Select Committee on Environmental Audit Written Evidence


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 progress—the 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 set—in 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 Parliament—the Climate Change and Sustainable Energy Bill—was a private member's bill.

  There is little clear evidence of an integrated approach to Climate Change—often the opposite. With so many departments involved with climate change—Defra, DTI, DfT, DCLG, Treasury, No 10, to name but a few—there 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 change—like heat and transport—there 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 reduction—a target of achieving zero growth would avoid the need to double generation capacity by 2050—our 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 one—this 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 output—energy 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
CCGT101-2
Wind101,100
Heat Pump10800,000
Micro-wind or PV105,000,000
Micro CHP (elec)105,000,000
A+ Fridge1040,000,000
CFL Bulb10400,000,000



  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 financial—for 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 level—but 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 review—energy 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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