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The Minister for Energy and E-Commerce (Mr. Mike O'Brien): I congratulate the hon. Member for Orkney and Shetland (Mr. Carmichael) on securing this debate. During the coming new year, I hope to be able to visit the Shetland Islands and perhaps see some of the developments taking place there.

Let us imagine a world in which energy can be produced without using fossil fuels, where cars can run cleanly and quietly, emitting only a stream of water vapour, and where every country has access to clean and sustainable energy supplies—and islands, too, on a local basis. That is the long-term goal of the so-called hydrogen economy. It is not difficult to see why.

Existing sources of fossil fuels are finite, and some are in politically unstable countries and regions of the world. Moreover, fossil fuels are contributing to climate change because of the emissions of carbon dioxide that are a by-product of their use. Hydrogen can be burned to produce energy, without tailpipe CO 2 emissions and with very low or even no emissions of atmospheric pollutants such as particulates. Even better, it can be converted into electricity using a novel technology—fuel cells, with water vapour as the only by-product. Many now believe that for transport, fuel cells running on hydrogen will be the long-term replacement for the internal combustion engine.

There are, however, some major difficulties. The first major issue is hydrogen production. Hydrogen, like electricity, requires a source of energy to make it. Fortunately, hydrogen can be produced via a number of routes, thereby contributing to security of energy supply. Unfortunately, all those routes currently result in hydrogen being more expensive than the fuels that it is intended to replace—in some cases, much more expensive.

Depending on the method, there may also be significant emissions of CO 2 . Hydrogen is also difficult to store, especially on board a vehicle. A breakthrough in storage, perhaps using solid-state methods, would certainly give a major boost to the deployment of fuel cell vehicles. Storage limitations also add to the costs of distribution. Transporting large quantities of hydrogen may one day be possible through dedicated pipelines—we shall have to see. It is done on a small scale at the moment, but doing it on a large scale will require a lot of research to ensure that there is the right amount of pressure and capacity, and such investments will not be made until there is a prospect of sufficient demand to justify them.
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Fuel cells are at present the best technology for converting hydrogen to electric power. They offer high efficiencies and zero emissions at the point of use, and many believe that they are the only technology with the potential to replace the internal combustion engine in buses, trucks, lorries and cars. Fuel cells using a range of fuels also have potential applications for stationary power, including combined heat and power, and—in the long term, perhaps—for portable power in devices such as power tools. However, they are currently too expensive, particularly for transport applications, and durability needs to be improved.

For those reasons, commercialisation of exclusively fuel cell-driven vehicles is unlikely to occur on any significant scale before 2020. We can see prototypes, and even now we can see how partially hydrogen-powered vehicles can be used in our cities, as the hon. Gentleman said. None the less, we need quite a lot of scientific development to achieve the sort of breakthrough we need for real commercialisation.

The Government have had a programme to support fuel cell technology for many years. More specifically on hydrogen, the Department of Trade and Industry recently commissioned a study to develop a strategic framework for hydrogen energy activities in the UK. That was undertaken by E4tech, Element Energy and Eoin Lees Energy, and has just reported. A report of the analysis is being placed on the DTI's sustainable energy policy network website. We will consider the specific recommendations carefully, and hope to publish them, with our response, by the end of February 2005. As the hon. Gentleman can see, we are taking this matter seriously, and we are moving forward with recommendations such as those suggested.

The key energy priorities beyond 2020 are cost-competitive CO 2 reduction and improved upstream energy security. By 2030, hydrogen energy could provide cost-competitive CO 2 reductions in transport via six routes, all involving fuel cell vehicles. They also offer energy security, and the routes feature low-CO 2 energy from sources such as renewable or nuclear electricity, or fossil fuels with carbon capture and storage.

No single chain will be sufficient to meet all the UK's needs, and some chains may subsequently be ruled out, for various reasons.

Mr. Salmond: I am listening to what the Minister is saying, but bearing in mind what the hon. Member for Orkney and Shetland (Mr. Carmichael) has advocated, is it not possible that the economics of fuel cell use, particularly for transport, might be very different, and viable much earlier, in remote rural areas with ample supplies of renewable generation of power, if there were a Government strategy to help with deployment? Is it not possible that the economics in areas such as islands and rural areas might be different, and viability might be earlier, than in the broader picture?

