CORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 474-i

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

ENERGY AND CLIMATE CHANGE Committee

Work of the Department of Energy and Climate Change

Wednesday 15 September 2010

RT HON CHRIS HUHNE MP, MOIRA WALLACE, PHIL WYNN OWEN and JONATHAN BREARLEY

Evidence heard in Public Questions 1 - 80

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Energy and Climate Change Committee

on Wednesday 15 September 2010

Members present:

Mr Tim Yeo (Chair)

Dan Byles

Gemma Doyle

Tom Greatrex

Dr Philip Lee

Albert Owen

Christopher Pincher

Laura Sandys

Sir Robert Smith

Dr Alan Whitehead

________________

Examination of Witnesses

Witnesses: Rt Hon Chris Huhne MP, Secretary of State for Energy and Climate Change, Moira Wallace, Permanent Secretary, DECC, Phil Wynn Owen, Director General, National Climate Change and Consumer Support, and Jonathan Brearley, Director, Energy Strategy and Futures, gave evidence.

Q1 Chair: Secretary of State, a very warm welcome to the Committee. This is your first appearance-our first meeting with you. We are delighted to have you. Thank you for making the time.

There is a great deal we would like to talk about, obviously, and I hope it is going to be a good tour d’horizon. Congratulations on your appointment anyway. I remember you described it to me as your dream job, so I hope it is proving to be a dream and not a nightmare.

Chris Huhne: So do I. Thank you very much, Mr Chairman, and congratulations to you too for being one of the first of the elected Select Committee Chairs. I think it is a very important development for Parliament, and I very much look forward to working with you as a newly invigorated Committee. I think Ministers are always in favour of tremendous Parliamentary scrutiny in principle. Well, I hope in practice that it is-and I am sure it will be-very good.

Q2 Chair: I think we start off from a pretty supportive position of you and the Department. We may be quite critical of some other areas of Government policy. I hope we will not have to be too confrontational with you because I think we would like to give you as much support as we can in what is clearly quite a challenging period. Do you want to introduce your colleagues, first of all?

Chris Huhne: Yes, absolutely. On my right is Moira Wallace, who is our Permanent Secretary and not just any old Permanent Secretary, but the founder of the Department-so very crucial. On her right is Jonathan Brearley, who is Director on the energy side and who is deputising today for Simon Virley, who is our Director General, who, unfortunately has had a minor operation and is recovering from that; and on my left is Phil Wynn Owen, who is the Director General in charge of climate change and consumer matters. I will attempt to answer all the easy questions and they will answer the difficult ones.

Q3 Chair: Okay. We will give you lots of easy ones to start with. Can we start with renewable energy?

Chris Huhne: Yes.

Chair: The Committee on Climate Change wrote to you, I think it was last week, saying that it thought the current renewable energy target was about right, but has significant delivery risks. It said the target should neither be reduced nor increased. Is that your view?

Chris Huhne: Yes. I think that I’m persuaded by the line that the Committee took. I think the 15% is demanding, given where we are at 3%. We have inherited the third worst installed rate of renewable capacity in all of the 27 member states of the European Union. Only Malta and Luxemburg have a worse installation rate for renewables than we do. So, we have a lot of catching up to do and I’m determined and very happy to make sure that we are hitting that 15% target. There are risks even with that, given that we are starting so far behind, and there is a lot of room to catch up.

It would be nice, and I don’t disguise the fact, clearly, that obviously we asked the Committee to look at revising the target, to see if we could be more ambitious, but I am convinced that it is better to be more certain about meeting what is going to be a very demanding target than, at this stage, to be more ambitious on the 2020 15%.

Q4 Chair: It sounds as though, from what you say, particularly about the low starting point, that you share that Committee’s view that meeting even an existing target requires, in its words, "a step change in the rate of progress and entails significant risks which should be addressed as a matter of urgency".

Chris Huhne: I think it does require a step change and that is exactly what we are intending to do in the Department. I think the Prime Minister was very clear when he made the Department one of the very first Departments that he visited when we came into Government that we intend to be the greenest Government ever, and part of that commitment is very firmly to meet our renewable energy targets. That is going to mean that we are devoting a lot of attention to ensure that we pick up our position from being the laggards of Europe at the moment.

Q5 Chair: In the annual energy statement you made just before the House rose, you referred to the delivery plan that you are working on. When is that likely to see the light of day?

Chris Huhne: I am not sure we have a firm deadline on that, Jonathan?

Jonathan Brearley: No.

Chris Huhne: Not yet. I think that, as part of the annual energy statement, obviously, we announce work that is ongoing. There are issues, particularly on the planning side, which it is often difficult to predict in terms of the outcome. We have also had some worries about the financing of some of the big renewable projects, particularly big wind farms, and we are working on that side as well because this is a major investment project. So, we are ramping up our emphasis on delivery and we will let you know when we have a plan that we can share with you.

Q6 Sir Robert Smith: One of the great potentials of the UK is offshore renewable energy. At the moment, there is a lot of renewable wind potential, but, in the long term, marine and tidal. You have talked about the investment challenges. Are there also logistical challenges in terms of the supply chain and the skills base or do you think the industry will respond positively to the incentives when they come?

Chris Huhne: As I am sure you know, we have a commitment in the coalition agreement of the Government to continue with the ports competition, designed to try and provide a basis for some of the investments which we want to attract, particularly for wind turbine manufacture, for example, and I’ve certainly had discussions with GE. We have interest from Siemens and from Mitsubishi as well as potential investors and given the very substantial investment that is going to have to happen in offshore wind in the UK, if we are going to meet those targets, then I think it makes an awful lot of sense that that investment should go ahead.

The exact form, obviously, is still under review and everything is still subject to the comprehensive spending review. It would not be comprehensive if it were not, and so we are not in a position to announce firm details on that before the spending review is over, but I think it is very important to bear in mind the supply chain for all of these sources of energy and we obviously want to make sure as much as possible is being manufactured in the UK.

Q7 Albert Owen: Can I just ask you, Secretary of State, and welcome to this Committee, about the port competition you are talking about and that missing link where we have the land availability and the offshore. Is there a competition? Do the ports have to apply for it and is it safe from the comprehensive spending review?

Chris Huhne: I can’t say whether it is safe from the comprehensive spending review because nothing is safe until everything is safe. We actually make the announcements on 20 October, I think it is and that is just, I’m afraid, the nature of a comprehensive spending review. As you know, we are facing extremely tough choices right the way across Government.

Q8 Albert Owen: Just to be clear, that money has not been ring-fenced, the announcement by the previous Chancellor?

Chris Huhne: There are ring-fenced amounts of money for particular Departments, for example, DFID and Health.

Albert Owen: With respect, I understand the general view. I am asking about this announcement.

Chris Huhne: There is, sadly, nothing ring-fenced on that.

Albert Owen: That is clear. Thank you.

Q9 Laura Sandys: If one then starts to look at, let’s say, green investment and green jobs and the technologies that go with that, are you finding that other Departments, such as BIS and the Treasury, understand that, in many ways, the coalition has made a platform of green jobs and green growth being one of our major drivers for economic recovery? I just wanted to know what your feelings were that your Department, through investments-whether that be port infrastructure, whether that be marine energy parks-these are actually platforms that will assist other Departments? Do you feel that there is a grasp of that across Government Departments?

Chris Huhne: I think there is. I have had regular discussions, indeed, with the other Departments which are most responsible for delivering on the green growth agenda. Obviously BIS is the lead Department on that, and I was discussing it indeed yesterday with Vince Cable. I think we are all very aware, including Phil Hammond of Transport and including Eric Pickles of CLG1, of the importance of green growth as a really key driver for the recovery from what has, after all, been the deepest recession since the second world war.

One of the things which was very noticeable about the recovery from the depression in the 1930s was that a lot of the recovery happened in entirely new industries. It was not a question of the old industries simply bouncing back. If you look at the suburban areas outside our major cities, they were largely built in the 1930s around new light industries and I think the green industries have the same sort of potential to really drive growth.

It is interesting that this is not just, for example, in manufacturing kit. It is also, I think, "Don’t underestimate the potential job implications too of the Green Deal", because, as we move to a situation where we are putting in comprehensive energy-saving measures into people’s homes, first of all, people live right the way throughout the UK, so there is no regional bias in this. Secondly, this is enormously labour intensive for a labour which does not need to be very highly skilled-people can be trained up quite quickly-and we will be looking at literally thousands of jobs and an enormous increase in the size of the insulation industry. That, in itself, together with the very substantial investment which Ofgem predicts as £200 billion over the next 10 years in replacement energy infrastructure assets, has an enormous effect on total demand in the economy and I think it is a big enough effect genuinely to have a macro-economic impact.

If you look at the Government’s fiscal programme, we are obviously tightening over time, over the next four years, by typically 1.5% of GDP a year. On a back-of-the envelope calculation, if you look at all the impact of replacement energy infrastructure assets plus what we are going to see with Green Deal, you are looking at a programme which has the potential, if we deliver it in the Department, and that is a really key objective for us, of offsetting the demand restrictive effects of some of that fiscal tightening. In fact, the equivalent would be somewhere between 1.5 to 2% of GDP-the impact of the energy infrastructure investment and also the Green Deal.

Q10 Dan Byles: Secretary of State, would you agree that for that to work we need certainty and stability within the business environment?

Chris Huhne: Absolutely.

Q11 Dan Byles: I have had a number of SMEs express some concern about the future of the renewable heat incentive, the levels of feed-in tariffs-there is concern that the feed-in tariff levels might be reduced next year, for example-and they feel, at the moment, they don’t have the certainty to enable them to really start investing, to actually get involved with this new green economy.

Chris Huhne: We want to provide as much clarity and regulatory certainty as we conceivably can. I was in business myself and I entirely appreciate the importance of making sure that that framework is settled and stable and that people can plan for it.

If you look at the feed-in tariffs, the situation is that if you go for an installation now you know exactly what the return is going to be all the way through, and I’m absolutely determined that, unlike in some other EU countries, there will be no question of investors being able to call us and criticise us for having retrospectively changed terms. That would be completely out of order against our parliamentary and legal traditions. So, I think that if investors go for a particular scheme, they can rely on that in terms of the feed-in tariffs.

It does not mean, of course, that we cannot review in future feed-in tariffs and make announcements for investors that we will change the terms if we think that they are not generous enough or that they are too generous.

Q12 Dan Byles: That is a specific concern I have had from the people who manufacture the equipment and are looking to build a business based on selling this equipment in the future. Their concern is that, if the feed-in tariffs are reduced next year, for example, that, suddenly, their business model isn’t going to look as viable as it was.

Chris Huhne: Yes. I accept, obviously, that we must try and reduce those uncertainties as much as we can.

On dealing with your first point on the renewable heat incentive, I think I have to take a bit of the blame for some of the uncertainty on that because, having been involved in the coalition negotiations, we produced such a detailed list of all of the things that we wanted to see on the environmental, energy, climate change agenda that, as you know, it was extremely rushed when we were doing the coalition negotiations and I think Oliver Letwin, on the Conservative side, and myself literally forgot to put the renewable heat incentive in. As a result, people have turned round and they have seen this enormous detail on everything else but, "Why isn’t the renewable heat incentive in there?" And I have been trying to be as clear as I possibly can, since taking the job, that we see heat as being an absolutely essential part of meeting our renewable targets. It simply will not be possible to meet the 15% target without heat. So there will be a heat part of our renewable strategy. Again, it is subject, I am afraid, to the comprehensive spending review so announcements, in terms of the detail, have to await the outcome of that. But I think it is absolutely essential and I think the Treasury understands that.

