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Session 2001- 02
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European Standing Committee C Debates

Energy Supply

European Standing Committee C

Wednesday 28 November 2001

[Mr. Bill Olner in the Chair]

Energy Supply

[Relevant Documents: European Union Documents Nos. 5619/01 and 7218/01.]

10.30 am

The Minister for Industry and Energy (Mr. Brian Wilson): The Commission's Green Paper is wide-ranging and it deals with an important area of policy from an economic and an environmental point of view. It comes at a time of increasing European Union energy dependence and the United Kingdom is closely examining security of supply issues as we face becoming a net importer. The performance and innovation unit, too, is undertaking a broad review of UK energy policy. We agree with the Green Paper's analysis of growing EU energy dependence and we support its main conclusions. I shall highlight three of them.

First, we support the view that security of supply entails reducing the potential risks associated with energy dependence rather than striving for self-sufficiency, even though the UK has enjoyed decades of self-sufficiency. Liberalised, integrated and competitive markets, in the EU and internationally, are central to security of supply. Liberalised markets can open up opportunities for investment and supply, and ensure that the right price signals are given to bring supply and demand into balance.

We strongly support the Commission's efforts, and those of fellow EU member states, to complete the single market in energy, and to promote economic reform in supplier countries and competition within and outside the EU. We therefore welcome the Commission's proposals for a directive to amend the existing electricity and gas directives and a regulation on cross-border electricity trading. Those proposals should go a long way towards completing the single market in energy.

Secondly, we support the emphasis on measures to reduce the demand for fossil fuels, promote renewable energy sources and improve energy efficiency. Such measures contribute to energy diversity and security, as well as to environmental objectives.

Thirdly, we agree that the missing links in trans-European energy networks should be identified and action should be taken to facilitate completion if the links are necessary to ensure security of supply or the completion of the internal market. That is an area in which the Commission can provide real added value.

The Select Committee on European Legislation—the Scrutiny Committee—has identified four important areas on which the merits of Community intervention should be examined. First, on harmonising fiscal policies, we are not convinced that different levels of energy taxation in member states would hamper the single market, or that a lack of harmonised energy taxation would distort competition between member states.

The main aim of taxation is to raise funds for high quality public services. Member states choose an appropriate level of public service provision, taking account of a range of considerations. The tax levels needed to pay for those provisions will therefore differ. However, subject to certain provisions, we support the harmonising intent behind the proposed energy products directive and we accept that, on environmental grounds, minimum energy tax rates will be required throughout the EU for the business use of energy.

Secondly, we see no justification for the stockpiling at Community level of oil, gas or coal. It would be unnecessary, difficult and expensive. For oil, perfectly good emergency arrangements exist among the International Energy Agency countries and European Union and there could be problems with the Organisation of the Petroleum Exporting Countries. For gas, our priority of a liberalised market and dialogue with producer countries will provide the most effective safeguards for security. For coal, as there is no significant risk to external supply, we see no security of supply justification for supporting indigenous production or for exempting the industry from state aid rules.

Thirdly, on whether aid for renewable energy should be funded by levies on existing energy sectors, it is important to ensure that the future benefits of the wider use of renewable energy are not outweighed by the costs on domestic and industrial consumers. Large UK electricity consumers are concerned that our target of 10 per cent. of electricity sales by 2010 could undermine their overseas competitiveness if other countries do not take similar measures. Any EU measures will therefore need to be considered carefully in that light.

Finally, the Government's 10-year plan for transport aims to secure a significant increase in the volume of freight carried by rail. Logistical realities, however, mean that most freight will continue to travel by road. We are working to minimise the impact of road freight by investing in measures to reduce congestion and improve the condition of our roads. Any Community measures would need to take account of the different transport systems of member states.

The Government support the main thrust of the Commission's proposals on the internal market, which require full market opening in both electricity and gas by 2005. They also require the key features necessary for a fully functioning competitive market to be in place, notably legal separation of monopoly networks, published non-discriminatory prices for network access and independent regulation. The system in Great Britain is largely compliant with the proposals already, although some changes would be required in Northern Ireland.

There is general support among member states for the main elements of the proposals, but France and Germany have problems with some of them. France is resisting allowing its domestic consumers a choice of supplier but is prepared to liberalise its industrial and commercial sectors. Germany is in favour of full market opening, but has difficulties with the ex-ante regulation, legal separation in gas and published tariffs for access to networks. Some other member states also have concerns about legal separation for gas. Acceptable compromises will eventually be found on those issues, although the timetable will inevitably slip somewhat.

The Chairman: We now have until 11.30 am for questions to the Minister. I remind hon. Members that questions should be brief and should be asked one at a time. There will be ample opportunity for all Members to ask several questions, so this is not the time for statements. That will come later.

Mr. Robert Key (Salisbury): First, the Opposition do not seek, so far, to divide the Committee on the motion. However, will the Minister say when we can expect to hear a public statement to the House on the performance and innovation unit energy review?

Mr. Wilson: I will tell the Committee the timetable for the PIU energy review. I cannot answer the hon. Gentleman's question directly, but I hope that he will appreciate from what I say that I am not trying to obfuscate in any way.

The PIU energy review was always intended to be a six-month study. It was first requested by the Prime Minister immediately after the general election, so the final report should be completed by the end of the year and we are on target to meet that deadline. As the PIU review is a six-month study, it will point out other work to be done as well as drawing broad conclusions.

The report will be published and will become the subject of debate in both Houses of Parliament and in the wider community of interest that it affects. I cannot say precisely when the report will be debated in the House. However, just as the whole process has been transparent, with all the submissions being posted on the website and a comprehensive sounding of views and advice being taken, the consultation on the published review will be equally comprehensive and will include discussion in Parliament.

Rev. Martin Smyth (Belfast, South): Will the Minister enlarge on his reference to the changes that are required in Northern Ireland? He will be aware that we have long argued about differentials in fuel charges there. What changes will be made and when will they take place?

Mr. Wilson: There is no doubt that a different situation prevails in Northern Ireland. I am well aware of concerns about the effect of any changes on industrial users of gas. I am responsible for Northern Ireland, just as I am for the rest of the United Kingdom, but on European energy issues in particular the writ of the Office of Gas and Electricity Markets does not run to Northern Ireland. That has left the development of a competitive regime lagging some way behind.

Responsibility for implementing EU liberalisation proposals rests principally with Northern Ireland Executive Ministers, but my officials liaise closely with their counterparts in the Executive on the progress that is made in negotiations with other member states. They will factor in the views of interested parties in Northern Ireland. Initial feedback suggests that the main concern is to have a requirement to ensure that the new energy directive does not adversely affect the existing directive, which enables the grant of exclusivity for the transmission and supply of gas to facilitate the development of the emergent natural gas industry in Northern Ireland.

At present, the Northern Ireland electricity market is 35 per cent. open and the requirement to open it fully by 2005 presents a significant, but not insuperable challenge. The transition to full market openness will require careful planning among the various players. Primary legislation may be necessary to effect the agreed changes to existing market structures.

I assure the hon. Gentleman that the distinctive position in Northern Ireland is very much in our mind as we conduct negotiations with the EU and we are in close touch with the Executive there.

Richard Younger-Ross (Teignbridge): Will the Minister expand on the Government's nuclear policies in the light of the documents, which refer to nuclear energy as an undesirable option that would be satisfactory only if the problem of waste was sorted out? How do the Government's nuclear energy proposals fit in with the documents? Do they not run counter to them?


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Prepared 28 November 2001