Action on Climate Change and Decarbonisation

Chris Skidmore Excerpts

Tuesday 5th July 2022 Commons Chamber

[Chris Skidmore (Kingswood) (Con)]

I thank the Backbench Business Committee for agreeing to the debate. Hon. Members across the parties have signed up to it, including a large number of Select Committee Chairs and chairs of all-party parliamentary groups. I speak as chair of the all-party group on the environment.

Our debate comes at an opportune moment: this is Net Zero Week, and last week was the third anniversary of my signing net zero by 2050 into law as Energy Minister. The UK was the first G7 country to do so. If I had been told at the time that by COP26 in Glasgow, 90% of the world’s surface would have signed up to a net zero target, I simply would not have believed it—but I probably would not have believed that we would have a global pandemic, that Afghanistan would cede to the Taliban or that Russia would invade Ukraine.

Given all the strong headwinds, the day-to-day political events and the crises of the past three years, it is worth reflecting on the longevity of the net zero target and on what needs to be done. We need to be resilient and sustainable to achieve our greatest challenge: a green industrial revolution, with a move from petrochemicals towards a new materials economy. The challenge is massive, but the UK has shown international leadership in signing up to net zero. We were able to pass it in this Chamber because of the Climate Change Act 2008, which was enacted by the then Labour Government with the Conservative party in opposition demonstrating cross-party support for upping the target.

We need to be in a place where our financial commitments are shadowing the commitments to net zero that all political parties have made. We do not have a financial mechanism in place as we do for our carbon budgets, so I think we need to be more innovative in how we look at our budgets. Today we are discussing estimates and the budgetary cycles for our net zero commitments; I will come on to the details in a moment. Until we move to a longer-term cross-party funding solution, however, I think we will struggle, because we will be endlessly discussing the detail rather than the broader strategic approach needed to deliver energy efficiency.

Before I go into the costs in pounds and pence—the billions of pounds that are being spent—I want to make sure that we do not fall into the trap of thinking of net zero as a sunk cost. Actually, every pound spent is an investment. Net zero is a net benefit to our economy, so when we talk about the money invested by the Government, let us not fall into the trap of thinking that somehow it is going down the drain.

[Richard Fuller]

I hate to pick my right hon. Friend up on this point, because he is much more knowledgeable than I am, but how can net zero be a net benefit to the economy unless achieving net zero comes with economic benefits? What would those benefits be?

[Chris Skidmore]

The economic benefit of net zero is a wholesale transformation in our industries, our manufacturing processes and the way we think about our world. The same debates would have been had over the introduction of the car, the introduction of electricity or the introduction of gas boilers to replace log burners in every house. Going through those wholesale transformations has led not only to new jobs, but to growth.

If there was one mistake in signing up to net zero, it was using the term “net zero”. We should have called it net zero growth, because it is not about eco-warriors or extremists committing themselves to decarbonisation; it is a pathway that shows us doubling our energy use by 2050. Committing to net zero is a manageable path that will ensure that our economy continues to grow.

[Richard Fuller]

I do not want to deflect my right hon. Friend too far from the debate, but let me just pin this down. The automobile added to growth because it got people from A to B quicker than a horse and cart. The move to net zero essentially means taking certain off-balance sheet, off-profit and loss statement costs and putting them on the balance sheet or on the P&L. It will therefore act as a brake on growth unless the United Kingdom can expand our revenue opportunities, do things at a lower overall cost or shift behaviour patterns so that we can do things more efficiently. That is the piece that is missing from what has so far been said by my right hon. Friend and by the Committee on Climate Change. Those things are there, but should we not be honest with the public that without them, net zero harms growth rather than enhancing it?

[Chris Skidmore]

My hon. Friend is entirely right about one aspect of this. He mentioned efficiency and productivity. Obviously the UK faces a huge productivity challenge. We are speaking in Parliament and discussing the importance of politicians to making this energy transition, but it is already happening even without us. Private companies across the UK, and indeed the world, are saying that they would want to go to net zero even if there were not a climate crisis, because they recognise the opportunities for productivity, for disruption, for achieving better efficiencies, and for thinking differently. That is what makes net zero so important: the wholesale transformation, into the 21st century, which recognises that we cannot be dependent on unsustainable fossil fuels that will ultimately run out.

