Finance (No. 3) Bill

Caroline Lucas Excerpts

Tuesday 5th July 2011 Commons Chamber

[Caroline Lucas (Brighton, Pavilion) (Green)]

I am pleased to speak in support of amendment 12, because the House needs much more detail from the Government on the impact of a carbon floor price, including possible unintended consequences.

First, however, let me say a few words about amendment 21. Although I have a great deal of sympathy with some of the comments made about the amendment, we need to be reasonable when looking at the impacts of the sort of floor price we are talking about on energy-intensive industries. I am quite sure that some parts within those industries will face real problems, and it is right to look at measures such as border tax adjustment so that they are not put at a competitive disadvantage.

Let us not forget, however, that the EU has already exempted large numbers of energy-intensive industries from paying for the EU permits under the emissions trading scheme. Let us not forget that not all energy-intensive industries are subject to carbon leakage. Some undoubtedly are, and we certainly need elements of mitigation for them, but some can quite easily raise their prices and pass them on. Let us not forget that what we are trying to do is to put a price on carbon. That is the purpose of the whole exercise. Yes, we need to look at mitigating measures, where necessary, but let us not throw the baby out with the bathwater and lose the purpose of the exercise, which is to shift to a greener economy. Let us not forget that research by the university of Cambridge and others has found no empirical evidence to show that more ambitious climate policies will result in mass relocation of industries out of the EU.

[Ian Swales]

I respect the hon. Lady’s expertise on these issues. Can she give examples of energy-intensive industries that she feels are at no risk of carbon leakage?

[Caroline Lucas]

What I can say is that I have been in the European Parliament, that representatives of industries have told us time and again that the latest EU environmental law will lead to mass relocation from Europe, and that plenty of studies have shown that that has not happened. I accept that many energy-intensive companies will face problems that will need to be mitigated, but, according to those studies, the risk of relocation is far lower than has been suggested.

[Ian Swales]

rose—

[Caroline Lucas]

I will not give way again, because I want to talk about amendment 12, which I have tabled.

I agree that an effective carbon price mechanism has the potential to reduce greenhouse gas emissions from electricity power, mainly by increasing the carbon liability attached to energy use and thereby making energy efficiency measures and renewables more attractive. It also embodies the “polluter pays” principle, which, of course, I also support. I fear, however, that the proposed carbon floor price will not ensure that investment in energy generation is directed towards low-carbon technologies.

I hold that view for a number of reasons, including the fact that market-based solutions to direct investment in low-carbon generation have proved pretty weak in the past. For example, the EU emissions trading regime has so far failed to maintain the cost of pollution allowances at high enough levels to make any significant difference in reducing emissions. It is also true that, because the floor price will be subject to annual votes in Finance Bill debates such as this, it will fail to provide the price stability that is needed to boost certainty and security for investors in low-carbon energy sources. Furthermore, it can be difficult to judge the level at which a carbon floor price should be set to give appropriate incentives to the various technologies that the Government wish to support.

It is clear from those inherent weaknesses that a carbon floor price will maximise its potential to support a low-carbon economy only if any additional revenues that it raises are ring-fenced for use in support of that transition. That must include, in particular, energy efficiency measures for the fuel-poor. Many Members have raised that subject this evening. The Institute for Public Policy Research estimates that an additional 30,000 to 60,000 households could be pushed into fuel poverty in 2013 as a result of the carbon floor price because it will push up the cost of electricity.

It is therefore crucial for flanking measures to be introduced alongside a carbon floor price, including measures that will properly support and protect those in fuel poverty. They should include proper capitalisation of the green investment bank, support for the implementation of the green deal—for instance, ensuring that the “eco” element is increased considerably, given that it is the part directed at the fuel-poor—and, indeed, assisting in the development of innovative renewable energy technologies. Failure to ring-fence the revenue of the carbon floor price would mean missing a real opportunity to focus efforts on the technologies that will most quickly cut emissions from power generation.

