Examination of Witnesses (Questions 700-719)
RT HON
ALAN JOHNSON
MP, MR PAUL
MCINTYRE,
MR RICHARD
ABEL AND
MR HENRY
DERWENT
23 NOVEMBER 2005
Q700 Mr Chaytor: Several times this morning,
you have used the words, "if the Government goes down the
nuclear route." Does that not imply a level of intervention
that is absolutely incompatible with the concept of a liberalised
energy market? Should it not be the market that is deciding the
route and not the Government?
Alan Johnson: Yes, it should,
but it goes back to our earlier exchanges. I think the fear of
the market would be that in 2003 we left that door ajar and we
did not tackle whether we felt as a government there was a benefit
in having nuclear new build, whether we were just going to let
decommissioning take place over the next 20 years, or the next
30 years if you look at Sizewell B. They felt that was something
that still needed to be addressed. In terms of how we tackle this
in the review, it is very much the market that needs to respond
here. It is very much the market. You could make an argument that,
irrespective of what happens in this review, if there is a market
there for nuclear then it should be used. But that has not happened
so far.
Q701 Mr Chaytor: But you have not used
the term "if the Government decides to go down the micro-generation
route" for example, which implies a hidden bias in your thinking.
Alan Johnson: David, for your
purpose, I will say, if the Government does decide to go down
the micro-generation route then we would obviously look for the
market to respond. I am saying nuclear route because micro-generation
is not the big controversial issue that nuclear is.
Q702 Mr Chaytor: But it could be a contribution
to the seven per cent gap,
Alan Johnson: Yes.
Q703 Mr Chaytor: And it could be cheaper
than—
Alan Johnson: Absolutely. I take
that point entirely.
Q704 Mr Chaytor: The detail has been
very slow on working up its micro-generation strategy. Will this
now be part of the review? If it is not, how can you then say
that you are trying to create a level playing field?
Mr McIntyre: On the timetable,
I think I am right in saying that the Energy Act 2004 requires
the Government to produce a micro-generation strategy in the first
part of 2006, and that is a timetable we would aim to stick to.
We have been given a direction, as it were, by Parliament on the
timetable for that.
Q705 Mr Chaytor: Could I ask one other
thing, and it goes back to the concept of security of supply.
Much is made of the dangers of our dependency on importing gas
from Russia, for example. What is the difference between importing
gas from Russia and importing uranium from Kazakhstan in the context
of security of supply?
Alan Johnson: That is a good question.
As security of supply is one of the main factors we will be looking
at, that would be something to be addressed. You are rehearsing
your arguments, David, in advance of what might come out of the
review—which is fine.
Q706 Mr Chaytor: Secretary of State,
we are trying to flush out a little more from you than you are
prepared to give us this morning, I think.
Alan Johnson: Well, I hope you
fail.
Q707 Chairman: Thank you for being so
frank. We hope that our eventual report stemming from this inquiry
will be a useful contribution to your thinking—
Alan Johnson: Absolutely.
Q708 Chairman: — as you take the
review forward.
Alan Johnson: That is exactly
what I said.
Q709 Mr Hurd: I have questions on micro-CHP.
The Micropower Council have pointed out that if only a quarter
of the central heating boilers due to be replaced over the next
15 years were replaced with micro-CHP, we would have five giga-watts
of distributed generating capacity—half the total current
generating capacity of the nuclear fleet. They are arguing that
this could make a substantial contribution. But the likely payback
period for micro-CHP is around 10 years, which is arguably too
long in the context of people moving houses so quickly. Do you
accept that far shorter payback periods are needed for such technologies?
Do they require government subsidies to kick-start that process?
Alan Johnson: I think this has
specifically been looked at in the Climate Change Programme Review
at the moment.
Mr McIntyre: Yes, and in the context
of the micro-generation strategy too.
Q710 Mr Hurd: So wait for the review.
Alan Johnson: Yes—not the
Energy Review, the Climate Change Programme Review at the end
of the year.
Q711 Mr Hurd: Fine. Jonathon Porritt
on Monday suggested that there might be less money available for
micro-generation in the future than there is now and the Renewable
Power Association has similar concerns. Is that right?
Alan Johnson: There might be less
money available in all kinds of areas in terms of whether public
finances are healthier or worse off than before, but I have not
heard a particular argument as to why we should reduce the amount
of money there. It is very important. Micro-generation and combined
heat and power as part of that has been a major point that Defra,
ODPM and other government departments have been concentrating
on in the Climate Change Review Programme. I have picked up no
signs that people think it is a waste of money. It is a very important
part of our investment programme.
