Net Zero (Industry and Regulators Committee)

Lord Reay Excerpts

Friday 20th January 2023 Lords Chamber

[Lord Reay (Con)]

My Lords, it is an honour to follow the noble Lord, Lord Hollick, in a debate on our committee’s inaugural report. I thank him for his chairing of the committee and for this report, which highlights the significant challenges of meeting the Government’s target of net zero by 2050.

Although the UK has been more successful than most industrialised nations in reducing territorial emissions, and has done so by 28% since 2010, it is clear that a transformation in heating and travel, as well as substantial investment in new technologies, will be required. Equally, to cater for the anticipated manifold increase in electricity demand, the capacity and resilience of the grid will need to be significantly strengthened. To facilitate this and to help us meet the challenges of achieving net zero, the report recommends, as the noble Lord, Lord Hollick, has mentioned, the creation of an energy transformation task force. The task force, based within the Cabinet Office, would determine strategy, improve co-ordination across government departments and ensure effective implementation of decarbonisation policy.

For this vital new body to fulfil its mandate, detailed Treasury costings on achieving net zero should be sought. At present, forecasts vary significantly. The Climate Change Committee estimates costs of approximately £1 trillion by 2050. The national grid on the other hand, with figures covering only the decarbonisation of energy, estimates £3 trillion. The Treasury needs to come up with an independent view. Likewise, the consumer deserves to understand how these costs will be funded. How will the burden of cost be distributed? What will be required of the taxpayer and what of the consumer? What will be the sacrifices and the benefits? Without consumer buy-in, net zero stands little hope of success.

Quite rightly, the report stresses the key role that gas will continue to play in our economy. The International Energy Agency forecasts that by 2050 over 20% of our energy requirements will still be provided by fossil fuels. Further gas and oil exploration in the North Sea, our backyard, should be encouraged. Unfortunately, it is coming under twin attack. First, due to the net-zero and ESG commitments of commercial banks and insurance companies, finance for new exploration projects has been withdrawn. Secondly, as a result of the imposition of windfall taxes, investment has been discouraged—note, for example the recent announcements by Total and Harbour Energy about backing out of North Sea projects. It follows that investment in significant renewables projects is likewise threatened.

Russia’s invasion of Ukraine and the ensuing dramatic rise in energy prices highlighted the fragility of our energy system. We rely excessively on overseas supplies. On top of that, the UK system of calculating wholesale electricity prices relies on the cost of gas. This means that, at consumers’ expense, renewables producers and nuclear firms are currently receiving a windfall. The Government appear to have recognised the need to adjust this price calculation mechanism. I urge that reform is brought forth with speed.

Finally, as the House is aware, Ofgem’s role is to regulate the sector and protect the consumer. In the last 18 months, Ofgem has not covered itself in glory. Over 30 energy companies have failed, and these failures have cost the taxpayer £9.2 billion. This includes the £6.5 billion rescue of Bulb. Inexplicably, the terms of Bulb’s subsequent acquisition by Octopus remain shrouded in secrecy. Furthermore, why, in a recent review, did Ofgem decide not to introduce the ring-fencing of customer credit balances? Failing companies have been misusing these balances and surely Ofgem should act on this. I put it to noble Lords that Ofgem should reassess its persistent focus on switching—a once valid but now often self-defeating system.

Net zero by 2050 is an important target for the UK. It is essential that we march towards this goal with all our ducks in a row. The co-ordinating body, forecasts, funding, regulation and consumer protection should all be tightly in order so that the success of the project is as achievable as possible.