Examination of Witnesses (Questions 1-63)
MR ANDREW
SIMMS
10 JUNE 2009
Q1 Paddy Tipping: Thank you for joining
us as our first witness on our Low Carbon Technologies in a Green
Economy Inquiry. Obviously you have already done a great deal
of work on this. I was particularly interested in the paper A
Green New Deal. It would be helpful if you set out what you
think are the headline issues in that.
Mr Simms: Thank you. We see it
as being a necessary and effective response to what we described
as the triple crunch, one of those crunches being the credit crisis
or the debt crisis, if you prefer that way of describing it; the
second being what we have to do in the face of tackling imminent
climate change; and the third being the resource crunch, which
even some of the most conservative voices in the field, such as
the International Energy Agency, are finally conceding is almost
upon us, either in terms of problems within the industry around
production capacity, in which they envisage there being a squeeze
regardless of the global recession around 2013, or, more importantly
perhaps, the fact that they have now conceded that we are on the
cusp of the global peak, plateau and long-term decline of oil
production. So we see it as those resources underpinning almost
everything we do from the way we produce our food, the way we
run our business, the way we get around, almost everything from
the moment we get up in the morning to when we go to bed at night,
that there is a need for a massive environmental transformation
of the economy and that in delivering that massive environmental
transformation of the economy, we have the opportunity to provide
a parachute to the broader economy in the context of the current
recession. As we still do not know exactly how long the recession
is going to last and how deep it is going to be, we also see that
there are multiple wins in doing this in that we think by investing
for the medium to long term in the vital environmental industries—energy
generation, new forms of transport, new ways of doing agriculture—we
will find new investment opportunities which are less volatile,
more secure and safer homes for our savings and for our investments;
we also see that it is an opportunity to tackle some long-term,
engrained social problems, such as energy poverty. We refer to
the fact that in the original new deal brought in by President
Roosevelt, in the aftermath of introducing his 100-day programme
of measures, one saw, over a number of years, the most rapid compression
of income inequality in the United States that that country has
ever seen. So we see it being driven by unavoidable environmental
and resource dynamics; the current context of the economic recession
giving us problems that we have to solve in any case; and we see
it as being a massive opportunity for things that are unavoidable
but will bring that most rare of opportunities in politics of
a win, win, win situation.
Q2 Paddy Tipping: I hope you do not
mind my saying this but I saw the economic context, the difficult
economic international climate, as in a sense one of the drivers
behind the report, and you have acknowledged that. I just wondered
whether in tactical terms it might have been better just to look
at a narrower green focus, rather than having so much emphasis
on the banking crisis. Clearly that is not your view.
Mr Simms: I would tick two things
to that. First, a mistake the broader environmental movement,
we believe, has made for a very long period of time has been to
underestimate the importance and the role of the City of London.
An example of how that plays out in practice would be that up
in until the crash, and in fact it is still the case, one of our
largest banks, the Royal Bank of Scotland, is also Europe's largest
investor in the old-fashioned fossil fuel industries and the fact
that that bank has now fallen into public ownership means that
the Government has the ability, the capacity, the strings, to
pull on its investment priorities. One might see there being some
kind of poetic justice if one of the largest of the failed banks
that is still one of the heaviest investors in old-fashioned fossil
fuel technologies were turned, for example, into a green investment
bank. I am aware that there have been a few proposals of that
nature around. The second thing to say is about the volatility
and the instability induced by the banking crisis and the need
for the kinds of reforms that will capture for the public purse
the legitimate income that it deserves. Many of these problems
and solutions are linked because when we are looking for sources
of funding to invest in environmental transformation, some of
the banking reform around tax havens and transparently are not
the whole part of the picture but certainly part of the picture.
The fact is that there is a perversity in the way in which, as
awareness of climate change as a problem has risen, so too has
the amount of money going into the old-fashioned fossil fuels
industries through the City also pointed to the need for some
fundamental banking reform. We have covered quite a broad church
and we have looked at the role and the need to regulate exotic
financial instruments, for example. One might think that that
is tangential to this but we also saw it as being symptomatic
of a banking system that had started to exist for its own ends
and rather as a service to the wider productive economy.
Q3 Paddy Tipping: The Government
already has a fiscal package to stimulate the economy. How green
is that?
Mr Simms: We have been particularly
critical of the so-called green stimulus package, and we think
for good reason. First of all, at the first time that it was described
in the Pre-Budget Report, when we stripped away all the current
existing spending commitments and looked at what was actually
new and additional as an actual green stimulus package, we ended
up with a figure equivalent to about 0.0083% of GDP, which struck
us as being small compared to the International Monetary Fund's
estimate of the amount of money that had been put into bailing
out the banks, which they estimated at about 20% of GDP. I would
want to give credit for the fact that that amount of money that
was new and additional as a green stimulus package rose when we
got to the budget, and it rose to 0.09% of GDP. We were also disappointed
because of some of the additional measures that were announced
in the budget such as the commitment to extract a further two
billion barrels of oil from underneath the North Sea, which we
calculated would roughly generate the amount of greenhouse gas
emissions equivalent to the UK's entire emissions, including aviation
and shipping, for one year. I think I said at the time that it
struck me as a balanced budget in that anything good that it did
for the environment, it also equally undermined in other ways.
