EU: Energy Infrastructure (EUC Report)

Baroness Worthington Excerpts

Monday 29th July 2013 Grand Committee

[Baroness Worthington]

My Lords, I am delighted to be able to wind up this debate for the Opposition. I also extend my congratulations to my noble friend Lord Carter and to the many members of EU Sub-Committee D who participated today and who contributed to this excellent and very timely report. As has been mentioned, we have been locked in committee for weeks—we have our ninth session tomorrow—and it is quite nice to have a slight change of perspective and to look at things from an EU angle.

Many noble Lords have mentioned the energy trilemma and the challenges that it poses. It is even more of a complicated puzzle when you add the EU dimension. A number of noble Lords spoke very eloquently about the particular challenges of trying to achieve any degree of coherence across 28 member states. What struck me in this debate was the paradox between the current set of member state-driven policies, which resulted in a huge diversity of energy policy and an apparent lack of cohesion, and a much more aspirational vision, which was set out very eloquently by the noble Lord, Lord Cameron, of a much more integrated Europe—a Europe that can capitalise on and exploit all its natural advantages in order to create a security of supply that is affordable and low-carbon. We have a vision of how it could work but we are also very well aware of the limitations of how it is currently working.

How can we progress towards that vision and try to alleviate some of the inherent difficulties? It is absolutely clear from the contributions we have heard today that there is a strong sense that we need a clear plan and that we should stick to it; that this should not be subject to the winds of fortune, to the degree that is feared at the moment; and that there should be a long-term vision.

That brings me on to one of the key recommendations the committee made: that targets should be set for 2030. In a very welcome contribution to the debate, the report is quite clear in stating that there ought to be a 2030 target for emissions. Indeed, I am sure that the Government would say that they support that. Where there is a difference between the committee’s recommendations and the Government’s current policy is on any sub-targets that relate to that time period. We have heard quite strong arguments for why targets at a lower or subdivided level are important to give investment signals.

I have looked in detail at the Government’s response to the committee’s recommendations and I am slightly disappointed that, while the Government provide quite a lengthy description of why a renewable target might not be necessary—indeed, similarly, they are not persuaded by an energy-efficiency or demand target—the committee’s recommendation that a decarbonisation target should be considered is not really addressed. Perhaps the Minister can say a few words about why, having rejected the need for a renewables target for 2030—many people would perhaps challenge the rationale for that but let us accept it on its surface merits for the moment—there is not more about the alternative of a decarbonisation target for the electricity sector for 2030. I do not want to rake over old arguments, but it is quite clear that in the UK we are very strongly supportive of the setting of a decarbonisation target for 2030 and we would like to see it—or at least a commitment to it—in the Bill.

I do not think that the Government are quite as supportive. I found this sentence in their response, in relation to paragraphs 121 and 138, quite interesting. The assertion is that,

“in the UK Contracts for Difference will provide individual power sector investors with high levels of long-term certainty and we plan to have the option to introduce a decarbonisation target for the power sector for 2030 if additional certainty is needed”.

That is quite weak. The words are far less emphatic than those of the Secretary of State in person. He stated that the Energy Bill would set a decarbonisation target and that there was no need for additional criteria to be met. However, here we have a qualification being added. I would like some clarity from the Minister on that. It seems to be a step backward.

I will take this opportunity to try to elicit a response from the Secretary of State. I wrote to him on 3 June and congratulated him on announcing targets for 2030. I also asked a few questions: not least, whether he would clarify some of the detail in relation to that announcement. I have not yet had a response. Perhaps a message could go out that it would be very good to have a response to my letter.

Many topics have been covered and I am conscious that we have had a very full debate. I do not wish to detain the Committee much longer. However, I will say a few words on some of the topics that have been covered. When we discuss EU policy on energy, the Emissions Trading Scheme cannot be ignored. It was introduced as the flagship climate-change policy of the European Union. Considering the widely different policies across Europe on energy, it was something of a success to introduce a single policy, accepted by all 27 member states and adopted also by Norway and Switzerland. It is currently functioning. It has had its teething troubles—let us not be shy about admitting it—but it is a very harmonising policy.

It is a matter of regret that the scheme has been hit by a number of problems associated with its inherent lack of ambition. The targets were set far too generously. This was severely compounded by the recession, and the fact that emissions have fallen far faster than anyone could have predicted. A number of noble Lords have said that predictions about energy tend to be wrong. This is an example of where they were very wrong. Unfortunately we did not have a response mechanism built into the policy that enabled policymakers to take swift action to correct it. We have very low prices and we do not have a carbon floor price or a carbon ceiling price. That was a decision that was taken.

