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Energy Review
3.55 pm
The Secretary of State for Trade and Industry (Mr. Alistair Darling): With your permission, Mr. Speaker, I would like to make a statement on the energy review which was announced by the Prime Minister last November. Today I am publishing a report setting out the conclusions of that review. Copies will available in the Vote Office in the usual way. The report is extensive, and of necessity my statement has to cover proposals in some detail.
We face two major long-term challenges—first, along with other countries, to tackle climate change and the need to cut damaging carbon emissions, and secondly, to deliver secure supplies of cleaner energy at affordable prices. Increasingly, we will come to depend upon imported gas and oil as our own plentiful but harder to exploit North sea oil reserves decline. The proposals that I am announcing set out our approach to meeting our energy needs over the next 30 to 40 years. Many of the proposals contained in the report will need further consultation. Thereafter, the Government intend to publish a White Paper around the turn of the year.
The starting point for reducing carbon emissions must be to save energy. If we are to meet our goals of a 60 per cent. reduction in carbon dioxide emissions by 2050, we need not just to reduce carbon intensity through low energy sources such as renewables, but also to save energy. We therefore make a number of proposals to encourage greater energy efficiency.
For consumers, we need better information about the amount of energy used, smart metering, real-time energy use displays, better and clearer energy bills, and more information for new buyers and tenants on energy efficiency in homes. It is estimated that leaving electric appliances on standby uses about 7 per cent. of all electricity generated in the UK, so we will work with industry and others to improve the efficiency of domestic appliances and to phase out inefficient goods, thus limiting the amount of standby energy wasted.
We also propose a range of measures to take us towards a long-term goal of carbon-neutral developments. New homes can use around a quarter of the energy to heat, compared with the average home. We aim to make the Government estate carbon- neutral by 2012. We will also provide strong support for the use of on-site electricity generation, such as solar panels. Energy efficiency will help people on low incomes especially. The review sets out our approach.
If we are to make a real difference to reducing energy demand, we need a radically different approach. We need a stronger obligation on energy companies to provide energy saving measures and a radical plan to change the way in which they sell their services. Yes, we will encourage Britain’s 27 million homes to become more energy efficient, but it is also essential that we incentivise Britain’s big six energy suppliers to work with homeowners to make their houses more energy efficient. Today, companies have the incentive to sell as much as they can. Instead, we need to give energy producers incentives to make homes more energy efficient and to sell them more insulation products. We are consulting on the most effective way of doing that.
The European Union emissions trading scheme, which covers 11,000 high intensity users of energy, and the climate change levy are key to encourage businesses such as power stations or steelworks to save energy and to cut emissions, but there are in addition around 5,000 large businesses and public services in the UK that are not covered by the scheme. We want to reduce energy inefficiency for those companies too. One supermarket chain in the UK alone is one of the biggest single users of energy in the country. Those businesses should be incentivised to reduce their emissions, so we shall consult on a proposal for an emissions trading scheme for them, along with other options to cut the amount of carbon produced—something they support. That makes economic and environmental sense.
Saving energy in businesses and homes is essential, but so too is the need to cut emissions from road transport. Fuel efficiency in transport continues to improve. We will encourage the use of lower carbon fuels, especially biofuels, and there will be more cost-effective opportunities to save carbon as new technologies are developed. Company car tax and vehicle excise duty have been reformed to encourage energy efficiency, and we will continue to press the European Union to consider the inclusion of surface transport in the emissions trading scheme as well as aviation.
Last November, we announced the renewable transport fuel obligation—5 per cent. of all fuels to be from renewable sources by 2010. Today, we propose that that obligation, after consultation, should be extended after 2010, provided that some important conditions are met. That could provide a further carbon reduction of 2 million tonnes, which is equivalent to taking another million cars off the road, once it is fully implemented.
Providing the right incentives to reduce energy is critical, but we also need to do more to make the energy that we use cleaner. We have a number of proposals. Most of our electricity is generated in large power stations, and around three quarters of our heat comes from gas fed through a national network, which delivers economies of scale, safety and—crucially—reliability. However, the Government believe that we can do more to encourage the generation of electricity on a smaller scale near to where it is used. Today, less than 0.5 per cent. of our electricity comes from microgeneration, while combined heat and power provides about 7 per cent. We need to do more.
