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House of Commons
Session 2006 - 07
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General Committee Debates
European Standing Committee Debates

Energy Policy for Europe



The Committee consisted of the following Members:

Chairman: Mr. Joe Benton
Cunningham, Tony (Workington) (Lab)
Ellwood, Mr. Tobias (Bournemouth, East) (Con)
Hendry, Charles (Wealden) (Con)
Howarth, David (Cambridge) (LD)
Keeley, Barbara (Worsley) (Lab)
Mactaggart, Fiona (Slough) (Lab)
Palmer, Dr. Nick (Broxtowe) (Lab)
Pelling, Mr. Andrew (Croydon, Central) (Con)
Pritchard, Mark (The Wrekin) (Con)
Smith, Sir Robert (West Aberdeenshire and Kincardine) (LD)
Southworth, Helen (Warrington, South) (Lab)
Trickett, Jon (Hemsworth) (Lab)
Wicks, Malcolm (Minister for Science and Innovation)
Tom Healey, Annette Toft, Committee Clerks
† attended the Committee

European Standing Committee

Tuesday 24 April 2007

[Mr. Joe Benton in the Chair]

Energy Policy for Europe

4.30 pm
The Minister for Science and Innovation (Malcolm Wicks): European energy policy has risen up the agenda over the past couple of years, and I welcome the chance to debate its direction today—either fully or more briefly, depending on the wishes of hon. Members. I stand ready to serve and debate.
Europe is increasingly becoming a driver of UK energy policy, as energy issues and the closely related and critical issue of climate change are increasingly global in nature. The strategic energy review was born out of an initiative during the UK’s presidency of the European Union in 2005. At the informal European Council meeting at Hampton Court, Heads of State and of Government agreed to the formation of a common EU energy policy that responded to the needs of citizens and fulfilled the aims of competitiveness, security of supply and sustainability.
Following the Commission’s green paper in March 2006, the European Council gave it a year to report back on an energy policy fit for Europe. Following a thorough consultation, the Commission published its strategic energy review on 10 January. Alongside the review, it also published its communication on climate change and a number of underpinning documents, which it was not felt necessary to debate individually.
From the UK’s point of view, there was much to welcome in the strategic energy review. We particularly welcomed the fact that energy policy and climate change policy were recognised as inextricable, which is surely right. The energy sector is the biggest emitter of greenhouse gases, releasing some 80 per cent. of the total, so any measures that we take to mitigate climate change will have an impact on the energy sector, and any measures that we take to improve our energy policies will have an impact on our ability to tackle climate change.
Sir Nicholas Stern’s report proved convincingly that there is a clear economic advantage to tackling climate change early, and we must let it heavily influence the formation of our energy policy. We also particularly welcome the strong emphasis on the functioning of the internal market. The Commission’s sector inquiry, published at the same time, clearly demonstrated the failures in the internal market and how to address them. We congratulate the Commission on its work.
However, a great deal has happened since the publication of the strategic energy review in January. Member states debated it at the Energy Council on 15 February and at the Environment Council on 20 February. As intended, the European Council discussed the strategic energy review at its meeting on 8 and 9 March, and adopted an energy policy for Europe.
Briefly, the policy encompassed the following: the need to make further progress towards achieving a fully functioning internal energy market; an ambitious unilateral EU target to cut greenhouse gas emission by 20 per cent. by 2020, with a commitment to go up to30 per cent., provided other developed countries made similar commitments; and implementation of the EU’s energy efficiency action plan of October 2006 as a means of reducing EU energy consumption by 20 per cent. by 2020.
The policy also encompassed a binding target of a20 per cent. share of renewable energies in overall EU consumption by 2020; a 10 per cent. minimum binding target for the use of biofuels, subject to its sustainability being proven; a reiteration of the importance of the EU emissions trading scheme in producing a market-based and cost-effective means to deliver emissions reductions; proposals for 12 to 15 carbon capture and storage demonstration plants by 2015, with the aim for all new fossil fuel plants to be fitted with carbon capture and storage by 2020; and a reaffirmation of the EU’s intention to speak with one voice on its external energy policy.
The agreement was groundbreaking, and it showed clear UK influence over the agenda. However, we cannot afford to rest on our laurels. Many of the proposals that we agreed will need further work and analysis. There is still a great deal to be done.
The Chairman: We now have until half-past five for questions to the Minister. I remind hon. Members that questions should be brief and asked one at a time. There is likely to be ample opportunity for all hon. Members to ask several questions.
Charles Hendry (Wealden) (Con): The Minister has given a helpful introduction. In 1997, the European Union set a target that 12 per cent. of energy should come from renewable sources by 2010, but it also noted that that is unlikely to be met. What steps are being taken to achieve 20 per cent. by 2020? What does the Minister expect to be the contribution to that target from nuclear, from coal using carbon capture and storage, and from renewables?
Malcolm Wicks: Is the question about the 20 per cent. reduction in carbon emissions?
Charles Hendry: No, it is about the 20 per cent. proportion coming from renewables.
Malcolm Wicks: Nuclear is not regarded as a renewable in the conventional sense. It is another technology that does not produce carbon emissions, but it is not part of any target to produce renewables. As the hon. Gentleman is aware, the pace towards using renewables, reducing carbon emissions and getting on top of the issue across Europe understandably varies from nation to nation. I am sure that the French Government would argue that their historically massive investment in nuclear power is the major way in which they have achieved relatively low carbon emissions—it is certainly a major way in which they have done so, although they would not be complacent. Other nations have a lot of resource in terms of hydro energy, because of their geography and climate.
As the hon, Gentleman knows, the UK is committed to developing renewables. New estimates may come out soon, but I imagine that about 4 to 5 per cent. of our electricity comes from renewables. We want the figure to be 20 per cent. by 2020. The new European framework and strategy present the European Union as a whole with even more demanding targets on cutting down greenhouse gases, and therefore with strong targets on building up renewables. European progress has been made, but the Commission now has a great deal of work to do on the implications for Europe as a whole and for particular nation states.
