Memorandum submitted by Scottish and Southern
Energy
1. INTRODUCTION
We welcome this opportunity to comment on the
Government's Climate Change Programme.
SSE is involved in the generation, transmission,
distribution and supply of electricity and in the storage, distribution
and supply of gas.
It is the second largest generator of electricity
in the UK and the largest generator of electricity from both non-nuclear
and renewable sources. In addition, SSE has interests and investments
in initiatives to generate electricity from biomass, `micro' wind
turbines, deep-water offshore wind turbines, tidal power and solar
photovoltaics.
SSE is also the third largest supplier of electricity
and gas in the UK, providing energy to over six million customers
in England, Scotland and Wales.
We are therefore intimately involved in many
activities relevant to the Climate Change Programme.
2. BACKGROUND
ASSESSMENT
2.1 Targets
We wholeheartedly support the often-restated
message from the Government, and the Prime Minister in particular,
that Climate Change is the single most important long-term threat
facing the UK and the World, but we see little evidence in practice
that this issue is given the equivalent and necessary priority.
This difference between the rhetoric and action
was ironically typified by the long delay in the publication of
the Climate Change Programme Review. For an important piece of
work in such a key area to appear almost a year late does not
convey the necessary feeling of urgency. Looking at the lengthy
document, it is not hard to understand why there was no rush to
report on progressthe underlying messages it conveys are
often disappointing.
A key outcome should have been a positive report
on progress against one of the few measurable targets that have
been setin particular, reduction in carbon-dioxide emissions.
Against the target of a reduction by 2010 of 20% compared to 1990
levels, the Review now talks of reaching only a 15-18% reduction.
This would be disappointing enough but, two days after publication
of the report, the actual figures for CO2 emissions
for 2005 were published and these showed that we are actually
only about 5% below 1990 levels. This also confirmed the upward
trend over the last three years in which we have seen average
annual increases of nearly 1%. This means that even to reach the
lower end of the CCPR projections, the upward trend must be reversed
and savings, double those achieved over the last 15 years, realised
during the next five years, ie in a third of the time. In our
estimation, no combination of the measures described in the CCPR
is capable of even approaching this six-fold improvement in performance.
We believe that the failure to make adequate
progress results, certainly in part, from the vague formulation
of targets in the Programme. Without restructuring and reformulating
the targets, we will continue to fly blind with no early feedback
on performance. Identifying successes, so that they can be built
upon, or failures so that they can be corrected, will be impossible
or come much too late.
The Review describes component measures relative
to the trend described in the original Programme. The Programme
itself described these measures relative to projections of what
would have happened without the Programme. The outcomes can therefore
never be checked individually unless they are made absolute in
their own right and given a clear baseline value.
2.2 Government's Role
In order to make progress on fighting climate
change it is essential that a concerted effort is made by all
and, in particular, by Government. It is therefore disappointing
that many of the individual government initiatives appear in isolation.
For example, energy policy should form a key component of the
climate change agenda, yet quite separately from the CCPR, there
have been a multiplicity of separate publications of other documents
and consultations including the Energy Review, the Stern Review,
the Energy Efficiency Innovation Review, various microgeneration
initiatives, Energy Services Summit . . .
The plethora of Government papers and consultations
is in stark contrast to the lack of appetite for introducing appropriate
legislation. The only recent example to progress through Parliamentthe
Climate Change and Sustainable Energy Billwas a private
member's bill.
There is little clear evidence of an integrated
approach to Climate Changeoften the opposite. With so many
departments involved with climate changeDefra, DTI, DfT,
DCLG, Treasury, No 10, to name but a fewthere is a danger
of inefficiency as well as contrasting and conflicting views.
We note the Prime Minister's challenge to Defra to explore setting
up a new Office for Climate Change with interest.
2.3 Wider Initiatives
While in some areas, like the electricity sector,
there seems to be an overwhelming number of initiatives, in others
that are equally important for climate changelike heat
and transportthere is, at best, only evidence of tinkering
at the edges. It is understandable that progress is sought first
in sectors like electricity where it appears easiest to achieve
and manage progress, however it must be recognised that this sector
is only responsible for about one quarter of the UK's CO2
emissions and so it is essential that progress is planned and
achieved in other areas where it may not be so easy and will almost
inevitably be more challenging politically.
