Energy Bill: House Of Lords Rejects 2030 Decarbonisation Target
Energy Bill – House of Lords, 28 October – The 2030 decarbonisation amendment was defeated this afternoon
Clause 1: Decarbonisation target range
Moved by Lord Oxburgh
1: Clause 1, page 2, line 4, leave out subsection (5) and insert—
“(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.”
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 best way for the Government to recover the situation is to accept the amendment today as a reaffirmation of their commitment. The amendment will not guarantee that investment is forthcoming, but it will certainly help. Today, I have said a little about the environmental objectives of the Bill. These are undoubtedly important but, for reasons that I have given, the arguments for decarbonising—energy security and minimising energy costs—all point in the same direction. Others have asked about possible damage to our economy if we are the only country embarking on a decarbonisation strategy now. We are not alone. Around 50 other countries have either enacted or are working on improved energy efficiency and decarbonisation legislation. The Government are making special provisions for those industries which might be particularly disadvantaged by new legislation.
The amendments are about getting on with the job and setting milestones for ordered progress to a new energy structure. They are specifically about setting a power-decarbonisation milestone for 2030. The milestone should be set, if for no other reason than because, the sooner it is set, the less expensive it will be to achieve the energy security and decarbonisation that we seek. Accepting the amendments is the “no regrets” course. Should some miraculous, game-changing new technology appear, or some other unforeseen circumstance arise, the Bill provides Ministers with ways of dealing with the unexpected. There is simply no reason not to get on with the job that has to be done and every reason for doing it now. The amended Bill would be good for jobs, for UK industry, for investors and for the environment. I beg to move. [...]
My Lords, this is such an unbelievably bad Bill that it is difficult to see how it could be made any worse. However, no one should ever underrate the noble Lord, Lord Oxburgh, because he has found a way to make it even worse. I agree with one or two of the things he said. For example, he said that a lot has changed since the Bill was first thought about.
The noble Baroness who is the spokesman for the Labour Opposition probably knows a lot about how the Bill first came into being because I believe that she had a hand in it, but a long time has passed and a lot has changed, including the arrival of what is known as the shale gas revolution, although that includes shale oil. This is of the first importance. I disagree with the comments made by the noble Lord, Lord Oxburgh, but I will reserve judgment on those because your Lordships’ Economic Affairs Select Committee has just embarked on an inquiry into UK shale gas and shale oil and we have only just begun to take evidence. I will reserve my judgment until we come to a conclusion in the light of the evidence, but it is clearly a change of the first importance.
My noble friend Lord Teverson put his finger on the real reason why the Bill is such a bad Bill—that is, it is not an energy Bill at all but a decarbonisation Bill, as he made very clear. As a former Secretary of State for Energy, I take the old-fashioned view that an energy Bill ought to be an energy Bill concerned with how to provide the people of this country—particularly the poorest—and the businesses and industry of this country, with the cheapest possible supply of reliable energy. Energy needs to be supplied cheaply, efficiently and reliably. This Bill, not being an energy Bill, is about how to supply energy expensively, inefficiently and unreliably. This has become a very sensitive issue. Energy prices in general, and electricity prices in particular, have understandably achieved a very high profile as families up and down the land are suffering from the introduction of a policy which the Bill will make even worse.
I do not know whether noble Lords have had the opportunity to read today’s Financial Times which has a very good leading article on this issue. Like the noble Lord, Lord Oxburgh, I think that this group of amendments goes to the heart of what the Bill is about. One needs to put the thing into perspective. The article states that, on the Government’s own figures, by 2030 environmental levies will account for 41% of the cost of electricity. I suspect that is a great underestimate but it is the Government’s own estimate. The article points out:
“If Britain never adequately reckoned with the cost of its carbon commitments, it may also have been too optimistic about the benefits. The country accounts for less than 2 per cent of world emissions. The heroic reductions that are planned will have a negligible effect on global temperatures.
This would be true even if the UK’s moderation were not offset by intemperance elsewhere. In fact, investment in energy-intensive industries is already being drawn to countries such as the US where costs are lower. Britain may end up exporting emissions–and jobs–to countries that have shunned such onerous environmental commitments. The halting progress towards a global carbon pact provides scant vindication for those who thought that where Britain led, others would follow”.
It goes on to say, quite nicely, that:
“Such wilful naivety gives an unintended meaning to Prime Minister David Cameron’s pledge to lead the greenest government ever.”
This policy is so damaging that even the Financial Times says that the commitments we have entered into—because there is absolutely no point in doing it on a unilateral basis—should be either repealed or amended.
However, that is not the only objection to the Bill. As I have pointed out, I have some interest in this as I was Secretary for Energy at the time in question. The Financial Times also says:
“Since privatisation the electricity industry has been run on market principles. Price controls were abolished and politicians placed their faith in competition to keep prices low and the grid adequately supplied. Now, the government is becoming the industry’s Gosplan. It decides what plants are built, sets their prices and guarantees financing for their construction.”
This is a Gosplan Bill: those are not my words, but those of the Financial Times, which concludes that the Bill,
“combines the inefficiency of state planning with the expense of private capital, exacerbated by the fear that politicians will retrospectively change their minds … Britain cannot afford to hobble itself with overly high energy costs as it embarks on the road to recovery.”