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD): The Minister rightly said that nuclear is not renewable but that it is, in a sense, low carbon. On 12 March, the Prime Minister was reporting back after a European summit, and in answer to a question from my hon. Friend the Member for Cambridge, he said that the actual target for the country would be adjusted to take account of its nuclear capacity. Does the Minister not see that as a classic case of nuclear power pushing out renewables, as was feared?
Malcolm Wicks: I do not see that at all. I should make the technical but important point that nuclear energy is not a renewable in the sense that energy from wind power, solar power or tidal power is, because uranium is needed, although in terms of a grouping of technologies that help us to reduce carbon emissions, some people talk about nuclear energy in the same breath or same paragraph as those other sources. I can understand that approach.
As I said, the European Commission has reached the point in the discussions with the nation states of saying, “We have now got an ambitious strategy for Europe as a whole on building up renewable resources.” It is now for the Commission to discuss with the different nations what the arithmetic will be. Given that nations are at different stages, have different circumstances, and have different natural and other resources, the arithmetic is not expected to be evenly applied across all EU member states.
Some states have considerable nuclear resources. It is important to stress that the ultimate objective is not to develop one particular technology, be it nuclear, renewables or anything else, but to cut down on carbon emissions. Therefore I can understand why the arithmetic will be different from nation to nation and why those with a considerable nuclear resource might say that that should be taken into account. That is not inconsistent with a general drive to boost renewable technologies across the whole EU.
Mark Pritchard (The Wrekin) (Con): The Minister mentioned the word “groundbreaking”. As he will know, the Council of the European Union summit of8 and 9 March spent a lot of time on competition in the European gas and electricity sectors. The conclusions on page 421 of the bundle state that
“neither document breaks any very new ground”.
The bundle suggests that there was not anything groundbreaking at the EU Council summit. Why is there so much confusion on such an important and strategic issue?
Malcolm Wicks: The UK Government have pressed, during our presidency of the European Union and subsequently, to promote a market in energy in the European Union. We think that that is part and parcel of the nature of a common market. The principlehas always been agreed across Europe. As the hon. Gentleman knows, there is market liberalisation in the United Kingdom and we are at the head of the European race on that. We have consistently pressed the issue in all our meetings; when I was Minister for Energy, I certainly did so at the Energy Council, at prime ministerial level and others.
The Commission is determined to promote market liberalisation. Two strong Commissioners—the Energy and Competition Commissioners—have pressed the issue hard. Dawn raids have even been initiated on certain energy companies to seize evidence and documentation. The Commission has been strong on that. The debate on how liberalisation might be achieved continues. Of course there is some resistance, and a strong debate is going on in certain nation states. However, at the moment the intention is that the issue should come before the Energy Council in June this year. We are moving in the right direction, but none of us should be naive or innocent about the difficulties of putting that particular piece of European principle into the important thing—practice.
David Howarth (Cambridge) (LD): I come back to the question asked by my hon. Friend the Member for West Aberdeenshire and Kincardine. How does the Minister think the Commission’s setting of renewable energy targets is going? As I understand from what he is saying, nuclear capacity will be taken into account to reduce renewable targets, but, to make up for that, countries that already have renewable energy will also be able to reduce their targets to take that into account, with the effect that countries that have neither renewable nor nuclear energy will end up with very high targets. Is that how he sees it working? If so, is that a practical way forward?
Malcolm Wicks: I addressed the nuclear issue because the question was put to me. However, it is not for me to go too far on that at the moment. The fact is that the European Commission has come up with appropriately ambitious targets, given the crucial dimension of climate change. We should all be delighted by that; it has been a UK lead and the story book will show that we are moving ambitiously in the right direction.
The target on renewables is demanding—appropriately so, given the critical nature of the issue. One would not and should not expect the 20 per cent. target to apply to every nation state. That would be wrong. Intellectually, I do not see why that would be a starting point, given our different resources—natural, nuclear and the rest—and our different geographies and climates. All that I can say is that the Commission will now get into the discussion, and has already done so, about the exact implications for the different nation states. All I was saying was that one should not be surprised if nuclear energy were part of that discussion; that is to be expected. As I said, the European Commission has been asked to bring forward detailed proposals later this year. That is where we stand.
Charles Hendry: May I press the Minister a little further about the Commission’s target for a 20 per cent. reduction in greenhouse gases by 2020? We are getting a slight surplus of targets, all of which seem to involve reductions of 20 per cent. by 2020, and things are getting confusing. Clearly, that target is for the whole of the European Union. To what extent, therefore, would it be possible for some countries to rely on others to make the reductions, knowing that if other countries achieve a reduction of 25 or 30 per cent., they can sit back and get away with a reduction of only10 per cent.? Is not that a recipe for people to do less than they should because they think that others will take up the slack?
Malcolm Wicks: I can see where the hon. Gentleman is coming from, and it is not a bad warning, but we cannot all be in the business of saying, “After you, European partner”—certainly Britain would not want to be. That would be ridiculous. At the risk of repeating myself, I point out that our nations have different access to different fossil fuels and use them differently. We are also at different stages with renewables—for example, some countries are ahead of us because of hydro power. Given those differences, one would not expect reductions of 20 per cent. across the piece. That would be neither intellectually sound nor good European policy. Discussions on this matter will, no doubt, be difficult, but the negotiations between member states and the European Parliament will start after the European Commission comes up with further proposals.
Sir Robert Smith: The Minister rightly praised the Commissioners’ commitment to the principle of a liberal and transparent market, but it has been a long time in coming. I wonder what assessment the Government have made of what is being delivered by other Heads of Government, as there seems to be an awful lot of reticence to deliver on the ground. The principle might be agreed, but when does the Minister think that the fuel-poor and intensive energy users who suffered in the last two winters will see the full benefit of the European-wide open market?
Malcolm Wicks: We have shared that sense of frustration because this was, in principle, already European policy. As I said, it is part of the logic of having a single or common market. We have been a leader on this, in terms of market liberalisation, and for 10 or so years we were huge beneficiaries of our own policy, with lower energy costs than others elsewhere in Europe—certainly lower than the European Union median. However, we have been through difficult times with rough winters, such as the one that we have just come out of and the one before, and energy costs have risen considerably to the disbenefit of industry, particularly intensive users of industry. I have had many discussions with intensive users, such as people who make chlorine.