We also pointed out, and it has been separately pointed out by
the likes of the bank HSBC, that the overall scale of investment
in what we might term environmental transformation in the UK was
very small compared to a wide range of other countries, including
France, Germany, China, South Korea and the US, and that we seemed
to be way down the league, and it seemed to be an open goal that
was being missed.
Q4 Mr Weir: That was the point I
was going to raise about international comparison. Can you tell
us then in your view what you think the Government needs to do
to address that problem and bring us up more to the international
comparisons of what is being done?
Mr Simms: I think we need a widespread
programme of investment, starting with the low-hanging fruit of
the building stock where most jobs are to be found, where it is
likely because of the way that resources and labour are procured
that the maximum value will be retained within the UK economy.
There are various estimates of the sorts of amounts of money that
we would need to spend. I noticed the economist, Paul Ekins, part
of the Green Fiscal Commission, has estimated a ball-park figure
of about £10,000 per home. I believe the Conservative Party
has estimated something in the region of £6,000 to £6,500
per home and that this level of investment, drawn from a wide
range of sources would generate vast amounts of potential employment.
I am also interested, given the decisions which are currently
being made about increasing our generating capacity in the UK,
that Deutsche Bank have pointed out that for every pound or euro
worth of investment in the new green decentralised renewable technologies,
you generate between two and fours times as many jobs as you do
investing in the old-fashioned, centralised, energy technologies.
I think it is with the building stock and energy efficiency where
we begin and then we move rapidly on to the transport system.
I would like to see a fundamental shift of investment out of the
infrastructure which supports the wasteful private motor car and
into more mass transit and public transport systems because this
clearly seems to be the future, and the energy generating system
itself, so incentives of the kind which have been pioneered and
delivered successfully in Denmark and Germany and across the Continent
for getting the mainstream renewable technologies up and running
at a range of scales; and low cost credit being made available
to the various parts of the renewable sectors, which seems like
a difficult thing to do in the context of a recession which some
people would blame on the availability of low-cost credit. If
you want to get a newish industry up and running, there is no
short-cut to making available substantial amount of credits. Walking
there this morning, it struck me as a historical example that
what it took to get what was then the new kid on the block as
an energy source, oil, up and running in the face of what was
dominant at the time, coal, took about 50 years to get the capital
to shift over from one source to the next. I am mindful of the
fact that we have less than a decade to effect the same kind of
shift today. The idea that it will happen as a natural process
of market changes I think is fantasy. I think it is going to talk
large, bold statements from the Government. It does not just mean
public money. That means making an environment in which it is
easier, for example, for our savings and our pension funds to
see the renewable sectors as a natural home, and a fairly secure
home as well. I think it means innovations with financial mechanisms
like green bonds, which could be done at a local, regional and
national level. It also means making some big decisions about
priorities; for example the ball-park figure of there being £20
billion hanging over a reinvestment programme for Trident would
seem to be another major decision of public priorities that the
Government has to grapple with
Chairman: Let us keep narrowly focused.
Q5 Judy Mallaber: You have referred
to this obviously already but in your report you say that you
think the UK so far has largely missed out on the boom in green
collar jobs. You particularly refer to Germany; you have already
mentioned what is happening in America and we have heard about
China again in the last couple of days. To what extent do you
think we are missing out? Is it a competition between countries?
Will we lose out if we are not jumping in on the technology now
or are there plenty of jobs to round everywhere and what do you
think is the potential for us in terms of job creation?
Mr Simms: I think one of the important
things as part of the global picture is that in all countries
there is enormous potential for generating jobs at the local level.
There is one thing which I find particularly humbling and I sit
as a judge on something called the Ashden Awards for Renewable
Sustainable Energy. I am mindful of the fact that from China to
India and a range of other developing countries, including some
in Africa, the innovation at the local level of renewable technologies
is astonishing and the capacity for job creation enormous and
for human development profound. I do think that we have been missing
the boat in the UK. I do not see it as primarily an international
competition; I do see it as absolutely vital in creating a range
of jobs from the low, medium to high skilled in an economic circumstance
in which unemployment is on a dramatic upward curve. So I certainly
see it as being the absence of a larger and more comprehensive
skills and training programme in the UK to get people who have
the skills, which range from implementation and maintenance of
the range of renewable technologies right through to the scientific
R&D side at the other end of the employment scale, and that
we are missing an opportunity because it is an employment-rich
process. I think we should be seeing the visible evidence of the
rehabilitation of the UK's building stock right now; we should
be seeing the signs; we should be seeing it all around us, and
we are not.
Q6 Judy Mallaber: Have you done any
estimates of the potential job creation?
Mr Simms: We are actually working
on that right now. We will have a piece of work finished by the
end of July, which will put some numbers on the employment return
on investment in different energy forms. I am very happy to make
those figures available as soon as we have them.
Q7 Judy Mallaber: Will that also
include an analysis of what skills or a lack of them you need
to develop and also whether there are any areas where many have
missed the boat?