The Russian war against Ukraine has demonstrated that we cannot be held hostage by petrostates for the future. We must do something about that, and I think current messaging means that far more people support net zero. This is the year when climate change and net zero went mainstream. I think that all politicians, particularly certain politicians on my side of the Chamber, are at risk of not being on the public side of the argument. They need to understand that this has to happen, not just for the sake of the climate, but for the benefit of our economy.

[Jim Shannon (Strangford) (DUP)]

rose—

[Caroline Lucas]

rose—

[Chris Skidmore]

I will give way to the hon. Gentleman and then to the hon. Lady, but after that I must get on, because I do not want use up all my time with interventions.

[Jim Shannon]

I agree with what the hon. Gentleman is saying, but I live in an agricultural community. I live on a farm, and all my neighbours are farmers. Let me give an example of the current pressures. Last week I spoke to the farmer next door, who is not just a very big dairy farmer but also a contractor. He has, I think, eight or 10 tractors and trailers on the road, and he employs 12 people. He told me that the cost of diesel was up by at least 100%, and the price of fertiliser by 300%. When it comes to the financial equations, he is staring at stark reality. With respect, speaking as someone who agrees with the objectives put forward by the right hon. Gentleman and others in the Chamber, maybe we need a wee bit more time, because at the moment some farmers are under so much pressure to make ends meet. They are faced with costs that they have never seen before in all their life. Does the right hon. Gentleman agree?

[Chris Skidmore]

With respect, I do not. We do not have any more time. We have 28 years until 2050. It has been 30 years since we began these discussions and since the formation of the United Nations framework convention on climate change. We have seen the emission, since 1990, of 50% of all carbon dioxide emitted by the world in the entirety of human history. The argument that we need to go more slowly belies the fact that net zero is the slowest possible path on which we can travel while hopefully retaining a chance of hitting 1.5°. The consequences of not hitting 1.5°, or 2°, or even 4°, God forbid, will be more catastrophic for local businesses, and for farmers such as the hon. Gentleman’s friend.

The Po valley, normally one of the wettest areas of Italy, is now dry because seawater is flooding into the river. That is the reality of what is happening. Farmers throughout the world are, because of climate change, becoming less productive, and are becoming unable to produce the food that they once could. We need to be able to look them in the face. We, the industrialised nations that have this leadership, need to take action to ensure that all countries take this opportunity while we still have time—and that time is, sadly, ticking away.

Let me turn to the details of the estimates. My right hon. Friend the Member for Ludlow (Philip Dunne) referred to the estimate from the Department for Business, Energy and Industrial Strategy, which is on page 9 of the Library pack. It claims that

“£11.6 billion for the £400 energy bills reduction announced as part of the Cost-of-Living measures package”

contributes to the net zero target. That is simply not true. The £400 that is going out of the door to subsidise gas and other fossil fuel usage is exactly the same amount that a household would save every single year in a property that was in band C of the energy performance certificate rating. This is the economic reality of net zero. Once a capital cost investment is made, we are looking at savings, year in, year out, whether that is through the production of renewable wind or solar energy, or through energy efficiency. That is what we need to be talking about when we are discussing net zero measures, not the false creative accounting that we see in the estimates.

We should also look at the Treasury’s spending plans for net zero. My right hon. Friend the Member for Ludlow mentioned the period 2023-24, when the plan is for spending to rise to £8 billion a year, before it falls back to £7.7 billion in 2024-25, so actually we are going backwards. Of course we want to ensure that private sector uptake and investment continues; it cannot just be the state making these investments. We have to look at how we can draw in greater private sector investment, and I will come on to that in a moment. The reality is that if we have such balance sheets without having a longer-term sustainable programme for delivering net zero, we will always have these measures.