There have also been huge rises in domestic energy prices, although I am advised that for the domestic customer—this will not be widely believed—we are still below the EU median. Intensive users have certainly suffered and we are pleased that energy costs are now coming down. Market liberalisation is not the whole answer, however: the price of a barrel of oil is a major determinant and the huge international thirst for energy resources is a critical part of the backdrop to this story. We believe that market liberalisation is very important and we are doing our best to press forward. We have made some progress, but I do not understate the difficulties of reaching the conclusion that we wish to bring about.
Mark Pritchard: While I have no doubts that the Minister and, indeed, the Government are well-intentioned about getting EU energy policy right, I wonder whether there is enough urgency in the EU on the issue of energy security, particularly in the context of Russia, which was discussed at length at the Council meeting. The Minister mentioned dawn raids by the Commission, but there are raids by Russian energy companies on our stock markets in the UK and in France and Germany every day. I wonder whether the new Russian monopoly of liberalised EU energy markets is being taken seriously enough by EU leaders and particularly by the Government.
Malcolm Wicks: The short answer is yes, but let me give a slightly longer answer. In recent years, the geopolitics of energy has become immensely significant in many European countries and has influenced our own energy policy. I noted earlier that that is why we need to talk about energy security and not just, in a slightly more neutral way, energy supply. Many parts of the world, as the hon. Gentleman well understands, are rich in energy resources, but there is sometimes a correlation with insecurity and lack of democracy. I am not talking about any one country or region, but the hon. Gentleman understands me.
The dispute between Russia and Ukraine has had a marked impact on thinking. Europe as a whole and certainly the United Kingdom need a twin-track strategy. We must seek to maximise the energy that we can produce ourselves, which is why, as the hon. Member for The Wrekin knows, we are actively engaged through the pilot partnership with those who produce oil and gas in the North sea to try to maximise what remains. We are being smart, and companies are being entrepreneurial about our own North sea. That is why we are having another look at British coal through a newly established coal forum. That is not easy, but we are taking it seriously. It is certainly why we are developing renewable resources, and why the energy review recommended that the Government should be supportive should the market come forward with a new generation of nuclear reactors. A new consultation on that will be announced as part of the May White Paper.
We must maximise our energy resources across the European Union, and certainly here in the UK. The other strategy is to be smart about ensuring that we do not put all our energy eggs in one basket. Gas is crucial—it will be for decades to come—and we are sourcing it from different parts of the world. The Langeled pipeline from Norway is critical.
I said that there are two parts to our strategy, but in fact there are three. The first part should be energy efficiency and conservation.
Sir Robert Smith: I want to press the Minister on the security of the Russian supply. What realistic effort is the EU making to get Russia to deliver on the energy chapter treaty, and does he foresee that being delivered? What pressure is being put on Russia to sign up?
Malcolm Wicks: A great deal of pressure. We think Russia should sign up to that treaty, but the Russians are resistant and, sadly, that remains the position.
I shall give some further information, particularly in relation to the last question. I am advised that the European Commission was asked to assess the impact of vertically integrated external Russian companies on European Union markets. It is generally recognised that there is some urgency about that.
Charles Hendry: I want to press the Minister a little further. In addition to the issue of supply, there is the issue of ownership. Gazprom is essentially an arm of the Russian Government, and its head is the Deputy Prime Minister, so there is a close link between Gazprom and the Kremlin. Its decisions are not always commercial and may have a political element. Are the Minister and his European counterparts happy that a company that is essentially controlled by a foreign Government could own key strategic elements of our energy supply?
Malcolm Wicks: I understand the question, and of course, ownership is not unimportant. In Britain, across the political divide, although I can speak only for my party and Government, we recognise the challenge of globalisation and we have never sought to play a nationalist card when it comes to energy, because it would not be appropriate. The critical point, returning to my earlier answer, is that we must and will ensure that we have a properly functioning market in the United Kingdom. It is not as if we have only one or two energy companies, and a foreign company wishes to swallow 50 per cent. of our supply capacity; it is not like that at all. If we stick with competition to ensure a liberal market, we will avoid any dangers to which the hon. Gentleman might allude. It goes back to my phrase about not putting all our energy eggs—whether domestic or foreign-owned—in one basket.
Mark Pritchard: The Minister mentions not putting the Government’s—the nation’s—energy eggs in one basket, but I wonder whether there is a danger of the Government putting all our diplomatic eggs in one basket. The issue is relevant to the nation’s energy policy, because when I have met diplomats over the past year, green diplomacy has been at the top of their agenda. There is nothing wrong with that, because there is consensus on the issue. However, I wonder whether energy diplomacy has the prominence that it should have, particularly considering the need to undertake more diplomacy to increase our energy security, supply and ownership through better relations with central Asian countries amid the dash for gasin that region. We must also build diplomatic relationships to secure our desperately needed energy links with north Africa vis- -vis liquefied natural gas. Is the Minister prepared to comment on that point?
Finally, in the context of what has just been said, and given that the Russian Government are not prepared to let Royal Dutch Shell or British Petroleum look for new fields in Siberia or other parts of Russia, there is an unequal playing field for gas energy exploration, supply, integration and delivery.
More generally, I am not complacent about diplomacy, because I remember our Prime Minister saying some months ago, when he opened the London end of the Langeled pipeline, that in this century, energy security could become as important to a nation’s security as the armed forces—as defence. It is an interesting point to discuss, and I suspect that the hon. Gentleman and I are not too far from agreement on it. It is also why the Langeled pipeline—our partnership with Norway—is important, and why, with the development of the liquefied gas market, we must establish links with a range of countries.
