Examination of Witnesses (Quesitons 380-383)
MR ALAN
ROBINSON AND
MR DAVID
MANNERING
3 JULY 2006
Q380 Chairman: Finally, this is not
a short subject to raise as a final question so I raise it with
some concern: mechanisms to establish the price of carbon, which
are obviously crucial factors in your investment decision-making
process. The ETS—the Government announced its position in
the second round last week—is hardly a long-life mechanism,
to use your phrase about taxation. What would you do to create
more certainty to enable investment in coal and nuclear particularly
to be treated on a level playing field with other shorter term
assets?
Mr Robinson: Our view, and I know
the players in the market tend to split into two here into those
who want to see some fixed price, some underpins, some carbon
contracts, is we are not in favour of that approach. We are very
much in favour of seeing at least a 15-year phase 3 recognising
that phases 1 and 2 to some extent have been teething phases,
but let us get properly into it for phase three. Our view is very
much one that says we accept the price of carbon, the precise
price being a market risk alongside the cost of gas and the dollar-pound
exchange rate and the other things, and we will manage that risk,
we are not asking for anyone to fix the price for us, in fact
we would be against fixing the market price for something that
should float as a market price. What we are very much in favour
of is a certainty of the regulatory regime in which we can then
take a sensible judgment about what that price is in the same
way as we take judgments about the other commodity prices that
impact on our business. We will make judgments but it is very
difficult at the moment as we stagger along in little chunks.
You mentioned last week's announcement and I defy anyone to have
read that announcement and really know exactly what it means,
so we continue to see information released in a very bitty way
which makes it very difficult for people to make judgments. We
are a long-term market. We would like to see the UK Government
building much stronger alliances in Europe to really make the
EU ETS work and to further internationalise it so it becomes a
genuinely global carbon trading system. We think that will produce
the right signals, the right stability of price, because the bigger
the market the more stable the pricing. We will make our judgments
against that.
Q381 Chairman: The Government is
using quite a lot of its auctioning capability in this second
round, do you welcome that?
Mr Robinson: We are neutral to
it. We understand why the Government is doing it. We understand
the economic theory behind auctioning but, equally, we recognise
there are grandfathering issues in terms of existing investments,
et cetera. We see that as within the rules of the EU ETS
and what we have called for is the rules to be consistently applied.
Mr Mannering: It does provide
an opportunity for the Government to use the revenues in a way
that we have advocated for some technologies for pump-priming
purposes, for example. Another point that I would like to get
over in relation to phase 2 is the importance of encouraging all
sectors to participate in the EU ETS by setting them allowances
that relate to what they can achieve in terms of emission reduction.
In phase 1, for example, we saw that more or less all the sectors
were given allowances on a business-as-usual basis and that did
not really give them enough incentive to trade whereas the electricity
sector was set a target much tighter than anybody else, and to
promote the kind of liquid trading environment that is more likely
to achieve a correct price, which Alan was talking about, it would
be much more satisfactory if there was more incentive on all sectors
to participate in the trading.
Q382 Chairman: That concludes all
our questions, gentlemen. Is there anything else you felt you
wanted to say?
Mr Robinson: No. I think we have
had a very good thrash around the subject.
Q383 Chairman: Thank you very much.
We look forward to that further note about the planning permission
issue.
Mr Robinson: Would you like a
note on taxation?
Chairman: We would welcome it if you
want to give it to us. That is two notes then. Thank you very
much indeed for that.
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