Energy Bill [HL]

Lord Hollick Excerpts

Committee stage
Monday 16th January 2023 Grand Committee

[Lord Ravensdale (CB)]

My Lords, I shall speak to Amendments 241, 242B and 242H in my name. In so doing, I declare my interests, first as an engineer and project director working for Atkins within the nuclear industry and as a director of Peers for the Planet.

Amendments 241 and 242H both relate to the renewable transport fuel obligation, the RTFO. I shall concentrate my remarks on Amendment 242H, as I believe it is the right amendment of the two to take forward. It aims to widen the scope of the RTFO from renewables to cover all low-carbon sources. I know the Minister will agree that we should, as far as possible, be technology-independent in how we set up subsidy schemes; as long as the source from which the fuel is derived is low-carbon, we should not care about its wider classification. The amendment seeks only to reflect existing government policy.

I note the July 2022 consultation on the related topic of recycled carbon fuels, which was titled Supporting Recycled Carbon Fuels through the Renewable Transport Fuel Obligation. Recycled carbon fuels are not classified as renewable fuels, as they are made from fossil-derived waste: for example, non-recyclable plastic waste or industrial waste gases that would otherwise be landfilled or incinerated. However, RCFs can provide significant carbon savings compared to traditional fossil fuels such as petrol, diesel and kerosene. The consultation says:

“To introduce support for RCFs into the RTFO we will need to amend the Energy Act 2004 and lay secondary legislation to amend the RTFO Order 2007. The measure is expected to be part of the forthcoming Transport Bill.”


The Government have already agreed with the principle of taking this important measure forward and there is a great opportunity for them to get it done now, within the Energy Bill, so that primary legislation is in place to begin allowing the significant carbon savings that can be generated from recycled carbon fuels, the constituents of which would otherwise end up in landfill. Otherwise, if we wait for the transport Bill, we are looking at a significant delay, as I understand that it will not be progressed in this Session—perhaps the Minister will correct me. I am sure he will see the sense in this argument, given the benefits of progressing with these measures now. It would not commit the Government to anything. Obviously, secondary legislation would be needed to enact any of this, but it would remove the blocker that currently exists in primary legislation and allow the Government to progress with these measures when they so choose.

The amendment would also have wider benefits beyond recycled carbon fuels. It would also allow, for example, hydrogen produced from nuclear power to be eligible for RTFO support. There are plans being developed to use nuclear-derived hydrogen to power construction vehicles for Sizewell C build. It could be a key use case for hydrogen in transport and in construction vehicles which need to operate for long periods—24 hours a day—on sites with limited electrical or charging infrastructure.

As with the RCF, much further work would be required to implement this in secondary legislation if the Government chose to, not least on additionality rules. However, it would remove the blocker that exists in primary legislation and open an opportunity for the nuclear industry to begin generating hydrogen. It would also demonstrate the Government’s commitment to technological independence.

The question may arise of how exactly we define low carbon. In the RTFO context, the Government have published detailed sustainability criteria which any eligible fuel must meet. These include requirements to deliver at least a 60% greenhouse gas emissions saving versus fossil fuels. Compliance with the sustainability and carbon reduction criteria would be a straightforward way to define this term in secondary legislation.

To summarise, this is a straightforward amendment that reflects existing government policy. It does not commit the Government to do anything but does remove a blocker that currently exists in the Energy Act 2004 in extending RTFO support to other low carbon sources. It would also allow the Government to progress with their plans for recycled carbon fuels, given the delays with the Transport Bill. Therefore, I hope the Minister will agree that it would be sensible to proceed with Amendment 242H and allow the carbon reductions that will be possible through the use of recycled carbon fuels.

Amendment 242B was originally put forward by the noble Baroness, Lady Neville-Rolfe, and was transferred to me following her move to the Front Bench, so I thank her for originally tabling it. It is also related to an amendment I put forward regarding the Nuclear Energy (Financing) Act. It is a probing amendment designed to highlight a key issue with the financing of nuclear projects going forward, both through the RAB and other investment mechanisms. There are two aspects relating to financing of new nuclear that need to be highlighted here.

First, investors are constrained by ESG criteria that apply to their funds. My concern is that nuclear will not be considered sustainable, or taxonomy aligned, under the green taxonomy, which the Minister assured us last week is progressing at the Treasury. This concern comes from previous positions on nuclear in similar EU schemes, and from the Treasury’s not including nuclear in its green financing framework.

As with the previous group of amendments, this all comes back to technology independence. Nuclear is a low carbon technology, along with many others, and the Government should not be picking winners in the race to net zero but enabling a level playing field. If nuclear is not considered as taxonomy-aligned under the UK green taxonomy, there is a real risk that nuclear projects will not be able to attract capital in sufficient quantity to realise the Government’s ambitions for the sector. ESG alignment is now a key factor in capital raises for pension funds and institutional investors. I would be most grateful if the Minister could again provide some assurance that nuclear will be considered as taxonomy-aligned under the forthcoming green taxonomy.

