Baroness Worthington
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Energy Bill [HL]
Baroness Worthington Excerpts(9 years, 2 months ago)
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Lord Bourne of Aberystwyth
My Lords, it is not for me to determine whether the conditions are met. There is a process set out in relation to those projects that would be able to deploy and, if they have suffered a hiatus, for them to come forward with the claim in relation to how much it is. It is not going to cost any additional money, because it just gives them additional time in which to deploy. As I am coming to, it gives them approximately another nine months. It is not an additional amount of deployment; it is some projects that will deploy being allowed additional time to meet the conditions.
Baroness Worthington (Lab)
My Lords, perhaps I can help the Minister out, if I may. We have had estimates from the independent renewable energy group to say that the projects that have fallen just the other side of this cut-off deadline that the Government have imposed have costs in the region of £350 million.
Lord Bourne of Aberystwyth
With respect to the noble Baroness, this is not about those projects that fall just the other side of the line; this is about those projects that can satisfy the conditions being given additional time. This does not bring any more deployment in. That is a quite separate point, if I may say so.
Lord Howell of Guildford (Con)
My Lords, I was not going to intervene at this stage, but the right reverend Prelate’s intervention and his association with my noble friend Lord Lawson’s Global Warming Policy Foundation prompted me to pursue the point that he raised. A lot of our discussion has been on the penalties —in other words, the removal of subsidies from people who thought that they had a chance of the subsidy when they started their projects. That is aside from whether the project is environmentally okay or whether they get local government approval for planning reasons and so on; it is simply the question of whether they were caught by various delays and, therefore, would not get the subsidies that they thought they would get when they set out.
We are not in any way trying to stop the development of the very successful parts of the onshore windfarm industry. As the noble and learned Lord, Lord Wallace, reminded us, electricity from wind power is getting cheaper. If it is getting cheaper, it will in due course need less subsidy. Remarks from outside this country—particularly an ill-informed remark by the UN adviser, Professor McGlade, that somehow Britain was putting a stop to its movements towards low-carbonisation by putting a stopper on all wind power and so on—are way out of kilter and far from representing where we stand.
It is no less interesting to work out to what extent these grace periods will help the situation—I thoroughly approve of all the amendments that my noble friend has brought forward with such assiduity. Presumably, as a result of these grace periods, we will see slightly more subsidy paid out, which has to come from the consumer—the industrial consumer in particular—than we would have done before he introduced the amendments. The money that was not going to come from somewhere has to come from somewhere. Somebody will have to pay for it. This is on a day when we are staggering under the colossal redundancies that have been announced throughout the steel industry—including the steel industry in Scotland—which, we are told, are overwhelmingly the result of very high energy costs. Apparently, for electricity, we are paying twice the German level. In turn, of course, energy costs for the steel industry of Europe are leading people to predict that the entire industry will be wiped out. At a time like this, we need to watch with needle sharpness what is happening to the costs that are falling on the industries where all these jobs are being destroyed. How much more of that cost is still going to persist in meeting all the grace period conditions which the noble and learned Lord, Lord Wallace, with his massive legal knowledge and detailed grasp of the situation, has described as being necessary and fair? How much more will this kind of fairness cost in the end in burdens on the electricity users of Scotland and the rest of the United Kingdom in ways which will precipitate even further these appalling redundancies? We need to keep that side of the argument very clearly in our minds.
Baroness Worthington
My Lords, I am grateful to the Minister for introducing the government amendments. I will speak to those and also to Amendment 78C in my name, and in support of the amendments tabled by the noble and learned Lord, Lord Wallace.
As we enter the second day of Report, I do not feel that the Bill has been well handled, as has already been referenced. This may stem from the fact that the Bill was not ready when it was presented to us. Significant areas of policy were still being developed. It was a very fluid situation. In fact, the term “liquid legislation” will probably stay with us for many years to come. It was coined by the noble Lord, Lord Howell, in the recommital stage of Committee and describes very accurately how we have been dealing with a set of moving parts as we have gone through the Bill. Here we are on Report, but it still feels very much like a Committee stage, and that is regrettable. We should not be in this situation where we have so many controversial issues still unresolved.
Throughout the Bill’s passage, I have pressed the Minister to give me a justification and a sound argument why the Government have chosen the route that they have in this Energy Bill of introducing what is now Clause 66 regarding the early closure of a renewables support scheme that was already closing 12 months early—and, in fact, not closing it to everybody but just to one subsection of technology: onshore wind. Why do we find ourselves in a place where the Government appear to have singled out for special treatment a single technology from all the low-carbon technologies available to us, and where that special treatment is so damaging and corrosive to investor confidence? I am afraid that I have not received a suitable answer to that question throughout the passage of the Bill. Now the answer given boils down to a very few words that appeared in the Tory Party manifesto, that the Conservative Party would put an end to—
Lord Bourne of Aberystwyth
I am most grateful to the noble Baroness for giving way at that point, which is a very material point. The measure was in a manifesto which was taken to the country and a Conservative Government were elected in May. As the noble Baroness will know, the Salisbury convention has previously indicated that what is in a manifesto is allowed passage through the House of Lords. I value the House of Lords and its traditions and I fear that if we refer in a rather dismissive way to something that was in a party’s manifesto as somehow not being important, in the way that she did, that is a very serious pivotal moment for the House of Lords. I hope that she will consider that.
Baroness Worthington
I am grateful to the Minister for that intervention. Of course I am aware of the Salisbury convention, but in this case we have a very ambiguous set of words which I am sure were thought about with care but certainly were not consulted on and no detail was applied. We are referring to a very short sentence. There are great ambiguities here. The actual phrase is,
“we will end any new public subsidy”,
for onshore wind. The word “public” is interesting because, strictly speaking, the payments come out of bills, not from the public purse. The word “new” is very interesting and open to very great interpretation. This was an existing support scheme and one that was already closing, and one on which, during the passage of the Energy Act 2013, in which I took part, there was a huge amount of consensus built, as well as engagement with industry, proper consultation and pre-legislative scrutiny to arrive at a suitable arrangement for winding-up the RO. That took many weeks and months of deliberation, and arrived at a line being drawn. The Government say that they need to draw the line somewhere. Actually, that line was drawn. It has now been moved and the process by which it was moved did not pay enough tribute to or treat with enough respect the investors in British industry whose confidence this is now undermining. It is for that reason that I do not interpret the Salisbury convention as applying to Clause 66.
We can have that debate when we come to the next amendment because although in this group we are discussing the amendments on the grace periods, when it comes to the next amendment we reserve the right to vote to delete this clause from the legislation for the reasons that I have begun to outline. Throughout the passage of the Bill I have not received an adequate explanation of why this particularly damaging clause has been introduced by the Government in the way that it has, with such little attention to detail and so little public consultation on the implications.
Lord Foulkes of Cumnock
I endorse what my noble friend has said. She is absolutely right. When we come to the next amendment, which she is going to move, I will make it absolutely clear, in endorsing my noble friend, that we have been misled by the Government in relation to the manifesto and the interpretation of the manifesto. The Minister is shaking his head but my noble friend is absolutely right and I will underline that in more detail when we get to the next amendment.
