Draft Hydrogen Production Revenue Support (Directions, Eligibility and Counterparty) Regulations 2023

Debate between Alan Whitehead and Jesse Norman

Tuesday 12th December 2023 General Committees

[Dr Alan Whitehead (Southampton, Test) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Gray. You chaired a substantial part of the proceedings on the Energy Bill and you will therefore be well aware of the consequences of that labour of Hercules that we undertook between us to get the measure on the statute book. The statutory instrument is one of the first to follow from the 2023 Act.

As the Minister explained succinctly, the regulations cover the process whereby the hydrogen low-carbon business plan is implemented during the initial allocation period of contracts for hydrogen producers in order to achieve our target of 10 GW of hydrogen production. As the Minister also said, qualifying schemes have already been substantially identified through track-1, phase-2 of the cluster process. Schemes will be identified and quality-assured by the Minister, who will then direct the hydrogen counterparty, which is identical in structure to the low-carbon contracts company, to provide contracts for companies that have been deemed eligible. So far, so good. That is absolutely the right thing to do to develop the outline in the Act into some detailed legislation to make the whole thing work, particularly the initial allocation process.

The explanatory notes state that the initial allocation gives way to a competitive tender process later. The directions therefore concern the initial allocation process in the first instance, but they are all to be informed by the centrepiece of the SI—the low-carbon hydrogen standard, which is generally called “the standard” in the regulations. It refers to a detailed document, which sets out the greenhouse gas emissions and sustainability criteria that programmes that apply for an allocation contract should follow.

The document is entitled, “UK Low Carbon Hydrogen Standard” and was published in April. It is interesting to note that the standard rightly provides for stringent qualifying criteria for a project’s eligibility. For example, it requires a project not to exceed a certain level of carbon emissions, and to measure fugitive hydrogen for its duration, the process whereby hydrogen is produced, transport and other things. It is a system-wide standard for the low-carbon nature of the hydrogen.

For a project to get a direction from the Minister to be awarded a contract by the hydrogen counterparty, it must comply with the standard when it receives agreement to proceed. However, as hon. Members will have observed, that standard is evolving. Indeed, the standard to which the SI refers is version 2 of the “UK Low Carbon Hydrogen Standard”. That version has evolved from the initial standard, which was produced immediately after the Act was passed. Version 2 has emerged from consultation and correction of various elements of the initial standard that could have caused difficulties, and has tightened up several matters that were uncertain, difficult or in need of clarification.

The document and the explanatory notes say that it is intended that the standard will evolve. That means that the Department envisages that it will produce further iterations of the standard in future. The low-carbon hydrogen standard as it currently stands may therefore change. That is fair enough given that we want the standard to progress, but a question then arises. If a company or body wishes to get a low-carbon hydrogen contract, what are they signing up for when they apply? Clearly, the companies that sign up want to comply with version 2 of the standard, but they will not necessarily comply with versions 3 or 4. Those companies will presumably want some assurance that they will not be knocked out of their contracts if the standard evolves.

[Jesse Norman (Hereford and South Herefordshire) (Con)]

I am grateful to the hon. Gentleman for his careful rehearsal of the background, but surely the regulations contemplate a series of private law contracts, the circumstances and detail of which will be whatever is agreed under the law. Why is he pressing the Minister on this matter now? Does he believe that the law is defective?

--- Later in debate ---

[Dr Whitehead]

No, I do not think that the law is defective, but, as I have tried to explain, it is evolving as the contracts are given out, possibly into a different form. That is an inevitable consequence of the 2023 Act being distilled into secondary legislation. As the process has gone on, the standard has evolved. My central question is whether the Minister is clear that companies that are compliant with the current standard can safely put in their bids for contracts under that standard, and will not be disadvantaged should it change in the future. I think the regulations contain provisions giving the Minister some discretion in that respect.

Conversely, if the terms are relaxed in a future iteration of the standard—I do not anticipate this happening—and compliance becomes less onerous with regard to carbon emissions, for example, might companies that are already contracted ask to sign up to the new less onerous version and continue their contract? This is evolving and it can go in two ways.

[Jesse Norman]

I am grateful for this clarification, although obviously the Minister will want to speak for herself and for the Government. It does not sound as though the hon. Gentleman opposes the regulations— he may wish to comment on that—but is he not flagging a difference between the evolution of the law, by further amendment in statutory instruments considered in Committee, and evolution of a contractual situation that operates within that process? If it is the latter, any Government can give an indemnity against future changes to the rules if they wish, but it is not unknown for people to sign a contract and then, further down the track, think, “If only I’d struck this contract earlier. I’d’ve got a better deal,” or vice versa. Is that not a matter of private law and negotiation between the parties, and why is it a matter for this Committee?

