Lord Deben
Main Page: Lord Deben (Conservative - Life peer)
Lord Deben
My Lords, I apologise to the Committee for missing the first couple of sentences of the introducer’s speech. I rise only to say that if the Minister were to suggest that there might be some contradiction between the work of the Committee on Climate Change—I declare my interest as its chair—and the work of this group, I would disagree. What is suggested here is an important part of the programme. One of the difficulties is that the Committee on Climate Change is asked to think forward to 2050, to ensure that Britain is able to reduce its emissions by 80%, and yet the necessary mechanisms for delivering that target often operate on a much shorter timescale. Indeed, the two most important proposals that are, or are likely to be, before this Committee, are both about that long-term timescale.
It is quite impossible to imagine a sensible parameter within which people can invest in the necessary improvements in our energy supply that does not go beyond 2020, which is why we propose a carbon intensity target for 2030. It is not possible, either, to continue with a situation in which we spend so little time thinking far enough ahead. My noble friend the Minister will not have had encouragement in this area, particularly from those concerned to ensure that there are no restrictions on what the Treasury may decide. The real problem is that that means the Treasury does not have a say in the long term, because in the long term these decisions are either made or they are not made at all.
My noble friend Lord Jenkin, who again contributed so much of value to this Committee, asked why—this may seem an unfair point, but I make it because it is burnt into me—in that terrible first energy White Paper of the previous Government, every single date was removed except 2050. In other words, every date to which any civil servant, or any Minister, could possibly have been held accountable, was removed—and we know that they were all in to start with. I remember that the White Paper answered none of our problems, because, for example, it would not even face up to the issue of nuclear generation.
If my noble friend looks for a reason, it is the whole of that White Paper and, above all, the attitudes that surrounded it. I do not blame the party opposite for that, although it might have put it right. I blame the whole atmosphere, which was that you must not nail your colours to any mast lest that ship did not sail in the hoped-for direction; you must never be tough about the decisions to be made because you might not turn out to be 100% right. This is the real issue my noble friend raised when he asked about the nature of the governmental process in Britain. Rolls-Royces work only when you have not only covered all the details and very small issues but forecast what the market will be like in five, 10 and 15 years’ time. It does not happen if you work on the basis of a day-to-day operation. I am afraid that we have become the kind of nation that finds it very hard to make long-term decisions. There is an awful phrase about selection, suggesting that we should not back particular solutions. If you do not back anything, you do not get anything in this long-term process. The reason that most people in government do not want to back things is because they are afraid that someone will hold them in some sense liable for it.
I therefore finish by expressing my deep concern that the British have become believers that if you do not do something, that is not a real decision—that real decisions mean doing things. It seems that we all have to learn again that not doing something can be just as serious a decision, with just as much of a long-term effect, as doing something. Yet we have built a system whereby the phrase, “Better not, Minister”, is heard more often than any other. I hope that when I was a Minister I made it clear that it was the one phrase that would never result in the response that was hoped for. My father taught me that there was no point in saying to him, “I want so-and-so because everyone else has it”. That meant I would never get it. I always wanted a cap-bomb, I remember, but I was never allowed it on the basis that I once said that everyone else at school had one. That meant I never had it. “Better not, Minister” is one of those phrases to which all Ministers ought to say, “That means we have to find a different answer from the one you are proposing”. I hope that my noble friend will take seriously the concerns that we all have about the fact that our system does not meet the demands of an energy programme that takes 20 years before anything comes to real fruition.
Lord Teverson
My Lords, I must first apologise to the noble Lord, Lord Oxburgh, for also having arrived a minute after he started. I admit that I am a sceptic about the amendment, but I agree entirely with my noble friend Lord Crickhowell about consultants. For a very short period I was a consultant. Some of my best assignments were when we went into an organisation, they told us who to talk to—probably somewhere near the factory floor—we did so, they told us what we needed to do and then we told senior management what to do. They agreed, and it was a fantastic solution. All they really needed to do was talk to their own staff. They even knew that, but they did not have the credibility as management to do it. There are many lessons there.
