Energy Bill
Debate between Lord Deben and Baroness Worthington
Lord Deben
My Lords, the noble Lord, Lord Jenkin has rightly pointed to the crucial problem, which is: how do we deal with that period in which there is fear that the lights will not stay on? That is a proper fear to have and should be the first fear of any Government, because there is a responsibility to keep the lights on. There ought to be a second fear, too: namely, that we keep the lights on in such a way that the next generation has an even worse position, because we have polluted the atmosphere further and made the fact of dangerous climate change even greater. We naturally have to look at this very carefully.
However, on this occasion it seems that those who are most concerned with keeping the lights on, and I certainly put myself in that category, and those who are also concerned with climate change, and I put myself in that category, too, are in fact pushing at the same door. If we do not have a mechanism whereby it is sensible to invest in gas, that bit of the transition will not take place. That would seem to most of us to make it more difficult to provide affordably for the energy that we need.
The noble Lord, Lord Oxburgh, as so often, put his finger on one of the other problems. When we talk about these things, let us not confuse the cost of production with the price at which it is sold. Those of us who, like me, have represented constituencies, know how many people are close to the edge when it comes to warming their homes. The whole question of affordability is utterly crucial. However, the idea that if we burnt coal we would get cheap power is not so. We need to have a mixture—a portfolio of means of generation—in which gas will play its part.
We have heard a lot recently about the opportunities that shale gas will give us. I find both extremes unacceptable—from those who think it means the end of the world at one end to those at the other who feel that it will be a game-changing matter. They are both wrong, but there is a place for gas. If that gas were produced at home, that would contribute considerably, not to a lowering in cost because it would have little to do with that, but to greater energy sovereignty, which is worth while.
The question is how we move from a situation which we hardly imagined, because the bottom had not fallen out of the coal market, in which we have to provide for the transition from coal to gas to one in which we do provide for that transition. The difficulty is that I suspect both those who tabled the amendments and the Government are on the same side—both groups want to achieve this. The real question is that there is a kind of fear of letting go of nurse’s hand—that is, the coal—in case we do not get the gas. I would like to turn it around the other way: if we do not do this, I am not at all sure that we will get the gas. That is crucial. I hope very much that the Government will enable us to have a situation in which we provide for that transition.
I have been trying very hard during these debates to remain entirely independent because all I have spoken are the words that the Committee on Climate Change, which I chair, has put forward. The committee has made it clear that it feels that this kind of transition needs to be facilitated in this way. I do not want to make this a great division because I do not think it is one; it is a question of how we do this safely in the new circumstances to which the noble Lord, Lord Oxburgh, referred.
I very much hope that my noble friend will be able to give us confidence in the Government’s answering of this question if she is unable to accept the amendments that are put before her. If we do not do one or other, we will find ourselves unable to guarantee reasonable prices or the continuance of the lights being on because we have not made the transference that is essential in any case and which I thought everyone supported.
Baroness Worthington
My Lords, I was pleased to add my name to Amendment 74, and I support the other amendments in the group. At the start of this process way back in 2010, the Government said in a consultation document:
“The objective of the EPS is to ensure that while coal continues to make an important contribution to security of supply, it does so in a manner consistent with the UK’s decarbonisation objectives”.
The way that the EPS is drafted does not achieve that aim. The EPS was a response to the Kingsnorth protests against the building of a new, unabated coal plant. It was borrowed, but not fully, from similar regulations in California. The Minister, Greg Barker MP, can take credit for introducing this policy. However, in California they are clear that the limits that are placed on coal stations apply in the event of a coal station seeking a life extension. That is what this amendment is designed to do: to complete this process by adding that important missing element.
New coal was never the most carbon-intensive source of electricity; old coal is. The world has moved on since Kingsnorth. Low coal prices and high gas prices have caused higher operating levels at coal stations now than ever before. As a result, as the noble Lord, Lord Teverson, mentioned, we have seen UK emissions going up, not down, and our carbon intensity increasing last year, not decreasing. How are we going to hit decarbonisation targets if we do not have a tool in our armoury to do something about this issue? We could have a policy of carbon pricing, as the noble Lord, Lord Stern, has mentioned. However, carbon pricing policy has not addressed this issue, and will not. We need regulation.
