House of COMMONS
MINUTES OF EVIDENCE
ENVIRONMENTAL AUDIT COMMITTEE
NUCLEAR, RENEWABLES AND CLIMATE CHANGE
Wednesday 19 October 2005
DR RICHARD DIXON and MR DAVID NORMAN
and DR CATHERINE MITCHELL
USE OF THE TRANSCRIPT
Taken before the Environmental Audit Committee
on Wednesday 19 October 2005
Mr Peter Ainsworth, in the Chair
Ms Celia Barlow
Mr Martin Caton
Mr David Chaytor
Mr Tobias Ellwood
Mr Nick Hurd
Dr Desmond Turner
Mrs Theresa Villiers
Memorandum submitted by WWF-UK
Examination of Witnesses
Witnesses: Dr Richard Dixon, Head of WWF-Scotland, and Mr David Norman, Head of WWF-UK Public Affairs, examined.
Q1 Chairman: Welcome. Thank you very much for coming. Thank you also for your pretty comprehensive memorandum, which has been helpful to our inquiries. This is the opening session of our inquiry into 'Keeping the Lights On' and we are delighted to have you with us at the outset. Can I just begin by commenting on your memorandum? It seems that you are pretty laid back about all of this and that if only we get on with implementing the White Paper everything will be okay. Is that a fair summary of your views?
Dr Dixon: I do not know if we are laid back, but I would say that certainly the Energy White Paper appeared to put in place all the right kinds of proposals and the modelling that we did with ILEX suggested that by delivering those and not much more than those we would get to the right kind of place in terms of emissions reduction, prices for energy and structure of the energy sector, and we would do all of that without needing to build a single new nuclear power station.
Q2 Chairman: If that is the case, why do you think there is so much talk about a new White Paper being needed next year?
Dr Dixon: I think that the nuclear industry has put a lot of money into a PR campaign which has put about the idea that we might need nuclear and has, unfortunately, convinced some quite eminent people of that. I hope when the nuclear industry is in front of you, you will ask them how much they have spent on that PR campaign in the last 18 months because that would be very interesting to know. I am afraid that certain political people have taken notice of that and decided that they will open up this issue. To us, the Energy White Paper in 2003 was seemingly the answer. It appeared to give us the answers we wanted and appeared to have discussed, considered carefully and come to a conclusion on the nuclear issue that now certainly was not the time, and never might be the time. With the Climate Change Programme being revised just at the moment, it seems strange that we have had an Energy White Paper Climate Change Programme and now we are going to reopen the Energy White Paper. It seems that we are debating energy continuously rather than making decisions and actually getting on with it.
Q3 Chairman: You do say that there are some areas of the current initiatives which need to be strengthened. Could you just very briefly highlight some of the areas where you think the Government should be taking action today?
Mr Norman: If you are looking, for example, at the energy efficiency side, we feel that there is a major area of work that was outlined in the Energy White Paper about decentralisation. About two-thirds of the energy that is generated under the current centralised system is wasted through heat in those centralised power station and transmission costs. The decentralised model, that was a major plank of the Energy White Paper, is something that we would strongly support. Immediately shifting the kind of energy production to that decentralised model has huge efficiency savings. That is one major area. Micro-combined heat and power is ready now. It costs about £500 per kilowatt capacity additional over and above the costs of condensing boilers. These are things that could be rolled out already and we just have not seen since the Energy White Paper the specific practical steps taken to put those kinds of things in place. A final policy point: the Emissions Trading Scheme - lots of people missed the point - is about energy efficiency. Putting a strong cap on the power sector in the Emissions Trading Scheme is precisely what drives those companies that are able to invest in efficiency technologies to make those kinds of investments. Again, the cap was too weak to achieve those kinds of changes in the first place.
Q4 Chairman: Do you think the White Paper was set up to fail?
Dr Dixon: I do not think it was. It contained practical proposals. There was a bit of a lack of join-up and there appears to have been a bit of a lack of commitment in following some of that through, but there are elements of it which are really very successful. In Scotland, for instance, where I work mostly, the Scottish Community and Household Renewables Initiative ran out of money after three months of the start of its financial year. It is a scheme which gives grants to communities and householders to install renewables. It is a runaway success. Despite having much more money than it did the year before, it ran out very quickly and this had to have extra money put in. There is a demand from the public. Some of these measures clearly are very sensible but there does not seem to be the follow-through. With the reopening of the nuclear debate it is certainly the case that we are going to see fewer follow-throughs while we are in this period of having another think about energy.
Q5 Emily Thornberry: I was interested in what you said to us talking about the two-thirds of energy that is wasted because of our outdated electricity system. I think there is a little bit of confusion about the footnote. You talk about a report published by Greenpeace and I just wonder if you could give us more details about that report because it was not clear from your statement. Also, whilst you are here can you tell us a bit more about it?
Dr Dixon: Yes, indeed. This report we are referring to, and obviously there is a lot of work by many people about decentralising the power system, is a good summary and contains an excellent diagram which suggests that our current model of energy generation is extremely wasteful.
Q6 Chairman: It would help future historians if you could name the report.
Dr Dixon: Yes, that is a good idea. It is called Decentralising Power: An Energy Revolution for the 21st Century. It is Greenpeace's report so I would not claim that I am doing it full justice by telling you about it. This diagram is a very useful one. It suggests that for 100 units of energy, so 100 units of energy in a pile of coal for instance, that we bring into a power station by the time it reaches someone's house there are only 22 of those energy units left as electricity because our power stations are not very efficient, we lose some energy as we transmit it over great distances in many cases, and we use it rather inefficiently in the home. These are three areas that we can improve upon. Of course, if we are looking at renewable energy we are perhaps less worried about efficiency because we are not creating climate change at the same time. That is where those statistics came from.
Mr Norman: It is not just theoretical stuff. Woking Borough Council has cut its carbon dioxide emissions by 70 per cent by precisely putting in place those kinds of practices: decentralised energy networks and energy efficiency gains.
Q7 Mr Caton: Good afternoon. If we could look at the reducing demand in your submission for a minute. You argue that a reduction in electricity demand of only 0.2 per cent a year would be sufficient, yet the National Grid Company suggest that electricity demand will continue to rise significantly over the next seven years. Do you accept that we are still a very long way from being able to achieve absolute reduction in energy demand?
Dr Dixon: Clearly we are some way from it. In the assumptions that we used in the ILEX report that we submitted to you, we looked at three scenarios. We looked at a business as usual scenario where energy grows at 1.4 per cent a year, which is pretty much what we have at the moment. We looked at a medium scenario where energy grows at only half a per cent a year, so some difference from today. That is based on the range of forecasts that the National Grid Company itself makes. That is the lowest estimate for growth that it produces. It is not our guess, it is someone else's estimate of one of the possibilities. The final situation, which you referred to which we looked at in our more extreme scenario, was a reduction of 0.2 per cent a year. That is taken from the underlying figures that go into the Energy White Paper. Again, that is not us saying that is where we would like to be, that is where the Government suggested we might be going in the Energy White Paper. Yes, we are some way from that. I think I would refer you to the debates that we have had over the last decade or so about waste. I think we are in a very parallel situation in the energy debate. In waste we have got away with a cheap and dirty solution for many years, we have realised we have got to stop that and we have got a bit better at the first thing we need to do, or the easiest thing to do, which is a bit more recycling, and we are really starting to get to grips with the fundamental, which is that we should stop producing quite so much in the first place, and reduction is where we should be going. In the energy debate we are still very much struggling with the demand side and reducing demand despite many good efforts. I think we see that very strong parallel, that we are really going through that thinking chain and we have got to that stage in the Energy White Paper of saying, "Here is the key thing, it is the amount of energy we use in the first place, not just how efficiently we use it and where it comes from, so let's start to tackle that". That is where that 0.2 comes from, it is the Government suggesting that its long-term aim is a reduction. Rather than even a reduction of the growth rate, it is an absolute reduction.
Q8 Mr Caton: Thank you. In your paper you recommend that the Energy Efficiency Commitment should be transformed into a mechanism based on absolute reductions of energy or carbon. How do you see such a system functioning, especially in relation to energy suppliers, given the commercial interest they have in selling more energy?
Mr Norman: I think it was more a point of principle in terms of the way targets should be set. At the moment the energy reduction is expressed in terms of gigawatts and that is what it is based on. Those reductions, depending on the source of energy, could achieve very different kinds of carbon emissions. I think it is a more general point. We have not done the work in terms of putting that into a specific mechanism but in terms of how targets are set it must surely be sensible for those to be based around specific carbon reductions rather than just wattages.
Dr Dixon: I agree that there is a general point about incentivising the industry and there is a mechanism in law to allow the companies to set up Energy Services Companies which has not worked because of the operation of the market. No company has felt that is an attractive option for them, mainly because any customer can change supplier at 28 days' notice, so if you are trying to build up a long-term relationship with them you are going to fail because they will just switch to someone else. The Government has done some pilot work to see if we can make this work better. That is an area where we desperately do need to make that system work. In fact, one sensible vision for the future is that every electricity supply company should only be allowed to operate as an energy supply company so that it is talking to its customers about their total energy use, not just the price of electricity and gas it is offering today.
Q9 Mr Caton: The Government still wants to maintain low domestic energy prices in order to address fuel poverty. Is there a conflict here with the need for energy prices to rise to reflect the environmental costs associated with them?
Dr Dixon: I think in general energy prices are going to rise and that sends a useful signal but there are, of course, sectors of society that need to be protected from those rises and in social terms it is the fuel poor. We need to find ways to protect the fuel poor, and there is plenty of work done on that, in ways that do not hold us back from letting everyone else see that the future is higher prices and that energy is something to be conserved and not simply something that is not thought about, as currently. We are absolutely committed to the idea that fuel poverty, as something that the Government has committed itself to, must be ended and any change of energy policy which puts up the price must not recreate the problem. We are committed to that, but that must be done by a mechanism which does not put a brake on the whole thing so that we can never have a rise in prices and never have a proper consideration of the true value of energy to the environment and to society.
Q10 Mr Caton: Have you such a mechanism or a policy instrument in mind?
Dr Dixon: In the UK we have a number of mechanisms which are being implemented as part of the Government's commitment to eradicate fuel poverty. If you have a home where there are two pensioners living they can get free central heating installed in Scotland, for instance. Scotland has the worst fuel poverty problem in the UK. There are really quite creative schemes which are improving people's homes and quality of life or giving them money, which is the simplest but less satisfactory thing to do, to help them through fuel poverty.
Mr Norman: The cost challenge must be put to those proposing different types of approach to meeting our energy challenge, must it not? The European Commission's own research makes clear that it is always cheaper in policy terms to save energy than to generate more, even with the cheapest forms of generation. That should give a really clear policy steer. From our work it is clear that renewables is the next stage up from that. Some of the kinds of technologies that are capturing public debate at the moment are those that once you account for the real costs of carbon capture and storage, and obviously nuclear generation, they take it far in excess of the peak price of electricity. I think that cost challenge must be put to the nuclear industry and others.
Q11 Mr Caton: Do you think low prices inhibit the establishment of properly functioning energy services markets?
