Select Committee on Trade and Industry Written Evidence


APPENDIX 20

Memorandum by the Environment Agency

SUMMARY

  The Environment Agency welcomes this opportunity to provide written evidence to the Trade and Industry Committee on the Government's Energy Review.

  We offer the following comments:

    —  The Environment Agency welcomes the Government's Energy Review as an opportunity to put us back on track to meeting the goals set out in the 2003 Energy White Paper, in particular our long term carbon reduction goals.

    —  A key failing of current energy and climate change policy is the lack of mechanisms to incentivise investment in carbon reduction post 2012. Central to the success of the review in putting us back on track to meet our carbon targets will be the introduction of new market based measures to create such incentives. We believe these measures should be technology neutral and support both supply and demand side measures.

    —  We believe the goals set out in the 2003 Energy White Paper are the right ones and that we now need to do more to make this approach work. Improving energy efficiency should be at the centre of any new policy on energy.

    —  The review will be a major test of the Government's Sustainable Development strategy. All environmental impacts should be considered and a system-wide approach taken to minimising unsustainable and intergenerational environmental impacts. Technologies should be required to pass an environmental and safety threshold before they can then compete for carbon credits.

    —  To meet long term targets for carbon reduction, energy policy must be responsive and adapt to changing circumstances by strengthening measures or bringing new approaches as necessary. The review needs to set clear objectives for energy policy with measurable milestones over shorter periods of time (perhaps every year or 2-3 years).

  On the specific questions posed by the committee we advise that:

    —  The Environment Agency does not take a position for or against nuclear power. Nuclear installations need to achieve high standards of safety, security, environmental performance and waste management. If they can meet these criteria, the advantages of nuclear power in terms of carbon reductions and energy security need to be market-tested against other ways of achieving emissions reductions and energy security cost-effectively. We are concerned about the displacement effect that a large programme of investment in one capital-intensive technology like nuclear may have on energy efficiency, CHP and renewable technologies.

    —  The best strategies for energy security will be full exploitation of cost-effective energy efficiency to reduce demand, open European energy markets with fair competition and strong incentives on suppliers to manage down price volatility through hedging or long-term contracting.

    —  The potential for microgeneration in the UK is large. The Energy Savings Trust recently concluded that 30-40% of the UK's electricity demands could be met through microgeneration technologies, with major contributions from CHP (both fuel-cell CHP and Stirling engine CHP), micro-wind and solar PV[74]. The Environment Agency has specific interests in microgeneration. These include our role in licensing hydro power and our work on biomass, incineration, planning, and sustainable buildings and communities. We support a greater contribution from microgeneration in a way that is sensitive to the local environment.

1.  INTRODUCTION

  We believe the goals set out in the 2003 Energy White Paper are the right goals for energy policy and we welcome the Government's Energy Review as a chance to put the UK back on track to meeting these goals. In particular this review is an opportunity to introduce new, long term, measures to set the UK back on the path to achieving the substantial carbon cuts required to avoid dangerous climate change.

  Section 2 of our evidence outlines the headline messages that the Environment Agency will put to the DTI in our submission in response to the Energy Review consultation. Section 3 then offers advice on the specific questions posed by the committee on nuclear new build, gas dependency and the potential contribution from microgeneration.

1.1  The Environment Agency's role in energy and climate change

  The Environment Agency is the Government's principal adviser on the environment. We have important roles in both climate change and energy:

    —  We are the Competent Authority for the EU Emissions Trading Scheme in England and Wales.

    —  The Environment Agency regulates the emissions from major industrial activities, responsible for 40% of UK GHG emissions, including the major industrial energy users and fossil power stations.

    —  We regulate the disposals of waste from nuclear power stations, including radioactive discharges.

    —  We take a lead role for England and Wales in adapting to some of the serious effects of climate change, including flood risk and water resources management.

  We support adoption of renewables and low carbon technologies—we have already switched every one of our 2,000 sites and facilities to 100% renewable electricity, in some cases integrating renewable energy into new developments. In the last four years we have reduced our energy use per person by 18%.