Baroness Worthington
I am grateful to my noble friend for his support. The concerns that I have raised consistently throughout the passage of the Bill relate to the Government’s analysis which concludes that we simply do not need any more onshore wind. This is based on false projections of how we are doing in relation to our legally binding EU renewable energy targets. Those targets relate to power, heat and transport. It is true that we are doing reasonably well on power but we are not on track for delivery of our targets on transport or heat. The projections that the department is now having to produce to pretend that it will get to those targets stretch credibility. There is a hockey stick of deployment expected in the other two sectors which is simply not credible. We are tying our hands behind our back, removing from our low-carbon armoury one of the cheapest, safest and most easily deliverable technologies—onshore wind.
I almost feel that I ought to be presenting a eulogy for the wind industry in the UK because it deserves respect. It has a 25-year history. The House almost certainly knows that it was first supported by Margaret Thatcher in 1990. The first support mechanisms were brought in for wind around that time. She recognised the science of climate change and she knew that we needed to address it. She also knew that it would be sensible for the UK to make the most use of its assets. We happen to be one of the windiest countries in Europe, something we should celebrate. In fact, we have been one of the best markets for wind technologies. Our shores have seen innovations and the development of new technologies that we can be very proud of. We have seen investment in jobs and infrastructure, particularly in those parts of the country that need inward investment—I am referring to Scotland and Wales—a great pouring-in of interest and money that has helped to generate jobs at a time when they are sorely needed.
I am not saying that wind farms need to be put everywhere and that everyone should accept them. I actually think that the Government’s other manifesto commitment that local people should have a say in them is a sensible measure. That is something that the Government have sought to introduce through planning. The closure of the support mechanism has to be taken in the context of the other things the Government have done to stop onshore wind, including quite significant changes to planning.
Viscount Ridley (Con)
Before the noble Baroness gets to the end of her eulogy for the wind industry, will she confirm that this is the new Corbyn Labour Party’s policy—to eulogise an industry that is particularly good at rewarding rich people, including landowners, by loading the bills that hurt poor people most?
Baroness Worthington
We can debate who benefits most from our low-carbon agenda—possibly it is the Chinese at this particular juncture. However, in the context of closing the RO early, it is some of the smaller schemes—the independent developers and the independent renewable companies—that are suffering the most, and it is the larger companies that seem to be getting the grace period amendments that they need. It is the smaller guys who are losing out. This is not about rewarding the richest or the most powerful lobbyists—that is not what we are seeking to do.
As the noble Baroness, Lady Young, pointed out, this is about fairness and a common-sense test of whether, when you read those words in a manifesto in May, you then think, “Ah yes, I know what that means; it means that in about the middle of June, I will see an announcement from the Government that closes a scheme in which I have invested hundreds of millions of pounds, which is already closing with no consultation”. I hesitate to say that that passes the common-sense test, as I do not think it does. Indeed, we know it does not, because we have had a large number of investors come to us to say that this is not the way that they should be dealt with.
Normally, a consultation exercise is undertaken and then the results of that consultation are published. In this case, because we have been racing since 18 June to get everything ready in order to close the scheme early, even though it is closing anyway, we have not had a proper public consultation or publication of the results of any consultation. Therefore we are flying blind and having to work with large numbers of people contacting us to express their concern and dismay at being handled in this way by the Government.
The specific issue raised under Amendment 78C is another important one. As I have said before, I do not think this House will discuss this, but it will certainly be discussed, with far greater passion potentially, when it moves to the other place. Amendment 78C would simply repatriate the closure of the RO to Scottish Ministers. The reason for this is that during the passage of the Energy Bill in 2013, the Government had to take a power to repatriate the renewables obligation back to Westminster. We were told at the time that this would be a technical amendment and that this had to be done simply to make the closure easier, tidier and more efficient. However, we now see that this was not the case: this was a cynical move that gave the Government the power to close a scheme for Scotland without due consultation with Scottish interests. It flies against the spirit of the Smith commission agreement, which is seeking to repatriate more powers to Scotland and allow Scottish people to determine what they want to see built to provide them with clean energy in the future.
That brings me on to the question of fairness and whether the Government’s amendments, and their proposals for grace periods, are fit for purpose. It should be noted that although the announcement was made on 18 June—and a very hard guillotine introduced at that point—and some details were provided about potential grace periods, it was not until 8 October that we were given the full detail of the proposals. That is not a long period for us to consider them, and they are incredibly complex—I am very grateful to the noble and learned Lord, Lord Wallace, for his forensic and expert deconstruction of some of these issues. It is not appropriate for us to have to wait four months before we see the detail and, when we do see it, for it to be so substandard. This is a cause of great concern. It was of course quite a heated debate in Committee in the Moses Room the other week. That resulted in the withdrawal of the amendments, for which we were grateful. We hoped then that that would result in a bit of reflection and some clearer amendments coming forward.
I am grateful to the Minister for presenting the changes that were incorporated. By and large they were merely technical issues of clarification, but the biggest one, about planning and when you deem planning consent to have been given, remains unresolved. This is what is so strange about these grace periods. The anomaly here could not be more strange: because of the way the Government are interpreting this and putting it into legislation, if you are refused planning permission—if the local council signals that it is not content—and you then appeal and win that appeal, you will be able to get a subsidy. However, if you had consent from the local committee and it was clear that the community wished to see the development, but you were waiting for various formalities to be concluded which then came after the artificial 18 June deadline, you would not be eligible. That seems to fly in the face of the Government’s manifesto commitment—they are evidently keen on their manifesto commitments, as I am sure is right and proper—which is that they want local people to have the final say. There are clearly still weaknesses and great anomalies within the grace periods. The provisions already run to many pages, but we still need the department to go back to think again and come forward with something workable.
I do not want anything that I have said today to be interpreted as our desire to see endless subsidies for particular technologies continuing indefinitely. That is absolutely not the case. As I have said on previous occasions, the issue we should look at on which the Government have refused to give any clarity is what is happening with the new form of support, the contracts for difference, which replace the RO. That is the pertinent question, but whenever I have asked it, I am told that the Government will make a Statement in the autumn. It is not a good answer for an industry with 25 long years of history to be proud of to be told, “We will tell you your fate in our own good time at some point”—presumably, after the Bill has passed its crucial stages. It is not appropriate to be closing one scheme and not giving any clarity over what is to replace it.
My final concern is that the Government have left us little choice but to object to the provision. It demonstrates a Government who put ideology ahead of evidence. There is no place for ideology in energy policy. If the Government have set their mind against onshore wind, as they are demonstrating—that is evident from all that they have done—they are no better than those who take an ideological principle against fracking or nuclear. We should not be singling out technologies; we need every technology to play its part. Some technologies are better than others in certain circumstances, but there is no reason to decide that we should cease to support one over another, especially when it turns out to be cheaper than many of the alternatives, has a proven track record of delivery and is sustaining investment in our country.
I look forward to hearing from the Minister, but I doubt that he will be able to reassure me on those points, and it is for that reason that I reserve the right to press the amendment that follows.
Lord Bourne of Aberystwyth
My Lords, first, a rare moment of agreement: I suspect that I will not be able to satisfy the noble Baroness with the points that I am about to make. Nevertheless, I thank noble Lords who have participated in this part of the debate on the Bill.
