Energy: Climate Change

Lord O'Neill of Clackmannan Excerpts

Tuesday 2nd November 2010 Lords Chamber

[Lord O'Neill of Clackmannan]

My Lords, we seem to have reached the point in this debate where everything that could be said has been said but not everyone who could say it has already said it, so I am going to offer a few more points.

There are always three guiding rules in energy policy: first, security of supply; secondly, affordability; and, thirdly, environmental sustainability. It is significant that the last of these three has assumed the almost overarching significance that it currently enjoys. However, it would be wrong to suggest that this is something of a novelty. In the past, we have had clean air Acts and the fiscal triumph of taking lead out of petrol, which was achieved by the Labour Government in the late 1970s, when Denis Healey—the noble Lord, Lord Healey—imposed taxes to make it inconvenient and expensive to have lead—

[Lord Lawson of Blaby]

Oh!

[Lord O'Neill of Clackmannan]

I think that it was started by Denis Healey, as well as by the noble Lord. That of course gives some credibility, at least in part, to the environmental credentials of the noble Lord, Lord Lawson, although some of the points that he made earlier today might draw that comment into question. However, we will move on from there.

Certainly, British Gas’s great programme of changing from town gas to North Sea gas and linking up all the households was in some ways far more ambitious than the metering programmes that we have been talking about this afternoon. Opportunities have consistently been taken by Governments, state enterprises and others to take account of opportunities, some of them environmental. However, now we do not have the luxury of taking advantage of opportunities, and I think that we are required to be socially and environmentally responsible in taking account of changes in our climatic conditions.

It is certainly true that in the past we have been rather complacent in the UK. Nye Bevan once said that Britain was self-sufficient because it was an island built on coal and surrounded by fish. The common fisheries policy put an end to one, and the other was the demise of the coal-mining industry—for reasons that we do not need to go into tonight, but some of us still carry the scars from personal and constituency experiences. The coal industry in the UK is not currently in a position to re-emerge. It may at some stage if new technologies are properly developed to take advantage of the stocks that remain, but we are dependent on coal imports and at the moment the prices are relatively reasonable. However, by 2015 we will have to confront the large plant directive requirements and put to one side a number of the coal-fired stations. Alternatively, if we keep them going, we will do so at considerable expense because of the charges that will be imposed.

Certainly, our oil and gas supplies from the North Sea, which are often forgotten, will continue to make a sizeable contribution. They will not so much add to self-sufficiency but they will put us in a relatively better position than a number of the countries, particularly on the continent, that we hold up, sometimes unrealistically, as the whited sepulchres of renewables and the like. They had to go for renewables in the way that the French had to go for nuclear in the 1970s when they realised that they were going to be dependent on neighbours on whom they could not always depend for oil and gas. At the end of the Cold War, Germany had the industrial imperative to find something to fill that gap in its economy, which had been filled hitherto by the need to defend the country and to service the troops.

Therefore, while to an extent the UK can be accused of a degree of complacency, I think it is fair to say that, at least in part, our exploitation of our North Sea oil resources, perhaps rather foolishly in the late 1980s and early 1990s when we had the dash for gas, was understandable. However, we have to take account of the fact that we will not have as much oil and gas as we had before and that it will be difficult for us to secure those commodities in the world market in the way that we have been able to do in the recent past. The jury must still be out on the optimism of some people in relation to the significance of the Shell reserves and whether they will be exploited, and with regard to the attitudes of some of the countries that have them.

Certainly it is fair to say that we need to address the issue of gas storage in the UK. In his commendably short speech the Minister referred to the fact that permissions have been granted for new exploration, usually in areas of the North Sea that are a bit less hospitable. We have gone for the low-hanging fruit. It will be more expensive and more difficult, and it may not necessarily give us what we want. Equally, we have to recognise that while we do not need the 90-day supply that the Federal Republic might require in terms of gas storage, we need more than we have at present. We are getting to the stage where the Government have to make a choice. Will they stick with a market-driven solution or will they try to set a target for the amount of storage facilities that we require? Frankly, the market cannot be left to work this out on its own and I do not think that Ofgem has done us a great deal of good in that area. It has not been sufficiently robust or rigorous in its thinking. The Minister could come back to us on that in his reply.

