to let more CfDs the price will continue to come down over time. That was one area of the round that was successful.

[Lord Lennie (Lab)]

My Lords, given the Government’s monumental failure—and they were warned about it, as has been said around this House—to attract any interest whatever from the energy sector in their recent CfD bidding process for offshore wind projects, can we assume there will not be any similar complacency when it comes to developing onshore wind projects, which, in light of the current failure, must now be the Government’s priority towards achieving net zero?

[Lord Callanan (Con)]

Again, there is no complacency. I understand that there are many projects wanting the go-ahead, but we must be careful in making sure that the consumer gets a fair deal. Lots were consented to last year; I am sure that lots will be consented to in the future. The noble Lord talks about onshore wind. I am pleased to tell him that 24 onshore wind projects were consented to and were successful in this round, totalling 888 megawatts.

Decarbonisation

Lord Lennie Excerpts

Thursday 13th July 2023 Lords Chamber

[Lord Callanan (Con)]

The noble Baroness is asking me to comment on tax policies and hypothecation of taxes, which are matters in the purview of the Chancellor of the Exchequer. I shall make sure her views are communicated to him.

[Lord Lennie (Lab)]

My Lords, the Government’s IDDI consultation, which the noble Baroness, Lady Blackstone, referred to, sets out four levels that are being considered. The Government make a firm statement about their policies achieving levels 1 and 2. With level 3, the Government say that they are minded to achieve it. As for level 4, which is about achieving the UK’s decarbonisation objectives, the Government say that they may commit to it. When can we expect decisive leadership so that we commit to achieving all four of these IDDI objectives?

[Lord Callanan (Con)]

My Lords, I am slightly disappointed by the tone of the question. We are already showing decisive leadership: we are one of the only countries in the world to already have green procurement strategies for major public procurement. This is a complicated area, as has been illustrated by the questions from the noble Lord’s own Benches. We need to make sure that we get it right and do not disadvantage British industries or drive up the cost for consumers.

Cement Industry: Carbon Dioxide

Lord Lennie Excerpts

Wednesday 12th July 2023 Lords Chamber

[Lord Callanan (Con)]

That is one of technologies we are looking at. We also gave £3.2 million to the Mineral Products Association to develop a low-carbon fuel mix for cement. It held a trial at Hanson’s Ribblesdale plant and Tarmac’s Tunstead plant using a mix of 100% net-zero fuels, including hydrogen.

[Lord Lennie (Lab)]

My Lords, I too agree with the Minister that the concrete industry accounts for approximately 1.5% of emissions in this country. Globally, the figure rises to 8%, as the noble Lord, Lord Lucas, said. Last year, a report from the Low Carbon Concrete Group suggested that the UK concrete industry could become a carbon sink by the 2040s. Welcome though this prediction is, we must recognise that this is a global problem. What steps are the Government taking to encourage other countries to set out and achieve similarly ambitious goals?

[Lord Callanan (Con)]

Both the Liberal Democrats and Labour agreeing with me is destroying my credibility on this side of the House. I agree with the noble Lord; we are seeking to work with other countries as well. One of the issues in the sector, as we look to reform the ETS, is carbon leakage. We must make sure we do all we can to avoid it.

Geothermal Heat and Power

Lord Lennie Excerpts

Thursday 6th July 2023 Grand Committee

[Lord Lennie (Lab)]

My Lords, I, too, am grateful to the noble Lord, Lord Cameron, for setting up this debate. Geothermal energy offers opportunities as a sustainable and reliable energy solution. We all know that, with possibly one or two exceptions, a decarbonised power system is the key to us achieving net zero. This means that our Government, whoever they are, must give focus to different low-carbon solutions. The current Government are simply not doing enough of this.

One of the potential solutions is geothermal energy. It is regarded as environmentally friendly because of its lower greenhouse gas emissions compared with carbon-based sources, minimal air pollution, efficient energy conversion, lower water use than other conventional technologies and reduced land requirements. It is also considered a renewable source of energy that harnesses the earth’s natural heat to generate power. This heat is continually renewed through geological processes, such as radioactive decay, and residual heat from the planet’s formation.