Mr Simms: It will to some extent;
it will not be an absolutely comprehensive regional analysis of
what is where because we do not have the resources to do that
at the moment. It is going to look at what the relative employment
creation potential for relative investment in the different technologies
will deliver.
Q8 Colin Challen: We have some league
tables of the value of the green stimulus as part of the overall
financial stimulus that countries around the world have sought
to deliver or have announced. I think the UK green element came
quite low down in that international context. I think "career"
was at the top.
Mr Simms: It was, that is right,
at 80% of its green stimulus.
Q9 Colin Challen: But we are not
always comparing like with like, are we? I am just wondering if
you have a more advanced or sophisticated league table so that
we can really say where the UK is. It talks in the paper this
morning about Chinese investment in Seoul for example. Is there
a more sophisticated analysis?
Mr Simms: The most sophisticated
analysis that I have seen is the one done by HSBC, which is a
huge global bank with vast resources which unfortunately, from
our perspective, dwarf the resources that we have. It is quite
"caveated" and there are quite a few footnotes in the
HSBC league table, which attempt to deal with the issues of non-comparability
but that is the most sophisticated analysis that I have seen to
date. It is extremely difficult to get more detailed breakdowns.
It is a substantial exercise and the information is not always
in the public domain. Unfortunately, that is the best that I have
seen so far.
Paddy Tipping: Let us move on and look
at some of the specifics in the report.
Q10 Dr Whitehead: In your report
you have put in what, I think it is fair to say, are some eye-catching
slogans such as, "every building a power station" and
"a carbon army of workers". What analysis have you done
and how would you convert those slogans into practical policies?
Taking, for example, the "every building a power station"
slogan, presumably you would envisage that involving many, if
not most, domestic properties and presumably commercial properties
generating their own heat and power over a short period of time.
How would you envisage that would be effected?
Mr Simms: I think the context
for this—and obviously I am not the first person to say
this—is that we are dealing with a situation in which, in
the space of a few short decades, we are going to have to go entirely
renewable. We can argue exactly over what "renewable"
means but we are going to have to get there. The building stock
is one of the largest energy users and one of the largest sources
of greenhouse gas emissions. It is the place where we can not
only make some immediate gains but we can also, importantly I
think, help to educate people about their wider energy use. We
see it as having a multi-function, if you like. The simplest and
most obvious thing is the low-hanging fruit of energy efficiency.
It is still the case that vast swathes of our building stock are
energy-inefficient in that they waste a lot of the energy that
they use. That is step one. Step two, and this is extremely site-specific,
is to be able to audit buildings to see which are going to be
the most appropriate for renewable technologies; it will be different
in different places. We do not envisage that every house will
have its own ground source heat pump and solar panel and windmill
and all the rest of it. The task is to audit the building stock
to see what is going to work where. We know that solar works differently,
depending upon the angle of the roof and the direction of the
roof, so that is the challenge, I think. It is also not the case
that we see each individual building as having entirely to generate
its own electricity, because that would not be an efficient application
of renewable technologies. Some of the work done by one of my
colleagues who is sitting behind me at the moment from Greenpeace
points to the fact that one of the most important and efficient
scales is a community sized grid structure. We do see the need
for diversifying away. We are not advising that we get rid of
the National Grid; we actually see that there is some potential
in having large scale grids, but we do see that there are huge
gains to be made through decentralising energy, ultimately down
to the household level but not to the point where every house
has to generate all its own energy. In many circumstances, houses
will be able to become net suppliers of energy to the grid, depending
upon their site and the implementation of the appropriate renewable
technology where they are. In the answer to your question, there
is a level of detail which I do not think it is going to be practical
to go into today but I am very happy to follow up after the meeting.
There are detailed strategies for CHP; there are detailed strategies
for solar; and there are detailed strategies for energy efficiency.
Q11 Dr Whitehead: I understand that.
The slogan "every building a power station", in a sense
you have already slightly retreated from that in terms of indicating
that that is not really the case. Secondly, I suggest you rather
gloss over the social and legislative elements of that inasmuch
as your suggestion sounds as if people will be required, or buildings
will be required, either communally or individually to produce
their own energy. Would that be done by direction or by stimulus
or by incentive or by encouragement?
Mr Simms: Can I say that I absolutely
do not mean to retreat from that. I find it hard to think of an
example where a building would not be able to generate some of
its own heat or power. Through intelligent re-design, through
retro-fit and certainly when starting from scratch with new build,
I think in almost every circumstance you are either effectively
generating power by using less and freeing up more to be used
in other places or actually being able to do it directly. In terms
of how we do it, I think there is going to be a mixture. We are
certainly going to improve things through standards—through
technical standards and building standards. The speed with which
available sources of part subsidy for installing existing technologies
is used up tells us that there is a suppressed demand for people
to do this. I think there is a huge need to clarify and make simple
information around the planning procedures that you do have to
go through available to people. In investigating the potential
for doing things on the house in which I live in south London,
I have found it extremely difficult to get simple and clear guidelines
about what you can do straightforwardly and what you need to get
permission for. I know there are some initiatives around to make
that easier. This is a simple answer but I think it is going to
be a combination of all of those things. I think we do need to
tighten up on our building standards. I think we do need to have
subsidies and incentives available for installation. I think ultimately,
as Britain seeks to meet its own emissions targets, that these
are thing that are going to have to happen anyway.