Secondly, I referred earlier to the UK Government Green Financing Framework, which describes how the UK Government plan to finance expenditures through the issuance of green gilts and the retail green savings bond. Currently, this excludes investment in nuclear, but again I urge the Government to reconsider. The Government need to take the lead here in defining what counts as sustainable within their frameworks. This is so important in leading the markets in the right direction and in allowing these schemes to finance future government investment in nuclear.

[Lord Hollick (Lab)]

I rise to speak to Amendment 242A, which my noble friend has just introduced. In the course of our inquiry into the net zero transformation, the Industry and Regulators Committee, which I chair, took extensive evidence about Ofgem’s remit and whether it should be amended to include a specific requirement to have regard to meeting the UK’s net zero emissions target.

Ofgem’s primary statutory duty is to protect the interests of existing and future consumers in relation to gas and electricity. This objective is to protect those interests taken as a whole, including their interest in the reduction of greenhouse gases and in the security of the supply of gas and electricity. This duty guides Ofgem when it is making decisions and trade-offs in the regulatory framework between the three objectives of decarbonisation, affordability and security of supply.

Many of our witnesses told us that the net zero target should be included explicitly within Ofgem’s strategic duties, not least because Ofgem’s responsibility for setting the price and affordability of energy must take into account the substantial level of costs of the transition to net zero which will have to be borne by consumers.

If there is no explicit reference to net zero, there is a danger that the decisions will be very short-term in nature, focusing on short-term costs for consumers and not the long-term costs of failing to achieve net zero and invest in the infrastructure necessary to achieve that. The Climate Change Committee agreed. It argued:

“Giving Ofgem a net zero responsibility”


will help it to

“think … strategically about the changes that lie ahead so that we can minimise the cost to the consumer in the long run.”

Jonathan Brearley, the CEO of Ofgem,

“said that Ofgem is open-minded about whether it should be given a primary duty to achieve net zero, arguing that ‘I and the board have been very clear that we see net zero as fundamental to our existing duty’ … noting that there may be a benefit to clarifying that.”

The impact of net-zero costs on consumer bills is, ultimately, a decision for the Government, not for regulators. The Government promised a strategy and policy statement setting out priorities for delivering a net-zero energy system to ensure that the supplies are available at the lowest possible cost—that was promised in 2022. They also promised to publish a fairness and affordability proposal by the end of 2022. Neither of those documents has yet been cited, and it is indeed unclear whether the consultations are actually taking place. There will be an opportunity in our debate on Friday on the report from the Industry and Regulators Committee for the Minister to enlighten us on the progress of those two very important pieces of work on strategy and affordability.

Without those two statements from the Government, Ofgem will struggle to reflect net-zero costs in its energy pricing; but there is no doubt that those costs will have to be reflected, and Ofgem should have a clear and explicit duty to do that. That is why the Government should accept the amendment, to make it plain to all parties that Ofgem has a strategic duty to take into account the very considerable short and long-term costs of the transformation of our energy system and challenge the Government should their guidance impose unaffordable or unfair costs on consumers. Perhaps the Government might find such an independent intervention from the statutory regulator a little inconvenient. It would be ironic if the regulator most responsible for regulating the journey to net zero is one of the only regulators which does have a specific responsibility in its remit.

[Lord Lennie (Lab)]

My Lords, I thank all noble Lords who have spoken, particularly the noble Lord, Lord Teverson, my noble friend Lord Hollick and the noble Baroness, Lady Hayman. I also support what the noble Baroness, Lady McIntosh, said and what the noble Lord, Lord Ravensdale, asked.

I will comment on how reforming the remit of Ofgem using the Energy Bill would achieve what we are trying to achieve in the amendments in my name and those of the noble Baroness, Lady Hayman, and the noble Lord, Lord Teverson. Ofgem’s remit has not changed substantially since 2000. It does not prioritise electricity decarbonisation in line with the Government’s recent legislation or stated ambitions; it has only a consideration of greenhouse gas reduction. As a result, Ofgem has been unable to reform substantially its working practices and regulatory frameworks in response to the Climate Change Act 2008 and the UK’s subsequent net zero ambition.

The Government have an opportunity to address that with the Energy Bill, and, while they have recognised the need to reform substantially the working practices of Ofgem in the past, they have done so through the creation of a strategy and policy statement—an SPS—for Ofgem. That urgent statement will be welcome; we note that, largely due to its complexity, it has not been published since 2020, when it was first proposed. It was consulted about in 2021, but we are still waiting for the statement to see the light of day. It seems to us that, to help with the Government’s net zero ambition, giving Ofgem the mandate to advance policies in support of net zero would be extremely welcome.