It is argued that geothermal energy projects not only contribute to emissions reductions but provide job opportunities across the supply chain. As has been said, in Germany the geothermal industry has generated €14.9 billion for the economy and created 24,000 jobs this century. In the Netherlands, which was also cited by the noble Lord, Lord Cameron, there are claims that for each direct geothermal job a further two or three indirect jobs are also created. According to the International Energy Agency’s 2021 geothermal Annual Report, this country has an estimated 43,700 GSHP systems installed which generate approximately 1,330 gigawatt hours of energy per year, which is less than 0.3% of the annual UK heat demand. By comparison, Germany had more than 440,000 systems installed in 2020, while France had around 210,000 systems.

What is geothermal energy? We have heard that shallow geothermal systems typically involve the use of ground source heat pumps to modify the temperature obtained from the resource, but just last week it was reported that the Government’s boiler upgrade scheme managed to award only half the number of grants to help households it targeted switch from boilers to heat pumps. The £70 million left over from this policy due to grants not being issued cannot be used in future years and will be returned to the Treasury.

In order to meet the UK’s climate change targets, the Government want to install 600,000 low-carbon heat pumps annually, but the current rate is about one-ninth of that. In December 2022, the House of Lords Environment and Climate Change Committee launched an inquiry into the boiler upgrade scheme and found that the scheme was seriously failing to deliver on its objectives, with a disappointingly low take-up of grants. The committee called on the Government to take a number of steps: to provide clear guidance and information to industry and consumers regarding viable options for low-carbon home heating; to roll over the remaining budget from the first year of the scheme into the second year; and to establish a review to consider an extension to the scheme. Have the Government responded to these asks from the committee?

Deep geological systems are, as the name implies, at greater depth where the heat is more intense but cost significantly more to produce. By way of an example—we have also heard Redruth being cited—there is an active project in Auckland in the north-east of England. It will involve geothermal energy being sourced four miles underground. The water temperature is 73 degrees centigrade at Auckland Castle, and there is the aim of ensuring that Bishop Auckland becomes the first fully decarbonised town. That is exactly the sort of project the Government should be investing in if levelling up is to have a real practical meaning, particularly in former mining communities such as those in the north-east.

The House of Commons Environmental Audit Committee has judged that the Government have been slow to exploit the potential of geothermal energy and have not integrated it fully into the net-zero strategy. It went on to argue that the Government appear to be holding back a sector which could have a transformative effect upon the UK’s capacity to meet climate goals and grow the economy. With the Government missing their target towards achieving their aims, without a change of direction, geothermal energy will remain a peripheral influence.

Electricity Capacity (Amendment) Regulations 2023

Lord Lennie Excerpts

Wednesday 5th July 2023 Grand Committee

[Baroness Walmsley (LD)]

My Lords, I inform the Committee that I have a close family member who works for Ofgem. He is responsible for energy security and has been making plans for next winter, but I have not discussed this SI with him.

The capacity market, brought in by a Liberal Democrat Secretary of State, has been a great success. This statutory instrument aims to continue that success by improving the processes and reducing the administrative burden. We are all in favour of that, especially the flexibility that makes it easier to transfer from capacity market schemes to contracts for difference, where appropriate. However, I have a few questions for the Minister about the scheme in general.

First, how well are the Government succeeding in minimising the use of fossil fuels in the capacity market? What percentage is expected to be clean energy, and within what timescale? I was glad to hear the Minister say in his introduction that there will be an emissions limit on those applying.

Secondly, what is the Government’s aim for enabling demand reduction, and what percentage of bids do they want to see for the demand-side reductions? This is just as important as generation if we are to decarbonise and reduce the potentially enormous grid capacity increase needed to reach net zero. How many of the successful companies in offshore wind round 4 auctions have reached financial close for their projects—that is, they have agreed their financing requirements to deliver the scheme with financial institutions? As I understand it, only one successful bidder has yet managed to reach financial close on their project, so the whole programme of offshore wind coming on stream is coming to a halt.

Moray West offshore wind farm, owned by Ocean Winds and minority shareholder Ignitis Group, has secured £2 billion of non-recourse project finance. Initially, bids were famously low, but with inflation now across the supply chain, perhaps the numbers do not add up for most of the schemes. How are the Government going to solve this? Given the financial situation, can the Minister say whether it is still wise to have most capacity market schemes for only 12-month projects?