There is another British disease, beyond what my noble friend Lord Deben and the noble Lord, Lord Oxburgh, have described: when there is a problem, you add another layer to the organisation without solving the fundamental problem. I have seen it in business and I have seen it in government. You do not have the guts, knowledge, determination and maybe the time to fix the real problem, so what do you do? You invent something else. When I used to deal with one of the world’s disasters, the common fisheries policy, they started off with quotas when they had a problem. They then started decommissioning, because that was not good enough. When decommissioning did not work, they introduced days at sea. When that did not work, they gave up for 10 years and finally decided to try another tack, which may give us the answer.
In Europe, when something is not quite right, they invent another body, such as the Committee of the Regions. That is an advisory committee, and I always get even more concerned when these organisations are advisory. If they have executive power, that means that you are putting your money where your mouth is: you are putting your belief behind an organisation and saying, “Yes, get on with it. We weren’t good enough. You go and do it”. At that point, you show commitment and it tends to prove that there is a real problem.
Lord Oxburgh
My Lords, I declare an interest as honorary president of the Carbon Capture & Storage Association. This is an extremely important amendment if CCS is to go forward. It has not been easy to attract investment to this area; the investment required is heavy. This amendment simply minimises the risk for those who are introducing a new technology. As noble Lords will be aware, the Government’s decarbonisation plan is probably unachievable without CCS, so it is important that this kind of reassurance is given to the industry. I strongly support the amendment.
Lord Deben
The Committee on Climate Change has made it clear that CCS is an essential part of the matters that we have to address if we are to meet our statutory responsibilities. I doubt if anyone on any side of the House would not agree with that, and I thought it generous of the noble Baroness, Lady Worthington, to say what she said about the past history of CCS.
That has been a pretty universal thing; we have not got it right. It is very difficult to get right, and I would not blame the Government for the difficulties. However, we have to solve those difficulties, and this amendment is a most useful way of making it that much more certain for the industry. If we want to use the resources that may be at our disposal—fracked gas, for example—we have to have CCS to meet our 2050 demands.
In a sense, that is less important to the British picture than to the world picture. The biggest contribution that we could make to the world picture is in the development of CCS because that would break through in a series of countries—the mechanism by which we can have the energy we need as well as protecting ourselves against dangerous climate change.
I hope my noble friend the Minister will understand that for us this is a central area, and if the Government are not able to agree to this perhaps they will come forward with some alternative mechanism to make sure that the ends put forward here will be met. I am sure that she will want to know that this issue has been widely tweeted, because it is seen as so important by so many different people across the field. It is very important that we give a proper response to the noble Baroness’s request.
Lord Kerr of Kinlochard
It is comforting to know that the tweets are flowing. The trouble is that CCS has not yet been made to work. I support this amendment. I supported the efforts of the previous Government and the present Government, in partnership with the private sector, to make CCS work. I supported the £1 billion that was on offer from both Governments. I supported the EU competition, which added yet more prizes that no one has managed to win. I was involved with two companies that tried very hard. No one anywhere in the world has yet made CCS work economically.
I understand the point made by the noble Lord, Lord Deben, but I think it is important not to make this a central part of the answer when we do not yet know if we can make it work. We have to find other ways of achieving the objectives that the noble Lord, Lord Deben, has concerns about. Let us hope that this is made to work, and if these amendments increase the chances that it does, then fine. I am certainly not against the amendments and I think it is the answer. In fact, it has been the answer that people have seen coming for a long time, at least 10 to 15 years. I fear that it is still 10 to 15 years away, but by all means let us go on trying.
Lord Cameron of Dillington
My Lords, I support the amendment. CCS is very important. While most of us here—I am happy to note that there have been some notable exceptions in previous Committee sessions—are in favour of decarbonisation and the UK becoming a leader of the world in renewable energy, I think we would all hope that we can become leaders in the world in CCS because, frankly, there are huge economic possibilities if we can pull it off. China is a very good example; contrary to the often-put theories of the noble Lord, Lord Lawson, China is deeply concerned about climate change. The Chinese actually produce a new nuclear power station every week but still have more energy produced by wind than nuclear energy, and they are concerned.
