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“promote the interconnection of energy networks”.
That is an important issue for the EU, because if there were a problem, the Union would have to intervene. Pipelines will be a cause of increasing concern. The threat to pipelines and supply touches on another useful clarification in the treaty, about the common foreign and security policy. That is not only an external issue—for example, but not uniquely, with Russia—but a domestic or even, one might say, a European homeland security issue. In a recent Government announcement, this country has already made it clear that companies will have to pay for the military to secure the gas outlets within the United Kingdom. That does not surprise me. Indeed, we will have to go further, and there will be more obligations.
Security of gas and oil supply through pipelines in the European Union is a British national interest. If a pipeline somewhere else is blown up, it is a problem for us if it is part of our supply. Who protects Norway? We forget that the Russians are also encroaching on the Arctic circle, and any threat to Norwegian supply would be a grave problem for us.
This debate, which is narrowly focused on energy, indicates just how important it is for this country to start to think positively about the role of the European Union. We cannot influence such matters on our own. We cannot afford breast-beating declarations that Britain is best, or that we must look after our national interest, as if that were a zero-sum game that excluded everybody else. We are in this together, and we are in a much more insecure world. We start increasingly from the position of a lack of control over sufficient energy supplies for ourselves. We are becoming a net importer, which increases the insecurity.
I hope that the Minister will pick up some of those points and talk positively about the benefits of the Lisbon treaty. If he is not positive about them, no wonder the public at large are confused. The treaty is a good thing for the United Kingdom. Let us cut through the cant and understand that if we play the game properly, we can have disproportionate influence. Many other countries in the EU are looking to us for that leadership.
4.45 pm
Mr. Mike Weir (Angus) (SNP):
It is fitting that energy forms part of our debate, given that the whole concept of the EU grew out of the European Coal and Steel Community, but energy is one of the less satisfactory areas of the European project and, to be frank, I do not think that the proposals in the treaty will do a great deal to improve the situation. European policy swirls around the concept of liberalising energy markets and the belief that such liberalisation will lead to a better deal for consumers, but, given the recent experience of UK consumers and the swingeing energy
price rises that we have suffered in our so-called liberalised market, it is at least questionable whether we are getting any real benefit from it.
It is often argued that one of the reasons for that is the non-liberalised nature of the European market and its interaction with the UK market, especially through the gas interconnector. The Independent put it well when, on 8 January, it reported:
“For their short-term supplies, companies on the Continent come to the liberalised UK market where the wholesale price is significantly less than the oil-indexed gas sold on the European market. Their short-term supplies met, the European groups then hoard their stored supplies, crimping demand and driving the price up further still.”
In other words, the actions of the major European suppliers mean that prices in the UK rise. We have heard today about moves to centralise further the European companies’ hold on various markets.
The purposes of the new energy provision, article 194, are to
“ensure the functioning of the energy market...ensure security of energy supply in the Union...promote energy efficiency and energy saving and the development of new and renewable forms of energy”
“promote the interconnection of energy networks.”
None of us would have any great problem with any of that, and we certainly do not intend to oppose this part of the treaty—it is all very much motherhood and apple pie stuff. My difficulty is that although it all looks great on paper, what is actually happening in the EU seems to me to be somewhat different.
The Commission has been trying for some years to liberalise the markets, and in September last year it produced its third liberalisation package. The proposals consist of four documents that would amend the existing gas and electricity legislation, and a fifth that would establish a new agency for co-operation among energy regulators. The Commission’s aim is clearly to remove barriers to creating a fully functioning internal energy market, which it believes will ensure open and fair competition and effective regulation, leading to lower prices for European consumers in a single European electricity grid, which it wants to have in place by January 2009. I have already expressed scepticism about whether the liberalised market truly leads to lower prices, but the real fly in the ointment of the proposal is that the Commission wants to achieve a liberalised market using the mechanism of unbundling ownership—in effect, breaking up the vertically integrated energy companies that operate on the continent and having separate ownership of generation and transmission networks.
That is all very well in theory, but as I pointed out earlier in an intervention, several of the large European states—France and Germany in particular—are dead set against that approach, because their idea of energy security is based on the concept of having national champions in the energy market through promotion of big vertically integrated energy companies with a large element of state ownership, or at least state influence. Electricité de France—EDF—is a classic example. There is a conflict in article 194 between the idea of security of supply and the idea of liberalisation of
markets, because there is no definition of how we are to achieve security of supply, and there is a fundamental difference between the UK Government’s approach and the approach favoured by France and Germany, for example. In passing, it is worth nothing that the UK Government see new nuclear power stations as important for future energy security, yet the company most likely to invest in them is one in which the major shareholder is the French Government.
