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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 897-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE TRADE AND INDUSTRY COMMITTEE
THE GOVERNMENT'S ENERGY REVIEW
Monday 6 February 2006 RT HON ALAN JOHNSON MP, MR PAUL McINTYRE, DR DARON WALKER and MR RICHARD ABEL Evidence heard in Public Questions 1-83
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Trade and Industry Committee on Monday 6 February 2006 Members present Peter Luff, in the Chair Roger Berry Mr Michael Clapham Mrs Claire Curtis-Thomas Mark Hunter Miss Julie Kirkbride Judy Mallaber Rob Marris Mr Lindsay Hoyle Mr Mike Weir Mr Anthony Wright ________________ Witnesses: Rt Hon Alan Johnson, a Member of the House, Secretary of State for Trade and Industry, Mr Paul McIntyre, Head of Energy Policy, Dr Daron Walker, Energy Policy Project Director and Mr Richard Abel, Domestic Energy Markets, Department of Trade and Industry, gave evidence. Q1 Chairman: Welcome to this initial inquiry into the Committee's scrutiny of the energy review. May I ask you to begin by introducing your colleagues for the record? Alan Johnson: I certainly shall and it is a great pleasure to be here. On my far left is Richard Abel from the Domestic Energy Markets, on my left here is Paul McIntyre who is heading up the energy review team and on my right is Daron Walker, Project Director on energy. Q2 Chairman: Thank you very much indeed. As you know this is primarily about the energy review process itself, Our Energy Challenge, though some topical events have also occurred over the weekend which will feature in our questioning. Why do we need this review? Did the 2003 review not duck the issues? Alan Johnson: I was going to make a couple of comments for the record at the start, but the 2003 review did not duck the issues. The 2003 energy review in itself said that all these issues needed to be kept under close scrutiny and, actually, if you read parts of it, said that there may be a need for fresh documentation as we go along. What the Energy White Paper did in 2003 was rightly concentrate on building up a renewables market, which was non-existent at the time, concentrating on energy efficiency. If they had done anything other than leave the door ajar on nuclear - did not close it, did not open it - all the focus would have been there rather than on renewables. Now the situation has changed even in that short time span: North Sea gas is running out more quickly than we expected; new technology has advanced more dramatically than we expected, particularly on clean coal technologies like carbon capture and storage; we also have a geopolitical situation around the world where security of supply is perhaps more of an issue now for all countries, not just the UK, than it was a few years ago. Q3 Chairman: You had something you wanted to say by way of introduction. Alan Johnson: Just a brief statement in opening. In November the Prime Minister and I asked Malcolm Wicks to lead a review of UK energy policy. On 23 January we launched a public consultation, the start of a wide-ranging and thorough energy review. The review will look at what further measures might be needed to tackle climate change and ensure secure and affordable energy supplies in the UK for the long term. The review is based firmly within the market framework and policy goals set down by the 2003 Energy White Paper, namely: to put ourselves on a path to cut the UK's carbon dioxide emissions by some 60 per cent by around 2050, with real progress by 2020; to maintain the reliability of energy supplies; to promote competitive markets in the UK and beyond; and to ensure that every home is adequately and affordably heated. The challenge we face is starker than ever. Climate change is a reality which no country can now ignore. North Sea gas production has declined faster than previously projected and we are now a net importer of gas; we shall become a net importer of oil by around 2010. Our transition from being a net importer comes at a time of heightened concerns about energy security around the world. By 2020 the UK is likely to see decommissioning of coal and nuclear plants which contribute around 30 per cent of our generating capacity and projected prices for long-term fossil fuels are now higher than they were at the time of the 2003 energy review. So the time is ripe to review our progress against the four energy policy goals that I have mentioned and, if necessary, to take steps to ensure we stay on track. There are no foregone conclusions in this review and we know there is no single solution. The review is not about the short term. However, I do recognise the need for learning lessons from this winter as we assess risks for the long term and the need for any further action. May I say that I very much welcome this Committee's very useful and constructive recent reports on fuel prices and security of gas supplies? We are at the early stages of the review, but I look forward to the Committee's help and advice in addressing the important questions being examined. Q4 Chairman: And we were grateful for the very constructive response you made to our first report on gas; thank you very much indeed for that as well. What your initial answer to my opening question suggests is that this is indeed not a review really about energy efficiency and renewables, it is actually focusing on the nuclear question, is it not? Alan Johnson: No, and I am sorry my response gave that impression. No, it is not focusing on nuclear. Indeed, we have gone to great pains to say, exhaustively, that this is not focusing on nuclear. The whole team and where it has been drawn from, in terms of representatives from the Department for Transport, representatives from Defra, representatives from ODPM, is looking at our energy policy per se. It is not a review of nuclear. Nuclear is a part of our review. Q5 Chairman: Let us look at that team. This review is being conducted by an inter-departmental group of civil servants based largely, if not exclusively, in the DTI. Is that right? Alan Johnson: Yes. Q6 Chairman: The 2003 Energy White Paper was a much more extensive process, with lengthy consultation, committees of experts, a much more open and time-consuming process. Why do you think a team of civil servants, for whom I have the highest personal regard of course, working to a much tighter timetable can do as good a job as that last process? Alan Johnson: Because it is not a 2006 Energy White Paper. It is a review, building on lots of the analysis and the information that guided the 2003 White Paper, lots of analysis which has come since. We are not trying to recreate the 2003 White Paper. Indeed, as I said in my opening statement, we are taking forward the policy which was set out in 2003 and it is useful to have a review to look at that again and, yes, whereas in 2003 we could leave the door ajar on nuclear, I believe that now, as part of this review, we have to decide whether to close it or open it. Q7 Chairman: What will the output be from this new process? What will you actually do at the end of it? Alan Johnson: Produce proposals. Q8 Chairman: In what form? Alan Johnson: I do not know what form yet. We said in 2003 that if we were to go down the nuclear route, we would publish another White Paper, so if we were going to go down that route, we would need to keep to that promise that we made in 2003. If we are not going down that route, then there will not be a need for a White Paper in that context. We should have to see the result of the review and it is a very sensible process to take. Let us see what conclusions emerge, what proposals we shall be making and let us then decide whether that needs to have a White Paper, Green Paper, another form of consultation. Q9 Chairman: But your aim will be a statement to Parliament before the summer recess? Alan Johnson: Our aim would be to conclude this by the end of summer, which in parliamentary terms can stretch to about January of the following year. Q10 Chairman: Seriously? Alan Johnson: We very seriously want to keep to late summer. Q11 Chairman: So it may well be October before Parliament has a chance to look at this? Alan Johnson: We are going to try to keep very focused on this. We want this to conclude by the late summer. Q12 Chairman: I was quite struck by the list of other government reviews running in parallel to this review process. They are listed on pages 14 and 15 of the review document. How can you take the conclusions of all these various reviews on some very important issues, on climate change, energy efficiency, carbon capture and storage, land-use planning, radioactive waste management and so on and so on and so on, into full account during this relatively short timescale for such a big consultation exercise? Alan Johnson: Well we can and those other reviews are very necessary in doing different things. For example, we had the energy efficiency innovation review that Defra ran last year. As a result of that, and