Dr Dixon: I think they do with the proviso that the fuel poor need an absolute protection. We must honour the commitment the Government has made to eradicate fuel poverty. In both the domestic sector and industry, whenever we have seen even the hint of rising prices we have seen a success story of people taking energy use more seriously and doing something about it. The Government's own analysis suggests that the Climate Change Levy had twice the impact of its real financial value because people worried about it coming and did something about it. There was a psychological early up-take of energy efficiency measures because they were scared that the Climate Change Levy was going to hurt their business when the reality was that it probably was not going to make all that much difference. There is a clear demonstration there that a signal about the price of energy, even if it is not today, that in the future it is going to be more expensive does make a difference to people's individual or business investment decisions. Clearly for the environment that is the direction we need to move in.
Q12 Dr Turner: Listening to your earlier remarks it rather sounds as if you felt that if only the White Paper were acted upon then all would be right with the world. That hardly seems to be right given that China alone is commissioning 1,200 gigawatts of coal-fired power stations which on their own would be sufficient to push CO2 levels well into the range at which apocalyptic climate change scenarios would click in and you would not have many wild species left to protect as WWF. Yet you do not seem to pay any attention particularly to the use of carbon capture and sequestration technology. It seems to me that if this is not used on a major scale in China, India, America, and to a lesser extent ourselves, the world has no future.
Mr Norman: Our response to the Committee was very much focused on the UK's energy security needs in line with the questions that were posed. The UK has got the best renewables energy resources in Europe and if we as a nation are saying that even with the best renewables resources in Europe we are not able to solve these problems in line with the Energy White Paper's model, what is that saying to countries that we would be concerned about adopting nuclear power, for example? If we are not able to do it, how can we possibly be encouraging some Third World countries not to be taking up nuclear energy, for example? For the UK, our answer is clear on this. We believe that over the next two to three decades there is plenty that can be done with energy efficiency and renewables without relying on those technologies. You are right, in terms of a global context that is potentially a different story and we are at the stage of looking at carbon capture and storage, how it relates in economic terms and environmental terms. It is a new technology, something that is much less mature than the existing energy efficiency in renewables technology that we already have available to us now to address the UK's energy security needs in line with our carbon emissions targets.
Q13 Dr Turner: For a start, the UK only accounts for three per cent of the world's CO2 emissions and there is a limit to what China can do with renewables because it is not in the same fortunate position with raw resource that the British Isles are. Do you not feel that we have to promote the earliest and most active use of carbon capture and storage, assuming it to be practical, which still has not been proven on a massive scale, otherwise all our other efforts will be set completely at nought?
Mr Norman: We would certainly support having the work done to see whether this is practical in that context. Yes, China has extraordinary resources of coal that it is going to be using, so the logic is to look towards a kind of technological solution that can deal with it. At the same time, even within the Chinese context there is enormous value in looking at the decentralised model. Remember, carbon capture and storage still applies generally to large power plants, long transmission systems which are themselves potentially in some parts of remote rural China quite inappropriate. Compare that with the value for poor communities of a decentralised model in which they can earn livelihoods as well as generate power for their economic development at a localised level and solving climate change at the same time. We accept that there is a need to look at the practical principles behind carbon capture and storage but we do not see it as a technology that is ready yet. Climate change is an immediate challenge. There are quite a lot of scientists saying, "We have got to get this right over the next ten years", and nuclear and carbon capture and storage are not going to do that for us.
Q14 Dr Turner: The fact is they are building these darn things at the rate of about one a week already. Carbon capture has to be pursued otherwise we have no chance. I quite agree that nuclear is on too long a timescale to be useful, but you do make a point in your memorandum of referring to the actual CO2 emissions as a result of the construction and operation of nuclear plant. You gave a very wide range of figures. I take it these are the grams of carbon emitted for ongoing generation throughout the plant life, yes?
Mr Norman: Over the life of the plant, that is correct.
Q15 Dr Turner: Where do you get such a wide range of figures from? Can you just put them into context by comparing them with the grams of CO2 emitted per kilowatt hour from, let us say, a combined cycle gas turbine?
Mr Norman: We used other organisations' research on this because we have not got the capacity to do our own. That reflects deliberately the diversity of opinions out there if you look at a range of different research institutes out there. Typical was the Oko Institute in Germany, which is well respected, that is looking at something like 30 to 60 grams of CO2 per kilowatt hour of generation. The problem is that there are a variety of different sources and, depending on whether you choose industry sources or independent research institutes, that is reflected in the full range that we have reflected in our report. I agree, it is not very satisfactory that there is not a definitive research statement out there of exactly how carbon intensive nuclear power is. There is a new paper by Storm and others that compares nuclear power stations with the most modern gas turbine plants and it suggests that nuclear power produces about a third of the carbon emissions over its life cycle compared with the most modern gas-fired power turbines. That is not so far behind. Again, I can send the reference for that. One of the points about the nuclear power's carbon intensity is a lot of that carbon intensity is generated upfront, so through the mining of uranium ores that are becoming more and more diluted, in other words it takes an awful lot of carbon to extract uranium now as the ores become of less good quality, and all the build costs are upfront before you have a kilowatt of generated supposedly carbon free energy from nuclear power.
Q16 Joan Walley: My question is to Dr Dixon just looking at the whole issue. I notice that you are the Head of WWF-Scotland and I wondered what the difference is between thinking in Scotland, the Scottish Parliament, and the thinking down here. Have you got a perspective that would be useful to our considerations here on that?
Dr Dixon: The politics of energy is extremely interesting in Scotland. Obviously there is a division of reserved and devolved powers when it comes to energy, so energy policy is reserved to you lot and the promotion of energy efficiency and the promotion of renewables is something that is devolved to the Scottish Parliament. There is a kind of frustration that Scotland is not the master of its own destiny in terms of energy policy. That makes the politics extremely interesting. Nuclear is one of the issues, and it may even become the deciding issue, of the 2007 Scottish Parliament election because you have, on the one hand, a Labour administration which appears to be in favour of new nuclear power stations, which are even less popular with the public in Scotland than they are with the general UK public, and, on the other hand, you have an opposition which is much stronger in terms of the Liberal Democrats and the Scottish National Party, both of whom are absolutely against any new nuclear stations in Scotland. In terms of the politics it is very finely poised. If you read the First Minister's comments on nuclear whenever he is cornered on this you will find that he is treading an extremely fine line between the message he is receiving from here that nuclear is still to go on the table but not decided yet and what he picks up from Scottish politics and the Scottish public which is that he would not still be in power after the next election if he were to promote that issue strongly.
Joan Walley: That is very interesting. Thank you.
Q17 Mr Hurd: Can you point us to another country that has been successful in picking the low hanging fruit of energy efficiency and reducing energy demand? Successive governments in this country for about 20 years have talked about this and have failed. Has anyone out there succeeded?
Dr Dixon: I think I would have to come back to you on that, I do not have an example off the top of my head. You are seeing other people in the queue of witnesses today and in future sessions who I think will give you a clear answer on that. I will look into that and I will send the Committee something on that.
Chairman: Thank you very much indeed.
Q18 Mr Ellwood: The concerns that we are all focused on are to do with carbon reduction and I think Dr Turner has illustrated very well the fact that we can do good here but it could be overshadowed by what is happening on the other side of the world. Bearing in mind that focus on carbon reduction there is a danger, if you like, that in determining a strategy on how we move forward we could end up picking a winner inadvertently by promoting a particular design or asking to go down a particular route. Do you think if we were to step back completely and just leave carbon reduction as being the sole objective that we would see more nuclear power stations or less?
Dr Dixon: Certainly I think we would not build a new generation of nuclear power stations it will take a very large step in political will to give us new nuclear power stations because it requires such a fundamental change in the way that the electricity supply industry works and such a set of guarantees for any private sector body to be interested in building them that it is really politics which will decide. If we took our hands off and said, "In the current situation, who out there would like to build nuclear reactors?", no-one is standing up and saying that. No-one in the financial industry is saying that. Even British Energy is refusing to say that it would like to build new reactors; it is actually saying that it would not like to.
Q19 Chairman: Given that, and given what you said right at the beginning about why you think nuclear is back on the agenda and there may be a need for another White Paper, which is basically the Government has been rolled over by the nuclear lobby, what is in it for the Government to allow itself to get into this situation?
Dr Dixon: You would suspect that the failure to make a great deal of progress on the climate change target that the Labour Party proposed for itself in the 1997 Manifesto, a 20 per cent cut in CO2 by 2010, is one of the motivations but they have been convinced, I think incorrectly, by the industry's arguments that this will help them and, of course, it will not help them by 2010 because even if they started today they would not have built one, not by a long way, but they are thinking longer term perhaps. I think the industry is making great play that it can create jobs, which is not really true in comparison to the alternatives which would create a better spread of jobs and perhaps ten times more jobs. I am slightly puzzled as to why the nuclear industry has managed to find quite so many converts.
Q20 Colin Challen: Do you think that in a liberalised energy market renewables will have a robust part to play? I know that CHP is not exactly a renewable but when the energy markets were liberalised CHP was just blown out of the water. Do we have any faith that renewables themselves can be a robust player in a liberalised energy market?
Dr Dixon: In a liberalised energy market you will only get more of the same unless you invest in bringing on things that are new, so it is quite correct to invest in the renewables to get them to the stage where they can compete on equal terms. The economics of onshore wind, for instance, are now so good that people are worried that people are becoming millionaires because they are investing in these schemes and they do not even need any subsidy they might be getting. We have succeeded in bringing the onshore wind industry to the point where it is now able to stand on its own two feet. We are investing a little, probably not enough, in many other renewables. Nuclear is in a different position. Nuclear is part of the set of old things and it is not coming about through the market because it is simply not viable, and for other reasons, but economically it is not viable. It would be very wrong of us to invest in nuclear to make it something that is attractive to the market because that is old technology we are simply supporting rather than new technology which we are developing through its expensive development phase to its cheaper production phase.
Q21 Mark Pritchard: Can I thank you for your comments about Woking Borough Council earlier, for which they won the Queen's Award. I used to be a member of that council and was involved in that. Coming back to nuclear, how do you interpret the Prime Minister's apparent overtures to the nuclear industry in the last few weeks given what you have just said?
Dr Dixon: I would say that the Prime Minister is concerned about his leadership on climate change. He has said very many of the right things on climate change, he has committed his party to very many of the right things at the top level. He has demonstrated international leadership with the 60 per cent target by 2050, for instance. He has staked part of his career on achieving something on climate change. I suspect that his interest in at least discussing the nuclear industry and in reopening that door which was really almost completely shut by the Energy White Paper is because he is concerned that his record on climate change emissions is not good enough. Obviously it is not going to help him meet the short-term targets, so if that is the motivation he would only be seeing this as a legacy of something that he has left to the country as a long-term reduction. As I say, I think he is mistaken if he does believe that in terms of CO2 reductions.
Q22 Mr Ellwood: Could I suggest that it is actually an overlap between two interests. One is the concerns that everybody is showing to do with climate change, but there is also something which has prompted us to look at this prior to Tony Blair commenting on it which has re-engaged everybody in this debate about nuclear energy, and that is because we are running out of other fuels and that is the major concern. How are we supposed to meet our energy needs? We are now a net importer of coal, oil and electricity, mostly from France. We have to have a self-sustainable understanding of energy, a long-term strategy. With that in mind, do you believe the fact that we have, at least temporarily, put this question on hold because we have elongated the length of time that the current nuclear power stations are being commissioned for?