There are technical and other obstacles to overcome, but we want to remove barriers to the development of what is known as distributed generation. We can do more to make microgeneration more attractive and to make it easier to set up combined heat and power schemes. The Government believe that this is a major opportunity for the United Kingdom to invest in renewable energy and other low carbon technologies. The environmental transformation fund, which was announced recently, will provide investment for energy funding services. Details of the scale and scope of that fund will be announced in the spending review in 2008. We will also encourage low carbon alternatives such as biomass, solar and heat pumps.
Over the next
two decades, it is likely that we will need substantial new electricity
generation capacity as power stations, principally coal and nuclear
plants, reach the end of their lives—their output is equivalent
to about a third of today’s generating capacity. Power stations
are long-term investments, and we need to implement the right framework
to incentivise investment decisions to limit carbon emissions. We
remain committed to carbon pricing in the UK through the operation of
the emissions trading scheme, and it is essential that there is a
carbon price to encourage us to use less of it. Today, around 90 per
cent. of the UK’s energy needs are met by fossil fuels, so we
need to do more to encourage the renewable generation of
electricity.
The renewable obligation is key to support the expansion of renewables. It has resulted in major developments, particularly in onshore wind power generation, landfill gas and the use of biomass in coal stations. Far from getting rid of the renewables obligation, as some have proposed, we intend to increase it from 15 to 20 per cent. We also want to give a boost to offshore wind energy generation and other emerging technologies—for example, tidal—to encourage growth. We will consult on banding the obligations to encourage those developments.
The Government also see a continuing role for both gas and coal-fired generation. We will convene a coal forum to bring together UK coal producers and suppliers to help them find solutions to some of the long-term problems of UK coal-fired power generation and UK coal production. Coal-fired generation continues to meet around one third of electricity demand, and last winter it met as much as half, which shows the important role that coal can play in UK energy security.
If coal-fired generation is to have a long-term future, however, we need to tackle its heavy carbon emissions. Carbon capture and storage could cut emissions by 80 to 90 per cent., and we have some natural and commercial advantages such as a strong oil industry and old oil fields where CO2 can be stored. The next step is a commercial demonstration, if the technology proves to be cost-effective. We are working with the Norwegian Government and the industry on development, and a further announcement will be made in the pre-Budget report. Carbon capture could lead to our saving several million tonnes of carbon by 2020.
The Government believe that a mix of energy supply remains essential and that we should not be over-dependent on one source, which is especially true if we are to maintain security of supply in the future. We will continue to do everything that we can to promote more open and competitive markets, which is why we are backing the Commission in securing the effective implementation of the energy market. We will also take steps to secure gas supplies, maximising the exploitation of oil and gas from the UK continental shelf. Last month, we saw a record number of applications for further development in the North sea. We also need to facilitate the construction of sufficient storage and import infrastructure.
Against
a background where Britain’s nuclear power stations are ageing,
decisions will have to be taken on their replacement in the next few
years. If we do nothing, the proportion of electricity generated by
nuclear could fall from just under 20 per cent. today to just 6 per
cent. in 15 years’ time. Moreover, nuclear has
provided much of the electricity base load, contributing to consistency
of supply as well as security of supply. While some of that capacity
can and should be replaced by renewables, it is more likely than not
that some of it will be replaced by gas, which would increasingly have
to be imported. The Government have concluded that new nuclear power
stations could make a significant contribution to meeting our energy
policy goals. It will be for the private sector to initiate, fund,
construct and operate new nuclear plants and cover the cost of
decommissioning and their full share of long-term waste management
costs.
The review makes a number of proposals to address barriers to new build, and the Health and Safety Executive is developing guidance for providers of new stations. For nuclear new build, considerations of safety and security will be paramount, as they are now. We are setting out a proposed framework for the way in which the relevant issues on nuclear should be handled in the planning process, and we will consult on that before the publication of the White Paper. The Committee on Radioactive Waste Management—CoRWM—published its interim recommendations in April, confirming its preference for geological disposal of nuclear waste. The committee is to be congratulated on the open and transparent way in which it has conducted its work and the broad consensus that it has developed for securing the future long-term management of the UK’s nuclear waste. It will publish its final report this month, and the Government will respond thereafter.
If we are to see any of these developments, whether they be renewables or conventional power stations, we believe that we need to change the planning laws in this country. We will work with the devolved Administrations to ensure that we have an effective planning regime. We can make some changes now—for example, bringing together the planning process and consents on the Electricity Act 1989—but the Government believe that the current planning regime needs fundamental reform, and we will consult on proposals to do that later this year.
