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"big energy companies to pollute far into the future from new coal-fired power stations like Kingsnorth".
Greenpeace say it will, and I say it will not be possible. These are the reasons. We have made it clear that we expect that the CCS demonstration plants will retrofit CCS to their full capacity by 2025. Our aim is that any new coal-fired power station built after 2020 is 100 per cent. CCS from day one.
Martin Horwood: The hon. Lady repeatedly uses words such as "expect" and "aim". That is what fuels the scepticism of Greenpeace and many of the rest of us. What happens when an expectation is not met? Will she tell us what would happen to a power station in those circumstances? An expectation has no legal force.
Joan Ruddock: This country would not have got very far in its development over the industrial ages if the attitude that the hon. Gentleman portrays had been taken. We would not have had all the great innovations and the marvellous work of all our engineers. There were always expectations. There must be expectations if we are to achieve. To go forward and get things done, we must have expectations. We have expectations.
A moment ago the hon. Gentleman was shouting from a sedentary position that CCS was a proven technology, and he cited Norway. He cannot have it both ways. Either he thinks the technology will work- [Interruption.] Yes, my hon. Friend the Member for Blaydon is absolutely right: being a Lib Dem, the hon. Member for Cheltenham (Martin Horwood) can it have it both ways. The question is whether the technology is demonstrated at research and pilot level, which it is; whether it is promising, which it is; and whether it is a technology in which companies with enormous expertise are prepared to invest, which they are. It is all those things.
It is reasonable to have expectations, but suppose the hon. Gentleman's pessimistic outlook were confirmed and all that were to fail. We have said categorically that there will be a rolling review. We are debating a clause that provides for a strict reporting regime. The House will always know what is happening in this field and Government policies can be adjusted. We have said that that rolling review will conclude by 2018. If the CCS
technology is not working and is not deployable, we will have to introduce other means of curbing and decarbonising. We have said that clearly again and again. [Interruption.]
The hon. Member for Wealden (Charles Hendry) says that that is such a threat. One of the potential measures that could be introduced is the EPS, which he seems to favour so much. We have said that the proper way of dealing with the situation is to consider, measure and analyse what is happening with CCS. If it is a success, as we hope, we have solved the problem. If it is not, we have to move to another technology. That is the time to consider an EPS, not now.
Colin Challen: It would help me in the debate to understand better whether the Government are concerned about the timing of an EPS or about whether it is right in principle to introduce it. I agree with my hon. Friend's argument about the nature of development. Putting the standard before the development is like putting the cart before the horse. Our railways would not have developed if the standards were in place before the railways were built. Is it a question of timing? In principle, I support an EPS to stop any backsliding at a future date. That is the danger. If market conditions price coal at a certain level, certain future Governments might want to backslide on the whole deal.
Joan Ruddock: I could not have put it better myself, and I am grateful to my hon. Friend, because the question is essentially one of timing: introducing an EPS today would be premature and undermine investment; and, as we progress with CCS we will be able to judge whether we require an EPS or, possibly, another mechanism. The independent Committee on Climate Change has said that there could be as many as four ways of making further progress on decarbonisation, of which EPS is one. My hon. Friend may be right and EPS may become the favoured means if we have to deploy other means than CCS, but at this stage it would be premature to decide that an EPS was the right instrument, because several could be used and EPS is just one of them.
As a consequence of the policy of new coal, CCS and retrofitting, by 2025 all new stations would be achieving abatement well above the EPS in new clause 25. It defines the EPS as limiting carbon dioxide to 25 per cent. of the emissions that would exist if CCS were not in place, but including a specific measure in legislation now might cut across the future methods of delivering our stated policies, and as I have clearly indicated it would not add anything to decarbonisation.
Even the independent Committee on Climate Change does not recommend the introduction of an EPS now. Instead, in its report of October last year, it identified a number of options, as I just indicated, for delivering the necessary investment in low-carbon generation. They include a carbon price floor, a feed-in tariff and a low-carbon obligation, as well as a low EPS.