2.  HEADLINE MESSAGES FOR THE ENERGY REVIEW

  The key issues that we will raise in our submission to the Energy Review include:

2.1  Targets and programme management

  The 2003 Energy White Paper signalled that "significant progress" should be made by 2020 in reducing our carbon dioxide emissions and suggested that cuts in the order of 15-25 MtC from "business as usual" levels of 135 MtC would put us on course to achieve a 60% reduction. However, a formal target for 2020 CO2 reduction has never been set. The Energy Review should set out the contribution that energy policies will make to achieve carbon reductions by 2020.

  The danger in setting targets 15 years out in the future is that without sufficient mechanisms to back them up they become meaningless. The review needs to set clear objectives for energy policy and a mechanism for tracking progress over shorter periods of time. This tracking could be in the form of interim targets (perhaps every year or 2-3 years) or an envelope of improvement along an agreed trajectory towards the target.

  Energy policy must be responsive and adapt to changing circumstances by strengthening measures or bringing new approaches as necessary. A programme management approach would then ensure that environmental performance does not drift away from targets because relative fuel prices change, policies don't deliver expected benefits, or parts of the economy grow faster than expected.

  This will also allow us to adapt the programme if the need for more severe cuts in CO2 is agreed, for example, driven by the science on "dangerous climate change"[75].

  It is also vitally important that we meet our 2010 target of a 20% reduction in CO2 emissions to maintain credibility in our climate change commitment with business and our leadership internationally. We look forward to the publication of the Government's revised Climate Change Programme and the introduction of new measures including a strong cap for phase II of the EU ETS to put us back on track for meeting this target.

2.2  A long term investment framework

  A key failing of current energy and climate change policy is the lack of mechanisms, with the exception of the Renewables Obligation, to incentivise investment in carbon reduction post 2012 (both Kyoto and the EU ETS only extend out to this date). Energy-using businesses and the energy supply sector need reliable signals that investments in low carbon technologies will have a value over a longer period than is currently the case. Central to the success of the review in putting us back on track to meet our carbon targets will be the introduction of new market based measures to create such incentives. These measures should be technology neutral as well as investment credible and support both the supply and demand side measures.

  There are a number of ideas in the literature about what type of mechanism might perform this role[76]. They all conclude that Government should provide a price for carbon that will be sufficiently robust for investors to include in project finance appraisal, for example through the auctioning of carbon contracts. Government would then be able to recoup this cost through future climate change and energy policy measures such as the emissions trading regime.

2.3  Energy efficiency

  We believe the goals set out in the 2003 Energy White Paper are the right ones and that we now need to do more to make this approach work. Improving energy efficiency should be at the centre of any new policy on energy. The Energy Efficiency Innovation Review concluded that there are over 20 MtC of potential savings from energy efficiency by 2020, with further cuts possible by 2050.

  Many of the existing energy efficiency programmes are relatively young and small in scale although have already achieved a great deal, for example:

    —  Since 1970, improvements in UK homes have resulted in the doubling of energy efficiency with consumers benefiting by saving £10 billion whilst reducing carbon emissions by 28 MtC per annum. This is three times the savings from the whole UK nuclear industry and is almost as much as the emissions of all the UK's coal power stations put together.[77]

    —  By 2010 existing policies are expected to deliver savings of 3.6 MtC per year in the business and public sectors alone. With additional cost effective measures, as suggested by the Carbon Trust, this could increase to between 4.7 and 5.1 MtC saving per year.[78]

    —  The most recent emission projections by Defra show that, despite underestimates of the losses due to the "comfort factor", existing policies are expected to deliver 3.6 MtC of savings from the domestic sector by 2010[79].

  Now energy efficiency programmes have proved themselves they would benefit from being substantially scaled up. We need to build on the work and recommendations of the Energy Efficiency Innovation Review and think through how we can move to a much more energy efficient economy, placing energy efficiency concerns at the heart of energy suppliers' goals. This could be for example, by moving towards a cap and trade system for domestic energy supply and a tighter cap for phase II of the EU ETS. Energy efficiency measures would compete well against other ways of reducing carbon if allowed to qualify for any long term mechanisms to incentivise carbon reduction.

  As well as improving the efficiency of end use of energy there are also substantial opportunities to improve the efficiency of the energy supply systems through more decentralised energy located near points of use[80] and increased use of CHP.

