Appendix
HOUSE OF COMMONS ENVIRONMENTAL AUDIT COMMITTEE
REPORT "ENERGY WHITE PAPER—EMPOWERING CHANGE?"
GOVERNMENT RESPONSE
1. The Environmental Audit Committee published a
report on its findings from this inquiry on 22 July 2003. This
note sets out the Government's response to the Committee's conclusions
and recommendations.
2. We are grateful to the Committee for its report.
We welcome the Committee's support for the fundamental shift
in UK energy strategy set out in the Energy White Paper and for
the new goal for the UK to put itself on a path to cut its carbon
dioxide emissions by 60% by about 2050 with real progress by 2020.
We welcome the Committee's strong endorsement of the adoption
of a long-term emissions reduction target. As the Committee recognizes,
this reflects the Government's determination that the UK will
continue to show firm leadership internationally in tackling climate
change.
3. The Government does not however accept the Chairman's
criticism of the energy White Paper. The White Paper sets out
a detailed and long-term strategy for achieving its objectives
including over 130 commitments. We have published an implementation
plan on the Sustainable Energy Policy Network web site with the
key milestones for implementing the commitments as well as the
names and contact details of the officials responsible.
4. We agree that the price of energy is likely to
rise as a result of measures to reduce carbon emissions. Over
the period to 2020, the policy measures proposed in the White
Paper—on emissions trading, renewables and energy efficiency—
might add around 5-15% to household electricity prices and less
than 5% to household gas prices. It is important to put these
potential rises in context. Electricity prices have fallen significantly
in real terms over the last 20 years to their current historically
low level. Such price increases would not necessarily translate
into similar increases in the total amount consumers pay for energy.
Part of the price impact reflects energy efficiency measures
which should lead to reductions in energy use. The impact of
the measures to promote energy efficiency proposed in the White
Paper should mean that, for many households and business users,
energy bills fall as the amount of energy consumed is reduced.
5. We have established the Sustainable Energy Policy
Network to ensure that the White Paper commitments will be delivered.
The Network represents a new way of working together for central
government, devolved administrations, energy regulators, key delivery
bodies and, shortly, regional organisations. We believe this
improves co-ordination, and brings together in a single vehicle,
responsibility for implementing the White Paper's commitments.
The new Ministerial Group, chaired by the Secretaries of State
for Trade and Industry and for Environment, Food and Rural Affairs,
provides high-level oversight. The proposed new Sustainable Energy
Policy Advisory Board will provide senior, independent external
advice to Government on implementation.
Recommendation 1. The Energy White Paper represents
a major shift in the approach to UK energy strategy. We welcome
the priority which it gives to environmental objectives and the
extent to which it endorses the role of renewables and energy
efficiency in a future energy strategy. (Paragraph 10)
6. We welcome the Committee's recognition that the
Energy White Paper fundamentally changes UK energy strategy.
We also welcome the Committee's support for the priority the White
Paper gives to environmental objectives including the new goal
for the UK to put itself on a path to cut its carbon dioxide emissions
by 60% by about 2050 with real progress by 2020. We are pleased
that the Committee supports the proposed strategic role for renewables
and energy efficiency set out in the White Paper.
Recommendation 2. By including in the White Paper
a specific commitment to a 60% reduction in carbon emissions by
2050, the UK Government has set a clear goal for domestic policy.
It has also led the way internationally by emphasising to other
nations the need to address the challenge of global warming. (Paragraph
11) &;
Recommendation 3. We believe that, just as the
UK is setting a precedent in terms of adopting a long term target,
it could also exert greater influence over other nations by setting
out and promoting more clearly what approach it favours in terms
of an international framework for reducing carbon emissions. (Paragraph
13)
7. The Government welcomes the Committee's strong
endorsement of the adoption of a long-term emissions reduction
target. As the Committee recognizes, this reflects the Government's
determination that the UK will continue to show firm leadership
internationally in tackling climate change. This will be vital
as UK emissions account for only 2% of those globally and our
actions need to be part of a concerted international effort.