As was mentioned in the debate today, other emissions trading schemes are choosing different routes. It is notable that the Californian scheme, perhaps recognising one of the failings of our system, put in a strategic reserve to enable prices to be kept in a corridor, with a cap and a collar. It is perhaps time for the EU to swallow a bit of pride and accept that the scheme was not perfect the first time around and that we could do with some reform. I note that the UK Government are committed to trying to achieve that reform and have stated that they want proposals to come forward from Brussels by the end of the year. That is very welcome. We hope to see them passed into law as soon as possible. However, there is still a question on timing. We might get proposals from Brussels in 2013, but it is unlikely that they will be legally signed off before the elections in 2014. Then it will be for the new Commission and Parliament to debate this once more. I share the Government’s passion for this but I do not fully support their optimism that it will be as easy as we have been led to believe by the answers we have been given.

There is an added complication for the UK. We have a system of carbon budgets introduced by the Climate Change Act. I am grateful to the noble Earl, Lord Caithness, for attributing all the costs associated with a low-carbon economy to me. I am afraid that I cannot and will not take credit for that. The Government have done a fair amount themselves, in particular by introducing the carbon floor price, which I never recommended and about which I have serious questions. However, I go back to carbon budgets. As the noble Earl said, I was involved in passing the Climate Change Act, which was based on the concept of carbon budgets. We proposed that they should be least-cost and flexible. The idea was to get the Treasury involved in managing them, and to create assets and liabilities out of emissions and emissions reductions. We are not there yet, but that is the philosophy.

Anyway, we have what I hope is a robust system that is intended to give investor confidence, but it is subject to a review. That review was never part of the plan—it crept in when the third carbon budget was accepted—but is timed for 2014. The reason why I am dwelling on this point is that, as we have mentioned, the EU reform of the ETS is not likely to be agreed until 2015, so to have our review a year before Europe has agreed its plan seems to be out of kilter. That will just add further complexity and confusion. If I have a question, it is really this: could we hear more about the rationale for reviewing our system of carbon budgets in 2014, when it is widely accepted that Europe will not have its plans sorted out until 2015 regarding both the energy and climate package and the reform of the ETS, which I am sure will form a part of that?

I turn to CCS, which naturally leads on from the ETS because the ETS was supposed to be the Europe-wide policy for supporting CCS. I am quite sad that I was not able to attend any of the committee’s evidence sessions because I am sure that it received many interesting contributions. I know CCS from a UK perspective but I am equally troubled by the fact that it has not taken off at the EU level. I was grateful to the report for trying to identify some of the reasons why that is so, the failure of the ETS to provide funding being the primary one. I do not think it is as simple as that, though; as the report alluded to, Germany’s opposition to it and the lack of public support have also dented its progress.

A number of things are being considered in the EU right now regarding the ETS directive. They include the application of an energy performance standard similar to the product standard that the EU has shown that it can manage quite effectively for vehicles, the idea being that perhaps now the time has come for product standards for power stations as well. There is even talk of a new form of support for CCS in the form of mandatory CCS certificate trading as a potential additional support mechanism. It would be interesting to hear what the Government’s thinking is on the potential for additional measures for CCS at the EU level.

The noble Lords, Lord Giddens and Lord Kerr, have alluded to the claim that the failure of CCS and the ETS has led to a return to a quite substantial reliance on coal. It will come as no surprise that this is an issue that I care about, as it affects not just Germany and indeed Poland, which has always been and continues to be heavily reliant on coal, but the UK. Policies are in place in the UK to try to ensure that we do not see a continued long-lasting reliance on coal. I hope that that will continue to be monitored carefully to see that there is no swing back to more coal, mothballing of more gas or life extensions being applied to our existing coal stations. This is a gap in our policy at UK level and indeed at European level, and it needs careful monitoring.

There are many other topics, not least shale gas, that I think we will have a chance to debate tomorrow on the Floor of the House, with a topical Question tabled for then. It is clear to me that sometimes people and mining do not mix, and we might be about to discover quite how they do not mix in parts of England. I do not think that anyone can know for certain whether shale gas is the nirvana that is claimed and can provide the low-cost, affordable, low-carbon energy that we all hope that it can, or whether it will be held up even almost before it gets to start by a lack of public support. It is another of the great uncertainties of energy policy, and it is one that will no doubt develop over time—probably quite quickly, knowing how these things tend to operate.

My final thought—I notice that I am slightly over time, so apologies for that—is that if I could politely ask the committee to consider a future topic, it would be that environmental regulation carried out by the EU has been shown to be successful. The large combustion plant directive and the industrial emissions directive are worthy of further study. That could be tied in with the CCS directive currently being discussed, along with a look at the non-market regulatory interventions into the energy market that are having a big impact. They tend not to be really dealt with or understood in great detail. I must confess that trying to get to grips with the IED and all its details and flexibilities is quite a task.

Perhaps the committee might consider taking some evidence on those important energy-related regulatory instruments, to complement the work it has done on the ETS and other policies in this report. I for one would find that incredibly helpful. That is no reason to do it, but I think that there are some good cases for seeing what Europe has done in a regulatory way. This could be compared with what has happened with vehicles, vehicle standards and product standards, and then seeing how that could translate across to energy. We have had a fantastic debate. I apologise for speaking slightly over time. I very much look forward to hearing from the Minister.