Q12 Dr Whitehead: For example, currently
there is I think a total of 80,000 solar thermal collectors on
people's houses over the entire life that commercially available
solar thermal collectors have been placed on people's houses.
That number is being increased about 6,000 or 7,000 a year.
Mr Simms: You need government
action on this. Germany, Denmark and various other countries in
Europe stand testimony to the fact that if you want to go to scale,
you have to have government support for it and that has to be
substantial.
Q13 Sir Robert Smith: I had better
declare my interests. On the Register of Members' Interests, the
most relevant one to this inquiry is my shareholding in Shell
and my role as Vice Chair of the All Party Group on the Offshore
Oil and Gas Industry because my constituency in the north-east
of Scotland is heavily dependent on it. In the funding of your
scheme, you have talked about a windfall tax on the profits from
oil and gas companies. I just wondered which profits you saw the
windfall tax going on.
Mr Simms: The profits registered
and posted in the UK where we are concerned.
Q14 Sir Robert Smith: They are global
profits and not from the North Sea?
Mr Simms: Personally, I would
see any sorts of profits that could legitimately be taxed in the
UK as being ripe for a windfall tax. When one talks about a windfall
tax, it tends to imply that it is a one-off and I suppose I am
thinking of a recurrent model. I am thinking of Norway's example
as being an interesting way in which you can take something which
is a double windfall in one sense in that it is a sort of geological
windfall and also the way that the exception of the sudden and
relatively short-term dip in the price has been generating significant
profits. That is an intelligent way to make the best use of a
declining resource to pay for the transition away from dependence
upon that source, which has been nurtured over a long period of
time.
Q15 Sir Robert Smith: You are obviously
very keen to see the outcome of the green deal and achieving the
new housing stock and the retrofitting and funding. I am just
wary of simple solutions that say there is a pot of money lurking
that could be capped painlessly. Obviously the Norwegian model
is about hoarding their own resource from the North Sea and you
are talking about a tax on any company that happens to register
its profits here. I wonder how long that company would continue
to register its profits here if the tax regime became unattractive.
Mr Simms: There are two points
on that. One is that the argument that one would not do the right
thing simply because you would have capital flight to a weaker
regulatory environment can be applied in all circumstances.
Q16 Sir Robert Smith: It is not the
right thing; if we have capital flight, we do not get the money
in.
Mr Simms: The fact is that where
the fossil fuel industries are concerned, they register in London
and New York, for very good reasons, and, depending upon how it
was done, I do not envisage the market centre for the fossil fuel
industry shifting overnight to somewhere in sub-Saharan Africa
or Asia. I just do not think that is a realistic possibility.
I also do not see the windfall tax as being the only source of
income, but I do see it as being a legitimate one and a trick
that we have missed. I think in fact Norway has been able to build
up on a per capita basis an astonishing national security
safety net for whatever slings and arrows the global economy or
the global environment throws at it. I think in the dying days
of North Sea oil, particularly in North Sea oil, when we seem
not to have experienced lasting benefit from the golden days in
the Seventies and Eighties, we have one last chance to put it
to some good, and do that in a way that matches the focus of the
spending with the nature of the source of the funding, if you
like, but we certainly do not see that as being the only source
of money.
Q17 Sir Robert Smith: Have you looked
at when the Chancellor last hit the North Sea with tax changes,
the loss of investment that came to the North Sea as a result?
Mr Simms: We have looked at a
number of international examples and we were interested to find
that China, for example, had used a windfall tax on its own sources,
that the US had done it in the 1980s, and that windfall taxes
have been used successfully on a number of occasions.
Q18 Mr Anderson: Can you put a figure
on how much you would expect to raise in windfall tax?
Mr Simms: I can, but I would like
to come back to that with you because we last looked at it in
detail a few years ago. We do have a report called Hooked on
Oil, which has some figures in it. I could not give you the
figures off the top of my head but I would be very happy to forward
that.
Q19 Paddy Tipping: Let us move on
and pick up a point that you were making earlier on, which is
about the local networks and decentralisation of generation. How
would you get that into place and how would we fund it?
Mr Simms: Fortunately, and I am
sure the Committee is aware of this, there is a number of quite
successful examples, such as Woking, that have already been there,
and there is a level of detail, knowledge and understanding of
how to work through local authorities. That is not my specialisation
but that has been looked at in great detail. Again, the report
I referred to earlier that Greenpeace produced on decentralised
energy has wrestled with some of the difficulties of planning.
I have referred the Committee to that report, and also to the
work of some of the renewables trade associations that have been
looking in great detail at the planning obstacles and the planning
hurdles to doing that. What was the second part of your question?
Q20 Mr Anderson: Let me just take
that on a bit. In your report you say that this is going to cost
£50 billion. Where is that money coming from?
Mr Simms: Where is the money coming
from? There is a range of estimates on what we should be spending
at the moment. I noticed that Lord Stern, with the percentage
of GDP he thinks we should be spending on effecting this transition,
has come up with a figure that translates to about £11 billion
a year. I noticed the Sustainable Development Commission have
quoted £30 billion for the next few number of years. We have
quoted the figure of £50 billion, which is also the figure
that IPPR came up with in one of their reports. Where is this
money to come from? I think it is to come from a range of sources.
