Baroness Worthington
Main Page: Baroness Worthington (Crossbench - Life peer)Energy Bill
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Baroness Worthington
“(9) Where carbon intensity of electricity generation is reported to have increased year on year for not longer than three consecutive years, starting from the date of Royal Assent, the Secretary of State shall report to both Houses of Parliament, setting out both the reasons for the increase and the additional actions that will be taken to reverse this increase in carbon intensity.”
Baroness Worthington (Lab)
My Lords, during our scrutiny we have come to know this Bill as the “decarbonisation Bill” as it has passed through this House. It has been referred to in that way by a number of noble Lords and it is a reasonable description. The Bill represents a significant intervention in the electricity market that is justified on the basis that it will help to decarbonise our electricity system. Noble Lords will be aware that we have had lengthy discussions about the setting of a decarbonisation target in the Bill in order to give that clarity of purpose and to create a responsibility on the Government to deliver through the powers that they are taking. Unfortunately, we were unsuccessful in bringing forward the setting of a date for the setting of such a target. However, on Report the Minister was kind enough to give a partial concession in relation to the Government’s commitment to monitoring carbon intensity and to acting if carbon intensity remained high. The concession was that, should carbon intensity rise year on year for three consecutive years, the Government would report to Parliament, setting out why this was the case and the additional actions that would be taken to counteract that increase.
The concession is welcome. It is not a replacement for a carbon intensity target by any means, partly because carbon intensity is currently at an astonishingly high level. This is because the merit order currently favours inefficient old coal plant over more efficient, cleaner gas stations. Therefore, currently carbon intensity is higher than would otherwise be the case. Intensity seems unlikely to increase. If it did, something would be seriously awry with government policy. The concession, while welcome, does not go far enough but I should hate to lose it. The purpose of this amendment is to place that commitment in the Bill to introduce into it a measurement of progress and a mechanism through which the Government will report back to the House on that progress and take corrective action.
It is fair to say that the interventions in this Bill and the powers that are given to the Secretary of State are so extensive that they ought to be matched with responsibility and a system of holding the Government to account to see that they are delivering. The measure of progress should be carbon intensity, the issue the Bill seeks to address. Therefore, I hope the Minister will accept this amendment in the spirit of enhancing that important part of the Bill that justifies why it has been introduced and the powers that have been taken. I beg to move.
Lord Teverson (LD)
My Lords, this is a worthy amendment. However, Parliament is grown-up enough for those of us who are interested in these issues and see them as really important to notice what happens and seek answers from the Secretary of State and the Government about carbon intensity. The issue is important but the amendment adds little to the Bill.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, I thank the noble Baroness, Lady Worthington, for tabling the amendment. The Government fully support the aim of clear and transparent reporting. However, like my noble friend Lord Teverson, I do not think it necessary to introduce an additional statutory reporting requirement to the Bill as the noble Baroness proposes. I shall set out quickly the reasons.
First, as the noble Baroness recognises, at Report I made a commitment to Parliament that the Government would undertake reporting measures once any decarbonisation target range had been set. This would supplement those reporting measures that are already included within Part 1 of the Bill. I repeat what I said on Report, which was that,
“where carbon intensity is reported to have increased year on year for three consecutive years, the Government will explain the reasons why, and, where appropriate, report additional actions to address it within the annual statement of grid carbon intensity”.—[Official Report, 28/10/13; col. 1366.]
Secondly, it is important to recognise that, under the Climate Change Act 2008, there are already high levels of scrutiny of the progress made to meet our economy-wide carbon targets. This includes coverage of the power sector within the context of our wider economy. For example: the Government currently report annually on emissions in the power sector through the UK’s greenhouse gas emissions inventory; the Committee on Climate Change publishes an independent and impartial report each year on our progress towards meeting our carbon budgets and the 2050 target; the Government provide annual responses to the committee’s recommendations, which include a dedicated chapter on the power sector; and the Government publish updated energy and emissions projections each year, setting out the future trajectory we anticipate the economy taking.
Lastly, the amendment proposes that these reporting measures start from the date of Royal Assent. The Government’s view is that it is logical for any additional reporting measures to be triggered by the setting of a decarbonisation target range rather than by the enactment of the Bill. That would ensure alignment with the existing reporting framework that is already included in Clause 3, and we should not forget that we already report on grid carbon intensity ahead of any decarbonisation target range being set. Section 5 of the Energy Act 2010 requires a three-yearly report to Parliament on progress in decarbonising electricity generation. That report sets out the policy framework and explains trends in grid carbon intensity over the reporting period.