stemming from the 2003 White Paper, we are due to produce a report on micro-generation in April, which we shall do. We have the Stern review, which is not looking, as we are looking, at the domestic situation for the UK, it is looking at the whole international situation and the economics of climate change on an international basis. The Stern review will be working very closely with what we are doing, so there will be cross-pollination, so to speak. One of the other reviews is the HSE review specifically commissioned by this review to look at various aspects of energy and to help to inform our review. As for the final point about the Committee on Radioactive Waste Management, CoRAWM, which is due to report finally around June or July, they are due to produce their emerging conclusions, not just an interim report, but their emerging conclusions around about March/April and that will be a very important contribution to this review. There is not any duplication going on here and certainly the reason why we have drawn this review team so widely is so that we can keep in touch with all the other developments. Q13 Chairman: We shall see how successful you are in achieving that objective. One last process question from me before we get to questions of more substance. I was quite struck by the last sentence of the document, annex C "... a more complete presentation of and consultation on DTI projections, including fossil fuel prices assumptions, will be published shortly". Now what is "shortly" and is this not absolutely a central key piece of knowledge which we need to reach judgments on the review process? Mr McIntyre: May I answer that? The summary is actually in annex C and the fuller report, which I hope we shall produce from the DTI later this month, will be built around these same numbers; so the essential numbers are already here. Chairman: Right; so no significant changes to the numbers in annex C are anticipated, just more detail. Q14 Rob Marris: As you will be aware, the whole question of energy is very, very broad. The consultation document, somewhat frighteningly for me, says "... even if we had a completely carbon-free generation mix but took no measures in other sectors, we would fall short of our 2050 target", that is the target to cut CO2 emissions by 60 per cent. You said today that this energy review is "not focusing on nuclear" and you also said "we are looking at energy policy per se". On a rough calculation, a third of the consultation document is on one relatively narrow area, albeit very important, which is the generation of electricity; not just electricity but the generation of it. That would suggest to some of us that there is quite a focus on the possibility of nuclear there, if a third of your document is on one smallish area. What is your response to that? Alan Johnson: You would be wrong in drawing that assumption. If you look at chapter three, we say an awful lot there about transport and heat, which are the other two elements of this. Yes, a preponderance of the document is around electricity generation, but that is a major aspect here; not that transport and heat are not as important, they are mentioned in the document and they are a part of this review. In electricity generation, it is not just about nuclear, it about the objectives we set in 2003, it is about climate change in particular and it is about security of supply. Q15 Rob Marris: But you are talking about one chapter, chapter three on space heating and transport, both of which use roughly a third of our energy and there is some space heating by electricity, but most of it is not. Do you not think there is an imbalance in the consultation document on this? Alan Johnson: There are three chapters and if that covers a third, then that is just about right. Q16 Rob Marris: So you are satisfied the balance is right? Alan Johnson: Yes. Q17 Chairman: I just want to be absolutely clear on this, because I do have a concern that industry may be asked to pay too much of the burden in climate change issues; the domestic sector and transport sector have huge contributions to make as well. They will be a firm feature of your conclusion. Alan Johnson: A very large feature, yes. Chairman: Thank you very much indeed. We now turn to the question of gas. Q18 Mr Hoyle: Obviously, as you will quite rightly expect, the consumers feel hard done by at the moment. They feel that they have taken a caning over gas prices and, to be quite honest, they are shell-shocked, if the press are to be believed, at a further 25 per cent increase. Critics will say that the gas industry has let them down with their failure to invest in the long-term energy needs of the UK and some would ask why the Government have not intervened to ensure that that took place. Alan Johnson: First of all, there is speculation about gas price increases and it is certainly the case that the increases in the wholesale gas prices are likely to feed through in some respect to retail. That is not just a problem here, it is a problem in every other European Union country and it is a much wider problem as well. Gas prices in Germany have increased by 75 per cent over the last year. Are domestic customers entitled to be concerned about this? Of course they are. Of course they are entitled to be concerned, but are they entitled to draw the conclusion that Government ought to intervene or that in some way we are not being well served by the market? I should not agree with those last two comments. First of all, in terms of government intervention, the review is looking long term. I have not met anybody in terms of short-term issues who has suggested that the Government ought to step into the market. There are people who have said the Government should do more in terms of storage capacity, they should do more to deal with that aspect of rising price increases which are not due to the tightness of the gas supply in this country and that is right. However, 50 per cent of the price of gas is due to the doubling of the price of oil and not many people think that the UK Government have an intervention here that could have resolved that. The majority of customers recognise that actually the market has been good. In terms of domestic gas prices, I believe we are still at the level in real terms of gas prices in 1988 and we are certainly below domestic gas prices in the rest of Europe where they have not had the same level of liberalisation. Domestic customers need to understand more perhaps; we need to do more and Ofgem need to do more to explain the benefits of the market, that is that they can change suppliers. Ofgem put out a news release recently to show the kind of savings which can be made, on average £46 per consumer per year, through changing their supplier and making that market work for them. You are absolutely right about the concern about prices, but to put that in a context of saying we should be better off if we went back to state-owned monopolies would not be a sensible conclusion. Q19 Mr Hoyle: That is not what we are saying. What we are actually asking is whether the Government should have forced companies to invest in the long-term energy needs of consumers in this country. That is the problem: it is their failure which has also ensured that prices have gone up. We all know that when maintenance has taken place on rigs, it all seems to have taken place at the same time in order to force the price up, in order that the loser at the end of the day was the consumer. Unfortunately, whether we like it or not, we do know that British Gas have refused to comment on whether it is correct that a 25 per cent increase is coming. It is that worry and quite rightly, as you say, it is important that we ensure we have warm homes, but we shall not be able to have warm homes with price rises like this. That is the great worry for the public out there. I just wonder what the Government can do to force the issue to ensure that we do plan for long-term energy needs, but also, more importantly, that we have long-term price structures in place. Being so self-sufficient in gas and allowing so much gas to go into electricity generation has been the failure and the householders, the consumers and industry have come second in gas needs and therefore the price has gone up substantially. That is presumably part of the issue that we have to face up to in the review. Alan Johnson: Yes, it is for the long term, but I just repeat that prices have been historically low, incredibly low, and domestic consumers have really benefited from that and so have industrial consumers. In terms of why we are in the situation we are this particular winter, about 50 per cent of the price is because gas prices are tied to oil prices. There is no law of gravity that connects them. Q20 Mr Hoyle: Should they be separated? Alan Johnson: They should be separated and liberalisation will separate them by a natural process. Another 25 per cent of that increase is probably caused by the point you made, not enough foresight