Dr Dixon: I think the Energy White Paper did a good job of thinking about these issues. In terms of security of supply, the decisions seemed to be that we were content that in the short term as the renewables became a much bigger part of our portfolio, and as energy efficiency and demand reduction became realities, we would be quite dependent on imported gas. Not, as some commentators have tried to suggest, gas which is coming through very long pipelines from rather unstable political parts of the world but gas that is coming from those rather stable countries, Norway, Belgium and the Netherlands, certainly for the next 20 years. That was what we built into our piece of research work based on the Energy White Paper. We are content that out to 2020 with gas a bridging fuel, meeting our targets on renewables, doing a bit more of what was in the Energy White Paper on energy demand and energy efficiency, there is no gap and there is certainly no need for new nuclear, we can phase out coal and we can phase out existing nuclear. One of our great concerns is the delay that this debate is going to put into the process because you are being distracted by it, the Government is being distracted by it and the country will be distracted by it when we should be ploughing ahead with the really tough job of energy efficiency, energy demand management and getting the renewables really up to speed. We do have really quite a short time. This is a big distraction. Nuclear could never pay off quickly enough even if it could pay off, so this is a big distraction from the real task which is concentrating on those other things which really will reduce our emissions.
Q23 Mr Ellwood: My final question is by that rationale what are you suggesting the Government will do in the climate change review that we are currently undergoing?
Dr Dixon: The review is rather puzzling. The review is running very late and if you were a conspiracy theorist you would take it as a very bad sign. The Prime Minister is talking about nuclear, the debate is beginning to happen, and this crucial document about what we will do on climate change, and therefore energy, is not emerging because there are arguments behind the scenes. Why? We do not know. I would take the delay that has happened in the Climate Change Programme as a bad sign and I would suggest that there is a big struggle going on internally about how nuclear will be referred to in that document.
Q24 Mark Pritchard: If the review had taken place earlier would you be more amenable to nuclear?
Dr Dixon: No. I would say that there are two levels of argument that would rule out nuclear. There is a moral argument and there is a pragmatic argument. The moral argument is a very simple one: it is the most unsustainable form of energy that we have. For a few short years of energy we have doomed ten thousand generations to look after the waste that we have produced. It is the most despicable thing that we have done to future generations and it would be even worse if we were to add to that burden by contemplating more reactors. That is the moral argument. On the pragmatic side, I think it is really the fact that we cannot invest in both £10 billion to £20 billion worth of nuclear reactors and all the right stuff on energy efficiency and renewables, it is a choice between the two. Many in the industry, including the renewables industry for some reason, try to tell you that it is not a choice between the two but to me it is absolutely a choice between the two. Even if you were to believe that it was right to add to the £56 billion of decommissioning costs; even if you were not worried about proliferation, which of course we are; even if you were not worried about the terrorist threat that is presented by nuclear installations, which we should be; even if you thought that the new designs were safer, which in many cases they are not and anyway it is the operators who manage to do things wrong and not the designs; even if you were not worried about the routine discharges of radioactivity every moment that a reactor is running, which you should be; even if you thought there was really a solution to the waste problem, which there is not; even if you thought that nuclear created jobs, which it does not in any particularly great number compared to investment in the alternatives; and even if you believed that it would make a significant difference in the long-term CO2 emissions, which I do not believe it would, then I am afraid we would still say that the bottom line is that you cannot have both, that nuclear would be a distraction from doing the things we really need to get on with, which is investing in the renewables, the ones that are available that we deploy in large numbers today and the ones that are just around the corner that need more investment to get them going, and the concentration we should be putting into energy efficiency and demand management. I think the lesson from Finland is pretty clear. They have decided through massive state subsidy and the fact that they own all the electricity companies to build a new reactor, a fifth reactor, and already we are seeing that the industry in general, business, is lobbying to get out of targets it previously set itself for climate change. It is falling back on its national programmes for energy efficiency. There is a mentality that when you have opted for a nuclear reactor, great, you have solved the climate change problem, you do not need to do anything else. I am afraid we will suffer from that mentality in the next two years while we have this debate, but if we go for nuclear we will be completely condemned by that mentality, we will think the Government has solved climate change and they are going to build us ten reactors, we do not need to think about this anymore. There is a vision of two different future possibilities. We can go down this route where we build new reactors, where we have a few large companies dominating the energy market for the next 40 years, a market that we have rigged to make sure that nuclear works, a situation where people are disconnected from the energy they use and we spend a very large amount of money for very little carbon benefit. Or we can go down the route that the Energy White Paper proposed, which is high energy efficiency, high use of renewables, gas as a bridging fuel, where you will start to see rooftop wind turbines, solar panels on people's roofs, community level woodchip boilers, and people will start to see that their energy comes not from some distant place down a wire but from somewhere nearby and is part of their community, part of their house, and they should be doing something about it. That is the choice we face.
Q25 Chairman: Thank you very much. On that extremely robust and clear note, we thank you for your evidence and wish you well.
Dr Dixon: Thank you very much for the opportunity.
Memoranda submitted by Warwick Business School and Lower Carbon Futures
Examination of Witnesses
Witnesses: Dr Brenda Boardman MBE, Programme Leader, and Dr Mark Hinnells, Senior Researcher, Lower Carbon Futures; Dr Catherine Mitchell, Principal Research Fellow, Warwick Business School, examined.
Q26 Chairman: Good afternoon and welcome. Thank you for your two memoranda we have received and read with great interest. Can I start by asking you, Dr Mitchell, because I think you were involved in the PIU Energy Report, which was very well received by almost everyone when it was published, why you think only two years later there is talk of needing another White Paper?
Dr Mitchell: I do not think we need another energy review. I am not entirely sure why we have come to that decision. My view is that although certain numbers within the Energy White Paper will have gone up and some will have gone down, overall if you re-ran the scenarios that were behind the work you would end up with pretty much the same outcome. For example, with the rising gas prices, which is one of the things it has been said has changed, that was within the parameters that were within the scenarios. I do not think that very much has changed. I do not think there needs to be an energy review. Quite genuinely, I do not understand why there is going to be an energy review unless there is almost a wish to have another answer and, therefore, I honestly think there should not be another review and if there is it should be over very quickly and that review should be about how a robust plan is put in place to make sure that the fundamental recommendations of the White Paper are delivered.
Q27 Chairman: In marks out of ten where would you rate the Government's progress since the White Paper?
Dr Mitchell: Two. It was a visionary White Paper. I do not want to undermine that, it was a visionary White Paper.
Q28 Chairman: Yes, it was visionary, which begs the question as to whether or not the goals it set out were unrealistic, which may help to explain the lack of progress.
Dr Mitchell: No, I do not think they were unrealistic. There were two real problems. The real problem was that there was not a 20 per cent target for renewables for 2020 put in there. Had there been then there would have been Treasury sign-off for that and that would have meant that the sustainable policy would have gone forward. There was a huge fudge at the time about that and that did not go through. Plus, the area which said that for five years we will keep the nuclear option open that was written in at the time to be very clearly a non-nuclear future statement but, nevertheless, the combination of there not being the 20 per cent target by 2020 combined with the statement that it was left open allowed the nuclear industry to come along and question it. The reality and the evidence is if you put policies in place for demand reduction and renewables you will deliver them and those prices will come down and they will be competitive, so that by 2020, which would be when nuclear power could come in, it would be obvious that you do not need nuclear power. The nuclear power industry has no choice but to go for timing now. If you carry on with the White Paper and really get going with it you will not need that. That is why you need a proper plan to get going with that Energy White Paper now and then if it is not working in so many years' time you can come back to it. If you do go for that and if we carry on with this incredibly damaging debate there is simply going to be no investment in anything anywhere and we really will be in a mess.
Chairman: I think we are expecting a Division at four o'clock so we need to make progress. If we could try not to emulate Dr Dixon in his extremely eloquent response to the last question, that would be greatly appreciated.
Q29 Mrs Villiers: I think it is clear to all of us that we are going to be facing an electricity generating gap emerging by 2015-2020. I would like to ask Dr Boardman a question about that. You acknowledge that most micro-generating capacity would only be developed in the 2020s and later decades, and that is quite visually illustrated by the graph in your memo. Does that not show that it cannot really make a significant contribution by 2020 when we are going to be expecting that generating gap to have occurred? Is not the conclusion to be drawn from your paper that we need to do something else, that micro-generation cannot address the generating gap because it is going to come along too late to address the scale of the shortfall that we will be experiencing by 2020?
Dr Boardman: One of those conclusions that we need to do something would be perfectly correct, and I will leave Mark to talk about the micro-generation, but the other part that we need to do is demand reduction. I agree entirely with what Catherine has just said, we need to give energy efficiency, demand reduction, a proper chance with some proper strategies. We could reduce demand very quickly. In our report, and I do not know whether it has been given, the 40 per cent House report - if it has not been given to the Committee I am happy to send it to you - we look at the reductions that could be achieved by 2050 and it does reduce demand very substantially. The extent to which you can do it quickly depends on how much political will you put behind it. You could reduce demand by at least an equivalent amount, for instance through policies such as making fridges much more efficient, announcing that you are going to phase out the incandescent bulb. There are lots of ways in which we could begin to reduce demand very substantially, very quickly, in conjunction with the European Commission and our partner Member States. Certainly over the timescale - we only measured it in 2050 - by 2050 the 60 per cent carbon reduction has been achieved two-thirds from reducing demand and one-third through micro-generation.
Dr Hinnells: The micro-generation capability in 2020 is about 20 terawatt hours which we reckon then will be about 20 per cent of household electricity and about 13 per cent of heat as well. You are right, there is significant potential after 2020 when things like fuel cells and PV come on line but that does not undermine the significant potential before 2020. We only looked at the potential in households, so there is additional potential in businesses, commercial buildings and so on in addition to that in households.
Q30 Mrs Villiers: Is there more we could be doing with building regulations to encourage micro-generation and reduce demand in the way that the two of you have been talking about?
Dr Hinnells: Certainly with micro-generation building regulations is something that could be very effective, but in order to prepare the market for a future where building regulations require micro-generation there are things that you have to do first to increase take-up, to gain learning about the technologies, how they interact and so on. The things that we would like to see before then are very strong programmes to support the uptake of micro-generation, between now and 2010 something like three times the current level of grant support that there is for PV, clear skies and community energy, but after 2010 with the right support mechanisms in place we could see the market for micro-generation growing at something like 30 per cent per annum, which is what has happened to wind over the last ten years. It is not unthinkable. To deliver that kind of change needs support mechanisms like the right framework for selling the electricity from micro-generation and with that in place building regulations would have a role, yes.
Q31 Mrs Villiers: You have partly anticipated my next question. Much of the problem here seems to be the lack of progress in developing distributed generating systems is due to the fact that much of the technology, such as micro-CHP and LED lighting, is still some years off full-scale production. What should the Government be doing to try to speed up progress towards full-scale production to get into the position you were talking about before where it can be incorporated into these technologies?
Dr Hinnells: I think get on with it. It is a bit of a chicken and egg situation. Innovation theory will tell you that when the market is there the technologies will be delivered. The reason micro-generation is not here is not for technical reasons, it is because there is market uncertainty. If we dealt with the market uncertainty the technologies would be delivered. As for LEDs, you can buy them in B&Q now.