[Dr Whitehead]

It is a matter for this Committee inasmuch as the standard is the centrepiece of how the regulations will work, but that standard is itself evolving. Contracts are being given as this piece of law is evolving. Obviously, contract law applies to those contracts, which bind the company applying for the contract to a certain standard of operation, which may well put the company to quite a lot of expense and planning. It is a bit like a boxer going into training and having to reach the weight for the upcoming fight, and having reached it, then having to keep to that weight after the fight takes place, because that is the continuing standard for their operation.

What methods of verification, challenge and judgment will be used to determine whether companies are continuing to adhere to the standard, once the standard has been set in the contract? That is my final question for the Minister. Is she satisfied that that will work well? As the low-carbon standard evolves, it may well be a case that a company says, “Well, that’s my hard luck, because I signed up for something that was a bit more onerous than it is now, but I ought to stick to it anyway,” or is the Minister suggesting that companies could relax their adherence to the standard if the standard itself is relaxed? Indeed, the regulations suggest that the Minister can or may—the famous “may”—do that if she so desires.

If the right hon. Member for Hereford and South Herefordshire is in any doubt, I stress that we do not oppose the SI and we want it to succeed. There is a provision, which does not always apply in regulations, that the SI comes into force tomorrow. I am sure that we will all happily agree to that. As soon as we have agreed to the regulations, they will come into force so that the contracts can be pursued.

It is important that we are clear about how the standard works on an evolving basis, but I do not wish to impede the issuing of the contracts or the forward march of hydrogen production and use in future.

Draft Electricity and Gas (Energy Company Obligation) (amendment) Order 2017

Debate between Alan Whitehead and Jesse Norman

Wednesday 22nd March 2017 General Committees

[Jesse Norman]

I am happy to look at the hon. Gentleman’s suggestion. On the point I was making to my hon. Friend the Member for Reigate, we are not starting from the position he described. That position has the effect of disguising costs. The reason why we have carbon emissions issues is precisely because of the externalities built into previous models of industrial development. Those substantial costs were not included in the true cost of production of the goods and services concerned. It is simply untrue to suggest, even by implication—I am not suggesting my hon. Friend was suggesting this—that there had been some Elysium or status beforehand in which costs were explicit and are now not; there were costs before that were not explicit and there may be costs now that are not. From a Government standpoint, there is no hiding of costs as regards expenditure by either consumers or the Government.

Let me say a couple of other things. The overall energy market approach my hon. Friend describes was well outlined recently in a report by the House of Lords Economic Affairs Committee, as he may know. It remains an important part of the accountability of Government that we respond to it and are aware of it as an alternative. However, it is worth saying that it would do nothing as such to alleviate the issues of fuel poverty that concern us today. In my judgment, it is not an answer to say that local authorities are somehow a go-to alternative. The truth is that the delivery of those and related measures by local authorities has historically been quite mixed.

On the setting the 10% figure, that was designed, based on the consultation, to allow for a period of experimentation during the transition period, precisely to assess whether that number could be raised in line with the suggestions that have been made. The number involved—even at 10% of £45 million—is not a trivial amount of supplier obligation. I think that is a reasonable and proper justification.

I will say a couple of things about the matters raised by the hon. Member for Southampton, Test. He asked why we were presenting the order so late. I share his concern about that. My preference would be for measures to be presented to Parliament as early as possible. The difficulty has been—in part, this refers to a couple of earlier points—last year’s changes in Government and knock-on effects, which have delayed the process. It is certainly not something that any Government would want to make a habit of, so I take the point.

I have a couple of comments to make in response to what the hon. Gentleman said about a reduction on a reduction: first, the number of homes in fuel poverty has continued to fall since 2010, and it is clear that the measures continue to have a powerful effect. It is also important to bear down on consumers’ bills. If the hon. Gentleman wants to introduce specific costed proposals for restoring the funding that he criticises the Government for reducing, it is incumbent on him to state by how much he would be prepared to put it up, and how much he would be prepared to burden taxpayers or consumers. In addition, we expect, by September 2018, to have met a target of 850,000 homes insulated. That leaves 150,000 by 2020, which is in line with the manifesto commitment made in 2015. The Government believe that they are on track.