Our partnership with Qatar is important. I have visited its huge liquefied natural gas resource and met Qataris—a little bit of diplomacy there—on two or three occasions to discuss that project. LNG will, by definition, come in by ship to the Milford Haven plant. From memory of my days as Minister for Energy, I think that it is coming on stream in the first quarter of next year. It is very important, and could represent20 per cent. of British gas consumption. That makes the point that we are being smart, diverse and, yes, diplomatic about those issues.
Sir Robert Smith: We have talked a lot about the Commission being committed to using the market, opening it up and making it more transparent. Is it not a contradiction that it should have come up with specific projects at EU level that it wants to link grids between the different countries of Europe? Would it not make more sense for them to drive the market through and get it to design the best fixes between countries, rather than there being a centrally prescribed solution from Brussels?
Malcolm Wicks: When the hon. Gentleman says “them”, does he mean the companies?
Sir Robert Smith: I mean the EU Commission.
Malcolm Wicks: That is an interesting point. Perhaps we agree. Our view would be that, if a liberalised market can develop, the market itself will have the commercial incentives to develop the kind of national grid—I use the term in a broad sense, for both electricity and gas—that we require. As in the United Kingdom, there is great need for investment across the European Union into the basic infrastructure for delivering energy.
Have I misunderstood the hon. Gentleman’s point, or is that more or less all right?
Sir Robert Smith: I understand that the Commission has identified certain projects that it wants to go ahead between the different nations. I cannot help feeling that, if there is going to be a market solution, it should be left to the market to decide where such projects should best be placed, rather than it being left to the EU to design those bits of the group.
Malcolm Wicks: Let me write to the hon. Gentleman on that issue to make sure that I get that one right. I have talked about Qatar and Norway. Owing to the interest in the diplomatic side, I am advised that it would be helpful if I mentioned one or two other initiatives. For example, one is Euromed, with north African countries, which is to build a Euro-Mediterranean energy market. There is also the energy community treaty, about an energy market for south-east Europe. Thirdly, the Baku initiative relates to Black sea and Caspian countries. Would the hon. Gentleman like a letter from me with detail on that? No? I shall not write letters that are not wanted. We are all concerned about waste paper and saving energy.
All such things illustrate how one of the important things and strengths of a European energy strategy, apart from the other dimensions, is trying to develop what we might call a European energy foreign policy. That will not replace the different energy foreign policies of different nations and different bilateral agreements and so on. However, the list illustrates how the European Union is increasingly reaching out to other parts of the world.
Charles Hendry: We are inordinately grateful to the Minister for spending so much of his time tripping off around the world to secure our energy supplies for the future, although the environmental consequences are obviously rather severe. Has he visited Germany and France? Much as we welcome the European Union’s new stance on liberalisation and open markets, the big sticking points are Germany and France under the current regime—which may, of course, be about to change. Is there any movement within the German Government from Chancellor Merkel, or within the French Government? I am also thinking of German and French energy companies, which are involved in vertical integration but seem to be absolutely the ones that are determined to block progress on the issue.
Malcolm Wicks: A great debate is going on in both those countries. Yes, of course I have recently discussed those matters with German and French colleagues. We discuss such matters more formally in the Energy Council when it meets, as it does regularly. Let us be honest. There is a great debate in both countries about, on one hand, the pressure for liberalisation and, on the other hand, the resistance from some powerful interests in those countries. That is the honest answer to the question. There is a debate going on.
We discuss these matters at the Competitiveness Council, and I am attending a meeting at the end of the week. Although it is not the Energy Council, I will take the opportunity to raise the issues informally again with my German colleagues.
Sir Robert Smith: The Minister is now wearing his Minister for Science hat, and the document refers to the EU’s ambitions to see more pan-European research into and delivery of energy and renewables. Can he reassure us that any UK spending will be additional to the planned spending on the Energy Technology Institute and not a diversion?
Malcolm Wicks: The institute’s plans are clear. They are to spend a £1 billion budget over 10 years—50 per cent. in the public sector and 50 per cent. in the private sector—to explore a range of energy technologies. Obviously, the institute will need to take account of our commitments in Europe and our wider energy policy, but it is a key development in terms of renewables and other technologies that are becoming so important, including carbon capture and storage, in which the hon. Gentleman has some expertise. That is important because Europe will burn a lot of fossil fuel in decades to come, and there is no getting away from that. If that is not to impact badly on our carbon emission targets, we must develop carbon capture and storage. I am pleased by the European Commission’s strong approval for the development of such projects throughout the European Union.
Charles Hendry: The Prime Minister and the Government have announced that there will be a carbon capture and storage project in this country as one of the 12 throughout the EU to look at feasibility and viability. How will they be co-ordinated throughout the EU? Will there be a central organisation to look at what each one is doing, and how will they tie into what is happening in other countries—for example, the United States, where a number of such pilots are already up and running?
Malcolm Wicks: I am certainly aware that in different countries the concept of carbon capture and storage has grabbed the imagination, for reasons that I have just cited. Nations such as Australia have a keen interest, and I have discussed the matter with the Australian Minister, not in Australia, but somewhere else in Europe. My carbon footprint is relatively light at the moment.
Certainly there is strong interest in the matter in the United States, and there is interest from Governments and major power companies. We are committed to having one demonstration project to demonstrate the technology. That is what it is about, because no one has yet put together the whole chemistry set. There are examples of good practice, as in one of the Norwegian oil or gas fields. We know from the Norwegian experience, which I have discussed with the Norwegian Minister, that carbon dioxide behaves properly underground. Geologically, what happens is what one would expect to happen. In simple terms, it stays there.
Some of the chemistry set has been demonstrated effectively, but the whole chemistry set has not been fully put together. We want a demonstration project, and there will be a competition for that in the United Kingdom. I suspect that the Commission has not yet—to be fair, why should it have, although it must do so soon—thought through the details of how that will be co-ordinated throughout the European Union. However, the ambition to build 10 to 15 carbon capture facilities is laudable, and we support that. Indeed, we hope to be one of the 15.
Sir Robert Smith: The proposals from the EU also refer to developing a customer’s charter with four key goals, one of which is to establish schemes to help the most vulnerable EU citizens to deal with increases in energy prices. What pan-European levers will be used to tackle fuel poverty?