I think it is to come from public, private and individual sources.
We have alluded to the Government now being in a position, through
public ownership or substantial public involvement in some of
the major banks, to be able to influence their investment portfolios.
We see there being an important role of leveraging private resources
into this process of transition. We have alluded to the windfall
tax. We have also alluded to the role of green taxation. Here
there is a problem and I do not understate it because it is something
that is always an issue with the Treasury. We think to win the
public case for increased green taxation, that taxation would
have to be hypothecated; it will have to be linked to the desired
outcomes, otherwise it is very hard to win the argument in public;
people might think it is just another form of backdoor taxation.
We see as being perhaps the biggest win encouraging some of the
major institutional investors, like the pension funds, to start
looking to the renewable technologies maybe not as being opportunities
for spectacular returns but as being opportunities for safe, secure
and long-term returns. I think one of the greatest challenges
we have in the investment community is lengthening their time
horizons and the investment in environmental transformation and
energy transition is certainly one of those. We also see there
being great potential for innovative new financial mechanisms,
such as green bonds. We have written to the Secretary of State,
Mr Miliband, advising that the Government might like to consider
a green investment task force that would bring together a range
of institutional investors and individuals ranging from banks
that have specialised in this area, like HSBC, Rathbone Greenbank
in the UK, a sustainable investment forum, to look at the scope
for innovative new bond and gilt-like mechanisms to raise funds,
some of which may appear on the public borrowing books and some
of which would not. I have alluded earlier to Trident, perhaps
slightly flippantly; I did not mean it to be that way because
I think there are some very real political decisions that do need
to be taken where major capital items are concerned, like Trident,
which have huge opportunity costs, should we continue to go ahead
with something like that when we know we have the challenges of
environmental and energy transition in front of us. I would see
there being a mixture of public, private and individual sources.
If I found available a pension product that was specifically dedicated
towards investing in renewable energy technologies, I would choose
it. I cannot actually find one at the moment. Someone will now
turn round to me probably after this meeting and give me a list
of seven but I have not found one yet. I think there is an appetite
for it and I think there is actually quite a diverse range of
sources that we can go to.
Q21 Anne Main: Briefly, going back
to your potentially hypothecated green taxes, can you give me
an example of such taxes that you think would be reasonable and
how would they be explained to people, given that in the billing
of gas bills and electricity bills people are not terribly aware
of how the break-up currently is worked out on the green part
of the tariff? Can you be a little more specific on that because
"hypothecated green taxes" is a very overarching statement.
Mr Simms: I would start with what
we have already discussed. I would start with the windfall tax.
The basic rule of taxation, as we see it—
Q22 Anne Main: I was thinking more
of on the individuals rather than on big companies.
Mr Simms: The principle I would
begin with is that we should tax more of what we want less of
and less of what we want more of. On that basis, I think we should
be looking at effecting and encouraging a shift away from the
private motor vehicle towards mass transit, for example. I see
at the moment the current scrappage scheme as being a perverse
incentive to keep us locked into an energy-intensive form of transport.
I think one of the biggest mistakes that the Labour Government
made was to abandon the fuel duty escalator, when this government
came into power, in effect. I would like to see that healthily
restored because the very poor do not have cars anyway very often
and rely upon under-funded and over-crowded public transport.
Q23 Anne Main: That is so: unless
you have public transport in place, people are not going to opt
out of their cars, in which case then who is going to put the
up-front funding for all this big investment in additional transport?
Where is that coming from?
Mr Simms: I think I have alluded
to a number of different sources.
Q24 Mr Weir: I will just make the
point before I ask my question. The comment about cars is wrong
in rural areas. There is a huge difference between rural and urban
areas.
Mr Simms: I would agree with that.
Q25 Mr Weir: The point I would like to
ask you about is decentralised energy. Starting on decentralised
energy, fine—no great problems with that—but you talk
about ensuring grid connections. The National Grid raised concerns
about small, decentralised schemes, feeding tariffs and such like,
relating to the way they balance the grid and the difficulty of
knowing when energy is going to come in from these small as opposed
to the large stations. I wonder if you have done any technical
research on how you deal with the inflow of small amounts of energy
from decentralised projects or from individual homes on to the
National Gird, which as you said earlier would still have to exist?
Mr Simms: That is a very specific
and technical question. I would like to point you afterwards towards
a number of pieces of work which have dealt with it in detail.
I would say, though, that the flip side of that is that one of
the good things which a more decentralised system has to offer
and a system in which we are evening out household demand by having
a higher take-up of household level technologies is that you actually
even out the peaks and troughs of demand on the grid. One of the
things that a more diverse system has to offer is probably a more
stable grid because you do not get the shocks to the system in
quite the same way.
Q26 Mr Weir: The grid at the moment
has to turn on and off positions depending on the amount of energy
that is coming into the grid and they have balancing and tripping
charges. Their point is that if they do not know when this energy
is coming on, they cannot control it; they cannot turn it on or
off to allow the grid to function properly, which could lead to
power outages.
