Lord Oxburgh
Main Page: Lord Oxburgh (Crossbench - Life peer)Energy Bill
Lord Oxburgh Excerpts
Lord Oxburgh
“(5) The first decarbonisation order must be made before 1st April 2014 and the year in relation to which the decarbonisation target range is set must be 2030.”
Lord Oxburgh (CB)
My Lords, I begin by declaring an interest as a director of two small companies with interests in energy efficiency and energy from waste, GEO and 2OC, and as honorary president of the Carbon Capture and Storage Association. As indicated in the register of interests, I occasionally advise other bodies on matters relating to energy, water and environment.
Other noble Lords have longer memories than I, but I can recall no other Bill for which the external atmosphere has changed so dramatically during its passage through the House. For that reason, a few introductory remarks that range more widely than normal may be appropriate and may answer questions that could be raised by noble Lords later.
The price rises that are causing so much concern today are, in part, attributable to the increase in the world price of gas. Whether we like it or not, we can expect the 20-year ragged upward trend of fossil fuel prices to continue, driven by steadily increasing world demand and partly because reserves and oil are becoming more expensive to extract. Temporary market gluts apart, we have to expect carbon-based energy systems to become progressively more expensive relative to the other items on which we spend our money.
However, looking at today’s low price of natural gas in the United States, we might ask whether we should not completely rethink our energy strategy in the light of possible US shale gas resource. Shale gas appears to be abundant and carries only half the environmental penalty of coal. I answer in the following way. It is widely recognised within the industry that the current low price of shale gas in the US results from overproduction and cannot be sustained. For the large US shale gas resource to become an economically exploitable reserve, the price will need to be around three times what it is today. The fact is that extracting gas from shale requires more energy and is more expensive than producing gas by conventional means. Either most of the gas in US shale will not be produced or its price will be much higher than today.
These considerations apply to the UK as well, except that the operational conditions here are likely to be tougher than in the US. If the UK shale gas resource is exploited, its main consequence would be a greater degree of resource independence rather than lower prices. That said, in almost any realistic scenario, gas has an important role to play in the UK energy supply for some decades to come, particularly if cost-effective carbon capture and storage technology is developed. The bottom line is that shale gas does not provide a “get out of jail free” energy card for the UK and does not provide a reason for a major rethink of energy policy or for changing the thrust of the Bill.
The original thinking behind the Bill is correct; namely, that it is prudent to spend more in the short term to build a strategic infrastructure that will substantially decarbonise our economy and reduce our exposure to rises in the cost of fossil fuels, which are likely to remain a continuing political concern. For reasons so well known that I will not rehearse them here, we need this Bill urgently so that the first steps in building the new infrastructure can be taken soon and in the right direction. The two defining characteristics of energy infrastructure are the long timescales and the high costs. With sufficient forethought and consistency of policy, both can be reduced. That is what the amendment seeks to achieve. As the Bill stands, important decisions on timing are deferred until at least after the next election, and who knows what other distracting pressures on government time there will be then. This is our opportunity and we should seize it.
The amendment would require the Government to settle next year the outlines of a measured approach to a longer-term UK energy strategy, taking into account the advice of the Committee on Climate Change. Once the bare bones of the strategy and above all its timescale are clear, industry can begin to plan. It is not just major companies that are involved. It is sometimes forgotten that the nominal times taken to extend the grid or build a new power station depend on essential components being available when they are needed. This means having a robust and specialised supply chain, which itself can take a number of years to establish. Without such a supply chain, major components that are urgently needed will probably have to be imported at high cost and with no benefit to the UK economy. More clarity now will help UK jobs and the manufacturing industries.
Major infrastructure investment also needs funds. Investors have the choice of where to put their funds and they will not put their money into a decarbonised energy infrastructure unless they see the Government committed not just by good intentions, but by the wording of the Bill. Investment is about risk; and the lower the perceived risk, the better terms we may expect to obtain. Here I must take the Government to task. At a time when investment in energy utilities in Europe has rarely looked less attractive, the Government appear to have gone out of their way to weaken confidence further. Ministers in departments closely involved with this Bill have on at least five occasions made statements that appear to undermine its main decarbonisation rationale. To make matters worse, the Government now seem to have adopted the language of their critics by describing as “green taxes” those elements of consumer charges that are specifically designated to reduce costs by improving energy efficiency and developing better long-term infrastructure.
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, these amendments have attracted significant debate across the House today and I am extremely grateful for the insights of all noble Lords who have spoken. However, the Government do not agree that the Bill should be amended as proposed and I shall set out the reasons for this.
The provisions in Part 1 set out a logical, measured approach that enables the Government to set the UK’s first sector-specific carbon intensity target in law. Once set, the provisions place a legal duty on the Secretary of State to ensure that the target is achieved. This brings with it important responsibilities. It is not something that should be rushed into. A target would have significant implications for the power sector, consumers and the wider economy. It is therefore vital to understand fully, based on evidence, whether a target represents the best approach to meeting our economy-wide carbon budgets cost-effectively and, if so, what level it should be set at.
The right time to consider this is in 2016, not 2014 as proposed by Amendment 1, as 2016 is when, in line with the requirements of the Climate Change Act, we will be undertaking extensive analysis to set the level of the fifth carbon budget in law, incorporating advice from the Committee on Climate Change. At that point we can consider a decarbonisation target within the broader context of the trajectory of our whole economy towards our 2050 target.
