Select Committee on Environmental Audit Minutes of Evidence



Examination of witnesses (Questions 1 - 19)

TUESDAY 13 JUNE 2000

LORD WHITTY, MR LESLIE PACKER, DR DAVID VINCENT, MRS HELEN LIDDELL, MR GRAHAM WHITE and MS SARAH EASTABROOK

Chairman

  1. Good morning to you. Thank you for coming, welcome to the Committee's proceedings. As you know, this is a follow-up on energy efficiency. We published our report in July 1999 and we are having a second bite, for two reasons. In your response you pointed to a lot of things that were actually happening and were not finished, like the draft Climate Change Programme, like the negotiation over the Climate Change Levy and the Renewable Energy proposals, the Utilities Bill, which is still going through Parliament and the new electricity trading arrangements. That is a lot, and we have taken that into account. Secondly, the general reaction to the Government's response to our report was rather lack lustre, if I can use that reasonably friendly phrase, which prompted you to come forward with a second response, if you recall, a follow-on from the first one you put out. On both those grounds we thought it would be sensible to continue the process of discussing energy efficiency, which is a very important and central issue in the whole environmental sustainability debate. That is why we are here again. Thank you, once again, for coming this morning. Before we begin asking you questions is there anything either of you would like to say by way of initial statement? Please be brief.
  (Lord Whitty) It might be useful if we updated you with the things that have gone on since the last note you had from us, and a number of things were about to happen. We have seen many of these. We have the new Home Energy Efficiency (HEES) scheme in operation from 1st June, we launched that the other day when we visited one of the first installations in Herne Hill. We have not only published the draft Climate Change Programme, but the consultation period has just ended and we have had a fair number of responses we need to take into account on that. On the Climate Change Levy, we have concluded a memorandum with ten major sector associations and discussions are still going on with another twenty-plus sector associations, with the aim of concluding negotiation agreements on that front on CHP in April. We announced the perspective lift of the restrictive policy with the local authority areas and we brought together the local authority discussion paper on energy and efficiency and we are calling together the local authorities in October. We also had the Energy Regulator issuing his Social Action Plan in March and we have some of the utility companies taking initiatives themselves in terms of the way they charge consumers for energy, the TXU/Stay Warm tariff. All of these things have happened, effectively, since our formal communication with you and since your last consideration of these issues. I hope that the programme is going to be slightly less lack lustre and hopefully we can further it today. Can I say one other quick thing, it is very important we have joined-up Government. We have the poverty dimension up and running and we are looking to develop a programme by the end of the year, early autumn, hopefully. Helen Liddell and I operate quite frequently together on this front, we have now re-instituted the joint meetings that were held between our predecessors earlier. We are here representing the total Government team, not only us but the Treasury, Social Security and other departments who are involved in this issue.

  Chairman: We want to start off by looking at the position on energy efficiency in the total scheme of things. Mr Chaytor.

Mr Chaytor

  2. Thank you. Good morning, Ministers, one of the issues that concerns the Committee is the Government's response to the earlier report and the lack of enthusiasm for the concept of an energy hierarchy. If you recall, the Committee suggested Government should adopt an energy hierarchy —"" on the waste hierarchy model—in which energy efficiency would take first play, followed by renewables, followed by CHP going through the different degrees of fossil fuels and relying on nuclear as the least favoured option. The Government's response to this was not enthusiastic. You rejected the concept of hierarchy in favour of a policy of diversity, security and sustainability. I wonder if you could say a little bit more about why you do not see the value, as we do, of an energy hierarchy and how diversity and security relates with that hierarchy?
  (Mrs Liddell) We did look at it very closely, indeed, and the reservation that we both share is that when you talk about an energy hierarchy that suggests concentrating on one source at a time and when that is done let us move on to the next one, and so on down. The reality of the modern energy market is such that there is a need for a diversity of supply, to give the security of supply, which has to be the main priority of the Energy Minister. If I have a priority that overrides all others, that is keeping the lights on and trying to get a mix of energy sources in the right balance. It is something that we seek to do through the Utilities Bill. I can understand why the Committee were attracted by that idea, given the Waste Management Model. The Waste Management Model was, to some extent, to encourage people to look at the different options for waste management whereas with energy there is such a diversity in energy sources out there, it is bringing harmonisation to the proper operation of the market and competitive prices. I cannot lose sight of the need to ensure competitive prices, not just because of the issue of fuel poverty but also for industrial competitiveness as well. If we had a formalised energy hierarchy with energy efficiency up there perhaps by the time we got down to item four or five there may be a tendency to say that energy efficiency has been dealt with and we do not need to worry and that energy efficiency is something that is going to constantly be addressed, not just by us as a Government, not just by energy companies but by many different aspects of life from the manufacturing companies to the construction industry. We felt that the Government's mission statement on security and diversity supply was the way forward. There are also certain areas, particularly in relation to renewables, where some of them are not ready for the market yet and they are approaching market and we are seeking to help them approach market even more quickly. We could not wait until we got to that point of hierarchy to give that kind of assistance. There is going to be that kind of assistance built-in to the nature of the energy market. That is what we have sought to do but, simultaneously, also to look to research budgets as a means of encouraging renewables. I am sorry if it seems as though we dismissed that, we did not dismiss that without very serious considerations of the view expressed by the Committee.