Lord Deben
Did the noble Lord notice today’s announcement by the Chinese that they were considerably upping their investment in photovoltaics in order to make sure that there would be a great deal more sun power? This runs entirely contrary to the claims made by the noble Lord, Lord Lawson, when he spoke to us on that particular issue.
Lord Deben
My Lords, first, I thank the Minister for his response to the previous debate, which was measured and extremely encouraging. My problem with the issue that the noble Baroness has raised is simply that were the late date to produce a very considerable amount of gas-fired generation set at so late a date, we are seriously suggesting that in six years we are going to meet an 80% reduction in our emissions; that is what we are statutorily required to do. I say to my noble friend that I have not yet seen any evidence that this helps the other. This, after all, is a statement by the Government. It is not a statutory requirement. We have a statutory requirement. I hope that my noble friend takes this opportunity to explain to the Committee how this particular date can possibly sit side by side with all the other commitments of the Government.
That is the issue. It is a very simple, quietly put, but absolute issue. If you look at all the other things that the Government intend to do, and insist that they are doing, they do not, could not and will not stand alongside this date of 2044. That is six years before we have to achieve a statutory requirement.
It is hugely valuable to have the opportunity of raising this question with the Minister. I recognise that he will not agree with the amendment; I know perfectly well that that is not what is on his lists. His problem is that the Government have so far been unable to explain the disconnect between these two. I would not like to follow the noble Baroness in her attempts to describe how this came about. The fact is that it ain’t gonna stand up. The great thing about the Bill is that we are trying to ensure that we have a real future basis for action in order to meet our statutory requirements and the increasing threat of climate change. Therefore, we ought to highlight to the Government that this is not a matter of passing interest—a day or two out, a year or two different. This is a fundamental flaw in the present circumstances. The Minister will regret his position, because the discussions should not be taking place here. This discussion should have happened when it was announced. Many of us remember that no discussion could have taken place because of the way in which the announcement was made.
Any policy which was consistent with a grandfathering situation leading to 2044 could not be consistent with the statutory requirements for the reduction in emissions. Any policy consistent with the statutory requirements for 2050’s reduction of 80% could not be consistent with this statement about gas grandfathering. Because I have a great desire that the coalition Government shall succeed in their claim to be the greenest Government ever—a desire which I have independently and as chairman of the climate change committee because I want any Government to reach that goal—I say to the Minister that we shall have to listen very carefully to what he says. So far no Minister who has attempted to answer this question has been able to make these two things consistent. As long as they are not consistent, Ministers cannot blame industry outside. They have to ask themselves whether there is a consistent policy or whether the policy is in fact right at its centre.
Lord Oxburgh
My Lords, I support this amendment and the points made by the noble Lord, Lord Deben. It would be very interesting if the Minister could tell the Committee what he regards the implications of sticking to 2044 as a date would be, because it has totally excruciating consequences for the generation pattern in other parts of the system if our legal obligations are to be met.
Lord Teverson
My Lords, I, too, have great concern about the very late date here. It seems that this, perhaps ironically, is the one area where I would hope to put a maximum, which might be 450, in primary legislation but give the Secretary of State discretion to tighten that standard through secondary legislation as years go by. I would expect to do that in most other areas of life, perhaps through European legislation for car emissions, white goods and all those things where we expect to tighten emission and efficiency limits over time. If a number is put in the Bill for the next 31 years, obviously it could be changed by primary legislation but that would take time and would be difficult. Rather than mess around with an EPS, we might as well just say, “We want to stop any coal generating after 2020 and we will let the rest of it do what we want”. That is the effect of writing the Bill as it stands.
Lord Deben
Does my noble friend find it rather curious that we are prepared to put a date 31 years from now on this issue when we find it so difficult to give any long-term assurance that we need on any issue relating to reducing our emissions? In other words, it seems that we will do this for something that manifestly undermines our aims but we will not do it, even to the point of 2030, on things that might support our aims.
Lord Teverson
Indeed, although we have the situation, as I understand it—my noble friend will be closer to this—whereby the Government have to agree carbon budgets as they go along, this is contradictory to that same thing. I agree with him completely on that. I hope we can find a way to follow this amendment or to take out this very late date for a fixed emissions limit as high as that. In any other area of machinery or equipment, we would not accept this level of longevity for an emissions target.