We will do this on the one hand through the action we take domestically,
to demonstrate by example to other developed countries the level
of ambition required in responding to this challenge, and to demonstrate
also to developing countries that the UK as a developed economy
is committed to taking a lead in combating climate change.
8. We will also show leadership through full and
constructive engagement in negotiations, both formal and informal,
on the form and ambition of global action to cut emissions after
the end of the first Kyoto Protocol commitment period. As the
Government pointed out in its response to the Royal Commission
on Environmental Pollution (RCEP), preliminary, and largely informal,
discussions on this are only just beginning. Any framework for
future action must respect the core principles set out in the
UN Framework Convention on Climate Change: that Parties to the
Convention should protect the climate system on the basis of equity
and in accordance with their common but differentiated responsibilities
and respective capabilities, with developed countries taking the
lead. A future framework must also build on what we have achieved
to date through the UNFCCC and the Kyoto Protocol. There are,
however, a wide range of possible options for doing this and many
different perspectives among the Parties— the majority of
which have yet to begin considering the issue in any depth. The
Government believes that it will be essential for the success
of the post 2012 framework to promote a frank debate based on
thorough, technically-sound and objective analysis of the options,
and that for the UK position to command credibility, it needs
to be seen to be based on such detailed analysis and consultation
with other Parties. The Government certainly intends, with our
European partners, to develop and promote our preferred approach,
but believes, as it explained in the response to the RCEP, that
it is still premature to do so at this stage.
Recommendation 4. Departments are already required
to screen new policy proposals for environmental impacts and conduct
appraisals where necessary. We recommend that they should include
within this screening process specific consideration of any implications
arising from the adoption of the 60% carbon reduction target.
(Paragraph 14)
9. The Government believes that the analysis of the
impact of policies on emissions of carbon dioxide is vital to
help inform us about progress towards (and threats to) our targets
to reduce emissions of greenhouse gases. A thorough analysis
of all benefits and costs is essential to deliver on the Government's
commitment to sustainable development. This requires policy to
be appraised against its anticipated economic, social and environmental
impacts. The recently updated guidance for regulatory impact
assessments states that where relevant, any environmental impacts
should be included among the costs and benefits of all proposed
new policies and regulations.
10. The Energy White Paper builds on this commitment
by stating that "carbon impact assessment will in future
be an integral part of assessing environmental impacts".
The Government agrees that in assessing major or strategic policy
decisions, consideration should be given to the potential implications
both for the domestic goal to reduce carbon dioxide emissions
by 20% by 2010 and for the longer term aim set by the Energy White
Paper to put ourselves on a path to cut carbon dioxide emissions
by 60% by about 2050, with real progress towards this target by
2020. The Government is currently considering how this might
best be applied in practice.
Recommendation 5. Our fears about implementation
have proved largely justified. The Energy White Paper is weak
on specific measures and contains little that is new. (Paragraph
18);
Recommendation 6. We find it incomprehensible
that the Government was unable to publish an implementation plan
as a supporting document to the White Paper. We recommend that
the Government does so as soon as possible, and includes within
it not only an implementation plan for energy efficiency but a
similar plan for renewables. (Paragraph 20);
Recommendation 10. The development of an implementation
plan for renewables will provide an opportunity for the Government
to set out how it intends to achieve its aspirations. (Paragraph
34)
11. The White Paper sets out a long-term strategy
for achieving its objectives including over 130 commitments and
the means for delivering them. We have published an implementation
plan on the Sustainable Energy Policy Network web site www.dti.gov.uk/energy/sepn/index.shtml
It sets out details on the 11 individual workstreams and lists
some 100 key milestones for implementing the commitments in the
Energy White Paper as well as the names and contact details of
the officials responsible. The website is updated regularly to
show progress on implementing the milestones.