  Major improvements in energy efficiency will only be achieved through substantial domestic, commercial and industrial behaviour change. We recommend that Government addresses all four corners of its sustainable development diamond, engage, enable, encourage and exemplify[81], in order to successfully promote changes in the way we collectively use energy in society.

2.4  Energy supply

  To promote low carbon energy supply we advise that Government puts in place mechanisms to promote a price for carbon that will be sufficiently robust for investors to include in project finance appraisal without causing large distortions between competing low carbon options. It will be crucial that new mechanisms to promote low carbon energy supply are open to all technologies and able to support low carbon options for both electricity, heat and combined heat and power markets.

  In order to preserve investor confidence in Government mechanisms and to continue momentum on renewable energy development, the Renewables Obligation should remain in place. However issues around how it interacts with the planning system and the diversity of renewable energy technologies it is able to support need to be considered as part of the review.

  Innovation and delivery policies should generally be considered separately. In order to continue to develop those low carbon technologies that are further from the market such as offshore wind, the marine technologies and carbon capture and storage, the Government will need to set out a clear innovation strategy for energy supply technologies back up by associated support policies.

2.5  Minimising wider environmental impacts

  The review will be a major test of the Government's Sustainable Development strategy. All environmental impacts should be considered and a system-wide approach taken to minimising unsustainable and intergenerational environmental impacts. Technologies should be required to pass an environmental and safety threshold before they can then compete for carbon credits against each other.

  We are currently carrying out work to determine what represents Best Available Technique for new build coal fired power stations and working with the Health & Safety Executive (HSE) on licensing issues that would relate to any new nuclear build. This difficult issue of finding a viable long term management option for the existing radioactive waste created by the UK's past nuclear programmes is currently being considered by the Committee on Radioactive Waste Management, which is due to report shortly. This must be addressed, as well as ensuring that wastes arising from any new generation of nuclear power station can be properly managed.

  For technologies that are further from market such as carbon capture and storage we would like to work with DTi to address potential environmental concerns early and put in place any regulation and monitoring arrangements necessary for demonstration projects.

2.6  Public consultation

  The current Government consultation poses only very broad questions on energy policy and does not set out specific policy proposals at this stage. We advise that once the Energy Review team reports in the summer Government should carry out further consultation on more detailed proposals for the way forward.

3.  SPECIFIC QUESTIONS POSED BY THE COMMITTEE

3.1  What are the "particular considerations that should apply to nuclear" new build?

  The Environment Agency does not take a position for or against nuclear power. It shares regulation of nuclear sites with the HSE. HSE regulates nuclear safety, occupational health and safety and onsite radioactive waste management, whilst the Environment Agency is responsible for regulating the disposal of radioactive discharges and waste.

  All nuclear installations need to achieve high standards of safety, security, environmental performance and waste management. In regulating disposal of radioactive waste we ensure that radiation doses to the most exposed individuals are within national standards and internationally agreed legal limits. We also ensure that operators use "best practicable means" to ensure that radioactive waste is minimised and radiation doses are as low as reasonably achievable. In practice this means that doses received are well below legal limits.

  Before any new nuclear build can take place, the Government and the nuclear industry must design a waste management strategy that meets the tests of sustainability and public acceptability. We welcome the fact that the Government has set up a committee, CoRWM, to develop options for dealing with nuclear waste and look forward to its recommendations in July.

  It is a legal requirement that new practices involving radioactive substances are "justified" ie that the benefits outweigh the associated detriments. We are working with both DTi and HSE to consider the issues surrounding justification for new types of nuclear power reactors. We are also working with both organisations on streamlining licensing and authorisation processes.

  We will give early consideration to recent progress in plant design and operation to reduce radioactive discharges, and the quantities and problems associated with the management of solid radioactive wastes. We will use that information to determine the best available technology and set out the environmental standards any new reactors will be required to meet.

  If nuclear power can meet criteria on safety, security, environmental performance and waste management, its advantages in terms of carbon reductions and energy security need to be market-tested against other ways of achieving emissions reductions and energy security cost-effectively. We are concerned that if Government puts in place a programme of dedicated subsidy for nuclear new build, this could drain resources from investment in innovation and development of a whole range of promising low carbon options. These include energy efficiency, renewable energy and potentially carbon capture and storage. Instead we would advise introducing technology neutral support mechanisms to incentivise carbon reduction.