to see that we would need more facilities for gas this particular year. That was not done deliberately. We have debated this in Parliament. All of the experts said that the UK continental shelf would run down, we should become a net importer of gas by 2006 and it happened much earlier than anybody predicted. It would have been foolish to build great storage capacities when we had reserves. Norway has no storage capacity because it has reserves and they certainly did get it wrong; everybody got it wrong. I do not think there was anything deliberate in that to drive up prices. Q21 Mr Hoyle: When can we look forward to the decoupling between oil and gas and quite rightly because we both know that is half the problem causing the price to be so high? Do you see that short term or long term? Alan Johnson: Medium term I hope. Q22 Miss Kirkbride: You just said that by shopping around consumers could save £46 a year off their bill. Given that average family household bills are going to be around £1,000, would that really show a great level of competition? Alan Johnson: Actually I am not sure whether that is £46 per year or £46 per month; it may well be monthly. I am going by the Ofgem press release, so we will get back to you on that. Q23 Chairman: Quite a big difference; £500 or £40 is quite a big difference. Alan Johnson: The point Ofgem are making is that there are potential savings to be made by shopping around and we became used, in this country, certainly I speak from my own experience, to one supplier and you think that is the only supplier you can ever have and although there has been a liberalised market for a long time, people still tend not to take advantage of that in terms of getting a better deal on prices. The £46 is annual. Q24 Miss Kirkbride: So not a lot to be done by shopping around. Alan Johnson: It is a saving. Q25 Roger Berry: In the consultation document we are told that to meet our fuel poverty targets 1.1 million households will need to be removed from fuel poverty by 2010 through a policy intervention. That is only four years away. What policy intervention do you have in mind? Alan Johnson: This is one of the most worrying aspects of rising prices, because we have taken four million out of fuel poverty and because prices are going up it is bound to slip back. The Chancellor announced in his Pre-Budget Report an additional £300 million to tackle fuel poverty which, together with the other available resources that were announced in the spending review of 2004 means there is over £800 million available. The kinds of market interventions or the kinds of support we can give are: the winter fuel allowance, which the Chancellor also announced would be there for the rest of this Parliament; initiatives like the Energy Retail Association's home heat helpline which gives vulnerable customers a one-stop shop to which they can go to get advice on energy efficiency measures, payment advice, benefit entitlements, which would also help of course; the warm front campaign and other associated initiatives where there is a huge benefit in somebody visiting somebody's home, not always pensioners. There is a point about other vulnerable groups as well which I know this Committee made in their last report, but for pensioners in particular, the Pension Service will go to pay a visit and at the same time as sorting out entitlement to pension credit or savings credit and other benefits, they will also ensure that they have insulation in their home, that they have facilities to make the heating that they do have go further and that has been enormously successful. We need to do more of that. We need to get to more people through those kinds of initiatives. That is the kind of policy intervention. Q26 Roger Berry: The Committee has drawn attention to the fact that there are non-pensioner households which are vulnerable in terms of fuel poverty and households with disabled or ill members and in your response to our last Committee report, you did accept the Committee's recommendation that tackling fuel poverty in households containing someone who is disabled is a very important element. Could I tempt you to go slightly beyond that and at least make a commitment to consider the possibility that winter fuel payments may, in specific circumstances, be a very effective way of helping those who are under 60 who suffer from high fuel prices, particularly disabled people? Alan Johnson: What we pointed out in our response was that fuel poverty would be an important area for the review, particularly the aspect which you have raised, which is vulnerable groups such as the disabled. We have seen the statistics change dramatically for families with children and the elderly. It is disabled people that we need to concentrate on and we said we would look at that in the review. Q27 Mark Hunter: You will be aware that a lot of concern has been expressed over the hike in energy prices, both those which have already happened and indeed those forecast to happen. One of the key areas of concern is how it impacts on fuel poverty particularly for older people. You will probably have read this morning in the national press the comments of the Director General of Age Concern, who pointed out that older people and those on fixed incomes are hit hardest by energy price increases. He said that the choice facing many older people is likely to be between heating and eating. What would your comment be on that? Do you think that is scaremongering or do you think that is accurate? Alan Johnson: No, I do not and that is why when we came into government in 1997 and we found five million people in fuel poverty making that choice between eating and heating, we made it an absolute priority. We have taken 4.1 million out of fuel poverty and that is a great achievement but, because the definition of fuel poverty is that you are spending 10 per cent or more of your income on fuel, then rising prices are bound to bring more people into fuel poverty and a figure of one million is not unrealistic. We have to redouble our efforts. That is why Gordon Brown made his announcement in the Pre-Budget Report about extra resources being available. That is why we now have more than £800 million available. That is why with the winter fuel allowance, £200 for the over-60s, £300 for the over-80-year-olds, the warm front scheme and other initiatives, we need to redouble our efforts to ensure that these most vulnerable domestic consumers receive help and support. Q28 Mark Hunter: Do you think those measures will be adequate, if the forecasts are to be believed and average households will be facing energy bills of £1,000 a year? Alan Johnson: We have to have adequate measures available; that is what we are committed to. Q29 Mr Clapham: Just following on the questions that Lindsay was asking, one of the things that the energy review is concerned with of course is ensuring that we have efficient supplies of energy and what further the Government can do to determine that. It seems that much of the information which is being put out to consultation is really placing the focus of reliance merely on gas imports. Are there any other adjustments that you can see being made to the market framework of the gas market, that are going to be necessary and essential to ensure reliance? Alan Johnson: Yes and they follow on with our forecast of what is going to happen on gas. What we are saying here is a mixture of EU directives focusing on emissions from coal-fired power stations and the decommissioning of nuclear power stations means that by 2020 we shall have lost 30 per cent of our energy supply from those areas, from coal and nuclear. That would mean, if it were replaced by gas, that we would be reliant to the tune of around 80 per cent on gas. So the questions we pose and the questions we ask during this consultation are: given the geopolitical situation around the world, given that we shall not able to take that from our own resources, from the UK continental shelf, which puts us in exactly the same position as other G7 countries except Canada - there is nothing new, indeed we were a net importer until 1998 and we have only been a net exporter between 1998 and 2003 - given that that is the situation, given some of the developments in the world, is that satisfactory, are we comfortable with that? That brings us on to the issue of diversity because for security of supply you need to look to see how diverse your energy mix is. For instance coal, which you may or may not be particularly interested in - I am just making a guess here - can have a bit of resurgence here. It would have been nowhere in the mix, because to get to 60 per cent reduction in emissions by 2050 coal, with twice the CO2 emissions of natural gas, would have been nowhere in the mix but clean-coal technology now adds a whole new dimension to this debate. That is why coal is going to be a central issue as part of the whole energy mix in this review. Q30 Mr Clapham: So other adjustments do need to be made. Given