Turning to the security of supply, 8 gigawatts of old coal capacity has recently shut. This has brought down our historically high overcapacity to a more modest level, yet our carbon intensity is stubbornly high, at around 500 grams per kilowatt hour. This is because the 12 coal stations that are still operating, representing 15 gigawatts of power, are base-loading. They are no longer providing back-up power in the winter peaks but are operating throughout the year and making their owners a considerable amount of money. The Committee on Climate Change has been clear that were we to get the merit order of existing plants right, we could shave almost 200 grams off that figure overnight without having to build a single brick or power station.
The 12 stations that I have mentioned have tightening air quality regulations in front of them, which will affect their operating post-2016. However, they have a range of options for what to do in the face of those tightening regulations. One is not to refurbish; they will then be required to close by 2023. Another option is to convert to biomass. The final option is to fit the filters that would enable them to comply with the air quality standards. They could then remain open indefinitely. In that situation, they would certainly wish to continue base-loading, since they would have made new capital investment on which they would want to seek a return.
The new air quality standards start in 2016. I am sad to say that Defra, the lead department, is in danger of not complying with those regulations because it is failing to provide enough detailed information about what these power stations are planning to do. This can be only because it is intent on giving the maximum flexibility while the details of the Bill are worked out, because the Bill contains another very important element that changes the fortunes of coal: the capacity mechanism payments. The capacity mechanism will give existing coal plants an up-front cash injection just at the time they need it to make those refurbishment decisions. Plants will be eligible for three-year contracts. We cannot be certain how much those contracts will be worth, but it will certainly be in the range of £80 million to £100 million or more over the three years. The cost of fitting the filters is a surprisingly similar number of around £100 million for a 1 gigawatt plant.
If they decide to make these capital investments and tip into this compliant state, this will reduce their thermal efficiency even further. Are the department and the Minister aware of how inefficient these stations are and quite how much of the heat is escaping as lost energy into the atmosphere? That is quite apart from the carbon load that is also being added. Fitting these filters would also increase the operating costs of these plants. The chemical plants necessary do not operate for free.
The Government’s policy is not to support the application of an EPS to coal seeking life extensions, and no doubt we shall hear some of the reasons from the Minister. Other noble Lords have touched on the security of supply issue. As long as this question over 15 gigawatts of coal is allowed to remain unanswered, how can any investor in replacement capacity move forward? If you are not sure how many plants will be operating and whether they will be base-loading, you will find it very difficult indeed to make the case for investment in new capacity and to bring mothballed capacity back on. I will not go into too much detail on this but we have all had representations from gas investors saying that they support this amendment. We should just remember that, in a carbon-constrained world and under a carbon-budgeting system, every coal station that remains on the system displaces two gas stations because gas can operate with half the emissions of coal
Energy Bill
Debate between Lord Deben and Baroness Worthington
Lord Deben
Did the noble Baroness also notice that the sector much outpaced every other part of the economy and was particularly strong in the United Kingdom, when compared with comparable economies? When the naysayers, who are not represented today—as they rarely have been in this Committee—talk about these matters, it would be good just to remind them that nowhere else in the economy is there development going on like this.
Baroness Worthington
I thank the noble Lord for his timely intervention. I could not agree more. It is a shame that those statistics were not trumpeted more. We would all feel very proud that that happened at a time when the rest of the economy was not doing so well. It was not just that there was good growth in that sector but it positively affected our balance of trade. There are very few sectors in which we can say we have a positive balance of trade with China, but in this sector we can. As the noble Lord alluded to, the global average rate of growth in this sector was only 4%, while we were at 4.8%. Tiny nation though we are, our growth in this sector is outstripping much larger nations. We are up in the top six countries in this sector. I am sorry that I am waxing lyrical slightly here but it is important. We are a nation of innovation and entrepreneurial spirit. We were the country that brought the Industrial Revolution to the world; let us not forget that. Let us hope that we will remain at the forefront of this industrial revolution. I know that that sounds like a grand introduction but it is pertinent to this part of the Bill. We really need to make sure that this sector is protected and that no unintended consequences are meted out to it as a result of the Bill.
