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30 Jan 2008 : Column 378

We are debating the interrelatedness of energy policy and the European Union. What is also common ground between us is that there is no way in which British energy policy can be separated from European energy policy. It cannot be, and it should not be. In fact, when I write to constituents who urge withdrawal from the European Union, I cite energy policy as a reason for not doing so. Our ability to influence the European market in gas and, in particular, electricity depends on our membership of the European Union, and it is therefore absolutely in our interests to engage in energy policy. There can be no debate about that; the debate must be about how we are to engage in that policy.

The question I want to ask is “Do we need any new powers and competences at all?” A thought at the back of my mind suggests that we might, and I wish that we were debating it now. I think it was my colleague on the Select Committee, the hon. Member for Angus (Mr. Weir), who made the point about French and German national champions, and listed other countries with a chauvinistic approach to energy policy. It is certainly true that the conduct of British energy policy is shaped very heavily by the aggressive chauvinism of, particularly, the French and the Germans. There is no doubt that the European Commission, in its magnificent battles with the national champions in the rest of Europe, is encountering a great deal of resistance to the liberalisation of the European markets that is so much in Britain’s interests. It is possible that we need new powers to deal with that, but I do not think we do.

Mr. Weir: Is not the crux of the new powers in the treaty the interlinking of the issues of energy security and liberalisation, given the attitudes of, for example, the French and German Governments, who exert huge influence on their own energy companies?

Peter Luff: The hon. Gentleman is absolutely right. The question that the House must seriously address is whether we need to pool new aspects of our sovereignty—to use the less controversial phrase of some of my hon. Friends—to achieve those objectives. I believe that existing powers are sufficient to deal with them, and we should be content to rely on them, rather than seek new ones.

Mr. Cash: I was interested in the exchange my hon. Friend had about the French and German position. Is he aware that, this week, France and Germany will seek to prevent a forced break-up of their power companies when they unveil a joint initiative, as reported in the Financial Times? It is precisely that problem that we are up against. It is not just a problem for the European Commission, but for the global marketplace.

Peter Luff: I was aware of that because my hon. Friend had drawn it to my attention earlier on. That development does not surprise me at all, and it is important that it is put on the record. I view with some trepidation what the development will actually entail when it is announced by those Governments.

Mr. Jim Cunningham (Coventry, South) (Lab): Does the hon. Gentleman agree that it is important that countries in Europe stand together as far as possible,
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even given the current difficulties? The Russians have certainly used energy as a weapon; they did so in Ukraine not too long ago.

Peter Luff: I do not remember whether the hon. Gentleman was here before the speech of the right hon. Member for Leicester, West (Ms Hewitt). She discussed at some length towards the end of her remarks—in my view, her analysis was absolutely right—the real challenges relating to Russia. It is not attracting sufficient investment in its own industry to guarantee the supply in its own marketplace, never mind its ability to export; that is the real fear about Russia. My worry about Gazprom is not so much its power, but whether it will actually have the power to sell when the time comes. I am slightly less concerned about that, although it is a big and complex subject that we do not have time to debate now.

I am grateful to Open Europe for its extremely good briefing on this debate, which points out that this is the first time energy will be subject to majority voting in the European Union, and that is a big change. I am not against pooling sovereignty, but the question is whether we need more powers to achieve the objectives we share. I do not believe that we do. The briefing emphasises:

But they swallowed their concerns and gave way on every point. I have seen a document that suggests what their original negotiating position was; I heartily endorse that position, and I am sorry that they gave up on it. I do not believe that the treaty does anything helpful by way of consolidation, clarification or addition to add to the powers that we already enjoy to break up energy monopolies on the continent, which are so important with regard to our own security of supply and price. The necessary provisions are already there.

I share with Open Europe the concern that the new energy powers will let the EU pass legislation on energy that has nothing whatsoever to do with the operation of the internal market. I cannot authenticate its figures, but Open Europe states:

The briefing points out the impact that that would have on energy prices at a time when we are deeply concerned about fuel poverty in this country. Those are real issues, but the Government have not yet satisfied me as to whether they will have an adverse impact on our constituents.

Let us consider the three articles that concern us—I am using the consolidated text. Article 4 defines for the first time, other than in case law, the shared competences of the European Union. The helpful Library note on shared competence says:

Given my view about the centrality of energy policy to this country’s competitiveness and security, it worries me that the Government have yet to produce good arguments for that formalisation of the sharing of competence, with its consequent effect on this House’s ability to legislate on energy policy.