Perhaps I may deal first with the Scottish issue, as it were—the amendment relating to Scotland, which I think only the noble Baroness spoke to. We are keen to do what is fair for Scotland—but no more, no less. That is a fair position. I reassure noble Lords that we are committed to implementing the recommendations of the Smith agreement and are doing so through the Scotland Bill. As agreed during the drafting of that Bill, the Government have and will continue to engage with the Scottish Government, as we do on a regular basis on energy issues, in line with the spirit of the Smith agreement, on all changes to the renewables obligation. That does not mean that we will agree; often we will not, sometimes we will. However, transferring legal authority to close the renewables obligation in Scotland to Scottish Ministers goes considerably further than Smith. That is nothing to do with the spirit of Smith; it is to do with the letter of Smith. As I see it, there was no suggestion that that should happen, but that debate—if there is a debate to be had—can no doubt happen on the Scotland Bill.
I turn to the issues raised other than the specific point on Scotland. As noble Lords have kindly acknowledged, I have sought to move on some of the issues. I thank the noble and learned Lord, Lord Wallace, for what he said—particularly in relation to my office. I can tell the noble Lord, Lord Foulkes, that my office often works those late hours, even when it is not dealing with the Energy Bill, as my staff will gladly tell you. I am very grateful for the massive efforts that they have made on the Bill and many other matters.
There seem to be two key differences between those on the Government and Opposition Benches. One is about subsidy. I noted what the noble Baroness, Lady Worthington, said about not believing in subsidy, but this is about subsidy. If she has not got that attachment to subsidy, that is the essence of this debate. It took considerable chutzpah to attack us for ideology on the Government’s energy policy. Her leader is against new nuclear and, I believe, against fracking.
Baroness Worthington
I do not wish the debate to descend into party politics, but since the Minister has raised it, it may well be the case that our leader is personally anti-nuclear and anti-fracking, but that does not mean that that is translated into a change in the position of our shadow DECC team. It would probably be sensible to discuss this with my honourable friend in the other place, Lisa Nandy, who is now the shadow Secretary of State and consult her on these matters. Jeremy’s style of leadership is not that he would impose that on departments.
It is ideological to single out a single technology on no evidence and treat it in the way that the Government are doing. I remind the Minister that being in government is not the same as being a political party and that drafting manifestos is very different from drafting the law of the land.
Lord Bourne of Aberystwyth
I note what the noble Baroness says, but this comes back to leadership. If its leader has materially different views, it would be good to know the Labour Party position on those issues. On ideology, I reassure her that we are not against wind. We have wind deployed offshore, and I hope we will continue to have wind deployed onshore. It will just be without subsidy. That is rather different from saying “No new nuclear” and “No fracking”. It is saying “No subsidy”, which is very different.
Baroness Worthington
Perhaps the Minister can clarify something that appears in the Conservative Party manifesto: that there will be new nuclear without subsidy. Does that mean that contracts for difference are not subsidy, in which case contracts for difference can presumably be applied to onshore wind?
Lord Bourne of Aberystwyth
I have made the position on contracts for difference very clear, as I think the noble Baroness appreciates. We will set out the position on contracts for difference this autumn, not at an unspecified date in the future as she suggested in her contribution. That is not long to wait. We are in the autumn now, so I hope that she accepts that an announcement on that will be forthcoming shortly.
I do not want to go over old ground again. We have a cut-off date. I accept that cut-off dates are arbitrary. In Committee on recommital and today, the noble and learned Lord, Lord Wallace, made telling contributions, but he suggested that we were taking a legalistic approach to this. It is likely that we will. As he will appreciate, this is legislation. We want it to be certain and for businesses and others to know where we are on this. I accept that dates will be arbitrary, but we have selected a date. Noble Lords have been indicating that they want certainty. We are delivering certainty. We have a basic difference of opinion on these issues. I do not think it is capable of resolution, as it was on the Oil and Gas Authority where we had a basic unity of view. We have a different view on onshore wind. We believe that the Salisbury convention applies here. I disagree with the suggestion that there is something ambiguous about the position in the manifesto. It was made very clear and nobody should have been taken by surprise by this, so I differ materially from what I am sure is the opinion honestly held by the noble Baroness, Lady Worthington, but I cannot see that we can resolve some of these issues because of the basic difference between us.
Baroness Worthington
Baroness Worthington
My Lords, I am sure that people will be very pleased to hear that I do not intend to repeat the speech that I made in the previous debate. As noble Lords will be aware, we have tabled an amendment to delete Clause 66 from the Bill. The reason for this is that we do not believe this legislation is ready or has had the right consultation applied to it to ensure that it is fair. We do not find it satisfactory to be told that we will hear about the replacement mechanism in the autumn; it is the autumn now, and in the course of the Bill we should have information about what the Government are planning. As I have said, we have detailed concerns about the grace period.
I want to pick up on the issue of costs, which has been raised by the right reverend Prelate the Bishop of Chester and the noble Lord, Lord Howell. To be clear, in the Government’s impact assessment the overall estimation of what the measure will save is 30p for a household for a year. The sum that the Minister was kind enough to present us with was £270 million overall, which is a tiny proportion of the amount of money that we are going to have to spend to decarbonise and renew our energy system. It is certainly less than the £350 million in capital that has been sunk into projects that are now falling foul of the artificial grace period. Overall, then, Clause 66 does not deliver a great deal of value to the country as a whole—certainly not to the wind industry, but it does not serve UK plc’s purposes either.
Turning to the point made by the noble Lord, Lord Howell, about the steel industry, I completely accept that the situation is now very grave. The answer to the steel problem is about enabling it to invest in new, cleaner infrastructure. Not only is there a vast global oversupply of steel but we ourselves also have an ageing and inefficient infrastructure. We need reinvestment, and I believe that the way to do that is by helping the industry to invest in green infrastructure and carbon capture and storage. It will actually be through more green measures, not fewer, that we save ourselves. The steel industry’s electricity bills are a tiny proportion compared with its process emissions; in fact, it is true to say that for nearly all the green measures that apply to electricity the steel industry receives compensation. Please let no one be under any illusion that anything we are doing today will help to bring about the demise of the steel industry—far from it.
Viscount Ridley
I am grateful to the noble Baroness for allowing me to intervene again. She and I have had an exchange on Twitter about this and now I am bringing it forward to this House. Is she aware of the comments made in July this year by Karl-Ulrich Köhler, the European head of Tata Steel, when commenting on European green emissions policies? He said,
“it is very difficult for the colleagues”,
in India,
“to understand why Europe’s politicians undermine the competitiveness of their steelmakers”.
Baroness Worthington
I sometimes also wonder about the European policy and in particular why we have not moved further and faster on carbon capture and storage. It makes sense to me that that should be the technology that will enable us to have steel and still meet our climate change targets. As with many things in Europe, it all boils down to what Germany thinks, and unfortunately, Germany has set its mind against carbon capture and storage. We do not need to, thankfully, and we should press ahead.
To return to another form of low-carbon energy which has an important role to play—onshore wind—I have made it quite clear that I do not believe that this is good legislation, and I have not been reassured why it is being pursued other than it seems to be quite a political move by the Government. The costs certainly should not be a reason for us to consider that this should be brought through. As regards meeting the EU targets, it is simply not true that there is no more room for onshore wind and that we should be throttling back.
We have greatly destabilised investment in the UK, which used to be one of the leading destinations for investment. The hasty, rash and poorly thought-through policies of this Government in their early months in government have produced shock waves. Many other people are also saying this, such as John Cridland at the CBI, and the Government’s funder, Dennis Clark, has sounded an alarm that the Government’s policy now appears to be having very little positive effect and a great deal of negative effect on investor confidence.
