Lord Grantchester
Main Page: Lord Grantchester (Labour - Excepted Hereditary)
Lord Grantchester
Lord Grantchester
My Lords, I will speak also to Amendment 25 in this group. Amendment 12 ensures that, on a decarbonisation order being made, the existing requirement on the Government under Section 5 of the Energy Act 2010 to report on CCS developments every three years is not removed.
The Explanatory Notes state that,
“the repeal of the three yearly progress reporting requirement on decarbonisation and Carbon Capture and Storage contained in section 5 of the Energy Act 2010 … is to remove duplication, since the scope of these reporting requirements is covered by clause 3 of this Bill”.
However, that fails to recognise that under the Bill there is no certainty that there will be any reporting on CCS. Repealing the triennial reporting on both but bringing in requirements only on decarbonisation means that in effect there will be no reporting on CCS. This would be very unsatisfactory. Section 5(1)(a) maintains reporting on CCS.
The first and latest report on CCS was made in 2012. It is a very useful document which outlines the components of the Government’s CCS road map and the funding of research and development initiatives, including pilot projects. It outlines the development of the UK’s storage atlas, identifying nearly 600 storage sites across the UK. The report also puts into context UK action to support CCS by comparison with initiatives in other countries; for example, the US has two commercial-scale projects already under construction, with commencement of operation scheduled for 2014.
CCS is a hugely important technology for the decarbonisation of energy. My noble friend Lord Whitty has already mentioned EU Sub-Committee D. Its report emphasised the critical need for technologically and commercially viable CCS to be fitted to new coal-fired power stations in order to hit our carbon savings trajectory by 2050. While there has been slow progress at EU and UK level, the UK could yet achieve leadership through successful pilots, adequate resources and a clear regulatory framework. We have some of the best storage capacity in Europe. We have decades of offshore engineering experience that can be applied to this new sector.
Progress has certainly been unnecessarily slow. The introduction of contracts for difference in this Bill, together with the £1 billion made available to support demonstration projects, is intended to move things forward in the UK. We expect significant progress to be made in the coming years and regular reports on progress are therefore necessary. Future reports should continue to expand assessments of developments in other countries, including policy developments in the EU and projects under way elsewhere, such as in China, so that lessons can be learnt and our own strategy informed by the latest advances in other countries.
It is vital that Parliament is kept abreast of these CCS developments and we see no reason why the passing of the Energy Bill in 2013 should remove this useful requirement to report.
Amendment 25 would make the annual requirement follow the enactment of the Bill rather than as stated in Clause 3(3). The Energy Bill is intended to deliver a big increase in investment in low-carbon electricity in the UK. The measure of its success will be the rate of reduction of carbon intensity of electricity over time. This Committee has already debated the setting of targets for carbon intensity that are intended to give investors confidence by requiring that the Government maintain policies beyond 2020 to decarbonise electricity. However, we should not forget that there is a near-term challenge significantly to reduce carbon intensity in the UK as soon as possible.
As my noble friend Lady Worthington has pointed out already, there is significant potential to reduce carbon intensity simply by acting to ensure the merit order of existing plant is optimised. Unfortunately, a combination of low coal prices and high gas prices has led in recent years to a significant increase in carbon intensity. Between 2011 and 2012, carbon intensity rose from 450 grams per kilowatt hour to 530 grams per kilowatt hour as coal plants that would normally provide load-following capacity began to baseload.
Recent closures of plant due to sulphur restrictions under the large combustion plant directive should help to reverse this unfortunate trend. However, if we are serious about managing our carbon emissions and proceeding on a cost-effective path to our legally binding targets, we need a policy framework that rewards plant that are the cleanest and most efficient and that penalises the most polluting. Only then will the merit order be such that we are achieving our goals at least cost—knocking more than 200 grams off our carbon intensity without the need to subsidise any new plant at all.
The Government must not treat the carbon intensity of our electricity as an afterthought. It is one of the most important measures of progress and is how we can judge the success, or otherwise, of the Bill. The Minister may point to the annual reports contained in the Digest of UK Energy Statistics as a reason for not introducing annual reporting. However, this is a lengthy document, not intended for a parliamentary audience and, indeed, not even laid before Parliament. The triennial report produced in 2012 is a much more concise and useful document. It should be made an annual report, and this amendment seeks to deliver that.
While we are on the subject of the reporting of carbon intensity, does the Minister agree that, in the future, there will be demand for much more frequent reporting than annually? As the mix of electricity changes to contain more varying forms of power—from wind, wave and sun—there will be times of the year and times of the day when supply is high and prices will fall and also times when the opposite is true. Reporting the carbon intensity of electricity in real time will enable customers to see when it makes most sense, environmentally and economically, to use electricity. Reporting in real time would enable the development of tariffs that allow customers with flexible demand to profit from moving their demand to times when electricity is cheapest. The development of electricity storage solutions would also be facilitated as a business model, whereby demand is absorbed during times of high low-carbon supply and delivered back to the grid at times of low supply.