It is also highly unlikely that France and Germany will agree to ownership unbundling that reduces their Governments’ influence over the internal energy markets. That is doomed to failure. When I put that to the Secretary of State, he said that qualified majority voting was the key, but at the end of July last year, not only France and Germany, but Austria, Bulgaria, Cyprus, Greece, Latvia, Luxembourg and Slovakia sent a joint letter to the Commission arguing that ownership unbundling should be only one of a few options. Cyprus and Malta have also expressed additional fears about that. Even with qualified majority voting, we will be unlikely to get agreement on unbundling in that way.
As is the case with all things European, it is likely that a compromise will eventually be reached. Hopefully, it will be along the lines of what is known as the Scottish solution, which operates by separating transmission operators while leaving the integrated companies. However, being European, who knows what will come out of all this? I am interested to hear what the UK Government’s position on the energy market will be if the full unbundling option does not proceed. Are we in for many years of arguing about that before we come up with a compromise?
The provisions of the treaty will not change things, because we could do much of what is proposed by using existing legislation. We might be putting those provisions on the face of the treaty, but it will not make a great deal of difference.
I want to raise a specific point on article 194 and its relation to article 100. Much has been said about that, and the circumstances in which help would be given to other nations. I find many of the arguments somewhat bizarre. A great deal of concern has been raised about the position of Gazprom in the European market. It is active not only in the eastern part of the European Union, but also in the western part, where it has tried to buy up transmission capacity. Indeed, at one time it was looking at Centrica.
As the hon. Member for Esher and Walton (Mr. Taylor) hinted, the article gives confidence to members of the EU in the east that the west will come to their aid if Russia, or Gazprom, tries to cut off their gas supplies. Members of the Select Committee on Business, Enterprise and Regulatory Reform—or on Trade and Industry, as it used to be called—who visited some of the eastern European countries during our investigation found clearly that that is, rightly, a serious concern for them. They see the EU as their anchor in democracy against Russia, but they are worried about the gas situation. The article is sensible because it gives them confidence that they will not be left out in the cold—no pun intended—if Gazprom does that.
We had a brief diversion into biofuels. I remember speaking to a representative of a major oil company about the future of biofuels, and that person talked
about second-generation biofuels—those that come not from palm oil or corn but from wood and wood offcuts. The representative said that they would be made in areas with large forests. Guess where that is going to be in Europe? Eastern Europe and Russia. So there is a potential problem with biofuels, too, if we do not get this right.
No debate on energy would be complete, as I am sure the Minister will be delighted to hear, without a reference to our old friend transmission charges—something that I have discussed with him on the odd occasion. I have mentioned the discriminatory nature of transmission charges in the UK before, particularly with reference to renewable generators in Scotland. However, the subject also has a European dimension. If the Commission is serious about creating a European grid, the question of transmission charges throughout Europe will have to be addressed.
Under the Commission’s proposals, national regulators are given an obligation when fixing or approving tariffs to ensure that network operators are given incentives to foster market integration. Scottish and Southern Energy, among others, has pointed out that one of the key obstacles to effective market integration is the discontinuity in generator tariffs at national borders.
The guidelines limit the maximum average generator charge, but that still leaves scope for massive discontinuities at national borders due to extreme locational tariffs in some member states. That is an important consideration in the UK, as the guidelines say that the average UK tariff should be €2.4 per megawatt-hour. The UK complies with that average, but that disguises a vast range of locational charging arrangements set by the national grid and approved by the regulator—in our case, by Ofgem.
The European guidelines allow differentials, but state that a differential of €20 per kilowatt-hour would be an extreme example of locational pricing and a significant barrier to European trade. However, in the UK the difference between northern Scotland and southern England is more than €40 per kilowatt-hour—twice the extreme example cited by the European Union. If the treaty goes through, as I am sure it will, and the new electricity measures come into being, I look forward to the European Commission taking an interest in that extreme example of discriminatory pricing and overturning the UK Government’s refusal to do anything about it.
That subject is linked, too, to the new European decision on renewable energy generation. In an intervention, I mentioned the interesting fact that although the EU is now setting renewable generation targets for each member nation, there is a proposal for other countries to trade certificates of origin. That could lead to a great deal of trading of renewable energy. That could be a huge benefit, particularly in Scotland, because of the potential for renewable generation. I look forward with interest to seeing how it will be implemented in the UK.
I realise that time is running out, and so I shall bring my speech to a close. It seems to me that much of the debate about European energy before the treaty was presented to us was about who should set energy policy—Brussels or London. In our view, both are wrong. Scottish energy policy should be controlled from Edinburgh.
