Energy Bill

Lord Stephen Excerpts

Tuesday 2nd July 2013 Grand Committee

[Lord Davies of Stamford]

I regret that I was not able to follow very clearly the logic of the remarks of the noble Lord, Lord Jenkin. He seemed at times to be saying that he was in favour of the decarbonisation target and at other moments that the target placed intolerable burdens on the economy. Of course a balance has to be struck, but he did not produce any arguments at all to suggest that, if a decision is simply postponed, we will be better able to get the balance right.

I was particularly surprised that the noble Lord said that of course it is important to give investors certainty but that that argument had been overused. However, he did not deny the validity of the argument. He then said that there was a contradiction between the need to provide investor certainty, the need to provide security of supply and the need to protect consumers’ interests. There is no contradiction at all. It is very much the opposite way around. If one reduces the uncertainty to investors, one reduces the cost of capital and one will see more investment projects approved. One will therefore have greater capacity and greater security of supply.

Equally, if we have greater capacity because there is less uncertainty and because the cost of capital is lower, we will have lower prices. Therefore, consumer interests will be better preserved. Far from there being a contradiction between these considerations, it is extremely important for consumer interests and security of supply that we provide the maximum degree of investor certainty.

Here, I am mystified by what game the Government are playing. The purpose of the Bill, as presented in public up to now, is to provide a framework for investors, and the maximum degree of investor certainty. If they want to do that—it is of course a very sensible purpose to have in mind—why did they introduce into the Bill elements of gratuitous uncertainty that are being addressed by the amendments before us? Why say in one subsection that the Secretary of State must ensure that any decarbonisation target is respected, and in the very next subsection place doubt on whether or not there even will be a decarbonisation target, saying that,

“the Secretary of State may by order”,

instead of “must”? Why are the Government resisting “must”? It is not clear to me at all.

Equally, with regard to the dates, why say that a decarbonisation target may not be set for 2030, leaving open the possibility that there would not be a decarbonisation target even as late as that? Under this Bill, a decarbonisation target cannot be set before 2030 but it does not have to be set by 2030. Again, that is a deficiency that is remedied by the amendments before us. What is the purpose of this Bill if it is not to maximise, within the range of all reasonable practicality, clarity and certainty for investors? If the Government are intending to do that, why in the name of heaven have they gratuitously introduced these elements of uncertainty? It is completely unclear to me what they are doing.

The issue of whether the decarbonisation target should be set for 2014 or 2016 is not quite so important. If that amendment is pressed, I shall probably vote for it, but there could be arguments for waiting until 2016, partly to get the benefit of the advice of the Committee on Climate Change but more especially because there may be a chance of getting EU agreement on a decarbonisation target by that point. It would not be sensible to legislate for a precise figure before we knew whether or not there was a real prospect of getting such agreement, which would be highly desirable.

However, by the same token, anything that contributes to investor certainty contributes to the achievement of those two other objectives: greater security of supply and, ultimately, lower prices for the consumer. The Government really ought to look again at these amendments and I hope that here in the Lords they will accept them.

[Lord Stephen]

My Lords, I want to follow up on some of the comments made by the noble Lord, Lord Davies, because I think they were important. I refer to my entry in the Register of Lords’ Interests. I support the noble Lord, Lord Oxburgh, in his Amendments 2, 3 and 4 and will also speak to my Amendment 7. Amendment 7 explores the issue of the date and whether it should be 2014 or 2016.

First, it is very important that there is now a decarbonisation section of this Bill. Noble Lords should remember that when this draft Bill was first published, there was no decarbonisation section, so it is a very important shift. It sends out a very powerful message to the industry and those who are concerned about climate change that the United Kingdom is not only concerned about this issue but wants to be leading the argument in favour of decarbonisation and decarbonisation targets. It was a very considerable success for the new Secretary of State, Ed Davey, to have agreed the insertion of this decarbonisation section.

Coming from Scotland, I am very interested in the politics of coalition. The noble Viscount, Lord Hanworth, referred to this earlier. I was in government for eight years in Scotland in a coalition with the Labour Party. I must say, I smiled a little when I heard criticism being made of whipped votes, and the idea that the Labour Party would ever play any of these devilish games made me reflect on some of the very tough and difficult negotiations that I was involved with in Scotland, some of them on energy matters. When we reached an agreement, it was important that we were able to deliver that vote in the Parliament. I think every politician here understands that principle, as do the Cross-Benchers.