In conclusion, the Government are already proposing a clear and robust target framework that includes regular reporting on progress in meeting any target range. That is in addition to the high levels of scrutiny that are already in place to meet our economy-wide carbon targets. For those reasons, it would be unnecessary to introduce another statutory reporting requirement. I hope that the noble Baroness will agree with me that the existing commitments are sufficient and will, on that basis, withdraw her amendment.
Baroness Worthington
I am grateful to the Minister for her response and for the contribution from the noble Lord, Lord Teverson. I agree that we are all mature in looking at these things and that people who scrutinise and follow this in detail will raise issues as they occur. However, something is clearly not working, otherwise why is it that carbon intensity has been allowed to rise to such high levels recently with the Government apparently incapable of acting to bring it down? Obviously, many factors play into that, but the whole purpose of the Bill is to bring some of those factors under greater control and to allow the Government to intervene in the market to create contracts for difference that bring forward investment in the low-carbon economy that would not otherwise be supported by the market.
There is a problem, given that carbon intensity remains stubbornly high; the measure of the success of the Bill will be that starting to fall. It is regrettable that the Government are not prepared to start monitoring that or reporting on it, in terms of actively managing it, until 2016, which is a number of years away. I understand that the Bill has existing requirements on reporting carbon intensity, and that it is routinely reported now, so I am happy to withdraw, but this is something we need to keep a close eye on. I am sure that the noble Lord, Lord Teverson, and others will join me in ensuring that we do just that.
Baroness Worthington
My Lords, we support the amendment moved by the noble Lord, Lord Jenkin. Possibly it is merely an oversight that those who wish to become capacity providers are currently excluded from the list of consultees. As the noble Lord has explained, this part of the Bill is very important and should be open to new and independent players to attract them into the market. If all the capacity mechanism does is provide security to the existing incumbents, it will have failed in its aim to deliver capacity at least cost, with a good degree of competition enabling prices to be kept to the minimum. Given the context, it is an eminently sensible amendment and I really hope that the Minister will be able to support it.
Baroness Verma
My Lords, I thank my noble friend Lord Jenkin for his amendment. Both the electricity capacity regulations and the capacity market rules form the legal framework that will enable the introduction of the capacity market. The capacity market rules will be subsidiary to the regulations, for which the Secretary of State will continue to have responsibility.
Much of the content of the capacity market rules will comprise provisions of a technical and administrative nature, designed to supplement the regulations and ensure the efficient running of the capacity market; for example, the rules will set out how the delivery body is to conduct capacity auctions and the pre-qualification process, as well as its duties to maintain a capacity market register and carry out monitoring and testing.
Given the technical and administrative nature of the rules, we therefore expect changes usually to be of a minor and technical nature, with the primary purpose of ensuring the efficient operation of the capacity market. It is important to make the duty to consult on those changes proportionate, and to get the balance right between consulting widely and implementing the change within an appropriate timeframe.
Potential capacity providers may not necessarily be affected by a proposed rule change in the same way as existing capacity providers; for example, existing providers will have rights or obligations under the capacity market that might be affected by a change in the rules. I am therefore of the view that potential capacity providers should not be added as parties that the authority must consult on every proposed change.
Nevertheless, it is important that if the authority were to propose a significant change to the rules that affected a wider range of parties, consultation on that change should go beyond existing suppliers and capacity providers. I therefore reassure my noble friend that we expect the authority to consult more widely, as appropriate, for any significant changes to the rules that might affect a wider range of parties, such as prospective capacity providers. This is reflected in the draft electricity capacity regulations 2014, published for consultation in October, which would oblige the authority also to consult the Secretary of State, the delivery body and,
“such other persons as the Authority considers it appropriate to consult”.
The authority will be producing guidelines on the process it intends to follow for making changes to the capacity market rules, including its processes for consultation and for considering rule changes proposed by a third party. The authority intends to publish these draft guidelines next spring before finalising them, allowing all potential capacity providers the opportunity to comment on them.
I hope that my noble friend has been reassured that the consultation provision in the Bill is not exhaustive and that the authority can, and will, consult more widely where appropriate. I hope, therefore, that he will withdraw his amendment.
Baroness Worthington
Baroness Worthington
My Lords, this amendment follows on from our discussion about the decarbonisation aspects of the Bill. Noble Lords will be aware that an important amendment was successfully added to the Bill at Report. It would close a current drafting loophole in the Bill that would allow old, inefficient, polluting coal stations to upgrade and seek extensive life extensions without the need to comply with any kind of emissions performance standard. This will now, of course, be debated in the Commons, and we look forward to seeing the results of that.