4.58 pm
Mr. Mark Harper (Forest of Dean) (Con): I shall of necessity be brief and raise just one or two points. The first is directly relevant to article 176A(d) of the treaty, and concerns the promotion of the interconnection of energy networks. One point that will be keenly felt by my constituents concerns the pipeline from Milford Haven to the national gas grid. One of my concerns is that we should ensure that local people’s influence on the way in which those energy networks are put together should not be downgraded. The Minister for Energy will know that his boss, the Secretary of State, recently turned down an above-ground installation on that pipeline following an inspector’s report. That was an important battle which was keenly fought by my constituents. They would not want to feel that their ability to influence the way in which those networks were put together was damaged by the treaty and its provisions.
My hon. Friend the Member for Mid-Worcestershire (Peter Luff), Chairman of the Business, Enterprise and Regulatory Reform Committee, pointed out that the Government’s negotiating position initially was that they did not want these provisions. They felt that they were unnecessary and argued against them. Now, they are arguing in favour of them. I do not necessarily agree with all the points made by my hon. Friend the Member for Esher and Walton (Mr. Taylor), but he did a better job of arguing in favour of the treaty than the Secretary of State.
I have two questions for the Minister who will wind up the debate. First, reference was made to the clearer legal basis for liberalising markets, but how will the treaty deliver that? My second question will be of interest to all our constituents: what assessment have the Government made of the treaty’s effect on energy prices here in the UK, as well as in other parts of the EU? The UK already has the most liberalised energy market, so it is not clear how liberalising markets elsewhere will help our constituents. It would be very helpful if the Minister responded to that.
5 pm
Charles Hendry (Wealden) (Con): This afternoon’s debate has been frustrating in many ways, as has been made clear in various contributions. In part, that is the result of its structure: we have spent four and a half hours talking about general energy policy, and will have only one and a half hours to discuss the specific amendments that have been tabled. In other words, the debate has been too general and too little concerned with scrutinising the detail of the treaty.
My hon. Friend the Member for Mid-Worcestershire (Peter Luff), the Chairman of Business, Enterprise and Regulatory Reform Committee, said that energy debates are like buses—nothing comes along for ages, then there are three in three weeks. A couple of weeks ago, the Secretary of State surprised us by telling us that he used to be a bus driver. His speech today might be compared to how buses behave: first there was no speech at all, and then two came along at once. In fact, he did rather better without the text than with it. There was a real sense that his heart was not in his speech, and it was certainly clear that it was lacking in content. He could have covered much more ground than he did.
At the outset, I shall set out those areas where we agree with European energy policy. Various significant aspects of energy policy demand international co-operation—tackling carbon emissions, for example, or agreeing the right level for a carbon tax and moving towards liberalised markets—but we believe, as my hon. Friend said, that the Government and the EU already have enough powers to take action in those areas.
Some interesting contributions were made to the debate. I was pleased that the former Secretary of State, the right hon. Member for Leicester, West (Ms Hewitt), spoke from the Back Benches. She rightly talked about the energy gap, but that gap would be smaller now if she had taken more action and indulged in less consultation when she was in charge of the Department. We had three White Papers and two energy reviews when we should have been seeing action. The consequence is that there is panic building of gas storage facilities, and the Government are having to review the targets that they set. The original goal of 10 per cent. of energy coming from renewables by 2010 has been cut to 8 per cent., and the target of 20 per cent. by 2020 has also been reduced, perhaps to as little as 12 per cent.
The right hon. Lady also said that we do not have too much Europe, but too little. For me, that was the quote of the debate, and perhaps it could be the slogan for the referendum campaign, if we ever get one. It is a remark that goes to the heart of the matter, so it is no wonder that she is not keen on having a referendum.
The right hon. Lady also said that we need more pipelines, storage facilities and LNG, and she is right. However, she also claimed that the liberalisation provided by the treaty would be needed if we are to get them, and in that she is fundamentally wrong. This country has perhaps a dozen days of gas storage, whereas illiberal countries such as France, Germany and Italy have 95, 80 and 80 days, respectively. In fact, it is the countries with illiberal energy policies that have the highest proportions of gas storage facilities.
The right hon. Lady made her most irresponsible comments when she tried to promote the treaty by spreading scare stories. Of course we must be wary of massively powerful, state-backed corporations, but it is simply not correct to say, as she did, that Russia will pick off EU countries one at a time. That is not going to happen.
Ms Hewitt: Will the hon. Gentleman give way?
Charles Hendry: No. I hope that the right hon. Lady will understand, but she had half an hour and I have only 10 minutes. She also tried to create a stir about Russia’s investment in other countries, yet Gazprom’s investment in the UK, for example, amounts to a trading arm. It buys and sells, and in that way it helps the market to work. It was therefore irresponsible of her to create confusion in the way that she did.
The Liberal Democrat spokesman, the hon. Member for Northavon (Steve Webb), also made an interesting speech, from which two things were clear. The first was that he could not think of one area in which his party would not be willing to cede more sovereignty to the EU—
Steve Webb: There are too many to choose from.
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