Many other Members have reinforced the idea that the carbon floor price must not deliver windfall profits to the well-established nuclear industry, which has already been heavily publicly supported for many years. The Government’s own figures show that existing nuclear generators stand to gain £50 million a year from it until 2030. It is vital for the Government to clarify whether such a windfall constitutes the kind of subsidy for nuclear power that they have repeatedly said they will not provide. It looks very much like a subsidy to me, and it looks very much like a subsidy to the Chair of the Energy and Climate Change Committee, the hon. Member for South Suffolk (Mr Yeo), who has said that the Government should be upfront about the fact that it is a subsidy. He has also said that

“it would be deeply irresponsible to skew the whole process of electricity market reform simply to save face.”

I hope that Ministers will benefit from his expertise, and will recognise that rigging the electricity markets simply to try to provide more support for nuclear generation is entirely wrong.

[David Mowat]

The hon. Lady is making a powerful case against the nuclear industry, but a few moments ago she made a case against high electricity prices and their impact on the poorest in our society. Electricity costs in France are between a third and a quarter less than those in this country owing to decades of cheap nuclear power, which has a beneficial impact on both heavy industry and consumers.

[Caroline Lucas]

The hon. Gentleman will not be surprised to learn that I do not agree with the tenor of his intervention. The truth is that the price people pay for nuclear power does not represent its true cost in terms of liabilities, decommissioning and clearing up after an accident. People in Japan are not paying the true cost of clearing up after Fukushima. That £250 billion was not included in people’s energy costs. Nuclear subsidies are incredibly untransparent, but, essentially, people are paying a great deal more for nuclear power. I agree with the hon. Gentleman that we need electricity prices that people can afford, but the answer is to invest in renewable energy and energy efficiency, which will become far more competitive and far cheaper than nuclear power very soon if we give them the support they require.

If the Government recognise that this is a subsidy, they should claw it back through a windfall tax. I tabled a new clause that would have allowed them to do exactly that, but, sadly, it was not selected for debate.

[David Mowat]

It may be true that renewables will become more cost-effective over time, but there is an long way to go: a factor of about four in the case of solar power.

[Caroline Lucas]

I entirely disagree. I wish that the hon. Gentleman had been at a meeting with representatives of the solar industry that took place a few days ago in Portcullis House. We were shown presentations by Ernst and Young and others which demonstrated that if a small amount is invested now, solar energy will be able to compete with all fossil fuels and with nuclear power in four or five years.

Although an improved carbon floor price mechanism could help to deliver a less carbon-intensive energy sector, it is important for the Government not to see it as a “silver bullet” solution. Other stronger levers, such as a well managed—I underline “well managed”—feed-in tariff regime and a strong emissions performance standard must also be part of the overall picture. Sadly, however, the Government are falling short in those respects as well. I should like them to devote at least as much effort to stepping up their work at EU level to ensure that the next phase of the EU emissions trading scheme is much more effective than the current phase. The recent collapse in the cost of EU carbon allowances under the scheme is clear evidence of their over-allocation, and the shortcomings of the scheme are becoming increasingly obvious.

I should also like the Government to work with European partners to ensure that, as a minimum, allowances are in line with the policy of cutting EU emissions by between 80% and 95% by 2050, as agreed by member states; that allowances cannot be banked from the second phase of the EU ETS into the third phase; and that a reserve price is set on the auction of permits into the market. Any permits that the market does not want to buy at the reserve price or more should be retired from the scheme.

I urge the Government to undertake to produce the report for which the amendment calls, and to take the opportunity to show how the benefits of a carbon floor price can be maximised and any unintended consequences eliminated. If the carbon floor price is to be effective, we need a tax on the windfall profits of the nuclear industry, along with flanking measures to ensure that those in fuel poverty do not suffer as a result of this policy.

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

The Economic Secretary to the Treasury has already suggested that those in favour of a carbon floor price should explain how it could be introduced in a different way from that proposed by the Government. I imagine that she will return to that subject at the end of the debate, but I suggest that she need only look at her own consultation document, which led to the amount that has been established and the mechanism by which the floor price works.

The consultation document posited a £1 difference between a Europe emissions trading scheme and a carbon floor price, certainly in respect of the starting period. It also warned about how far away from that £1 difference a floor price might go and what might happen to energy prices in the rest of Europe. As people who contributed to that consultation document suggested, because our energy supply is highly interconnected with that of Europe, a substantial difference could lead to investment going to where the sale price is cheaper, with, perhaps, new gas-fired power stations being developed on the other end of an interconnector rather than lower-carbon power stations being developed at our end of an interconnector.