Malcolm Wicks: I might have to write to the hon. Gentleman about the pan-European element. It is perfectly reasonable and important that there is a European ambition. My first reaction is that so much depends on actions within nations. Here in the United Kingdom, various energy-efficiency projects—Warm Front and its equivalents in Scotland and Wales—have made quite an impact. We are thinking through the idea that was raised during the energy review of requiring our supply companies to work with customers so that our homes become more energy efficient. Currently, it is in the interest of the gas or electricity company to sell us more gas and electricity. How do we turn that situation around so that they are incentivised financially to make our homes more efficient? Of course, there are then the social security programmes, such as pension credit, winter fuel payments and the rest.
My first reaction is that so much depends on the nation state. However, we have a great deal to learn from one another. Colleagues from the Department for Communities and Local Government are moving from the concept towards the practice of one day building carbon-neutral dwellings, which is an extraordinarily ambitious target. I am sure that we have a great deal to learn from the Scandinavian countries—both those in the EU and Norway, which remains outside. There may be more to the issue, and I shall write to the hon. Gentleman.
Mark Pritchard: My question follows on from the last two replies to the last two questions. Although fuel poverty is an important issue, and I am sure that the Committee agrees with the question and the response, the greatest form of fuel poverty would be no supply, which links very nicely into the comment from my hon. Friend the Member for Wealden about Germany. The Minister rightly talked about the liberalisation of energy markets in Europe and a common EU energy policy, but is there an inherent contradiction in that? For example, Germany has just signed up with Russia to install under the Baltic sea a new pipeline that will bypass Poland and Ukraine. Poland is a member of the European Union; Russia is not. What is Russia’s strategic intent, if it has one? If it does not, what is its commercial intent, and is it good for the United Kingdom and for Europe? There is an inherent conflict in EU policy, and I am worried that in Europe, there is no urgency to resolve the issue.
Malcolm Wicks: It would not be right for me—a British Minister—to comment on that pipeline and that investment. To be realistic, and I am not commenting on that particular project, it is perfectly reasonable for a Government of a particular nation to undertake bilateral agreements. I have mentioned Qatar and Norway, with which we have a range of such agreements. Alongside such agreements, we need to develop the European strategy that we have discussed, and energy insecurity and geopolitics always make for lively discussions on and off the record in European Energy Councils. Such issues are the geopolitical facts of life, and they are a major driving force.
Climate change was a sufficient driving force behind the idea of a European energy strategy, but my judgment is that energy security issues are now almost as important in the minds of European politicians. For those geopolitical reasons, we see the development of foreign policy that I have touched on, the drive towards renewable energy, and—I am bound to say, although it is controversial in some quarters—among some nations, the renewed interest in nuclear energy.
Motion made, and Question proposed,
That the Committee takes note of European Union Documents No. 5282/07, Commission Communication “An energy policy for Europe” and No. 5354/07, Commission Staff Working Document “EU energy policy data”; further notes the Government’s position on these documents; and agrees that the Commission’s Strategic Energy Review represents a helpful staging post towards an energy policy that will underpin our ambitions of addressing climate change, improving sustainability, enhancing energy security and increasing EU competitiveness.—[Malcolm Wicks.]
5.15 pm
Charles Hendry: I thank the Minister for the way in which he took our questions. I thank him also for finding time in his busy diary to be in the United Kingdom for an afternoon, and for the comprehensive answers that he has given, bearing in mind that he has moved on from his energy brief to a science one. He was a fine Minister for Energy and will be a very good Minister for Science and Innovation, but it is good to know that he still keeps an interest in the energy issues that we are considering.
As the Minister explained, this package of proposals has three pillars: sustainability, competitiveness and security. They include reducing dependence on imported hydrocarbons, diversifying sources of energy, building infrastructure such as new liquefied natural gas terminals, and improving Europe’s capacity to cope with disruptions in supply. The Commission is also seeking a new long-term pact with Russia on energy supplies.
Our position is clear: we have been demanding the liberalisation of the energy markets in Europe for some time. They are punishing British consumers with higher bills. However, we do not believe that a single regulator is required to facilitate cross-border electricity trade. Co-operation between regulators should be sufficient once the liberalisation measures are implemented. As we have discussed, energy markets in France and Germany in particular all too readily protect those countries’ infrastructures from other countries and other companies by integrating supply, transmission and distribution. It was noteworthy that Chancellor Merkel recently asked the Spaniards to be reasonable when a German company sought to take over Endesa, but no such approach is taken when a company wishes to get involved in the German market. That clearly conflicts with single market rules, and more action is needed. We have been encouraged by the approach taken by the European Commission, which has already gone further than many of us thought it would. Nevertheless, more needs to be done to achieve a real internal market.
We heard that vulnerable groups are hard pushed to afford current energy prices, and liberalisation especially aids such people. Across Europe, old people and those on low incomes will receive enormous benefits if the single market is allowed to flourish. European Governments should be consumer-driven rather than focused on creating national champions that create higher energy bills for their citizens.
We agree that security of energy supply is paramount. Energy supplies must come from a reliable third country when self-sufficiency is not possible. Gazprom already owns 10 per cent. of the Anglo-Belgian interconnector and there is speculation that it might buy into the Anglo-Dutch one or into Centrica. We justifiably have concerns about a company that has very strong links with its Government. Unlike the Norwegian gas industry, which is nationalised but separate from its Government, Gazprom has very close, direct links with the Kremlin. We have concerns about how much its policies are politically rather than commercially driven.
We also have a concern that there may be attempts to give the EU greater control over the mix of generating energies, given our view that energy is a sovereign issue which should be decided by the United Kingdom Parliament. I am keen to establish whether the Government would use their veto to protect that area of policy and I would welcome some words to that effect from the Minister.