At the moment there are a number of applications that purport to report the real-time carbon intensity—GridCarbon and Realtimecarbon being just two. However, it is not clear whether these applications, which take data from the national grid and use them to calculate the carbon intensity of all the plant delivering electricity to the transmission, are accurate. A considerable volume of renewable generation—several gigawatts—is connected directly to the distribution network and may not be being captured by these grid-based applications.
It is time that the Government took a lead in developing a gold-standard methodology for providing this information and I would be grateful if the Minister could comment on whether her department can undertake this important task. I beg to move.
Lord Deben
My Lords, perhaps I might counsel the Minister to be very careful about accepting these amendments. They seem to confuse a range of different things. They also demand a degree of reporting that might get in the way of the action that I hope will be carried through. The reporting system we have at the moment was designed by Parliament. It stipulates that there should be reports from outside the ministry on the ministry’s and the Government’s performance. If there are areas where it is not done properly, I, as chairman of the climate change committee, would want to know that, in order to see whether we should produce reports in areas that we do not cover at the moment.
I am very concerned about the current desire to report so often as we go along that we do not actually do things. I see this throughout government. We have to be extremely careful. There are two kinds of issue here. The idea that we should have reporting more often than once a year, and that we should have real-time reporting, are issues of such concern that it would perhaps be better if we did not proceed down that route during consideration of the Bill, where there are many decisions to be made on specifics.
I am also unhappy about the proposed constant series of carbon intensity targets. That would be a totally different way of looking at the matter from the suggestion that we needed an interim target to give some kind of parameter and scale to what we are looking at. If we are going to start tying people down to very much closer targets, it will raise issues that go much further than the Bill, towards the way in which government and industry interrelate. I hope that on this occasion the Minister will feel that this is something that should be thought about more carefully before we take on board what is proposed.
Lord Oxburgh
I want to rectify an omission from my previous intervention. I should have declared a non-financial interest, as president of the Carbon Capture and Storage Association.
Lord Grantchester
My Lords, it has been interesting to hear the comments around the Committee this afternoon. I am interested in the words of the noble Lords, Lord Deben and Lord Oxburgh, on the subject. CCS is a very young technology and reporting does not necessarily mean that it will stop things happening. If we do not start monitoring this new activity, how will it inform and clarify actions? I am slightly hesitant to accept some of the Committee’s comments, but, nevertheless, the Minister gave a rather technical response to some of the issues. In large measure, she gave an explanation about supporting how reporting may change. I shall study her words in greater detail, reflect on the Committee’s comments and in the mean time, I beg leave to withdraw this amendment.
Lord Flight
My Lords, Amendment 21 is in my name. I apologise that I was unable to attend Second Reading. This is an empowering amendment to address an issue that could be of benefit to government going forward. As many noble Lords may be aware, an economically viable and clean fuel solution for HGV fleet operators has been pioneered by a company called Gasrec, and is now being followed by others. I should make it clear that I have no interests to declare, and gain no remuneration from these sources.
The new fuel is bio-LNG, which is an alternative to diesel. It is gaining significant support in the logistics sector, with Tesco, Sainsbury’s, Waitrose, UPS, DHL, B&Q and Eddie Stobart all participating. It is a blend of liquefied biomethane and liquid natural gas, and it is cheaper than diesel. It is also sustainable and fully compliant with the sustainability criteria for biofuels, as per the EU renewable energy directive 2009. It has the lowest carbon intensity of any vehicle fuel and, so far, the LBM in the blend remains the only way to address CO2 emissions in HGVs. It is therefore rather concerning that the delivery of bio-LNG production is currently undermined by the UK subsidy system.
As noble Lords will be aware, over the past 10 years the incentive schemes for bioenergy have offered different levels of incentive, depending on end use. Bio-LNG has been available only for the past 18 months, and its feedstock for production—biogas from large anaerobic digestion plants—is likely to be diverted by the terms of the existing renewable heat incentive regime away from bio-LNG to renewable energy and heat, for which of course there are many alternative renewable energy sources.
The RHI regulations adopted in 2001 create a system of incentives designed to promote renewable heat, including in particular the injection of biomethane into the gas grid. The threat to bio-LNG production arises from the current higher incentives for developers of large AD plants to inject biomethane straight into the gas grid. The RHI is set at 7.1p per kilowatt hour for direct injection, with no reduction for larger AD plants benefiting from economies of scale, compared with only 2.18p per kilowatt hour for LNG production.
The effect of these incentives is to encourage large operators to plunder the RHI pot for super-profits, somewhat reminiscent of solar FIT tariffs back in 2011, at the expense of smaller AD developers and farmers, for whom the RHI funds were particularly intended, and the loss of biogas from larger AD plants that are ideal for the production of LBM and thus bio-LNG fuel because of their scale. It is not practical or economical to source an aggregate biomethane from small AD developers for bio-LNG because of the logistical problems with collection. It is thus impossible for producers of bio-LNG to offer large AD developers financial super-returns, which are presently available from direct grid injection as a result of the subsidy regime.