Mr Simms: I think there are two
levels at which you can ensure against that. One level which is
being looked at a lot at the moment is the potential for, at the
other end of the scale, a more interconnected European grid, which
is fed into by a range of the more renewable technologies that
operate on a high degree of reliability at a macro scale, whether
it is tidal or wind, which can even out supply at a large level
down to evening out the peaks and troughs at the local level.
Again, I would say it is a particularly technical area, not one
in which I am expert, and so, rather than giving a half-baked
answer, I will come back to you later and refer to the work that
some of my colleagues who deal with those questions work on.
Q27 Sir Robert Smith: Mr Simms, you
made the point that there should be more investment products aimed
at green investment, green jobs, and at pension products. Do you
think what is missing perhaps still from getting those products
really up and running is the confidence that governments and international
organisations, such as the European Union, have a longer term
commitment to delivering on this agenda so that those investments
will make a return, in a sense, getting the carbon price and the
forward carbon price high enough actually to make it attractive
and send a signal that energy efficiency really will pay in the
long run?
Mr Simms: It is a huge issue and
a huge problem. The carbon price and the rollercoaster ride that
it has been on has led I think to despair and utter confusion
in the renewables sector. There is a number of different ways
in which you can perhaps underwrite a carbon price and taxation
is one of them. Another way you could do it is by having a more
serious and tighter cap, which will force the price. If we are
to align our efforts with the science of climate change at the
moment, as well as the impending nature of the peak oil debate,
that is something we should do anyway. Leaving it to the way that
the market has been operating at the moment clearly has not worked
for a lot of people and it absolutely has to be addressed.
Q28 Colin Challen: You have spoken
of many interventionist measures which appeals to old lefties
like me, but we have only just touched now upon the ETS. Do you
think that the ETS can actually play a valuable role in a green
stimulus package?
Mr Simms: There are three things
about the ETS. It is all about the cap, as far as I am concerned.
A tight carbon cap is needed to drive a price signal which will
make any difference. I think the ETS was badly designed at the
outset; it had too much hot air in it and clearly malfunctioned
on that basis. I think some of the ways in which the ETS and the
carbon market play out in practice in terms of how one accounts
for emissions reductions also has the potential for a lot of leakage
in the system. Purely relying upon a price that, depending upon
what the external circumstances are, can ping around like a pinball
is not enough to build the replacement energy infrastructure that
we need. I am neutral about at what level the price would generate
the necessary change. I do not think anybody really knows. Lord
Stern has talked about £40 per tonne but I do not think we
actually know because it is very hard to take a guess on how markets
operate. I think the ETS, probably, if it functions well, if it
has got a decent cap, if you drive the leakage out of the system,
is probably part of the solution but it is certainly not going
to work even of itself
Q29 Dr Whitehead: Just briefly, in
order to make a number of the issues that you have raised work,
you have suggested very briefly that the low-intensity grid needs
to be completely reconfigured and that, by the way, there should
be an effective European supergrid in order to even out the electricity
supply from renewables, which is obviously substantially greater
than the interconnectors, and implies a grid system. My calculations
are that, roughly speaking, those measures alone would be about
£60/70 billion to introduce and would take about 15 years
to do. How does that square with your timescale and your other
proposals as far as upgrading is concerned?
Mr Simms: I think one of the other
things we say in the report is that we do not believe that we
can achieve what we need to achieve purely through substitution
of new energy sources and through the implementation of the best
available energy efficiency; that we see that demand management
has an important role to play in this as well. I cannot remember
whether we actually mention it in detail in the report, but we
have suggested, for example, a demand reduction obligation being
placed upon the utilities to drive some of those changes.
Q30 Dr Whitehead: What percentage?
What does that mean?
Mr Simms: That means that where
the UK is concerned, based on the work, for example, of people
like Kevin Anderson of the Tyndall Centre on climate change research
at Manchester University, for the UK to play its part in meeting
a reduction in global emissions, which is in line with the science,
to prevent us flipping past the temperature band of 2 degrees,
the UK needs to hit year-on-year emission reductions of between
6 and 9%. So the culmination of all the different initiatives
that we have been advocating are designed to get us to that. I
have to say, when I came into this meeting, I was slightly nervous
about getting a range of detailed questions on things like this
because the report (I should have said at the outset) was the
product of eight different people writing it, and I think it is
fine to mention that the particular proposals relating to the
grid structure were from my colleague Jeremy Leggett, in whose
area of expertise it is. So, again, on that particular question,
I would like to make a note of it and come back to you after I
have consulted with my colleague, whose work area it is.
Paddy Tipping: Many of us know Jeremy.
We are going to talk a bit about carbon capture and storage and
other technologies.
Q31 Mr Anderson: You do not mention
carbon capture in your reports, as far as I am aware. Do you think
it has a role to play in developing a low-carbon economy?