We need a coalescing target, just as net zero-ers have been able to coalesce around a single target. When I was Science and Research Minister, we had a target spend of 2.4% of both public and private gross domestic product on research and development by 2027, although we may fall short of that. Other countries such as China are going to hit 3.5%, and countries such as Israel are already about to hit 5% of GDP, both public and private, on R&D. Yesterday, the Prime Minister talked about spending 2.5% of GDP on defence by 2050. Where is the GDP target figure for net zero? We should set ourselves a far-reaching goal, and commit ourselves to that spending, both private and public, to demonstrate the investment that is needed for net zero.

There are far too many small pots of funding—we have talked about the green homes grant—and that creates a concertina effect, whereby people apply for a funding scheme, but we do not have the skills to deliver the product that is needed. As a result, these programmes ultimately do not achieve the targets they set out to achieve. I believe that moving away from small pots of funding to longer-term plans through which we can finance net zero should be the way forward. To deliver that, we should think about setting a net zero finance target for the UK every year, and on estimates day, we should talk about that, rather than using false figures in our accounting to claim that we have delivered an additional budgetary impact on net zero.

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[Bim Afolami]

I hope so.

This debate comes at a time when there will be significant problems for millions of ordinary people up and down this country, and indeed all over the world, in heating their homes and getting around. It is an opportune time for us to have this debate about decarbonisation. I should start by saying that I strongly support not only the Minister on the Bench, the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for North East Derbyshire (Lee Rowley), who I know is a highly capable and effective Minister, but the Secretary of State, who is also that. The Minister is smiling. I am being nice to you, Minister. Indeed, it is a very effective Department that has had a huge amount to do and, broadly speaking, it is doing a very good job.

However, the context of oil and gas prices rising is a very complicated one. If the House would indulge me, I think it requires not just the Government, or this House, but international markets and other countries to think about decarbonisation differently. Oil and gas prices may rise structurally over the coming years due to an increase in demand from emerging market countries in particular. Many in the City of London, and many investment banks and energy analysts, think that will occur. If it does happen, in the short term, there will be a significant problem for millions of people across the world, including in this country.

The way to deal with that is to increase the pace of decarbonisation, and the pace of getting renewable energy used and in the ground. Indeed, that helps our energy security as well. However, at the same time, we must not demonise the major oil and gas companies, which have the skills, wherewithal and capital to help us to achieve that. Therefore, subtle and effective Government policy is required, working internationally with our partners, to ensure that we can give these major energy companies the confidence to invest in decarbonisation. They have the engineers, the capital and the know-how all over the globe to help us achieve that aim. I speak as someone who does a lot of work on these issues, as the House knows. There is no point in our demonising anybody who holds shares in an energy company, gluing ourselves to famous paintings or doing that sort of thing. All that happens is the price of oil and gas continues to go up, which makes people’s lives harder. There may well be a backlash to the decarbonisation agenda if people perceive that it is not something that will ultimately help their lives and the economy, and help them to heat their home.

[Chris Skidmore]

Obviously we will discuss the Ways and Means motion on the Energy (Oil and Gas) Profits Levy Bill, or so-called windfall tax, later, but does my hon. Friend agree that companies such as BP and Shell that have agreed to become net zero companies should put their money where their mouth is and maybe establish a net zero fund? Such a fund could be tapped into over a long period to help to pay for some of the energy efficiency measures, demonstrating that it is not just green levies that will pay for additional net zero support mechanisms, and that we can leverage in private finance. Let us look to create a fund that could be financeable over a long period, given that we are holding these companies to account for their net zero commitments.

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[Richard Fuller (North East Bedfordshire) (Con)]

It is a pleasure to follow my hon. friend and neighbour, the Member for Hitchin and Harpenden (Bim Afolami).

When Parliament agreed in June 2019 to achieve net zero by 2050, it was probably the most expensive, uncosted piece of legislation that has ever been passed by this country. It was a “Star Trek” piece of legislation, asking the country to boldly go where no one had gone before. These estimates start to frame how much the costs will be—costs for taxpayers, costs for individuals, and costs for business. As we look at those things, we need to be pragmatic and not dogmatic about achieving net zero. Too often we talk about the great opportunities of achieving net zero without really being honest about whether they are opportunities or just a shifting of resources, which, when it comes down to economics, has no net benefit at all.