Moreover, in 2016 we will have a better understanding of how low-carbon forms of electricity have developed, the commercial deliverability of carbon capture and storage, the uptake of electric vehicles, and how the market is responding to the reforms included in this Bill. We will also have a clearer idea of a future climate change package both at the global and the EU level. These are important considerations when looking at the UK’s targets for 2030. By contrast, the noble Lord’s proposed approach would mean rushing to set a target in less than six months. As it stands, there are significant uncertainties now as to the energy mix that will best meet our objectives of secure, sustainable and affordable energy. This would make setting a robust target challenging.
In terms of investor certainty, according to the British Chambers of Commerce, the Energy Bill as it stands will,
“provide sufficient incentives to attract investment in low carbon forms of energy”.
This is supported by the point made at Second Reading by my noble friend Lord Browne of Madingley. In his experience as a businessman and an investor:
“The incentive structures contained in the Bill are far more important than targets or aspirations, because they are the mechanism for action”.—[Official Report, 18/6/13; col. 192.]
This is not forgetting that since January 2010 there have been announcements that could see more than £29 billion of investment in renewable energy. This speaks for itself. Clearly, a decarbonisation target is not the only way to encourage investment.
On Amendment 2, I fully agree with noble Lords that there should be a role for the Committee on Climate Change. In line with its responsibilities under the Climate Change Act, it is due to provide advice on the level of the fifth carbon budget. This covers the 2030 period. This analysis is perfectly sufficient to advise on a decarbonisation target range and it is therefore unnecessary to include further provisions in the Bill.
Amendment 2A, tabled by the noble Lord, Lord O’Neill, proposes setting annual carbon intensity limits on electricity suppliers. I do not support this amendment for three key reasons. First, the government reforms in the Bill support market-based mechanisms to incentivise a cost-effective transition to low-carbon power. Introducing an annual carbon limit on suppliers would be contrary to this approach. Secondly, the proposal would introduce confusion around accountability. The Government’s provisions clearly place legal responsibility for meeting the target range on the Secretary of State. This position should be maintained since it is he or she who is responsible for setting UK energy policy and is ultimately accountable to Parliament. Lastly, this is a blunt instrument which could have unintended consequences. We are not convinced that the proposal would not undermine our security of supply objectives. We are also concerned that the amendment may lead to an increase in consumer bills if the costs of compliance are passed on from energy suppliers to consumers.
The Government are not willing to accept these amendments today. However, we considered the amendment tabled by the noble Baroness, Lady Worthington, in Grand Committee. This proposed that the Secretary of State explain the actions to be taken to stay on track to meet the target over time. The Government support the aim of transparent reporting and I therefore commit to the House that, where carbon intensity is reported to have increased year on year for three consecutive years, the Government will explain the reasons why, and, where appropriate, report additional actions to address it within the annual statement of grid carbon intensity.
In conclusion, I hope that noble Lords can see the drawbacks of rushing to set a target next year. We want a much more measured approach. We all want to see decarbonisation continue—and this Bill enables that—but we must all be mindful that any targets set now will impact on consumer bills. Without having the more detailed information that is needed across all sectors, and without looking at our position against our European partners and more widely globally, setting a target would put us in isolation and make us uncompetitive against our partners.
We have to be sensible and see this as an opportunity to debate the subject but to set it in the appropriate context. We do not know which technologies will realistically be able to be deployed in the 2020s. As the EEF has warned,
“should current assumptions about the development of carbon capture technology, the level of investment in nuclear power, the cost of offshore wind or the future price of gas prove wrong the UK could end up committed to an unrealistic and extremely costly target”.
We need to keep these issues very much in mind. Ultimately, what we decide will be borne by the consumer. I hope that the noble Lord will withdraw his amendment.
Lord Oxburgh
My Lords, I thank all those who have participated in this very interesting discussion. I apologise for the fact that what I had intended to be a rather narrow, technical discussion has turned into a debate that has been much more like a Second Reading. Nevertheless, I think it has done a great deal to clear the air. I am extremely sensitive to the question of consumer prices and there is a real debate to be had about to what extent some of the measures that we have been talking about should go on to energy bills and to what extent they should be borne by general taxation. I am not taking a position on that but it is well worth discussing.
I think I found something with which I could agree in almost all the speeches that have been made, from whichever side of the House—even in the case of the noble Lord, Lord Lawson. There are things about this Bill that I do not like but we have to have a Bill and we have to have it urgently. However, I think his cover is blown: on the basis of his comments today, we can be pretty sure that he is moonlighting as a leader writer for the FT. I also agree with those noble Lords who have questioned the overly prescriptive nature of the EU targets. We could well do without them and I would like to see the Government do what they can to renegotiate or indeed disregard them. On the other hand, to believe that what I and my co-proposers have suggested today will have any additional impact on consumer bills beyond that to which we are already committed through existing agreements is a misunderstanding.
On the 2030 target, I have to say that, given the length of time this proposal has been around, the “rushing” argument is a little bit rich. We know precisely the views of the Committee on Climate Change. We have had them from several members of the committee today. We know what the committee expects and what its forward look demands for 2030. Waiting for the next carbon budget is a little bit of a procrastination and I do not think that it is a serious, substantial objection.
If one takes the position taken by the noble Lord, Lord Lawson, that one is unconvinced that human intervention is having a significant effect on long-term climate—
Lord Lawson of Blaby
I never said that. But even if one thinks it does have an effect, the policy prescription does not stand up. That was the point I was making.
Lord Oxburgh
I thank the noble Lord. I was about to go on and say that I think his position is rational in that situation but that he is entirely wrong in his assessment of the science. There is also a political argument to be had over what one subsequently does.
This is something on which I feel it is necessary to test the opinion of the House, so I would like to do that.