Q32 Mrs Villiers: So if the Government sent a clear signal about what it wanted to do to have micro-generation the investment would follow from the private sector?
Dr Boardman: There is the need for clear signals, clear strategy, to bring it altogether and say what you want done. For instance, the recent announcement on the building regulations was rather weaker than we hoped it was going to be and the Government is backtracking on the amount that it expects done with conversions to existing buildings. Existing buildings are a key part of all of this demand reduction and we have to work very strongly on those. It is recognised that it can be done by bringing all of the departments together, getting a coherent strategy and, as Mark said, going for it.
Q33 Mr Chaytor: Do you think the existing liberalised electricity market that we have got can deliver by itself the transition to a low carbon economy?
Dr Mitchell: No, I do not think it can.
Q34 Mr Chaytor: What needs to be done to change that?
Dr Mitchell: There are two things that need to be done. Effectively, the current regulatory system, which is a combination of the market where you buy and sell electricity, and the networks - this is just electricity - reflect the characteristics of the conventional technologies, large and centralised power plants, fossil and nuclear, and the rules suit them. For new ways of doing things to come in it has to not only help problems with new technologies but has to compete within these incentives and rules.
Q35 Mr Chaytor: Can you give us one or two specific examples of how the rules of the existing market work against it?
Dr Mitchell: I raised in my memorandum the question of base load. Nuclear power needs to run at either off or full on. That means that it has to be the base load power of the system. The base load power of the system essentially means that you have a very low load factor and, therefore, your overall cost is low. The reason why current nuclear power cost is low is because its construction costs have been paid for and its waste costs have been taken away from it and, therefore, it is able to be base load. Any new nuclear would still have to be in that base load position but it probably would not be cheap enough because it would not be competitive. Therefore, it would need to have some kind of subsidy mechanism to bring it down into that mechanism. That would mean that system would have to keep going to support large centralised generation and that would mean the other new technologies would have to be marginal and peripheral to that system. So you would be having a system driven by nuclear and the new technologies would not be able to come into it. There are other examples of that.
Dr Hinnells: One would be the development of Energy Services Companies that were referred to earlier where the nature of the industry is not one that sells kilowatt hours, it is one that sells a combination of kilowatt hours and energy services in the best combination given the circumstances of that customer. The development of the Energy Services Companies concept is very difficult in the current market framework.
Q36 Mr Chaytor: Again, what changes need to be made to speed up the progress in terms of establishing Energy Services Companies?
Dr Hinnells: I would be very interested to hear what the energy companies themselves say. They themselves say that at the present time they cannot make money from the sale of services, they can only make money from the sale of kilowatt hours. It is the incentive system that needs changing so that they make profit from the energy services rather than from kilowatt hours.
Q37 Mr Chaytor: Just thinking in terms of the supply system, is there any argument at all for keeping going with the 28 day rule?
Dr Mitchell: I do not know about the 28 day rule, that would be for Brenda, but if you wish to have a sustainable energy system where the supply side of it becomes competitive you have to set up that system so that it reflects the characteristics of the technologies you need for that. That is the only way you will enable those technologies to come through and the only way you will then be able to have a competitive system at the end of it. If you continue within the current system with nuclear power you will have a system that reflects that large scale system but you also have a completely open-ended cost because we do not expect nuclear power to come down and, therefore, you are essentially setting up to have a non-competitive system for the long-term . It is not difficult to see how you can change that round, you just need to make sure the drivers in the system have those characteristics of the different technologies.
Dr Boardman: I do not want to say much about the 28 day rule.
Q38 Mr Chaytor: Does switching suppliers make any sense at all in the world we are living in today?
Dr Boardman: The one hope on the horizon in terms of the liberalised market is that under the European Directive we now have a thing called disclosure which is happening from 1 October with every bill. This means that you will be told about the fuel mix within your own electricity supply, so how much you pay for coal and how much you pay for nuclear, et cetera. Every bill will have this either on it or with it, that is the requirement of the Directive. We did some research in Oxford with some colleagues from the Continent that looked at this and looked at what people wanted and we put that information in our evidence. It shows that people do not want to buy nuclear power; people do want to buy electricity from renewable sources. If the consumers use the information that is coming with their bill there could be quite a shift away from people buying nuclear power. We do not know whether it is going to happen, we do not know who is going to promote it, we do not know what information is really going to be out there, but if people do what they say, which is again a question, with liberalisation so far Britain has had a higher rate of switchers due to price than any other country, so we have got the switching mentality and that might carry through.
Q39 Mr Chaytor: It depends exactly on that - price - does it not?
Dr Boardman: Some people will switch regardless of price. Some people will switch because they do not want to buy nuclear.
Q40 Mr Chaytor: You are critical in your memo of Ofgem and this Registered Power Zones scheme. Could you say something about that?
Dr Mitchell: That was a bit unfair, I just used that as an example. Ofgem have used Registered Power Zones as a way to support innovation.
Q41 Mr Chaytor: Could you describe them for us?
Dr Mitchell: Essentially, distribution network companies have to apply for an area within their network from which they are allowed to have a higher return on their allowed revenue. It is a nice idea, the problem is that they can only earn about half a million in total from it, it is very small peanuts from the actual project. It might get in the way of their customer minutes lost and so forth, so they might lose a lot of money from it because they do not necessarily know what is going to happen. It is quite risky for them. Overall, it is a lot of effort and these companies are regulated by RPI-X, there is nothing in their regulation to allow them any management time for doing new things whatsoever at all. That means for most of them it is not something that they are doing. There is only one. So this is OFGEM's effort at trying to introduce innovation into the electricity system, when you think that an energy system that reduces carbon by 60 per cent will almost entirely be completely different from that system in place. This is just electricity. Energy, of course, is a much wider area and we want in that wider move to sort it out, and transport and aircraft. We want to bring the waste side of things, the agricultural side of things; how we eat the food and the rest of it. So it is a very small area of it but, nevertheless, it is pitiful.
Q42 Mr Chaytor: Could I just ask one quick thing? You draw the distinction between electricity and energy. What is the current percentage of total energy output that electricity provides?
Dr Mitchell: It is about 25 per cent. Nuclear power provides about eight per cent of total energy.
Q43 Mr Chaytor: So nuclear is 22 per cent/23 per cent of electricity, and therefore eight per cent of total energy?
Dr Boardman: Yes, and you should always be thinking of policies for the total energy system as opposed to electricity; you want the links between them.
Q44 Dr Turner: Dr Mitchell, I think from your memorandum we can reasonably assume that you do not buy the argument of the proponents of new nuclear generation, that we need that in addition to what we are doing with renewables. Can you say what you think new nuclear build would need in order to make it happen in the commercial market, in order to get investors to invest? What would the government have to do economically to make that possible? I am not saying whether it is desirable or not, just what would they have to do to make it possible?
Dr Mitchell: What they will have to do in order to get investment is to ensure that the cost of nuclear power - and I am not the expert here, there are other people who are more expert on the cost of nuclear power - is low enough to ensure that it does have this base load ability because it has to be full on all the time. That means, I think - and you must ask them - that they will need to have a cap on their decommissioning costs because the costs of decommissioning, depending on what you want, can be small or they can be large, and there must not be a risk about that or what happens in the future. So there will have to be a cap and the public are going to have to pay for that. In order to get investment there will have to be a guaranteed off-take - somebody is going to have to buy that electricity - for enough years to pay for that capital cost, and it is going to have to be at a certain amount so that it definitely comes down into base load. Without that, to ensure that they get into base load, they would not be able to get the investors to do that, because that is the only way that they could manage that.
Q45 Dr Turner: So what you are saying is that as a straightforward commercial deal, particularly in a liberalised energy market, it is a non-starter effectively without government subsidy?
Dr Mitchell: I think so.
Q46 Dr Turner: Let us say that we are talking about a ten gigawatt nuclear programme, can you say what sort of level of effective government subsidy, in whatever form it was being delivered, because it can come in several ways, upfront or hidden, would actually be involved?
Dr Mitchell: I could not do that but I can get that to you. I will happily give that to you as supplementary evidence. It is sensible to think of it in terms of there is an absolute amount that you need, but also the wider effects because there will be a certain amount of subsidy that will be required to enable that kind of investment. But that kind of investment will then undermine other investment, so it will be that it will undermine other options, it will undermine moves and regulatory systems.
Q47 Dr Turner: You mean you think that there will be a finite amount of capital investment available to go into the energy sector?
Dr Mitchell: But by supporting nuclear, which is open-ended because we do not expect that power price to come down, it will undermine other options going up into the future. So although there is an absolute of money that there would be in terms of a subsidy you would also have to add on extra effects of doing that as well. I will happily send it to you.
Q48 Dr Turner: Figures have been bandied around; a total of, say, ten billion is the sort of figure over ten years upfront that has been put forward. What impact could that sort of public subsidy have on alternatives to nuclear power, such as more rapid deployment of micro-generation and more rapid deployment of new renewable generation technologies in general?
Dr Mitchell: I think it will completely undermine it.
Q49 Dr Turner: Could it promote it? If we turn it about, and if the government is prepared to put ten billion pounds into nuclear, but if it did not do that and it was prepared to put ten billion pounds into renewables, what would be the difference?
Dr Mitchell: I think it would be a complete difference because if you put the money into nuclear power you will not have these other options coming forward; you are essentially putting all your eggs in one basket. Assuming that they can come forward - and I think that is a very, very big question - then you simply have a technology to do with electricity; you do not have technologies which fit into the wider energy system. You will have a continuation of the current electricity at the moment, and so forth. If that money were to go into demand reduction - as Brenda has shown, through the 40 per cent House she can get two-thirds of that 60 per cent cut required from known technologies between now and 2050 at no extra cost, and at less cost - you can bring in wider options and you will then have a link into the wider energy system, which is extremely important because the renewables essentially have to fit in with the waste resource strategy, and it fits in with our agricultural policy, which will be moving from food into energy. There is a much wider move away from this simple focus on electricity. My point is really that not only does support for nuclear power not answer the question of keeping the lights on, but it makes the problem of actually addressing climate change worse.
Q50 Ms Barlow: You were talking about the wider picture. Do you think that this reflects a failure to create a long-term market, looking at it economically, in electricity, which takes adequate account of environmental priorities? I am thinking in terms of the government "picking winners" and you have a package that you are trying to promote, and if the government chooses that package they will be accused of picking a certain package and they are condemned; so are they not really condemned whatever they do?
Dr Mitchell: By moving to a lower carbon economy you are essentially picking winners; you are saying you want low carbon technologies. You have a number of technologies which you could support. It is important that you support technologies that have not been supported for 50 years, as nuclear power already has, and which has the problems of waste. You want to create options and you want those options to move into competitiveness, so that you are not supporting them forever; and you want that policy to be an innovative policy so that for every pound of public money put in you can see the price coming down. So they are effectively picking winners but within that they have to have sensible public policy. I am not sure what Brenda would like to say about demand reduction.