Q13 Chair: Just on that point about the relationship between this and the comprehensive spending review, why does the Treasury take an interest in incentives whose cost is borne by consumers rather than taxpayers?

Chris Huhne: The Treasury view, and I don’t mean by that the old 1930s Treasury view of fame but the current Treasury view, is that they should be concerned about taxable capacity. They take the view that, if a legislative charge is imposed on consumers through the levy system, then, in effect, this has an equivalent effect to a tax. It isn’t a tax, but it has an equivalent effect to a tax and might therefore limit their taxable capacity in some other area. This is obviously an ongoing debate and there are other views about the importance of this particular point.

Q14 Chair: I am glad there are other views. It sounds like a typical Treasury power grab to me. It has got nothing to do with them at all. There are all sorts of other things that might be taken into account on that sort of argument-indeed, the revenues they might receive from the jobs that are created if these incentives are put in place for various types of renewable energy. We would give you as much support as possible in seeing the Treasury off on that particular issue. It really does not seem to me to have anything to do with the CSR at all, and it would be extremely damaging to the whole prospect of reaching our renewable energy target if they are allowed to try and influence the levels at which these consumer paid for incentives are actually set.

Chris Huhne: Mr Chairman, I very much hear what you have to say on that and I will make sure that the Treasury Ministers and Treasury officials are fully briefed on your views.

I would simply say that the Treasury is, of course, the lead economic Department and I am perfectly happy to go through the whole process with them of assessing what the economic impact of DECC policies actually is.

As I have said in answer to Ms Sandys’ question about green growth, I think that it is very significant in terms of the macro-economic story that the Government will have to tell about the recovery from this recession. So there is a big agenda for us to discuss. We are an economic Department in DECC and there should be no two ways about that. The Treasury, as the lead Department, clearly has an interest in the whole gamut of those impacts and I think it is legitimate to have a discussion with them on that, but I certainly also think it is very important that Departments should be able to get on with doing what the Department is charged with doing.

Q15 Albert Owen: Coming back to the impact of spending cuts, what progress has been made by your Department to achieve the £85 million as part of the coalition spending plans?

Chris Huhne: We have obviously gone through that. That was, as you know, part of our contribution to the package that the Chancellor announced as part of the emergency budget, and we looked, particularly, at efficiencies within the Department. I asked officials to come up with a range of options which would be least damaging to the core objectives that we have. It is never easy for a Department like DECC to make cuts because we are so new and that leads to all sorts of issues, not least the fact that the baseline that the Treasury is using for the public expenditure review is a baseline which was set when we did not exist. So there are all sorts of issues there. But we did play our part in delivering the £6 billion of savings and I think we have been able to do that without major disruption.

The £25 million came from efficiency savings in DECC and in our delivery partners- Carbon Trust and Energy Saving Trust and Ofgem2-and the remainder had to come necessarily from programmes. We argue that we did take great care to ensure that we have made, I hope, sensible decisions on that and the detail of the £34 million saving on low carbon technology support followed on from the overall announcement, and we made that in July, and followed pretty close a departmental review of our spending in that area.

Q16 Albert Owen: But isn’t your flexibility hampered by the fact that 80% of your annual expenditure is committed to nuclear decommissioning?

Chris Huhne: It is not quite 80%, I think, but it is certainly a very, very substantial amount. The overall budget of the Department is about £3.2 billion and it is getting on for about half. So, you are right that it is an enormous slice.

Albert Owen: I am sorry, did you say it was half?

Chris Huhne: It is getting on for half, yes. So it is an enormous slice of the overall budget and that is legacy. It is dead money. It is money, frankly, that all of us would prefer not to have to spend at all because it is dealing with past problems rather than the future, and what we obviously want to see, both officials and Ministers, is the Department driving what is a very exciting process-the third industrial revolution, moving to electrification of the decarbonisation of the economy and to have to deal with that deadweight of old costs is a problem. But it is, as you say, a very important part of the budget and we have to deal with it.

Q17 Albert Owen: It is not completely dead, though, because it is an industry in itself, isn’t it, decommissioning? As the Chairman said, there are going to be jobs created in this area that are going to create tax revenues for the Treasury, so it is not completely dead. I hear what you say.

Chris Huhne: Dead in the sense that–

Albert Owen: You have inherited it?

Chris Huhne: In the sense that we have inherited it, and the vast bulk of the spending sadly is dealing with problems which, frankly, should have been dealt with by my predecessors many, many years ago. The costs of those problems are much, much greater as a result of the fact that we did not deal with them many, many years ago. So, in that sense, I am absolutely determined that we will not delay these decisions again because, frankly, if we do, we will simply be bequeathing an even worse problem to future generations.

You are right in the sense, obviously, that new nuclear will create waste and there will be a decommissioning issue. It is absolutely essential that, in future, we deal with that in a timely manner with proper investment that deals with deep geological depositories and so forth to deal with the waste vitrification rather than the situation that we have had over the last few decades in this country, which is deeply unsatisfactory, both in our own terms and by comparison with the way other countries have dealt with their problems of waste and decommissioning.

Q18 Albert Owen: I totally agree with you. I think we are almost together on nuclear now. We were not a few months ago, but I think you are moving on that journey towards a proper system. I am doing this gently in accepting the fact that you are right about the nuclear decommissioning legacy. I think that you are absolutely right to say that.

Chris Huhne: I have to say, I don’t think we have ever been different on this, Mr Owen, because when I was doing the Opposition’s environment brief on this I welcomed, for example, CoWRM’s3 report on the deep geological repository. It seemed to me that that is the best option for dealing with the waste that we have and the most realistic way forward. So I don’t think there is a political division on that matter.

Q19 Albert Owen: We might explore that a little further on. But one point is that you are saying about the NDA, for example, that it has the opportunity to generate more money to help your Department by extending the life of existing stations.

Do you have a direct policy on this? I know there are safety issues which are paramount. The inspectorate has to clear these, but is there an active policy that you have got that you have asked the NDA to look at all these nuclear stations now with a view to extending them because the economic climate is good?

Chris Huhne: No, because I think that is a decision that the operators have to take in the first instance. The reality is that the operators have an enormous incentive to run the investments which they have got for as long as they conceivably can. You can see what has been going on in Germany, for example. Therefore, it is appropriate for us-obviously, if applications come forward, that will be dealt with through the usual regulatory channels. But I don’t think it would be appropriate. The incentives are already clearly there.

Q20 Albert Owen: I hear what you are saying. I understand it very clearly. I don’t have to go to Germany. Close to my own area we have a nuclear power station which is applying for an extension and which will be good for the local economies, but also for energy security purposes and the low carbon agenda that you are mentioning. Surely, you should give some leadership in this and say, "Look, it is our intention, as a country, to produce safe nuclear generation for as long as possible."

Chris Huhne: It is certainly our intention to produce low carbon alternatives as quickly as possible and the coalition agreement very clearly envisages that new nuclear will have a role in that. I have made it very clear that a deal is a deal and my job as the Secretary of State for Energy and Climate Change is to deliver on that deal-exactly as I would expect, for example, Michael Gove, Education, to deliver on the pupil premium, which was a Liberal Democrat idea within the coalition agreement, I’m delivering on the nuclear elements which are in the coalition agreement, and I intend to do that.

I think that, on the specific issue of extending life, the incentives are very clear for British Energy. If it wants to do that, I don’t think that there will be any push-back, and it obviously makes the applications in the normal way.

Q21 Albert Owen: Sure, and Magnox and the other companies. But isn’t this a golden opportunity for you to generate more money at a time when everybody else has to cut back? That is my point.

Chris Huhne: I think that you do have to bear in mind what is the appropriate role for the Department in terms of setting the policy framework and the appropriate role for the individual economic actors. Although, in the energy sphere, it is absolutely crucial that we have a proper framework of policy and that people know where we are going and that we are providing regulatory certainty and clarity, I don’t think we can remove all decision-making capability from the companies involved.

Albert Owen: Give some incentive. Thank you.

Q22 Laura Sandys: Obviously, your Department, through the comprehensive spending review, is looking at its budgets, but do you feel that, as a Department that has to advocate, particularly on climate change mitigation, whether other Departments are looking at that particular aspect and, in some ways, because it is not their core role, might be downgrading it when they are putting in submissions to the Treasury?

I am just concerned that everything you are looking at in climate change impacts almost every other Department. That would be a concern for me and I don’t know what sort of advocacy you can put forward.

Chris Huhne: I think you are absolutely right. I think that DECC is clearly the lead Department on climate change, but you are absolutely right that we cannot deliver on the agenda that the Prime Minister has set at being the greenest Government ever unless we have the active co-operation and drive of, in fact, nine Whitehall Departments.

We are obviously responsible, as the lead Department, for the decarbonisation of the energy sector, but Treasury does green taxes; Transport obviously does electric vehicles; DCLG does building regulations; we do energy efficiency; DFID does fast-start finance in the international context, and indeed the wider longer-term issues of raising funds to get developing countries to the table; FCO, absolutely crucial in delivering on the agenda. Which Department have I forgotten?

There is really no other policy area, in my view, which has engaged so many Departments across Whitehall in this core objective since wartime. This is an absolutely dramatic need for joined-up government. The ones I have forgotten Moira has highlighted-BIS. BIS, of course, on the green economy and DEFRA on adaptation and DEFRA also on product standards. So, this is nine Departments.

Q23 Laura Sandys: Do you feel that those Departments are taking up their responsibilities on mitigation in particular, which obviously would include DEFRA as one of the lead Departments?

Chris Huhne: I am very confident about DEFRA because it is a very key part of its remit. The frank answer is that some Departments have it higher up their list of priorities than others, but that is one of the reasons why we are actively, within Government, looking at ways of improving the co-ordination between Departments. One of the things which we are attempting to do and which we will be doing is to set out a carbon plan for the whole of Government so that you can see, for each of those nine Departments-the Ministry of Defence, by the way, is another one because the Ministry of Defence is responsible for the Meteorological Office which does really key work and internationally important work on climate change. So, this is a massive cross-cutting Government effort and there is no way-I have had a longstanding view-that you can put or even should attempt to put all of the climate change delivery in one or even a small group of Departments. It has to be cross-Governmental. That is why leadership from the top, from the Prime Minister and the Deputy Prime Minister, is absolutely crucial. I think we have that, and I think that we will try and put in place a framework which makes sure that those Departments which might be inclined to see this as a lesser priority than some of the things which they have to deal with day to day don’t forget about it.

Laura Sandys: Of course, the Treasury as well, which is at the core.

Chris Huhne: I mentioned the Treasury on green taxation, but the coalition agreement is very clear on green taxation. We are committed as a Government to increasing the proportion of tax revenues from green taxation and I have no reason to doubt that the Treasury will be as committed to that as every other part of Government.

Q24 Dr Whitehead: You mentioned the central role that the Department plays in energy efficiency. What priority do you give that in terms of the overall different activities that the Department is undertaking?