John Robertson: Does my hon. Friend agree that setting a target that is too low would have the same effect as setting a target that is too high? There would be no incentive to develop a coal station to a level that was always going to increase in the future. If we set the target at such a low level, however, that is what we will get.
Joan Ruddock: My hon. Friend is absolutely right, and I know how much expertise he has in this field. I remind the House that the CCS technology promises to take out 90 per cent. of carbon dioxide emissions.
The independent Committee on Climate Change report to which I referred clearly states that the committee
"does not yet have a view on which measure would"-
"best...but believes that all should be seriously considered in the near term".
We know that the scale and pace of change that is needed to deliver low-carbon energy will test the current energy market arrangements, and that is why we are assessing the existing framework to ensure that we can deliver the investment that is needed. We will publish the initial findings of that work at this year's Budget. It would not be sensible to commit to one particular measure now, before that work is completed, particularly when very significant risks, which I have outlined, are attached.
The introduction of an EPS does not depend on the Bill. If at some point in the future we decide that an EPS is required to deliver decarbonisation of the electricity sector, we already have a well established and comprehensive framework for introducing it under the Pollution Prevention and Control Act 1999.
Judy Mallaber (Amber Valley) (Lab): It would clearly be advantageous if, by developing that technology, we could then assist other countries. We would secure a larger reduction in emissions globally if we were able to do that. Will the Minister indicate how our timetable for creating the prototypes will fit in with our development and export of that technology, if successful, so that other countries might use it and lower their own emissions?
Joan Ruddock: My hon. Friend is absolutely right. Given the extent to which the developing economies and the great emerging economies, such as China and India, will continue to use coal, CCS is absolutely vital to tackling climate change, as I said at the beginning of my speech. If we are able to develop the technology speedily in this country, there will be real export potential. Co-operation is already under way between the UK and China and the EU and China. The EU will also fund some CCS projects, of which we hope at least one will be in the UK, and they will be combining all the information. CCS is very much a global project, but at the same time, from the point of view of British industry, if we get ahead we will be in a very good position to help other countries and benefit financially.
2.45 pm
Amendment 1 relates to the CCS levy, which would be used to fund a new financial incentive to support industry in bringing forward a programme of four commercial-scale CCS demonstration projects and, should it prove necessary, the retrofit of any unabated coal capacity at those stations. The amendment would insert a provision in clause 4 exempting from the levy electricity that is produced from renewable sources.
I made it clear in Committee, however, that we will not apply any exemptions or reduced levies based on the source of the electricity generated, and that includes renewables. For the foreseeable future, we will continue
to depend on flexible fossil fuel plant to ensure that the electricity system can respond to changes in supply and demand, thus keeping our electricity system stable and ensuring security of supply. We know that that flexibility is likely to become more important in the future as variable renewal generation increases.
The CCS levy will support the development of a low-carbon technology that will benefit all electricity consumers and, in the longer term, provide an additional form of affordable low-carbon generation. That is why the levy should apply to all types of supply. The one necessary exception that we foresee may be the exemption of electricity that is exported from the UK. Our intention is that the detailed policy for the levy, together with the draft regulations, will be subject to formal public consultation in the summer. Clause 4 also requires that regulations be laid in draft and approved by both Houses of Parliament before they are made.
New clause 8 would put in place a reporting mechanism that provided for the scrutiny of progress on CCS and any adjustment to a policy that already provides the most comprehensive plans in the world for the development of clean coal. The introduction of an emissions performance standard at this stage would undermine the very basis of those plans, threaten much-needed investment and jeopardise our energy security. The Government will therefore oppose new clauses 6, 15 and 25.
Charles Hendry: As we start our deliberations on Report, it is appropriate that we put on the record our general gratitude to the Government for the way in which they have listened to the concerns expressed about some of the issues.
The Secretary of State for Energy and Climate Change (Edward Miliband): Hear, hear!
Charles Hendry: I would not go that far, but we are grateful for the way in which the Government listened to many of the discussions that took place and to the representations in Committee. Indeed, they have re-tabled some of the amendments that they voted against, and we greatly welcome that change of heart. We hope that that road to Damascus has not ended just yet, and that, on further reflection, they will continue on it.
