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12.43 pm

The Parliamentary Under-Secretary of State for Energy and Climate Change (Mr. David Kidney): I congratulate the right hon. Member for Ross, Skye and Lochaber (Mr. Kennedy), who presented the case for the Bill, on his choice of subject. It is one of the major issues of the day, and he has his finger on the pulse in bringing it before us. I always thought that he led his party with great skill and great good humour, and he brought those qualities to bear in leading this debate, which he did adroitly and persuasively.

I know that in the previous debate some hon. Members were a touch impatient to hear my full arguments, so I shall give them a synopsis of what I am going to say. The Government’s position is that in our general policy direction, we are where every Member who has spoken has urged us to be. We have already commenced a consultation on the best way to get a detailed policy so that we can travel forward. Unlike the hon. Member for Bexhill and Battle (Gregory Barker), I believe that consultation is a very good thing and an important component of getting policy right. In that context, the Bill is premature in the solution that it proposes. The solution will look something like the Bill, but we will know better how precisely it will look when we have concluded the consultation.

Simon Hughes: For those who read or hear our debates, will the Minister put on record the closing date of the consultation, so that people know by when they need to respond?

Mr. Kidney: I think that it is 9 September, but I will come back to that in a moment and correct it if I have got it wrong. As the right hon. Member for Ross, Skye and Lochaber kindly said, the consultation is currently open, and it will close in the autumn.

Having congratulated the right hon. Gentleman on his Bill, I confirm that reducing emissions from our power stations is imperative if we are to achieve our climate change goals. I was pleased to be able to have a meeting with him recently. Being a new Minister, every
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day seems to last an eternity, so I cannot remember whether it was last week or the week before, but it is reasonably fresh in my mind. The hon. Member for North Southwark and Bermondsey (Simon Hughes) mentioned the many powerful non-governmental organisations that support the Bill, and I was pleased to see some members of WWF at that meeting. I said privately then, and I am happy to say publicly today, that I am a keen supporter of WWF’s environmental campaigning in many areas, and I have personally supported many of its initiatives in the past. I am grateful to it for the expertise that it brought to the meeting and the arguments that its representatives made. It was a valuable exchange because they not only listened to and understood the Government’s position but teased, pressed and probed it, so that I genuinely had to think about the issues that they raised. In every sense, the meeting was very helpful.

Even in the short time since we had that meeting, there have been three key developments that are relevant to today’s debate. The first was that my right hon. Friend the Secretary of State for Energy and Climate Change published the Government’s manifesto for the negotiations in Copenhagen at the end of this year in a document called “The Road to Copenhagen”. It set out our case for an ambitious international agreement on climate change in December. Hon. Members will know, and I hope it becomes widely known by the public, that the full document contains a detailed exposition of the Government’s position. For people who want a handy and accessible summary of the position, there is a shorter document that they can obtain. There are plenty of paper copies of it, and it is on the Department’s website. During the launch of that document last Friday, my right hon. Friend the Prime Minister was once again at the forefront of international efforts to secure what perhaps matters most, which is the finances to ensure that the world goes forward practically.

The second crucial development since the meeting was mentioned by the hon. Member for North Southwark and Bermondsey. The US Clean Energy and Security Act completed its passage through the House of Representatives at the weekend. As he said, among its provisions is a requirement that all new coal power stations permitted after 2020 must have carbon capture and storage fitted.

The third element of the package, which is important, is the Government’s announcement on Monday of our draft legislative programme for the next Session of Parliament. The Prime Minister stood at the Dispatch Box and explained the programme, in which his No. 1 measure was an energy Bill. Clearly, the Department is pleased that such priority has been given to its work through a new energy Bill to implement the financial support mechanism for up to four carbon capture and storage demonstration projects that were announced in the Budget this year.

So much meaningful activity in under two weeks demonstrates the pace of change. We all understand that urgent action is required to tackle dangerous climate change. The Government’s own thinking is developing at speed—that is shown by the fact that, when the Bill had its First Reading in January, the Government had not pronounced publicly on an emissions performance standard—EPS, as everyone calls it—as part of our portfolio of measures to tackle emissions from power stations.