For all those reasons and for the reasons I have outlined with regard to it being inappropriate to proceed with this poor legislation, I suggest that we delete it, give the Government more time to consider this in the other place, where I am sure the debate will continue. I beg to move.
Lord Foulkes of Cumnock
My Lords, I have been wondering during the entire consideration of this debate why there has been such undue haste. This is a very important technical measure, yet great suggestions put forward by the noble Lord, Lord Oxburgh, and others that we might have pre-legislative scrutiny and bring some experts together to look at aspects of it have all been cast aside. This is being rushed and pushed through because of some ideological desire which the party opposite seems to have.
The Minister mentioned the manifesto again and again in his speech. I notice, because I was just checking earlier on, that Norman Smith of the BBC has been saying that this is another area where the Lords might challenge the Government on something in their manifesto, and the Salisbury convention is being held up and waved at us.
I therefore took the elementary step of going back, as my noble friend did and mentioned earlier, to what is included in the Conservative manifesto. Do all noble Lords opposite know exactly what was included? I wonder if they really do. It said:
“Onshore wind … makes a meaningful contribution to our energy mix and has been part of the necessary increase in renewable capacity”.
That is a very positive statement. It continues:
“Onshore windfarms often fail to win public support, however”—
well, if they do not get public support, and are not supported by the local planning authority, they do not go ahead—
“and are unable by themselves to provide the firm capacity that a stable energy system requires”.
No one is suggesting that “by themselves” they provide a firm capacity for a stable energy system—they contribute towards a diverse energy capacity. It goes on:
“As a result, we will end any new public subsidy for them”—
as my noble friend said—
“and change the law so that local people have the final say on windfarm applications”,
which I agree with. But is it a new public subsidy? I argue that it is not. It is a public subsidy which we all knew about and which the investors understood was going to continue until the end of October 2017. It is not new. Presumably it was budgeted for by the right honourable Chancellor of the Exchequer. Presumably it was all taken account of in the department’s budget and the department knew that it was happening, so it is not a new public subsidy. The Conservative manifesto is quite clear and our amendment to remove Clause 66 does not in any way go against it.
Viscount Ridley
My Lords, in declaring my interests at the start, I reassure the noble Lord, Lord Foulkes, that my family benefits from one wind turbine but that I give the money away to charity. I thought that he might like to know that.
This is a manifesto commitment and I have never heard such extraordinary legal sophistry from the Opposition on this question. Under the “Foulkes convention”, as we may have to call it, at the next election we will have to have a negotiation between lawyers representing both parties to get the exact wording of manifestos agreed or nothing will be able to get through the House of Lords. That is essentially what is being argued. It is a perfectly common-sense statement that was in the manifesto and we are committing to it—and we are facing a potential constitutional crisis in the way that the Opposition are treating the Salisbury convention.
It is an astonishing suggestion to hear that reducing a subsidy to an industry is an ideological objection to that industry. My objection to the wind industry is not ideological: it is economic and scientific. Wind is making a trivial contribution to our energy supplies—it supplied 4% of our total energy use last year—and an even smaller contribution to carbon dioxide reductions. At Second Reading, the noble and learned Lord, Lord Wallace, responded to my question about how much carbon dioxide emissions have actually been reduced by the wind power industry by very kindly sending me a link to a calculation that 1,800 tonnes of carbon dioxide emissions are displaced or reduced by each 2 megawatt wind turbine. Well, do the maths on that. That means that with 10,000 turbines of roughly that size in this country, 20 million tonnes or so would be reduced. But that is out of 700 million tonnes of emissions, so it is a reduction in carbon dioxide emissions of less than 3%—and that assumes that it is displacing grid average emissions, which it is not: it is mostly displacing gas. Nor does it take into account the intermittency or back-up—the point made by my noble friend Lord Spicer—which means that our total wind fleet that we have built up over 25 years, hugely subsidised, is giving us a reduction in emissions of about 2%. That is lost in the statistics. It is an Asterix—sorry, I mean an asterisk—and it comes at a huge cost. Wind subsidies cost this country about £4 billion a year. For that money, one could buy an extra 25% of electricity at the wholesale price, which is an enormous amount.
As I said earlier, in subsidising wind farms we are robbing the poor to pay the rich. It is a regressive subsidy. It hits poor people harder than rich people and rewards rich people more than poor people—not just landowners, but investors of other kinds. We are also killing jobs. We know that the high cost of electricity has killed a number of energy-intensive industries: for example, the aluminium smelter at Lynemouth, in Northumberland, to which I drew attention a number of years ago in this House.
Baroness Worthington
I am grateful to the noble Viscount for giving way. He makes a lovely speech, but actually we are debating the impacts of Clause 66, which, as I have pointed out, saves 30p on a household’s bill. We can have a lovely debate about the role of CFDs and replacement subsidies, but we are here, on Report, looking at Clause 66, which is a very specific intervention that has destabilised investor confidence.
Viscount Ridley
I do not know where I was five or 10 minutes ago then, when I was listening to a lot of very wide-ranging remarks about whether our opposition to the wind industry was ideological.
I find it odd that the parties opposite are so keen to defend one particular industry—one that is really good at taking money from poor people and giving it to rich people while doing the square root of nothing to reduce emissions, killing eagles, hurting tourism, spoiling landscapes and killing jobs.
Lord Bourne of Aberystwyth
It is neither of those, if I may say so. We have had an engagement exercise with industry, the devolved Administrations and others to look at those who would be prejudiced by the proposal as set out on 18 June. In consequence of that, the grace period that we have put forward—which I think we have agreed to as it stands—is that if you have a planning permission, a grid connection and land rights as at 18 June, you have additional time. We have also moved in relation to the investment freeze condition and appeals to try to achieve that. So, following the engagement exercise launched after the decision which was taken on 18 June, we have catered for those with a legitimate expectation of being able to deploy in this regard.
Baroness Worthington
My Lords, I am grateful to the Minister for his response and, indeed, to all noble Lords who have participated in this debate. We always knew that it would be a very interesting debate and it certainly has been wide-ranging. I must start by apologising for not referring to Lady Thatcher by her proper title. I think that may be due to the fact that I was not here during her great tenure.
I do not propose to detain the House for very much longer. It is absolutely clear that we have a difference of opinion. Manifestos are brief, do not contain detail and therefore are open to interpretation, and opinion therefore plays an important role. We are not doing anything that we believe contravenes the Salisbury convention. I have read the Conservative manifesto and I am afraid that it is not that clear. There are some inconsistencies. It says that the Government support wind, which may come as terrible news to the noble Lord, Lord Cormack, and the noble Viscount, Lord Ridley. However, the manifesto says in black and white that the Conservatives think that it plays a valuable role. It also says that the Conservatives will deliver nuclear without subsidy. That is a very interesting phrase. I do not understand how that will work. The manifesto also says that the Conservatives are committed to least-cost decarbonisation and that they will stop new subsidies.