Why is there an issue? It is probably fair to say that it was already emerging. The renewables obligation has been a good policy that has driven a lot of investment, but we were already hearing that independent generators were finding it difficult to secure power purchase agreements. At the heart of this issue is the problem, alluded to many times throughout our deliberations in Committee, of the vertical integration of the big six. There is no liquid, open competition in generation. We have an oligopolistic system of six vertically integrated companies that dominate. It will come as no surprise that on this side of the House we believe that the time has come to address that. We would have preferred to see genuine market reforms that required the selling of power into a competitive pool, which would be good for competition, liquidity, the independent generators and the consumer. We know that the Government are not yet there but we hope they will join us soon.
It is true that the Bill helps to make the case even stronger for splitting apart that vertical integration because we are moving into a system of contracts for difference. We are moving away from the arguments in favour of vertical integration, which are that you need it to secure finance and build new capacity, but when you have a CFD the argument is, by and large, weakened. There is also a big intervention in the capacity mechanism. The time is therefore coming, if not now then very soon, for the issue to be properly addressed.
I want to say a word about Amendment 55AGA, to which the noble Lord, Lord Roper, has spoken. These proposals, though welcome, come quite late in the day. As has been mentioned, we have known about this problem for two years and yet here we are addressing the issue on the eighth day in Committee and on the final stretch. I think it was the noble Lord, Lord Jenkin, who said that it feels as though we are making things up as we go along. I would not say that it was as bad as that but it does feel as though these measures have been considered quite hastily. Making this a negative resolution risks the ire of the Delegated Powers Committee, which has not yet had a chance to consider it, and we strongly urge acceptance of Amendment 55AGA in order that we may properly scrutinise this complex and rather late addition to the Bill.
I should have said at the start that I want to pay tribute to my colleague, Alan Whitehead, in the Commons, who helped raise this issue. I apologise on behalf of my noble friend Lord Grantchester, who was going to speak to the amendment. He cannot be in his place today but he wishes us every speed.
I have explained why there is an issue and, in the spirit of collaboration and seeking to make the Bill as strong as possible, I should perhaps now explain what I think the solutions are. First, we know that the industry wants to find a resolution to this issue. It is very keen to work with the Government and would like to have proper consultation with the department. It has been mentioned to us that the organised consultation process was slightly opaque. I know that five of the renewables trade associations, as a group, have written to the department requesting more clarity in the consultation process around the detail of these provisions. They are worried about communications not being consistent and they are worried about the timelines. They need reassurances from the department and a clearer process of involvement.
Further to the point made by the noble Baroness, Lady Liddell, this should also include investors, who are absolutely at the heart of the issue. Clause 44 is about facilitating investment and not about liquidity, which is dealt with in Clause 43. It is very important that the consultation process fully involves the investors who will be necessary to get these projects under way.
I have not spoken about the GPAM alternative. I am not sufficiently across the details to know whether the GPAM is a better option than the backstop power but the wording of the government amendment limits the options. At the moment, Clause 44 gives a broad power to do what is necessary. The government amendments would remove that flexibility and narrow it down to the PPA. The PPA may be the right answer but I am not certain that that narrowing down is a good idea. I have been critical of the breadth of some of the powers but in this case, given that it is still in development and that consultation is necessary, I urge the Government to keep open the option of making a different type of intervention if necessary. That would tweak the government amendment. It is important that we do not put all our eggs in a basket that is still being made when we are not quite sure whether it will work.
The industry itself can find solutions. The big six are obviously dominant but there are other players such as independent suppliers who can give PPAs. Unfortunately, the creditworthiness of those suppliers is an issue.