  Nuclear power accounts for 8% of the UK's primary energy (20% of electricity generated). The success of the Energy Review will depend on developing a strategy for the other 92%, not least transport. It is important that cost-effective greenhouse gas reductions are sought across all sectors.

3.2  Views on "the implications of increasing dependence on gas imports"

  Both the uncertainty in the security of supply and the price volatility have been a significant concern for industry this winter. The Environment Agency has been as accommodating as possible in allowing industry the flexibility to switch to other less clean fuels subject to the provision that the environmental impacts were acceptable. These arrangements have been made on a one-off basis and will not necessarily be available in future. Operators should plan on this basis.

  We advise that the best strategy for future energy security will be full exploitation of cost-effective energy efficiency to reduce demand for energy. We consider that there are considerable opportunities to reduce the demand for energy. The best form of energy security is not to need that energy in the first place. In addition UK Government and the European Commission should continue to push for open European energy markets with fair competition in order to promote more efficient distribution of available supplies and create a greater diversity of potential suppliers.

  Energy security issues normally manifest themselves in price rises rather than interruptions to supply. Different approaches to contracts and use of financial incentives to hedge against price rises could guard against this. Our recommendation is that if Government wishes to shield consumers from such price rises then they should adopt market based solutions to energy security. These could be in the form of incentives on energy suppliers to invest in energy security, for example through demand management, additional capacity, diversity of energy sources, storage or long-term contracting.

  Government should also promote the use of a diversity of energy sources through technology neutral mechanisms to encourage low carbon technologies and an innovation strategy to develop those sources of energy supply that are further from the market. The UK has very favourable renewable energy resources, exploitation of which would reduce our future dependence on gas imports.

  Some of the causes of the difficulties this winter are already being addressed through greater diversity of sources, improved infrastructure and increased storage capacity. The environmental impacts from all responses to energy security concerns need to be considered. Responses that benefit both security and environmental goals such as energy efficiency should be considered as preferable. Other solutions may have environmental impacts that need to be taken into account and minimised. For example:

    —  Importing gas from a wider range of suppliers will have a higher sulphur content than North Sea gas. This has an environmental impact through sulphur dioxide production. This will add to the overall total of sulphur dioxide emissions from the UK and may cause a local air quality problem near significant gas users. We would not support any further derogation in the sulphur content of gas without significant work to establish and mitigate the environmental impact.

    —  When gas supplies are in danger of being interrupted, or have a volatile price, then industry will wish to have the flexibility to switch to alternative energy supplies. This encompasses a wide range of alternative fuels including oil. These will have higher environmental impact than gas and also have other issues including the need for careful transportation, storage and handling. Improved security of gas supplies would help avoid the need for alternative and standby fuels of this nature.

    —  Coal fired power stations have been utilised much more than expected in the last few years. They have a much higher environmental impact than gas and offer the ability to stockpile and source supplies from a range of and countries and coal types. Any future build of the coal fleet will be to much higher environmental standards and the extent to which these offer an environmentally acceptable alternative to gas to deliver diversity in fuel sources needs to be considered. We are currently undertaking a study to determine standards for Best Available Techniques for new build coal and will report in early summer.

3.3  The capacity of microgeneration to meet a substantial proportion of UK electricity and heat demand in the medium and long-term.

  The current contribution from microgeneration to meeting energy demand is small with less than 100,000 microgenerators installed in the UK of which most are solar water heaters installed pre-2000[82].

  The potential for microgeneration in the UK is large. The Energy Savings Trust recently concluded that 30-40% of the UK's electricity demands could be met through microgeneration technologies, with major contributions from CHP (both fuel-cell CHP and Stirling engine CHP), micro-wind and solar PV[83]. A Green Alliance report concluded that a total investment of around £13 billion would deliver around 15GW of additional microgeneration capacity. This is similar, they argue, to the amount required from Government to subsidise a new generation of nuclear power plants.