Noble Lords have said very eloquently that the nub of the issue is: does it pass the common-sense test that, if you read the manifesto commitment before the election you would read those words and think, “Ah, yes, that will mean the RO is closing a year early”? You would not think that. That is not a common-sense response to reading those words. Had the Government been clear-minded and knew what they were about to do, why did they not simply say in the manifesto, “We propose to close the renewables obligation for onshore wind a year early”? That would have been very easily understood and everyone would have known where they were. However, that was not what was said. One could put a wide range of interpretations on what was said. Again, I come back to what is happening with the contracts for difference. We have heard nothing from the Government on this. In light of that, how weak this legislation is, and the concerns that have been raised on all sides of the House, I propose to press this amendment and wish to test the opinion of the House.
Baroness Worthington
“Decarbonisation obligation
(1) Within six months of the coming into force of this Act, the Secretary of State must bring forward regulations for a “decarbonisation obligation”.
(2) A “decarbonisation obligation” means the level of carbon intensity of electricity generation in the United Kingdom that a relevant supplier may not exceed in respect of the total kilowatt hours of electricity that it supplies to customers in England and Wales during a given year.
(3) In setting a decarbonisation obligation, the Secretary of State must first obtain and take account of advice from the Committee on Climate Change.
(4) Under this section, a “relevant supplier” refers to electricity suppliers supplying electricity in the United Kingdom.”
Baroness Worthington
My Lords, in this group of amendments we are considering the wider implications of the Government’s energy policy as set out in the Bill. We are again touching on issues to do with investor confidence. The amendments in this group relate to the need to preserve investor confidence in the UK’s energy system and energy infrastructure so that we can continue to see the good work we have seen over the past few decades of reinvestment in modern clean energy systems that will propel us into the remaining years of this century and clean up the energy system in view of our climate change obligations.
During the passage of this Bill and during the passage of the Energy Bill 2013, we had many debates about the right way to incentivise investment in clean technology. As noble Lords are aware, the current policy is that contracts for difference administered by the Secretary of State are granted to contract owners to enable them to have a stable income. They have the wholesale price topped up to a strike price. That policy was put in place in the Energy Act 2013.
The first part of that Act relates to the setting of a decarbonisation target, which was seen as the clearest signal we could give that we will continue to move towards a cleaner energy system after 2020. The period after 2020 is important because until then we are propelled forward by EU targets, including specifically for renewable energy. In the consideration of energy policy beyond 2020, the European Union was persuaded, partly by Ministers from the UK Government, that it should no longer pursue renewables-only targets, and I supported the Government in that argument. We believed that we still needed to see decarbonisation in the power sector but that it was no longer necessary to state that it must be through a group of technologies classed as renewables and that a wider range of technologies could play a part. That is the situation we find ourselves in.
In the EU 2030 climate and energy package, there is no legally binding renewables target for member states from 2020. That leaves open what guidance there is that would give investors confidence that there will be a market or support for technologies that are not yet able to stand fully on their own two feet in competing in the market. The reason they are not able to stand fully on their own two feet is partly to do with the failure of another EU policy: the EU Emissions Trading Scheme. For many reasons which I will not bore the House with, the EU Emissions Trading Scheme has failings and has not been sending a strong enough carbon price signal to enable low-carbon technologies to compete with the more emitting technologies. So we have a potential signal in the form of the EU Emissions Trading Scheme, but that signal is not sufficient or stable enough to give investors confidence—hence the need for domestic policy and the UK Energy Act 2013 to supplement it.
We need something that supplements the contracts for difference process because it is held by the Secretary of State. One person administers oversight of the contracts that are awarded and the timing of the auctions of those contracts, and the department, in conjunction with the national grid, has to try to arrive at a set of technologies that it thinks will deliver our climate change targets. The problem is that it is very difficult to predict the future. Having spent time as a civil servant, I can say with confidence that it is very hard for the Civil Service to keep pace with all the information out there in the energy market, and that it would be far more sensible if we allowed the market to play more of a role in determining the mix of our energy.
I am a fervent believer in least-cost decarbonisation, and at the moment we run the risk of having a centralised system that is too political. There are too many levers in the hands of the Secretary of State and not enough in the private sector, which ultimately will have to raise the finance and do the projects. The Government are not doing that; they are simply governing the number of auctions they make available.
The amendments in this group attempt to address the problem of insufficient investor confidence in the period 2020 to 2030 in the light of the change in EU policy. Amendment 78S revisits an idea we looked at in Committee. I have retabled it because I believe it is a very important principle, and I hope that the Government are beginning to see its merit and take it seriously. It is that rather than have the administratively burdensome process of contracts for difference and the mechanisms underneath it, we should move to a simpler system where supply companies are responsible for delivering decarbonisation. They interface with customers and provide us with the electricity that keeps our businesses and homes powered, so they should take on the responsibility for selecting projects that will help decarbonise at least cost and do so through a framework in which they are given a target to reduce the carbon intensity of the power that they supply.
I think that this idea might be coming of age. Recently, OVO Energy, a welcome new entrant in the market, has declared itself to be coal free. I think that is probably the first example of a tariff that is structured to demonstrate a commitment to climate change by eliminating coal from the mix. OVO Energy has done that through the use of certificates that it purchases from gas stations. Through the certificates it can show that it is purchasing only gas and therefore keeping coal out of the mix and giving customers a low-cost option for demonstrating their concern about climate change. That announcement is based on the same principle as in Amendment 78S, which is that suppliers are able, through their choice of who they purchase from, to drive markets. They can support gas and perhaps disfavour unabated coal through the use of market mechanisms.
I hope that the Government will fully support this, because it is completely in keeping with their principle of having the private sector play more of a role in decarbonisation. Time has gone by. We have all, in a rather amusing way, reflected on how odd it was that the Energy Act 2013 oversaw almost the full renationalisation of energy policy—not quite, but it felt like that at times—under a Conservative Government. I am hoping that as the Government get into their stride in their current role, they will see the merit of shifting to a more market-based system. Then we will be able to avoid the kind of arguments that we have just had to endure over Clause 66, which is symptomatic of the fact that the Government are now in the driving seat and that it is not a really comfortable place to be. I think that the Minister may agree.
I am hoping to hear from the Minister some words of encouragement and reassurance that the idea in Amendment 78S is being considered seriously by the department, because I think it offers a good solution to our dilemma over how to achieve the things we want—reducing our carbon emissions and making sure that the lights stay on. The suppliers could play an important role here.
Amendment 78T relates to the concerns that I expressed in a previous debate—so I will not reiterate them—that at the moment contracts for difference are suspended. “Suspended” may be a strong word but there has been no auction this year for contracts for difference, despite the fact that we would have anticipated that there would have been by now if we had followed the pattern of previous years. We are left with something of a hiatus. We do not yet know whether the contract for difference auctions will be scheduled. I am sorry to keep asking this of the Minister, and I know I will get the same response, but it is important to have clarity on this. I hope that by the time the Bill reaches the other place we will have clarity, and certainly before it leaves that place I strongly encourage the Government to provide that clarity over what is happening to the contracts for difference regime.
Amendment 78T would require that auctions were held at least annually for as long as the carbon intensity of electricity was more than 100 grams per kilowatt hour. That is for as long as the contracts for difference regime continues: I am aware that should we adopt Amendment 78S, we would not very much need to carry on with Amendment 78T. This is designed to say that if we continued with the contracts for difference process, we would hold those auctions annually so that there would be certainty for investors and we would have a regular process by which people could plan—and that the guiding principle would be that we are trying to get our carbon intensity down to 100 grams. The reason for that, as noble Lords may know, is that our carbon intensity remains fairly stubbornly high at around 400 grams per kilowatt hour, despite all our good efforts in supporting renewable energy.
