Select Committee on Environmental Audit Appendices to the Minutes of Evidence


Memorandum from Dr Dieter Helm[40]

  1.  The PIU Energy Policy Review was set up in 2001 to consider the design of energy policy with particular regard to the environmental constraints detailed in the Royal Commission on Environmental Pollution (RCEP) report on climate change, and the problems of gas dependency and the prospect of significant imports.

  2.  If significant reductions of CO2 are to be achieved in the coming decades then most of the existing power stations will need to be replaced and much of the electricity and gas networks radically re-engineered. The closure of most of the nuclear capacity over the next two decades will add to these investment requirements.

  3.  It is practically inconceivable that such a transition could be achieved on the basis of "cheap" energy, as the Prime Minister's Foreword to the report indicates is a priority. The PIU report reinforces the low-price option, by suggesting that the UK should only cut emissions if others contribute too. The UK, it states, should create "a range of future options by which low carbon futures could be delivered, as, and when, the time comes". In the meantime, the implication is that the RCEP recommendations should be set aside in favour of a more or less "business as usual" approach. The PIU recognises the trade-off, but does not spell out the overriding importance of the government stating clearly what its environmental objectives are, and what the implications for customers' bills will be. It is the task of government to tell the public that cheap energy and a sustainable climate are not compatible objectives.

  4.  In attempting to address the environmental concerns, the PIU report does not provide a coherent framework for future energy policy. There are four main weaknesses: the report fails to address the core problems of long-term contracts (for gas, renewables and nuclear); it does not give sufficient attention to network investment (for gas and for embedded electricity generation); it does not give a coherent lead on the interaction of the numerous individual environmental interventions; and it fails to adequately address the institutional agenda.

  5.  Taking each in turn, first, almost all environmentally benign energy technologies require long-term contracts to finance investment. New technologies need bankable contracts to cover their development. Liberalised energy markets do not easily support such contracts: it is for this reason that the Renewables Obligation takes the form of a compulsory long-term contract which suppliers must enter into. (It is a problem shared with long-term take-or-pay gas contracting.) The PIU report does not even discuss ``long-term contracts''.

  6.  Second, with the exception of nuclear power, environmentally benign technologies are small-scale and tend to be embedded within the distribution networks. It is unlikely that a transition from a highly centralised grid based upon large coal and nuclear stations to a distributive one will be achieved without some element of planning. There will also need to be significant changes to the gas network so that small-scale peaking plants can help to balance the electricity system. The PIU review provides no route-map as to how this might be achieved, nor indeed any serious recognition of the scale of the re-engineering of the networks required.

  7.  Third, an important component of energy policy is the provision of a transparent, predictable regulatory framework, with the costs proportionate to the benefits. In environmental matters, there is a plethora of overlapping policies and interventions which have been developed in an ad hoc fashion. Thus, we have measures to both adjust energy prices to take account of environmental effects (the Climate Change Levy), as well as to fix the quantity of pollution (the Emissions Trading Scheme). One of these is a tax, the other a subsidy. We also have technology-specific quality controls (Renewables Obligation) and technology subsidies (spending of some of the Climate Change Levy revenues and other targeted subsidies). There are also energy efficiency measures, plant-based pollution regulation and information campaigns. The PIU report recognises some of the problems this complexity creates, but does not provide any guidance to reform.

  8.  Finally, the PIU's proposal for a Sustainable Energy Policy Unit does not meet the need to address the institutional framework in a way which integrates the environmental agenda with the traditional DTI one; which provides a core technical competence and expertise for the shaping of future energy policy; and which repositions the ways in which government policy translates into changes within the energy sector. The Sustainable Energy Policy Unit is likely to be an annex to the DTI Energy Directorate, possibly eventually being absorbed within it. The long-running competition between the DTI and the various guises of the environment department (DOE, DETR and the new DEFRA) is likely to continue, creating dissonance rather than joined-up regulation. A self-standing energy agency, with an explicit environmental remit, would provide a more stable and powerful body to advance the objectives of a sustainable energy policy.

March 2002

40   Dr Helm wrote a Critique of Renewables Policy in the UK, November 2001, which is not printed here. Back

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