  There are a number of benefits that a substantial contribution from microgeneration would bring:

    —  It would help improve the energy efficiency of the electricity generation system. Around 65% of energy is lost before it reaches businesses, factories or homes[84]. By being located at point of use microgeneration helps to reduce transmission losses. Some microgeneration technologies also have high conversion efficiencies, for example, micro- CHP and small scale biomass heat can have efficiencies as high as 75-80%.

    —  Microgeneration can help to engage consumers directly in energy. There is some early evidence that when householders take direct responsibility for their energy provision they become much more willing to take action on energy efficiency[85].

    —  Microgeneration technologies can help improve energy security as they represent a whole range of different technologies and fuels, most of which are renewable and plentiful in the UK. Micro—CHP and small scale biomass can also ease the burden on gas consumption by either using gas much more efficiently or providing an alternative energy source for heat.

  The Environment Agency has specific interests in microgeneration. These include our role in licensing hydro power and our work on biomass, incineration, planning, and sustainable buildings and communities. We support a greater contribution from microgeneration in a way that is sensitive to the local environment.

  There is a range of technologies that are classed under the microgeneration banner. Common barriers include land use planning constraints, metering, and the high costs associated with a development market that has not reached critical mass. There are also low levels of consumer awareness. We look forward to publication of the Government's strategy on microgeneration. We hope it will contain actions to address some of these barriers and support for microgeneration technologies.

  Our main recommendations to Government on the microgeneration strategy are:

    —  Encouragement to incorporate microgeneration into buildings and support for continuing grants with a community focus.

    —  The planning system can contribute to progress with microgeneration by supporting regional and local targets. Guidance on the planning implications of some types of microgeneration such as solar thermal panels could help reduce uncertainty.

    —  Widespread adoption needs to be underpinned by promotion, impartial advice and practical guidance for users. Accreditation of installers will be important to ensure systems can be trusted to perform well.

    —  The strategy needs to support microgeneration while recognising the need for high standards of environment protection. High standards need to be adopted and the effects of large scale adoption of some technologies monitored, eg possible air quality impacts of biomass.

    —  The public sector should lead the way in using microgeneration projects where practical, as the Environment Agency has at its new offices at Wallingford.

    —  To show the full contribution this proposed strategy will make to sustainable development, the social, economic and environmental benefits from microgeneration should be assessed.

4.  CONCLUSIONS

  The Environment Agency in this evidence has set out both its headline messages to the Energy Review as well as its responses to the specific questions posed by the committee.

  We welcome this Energy Review as an opportunity to put us back on track to achieving carbon reductions of the scale needed to avoid dangerous climate change.

Environment Agency

March 2006

















74   Potential for Microgeneration Study and Analysis, Energy Saving Trust, November 2005. Back

75   The European Commission has signed up to the need to keep global warming under 2C and to achieving emissions reductions to keep us on this path. New climate change science suggests that to keep to under 2C will require deeper and quicker cuts than previously thought. Back

76   For example, A new British Energy Policy, Dieter Helm, Oct 2005 and An Alternative to Carbon Contracts, Paul Ekins, 2005. Back

77   http://www.est.org.uk/aboutest/publications/eeirsummary/ Back

78   The Carbon Trust 2005, The UK Climate Change Programme: Potential evolution for the business and public sector. Back

79   Defra Feb 2006 http://www.defra.gov.uk/environment/energy/review/pdf/savingssinceapril2004.pdf Back

80   A recent Greenpeace report (Decentralising UK Energy: Cleaner, cheaper, more secure energy for a 21st century Britain, Greenpeace, March 2006) showed that Carbon emissions can be up to 17% lower in a decentralised rather that centralised scenario mainly due to savings in the transmission network. Back

81   Securing the Future, the UK Government Sustainable Development Strategy, March 2005. Back

82   Potential for Microgeneration Study and Analysis, Energy Saving Trust, November 2005. Back

83   Potential for Microgeneration Study and Analysis, Energy Saving Trust, November 2005. Back

84   Decentralising UK Energy: Cleaner, cheaper, more secure energy for a 21st century Britain, Greenpeace, March 2006. Back

85   Seeing the Light, Sustainable Consumption roundtable, October 2005. Back


 
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