Mr Simms: The issues to do with
carbon capture and storage are in the way that we have touched
on mutual priorities around the table, so far. I do not rule out
carbon capture and storage and I believe that we have to look
for the most sure, guaranteed and effective ways to both reduce
emissions, generate the electricity and get the power that we
need to run the country. There are many question marks that hang
over carbon capture and storage. I think it is right that people
have argued that, should we consider any new coal-generating capacity,
those plants should come ready. I note that the ones that have
been discussed at the moment (I think the figures show) are geared
up to capture somewhere between one-seventh and one-quarter of
emissions from new plant. I think the signal it sends from the
UK, for us to be considering a new generation of coal-fired power
stations which are not completely ready to capture and store their
own carbon, is a bad one for a developing world and countries
like India and China, which sit on vast reserves of very dirty
brown coal. I would prefer strongly that the UK did not go down
the route of new coal-fired capacity because I think we have got
to bite the bullet and jump. That said, it is also still very
early days for the technology. I have spoken to people who work
in the industry who refer to the fact that the geological safety
and soundness of structures after you have taken out X% and are
thinking to use them for sequestration is still not a thoroughly
understood process. So I think we should be cautious before we
trust to it too much.
Q32 Mr Anderson: What about the demonstration
projects to test this?
Mr Simms: I have no problem with
the demonstration project. What I would have a problem with is
the use of demonstration projects as a slight-of-hand with which
to introduce a wave of new coal-fired generating capacity which
cannot be guaranteed will be effectively incorporated with comprehensive
carbon capture and storage. It is difficult, and the politics
of it, I think, have been somewhat opaque to date. I think the
effort that it took to get to the point of insisting that any
new plant should be ready even with the trial element is demonstrative
of some of the power struggles that have been going on behind
the scenes, which makes me nervous.
Q33 Sir Robert Smith: I can see where
you are coming from, obviously, if we build a whole generation
of power stations on the assumption of technology that is not
there, but the handling of carbon, the use of carbon and its storage
underground has been used a lot in the States in terms of oil
recovery. So there is quite a lot of understanding of carbon.
Are we going to stop China and India using coal? Do we have to
succeed with carbon capture and storage if we are going to, as
a global world, tackle climate change?
Mr Simms: I think the UK has to
be a beacon. We have to set absolutely the highest standards in
everything. We have to use the greatest creativity and imagination
to set an example of how much is achievable. Actually, it comes
down to that most politically unpalatable issue, that however
you look at it—and I know we are talking just about energy
and climate change here—energy underpins a whole range of
other ways in which our ecological footprint, not just talking
about carbon, vastly outweighs that which the planet can legitimately
take. So it is not just about redesigning an energy system so
that we can keep going on as usual; there are fundamental issues
about how we need to reduce our ecological footprint in order
to be able to equitably share the planet and hold up models of
development for India, China and Latin America to plausibly emulate.
I think behind that I suggest that there is a kind of deeper re-engineering
required than merely how we wire the grid and how we pour energy
into it. We often forget that linked to our energy use is a range
of other forms of unsustainable consumption that affect everything
from our fisheries to our forestries to how we mine things from
the earth. The analogy I would draw is this: that there seems
to be a perception still, I think, surprisingly prevalent in the
debate around energy at the moment, which reminds me of the transport
debate in the 1970s, when the mantra was "predict and provide".
We thought that all you had to do was to guess how many cars the
market and the population were going to kind of wish on to the
roads and then build the roads to meet them. In a finite planet
we cannot do that, and I think where energy is concerned it is
not a game of "predict and provide"; it is a game of
working out how we can align our energy use to what our ecosystems
can provide and what they can safely absorb without triggering
catastrophic environmental breakdowns. I think it was James Hansen,
the world's leading climate scientist, who said that we need to
be aware of exactly what the stakes are here: that we are on the
cusp of consigning to history the climatic conditions under which
civilisation emerged. It is not a game of just keeping our energy
supplies flowing to power a "business as usual" economy;
it is about a deepening profound and fundamental re-engineering
of how we use energy and other resources too. I sometimes feel
that the way that we approach is we are looking for the latest
magic, sort of, silver bullet or technological fix, forgetting
that magic is exactly that—it is an illusion; it is a stage
game. I fear that whilst I certainly do not rule out that carbon
capture and storage have got a role to play I suspect that it
is part of a deeper narrative in which people really want to keep
"business as usual" ticking over.
Q34 Mr Weir: I understand what you
are saying about the energy use, but obviously the debate about
energy has split, in many ways, the green camp, if you like, between
those who are purely renewables and carbon capture and now, it
seems, some in favour of new nuclear build. How do you feel about
nuclear power stations?
Mr Simms: To be fair, there is
a very small minority of people who have environmental credentials
who have said that. Some people who have been reported as being
nu-converts have merely got to the point of saying that they think
everything is so dire that they really just do not care any more.
When you look at the science of it and the degree to which even
an ambitious programme of new nuclear could substitute/provide
for, its contribution really is not that great, however you look
at it. I think Colin Campbell from the Association for the Study
of Peak Oil points out that we already passed the peak of economically
viable, high-grade ores for the nuclear industry anyway. We tend
to think that nuclear is an infinite supply, and it is not; it
is bound by geology in the same way that other conventional sources
of power are bound. I would take a simple, pragmatic and economic
argument and say that what we need to do is a bangs for buck argument.
What are we going to get in terms of maximum carbon reductions?
