Net Zero (Economic Affairs Committee Report)

Lord Turnbull Excerpts

Monday 16th October 2023 Lords Chamber

[Lord Turnbull (CB)]

My Lords, I am now a member of the Economic Affairs Committee, but I was not when this report was published. Had I been, I would have endorsed it for bringing a measure of realism and proportion to the debate about net zero. It is helpful that the report recognises that there will be a transition, which will take several decades, during which there will still be a requirement for fossil fuels in the British economy.

When I first worked on energy policy some decades ago, the dominant framework was the so-called trilemma. Energy policy had three objectives. The first was sustainability; it had to advance the Government’s environmental objectives, especially on climate change. Secondly, there was the objective of affordability; the price of energy should not impoverish unfairly poorer people or small businesses, nor make major industries uncompetitive. Third was security of supply and resilience; it should protect energy consumers and society from major shocks. The aim was to find a solution which optimised a combination of those objectives. It was not to pick one objective and maximise the achievement of that at the expense of the others.

The Climate Change Act 2008 demolished this framework, giving climate change primacy. It is the only objective protected in statute. The Climate Change Committee was established to warn government about progress towards its environmental goals and to propose measures needed to correct course. The CCC has also been backed by extremely eloquent and well-paid spokesmen, some of whom were sitting here a few minutes ago.

As well as no statutory backing, the other objectives have had no equivalent sponsor. There has been no body equally resourced and voiced to defend the interests of poorer people, small businesses and traders, nor to speak for major industries. Nor, more dangerously, has there been a body of equivalent authority to monitor the state of energy security or resilience. This has become glaringly apparent since the Russian invasion of Ukraine. Witness the reluctance to start filling the Rough storage facility. For too long we have tolerated dependence on our enemies, such as Russia, or our Saudi fair-weather friends. With such a lopsided structure it is unsurprising that policy decisions have been warped.

The EAC report is therefore to be welcomed for bringing a greater sense of balance between the three objectives. It is also consistent with the Prime Minister’s latest set of announcements. The reaction from the CCC has focused on two issues in particular: the coal mine in Cumbria and the go-ahead for offshore oil and gas exploration. The CCC argued that these measures have no effect on energy prices and that they do not enhance security of supply. Despite the eminence of their proponents, both arguments are flawed.

The EAC report acknowledged that extra UK fossil fuel output will have little effect on prices, which are set in world markets, but this is not the knock-down argument it claims to be. If, during the transition to net zero, UK output of oil and gas is higher and world prices go up, the value of that extra output will also rise—in effect, creating a natural hedge to offset what would be a loss to UK national income.

On output, it is argued that security will not be enhanced if the extra output is contracted to be exported. However, that depends on how the contracts are written and the terms the Government set for extraction licences. For example, is there an obligation to contribute to building up our strategic reserves? I doubt if any other country in the world takes the view that having greater domestic output has no bearing on the security of supply.

Notice the contradiction here. It is said that extra fossil fuel output is too small to be material on prices, but that same increase in production is claimed to be big enough to have a damaging impact on world CO₂ emissions. You cannot have it both ways. Eventually the CCC is forced back on to the argument that the extra output will reduce our influence in the world debate. However, with our CO₂ emissions being only about 1% of the world’s total, we are not major players, and we will be seen as having a loud voice but carrying a small stick.

I have one reservation with the report. It looks favourably on the discussions going on to ensure that banks and other sources of finance pay greater attention to the risks of fossil fuel investments becoming stranded assets. Indeed, they could be—just like the canals. But there are many places where one will find stranded assets. A lot of them are more immediate and closer to home. A walk down the high streets of Britain or its office districts will show you many stranded assets. The airfields of the south-west of the USA are littered with surplus aircraft, which are stranded on someone’s books. By all means, be wary of stranded assets, but do not treat oil and gas investments as a special case.

In conclusion, I welcome this report, with its greater recognition that oil and gas will be needed during the transition, and indeed beyond 2050, and that we must pay more attention to all three objectives in the trilemma. So long as we continue to be a consumer of oil and gas, it would be better to produce a higher proportion of it for ourselves.