--- Later in debate ---

[Justine Greening]

My hon. Friend makes a helpful contribution. I am always happy to meet hon. Members. In fact, only last week I wrote back to the hon. Member for Stoke-on-Trent Central (Tristram Hunt) to say that I would be happy to meet representatives of his local industry. One of the reasons we are working across Government—not just the Treasury, but BIS and DECC—is to make sure that we consider all the different aspects of the support we want for the energy-intensive industries, and get it right.

I am conscious of the time, and the fact that Members want to debate the remaining amendments, so I now want to make progress. In Committee we discussed at length the issues raised in the amendments. Not all Members present in the Chamber today will have heard those debates, so I shall go through my response to both amendments, taking amendment 21 first, as it raises some important points. It would require the Government to lay, and Parliament to approve, an agreed package of mitigation measures for energy-intensive industries.

A number of Members from across the House made powerful cases on behalf of their local industry about why the issues are so important. The Government recognise the issues and want to take steps to address them. There is, as I said, clearly a balance to be struck: we need to meet our carbon reduction requirements, but to do so in a way that still enables the UK to continue to have competitive energy-intensive industries. That is why the Budget helped to offset the impacts of the price floor on energy-intensive industry and to show, as we have heard, that the UK is open for business, as it must be.

In March we announced an extension of climate change agreements to 2023, with an increase in the discount on electricity from 65% to 80% for participants in the scheme from April 2013. We plan to consult on how to simplify climate change agreements for the companies participating in them. Overall we intend to reduce tax levels to among the lowest in the EU.

We announced that we would not introduce the previous Government’s planned complex and costly carbon capture and storage levy, which would have increased electricity bills by 2% from 2015. In addition, we set out plans that will see a cap on the cost of policies funded through energy bills. To support industry more broadly, we introduced policies that will reduce corporation tax by a further 1%, which is part of an overall year-on-year set of reductions in corporation tax.

As I said, BIS, DECC and the Treasury are already in discussion with energy-intensive industries to identify those most affected by the carbon price floor and to pull together the best set of options to address some of those concerns. The package that we plan to announce by the end of the year will build on the measures, some of which I have set out, that we announced in the Budget. The Bill could also be a means of implementing part of the package. I should be clear that the options that we are considering do not relate only to tax. They look across the board at what we can do to support energy-intensive industries.

On Opposition amendment 12, the carbon price floor is designed to give UK electricity generators certainty about the carbon price. That will encourage more investment in low carbon. Although some Members expressed concerns about how the policy will work, it has been supported by a number of members of the investment community. A range of policy assessments have been carried out not just as part of the consultation document, but as part of the extensive impact assessment that was done alongside that, including the tax impact and information note that was published at the time of the Budget.

[Caroline Lucas]

Does the Minister agree that the carbon price floor effectively constitutes a subsidy for nuclear power? Does she therefore agree that unless it is clawed back through a windfall tax, it would contravene the terms of the coalition agreement on no subsidies for new nuclear?

[Justine Greening]

I am pleased that the hon. Lady has raised that point, because it gives me the opportunity to be crystal clear again—alongside the statements that I made in Committee, and those that she knows I have made to the Select Committee of which she is a member—that this policy is not a subsidy for the nuclear industry. As was pointed out in the previous debate by my hon. Friend the Member for Bristol West (Stephen Williams), who I am pleased to see in his place following his contribution to the Committee stage, this is a tax on carbon, not on nuclear fuel rods, as happened in Germany.

The reason nuclear is outside the scope of the tax is that uranium and wind, for example, are not in the carbon price floor because, of course, they do not contain carbon. I understand the arguments that have been made, but they are a little like saying that because we have a tax on alcohol, that is a subsidy for the soft drinks industry. There is also a contradiction between what Opposition Members have been saying. They complain that this is a tax-raising measure, yet they also say that it is a subsidy. Those arguments are contradictory.

Amendments 21 and 12 are unnecessary, and I hope that they will both be withdrawn.

Question put, That the amendment be made.