Mr. O'Brien: What is possible and what is likely may be two different things, and it is important not to make false promises. People must know that the promises being made to them are deliverable, and the Government believe that ours are. Others may take the   view that they can make promises and not deliver them, but we do not.
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We are looking at the report that has just come out. We will examine the recommendations, but we believe that hydrogen has the potential to provide greater energy security in the longer term for the islands and various other parts of the UK that are more difficult to access. However, we have to be realistic about time scales. We must make only those commitments that we can really deliver on, rather than holding out ephemeral images that might take a very long time indeed to deliver on. We need to be very careful about making false promises.

Mr. Carmichael: I fully accept all that the Minister says about the long time scales involved, but can he give me some assurance that there will be a Government strategy aimed at driving this process forward? Does he accept that the Government have a role to play, and that their strategy could serve to lengthen, as well as to shorten, these time scales?

Mr. O'Brien: I certainly believe that an international strategy to develop this technology, as opposed to the strategy of a single Government, can shorten time scales. Indeed, as the hon. Gentleman well knows, the US Government have embarked on a significant programme and we are working with them very closely. A few weeks ago, I spoke to the then acting US Deputy Secretary of Energy, who, even during the presidential election campaign, came to London to speak at a conference because of the importance of driving through the hydrogen agenda. We both agreed that such technology needs to be developed and that we would work closely to do so. So it is important that we have not just a Government strategy but an international one, in order to drive forward this broad-based scientific knowledge. The potential for its future long-term development could be quite significant.

I believe that, as the hon. Gentleman says, the UK can play a significant role in developing the options for the   hydrogen economy. In some cases, this will be on a go-it-alone basis, but as I said, it will increasingly involve international co-operation. I am pleased that the   UK is already participating in the main international forums: the European Hydrogen and Fuel Cell Technology Platform, the International Energy Agency's Implementing Agreement, the IEA's Hydrogen Coordination Group, and the US-led International Partnership for the Hydrogen Economy. We have excellent wind and marine energy resources, which we are dedicated to exploiting for the purposes of carbon emissions reduction. We have the potential to build on this, making use of the skills of the UK oil and gas industry to develop experimental hydrogen infrastructures, which could lead to products and services for export in the long term.

Hydrogen is of course of particular relevance to remote areas of the UK with strong renewable energy resources. Areas such as the highlands and islands are already facing the challenge of exploiting these
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resources when the electricity grid's capacity to carry electricity to mainland UK markets is severely strained. The PURE project in Unst, to which the hon. Gentleman referred, uses renewable energy to produce hydrogen by electrolysis, and it shows that it is technically possible to produce all energy needs locally, without creating carbon emissions. It is possible that in a future in which hydrogen is used for transport, hydrogen pipelines might offer a different means of carrying renewable energy to markets where it is needed. In addition, hydrogen production offers developers of renewables a second, potentially high-value revenue stream.

All these issues require much more analysis and work. A small number of leading-edge developers of fuel cell stacks and components and energy and industrial gas companies are already participating in hydrogen energy projects around the world. I recently helped to launch the new headquarters of a company that has only recently entered the market. I shall not name it, but it has managed almost overnight to double its value because of the serious interest in the UK and abroad in the development of hydrogen fuel cells.

The UK Sustainable Hydrogen Energy Consortium, established under the Supergen programme, is undertaking research on solid state hydrogen storage methods and also techno-socio-economic analysis on the hydrogen economy and all the implications that it will have for our society. Those implications are indeed potentially quite significant, particularly in areas such as the hon. Gentleman's constituency. It is obvious that there are potentials that need to be explored. I can therefore assure him that the Government are alive to the issues of the hydrogen economy. We are committed to making sure that Britain and the whole of the UK plays a significant role in developing it.

May I say that the champion Department for hydrogen is the Department of Trade and Industry. The hydrogen highway is, I believe, opening up before us and I want to see the UK playing a leading role in taking forward the development of hydrogen energy. It will be a long haul. We have to be realistic about that, but the scale of the environmental and energy challenges that we face means that we cannot duck the issue. With the hydrogen highway opening up before us, we need to be ambitious about its potential, but we also need to recognise that we must be realistic on the time scales. We are starting to move down that road at an increasing rate. The rate of change will pick up and the potential is enormous, so we must realise it. I am very much in agreement with the hon. Gentleman as to the spirit of what he says, but I want to be sure that we are delivering something that we can realistically promise to deliver. We need to work through the science with care.

Finally, I offer you, Mr. Deputy Speaker, and all Members the season's greetings.

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