We absolutely agree with the Minister of State, the hon. Member for Lewisham, Deptford (Joan Ruddock) about the need to act urgently. We will lose one third of our coal-fired generation plant by 2016; the remaining oil plant, which is mainly used for peaking capacity, is due to close at the same time; most of our nuclear power stations, apart from Sizewell B, are due to close by the early 2020s, and there is an urgent need to build new capacity. However, if we look at the time scale, we know that the nuclear fleet, if it goes ahead, will begin to come into play only by the end of this decade; that carbon capture with coal can be commercial, again, only by the end of this decade; and that the scale of the Government's targets and objectives on renewables pushes their introduction out towards 2020. Therefore, there is a significant need for new gas generation in the system. The reality, though, is that as a result of the delays in starting to build those plants, our energy security has been put at severe risk, which has resulted in a scramble to try to put in place the required new-generation capacity. Indeed, the Government's own documentation, including the low-carbon transition plan, referred to the risk of potential power cuts by 2017, while this
morning, in evidence before the Select Committee, the regulator cited his concerns and those of Ofgem about the picture in the middle and latter part of this decade.
We entirely accept the role that CCS and coal can play in the mix. It is a new technology, and it is one where we absolutely should be leading the world. The Minister said that Britain remains a leader, but she must be in danger of believing some of her own rhetoric. At the evidence sessions before we started the Bill's consideration in Committee, we heard many people say that we were losing our global opportunity, and we heard companies say that they had closed down their projects in Britain because of the approach adopted to them. Jeff Chapman, who heads up the Carbon Capture and Storage Association, said that Abu Dhabi and China will probably be the first two countries in the world to have commercial CCS facilities.
Britain must do much more to recapture the necessary sense of urgency, which is why we have been urging the Government to speed up the competition-a competition which the hon. Member for Sherwood (Paddy Tipping) has described as a competition without end. Real frustration is felt about the pace of progress. The Government should have included the pre-combustion option at the outset. They should be taking a much greater strategic view about how one encourages clusters by requiring oversized pipelines to be installed from the outset. We have heard from the Government about the establishment of the office of carbon capture and storage, but, a year after its announcement, I gather it is still little more than a blank piece of paper. We urgently need to grasp the issue and to make progress if Britain is to show the leadership of which it is capable in this area.
Certain aspects of new clause 8 are good. The requirement to report to Parliament is an important improvement to the process, but that should not be undertaken every three years: there should be an annual report to Parliament so that we can take account of the progress made. We all know from the evidence we gather as individual Members of Parliament that this is a fast-moving technology, and the current technology is significantly further forward than it was just a year ago. A requirement to report to Parliament only every three years does not give us the opportunity to take account of such progress.
Simon Hughes I do not dissent from the specific point that the hon. Gentleman is making. However, would not an even better form of conducting our business be for Parliament to have an annual energy debate every year, just as we have annual defence debates and suchlike, so that we could review our whole energy policy? We should ensure that we do not just go from a five-year or a 10-year energy White Paper, or energy policy, without keeping it under review and make the changes in the way that the country would expect.
Charles Hendry: The hon. Gentleman is entirely right. We seem to have a new Ministry every year, and a review, White Paper or consultation every year, so we should at least have an annual debate led by the Secretary of State to discuss the whole energy picture.
On the specific issue of the emissions performance standard, on which the Minister, understandably, spent so much of her speech, our concern is that the Government will create precisely the fear among investors that they
want to avoid. The Minister talks about removing the uncertainty, but the uncertainty is already there. Subsection (3) of new clause 8 says:
"A report under subsection (1) must...include a review of whether, having regard to the other matters contained in the report, any government policies should be revised and, if so, why"-
that is, essentially, whether an EPS needs to be introduced. Speaking at the Coal UK conference earlier this week, the Energy Minister in the other House, Lord Hunt, said:
"A rolling review process, which is planned to report by 2018, will consider the appropriate regulatory and financial framework to further drive the move to clean coal. in the event that CCS is not on track to become technically or economically viable, an appropriate regulatory approach for managing emissions from coal power stations will be needed."