Renewable energy has actually made a considerable difference in displacing thermal power and reducing emissions—but instead, while that has been happening, we have burned more coal because coal prices have reduced relative to gas. That has meant that for every step we take forward on renewables we see ourselves taking a step back, because we are switching from gas, which is a phenomenally valuable and clean fuel that I am sure we will be using for some time, back to using inefficient old coal stations for prolonged periods. I am happy to say that the economics are shifting again and we are seeing coal playing much less of a role. That is partly to do with the introduction of the carbon price floor, which is helping gas to compete, but the truth of the matter is that we still have stubbornly high carbon intensity and we need to see it reducing. The reason why we need power in particular to reduce is that we need to have clean power in order to then power our vehicles and maybe provide heat to our homes in a low-carbon way. There is no point electrifying transport if our power remains dirty. It therefore seems logical and sensible that we should pursue power sector decarbonisation in a faster way and get that carbon intensity down to the point where electrification in those other sectors will then make complete sense.
I turn to Amendment 78UA. I must explain that this is a manuscript amendment, for which I apologise to the House. The reason is that we had tabled an original version in a previous Marshalled List but had been advised to change the wording. On reflection late last night, however—this has been one of those Bills on which we have been putting in rather late hours—we reverted to the original wording because I felt that the original wording should stand.
My apologies to the House if I descend into what may seem to be a level of detail that might perhaps not be of great interest to everybody. I suspect that I should declare that I was partly involved in the drafting of the Climate Change Act as a civil servant in the Department for Energy and Climate Change, so this is an area that I know in some detail and feel quite strongly about. I shall attempt to explain what we are trying to do here in a way that I hope will hold people’s interest.
Lord Bourne of Aberystwyth
My Lords, I thank noble Lords who have participated in the debate on this part of the Bill. I shall take the amendments in the order that they are marshalled.
With regard to Amendment 78S, we are committed to ensuring that the UK continues to do its part to tackle climate change, in line with the Climate Change Act, but we want to do so as cost-effectively as possible to make sure that our energy is secure and affordable, as well as lower carbon. We believe that locking ourselves into an expensive and inflexible target for the power sector is not the way to do that. There are just too many things that we cannot predict about how the energy system will develop up to 2030, and the costs of getting it wrong would be picked up by consumers for many years to come.
The amendment would, in effect, require the Government to introduce an additional power sector target in the form of an obligation on electricity suppliers in the United Kingdom. As has been referred to, the Conservative manifesto, upon which this Government were elected, stated that we will not support additional distorting and expensive power sector targets, but it is our belief that this is what the amendment would lead to.
Noble Lords will know that setting a decarbonisation target for the power sector, which would be the effect of the amendment, was debated in this House during the passage of the then Energy Bill 2013, which has been referred to, and the then Infrastructure Bill 2015. The topic of power sector decarbonisation targets was also discussed during the Committee stage of this Bill. In that discussion, I set out the Government’s intention not to set a power sector decarbonisation target, following that manifesto pledge. As has been confirmed, I also wrote to noble Lords after that further reiteration of the position, explaining that, instead, the Government have already committed to set out totals for the levy control framework beyond 2020, providing a basis for electricity investment into the next decade. I shall not restate the position on contracts for difference, as I think it is already clear that we are committed to making a statement on that this autumn. Therefore, I know that noble Lords will be familiar with the arguments against setting a target such as this.
We have an extensive range of targets at the domestic, EU and international levels. These require action across the economy to meet targets in 2020, 2030 and 2050 on carbon, renewables and energy efficiency. Domestically, we have a legally binding target to reduce greenhouse gas emissions by 80% by 2050. We have carbon budgets setting out targets to 2027 and will be setting a further budget next year, covering the period to 2032. We are also subject to EU targets on carbon, which cover 2020 and 2030. On renewables, these run to 2020 and include interim milestones along the way. Internationally, we are subject to the requirements of the Kyoto Protocol and the compliance periods that these set up.
These targets are comprehensive, far-reaching, and mutually reinforcing. What makes the United Kingdom unusual by comparison with our European partners is the fact that we have a carbon budget system with comprehensive reporting and independent scrutiny. Investors want to know that we have clear, credible and affordable plans. The CBI has said that clarity on future financial support for low-carbon electricity will be more important than targets in driving investment. That is why we have said that we will set out totals for the levy control framework beyond 2020, providing a basis for electricity investment into the next decade, as well as setting out plans in the autumn in respect of future contract for difference allocation rounds.
In relation to Amendment 78T, I acknowledge that it is important that developers and investors have some foresight as to the frequency of CFD allocation rounds. However, this must be balanced with LCF budget availability, which, as noble Lords know, is funded by a levy on consumer bills. The function of the levy control framework is to limit the amount paid by consumers. It is therefore crucial that the Government are able to take decisions in the light of the latest evidence around deployment projections and costs.
The United Kingdom is continuing to make progress towards the 2020 renewables target of 15% of final energy consumption from renewable sources, with provisional 2014 figures showing that we are on target to meet the 2020 target. No carbon intensity targets for electricity generation have been set in order that we retain flexibility around how we achieve our 2050 target. Committing to annual CFD allocations, even only in certain circumstances, would inhibit the Government’s ability to respond to evidence around levels of deployment in renewable electricity generation, costs to consumers and opportunities in other sectors, such as heat and transport.
The noble Baroness’s amendment would unnecessarily commit the Government to a course of action that would neither benefit the consumer nor provide any certainty to renewable energy generators or investors. We are committed to our energy targets and continue to make progress towards meeting them. For this reason, I do not accept the amendment.
Amendment 78UA seeks to make a fundamental change to the Climate Change Act which—as, in fairness, I think the noble Baroness acknowledged—runs contrary to how the carbon budget regime was designed and implemented by the last Labour Government. The noble Baroness played a significant part in that, I know. I think that this is much more than a small, technical amendment and it has huge implications for the Climate Change Act. It changes the focus of the United Kingdom’s approach to decarbonisation and, I believe, sends a wrong message about our faith in the EU emissions trading system. I may have misquoted the noble Baroness in terms of it being a radical change. If I did, I apologise. I think that it is a radical change. She is shaking her head, so I have misinterpreted her position and I apologise for that.
We believe that the amendment would make a fundamental change to the basis of carbon budgets and, if it were accepted, it is likely that we would need to revisit the levels of all current budgets. It would be an unnecessarily and overly burdensome process, as carbon budgets reflect the EU ETS.
Instead, we want to focus on driving the action to deliver decarbonisation at least cost. We are committed to ensuring that the United Kingdom continues to do its part to tackle climate change in line with the Climate Change Act and international obligations. However, we want to do this as cost-effectively as possible to make sure that our energy is secure and affordable, as well as lower carbon.
The EU emissions trading system is a central component of the United Kingdom Government’s policy for delivering emissions reductions in the UK and further afield in a cost-effective and technologically neutral way. The EU emissions trading system is designed to deliver least-cost decarbonisation of particular sectors across the EU, and we are supportive of this approach. We are also supportive of international efforts to price carbon, such as the EU emissions trading system, which is the first, and largest, cap-and-trade system of allowances for emitting greenhouse gases in the world.