Dr Boardman: What we have to do now is bring the reduction in demand and how it is supplied much more closely together. We can take away; we have, with 40 per cent House. We have shown with demand reduction that we do not need nuclear power. If there were the political will to deliver energy efficiency and demand reduction - demand reduction is actually what we want, energy efficiency is one of the routes - combined with micro-generation at the household level, just within the residential we could do it. We would put this in the context, for instance, of making sure that we involve people in this decision-making much more. We believe that it is quite important that people are involved and given personal responsibility for their own carbon emissions, so we have put forward an overarching framework, which is personal carbon allowances and tradable domestic quotas, so that people start recognising that there is a finite limit to what we should be doing to the environment, and that we all have a personal responsibility and that we should be working within that framework.
Chairman: That is the division bell. I am afraid we are going to have to end this session with you now. There may be other issues which the Committee would like to raise, and if we may do so we will write to you about those. Thank you very much indeed for your time and your assistance.
The Committee suspended from 4.01 pm to 4.13 pm for a division in the House
Memorandum submitted by Mr Tom Burke CBE
Examination of Witness
Witness: Mr Tom Burke CBE, examined.
Q51 Chairman: Good afternoon. Thank you for joining us; thank you for your memorandum. I will ask you the same question that I asked the two previous witnesses, which is the one about why it is thought that we need another Energy White Paper so shortly after the previous one was published?
Mr Burke: I thought that Catherine Mitchell gave you a rather good answer to that, and mine would be the same. It is quite difficult to see what has changed so dramatically as to require another White Paper. I think a point I would underscore - and it was implicit in what Catherine said, but perhaps not drawn out as sharply as I would want to draw it out - is that this acts as an enormous chill on investors. The issue in addressing this question is investment and what is going to create a climate in which, in particular, the large energy supplying enterprises are going to see long-running investments being made, and having this kind of uncertainty about the policy framework, let alone the regulatory and other frameworks, acts an enormous chill on investment and unnerves people and undermines confidence in which direction the government wants to steer things.
Q52 Chairman: Is it fair to say that the biggest single change really since the government produced its last White Paper has been the shift in oil and gas prices, which you might have thought would have pushed the argument in a different direction to that in which it appears to be going?
Mr Burke: Yes, but I think it is quite interesting to think through what that means, and they are not arising from the same reason. There are pressures on gas supplies because we have infrastructure constraints which are going to change. Now, there are longer-run pressures on gas supply which are of concern - concerns about energy security, part of which I was addressing in my memorandum. That is different from the oil price rise, which has been driven in part by increasing demand - particularly in China and elsewhere in the developing world - growing very fast, partly by supply constraints caused by the hurricanes and other features. What they have actually done is to recreate the kind of shock, more psychological than economic, that the 1973 oil price had, and that will have an effect. Interestingly, if you go back and look at the 1973 oil price hike the real price of oil returned within two or three years to what it had been more or less before, but most of the investment in energy efficiency that led to quite a big decoupling took place long after the economic signal had gone. So the importance of the psychological signal got bigger than the importance of the economic signal then, and I think that is what is happening now. That is pretty difficult to model, so you would want to be fairly careful about taking the models before this year and running them forward as if nothing had happened, and it is pretty difficult to work out what adjustment factors you are going to put in for that. But I do not think that is the kind of thinking that will be going on in the Energy Review actually; I think it might be the kind of thinking that would go on in the Stern Study, and I think that is certainly something it would be quite unwise to be making major decisions or commitments about in advance of that study coming out. But having made a big announcement about a new White Paper one has, in a sense, got everybody now putting not just their investment on hold but also their thinking on hold to see what decision the government makes, and I do not think that is very helpful. It is extremely hard to see why you would have had to do that.
Q53 Chairman: So the lack of progress is not to do with unrealistic goals, it is to do with a lack of political will?
Mr Burke: I think that is exactly right and I think maybe a slight panic mood of saying, "Oh dear! The world has got a bit worse and we must do something," without much more depth in the analysis than that.
Q54 Mr Chaytor: Do you agree with Catherine Mitchell's point that the new review is there because there was felt to be a need for a different result than that given by the previous review?
Mr Burke: I hate to speculate on what was going on in the minds of anybody in particular, but it does seem fairly clear that the Prime Minister is the only person around here who is trying to pick a winner.
Q55 Mr Chaytor: Therefore, in terms of the new review do you have any information about those who are charged with producing the new Energy White Paper, as against those charged with producing the previous Energy White Paper?
Mr Burke: No, I do not, but I have a point which I addressed in my memorandum, which is in relation to the question of maintaining confidence in the investing part of the business community, which is that it must not only arrive at conclusions which command confidence but it must also do so in a way which commands confidence, in a way that is transparent and people can see through the reasoning. Otherwise, there will be no delivery because government, unless it is going to go back to nationalised industries, does not have in its hands many of the tools to deliver the outcomes. So it needs to have the positive constructive cooperation of others, which means that they must have confidence in the government's reasoning and they must be able to follow the government's reasoning. So I think it is extremely important that the process of arriving at the government's judgments on this is very clear, and that is why I recommended in my memorandum to you that the government should separate the process of arriving at assessments of different pathways from the point at which it makes judgments about which ones it prefers and why it prefers them. If what you get is a rather traditional government White Paper which says, "These are our conclusions and here is our reasoning and, by the way, we have left out all the analysis that we did not like", then you will undermine the confidence necessary to produce the level of investment and risk-taking that is going to be needed to get delivery.
Q56 Colin Challen: Do you think that the government's drive to tackle fuel policy and keep energy prices low has undermined its efforts to introduce sustainable energy policy?
Mr Burke: No, I think its inability to resolve the difference between the importance of capital expenditure and the importance of operating expenditure, to get the Treasury rules right so that you can make energy saving investments as a way of helping to reduce the pressure on prices, has been more of an obstacle. I think there has been some element in which in a very crude way it has wanted to keep prices low in order not to exaggerate fuel poverty. But I do not have any quarrel with the need to drive down fuel prices; I think that is perfectly sensible for all kinds of reasons, including the fuel poverty reasons. I do not think the price signals - the ones we have seen, for instance, in the market recently, where the oil price has gone from $20 a barrel to $70 a barrel in the last six years without a noticeably huge impact, either on the economy or on the way in which people use energy - for investment terms the price signals are not very strong, so I do not think that the need to preserve access to energy supplies for people in relative poverty is the driving force. I think government can do much more to square the circle, but it is not saying - at least in my view - "Somehow we cannot let prices rise because otherwise poor people will be disadvantaged." I think it is a bit better than that.
Q57 Colin Challen: The main reason that prices have fallen is liberalisation in the market. Do you think the government should intervene a lot more in that sense to actually achieve these objectives?
Mr Burke: I think it is perfectly correct for the government to intervene and markets to deliver up public goods, and fuel poverty is a public good. My own instinct is that it is better to give poor people money; it is better to help them invest in ways in which they can reduce their demand on income, but that is just a personal preference of mine. The idea that the government should intervene in order to deliver up public goods, like the relief of poverty, as I have been at pains to point out in my memorandum, particularly in relation to energy security and in relation to climate security, I think it is absolutely essential.
Q58 Colin Challen: Has it gone too far in one direction since 1997, in favour of markets as against intervention?
Mr Burke: I would not say it had gone too far. I would say it has not really fallen through on its thinking; it needs to think further, it stopped thinking, perhaps, a bit prematurely. It was resistant to OFGEM taking on a slightly broader view of life and I think that was a bit of a mistake that has helped to perpetuate the sort of apparent conflict. So I think it needs to continue to think through how you square the need to deliver public goods - and there are at least three that we have mentioned already - with the need to have a liberalised market. But I would not say that it was wrong. I think compared to what we had in the past with the CGB it is quite clear that the benefit to everybody in this country and the benefit to the economy has been very considerable for liberalising the markets. I think the government is absolutely right to want to continue to argue across Europe that there should be greater liberalisation of energy markets, but you do not abandon the public good because you think you can deliver a better deal, as it were, to the consumer.
Q59 Colin Challen: One more question on that point. If the European markets were liberalised what do you think that would do to the French nuclear industry?
Mr Burke: I think it would have somebody looking around for transparent accounts on the EDF and I think that would be a shock to the French taxpayer. I have no objection in principle to the French taxpayer subsidising British electricity consumption, and I am sure that the French taxpayer is not very aware of the extent to which they are doing that.
Q60 Joan Walley: Good afternoon. Just staying with the economics of it for the moment, you say in your interesting paper of evidence to us that you would need to have something like eight to ten nuclear power stations all requiring this huge amount of cooperation if that were to get off the ground. Is that likely? Do you think that that would be likely, or, if it were likely, do you think it would make a nonsense of having any kind of competitive market anyway?
Mr Burke: I think a lot of people, the EU, OFGEM would raise questions about the degree of collaboration that would be necessary between the utilities to, as it were, recreate the CGB, because in effect they would have to do something close to that to create the purchase of eight to ten nuclear reactors in a guaranteed order of sequence. Imagine the negotiations that would then have to go on between the company; you would be creating a sort of private sector version of the London Transport PPP, as you decided between all those utilities how they were going to allocate between themselves the risks of ordering such a massive programme. So I think there are a lot more difficulties than have so far been suggested in getting to the point where there are private sector interests willing to make a bid. Of course if you ask them are they interested, of course they are going to say yes; they do not have to commit anything to say yes to an expression of interest. And if you ask the City financiers would they be willing to finance it, of course they see very large fees in doing that but that is an extremely long way away from actually signing the cheques and signing contracts. So I think there is going to be rather more difficulty at the very front end. In other words, suppose the government does what it says it is going to do and agrees to make a decision in 2006, then leaving out all of the other problems I am not sure that you would have anybody willing to make an order very quickly, and a real live order which would lead to somebody actually spending 200 million maybe on designing a nuclear reactor, let alone the whole programme. So I think there are a lot more difficulties just at that level than have so far surfaced just in the real world.
Q61 Joan Walley: Presumably what you are saying is of such significance that it needs to be taken account of in various reviews that are going on now within different government departments, so how is that going to be factored in?
Mr Burke: I think that is an extremely good question to ask in particular the DTI, though I think the Treasury will be asking them also. It is an extremely good question to ask the advisers of Number 10, who are particularly keen on this, the sofa denizens who are undoubtedly taking some part in influencing the Prime Minister. I think those are particularly good questions; they have not answered them and there is no place where they have laid down how they are going to answer them. As I have laid out in my memorandum, the practical difficulties of getting to a replacement are very serious. Leave aside the question of whether you should go down this route, the practical difficulties of going down that route are very considerable. My underlining point is that the driver on climate security in particular, though also on energy security, will punish us very severely if we make a mistake on this. These are not mistakes that you can easily remedy. If we do not address the climate security issue fairly aggressively in the next decade or so everything we are hearing from the science, from the conference the Prime Minister convened at the beginning of the year, all the signals coming through are telling us that we are in a quite urgent situation. You are talking about very large investments and in order to get the private sector to play its part you really have to give a lot more confidence than is currently being given that the government is committed to a direction forward, and at the moment across the board there is this feeling that the government keeps flopping around depending on what the most recent headlines have said.
Q62 Joan Walley: Just assuming that all of that somehow or another was ironed out and they were built, then presumably you would need to have government support over the long-term - not just one parliament but over the long-term.
Mr Burke: Yes.
Q63 Joan Walley: If then energy prices start to fall presumably they would need to have their energy prices maintained, would they not?