The second article, which we have already debated at some length and I have dealt with in response to an intervention, is article 122 in the consolidated text. It deals with

I have still not heard a convincing explanation of the sort of circumstances in which that power could and would be used. It is a freestanding provision, which does not relate to the second part of the article, which refers to difficulties

which is a broad definition. The Secretary of State suggested terrorism as an example, but I hope that, in those circumstances, the countries of Europe would naturally wish to do what was right and best for Europe, because that would also be in their self-interest. I do not understand the necessity for including a new power in the treaty. When I cannot understand the reason for doing something, I prefer not to do it. If there is a compelling reason for doing something, I will consider it. However, I am worried that we are adding powers for which there is no compelling need.

Article 192 in the consolidated treaty provides that the Council can act unanimously on

That is helpful. The substantive article that we are debating—194 in the consolidated treaty—includes a subsidiarity provision, which states:

the North sea in our case—

That is a good, useful subsidiarity point, which I welcome.

Sir Nicholas Winterton: How would my hon. Friend respond to the EU’s scientific experts, who said of biofuels, which could cost up to £50 billion by 2020, that the policy outweighs the benefits to the individual countries that comprise the EU?

Peter Luff: I would love to get into a lengthy debate about biofuels with my hon. Friend because he makes a powerful point. I shall deal with renewables briefly towards the end of my remarks but I share his concern. We all assumed that biofuels were an unequivocally good thing, which brought unqualified benefits to our farmers and the environment, and we now realise that the matter is more complex than we first imagined. I
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am glad that we are having second thoughts about the subject to ensure that any biofuels that are used genuinely contribute to environmental sustainability and do not have an environmentally negative impact.

Mr. Cash: My hon. Friend fulfils the important function of chairing the Select Committee on Business, Enterprise and Regulatory Reform. When we consider the duties, options and the extent of remaining choices, I hope he noted that the paragraph of article 194 that he cited ends with the important words,

That takes us back into a labyrinth of other matters. As Chairman of the Select Committee, my hon. Friend may wish to consider in due course the legal basis for the article, and I am sure that the European Scrutiny Committee will be glad to help him.

Peter Luff: We could have great fun with that. I could almost share my hon. Friend’s addiction to the nuances and niceties of the matter. He is right that the article states,

However, article 192 provides that the Council will act unanimously, but

I shall not turn back to article 114 to discover to which article it is without prejudice. Heaven knows where that would lead us. [Interruption.] My hon. Friend is right that the paper trail would lead us back to the beginning and I understand his concern.

Article 194 has four substantial provisions. One is to ensure the functioning of the energy market. We do not need such a provision because it is already implicit everywhere else. The right hon. Member for Leicester, West said that the article usefully consolidated matters, but I need to be persuaded.

The article refers to ensuring the security of the energy supply in the EU. I believe that the British Government, not the EU, have a central role to play in that. To be fair to them, they have done many of the right things. For example, the Planning Bill is a flawed but well meaning attempt to ensure that we have generating capacity. The Government have been working closely with the Government of Qatar and other places to ensure that we can import LNG. They have done much on gas storage, albeit sometimes belatedly. Security of energy supply is for national Governments to tackle and I am nervous about action at EU level.

The article covers promoting energy efficiency and energy saving, and developing new and renewable forms of energy. We are all in favour of that but, again, I am worried that the EU’s power may be channelled in an unhelpful direction towards specific technologies.

I would like to see member states experimenting with different technologies. For instance, I have a hobby horse about hybrid cars, which I think are bad for the environment. Because of the total carbon footprint of the cars and the recycling costs, I think that clean diesel is better for the environment than hybrid technology. Toyota has made a great play of promoting itself as an environmental company because it uses hybrid technology. There is also a reduced congestion charge for hybrid technology, which I resent because I am not
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sure that it is the right technology. The state, in the shape of the Mayor of London, is taking a view on a particular technology, which is not helpful.

I worry that the energy provisions in the treaty could lead Europe to specify technologies in an unhelpful way. That is why I have some doubts, as the Minister knows—doubts, not objections—about the banding of renewable obligation certificates, because I worry that we will again be choosing technologies. However, that is a separate debate.