12. In the area of renewables the White Paper describes
the substantial help already in train through the Renewables Obligation
and the Climate Change Levy and the further help likely to come
from the EU Emissions Trading Scheme. It also analyses the barriers
to achieving the Government's targets and aspirations. It then
sets out a clear programme for tackling these barriers including
proposals for:
- £60 million in new money
for renewables projects bringing the spending on renewable energy
up to £348 million in total over four years;
- reforming the guidance for local planning authorities
and developers about the best way to promote renewables through
the planning system;
- simplifying the procedures MOD applies to wind
farm developers while still accommodating our national security
needs;
- the publication by OFGEM of an incentive framework
for connecting and utilising distributed generation later this
year for implementation in April 2005.
13. We expect the industry to respond to the framework
established by the Government and demonstrate they can achieve
our goals for renewables at an acceptable cost. We remain firmly
committed to the Renewables Obligation and will maintain the level
of support it provides as planned until 2027. In 2005/06, we
shall review progress and will elaborate a strategy for the decade
to 2020. We published a consultation document on a technical
review of the Renewables Obligation on 29 August to ensure the
Obligation works as intended and to review co-firing rules with
the aim of encouraging the development of energy crops.
14. We are also currently conducting a review of
renewables innovation spending across Government. This review
will consider what Government needs to spend on renewables innovation
to achieve the 2010 target and create options for achieving the
2020 aspiration and the 2050 carbon reduction aspiration. It
will examine which are the key renewable technologies for the
delivery of the 2010 target and the 2020 aspiration, what are
the barriers to the development and deployment of these key renewables
technologies and what Government measures are needed to facilitate
delivery of the targets and aspirations, and the level of resources
needed.
15. We shall publish an Implementation Plan for energy
efficiency within a year of the White Paper's publication, setting
out in more detail how we will deliver the energy efficiency strategy
set out in the White Paper, as well as a strategy on CHP to 2010
and an Implementation Plan for the Government's Fuel Poverty Strategy.
Recommendation 7. The existing target in the Public
Service Agreements of both the Department of Trade and Industry
and Department for Environment, Food and Rural Affairs for carbon
reductions is very weak. The Government should strengthen it and
accord it far higher priority, particularly with regard to the
Department of Trade and Industry. It should also incorporate the
20% renewables aspiration as a target in both Public Service Agreements.
(Paragraph 27)
16. DTI and Defra hold jointly the target "to
improve the environment and sustainable use of natural resources,
including through the use of energy saving technologies, to help
reduce greenhouse gas emissions by 12.5% from 1990 levels and
moving towards a 20% reduction in carbon dioxide emissions by
2010". Both Departments take this (and each) Public Service
Agreement (PSA) target extremely seriously and also keep it under
regular review to ensure that we are on course to achieve it.
17. The Government and the Devolved Administrations
are confident that the UK Climate Change Programme and the Energy
White Paper provide an effective policy framework for reducing
the UK's greenhouse gas emissions. Current projections suggest
that we are well on course to meet our commitment under the Kyoto
Protocol to reduce greenhouse gas emissions by 12.5% from 1990
levels. Achieving the domestic goal to reduce carbon dioxide
emissions by 20% from 1990 levels will be more challenging but
the integrated package of measures set out in the Climate Change
Programme and the Energy White Paper demonstrate that the Government
remains committed to delivering it. The formal review of the
Climate Change Programme in 2004 provides an opportunity to introduce
new policies and measures, or to strengthen existing ones, if
the conclusion is that more needs to be done to keep us on track
towards the domestic goal.
18. The Energy White Paper made the environment one
of the four key pillars of energy policy and restated our commitment
to achieving our 10% renewables target, while describing it as
"very challenging". The mechanisms we have put in place
demonstrate our commitment to meeting this target, which can also
play an important part in delivery of the security of supply and
competitiveness aspects of the current PSA target. We are working
hard to address the barriers and to encourage renewable developments
and there are signs that the market is responding. More onshore
wind projects have been given consent in the first half of 2003
than in the previous decade, and Ernst and Young, for example,
have announced Britain as the most attractive location for offshore
wind investment. We
believe it is premature to incorporate the White Paper's 20% renewables
aspiration into the PSA target.