Mr Burke: We spent half a billion pounds bailing out British Energy because the government's liberalisation policy succeeded in driving electricity costs down. That is a bizarre position in which to find yourself. Why would you want to repeat it? Can I put it another way? It would be very difficult for the government to square the circle in saying, "We want to have a constant downward pressure on electricity prices and we want to have a big new programme of nuclear power stations." It is very difficult to square that circle.
Q64 Joan Walley: So that I am clear, in terms of squaring that circle presumably that circle could only be squared if the nuclear industry had guarantees on insurance?
Mr Burke: Yes.
Q65 Joan Walley: Had guarantees in respect of dealing with the waste and how one deals with that, but also guarantees in respect of price?
Mr Burke: You have to cover the revenue risk, that is the price. The how? - there are a number of ways you could do that. But you would have to cover the revenue risk; you would have to cover the regulatory risk. In other words, you would in effect have to say that future governments would not change their mind on some of the questions such as who should carry the liability for radioactive waste or what proportion of the insurance burden should the taxpayer cover and so on? So you have a number of risks that the business investors would have to be sure that the government was going to carry those risks through at least two parliaments - at least two parliaments - and you would need a very high degree of confidence, if you were an investor, to be betting on that.
Joan Walley: And all party support.
Q66 Dr Turner: I am going to ask you to comment on the proposition that has been put forward by the government's own in-house reactor producer, Westinghouse, which is the AP1000, which is predicated. The price is predicated on producing ten of them and that low price is also predicated on stripping out an awful lot of material from the design and, as I understand it, also leaving out secondary containment as well. Do you have any credence with their pricing estimate, even if they could get regulatory approval and licensing? Does it stack up at all?
Mr Burke: You do not know what a nuclear reactor is going to cost until you have built it; that is the reality. So can they give you an estimate of how much they could lower the capital cost by stripping out - and that is the exact and correct description - a lot of the valves and pipes they put there in the first place in order to maintain the security? What they are stripping out is the redundancy in the system. As I think Mr Dixon said, the problem is not the design of reactors, it is the operators. The redundancy is not there because you think the design will fall apart, it is there to cater for the fact that human beings are fantastically inventive and can create fault pathways that you did not think of. That will clearly lower the capital cost. Even if it does and even if you can build them on the lowest framework - and I have seen five-year time levels for everything, where planning and construction is within five years - it still does not compete with onshore wind. Again, why would you do it?
Q67 Dr Turner: I think you are saying it is a no-brainer?
Mr Burke: Yes. I would have said that except that I once saw a very clever man talk about the privatisation of the Iraqi oil industry and how the people who had come in and said it was a no-brainer and privatised it, and the man from Shell who went to pick up the pieces said, "Ah, yes, only somebody with no brain could have thought that"! So I am slightly cautious.
Q68 Joan Walley: Could you shed some light for us on the new nuclear power stations that are being built currently and the extent to which they are dependent on state support in other parts of the world?
Mr Burke: I do not think there is anywhere a nuclear power station being built where it is not essentially a decision of government supported by government. The Finnish one is the one that is often cited as an example. I think if you start to lift up the stones you find that the French taxpayer is subsidising Finland - again, not just us - and you find that there is a great deal of government guarantee in the relationship between the investors and the takers of the electricity, and there are some particularly unique circumstances about the bulk supply of the electricity in Finland. So Finland is the only place I know where the private sector - anything resembling the private sector - is building a new nuclear power station; everywhere else it is essentially a place where there is a very high government intervention. China, the biggest programme, 30 gigawatts, is clearly driven entirely by national government policy. And I cannot think of anywhere else. Nobody would even begin to suggest that EDF was not part of the French government, especially if you are, as I am, a London electricity user and EDF can buy my provider but I cannot buy EDF, which is very unfair.
Q69 Colin Challen: You said in your submission to us that the timescale for a fully operational nuclear plant is at the earliest 2021; is that not a little pessimistic? We are going to be told that it is much quicker than that to get these things running.
Mr Burke: Yes. I think you should examine the proposition in some detail. I have laid out why I think that the timetable is like that; I think I have been reasonably optimistic. I have assumed that there will be a relatively short transition from a government decision in principle to an actual policy framework of a year. If it requires primary legislation it might be rather longer than that. If you have to provide the kind of revenue risk guarantees that might be required it could take you even longer. I have not mentioned anything about capacity constraints on the Nuclear Installations Inspectorate (NII). There is a real question about whether actually they could do the work. The AP1000 is in effect a new design; nobody has built one anywhere. So it is a new design and would require an unbelievable reversion of British regulatory process - abandonment of British regulatory process. They call it regulatory "tweaking". Actually you need to be really careful - it is abandoning our current regulatory philosophy whereby the NII will not in a sense give a permit to construct a reactor until it has had time to examine the design. You cannot buy a nuclear design off the shelf; a design to build a nuclear power station takes you two years, I would guess - shorten it a bit but not much - and a great deal of money to produce. An engineering design like that is a very massive production effort. So I think I am being rather optimistic. I am only assuming a year in my timetable for a planning inquiry. Even with the government's enthusiasm for stripping out time from the planning system I may have been a bit optimistic. So why would you think you can build it faster than five years?
Q70 Colin Challen: I assume that a new build would be on an existing site, so perhaps that might make it easier for them to convince us that it is really a simple process.
Mr Burke: I have allowed for that in my timetable of saying you might only take a year. As I say, I think I was being optimistic even on that assumption. The Sizewell Inquiry took four years, I think, and I am assuming you cut that by 75 per cent to get there. I have not built in what substitute you would have; in other words, when would there then be some national level debate that would substitute the need for a proper - what we would now think of as a full - local planning inquiry? As I said, I thought I had been optimistic.
Q71 Colin Challen: So your pessimistic version, which I do not think you gave us in your submission, could take us up to the decommissioning point of Sizewell B, possibly?
Mr Burke: I do not think it would go that far.
Q72 Colin Challen: Not as far as that. It begs the question then, we are going to have this gap, we are told. Will the market fill that gap?
Mr Burke: Yes, it will. I do not think the lights are going to go out. The market will fill that gap and it will fill that gap if we do nothing else.
Q73 Colin Challen: With what?
Mr Burke: Gas. That is what it would fill it with right now if there were nothing else. There would be a contribution from more wind largely, I think, in the renewables. If you just left the market as it now is you would get a bit more from wind and the renewables and you would get a lot more gas and it would fill a gap.
Q74 Colin Challen: That leads to a rise in emissions, presumably?
Mr Burke: It leads both to a rise in emissions and to a genuine concern about energy security. There is some alarmism about the idea of over dependence on Russian gas. That is all a bit like raising the red menace again. We are at least as dependent on Middle East oil for our transport, and we saw in the fuel protest just how vulnerable this country is to interruptions in its supply of petrol. Even so, you would want to hedge against that and the proper hedge against that is coal.
Q75 Colin Challen: Just one final question. You have closed off all the arguments for nuclear but they are going to come back and say, "Okay, with gas and more renewables you will be able to fill this gap that is emerging, but we can still fill another gap and that is creating the hydrogen economy so that your road transport will be using hydrogen that we create for you, and no other source can provide enough electricity to create enough hydrogen to do that task." So how do we deal with that argument?
Mr Burke: I agree with you that they are going to say that and it is going to be another example of the nuclear industry promising jam tomorrow. I think that needs a lot of examination. If you talk to people in the motor industry they do not see a simple or straightforward or near time, meaning 20 or 30 years, transition to hydrogen; they see the next step in the motor industry - and I think, given the numbers on this, quite interestingly - as in hybrids. I mean getting the 100, 150 mile per gallon efficiency out of something much more resembling our current infrastructure and therefore not requiring the huge investment in infrastructure. So I think they see a step by step. Eventually you might get to hydrogen, but if you are talking about those sort of timescales you are talking about timescales in which the renewables - if you are looking at just technical capacity - can give you every bit as much as nuclear. The thing that I have tried to emphasise in my memorandum is the danger of just looking at technology choices, as if you were in the toyshop picking which one you could afford and which one was the cheapest. There are pathways that you have to look at which have mixes of technology and policy in them, and you have to choose which pathways best get you to the goal you want, which also means that you have to specify what that goal should be. I have specified it in terms of energy and climate security; you might add poverty alleviation and you could add other goals, but you then have to say what are the various pathways you could use and what are the advantages and disadvantages of each pathway in getting to that goal?
Q76 Mr Ellwood: If I may go back to the discussion on the nuclear build in the UK. There is a concern when we are receiving so much information that people will select bits of evidence which suit their argument. If I may just ask, on the ability of Britain to build new nuclear power stations I would suggest that the fact that with all our nuclear power stations not one of them is actually the same, that each one has been almost designed and built by design and make; that they have learned from the old one and moved on to the new one. Industrial knowledge and nuclear capability has been depleted, and many of our experts have gone to places like Canada, France and America. So the costs you are suggesting are because we have to relearn everything. That would then have an impact on the amount of time it would take to get a new nuclear reactor into place. There are off the shelf fourth generation nuclear power stations which will not take nearly as long and will meet the safety requirements and so could be installed in the UK much, much faster. The CANDU reactor systems in Canada and the new fourth generation reactors that the United States are looking at, could these be an option? This is something surely that should be looked into, rather than us having to reinvent the wheel here in the UK, which would take 20 years?
Mr Burke: My timetable is not dependent on what choice of nuclear technology you make at all. So it does not matter if you pick an AP1000, an AREVA or whether you picked a CANDU. CANDU might slow it down a bit because it would be completely new to the British system so I suspect it would somewhat extend the time the NII took, as opposed to the PWR of which we have some experience. I do not think the question of the engineering or technical capability in Britain makes much difference; there is a lot of movement so in a sense we would bring back people. We have a problem in Britain generally about the large-scale projects which would apply to this, but that is a problem which we have found in all kinds of sectors, not just in this sector. But the specific nuclear expertise, what we do not have we could import for it, so I do not see that as affecting the timetable. It is why I tried to lay out the timetable in a way that was dependent on the processes not on the technologies. I do not think it makes much difference which technology you choose. The AP1000 is a new design and no doubt people would want to test the safety of that fairly thoroughly, for obvious reasons. The AREVA is a less new design. Those are both what are now called generation III. The generation IV technologies, the pebble-bed and so on, nobody has gone anywhere near doing one of those, so I think if you went that way it would slow you down even further in terms of technology deployment. But the real point is that there is a quite well laid out process for how we would go about permitting a new reactor of any kind and I have tried to be quite optimistic in a way in saying how long that would take, because the timetables here matter. My predominant concern is with climate security and I do not think you can separate that from energy security; you cannot have climate security without energy security. The Prime Minister is right to say that the public are not going to choose one over the other, so you have to try to get both together. The climate timetable is very short; the climate timetable is not one where we can think what is an optimum solution, what is the lowest cost base to reduce emissions by 2050? I was listening to David King, the government Chief Scientist, speaking about this last night. We are talking about really serious transition points in the climate happening in the decade possibly, but certainly within the next three or four decades, and I am trying to get some sense of measuring up ---
Q77 Mr Ellwood: But that will not happen because of Britain, that is in China and these other places.