  3. Are you saying that diversity, security and sustainability are not compatible with the idea of hierarchy, can the two not co-exist? Can you point to ways where there would be clear contradictions between the two? You mentioned the cost of renewables, obviously that is a factor in the case of some renewables. Why can the two not go together, given they both reflect objectives we are striving towards not mandates for the immediate moment?
  (Lord Whitty) We are not rejecting the energy hierarchy as a concept at all when we are making decisions on policy. What we are saying is it is not an overriding one. A different mix of energy, efficiency and source measures will be appropriate for different ends and we not only have the objectives that Helen Liddell was referring to in relation to the costs for consumers we also have a social objective and a broader environmental objective. A different mix will be appropriate for different situations. Energy efficiency is the first one, if you discard that you assume that energy efficiency measures do not apply, whatever the source, if you dismiss that as the main choice then if you move on down your hierarchy in that sort of uni-dimensional way energy efficiency no longer applies. That seems perverse. We should not be allowed to use what may be a useful, conceptual framework as a rigid policy.

  4. If I can pursue the question of diversity, security and sustainability and ask you if you can give a little more clarity as to how the three concepts are defined? Is diversity defined by the actual fuel, by type of technology, by country of origin and is sustainability not defined in environmental terms or social job creation terms? If you can say a little more about the definitions?
  (Mrs Liddell) We certainly looked at a definition in the White Paper. I will be honest with you, we shrank from defining diversity on the basis there were so many different elements of the concept it was impossible to give a single qualified definition that could embrace individual fuels, certain technology, source routes, means of delivery, market structures and, indeed, much more than that. However, the central concept was that of responding to uncertainty and so underpinning security, so there was a range of options that could be taken into account. In the White Paper there was the clear link on the issue of security and the inconvenience of a failure in supply in terms of the cost to industry and commerce. Of course to the domestic user, in general, the Government looks to the market to ensure that security of supply is maintained, although we have, as a Government, an overriding responsibility to ensure that the framework and the market structure for energy enables the achievement of energy security. That is one of the key issues that is involved in the new electricity trading arrangement that will come into the play in the autumn of this year. In the White Paper we also look at the policy of ensuring sustainable energy supplies by minimising the environmental impact of energy production transmissions, distributions, and so on. That also has to take into account the social and economic resource management issues that are all tied up within that. Although it is a tidy phrase, security, diversity and sustainability is actually a broad concept that takes into account all of the different parameters needed to be taken into account in modern energy markets and one that operates as a free market but takes into account social and environmental consequences as well.