I speak as the chair of the Nuclear Industry Association and I welcome the Government’s commitment to the programme of replacement build. I realise that there are some problems and we will have to agree to disagree at this stage on the uncertainties of the planning regime. There are some questions about the national policy statement but that will be for another day when we can have a detailed debate. I am a little disappointed that at present at least two of the 10 stations have been put into the long grass. I realise that there were problems. It was a greenfield site and there were planning considerations, but there could have been a bit more boldness on the Government’s part in relation to these two stations, which were relatively short distances from one of the hubs of the north-west nuclear industry at Sellafield.

At the weekend at the Scottish Labour Party conference, Iain Gray MSP, leader of the Scottish Labour Party, who may well be the First Minister after the next election in May, made it perfectly clear that he wanted Scotland to continue to generate nuclear power in the foreseeable future. Will the Minister talk to his coalition colleagues in the Scottish Office and tell them that there are sites at Hunterston and Torness which should be considered? I am not arguing for both of them as we could probably have too much nuclear power in Scotland, but if both of them close we will not have enough. Certainly, the optimistic noises that come out of the Scottish Government relating to renewables are fanciful, to say the least. We know that there are tremendous opportunities for wind, provided that we can secure planning permission and provided that we can get the infrastructure and supply chains organised to get into the North Sea. I do not think that they have been properly addressed or studied with the rigour that such challenges will require. Nevertheless, they are important, and tidal power could be as well. The idea that Scotland could somehow provide 80 per cent of its energy requirements from what are at best maturing technologies is fanciful.

At the same time, I recognise the contribution that Longannet, for which I have a great affection, has made. It was the power station to which the miners in my constituency delivered the coal 24 hours a day, just about 365 days a year. It has been the powerhouse of Scottish electricity generation—2,400 megawatts. It is a massive station which at the moment has flue gas desulphurisation equipment installed. That was very important when we were dealing with acid rain considerations, as we were 20 years ago. That reduced the thermal efficiency and output of the station. We have to remember that, whatever form of carbon abatement or carbon capture and storage kit that we install, it will be expensive and reduce the efficiency of the station. Therefore, it will make the electricity coming out of that station ever more expensive. It will have fairly long payback times as well. We have to be a wee bit cautious when we look at the economics of CCS. The consensus is that this technology will become available around 2020 or 2022. That is perhaps only one of the forms because of the way in which the Government have structured the competition. I am a little cautious about the CCS option there.

Anything that involves massive capital expenditure in utilities requires a stable regulatory framework. As yet I do not think that investors have confidence that the Government have it right—they have not got it right because they have said very little. I know that in future we will get it but, for the investment to be achieved at the scale we want, we will need to get a degree of investor confidence that will come only from clear regulatory intentions that will give us the stability for peace of mind.

I realise that I am almost out of time but I want to make one last point as a national office bearer of fuel poverty charities. At present, we see that £80 is accounted for in every domestic bill by subsidies to renewables. That is imposed in a rough and ready fashion and it is not fair to disadvantaged households. The Government need to look again at the question of social tariffs and how they will be provided in future. Equally, when we consider the green deal, as we will when the legislation is introduced, the devil will be in the detail. A lot of reassurance needs to be given and the Government have gone part of the way by announcing that they will be rigorous in their approach to private landlords in the implementation of certain aspects of this policy. The Australian experience is helpful in indicating what not to do. There is a lot of worry and anxiety among the fuel poverty lobbies and the most disadvantaged about what will happen to their fuel bills. They think, with some justification, that it is not fair that they should have to pay a disproportionate price for the recognition that we all have to accept of climate change and the need for carbon abatement.