We certainly welcome the commitment to greater use of renewables. In 1997, the Commission made an initial commitment to producing 12 per cent. of Europe’s energy from renewable sources by 2010. It is now suggested that the figure should be 20 per cent. by 2020. We are sceptical about whether the Commission’s suggestion for a binding target to increase the level of renewable energy in the overall mix—from 7 per cent. now to 20 per cent. by 2020—can be achieved. The cast-iron rule of targets seems to be that a date is always set for the target to be met soon after office has been left, so that somebody else has to explain why it has not been met. The case here also appears to be that rather than accepting that it will miss its target, the Commission has set another target that sounds difficult to meet, but is 30 years down the line so nobody will be able to judge for some time.
Malcolm Wicks: We will still be here.
Charles Hendry: The Minister may still be here in an Opposition role, and I hope that he has every opportunity to question us when the time comes.
I hope that the Minister can also say a little more about the ETS, which has not worked effectively in its first round. There will need to be a much tougher regime in subsequent rounds if the scheme is to be effective. The way forward is to have a cap-and-trade system. The European system, under which more certificates have been allocated and energy has been reduced, has been extremely flawed and we hope that the Minister will make a clear commitment to tightening that up in due course.
From reading the report, it is abundantly clear that more needs to be done in liberalising energy markets in other European countries where British companies are not able to operate, despite the companies of those countries having bases of operations in the UK. Perhaps the Minister will go a bit further in explaining how he will drive forward such changes. The document is thoughtful and helpful, but many of the issues that it covers are sovereign issues for the UK Parliament, rather than matters for European activity. That said, we recognise that many of the issues require international co-operation. Work at European level is therefore to be welcomed as well.
5.21 pm
Sir Robert Smith : First, I should declare my entries in the Register of Members’ Interests which are relevant to energy. They consist of a shareholding in Shell Transport Trading Co. and overseas visits to the offshore northern seas conference in Norway, which was organised by the then UK Offshore Operating Association, and to Calgary with British Airways to meet oil and gas interests.
Charles Hendry: I should have mentioned my interest in attending the same conference in Stavanger last year and going on trips to look at wind farms in Spain.
Sir Robert Smith: I congratulate the Minister on his move to become Minister of Science and Innovation. I suggest that there are other moves coming to his Government and rumours of structural changes that could mean even more upheaval. We might see yet another Energy Minister given the turnover.
Charles Hendry: One a year.
Sir Robert Smith: At the very least. [ Interruption.] I am talking about averages.
We keep coming back to the same debate, and there is frustration with the pace of progress of liberalisation in the EU. We can see the benefits of a liberal market and the damage that has been done to our markets by the failure of the rest of the EU to liberalise. The protectionist instincts, which have been mentioned specifically in relation to France and Germany, protect certain sectors of the economy at the expense of the rest. If the rest of those economies could see what could be done for them, they, too, would be clamouring to join us in having a more liberal market. Without that, we still have the conundrum of our country being connected to a different market and the distortions that result from it. As we have seen, particularly during recent winters, energy is vital to the national interest. If the lights go out and the power goes off, there is major disruption to our way of life, our livelihood and our economic well-being.
Energy policy is vital to individuals at the level of tackling fuel poverty and trying to keep homes warm in the winter, but it is also now recognised as vital to the environment. I should therefore like to hear how the Government see the emissions trading scheme delivering on Europe’s climate change needs. The current system is not delivering and its failure to do so makes the ambitious targets, which have been introduced by the policy, even more unlikely. Without a clear, longer-term price for carbon, it is difficult for the market to deliver the many solutions from the innovative range of possibilities.
Liberal Democrat Members welcome the neutral view that the EU has taken on nuclear policy in allowing nation states to reflect their own national interests and concerns. During my visit to Norway, I heard that based on previous trading, Norway thought that in the winter before last it had gas to spare that could have benefited customers in Britain. There was a short section of pipe in Belgium, however, that was failing to take the gas through. As far as the Norwegians could see, production was not at capacity. The constraint was not physical; a market distortion prevented UK customers from benefiting. It would be useful to hear what progress is being made in getting behind the failures of the EU transmission market to deliver proper pricing signals throughout the market and to us.
I want, too, to reinforce what has been said about the role of Russia. By turning its back on companies such as Shell and BP, it is turning its back on the skills basis that the Minister said it will need to explore and produce its resources. A worrying situation—it is not merely about the geopolitical situation—is the internal economic failure in Russia to deliver from its resources under the ground to meet its obligations in the pipelines. That is not only a political failure but a market failure. In a sense, that puts us at even greater risk. We can work with political negotiations, but if there is a failure to take a long-term vision and to see how Russia’s national interests, as well as our common interests, can be delivered, there will be a serious outcome.
What is the Government’s view on gas storage? With the market distortions and concerns about security, are they happy with the regime for gas storage in the UK and the incentives for gas storage? Does the Minister see the different gas quality standards in this country allowing a truly flexible market between our two systems? With a different gas quality standard on the mainland to that in the UK, the freedom to trade easily between the two gas producing regimes becomes more difficult.
The Minister said that he will write to us on my next point. The documents give specific EU plans for grid projects. That is an admission by the EU that it will not deliver the open market as quickly and effectively as will be needed to protect security of supply across the EU. He needs to go back to the EU and reinforce that if it is intentionally stepping back into the role of interfering in the market, it needs to redouble its efforts to deliver on the open market. The research funding should not be diverted from what we are planning for our economy.
On the customer charter, fuel poverty has been a major concern. Obviously, liberalisation and the early low prices were an easy hit in moving many people out of fuel poverty, but some moved back in when the prices went up. The long-term strategies for fuel poverty, as the Minister said, are often national levers involving the income of the citizen and energy conservation.
In this new open market, it is important to move towards our energy companies supplying heat and light rather than being direct sellers of energy. To that end, the Government need to speed up the introduction of smart metering, which is part of the toolkit that energy companies need to deliver. As some companies have said to me, “We are doing more trials in this country. Can we not look outside our borders?” There have been trials in countries such as Italy. Can we not learn from them and speed up the progress towards smart metering?