The proposals that I have set out will result in a reduction of between 19 million and 25 million tonnes of carbon by 2020, over and above the measures already announced in the climate change review programme. We are on course to achieve real progress in cutting emissions by 2020 and on the right path to attaining our goal of cutting the UK’s carbon emissions by 60 per cent. by about 2050. The proposals will help us to meet our twin objectives of tackling climate change and providing security of supply. The scale of the challenge is great. The proposals show how we can overcome them to secure our prosperity and the health of our planet. I commend the statement to the House.
Mr. Alan Duncan (Rutland and Melton) (Con): First, I thank the Secretary of State for his courtesy in giving us advance sight of his statement.
This review has been much heralded, but sadly we find today that it amounts to almost nothing. After six months’ work, 2,000 submissions, and hundreds of thousands of civil service hours, the conclusion is that nuclear power
“could make a significant contribution”
to meeting our energy supply goals. This statement is not carbon-free but content-free. We have been told for months that urgent decisions must be made now. We have been told that delaying those decisions would risk the lights going out and that this is the most fundamental review of our energy needs ever undertaken—and then all we get today is this statement.
The statement proposes six new consultations—[ Interruption.]
Mr. Speaker: Order. Let the hon. Gentleman speak.
Mr. Duncan: The statement proposes six new consultations and the convening of a new forum, and says that there is much to consider, yet there are no real policies, no real action, no real decisions, and no real energy review at all. There is nothing here. Everybody believed that the Prime Minister had made a decision to build new nuclear power stations and that this review followed to provide the air cover for that decision. Instead, the Secretary of State announced at the end of his statement that the Government believe that
“new nuclear power stations could make a significant contribution”.
Did the Prime Minister realise that he was so out on a limb that his views are not shared even in his own Cabinet, and that the Secretary of State for Wales agrees with us rather than with his Prime Minister?
Last week, we set out our findings. We said that the key aims are reducing carbon emissions and securing supplies—exactly what the Secretary of State echoed on the radio this morning.
We proposed a tougher carbon regime to tackle emissions; a capacity payment scheme to build security; a long-term framework to encourage investment, and a change in market structures to encourage decentralised energy and efficiency measures. Those combined proposals will spark a green revolution and guarantee reductions in carbon emissions. Almost everybody, even Stephen Hale, who used to be special adviser at the Department for Environment, Food and Rural Affairs, welcomed our proposals.
The subject is very important. Does not the Secretary of State believe, like us, that political consensus is essential if we are to build the climate for investment in the energy sector that is badly needed? Even the Liberal Democrats announced today that they were not against nuclear power in principle.
Where there is agreement, we welcome it. The Government attacked our position on nuclear power, but now they seem to have changed their stance. They attacked us for saying that the renewables obligation was not working, but now they agree with us and say that they will consider—only “consider”—reforming it. They claim that they want to streamline the planning system—we agree. They say that there should be no subsidies for nuclear—we also agree. If they say that the costs must be transparent and a solution for waste must be found, we agree with that, too.
The Government say that they want to promote energy efficiency—we agree. They say that they approve of the EU emissions trading scheme—we do, too. Indeed, we went further because we made proposals for extending carbon trading. However, where is Government action? Perhaps we will have to conduct another energy review.
We do not agree that Nirex and the Nuclear Decommissioning Authority should be joined up. Independent bodies are better placed to ensure that safety remains paramount in the nuclear industry. Will the Secretary of State therefore confirm that those bodies will remain separate?
What are the proposals in the statement for increased gas storage? Where are the exact proposals for supporting decentralised energy? When will genuine action be taken to amend Ofgem’s remit? We have to wait until paragraph 55 out of 60 to reach the words,
“There are some changes we can make now”.
Even that means simply a further period of consultation on the planning process. The review is vague even about the future of nuclear power.
Far from being back on the agenda with a vengeance, as the Prime Minister told us, the Secretary of State now says that nuclear power
“could make a significant contribution to meeting our energy policy goals.”
Is not it the truth that the Prime Minister’s rhetoric is only rhetoric? That applies to the announcement of the Franco-British nuclear forum last month. In response to my questions, the Secretary of State was unable to say what it would do, who would pay for it, what its remit would be or even if it exists after all.
The Prime Minister says that he wants new nuclear power stations. However, the review does not tell us how he will make that happen. What exactly will the Government’s role be in ensuring that new nuclear power stations are built? Is it their intention, as reported today, to take existing nuclear sites away from British Energy and place them under Government control? To what extent will there be Government interference to get new nuclear power stations built? What deals have the Prime Minister or the Secretary of State done, about which they have not told us? How many power stations does the Prime Minister expect? Does the Department of Trade and Industry have a target—six, 12, any more bids? Will a number be set? Does the statement contain anything to match the Prime Minister’s macho, pro-nuclear rhetoric?
