Net Zero (Economic Affairs Committee Report)

Lord Teverson Excerpts

Monday 16th October 2023 Lords Chamber

[Lord Teverson (LD)]

My Lords, I also declare my interest: it is in a company called Aldustria Ltd, which is into energy storage. I absolutely agree with the noble Lord, Lord Frost, that there are many issues around energy storage, particularly in the long term, on which I know the Government have done a number of consultations.

I congratulate my noble friend Lady Kramer on her introduction to this report. She is absolutely right: it has taken far too long to get it to the Floor of the House. As the noble Viscount, Lord Chandos, said, there have been three Prime Ministers since the report came out. The only thing that I would say is that it has actually managed to get to the end of its process slightly quicker than the Government’s Energy Bill, which started in the same month that this report was published but has still to be completed. I hope that that will happen before the end of this month. That shows the urgency that the Government wanted to put into their energy strategy but did not, particularly on electricity and carbon capture and storage.

I shall come back on energy costs for a minute, in response to the noble Lord, Lord Frost. The noble Viscount, Lord Chandos, is absolutely right about 2050. It is not about reaching net zero that year—you have to get it all the way through. I do not think that methane was mentioned in the report—I may be wrong—but that is one area where there may be some quicker wins.

I absolutely agree with the noble Lord, Lord Turnbull, about Rough storage, although I think that only a small amount of that facility is contracted to the Government. Centrica is hanging on to the rest of it, and there is no guarantee that it will be there long term. That is a real vulnerability.

As for new gas and oil and, particularly, coal facilities, I do not see any UK Government banning exports of those products. I do not see that ever happening, which is why I do not think that there is any effect on our energy security or, indeed, on global pricing for those new openings.

I shall come back on demand reduction in a minute in response to the noble Baroness, Lady Bennett, as it is an important area. But I just say to the noble Baroness, Lady Noakes, that I came up as a traditional economist, and it always seemed to me that it was really important to cost the idea of externalities into actual pricing systems. With carbon emissions we have huge externalities that are not priced into market competition—and that is why there have to be differences.

I also say to the noble Baroness that, of course, there is a huge kickback at the moment to the Government on contracts for difference through the Low Carbon Contracts Company, whereby at the moment actual market prices are hugely higher than strike prices. I would be interested to understand from the Minister—

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

It is not a kickback to the Government—it is a kickback to the consumer.

[Lord Teverson (LD)]

Yes, exactly. The Minister corrects me. That is even more to the point. I think it has got to several billion pounds in terms of coming back into that sector working the other way, which probably exceeds now the green costs that there were. That is quite an optimistic look at that.

It seems to me that one real problem in this area—because the world has moved on since last July—is with those recent announcements that my noble friend went through from the Prime Minister. They probably did not have as big an effect as some people said, but they did drive a horse and carriage through our international reputation, as indeed did the coal decision in Cumbria. Our being seen as a global leader in this area, which the report was keen to emphasise, has been trashed to a large degree, and has been seen as such by allies such as America and the European Union.

I want to come back to those announcements, one of which was to abolish the Energy Efficiency Taskforce. The Minister was chair of that, and I understand that four meetings took place. Whether you look at security or at cost, the most secure energy is the energy that you do not need. The energy-efficiency side is important in that area, as well as cost. I would be interested to understand from the Minister why he was made redundant by the abolition of that committee. The UK should be a real leader, and really move in this area. The report asks for an energy demand reduction strategy, and that is really called for. It is not just around buildings, as the Government’s response said that it was; it is around a much broader area, including appliances and other interests.

One thing that has been emphasised during this debate is private investment, which it is clear is absolutely essential to deliver net zero. I am not pessimistic about this. Most private investment takes place to reduce costs, not to increase them. Companies do not invest to increase prices; they invest to reduce prices, and that is what we should aim for with the net-zero strategy.

One problem with the Prime Minister’s announcement, and all the other issues that have happened, is that we have a wobble with investor confidence—absolutely we do. Those messages that go out to industry and the investment sector say that we are no longer reliable on our government policy or on the foundation of confidence going forward. That has an even bigger effect when we have the Inflation Reduction Act in the United States and the EU green deal industrial plan on the other side of the channel. I would be interested to understand from the Minister when the Government will really respond to that huge financial challenge, which really prejudices how we can deliver net zero through the private sector in future.

I will make one or two further points, as I am sure the House will want to move on. The noble Baroness mentioned the UK Emissions Trading Scheme. I have been very hopeful—not because I am pro-European but because of liquidity and various other areas—that there should be a tie-up between the UK Emissions Trading Scheme and the EU equivalent. I understood that that was a government objective, but now we have a huge divergence in prices. The UK ETS a year ago was about £100 per carbon tonne; it is now down below £40. In the EU, it was around €100 per tonne a year ago but is now down to about €80. A huge difference has opened up. I would be interested to hear the Minister’s reaction on how the carbon border adjustment mechanism will affect that, as Europe starts to develop it over the next few years. That price signal is so important in terms of taxation and disappearing incentives for investment in our economy.

I am glad to see the noble Lord, Lord West, is here, because one of the key issues in energy security at the moment is defence, which has not been mentioned in this debate. In Finland, we have seen potential interference with the explosion of one of its energy pipelines and we have seen Nord Stream 1 and 2 destroyed. We know from our intelligence that the Russian Federation is keeping a very close eye on our undersea energy and communication networks. The Minister may not have an answer to this, but it is one of our major concerns in energy security as we move forward and have more interconnectors offshore. I am sure he agrees that this is a major thing we must look at.

Finally, coming back to consumers, the energy companies and Ofgem estimate that, as we reach the end of summer and enter winter and higher bills, the outstanding energy bills from consumers will be about £2.6 billion. Are the Government happy with that? Do they think it is sustainable for low-income families? Do they intend to do anything about it? This is probably the biggest challenge of all. Although the noble Lord, Lord Frost, talked about the importance of gas, which will be important for many years, the gas price has driven inflation and the high costs to families of keeping warm. It has led to inflation, which has led to the failure of those offshore wind projects. It is important that we restart that, but the problem is not the technology and the price coming down in real terms; the problem is inflation. What will happen to families over this winter?