Chris Huhne: I think the energy efficiency side is probably the biggest new element and although the last Government, to give credit to Ed Miliband, was catching up from a place, frankly, where it was pretty bad-I have already mentioned the legacy that we had on renewables-the legacy on energy efficiency is pretty poor. If you look, for example, at the housing stock in the UK, we are in a situation where we are using more energy to heat our homes than, for example, they do in Sweden. Maybe that is because we have a temperate climate and we have traditionally wasted it because we have not had to worry too much about it. If you are in an intemperate climate, like Sweden, you actually take more care of these things. But it is pretty outrageous, when you think about it. The average temperatures in Sweden are seven degrees below what they are in the UK in January and yet we are actually spending more.

I think the absolutely key priority for the Department, which is reflected in the fact that this is the key part of our Green Deal, the energy Bill that we will be bringing forward in November, is a comprehensive scheme for improving energy efficiency in British homes. What we are aiming to do is to produce a scheme which is a bit different to the last Government-not just pay-as-you-save, in other words, allowing a framework which all parties are committed to of making sure that the capital investment in energy efficiency was serviced and repaid through the bills and through the energy savings of the householder, but also making sure that the packages which are put in are sufficiently ambitious that the British home will only have to be visited once between now and 2050 to deliver on the climate change objective which all three of the major parties were committed to in the Climate Change Act, namely an 80% reduction in carbon omissions.

That is, I think, a new development. It is a level of ambition which has not been articulated before, but it seems to me, in terms of the economic costs of doing this, it would be nonsense for us to do a partial retrofitting of a home and then go back in again in 10 years’ time or 15 years’ time and do the rest. So, there is a very strong incentive to getting householders at the moment when it is most economically efficient to install retrofitting measures, which is generally when they are moving in and getting a new bathroom or a new kitchen or whatever it happens to be. That is the right moment to put in the Green Deal and that will have a really impressive effect, I believe, in improving the energy efficiency of the housing stock. Of course, most of the stock which we will be, as a nation, using in 2050 is housing stock that has already been built.

Q25 Dr Whitehead: When you said, on 24 June, at the Economist UK energy summit that some people, such as the fuel poor and those in hard to heat homes lacking cavity walls, will need extra help because energy savings then will not be enough, does that mean that the one-off comprehensive arrangement that you have suggested could be the case for the Green Deal may, nevertheless, need to be supplemented by other measures as far as the energy efficiency of homes is concerned?

Chris Huhne: The actual package of measures will be appropriate for the particular home, whatever it is. So, for example, obviously if it is a cavity wall home built after the 1930s, then it is relatively easier and cheaper to get up to a reasonable standard than a pre-1930s non-cavity wall. There are some pioneering cavity walls going back to the 1880s, but, in general, that is the case.

With solid wall insulation, which we will need for non-cavity wall older homes, then that is something which does not pay for itself in terms of the energy savings at the moment. Maybe, as we learn by doing, the costs will come down. I am sure they will. But, in the interim, we will have to have an element of cross-subsidy to make sure that those homes go ahead.

The other key element of cross-subsidy which I hope that we will be bringing forward in the Bill is for the fuel poor. I think it is incredibly important that we tackle fuel poverty at source by improving the efficiency of the homes of the fuel poor rather than sticking plaster after the event, although that is inevitable in the short run. A very important part of Green Deal also is to provide that cross-subsidy element to deal with the fuel poor and the reason for that is because many of the fuel poor actually don’t run sufficient heating in their homes because they cannot afford it. So if you install energy efficiency measures, what actually happens is that they don’t save energy. They take it in terms of putting up the thermostat, which is actually a good thing because we don’t want little old ladies dying in the winter. We actually want them to have a more comfortable existence. So there aren’t any fuel savings in those circumstances which we could use to pay for the installation package of the Green Deal. That is why that also requires cross-subsidy.

That is the thinking at the moment. Obviously, the Bill is in the process of being drafted and we aim to land it in Parliament in November. No doubt, we will have a lot of discussions. But I very much hope in this area, as in many others, that we will have genuine cross-party support because I see this area as being one where I really don’t want to have a load of party political shenanigans. I know you, Mr Whitehead, have got a very long track record in this particular area, and, as a neighbouring MP to me, we have been able to work together on these issues over many years. I hope that will continue to be the case.

Q26 Dr Whitehead: Yes. Clearly, we should sort the energy efficiency of the entire properties in Southampton and Eastleigh out first, I think.

Chris Huhne: Absolutely.

Q27 Dr Whitehead: But, in the context of the Green Deal itself, one of the principles that has already been articulated is that the energy efficiency changes that will be placed into homes-and I applaud the notion that it is a one-off visit-will have to pay for themselves in terms of the changes to the household bills that will come forward from those changes. Indeed your colleague, Minister of State Greg Barker, emphasised that principle of the Green Deal just recently.

Does that suggest that the Green Deal therefore reduces its ambition in terms of concentrating on those elements of the home which can indeed, as it were, financially wash their face as far as bills are concerned? If that is the case, you have implied that you made some form of energy commitment from the energy companies in order to make that difference, possibly through the green investment bank.

Chris Huhne: No. We are envisaging that we would reshape and reform the CERT and the CESP obligations so that, effectively, this becomes what we would call, maybe an eco-obligation which would do the cross-subsidy directed at these two key areas: the hard-to-treat homes, solid wall insulation, and the fuel poor. That is designed to make sure that every household can have a reasonable assurance-we cannot give a guarantee, for reasons that I will explain-that if they install the Green Deal, they will have lower energy bills, so that it is clearly in their interest to install the Green Deal.

The reason why we cannot give an absolute guarantee is because if you, for example, or somebody goes and marries a Brazilian who wants to turn up the temperature in the winter and you decide to run your thermostat four degrees higher than you were previously running it, I cannot guarantee that your energy bill is going to be lower, even with the Green Deal. So, obviously, behavioural issues come into this. But if your behaviour does not change, then the Green Deal will reduce your energy bills and that is a key part of our thinking in doing it. We want to make sure that anybody who opts for the Green Deal is going to be able to get an advantage out of it.

Chair: I should have thought if you had married a Brazilian you would have your temperature lower rather than higher.

Q28 Dr Whitehead: Could I just press you briefly on the question of the role then that the green investment bank might play in all this? Is it your view that the green investment bank may have a role in underwriting the financing of such arrangements and, if that is the case, are there circumstances under which, as it were, the credit worthiness of the properties involved, and particularly those people who are in less favourable economic circumstances, might come into play as far as the underlying mechanisms are concerned?

Chris Huhne: I have been very heavily involved in the discussions within Government on the scope and the remit of the green investment bank. I think it is a really crucial institution and it is going to play a really important part in the transition which we need to organise in our economy towards a low carbon future. But, actually, we have not envisaged having a role in this particular Green Deal because it seems to us that the financing actually will be there from private participants. We have had a lot of discussions with companies like Scottish and Southern, already a player in this area, and the other members of the big six. B&Q is a potential entrant into the area. It is very interested in selling a Green Deal alongside the new bathroom and the new kitchen as part of the refitting when you move house. The model that I was thinking of in terms of the financing of this is, in the initial stages, clearly the company is likely to take the financing on its own balance sheet. But, as the scheme grows, and as the numbers of people who are involved grow, it will be possible for the company to package up the Green Deal loans and to securitise them and get them off their balance sheet into the market.

At the moment the securitisation market is looking pretty lame, but, by the time we have got the legislation through and by the time the thing is picked up, I am pretty confident that that route will be open and that there will be a relatively limited need for the companies involved to actually take the lending on their own balance sheet. They will soon be able to find a market through the securitisation market for getting it off their balance sheet and bringing new finance into the area so that, effectively, it revolves and you can expand the scheme very dramatically. But we are looking at a very substantial scheme. This is a scheme which is going to create a whole new industry, which will have people going in on a scale which we have never dreamed of, in terms of energy insulation, up until now into homes, right the way across the country. I think go-ahead local authorities are going to be particularly interested in this because it is something that they are going to be able to pioneer and lead and actively encourage in their areas and that will have an impact, for example, on employment in their areas in absorbing quite a lot of people who have traditionally been quite hard to re-employ because of the relatively low skill set.

Q29 Sir Robert Smith: I should just remind the Committee of my entries in the British Energy and that, relevant to these questions today, I am Honorary Vice-Chair of Energy Action Scotland, a fuel poverty charity, a shareholder in Shell and Vice-Chair of the Oil and Gas All Party Group.

On this energy efficiency, one of the things that has been put to me by the manufacturers of heating appliances-obviously they have a certain prejudice perhaps-is that they can contribute a lot to energy efficiency if someone moves from a very inefficient boiler to a very efficient boiler and that you need to build in to this Green Deal that part of the process because they install lots of boilers across the country every day and that is another entry point. It is not just the new bathroom or the new kitchen but upgrading the heating system, which is an important part. Is there any thought as to how they can be brought into the Green Deal because I understand there were concerns because of the time scale?

Chris Huhne: Let me say two things. The Green Deal is envisaged specifically as getting insulation and energy efficiency up to standard. You are absolutely right that the technological vintage of the boiler, is often absolutely crucial in terms of that.

We are looking, particularly in terms of the fuel poor, at making sure that there is a potential within the Green Deal to fund boiler replacement. But remember that we have a very substantially attractive range of incentives through the feed-in tariff for micro-generation and there is nothing to stop the private sector providers of the Green Deal offering micro-generation alongside. It is not formally part of the Green Deal, but they can put their financing in. You have got some extraordinarily generous offers going on at the moment from companies that are prepared to install photovoltaic on your roof providing they get to keep the feed-in tariff and you get free electricity. The Green Deal is really an insulation measure with the possible exception of this fuel poor element and the boiler replacement is something that can be done separately.

There is another reason for doing it separately, which is that, if we get the energy insulation package up to scratch so that it is consistent with delivering the 80% cut that we need to get more legislatively committed to it in the Climate Change Act-and remember that this sector, residential housing, is responsible for a quarter of all the carbon emissions in the UK. So this is absolutely key. If we don’t get this right, we won’t get it right. So this is absolutely key to all of our climate change objectives.

But we won’t get there in one step. The key thing about the energy insulation package is that it will have a long life. It is legitimate to expect that, if it is installed next year, it will be there in 2050, whereas a boiler, if it is installed next year, will not be there in 2050. There is not a single piece of kit, I would think, which would survive that long in terms of the replacement cycle. So, the actual kit to the boiler will have to go through one, two, possibly even three replacement cycles. What we are envisaging over that period between now and 2050 is, effectively, that there will be technological advance and we may well find that we don’t know what the kit will be that people will be installing in 2040. But it may well be something which has absolutely no fossil fuel content at all-ground source heat pumps. We want to actively encourage air source heat pumps now and I hope that the Green Deal providers will encourage people to do that, but it does not have to be a part of the Green Deal, partly because of payback periods are inevitably going to be shorter. The longer the payback period on the insulation package, the easier it is to get the finance and to make it an ambitious project.

Chair: We are going to have to move on to carbon capture and storage. Robert has reminded me. I should have drawn attention to my entry in the register as well as chairman of AFC Energy, a renewables company. Tom.

Q30 Tom Greatrex: One of the things you did not forget, and I am glad you did not forget it in the coalition agreement, was CCS. Could you give the Committee a sense of where we are in relation to the first competition and the time scales?