Recommendation 8. We note that the Government
plans to review the operation of the Renewables Obligation in
2005-06. It should do so earlier. It should also clarify at the
earliest opportunity how the Obligation will relate to other policy
instruments. (Paragraph 29)
19. A review in 2005-06 will enable us to review
progress, and set out a strategy for the period between 2010 and
2020. A review on this timescale will be able to take account
of the experience of carbon prices arising from the emissions
trading scheme and any changes in the costs of renewable technologies
following the introduction of the Renewables Obligation. The
review will also need to consider how we reach our aspirations
for 2020. It is too early at this stage to commit ourselves to
measures for a further expansion of renewables for the years after
2010. It is also too early to reach conclusions on a long-term
policy, set for 25 years, just after the first year of the operation
of the Obligation.
20. The review planned for 2005-06 will also clarify
how the Obligation will relate to other policy instruments, in
particular the Emissions Trading Scheme.
Recommendation 9. The Government does not
have a strategy for other renewables, including biomass and solar
photo-voltaic, which adequately reflects the massive challenge
posed by the objectives set out in the White Paper. (Paragraph
34)
21. The strategy for individual renewable technologies
is set out in technology route maps (key technological milestones)
which have been prepared for each of the main new and renewable
energy technologies (including biofuels and photovoltaics) to
cover the period up to 2020. Each route map is the result of
extensive consultation with industry and other key stakeholders.
The route maps are available on the DTI's website at www.dti.gov.uk/renewables/technologies/routemap.shtml
22. Biomass is an important part of our renewables
strategy, and to assist the growth of biomass-fuelled generation
we launched last year the £66 million Bioenergy Capital Grants
Scheme, jointly funded by DTI and the New Opportunities Fund.
A key aim of the Scheme is to stimulate early deployment of biomass
technologies. This has proven to be a very popular scheme and
has become over-subscribed, with funds now fully allocated. Defra
supports the development of dedicated fuel supply for these projects
through the Energy Crops Scheme which allocated £29 million
to planting grants for short-rotation coppice (SRC) and miscanthus and
support for SRC producer groups in England. However, uptake for
this scheme has so far been low. A further £3.5 million is
being made available by Defra to develop supply chains. While
the Government has done a lot on biomass already, there are still
a number of problems to address (in particularly its viability
in current market conditions). More work is needed for biomass
to play the role envisaged in the White Paper.
23. We are also seeking to develop a stronger stimulus
to provide a biomass supply chain by increasing the amount of
electricity generation from energy crops through co-firing. The
co-firing rules under the Renewables Obligation allow power stations
to burn biomass alongside fossil fuel. Energy crops are envisaged
as a major source of the biomass eligible under the Obligation
as a fuel for the generation of renewable electricity.
24. The strategy for the deployment of photovoltaics
is largely set out in the 14 recommendations of the Government-Industry
PV Group Report of March 2001. The principal recommendation was
for a 10 year, £150 million programme with a target of 70-100,000
roofs. Since April 2002 grants have been provided through the
£20 million first phase of the Major Photovoltaics Demonstration
Programme (MDP). Under the MDP, grants totalling £10 million
have so far been allocated to 300 individual householders and
to 66 medium and large-scale projects with housing groups and
on non-residential buildings. The Government will consider the
case for increased funding for the next phase following an interim
evaluation at the mid-way point of the first phase of the MDP.
25. There are other recommendations which we are
still working on, including changes to Building Regulations, encouragement
of equal tariffs, and PV on Government buildings. These issues
are all part of the long-term development of the market and overcoming
the barriers to deployment.
Recommendation 11. It is disappointing that
there has been so much delay in issuing revised planning guidance
on renewables (formerly PPG 22). We urge the Government to publish
it as soon as possible. (Paragraph 35)
26. We aim to publish a revised draft as soon as
possible in the autumn, once Parliament has returned. If we are
to produce a message for planning authorities and developers consistent
with the emphasis on renewables in the Energy White Paper, then
as well as taking on board the views of stakeholders, we need
to make substantial revision to the current document. Furthermore,
we intend to shorten and focus the guidance in order to honour
a commitment made in the Planning Green Paper last year.