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Following the report from the Climate Change Committee, which the right hon. Member for Ross, Skye and Lochaber mentioned today, and responses to our previous consultation on the subject, “Towards Carbon Capture and Storage”, we have moved forward and are exploring in our current consultation the possibilities of using an EPS to support our aim of reducing emissions from power stations. The consultation document, of which I have copy before me, was launched in June and contains a great deal of discussion about what an EPS might comprise, how it could be applied, and—perhaps the most crucial point in the right hon. Gentleman’s speech—the timing of its introduction.

The Government have the same agenda as all hon. Members who have spoken in the debate, but the point at issue is that, while we greatly support the Bill’s intentions, there are several reasons for being unable to support its further progress at this time. I will go through them in detail later on—the right hon. Gentleman and I have discussed them previously. Let me first emphasise that the wider issues relevant to the Bill, including the development and deployment of carbon capture and storage technologies, without which it would be difficult to achieve any meaningful emissions performance standard, are a priority for the Government.

Reducing our carbon emissions to avoid dangerous climate change is an increasingly urgent challenge. Without urgent action, when a child born today reaches 50, average temperatures worldwide could have increased by up to 2.5° C above pre-industrial levels. Local and seasonal increases in temperature could be significantly higher, and the effects on society and the environment would be dramatic. For example, some 20 to 30 per cent. of plant and animal species could become extinct; food production may start to decline; and a 60 per cent. reduction in glaciers in the northern hemisphere could affect the drinking water supply of a sixth of the world’s population—a billion or so people. “The UK Climate Projections 2009”, published on 18 June, shows the extent of the changes that the UK might face as a result of climate change: warmer, wetter winters and hotter, drier summers, with more drought, heatwaves, flooding and sea level rises.

Tackling climate change is a global challenge and we need co-ordinated global action. A global climate change deal, if it can be won in the negotiations in Copenhagen this year, will affect all our lives and the prospects for generations to come. As I said earlier, my right hon. Friend the Secretary of State for Energy and Climate Change has set out the UK’s position for the global climate change negotiations in “The Road to Copenhagen”.

The overriding goal of the Copenhagen agreement must be to limit climate change to an increase in global average temperature of 2°. That means that the deal needs to establish a credible trajectory for reducing global emissions by at least 50 per cent. on 1990 levels by 2050, and to put in place now the measures to ensure that emissions start to fall in the next decade. We will be working intensively with other countries to resolve the issues and remove the barriers to reaching an effective international agreement at Copenhagen. We are also determined to ensure that the UK’s domestic emissions reduction effort contributes to achieving that global deal.

Through the Climate Change Act 2008, the UK became the first country in the world to introduce legally binding carbon budgets, which commit us to
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carbon savings of 34 per cent. by 2020 and at least 80 per cent. below 1990 levels by 2050, to be achieved through action at home and abroad. The four key measures by which we can meet those ambitious targets will be: first, from 2013, a progressively declining cap on emissions in the power and industrial sectors, through the EU emissions trading scheme; secondly, incentivising low-carbon sources of energy; thirdly, bringing about dramatic improvements in energy efficiency; and fourthly, facilitating a switch in energy demand in the heat and transport sectors to low carbon electricity and renewable fuels. The first two of those measures are of most relevance to today’s debate.

There have been some less than wholehearted endorsements of the EU emissions trading scheme in this debate. The scheme is the first of its kind—and the first of such size, ambition and scope—anywhere in the world. The revised EU ETS directive was agreed last year and will come into effect from 2013. It sets an annually declining trajectory for the cap on emissions to 2020 and beyond, which will deliver emissions 21 per cent. below 2005 levels by 2020 and is consistent with keeping the EU on track to deliver a 60 to 80 per cent. cut in emissions by 2050. The EU ETS cap will also be tightened up to the 30 per cent. greenhouse gas reduction target when the EU ratifies a future international climate agreement—in other words, if we reach a robust agreement at Copenhagen.

David Howarth: This is probably the crux of the issue. The increasing academic consensus among economists is moving against emissions trading, and especially emissions trading as the only measure. The reason is that if what the Minister has said were fully accepted and there were no problems of public choice—that is, of people thinking that the agreements might not be kept to—then the futures price of carbon would be rising, but as we can observe, it is not. The problem that the Government must face is that the facts have changed, and therefore their policy must change.