As for the fourth carbon budget, the hon. Gentleman was talking about totals—and the challenge for the Government is to meet the fourth carbon budget in total. The support and advice that the Committee on Climate Change offers is always welcome and of interest to us, but the focus is on the total. The hon. Gentleman painted a beguiling picture of towels being tightened and retightened in the bowels of the Department; but I think it is fair to describe the process of aligning all the different carbon saving measures required to meet the budgets as complex and difficult. That is what the clean growth plan, which will be published in due course, will do.

[Dr Whitehead]

Does the Minister want to add anything to the phrase “in due course” with reference to the clean growth plan?

[Jesse Norman]

I thank the hon. Gentleman for that tempting invitation, but I can say that “due course” will be due, and a matter of course; so the answer to his question is no.

As to whether there will be a review of the long-term effects of the ECO, we anticipate that there will be a consultation later this year—I can give the Committee some clarity on that—in line with thinking about what the further process will be after 2018-22. I have addressed the issue of the figure of 10% in relation to affordable warmth, which we have discussed.

Among other key elements worth picking out is the question of the proportion of fuel-poor homes in band E, or above, in England, which is expected to be about 92% by the end of the extension. That will be up from 88% three years ago. Again, that underlines the progress that has been made.

This has been an interesting and useful debate and I thank hon. Members for their speeches. As I said, the scheme has helped to deliver more than 2 million energy saving measures to more than 1.6 million households, including 1.2 million measures to 900,000 low-income and vulnerable consumers. At a time of rising energy bills, the Government think that it is right for support to be targeted to those most in need. At the same time, the amendments being made to the existing order should reduce the cost of the scheme to bill payers to about £25 a year from the current level of £34 to £35—and nearly £60 at the time of its launch in 2013.

With the amendment order the ECO is expected to provide 545,000 households with more energy saving measures. We will thereby give a balance of improvements and continuity to consumers and the energy efficiency industry for 18 months, before further change is made through a longer-term scheme, from 2018 to 2022.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Electricity and Gas (Energy Company Obligation) (Amendment) Order 2017.

Draft Electricity Supplier Payments (Amendment) Regulations 2017

Debate between Alan Whitehead and Jesse Norman

Monday 20th March 2017 General Committees

[Jesse Norman]

I am grateful to all hon. Members who have contributed for their comments and questions. If I may, I would like to correct something that I said earlier in response to my right hon. Friend the Member for Chelmsford. Officials have reminded me that regulations 1 and 19 will come into effect the day after the regulations are made. Regulation 14 will come into effect on 1 April, regulation 8 on 1 October, and all others on 1 July. I hope that that will comfort him. I apologise for misleading him earlier. I have been corrected on one other thing: it is not just the day, but the day after the day on which the regulations are made. I am doubly corrected

On the questions raised by the hon. Member for Kilmarnock and Loudoun, I hope he will correct me because I did not quite catch his final point about mutualisation. On onshore wind, as he is aware, the Government issued a consultation in November 2016 and continue to be heavily engaged in discussing the situation with the Scottish Government, developers, island communities and other Members. I hope that gives him comfort.

On the issue of costs, the hon. Gentleman will see that they have been included. We expect the costs for Hinkley Point to be in the region of £1.4 million for 2017-18. It is not at all clear why that should go up, but it is worth saying that Hinkley Point C is a complex contract and the Government’s approach is based on a flexible outsourcing model of getting professional advice to fit the needs, so that may change. If there is an issue of mutualisation, I invite him to come back to me because I did not quite understand the point he made.

The hon. Member for Southampton, Test was right to separate out the fixed levy portion from the lump sum reserve payment, and to point out that the intention of the lump sum reserve payment is to give 95% confidence that that will be paid. In the past, the effect of the previous regulations meant that the LCCC over-collected. The purpose of the regulations under discussion is to allow it to remit more quickly those funds that may have been over-collected, rather than trap them in parallel with the faster settlement process that has been introduced. Therefore, the question whether the organisations are under-constrained does not arise. As I have said, their operating costs are scrutinised by the Government, and of course they are subject to mutualisation and are therefore undoubtedly subject to question by the suppliers who pay their costs.

[Dr Whitehead]

I am sure the Minister will agree that the existence of the reserve fund still has some salience in this process, in so much as it functions as a backstop when there have been hiatuses—if that word exists—in payment or collection. The reserve fund can, in such circumstances, be brought in to smooth the passage and allow for the continuation of business, even if there are problems at either end. The question of reducing the reserve fund unilaterally and with no notice, which is in the regulations, is not just a technical issue; it is a real issue that has a bearing on how the rest of the company works, and therefore the probability within which it works overall.