Recommendation 12. Given the importance of
energy efficiency in a future energy strategy, the Government
must include a clear overall target and specific sectoral targets
within the energy efficiency implementation plan which it is developing
(Paragraph 39)
27. The Energy White Paper set out the contribution
that could come from energy efficiency between now and 2010, and
between 2010 and 2020—around 10 million tonnes of carbon
per annum each decade, split equally between household and non-household
energy use. It made clear that these savings would need roughly
a doubling of the rate of energy efficiency improvement compared
to recent decades. It included indicative figures for carbon
savings for key sectors, and for some individual measures, but
these are not targets as such. Subject to the passage of Brian
White's Sustainable Energy Bill, the Government expects to publish
an energy efficiency aim for residential accommodation in England
as part of the Energy Efficiency Implementation Plan, to be published
in February 2004. The Bill would also require the National Assembly
for Wales to designate a comparable aim for residential accommodation
in Wales. The Government will also set a new target in 2003 for
energy efficiency in the central Government estate.
Recommendation 13. We urge the Government to take
into account the comments made on its draft CHP strategy and publish
a final strategy as soon as possible. (Paragraph 44)
28. All responses to the draft CHP Strategy provided
an important input to the measures for CHP announced in the Energy
White Paper, supporting achievement of the 2010 target of 10GW
installed Good Quality CHP capacity. The Government intends to
publish the full CHP Strategy before the end of 2003/04.
29. We recognise the difficulties currently facing
the CHP industry, and are working in close partnership with industry
to take the CHP support measures forward, conscious that only
sustained effort from the private and public sector will allow
the benefits of the measures to be fully realised. We have commissioned
Cambridge Econometrics to update the econometric modelling to
inform the publication of the final CHP Strategy and the National
Allocation Plan under the EU Emissions Trading Scheme. We are
also working to facilitate the implementation of micro-CHP. The
Government will consider what further measures might be needed
to help progress towards our target.
Recommendation 14. We recommend that the Treasury
re-examines as soon as possible the possibility of introducing
a reduced rate of VAT for micro-CHP. (Paragraph 47)
30. In the recently published consultation document,
Economic Instruments to improve household energy efficiency
- consultation document on specific measures (August 2003),
HM Treasury invited views on a number of measures including the
possible introduction of a reduced rate of VAT for micro-CHP.
31. Views are invited by 24 October 2003, and will
be taken into account in the formulation of government policy
in this area, as part of the Chancellor's decision making process
for the Pre-Budget Report and the Budget.
Recommendation 15. We urge the Government
to ensure that sufficient funding is available to deliver the
50% increase in current fuel poverty programmes recommended by
the Fuel Poverty Action Group. (Paragraph 50)
32. The Government has not endorsed the calculations
of the Fuel Poverty Advisory Group, but is committed to the targets
for fuel poverty set out in the UK Fuel Poverty Strategy and is
considering future spending requirements in the course of the
current spending review.
Recommendation 16. The Government must re-evaluate
the effectiveness of schemes to address fuel poverty, and ensure
that—in the longer term—the domestic sector bears
its proper share of the costs of reducing greenhouse gas emissions.
The best way forward is for the Government to initiate a proper
public debate on this issue. (Paragraph 53)
33. Two major reviews of Warm Front, Government's
main fuel poverty programme for the private sector in England,
were recently completed, to evaluate its delivery effectiveness.
The findings are currently being considered. Key areas of focus
are improved targeting, enhancements to eligibility and the use
of appropriate energy efficiency measures. Discussion with stakeholders
on the way forward is planned later this year.
34. The Energy White Paper identifies the domestic
sector as delivering around half of total energy efficiency savings
to 2020. A key programme for promoting energy efficiency in households
is the Energy Efficiency Commitment (EEC), primarily a carbon
savings programme that commits licensed energy suppliers to meet
targets for the promotion of improvements in domestic energy efficiency.
