Energy Bill [HL]

Lord Lawson of Blaby Excerpts

Wednesday 22nd December 2010 Lords Chamber

[Lord Lawson of Blaby]

My Lords, let me first declare an interest as chairman of the Global Warming Policy Foundation, of which I gave fuller details in this House on 2 November. I must say that I am not the slightest bit surprised that this Bill has the support of the party opposite. It is the most dirigiste legislation the present Government have so far produced.

What I propose to do today is to look at the philosophy and policy that lie behind the Bill, to which the Minister alluded in his opening remarks. It is an area in which I have form, as it were. As the Secretary of State for Energy and Climate Change, my right honourable friend Mr Huhne, wrote in the Daily Telegraph on 16 December:

“So today the Coalition begins a consultation on a reform that would reshape this market more fundamentally than at any time since the 1980s, when the Lawson reforms were the pioneer of Europe's deregulation”.

Nor were those reforms simply a matter of energy privatisation, although that was an important part of them. They went much further than that. As Oxford’s Professor Dieter Helm has written in his definitive work, Energy, the State, and the Market: British Energy Policy since 1979,

“the principles of energy policy were rewritten, notably after Nigel Lawson moved to the Department of Energy. His restatement of energy policy in his speech on 'The Market for Energy' in 1982 can be seen, in retrospect, as a defining moment. A new philosophy was set out, motivating much of what followed. His rejection of planning and many of the activities then going on within the Department of Energy was revolutionary at the time”.

That new approach produced well over a quarter of a century of reliable energy supplies at the lowest practicable cost. It should not be torn up, as it is now being torn up, without very good reason.

So what is the reason? According to Mr Huhne, in his Statement on so-called “Electricity Market Reform” last week:

“The current energy market has served us well, but it cannot deliver long-term investment on the scale that we need, nor can it give customers the best deal. Left untouched, it would lock carbon emissions into the system for decades to come”.

So there we have it. Pace Mr Huhne the market can certainly deliver adequate investment, provided it is free from arbitrary government impositions and from major uncertainties about future government energy policy. It can undoubtedly give customers the best deal, as it has for more than a quarter of a century. But it is true that it may well lock carbon emissions into the system, to use Mr Huhne’s phrase, for decades to come. That is precisely because it is carbon-based energy that now, and for the foreseeable future, gives energy customers, both corporate and individual, the best deal. Indeed, Mr Huhne freely admitted as much when later in his Statement he said:

“At the moment, there is a bias towards low-cost, low-risk fossil fuel generation”.

Indeed there is, and quite right too—except that it is not a bias. It is the market providing UK energy customers with the best available deal.

The purpose of this Bill, or, rather, the policy behind it, is to bring that to an end in an obsession to eliminate United Kingdom carbon emissions. Again I will quote from the Statement for what I promise to be the last time. Mr Huhne said that,

“we face growing demand, shrinking supply and ambitious emissions reductions targets”.—[Official Report, Commons, 16/12/10; col. 1064.]

We do indeed face growing demand, although the massive economic burden imposed by the energy policy that lies behind this Bill will certainly damage the economy sufficiently to reduce the growth in demand. We are undoubtedly lumbered with self-imposed unilateral emissions reductions targets. The reference to “shrinking supply” is complete nonsense. It is the very reverse of the truth. Indeed, Mr Huhne admitted as much when he explained to the CBI:

“Left untouched, the electricity market would allow a new dash for gas”.

Indeed, so it would and so it should.

The most dramatic technological breakthrough in the world of energy since my time as Secretary of State almost 30 years ago is the very recent development of horizontal drilling and hydraulic fracturing, which together have made the production of gas from shale economic and highly competitive. As a result, the official US Energy Information Administration, for example, announced only last week that America’s technically and commercially recoverable shale gas reserves are twice as abundant as they previously thought them to be. Indeed, the United States is already set to overtake Russia—if it has not already done so—as the world’s largest gas producer, and this is just the start.

Although America has been first in the field—a result of a technological breakthrough by the private sector, incidentally, which owes nothing to any government support or technology stimulus—the world is awash with shale, in Canada, Europe, Asia and Australia. We now know that we live in a world in which there will be an abundance of gas far into the foreseeable future and beyond. Because it is spread throughout the world, we no longer need to fear the strategic insecurity of being overdependent on either Russia or the Middle East.