Lord Gardiner of Kimble
I thank noble Lords for their interventions. I think all will be revealed in due course.
I want to return to the matter of investors and business, because certainty over the EPS is part of that. The grandfathering of the EPS limit until the end of 2044 will, we believe, give investors in new gas plants certainty that the operation of their assets will not be constrained by the EPS for a period considered sufficient to make a return on their investment.
I am particularly mindful of what my noble friend Lord Deben said about business. It is important to note that business has made it clear that these grandfathering provisions are essential if the EPS is not to deter or increase the cost of investment in new gas plants.
Lord Deben
On that point, will my noble friend give way? I still do not understand the difference of view. The Government refuse to have a carbon intensity target for 2030 in order to give confidence to business to invest in low-carbon generation, but they insist that we have the equivalent for 2049, or whenever it is, because otherwise we will not get investment in gas. At least one of those arguments must be untrue. I cannot understand this utter conflict. They are two different arguments; my noble friend gave the one on the one occasion and now gives the opposite on this. We cannot really accept this argument on the basis of logic.
Lord Gardiner of Kimble
Let me quote the CBI, which is particularly supportive of the Bill’s proposals:
“The current EPS proposal should remain unchanged … It has been set at a level that will allow new gas plants to be built … and it contains strong grandfathering proposals out to 2045 which will give investors confidence”.
I say to my noble friend that this is what the CBI believes is necessary for business investment, which I think all noble Lords would agree we desperately need.
Lord Deben
Most of the members of the CBI have also asked for that on the question of carbon intensity in 2030, but there the Government have said, “It doesn’t matter what they say on this because we know best”. Yet when it comes to this issue, they quote the CBI and other industry bodies in favour of it. I come back to my point: we must have this approach either for both cases or for neither. If we are to have it for gas, surely we do not need it as far ahead as this. I come back to the point made by the noble Lord, Lord Cameron: we need it not at this level but only at 300 grams, as no one has suggested that gas will produce emissions of 450 grams. Where is that extra 150 grams coming from? What is it for?
Lord Gardiner of Kimble
As I say, I am quoting the CBI specifically on this matter, and it cites the year 2045. Although I understand what my noble friend is saying, I cannot renege on the fact that the CBI is specifically citing that particular year in the quote that I wanted to mention to the Committee.
There has also been a query, although we are going to discuss the 300 grams in further amendments, about the 450 grams. That figure represents a significant reduction in the emissions of a new coal plant. This level builds on and supports the planning requirement for any new coal plant to be equipped with CCS while being above the level of carbon emissions for a new gas plant. The 450-gram limit also provides some flexibility for CCS projects to help manage the uncertainties associated with first-of-kind technology. As I say, though, we will have a separate debate on this matter with the amendment of the noble Viscount, Lord Hanworth.
If I may continue, I say to noble Lords who may be concerned that we are locking in high levels of unabated gas generation well into the future, while grandfathering will give investor certainty over the regulatory regime under which their assets will operate in relation to EPS, it does not permit a right to emit. This is because as levels of low-carbon generation increase, with its use effectively prioritised due to its low generation cost, unabated gas generation will increasingly be displaced. The role of gas will therefore be to balance an energy system that includes greater amounts of inflexible and intermittent generation. Analysis for our gas generation strategy shows average overall load factors for gas plants at around 27% in 2030, based on achieving 100-grams-per-kilowatt-hour grid average emissions intensity.
The role of government is to strike a balance between the three objectives of energy policy: to decarbonise our electricity system, to maintain security of energy supply to the country and to keep costs to consumers to a minimum. I understand that the intention behind this amendment is to provide greater certainty for decarbonisation but, for the reasons I have set out, I believe that shortening the grandfathering period of the EPS would introduce uncertainty and risk to the new gas plants we will need to build up to 2030, and that the better way to balance these three objectives is through the approach that we are taking in the Bill.