[Jesse Norman]

I take that point, but I think the hon. Gentleman has got the incentives the wrong way around. The incentives are to maintain a large reserve fund because that gives a degree of comfort and prevents challenge. The point of the provision is to create an inventive if it is perfectly clear that more money has been accumulated than is required to be paid out. In general, the companies concerned will have a tremendous incentive to retain what reserves they can, precisely for the reasons he suggests. In reality, I do not think there is any real danger.

Question put and agreed to.

Oral Answers to Questions

Debate between Alan Whitehead and Jesse Norman

Tuesday 14th March 2017 Commons Chamber

[Jesse Norman]

It is fair to say that we have stated that we will come to the House as soon we can and that the matter is presently under consideration.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

The Minister mentioned the capacity market. I am sure he will agree that the prime purpose of that market has been to procure new infrastructure capacity. Will he tell me how many new gas-fired power stations have been procured with the £3.4 billion that has been spent so far on the capacity market? What plans does he have to improve that number?

[Jesse Norman]

rose—

[Dr Whitehead]

To be helpful, the answer is: one new power plant in King’s Lynn.

[Jesse Norman]

Well, I am all in favour of the self-answering question, but I remind the hon. Gentleman that the last capacity market procured energy at a cost of £7 per kilowatt, which is cheaper than any conceivable alternative.

Petroleum Licensing (Exploration and Production) (Landward Areas) (Amendment) (England and Wales) Regulations 2016

Debate between Alan Whitehead and Jesse Norman

Wednesday 1st March 2017 General Committees

[Jesse Norman]

Perhaps I can reassure the hon. Lady. The point of the regulations is precisely to ensure that smaller scale operations meet an equivalent range of safeguards to those set out in the Petroleum Act 1998. In some cases there may be local activities that are subject to all of the usual procedures and, if they are not hydraulic fracturing, they are captured by separate rules. However, hydraulic fracturing in national parks has been banned. That is the Government’s position.

I draw the hon. Lady’s attention to the fact that even at the sub-surface level, protections are in place to ensure not merely that hydraulic fracturing using more than 10,000 cubic metres of fluid cannot be done, but that hydraulic fracturing using more than 1,000 cubic metres of fluid at any one stage cannot be done either. That is a comprehensive response to the question.

[Dr Whitehead]

The problem is that proposed new clause 22A(1) states:

“The Licensee shall not carry out Relevant Hydraulic Fracturing from a Well if the well pad is in a Protected Area in England or Wales.”

The Minister has simply not answered the question of whether a well cannot be drilled at all in a national park or an area of outstanding natural beauty, or whether it can be drilled from the surface within a national park if the well uses less than 10,000 cubic metres of water overall. If he cannot assure me about that, does he accept that the assurance he has just given is not correct?

[Jesse Norman]

No. The position is that “well pad”, as the hon. Gentleman knows, describes the location in which a well is drilled. That term was defined in paragraph 3.33 of the Government’s response to the landwards regulations consultation. Further consideration may be needed of whether a more explicit definition is required elsewhere, but what is in the response is clear. To give him comfort, let me reiterate that a well pad counts as being in a protected area if any part of it is in that area. There should be no ambiguity about that; it is what the response to the consultation says. I take his point, but it has already been addressed.

If I may continue with what I was saying, I should emphasise that the shale gas resources beneath this country have enormous potential, which we as a country should not underrate. We have a very secure regime in place.

Oral Answers to Questions

Debate between Alan Whitehead and Jesse Norman

Tuesday 31st January 2017 Commons Chamber

[Jesse Norman]

One hesitates to remind the hon. Gentleman that this is a different matter and a different technology from tidal lagoons, but I think he can take it as read that officials and Ministers will be thinking carefully about all the relevant precedents that might bear on this decision.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

The question was about the potential contribution of power generated by tidal lagoons to UK energy provision. My understanding is that a limited deployment of tidal lagoons in the Severn estuary alone would contribute about 8% or more of UK electricity demand. Can the Minister tell me if there is any other technology that can provide that sort of power in one location—as a clue, perhaps I can suggest to him that Hinkley C running full tilt without any outages is estimated to contribute about 7% to UK energy requirements?

[Jesse Norman]

I dare to suggest that the hon. Gentleman is misinformed. It is not quite clear what he thinks of as the lagoons in the scheme he describes, but Hinkley Point will be a bigger generator than, certainly, the first round of lagoons, as well as being a higher load and more reliable.