We recognise that the EU emissions trading system requires reform, and the United Kingdom has been one of the leading advocates of measures to strengthen the scheme, such as negotiating the market stability reserve. However, on what is, I think, at the very least a significant change, we need to beware of throwing out the baby with the bath-water. We do not want to imply a loss of faith in the EU emissions trading system as a means of achieving least-cost decarbonisation by decoupling our carbon budget regime from it. Instead, we are focused on continuing to work with other member states to strengthen the EU emissions trading system.
Finally, it must be noted that our approach is in line with the Committee on Climate Change’s advice on the use of emissions trading system allowances. It renewed its advice in 2013 that we should include emissions trading system allowances in the net carbon account and proposed an approach for doing so, which the then Government broadly accepted.
My noble friend Lord Howell made significant points during the debate about ensuring that we keep energy affordable. I think that this would jeopardise that, at the very least.
In the light of those comments, I hope that the noble Baroness and the noble Lord have found my explanation reassuring and will not press their amendments.
Baroness Worthington
My Lords, I am grateful to the Minister for his response and to the noble Lord, Lord Teverson, for his support for this amendment and for lending his name to it.
I am afraid that I am not reassured. I have listened to and understood the argument. However, it is not a radical change but an important change—there is a distinction there.
In answer to the specific question from the noble Lord, Lord Howell, about whether it will be cheaper to do it this way, I honestly believe that, for UK plc, it will be. At present, the way the budgets work is that, essentially, we pay other people to decarbonise and then we import the certificates. That can be done for a while, and it makes economic sense to do so. In fact, for the first three carbon budgets, while the system has been bedding down, it probably made sense to use a traded system—the rules and the allocations from Europe were clearer and we were all finding our way to see whether the EU ETS would deliver. The closer that we get to our 2050 target, the more that that approach starts to be a false economy. We find then that, potentially, we are repeatedly paying other countries to decarbonise and not investing in our own country.
Lord Bourne of Aberystwyth
I can follow the argument that the noble Baroness is making very clearly. However, does she not agree that the great danger with the proposal is that it takes away the flexibility of being able to use the trading system? At the moment, it does not have to be used but it can be used if it is appropriate. If we were to go down this path, we would be throwing away that tool.
Baroness Worthington
I am grateful to the Minister for that question. However, that is not the case. There are two versions of flexibility in the Climate Change Act: there is an overarching flexibility created by the budget system, and there is a flexibility that the Government maintain to settle their accounts using credits that they can then take from the EU budget that they are given, by simply not auctioning them, or purchase from offsets that are relatively cheap. There is always a limited amount of offsetting that the Government are able to do if they find themselves out of an account. This would not change that; it simply changes how we count emissions and what counts towards the budget. In this sense, we are saying that actual emissions—what happens in our territorial waters —is what we count. Then, we do the settling up, using credits, to a certain extent, as the budget management system. That is an important point and I hope that people can follow it.
As to whether this would take us out of step with other countries, as I have said, other countries use actual accounts for their targets. Germany is the most obvious example, where there are domestic climate change targets that go beyond European targets. There is a reason for that: Germany is investing in business, infrastructure, companies and enterprise that will be future proofed and provide an export market long into the future. Germany has been very smart about that. We, on the other hand, have a slightly more liberalised market view. In this case, because the ETS is not working as it was meant to, that is potentially damaging our ability to stay within our targets, to do so cost-effectively and to drive investment here. We want to see jobs here and money flowing here, not necessarily pass money overseas for the abatement that someone else has invested in.
For those reasons, I believe that this is an important but not radical move that squares the circle. In response to Amendment 78S, the Minister said that we do not want to set any more distorting new targets in the power sector. I am happy to concede that point. However, this is a very good way of doing what we all agree that we need to do, which is to create investor certainty that this is an enterprise that we remain committed to. As we get closer and closer to that 2050 target, we need to start looking not just at what is happening Europe-wide but at what is happening in the UK economy, so that we are benefitting from the supply chains, the investment and the projects happening here.
I hope that I have made it quite clear why I think this is important, why it is timely and why it has arisen in the course of this Bill. I am encouraged by the support that I have seen from the House. I feel confident that I can answer the question from the noble Lord, Lord Howell: this will be cheaper in the long run; it will be cheaper for UK plc to do this in a way that enables us to drive investment here. For those reasons, I am minded to test the opinion of the House on Amendment 78UA.
Baroness Worthington
“Emissions trading: United Kingdom carbon account
In section 27 (net UK carbon account) of the Climate Change Act 2008, after subsection (2) insert—“No carbon units deriving from the operation of the EU Emissions Trading System may be credited to or debited from the net United Kingdom carbon account for any period commencing after 31 December 2027.””
Baroness Worthington
“Capacity mechanism
Fossil fuelled generating plant granted 15 year capacity contracts under the capacity mechanism established under the Energy Act 2013 shall be subject to—(a) a carbon price;(b) a requirement to fit best available technologies to mitigate air pollutants; and(c) the Emissions Performance Standard as established in the Energy Act 2013.”
Baroness Worthington
My Lords, I reassure the Minister that this is not a matter on which I intend to seek the opinion of the House. It is an issue which I believe we need to discuss in the context of an energy Bill, but I hope that a discussion can be had outside the Chamber. I just wanted to alert the House to the issue because it is materially relevant to the energy policy as it is being played out.
One pillar of the Energy Act 2013 was the introduction of a new support mechanism to help fund extra capacity in the market, designed to complement the contracts being signed for low carbon. It is a very detailed policy with many aspects.
It has come to my attention that the annual auctions of new capacity under the capacity mechanism are bringing forward rather a lot of applications for 15-year contracts from distributed, very small-scale generating plant. Many of those plants are diesel-powered and many others are open-cycle gas turbines of a small scale which are much less efficient than the full-scale CCGTs that are normally built for capacity.
The amendment was tabled to enable us to have a debate on the Floor of the House on an issue which is time-critical, because the next auction will take place in December. Three gigawatts’ worth of small generating plant are prequalified. That is on top of a number of megawatts that were granted in the previous auction that took place last year. So my fear is that, over time, we are starting to see a substantial amount of distributed thermal energy coming forward under the capacity mechanism. Of course, the capacity mechanism creates an incentive to new-build. Having read the Government’s gas strategy, I believe that the Government intended those 15-year contracts to be made available to larger-scale, very efficient, state-of-the-art gas turbines to be there as back-up and to provide us with base-load power. Instead of that, we are seeing coming forward, as a result of significant market distortion, investment in much smaller kit that is far less efficient and much more polluting. The danger is that this drift towards distributed diesel generators and open-cycle gas will significantly affect our ability to decarbonise.
One argument that will be made will be that such generators are there just to catch the peaks and will not operate more than that. However, there is nothing in government policy or legislation that prevents them operating for far longer periods. My fear is that, because of the scale of these plants, they will not be paying a carbon price: they are not subject to the EU carbon price, nor are they subject to the Government’s carbon price support mechanism, which tops up the EU price. That is a significant distortion that we should be mindful of. Markets are nothing if not efficient and nothing if not good at finding loopholes. It will be an unintended consequence of the capacity mechanism rules as they are currently drafted that this will be the market’s answer to our capacity issues.