Energy Bill
Debate between Lord Deben and Baroness Worthington
Lord Deben
My Lords, this is an occasion when the Committee in the House of Lords is particularly valuable to the Government, because this is the moment when, perhaps, unexpected things in legislation can be found. There was a time when that used to happen in the House of Commons; it does not happen any longer, because of the way in which it has changed its mechanisms for dealing with these things—I think rather shamefully. So it is in our hands.
My noble friend will probably be pleased that we have debated this subject, because it is something that causes very considerable concern outside. If the mathematics stacked up, we might find ourselves supporting the very thing that we do not want to support. No one is suggesting for one moment that the Government intend that, but the consideration of the Bill leads one to discover those things. I remember sitting in the Minister’s position in the House of Commons, on a number of Bills, when one was very grateful for a discussion because issues were raised which made you think again about how you were going to do things, simply because one had not thought about that particular outcome. Although no doubt she will have some answers to this, I think that there is a real issue here that might be solved in a whole range of ways, which is why the noble Baroness is moving this probing amendment.
I do not think that many would call me a Thatcherite, but the idea that we were spending money to keep in operation entirely outdated systems would rather run against the grain of what I understand to be the view of the present Conservative-led coalition. I do not think that anybody in the coalition, whether from the right or the left, can possibly think that it is a good idea to continue with a mechanism that is manifestly unacceptable. I am sure that the Minister does not intend to do that.
I hope that the Minister will accept that there is sufficient doubt about how this might work out to make it important between now and Report to see whether there is a mechanism powerful enough at least to assuage those doubts. That is all the Committee can reasonably ask at this moment, but it is certainly something that we ought to ask and ask very strongly. If we cannot end up with that we may have to do find something ourselves at Report, but it would be very much better if the Government could reassure us and, if not, find something that will reassure us.
Baroness Worthington
I thank the noble Lord for his intervention. I want to clarify that I am not in any way saying that we should keep coal out of the capacity mechanism. I am stressing that we need to think very carefully about the design of the capacity mechanism so that it does not produce unintended consequences. I am also suggesting, as I have done in previous discussions, that there should be a back-stop measure to prevent the base-loading of coal should all the extra scenarios line up to make that the thing that they economically choose to do.
This is not about saying no to the capacity mechanism or to coal within that and I would not want to see coal closing unnecessarily. I want to see its role constrained to providing peaking and backup power rather than base-loading as it is today because it is so profitable.
Energy Bill
Debate between Lord Deben and Baroness Worthington
Lord Deben
I thank my noble friend for explaining what it was that I said that was so damaging.
I would like the Minister to be concerned not merely with the commercial activities, although they are very important, but with what most of us think ought to be the way in which we develop housing in future, rather than across green fields. That means that we have to make it possible to develop on once-used land. One problem that is always brought to me when this comes up is the availability of utilities in general and, of course, electricity in particular.
Secondly, when we decarbonise our electricity system, the availability of electricity becomes even more important, as someone said earlier, because that is what we are trying to shift to. Unless we can put in place what is needed in advance, we will not be able to carry through the whole purpose of decarbonisation. When one looks at the present circumstances, we really are an 11th hour nation. We really do things at the very last moment. I have every sympathy with those who object to the present circumstances, in which nobody does anything until the situation is so disastrous that something has to be done or the whole thing will collapse. That is not a way to plan anywhere. Although no doubt my noble friend will tell me that it will all be dealt with—and here I declare an interest in that the consultancy I chair gives advice on sustainable development—my experience is that is not always like that. It is not always easy to have ready access to electricity supplies, in particular.
I commend my noble friend’s comments, but I hope that they will be taken in a wider sense—this is not just about London, there are other great cities where similar circumstances exist. We do not want people to build, develop and grow in places which are much less suitable simply because the electricity supply is not immediately available. That is a mistake that we have made in the past; I hope that we will not make it again.
Baroness Worthington
My Lords, I shall speak briefly to the amendment moved by the noble Lord, Lord Jenkin, on the future capacity question, because it is the first to address that. This may be a good opportunity for the Minister to provide us with some detail about the capacity mechanism and how it will operate, and to address the important issue raised by the noble Lord of the need to have a long-term view.