Indeed, in so far as there is an energy security problem in this country, it stems entirely from the Government’s obsession of ensuring by means of massive subsidies, combined with growing penalties and restrictions on the use of gas, that we become heavily dependent on wind power. That government-imposed insecurity has three dimensions. First, there is the inherently unreliable nature of wind, which sometimes blows and sometimes does not. Secondly, there is the question of whether it is practically possible to build and install wind turbines on the scale required to meet our energy needs, leaving aside the huge economic and environmental costs of doing so. Thirdly, there is the fact that an indispensable component of wind turbines is neodymium, a rare mineral, which is mined and refined—in a highly polluting way, incidentally—only in China, so we are dependent completely on China.

What are the consequences of the new energy policy which lies behind this Bill, whose essential purpose is substantially to raise the cost of UK energy by turning our back on abundant low-cost gas and relying on higher cost nuclear power and, to an even greater degree, on very much higher cost wind power? There are three consequences, two of them certain and the third quite likely.

The first is that by substantially raising the cost of energy, the policy will do great damage to the economy in general and to manufacturing in particular, at a time when it is clear that our principal competitors overseas have not the slightest intention of following suit. It is indeed curious, to say the least, that a Government that came to power saying they wished to rebalance our economy so as to reduce our relative dependence on financial services, which implies having a stronger manufacturing sector, should be determined to impose the most anti-manufacturing energy policy of any Government in British history.

The second consequence is that, despite the provisions in the Bill before us today, the massive rise in energy costs, which is the clear purpose of this policy, will lead to a huge increase in fuel poverty at a time when conditions are tough enough as it is for those on low incomes. Those two consequences of this policy are certain.

The third, which is not certain but quite likely, is that the dysfunctional energy policy to which the Government are committed will prove unable to provide sufficient reliable electricity to meet the nation’s demand, and the lights will go out. The noble Lord, Lord McFall, warned of that in his intervention earlier in the debate. And all this in the cause of eliminating UK carbon emissions.

Moreover, there is a further irony. Per kilowatt of electricity generated, gas produces only half the carbon emissions of coal, so it is quite possible that by switching from coal to gas, the UK might be able to meet or at least get very close to the 2020 target for emissions reductions enshrined in the Climate Change Act. It would not, of course, make it possible to meet the near total decarbonisation enshrined in the 2050 target, but by 2020, or more likely well before that, it will have become abundantly clear that global decarbonisation is simply not going to happen, and that for this country to persist with a policy of unilateral national decarbonisation will be manifestly absurd and indefensible. Indeed, as we suffer the coldest winter since records began 100 years ago, well before 2020 it might just begin to dawn even on green-obsessed government Ministers that there may not be any case for doing so.

At present, the coalition Government are having to tackle with determination and vigour an unenviable fiscal inheritance in a tough economic climate. I wish them well. But to make that task substantially harder by embracing, for no good reason whatever, the massive self-imposed economic burden embodied in the policy which lies behind this Bill is madness.

--- Later in debate ---

[Lord Lea of Crondall]

My Lords, we are obviously having a broad debate on energy policy and I welcome that. One of the difficulties has been the rather disjointed way in which all the various announcements have been made. Those announcements must have been coincidental, because I cannot think that they were made as part of the planning. We had hugely important announcements last week about the electricity market regime, and a very important paper, Carbon Price Floor, was recently produced by the Treasury and HM Revenue and Customs. Ever since Rio in 1992, we have known that the trend in policy, including the Climate Change Bill and so on, has involved two or three different rationales for big price increases, and I want to come on to some of the social problems associated with that. I do not want to labour the point but I find it astonishing that we have this Bill dealing with important, as well as less important, matters relative to the hugely significant announcement that we need £110 billion of new generation by 2020. That is 10 years away, and you do not need to be Einstein to figure out that that is more than £10 billion a year. Talk about Heathrow Airport, the railways, the roads and so on! This is a much bigger deal if these figures are correct.

Although I agree to a large extent with the speech of the noble Lord, Lord Lawson of Blaby, and I greatly admire his analysis, I think that we have now entered a new narrative period, because the incentives for new investment seem to have fallen short of the supply requirements for energy security. The situation is a bit like that of Heathrow Airport. We were all astonished last week when it was seriously stated that Heathrow was running optimally, at 98 per cent of capacity. I have never heard such an absurd statement. However, it is a national problem and this, too, is a big national problem. I agree with the noble Lord, Lord Lawson, that we cannot have a sort of Gosplan for energy but I would say—and I do not know whether the noble Lord would agree—that we need a more holistic narrative than the highly disjointed one that we have at present.