that there are some concerns about the amount of gas that we do burn off in power stations, we are talking in terms of 40 per cent, is it possible that you may, within the context of the review, look at ring-fencing the various proportions of energy mix into the market? Alan Johnson: It is a question you have asked me before on the floor of the House. The review will come out with the conclusions that it comes out with. I find it difficult to comprehend that there would be a strict ring-fencing around each particular part, because that would interfere with a properly functioning market. That is obviously going to be the contribution from Barnsley West to the review and we shall look at it, but I just find it difficult to think that it will be there in our final recommendations. Q31 Mr Clapham: So will it all be down to the market? Alan Johnson: All down to the market, but with the very important caveat that we do things like the Renewables Obligation. The Renewables Obligation says that electricity generators must generate 15 per cent of electricity by 2015 from renewables. Government can push policy, particularly on climate change, in the areas that it wants to push it towards. That is a different thing completely from putting our size 16 hobnail boots in and stepping into the market as we have seen in some other countries. There is a very good example, which you ought to have a look at, I think it was Toronto, it was an area of Canada that famously interfered in the market six years ago and they are living to regret it because of the results. Q32 Mr Wright: We are all very fine, according to this document, up until 2015 when we are talking about the ten-year plan. What really has not been looked at is what happens after 2015. The plan here quite clearly shows that with the supply increasing, after 2015 it starts to decline. By 2020 we are going to be reliant on 90 per cent of our gas coming from other areas. What projections have been made after 2015? Alan Johnson: There are projections. There are two things about this diagram. This is about gas. First of all, demand there is based on demand as we see things at the moment with the Renewables Obligation, with nuclear being gradually decommissioned et cetera. It also does not take enough account of energy efficiency. This is a really big issue about how we can concentrate on energy efficiency to tackle a major part of this problem. Within that caveat, that is the first thing, that demand level may or may not and it is very much for the review to look at 2010 and beyond. On the other issue, I do not know whether we have projections beyond 2015. We must have projections beyond 2015 but just before Paul says something about that, the point you will notice here is, if you draw a line up from 2005-06 up to the line, that you will see our problems this winter and you will see how gas from the Netherlands in particular and the LNG imports into Milford Haven et cetera make the situation much better after next winter. We have another tight winter next year. It is precisely because of an unclear picture further down the route that we are setting up the energy review, but whether we have projections beyond 2015, I am not sure. Mr McIntyre: We have done some projections up to 2020 and they are reflected in other bits of the document, a number of scenarios for the energy mix up to 2020. During the review one of the things we shall want to do is extrapolate forward up to 2050, so we also have some basis for looking at that longer-term period as well. Q33 Mr Wright: In response to this, obviously we are looking at the question of the infrastructure needs to bring this gas ashore for our use. You mention within the report possible significant non-commercial barriers to infrastructure development or operation. What do you have in mind there? Alan Johnson: Planning and planning consents, which was projected by one commentator as being the major reason why we have a problem this year. I do not think that is right. As far as we can find out, only one planning consent has been refused that would have added three per cent to our gas supply this winter. For the future, and certainly when you look at issues like renewables and the transmission system and how it gets into the national grid, you need to look at planning. There is the Barker review which was announced in the Pre-Budget Report, to which we have added the dimension of energy. That is the major issue that we are considering. Q34 Mr Wright: Is that a short-term issue that you have a problem? Alan Johnson: It is a short-term issue and there might be other ways to tackle it in the short term. However, given that this review is about the long term, feeding on the result of the Barker review, we should like to see how we can deal with some of those issues, if we can deal with them. They are some of the issues that companies and businesses have said to us, renewables businesses in particular, are a major barrier. Q35 Mr Wright: Just very briefly on the question of the gas. You mentioned the problems that we have up until next year. Is it not going to be a problem that we may well create a dash for gas straight after 2006-2007? Alan Johnson: I do not think there will be a problem about a dash for gas. Our problem at the moment is having gas to dash to; it is having the supply system right so we can get the equilibrium right as we demonstrated in that chart. Dash to gas was a particular phase; we have tried to encourage a dash to renewables and we are now up to four per cent; 2004 was a record year. When we get the figures for 2005, it will be better still. If we can get some of these transmission problems sorted out and some of the barriers, we can improve on that even further. It depends how you define a dash for gas, but, as I said in answer to the previous question on whether we should be comfortable with 80 per cent reliance on gas, the answer would probably be no, not comfortable. Q36 Mr Wright: You mentioned the question of the storage facilities that we have. Did you say 90 per cent? Alan Johnson: I am not sure what storage facilities we have now in percentage terms. Q37 Mr Wright: The ones which are being planned and actively developed. The report says "if they all went ahead". What would be the "if" within that concern which you have? Alan Johnson: There are always "events, dear boy, events" waiting around the corner on these things However, if everything goes to plan, we have the new LNG terminal at the Isle of Grain now, we have doubled the capacity of the Belgium/GB gas inter-connector and the fact that it is not coming through as well as might is being examined by the European Commission, we have a new storage facility at Humbly Grove in Hampshire, we have three projects expected to be commissioned in 2006, one of which is very close to my constituency, the Langled pipeline importing Norwegian gas to Easington, the further upgrade to the existing connector and the very important BBL line connecting with the Netherlands. It goes back to what we were just talking about. They have to get specific planning permission, that all has to go ahead and there are commercial considerations which could affect storage projects. These are not government-run, centrally determined Stalinist facilities going up around the country; it depends upon the commercial climate. That is the kind of caveat, that is the big "if", but certainly nothing has happened that has led us to expect that these will not ahead as planned. Q38 Mr Wright: So you are reasonably confident that they will. Alan Johnson: Yes, we are Q39 Chairman: There is a requirement on oil companies for a strategic reserve of oil, is there not? There is no such requirement in the gas area, is that correct? Alan Johnson: There is no requirement for gas, no. Q40 Chairman: Is that something you are considering as part of this review? Alan Johnson: It is something that was raised with us, because that is the case in America. I believe they have a strategic gas reserve, so we have said that the review ought to look at that. Q41 Roger Berry: On the question of the projections in chart 13, how good has the DTI been at projecting supply and demand in the past? Alan Johnson: Excellent, I should like to say. Q42 Roger Berry: Sadly the premise here of course is that you under-estimated how rapidly we should become net importers. That is the kicking-off point for much of this consultation. On the margins of error on chart 13 - it is a serious question - are we talking about plus or minus 15 per cent for each of them, or five per cent or what? I am just curious. Alan Johnson: We were not far out on demand and we were not far out on what would come in from the Belgium/GB inter-connector which we worked very hard on. We realised the need to get liquid natural gas in. The one area there which went down more quickly than we expected was the UK continental shelf. In terms of other projections that we have made before that we might be embarrassed by ... Mr McIntyre: Just on that