Oral Answers to Questions

Debate between Alan Whitehead and Jesse Norman

Tuesday 13th December 2016 Commons Chamber

[Jesse Norman]

I certainly do, and I am very glad that my hon. Friend has brought that to the attention of the House.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

After the latest capacity auction, the overall scores for the procurement of new combined cycle gas generation plant stand at one small buildable plant over three auctions, at a total cost so far of £3 billion and £12 a year on customer bills. Does the Secretary of State have any other good ideas up his sleeve to secure the procurement and building of new capacity up to 2020?

[Jesse Norman]

As the hon. Gentleman will know, the gas capacity market auction was an enormous success. It secured a widespread diversity of supply at low cost and in higher amounts than ever before, and it included some innovative new technologies. The Department should be celebrated for managing this.

Draft Contracts for Difference (Allocation) (Amendment) Regulations 2016

Debate between Alan Whitehead and Jesse Norman

Monday 24th October 2016 General Committees

[Jesse Norman]

I thank hon. Members for their questions. The hon. Member for Southampton, Test asked three questions: the first was about levels of funding under the contracts for difference scheme; the second was about whether there is an overspend relative to the levy control framework; and the third was about what is included.

The overall picture is that there is up to £730 million per year to be allocated in up to three auctions. This is the first auction, which is for £290 million a year of annual support. Each contract will be for 15 years and will begin, at a time to be announced, between 2020 and 2026. That leaves headroom of £440 million a year of support that could, in principle, be offered via other auctions.

[Dr Whitehead]

I understand from the Minister that £730 million is available each year over a number of years throughout the next delivery period. I assume he means that £730 million is available each year for new applicants and that each of those applicants will then get a 15-year tail on CfD from a successful application. The total amount of money for new applicants is therefore £730 million times three, or five, or however many pots are available, and the first auction is part of that overall pot. Have I understood the Minister correctly?

[Jesse Norman]

Unfortunately, there is an ambiguity in the phrase “new applicants”. The position is that £730 million is available under auctions. That money will be paid per year under the auctions. The first auction is £290 million; each contract period is 15 years long. I do not have the numbers to hand, but one can run the numbers out as to the total amount of money, in constant pounds, that will be paid out over those contracts in total and as they are announced individually. That is the position.

The hon. Gentleman asked whether there was some overspend under the levy control framework. The levy control framework, as he said, runs until 2020 and the Government are considering whether and how that framework will be extended. At that point, it will become appropriate to ask whether or not there could be any overspend. His third question was about what is included. The included technologies are offshore wind, wave and tidal stream, advanced conversion technologies— gasification and the like—anaerobic digestion, and biomass for combined heat and power. Those are the less established technologies.

Finally, I turn to the question from the hon. Member for Luton North. I am afraid he was telling such a beguiling story about the installation of solar PVs on his own property that I missed the central thrust of the question. I think he was asking whether the regulations were really focused on renewables, and I assure him that they are. There is an entirely separate framework, also known as a contract for difference, that applies to nuclear supply in the case of Hinkley. That is under a completely different scheme and is not the subject of the legislation today.

Renewable Heat Incentive Scheme (Amendment) Regulations 2016

Debate between Alan Whitehead and Jesse Norman

Wednesday 19th October 2016 General Committees

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Jesse Norman)]

It is pleasure to serve under your chairmanship, Mr Owen. I welcome the contributions of the hon. Members for Southampton, Test and for Aberdeen South and my right hon. Friend the Member for New Forest West. I, too, welcome the hon. Member for Southampton, Test back to his place. He has great expertise in this field, and the hon. Member for Aberdeen South is also demonstrating a burgeoning expertise. I recognise that I am very much the new guy on the block.

I will address all the issues that have been raised today and talk a little further about the regulations, as the Committee properly demands. Where there is a demand for both heat and electricity, combined heat and power offers the most energy-efficient use of fuel, with the potential to deliver savings of up to 30%. The renewable heat incentive offers support for the deployment of CHP plant, including that using solid biomass fuel, recognising the role that that technology can play in decarbonising heating and power production. The Government introduced a dedicated biomass combined heat and power tariff into the non-domestic RHI scheme in May 2014. That tariff is approximately double the tariff for large biomass heat-only plants. The biomass combined heat and power tariff is 4.22p per kilowatt-hour, compared with the large biomass heat-only tariff of 2.05p per kilowatt-hour.

