Examination of Witnesses (Questions 40-57)
LORD TURNER
OF ECCHINSWELL
AND MR
DAVID KENNEDY
4 FEBRUARY 2009
Q40 Joan Walley: On the last point
about the decarbonisation of electricity, how confident can you
be that there will be alternatives within the timescale that we
are looking at, given that so many coal-fired power stations are
due to be retired in the next 15 years, and, in reaching your
conclusions and setting out your view, how much are you then engaged
with the follow-up action to make sure that what then follows
on can then be delivered?
Lord Turner of Ecchinswell: Well,
we believe it is credible to meet these targets by 2020 to 2030.
It does require some combination of renewables, nuclear and CCS,
and we have said that we are open as to what the balance would
be. We believe a significant element should be renewables and
the Government should drive the Renewable Energy Strategy. We
have also indicated, however, that there probably is a role for
new-build nuclear and—
Q41 Joan Walley: That would not be
done in time though, would it?
Lord Turner of Ecchinswell: The
answer is that we could by 2020. There is absolutely no reason
why the UK could not have nuclear power stations working by 2020
and, if we wanted to, by 2030 we could have a significant new
fleet of nuclear power stations operating. It is doable. If you
look at the pace that it has been built at in Finland and just
apply that, it is doable. It is doable, just, by about 2020, but,
if we wanted to build a significant nuclear fleet by 2025, we
could do it.
Q42 Joan Walley: Can I just ask you
about renewable generation as well and just ask you whether or
not you believe there is a sufficiently accurate audit that has
been done of the supply of renewables that there could be using
natural resources around the UK, and are you confident that the
current targets and policies on renewables are actually capable
of delivering the kind of actions that you have set out in your
report?
Lord Turner of Ecchinswell: I
think we are confident that renewables can go to the sort of 30/35
per cent of electricity, which is set out. I think the stretch
is to get it done by 2020 and the stretch is simply the pace at
which things have to go into planning, come out of planning, get
built, get in place, and it is very important and this is why,
within the chapter on electricity-generation that we will write
by this September, we will set out what has to be done by 2011,
by 2012, by 2013, et cetera, for us to get there by 2020, so that
is, I think, the bit which is the stretch, but I think the Government
set out last year in the Renewable Energy Strategy a series of
policies which make it significantly more likely that they will
get there. There are many elements to it. More investment in the
transmission grids is very important, as well as the windmills
themselves, and of course there is one extra thing that we did
not look at last year, but we will look at in more detail this
year, which is the Severn Barrage. The Severn Barrage, probably
it is difficult to get it in place by 2020, but it could be in
place and producing by, say, 2022 or so, and again that is a chunky
amount of about 4 or 5 per cent of our total electricity which
could come from that one project, so I think it is very important
that we now push on to decisions as to whether to invest in that.
Q43 Joan Walley: Just wearing your
other hat for a moment, given the need to have joined-up government,
are you confident that within the financial sector, the availability
of credit and the availability of investment, there could be the
policy shift that would be needed to actually finance some of
this investment from the climate change perspective which, you
were saying, will now be needed?
Lord Turner of Ecchinswell: Well,
as I mentioned earlier, this is one of the topics which we are
going to look at within our September report. Would I be confident
today that, without policy interventions, the supply of long-term
project finance would be sufficient over the next few years to
drive us forward? No, I would not. It is quite clear that we have
a significant credit crunch in terms of the total supply of credit
to the economy, and the world financial system, though I think
we have taken the measures to make sure that it is not in a crisis
of confidence and a danger of collapse. It is still obviously
not in sort of perfect health and there are significant problems
about the total supply of credit which, as you say, in my day
job I spend a lot of time thinking about. I think it will be important
for us to track how rapidly the financial system does redevelop
its credit capacity, a capacity which is partly to do with banks,
but also partly to do with the securitised credit route. The big
thing that has happened, both in the mortgage market and in other
areas of the market, is that securitised credit, the ability to
take credit and turn it into a long-term security and sell it,
that is what has really dried up. One of the big challenges we
have is that the banks cannot rapidly and immediately expand to
make up for that gap, this is the issue that we are looking at,
so I think we will have to look at this issue and we will have
to see whether there are elements of public policy which might
be required specifically to support long-term project finance
in order to make sure that the present and still-imperfect health
of the financial system does not lead us to a gap or a delay in
the long-term investment. I am absolutely sure that over a number
of years we will get the financial system back to a private financial
system which has that full role in the economy, but obviously
it is the key and fundamental macroeconomic problem at the moment,
that it is in imperfect health.
