Memorandum submitted by RWE npower (CCB
34)
BACKGROUND
1. RWE npower, part of the RWE Group, is
one of the UK's largest energy suppliers, with some 6.5 million
customers and a diverse portfolio of over 9,000 MW of generation
capacity in the UK. We sell our expertise in power generation
in key markets and are one of the UK's leading renewable energy
developers and operators. We have been one of the most active
participants in the European Union's Emissions Trading Scheme
(EU ETS) since it came into effect on 1 January 2005.
2. We welcome the opportunity to contribute
to the Environment, Food and Rural Affairs Committee's pre-legislative
scrutiny of the Government's Draft Climate Change Bill. In our
evidence below we concentrate on those areas of the Committee's
terms of reference where we feel our comments will be most useful
to the Committee or where we have the greatest concerns.
GENERAL
3. We believe that the 2020 target range
of 26 to 32% is potentially very challenging for the UK to deliver
if it relies solely on domestic policies. EU wide measures such
as the EUETS in addition to domestic policies will be essential
for its delivery. Meeting it would require emission reductions
well in excess of those identified as potential additional measures
in the Government's Energy Review. The electricity sector is currently
responsible for around 30% of the UK total emissions and has delivered
the bulk of the CO2 emission reductions achieved since
1990. It will be critically important that the Government develops
a wide-ranging policy framework, which ensures the engagement
of all sectors of the economy in delivering further reductions,
if the 2020 and 2050 targets are to be achievable.
TARGETS
4. We welcome the leadership being shown
by the UK Government in setting out its ambitions in terms of
CO2 emission reduction targets and, for some time,
we have advocated the need for a long-term trajectory for CO2
emissions reductions going forward. However, this has to be designed
at European Union level given that the EU ETS is the key policy
instrument which will determine investments in the power generation
sector over this timeframe. We do not, therefore, believe that
unilateral action by the UK Government in terms of targets provides
the necessary certainty for the operators of and investors in
generating facilities.
5. Furthermore, once targets are set unilaterally
they are likely to form the starting point for negotiations at
EU and international level and this raises the question of how
UK targets and International targets will interact. We believe
that any UK targets should be framed as greenhouse gas targets
from the outset in order to be consistent with International targets
such as Kyoto and EU burden sharing arrangements. The UK CO2
reduction targets for 2010 and interactions with Kyoto greenhouse
gas reductions targets for the period 2008-2012 illustrate the
complexity of the issue and the need to ensure that UK targets
are fully aligned with targets at EU level.
6. A carbon management system based on five-year
carbon budgets would seem appropriate, provided these are always
set out sufficiently far in advance ie at least 15 years in advance
to align with investment timescales. However, whatever timeframe
for setting targets is chosen, it should ideally be aligned with
other EU targets and international obligations which we would
ideally like to see set out to at least 2030.
CREDITS FOR
INTERNATIONAL EFFORT
7. CO2 is a global problem and
ultimately should be addressed by global action within an agreed
international policy framework. It will be important to ensure
emission reduction effort purchased from other countries through
the operation of international project mechanisms and the EU ETS
is eligible to contribute towards the UK targets. This is also
essential to align with EU ETS as the key policy measure for delivering
emission reductions from industry and to minimise the impact on
UK competitiveness.
8. In line with this, the criteria governing
the types of project eligible for CDM/JI credits should be set
at international level within the context of the UNFCC framework.
A guiding principle is that emissions reductions should be achieved
in the most cost-effective manner and, therefore, there should
be no restriction on access to CDM/JI measures.
COMMITTEE FOR
CLIMATE CHANGE
9. We believe that the terms of reference
and make up of the Committee on Climate Change are critical if
it is to fulfil a beneficial role. It must be independent with
a focus on technical expertise and free from political bias. We
are concerned that its role may conflict with that of other departments
including the Office of Climate Change.
10. In particular, we would welcome clarity
about the distinction between the roles of the Committee on Climate
Change and Office of Climate Change as we see considerable scope
for potential duplication of effort and conflicts of interest.
There is a real need to demonstrate that this is not the case
and define the respective terms of reference and remits of these
organisations accordingly.
11. We do not believe the Committee needs
a large support staff (eg in terms of analytical capability which
is available elsewhere in Government) and there should be minimum
duplication of effort and associated costs. We remain to be convinced
that it should be the role of the Committee, rather than the Government,
to report on the UK's progress towards its targets. Reporting
must not conflict with the Committee's role in scrutinising progress
and making recommendations on Government policy.
ENABLING POWERS
FOR SECONDARY
LEGISLATION
12. Our concern is that enabling powers
in the draft Bill in terms of secondary legislation (to introduce
new trading schemes) may result in measures being introduced without
sufficiently rigorous debate and scrutiny through the parliamentary
process. An associated risk is that Government may pursue "trading
schemes" in circumstances where other policy instruments
may be more appropriate, for example, direct regulation or taxation.
13. We would prefer targets to be stable
and, as far as possible, enduring once they have been set. We
are concerned that introducing a power to review the targets through
secondary legislation to take account of wider developments may
negate the benefits of setting long-term targets in the first
place. This may be considered to be one of the dangers associated
with the UK taking unilateral action on CO2 reductions.
It is important that any revision of targets does not jeopardise
investments made by industry in good faith or lead to the stranding
of assets.
CONCLUSION
14. In conclusion, while both the 2020 and
2050 targets for CO2 reductions are challenging, we
welcome the idea of carbon budgets covering five year periods,
which should cover a period of up to 15 years in advance to line
up with the investment cycles of the power industry.
15. However, targets have to be designed
at European Union level given that the EU ETS is the key policy
instrument dictating investments in the power generation sector
over this time frame. We are, therefore, concerned that unilateral
action by the UK Government in terms of targets would not provide
the necessary certainty for the operators of and investors in
capital intensive generating facilities.
RWE npower
May 2007
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