one, outsider commentators were making rather similar projections to the Government earlier in the decade. I am not sure that we were very far out of line in terms of the projections we were making about when we would become a net gas importer. Q43 Roger Berry: I wanted to ask about the European markets. The consultation document points out that one factor in recent price rises has been our interaction with Europe and it gives the European Commission quote about serious malfunctioning of markets in Europe and we have heard all of this before. We have in the UK realised that there is an issue here about inadequate liberalisation in Europe. The document goes on to talk about the lack of liberalisation and also implications for the UK's reliability of supply. We had the UK presidency for six months. From reading the consultation document, the only thing I can spot that came out of that was a thorough debate at the Energy Council. Am I being unkind? Alan Johnson: Yes. Q44 Roger Berry: In which case I should love to be corrected, because I want to be fair to everyone all the time. Alan Johnson: When there is a situation that other EU Member States are not putting EU policy into practice, it takes more than six months to sort that out. What happened at the Energy Council in December was that Malcolm Wicks raised this at the Energy Council from the chair, all 25 Member States agreed. The first problem would have been if there had been an argument about the need for liberalisation. There was not. They all agreed. We had a Commission and a Commissioner who were particularly vehement about tackling this problem and, as a result, we have three inquiries going on. We have the big one, that is the inquiry by the Commission into the situation in the rest of the European Union as to why they are not being liberalised as quickly as they should be. We have the inquiry into the reasons why gas was not flowing through to the UK, which could have had a price of 180p per therm when we hit the huge peak just before Christmas, why it was not arriving. That is another cause of an inquiry and there is another investigation which the EC has agreed to initiate into whether abusive behaviour or distortions in the European market may be causing short-term volatility in the UK gas market. So those three areas were as a result of us raising this issue very firmly during our presidency. It will take time, just like liberalisation of other markets in the EU has taken time. Q45 Roger Berry: The obvious question is: do you believe that there is the political will to deliver on gas market liberalisation in Europe or are these three ways of kicking it into the long grass? Is your candid assessment that things will happen and if so, what kind of timescale are we talking about? Alan Johnson: It is my candid assessment that things will happen and they will happen pretty quickly and they will happen much more quickly after the events over Christmas with Gazprom. Forty per cent of Germany's gas supply comes from Russia. Europe as a whole, I am not sure of the statistics, has a big dependency. We do not have any dependency on Russian gas at the moment. In terms of the trauma that went round about security of supply and about the things that could happen in the European Union, breaking up large state-owned monopolies which are used as political tools has to be a major, major priority of the European Union. Q46 Chairman: You were optimistic about a timescale for that in the earlier section of your answer. When do you think we shall see a significant step in the right direction? Alan Johnson: I hope that by the time that Neelie Kroes, the Commissioner, finishes her report that will lead to some short-term measures. Q47 Chairman: Which is expected when? Alan Johnson: This year; I am not sure when. Q48 Chairman: I rather feel we have heard all about European gas market liberalisation before; it is a tough nut to crack and I hope your optimism is not misplaced. Let us just look at this geophysical security of gas question. When you woke up and heard about Gazprom's behaviour in relation to the Ukraine, what was your first reaction? What did you think? Alan Johnson: Where is Malcolm Wicks's phone number? Actually, for the reasons I have just described, this was not a bad shock wave to send through the world because the Prime Minister had said at Hampton Court last November, when we hosted the European heads of state, that we ought to have an EU energy policy, which Chirac agreed with and which is now something which is gaining momentum. That includes an EU liberalised market as part of that EU energy policy. That would have helped to galvanise anyone who was sceptical about that. It was worrying, because it could have led to a very serious political situation and you can see how, if you look to other parts of the world, the Middle East in particular, never mind security of supply, security of the world can be flattened by disputes over energy. It is very worrying. Q49 Chairman: One of the major questions in your review document, which this Committee will concentrate on over the next few weeks, is views on the implications of increased dependence on gas imports. You have given us some clues there, but is there anything in particular that you would like this Committee to look at? What are you thinking of? The document is quite coy in this area and does not say very much. Alan Johnson: You do not need me to make suggestions, because I know you are already looking at this: it is this geopolitical question. Where are the oil reserves? Where are the gas reserves? Can we be sanguine about the future if ...? A large amount of our gas will come from countries which are perfectly stable like the Netherlands and Norway, but these are issues which have grown in importance. Q50 Chairman: What happens when Gazprom buys a major British energy company? What does that do? Alan Johnson: Gazprom have not bought a major British energy company. We are in a position where there has not been any bid. If there were a bid, we have very robust competition policy in this country. Q51 Chairman: Which is based entirely on competition and not public interest. Alan Johnson: It is, but then government ministers have a role if there is a threat to the security of the state. Those three mechanisms will be called into place if any bid is made by any company to take over one of our major gas suppliers. Chairman: There are too many hypotheticals here for me to pursue so I shall not. I shall move to the question of the Emissions Trading Scheme. Q52 Mr Clapham: We were talking earlier about the impact that carbon prices can have, for example, on reductions initiatives. That, in its turn, impacts onto the market mix or it can impact onto the market mix. In terms of the current European Commission review of the EU carbons trading emissions policy, could you say a little about the UK Government's input? Alan Johnson: Yes. We shall put forward our suggested cap for Phase 2 by June 2006, which is the European deadline. The point we would make is that under Phase 1 we showed leadership as we have shown on these climate change issues and environmental issues for a long time in international policy as well as European and domestic policy. We decided we should bring the cap down to six million tonnes of carbon. It was notable that not many other countries in the European Union followed our lead. This has created a concern for British businesses which are saying we have now made ourselves uncompetitive, for the right reasons, and it has to be tackled, but we must not make the UK uncompetitive. Everybody has to act in the same way. We have to reduce EU emissions as a contribution to environmental climate change. The point I am making is that we are not rushing in this time in the second phase. We are going to wait and see what other European Union countries intend to do. Q53 Mr Clapham: The competitive question is very important. Is there anything more that we could do to influence the EU to do more to ensure that others comply as we did with Phase 1? Alan Johnson: Yes. This is another reason for an EU energy policy where you would have an EU Emissions Trading Scheme which had a cap which was agreed right across Europe and every country made the same contribution or every country that could make a contribution, made the contribution. We do not have that. What we do have is that every European Union Member State has signed up to Kyoto because we all signed up to it together and there are many European Union Member States who are not, as we are, in the happy position of having met the Kyoto targets. Many of the major European Union countries, of course, are members of the G8 which agreed last year in Gleneagles to a whole series of efforts to tackle climate change. Margaret Beckett had a remarkable success in Montreal before Christmas. It did not get the coverage it deserved actually, because it was just before Hong Kong, but there was a real breakthrough there on 2012 and beyond. For all these