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11.49 am

Mr. Charles Kennedy (Ross, Skye and Lochaber) (LD): I beg to move, That the Bill be now read a Second time.

I should like to add my congratulations to all those involved in the debate that we have just listened to and, in large measure, enjoyed. I congratulate the hon. Member for East Surrey (Mr. Ainsworth) on his success in getting his Bill this far. Let us hope that it is given a fair wind in the other place. I also thank him for his kind comments about my Bill, which were much appreciated, as were the understanding and supportive comments of my hon. Friend the Member for North Southwark and Bermondsey (Simon Hughes) and the right hon. Member for Holborn and St. Pancras (Frank Dobson).

I am a bit new to the specifics of these proceedings and to the process that the hon. Member for East Surrey has been dealing with in regard to his Bill. He was talking about having dealt with three Ministers. I have had some dealings with the Under-Secretary of State for Energy and Climate Change, the hon. Member for Stafford (Mr. Kidney), and I have been equally impressed by the dealings I have had with the civil servants involved. However, anyone listening in might have thought that the hon. Member for East Surrey was being a little uncharitable to the Minister. I timed the Minister’s speech. He devoted 44 minutes to one of the most detailed replies to a Back Bencher that I have heard in my 26 years in the House, before going on to make his own, fresh contribution to the matter for a further 21 minutes. I shall be charitable and take that as an indication of the seriousness with which this Minister—if not the Government generally—views these matters. I find that encouraging.

Mr. Andrew Dismore (Hendon) (Lab): The right hon. Gentleman is not a regular attender on a Friday. If he were, he would know that Ministers often make very detailed responses to Back Benchers’ Bills.

Mr. Kennedy: There are advantages to having a constituency that is an awfully long way away—it provides a very useful excuse at times.

My Bill aims to help the United Kingdom to meet its targets under the Climate Change Act 2008, and to help to craft an adequate energy policy to ensure that the UK becomes a genuinely long-term low-carbon economy. Its main purpose is to require the Government to introduce regulations that set an emissions standard for new power plants in the UK, known as an emissions performance standard. It intends to provide—in a constructive way—greater clarity on all sides of this important issue.

What should the United Kingdom’s energy policy look like in a new, low-carbon age? The environment needs a firm guarantee that any new coal plants will be fully fitted with carbon capture and storage—CCS—facilities by a given date. Equally, companies need clear, long-term regulation which, along with a finance mechanism to fund demonstration projects, will give them the confidence to invest. The provisions of the Bill will contribute substantially to the delivery of both those objectives.

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I shall explain briefly what the emissions performance standard is. It is a carbon intensity target for power generation that could be applied to all new power plants in the UK. If the standard were set at a certain level, consent applications for new coal-fired power plants would be able to proceed only if there was a commitment to fitting a substantial proportion of their generation capacity with CCS. It is important to note that CCS would need to operate at the plant from the outset. The operation of renewables and other low-carbon technologies would be unaffected by the standard as they have much lower emissions.

David Howarth (Cambridge) (LD): My right hon. Friend is making the important point that new coal-fired plants would have to be fitted with a working CCS capability, rather than simply being carbon capture ready, as seems to be the present policy. When I was the energy spokesman for our party, I investigated what “carbon capture ready” meant, and it turned out to mean simply that there needed to be a big field in which something might happen later.

Mr. Kennedy: I thank my hon. Friend for that contribution; he has hit the nail on the head. The Bill aims to encourage much more specific definitions in these areas.

The EU has set emission limits for other pollutants—sulphur dioxide, for example—so the concept behind the Bill is already well established. Perhaps the most well known example of an emissions performance standard for CO2 is the one applied to power plants in the state of California—and, indeed, it is being extended to other states in the US. It was implemented in California in 2007 and it requires that any new power station—or, for that matter, any energy imported into the state—meets carbon intensity limits. These are set so that new unabated coal plants without CCS cannot go ahead. If CCS is added to a new plant, however, it complies with the standard and it can proceed—precisely the point that my hon. Friend the Member for Cambridge (David Howarth) made.

Simon Hughes (North Southwark and Bermondsey) (LD): I thank my right hon. Friend for his interest and initiative in introducing this Bill. I met some of the people involved in the Californian project earlier this year when they visited the Government and others here. They were very clear that the development of this technology is entirely possible within the time limits needed to ensure that the next generation of power stations are fitted. This is not undiscovered science; it is science already worked out, but it needs to be expanded to fit the plants. It can be done.

Mr. Kennedy: I am grateful to my hon. Friend for that intervention. What he says about timing and readiness is very apposite; one of the reasons for introducing the Bill is that we are now at a key moment in deciding climate and energy policies for our country. Decisions made now will determine our success—or, for that matter, our failure—in becoming a low-carbon economy over the next few decades.

Why do I say that? Well, Parliament has passed the Climate Change Act 2008, which contains strong emission reduction targets, and we are about to take long-lasting decisions on the nation’s future energy mix. We should remind ourselves that coal-fired power stations have life
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spans of more than 40 years, so once they are built they represent huge investments, and companies obviously do not want to shut them down prematurely.