EEC helps low-income consumers in receipt of certain benefits,
many of whom are likely to be living in fuel poverty, because
suppliers must focus at least 50% of energy savings on that group.
There will be a consultation in spring 2004 on proposals for the
Energy Efficiency Commitment post 2005. Other important policies
and measures for this sector include economic instruments, on
which HM Treasury and Defra are currently consulting, revisions
to Building Regulations, and advice and information.
Recommendation 17. In reviewing the building
regulations, the Office of the Deputy Prime Minister must incorporate
not only far higher standards of energy efficiency requirements,
but also requirements for the use of renewables where possible,
with a view to moving towards zero space heating requirement for
buildings. (Paragraph 55)
35. The
Building Regulations energy efficiency provisions were recently
amended as part of our Climate Change Programme, and the new provisions,
representing significant improvements over previous standards,
came into effect in April 2002.
36. The Energy White
Paper indicates our intention of raising standards even further
over the next decade learning lessons from the standards in comparable
European countries. As part of this, the Energy White Paper
also indicated our aim of bringing the next major revision of
the energy efficiency provisions in the Building Regulations into
effect by 2005, and to raise the standards for boilers to the
highest levels—Class A and B condensing types. In
pursuing these aims we shall of course ensure that the Regulations
remain proportionate, and that the performance standards they
set are cost-effective (taking more account of the energy savings
benefits and including the social cost of carbon emissions), sufficiently
flexible for designers and without excessive technical risks.
The legal requirements will continue to be given in functional
terms and we are seeking to expand the guidance in the Approved
documents, L1 and L2, to cover ways of compliance when proposing
proven low-carbon and zero-carbon systems. This will allow
for sufficient design discretion and for technical innovation.
Recommendation 18. Large-scale investment
is likely to be needed to modernise the grid to accommodate higher
levels of distributed processing and major new sources such as
offshore wind farms. This needs a clear strategy and charging
framework. The White Paper does little to resolve these major
issues or give direction to Ofgem. (Paragraph 58)
37. The Government and Ofgem recognise that both
the transmission and distribution networks need to be developed
as newer forms of generation start to make significant contributions
to the overall generation mix. The extent to which new investment
in networks will be required will depend to a large extent on
where new generation, of whatever type, is located.
38. Within the framework set by the Energy White
Paper and energy legislation, setting price controls that create
appropriate incentives for any investment needed to enable generation
to connect to the network is a matter for Ofgem.
39. The Government has made it clear in both its
draft Social and Environmental Guidance to Ofgem, and the Energy
White Paper, that Ofgem has an important role in achieving the
White Paper's goals. The Government believes that the achievement
of its objectives may be dependent on a radical transformation
of the energy system, especially electricity sources and technologies,
and greater diversity in supply and control and management of
demand, including the growth of energy services. The Government
gives high priority to monitoring the progress of these issues
and has established the appropriate working groups to do
this.
40. DTI and Ofgem have also recently published a
document on transmission charging and the Great Britain wholesale
electricity market. This document sets out how transmission licences
need to be amended to create a Great Britain regime for transmission
charging to replace the separate charging regimes that apply in
England & Wales, Scotland and in respect of use of the Scotland-England
interconnector. The creation of a Great Britain electricity market
(with the introduction of BETTA) will ensure that the costs of
transmission investment can be spread across all users of the
transmission system.
41. The Transmission Issues Working Group (TIWG),
chaired by DTI and comprising Ofgem, Transmission Assets Owners
and the devolved administrations, commissioned studies on the
costs of upgrading the transmission network for new renewable
energy generation in Scotland and offshore England/Wales. Planning
work has started on initial upgrades of the system. TIWG will
continue to monitor the progress of this work and will monitor
the level of developer demand for new renewable generation projects,
including the infrastructure required for offshore wind hubs.