Perhaps this is the time to say that this part of the Bill seems to be lacking an awful lot of detail. We have tabled some amendments later which respond to the Delegated Powers and Regulatory Reform Committee’s comments, which were quite damning on this aspect of the Bill. It is lacking a huge amount of detail; a lot of questions still need to be answered.
I will not ask all of them here, but this discussion may be an opportunity for the noble Baroness to talk about how long the review of the capacity market is. The implementation plan is pretty useless when it comes to providing detail on this part, but if anyone is interested, I have discovered that it is all in the June document, Electricity Market Reform: Capacity Market—Design and Implementation Update. If noble Lords want even more detail, I suggest that they read the memorandum submitted to the Delegated Powers and Regulatory Reform Committee, because that has even more detail. Why that is not in the implementation plan I do not know, but we are where we are, we have to gather all this information and try to make the best of it.
It would be helpful if the Minister described the length of time for which the Government consider that the capacity market needs to operate and precisely how it will enable new investment. One of the key challenges is that the capacity market means everything to everyone. If you are an owner of an existing power station, you see it as your opportunity to keep that station open. If you own a mothballed gas plant, it will be the opportunity to get that back on the system. If you want to build new CCGTs, it is your opportunity to get those built. If you are a demand-side response producer, it is your opportunity to get that done. It is not clear how this broad set of measures will manage that conflict between existing owners, owners of mothballed plant, new owners and demand reducers. We as a Committee, representing the wider two Houses, deserve more information. I look forward to the Minister’s response.
Energy Bill
Debate between Lord Deben and Baroness Worthington
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.
Energy Bill
Debate between Lord Deben and Baroness Worthington
Lord Deben
As the climate change committee is mentioned in this amendment, perhaps I could refer to some of the things that have just been said. I declare an interest as chairman of that committee. This is obviously a probing amendment and I am sure that the Minister will want to look carefully at how it falls. However, it seems to have two elements that the Minister might wish to look at rather carefully. My noble friend Lady Verma is right to be very careful about additional burdens and I am one of those who believe in that, because there is no doubt that any kind of burden will be magnified. There is today’s announcement from the Taxpayers’ Alliance, for example, which has produced a figure for the cost of energy to a normal taxpayer. Instead of the £100 in 2020 that it will be, it is suggesting six times that by using figures which just do not stand up. Whatever we do, we will have that kind of attack.
The first thing that the Minister may find to be of value in these suggestions is that this information is already required. There is no additional information that needs to be acquired. Secondly, we also have a mechanism in place—the climate change committee—to provide the additional information that the Minister might want. Thirdly, it is a way in which one could signify the great importance that we attend and attach to electricity decarbonisation. It cannot be said too often that this is the key to the future. If we cannot decarbonise electricity, we have no hope at all of meeting the obligations that are statutorily before us. It is important to say this again and again because people seem very reluctant to understand why that is. But it is obviously true that if you have decarbonised electricity, you can in fact provide many of the things that people have grown used to having without destroying the climate. If you look at the issue, it means that we can have electric vehicles, particularly with smart metering and smart grids. However, we can also have all the other electrical machines, like the ones we all use today, without feeling that we are contributing to climate change. Therefore, it is absolutely essential to what we need to do, which is why the climate change committee has recommended that we should be very tough in showing that we have to meet decarbonisation and carbon intensity targets by 2030, congruent with where we have to be in 2050.
I hope that my noble friend will look at these amendments, not in the normal way of being contrary but as a contribution to strengthening the Bill without adding extra burdens on anybody’s shoulders. They have to do this anyway—and we would not be able to do anything if they were not doing it. The Minister may find it a useful contribution.
Baroness Worthington
My Lords, I wanted to make a few comments about how such an obligation might work. Of course, I completely concur with noble Lords who have spoken already; this is clearly a probing amendment, and a lot of work will need to be done to think through how it might work in practice.