The only thing that is genuinely helpful is sub-paragraph (d), which says that policy will aim to

which I can see is hugely important for the functioning of energy markets. I also suspect that that provision actually adds to the existing body of legislation, so I have some sympathy for that part of new article 194.

The reason for my overall concern is that energy policy means different things to different people. When we talk about energy policy—we have seen that there is a consensus in all parts of the House—what we mean is often liberalisation of the European market, energy efficiency and renewables. However, when people talk about energy policy in eastern Europe, one word comes to mind: Russia. They have a different obsession, and understandably so—I am not making a criticism. The interests of eastern and western Europe diverge on energy policy, as do this country’s interests vis- -vis the continent. Again, I am nervous about pooling too much sovereignty, in case that is against our interests.

Mr. John Horam (Orpington) (Con): My hon. Friend has mentioned Russia, which is pertinent. Is he aware that Italy and the Italian company Eni are getting together with the Russians in joint schemes, such as the southern stream pipeline, which would totally bypass western Europe and give Russia direct entry into southern Europe? That is an example of where we should be concerned not necessarily about what the British Government are doing, but about what other countries are doing.

Peter Luff: I understand my hon. Friend’s point. We could discuss pipelines, which are a very political subject, at great length. However, I have not thought through the implications of the development that he described, but it is helpful that he has made that point.

For me, there are two central things that Europe must prioritise. One is liberalisation, on which the Commission is working hard; the other is the carbon price, which is a very important mechanism. We are starting the phase 3 negotiations, and we shall see where they lead. However, my hon. Friend the Member for Croydon, South (Richard Ottaway) drew attention earlier to Dieter Helm’s concerns about the long-term carbon price. Although the Commission’s heart is in the right place—phase 2 is better than phase 1, and I am sure that phase 3 will be better than phase 2—I am still worried that the time scales for the mechanism for setting the carbon price are not long enough.

Investors are not sure—this concern has been expressed to me by potential investors in nuclear power, for example—that they can project 30, 40 or 50 years ahead, based on what the mechanism for setting the price will be. They do not know the price—they can
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take a view on that—but they need certainty about the mechanism. They know how oil prices are determined—it is called supply and demand, and they can take a view on that, too—but they do not know how the politics of setting carbon prices will work out. I am concerned that that remains the most important challenge for Europe, because we need a European price. We should therefore not divert attention from that crucial issue.

Very briefly—I have spoken for too long already and many other hon. Members want to speak—I should like to discuss renewables and the draft renewable energy directive. There are lots of targets floating around, which can get quite confusing. The UK has a target of 10 per cent. of electricity generation from renewables by 2010 and an aspiration of 20 per cent. by 2020. The EU has a target for the generation of 20 per cent. of all energy from renewable sources by 2020, from which we now know that the UK’s target is likely to be 15 per cent.

That 15 per cent. target is much more challenging than the UK’s existing aspiration, because it will translate into a higher figure for electricity generation, which comprises only 18.5 per cent. of the energy market, and because we do not have the policy levers to pull to produce the solar gains in other areas. The target will translate into a big demand for renewable electricity generation. When we have the Minister for Energy before the Select Committee on Business, Enterprise and Regulatory Reform tomorrow—here is a clue to one line of questioning—we will be pushing him a little on what he thinks that target will mean in practice for renewable electricity generation as a percentage of total generation, because I just do not think that we can achieve it. That target—that expectation, aspiration or whatever one likes to call it—is unrealistically high and I do not think that we can meet it.

There is some speculation that the then Prime Minister Tony Blair did not understand the difference between energy and electricity when he negotiated the figure. I understand that, because although we have energy reviews all the time, they are actually always electricity reviews. But there is a real problem here. The European Union is about to impose on us a target that I do not believe we can meet.

Mr. Weir: The hon. Gentleman talked about the carbon trading initiative in the European Union. My understanding is that, within that, there is also a mechanism for trading renewable energy through certificates of origin. So, what might happen is that the countries that are closer to meeting their targets on renewables will end up selling certificates of origin to those that are not meeting theirs, to boost their amounts.

Peter Luff: The hon. Gentleman is absolutely right. That is the way in which the mechanism would work, and I imagine that that would mean additional costs for UK energy consumers. I worry about that, but I am sure that that is exactly what will happen.

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