The higher support tariff offered to biomass combined heat and power plant, when compared with biomass boilers producing only heat, reflects the higher capital costs generally faced by these plants and also the benefits that biomass combined heat and power plant can deliver for the efficient use of fuel. Given that the biomass CHP tariff is more than double the large biomass tariff, it is important that CHP plants deliver the efficiency benefits that the tariff exists to incentivise. Recently, my Department became aware of some types of combined heat and power system that could qualify for the higher RHI biomass CHP tariff of 4.22p per kilowatt-hour. Those types could be used for all eligible output despite delivering only a relatively small amount of power, or having relatively low levels of power efficiency—in some cases as low as 1%. Plant with very low power efficiency does not necessarily face significantly higher capital costs, or deliver the comparatively efficient use of biomass that the biomass CHP plant tariff is design to incentivise. That is part of the answer to the question that the hon. Member for Southampton, Test raised—there are higher capital costs associated with such plant, as well public benefit from the combined heat and power.

[Dr Whitehead]

Can the Minister fill us in a little more on the distinction between plants that have reduced overall efficiency as a result of their design, which he has mentioned, and those that do not have that reduced efficiency but have a differential deployment of electricity and heat production? If he makes that distinction, would not a better route have been to target the less efficient plants specifically, rather than catch all plants that vary in their output, as the regulations do?

[Jesse Norman]

Of course, in retrospect there are many ways in which the system could have been designed. However, the system is well established, in ways that I will describe, and it is important to recognise that the regulations are designed to incentivise combined heat and power. A plant that overwhelmingly provides heat and produces very small amounts of power may not require the same capital costs as another plant, and it may not discharge the purpose for which the combined heat and power tariff is intended, let alone the much higher rate. I think that speaks for itself. The point is that plants with low efficiencies do not necessarily face capital costs.

Not targeting the group that was intended to be included in the original proposals for the tariff represented a potential risk of significant overcompensation, and therefore a risk to the value for money of the RHI scheme, particularly if a large number of plants such as I have described were to come forward. The regulations took action to address that issue, adding a new requirement, as the hon. Gentleman described, for biomass combined heat and power plants to achieve a minimum power efficiency of 20% to qualify for the higher tariff for all their eligible heat use. That change safeguards the value for money of spending through the scheme and protects the interests of the taxpayer.

The Government carried out a consultation on reforms of the RHI schemes in March. That consultation asked whether any types of CHP plant would be overcompensated by the current tariff arrangements, and the responses supported action to ensure that heat incentive support is focused on installations offering value for money.

The hon. Gentleman asked why there was no impact assessment. The answer is relatively straightforward: regulatory impact assessments are produced in cases where a policy imposes regulatory burden on business. Their purpose is to assess the impact of a change—that is why they are called impact assessments. The renewable heat incentive, by contrast, is a voluntary subsidy scheme. The impact on industrial, commercial, public sector and not-for-profit organisations applies only if they are owners of eligible renewable heat installations and choose of their own account to apply for the RHI.

[Dr Whitehead]

Which was the case for the poultry plants that the Government had previously encouraged to apply for RHI, which were assured by the Department that their arrangements were perfectly satisfactory for that purpose but found out subsequently that they were not. That appears, to go by the Minister’s own words, to be within the definition of something that should have been the subject of an impact assessment.

[Jesse Norman]

The RHI is a voluntary scheme for those who qualify for it and choose to apply for it. It is not imposed on business. The point about an impact assessment is when the Government use their sovereign power to burden business. In this case, we are not doing that; we may be changing the terms of the tariff arrangements, but we are not burdening business.

A decision was taken at that time not to carry out a further consultation on the specifics of the change. That was due to the significant financial risk to taxpayers’ money that could have been involved. It was judged that further consultation would raise awareness of how the regulations could be exploited to enable high returns. That would increase the risk that more plants of that type would apply to the RHI before a change could be made.

It is true that CHP projects can have quite a long delivery period—a point raised by the hon. Member for Southampton, Test. Even so, there was a substantial risk of a potential rush of applications in the three weeks between the publication of the regulatory change and its coming into force. During that period, the Department saw 11 new biomass CHP applications come to the RHI for support. Although that may not sound like many, it was more full biomass CHP applications than have been received since the renewable heat incentive started in late 2011. The issue was live and serious, and posed a genuine threat to value for money. In some cases, mechanisms were rising in the market that enabled non-qualified heat plant to qualify for the higher combined tariff, without necessarily any further significant capital investment being made.

Following the introduction of the regulations, my Department indicated that it was happy to listen to the views of stakeholders who felt they might have been affected by the change. It received information from individual projects, as well as from trade associations, about the impact of the change on potential biomass CHP applications to the renewable heat incentive. Having examined that information, the Government still hold to the point that the higher biomass CHP tariff is in place in recognition of the higher capital costs and the additional efficiency benefits, which biomass CHP—including power—can deliver, compared with the separate generation of power and heat.