Mr Burke: I could not agree with you more, that is absolutely right, and if you ask me right now where should we spend our money to achieve climate security I would say spend it in China. But in reality the issue is that we have to go forward together. That is why I said to Mr Challen that in a way I see our hedge against gas and over-dependence on gas being the coal option. When you read pretty well all of the discussion on this at the moment in public nobody mentions coal. Coal is an internationally traded commodity; there is a lot of it about and we have quite a lot of it in this country. We know how to run coal technologies. We have an issue with sequestration. I am actually rather more optimistic than the previous witness about the accessibility of carbon sequestration. We have an industry in BP that has suddenly spotted the size of the opportunity, which is why Mr Brown, who does not on the whole try to invest in losers, has just decided to put up some money to literally start the work of exploring it in Scotland.
Mr Ellwood: We are still an importer now of coal now.
Q78 Chairman: We will come on to discuss coal in a bit more detail in a moment. If we may move on?
Mr Burke: You are not going to get out of being in the market.
Q79 Mark Pritchard: Just as an aside as an introduction, it would be quite interesting whether some environmentalists - and I regard myself as an environmentalist which is why I am on this Committee - might perhaps eat some humble pie and learn from the United States on the issue of clean coal technology, but I am sure other members will comment on that in a moment. I would like to address the issues of bio-fuels. Do you think that the role of bio-fuels has been underestimated, vis-à-vis in the commercial wholesale market there has been too much notice - perhaps it has only been rhetoric actually - on the consumer/customer facing side, and that would address the short timescales that you have brought before us today, if the government would do far more in bio-fuels?
Mr Burke: I think as one of your other witnesses pointed out, you have to remember to see this issue in the context of overall policy not just electricity policy, and to some extent you buy yourself more room if you can reduce the carbon burden and the security burden of transport - you buy yourself more room and more flexibility. So bio-fuels is important and perhaps a lot more important than we have said to date. I think there is a real issue of scale with bio-fuels. In other words, as with everything else it is not going to be a panacea and you would really need to think very hard about the issue of bio-fuels when you look at the evidence that was just published in Nature on the effects of the 2003 heat wave on vegetation, in a way that surprised pretty well everybody who has followed this. The threshold by which vegetation sinks, becomes sources, seem to be much nearer. If you go out to 2050 you at the point at which we might be seeing a 2003 heat wave every second year. So there is an issue about scale, there is an issue about the interaction between the climate problems and whether bio-fuels really give you all the carbon benefit you think. I do not have a firm answer on that, I am simply saying that as a warning against thinking, "Here is another silver bullet; if only we can fire it, it solves all our problems." I do not think that is the case. I agree with your underlying premise but I think we have underestimated it, and my sense, from talking to a lot of people, is that there is more to be gained even inside the constraints I have mentioned.
Q80 Mr Hurd: Tom, my question is about clean coal. You have been passionate about the urgency of the timetable and you have put what we look at in a global perspective by pointing to the elephant in the room that is China, and your central thesis seems to be that nuclear cannot help because it cannot deliver on the timetable and you have asked us to put clean coal as the key element in the mix because, with global challenge, look where all the coal reserves are, so it is going to be part of the story whatever happens, and in the UK that looks an option as a hedge against over-dependence on gas. My question to you is: why do you feel confident that clean coal can deliver to this urgent timetable whereas nuclear cannot?
Mr Burke: I am not confident. I did not say so in my memorandum that it could; I said nuclear cannot. What I actually said in my memorandum is we have to do something else, and if you are asking me to focus entirely on the urgent timetable I am rather in the Catherine Mitchell camp that our biggest priority is actually energy efficiency. But in some sense that was not the immediate focus of this inquiry. I actually think we could do it, but it is not with the level of confidence I would have on the efficiency. I actually think we could do it for two reasons. One, we are very familiar with coal technologies across the board, both in the deployment construction, the public acceptability, the siting - I think we are much more familiar with coal technologies, and we are talking about technologies which we have. Pulverised coal is being built all over the world at a vast rate; the Chinese are building a new pulverised power station, one every five days. So we know we could build them. In a sense we can get very far from this huge learning from what others are doing because there is so much other coal going on. We know we can do coal gasification which would be, in a sense, my instinctive desire for a coal option, to go for gasification. We have lots of gasification plants around the world already and we can do a lot more and we can learn as others do them as well. There are real issues about carbon sequestration but I do not think they are issues which cause me to doubt the principle about doing it because we have been managing reservoirs for 150 years or more. That is why John Brown has interestingly focused on this so quickly, in a sense; we know how to manage geological reservoirs. It does not mean it is problem-free. I think the real barriers there are not technological or even economic, they are institutional. If you wanted to go for gas or fires you are asking combustion engineers to do chemical engineering; that is an institutional problem. If you want your utilities to connect up to your reservoir managers you are asking the electricity utility industry to cooperate with the oil industry; that is an institutional problem. All I would say is that it is easier for political will to address institutional problems of that kind than it is to address the other problems. So I think it is easier to solve them. But it is not a guarantee at all for it and then you are back into what is your trade-off between gas-dependence energy efficiency. That is why I keep coming back to the point and saying that if your problem, which is a real problem and actually worse than some people say because they have left out the coal coming off stream, is an electricity supply problem you need to identify the pathways that take you through that problem, and all I was trying to say in my memorandum is that I cannot see a way in which nuclear helps you with that problem, which is what is causing the current debate.
Q81 Mr Hurd: Just keeping on clean coal, what would you like to see the UK government do to give you greater confidence that the UK government was accelerating the development of clean coal technology?
Mr Burke: I know exactly what I would like to see it do but I cannot tell you how I would persuade it to do it. I would like to see the UK government use as one of its primary tools a very low level of carbon tax to substitute for the regulatory certainty it is not going to be able to deliver it, and to use that to create a fund to finance the rather rapid deployment of advance coal technologies, carbon sequestration. I would not do that by trying to pick winners; I would do that by saying that we can pick the losers. I know which carbon intensive technologies we ought to get out first and then let the market decide and make bids into that fund for the additional cost of purchase in the public good, of replacing that generation coming up. That is my ideal world. I am not sure I see an easy path to it.
Q82 Mr Hurd: You gave us some very startling data about China. Where would you point this Committee to in terms of getting more data about what is actually going on in China in terms of coal power build?
Mr Burke: The IEA is the source of the data I presented to you. I am sure that both Shell and BP can give you a lot more data on that. Rio Tinto can give you a lot more data on that. John Ashton and I in one of our guises have produced a report which is a confidential report on coal in China and we would be very happy to share that with the Committee, but on that basis - in other words not for publication.
Q83 Chairman: That would be very helpful indeed and obviously we will respect the confidentiality.
Mr Burke: We have done a report on advanced coal technologies in China and what the state of play is, which we would be very happy to share with you.
Q84 Mr Hurd: A parallel Committee, the Science and Technology Committee, is currently looking at carbon capture and storage. If you could give that to the Science and Technology Committee as well it would be very helpful.
Mr Burke: On the same terms, we would be very happy to. What I am really saying is that I do not want to see it on the website or in Hansard.
Q85 Dr Turner: We have a lot of fiscal instruments which aim to some degree or another to address climate change, including the Renewables Obligation. But at the same time we have a competitive electricity market so there is a bit of conflict and confusion there. We have the Climate Change Levy; we have the EU Emissions Trading System. But you clearly think that these are not entirely adequate and you argue for greater intervention. Can you say why you think they are inadequate and what measures you would like to see put in?
Mr Burke: I have already partly answered in relation to Mr Hurd's question that the Emissions Trading Scheme will essentially, as things currently stand - and I suspect for some time to come - make a difference at the margin, but it is not going to make a difference to investment. The signal is not strong enough to persuade major investors to change their investment pattern, but it will make a difference whether you go for gas or coal, for instance, at the margin. I do not foresee the degree of agreement even at the EU - even actually at a national level let alone at EU level - let alone globally, to drive a price signal through strong enough to create the investment in the time. So I think the ETS is very important and as we go through the century, as we deal with the transport-driven and more dispersed sources, then it is extremely important because at the margin the choices will add up to making a difference. But if we do not do something in the very near future about the technology trajectory for coal burn then in effect it will not really matter from a climate point of view what else we do. That is the real logic. Therefore we need to be clear - and I think government needs to be clear - that a stable climate is a public good; it is not going to be arrived at without public investment. What is it worth to this country to maintain a stable climate or to play its part in the global effort to maintaining a stable climate? That seems to me the question, and I will be interested to see how the Stern Review is going to look at this. A question of climate stability is the same as the question of national security. Nobody says, "Let us do a cross-benefit analysis on whether or not we should go to war in Iraq." Whatever your view on that you would have thought somebody suggesting that you do a cost-benefit analysis before you did it was completely silly, and it is the same on climate security. The issue is: what are the cost effective pathways? So if there is public investment you then have two questions: how do you finance that investment and how do you spend it in a way that is focused and sensible and delivers results rather than simply waste results? When I was replying to Mr Hurd there, my sense is that a relatively low level of carbon tax will generate, because of the inelasticity of demand for energy, rather large amounts of money. If you can keep the Revenue's hands off them then you have a pool of money that you can use to effect investment rather quickly, and that is the opportunity you are missing because nobody seems able in this debate to use the words "public investment".
Q86 Dr Turner: You have obviously read the Science and Technology Committee's report towards a lower carbon economy which proposes exactly that: a carbon tax, and carbon tax credit system penalising carbon and carbon emission and rewarding the investment technologies which do not.
Mr Burke: One of the most successful examples of an economic instrument achieving its environmental objectives was the Swedish NOX tax, and the Swedish NOX tax basically - vehicle emissions predominantly but also electricity - said, "We are taxing your NOX emissions and we are investing the proceeds of that tax in financing the technology to reduce the emissions." So it became a self-sum setting tax, which has considerable attractions to it because as the policy succeeded so the yield of the tax fell, the burden fell and the air improved. I thought that was a very elegant instrument.
Q87 Dr Turner: So would you agree that we need more immediately effective mechanisms like the carbon tax and Carbon Tax Credit System, which deliver very clear signals that are transparent, whereas our current system is just too complex?
Mr Burke: It is opaque and does not deliver signals that are strong enough - and I refer you back to the points I made in reply to the Chairman's question about the confidence and certainty needed to get the sustained investment that is necessary to address this problem. Furthermore, I think that in commanding the public confidence, being straightforward with people about the fact that at the end of the day the public good is going to be secured by public investment and not otherwise, is a very important part of sustaining the kind of strategy over several parliaments that is going to be required.
Q88 Colin Challen: In addressing this public good over a number of parliaments, do you have any specific thoughts about how the regime within government, dealing with climate change and energy issues, should be changed? A couple of ideas have emerged, one quite recently in a debate last week, but other people have suggested it, that there should be something like an independent carbon policy committee, like the NPC. Other suggestions might be that energy and climate change should be taken out of DTI and given its own Cabinet ranking. Do those sorts of ideas have any resonance, do you think?