Chris Huhne: Yes. The preparation is under way. There is no difficulty with that. We are very much hoping that we are going to get-and, as you rightly say, we have the commitment in the coalition agreement for-carbon capture and storage demonstration projects. I think it is an extremely exciting area because it is an area where, I think, the UK has a potential industrial lead. If you look at the low carbon energy generation technologies, at the moment you would probably say that the Germans have the best market position in Europe on renewables and the French have the best market position on nuclear.

Carbon capture and storage is genuinely an area where the UK has a very substantial industrial advantage, starting from the fact that if you look at where the research has been done, if you look at citations in learned journals, there are more citations to British researchers-Edinburgh University and elsewhere-than any other country, including the US. So CCS is, I think, something where we can have a real competitive advantage as well as being absolutely crucial to the delivery of our low carbon goals because of the importance of CCS in balancing intermittently renewable energy-for example, wind. The nightmare for this Department on wind is the four clear still days in February when there is no wind and everybody wants electricity. You need something which can compensate for that and the only thing that is on the table, frankly, economically is coal and gas with carbon capture and storage because the economics of nuclear are actually very similar to the economics of renewables. The cost is effectively all upfront and the marginal cost is virtually zero. Therefore, if you build a nuclear plant at £5 billion and going some, you want to turn it on and you want to run it full blast for ever because, frankly, it is not economic to turn it up and down. So, coal and gas is still going to be the only technology in town that has the capacity to offset the intermittency of wind. Storage can do some as well, but certainly CCS. We think this is absolutely key to our energy future and I was delighted that it was such an important part, very clearly, of the coalition agreement.

Q31 Tom Greatrex: I think, certainly in my constituency, it was longer than four days in late January/early February this winter where there was no wind and very low temperatures. So I think everyone will have very recent experience of the issues you are talking about.

Can I just press you, though, on the time scale for the first competition specifically? You will, I am sure, be aware of some of the concern amongst various people involved in this-a sense they may have-that things are not progressing quite as quickly as they could to maximise that competitive advance that you talked about. Specifically on the first competition, could you give us an indication on the time scale?

Chris Huhne: Maybe I should ask Jonathan to give more detail on it, but, as I remember, we would be looking at moving fairly rapidly into the development phase once a decision had been taken on the winner of the competition and the profile will build up so that the major investment would be taking place, I am thinking, in the third year of the comprehensive spending review and then would be coming on stream shortly thereafter. Jonathan, do you want to add to that?

Jonathan Brearley: The date it comes on stream depends on the proposals themselves and when they are ready, and there are two different proposals. In terms of where we are in the process, the two people inside the competition are part of the FEED4 studies, which are the front end studies, which allow us to understand more about the cost and the practical challenges in developing demonstration projects. We expect those design studies to be complete in around spring 2011, but we have not set a deadline for finalising when the competition will be complete, but it will be after that.

Q32 Tom Greatrex: Can I just ask you, on the second competition, you will obviously be aware of the Committee on Climate Change recommendation and you touched on the issue of gas as well. Is the intention that you will consider potentially having at least one of those as a gas CCS demonstration?

Chris Huhne: I have to be very careful on this because I can rush ahead of where my officials are and we are considering all these matters very carefully, as I am sure you will realise. But I am certainly leaning in that direction very strongly because it seems to me that, just talking around this area, what we have seen over the last couple of years, really, is a rather dramatic change in the whole nature of the debate about the sustainability of gas, in particular.

If you look at unconventional gas in North America, shale gas and so forth, we are only beginning to bottom out what might be the potential for unconventional gas in Europe and particularly, obviously, in the UK. If it were to transpire that we were able to have access to the same sort of potential gas reserves that the US is increasingly discovering, then, I think, given the other advantages of gas in terms of starting from a position where it is relatively clean and so forth, I think it would be very remiss of us not to have one of the CCSs as a gas project. That, certainly, is the way I am leaning, but I have to say this is something which we are still considering at the moment.

At the moment, before we have a very clear view of what our domestic capacities are on gas, one of the advantages of coal, of course, is that we are still an island which is very substantially resting on a vast amount of coal reserves. So, in the long term view, in terms of energy security, that is also a consideration which we very much have to bear in mind and energy security marches absolutely hand-in-hand, in my view, with climate change. It is one of the objectives of the Department in moving towards a low carbon future.

Q33 Tom Greatrex: Some groups think of this as a transitional technology that is there until other renewables are developed. Would you say it is here to stay or should be here to stay as part of our long-term energy requirements?

Chris Huhne: As you probably know, in the green movement there is rather a lot of debate about what exactly is sustainable and how long does something have to last to be regarded as sustainable.

I am a great fan of John Maynard Keynes, the great Liberal economist, who memorably said, "In the long run we are all dead". Certainly, if it looks as if we are able to rely on very substantial amounts of unconventional gas going forward, then that will be an option which will last us a long time.

Q34 Sir Robert Smith: On the issue of gas security, what exactly are the Government doing to ensure resilient gas supplies?

Chris Huhne: I think there are two parts to this. One is clearly storage, and we continue to have plans to increase the amount of gas storage. The other part of it, because inevitably at the moment we are importing a lot of gas, is to try and be sure that our partners that are selling us gas are reliable and solid and are not going to disappear in the morning mists when we really need it and are not going to do nasty things to us if they think that they want to put pressure on us or whatever.

I am delighted to say that our major partners in terms of gas are Norway, which is a marvellously stable and reliable partner and I have had very good discussions with my Norwegian counterparts on this at the margins of the Clean Energy Ministerial in Washington, and, of course, Qatar in terms of liquefied natural gas. We are daily making substantial investments in port facilities to allow them to continue to supply the UK market. I don’t make any secret of the fact that what I would like-the other element of gas security-would be to make it not just physically secure, but to try and get some arrangement whereby we will potentially protect it from price spikes.

I am very worried about an energy future where we may well face the sort of oil and gas price spikes that we faced in the 1970s-the 1973-4 oil shock, the 1979-80 oil shock and the more minor oil shocks since. Where we forecast what is going to happen to oil and gas prices, there is a marvellous tendency to say, "It is going to be $80 or $90"-or $108 in the case of the US Administration-"it is all flat and stable and we can plan on it." That is not the way the world has worked in the past and I don’t believe it is the way the world is going to work in the future. So, if we could get supply arrangements which would lock in some guarantees on price, that would be great too. But I have to say, don’t hold your breath on that one because suppliers-certainly Qatar, when I raised this with the Minister-are very happy with their arrangement, linking their gas price to the oil price, and I suspect that, on the internationally tradable supplies, that is likely to continue to be the position for a long time.

Q35 Sir Robert Smith: Does your Department still have ambitions to maximise our own gas production from the UK continental shelf?

Chris Huhne: The Department clearly recognises that we are in a position where we are trying to engineer this massive transition towards a low carbon future. CCS, which is why we need the demonstration projects, is not yet proven at a commercial scale, but we need to make that transition and that is why, despite the criticism that I have had from Greenpeace and other organisations about drilling in the North sea and the continental shelf, we take the view that we need to continue to be an oil and gas producer as long as we can because there is a big transition to be engineered here. With the best will in the world, although I would love to be able to click my fingers and say we are going to move tomorrow to a world which was low carbon and we did not emit any carbon omissions and so forth, in reality this is a part of the economy where the investments which are sunk are so enormous that you can’t simply do that. So there is inevitably going to be a big transition period, and it is like turning round an oil tanker.

Q36 Sir Robert Smith: Do you also recognise that the skills base that has been built up in the UK on the back of the oil and gas industry has great potential, both to deliver on the offshore renewables and on the CCS?

Chris Huhne: I absolutely recognise that. I think that one of the most exciting things, actually, is the way in which the expertise which has been developed in offshore oil and gas is now being used in offshore wind. So, BiFab, for example, in the Firth of Forth, which has developed its expertise in producing rigs for this very hostile environment in the North sea for the oil and gas industry, is now producing platforms for offshore wind. So, a lot of the problems that the industries face in dealing with this immensely challenging environment– the wind and wave and salt and all the corrosive effects of the North sea-are very much bits of expertise which can be used in offshore wind and are being used in offshore wind, and I am very much delighted that that has happened.

Q37 Dr Lee: You mentioned that energy security is a key strategic challenge for this Government, and indeed I suspect for Governments to come. You also mentioned the Qataris’ liquefied natural gas and the Norwegians were providing round about 70% of our oil and gas, I think it was. The International Energy Agency, I see, concluded that about a $26 trillion investment was required by the world to avert the energy shock that you have just alluded to. In view of that-there is going to be a lot of grabbing of fossil resources; it’s already started in Africa, the Chinese and so forth-has your Department had a direct input into the strategic defence review?

Chris Huhne: Yes. I am on the National Security Council, which is the principal Cabinet Committee dealing with the defence review and we are very explicitly looking at non-defence elements of our national security as well as the defence elements, and we are very explicitly looking at ways in which we might reduce the risks which this nation faces in terms of threats, whether it is on energy, security or other matters. So, yes, indeed we are.

Q38 Dr Lee: Is that specifically with regards to the Navy in view of the Somali piracy problem and LNG tankers, for example? Is that something that you have brought up?

Chris Huhne: It is not specifically on the Somali piracy problem, although that is an important issue to address. I was thinking really more of the fact that a very important part of our national security, it seems to me, is our ability to access the energy we need physically, but also to access the energy we need at reasonably predictable and stable prices. Both of those elements, I think, are an important part of our national security objectives and one of the reasons why I think the move to a low carbon economy is so good for this country, one of the economic reasons, is not merely for the development of all these green industries, but, as we move to a position where we become more self-reliant in terms of energy and we are moving to a position where we are more reliant on low carbon sources of energy, we will remove ourselves gradually from the line of fire when it comes to the sort of impact from oil shocks that we have had in the past.

Again, I have to put a very important caveat in here because we are moving in the wrong direction at the moment because of the reduction in oil and gas production in the North sea. So, overall, the figure I have in my head is that we were at 27% energy dependent on imports for the last available year and that is projected to rise to between 45 and 55% over the next 10 years, to 2020. Therefore, we are going in the wrong direction. But, in the longer view, in terms of our objectives for a low carbon economy and the transition to a low carbon economy, I think we can reverse that and, as we reverse that trend, I think that we will again find real advantages in being secure not just physically in our energy supplies, but also being secure in terms of price stability. That is really important for businesses that have nothing to do with green industries because if you are in the construction business, for example, it is very telling that a lot of the repossessions in houses in the US recently were, in part, because of high energy bills. So there is a real vulnerability for all sorts of businesses which have nothing to do with the green area, which actually does impact more widely on the economy. So, this is an important part of our national security.

Q39 Dr Lee: In that desire to become as self-reliant as possible, does your Department have a position on the use of thorium in the energy mix?

Chris Huhne: Yes. I don’t think we have actually taken a very formal position so far on thorium. Jonathan, do you want to comment?

Jonathan Brearley: I don’t think we have. I think we will come back with a note.

Q40 Dr Lee: I say that. There was a very interesting article over the summer in The Telegraph–

Chris Huhne: Yes, I remember reading it.