I look forward to the Minister’s reply—particularly to the questions about coal.

[Lord Lennie (Lab)]

My Lords, I thank the Minister for setting out the instrument and giving us advance warning that more is to come shortly. The capacity market is at the heart of maintaining a secure and reliable electricity system. It provides all forms of electricity capacity on a system during periods of electricity shortage and stress, such as when it is extremely cold or when the wind is low while demand is high. As the Minister said, the capacity market works by allowing eligible bidders to compete in T-1 or T-4 auctions on a one-year or four-year basis ahead of when they must deliver capacity. A successful bidder is awarded a capacity agreement which requires delivery during times of stress.

As the Minister said, this instrument makes changes to three areas of regulation. First, Regulation 10 of the 2014 regulations obliges the Secretary of State to set out whether capacity auctions are to be held. The change will require the Secretary of State to publish a decision only if the Government determine that an auction will not be held, helping to improve administrative efficiency. Does this effectively enrol a current capacity provider into the scheme automatically?

Secondly, Regulation 34 of the 2014 regulations allows capacity providers to seek termination of their capacity agreement with a view to becoming eligible to participate in the contracts for difference scheme. I think the Minister said that they are mutually exclusive as things stand. Currently, the LCCC, as the counterparty, has to give notice of such an intention. However, it cannot know in advance if the CMU will be successful in its bid for a contract for difference.

This instrument means that notice comes from a capacity provider seeking termination of their capacity agreement in order to become eligible to apply in a contract for difference allocation round. How many capacity providers have thus far been unable to use the process set out in Regulation 34? The Minister may say all of them, but how many would have wanted to use the termination process? Have the Government made any assessment of the impact of this, and will this change be kept under review?

Thirdly, I turn to Regulation 41 of the 2014 regulations. Capacity providers can be financially penalised, as the Minister said, if they fail to provide capacity in times of stress. Currently, the settlement body has 21 days to calculate the relevant penalty and to invoice capacity providers which must pay such penalties. This instrument increases the timeframe to 35 days. Does that mean that penalties that should have been paid were previously missed because they were not calculated in time? If so, could the Minister indicate the value of those? By contrast, is this change expected to increase the number and value of penalties that are enforced? I look forward to the Minister’s response.

[Lord Callanan (Con)]

First, I thank the noble Lords, Lord Naseby and Lord Lennie, and the noble Baroness, Lady Walmsley, for their valuable contributions on an important subject for the nation’s electricity supplies.

As I mentioned in my introduction, the capacity market is our main mechanism for ensuring the security of electricity supply. To address the point made by the noble Lord, Lord Naseby, I say that it has already secured the majority of Great Britain’s capacity needs right out to 2026-27, because the Government take no chances with the security of supply. We continue to believe that the capacity market is an effective insurance mechanism, providing secure and affordable electricity that families and businesses can rely on.

The capacity market is, indeed, tried and tested. The fact that it has supported investment in just under 17.5 gigawatts of new-build, flexible capacity since its introduction demonstrates that it can bring forward the capacity needed to meet future peak demand and replace older capacity as it retires and as we transition to a net-zero economy.

Furthermore, we continue to take steps to ensure its ongoing, efficient and effective operation. The Government are committed to ensuring that the right policy tools are in place for delivering a secure and affordable electricity system as we transition to net zero. That includes regularly assessing the performance of the capacity market and, as we are debating today, exploring improvements to the scheme.

As we noted in our 2023 government response to the capacity market consultation, we have set out a two-phased approach for reforms in the capacity market. This instrument seeks to implement purely technical amendments under the first phase to improve the administrative arrangements. In the next phase of reforms to the capacity market, the Government intend to undertake further analysis and development on the remaining proposals prior to taking a final decision on implementation. This includes proposals to align the capacity market with net zero, such as reducing the emission intensity limits for new-build plants and enabling low-carbon capacity with low capital expenditure to access multi-year agreements.

We will also look ahead to the future as part of the review of electricity market arrangements programme. REMA is exploring options to create an electricity market design that will enable us to transition efficiently from fossil fuels to renewables and other forms of low-carbon generation, which I hope will make us more resilient to overseas energy shocks and ensure energy security.