The 2001 regulations notified by the Government to the European Commission under Articles 107 and 108 of the Treaty on the Functioning of the European Union, covering state aid, were amended in 2012 and final approval was given this year. However, development of bio-LNG was not contemplated at the inception of the RHI programme. The Commission was not aware of the distortion of competition that subsidies would lead to in the market for AD biogas, particularly regarding large producers, or of the super-returns large AD developers would enjoy for grid injection at the expense of the taxpayer and smaller developers, for whom the subsidy was essentially designed and approved by the Commission.
The distortions are now clear and ought to be notified to the European Commission but there is a better solution for the Government to address the distortions of competition, which normally would necessitate further secondary legislation, in the opportunity provided by the passage of the Energy Bill to re-establish the principle of a level playing field. The level playing field principle in the 2011 regulations could be established without significant impact on the architecture of the Bill.
Following establishment of the principle of non-distortion, the Secretary of State would have to consider how regulations might be amended to reflect it. This is what Amendment 21 is designed to achieve. I hope that the Government will take heed of the points that I am making and might consider adopting this amendment. If not, as is likely to be the case, I am seeking some undertaking from the Minister to introduce the Government’s own amendments or other measures to achieve the desired outcome. Refusal to address this issue would be commercially foolish and certainly anti-green in terms of what the Bill is seeking to achieve overall.
Lord Grantchester
My Lords, Amendments 18, 19 and 20 all deal with the way in which the Secretary of State will come to a decision on the target level to set, and the level of scrutiny given to this process.
We agree that a greater degree of transparency and independent underpinning is needed in this process. We have already debated amendments in the name of the noble Lord, Lord Oxburgh, and my noble friend Lady Worthington that would ensure this decision is guided by the highest level of independent expert advice—that of the Committee on Climate Change. These amendments would also ensure that should the Secretary of State not follow the scientific advice, the reasons for this decision would be publicly available for scrutiny.
However, Amendment 20 seems to suggest that another independent study should be made. The noble Viscount, Lord Ridley, did not make it clear who would undertake this independent study and what would be the situation were it to come to a conclusion that was different from that of the Committee on Climate Change. But, of course, the Committee on Climate Change already produces the data and it is undoubtedly independent. One only has to look at its continued calls, in the face of government opposition, for a resetting of the decarbonisation target now to secure investment. We are certainly interested in what the noble Viscount believes would be lacking from the advice of the Committee on Climate Change that could feasibly be provided in an alternative independent study, albeit he may claim such a study would be more rigorously scientific and independent in nature.
I humbly suggest that Amendments 18 and 19 are unnecessary and misguided. The Climate Change Act enacted by the previous Labour Government was the first legislation of its kind anywhere in the world. It provides concrete, legally binding evidence to the market and the rest of the world about the UK’s commitment to achieving its climate change mitigation targets. Earlier, the noble Lord, Lord Deben, spoke powerfully about climate change and said that the global network on climate change has shown that 33 countries have already passed climate change legislation, and that this number is growing. The United Kingdom is the world leader in climate change legislation and we must send the strongest possible signal to the market that we wish to continue to lead in low-carbon power by legislating for a decarb target that would bind the Secretary of State and provide certainty for investors as soon as possible.
The extent to which other countries are implementing their carbon reduction strategies is, of course, a concern in global emissions terms, but it should not be a block on the UK taking action. It was said earlier that China is not interested in climate change strategies. However, we contend that it certainly is and is investing huge resources in developing and commercialising low-carbon technologies, as is America. We only have to look at President Obama’s words last week, when he stated that,
“we have to look after our future; and we have to grow the economy and create jobs. We can do all of that as long as we don’t fear the future; instead we seize it”.
On Amendment 21 in the name of the noble Lord, Lord Flight, our understanding is that there is an issue regarding the potential overpayment of support for producers through the RHI, and therefore of funds not flowing through to the transport market. Producers claim that there is an imbalance with an excess going into the natural gas grid. Clearly, it is regrettable that renewables and low-carbon producers should feel at odds with each other in this situation. Therefore, we will be very interested to hear the Minister’s response as to whether any more could be done through the RTFO to support and incentivise the use of biomethane as a transport fuel.
Lord Oxburgh
My Lords, I had not intended to contribute to this debate but several remarks have been made which ought not to go unchallenged. I subscribe to a number of the points made by the noble Viscount, Lord Ridley, but seriously question his methodology. However, that is something we can pursue more effectively outside this Room. It is extremely difficult to talk about the cost in carbon or cash of any single element of a multicomponent system without defining the system as a whole and then looking at its performance with or without the element with which one is concerned.