3. SUGGESTED
MEASURES
3.1 Electricty Sector
Under current policies electricity consumption
is continuing to rise at between 1.25 and 1.5% per annum. In the
latest statistics for 2005 the increase was +1.4%. This is broken
down into sectors showing that despite a reduction of -2.9% for
heavy users, there is an increase of +5.9% for commercial users
and +1.5% for domestic users. This demand growth combined with
the pending closure of significant capacity from the existing
generation fleet will require that 20 to 40 GW of new generation
capacity be built by 2020. This means that there is actually a
unique and ideal opportunity to influence, through appropriate
policy and regulation, whether and how investment is made in a
way that is beneficial for climate change.
Policy must be addressed for both the demand
and supply side. For instance, managing future demand through
measures that are not only targeted at making energy use more
efficient but at actually leading to an absolute reductiona
target of achieving zero growth would avoid the need to double
generation capacity by 2050our current trajectory.
3.2 Demand Side Measures
Current measures, for example in the Energy
Efficiency Commitment (EEC) count input measures, eg the number
of A-rated fridges installed. This will only lead to a reduction
in overall consumption if the old fridge is removed and the new
fridge is no bigger than the old onethis is often not the
case so no saving results. It is also worth noting that although
the target for annual carbon emission savings from domestic energy
efficiency is about 10 MtC, one of the main policy planks, the
EEC programme, was only designed to deliver 0.6 MtC in its second
phase, assuming all input measures actually deliver. Although
this is now being increased to 1.1 MtC in the third phase, against
even the modest target, let alone the overall annual emissions
of some 153 MtC (2005) this will hardly make the necessary impact.
To make a meaningful contribution, future demand
side measures must be of a different order of magnitude and targeted
directly at the desired outputenergy and carbon emission
reduction. They should also encourage innovation and commercial
sustainability whereby it is essential to recognise that success
in many areas will only come through behavioural change in consumers.
To help illustrate this the table below shows a comparison of
the number of measures that must be taken either on the supply
or demand side to make a contribution of 10 TWh (terawatt hours
or one thousand million kilowatt hours) of electricity or a saving
of 1 MtC (million tons of carbon) compared to the gas CCGT benchmark.
| Target (TWh)
| No. of Units |
CCGT | 10 | 1-2
|
Wind | 10 | 1,100
|
Heat Pump | 10 | 800,000
|
Micro-wind or PV | 10 | 5,000,000
|
Micro CHP (elec) | 10 | 5,000,000
|
A+ Fridge | 10 | 40,000,000
|
CFL Bulb | 10 | 400,000,000
|
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This makes clear that in contrast to the supply side measures
where relatively few people have to take relatively few measures
to contribute, the number of people on the demand side who have
to be influenced to take single or multiple measures is extremely
large. The motivation is not always entirely financialfor
instance, despite an overwhelming business case for the benefits
of insulation products and low energy light bulbs, many people
still passively or even actively resist. In contrast, the apparently
questionable cost benefit analysis does not stop many from paying
£2-300 annually for a child's mobile phone or a broadband
internet connection. Indeed these latter examples illustrate the
order of magnitude of investment in infrastructure and market
development that are likely to be required to achieve the market
disruption necessary to move to a low energy, low carbon economy.
The current lack of progress is not helped by a misplaced
and unhelpful belief that widespread adoption of energy saving
measures will happen automatically and at zero or even negative
cost. While this urban myth persists, particularly in government
and government agencies, it will hinder development.
In our response to the Energy Review we have outlined a number
of measures that we believe can make a contribution to the combined
goals of secure and affordable energy with low or zero emissions.
These include microgeneration and smart metering which we believe
can make much more than a direct contributions by helping to raise
awareness and change behaviour in energy consumption.