On the environmental aspects, the independent Committee on Climate Change made it clear in December last year that it sees the power sector as absolutely key—and “key” is its own word—to the UK achieving its targets. Furthermore, the committee said that the power sector should be almost completely decarbonised by 2030. That is because technologies such as electric cars will not reach their full potential for reducing CO2 emissions unless they are powered by clean sources of energy. However, the committee expressed its concern that the carbon market established by the EU emissions trading scheme, in which many people have placed their faith over the years, would be insufficient on its own to drive the necessary low-carbon investments in time. Additional measures would be necessary to “buttress”—again, the Committee’s own word—the carbon price.

It seems to me that that conclusion has profound implications for energy policy. It means that we must not rely solely on the carbon markets to decarbonise the power sector, as complementary regulation will be required. The Committee on Climate Change made it clear that all coal-fired power stations in the UK would either have to have full CCS by 2025 or shut down. Finally, it called for a clear policy on coal to be stated now, as this would be so essential to meeting the 2025 deadline.

What have the Government proposed? Up until a few months ago, I think it would be fair to characterise the Government’s essential stance on this issue as, “Let’s build new coal plants, make them capture ready and hope the carbon markets deliver full CCS at some point.” That takes us back to the point made by my hon. Friend the Member for North Southwark and Bermondsey. We had a competition under way to demonstrate CCS on one plant, but the Government seemed happy to let other plants go forward without that measure of CCS.

To be fair where fairness is due, I have to say that today it is clear that the Government have taken a big step in the right direction, which I very much welcome, although they still have much further to go.

In April, the Secretary of State declared that the “era of unabated coal” had come to an end. No new coal plants would be allowed unless they demonstrated some level of CCS, and the United Kingdom has said that it will fund up to four demonstration projects. A consultation on new coal was launched very recently, on 17 June, and has revealed that the Government hope that CCS will be technically and economically proven by 2020 and scaled up to cover the full generating capacity of new plant by 2025.

Much as I welcome the movement on the part of Government, if it is measured according to the standards of the Committee on Climate Change it is clear that there is scope for much greater improvement. The problem with the Government’s proposals is that there is no absolute, firm guarantee of when full CCS would be required. There is no mandate, and that must be cause for concern.

Under the current proposal we could see four new coal-fired power plants built in the United Kingdom, fitted with small-scale CCS but failing to fit the technology fully to the whole generating capacity. According to
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that scenario, which is by no means implausible, a plant could continue to operate largely unabated, emitting some 80 per cent. carbon dioxide into the atmosphere at precisely the time when a marked reduction in emissions is needed. I cannot believe that the Government, or indeed the House generally, would want that to happen. The four demonstration power plants proposed by the Government may capture only 20 per cent. of their annual emissions from the outset. Over its lifespan, one of those plants could emit nearly 240 million tonnes of carbon dioxide if it was not fully fitted.

Gregory Barker (Bexhill and Battle) (Con): The right hon. Gentleman is making a very important point, and he is not scaremongering. He is absolutely on the money. We need only look at the size of coal-fired power plants historically, relative to the size of other power-generation facilities, to see what he means. I understand that Drax, our largest coal-fired plant, accounts for nearly 10 per cent. of emissions.

Mr. Kennedy: It is certainly no wish of mine to scaremonger, but in the context of what was said by the Committee on Climate Change, there are real worries ahead unless we move things further forward—which, obviously, is the aim of my Bill.

The Government hope that the new plants will be fully fitted with CCS by 2025, but they do not propose a firm guarantee. If the technology is proven by 2020, both technically and economically, the plants will have five years in which to fit CCS fully. However, even the Government acknowledge that there could be delays. The technology might not work, or it might not be economic by 2020. The United Kingdom would then be in danger of failing to comply with the recommendations of the Committee on Climate Change, and could be seriously off track in terms of its long-term policy of decarbonising its power supply.

As we know, the Government are considering the idea of a safety net should such a scenario occur, but propose not to consider the option itself until 2020. That is completely the wrong approach to such a serious issue. If delays occurred or the technology did not work, closing the plants less than 10 years into their operation would become a real possibility. I think that any future Government who built their energy policy on the assumption that the plants would continue for their likely lifespan of 40 years would be unwilling to consider such an economic option. Certainly they would feel very uncomfortable about it.

From an industry perspective, what business needs above all else is the confidence to be able to make long-term investment decisions that deliver an expected financial return—I do not think there is any sensible disagreement in the House about that, and I certainly hope not. That confidence depends on whether there is a credible regulatory framework set by Parliament, and whether there is clarity and transparency in what will be required of companies and by when it must be done. A policy that breeds confusion about whether 100 per cent. CCS will ever be required in new power plants would create unwelcome unknowns and risks for companies seeking to invest in coal. It would be a massive financial disincentive from a commercial point of view.