The one thing that I would like to illustrate is that, on the fuel disclosure requirements that we currently have, 12 suppliers are required to report and many of those report very low carbon intensities because they are specifically green suppliers. Of those that are mixed suppliers, there is a very great difference between them; at the top end of the scale, we have Scottish Power in 2011, whose CO2 intensity was 580 grams per kilowatt hour. At the bottom end of the scale you have EDF Energy, with 253 grams per kilowatt hour. Obviously, that is because the plant self-serves to those supply companies; they are both energy generators and energy suppliers, so they choose to use their own power. It would be hard to imagine giving one figure that they should all meet, but an obligation might be that they should demonstrate an improvement over time by percentage per annum on their current levels, as recorded over the past six years.
There are a couple of reasons why that idea might be a good one to explore. We know that there is an issue among independent generators, which fear that they will not be able to gain access to the market because of self-serving—the tendency to use your own plant and be vertically integrated. If they were required to shift to a low-carbon footprint and intensity, they would have an incentive to find those independent generators that can generate low-carbon electricity and reduce their footprint. That could knock off quite a few issues in one, if we looked at it in detail.
Another thing to commend that idea is that the measures in the Bill are designed to bring forward investment, but nothing is there to compel anybody to come forward. You can set up a CFD strike price and offer these contracts, but if no one wants to bother getting them they can simply carry on with business as usual. If they had this obligation, it would create a great incentive to find those CFDs, apply for them and come forward. The alternative is simply to keep offering higher and higher strike prices until the carrot becomes so attractive that they have to come forward. So it is a good insurance policy for the Bill, providing a way for the Government to link those targets that they propose to set in 2016 with an actual mechanism for delivery. Let us be honest: a target set by the Government to deliver carbon intensity of any value will be delivered only if you find a way for the commercial operators in the market to deliver it. This is one way, and it has potential supplementary benefits in giving independents confidence that their products will have a market.
I hope that we can look at this issue. As my noble friend has mentioned, this is a probing amendment and lots of the details have to be worked out, but it would be encouraging to hear some positive signals from the Government that we might be able to continue the discussion.
Civil Aviation Bill
Debate between Lord Deben and Baroness Worthington(12 years ago)
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Earl Attlee
My Lords, I thank the noble Baroness for expressing once again the reasoning behind her amendment. I also recognise the contribution from my noble friend Lord Deben. However, I fear that I cannot accept the amendment. I urge noble Lords to consider the positive work that this Government have already set in train to address the underlying general environmental concerns. Indeed, earlier this afternoon, on an environmental supplementary duty in respect of the CAA’s airport economic regulation functions, I referred to some examples of the action taken by this Government to ensure that the sector makes a significant and cost-effective contribution to mitigate the adverse environmental effects of civil aviation in the UK. I also urge your Lordships to consider the merits of the amendments we have already agreed to address the specific concern of the impact of the airport economic regulatory regime on the environment.
Let me now address this amendment, which seeks to provide the CAA with a general environmental duty. The previous Government consulted on giving the CAA a general environmental objective, alongside proposed safety and consumer objectives, in December 2009. The responses were mixed, with airport operators in favour but airlines opposed. The majority of airline respondents felt that it was for the Government to set the direction of environmental policy but for the CAA to regulate, and that giving the CAA an environmental objective would blur the boundary between policy and regulation and could create additional costs on the industry. They felt that it was not appropriate for the CAA to have to make environmental judgments on noise or emission levels at airports but instead that it was more appropriate for it to regulate the impacts in line with government environmental policy. We talked earlier about the difficult policy issue of Heathrow Airport, the background to which is of course an environmental issue regarding what the environment can tolerate. However, these issues are a matter for central Government.
Since the consultation, the CAA has included an objective in its Strategic Plan: 2011 to 2016:
“To improve environmental performance through more efficient use of airspace and make an efficient contribution to reducing the aviation industry's environmental impacts”.
I will come back to that in a little more detail in a moment. Additionally, the information, guidance and advice duties and powers in the Bill are now stronger than those that were consulted on. The CAA has a duty to secure publication of appropriate environmental information. Environmental impacts have been defined very broadly in Clause 84 to include noise, vibration, emissions and visual disturbance from aircraft as well as the “effects from services” and facilities “provided at civil airports”.