42. Ofgem recently published its initial consultation
paper on the electricity distribution price control. Setting
the new price control for 2005 is a major project for Ofgem over
the next 18 months. The expected growth of distributed generation—typically
smaller renewable generators—which will be needed to help
meet Government environmental targets raises challenges and opportunities
for the companies and Ofgem. Ofgem will be looking to set a price
control framework for the next five years that will incentivise
distribution companies to respond to the needs of new generators,
including connecting them to the network in an efficient way,
as well as protecting the interests of electricity customers.
These proposals will of course be subjected by Ofgem to an environmental
impact assessment.
43. DTI and Ofgem through the Distributed Generation
Co-ordinating Group are engaging with distribution network operators to
ensure that no unnecessary technical barriers exist that could
constrain the connection of renewable and other generation to
the distribution networks.
Recommendation 19. Responsibilities for all
forms of generation should be brought together within Ofgem in
order to provide a coherent approach to charging issues and enable
an appropriate balance to be struck between the interests of new
and traditional forms of generation. (Paragraph 59)
44. Transmission and distribution charges are established
by the relevant companies, within the requirements of their licences
as monitored and enforced by Ofgem. At present, transmission
connected generators are required to pay use of system charges
from which smaller distributed generators are exempt. Further,
smaller distribution connected generators are eligible for 'embedded
benefits', which may include payments from NGC.
45. In June 2003, Ofgem published the initial conclusions
of its review into the structure of distribution charges. This
paper proposed a move to shallower connection charges and the
introduction of generator distribution use of system charges.
Ofgem's March 2002 proposal to allow renewable generators to pay
"deep" charges over a number of years was an interim
arrangement that will be superseded by this new charging regime
with effect from April 2005. Taken in conjunction with new distribution
price controls that come into effect at the same time and the
introduction of new schemes to incentivise innovation in network
development, Ofgem expects that the new charging arrangements
will improve the current regulatory arrangements.
46. The comments on the detail of Ofgem's internal
management structure are based on a misunderstanding. Ofgem's
Competition and Trading Arrangements Division covers all forms
of generation, including small generators. In particular, it is
responsible for monitoring the wholesale market and for scrutinising
the Balancing and Settlement Code modification proposals.
Separately from this, as part of the Climate Change Programme,
Ofgem has an important role in administering Government schemes
to promote renewables and energy efficiency. These schemes are
administered by Ofgem's Social and Environmental Directorate.
Ofgem believes that its current structure enables it to carry
out all its environmental responsibilities in a coherent and responsible
way.
Recommendation 20. Ofgem's next distribution price
review, to be completed in 2005, will be of enormous importance.
The Government should set out clearly, as a fundamental objective
for the price review, that positive and substantial incentives
must be provided for all forms of renewable and distributed generation.
(Paragraph 60)
47. The Government concurs with the Committee's view
that the 2005 Distribution Price Control review is of enormous
importance. The review, together with Ofgem's ongoing review
of distribution connection charges and proposals to reduce distribution
losses, represents a unique opportunity to ensure that, in future,
distribution network operators see the connection of renewable
and other distributed generation as a business opportunity—this
being the most effective way of ensuring that generation is welcomed
on to the distribution networks.
48. Ofgem have recently published their initial consultation
on the Distribution Price Control review. The primary objectives
of the review are set by Ofgem's statutory duties. Ofgem recognise
a key issue will be the development of the regulatory framework
to deal with the increasing levels of distributed generation implied
by the Government's targets and aspirations. The Government will
continue to engage positively with Ofgem to ensure that the promising
concepts set out in Price Control and related reviews evolve into
substantive and effective incentives to connect generation.
Recommendation 21. The creation of yet more ad
hoc groups, such as the Sustainable Energy Policy Network and
the Sustainable Energy Policy Advisory Board, does not provide
an effective response to the Performance and Innovation Unit's
criticism that the present allocation of departmental responsibilities
is incoherent. These new groups are likely simply to add to the
confusing plethora of bodies and organisations already involved
in the energy sector. (Paragraph 76)
49. The Sustainable Energy Policy Network represents
a new way of working for central government, devolved administrations,
energy regulators, key delivery bodies and shortly regional organisations.
