Lord Howell of Guildford
Main Page: Lord Howell of Guildford (Conservative - Life peer)Energy Bill
Lord Howell of Guildford Excerpts
Lord Turnbull
My Lords, as noble Lords may be aware, I have strong reservations about the Bill but on this issue I side with the Government. The agenda to which we are working had its genesis 10 to 15 years ago when continued growth in the world seemed secure, real incomes were rising, global temperatures were tracking quite closely the rise of CO2, which is not the case today, when there was optimism about an international agreement, public money to fund the expansion of renewables was plentiful and peak oil was pretty much a received wisdom. None of that is true today. Indeed, the world is still in a state of flux. Therefore, a moratorium on specifying new commitments seems a sensible response.
The noble Lord, Lord Oxburgh, referred to infirmity of purpose. Some would say that there is such infirmity, partly for the reasons given by the noble Lord, Lord Stephen, partly because the world is uncertain, but, principally, because the Government have not yet made up their mind on how to resolve the trade-off between conflicting objectives. Until they do that, they cannot make this commitment sensibly.
We have impaled ourselves on a set of targets and timescales that are forcing us in desperation to undertake a number of responses that we could avoid if we had a more measured view of the sense of urgency. It is a truism that in commercial negotiations, the party with the deadline is the one in a weak position, yet we are engaged in probably the biggest commercial negotiation the Government have ever undertaken, with a variety of energy suppliers. We should not allow them to exploit this urgency, which is what is happening at the moment. For those reasons, the Government—not just out of political funk but for good reasons—are delaying the timing of these commitments.
Lord Howell of Guildford
My Lords, I apologise to colleagues and to the Minister for not being at Second Reading. I had inescapable commitments elsewhere. I declare my interests as president of the Energy Industries Council, in succession to my noble friend Lord Jenkin, whose superb speech we have just heard, president of the British Industry of Energy Economics, chairman of the Windsor Energy Group and as an adviser to Mitsubishi Electric. I apologise also for the fact that I appear to be sitting on the wrong side of the Committee. The truth is, I strongly oppose the amendment and believe that it is completely wrongheaded, but I am not over the moon about the Government’s policy, either—so perhaps I am sitting in roughly the right place.
The noble Lord, Lord Oxburgh, is a very wise man with whom I usually agree on everything. However, in this case I do not agree with him. He said that this is a very complex Bill. Of course, there is a mass of interventionist detail in it, a great deal of which will never work, but the basic aim is quite simple. It is to get investment in new plant as quickly as possible, and get plant of one sort or another up and working before we have serious interruptions, given that we are closing other plants at a great rate for all sorts of reasons, not least to do with EU directives. The noble Lord said clearly that if we put this additional target definitely in place by 2014, rather than perhaps in place later, we will overcome infirmity of purpose. I can only offer my experience. It may sound cynical, but I have been in and out of government over a long time, so perhaps it is the same thing. Targets do not do that.
In some of the ministries in which I served—I hope that this does not sound too awful—the saying was that targets were set to be missed. They are not an inspiration, and a lot of shrewd investors and financiers know perfectly well that if they put too much faith in targets, they will be wrong-footed. What they should watch of course is technology. I advise both the Committee and the Government to do as much as they can to put their faith in technology and to back every kind of technological advance, because technology rather than targets will deliver the objectives that most of us want, including decarbonisation, affordability, security of supply and so on.
When I see the suggestion that we should put another target into the pattern—an early one, at that—on top of the targets for 2050, and for 2020 for renewables, which we are stuck with the moment, I worry that I am seeing yet another example of a rather dreadful trend, which is to rush at decarbonisation much too fast. It is all question of pace and politics. While I am as anxious as the next man to see a greener, cleaner world, and while I accept the horrors of global warming, whether or not their cause is scientifically established, the rush and overambition of the Committee on Climate Change, of the recommendations and of the zealots will upset our targets and ensure that we do not get the decarbonisation that we need. It is going to distort decisions and undermine the green cause. It will lead us to absurd situations towards which we are rapidly heading now, where we are actually burning more coal and not less, the opposite of what we want, and where we are getting, as my noble friend Lord Jenkin has rightly said, eye-watering price increases and minimum prices fixed for years ahead to encourage renewables. So much for lower prices—there are not going to be lower prices. Households are now paying average prices twice as high as they were paying five years ago, and some forecasts—perhaps too gloomy—are saying they will be paying two or three times as much as that by the mid-2020s.
Baroness Worthington
Does the noble Lord agree that it is quite clear the reason for those price increases is the high price of gas?