  5. Can you envisage conflicts between the three elements of the strategy? How will the Government manage the trade-offs between the need for sustainability and the need for diversity and security?
  (Mrs Liddell) The Government set tools at our disposal by the legislative route. The Utilities Bill is one aspect of that. The way that Utilities Bill is configured the Secretary of State has the right to set social and environmental guidelines for the Economic Regulator the new officer general. It is also important that whenever we set the policy parameters for energy, myself and Lord Whitty are in agreement about the environmental issues and the energy efficiency issues and these have to be brought to bear, in that there has to be a degree of coherence and there has to be a degree of cross-departmental working. We believe that we now put into play the kind of legislative package that ensures that these tensions are reduced. One of the reasons, for example, that we took the decision to reform the electricity trading arrangements was because we were unhappy with the way the existing pool was operating in a way that was not giving the diversity of supply, the coal industry was the case in point, where the structure was discriminating against the coal industry. We were also anxious that there was the opportunity of playing the market, in effect, and that that could distort not just security of supplies but also diversity and sustainability issues as well. I believe as the Utilities Bill goes through the Parliamentary process we are putting in place the kind of mechanisms that address the anxieties that you raise.

  6. Finally, if I can ask a question about costs. The underlying theme of what you have been saying is that cost is almost the middle agenda of the Government's policy and the ten per cent reduction that will come in next year is something that will be highlighted as the great alleviation, to what extent does diversity and sustainability override that?
  (Mrs Liddell) As well as the Energy Minister I am also the Minister for Competitiveness in Europe. One of the key areas as Europeans and as the United Kingdom we set out with a disadvantage against our main global competitors. If you take the United States as an example, our energy is more expensive than the United States, which makes industry less competitive against our global competitors. From the point of view of fuel, purely from the point of costs, we do not have competitive energy prices. I accept the issue of the need for balance with environmental considerations, that is why the Government has introduced instruments like the Climate Change Levy and why the Chancellor introduced energy saving measures because the question of balance has to be very important in feeding the balance, not just our economic agenda and our environmental agenda but bearing in mind our responsibilities under the Kyoto Protocol. It is a question of achieving a balance that is seen more clearly in relation to energy and the environment than, perhaps, on other aspects of policy.

Mrs Brinton

  7. I would like to start off by turning our attention to the whole business of the stricter consents policy with a few factual questions to start with. In your opening statement you refer to the fact that Mr Byers had, in fact, lifted the stricter consents policy—I have your statement here of 17th April—can we take that as set in stone? Is it going to be lifted in October?
  (Mrs Liddell) It is going to be lifted, I am not saying October. We are, to some extent, dependent on the Director General to come back to us and say, "Their aim is for New Electricity Trading Arrangements (NETA)..." RETA became NETA, it has gone through a number of name changes, I think we are now calling it NETA. NETA is on target and the date of 21st November has been given as a lift-off day, although there will be a window of opportunity on either side of that. I cannot say to you on the something of October it will be lifted, it will be around that time.

  8. Hopefully before the end of the year?
  (Mrs Liddell) It is certainly our intention.

  9. Secondly, following on from that, has Government been able to estimate the total impact of this very, very strict consents policy on our environmental concerns, on our carbon emissions , etc now we can see the end in sight, on environmental costs of that consents policy.
   (Mrs Liddell) Of course, the bulk of the consents that were applied for, the actual power stations are not yet built and whether or not these power stations are built will take into account the conditions prevailing in the market and the costs of different energy sources. However, a view of the stricter consents policy was formed within the framework of the environment agenda that the Government is pursuing and it raises quite important issues also about the diversity of supply. If one casts one's mind back to the debate that took place prior to the introduction, because the energy market had become distorted, there was bias built in and it was to create, this clumsy phrase, a level playing field. It was only ever seen as a temporary measure and it would only work as a temporary measure and a permanent prohibition on gas fire power stations is unattainable.

  10. Unless we lifted this stricter consents policy we would be abandoning all of the means to meet the Kyoto target that John Prescott fought so hard for.
  (Mrs Liddell) I think it would be wrong to suggest that the Government would ever consider a permanent stricter consents policy and in adopting it we were mindful of our environmental targets, one of the aspects of it was the bias towards Combined Heat and Power (CHP). Indeed it gave CHP quite a shot in the arm to have its own headline in government policy. I believe that will stand us in good stead in the long term. Issues of energy efficiency are considered by the Secretary of State when he has to decide power station consent.
  (Lord Whitty) There are 18 CHP schemes under this period to introduce, the bulk of which probably would not have been, and that has had an immediate effect on the Kyoto figure of about 1250 megawatts, roughly that sort of order. So we are part of a scheme that has actually contributed in the opposite direction to that you indicated.