Mr. Kidney: I am someone who is instinctively concerned about putting all the eggs in one basket, so I take the hon. Gentleman’s point about not claiming everything for one approach, in this case emissions trading. However, he should bear in mind the scheme’s fairly recent arrival and the fact that it is necessary to learn from early experiences, including the giving out of permits at the beginning to get the scheme going. As we move forward and learn the lessons of the first phase, we can have a much more effective scheme in the future.

For our part, the UK will be auctioning 100 per cent. of EU ETS allowances to the power sector from 2013, and at least 60 per cent. of allowances will be auctioned in the UK by 2020. That will provide a more economically efficient way of allocating allowances and help to reinforce the incentive to reduce emissions and invest in and develop cleaner technologies. As the hon. Gentleman said, that was the original goal of the scheme and that is the intention that we support. Overall, the combination of a tighter cap with a set declining trajectory, auctioning as the primary means of allocation and reduced access to project credits from outside the EU will result in more predictable market conditions, with a more stable price and improved certainty for industry. As the EU-wide
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cap on carbon emissions tightens, the carbon price should rise and options for reducing emissions will become progressively more economically attractive.

With 35 per cent. of the UK’s emissions coming from the generation and supply of electricity, making the shift to low carbon electricity generation is an essential part of our overall transition to a low carbon economy. The challenge is to achieve this transition while ensuring that we maintain the security of our electricity supplies. This means ensuring that we have sufficient generation capacity available, that we maintain a diverse energy mix so that we are not over-reliant on any one fuel or technology, and that electricity is affordable. To ensure that we have a full range of options available, the Government are working to overcome the barriers to deployment of the three key technologies expected to contribute to the decarbonisation of UK electricity generation: renewables, nuclear, and carbon capture and storage.

Our electricity mix will change significantly over the next decade. By 2018, between 18 and 20 GW of generation capacity is expected to close. Seven nuclear power stations will reach the end of their licensed lifetime, while six coal and three oil power stations will close as a result of EU environmental legislation to reduce emissions of sulphur dioxide and nitrogen oxides. We therefore need substantial investment in new electricity generation capacity if supply is to continue to meet demand reliably. [ Interruption. ] I seem to have the Obama problem with a fly.

New generation capacity will come from all generation types. Our renewable energy strategy, to be published before recess, will drive a step change in renewables deployment. We are taking steps to facilitate investment in nuclear, and we expect further applications for coal and gas power stations to come forward. Investment in new fossil fuel power stations is needed to provide sufficient generation capacity through the next decade and to provide flexible back-up to increasing levels of intermittent renewable generation. We cannot avoid the fact that fossil fuel power generation will continue to play a significant role in our energy mix for the foreseeable future, but we must also recognise the need to take steps to reduce emissions from fossil fuel power stations, both in the UK and—crucially—internationally. That is particularly important in relation to coal-fired power stations. Coal provided 41 per cent. of the world’s electricity in 2006, and the International Energy Agency predicts that this could increase to around 44 per cent. by 2030. Yet it is the most carbon-intensive means of generation, with emissions from the UK’s existing coal power stations in 2007 averaging 940 kg per MWh, compared with 400 kg per MWh from our gas power stations.

Any credible strategy for tackling climate change must address effectively the challenge of reconciling nations’ energy security needs with the urgent need to tackle global carbon emissions. This is where carbon capture and storage technologies have a crucial role to play. By capturing, transporting and safely storing the carbon dioxide produced by power stations, CCS technologies can reduce power station emissions by around 90 per cent. The International Energy Agency estimates that the global costs of tackling climate change would increase by 70 per cent. without the availability of CCS as a proven technology for reducing emissions.

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However, CCS is not yet commercially deployable. Each of the different stages has already been demonstrated successfully over a number of years. Capture technologies are already deployed commercially in industrial processes, albeit on a smaller scale than that required for a power station, and 3,000 km of pipelines are currently used to transport about 20 million tonnes of carbon dioxide a year for use in enhanced oil recovery in the US and Canada. A number of significant projects are demonstrating the safe storage of carbon dioxide in geological formations, including a project that has been storing carbon dioxide under the North sea since 1996, and one in Canada that has been storing around 2.8 million tonnes a year since 2000. But there are no operational projects demonstrating the full chain of technologies on a commercial-scale power station, and it is this transition to commercial scale that is the critical next step.