Lord Howell of Guildford
No, I would not agree at all. I look at my bill, and I do not know whether the noble Baroness has looked at hers recently, and find that 20% stuck on the bill as a result of green policies and green taxes. It may be that gas contract prices have been rising, but spot prices, and indeed some contracts around the world, have been falling. The noble Baroness knows well that in the United States, for very special reasons which may become global reasons, the price of gas is about a quarter of what it is here. So I do not agree with that proposition, and would certainly disagree with it even more in the future.
Baroness Worthington
Will the noble Lord therefore explain why gas bills have been rising when they do not carry any of the costs of the renewables obligations, as on electricity? There is very clear evidence in the public domain that up to two-thirds of the increase in prices is because of the underlying price of gas.
Lord Howell of Guildford
Obviously the bulk of a market price is the price at which gas is purchased: either contract or spot. However, if the noble Baroness is asking me to agree with the proposition that gas prices are now, or will be be, the driving force in raising prices, and that we should ignore the additional pace at which extra costs are placed on the consumer, I am afraid I cannot. The consumer is paying more. Energy prices in this country—I do not want to wander off the amendment too far—are very high, almost as high as in Germany. This is not good for our industry, and the pace at which people can be asked—it is a question of pace, not principle—to bear additional costs, particularly poor families, has to be handled with great care and calibration by policy makers.
That is why this idea of targets represents a danger, encouraging more over-ambition and more speedy decisions which distort incentives. Furthermore, technology is changing all the time, and all kinds of developments can take place which wrongfoot those who have established targets for years ahead. I know about that because in the 1970s and 1980s I was the Energy Secretary, and we launched a huge programme looking 50 years ahead for replacing our nuclear fleet, which, if we had done it, would have saved a lot of problems today. Although we announced that we were going to have nine new pressurised water reactors by 1990, we only actually built one. Today, those reactors would have been built and would be working excellently, producing low-carbon electricity. Alas, that did not happen.
So if the aim of this amendment is to bring greater firmity of purpose, and to reduce infirmity of purpose, it is not going to succeed. The aim of the Bill is to get more investment and to get the investors putting their money into new machinery, whether it is renewable, nuclear or gas turbines. That investment is not coming forward. It is not happening, and if people say it is about to happen, I have to ask—and this is where I am going to sound disloyal to the Government—why are Ministers rushing around talking about de-mothballing existing plant to fill likely gaps in our power supply in the next few years? Why is the National Grid talking about interruptible contracts? These are very frightening things. These are not going to increase certainty; they are vastly decreasing certainty. The oil companies and energy companies that come to me are not at all impressed by this Bill. They do not believe that it will create the investment certainty they need and they wonder when the politicians are going to show more finesse and care, and when the proponents of green energy, of which I am certainly one, are going to show more sense of pace in pushing forward these issues.
If we continue at the present rate, if we continue to install targets that apparently commit Governments—but of course time passes and they change—and if we continue to believe in targets driving investment and pricing decisions, we will create precisely the kind of political backlash that we now have. We will see poorer performance on CO2 than other countries that avoid all these sorts of targets, such as the United States, which has a brilliant performance on CO2. We are going to see less security, less affordability and more damage to our country, its competitiveness and, above all, the poorest families in the land. These targets are not only undesirable but dangerous and I very strongly oppose them.
Lord Howell of Guildford
My noble friend has missed the point. The danger of targets such as the one proposed now is that they distort investment decisions. It is not that they prevent all kinds of investment but that they distort investment decisions through their urgency and through their aim at a particular target, in ways that lead to counterproductive results. The results now before us are a growing hostility among the public to the higher prices that they have to pay, a feeling that there is redistribution from the poor to the rich, which is not at all welcome, and difficulties about deciding what strike price to give for our replacement fleet of nuclear power stations.
My experience in the 1970s and 1980s was that the investment decisions were all askew. They were not clear at all. The long-term determination, backed by the then Prime Minister, Mrs Thatcher, to support an entire nuclear replacement fleet was undermined by all kinds of alternative views and distortions. The same distortions will result from this target. That is all I am saying.
Lord Deben
I find that very difficult to follow. This is not a prescription for the means by which we will meet the requirement of a carbon-intensity target. It is an assurance that we are going to stick to that target so that everybody can use whatever mechanisms they have. This is a non-prescriptive concept, of which I approve. It does not say that we have to use this, that or the other. It is a portfolio approach. I still think that the parallel is very clear. If we had been able to stick to our proposition, we would be in a better place today and we would not have to do many of the things that we seek to do today. To ask us to repeat that mistake seems to me a great sadness.