I will study the references that have been made during this short debate, particularly my exchanges with my noble friend Lord Deben. As this is a technical matter, it would probably be better if I wrote to him and other noble Lords on this. I appreciate that the noble Baroness will be disappointed by my reply but I hope she understands that the Government cannot support her proposed approach because of the three objectives that we need to balance. On that basis, I hope that she will withdraw her amendment.
Lord Gardiner of Kimble
My understanding is that the answer to that is yes.
Lord Deben
Perhaps I might suggest to my noble friend that there is a way out of this, which is that we put into the Bill a statement that all this applies to plants built before 2025. The Government can then have all that they want but we do not have the ridiculous situation in which I can build a gas plant in 2043, seven years before we have to reduce our emissions by 80%, which would drive a wedge totally through that. Is my noble friend prepared to consult on whether the Government will accept an amendment put forward on that basis, which has been suggested to me by my noble friend Lord Dixon-Smith, who has made a very sensible proposal?
Lord Gardiner of Kimble
I have said that I will study everything that all noble Lords have said. The point is that you would not have certainty, building in 2043, that the EPS level would stay the same beyond 2044. I think that probably helps to clarify that. However, I will consider all the points that my noble friend has made.
Lord Deben
My Lords, I suggest that there is much here for the Government to think about seriously. We need a policy that is clearly consistent in its detail as well as in its broad thrust, and the noble Viscount, Lord Hanworth, has rightly suggested that this is an area in which consistency is not readily obvious. We are looking to make clear to everyone the internal consistency that I am sure there is.
My noble friend rightly said that the key issue, as we have been arguing right the way through, is certainty for the future. Surely, if we are going to meet the obligations laid before us under the Climate Change Act, we need to make it possible for people to proceed along a sensible path. We have carbon budgets that take us all the way to 2027—that is where we are—yet we appear to have none of the underpinning activity to ensure that, side by side with that, the energy industry is able to meet the requirements of those carbon budgets. However, Parliament has passed those carbon budgets; they are part of the law of the land, as part of a structure that Parliament decided upon. We ought to make the point in this Committee that Parliament decided that as Parliament. It was not the Government who decided on the Climate Change Act but Parliament. Conservatives, Liberal Democrats, Scottish nationalists, Welsh nationalists, Irish Protestants and Labour Members together said, “This is a non-party issue. We as Parliament want this to happen”. I am sure that my noble friend will know that in the House of Commons there were but five votes against that Act, including the two tellers.
I am not by any means saying that the noble Viscount has exactly the right answer to this, but I say to my noble friend that we have to recognise that unless we do something in this area, as in the previous amendment, we stand challenged in defending the claim that we are keeping to the law of the land. That is the issue for this Committee. Our job is to ensure that we obey the law of the land, and the law is very clear here. It has targets and budgets up to 2027, and I do not see how you can meet those if at the same time you are continuing and creating energy sources that are manifestly not in line with that. I hope my noble friend will be able to say at least that he will take this away and look at it again. Any other answer puts this Committee into the real difficulty of having to remind the House of Lords that we have responsibilities in terms of our legal needs to meet the decisions that Parliament as a whole has already come to.
Lord Dixon-Smith
My Lords, I have hesitated to intervene in this section for some time, but I feel that I should follow my noble friend Lord Deben in this matter. The truth is that the 2050 target for the electricity generating industry is zero. That is the reality of the economy that we have to head into. To assume that we can have gas plants running at this level five years short of that is perhaps acceptable if they are constructed in the next short timescale, with a view to them going out of use in 2045, but it will not be acceptable for something constructed in 2040. It is as simple and basic as that.
The purpose of having a discussion in a Committee like this on a Bill like this is to enable Members to raise these types of inconsistencies and for the Government to say, and I hope that the Minister will: “There is actually a point here. We will go away and think very seriously about this”. If gas generation is to continue past 2050, it will have to have CCS fitted to it and will have to work pretty well perfectly. My opinion—I think I said this at Second Reading—is that we should stop messing about with CCS in coal because it is not going to get us there. It may get us there with gas, or we have to have other forms of generation. That is now the law of the land and we are not going to set that aside. Frankly, one would have to say to our noble friends speaking for the department that if they flatly reject this, they are asking for amendments to be brought forward on Report that will then have to be voted on, and I would rather they did not do that. They ought to be able to arrive at a more reasoned approach.