  11. I think we are all very aware of that, and this Committee is very much in favour of CHP as well. Going back to the question of striking a balance, how do you feel that is going to effect gas? Are we going to have more steam in the dash for gas? Are we going to have a considerable quantity of new gas suppliers and power stations? How is that going to balance up with government encouragement to CHP?
  (Mrs Liddell) To some extent the Department will look at each power station application as it comes forward, and it has to fit in with the overall criteria that government places. We have talked about cost, but we have also talked about our concern for environmental considerations as well. Changing relativities in fuel prices actually has a significant impact in the nature of the power station applications that come forward. The changing pattern of that energy price at the moment I think will mean that some of the applications that have recently been approved may not come to fruition. We have already published our energy projections as a working document. We have a rough idea within certain parameters of what the future shape of energy demand is likely to be, but in any given year or in any given set of circumstances we do need to take into account not only what is happening overall in the industrial community, but also in the environment as well.

  12. I would now like to turn to Mr Byers' statement of 17th April. It is something we were quite concerned about. He was talking about cost and he said, "There has been speculation that the total aid to the coal industry could be has high as £100 million." He then said, "I am not ruling out the possibility of expenditure at that level." That prompted a flurry of completely over-the-top national newspaper accounts of resignations, or sackings, or complaints by the Civil Service who decided that Mr Byers was actually playing politics, particularly since this has always been all governments' policy to very much fight against illegal state aiding in terms of European countries. It just seems to me that that policy has been stood on its head here, on the one hand saying, "I am not ruling out this huge injection of state aid to a particular industry here", and on the other hand maintaining that Germany, and wherever else, cannot do that. It seems very, very contradictory and it give a very confusing message, particularly in terms of political pundits.
  (Mrs Liddell) There are a number of issues within there. Firstly, the statement that the Secretary of State made was putting a global figure on how much we thought a coal subsidy might cost. We remain, as a Government, opposed to state aid and we will challenge illegal state aid where evidence is brought to us that such illegal state aid actually exists. There is absolutely no change in that. We also had to take into account the fact that because other countries are in some cases very heavily subsidising coal production, our coal industry was being very badly affected and because of short-term difficulties we could end up losing a source of energy. Indeed, we also have to take into account the fact that across government we are anxious to regenerate the coal field communities, and that is another example where the DETR and the DTI work very closely together. In the long term the future of the United Kingdom coal industry will depend on that industry being able to operate competitively, and also being able to operate within the environmental parameters that we operate. Of course, the aid scheme that we are currently exploring is short-term. It will rise in July 2002. It is a temporary move to try to put in place a structure that will allow the industry to compete. Industry has gone through 18 years of very, very bad times and in some cases valuable reserves of coal have been left foul because of the time—

  13. Short-term aid?
  (Mrs Liddell) It is extremely short-term. It will rise in 2002 and we will continue to press the European Union for the lifting of state aid on the whole, because the European Coal and Steel Community Treaty comes to an end in 2002 and we do not believe that there should be state aid beyond that.

  14. That would apply to us as well?
  (Mrs Liddell) That would apply to us as well.

Chairman

  15. What does that state aid consist of?
  (Mrs Liddell) At the moment we are exploring a proposal with the European Commission. We have to fit in with the roles of the European coal and steel community, which take into account whether or not that aid will be used in a way to reduce the cost of production and give a sustainable future to a pit or coal face.

  16. Will it be directly linked to RJB, for example?
  (Mrs Liddell) No, it is non-discriminatory. Any company can come forward with a proposal and provided it fits in with the ECSC rules it will be looked at, and that takes into account open-cast as well as deep mining.

  17. It will be help to companies rather than social aid?
  (Mrs Liddell) It is help to companies rather than social aid, and help to coal producers rather than to generators.

Joan Walley

  18. When you said it would apply to deep pit and open-cast, were you suggesting that that money from Europe could be a subsidy towards open-cast coal mining?
  (Mrs Liddell) The rules are that it must be non-discriminatory.

  19. We could have money coming from Europe which would be going towards open-cast coal?
  (Mrs Liddell) It would depend on what proposals come from the industry.


 
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