As I was saying earlier, the contribution of net zero to this country’s growth is highly questionable. Essentially, we are taking a cost, which we ignored in the past, and saying that we now need to take it into account and eliminate it as a cost in our production. Growth does not arise from that. Growth arises when we can do the same thing for a lower cost—through productivity improvements. Growth can arise when we increase the revenues, particularly for our own country. That could be achieved through import substitution, or it could be achieved through the creation of new green technologies that we can export to other countries. However, it is not guaranteed just because we have passed a piece of legislation that says, “Let’s all achieve net zero by 2015.” It can be achieved by changing the ways that we do things into ways that are more productive. Finally, it can be achieved by reducing the costs of uncertainty, the most obvious of which when it comes to energy is hedging.

None of those things is guaranteed. As has been said, children and schools are enthusiastic about this, but that is because they are taught about net zero and because, quite naturally, young people have an interest in all things natural, such as the environment, diversity and the planet. Ultimately, though, the costs are what will matter in terms of whether and how we can achieve that ideological and scientifically justifiable goal.

From my point of view, the most important thing for us as a country is that we need to work with the pace of innovation and be cautious about trying to exceed the costs of innovation. That is because when we try to move more quickly for a policy goal, ahead of the way that innovation is enabling us to get there, it means additional cost burdens on households and on taxpayers.

In the estimates, it will be interesting to hear from the Minister about the extent to which he appreciates those goals and the extent to which the Government are trying to increase the pace of innovation. I am talking not just about providing subsidies and support for people to change the way they do things, but about the way the Government are providing incentives for innovation to move at a faster pace.

[Chris Skidmore]

The Government also need to set a number of targets for the production of hydrogen and for the capture of carbon dioxide as part of their 2030 plans and the net zero strategy Build Back Better. Talking to HyNet North West, it is clear that it believes that it can go further, and it wants to call on the Government to double its opportunities to capture carbon dioxide. It wants to increase the current allocation of hydrogen from 1 GW to 2 GW. It would also like to see a doubling of the megatonnes of carbon dioxide captured per annum.

Does my hon. Friend believe that the Government should give HyNet, which says that it has the companies ready to go, the opportunity to double the amount of hydrogen and double the amount of carbon dioxide that it can capture now, because it believes that it can do it? I agree with my hon. Friend that we should follow the innovation.

[Richard Fuller]

I appreciate my hon. Friend’s example of innovation, which could assist.

I wish to focus now on the particular issue of decarbonising home heating. We heard from my right hon. Friend the Member for Ludlow (Philip Dunne) in his opening speech that that is essentially a £20,000 cost for a household when it is combined with insulation. He quite rightly made the point that that is beyond almost every household. I think the hon. Member for Bristol North West (Darren Jones), the Chair of the Select Committee, also noted that it is beyond the expectation of the ability of households to pay for it.

We also know that the economies of scale when it comes to technologies for decarbonising home heat are challenging, because the technology is already established and therefore the production economies of scale are likely to be less than in other areas, and because a large part of the costs are in the service delivery, which is people. People efficiencies are harder to capture than production efficiencies.

Not only is the up-front cost high for everyone, but it means that, without Government action and direction, we would end up with certain households doing it that might not necessarily be those that make most sense for achieving our goal. I say this as a Conservative who believes in free choice, but if we want to achieve that goal, we have to own up to the fact that relying on individual choices by individual households to achieve the decarbonisation of home heating will mean that the overall cost to society of achieving that goal will be substantially greater than going through a process that has at least a very significant part of a community-based initiative.

Again, my right hon. Friend the Member for Ludlow was right to point to the issue of social housing. I am eager to see us move forward; we have a Bill coming and I think there is an opportunity to look at neighbourhood plans, which are about planning for our local communities. Maybe there is an opportunity there to put forward some of the suggestions for community decarbonisation of home heating. I hope that hon. Members who are interested in that will let me know, because I am thinking of tabling an amendment that would make that part of the way that we ask local communities, through the planning process, to start thinking about how they achieve the decarbonising of home heat on a community basis.