Smart metering allows energy companies to charge differential tariffs for the first units of electricity, which are set at a lower rate to deal with fuel poverty, and then to charge at a higher rate for large users because fuel poverty is no longer an issue and energy conservation becomes more important. It allows companies to show users their energy use and to deliver other EU policies on more energy efficient equipment. There is still a major misunderstanding. People assume that when they move from traditional televisions, which are old technology, to new plasma screens, they are moving in the direction of a more efficient, effective piece of technology, yet it is a far more energy intensive way of viewing television signals. Providing that smart background is extremely important.
On a constituency point, the Minister knows that exploration for oil and gas and their production are extremely important to my constituents—and to the UK economy, as they not only deliver jobs and investment, but tax revenue to the Chancellor. The Chancellor’s Budget deficit was in part explained away by his concern that he would not get as much tax revenue as he thought he would. That may be a lesson to him that he should be more careful how he husbands that resource to maximise its gain.
It is important to understand our supply situation. Having improved our gas supply, we must recognise that our indigenous supply in the North sea now often comes from mixed oil and gas. As the Minister rightly said, the world oil price is very high, but the UK gas price is very low. The encouragement to invest in new production in the North sea is quite low in terms of the overall hydrocarbon price.
I therefore again seek reassurance that in respect of the security of supply, the European Commission understands that there is a resource to be maximised on our doorstep, and that when it comes to regulation and consideration of the market, it will not do anything to interfere with maximising that investment.
I appreciate the fact that the Minister welcomed the ambitious target set by the European Commission that by 2020 all new carbon-fuelled generation should be fully carbon capture and storage. There is a pilot project ready to go ahead in the north-east of Scotland, but now there is another competition from the Government and more delay. Our worry is that the window of opportunity for that project to be economically viable is rapidly being lost.
The key message from the Committee, probably from both Opposition parties, is that the Government need to redouble pressure on the Commission and on the other Heads of Government to deliver on the open market, which is the key to unlocking a sustainable and secure future for energy in this country.
5.32 pm
Mark Pritchard: I welcome the EU’s action plan from the Council in March to liberalise Europe’s energy markets, especially freeing up the distribution of energy throughout the EU. I hope, as the Minister stated, that it will create a competitive interconnected and EU-wide internal energy market. It is vital that the EU improves the security of supply, as all hon. Members present have agreed.
I welcome the Council’s decision to separate network distribution, which will improve competition over the energy networks. As my hon. Friend the Member for Wealden said earlier, it will allow EU energy companies to offer products and services to other European countries perhaps for the first time, possibly on a more level playing field, albeit with a few bumps in different parts of the pitch. I hope that the Council’s views as set out in the proposal will be good for the EU’s energy demands, for UK energy businesses and, as the hon. Member for West Aberdeenshire and Kincardine said, for EU consumers.
I want to put on the record my view and that of my party on renewables and efficiency. It is absolutely right that we should set ambitious targets and, I hope, meet them. I was a little concerned by the Minister’s back-sliding about the lack of a level playing field for other European partners, while recognising that different countries within the European Union have advanced, and less advanced, energy markets and diversification of supply. However, we need to be careful that we do not put British companies or the nation—UK plc—in a straitjacket and restrict them to targets that others will find easy excuses not to meet.
Sir Robert Smith: I reinforce the hon. Gentleman’s concern. The history of the emissions trading scheme is that the nature of those negotiations has to be carefully watched to see that other countries do not go for an easy option.
Mark Pritchard: That is absolutely right. I am glad that there is consensus and I hope that the Minister will agree, too. It is right for us to want a reduction in consumption and an increase in renewables and right to set ambitious targets. We all want emissions to be reduced and I am glad that at last carbon capture is, literally, getting some industry from Government.
I digress slightly on carbon capture and coal. It is right to look at that, but the Government should not be setting out policies on open-cast mining, or even deep-cast mining, where reserves are available without full and proper public consultation in the House and outside. Any resurrection of mining in this country would have a huge impact on areas that have been regenerated and restored to areas of beauty that are used for walking and so on. There should be full consultation before any deal is done with UK Coal and other coal providers, and I have put that on the record.
To return to my point about diplomacy, I am not convinced that our diplomats around the world have been given a brief by the Government to do far more to try to strengthen commercial links with other countries and to help British companies to secure energy contracts. I am thinking of central Asia in particular. In Turkmenistan, Tajikistan, Kyrgyzstan, Kazakhstan and Uzbekistan, we have a small diplomatic presence while our EU partners, the Americans and the Russians are very busy. The Minister will know that the Russian Foreign Minister, Mr. Ivanov, was in Turkmenistan recently, and the relationship that the Russians are building with their former Soviet bloc partners are important to Russia, and should be important to the United Kingdom and our diplomatic corps.
Similarly, the Minister touched on north Africa, and I mentioned liquefied natural gas. The British diplomatic and commercial presence through the embassy in Algeria, for example, which is a large potential market for LNG, is again relatively small. The Minister, the DTI, the Foreign Office and the Government generally should get together around a table and ask whether we have the necessary Foreign Office diplomatic resource in those missions to expedite not only British foreign policy and climate change policy but, nearly as importantly as climate change, as the Minister said, the whole issue of energy security.
The former Soviet Union has been touched on and, as we know, it relied on its military machine for its geopolitical power. Now, it has transferred to oil and gas to exercise geopolitical power. It is worrying that more than half of the European Union’s gas imports come from Russia. Oil can be bought elsewhere, although that market is diminishing. I hope that the Government share my strategic concern that the EU is so dependent on Russian gas. I am concerned that there is not the joined-up thinking that the Minister suggested with EU partners. I mentioned Germany and Russia signing up to the new pipeline under the Baltic sea, but Hungary and Russia have just done a deal with the Bluestream Group.
On one hand, senior Ministers from EU countries go along to Councils and summits, and say that we are all signed up, singing from the same hymn sheet and going in a strategic direction on energy policy, but as soon as they get back to their respective capitals they do deals that undermine the very strategy that they say they have signed up to, notwithstanding the bilateral points that the Minister rightly raised. There is an inherent contradiction in the Councils’ own outputs and subsequent statements, not only in other countries, but here in London.