However, in succeeding in having this part of the Bill accepted, an interesting definitional issue has arisen. Bear with me as I try to explain it. The industrial emissions directive, which requires tightened quality standards to apply to coal stations from 2016, applies at a station level. A station is defined as “a common stack”, meaning a chimney that can be used by multiple units. This has interesting implications because the EPS limits can therefore be met by one unit upgrading to fit filters while another unit remains unabated but still operating unencumbered and at full capacity. Our intention in closing a loophole that could potentially extend coal’s life span to late into the next decade was that the EPS should apply at the same level at which the IED applies, meaning that if a station with four units decided to retrofit two of the four in order to comply with the IED, the station as a whole would then be caught by the EPS.
Baroness Verma
My Lords, I am grateful to the noble Baroness, Lady Worthington, and I hope that I can add a little clarity on the matter she has raised. Under the existing provisions, and save for the circumstances provided for under Schedule 4, the EPS will apply to the entire generating capacity of any new fossil fuel power station consented after the EPS comes into force. For example, where planning consent is given for a new fossil fuel power station, the generating units that comprise the consented power station are, for the purposes of the EPS, the “generating station”.
A generating station will report its carbon emissions under the EU Emissions Trading Scheme and the intention is that those reports will be used to reconcile total carbon emissions in a year against the EPS limit for the generating station, which is calculated using the formula in the Bill—I hope that noble Lords are following me thus far.
In respect of the circumstances provided for under Schedule 4, paragraph 1(1) of Schedule 4 gives the Secretary of State a power to make regulations to apply the EPS to a generating station consented before the EPS came into effect where it replaces or installs an additional main boiler—so where it effectively adds to or renews its generating capacity.
Paragraph 1(1)(b)(iii) of Schedule 4, on which the Government were defeated on Report, would extend the scope of Schedule 4 to enable the Secretary of State to apply the EPS also to an existing generating station that fitted substantial pollution abatement equipment. The exercise of the power to make regulations under Schedule 4 is at the discretion of the Secretary of State, and it would be premature to comment on whether or how that power may be used.
Sub-paragraphs (1) and (2) of paragraph 1 of Schedule 4 together allow the EPS to be applied with or without modifications and to different parts of a generating station. For example, it could be applied to only those units that are new or have replacement boilers or to only those units that have fitted substantial pollution abatement equipment.
While I recognise that the proposed amendment may be one way of determining how the EPS will apply to fossil fuel plant, it does not cater for a wider range of circumstances in the way intended by Schedule 4. The regulation-making power in Schedule 4 provides for alternative approaches and, due to the potential complexities and impacts on existing assets were we minded in the future to exercise these powers, we would want to consult fully on possible options before making regulations. I believe that this would provide a more properly informed debate and I therefore ask the noble Baroness to take my reassurances at this stage and withdraw her amendment.
Baroness Worthington
My Lords, I am grateful to the noble Baroness for her reply. Discretion gives flexibility but equally it gives a lack of certainty for industry. I am not quite sure why this proposal is premature as we need to give clarity to those affected by this Bill as soon as possible. It seems to me that in maintaining this discretion, we are prolonging lack of certainty for the industry. I think that it is very important that we do this consultation quickly and that we give clarity as soon as possible, whether that is through the regulations that follow or in a separate process. I am sure that there are many people sitting in boardrooms around the country looking at their assets, who need to know this information and need to know how the department is interpreting its powers.
If the department is minded to have an EPS apply only to the units which fit the filters that make the upgrade, that will have the very perverse affect of allowing unabated plant—the other corresponding units—to operate indefinitely at very high load factors. That is precisely what we are trying to avoid with this amendment. There is a very strong reason why we do not believe that discretion is necessary and why the definition should be at a plant level. However, I understand that the Government may wish to consult and to seek a little extra time before making this issue fully clear. I hope that that is completed in the shortest time possible, as prolonging uncertainty will make life harder for the industry and investors in deciding what their next move should be following the passage of the Bill. I beg leave to withdraw the amendment.
Lord Teverson
My Lords, one of the things that I certainly enjoy when I get up when I am at home is seeing a living countryside rather than the one bathed in aspic, as some of my colleagues sometimes talk about. It is great to see a countryside that is there alive helping to generate the power that we need for this country and for its economy to move forward. It is a great delight to me and to many of my colleagues.