I visit my mother-in-law in India. Building an energy system in which diesel generators are providing back-up is not a modern-economy solution. There are many other ways to provide safe and reliable power. We should not rely on diesel generation, which is much more what you would find in developing countries that have fewer options and are not able to deliver secure and stable supplies of electricity. We have been doing that for decades and have a world-class grid that enables us to do it. So we are concerned that while we are not letting contracts for clean power, we are continuing to let contracts for traditional fossil-fuelled power, and that there is this loophole in the capacity mechanism rules which allows a far greater volume than anyone would have anticipated of small distributed diesel generators.
In addition to paying no carbon price, such generators also have very loose air-quality standards applied to them—far looser than are applied to larger plant. I do not need to bring the House’s attention to the fact that we have had a rather high-profile problem with diesel in the past few months. “Dieselgate” and VW’s cheating on the standards is a serious issue which helps to explain why we might be struggling to hit our legally binding air-quality standards in the European Union, because if everyone is cheating it is no wonder that our emissions are higher than we thought they should be according to our inventory calculations. So we have an air-quality issue; in fact, the Government have been taken to court over their failure to comply with those air-quality standards. Having a large number of distributed diesel generators operating potentially for long periods through the winter months will not do anything to alleviate our air-quality problems. There is a definite correlation between exposure to the particulates that emerge from diesel and ill-health, especially in younger and older people. So, not just for climate reasons but for air-quality reasons, we should not allow a huge proliferation of this very inefficient and very polluting smaller generating plant—and that we should be giving them 15-year contracts really concerns me.
We know that all Governments in the UK hold as sacrosanct the fact that if you sign a contract with the private sector, you will not then go back on it. That is a tenet that we hold dear in order to preserve our investor credibility. Once those contracts are signed, there will be nothing we can do for 15 years, which worries me greatly. I am not expecting a full and detailed response from the Minister today; I hope that I can just convey the reason for my concern. I hope that I will hear some reassurance that the department is alive to this problem, that it is indeed seen as an unintended consequence and a loophole, and that we are not simply saying, “Ah, well, that’s what the market’s delivering”. That is not sufficient, especially as there are distortions in relation to carbon and not paying the carbon price, and especially in relation to air quality.
Amendment 78V would therefore require that any fossil fuel-generating plant granted a 15-year capacity contract under the capacity mechanism created under the Energy Act 2013 would be subject to a carbon price, so that the Government would apply a taxation policy to such plant; that such plant would be required to fit best-available technology to mitigate air pollutants; and that the Government’s emissions performance standard as was introduced in the Act would apply as well, which would act as a constraint and a break on the number of hours that such stations could run—it would not be a full answer to the problem because it would still allow them to run for considerable periods, but certainly it would not allow them to run unimpeded for an entire year.
Given the position of leadership that the UK rightly enjoys in terms of our sensible policies for decarbonisation and our Climate Change Act, the idea that the energy policy in front of us should lead to us relying on diesel generators fills me with alarm. I hope that we can do something collectively, across all sides of the House, to address this issue before the contracts are signed in December. I think that I have said enough. I do not wish to detain the House any further and I look forward to hearing a response from the Government.
Lord Teverson
My Lords, I shall not detain the House very long. I am not sure that the amendment as written is precisely right, but the important principle that comes out of it—I come back to what I said briefly at Second Reading—is that, at the end of the day, the UK economy has to crowd out coal by other generating fuels. Before the election, the Prime Minister, the then Deputy Prime Minister and the then leader of the Opposition together bravely pledged that coal should come out of UK generating capacity. For whatever reason, after the election only one of those people is left in office—the Prime Minister—so on his shoulders rests that responsibility as our Prime Minister to achieve that pledge.
I do not see a great deal of movement from the Government in fulfilling it. It needs to be addressed and this amendment goes some way towards that. But it is a much larger issue which we could solve so easily, probably by using an active emissions performance standard rather than one that is fixed, as it is at the moment, in primary legislation. I hope that the Government—indeed, the Prime Minister and the Cabinet Office—will bring forward proposals to deliver this. In Scotland, they talk about vows; I see this as a vow that is fundamental to our climate change obligation not just to the UK but to the rest of the world.
Lord Bourne of Aberystwyth
My Lords, I thank all noble Lords who have participated in the debate on Amendment 78V and the noble Baroness, Lady Worthington, for introducing it. We missed each other late last night to discuss this amendment, but I am grateful that she rang before breakfast this morning so that we could discuss it then. That is how seriously we both take our jobs. Again, I am grateful to the noble Baroness because otherwise it would have taken us on the blind side that the amendment was coming up today. I am also grateful to the noble Baroness for what she has said in relation to this issue and for confirming that she will not push it to a vote. The comments made by the noble Lord, Lord Teverson, are right, but as framed there would be difficulties with the amendment anyway.
Perhaps I may say something about the purpose of the capacity market for the benefit of the House and then say something about the particular issue that has been raised. The purpose of the capacity market is to ensure security of electricity supply by providing all forms of capacity with the right incentives to be on the system and to deliver energy when it is needed. The first capacity market auction was successfully concluded in December 2014, contracting 49.3 gigawatts of capacity at a clearing price of £19.40 per kilowatt—and with that I have addressed the particular and very valid point raised by the right reverend Prelate. The outcome was great news for consumers, as fierce competition between participants drives down costs. The results will ensure that enough of our existing capacity will remain open at the end of the decade, as well as unlocking new investment.
I accept that there is an issue about emissions. Other government policies that were referred to by the noble Baroness, Lady Worthington, including the emissions performance standard and the carbon price floor, limit potential emissions from thermal plant for larger producers in keeping with our aims of decarbonising the power sector. For example, the emissions performance standard for larger generators limits carbon emissions to around half of that produced by unabated coal. The carbon price floor obviously provides an incentive for investment in low-carbon electricity generation. I accept that, as things stand, small generators are not covered by that. The department is aware of the issue, but we believe that the EPS represents the best way of looking at the smallest generators, perhaps within the review cycle for the EPS rather than in the context of the capacity market alone because that clearly seeks to ensure that the capacity we need is delivered. I am happy to discuss this further outside the Chamber. It is worth recognising that, at least at present, most of the small generators in the capacity market run for only a limited number of hours per year, but I appreciate that there is no guarantee on that. However, I recognise that this is an issue.
I turn now to what might have been the point that, given his background, the noble Lord, Lord Teverson, was referring to. There is not a state aid issue here. The capacity market state aid clearance is based on the current design of the mechanism, including the concept of technology neutrality, so accepting the amendment in its present form would have required state aid renotification, which as we know typically takes nine months or longer. That would have introduced uncertainty into the market and would have caused problems. But I am happy to continue a discussion on how to tackle what is a very real issue, and I thank the noble Baroness for her comments.
Baroness Worthington
I thank the Minister for his response, and our conversation was welcome just so that this did not come completely out of the blue. I am reassured by his comments and I think that this is something we can work on together to try to find a solution. I am certain that the wording I came up with was not perfect.
I would just say that state aid absolutely does require technology neutrality, and it is something that we need to think about in general for the whole of the EMR Bill. State aid clearance was on the basis of technology neutrality and that relates to the CFDs that we let as much as the capacity mechanism. I am grateful to the noble Lord for indicating that we can continue to work on this, and I am happy to withdraw the amendment.