We need to spark a revolution in energy and we need green security. After nine years, six Secretaries of States, three energy reviews and God knows how many Ministers for Energy, carbon emissions continue to rise. The review could have done so much more. Three years ago, we were promised final decisions. Today, we have not got them. The review appears to have done almost nothing. It is a grave and perilous let-down.
Mr. Darling: Let me start with the hon. Gentleman’s first point—the desirability of political consensus. It would be highly desirable, given the long-term nature of the planning required for energy, for such a consensus to exist.
Mr. Duncan: Get on with it.
Mr. Darling: The hon. Gentleman says, “Get on with it”, but I suggest that he start in his own backyard. In January, he said in the Chamber:
“I have... an instinctive hostility to nuclear power.”—[ Official Report, 17 January 2006; Vol. 441, c.779.]
Only two or three months later, the shadow Chancellor said:
“I am happy to see nuclear power.”
Then, last week, the Leader of the Opposition gave the impression that he was for nuclear power, but maybe not yet. Once the Conservatives manage to get a consensus on what their policy is, I will happily talk to them about what we might do in the future.
The Government believe that nuclear power could provide— [ Interruption.] Yes, I use the word advisedly. It is for the generators to come forward with proposals, whether they are for nuclear, renewable, oil or gas. The Government believe that some of the barriers that make it difficult for such developments to proceed ought to be removed. Yes, there needs to be consultation in some cases. Apart from anything else, if we are to provide a clear statement of need for planning inspectors, there will need to be a White Paper, and that will require some consultation before we produce it. However, we have a very clear sense of direction. We need a mix of energy supplies. We are quite clear about that. That mix has served this country well over the past few decades, and it will continue to do so.
The hon. Gentleman seems to have some difficulty with renewables. In the policy announcement that the Conservatives made last week, they made it clear that, under the Tories, the renewables obligation would go. The Leader of the Opposition made a classic statement on this, saying:
“There must be a level playing field for renewable and decentralised energy to compete on equal terms with nuclear power.”
Is he saying that nuclear should be subject to the renewables obligation, or that nothing should be subject to it? If there were no renewables obligation, even the renewable development that we have seen so far would simply disappear, because it needs that incentive. Anyone who is contemplating a future with more renewable energy, not only onshore but offshore, as we are, should be in no doubt that there would be no renewables obligation under the Tories. They would throw that whole industry into uncertainty. All their green talk is completely undermined by their actual policy.
We have set out a clear sense of direction, and a framework that will allow development to take place. As I said, nearly a third of our generating capacity will need to be replaced over the next 20 to 30 years. There is now a clear sense of direction to allow industry to plan, and there are measures to ensure that we reduce our demand for energy and become more energy efficient. It is no wonder that the hon. Gentleman is so embarrassed.
Mr. Edward Davey (Kingston and Surbiton) (LD): I thank the Secretary of State for his statement and for making an early copy available to me. Three years ago, the Government had an energy review, which the Prime Minister described as a “milestone in energy policy”. The then Secretary of State said that her White Paper established an energy policy “for the long term”. What went wrong? Will the Secretary of State tell us, for example, why the Government are not on track to meet either their renewable energy targets or their energy efficiency targets, which were set only three years ago, and why carbon dioxide emissions are increasing, not falling?
On energy efficiency and conservation, I welcome much of what the Government are now promising, but is it not possible to go further and faster on energy efficiency? Why, for example, after this review, will our building regulations still be weaker than those in Scandinavia? The Secretary of State has said some very sensible things on renewables, but he must be aware of the range of major renewable energy projects such as harnessing tidal power from a lagoon-based Severn barrage, the proposed 10 GW North sea wind farm, and the massive potential for marine energy in the Pentland firth. What sort of leadership and encouragement will his policy give to the market for such ideas? Is not there a huge danger that, by going nuclear as well, the Government will undermine and crowd out investment in energy efficiency and renewables?
The right hon. Gentleman’s predecessor told the House in 2003:
“It would have been foolish to announce...a new generation of nuclear power stations because that would have guaranteed that we would not make the necessary investment and effort in both energy efficiency and in renewables.”—[ Official Report, 24 February 2003; Vol. 400, c. 32.]