We have there a tacit acceptance that an EPS is hanging over the industry as a sword of Damocles. In a letter that the Minister has sent to many Members of Parliament-it appears not yet to have found its way to my Conservative colleagues, but I am sure that that is due to postal delays-she tries to reassure MPs by saying:
"Such changes could include introducing an EPS once some experience of CCS has been gained."
The EPS is hanging over the industry, so the doubt is already there. In the boardrooms of Essen, Madrid and elsewhere around the world, people are having to look at the realistic prospect of an EPS being introduced in Britain. At this stage, however, because of the way that the Government have gone about it, those industries do not know whether it will be imposed retrospectively or on new plant, at what level it will be introduced, if it will be imposed on peaking capacity, or if it will be imposed on plant in its start-up phases. An incredible amount of doubt exists, which the Minister's approach has itself created, and that is why we need to go further in providing clarity.
Joan Ruddock: I have made it absolutely clear today that we are providing for CCS to become operational, and that we have a rolling review of that. The companies want to have this opportunity. If they are in any doubt about whether we favour an EPS now, I think that I have made it absolutely clear that we are completely opposed to that, and we will vote against it. Perhaps the hon. Gentleman has not read the letter from the CBI, which says that it is completely opposed, too. That should be enough of an indication as to where industry stands.
Charles Hendry:
I understand what the Minister is saying. Key decisions will be made by E.ON in Essen about whether it wishes to go forward with new coal plant at Kingsnorth, should it come through with the project. As a result of new clause 8, it knows that in 2011 the Government could say, "It's not looking as good as we thought-we're now going to have to go down the route of the EPS." [ Interruption. ] No, the Secretary of State is wrong-the assessment has to be made every three years, so it will happen in 2014 and 2017. In the boardrooms of the companies that are making these decisions, people know that at any point in the next few years Ministers could suddenly say, "Yes,
we're going to have an EPS after all", but no clarity has been provided to them about how that standard would be introduced and the consequences that would follow.
Mr. Redwood: I am grateful to my hon. Friend the shadow Minister, who has, not surprisingly, made a much more convincing case than the Minister, and has taken seriously security of supply. Given that subsidies will be an issue in this new technology, and that penalty payments for excess carbon are also an issue, the Government must set targets for the amount of carbon in order to justify the subsidy or the penalty payments, so why are they denying it?
Charles Hendry: As always in such matters, my right hon. Friend is absolutely correct. What we have is an extremely interwoven web of a range of different issues. Complex decisions will need to be made, but given the Minister's approach, it is less likely that we will secure investment in new coal.
Joan Ruddock: Everything that I have said today about the rolling review and the reporting clause in new clause 8 is predicated on the fact that we believe that CCS will succeed. The companies think that CCS will succeed. There is therefore no reason for them to suspect that we are going to introduce an EPS, because if we succeed, there is no rationale for doing so. It is but a backstop in the event that CCS does not succeed.
Charles Hendry: A company that is allocating hundreds of millions or billions of pounds to new projects must look at the long-term environment in which it is investing. What we are seeking to do, in conjunction with many of the Minister's hon. Friends, is to provide that clarity in the shortest possible time scale. This is about securing investment rather than driving it away. Business is not overwhelmingly concerned about the principle of the EPS but about the level of it-that will determine whether investment is or is not made.
Dr. Alan Whitehead (Southampton, Test) (Lab): As far as I recall, the hon. Gentleman supported the mechanism that was contained in the carbon budgets system in the Climate Change Act 2008, which provides not only for carbon accounting and budgeting but for a five-yearly review of what is happening, not only on the basis of where we are going but of a review of whether there should be corrections to that course. That does not spread uncertainty, as I am sure that he would agree, because he supported it. Does he not accept that this is a similar mechanism, which, by the way, he should address in terms of what happens with marginal coal plants as the process continues over the years? Does he consider that this system, in sustaining marginal coal plant in the system through the years, may be a better system than the indeterminate approach that he suggests in his proposal?
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