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The benefit of an emissions performance standard is that it provides long-term clarity. Government, industry and non-governmental organisations all need to know what must happen and when. What is needed is regulation that brings about clear and unambiguous action. An EPS applied across the whole power sector would, by proxy, set a clear timetable for how much CCS had to be fitted to new coal power plants and by when. If it were supported by the finance mechanism for demonstration projects to which I have referred, it would provide a clear legal framework allowing power companies and investors best to decide what to invest in; it would be clear in 2009, just as it would be in 2020. That is exactly the kind of approach that is needed.

Clause 1 would place a requirement on the Secretary of State to introduce regulations introducing an EPS. That would amend the Electricity Act 1989 so that no consent for a new power station could be granted unless it complied with these regulations. Clause 2 sets out how compliance with the standard could be calculated. CCS is explicitly stated as a means of compliance, and the useful heat captured by combined heat and power can also help to meet the targets. Renewables can also be fast-tracked through this requirement, which is a useful addition. This is, of course, an enabling Bill, but it requires the Government to come back with regulations after 12 months. Clause 4 sets out who should be consulted on the level of an EPS and how the statutory instruments should be introduced. Finally, when setting the EPS, the Secretary of State needs to consider the latest science and any further advice from the Committee on Climate Change.

I believe that an EPS is not only necessary but a good way forward—arguably, the best way forward. It would show that, as a country, we are serious about driving investment that would contribute towards a decarbonised—or as close as possible to a decarbonised—power sector by 2030, and it would provide the certainty and guarantees that other options cannot offer.

An early-day motion in favour of the idea of an EPS has attracted the support of 186 Members—colleagues from all parties, without exception, across the House. I am not speaking in a party capacity at present of course, but the EDM is officially supported by the Liberal Democrats and by the Conservatives, and 71 Labour MPs have signed up to it, too. I believe that this is a timely debate, and I hope the Government will be able to respond to it constructively.

In a different context, in the earlier debate this morning the Minister rightly referred to the fact that mañana could not be an option. In the west highlands of Scotland where I come from there is an old joke about a person who has never previously been up and experienced the lifestyle there. He cannot believe how much more leisurely it is than the city lifestyle he is used to, with all its pressures and attendant difficulties. He is listening to two old boys talking to each other in Gaelic in the local bar, and says to them, “I can’t believe the pace of life here. It is so much more idyllic than what I am used to. It is like mañana. What is the word in the Gaelic language for mañana?” The old boys look at him, and then one of them says, “There is no word that conveys that sense of urgency.” I say to the Minister that we do need that sense of urgency, and I hope he can convey it in his response.

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12.10 pm

David Howarth (Cambridge) (LD): I support the Bill and I do not wish to take up more than a few minutes in adding to what my right hon. Friend the Member for Ross, Skye and Lochaber (Mr. Kennedy) said, but I want to make one point.

The necessity for this Bill comes from the fact that carbon markets are not acting in the way that many people hoped they would. The original policy idea of the carbon markets was that before long, with the right set up, there would be a high and stable carbon price, which would drive forward technological change and carbon saving throughout the economy in a predicable and effective way. Unfortunately, that has not happened, because the carbon price has, on the whole, remained low and there is no obvious prospect of its reaching the levels necessary for it to be effective in the way that was originally hoped. The carbon price also seems to be quite variable and that is, in itself, a problem, given what my right hon. Friend rightly said about predictability being an important part of the policy objective.

There are a number of reasons why the faith that many people had in the carbon price and carbon markets as a way forward has been deeply damaged, but I wish to focus on one. Such reasons include those relating to enforcement costs, certainty of enforcement and the necessity for proper regulation of carbon markets—those things have come to the fore and will do so again in future—but the central point is that because carbon permits are issued by Governments, the setting of the total amount of carbon permitted in a particular economy is, in the end, a political act. We are not dealing with some natural property that is limited by physical factors; we are dealing with a property right created by the state.

The problem is that whenever some difficulty affecting a particular industry comes to the fore in the political debate, the reaction of Governments is to give way to that particular industrial lobby. The long-term effect of that approach is to reduce the confidence of people generally in the long-term prospects of a rising carbon price. If the pattern that establishes itself is that politicians give way and issue more permits every time a problem arises, the carbon price cannot rise in the long term to the level necessary to drive the policy forward. That is why we must now turn to a more regulatory solution, as proposed in my right hon. Friend’s Bill. I was very glad that in the previous debate the Minister said that we have to look to regulatory solutions, not just incentives. With that in mind, I hope that the Government will give the Bill a fair wind.

12.13 pm

Gregory Barker (Bexhill and Battle) (Con): It is a pleasure to follow two excellent speeches. I thought that the right hon. Member for Ross, Skye and Lochaber (Mr. Kennedy) put the case for this important measure succinctly but very powerfully, and the hon. Member for Cambridge (David Howarth) also made very important points about the effective use of market instruments.

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