What has changed? Is not there also a danger that nuclear energy could crowd out investment in clean-coal technology and carbon capture and storage? Surely we should instead be finding new ways of bringing forward major investment in those technologies, as they have the potential to deliver faster than nuclear. The Secretary of State talks about security of supply, but will he confirm that, under his plans, it will not be possible to build any nuclear power station within the next 10 years? Will he also confirm that the difference between a nuclear and a non-nuclear strategy in terms of gas supplies is actually not very large?
The Secretary of State has laid out an attractive future for decentralised energy generation. Does he not accept, however, that nuclear power would tie us into a centralised grid infrastructure that would minimise the potential for microgeneration and local combined heat and power? He said in recent interviews that he is a late convert to nuclear. He said today that, under his plans, nuclear power will get no subsidies or financial favours. Will he now answer the question that he failed to answer at last week’s Trade and Industry questions, when he could not name a single nuclear power station in the UK or abroad that had been built on time, on budget and without public subsidy? Is he prepared to guarantee, for the entire life of the nuclear plants, that there will be no hidden subsidy, no super-long unfair price contract, no cap liabilities, no Government support for nuclear waste decommissioning, no assistance with waste disposal and no stealth nuclear tax for consumers? If business does not build nuclear plants as he proposes, what happens to his policy?
On nuclear waste, can the Secretary of State confirm that the Committee on Radioactive Waste Management’s interim report only dealt with existing old waste? It only offers a solution over several decades for past waste, which still needs yet more billions of taxpayer’s money. Will he admit that the committee’s interim report was not a green light for nuclear, especially when it talks of the need to consider
“the social, political and ethical issues of a deliberate decision to create new nuclear wastes.”
As for Nirex, surely merging it and NDA would threaten independence in waste disposal, which would be a disaster.
The Government have put forward some sensible ideas today on energy efficiency and renewables. By caving in to the nuclear industry lobby, however, they have destroyed the potential for cross-party consensus. I regret to say that that means much greater uncertainty in future energy policy.
Mr. Darling: If the Conservatives have problems with consensus within their party, so do the Liberals. I can only refer the hon. Gentleman to what his hon. Friend the Member for Twickenham (Dr. Cable), who is in his place, said:
“Dogma about new nuclear power is unhelpful, for and against”.
One would not know that to listen to the Liberal spokesman today.
In relation to renewable energy, I am grateful to the hon. Gentleman for saying that he supports renewable electricity. In particular, he refers to renewable generation in the north of Scotland. Perhaps he will have a word with those Liberal Democrat Members who say that they are in favour of renewable energy and then object to wind farms when they are planned, and object to the power lines to take electricity from wind farms to where it is needed. If the Liberals are serious about those things, they must face up to the difficult and sometimes unpopular decisions, as well as the populist decisions that he set out.
When the hon. Gentleman talked about distributed energy, he gave the distinct impression that he was against having a national grid. I am in favour of distributed energy, and I think that we could do a lot more in that regard. However, having a national grid and being able to draw on such energy sources across the country, whether gas or electricity, serves us well. Apart from that, I more than happy to work with him on achieving whatever consensus is left between us.
The hon. Gentleman made points about wave and tidal power and mentioned the Severn barrage. In relation to the renewables obligation—which I believe is essential, although I am not sure what the Liberals’ position is—I said in my statement that we want to consult on banding that in future, so that it encourages newer and emerging technology. I think that we can do an awful lot more as far as that is concerned.
It is important that, when we consider our energy requirements, we have a mix of energy. I said to the hon. Gentleman that nuclear currently provides about 20 per cent. of electricity generation. If we do not do anything, that will decrease to 6 per cent., and the risk is that gas will be a bigger percentage, which would be deeply regrettable.
I totally reject the argument that if we go for nuclear, nothing else will happen. I remind the hon. Gentleman that, under the renewables obligation, the renewables industry will get the equivalent of about £1 billion a year subsidy by 2010.
Several hon. Members rose—
Mr. Speaker: Order. We are now into Back Benchers’ time. I remind all hon. Members that they must put only one supplementary to the Secretary of State.
Mr. David Chaytor (Bury, North) (Lab): I congratulate my right hon. Friend on delivering a measured statement this afternoon. Will he clarify, however, the point in paragraph 49 of his statement that nuclear generators will be required to pay their full share of long-term waste management costs? Does that mean 100 per cent. of waste management costs, and how can we guarantee that, as we do not yet know what the waste management costs will be?
Mr. Darling: The statement does mean that they are expected to meet the full share of those costs, which I would have thought was self-evident. My hon. Friend will no doubt be aware that, following the CoRWM proposals, it will be necessary to make provision for existing waste, but the cost of any new waste generated by any new plants would have to be met by the generators.
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