Lord Teverson
My Lords, I move into an area that on the whole is pretty contentious. I do so almost reluctantly because I am a great supporter of biomass. The question is: what should the characteristic of that biomass be? What is the truth behind the sustainability of that biomass? What does it mean in terms of major changes in the way in which we produce electricity, particularly from existing fossil fuel plants in the UK, in the context of the Bill?
We have already seen some of the effects of burning biomass. The major effect of course is in deforestation in developing countries. It was previously estimated that some 20% of global emission were produced by deforestation—by burning trees while they were standing in forests. That figure has been reduced to something like 10% to 12%, but it remains a major amount, and that is clearly adding to the stock of carbon in the atmosphere. More than half of it is accounted for by Brazil and Indonesia.
The low-carbon route map for our generation suggests that by about 2017 we will have some 6 gigawatts of biomass generation within the UK. Most of that will be around the use of coal plants as they are at the moment, co-firing or moving on to dedicated biomass generators instead. This is a major change to make while we are still trying to understand the whole-carbon cycle effect of that change. The amount of biomass required to feed that capacity of some 6 gigawatts is of course much larger than our own harvest of wood within the UK.
I do not necessarily oppose importing by ship from abroad. That is a very efficient and low-carbon way of bringing fuel into the UK, depending on where it comes from and on its road routes at either end. What concerns me is to understand the thinking of the Government on looking at the whole life cycle of biomass, in terms of it being used on that scale, within the United Kingdom. As I understand it, there is a rule before the ROCs can apply—and future financial benefits for renewable energy—stating that the biomass must be at least 60 % of emissions, as previously.
How are the Government looking at this now? Can the Minister describe the situation with European legislation, as I understand there are moves in this area to restrict or reduce the amount of fuel or biomass that can be used towards renewable targets? I want to understand how this Bill will fit within that potential scenario. Unfortunately, in many ways I am now convinced that it is not quite as straightforward as it was and that burning biomass is not a zero-carbon sum. If you reduce the stock of wood in the world, it will take some time to replace it. If that is within the current forestry limits or within the current limits in cutting down and using that wood, then that is sustainable. However, if we are going to increase it beyond that amount, then that sustainability becomes questionable. We need to pay rather more attention to these factors than we have done in the past, and I look forward to the Minister’s explanation of how the Government are looking at this and how we can ensure that this harvest is sustainable over its whole life rather than necessarily looking at it as a carbon-free, completely renewable resource for electricity generation. I beg to move.
Lord Deben
I should say to my noble friend Lord Teverson that having not perhaps been easy in my comments up to now, on this I say to him that this is a real and very difficult issue that I am sure the Government are thinking about very hard. This is because levels of sustainability differ in different circumstances. The Committee on Climate Change discusses this on a regular basis because it is extremely hard to keep up with the developing circumstances. What we do not want is to think that we have changed to a low-carbon alternative and discover that actually it is nothing of the sort. That is the worry that people have.
There is a second worry, which is that we are facing ever greater shortages of food. The one thing we do not want is to have a situation in which our battle against climate change—climate change itself causes some of the shortages of food—is then seen as a kind of competition with the provision of food. That is of course why biomass in those circumstances is so complex a matter. However, I say to my noble friend that no one has a simple answer to this and I am sure he is not going to give us one today; we would not expect one.
No one has a simple answer because we all started off on the wrong basis. For example, the green movement was very much in favour of biomass. It was therefore almost unquestionably a good thing until they began to recognise the potential downside. That meant there was a huge swing to the opposite direction. If we are not careful, we will find ourselves in extremes rather than finding some sensible place for the pendulum to stop.
It is also true that there are many vested interests in this area. The farming industry saw it as a wonderful way in which it could increase its opportunities of reaching markets because this was a new area that farmers could exploit. Of course, as food prices go up and their returns from food production become greater, it is a real issue for them too. While in the United States, I have to declare that I had a visit from the representatives of the so-called—“so-called” because I cannot prove this, as I will explain shortly—sustainable forestry industry. They came to explain to me, as chair of the Committee on Climate Change, that they were unhappy about what we had said about these issues. I said, “Do you have forests that are independently certified?”. “No,” they said, “but we know it’s all right”. I cannot accept that as a reasonable response. In the world out there, we must be careful about how we change our energy supplies and do not undermine the truth of what we are saying.