Q41 Dr Lee: There was a quote which says we have shown little appetite in this country and, "It is too much of a huge paradigm shift to a new technology". I think in view of the current state of play in the energy market, it strikes me-I don’t know whether that was a UK agency or whether the source of that quote is from somebody in the Department. It was suggested that one of the reasons was that when one of the European organisations for nuclear research went to the European Commission, dare I say it, the French saw it off at the pass because they have a vested interest because they know a lot about the old technology. You mentioned that they have cornered the market. In view of the fact that we all seek a niche for Britain economically, it does strike me that "leapfrogging" the French-excuse the pun-would be a good idea.

Chris Huhne: I’ll certainly come back to you with a note on thorium. I have a hazy memory of the article, but I seem to remember the Indians are doing it.

Q42 Dr Lee: The Norwegian company Aker has purchased the fuel cycle because there is a lot of thorium there. But we also have quite a bit of thorium, apparently in Cornwall.

Chris Huhne: There are all hot rocks in Cornwall.

Q43 Dr Lee: Yes. In view of the fact that there is little nuclear wastage, and we have already had lengthy conversations, and I have a sense that that is a concern you have and that is one of the reasons that you are perhaps not as enthusiastic about nuclear power in the future long term-certainly it has been reported in the past-is because of the problem of nuclear waste, which I would agree with. In view of that, and that the thorium doesn’t, it just strikes me that is something which, maybe, we should pursue.

Chris Huhne: Not just on the thorium thing, but I did actually ask our excellent Chief Scientist, Professor David MacKay, who I hope you have a chance to interview as well, about the prospects for fusion, which, of course, has always been held out as the great answer on nuclear which does not generate waste and the advice is that it is 40 years away, and it has been 40 years away for 40 years.

Q44 Dr Lee: But that may be because we have not taken the leap. We talk about 2050 as if it is around the corner when it comes to hitting targets. That is 40 years away.

Chris Huhne: Yes.

Q45 Dr Lee: I know money is tight, but this is an opportunity, possibly, to step on.

Chris Huhne: We will certainly look at it and we will come back to you with a note on thorium.

Q46 Laura Sandys: Moving along in the direction that you are outlining, obviously one of the most important things that the Government can do is keep the lights on and keep them on at a price that is affordable.

The strategy that we are looking at, whether it includes the success of CCS technology; whether it includes the certainty of investment into nuclear; and whether it includes, which it does, the certainty that certain countries will not be using energy for political ends, playing the market in a straightforward way –

Chris Huhne: Absolutely.

Q47 Laura Sandys: What sort of risk assessment have you done that all these different variables will come into line and, to be frank, is there a plan B if, in the next five, six years, we start to see that this investment is not coming through; that we are looking at future, quite significant, energy in security and pricing?

Chris Huhne: I, personally, do believe that we are. If you look at developments in the Gulf of Mexico, the increasing difficulty of marginal extraction with oil and gas moving into deep water drilling and so forth, I personally think there is no doubt that it is going to become more difficult and remember that the oil price currently, the last time I looked-I think the end of last week-was about $76 a barrel and that is at the bottom of the worst global recession for many, many years. The potential for rises and the potential for spikes is, I think, very substantial. So these are very key issues.

I would make two general points. One is that I think that the issues that you raise are precisely why the way I tend to think about our future energy sources is almost on a portfolio basis. Perhaps this is partly my City background coming out. But if you are dealing with a world of great unknowns where you can't predict what the real winning technologies are going to be, then the sensible thing to do is not to go "nap" on one and say, "We are going to bet the farm on this one", whatever it happens to be. It is, actually, to make sure that you have got a spread of potential sources.

Just to give you an example, at the moment, given the fact that, as we all sadly recognise, we are not the sunniest country in the world, installing a photovoltaic panel generates about half of the electricity in the UK that it would if it were installed in Arizona. That is very sad. If we could pass legislation making it sunnier and making sure that it only rained at night, that would be absolutely delightful, but we can't.

One of the things about PV is that if you look at the cost developments of PV over time, unlike many other energy sources, it has got an absolutely dramatic steady trend reduction in cost of about 6% a year. It is not quite as dramatic as the reduction in cost of computer memory, for example, which is running at about 35 or 40% a year, but it does seem to be a pretty clear trend. In high solar areas, like Arizona, you are getting to the point where people are claiming that it is actually competitive with other sources. If that continues on that trend, it may well become competitive for us, even though at the moment it is not. So, I think we need to have a portfolio approach.

The only other thing I would say if I may-and I am sorry about the long answer-is that affordability, which you quite rightly stressed, has to be considered in the long term. If people run around and say, "Your policies today are costing X% on bills", you have to turn round and say, "Well, hang on a minute. What are you assuming we can continue to buy oil and gas at?" That is why we have been absolutely transparent about making a calculation about the overall impact of our policies on consumer bills. For 2020, we are looking at a 1% addition to consumer bills, but the key thing is that is assuming an oil price of $80 a barrel. If you go to $90 a barrel, then consumers begin to win on our policies of energy saving. If you go to what the US Administration is projecting at $108 a barrel, then, actually, consumers on our energy-saving policies are quids in. They are actually saving money.

So, we have to look at this very uncertain universe and that implies two things. Let's get the energy saving right, because it is crucial for climate change but it is also crucial for energy security, and let’s get the portfolio of alternative sources right because we don’t know what's going to come up trumps in 20 years' time. It may be thorium. Let’s make sure we have got that portfolio so that we are not going "nap". I can’t play God and pick a winner and say what is going to be the really successful energy technology.

Q48 Laura Sandys: Absolutely, but there is still a risk assessment that needs to be done, for example, on nuclear replacement, which is a massive capacity issue that we are going to be facing.

Chris Huhne: Sure.

Q49 Laura Sandys: Again, whether it is on an annual basis you are assessing whether that investment will kick in, may I ask, if you feel there is a risk, whether you might want to come back to the Committee and discuss some of the risks that you see, particularly in that sector, because that is going to be a very large percentage of generation?

Chris Huhne: It is absolutely key and we have announced, not just for nuclear but obviously for other low carbon energy sources as well, that one of the things we want to do is have a carbon price floor. That was in the coalition agreement and that is under way in terms of the consultation which we will be having this autumn on reform of the climate change levy. We will continue to deal with these uncertainties.

The one thing I will say-and I will kick over to Jonathan because he is aching to get on this-on this is I think that the appreciation of the risks here is sometimes the wrong way round. I think there is less of a risk of us having a problem with the lights going out than there is of having a problem with our low carbon objectives because, in order to keep the lights on, the big six have basically reverted to their default position, which is to throw up a gas plant to generate electricity very quickly and that can be done in literally 18 months.

The real problem here is that we are committed to that low carbon future and we do have to make sure that that risk is dealt with.

Jonathan Brearley: I will start by saying that I have been in energy policy for around five years and what is remarkable to me is how dramatically and how quickly our perceptions of the future energy mix changed. Chris has already mentioned unconventional gas. A few years ago, we were worried about that and now people are coming to us describing it as a game-changer.

When we do things like reform the electricity market, which is something that I am intimately involved in, we need to design a set of instruments that are robust to these changes in our perception. So, alongside Chris’ portfolio approach, we need to generate mechanisms that can actually adapt to our changing view of what the future might be. So, if it is thorium or it is indeed importing solar from the north of Africa, which others have suggested, we have a system which is robust to deal with that.

Alongside that, I would add that, particularly for the big electricity sectors, so for nuclear, for CCS and for renewables, we do have challenges outside the economic challenges and those are delivery and practical challenges. That is why we set up the relative offices, so the Office of Carbon Capture and Storage and the Office of Renewable Energy Deployment, which work actively with the industry to identify those issues as they emerge and try and resolve them.

Moira Wallace: Can I just add on this? We do this in the short term and we also do it in the very long term. So, this summer we published the work we have been doing on 2050 and literally it is a plan A, a plan B, a plan C, etc. It risk assesses what would happen if technology X just came to nothing, and actually what would be the consequences elsewhere. So that is the analytical background to the sort of portfolio approach we are talking about and that is a big first for the Department to look that far ahead.

Chris Huhne: By the way, it is available to everybody on line. I am trying to popularise this as the executive toy of choice. You can go and sort your own energy mix out. You can say, "I don’t want this", or "I don’t want that", or "I want more of this and more of that", and it is David MacKay’s calculator, the Chief Scientist's calculator. Do have a look at it because I think it really shows the inter-relationship between different energy sources. It is a very useful tool.

Moira Wallace: And demand reduction. So, you can assume that everyone marries a Brazilian and turns the heat up or down.

Q50 Dan Byles: I just want to briefly explore a bit more about gas storage. You alluded to the need for robust gas storage. This has been a controversial issue in recent times. In January there was a bit of an argument in the press suggesting that we had as low as eight days’ storage.

On Monday, your Department, in a written answer to me on this question, said that actually at one point during this last winter we were down to a single day’s storage of gas. Some people argue that is not an issue for the UK and that this is a red herring because of our North sea reserves, but, of course, we know North sea reserves have been declining since 2000 and so it is a growing issue.

I would just like you to perhaps explore where you think we are with gas storage, whether you think we have a safe level of gas storage and how quickly you see the levels of gas expanding.

Chris Huhne: We are committed to increasing gas storage and that is under way, and I will ask Jonathan to come in on the detail of what we are doing on that.

You have to take two elements of gas security into account. One is obviously gas storage and the other is the confidence that we have in our supplies. The reality is that I am very confident that the Norwegians will not only go on supplying us with a very nice Christmas tree in Trafalgar Square every year, but also with gas.

Jonathan Brearley: Just to add to that, what was interesting about this winter was when we were tight on gas, the vast majority actually came through LNG imports. I think, when thinking about gas security, you need to remember that there are a number of different things that you can do, of which gas storage is one option. For example, just to say in context, energy efficiency is one of the key measures to improving our gas security. Reducing people’s needs for heating reduces our need for gas. So, we do see the need for more storage but-I would add to that-we also see the need for greater LNG capacity, import capacity here. We see the need for long term contracts and companies can decide to use demand side response as a way of managing that, as they did this winter.

I think what I would say is that our gas storage does need to increase, but it is not the only measure through which we tackle gas security. I don’t think we should focus on that one thing when thinking about how we address it.

Q51 Sir Robert Smith: Politically, the Norwegians are very friendly, but they are commercial. Did they not have problems with Ormen Lange this winter when they had to sort out one of the valves?

Jonathan Brearley: It was extraordinary this winter. In a sense, we had a situation which demonstrated the strains to the system that we can come under as we had problems in Norway, and we also had one of the coldest periods in 30 years and that did cause a gas balancing alert and the need for interruptible contracts. However, what you didn’t see was large price spikes in the retail market, for example, and you did see a constant flowing of gas.

Now, we do need to do more to build up our capacity, as I say, around imports and around storage and we do need to do more to change the incentives inside the system to reassure ourselves that our suppliers are able to source the gas that their customers need.

However, what I don’t think we need to do is to specify whether that should be lots and lots more storage or lots and lots more long-term contracts. Let’s put the incentives in place to ask the shippers to optimise as to what they see as the most likely source.

Chris Huhne: And the Qatari are very keen to sell us lots of energy.

Jonathan Brearley: One further piece of context is that there is a lot of LNG in the market now because clearly the US is using a lot of unconventional gas which they did not expect to. So, in terms of the international market, it is quite liquid at the moment.