In our joint industry submission through the UKBCSE to the
Energy Review we have also suggested exploring the options for
the trial of a market-based demand reduction mechanism in the
commercial and public sectors. This might be a cap and trade system,
building on the work by the Carbon Trust for the Energy Efficiency
Innovation Review, but focused upstream on the suppliers. As a
minimum, the Government should trial a closed `cap and trade'
scheme within the public sector, similar to the internal BP scheme.
This would have the additional advantage of reducing public expenditure
on energy.
3.3 Supply Side Measures
Supply side measures will also be required and it is essential
that Government gives industry the clarity needed to make the
right investment decisions. The diagram below illustrates the
point:
Traditionally this diagram would have been a much simpler,
uni-dimensional supply and demand scenario. With the advent of
climate change factors the picture has become much more complicated.
For the last five or six years we have been stuck in the bottom
left-hand quadrant of this model and there has been no significant
investment in generation, other than in subsidised renewables.
Despite increasingly strong indicators about the extent and timing
of the generation gap that would traditionally have signalled
that industry should invest, there is still not enough clarity
in carbon policy to allow the necessary decisions about the type
of investment to be made. The increasing urgency of the situation
is further underlined by the fact that there is only about 5 GW
of easily achievable generation projects in the system, albeit
for traditional fossil fuel schemes. The lengthy delivery timescales
for new capacity and the supporting infrastructure, particularly
in today's difficult climate for gaining planning consent for
any type of energy investment, mean that decisions have to be
made now.
It is important to stress that industry is not seeking certainty
about normal market factors. However it is essential that the
non-market risks created by national and international policy
and regulation become clearer and more manageable than they are
currently. In particular, it is vital that government(s) make(s)
clear that there will be a carbon market going forward (post 2012)
and that this will be sufficient to underpin a reasonable price
of carbon. The diagram above shows the clear interaction there
now is between classical energy policy and climate change policy.
This must be reflected by fully integrating the approach to both.
As long as the climate change element is only supported by rhetoric
this only serves to underline the lack of confidence in its delivery
and therefore in the carbon market. The recent collapse in the
carbon price is a timely reminder of this malaise.
3.4 Other Sectors
Also in our response to the Energy Review we have made suggestions
for the introduction of a Renewable Heat Obligation modelled on
the Renewables Obligation. Adopting the RO model reflects the
fact that it provides a significantly greater (and much more effective)
incentive to develop electricity generation from renewable sources
than the Climate Change Levy. The percentage at which the Obligation
should be set initially would have to be the subject of detailed
consultation with all stakeholders but would almost certainly
be at a relatively low levelbut one which is sufficient
to encourage suppliers of heat to seek out the least cost options
available to them and to help develop a more mature fuel supply
chain.
On transport, the Renewable Transport Fuel Obligation itself
is a positive step forward, as is the European Commission's proposal
to include aviation in the EU ETS. However, the recently announced
restructuring of Vehicle Excise Duty stops a long way short of
what is likely to be required to change behaviours and purchasing
decisions to the degree necessary to address climate change. This
example mirrors the experience the Government has had with the
fuel duty multiplier and highlights the political difficulties
associated with policy directed at the consumer. However, unless
the Government itself shows the necessary commitment through action,
it cannot hope to win the battle for the hearts and minds of the
public.
4. CONCLUSIONS
The climate change challenges, like the wider field of sustainable
development, can only be dealt with by achieving a suitable balance
between the often competing economic, environmental and social
drivers. It is only by managing all three together in an integrated
manner that the appropriate equilibrium can be struck. Otherwise,
all that will be achieved is a treatment of the individual symptoms
which, in isolation, may well exacerbate problems in the other
areas.
It is therefore no coincidence that many of the issues addressed
by us in this response also form part of our response to the energy
reviewenergy is inextricably linked to climate change.
As we have illustrated, many of our decisions are dependant on
government policies across the board. These policies are only
likely to be effective if they are formulated, implemented and
monitored in a joined up manner. Climate change, if it is indeed
to be the government's top priority, must be, and be seen to be,
at the heart of its policies and institutions.
May 2006
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