I come back to my first point. The reason we believe that there should be an interim carbon-intensity target is that it is necessary if we are to reach our statutory requirement in 2050. It is necessary for the United Kingdom plc because it gives certainty to people about the parameters within which they will work. If we do not do it, all the noise around what the Government are doing, and the determination to put off to beyond the next election the carbon-intensity target that is now admitted by the Bill, will do a great deal of harm. It will mean that the supply chain that could come to this country will not come and that the jobs and prosperity that should come from our far-sighted decisions will not be gained and earned. We will do very much better to take the advice that will lead to a serious system in Britain that will make us competitive with the rest of the world.
Lord Oxburgh
My Lords, I thank all those who have taken the time to give us a very interesting and rewarding debate this afternoon. I cannot possibly reply to all the comments that have been made and will refrain from discussing climate change, even though I would like to do so with certain noble Lords—perhaps we will do that in private.
Quite a number of noble Lords have made Second Reading points this afternoon rather than points which relate to this particular amendment. Be that as it may, it is worth commenting on shale gas, which has come up several times. It is worth pointing out that shale gas is about the most expensive gas to exploit that we know about on the face of the earth. You have to use a whole range of technologies which are mostly at the top of, or almost beyond, the range of conventional gas exploitation. The noble Lord, Lord Lawson, is absolutely right when he says—or implies—that gas is the least transportable of the fossil fuels. If you get your shale gas from abroad, you pay a premium of something close to $2 or $3. The real advantage of shale gas is to those who have it themselves and can put it straight into their national grid. If, in due course, we can do that, that will certainly be a help to the national economy. However, I do not see anything in this Bill that actually inhibits the future use of shale gas.
Lord Howell of Guildford
The noble Lord is an enormous expert on this but is he talking about just shale gas itself or about hydraulic fracturing and horizontal drilling technologies? The latter, of course, release all sorts of other resources as well, including oil, tight oil and other forms of offshore gas, which are going to be, by all current assessments and estimates, in very plentiful supply. The whole world will want to sell us this gas.
Lord Oxburgh
I was restricting my comments to shale gas, and in the interests of time I will continue to do so. However, there are other possibilities, as the noble Lord, Lord Howell, suggested.
The consensus view in the industry is that the price of shale gas in America, where there was effectively a bounce downwards associated with transient overproduction, will come back up to something like $7 from the $8 that it was previously. That will reflect the costs of extraction, with a modest premium for those who do it. The broader view is that shale gas will mean that there is more gas to go round. The result of its abundance will probably be that gas prices do not rise nearly as much as they would have done in its absence. However, I do not think that we can look forward to a great price reduction.
A number of noble Lords commented on technology. The first thing to recognise is that in the sorts of technology about which we are talking, the characteristic time between the inspiration of a new technology and its coming into use is about 20 years. That is the timescale in which we have to think of new technologies. There are two technologies that will transform the energy scene in this country and worldwide. The first is cheap and readily applicable carbon capture and storage, which we do not have yet. However, there is a range of possibilities in that area. I suspect that this is what the noble Lord, Lord Dixon-Smith, was referring to in his comments. Cheap carbon capture and storage, applied to gas, would be a transformative change. The other transformative change would be the ability to store energy. That would transform the role of our intermittent renewables, which at the moment have to be managed effectively on the grid.
To pick up a comment made by the noble Lord, Lord Jenkin, the price of energy and its security of supply are fundamental to the community and to the country as a whole. Politically, they are very important. Fundamentally, what the Government’s approach offers is somewhat higher prices than we would have preferred in the short term, but probably much more stable prices—and lower global prices—in the medium and longer term. It is a matter of whether we want jam today or jam tomorrow. The Government have sensibly decided that jam tomorrow is what a responsible Government should work for.
In conclusion, the main argument against our amendment has been Cornford’s principle of unripe time. If we defer this for another two years, we will be having exactly the same argument, with exactly the same reasons for procrastination presented. There is ample scope within the Bill—and, as I pointed out, within the Climate Change Act—for the Government to change. I will draw noble Lords’ attention to Clause 2(1) and (2) of the Bill, which state:
“The following matters must be taken into account by the Secretary of State in setting or amending a decarbonisation target range … scientific knowledge about climate change … technology relevant to the generation and storage of electricity”,
and so on. In other words, the powers to change this are there. For example, if, between 2014 and 2017, new technologies miraculously shot onto the scene—and I believe, for the reasons I have given, that that is very unlikely—it would be possible for the Government to change their position.
In conclusion, I come back to the noble Lord, Lord Jenkin, and one or two others who effectively implied that this amendment was otiose because investors do not care. However, I have learnt, not through a miracle of technology but through a note handed to me during this debate, that the chairman of a £5.5 billion investment fund has said, “I think that this amendment is very important to us”. I beg leave to withdraw the amendment.