Q52 Chair: Just staying with self-sufficiency for the moment, this Committee is currently conducting an inquiry on deepwater drilling, and we have another session later today. On the information available to you at the moment, do you think there is any need to revisit the regime for deepwater drilling in UK waters?

Chris Huhne: We are. We have revisited it. As a result of the Gulf of Mexico, I specifically asked the team, which is largely based in Aberdeen-you can see the large number of internal flights that the Department is responsible for because we have two sites, unlike many other Departments, and the Aberdeen site is responsible for the oil and gas inspection regime and we did toughen that up. We put in more resource in terms of inspectors and we are continuing to go through the review process.

We did go through a learning process after Piper Alpha, which I don’t think the Americans had been through, and some of the lessons which I think will be learned from Deepwater Horizon and the Macondo are lessons which we had actually taken on board as a result of Piper Alpha, and particularly having very clear lines of responsibility to different regulators. For example, the Health and Safety Executive is responsible for the assurance, if you like, of the safety of the rig. We are responsible for making sure that, if something does go wrong environmentally, we are in a position to react very quickly to that. Both of those things are absolutely essential.

I have had regular contact obviously with DWP Ministers and a meeting scheduled with the Minister responsible for the HSE side of this, and I think we are very seized of the fact that we want to learn any lessons we can from what has happened in the Gulf of Mexico to make sure that our regime is absolutely top notch. I am also involved, and one of the things I agreed with the Norwegian Minister because obviously if they have a problem we have a problem and vice versa-potentially vice versa-is that we will intensively swap notes about the experience of the Gulf of Mexico to take that on board as well. When I last talked to Günther Oettinger, the Energy Commissioner, who has expressed some concern about deepwater drilling, he assured me that this was not directed at us or the Norwegians, but was directed at some of the newer deepwater drilling which is expected off southern Europe.

I think it is generally recognised that our regime is a good one. I am not saying that it is perfect. I think that we need to go on learning everything we can from what has happened in the Gulf of Mexico and I am particularly keen to make sure, for example, that on the testing of blow-out preventers, which is an HSE responsibility, the problems that we saw with Deepwater Horizon and battery failure are identified and are dealt with and that we have means of regularly testing batteries and solenoids to make sure that we can actually operate these things at deep water. So, we are very seized of this and we will go on as a Department being very actively involved in trying to make sure that we are absolutely at state of the art on the regulation of deepwater drilling.

Q53 Dr Lee: You mentioned the Norwegians. My understanding is that it is more Government-led in terms of the regulatory framework for oil and gas exploration in Norway than here where it is more industry-led. Is that something you are concerned about in the light of safety concerns on the front page of FT today, for example?

Chris Huhne: I am not sure that I would describe it in that way. I think that any Government, and that includes the Norwegian Government, obviously, rely enormously on the expertise which is there in the industry.

Dr Lee: They have seen fit to pause in Norway and we haven’t and they have gas predominantly and not oil.

Chris Huhne: I don’t want to get my Norwegian counterpart into trouble, but the reality is that they have not paused the drilling that is actually going on. So, anything that has been licensed in deep water on the Norwegian shelf is continuing and their licensing round is not yet under way. So, although they can say that they are not awarding any new licences for the time being, they weren’t going to anyway.

So, I don’t think, in reality, there is much difference between the approach that my Norwegian counterpart and we are taking. I think we are both very concerned to make sure that the regulatory regime is absolutely state of the art. We are not complacent because we must learn the lessons of the Gulf of Mexico, but I think officials are very seized of that and we will go on making sure that we do deliver.

Q54 Dr Lee: I have just one final question, which is on the management of oil spills. Is your Department satisfied with the regime in terms of what is acceptable to use in terms of techniques and procedures to manage an oil spill of that size, say, in the west of Shetland?

Chris Huhne: Again, we are reviewing exactly what we have previously had in place there and we have also asked the industry to look at the arrangements that have been put in place. We will be looking at that and making sure that it is absolutely, again, state of the art.

On a first inspection, I am sure we can learn more lessons from what has actually happened in the Gulf of Mexico and we have to remember, in some ways, that clearly the North sea is a much more hostile environment-not more hostile than the Gulf of Mexico in the hurricane season, but certainly more hostile than the Gulf of Mexico outside the hurricane season. So we do have other particular challenges which we have to make sure we are meeting and we are determined that we will do that. We are very much aware of that issue and are reviewing it actively.

Q55 Chair: There are several matters I want to try and cover in the time set. Just very briefly, you and some of your colleagues took an initiative within the EU to start discussions about a more demanding emissions reduction target by 2020. How are those discussions going?

Chris Huhne: We had a very good joint initiative, which was an article that I did with Jean-Louis Borloo, my French counterpart, and Norbert Röttgen, my German counterpart. Partly as a result of the reaction to that, where we backed the more ambitious 30% emissions target by 2020, we agreed that it would be useful for us to meet on an informal basis and we actually had another meeting a couple of weeks ago in Berlin as part of a series. We are determined, I think, the three of us-the French, German and British Governments-to try to inject some momentum both into the EU's domestic ambitions on movement towards the low carbon economy, but also, of course, as a way to reinvigorate the whole process of international negotiations through UNFCCC and Cancun and, next year, South Africa.

I think all my experience suggests that, if we can act together with our European partners, we have much more weight in this area than if we are singing a different tune. I think we need to remember how effective Europe was, both in delivering the first serious international treaty on this type of pollutant, which was the Chlorofluorocarbons Treaty, and, secondly, how important Europe was in delivering Kyoto as the first climate change treaty because, frankly, the Kyoto protocol would not have been delivered had it not been for European joint pressure on a number of major players, particularly Russia, to ratify. If the Russians had not ratified, it would not come into force and it was the joint EU position which I think was decisive in making sure the Russians ratified in time, but I am acutely aware of how important the European dimension is to making sure that this is dealt with at a global level.

I think an important part of our policy as a Government is to progress the climate change agenda, using the European Union very much as a way of amplifying our concerns and making sure that our national interest is dealt with on a global stage.

Q56 Chair: On Cancun, what you would regard as a successful outcome?

Chris Huhne: Well, there is a certain amount of sucking your teeth at that point, Chairman. The reality is that I think it is going to be difficult to come up with anything terribly material, certainly not a final agreement at Cancun. What I hope is that we will be able to demonstrate real progress in some of the dossiers that will form a part of a final agreement on climate change. So, for example, I hope that we might be able to show real progress on forestry. I hope we might be able to show real progress on the whole issue of reporting and monitoring and verification, which is absolutely key.

If we are going to have an agreement, we have to be confident that every country is actually applying that agreement fairly, and I hope that we will also see some progress on finance because, if the developing countries are going to come to the table, they are very aware of the potential costs to them of climate change. They make the absolutely legitimate moral point that some of the carbon that is out there in the atmosphere doing the global warming was actually emitted by this country 100 years ago, under the last Liberal Government, I have to say, and therefore we have a legacy issue which I think the developed world has to own up to. The developing countries, I think, morally make that point and we have to step up to the plate both with fast-start finance and indeed with help for them in terms of the broader issues of climate change finance. I hope those are three areas where we can demonstrate that there is some real progress and that we can try and get some sense of momentum back into the talks.

We have the Copenhagen accord. If the Copenhagen accord is delivered, there are some real potential gains there. Actually, there has not been a block on international progress. The Japanese, for example, have been moving on cutting their carbon emissions with a legal framework which actually is consistent, on my advice, with a 30% ambition in Europe. The Chinese-their latest emissions data are rather too hunky. It actually shows that their increase in emissions is about the same-the increase in one year is the same as the entire emissions of the UK, but they are also developing, at considerable pace, their green industries and they recently overtook, for example, Germany in the production of solar photovoltaic. So, I think, there is quite a lot going on, but we need to try and make sure that is funnelled into a sense of renewed momentum at Cancun and that we can then set the stage for potentially reaching a final agreement; it will not be at Cancun, but, maybe, in South Africa next year if we can get our ducks in a row.

I think a real continuing problem is the fact that the Americans have not delivered on climate change legislation in Congress and that is something which, in turn, means that a big developing country emitter like China can go on and say, "Well, hang on a minute. The Americans are not delivering. Why should we curtail our development?" Therefore, I think it is absolutely crucial that the Americans do pass clean energy legislation. After the mid-term elections, when our new colleagues in the Senate and in the House of Representatives have dusted themselves down and started thinking about what they want to do, I hope that they will seriously look at clean energy legislation. I think that we have a role, actually, in helping to persuade some of them-the more forward-thinking Senators and Congressmen-that this is in the US’s interest, and I hope very much that you and the Committee would be helpful in seeing them. In fact, we are expecting to see some leading congressmen and women over here in the latter part of the year and beginning of next year, to try to make the point to them that low carbon is about good business and is not about grinding the economy to a halt. I think it is something that many of us appreciate and it is part of our cross-party consensus in a way that, sadly, it is not in the US.

Q57 Chair: I am afraid that the rise of the Tea Party does not bode very well for the enthusiasm of the Congress to address climate change.

Chris Huhne: I am afraid you are almost certainly right on that. Although, I would not underestimate the possibility of making real progress on a clean energy agenda, which is not necessarily badged as climate change, but which is about energy security and low carbon, in effect, and there are a number of Republicans-Lindsey Graham, for example, I think has signed up to that agenda-who might get to a point where we could actually see some useful US legislation next year.

Q58 Dr Whitehead: In the July Annual Energy Statement, you announced that you were going to be conducting a review of Ofgem over the summer and autumn. What are the main failures of Ofgem that caused you to decide that?

Chris Huhne: I would not want to say that they were failures. I think that there are, obviously, always issues. When an organisation has been around for a substantial amount of time, you need to look at the way it is operating. Ofgem has a very important regulatory role which is guaranteed by EU legislation and which must be respected.

We know, for example, from the economic literature, that regulators need to be fiercely independent if they are going to regulate properly. They are historically prone to regulatory "capture", in the phrase. I don’t think Ofgem falls into that category, but I don’t think there is any harm in reviewing that to make sure that it is being as tough as it needs to be with its charges. I think, on the other side of it, of course, Ofgem has quite a substantial set of responsibilities which are not directly associated with its regulatory role, but through E-Serve, which are actually quite an important part of the delivery of objectives for the Department. So, that is what we see in terms of the regulatory role.

The only other thing which I think is absolutely crucial is to mention that this is part of the process which will come up with electricity market reform, and we are envisaging, with electricity market reform, that we need to make sure that all of the various instruments that are potentially talked about in the industry and elsewhere actually fit together in a way that, hopefully, is as simple as possible, but also does not create unintended consequences. The review of Ofgem is really a way of ensuring that that happens as well. I don’t know whether Jonathan would like to add something?

Jonathan Brearley: Again, in the context of that investment challenge, the market reform process is looking at the incentives and trading arrangements through which we buy and sell our electricity. Alongside that, we just need to reassure ourselves that the institutions we have in place are fit for purpose to also drive that transition. That means looking at Ofgem and considering how we are to describe its role in a world where we are going through this enormous transition, and how we work with them, understanding and maintaining their independence, to try and make that happen.