The Treasury has come up with this framework for a carbon price floor and I want to ask the Minister one question. I hope that the noble Lord, Lord Marland, is not going to say, “Well, these are all questions outside the scope of the Bill. My job is to get the Bill through. I am not interested in any other questions”, which I think could be his reply. He has indicated that it will be. I thank him but I am not going to sit down; I am going to continue my speech. You cannot have a carbon price floor in Britain without a number of questions arising about a price floor across Europe or any other price floor. I should like to ask him a question and, if he does not want to reply today, I am sure that the department will be able to write plenty of letters, provided that the Treasury agrees with Chris Huhne’s department. I am not trying to be nasty about this. Both Secretaries of State are wonderful people working in co-operation at the moment. However, I think that we need a wider view about the context of this carbon price floor.

It seems to me that there are three different rationales for this 30 per cent price increase, announced last week, by 2020—which, surprise, surprise, is the same year as the £110 billion should have been spent. One rationale for the price increase probably has something to do with finding £110 billion, but we do not think that a big percentage of the £110 billion will come from price increases.

[Lord Lawson of Blaby]

I was very interested to hear the noble Lord’s remarks on my intervention. Does he not recall that in the Treasury document to which he referred the rise in the wholesale price of electricity is projected as being between 68 per cent and 88 per cent?

[Lord Lea of Crondall]

Let me take that as a base from which to throw in my next suggestion. That is that these numbers are baffling to most people. I was in the middle of saying that there are three possible rationales for a 30 per cent price increase. One of them on the face of it has nothing to do with the £110 billion; it is to do with restricting consumption in line with the climate change targets. However, there is no ownership by the British people in the pubs or the HGVs that that is the price that they are to pay.

I had a debate with my noble friend Lord Rooker when the Climate Change Bill was going through three years ago. I had tabled an amendment that there be introduced a carbon tax industrial and consumer impact forum. Its role would have been to look at, first, the impact of increases in carbon taxes or other such taxes; secondly, the changes in relative costs between different sectors of the economy; and, thirdly, the role of the European globalisation adjustment fund, because those are big industrial structural adjustments. I said that the forum should include representatives from HMG, employers, trade unions and consumer organisations—I subsumed the Met Office and others in HMG. It would produce a report each budgetary period on the impact of all the things I mentioned.

Let me deal with one in particular, which was the real purpose of my amendment. If we are to get ownership of price increases, we need two things. One is a forum where representatives of consumers, trade unions and everyone else sit around the table looking at the energy framework. The second is that we need a degree of hypothecation of the money coming in. I think that the Treasury has stuck its toe into the water for the first time on hypothecation—just as my noble friend Lord Prescott did with the arguments about congestion charging. All the money raised from the Rolls-Royce going along Piccadilly is going to buses. People might start to understand if there were what I might call a hypothetical hypothecation, by which I mean that it would not be separate from the Budget Statement but there must be an understanding of who is paying what, where the money is coming from and why.

The third possible rationale for a 30 per cent price increase is to do with paying for things such as the Green Deal. None of these things come without a price tag attached.

When the House authorities consider what amendments are allowable on the Bill—my noble friend Lady Smith of Basildon will no doubt give me a steer on this—we need to test what amendments we can table to the Bill. Since the Bill has been published, we have had all these announcements of huge importance right in the territory of the Bill. We must look at that.

At minute 10, I shall make two final points. One is to say that, given the regressive nature of price increases on something as basic as electricity, there will be great social unrest unless we do some redistribution. There will, of course, be squeals from big industry about its competitive position, but we need a frank debate. We cannot just look separately at an argument about winter fuel payments. These are huge, important questions, and we need a holistic narrative which would include homes. I agree with the noble Lord, Lord Best, about blocks of flats which form a not-inconsiderable part of big cities such as London. I have been chairman of my residents’ association for a number of years. We have 99-year leases like many people. If you want to say to an individual, “Do this to your ceiling”, “Do this to your loft”, “Do this to your walls”, or “Do, this to your floors”, the managing agent will say, “No, you can’t play around with the building like that”. So even if the residents’ association wants to do something, the managing agent, on behalf of the ground landlord, can say, “I don’t agree”. There is a prima facie question along the lines posed by the noble Lord, Lord Best, and one or two others.

I take this opportunity to say that I am glad that the noble Lord, Lord Lawson, put in his usual plea for us not to rely on base load from wind power. It is not a joke any more. It is a fantasy, and we ought to recognise that. I also take this opportunity to congratulate the noble Baroness, Lady Noakes, with whom I almost always try to agree. However, on this occasion, her worry about what she calls the consumer is the same, essentially, as what you might call the social policy dimension as a whole. Again, we just have to test what amendments are going to be allowed in the course of the Committee stage on this Bill.