So I say to my noble friend: this is a difficult area. None of us expects him to have an easy answer, because no one else has. However, I hope he understands that we will have to look at this during the Bill and to come back to it on Report, simply because things are moving so fast that we need to be sure that we have done everything we can to protect the Government from later assertions that they have encouraged the substitution of one form of emission creation with another form of emission creation. That is what we have to guard against.
Lord Jenkin of Roding
My Lords, I, too, have been following this issue carefully. Before my noble friend Lord Ridley had a very provocative article published in The Times three or four weeks ago, I had quite an argument with him. He told me what he was going to write and I said it was rubbish. He duly wrote his article, and there were letters, including one from my noble friend the Minister, and from a number of other sources, which said that he was talking rubbish.
I am sorry that my noble friend is not here today: perhaps there will be another opportunity for him to defend his view here. However, I do not think I am doing him an injustice when I say that his view is based on the proposition that a biomass that depends on the growing of trees cannot in any way be regarded as a renewable source. I said to him that they grow again and that if forests are properly managed—and many of them are, not least by the Forestry Commission in this country but also in Scandinavia and so on—the turnaround is about 30 years. He said no, it is 90 years. He may well know a great deal more about this than I do. I have so far subscribed to the view that when a biomass source is used as a fuel for energy, if it can reproduce itself over a period—and of course, as they grow, trees reabsorb the carbon dioxide that they emit during combustion—then it is a renewable source.
I was worried at one point about the importation of timber and its threat to the health of our forestry, against the background of ash dieback. I arranged an interview with the head of the trade association in America that exports manufactured wood pellets, a large quantity of which come to this country. I have also talked to the companies that burn them, notably Drax, which is converting part of its coal-burning to biomass, as is Eggborough, a different kind of company but one also in the process of a substantial conversion to biomass. They base it entirely on the import of manufactured wood pellets from reputable sources in America or Scandinavia. I was completely satisfied that the manufacturing process totally eliminates the possibility of the importation of any funguses or other diseases that affect timber here. I have not heard any suggestion that if it is properly handled there is any risk in that direction.
Baroness Worthington
I thank the noble Lord, Lord Teverson, for tabling this amendment, to which I have added my name.
I have previously described the measures that have been put down as a package. This is an essential component of that. I go so far as to say that I would be less concerned about the gas grandfathering if this amendment was accepted. This amendment addresses a very real risk and need. My worry about our current policy on coal is that a degree of complacency has started to take root, based on the idea that all the old coal is simply going to shut up shop and quietly disappear from the grid. Having worked for a power company that owns coal-fired power stations, I can tell your Lordships that these are incredibly profitable assets and the companies will do all they can to keep them operating for as long as they can.
A lot has been said, in the media and elsewhere, and in statements from the Government, about the lights going out and about this terrible problem of coal-fired power stations closing. Actually, as I have said before, the 8 gigawatts of coal that was required to close under the large combustion plant directive has already gone so we do not have a problem in the short term. In fact, we have 20 gigawatts of old coal carrying on. That is made up of 12 plants—the dirty dozen—that will be carrying on.
When the process of the Bill started, the premise was that new coal was the greatest threat. In fact, it says that in the consultation document. But that is fundamentally wrong. When it comes to managing carbon, old coal is far and away the worst source of emissions. These plants were built in the late 1960s and early 1970s—some of them are older than I am—and they have well paid back their initial investments. They have made the successive companies that have owned them a lot of money and it really is time to let them retire gracefully.
Lord Deben
Does the noble Baroness agree that the reporting of the dangers of the lights not being kept on is much encouraged by those who would wish to continue to use very old, very highly emitting generating plants? Will she remind everyone that those emissions are changing our climate as we speak and that the quicker they are phased out, the safer it is for our children?