What are we going to get in terms of maximum output for what we
invest? What are we going to get in terms of security of supply?
When you apply those arguments (and we last looked at this in
detail in 2003 in a report that we did comparing the potential
contribution of micro-renewable sources with nuclear) we came
to the conclusion that when you factored in many of the, often,
hidden costs of nuclear power the unit price was extremely uncompetitive,
and it came at the bottom of a long list of alternatives. There
is another piece of very interesting work—tantalising work
because there is very little to compare it to—done by an
analyst in the field called David Fleming, who has worked out
that when you do a full life-cycle energy analysis of potential
new nuclear and you look at the energy involved in its long-term
safe storage, construction, mining, etc, etc, nuclear can provide
no more energy than you will need in its full life-cycle to manage
its mining, building, decommissioning and long-term safe storage.
In other words, it does not make a net contribution in the long
term, notwithstanding the fact that per unit of output it is,
I believe, uncompetitive in the long run. That is without touching
on the various security arguments, which I think are profound
and important as well and tend to be rather glossed over.
Q35 Colin Challen: One of the great
technologies of the future, on which the EU spends more money
on research and development than it does on renewable sources
of energy, is fusion. Would you support that kind of approach?
Mr Simms: Would I support the
investment?
Q36 Colin Challen: The investment
that the EU spends directly on R&D in fusion outweighs what
it spends on renewable R&D. Is that the correct approach?
Is it the right priority?
Mr Simms: It is the old joke,
is it not, that we are 20 years away from getting economically
viable fusion, and we have always been 20 years away from getting
it. We are at the stage now where we have got to do things now.
I grew up as a child under a Conservative government that was
always telling us that we had to make tough choices in how we
allocate our resources. We need to be making these changes now.
I think that means that the priorities for our investments and
our spending need to be geared towards implementing what we know
works and implementing what we know, pound-for-pound, investment
generates jobs. Jobs are very important at the moment. One of
the problems with those sorts of technologies—and nuclear
in particular—is that it is extremely capital-intensive.
Yes, of course, it creates some jobs but in comparison to more
decentralised renewable energy forms it creates very few jobs.
So I think if we are looking for multiple wins in terms of carbon
savings, in terms of security of energy supply, in terms of creating
jobs, renewables are going to win hands down again and again and
again. So I think if we are increasingly in an era in which we
see a squeeze on public finances across the industrialised world,
those tough choices get even tougher. I would say we need to focus
our resources on the renewable sector.
Q37 Colin Challen: That logic would
apply to R&D in a whole range of potential new products and
services, would it not? It does not just have to be fusion; we
do not have to stay within the energy sector. If the immediate
challenge is climate change and renewables have to be developed
and so on, you could say: "Let's, at least temporarily, stop
R&D in a whole range of areas to focus our attention on the
task-in-hand." Is that something that you would advocate?
Mr Simms: It is terribly hard
to make this argument without it sounding somewhat alarmist, but
I think you cannot under-estimate the nature and the scale of
the problem that we face. Since, when you are talking about profound
environmental change, it happens at a different timescale to us
sitting and having meetings and even conducting inquiries of this
nature, it is quite hard to connect with the reality of that,
but I would go back to Jim Hansen's words and say that we have
a period of time, a desperately short period of time (and we calculated
on the basis of emissions trends and the latest work of the IPCC
that we have, roughly, assuming that emissions do not rise any
further, until the end of about 2016) before we flip over into
a new, more profound phase of risk, where it is no longer, to
use the IPCC's criteria, likely to stay below that critical 2
degrees above pre-industrial times temperature rise. So I would
say we have got a period of less than a decade in which all our
efforts need to be geared towards effecting this great transition,
this great environmental transformation, of our economy. I do,
yes, think we should put other things aside and focus not entirely
exclusively but largely on that effort. I am reminded of the challenge
that Britain faced during the Second World War when we had, as
an island nation, a huge challenge to radically reduce our consumption
of resources and preserve our energy supplies. At that time you
saw the lead being taken by public buildings at a national level
and at a local level; you saw highly visible demonstrations of
people in public office opting to save energy and use transport
systems that were low on energy consumption; you saw public buildings
being turned over and publicly demonstrating how they were radically
cutting their energy supplies. I think we need to make and perhaps
need to see some evidence in the public domain, in circumstances
which I know elected officials are interested in, of leaving behind
the difficulties of the last few weeks and leading by example.
I think there is a great chance to do that. That has taken us
into a slightly different point.
Q38 Paddy Tipping: Before we go into
the current political problems we are going to stop at that point,
Andrew. Thank you very much for coming. I noted that you walked
here, but that might be due to other problems. Thank you very
much for coming. That has got us off to a good start. You promised
that you will supply a number of pieces of further information
and, in particular, the study that you will publish at the end
of July. Thank you very much indeed.
Mr Simms: Yes, and thank you very
much. I apologise for not being an expert in every single competence
the Green New Deal covers, but part of the purpose of writing
it was to bring together a range of expertises covering finance,
energy and climate change, precisely because we thought they needed
to be brought together. If the Committee would like to follow
up on those points we would be delighted to provide follow-up
information.
Paddy Tipping: Thank you very much.
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