Q59 Dr Whitehead: Ofgem itself in Operation Discovery offered a number of scenarios for energy market reform. I would imagine, as a keen supporter of John Maynard Keynes, you would have particular views on, for example, the role of intervention in the market to secure demand in a difficult economy-one of Maynard Keynes’s central themes.

Does that cause you to have a particular view on which of those five scenarios that Ofgem put forward for energy market reform might be the way in which you are inclined to look as far as the wider structure of reform is concerned?

Chris Huhne: It is genuinely a case that we have detached the electricity market reform from the first Energy Bill that is due in November, precisely because we want to really bottom out the full way in which all these instruments lock together and we don’t want any unattended consequences, and we are at a fairly early stage in that. We would be aiming to have a consultation process through the winter, and I think aiming for a White Paper in the spring. So, that would be the timetable that we are looking at.

It is absolutely crucial, of course, that Ofgem is intimately part of that process because they have an enormous amount of expertise and experience in dealing with the sector. So, that is also absolutely key. But I am very aware that we need to get this slotted together right and that there are potentially enormous problems if we don’t. I don’t know whether Moira or Jonathan would like to add anything?

Moira Wallace: The only thing I would say is that we are also looking at all our delivery agents that have been around for some years, and the policy framework and the delivery framework has changed a great deal in that time, so we are doing a look at all of them. We are also looking at some of our partners in the energy efficiencies: Carbon Trust, Energy Saving Trust and environment agencies. So, there is no question of us picking on Ofgem. It is a general look at those who work with the Department and the Department itself, whether they are in the right shape and have the right priorities.

Chris Huhne: There is a real step change, with the Climate Change Committee, on the delivery on energy efficiency, for example, so I think that there has to be a change in the remit for the Energy Saving Trust in dealing with some of the Green Deal aspects.

Q60 Dr Whitehead: Do you think there is a danger that this review process, and perhaps uncertainty in the way energy markets may be reformed, will lead to investor uncertainty and difficulties in securing those commitments that are necessary over the next period in order, indeed, to make that step change?

Chris Huhne: There is always a danger that the more you have everything up in the air, in terms of potential electricity market reform, the more uncertainty there is. But we will attempt to limit that to as short a period as we can while getting the answer right. So, we are committed to trying to get that White Paper out in the spring and then coming forward with the legislation subsequently, probably in the next session.

I think everybody in the Department is acutely aware that one of our key roles is to make sure that we get the enormous investment which is going to be necessary if we are going to have this electrification of the economy-and remember that on our 2050 pathways we are talking about more than doubling electricity demand by 2050. So, a massive increase here if we are going to have electric vehicles and we are going to be using increasingly electricity for ground source heat pumps, air source heat pumps, any space heating, residual needs and so forth. So, this is a massive agenda and we have to make sure that we are getting the framework right if we are going to deliver that investment. The big six, and any other investors that we can attract, need to be able to look at that framework and have total assurance that once we have got it there it is going to be stable, it is going to be certain and it is going to do what it says on the tin. I am absolutely aware that it is not just, by the way, the big six, because they have pension funds, they have insurance companies who own their shares and they, if they are going to embark on this massive process of investment, are going to have rights issues and they are going to have big debt issues. So we also, as a Department, have an agenda of sensitising the wider investment market to how important these energy infrastructure needs are and making sure that the wider investor market actually understands the incentives that we are putting in place and understands the framework. We have got to get it right. When we have got it right, we will go out there and sell it and we will sell it hard, not just to the big six but also to the investors, because we want to make sure that investment happens.

At the moment, if I had to characterise where we are, as I have already said, we are in a very bad place on renewables. We are starting from way behind compared with other European countries. At the same time, because there has been, I think, a not very fruitful stand-off between the champions of nuclear and the champions of renewables, we have in effect been doing neither. We have really just got to get on with it and deliver. As far as I am concerned, the Coalition Agreement is a deal and I am going to deliver the deal.

Q61 Gemma Doyle: Ofgem have been looking at the issue of mis-selling to energy consumers since about 2008, and as it doesn’t look as though there has been significant improvement and they still have problems with vulnerable consumers being mis-sold energy tariffs, do you think it’s about time to look at banning direct selling?

Chris Huhne: I think it is quite hard to imagine banning direct selling in one sector and not in others. I don’t know how this would compare, for example, with direct selling in things like double glazing and elsewhere. This is an area where you do need very substantial safeguards, which are already there in direct selling-for example, cooling off periods and so forth for consumer credit agreements, which were largely introduced as a result of the EU legislation. But I think you are absolutely right that we need to keep an eye on this area and where people are surprisingly unresponsive to price signals.

One of the things that we are trying to do-and I am going to ask Phil to give you some more detail on this in a minute-as part of the legislation, which we will be bringing forward later in the year, is to really highlight for consumers what their options are in terms of switching so that they will know what they are going to pay at current consumption levels on their existing tariff or an alternative tariff and so that that will be clear on the bill.

We want to try and make it as easy as possible for consumers to know exactly where they are with their energy use and if they can get a better deal from another provider. Anything we can do through provision of information in an easy way, through smart meters and so forth, to increase competitive pressure on them, we will do, and I think that is a very important part of safeguarding the consumer’s interest. Phil may want to add something.

Phil Wynn Owen: Just to elaborate a little on what the Secretary of State has said, obviously Ofgem announced action a couple of weeks ago in the case of some cases of potential market abuse, so I would not wish to comment on that while those investigations are under way, but I think the fact that they gave that signal gives a very positive sense that we are moving forward on that agenda, although we very much share your concerns.

In terms of the longer-term solution the Secretary of State alluded to, it must be to help develop greater understanding, education and confidence on the part of consumers in how they use energy and how they might be more energy-efficient, and in that context he has mentioned two of the key things we are doing. One is, we are planning in the Bill that will be introduced this autumn to seek parliamentary authority to take powers to require further comparative information on energy bills. There were a number of ideas in the manifestos of the parties to the Coalition, concerning comparative information locally or with past periods and so on, and we are looking at what we might do to require that, though it would be much better if we didn’t actually have to use those powers and if Ofgem could agree licence changes with the energy companies themselves. But we are going to take those powers so we can actually move towards a position where the customer can understand his or her energy bill, because if you go home and look at your energy bill, I challenge you to understand everything on it-I certainly can’t understand everything on mine.

Chair: Particularly if you are on a budget scheme.

Phil Wynn Owen: That is right. The other crucial programme is smart meters. At the time of the Annual Energy Statement, we published a prospectus and a consultation on potentially accelerating that programme, which will bring smart meters and real-time displays to every household in the land, and those displays should bring significant consumer benefits.

Chris Huhne: You will actually be able to see what your energy use is at any one time. So, you will be able, effectively, to see that a particular appliance is leading to a particular amount of electricity use.

Q62 Gemma Doyle: You are suggesting that a supplier would send a bill to a consumer, and on that bill it would say that you could get a cheaper tariff with another supplier. Do you think that is realistic?

Chris Huhne: That is one option. This is a regulated industry. The problem is, with a lot of these tariffs, that they are not simple, so many therms, so many kilowatt hours at a particular price. They often have a lot of other bells and whistles attached to them and therefore it is not always easy to understand. But I think you can say, "If a particular energy use were to continue, then this would be available at another tariff." I quite like the idea of doing that with the banks as well, but unfortunately that is outside the responsibility of DECC.

Q63 Gemma Doyle: A couple of questions on the Warm Front and the Green Deal. The current phase of the Warm Front ends in 2011, and the Green Deal, I understand, is due to come in in 2013. So, what measures are you going to put in place to cover that gap, to make sure that we are not falling behind on energy-efficiency targets and on fuel poverty targets?

Chris Huhne: You are absolutely right that there is a phasing process with Warm Front no longer being the principal way we deal with fuel poverty, but instead having this Green Deal element, and we have to make sure that the two lock together properly and that nobody falls through the middle. The Warm Front, we envisage, will actually continue through, including having a "tail" of spending through the beginning of Green Deal, but the exact amounts of money are obviously subject to the comprehensive spending review and we will have to wait-I will have to wait-sadly, until we have reached decisions on that before we can announce it. But we are very aware that the two schemes have to lock together, that people mustn’t fall through the middle and that, hopefully, it will be seamless. Phil, do you want to add anything on that?

Phil Wynn Owen: There are a number of measures being taken or being planned to help combat fuel poverty, which is a massive problem across Great Britain. There is not only Warm Front, which you mentioned-and obviously, as the Secretary of State said, some of these decisions are subject to spending review allocations-but also the Energy Rebate Scheme, which was an innovative form of data matching that we have been undertaking both with the energy companies and DWP to target the most vulnerable older people on the guarantee element of Pension Credit. It has been working well in recent months.

Within the context of the CERT extension, which will go to the end of 2012, which covers the transition period we have touched upon, we have identified a super-priority group of recipients: 15% of the money will have to go to help those most vulnerable people. Of course, the Government also offers winter fuel payments and cold weather payments. A number of these issues may be subject to spending review allocations, but we will have to look across the piece, and of course we also have powers from last year’s Energy Act for a social price support mechanism potentially to be exercised by this Government going forward, again subject to spending review allocations and the Green Deal. So, there are a lot of mechanisms we can use to make our best possible efforts in combating fuel poverty, which is a massive challenge.

Chris Huhne: The key point, I think, is to try and make sure, as I said in an earlier answer, that we are dealing with the cause of the problem rather than the sticking plaster for the symptoms. The holy grail in fuel poverty, it seems to me, is targeting the people in fuel poverty and one of the problems is that (a) fuel poverty bounces up and down, depending on what is happening to the oil and gas price, and whether there is a cold winter and so forth and, secondly, we can identify who is in fuel poverty from general survey evidence, but actually identifying individual people who are in fuel poverty is very difficult, which is why this data matching exercise is so important. If we can do the data matching exercise effectively so that we can actually offer a benefit to these people-they get, I think, £80-

Phil Wynn Owen: Up to 250,000 poor pensioners will be receiving an £80 rebate, with a total of some £20 million under that pilot, but I really think this is cutting edge Government if we can make it work, because it is taking benefits data from the Department of Work and Pensions, on guarantee credit pensioners-not savings credit pensioners, but guarantee credit pensioners, the really vulnerable ones-and taking energy market company data, pooling them with all the necessary safeguards in a neutral place, and identifying the most vulnerable and getting money to them.

Chris Huhne: And not only getting money to them, but also being able, then, to make them an offer on, say, Green Deal, so that in future they don’t have the problem. If we can actually sort the root cause out, that is the real holy grail.

Q64 Sir Robert Smith: The ones who fall through the net, though, are the ones that don’t use gas as their heating fuel and rely on other sources of heating fuel.

Chris Huhne: You are absolutely right that, obviously, 15% of the population is off the gas grid. I am acutely aware that all of what we talked about on Green Deal, all of what we talked about on fuel poverty, has to apply there as well, and a lot of the properties that are off gas grid are also all the ones in rural areas, so solid wall insulation is going to be very important. But I can assure you we have that very, very much in mind. This is meant to be a comprehensive scheme. We are not going to leave people off the gas grid out.

Chair: I think we are coming to the end of our time. We just want to touch briefly on nuclear new build. Dan.

Q65 Dan Byles: Obviously, we have talked briefly about nuclear already. On current schedule, all bar one of our nuclear power stations are scheduled to come off line by about 2023. I am just curious to know in your forward modelling how much of that lost capacity you anticipate being replaced by new nuclear build?