Q44 Joan Walley: I would just like
a little bit more clarity about your use of the word "we",
and I wonder whether or not you are talking about the Climate
Change Committee, the FSA or the Government. Who do you think
actually should be responsible for making sure that that investment
is directed to where it is needed to be to bring about this step
change?
Lord Turner of Ecchinswell: We,
in the sense of the FSA, the Treasury and the Bank of England,
the tripartite authorities are continually debating the issues
to do with the supply of credit to the real economy in general
as a vital determinant element of the overall policies which make
sure that the recession is no worse than it need be, and that
is a general issue which is looking specifically at the supply
of trade credit, the supply of project credit, all the different
things. The Climate Change Committee in itself will look specifically
at what do we know is going on in the ability of windfarm developers
to get project finance of the type that they might have.
Q45 Joan Walley: But you are in an
extraordinary position to influence the way in which that green
debate is taken forward within the FSA debate, and is it being
done so?
Lord Turner of Ecchinswell: Well,
as I say, what we will contribute on the Climate Change Committee
is doing a focus on the specific issues of finance for long-term,
low-carbon projects and, once we have done that, we will be able
to feed that into the debate about how concerned should we be
and whether there are particular things that should be done within
the overall envelope we want of credit to the overall economy
which are specific to low-carbon investment. Of course, the crucial
feature of it is that some of it is very long-term investment,
so we have to think here about the supply of working capital short-term
credit to businesses, but also long-term credit. Within the Climate
Change Committee, we will push forward analysis which enables
us to have the debate about the supply of finance to windfarms
and things like that on a fact basis.
Q46 Chairman: Just on the Committee
itself, given the level, and number, of tasks the Government has
given the Committee on Climate Change to perform, is the resourcing
of the Committee adequate?
Lord Turner of Ecchinswell: Well,
I am sure that my Head of Secretariat would say that we could
always have some more. We believe that the amount of resource
which we have is broadly right, and I think David has some concerns
about the squeeze which the Department is trying to do on the
last few, but, David, could you just talk about what numbers we
have and how you see the resourcing.
Mr Kennedy: We have had 30 people
working on the report we published in December. We were a bit
stretched, certainly for the three months running up to publication,
but it was doable, as Adair says. Going forward, we know that
DECC has a constrained envelope. DECC is our sponsor department.
I think we are going to be busier in the next two years than we
were in the last year, and we are going to be busier because,
as Adair has said, we have got the progress report which gives
the indicators, we have got the report on aviation, we will review
the R&D framework in the UK for low-carbon technology, we
will review the carbon reduction commitment, we have got a second
progress report and then the fourth budgets to report on next
year, and all of that makes me think that really we cannot afford
much of a cut in the current level. If we have a big cut from
the current level, we will find it hard to deliver, but we could
probably accommodate a small cut, and DECC is working with us.
Q47 Joan Walley: Are you expecting
a cut from the current level?
Mr Kennedy: Possibly a small one.
Q48 Joan Walley: Of what size?
Mr Kennedy: A couple of people
from the headcount.
Q49 Joan Walley: How many people
altogether have you got?
Mr Kennedy: The core is 25. As
I say, we had 30 to work on the report, five of whom were seconded
to us from industry and 25 paid for by government. We would be
looking for not much of a cut from the 25.