Mr Burke: What not everybody has got their minds around yet is that whenever we stabilise carbon dioxide concentrations we have to keep them there; it is not that, "We will do this and then we can go back to our old ways." So the idea of something like a monetary policy committee in the longer run is quite important. I would like to see government set itself targets on the carbon intensity of its public expenditure, because that is something it controls, and it can do something about the intensity of its public expenditure. I do not just mean procurement; I mean the whole public expenditure frame. You take out the Chancery payments but the basic public expenditure frame incidentally will help shift the balance in the Treasury rules on capital expenditure against our current expenditure in a way which will allow you to invest in energy efficiency as part of the solution for dealing with fuel poverty. So I would certainly like to see that. I have far less enthusiasm for the idea of playing musical chairs with government departments. If you were asking me what would I do in an ideal world I would restore something like the capacity of the Cabinet Office to actually coordinate across government, which we used to have, but which, without many people noticing, we seem to have lost. That machinery for coordinating, properly used, is an extremely powerful way, particularly on a technical issue like this, of bringing together the necessary alignment between the actions of departments. That is more the kind of machinery government solution I would be thinking of, especially after the last machinery of government change in relation to my interests in the environment, which has been reasonably catastrophic.
Chairman: Let us not go there! You may find we share your view on that, and have said so in the past. Joan Walley.
Q89 Joan Walley: I just wanted to press you on what you said about the idea of changing the Treasury rules in terms of public expenditure, capital expenditure and revenue. Have you written anything on that?
Mr Burke: I have not written anything on that, but I have talked to a few people about it and I would be very happy to give you a short note. It is just the obvious thing that if you have to drive down the carbon intensive public expenditure then you would look for ways in which you could get the best pound for your buck in doing it. Clearly one of the best ways is in the health service, the education service and in the social security service. If you can find ways to capitalise that spend then it is better than year on year on year raising your spend on current account. I have not done much more thinking than that. Of course, again, it would make wars a little more difficult because wars are very carbon intensive.
Q90 Chairman: That is an inquiry which we have considered but felt to be a step too far!
Mr Burke: I thought it might almost be a step too far to raise the point.
Q91 Chairman: We did not want the field trip either!
Mr Burke: In the very real sense, why I was raising that in that way was simply to demonstrate the potential power of a mechanism that focused on public expenditure, where the government is one of the biggest capital spenders, and it is all very well telling business that it must invest and it is all very well doing other things to try to constrain with this hand that amount of carbon in the economy if with this hand you are pumping it up. There is clearly incoherence in that.
Q92 Joan Walley: So you would advocate that as being part of the mixture?
Mr Burke: I think that is again part of the different fiscal instruments, part of the policy measures that we need to be thinking about as we address what is, I think, a very urgent problem, yes.
Q93 Mr Chaytor: Can I take you back to the start of your remarks, where you referred to the influence of the "sofa denizens"? These are the characters that used to be in Harold Wilson's day the "Kitchen Cabinet"?
Mr Burke: Yes.
Q94 Mr Chaytor: I would link that with what was said earlier by Dr Dixon about the position of the industry and the attempt by the industry to seek this window of opportunity. In fact I think Catherine Mitchell also said it. Dr Dixon also said that one of the generators, British Energy, is not actually lobbying for new build. The suppliers are not lobbying for new build; one of the two generators is not lobbying for new build. The City financiers do not seem to be coming in very quickly unless they get cast iron guarantees. What parts of the industry are leading the lobbying?
Mr Burke: The first thing is that there is no such place as the business community; there are lots of different communities with different interests and different dynamics. I have no objection to the nuclear industry lobbying for what it thinks is the solution; I do not for one minute think there is any bad faith, I think there are people who have made the best allowances they can and they want to do it. So I cannot see any reason why they should not lobby and lobby very aggressively for what they want to do, and they are entitled to make as much of a public debate about lobbying as they see fit. What I think is more important, and it goes back to the question and my reply to Mr Challen, is that you have confidence that the processes of government will not be bounced by lobbying with differential access. In other words, that there is somewhere where all of that is put together in a process in which everybody can have confidence. There is a voice from the CBI that government tends to take, I think at least politically, quite seriously, which is a very different voice from the voice of the major investors. The CBI is saying, "Please take this away, let us do something later about it." I do not think very much actual basis is going to hurt our competitiveness. The major investors, the BPs, the Shells, the BGs, the Rios are saying privately - not so much because they want it to be private but because they do not take the public stage in the way the CBI does - "Get on with it." And there are a lot of other voices in the industry saying, "Give us, if not regulatory certainty because that is quite difficult to do on your own, at least give us a consistent and constant political signal." So I have some sympathy for the pressures on government because of the way the business voice is being articulated and expressed, and that is a problem for business. But government's hand in dealing with that is not to have a sense that somehow what the government is going to do is going to be decided by a small group of advisers around the Prime Minister and not by a whole government with an elaborate and rather good, in my observation, special advisory process for sorting out the wheat from the chaff and presenting Ministers with clear options that have actually looked at things in three-dimension. The uncertainty people have is that somehow the government is being bounced by privileged access.
Q95 Mr Chaytor: I just want to pursue this privileged access. Your definition of the industry, therefore, is one of the generators against CBI ---
Mr Burke: Of course there are a lot of people, actually all over the place not just in the nuclear industry, who honestly think that the nuclear future is the way to go. There are a lot of people who believe that. There are a lot of people in the City - not the investors but the fee makers, the accountancies, consultancies and so on - who can see massive fees, and they are very keen and they are going to join in on that as they would on any other opportunity. I find it very hard to criticise people for doing that; I think they are entitled to do that; that is what in a sense drives the dynamism of the economy. What the public is entitled to require is that the machinery of government for dealing with those pressures is such that the outcome is in the public interest not in a private interest.
Q96 Mr Chaytor: What about the Department of Trade and Industry?
Mr Burke: The Department of Trade and Industry has always, I think, found itself in a difficult position of wanting to promote but not having the tools to promote.
Q97 Mr Chaytor: Is it part of this lobbying campaign?
Mr Burke: No, there are differences of opinion inside the Department of Industry. You can talk to different people in the Department of Industry and they go back to saying, "What is your confidence, with all of these different channels of information and different voices, different ideas and information, that government puts it all together and really sorts it out?" I am not saying that government has ever been absolutely brilliant at it, I am saying that it used to be better than it seems to be now, and that this is an area where it really needs to be good because it requires the cooperation of so many people who are going to make big bets on the policy in order to deliver the outcome. So the worst thing would be if we are sitting around here in five years' time and we are still talking about what is the way to address this problem. That would be the worst of all worlds because then events will determine the outcome.
Q98 Mr Chaytor: Finally, can I ask about the Ministry of Defence?
Mr Burke: I do not know anything about the Ministry of Defence's involvement in this issue. I think it is an important voice, however, and I will be very interested to know more about the Ministry of Defence's view on how an unstable climate would affect their priorities.
Q99 Mr Chaytor: Are they sitting on the sofa?
Mr Burke: I have no idea.
Q100 Mark Pritchard: On a specific obligation, and given that the Prime Minister will be waiting with bated breath for evidence from this inquiry, no doubt reading the report within a day, what message would you send out from today vis-à-vis the government's failure to bring forward the Renewable Transport obligation?
Mr Burke: I would not because I do not really understand the issue. So, I am sorry, I do not know what the connection of that issue is, so I would not have a signal. I would rather not guess.
Q101 Mrs Villiers: You have made some very compelling points about the idea that government should put its own house in order and look to its own carbon emissions as well as encouraging business to do the same. Obviously that would have very significant cost implications for public spending. If, as some people seem to expect, there is a general slowing down of the economy, how much more difficult do you think it is going to be for the government to tackle climate change and the sort of challenges you have been talking about?
Mr Burke: I agree with you. I think that most people, when they look at this future, assume that the current boom and easy times are going to go on and I think that is really quite a questionable assumption. When you have bad times people tend to go for very immediate things and do not necessarily deliver for them, and therefore it is very important. I do not know when, I just think that the current kind of poising of imbalances cannot go on forever. It adds to my sense of the urgency to begin to get the right policy in place now before an even deeper panic mentality drives us. At the end of the day, if you go for the kind of thing that I was outlining in reply to Mr Turner and I think to Mr Hurd, where you are actually taking it not from general taxation but where your major public investment comes from a carbon tax where there is a transparent pass through, I think that in all circumstances it is an easier sell, but particularly in the kind of circumstances you describe it would be an easier sell. I do not see a fundamental incompatibility between ensuring our climate and energy security and keeping our economy going - quite the reverse. Actually an overwhelming amount of the evidence is, when you think about it in principle, the more you drive carbon out of the economy the more efficient it is. Although it does not speak directly to your question there is a number that PTEL came up with lately which compared the tax regime in America on transport fuels with the tax regime in Europe and the difference is equivalent to a $1400 a ton carbon tax. There are two outcomes to that - in fact there are lots of outcomes and I am not talking about all of them - and one is that it has clearly played a part in the fact that we generate a unit of GDP at about half the energy cost of the American economy; and the second outcome of that is that we are far less dependent than we otherwise would be on security of supply from Middle East oil. I am not saying that we are not dependent on it but we would be a lot more dependent if we had not done that. So there have been considerable advantages to us in the fact that we have had that tax differential. That was entirely driven by revenue raising; nobody was looking for other public goods there, it was just simply a good way to raise revenue. The idea that somehow if you tax people and spend money you always make their life worse or the economy worse, I am not sure that the facts bear that out as an overall and all embracing theory.
Q102 Joan Walley: A final question, if I may? My colleague, David Chaytor, mentioned about the Ministry of Defence. I wonder, in respect of what you are saying about global security, about the report which came out I think from the United Nations last week, about the number of people who will be displaced as refugees on account of climate change, if you personally have been involved in any of the discussions about, if you like, the preventative role and how we could build into any assessment of costs of all of this and the need to take preventative measures to prevent environmental disasters of this kind from coming about?
Mr Burke: No, I have not been involved in any particular discussion, but clearly it is a subject on which I have spent a lot of thought and time. I do not think people grasp just how different climate change is - and I use climate change because of the factors you mention. I never want to say "global warming" because that gives people the idea that there is something nice here. There is going to be nothing nice about a rapidly changing climate, in particular for the most vulnerable, in whatever form that comes, because it is the change and the pace of change that matters, not the climate per se. We could adapt, if we had enough time, to almost any climate but we are not going to have very much time to do this. So there is a debate emerging in some quarters that it is too late to do anything about climate change by mitigation, let us do adaptation instead. I think that is a wholly false prospect; we have to do some of both. It is a wholly false prospect for a very particular factual reason, which is that that will not help you with the ocean acidification. Adaptation will help you, maybe, in some places, but the idea which somebody proposed, that by the time this is a real problem the Bangladeshis will be rich enough to build levees did not seem to understand that it is hard to build levees in a country that does not have any rock, and Bangladesh is literally a country that does not have any rock. So there is a lot of extremely casual thinking about what adaptation might actually mean, and I have no doubt at all that it will mean something enormously economically and politically destabilising when you take through the second and third order of facts, and we have barely begun to investigate what they are. The UN was right to point out the scale of these. David King was doing the same at the meeting I was at last night. These are massive scales. This issue affects every single person on the planet in different ways, but it affects them all at the same time. Terrorism does not do that, poverty does not do that, ill heath does not do that; it affects some of us but not all of us. This one affects all of us.
Q103 Chairman: Thank you very much indeed, Tom, and I am sorry it has run on a bit; it only did so because colleagues were very interested in what you had to say.
Mr Burke: Thank you very much for the opportunity.