It is right that the higher biomass combined heat and power tariff is available to those installations with higher capital costs that deliver additional efficiency benefits and value for money for the taxpayer. It is also reasonable to limit additional payments to installations that do not deliver those additional benefits.

The hon. Member for Aberdeen South spoke about goalposts moving. Government policy plays an important role in this fast-moving, technologically-enabled area, so it can occasionally be necessary, in the taxpayer’s interest, to accommodate changing circumstances. The Department remains concerned about the value for money of giving the full biomass CHP tariff to projects with very low power efficiencies. Some projects have power efficiencies as low as 1%, which would deliver low efficiency gains even against separate heat and power generation.

However, we very much recognise the impact of the change on a number of companies with projects under development, in particular smaller biomass CHP plants that may be delivering higher power efficiencies but are still below 20%. Some businesses have invested in various types of CHP projects in good faith. If the hon. Gentleman has specific evidence of misleading information, he is welcome to write to me; I would be interested to see it. The Department has always had a very close relationship with the Scottish Government and I would be very surprised if there were any genuinely misleading information, but I would be happy to look at any evidence.

--- Later in debate ---

[Jesse Norman]

My right hon. Friend makes a wider point, and I enjoy the move to head off the Government. Two things: first, whether markets perform more effectively than Government depends on the question we are seeking to answer. I certainly do not accept the claim that they are always more effective. [Interruption.] I am afraid I cannot hear the hon. Member for Aberdeen South chuntering from a sedentary position. He is welcome to make the point in an intervention, if he wishes.

The second point to my right hon. Friend is that although in some cases industrial strategy has been done badly, in others it has been done rather effectively. Parts of Scandinavia have seen effective industrial policy, although I am not suggesting for a second that the industrial strategy that this country develops will necessarily model that. I am sure it will take the best of all thinking on this topic. It is perfectly proper for Government to seek to decarbonise industry, given that industry has an intrinsic market-driven tendency to burden the environment with costs that it need not meet itself through what economists call “externalities”.

[Dr Whitehead]

I am grateful to the Minister for giving way again on this issue of the announcement he just made on the grace period or dampening period, perhaps, that he is envisaging. I recall him saying that schemes that applied after 1 August for an unspecified period—he has not specified a period—would be eligible for the higher rate if they were more than 10% efficient so far as electricity production was concerned. Is that the situation? I have two questions on that. First, what is the period? Secondly, why is it from 1 August onwards? That makes no difference to the schemes that were previously under way and now find themselves in difficulty as a result of the changes.

[Jesse Norman]

I thank the hon. Gentleman for his comments. In my enthusiasm to oblige the Committee, I took a series of interventions before I could finish the point I was making, so allow me to do so now. The enabling legislation will reduce the 20% power threshold to 10% for a transition period. That will apply to all plant that has qualified for the scheme since 1 August 2016. The intention is that that threshold will revert to 20% after 31 March 2017. That is the period he asked about. With something of this kind, a date has to be struck at some point, and that is the date the Department has settled on. As I said, it allows for a significant degree of recognition of concerns that have been raised by those affected.

Indeed, based on the information we have received, the change should allow the vast majority of existing projects to gain RHI accreditation under the lower 10% power efficiency provision. May I just add one other point? It is described as a threshold, but of course it is pro rata, so those running up to that threshold will be enabled to take value from the higher rate for whatever percentage they have up to the threshold. It is not a cliff edge.

It is important to note that, as before, the 10% power efficiency provision, far from being a cut-off, will operate, as I have mentioned, on an incremental basis. So projects with a power efficiency near 10% will get more heat paid at the higher biomass CHP tariff than those with lower power efficiency.

We recognise that this revised approach will not remove all the impacts of the change from all projects, but we feel it achieves the right balance between delivering value for money and ensuring the efficiency benefits that CHP is supposed to deliver, and making sure that those benefits are indeed delivered, while also reducing the impact on projects that are under way. In particular, it reduces the impact on those projects that aim to deliver higher power efficiencies rather than lower ones.

I think I have addressed all the questions that have been put, so I will leave it there.

Oral Answers to Questions

Debate between Alan Whitehead and Jesse Norman

Tuesday 13th September 2016 Commons Chamber

[Jesse Norman]

Kingspan is a company I know very well, since it has a substantial operation in Herefordshire. Valuations in this area are made by the independent Valuation Office Agency. The Department is liaising with the industry and the VOA on this issue, but I certainly would be delighted to meet Kingspan and my hon. Friend to discuss it.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

On that matter, has the Minister carried out any analysis of the effect of the proposed hike in business rates on payback periods for commercial and rooftop solar, and particularly school solar? Does he intend to change the tariffs if the proposed business rate revaluation comes into effect?