Baroness Worthington
I support my noble friend’s amendment. Getting the regulator to incorporate social and environmental factors was a hard-fought battle. It would be a great shame if the passing of this Bill should see us going backwards on that front. I am grateful to the noble Viscount for the correction, although I prefer quadlemma, because we can then talk about the effect that Cuadrilla will have on the quadlemma. I look forward to the Minister’s response.
Baroness Verma
My Lords, I thank the noble Lord, Lord Judd, for his amendment and for raising the matter of Ofgem’s social and environmental duties. I recognise the importance that the noble Lord and others attach to this. It is recognised in primary legislation, which sets out Ofgem’s duties, including those concerned with environmental sustainability and social issues. The noble Lord will be aware that Ofgem has other duties, including its principal objective to protect consumer interests, including their interest in a reduction of greenhouse gases and security of supply, as well as duties to promote efficiency and economy and the need to ensure that energy businesses are able to finance their activities.
The Government recognise that Ofgem’s role to a large extent is concerned with identifying what is an appropriate balance between all of those different objectives. This is a case of an independent economic regulator. The Government’s principles of economic regulation state that,
“regulatory decisions are taken by the body that has the legitimacy, expertise and capability to arbitrate between the required trade-offs”.
In the case of energy, that body is, of course, Ofgem.
We are introducing the strategy and policy statement as a result of the Ofgem review, which concluded that this was necessary to provide more coherence between the Government’s strategic energy priorities and the way Ofgem regulates the energy sector. It is crucial, however, that the statement should not undermine independent regulation. The review also concluded that Ofgem should remain responsible for the consideration of trade-offs between economic goals and broader goals, including social and environmental matters. That is why Ofgem will now have additional duties to take into account the contents of the statement when carrying out its own regulatory functions, which will stand alongside its existing duties. As before, Ofgem will be expected to continue to achieve the appropriate balances between its objectives.
The strategy and policy statement will set out the Government’s strategic policy and identify policy outcomes which are relevant to what Ofgem should achieve, but it will not specify how Ofgem should act to achieve these outcomes or specify outcomes in a way that would compromise Ofgem’s independence. It is not necessary to restate Ofgem’s objectives within the strategy and policy statement and it would not be appropriate to include text which could be seen as directing Ofgem on how it should interpret its duties.
I repeat my previous reassurances that we will take social and environmental matters into account when we draft the strategy and policy statement and that there will be opportunities for interested parties to comment on its contents when we consult next year. Both Houses will be able to consider the contents of the statement before it is designated.
My noble friend Lord Jenkin raised the role of the Environment Agency. Ofgem is a regulator of the energy sector and the strategy and policy statement is aimed at achieving coherence between government energy policy and regulatory actions. It is not aimed at doing the work of the Environment Agency which, as my noble friend rightly said, is a duty on that agency.
However, the noble Lord, Lord Judd, and others have raised important points about visual amenity and other environmental concerns. Existing planning and environmental habitat legislation are operating in tandem with national policy guidance on planning matters. This provides the framework to ensure that this is done, and done properly. Environmental impacts are considered at all stages of the planning process, from the development of proposals by applicants, including, for example, through preparation of environmental statements, to consideration by the Planning Inspectorate and final determination and assessment by the Secretary of State. Environmental considerations are also taken into account when government are taking policy-making processes. Key guidance on considering planning for nationally significant infrastructure projects is contained in the national policy statements.
There is a lot already out there for Governments to utilise so, given all those reassurances, I hope that the noble Lord, Lord Judd, feels better reassured and will therefore withdraw his amendment.
Lord Roper
My Lords, this proposed new clause follows up debates we had in Committee and on Report and is, I believe, a matter of considerable importance. I shall therefore listen with great care to what the Minister has to say in reply.
Baroness Worthington
My Lords, here we are at Third Reading debating an issue of such fundamental importance that it merely serves to illustrate the point that, although this Bill is considerable in size and breadth, it fundamentally fails to do what it says it is going to do: that is, reform the market.
Although I am sympathetic to the defence of this amendment that has been put forward, it simply is not enough. It hinges on whether one believes that a review undertaken by Ofgem will deliver anything. On this side of the House, we are absolutely certain that it will not. We have had numerous reviews from Ofgem, and Ofgem has clearly demonstrated that it is not fit for purpose. That is why the Labour Party and the leader of the Opposition have been absolutely crystal clear that under a Labour Government we would have a complete restart of that regulatory body to refocus it on putting the consumer first and bringing genuine competition across the market, not just in supply, tariffs and the consumer-facing parts of the industry, but all the way through the chain. That includes the generation market and the wholesale market, but also, importantly, the regulated aspects of this industry.