I must also urge the Government to come forward and say how they will harness patient capital to solve the economic equation of decarbonising home heat. The equation is that there is a big up-front cost and then the benefits accrue slowly each year, ideally through lower heating bills and certainly through less exposure to the volatility of carbon-based fuels. What are the Government going to do to structure a programme that can attract patient capital to do that? That is the sort of financial profile that pension funds invest in all the time.

Neighbourhood plans, a community-led approach and attracting patient capital into those community programmes seem to me to be one way in the estimates to try to get an approach to net zero, if I may coin a rather cheap phrase, at net profit to the British economy. Achieving net zero at net profit is a way to get a pragmatic answer to the idealistic but uncosted goals that this Parliament put in train in 2019.

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[Kerry McCarthy (Bristol East) (Lab)]

I am mightily relieved to see that the Minister is still in his place. I hope he manages to hang on until 7 o’clock; he might find he is the last man standing on the Government Front Bench. If he does want to tell the House about his resignation when his time comes, rather than tweeting it, I am sure we would be delighted to be the first ones to know. There are times when we speak in this Chamber and we feel that the eyes of the world are upon us. I think it is fair to say that this is not one of those occasions, but it is an important debate, and I thank the right hon. Member for Ludlow (Philip Dunne), the Chair of the Environmental Audit Committee, for securing it.

I wish there was a bit more to discuss. As we have heard, last week the independent Climate Change Committee delivered its annual verdict on the Government’s climate strategy, or what there is of it. I think the Chair of the Select Committee let the Government off a little lightly in his quote from that report, which was an absolutely damning read. It talked about major failures in delivery programs and stated that

“we are not seeing the necessary progress”,

and

“the Government is failing in…its implementation”.

It also said that the current strategy will not deliver net zero. The committee concluded that the Government have credible plans for achieving only 39% of the emissions reductions required. This comes less than a year after COP, when we still hold the COP presidency and ought to be showing international leadership.

It is not just the Climate Change Committee saying that the Government have fallen short. The Public Accounts Committee report published at the beginning of March said that the Government still have

“no clear plan for how the transition to net Zero will be funded”,

or

“how it will…replace income from taxes such as fuel duty…and…has no reliable estimate of what the process of implementing the net zero policy is actually likely to cost British consumers, households, businesses and government itself.”

It went on to say that the Government have

“too often pursued stop-start strategies which undermine confidence for business, investors and consumers in committing to measures which would reduce carbon emissions, especially when some green alternatives are still significantly more expensive than current options.”

We heard that from a few speakers. I think the hon. Member for Hitchin and Harpenden (Bim Afolami) talked about how businesses need the confidence to be able to invest, how they need a sense of direction from the Government and how they need to know that they will be backed up.

We heard from the Chair of the Environmental Audit Committee that the global situation requires a rapid recalibration of the Government’s strategy, and that waiting for the right technology to turn up is not a strategy in itself. Again, that is a plea for a clearer sense of direction from the Government. He said—I hope I am quoting him right—that the Government prefer to delay substantive action to a future date, post election. We might find that comes a bit sooner than we were expecting when he made those comments, but let us see. I would certainly say that the time for action is now.

We have seen that day-to-day spending in BEIS has increased by 71% since the last supplementary estimate. That has mostly been driven by this increase of £11.6 billion for the energy bill support scheme. As has been said by several people, including the right hon. Member for Kingswood (Chris Skidmore) and the Chair of the Environmental Audit Committee, this is not a net zero measure unless it is linked to ending investment in fossil fuels, which we know it is not. I expect that we will shortly hear criticisms on that front. It was quite damning how the right hon. Member for Kingswood said that it was simply not true to say that this is a net zero measure. He talked about using false figures in our accounting; I thought those were strong words, but they are true. Once that figure is discounted, we see that little money is going on the most important measures that should be being put in place to deal with emissions. Several people mentioned the need to insulate and retrofit homes, which would simultaneously slash emissions and bring down energy bills. That should have been an urgent national priority as energy costs soared. As has been said, if we invested in that, it would bring down energy bills year on year.

[Chris Skidmore]

When it comes to future measures—I am conscious that some of these schemes were announced by a Chancellor who has resigned in the past half hour and is no longer here to defend them—we need to introduce the concept of conditionality. It has been done in France and other continental countries but not in the UK, and it means that an investment is made on the condition that it is seen through in future green investment.