[Jesse Norman]

I simply repeat that the matter is under review. We have not seen what the agency will propose, but we will look at it closely when we see what it suggests.

Paris Agreement on Climate Change

Debate between Alan Whitehead and Jesse Norman

Wednesday 7th September 2016 Commons Chamber

[Jesse Norman]

I am enjoying the sedentary contributions from the Opposition spokesman, but he has had his moment. Let us focus on the two themes that came through, loud and clear, across all the speeches and interventions today. The first is that the issue of climate change is now in the absolute mainstream of our political debate. Whatever people’s specific views, climate change is recognised across all parties, in all the nations and regions of this country, as a central issue of public concern. The second point follows from that, and it is that we cannot and we must not view this country’s commitments in relation to climate change in a narrowly partisan or party political way. The Paris agreement has been welcomed by Members from across the House, as has the concerted action taken this week by China and the USA.

As the Prime Minister underlined only a few hours ago, this country has long exercised global leadership in this area. It has balanced great ambition with a sober recognition of the costs involved—costs that can hit not merely industry but often, directly and indirectly, the poorest people in our society. There is so much more to do, but what the UK has done is cause for celebration, not regret.

We can all agree that climate change is one of the most serious threats facing the world, and that has been brought home to us again today by the excellent examples highlighted in the contributions of the hon. Member for Glasgow North (Patrick Grady), my hon. Friend the Member for South Ribble (Seema Kennedy) and the hon. Members for Wirral West, for Llanelli (Nia Griffith) and for Wakefield, as well as by my brilliant colleague the Minister of State. We agree that climate change is one of the most serious threats facing the world. We agree that the UK has played, and will continue to play, a unique and important role in global action to tackle the changing climate. We agree that that action is an opportunity for growth, for new jobs and for improvements to health, to cities and to our daily lives.

That consensus is the prerequisite. It is the essential long-term basis for concerted action in this area by all Governments, at any time. It will be especially helpful to us as we look forward to the COP22 meeting in Marrakesh in November, which will help to set many of the rules relating to the Paris agreement and so will mark a shift from aspiration to implementation. That consensus, and the need to maintain it, is fundamentally why I still hope that the hon. Member for Brent North will not press this needlessly divisive motion to a vote.

The Government have made it very clear that they welcome the push by the US, by China and by other countries towards the early ratification of the Paris agreement. We remain firmly committed to that agreement and to ratifying it as soon as possible. The convention, however, is that all European Union member states ratify the agreement together, collectively. We hope that that will happen, as has been said, as soon as possible.

Unfortunately, it is not true, as was stated by the hon. Member for Sefton Central (Bill Esterson), that France has ratified the agreement. The Commons Library briefing of 6 September says:

“As set out on the UK French Embassy website it will not do so until all Member states and the EU are ready to do so, and will focus”—

in the meantime, on—

“encouraging other Member States to make progress”.

France was reported in the press as having ratified the agreement, but it has not in fact done so.

I appreciate that we have heard some perfectly proper concerns about the Paris agreement coming into force before the EU has ratified it. However, there is widespread international understanding that in the event that the agreement enters into force early, countries that have not yet completed their domestic processes to allow ratification to take place—very important processes of consensual ratification—should not and will not be prejudiced. Not to do so would mean that as many as 140 countries, including some of the very poorest and most climate-afflicted nations in the world, would be denied a full seat at the table. COP22 in Marrakesh in November will, I hope, take a formal decision to that effect.

Turning to recent history, few countries have been more active in decarbonisation than this one. We were the first country to set, through the Climate Change Act, a legally binding 2050 target to drop our emissions by at least 80% on 1990 levels. Far from not having a strategy, we have just signed off our fifth carbon budget, which sets the terms for the overall picture. The UK has made great progress in reducing its emissions, which had fallen by 36% by 2014 on 1990 levels. During the past five years, between 2010 and 2015, our domestic greenhouse gas emissions have fallen by 17%, which is the biggest reduction in a single Parliament. We already have domestic obligations that keep the UK well below the 2° rise in temperature goal mandated by the Paris agreement.

[Dr Whitehead]

The Minister mentions the signing off of the fifth carbon budget and my pleasure about that, but perhaps he missed the point I made earlier, which is that the Government are nowhere near in any possible way meeting the terms of the fifth carbon budget, as a result of the policies they have recently put in place. That is presumably of some concern to him.