reasons, the political pressure can be put on other Member States to make a better contribution perhaps in Phase 2 than they did in Phase 1. Q54 Judy Mallaber: You are giving yourself four months to sort out this row that has been reported in the media over the last week between yourselves and Defra on the size of the emissions cuts that should be imposed on large industrial customers under Phase 2. It has been all over the newspapers. Maybe you could tell us something about that. What would be the effect on the price of carbon if the DTI got its way? You were sounding much more cautious earlier. What would be the effect on the price of carbon if Defra got its way, or is there no decision? Alan Johnson: I know you are going to be very disappointed about this, but there really is no row between DTI and Defra; there really is not. In relation to the climate change programme review where we are looking to get back on track for a 20 per cent reduction by 2010, this is obviously a feature of this, but there is no disagreement between government departments. There is no disagreement that we ought to ensure that UK businesses are not affected adversely. If they are, they will up sticks and move to a country which it outside the European Union, never mind outside the UK, and will be emitting as much as they like. Everyone recognises that and everyone is working to get this balance right. In terms of the original question about Phase 2, we shall not go in gung-ho. We were right to do that in Phase 1 to set an example and show some leadership and in Phase 2 we shall be a bit more circumspect. That is a view shared right across Government. Q55 Judy Mallaber: What would the effect be on the price of carbon of that balance you are trying to strike? Alan Johnson: I shall tell you that when you have another meeting when we have actually put forward our Phase 2 proposals. Q56 Judy Mallaber: Let me try to push you a bit further then. You are saying there is no disagreement with Defra, but the suggestion is that one side of the argument was that industry could sustain deeper emissions cuts. If there were deeper cuts, would that actually make the nuclear option more attractive because of the implications for the price of carbon? Alan Johnson: It is not really about the nuclear option. The nuclear option and the review are focused on 2010 and beyond and well beyond 2020. We are looking first of all at a Phase 2 that will run from 2008 to 2012 and we are also looking at a Phase 2 figure that has to go forward in June of this year. It is not being looked at in the context of nuclear. It has been looked at in the context of whether business is right in saying that a competitive disadvantage has grown up on energy. Companies make long-term business decisions about where to invest and the fact is, with Phase 1 and what British businesses did to bring down carbon emissions, that has to put them at a competitive disadvantage and we have to ensure that there is a proper balance here and there is no disagreement across government about that. Q57 Judy Mallaber: Do you not think that wherever the final decision rests on that is going to influence the relative attractiveness of different forms of energy and therefore influence that debate about that balance between different energy sources? Alan Johnson: Well it will. I am just separating it from the energy review. There is no way that the climate change programme review has anything to say about nuclear or which particular path to go down because it is focused on 2010. Q58 Chairman: I could not help overhearing a sotto voce comment from my colleague, Lindsay Hoyle, which said "No row but a difference of opinion then". Are you really saying that there is complete unanimity between Defra and the DTI on the cap? If there is, you could tell us what it is now, could you not? Alan Johnson: There are always differences of opinion; I am not saying there is not a difference of opinion. I am saying there is a difference of opinion on this between DTI and Defra, but differences of opinion obviously occur. We should not be announcing a cap now anyway because we all agree that we shall put our cap forward very late in the day when we have seen what other European Union Member States are offering. That is not a disagreement. Q59 Chairman: That makes sense and I accept that. I am a bit surprised by your lack of emphasis on the importance of the Emissions Trading Scheme second phase in determining commercial decisions. We are going to move on to a few questions on coal and nuclear now in our concluding section, but surely you can expect commercial organisations to make estimates of the price of carbon fuels, because they have access to the same kind of analysis as you have and your document is helpful here and we are promised more detail later by your officials. They cannot guess what the Government are going to do when setting the price of carbon. Is it not the case that even the second round of ETS has an appallingly short planning horizon, people making major decisions on coal stations, never mind nuclear stations? Is it not an absolutely key part of this energy review that governments set the price of carbon? Alan Johnson: Yes, is the answer to that and you raise a very important point. The first point is that we shall only get a projection of the price of carbon when all the EU Member States have agreed to what they will do under Phase 2. The second point is that I do not want anything I have said to undermine the importance of the Emissions Trading Scheme. Cap and trade is the big idea. Businesses like that much better, for instance, than taxation as a policy. The idea came from Chicago originally and you see what is happening now with voluntary cap and trade schemes. It is really something that will have an enormous influence on the future of this planet. I do not want to undermine the Emissions Trading Scheme; that is the last I want to do. We are arguing that air transport fuel ought to be part of the Emissions Trading Scheme. The one simple point I am making is UK competitiveness vis-à-vis the rest of the EU and the timing of when we go forward with the cap on Phase 2, having seen what happened in Phase 1. It is not in anyway saying that emissions trading is now less important and that we are resigning from it in some way. The last point you make is crucial because businesses say over and over again that they want long-term certainty. One of the reasons why we are having this review - and Phase 2 will take us to 2012 which is where Kyoto takes us to and you are quite right that it is not very long - is so we can stretch beyond there and we can get a long-term horizon. We have done it domestically: 60 per cent by 2050. There needs to be a real international acceptance of the need to set these long-term targets, to have measures to work towards them and to give business the certainty that they need. Q60 Judy Mallaber: A while back you were very positive in your evidence on the possibility of a resurgence in coal and in your opening you talked about a carbon-capture clean-coal technology. Obviously you have not made any final decisions yet, you will say it is all part of the energy review, but what is your thinking at the moment about the Government's commitment to the future of the UK coal industry and the work that needs to be done on clean-coal technology? Alan Johnson: As far as the UK coal industry is concerned, we have put something like £60 million into helping the UK coal industry. The reason I say coal has become much more interesting is because as the price of gas has gone up, coal has become much more competitive. At the same time, you have the carbon sequestration technology which has come along. In a much wider sense than our review, we did a deal last year when we went to China on the EU/UK summit which is the first step to sharing technology with China who will never build tons of wind farms and who believe that developed countries lecturing them about the need to get their carbon emissions under control is just a way to stop their growth. They are suspicious of that but they understand the problems of the environment. So you come along with something like clean-coal technology and it opens up a whole new prospect there. That is why I say coal. Would it be British Coal? The figures suggest at the moment that we are getting 31.6 million tonnes of our coal from Australia and South Africa, 18 million from the UK, so there is obviously still an attraction in importing coal from abroad as it is cheaper. What comes out of this review in relation to coal is one thing. The ramifications for UK coal are something completely different and we shall have to wait for the review to see what emerges, but coal is going to be a central feature of that review. Q61 Judy Mallaber: I do also have, within my constituency, which is built on coal, continuing pleas from those who are campaigning against opencast mining with a concern that that might get back into the equation and change the