Q712 Mrs Villiers: Electricity demand
is forecast to increase steadily. Do you think we should be looking
towards moving to absolute reductions in energy consumption as
a policy goal, as their Lordships recently recommended in their
report on energy efficiency?
Alan Johnson: I certainly think
we could be doing more about absolute energy usage. There is more
we could be doing on energy efficiency. There is more we could
be doing right across the range here. There is a very important
initiative that the International Energy Agency have taken which
is fairly low key. It is called "The One Watt Plan".
It makes the point about all of these things which are on remote
control and which are left switched on—the television, for
instance, but there is a whole range of other appliances—and
the amount of energy this uses. If you were to reduce that standby
power to below one watt—which is perfectly achievable—it
would save between five to ten per cent of total energy use, and,
across the world, one per cent of CO2 emissions. So there is an
awful lot we could be doing here. There are an awful lot of initiatives
that could be taken in this area. I do think it is an important
aspect.
Q713 Mrs Villiers: Could I ask why you
are not doing them already?
Alan Johnson: You can indeed,
and there will be a stunningly cogent argument coming back. It
is not just in our departments, it is split between different
parts of government—and maybe we look to Defra here.
Mr Derwent: Everything we do has
to be examined from the perspective of costs and benefits. Just
saying that it would be very simple to require all electric appliances
with a standby mode to be down at one watt level would produce
less than total enthusiasm from those manufactures at the margin
of profitability, at the edge of competitiveness with other manufacturers
who are trying to reduce their costs to the consumer down to the
absolute minimum. We have to talk to them, to try to establish
a basis for a voluntary initiative. If there is a need for regulation,
we have to go through that on the basis that means everybody understands
why we are doing it. These things, unfortunately, are not cost-less.
It is a question of making sure that, where the Government takes
action, it is clear that the benefits justify that.
Q714 Mrs Villiers: Have you considered
a ban, for example, on standby buttons, so that people have to
get up to switch their TVs off?
Alan Johnson: No, I think is the
answer.
Q715 Chairman: There is a cost to having
standby on all the time anyway, and the cost of not tackling climate
change ought to be factored into your economic analysis of the
impact on competitiveness. It just seems to me that there is so
much more you could be doing.
Alan Johnson: It is probably true
there is so much more we could be doing. But Henry raises an important
point that certainly is important to us at DTI. Businesses are
by and large with us on the need for climate change, they are
looking for certainty for tackling climate change, but they are
very concerned if we move at a pace and a rate that means they
become uncompetitive. So there is a need really, for instance,
with the one watt idea, that it is adopted throughout Europe and
that it is not too burdensome. Thinking just off the top of my
head, forcing people to stand up, walk over and turn their television
off might seem a bit too draconian.
Chairman: The Department of Health would
be keen on that I should think! There is an opportunity for joined-up
government.
Q716 Mr Hurd: It has been put to us in
various statements that the Government could do more to promote
the idea of smart metering, with the possibility of variable tariffs,
which would make consumers more focused on reducing unnecessary
consumption. Could you confirm that the Energy Review will have
something to say on that and will look at this issue?
Alan Johnson: The Energy Review
will certainly be looking at smart metering.
Q717 David Howarth: Could I come back
on the cost-benefit analysis that was being discussed by the representative
from Defra, just to confirm that climate change costs are included
in any cost-benefit analysis that is done on imposed regulation.
Is that right and, if so, how much?
Mr Derwent: Yes. It is not a straightforward
issue but for a wide variety of government decisions in this area
we make use of something called "Social Cost of Carbon"
which is an attempt to examine what actually is the benefit to
climate change policy and to the earth's atmosphere of an incremental
decision, small as it may be, in terms of the overall global impact.
If we say that we want to do something for a climate change purpose,
and we get into, as I have said we must, issues of cost and benefit,
we need to have some numbers to help us address that—though
often the numbers will peter out just at the point where we want
to take the decision and we have to bring in policy issues as
well.
Q718 David Howarth: If the numbers peter
out, does that mean that it is not in the cost-benefit analysis
and you look at climate change separately? Or it is in the numbers
as much as you can get it in?
Mr Derwent: For example, whenever
we have to do a regulatory impact analysis, something which is
intended to have possibly an impact on climate change we would
be bound to bring into the overall analysis.
Q719 David Howarth: But external to the
model rather than within the model is what you are saying. Is
it a constraint that is considered separately or is it something
that is inside the cost-benefit analysis itself?
Mr Derwent: No, I think it is
very much an important feature of the benefit side of any equation.
Chairman: I see from the screen that
you have to go and answer an urgent question on gas supply. Whoever
put that down should have come to our meeting. They would have
heard you answer here first. Thank you very much indeed, Secretary
of State, and also to your officials for your time and help with
our inquiry.
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