The knock-on consequences for human health are also covered by the information provisions in Clause 84. This is a very important issue for some communities and one where additional information could provide a valuable contribution to an informed debate. Noble Lords should be in no doubt that there are real benefits to be gained through the collection of good quality environmental information that can be presented in a consistent way to help passengers and freight owners judge the environmental impact of their travel choices. In addition, the CAA will be able to publish guidance and advice with a view to the sector limiting or controlling the adverse environmental effects of civil aviation in the UK. I suspect that the environmental effect that most concerns the noble Baroness is that of CO2 emissions.
The CAA is also already undertaking and supporting a number of actions to deliver positive environmental outcomes. Two examples of that include, first, the CAA’s work on implementing the Single European Sky initiative to enhance the design, management and regulation of airspace across the EU by moving from airspace divided by national airspace boundaries to functional airspace blocks. It is estimated that since 2008, the UK-Ireland functional airspace block has provided approximately £35 million of savings, including around 150,000 tonnes of CO2. Under the EU’s Single European Sky legislation, the environment is considered to be as important as safety and efficiency and there are EU-wide performance targets on the environment. The CAA has reflected this additional emphasis on the environment in its regulatory approach to the provision of air traffic management services.
Secondly, the CAA is also continuing to develop and take forward the future airspace strategy to modernise the UK airspace system. Again, I have organised a presentation for your Lordships to understand the work that is going on. This includes a clear driver to implement air traffic management improvements that reduce emissions from aircraft and contribute to minimising aviation’s environmental impact. These include enabling more direct routes and optimal vertical profiles, continuous climb and descent procedures and reduced reliance on stack holding, which all reduce greenhouse gas emissions. Both these developments will be positive for CO2 emissions; indeed, that is one of the drivers for them. I hope that the House will agree that we have struck a good balance on the environment, since we have already agreed some useful amendments today, and that the CAA will be better placed than ever before to take environmental matters very seriously, as we would expect it to do. I hope that in due course the noble Baroness will withdraw her amendment.
Baroness Worthington
My Lords, I thank the Minister for his comments but I am disappointed. It is fine to list all the wonderful things that the CAA, the aviation industry and the Government are doing but the fact of the matter is that environmental issues are absolutely crucial. We must always remember that everything else, such as the economy, is a subset of the environment. If we wanted a reminder of that, we need look no further back than two weeks ago when Hurricane Sandy blew into New York and its stock exchange closed for two days because some things are even more important than our economy.
It is very regrettable if the wisdom of putting a duty into this Bill about the environment cannot be seen. Clearly, this is a sector with a large environmental impact. The measures that the Minister has listed arise because of the significance of its impact. I cannot see why this sector should have a regulator that does not have an environmental duty when all other sectors appear to have one. I do not think that the Minister provided a clear rationale for why this should be the case and aviation should be singled out. If anything, his list of the measures being undertaken makes me consider that there ought to be a broad environmental duty to give the CAA cover for undertaking all these activities. How can it be that we have introduced all these environmental aspects but not given the broad framework from which they may hang? I am afraid that I am not persuaded.
Lord Deben
Does the noble Baroness agree that the fact that the airlines are unhappy about this should not necessarily be the closing remark and that, in most cases, those who are to be regulated would prefer not to be so? We have to be a little careful about taking that as a final sum.
Baroness Worthington
Absolutely. I was going to comment on that very fact, because the Minister began by commenting that responses were mixed. Of course they were mixed. It actually pleases me that the airport operators were in favour. We are really just listening to turkeys when we want to talk about Christmas, which is never a good way to start thinking about making comprehensive and sensible legislation and regulations. As I hope your Lordships can tell, we are very disappointed on this side. This is not a partisan issue; there has been cross-party support on this question all the way through the process. The House will not be satisfied by the arguments put forward, I think, and we will come back to this. However, at this stage, with regret, I beg leave to withdraw the amendment.