That is the considered view of the Financial Times which knows what it is talking about. That is why the Bill is fundamentally flawed and the amendment proposed by the noble Lord, Lord Oxburgh, seeks to make it even worse and make the flaws go even further. By 2016, nobody in their right mind is going to have the time of day for this policy.
Nobody who knows anything serious about energy policy has a good word to say about the Bill. The Oxford Institute for Energy Studies is probably the most reputable forum for the study of energy in the country. The greatest expert there, Mr Malcolm Keay, described the Bill as entailing,
“a massive and unprecedented degree of centralisation and detailed decision-making by the Government.”
This is quite extraordinary. Prior to the changes we made in 1979, the previous Labour Government’s policy of nationalisation was of the highest parliamentary standards compared with the discriminatory system in this Bill where the Secretary of State has the power to sign contracts—with no effective parliamentary scrutiny whatever—with particular energy suppliers, on a completely arbitrary basis, to decide how much should be supplied, at what price and for how long. This makes old-style nationalisation something one would look back to with nostalgia. It is worse than a return to the past: it is a return to something even worse than the past, which was bad enough. The policies we introduced in the 1980s worked and served the country very well. A final witness for the prosecution, as it were, is Professor Dieter Helm, Professor of Energy Policy at Oxford University, who is widely regarded as the country’s greatest authority on energy policy and who has condemned the Bill with bell, book and candle.
This is quite appalling. Over all the time that I have been in this House, which is a long time now, I have never come across a Bill as bad as this. I therefore support the Government wholeheartedly in opposing the amendment proposed by the noble Lord, Lord Oxburgh. The amendment is certainly within the logic of the Bill but it would just take it further and make it even worse. [...]
Lord May of Oxford (CB):
My Lords, I am a member of the Committee on Climate Change and was a member of the committee of both Houses that helped draft the legislation. I want to inject a fact or two into the discussion. The first thing the Committee on Climate Change did was to ask, “How much carbon, looking to 2050, do we think the world can have put into the atmosphere without exceeding a dangerous level of climate change?”. On that basis, we then divided that total by an estimate of the population of Britain in 2050. I would be the first to admit that that second figure is a little uncertain but that was the basis of the ambition that we set and of the overall target that was given for our goal for the end of 2050. We then put the committee together and asked, “Feasibly, how do we think we can get there?”. It was decided—I think sensibly—that the first thing to do was to decarbonise power. Once you do that, you can begin to do other, more difficult things. When looking at decadal timescales, you can look at the possibility of having surface transport primarily done by electricity and that will be okay if we decarbonise the power supply.
We then set intermediate goals. One of them was to come as close as we can by 2030 to decarbonising the energy source through renewables and other things. It was seen that the trajectory to that from 2010, which was when we were talking, was still going to involve coal and gas—gas more efficiently than coal. One thing that the noble Lord, Lord Lawson, and I agree on is that, given that we have to make that trajectory to 2030 and we will still have to use carbon-producing products to generate the energy, shale gas might be the best intermediate way to get there.
To get there, we also need industry to see that we are committed to getting there, to get it in turn preparing and talking of massive investment, but on the premise that there will be support and continuing commitment to those goals. This is primary legislation and the goals that have been accepted by the Government are legally binding, and I am in the habit of asking, on the Committee on Climate Change and elsewhere, “What does legally binding mean?”. I have not yet had a satisfactory answer. In so far as that phrase means something to some people, we have a legally binding interim target of decarbonising electricity by 2030.
That is why at the draft stage of the Bill the Committee on Climate Change recommended that it include not a vague statement of aspiration but the explicit wording essentially equivalent to that of the amendment moved by the noble Lord, Lord Oxburgh. In some sense, you could say we are legally committed to it but it would make common sense to vote for that amendment, as it is consistent with the history and where the facts lie. There are no two ways about it.
Viscount Ridley (Con):
My Lords, I declare my interests in various forms of energy as listed in the register. I cannot declare the probably seven-figure annual sum that I do not receive because I do not allow wind turbines on my land in a very windy part of Northumberland. I say that not to elicit the House’s sympathy, obviously, but to emphasise the point that the Government would be right to resist this amendment because it would hit the poorer even harder and reward the rich even more, by encouraging enormously expensive renewable energy, particularly the wind industry, particularly offshore wind. Effectively, this amendment would lock in now the wrong technologies, the ones that we know are inefficient in producing decarbonisation and which are immensely expensive.
We have heard a lot already today about the interests and needs of producers of energy. As I said in Committee, it is much more important that we think about the needs and interests of consumers of energy. We do not build power stations for the people who build them or the people who plan them; we build them for the people who use the electricity that comes from them, and thereby provide jobs with that electricity.
We know three things now that we did not know at the start of the summer when the Bill first arrived in this House. The first is that the public are right royally fed up with rising energy bills and are not going to take kindly to further increases, which is what we are talking about. Secondly, wind in particular—as with a lot of renewables—needs even bigger subsidies than we have been led to expect. We were told that the strike price for offshore wind would come down from around £150 per megawatt-hour to about £100. That target has now been abandoned; it is coming down to £135. That is an extremely expensive product—about three times the price of wholesale electricity at the moment. The third thing we have learnt—and I am going to come on to this at the end of my speech—is that climate change is happening more slowly than expected.
If all three of those points are taken together, it would be completely mad to lock in a target now for 2030. It would also be potentially callous because it would encourage an increase in the price of electricity. [...]