Memorandum submitted by EDF Energy
EDF Energy is one of the UK's largest energy
companies with activities throughout the energy chain. Our interests
include coal and gas-fired electricity generation, electricity
networks and energy supply to end users. We have over five million
electricity and gas customer accounts in the UK, including both
residential and business users.
EDF Energy welcomes the opportunity to respond
to the Environmental Audit Committee's inquiry of 21 July 2006
on the Kyoto Protocol: Beyond 2012 COP12 and COP/MOP2, Nairobi
6-17 November 2006. EDF Energy is fully committed to tackling
climate change and we share this commitment with our parent company
EDF. We support the UK Government's ambition to move progressively
to a low carbon economy and to play a leading role in the global
effort to address climate change. In our view, the scientific
evidence presented to date justifies action to mitigate climate
change by reducing greenhouse gas emissions.
1. INTERNATIONAL
AGREEMENT
EDF Energy believes that the UK Government has
shown strong leadership in global debate on climate change and
is well placed to bring together key countries at the COP12 and
COP/MOP2 negotiations. This ability and leadership has been demonstrated
at Gleneagles, where the G8 leaders signed a communique that included
a political statement and an action plan covering climate change,
clean energy and sustainable development, and by the agreement
between UK and China on near-Zero Emissions Coal with Carbon Capture
and Storage and the recent launch of the UK-China climate change
working group.
EDF Energy encourages the UK Government to continue
to show its leadership and commitment to the further development
of international climate change policies and its engagement with
other countries in the negotiations to determine an international
emissions framework.
We strongly support the need for an international
long-term policy framework that incorporates both developed and
developing countries. We believe that international commitments
covering at least the next 25-30 years are fundamental to providing
countries and industry with the clarity and political certainty
to secure the necessary capital funding to deliver the UK Government's
aspiration for mitigating climate change.
We believe that these international commitments
should be based on the ultimate objective of stabilising greenhouse
gas concentrations in the atmosphere at a level that would prevent
dangerous anthropogenic interference with the climate system.
In the development of these commitments, we
also believe that JI/CDM mechanisms must be reviewed in the context
of the international targets. They are effective in transferring
some capital to developing countries whilst reducing the net increase
in global greenhouse gas emissions. However we should recognise
that these investments are setting the carbon footprint in these
countries for future decades without any recognition of the overall
emissions levels and targets required to stabilise greenhouse
gas concentrations at sustainable levels. In that sense we need
to be careful that we are not burdening countries that are developing
these projects with a carbon footprint that is unsustainable in
the long term.
2. LIKELIHOOD
OF INTERNATIONAL
COMMITMENT
The level of risk being taken by either the
industrial investor or a national Government, in the drive to
lower greenhouse gas emissions, is largely determined by the targets
an individual country is willing to sign up to under international
agreements. We believe that Governments are uncomfortable with
the risks to which they could be exposed by unilaterally signing
up to long-term binding targets. This will in turn inform investors'
views on political risk associated with investments in low carbon
technologies. Dealing with this risk is fundamental to the success
of future international agreements on mitigating climate change.
3. UK GOVERNMENT'S
COMMITMENT
EDF Energy believes that the UK Government and
the EU must continue to show leadership in the management of climate
change. It is important that the UK Government and the EU separates
the need for international targets from its own responsibility
to respond to the challenge of climate change and move to a low
carbon economy.
The EU ETS, as presently constituted, is not
capable of sending the signals required to deliver investment
in lower carbon technologies in the UK and EU. In our response
to the Climate Change Programme Review and the Energy Review,
we stated that the EU ETS as currently structured is not capable
of underwriting the investment needed to reduce CO2
emissions in the electricity sector. The primary reason for this
is that the policy timescales of the EU ETS do not match the investment
life cycles of the sector and investors are unwilling to accept
the political and regulatory uncertainty surrounding future CO2
abatement targets. Although considerable efforts are being made
to agree long-term abatement targets across the EU (Phase III
and beyond), these are unlikely to be agreed in the near future.
This creates a void in political certainty and a significant hurdle
for early investment in low carbon technologies.
However, EDF Energy does believe that commercial
market-based instruments can be used to underpin the significant
capital investment required to lower the carbon intensity of the
electricity sector. This can be done without exposing the UK Government
to unacceptable financial risks by controlling the amount of CO2
reductions the Government commits to in this way. These instruments
can be designed to reinforce the integrity of the EU ETS in the
long term, within the framework of competitive and liberalised
energy markets, as advocated by the UK Government. We have outlined
how such a Carbon Hedge would work in practice in our response
to the Energy Review and we would be happy to provide further
details on this.
4. CONCLUSION
The nature of climate change and its importance
places a huge responsibility on companies such as ours to work
in a constructive and supportive way with Government. We strongly
support the UK Government leadership and commitment to the further
development of international climate change policies and its engagement
with other countries in the negotiations to determine international
emissions framework at COP12 and COP/MOP2.
To successfully address climate change globally,
we believe that international commitments covering the next 25-30
year incorporating both developed and developing countries are
fundamental. We also do believe that the UK Government must separate
the need for international targets from its own responsibility
to respond domestically to the challenge of climate change and
move to a low carbon economy.
Denis Linford
Director of Regulation
September 2006
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