Baroness Worthington
I could not agree more. These dirty dozen plants have very low efficiency and very high carbon intensity. They have been made more carbon-intensive by the fitting of scrubbing equipment to meet the requirements of the large combustion plant directive, so these are some of the worst possible sources of electricity when it comes to carbon.
The assumption was that those plants would be closing under the next round of air quality standards. However, the world is moving quite quickly and gas prices are at such a level and coal prices so low that it is now increasingly likely that these plants will refurbish, fit filters and seek to carry on.
I am sure there will be many arguments in the Minister’s notes that will tell him that closing the plants is something that the Government could not possibly do and there are too many risk associated with it. The first will probably be, “Oh, well, the lights will go out”. That would absolutely and categorically not be a result of the amendment. The amendment would merely place a carbon constraint on plants that are seeking a significant life extension beyond the period for which we currently anticipate them to operate. This would put us much more in line with the Californian legislation that we have based the EPS on. The Californian provisions apply if a company makes a significant investment in an existing plant that would seek to extend its life beyond five years. That is an important provision that is missing here, in our interpretation of the EPS.
It is not a question of the lights going out. As we have discussed, the EPS is drafted in such a way as to allow flexibility. It is an annual limit that is averaged out, so these plants would not necessarily close but they would not be able to base-load. That is the significant difference. Plants investing in life extensions today must accept that they cannot base-load indefinitely through the 2020s and into the 2030s.
Another note that I am sure the Minister will receive will say: “Well, they’re old plants; they’re reaching the end of their lives”. I would just point out that Uskmouth power station, owned by SSE and built in 1961, will be 60 years old in 2020. These plants can and do operate for very long periods, and they do not need boiler replacements in order to do so. They could replace every other element of the station and still be allowed to operate without being required to reduce emissions under the EPS.
I am sure that the other question that will be raised is that the amendment is not needed: “We do not need this to apply to old coal because we have other mechanisms designed to force coal off the system”, and among them I am sure the carbon price will be listed. I would just say that the carbon price is not a credible policy when it comes to investors making decisions on the lives of their coal plants, for a number of reasons: it is a financial Bill measure, it has no longevity and it has no future path beyond two years. I have heard from former generators that they cannot even sell their power on a PPA two years in advance from thermal plant because of the degree of uncertainty about carbon pricing. That is not going to force these plants to close.
Even if the price were maintained, the reason why they will not close is that these dirty dozen are equally distributed among the existing vertically integrated companies. The reason why that is significant is that if one of them opts one plant in, they may as well all opt them in because the companies can all just pass the cost of carbon through to their customers. As we have previously discussed, there is no genuine competition, so as soon as one opts in the other five may as well follow. Actually, it is five out of the six; Centrica has no coal. The other five, though, can all safely opt in a plant and pass on the costs without fear of competitive distortion. So, even with a price, that is not going to work with regard to ensuring that they are constrained.
People will say, “Well, you’re simply going to push up the costs to the consumer. Coal is cheap and we need to keep it running”. Actually, this is the cheapest way of staying within our carbon budgets. I have mentioned it before but the climate change committee has identified that we can save between 200 grams and 250 grams per kilowatt hour by doing nothing other than reversing the merit order of gas and coal. That is exactly what we are seeking to do. People say this will push the costs up but it in fact it is much cheaper than overinvesting in new capacity if it is not necessary.
It is also true that the carbon floor price is already pushing up the price. The difference between the two is that with the carbon floor price you have to pay the money irrespective of what happens; there is no guarantee that the carbon floor price will deliver any new investment or indeed any switch in the merit order. With the EPS, though, the price would go up only if coal was being driven off, so you would pay only if something was actually being delivered.
I am sure that there will be notes saying, “Well, the regulatory risk that this will create means that investors will never invest in Britain again because the rules have changed”. I am afraid that if you own one of these dirty power stations and you have been sweating this asset for so long, and then you think that you will never invest in Britain again because you are asked to comply with a carbon constraint, you are not living on the same planet as I am, or indeed as the majority of people are.
You must expect to face a constraint on carbon. You cannot operate these inefficient coal stations and expect to be immune from carbon regulations. This back-stop power is exactly what you would expect to be introduced, especially as this is how it is currently enforced in America, where this idea came from originally.