criteria which we strengthened against environmental damage through just scooping off the surface of the environment. Is that an area that you are looking at in the review or not? Alan Johnson: It is, yes. Opencast mining is one of the aspects that we should have to look at. It is not just about deep mines: it is about opencast mining as well. Q62 Mr Clapham: You made the point earlier about my interest in coal and I have always believed that coal can play a very significant part in the economy, particularly as burned in new clean-coal technology units. It is compatible with renewables if it is burned cleanly and a number of people are now coming round to that particular view. What are we doing at the present time, for example, to incentivise the generators to invest in what may be the first phase of clean-coal technology and that is super-critical boilers with carbon capture? Alan Johnson: The first thing we have to do is get a proper demonstration model which we have set up with the BP Miller site on carbon capture and storage and a number of other demonstration sites. We have set aside some money to help this process along until we get the full picture here. I understand that carbon capture and storage can reduce CO2 emissions by 80 per cent, which still leaves 20 per cent but is obviously a huge step forward. Not quite renewables in terms of cleanliness, but the first thing to do is invest in the technology and the science to get a proper demonstration model that we can then take further and that is what we are doing. Q63 Mr Clapham: Coal burn is much more flexible. Take, for example, nuclear stations: in go the rods, out comes the electricity, it has to be taken down the line. The one thing about coal units is that they are much more flexible and can be turned on and off as demand comes on and, in that context, fitting new clean-coal technology means that there is a much more reliable source. Is that something that you will be looking at as well in the review, how different mixes have the potential for that greater flexibility? Alan Johnson: Yes, because it meets security of supply, it meets the challenge on carbon emissions and it also would be an aspect of affordability that we need to look at. I do not know whether we have looked at anything specific on the specific technology that Mike mentions. Chairman: I know you are anxious to get away Secretary of State, but there is one whole section on nuclear before we let you go. Could you write to us on that particular point possibly? Q64 Mr Hoyle: Mick Clapham has touched on the energy mix and I just wonder whether you have a vision. I know you are a man of vision; you are always saying what is going to happen in the future. Under your vision, how do you see the energy mix coming out? Would you think 30 per cent coal, 30 per cent nuclear, 20 per cent gas and 20 per cent renewables? What mix do you have in mind? Alan Johnson: I do not have any mix in mind and I have a vision on many things but I have not had a vision on this, unless one comes to me. We are not starting off on that basis; we are not starting off on the basis of "Wouldn't it be nice to get?" the point about ring-fencing that Mick Clapham made. We are going to have the review. We are going to get all the information, get all the contributions that people want to make to this, look at the whole thing in the round and then I might form a vision or a view about what the proper mix should be. Diversity is the key issue. Q65 Miss Kirkbride: It seems to me that you have been a bit schizophrenic today about energy policy. On the one hand the gas market is for the market to decide and on the other hand you were taking credit for the renewable target of 15 per cent which is very much driven by the Government and very welcome. You have rightly said that we cannot possibly have 80 per cent of our electricity supplied by gas because of the vulnerability that would lead to. In the exchanges we have just had it is obvious that carbon capture is not there yet today or even for the immediate tomorrow. Does nuclear not have to be part of that mix? Alan Johnson: It does not have to be. I should draw a line between interfering in the market and helping a sector that was non-existent, but perhaps should have been. If we had got into wind farms and wind turbines in the 1980s when the Danes got into it, we could have had a market there, but there was no market at the time of the energy review and creating a market from nothing, given the importance of climate change, was very important. The Renewables Obligation was perfectly justifiable in that respect. There is a difference between that and our clod-hopping into the market on prices and everything else. In terms of whether nuclear has to be part of the equation, no, it does not have to be part of the equation. We do not start from saying we are going to do this review but nuclear has to be part of the equation otherwise the professional cynics, who have said that this is all pre-determined, would be right. They are not right. The only decision we have made on nuclear, as the Prime Minister has said, is that it is time to make a decision because of the long tail between making a decision and having a nuclear power station. If nuclear is to be part of the mix, it is very much for the market to decide that, but the market, quite rightly, would be saying they need signals from the Government if they are going to go down that route. If you look at it from the point of view of climate change, security of supply, affordability and you look at energy in the round, nuclear does not have to be part of the solution. Q66 Miss Kirkbride: But this Government have already failed to meet their target; CO2 emissions have gone up since the Government came to power despite the fact that you said that you did not want them to do so. How can we possibly continue at the level of economic activity that we have today and keep carbon emissions under control unless we have nuclear? Alan Johnson: That is a question for the review. Q67 Miss Kirkbride: You must have a view on that? It is not possibly surely, is it? Alan Johnson: I do not actually have a view on this. I have never been particularly pro or anti nuclear. The reason why we are having the review is to answer that very question. Does it need to be part of the mix? Is it an essential to be part of the mix? The issues that the Energy White Paper looked at in 2003 about affordability and about waste, toxic waste, are a very important consideration which we shall be looking at. Q68 Miss Kirkbride: The Government had a review of energy just two years ago, knowing that the amount of energy produced by the nuclear sector was going to drop from around 19 per cent today to 7 per cent in 2020 and did not refer to this at all. We cannot re-commission the Magnox; we cannot extend the life of the Magnox reactors. We are facing quite a serious crisis now and it is very hard to see, given the competition for energy resources across the world, how we are going to meet that demand here unless we go nuclear like pretty much all the rest of the developed world is. Alan Johnson: My view is shared by the shadow trade and industry spokesman who I saw in an interview on Saturday, who was saying precisely the same thing. There is no reason why there cannot be a solution to this, when we have looked at all of this, that says actually nuclear will not be part of this equation. I can see a lot of reasons, a lot of arguments why that should not be a conclusion reached, but it is still perfectly possible to reach that conclusion. We do not start from the basis of saying that we are having this review because it is quite clear to us that we have to have nuclear new build and the review is about how to implement that. That is not the purpose of the review. Q69 Miss Kirkbride: So are you saying that we can finish this energy review, not re-commission any nuclear reactors and still meet our climate change aspirations? Alan Johnson: If we did, we would say, this was now Government concluding that in our long-term energy policy nuclear would have no role. That is the difference. By the end of this review, we shall either be opening the door to nuclear new build or we shall be closing it. We shall either be Germany or we shall be France. Q70 Mark Hunter: I want to probe a little bit further on this issue of nuclear power because obviously it is very central to the whole energy review which is ongoing at the moment. I am pleased that the minister has commented and in fact given reassurances that no decisions have yet been made on this. As he says, there are many cynics, professional and otherwise, out there who feel otherwise. What would you say to the point that many who are opposed to nuclear power are advancing that the Government's priority ought to be to clean up the nuclear waste which already exists in our nuclear power stations around the country before any thought at all is given to an expansion of nuclear power? Alan Johnson: Sceptics would have