I pointed out that the £11.6 billion is money out of the door with no consequential effect on delivering on net zero. That money—£400 a person—could have been delivered on the condition that it was later spent on green home improvement measures using a voucher scheme. We need to think carefully about how we deliver those schemes in future so that we can benefit people in a cost of gas crisis—it is not just a cost of living crisis—and see real change on the ground.

[Kerry McCarthy]

The right hon. Gentleman is correct. We should be looking at long-term solutions, not short-term fixes. When the next rise in energy bills comes in the autumn, people will quickly discount that money. They will obviously be grateful to have had some money to help towards their bills, but they will not feel as though they have benefited a lot. Insulation, however, would mean that they had something to see them through future years.

As I said, housing should have been a priority. Properly retrofitting homes would significantly reduce the 20% of UK emissions that come from buildings, as well as cutting bills. That is why Labour has pledged £6 billion a year to retrofit 90 million homes in a decade. My neighbour, my hon. Friend the Member for Bristol North West (Darren Jones), talked about a national street-by-street programme. I would welcome that, provided that it started in Bristol East rather than Bristol North West—we will work our way round to him eventually. If Bristol is getting some money for that, I want to be first in the queue.

There are other examples where the now ex-Chancellor seemed keen to claw back green spending wherever he could. The plug-in grant for electric vehicles was scrapped just weeks ago. The planned landscape recovery fund to rewild our countryside was recently gutted from £800 million a year to £50 million over three years. In these estimates, we see a £76.8 million reduction in funding for carbon capture and storage, despite the Climate Change Committee highlighting concerns last week about the Government’s support for the sector. As the Chair of the EAC said—I seem to be quoting him a lot, which is a tribute to his excellent speech—CCS is not a magic bullet. We are simply not there yet; there is huge potential, but we cannot magic it out of thin air. There has to be a strategy to get us into a position to make use of it.

There are many things that the Government could do if they were worried about the costs of going green. They could scrap the plans to provide a huge tax break for investment in fossil fuels in the upcoming Energy (Oil and Gas) Profits Levy Bill, which we will debate next. The way that that is envisaged at the moment means that the Government will provide 20 times more in taxpayer incentives for investment in fossil fuels than in renewables. Although we are flattered that the Government eventually saw sense and adopted our idea of a windfall tax, the way that they are going about it is all wrong.

The Government are simply not going far or fast enough to tackle the climate emergency. There has been no investment in the gigafactories that we desperately need to boost production of electric vehicles in the UK. That is about not just producing batteries here but ensuring that we retain the car manufacturing that is essential to many of our communities. That investment would also create 30,000 good green jobs in the process.

The installation of EV charging points is still moving at a snail’s pace, like some of the cars, with only 830 public chargers installed last month and the need for at least 270,000 more by 2030 to keep pace with demand. It is good that people are choosing to make the shift, but they need support from the Government to get from A to B; anyone who has an EV knows the perils of trying to find a public charging point when they need one. Energy intensive industries such as steel are still crying out for investment to help them to make the transition to low-carbon manufacturing.

The Government seem to be running scared of investing in climate action. They can only see the cost and they are blind to the opportunities. The Minister should remember that the Climate Change Committee estimates that even without factoring in the benefits of green growth or the impact on public health, reaching net zero will cost less than 1% of GDP. Another 0.5% of GDP could be saved by moving away from costly fossil fuels rather than fracking for more, as the Department appears determined to do. Wise investment would lead to lower bills for consumers, good green jobs and sustainable economic growth. It is not just right to tackle climate change; it will get us out of this cost of living crisis.

Labour will treat this issue with the seriousness it deserves by investing £28 billion a year to tackle the climate emergency, grow the green economy and get cheap green technologies into people’s hands. People want to upgrade their homes to bring down bills, they want to buy electric cars that will be cheaper to run as well as more environmentally friendly, and they want to make greener choices about what they consume, but the Government have to step up to support them in making this transition. That means recognising the urgency of the situation, putting climate action at the heart of every spending decision—on homes, energy, transport and more—and doing a lot better than the Government are doing now.