In the United Kingdom, we are still relatively new to coalition politics and we should be open about it. We should try to explain more often and more clearly some of the negotiations and difficulties involved in reaching agreement. One way to find the areas of greatest difficulty is to look at the wording. When you see more words, or more complex wording, on a particular issue, you know that there has been tough coalition discussion—that is probably the safest way to describe it.

Here, you see the extraordinary sight of us introducing a decarbonisation section, but some of the wording is really quite complex, most clearly in Clause 1(5), where we are trying to fix a date. It states:

“The earliest year in relation to which a decarbonisation target range may be set is 2030”.

That is pretty straightforward and simple, but the next bit is not, stating that,

“the first decarbonisation order may not be made before the date on which the carbon budget for the budgetary period which includes the year 2030 is set by virtue of the duty of the Secretary of State under section 4(2)(b) of the Climate Change Act 2008”.

I am particularly curious about the words “may not be made”, because, as the noble Lord, Lord Jenkin, said, this should be about flexibility and empowering. Why, then, are we saying that the decision “may not be made” until after 2016? Why not give flexibility to the Secretary of State? I suspect that it is because there was a difficulty in the negotiations. A lot that was achieved by Ed Davey, the Secretary of State, is in the Bill, but not everything. That is no secret; there has been quite a lot in the media about how difficult the negotiation has been. In fact, the negotiation involved delay and a lack of clarity, and some really quite central issues to do with the support to be given to the renewables sector were thrashed out between the Conservative side and Liberal Democrat side of the Government. All that pushed the Bill back and it led to criticism.

In this area, therefore, it is clear to me that some sort of compromise was pulled together. I do not say that in a derogatory way—compromise is the very essence of reaching agreement in coalition—but it left us with the possibility of delay in introducing a decarbonisation target. The noble Lord, Lord Davies, correctly pointed out that that is not the most concerning aspect, but there is also the fact that the whole of the first part of Bill, which is on decarbonisation, effectively becomes optional. That is the greatest concern that I have as a Liberal Democrat. Looking at the negotiations and wondering about how these compromises were reached, I am left hanging on to the belief that this important decarbonisation part of the Bill should not be left optional.

I support the amendments in the name of the noble Lord, Lord Oxburgh. I would be very happy if a decarbonisation target was set in 2014, but I would not die in a ditch over it; I would be prepared to see a later date. There are good reasons, to do with the European Union and the report from the committee, why 2016 could be a reasonable date. By tabling Amendment 7, I wanted to test the view of Parliament on all this—not today obviously; today, I just want to put the argument out there. The amendment states:

“A decarbonisation order must be made by 31 December 2016”.

That does not prevent an order being made next week—it could be 2014; it could be sooner—but it gives reasonable flexibility to the Secretary of State and allows confidence to be given to the industry that we are serious about this Part 1 and about decarbonisation.

That is what industry is looking for. I was very influenced by the comments of the noble Lord, Lord Kerr, at Second Reading. He was quite right in what he said about industry in the United Kingdom. I think that ScottishPower, SSE and a number of companies that are based here would be relatively relaxed about the date being fixed in 2016. However, overseas investors such as Gamesa, Siemens, Mitsubishi and Samsung which are making commitments to this country, are looking all the time at how this is playing out in the media. They are getting briefings and reports back and are looking at what the renewables sector, the Government and parliamentarians are saying. This issue now has a very high profile. I go out of my way to explain that the decarbonisation target is not some totemic issue that is absolutely central to the Energy Bill. It was bought in at the initiative of the Secretary of State to try to strengthen the Bill. It can be a very important part of the Bill but I do not think that it should be used as some sort of battering ram to undermine its foundations which relate to the contracts for difference, the balancing payments and so on. The important message that we have to get out to the industry not only in the UK but throughout the world is that we are serious about moving forward the renewables sector, we want to move to this new system as quickly as possible and that there has already been too much delay.