been a better word than cynics; professional sceptics on this. It is a very important point. That was the big issue in 2003, it is the big issue now. We set up the Nuclear Decommissioning Agency. Previous governments of all persuasions ought to be wearing sackcloth and ashes for just not doing anything about this issue of nuclear waste. There are big tubs of it and tanks of it hanging around. The Nuclear Decommissioning Agency, which must be welcomed by everyone, which was set up at the beginning of last year and the money, something like £50 billion that will go into this, shows that cleaning up toxic waste is an absolute priority. The argument of course that we are in the middle of from the pro-nuclear and anti-nuclear lobby is how much we would add to that, whether new technology now makes it safer, whether the waste would be much easier to get rid of, whether, if we continue with fission, we shall then be in the realms of fusion where we will not have the problems of waste. These are big issues that we have to grapple with on the review but whatever comes out of this review, we have to tackle the problem of nuclear waste. Q71 Mark Hunter: On a slightly different timetable but still to do with nuclear power, do you think we can have any confidence in the claims which are currently being made for how nuclear power could contribute in the future, given some of the claims that were made for it in the past like, for example, ultimately it will be too cheap to meter? Alan Johnson: We have to learn from that experience and the amount of money that governments of all persuasions spent on nuclear research et cetera. Yes, that has to be a consideration, but we have to start from where we are now and where we are now is that we need to get a 60 per cent reduction in CO2 emissions by 2050. We have a situation where the more wind farms, the more wave power, the more sea power we use, the more renewables we produce we do not actually increase the level of CO2 emissions, whilst a very important source of clean energy, that is nuclear, clean in the sense of CO2 emissions, is actually declining. If you look at what has happened in Finland and the debate they had there, an awful lot of environmentalists are now feeling differently about the pros and cons of nuclear. They changed their minds over the last five or ten years. If you come at this with a fresh mind and you are not in any of the camps digging trenches and you look at it objectively, that is the best way to come to a conclusion and that is the position I am in. Q72 Rob Marris: You just talked about nuclear being clean in the sense of CO2 emissions. Are you going to be looking at the energy cost in fossil fuel of building nuclear power stations, for example, all the fossil fuel you have to use to mine uranium and then pour concrete for nuclear power stations and so on? Alan Johnson: Yes. Q73 Rob Marris: You would accept that nuclear is not entirely clean in terms of CO2 emissions taken in the round? Alan Johnson: Yes. If you build anything as big as a nuclear power station, there are going to be CO2 emissions. Q74 Rob Marris: In terms of security of supply and uranium, if there is a big trend around the world to go nuclear as it were in terms of power generation, then are you going to look at the question of security supply of uranium because high quality uranium in stable countries is going to run out pretty quickly? Then we shall be down to looking at low quality uranium with a higher energy extraction cost from unstable parts of the world. Are you going to take that into account? Alan Johnson: Absolutely. Q75 Rob Marris: You talked about the door being opened and the door being closed and so on, whether we are France or whether we are Germany. Can you set the framework here? Could a power generator today apply to run a nuclear power station, a new one, to build and run one in the United Kingdom under current legislation? Alan Johnson: Yes. They are not queuing up to do it, but yes. Q76 Rob Marris: Are there any such applications that you have heard about? Alan Johnson: No. Q77 Rob Marris: Would that say something to you about market forces? Alan Johnson: One of your colleagues chaired a committee of the Environmental Audit Select Committee which spent a long time on this and I can see the argument that there is not a queue of entrepreneurs waiting. What potential investors would say, having seen what has happened, Germany pledging to close every nuclear power station, France being gung-ho on nuclear energy, having seen the 2003 White Paper as being equivocal, the door was ajar and could close, is that they see no point. They need a clearer signal from Government. They are not going to get a signal from Government that says "Here is a big open chequebook from the taxpayer". It is up to them to put the money in and put the investment in, but it is fair to say it is so long term that they need a signal. Q78 Rob Marris: As part of that signal do you envisage, just talking about the framework for nuclear power generation, we could have a situation where the Government would not be effectively the insurer of last resort, either as regards a meltdown of a nuclear power station and the meltdown of the operating company financially as a result, or in terms of disposal of nuclear waste? Surely, the Government would then have to be the insurer of last resort, which is not necessarily a bad thing but does take us a step away from the market forces to which you referred. Alan Johnson: On the last issue of toxic waste, Government cannot duck that responsibility; we have ducked it for too long and we cannot duck it now. In terms of the actual cost of building nuclear power stations, we do not intend to provide any of that, it is up to the market. Q79 Rob Marris: I am just talking about a framework here, I am not trying to push you one way or the other because you are not going to say, but would you then see that the Government would step away from nuclear power generation completely and say "Oh well, if your operating company goes bust and you leave all that nuclear detritus around, we shall have nothing to do with it and we shall not be the insurer of last resort"? Or do you think the Government would, in that situation, then spend taxpayers' money perhaps on cleaning up the mess? Alan Johnson: Those are issues for the review. Chairman: These are fascinating questions which we are right to ask, but we shall not get many answers. We shall have to get you back at the end of this process and push you even harder. Q80 Mr Hoyle: People are saying that this is an energy debate which is open, no decisions have been taken, yet some people will ask why you are selling Westinghouse if it is an open debate and nuclear could have a future, or whether you are selling it because nuclear has no future. That is what people will be asking and why are we selling it at this stage and not waiting until the end of the energy review? Alan Johnson: If we were to go down the nuclear new build route, owning Westinghouse would cause us more problems because for the Government, who are producing the review, actually owning a major company causes more problems. Q81 Mr Hoyle: Are you going to sell everything else off as well? Alan Johnson: The main reason about Westinghouse is that we want a good return for the taxpayer. Should we own Westinghouse? British Nuclear Fuels did a review a couple of years ago which suggested we should not. Westinghouse are now involved in building four nuclear power stations in China which are by no means certain to make a profit. There is a big risk involved and we do not think the British taxpayer should be paying for that risk. Although we had to consider the points you have made very carefully, whether it is the right time to sell, whether we shall get a good price, we have just met Toshiba today and it looks like a very good price for the British taxpayer. Q82 Mr Hoyle: Is it £8 billion? Alan Johnson: I do not think we can say that, can we? I think we had a press conference this morning, so it is probably out. Q83 Mr Hoyle: If I follow the logic of what you say, that you should not own it because it really does complicate the issue and does put you in the wrong position, does that mean that BFNL is going for sale? Does that mean that atomic energy is now going? Alan Johnson: No, that is another complete question. The whole focus of all of those groups now is on decommissioning. It is all focused on decommissioning and cleaning up the mess that we have inherited. Chairman: Secretary of State there are many other questions we should like to ask you; some we shall actually put in writing to you and seek written answers to. I apologise to colleagues who did not get their supplementary questions in. We think this is possibly the most important question facing your department over the next few months and years. It is a subject to which we shall return on many occasions and we are very grateful to you for your time with us this afternoon. Thank you very much. |