We believe this improves co-ordination, and brings together in
a single vehicle, responsibility for implementing the White Paper's
commitments. The new Ministerial Group chaired by the Secretaries
of State for Trade and Industry and for Environment, Food and
Rural Affairs provides high-level oversight. The proposed Sustainable
Energy Policy Advisory Board will provide senior, independent
external advice to Government on implementation.
Recommendation 22. The Government should alter
the objectives of the Department of Trade and Industry so as to
place a higher importance on environmental objectives in any trade-off
with economic or social objectives, in line with the recommendation
made by the Performance and Innovation Unit. This change must
also be fully reflected in the Department of Trade and Industry's
Public Service Agreement. (Paragraph 77)
50. The Department of Trade and Industry's objectives
already recognise the sometimes complex tradeoffs that have to
be made between the four primary goals of energy policy. This
is illustrated, for example, in the Department's current Public
Service Agreement target to "ensure the UK ranks in the
top three most competitive energy markets in the EU and G7 in
each year, whilst on course to maintain energy security, to achieve
fuel poverty objectives; and improve the environment and the sustainable
use of natural resources, including through the use of energy
saving technologies, to help to reduce greenhouse gas emissions
by 12.5% from 1990 levels and moving towards a 20% reduction in
carbon dioxide emissions by 2010". This and the
Department's other Public Service Agreement targets will be reviewed
in the context of the next Spending Review.
51. The Energy White Paper recognises explicitly
that environmental objectives are a key pillar of energy policy.
The acceptance of the RCEP's recommendation for 2050 creates
a central, long-term aim to which the energy system must contribute.
But the Government believes it is right, consistent with approaches
to sustainable development more generally, to keep under close
review the essential trade-offs between the economic, environmental,
security of supply and social goals of energy policy as decisions
are made. It would not be right necessarily, for example, to
place a higher importance on the environmental objectives than
on the economic or social objectives, as suggested by the Committee,
in all circumstances. The balance of these tradeoffs will change
over time and in different circumstances. The important thing
is that there is a clear set of objectives to be achieved over
time, and a clear strategy to achieve them, to provide a backdrop
against which the necessary tradeoffs can be made. That is what
the White Paper provides.
Recommendation 23. We highlighted last year
our conviction that a transition to an environmentally benign
energy system could not be achieved on the basis of unsustainably
'cheap' energy, as the Prime Minister's foreword to the PIU report
indicated was a priority. The Government's approach remains inconsistent,
and the price of energy is likely to rise. (Paragraph 80)
52. The White Paper acknowledges that prices are
likely to rise as a result of measures to reduce carbon emissions
and internalise environmental costs. Measures already introduced,
such as the Renewables Obligation, will have associated price
impacts, for which estimates have been made. Over the period
to 2020, the policy measures proposed in the White Paper—on
emissions trading, renewables and energy efficiency—might
add around 5-15% to household electricity prices, less than 5%
to household gas prices, 10-25% to industrial electricity prices
and 15-30% to industrial gas prices.
53. It is important to put these potential rises
in context. Electricity prices have fallen significantly in real
terms over the last 20 years to their current historically low
level. Even under a high case scenario the price of electricity
to domestic consumers should remain below that for the 20 year
period up to 1995. For industrial consumers, prices might return
to the levels of the early 1990s but remain below those for the
whole of the 1970s and 1980s. For domestic consumers a high case
scenario could see prices rising to their levels of the late 1990s,
although this would still be below the level during nearly all
the 1970s and 1980s. Industrial gas prices have already increased
from a historically low level in the mid 1990s. The high case
scenario is that they might return to the level of the late 1980s.
54. Such price increases would not necessarily translate
into similar increases in energy costs. A part of the price impact
reflects energy efficiency measures which should lead to reductions
in energy use. The impact of the measures to promote energy efficiency
proposed in the White Paper should mean that, for many households
and users, energy bills fall as the amount of energy consumed
is reduced.
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