We have made significant progress in the UK on putting the framework in place to support CCS. In the Energy Act 2008, we introduced one of the world’s first legal regimes to permit the permanent storage of carbon dioxide in geological formations under the sea. Following a consultation exercise last summer, in April this year we announced a requirement that all new power stations in England and Wales will have to be carbon capture ready—I appreciate that this is the crux of our debate—in order to gain consent for construction under section 36 of the Electricity Act 1989.

Gregory Barker: Will the Minister give us an absolute definition of this much bandied-about term “carbon capture ready”? When I was in California, someone told me that their driveway had been Ferrari ready for years and years, but the Ferrari had still to arrive. What does the Minister mean by carbon capture ready—not building on the car park?

Mr. Kidney: I would ask the hon. Gentleman to be patient while I make a bit of progress. If I have told him that there is no commercially scaled-up project in the world, how can I then tell him what a future scheme will look like? It means as a minimum, and as the hon. Member for Cambridge (David Howarth) said, ensuring that there is space for the technologies to fit into, that the connections are in place to make the transportation and storage part of the process work, and that the building design itself is capable of taking the addition at a later stage of the carbon capture technology. What this means for developers is that they will have to leave sufficient space for the carbon capture equipment; they will have to demonstrate that it is feasible to retrofit the equipment; and they will have to identify a suitable offshore storage site and demonstrate that it is possible to transport the carbon dioxide from the power plant.

Simon Hughes: We could all probe this issue all afternoon, but we will not. Let me ask the Minister the reverse question: why do the Government baulk at the idea of telling producers, “You must have this in place”? We all know where the science, technology and development is, so if the crisis in the science is so grave, what is the difficulty in saying, “Sorry, guys, but the next generation has to comply—go to it”?

Mr. Kidney: If the hon. Gentleman had read the consultation document, he would agree that it is an unfair characterisation of the Government’s position to say that we baulk at imposing a standard. The document
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sets out some of the risks involved in setting a standard—or certainly setting it before having undertaken appropriate consultation and assessment of the likely outcomes. Would not the hon. Gentleman agree that it would be a risk if we set a standard that deterred anyone from investing in these technologies at this time, especially if they could either postpone the investment completely or make it somewhere else where the same standard had not been set at the same time? There are risks of proceeding in an ill-considered way, which is the whole point of asking for the consultation to be completed before we legislate—or before we take the necessary decisions, if they can be taken without primary legislation, which is possible. That is why we should hold our horses—at least for today.

In November 2007, we became one of the first countries in the world to launch a competition to select a commercial-scale carbon capture and storage demonstration project, with Government support.

David Howarth: I am trying to follow the logic of saying, “We should not proceed with this Bill today, because the consultation that might result in doing the same thing is going on at the same time.” The Bill allows the Secretary of State to set the maximum level. I can see an argument for saying that we should not set the maximum level today, but the Bill does not do that—it allows the Government to do that. Why not let the Bill go into Committee, which would allow further progress to be made in October after the consultation comes to an end, so that we could then get on with it quickly rather than wait for a new Bill in the new Session, which might not get through Parliament before the election?

Mr. Kidney: It seems to me inappropriate for any legislature to proceed on the basis that if it pops in place permissive powers for the Government to take action in advance, those powers might be made use of one day in the way that was contemplated on the day the permission was given. Surely it is appropriate to conclude what the policy is first—rather than put the cart before the horse—before proceeding with the necessary legislation, although the hon. Gentleman will have heard me say a few moments ago that some actions urged on me today might not require primary legislation. It is sensible to decide the policy first and the actions that flow from it and then take those actions. That is the Government’s position in their opposition to the Bill today.

David Howarth: It is not a case of putting the cart before the horse; it is a question of whether the Government have a horse at all. The Bill allows them to have a horse, and they can change the cart later.

Mr. Kidney: In that sense, we have the horse. We will have an energy Bill in the fifth Session in any event. It is possible, however, that we will not need to take the horse out of the stable because we have the powers already. I am sure Members have got my drift and understand my synopsis. The argument is about prematurity, not technical defectiveness, as the hon. Member for North Southwark and Bermondsey pointed out earlier.

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