Q50 Joan Walley: What is the justification
for that?
Mr Kennedy: Why would we have
a cut at all? There was an understanding that we had additional
resources to do the long-term 2050 stuff on aviation and shipping,
and some of those things are going to persist and be on our radar
going forward, so I do not think there is a big rationale for
a significant cut for us and, if we have to have a small cut,
we will try and live with that.
Q51 Joan Walley: Have representations
been made to the Government about that?
Mr Kennedy: They have, and we
are working with DECC. DECC is very supportive of us, so certainly
I do not want to complain about DECC; they are being supportive.
Q52 Joan Walley: But they are still
requiring you to make the cut?
Mr Kennedy: We expect possibly
a small cut and we hope for nothing more.
Lord Turner of Ecchinswell: I
think the good news is that the debating range is a couple of
people around 25, and clearly we will make the case to make sure
that we are adequately resourced, but we are getting the support
which that core team at roughly that level has in order to go
forward, so, although it clearly is the case, and David has made
the case and I will make representations to the Secretary of State,
we need the full resource. We are not in an environment where
a cut is being proposed of a level which would seriously impair
them, so we are in the margins of those debates which always occur
within public expenditure.
Q53 Chairman: The adaptation tends
to be the poor relation of the debate about climate change. Can
you tell us anything about the Adaptation Sub-Committee?
Lord Turner of Ecchinswell: Well,
the Adaptation Sub-Committee, as I think you know, adverts are
out there.
Mr Kennedy: I think they intend
to have a chairman in place by April or May. Beyond that, the
chairman is supposed to take part in the selection of the Committee
itself, which I think is between five and eight people, as our
Committee is. In terms of a secretariat to work for that Committee,
we have been given resources from Defra for seven people, which
I think will make a very good start, and they are in place now
actually.
Lord Turner of Ecchinswell: That
is very clear, that the work on adaptation does need additional
resources. We cannot accommodate the work on adaptation within
the existing budget, so what is there is there and we need a separate
wing of the secretariat which focuses on adaptation.
Q54 Chairman: And adaptation remains
the responsibility of Defra rather than DECC?
Lord Turner of Ecchinswell: Yes,
so we will have a secretariat and two committees which are co-located
with a cross membership of the Chairman of the Adaptation Committee
so that there is intelligent sharing of data, where needed, but
still with clearly separate remits, which I think is right. It
is sensible for us to have an interchange of views and to know
what each other is doing, but they are at the end of the day somewhat
different challenges: how do we reverse our carbon emissions versus
how does the UK deal with whatever level of climate change is
inevitable. I think we are heading towards a sensible way forward
on the relationship between the core Committee and the Adaptation
Committee.
Q55 Joan Walley: I should know this,
but could you just remind me where these two co-locations are
going to be geographically?
Mr Kennedy: Currently, we are
in Whitehall Place. It is slightly unfortunate because we moved
to Whitehall to underline our independence from Defra and DECC
and we moved in the week that DECC was actually formed as a department
and moved into Whitehall Place, so we now have to move again to
underline our independence. We are looking at properties and they
will be on the Defra estate.
Q56 Joan Walley: Are you looking
at properties outside of London?
Mr Kennedy: No, we are not.
Q57 Joan Walley: Not in line with
the Lyons Review to get relocation costs down?
Mr Kennedy: This was considered
at the time that the Committee was established and the secretariat
was established, and it was a discussion that Phil Woolas, I think,
led and it was decided that there was a strong case to keep the
Committee and its secretariat in London maybe because of the need
to work very closely with the Whitehall departments on a day-to-day
basis.
Chairman: Thank you very much indeed
for coming in. It has been, I would say, an exceptionally useful
session from our point of view. I hope we can keep in touch with
you because we do have a very broad remit on this Committee and
we continue to focus very closely on these issues. Thank you very
much indeed.
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