Chris Huhne: Obviously, we’ve got the National Planning Statements coming up. We have got a lot of expressions of interest from three consortia. EDF is the most advanced, with likely replacement new nuclear from EDF on course by, I am assured, still for 2018. There won’t, inevitably, be an exact matching of retirements from new build, and that is obviously something which we have to work through, but we will be in a position to say more about that around the time when we produce the National Policy Statements. Jonathan, do you want to add anything?

Jonathan Brearley: Just to add, what we don’t try and do is specify exactly how much of different generation we expect to see because that depends partly on the relative pricing of different technologies. But we do expect the first station to be open by 2018.

Q66 Dan Byles: So, you don’t have a view as to whether we will have a similar percentage of our capacity produced by nuclear beyond 2023, a large percentage or a small percentage? You don’t take a view on that?

Jonathan Brearley: If you look at our 2050 pathways work, we set out the different scenarios you might have on the supply side and we look at essentially what the different mixes might be and what that means for the rest of the economy. If you had a very small proportion of nuclear power through the 2020s and 2030s, clearly you rely a lot more on your renewable sector and on carbon capture and storage, and that has some of the delivery risks we have talked about here already.

Chris Huhne: I think, just to come back to the key point about the approach here, which we have already talked about a bit in terms of dealing with these enormous uncertainties about how different technologies develop dynamically over time, we must avoid the temptation to think that this Department is a branch of some sort of Soviet Gosplan, and it is going to set out production targets and there are going to be so many left shoes, and the target must be met. That is just not the world that we work in. We are working with private sector providers who will be making their own market decisions.

If it turns out that it is our role to have a strategic framework which actually makes sure that this country has energy security and has enough electricity and goes through this very exciting third industrial revolution, electrification, and if we see that there is on our pathways project, a particular problem in one area, we will need to tweak the incentives to make sure that, overall, we are delivering. But I do caution against the approach that we should be too prescriptive. There has to be a role in a market economy for the market.

Q67 Dan Byles: I am delighted to hear you say that, that you don’t believe the man from the Ministry always knows best. But, obviously, nuclear power is not something that can respond quickly to changing market conditions. So, there does need to be more long-term strategic planning. Of course, it is very easy for the Government to inadvertently or otherwise put obstacles in the way of new build, particularly with something like nuclear.

Chris Huhne: Let me assure you on that, just because various parts of the press occasionally suggest that this might happen. I reiterate exactly what I said. The Coalition Agreement is a deal. The Coalition Agreement clearly envisages a part for new nuclear in the future energy mix and my job, as Secretary of State of this Department, is to deliver on the deal, and that is what I intend to do. There will be no obstacles put in the way of any energy source which can provide part of our future as a low carbon economy, and indeed we will facilitate that as fast as we possibly can right the way across the board. I want to see this happen.

Q68 Albert Owen: A thorny issue in your dream portfolio has been nuclear, and we don’t want to go over that-we have jousted about it in the Chamber-but there is a serious issue that my colleague has raised with regard to investment here. What do you consider to be a public subsidy for new nuclear build-and, I would add, the consortiums, including Horizon in my constituency, which is making great steps forward?

Chris Huhne: Just on your first point, let me assure you that in my conversations with the potential investors it has been quite interesting that subsequently they have put out, I think, a very clear statement saying that they can work with me and that they don’t have a problem. We have had that from EDF-Vincent de Rivaz-and so forth. So, a lot of the noises off, I think, should be discounted, because I think that the Coalition Agreement is very clear, policy is very clear-

Q69 Albert Owen: But Secretary of State, there is concern within the industry. You must be aware of that.

Chris Huhne: Let me come to your second point, which is a perfectly legitimate question, which is, what is a subsidy? I am afraid this could probably keep a college full of economics PhD students going for several years, and indeed, in extremis, is it a subsidy that we have a civil court system which enforces contract? You could argue that that is a subsidy to every business in this country, but actually we wouldn’t have business if we didn’t have enforcement of contract.

I think that the key is really whether there is something which is specific to the industry. So, anything which is general, in terms of applying, overall, a framework which delivers low carbon-

Q70 Albert Owen: So, on that, could you explain your carbon flooring mechanism and how that would benefit investors in the nuclear industry who have a 30-year span, at least, of capital investment there? How would they benefit from that directly? Are you seriously saying that that, in the UK alone, would entice the investment?

Chris Huhne: The carbon price floor is not by any means only attractive to nuclear. It will obviously be attractive to many other potential electricity generators as well: wind and tidal-you name it.

Q71 Albert Owen: How does it work?

Chris Huhne: The consultation is precisely designed to get a system and to consult on a system which actually can deliver the low carbon generation that we want, and do so in a way that is acceptable in terms of its economic costs, and that is absolutely what the Chancellor has announced. Obviously, the Treasury is in the lead on this rather than this Department.

Q72 Albert Owen: Exactly, and it is a tax and taxes can change, which creates uncertainty. You talked about, very clearly from a business prospective, a settled, stable environment. Does your Government Department have settled plans that will allow investment on this type of nuclear build for the future which gives the stability, gives the base load that we need to meet the challenges that we have been talking about?

Chris Huhne: I think you are absolutely right. Obviously, no Parliament can bind its successor. That is one of the fundamentals of our system.

Q73 Albert Owen: I am not even saying that, with respect. I am saying, on the Treasury, what is your view? You have responsibility as the Secretary of State here to create an environment of stability so that confidence is raised, so that people can invest in it. Does this carbon pricing that you are talking about help in that? That is what I am saying. I am pro-nuclear, pro-renewable, pro-energy-efficiency, and have been for some time. I have been consistent, and I don’t see a contradiction in that. On the level playing field, you gave indications early on-this wasn’t stirred up in the press-that there would be no subsidies for nuclear. You created this problem, if you like, by some of your statements.

Chris Huhne: Hang on a minute. I would merely point out to you that all three parties at the last election, including the Labour Party, said no new subsidies for nuclear.

Q74 Albert Owen: I know what the Labour Party said, because I helped formulate that policy.

Chris Huhne: Frankly, I don’t think there is any difference between any of the parties on that and I am afraid the guarantee of no subsidies is there for all to see in the red ink in the Red Book.

Q75 Albert Owen: If there is no difference, you are saying there is a level playing field for nuclear when it comes to public subsidies?

Chris Huhne: Obviously, nuclear will benefit from the general framework which we have brought forward to encourage low carbon electricity generation. That will be the carbon price floor. That will be the EU emissions trading scheme. Anything else which is of a general nature designed to encourage low carbon generation will be available to nuclear and my contacts with the industry-I think you are right that the industry was, itself, divided in its views-EDF-

Q76 Albert Owen: Not as divided as the Coalition, but that is another point. It is a serious matter.

Chris Huhne: I’m not going to go there. The Coalition is absolutely clear in terms of the Agreement. That is what happens in Coalitions. If the two parties have different views on something, they reach an agreement. We were completely open about that at the beginning. We reached an agreement and it is my job to deliver on it.

All I would say is that, in my contact with the industry, obviously, we had some people in the industry saying that the carbon price floor would be enough. We had other people in the industry preferring other options. The contacts that I have had with the industry recently have been quite interesting in that they have converged on the view that the carbon price floor will be enough, and I think that that is very interesting.

Obviously, the consultation process has to go on and we will no doubt have lots of discussions with the industry and with the Treasury about the framework, what might happen and what the price may be and so forth. I think, actually, the industry has converged on the view that this is a pretty good framework for delivery.

You are right that there is longer-term uncertainty because Parliaments can’t bind their successors, but I think there is also a very, very clear strong view across all of our parties that we don’t want to get into the business of retrospective legislation, and that, I think, can be a considerable comfort to investors in this context and indeed in others.

Q77 Albert Owen: Two final points to clarify what Dan was asking. With the slight delay with the consultation on the extension, are you confident that the new generic design assessments will be complete and that new build can be ready for generation in 2018?

Chris Huhne: I am assured that we are on course, okay, for 2018. I, as I hope you come away with the impression, am determined to make all of these things happen.

Albert Owen: I am more encouraged today than I have been with your previous statements.

Chris Huhne: This is the happening Department. We are actually going to make things happen.

Q78 Albert Owen: I am going to ask you a rather provocative question now, though, but it is an important one. Will you, as the leader of your Department, be voting in favour of new nuclear?

Chris Huhne: When we come forward, I will obviously have to discuss that with my parliamentary colleagues, but I think you should be in no doubt that, in terms of the leader of this Department, we have got a deal which clearly envisages a role for new nuclear, and my job is to deliver on that deal. Discussions between me and the Chief Whip and my colleagues is obviously going to be another issue because you also realise that the Coalition Agreement–

Albert Owen: I understand that-I am not always in agreement with my Chief Whip.

Chris Huhne: –specifically says that Liberal Democrats will not vote against or in favour, so there is an abstention issue there and that obviously applies to Liberal Democrats whether they are in Government or whether they are outside Government.

Q79 Albert Owen: But you are in a slightly different position. You are the person devising those policies, responsible for your Department, putting something before the House of Commons, expecting others to carry it.

Chris Huhne: And that is precisely why I told you very, very firmly that I intended to deliver on the agreement that we have made.

Albert Owen: I hope you will be in the same Lobby as me, and I will leave it at that.

Q80 Dan Byles: Obviously, with 14% of our electricity roughly currently coming from nuclear, if we get the environment wrong-and I accept this is not a command decision-and a significant amount of that capacity is not replaced by new nuclear build, do you think we will be able to cope? Do you think that there is sufficient capacity in the growth of renewables and carbon capture to enable us to grow some of the fossil fuels? Do you feel that is your problem?

Chris Huhne: If you look at the pathways calculator, it is physically possible. What the pathways calculator does not do is put a price tag on it, and the price tag is, as I have already described, in any case uncertain. So, for example, we have some renewables like photovoltaics, which are coming down on a very, very steady trend, while nuclear costs are actually going up because of some of the supply issues, so we are dealing with a very uncertain world.

Yes, if you look at the pathways calculator, you can indeed get to a whole range of different scenarios, but we are facing great uncertainties, and one of the uncertainties is we have not yet proved coal and gas at scale with carbon capture and storage. I think that, without that, it is going to be very difficult to make any mix, frankly, add up, because, for the economic reasons that I gave, it is not sensible to turn nuclear up and down, because you have this massive fixed cost. It is rather like with a wind turbine: you don’t turn a wind turbine off. Once you’ve installed the damn thing, you want it to operate as often as it possibly can. So, we need CCS. Obviously, you can change the mix, but there will be a price tag.

Jonathan Brearley: I just wanting to add, on the signals out of the industry, I know there is nervousness, but there are strong signals that people are pushing ahead. We have three consortia who have come forward with plans to build 16 gigawatts, which is a huge amount. Taking you back to Chris’ point about portfolio approach, if you lose any part of that portfolio, your risks of not being able to deliver increase, and nuclear is part of that, but so are renewables and so is CCS.

Chair: Secretary of State, we are very grateful to you and your colleagues for your time. You have been very generous. We have covered a lot of ground. There were some issues we might have explored in more detail, but there will be future opportunities. So, thank you very much indeed.

Chris Huhne: And we will make sure you have a note on thorium.

Chair: Thank you.