You will be pleased to know, Mr. Benton, that I have just two final comments to make on the security of supply. Buying energy from Russia is nothing new. Some of us remember more readily than others the old Soviet guard. We used to take energy from Russia even when the Soviet Union was in place. The difference is that in those days the energy supply was predictable, and it was run by people who lacked a planned economy. Today, Russia is unstable and less predictable, and oil companies and particularly gas companies are run by very wealthy individuals whose sole aims, for the most part, are money and power. There is a great deal of difference, and we should all be concerned about it.
There is also the issue of China. What if Russia decided to send all its gas to China? We would be in serious trouble. One might say, “Well, there is no infrastructure between Russia and China.” That is absolutely right at the moment, but China is wealthy and desperate enough to bring that sort of infrastructure on stream pretty quickly. If that were the case, we would all be in desperate trouble.
Energy security is one of the most important and pressing geopolitical issues of our day. Yes, climate change is important, but—to go off-message from my party for a moment—I think that energy security is more important. Although there are clear parallels and synergies between those issues, they are not completely aligned. We need a disaggregation of where they are and are not aligned. Distinct policies must emerge from Government on the differences as well as the commonalities.
One day, of course, political concerns in Russia may override commercial concerns, which would be of grave interest to our nation. If certain individuals in Russia decided that they wanted to turn off the tap, we would be in great difficulty. It could be said that it would not be in those individuals’ or companies’ interests to do so, but they might have found new markets by then, or be cutting off their nose to spite their face. We know that conflicts and wars are not good for most nations’ economies apart from shipbuilding and arms manufacture—they might be, but not in the majority of cases. Conflict around the world is damaging economies even as we speak. Yet conflicts and wars continue. We cannot rely on people’s sense of self-preservation to save us from being blackmailed over our energy supplies.
I am also concerned that certain companies—I hope that the Committee will forgive me for touching on Russia again—are suggesting that there should be some sort of gas OPEC. That would be bad for Britain and bad for Europe. My concern is the United Kingdom of the next 20 years. Unless Europe gets its act together and, if there is another Conservative Government, we get our act together—it is not a party political issue—unfortunately, we will all be held over a strategic barrel.
5.42 pm
Malcolm Wicks: It has been a useful debate, and I am happy to reply to the points raised, albeit briefly on this occasion, as we had a good question and answer session. I am sorry that Opposition Members’ energy ran out before my own, in terms of the number of questions; it was a great disappointment to me.
On the European Union’s emissions trading scheme, our judgment is that that is the preferred mechanism in the European Union. We can argue about other mechanisms, and one should not get too ideological about it—it is a question of choosing an appropriate one—but the Government are determined to make the EU emissions trading scheme work. Given that, we fully support the Commission’s recent robust assessment of member state caps. It is important for the credibility of the scheme that they are set at a level that both delivers Kyoto commitments and ensures sufficient scarcity to result in a genuine and functioning carbon market, which is key to the scheme. We would like to see the scheme grow, so that it could in time include aviation, which is particularly challenging, as well as new technologies such as carbon capture and storage. We have put a lot of emphasis on the ETS for the future.
Colleagues have raised a number of points. I am sorry not to take them in any particularly logical order. Gas storage is important. I heard what the hon. Member for West Aberdeenshire and Kincardine said. He is a great expert on the North sea oil and gas industry, which remains a great British industry. As the exploitation of gas and oil resources becomes more difficult—as we start to work west of Shetland, for example—the technological challenges of engineering and the rest become even more important. I was offshore on three occasions and came away with an immense regard for the work force and their skills and entrepreneurship. We need more gas storage. With North sea oil gas in decline—Britain’s historic national store, or at least historic since the mid 1960s—we need more artificial storage capacity, and we are working hard to deliver that with the industry, with implications for planning and the rest.
Points were made about smart meters. We are trialling them, and we should not apologise for that. This morning I signed off a parliamentary answer saying that if we were to try to bring them in not quite overnight but at least more quickly, the cost could be up to £5 billion. It is not cheap to do that and, for efficiency, trialling the meters is the appropriate response. I am happy to discuss the matter with the hon. Gentleman on another occasion.
I believe that we are agreed about the European energy regulator: we do not see the case for a cross-European regulator. We would much prefer the member states to have effective regulation, as we do, through Ofgem, in the United Kingdom.
Transmission failures were raised, and they relate to the point on which I am going to write to the hon. Member for West Aberdeenshire and Kincardine. There is recognition that there are bottlenecks in the north-west European transmission system, and I am advised that they are being tackled. The European Regulators Group has started to make progress towards a regional market, and the first step towards that was the recent market coupling between Belgium and the Netherlands. The EU has also agreed to more co-ordination of transmission system operators, so that they have a European outlook. I shall say more about that in my letter.
I listened with great interest to the hon. Member for The Wrekin, who is clearly expert and interested in the diplomacy of the matter. I believe that I answered some of his points earlier. I shall not respond to what he said about Russia, but as he talked about the passing of the old regime to be replaced, in his words, by people whose sole interest was making money and wealth, I am bound to say that I thought that the new Conservative party had moved even further to the left by being upset and tearful about the passing of communism and outraged by naked capitalism. That is for him to respond to, not for me to comment on.
When I have visited our embassies and spoken to diplomats, I have been impressed by the fact that energy security and other energy issues are now a major priority for our busy diplomats abroad. The situation is changing, quite rightly, but the hon. Gentleman is right to advise us that it needs to be a focus of our foreign policy as well as of our energy policy as defined more narrowly.
We have had a useful debate, and I thank colleagues for their advice on these important issues. I shall not conclude by repeating what I said in my introduction, but I thank you, Mr. Benton, for chairing the proceedings.
Question put and agreed to.
Resolved,
That the Committee takes note of European Union Documents No. 5282/07, Commission Communication “An energy policy for Europe” and No. 5354/07, Commission Staff Working Document “EU energy policy data”; further notes the Government's position on these documents; and agrees that the Commission's Strategic Energy Review represents a helpful staging post towards an energy policy that will underpin our ambitions of addressing climate change, improving sustainability, enhancing energy security and increasing EU competitiveness.
Committee rose at twelve minutes to Six o’clock.
 
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