Appendix—Government response
Introduction
1. The Government welcomes the committee's report
on "Energy Subsidies" (HC 61), published on 2 December
2013.
2. To meet our energy objectives, the Government
needs significant investment in order to diversify the mix of
energy, increasing and accelerating the use of low-carbon energy
in the UK.
3. The Government has a range of policies and market
based support mechanisms designed to deliver the Government's
objectives of reducing carbon emissions and ensuring UK energy
security, so consumers have access to the energy they need for
light and power, heat and transport at affordable prices. The
Government assesses and reviews these policies to ensure that
they continue to operate in the most cost-effective way for consumers
and taxpayers.
Response to detailed comments
Paragraph 11: There
is no single internationally agreed definition of what constitutes
energy subsidy. Methodologies differ widely, as do the nature
of transactions and support mechanisms that might be subsumed
in a measurement of subsidy. It is regrettable that this, as we
note later in this Report (paragraph 65), has provided a way for
the Government to reject—erroneously, in our view—the
proposition in some areas that it provides energy subsidies.
4. The Government agrees with the committee's conclusion
that there is no single agreed definition of what constitutes
a subsidy and that "methodologies differ widely, as do the
nature of transactions and support mechanisms that might be subsumed
in a measurement of subsidy". This point came across in the
evidence presented by a number of the witnesses.
5. Across these methodologies, as the Government
noted in its written evidence, the spectrum of what could be included
in a definition is extremely broad. The narrowest possible definition
of subsidy refers to direct budgetary payments by a governmental
body to producers or consumers. The widest definitions extend
to most or all areas of government activity, encompassing the
time government officials act for or on behalf of a particular
group or industry. The Government concluded that neither extreme
would provide the basis for sensible engagement on how, and to
what extent the Government incentivises a particular sector to
deliver Government objectives.
6. What the Government considers important is that
it looks at the support it provides in a more general way. This
allows consideration, development, deployment and management of
a clear and coherent package of support to enable the Government
to deliver its energy objectives.
7. As stated in its written evidence Government energy
policy (as with other Government policy) is subject to initial
impact assessment and subsequent monitoring, evaluation and review.
These provide confidence and certainty, while ensuring that the
policy advances the Government's objectives in a coherent way
that provides best value for money. It also means that any detrimental
consequences can be quickly and effectively addressed.
8. In its written evidence the Government also stated
that its policy is to incentivise the energy industry to bring
forward investment where there is a market failure; and that market
failure would act as a barrier to investment in the absence of
those Government incentives. For example, when new mechanisms
were first introduced to enable renewable generation to compete
in the market, this left exposure to power price risk. For investors
in technologies such as offshore wind, which face substantial
initial investments but very low running costs, this can be problematic.
Additionally, support available for low-carbon generation was
not previously considered within a long-term funding envelope,
meaning that investors have not had certainty and consumers have
not been protected. Electricity Market Reform (EMR) and the Levy
Control Framework have been introduced to address these issues.
Paragraphs 67 & 68:
The variation in definitions of subsidy allows the Government
to resist acknowledging subsidy in many areas, particularly on
nuclear energy and the lower rate of VAT on domestic and small
business heating fuel and electricity bills, and to claim that
it has no 'harmful' or 'inefficient' subsidies despite fossil
fuel consumption contributing to our greenhouse gas emissions.
However, the reality is that energy subsidies in the UK are significant,
cover all types of energy technology and run to about £12bn
a year. Much of this is directed at fossil fuels. The Government
must use the Autumn Statement as an opportunity to provide a clear
and comprehensive analysis of all energy subsidies in the UK,
to present its methodology and calculations, and to show how these
figures differ from those produced using the methodologies of
the main international institutions. This would bring much needed
transparency and provide a basis for an overdue debate on the
rationale and justifications for energy subsidies in the UK. It
would also provide an evidence base for developing and refining
policies for tackling climate change.
9. The Government stated its position on this point
in its submission to the Committee. The Government was clear that
it does not believe that it has any harmful energy policies, and
set out its position on nuclear energy and the lower rate of VAT.
Furthermore, the Government was clear in its written submission
and oral evidence to the committee, that the North Sea regime
should not be considered a subsidy. The UK Government does not
provide fossil fuel subsidies. For these reasons, and those set
out in the written and oral evidence to the committee, the Government
does not accept the assertion that subsidies amount to £12
billion per year.
10. In addition the Secretary of State set out in
the Annual Energy Statement 2013, the Government's priorities
in delivering the UK's energy policies in the near term.[1]
These are:
- Helping households and businesses take control
of their energy bills and keep their costs down;
- Unlocking investment in the UK's energy
infrastructure that will support economic growth; and
- Playing a leading role in efforts to secure
international action to reduce greenhouse gas emissions and tackle
climate change.
11. Government policy seeks to achieve a balance
between these priorities to achieve the best outcomes for energy
consumers in the UK. The Government is transparent about the rationale
for, and cost and impact of, its policies. Government policy is
subject to consultation, impact assessment and monitoring, with
much of this information being easily publicly available through
regular publications and statistical releases on the .gov website.
Such transparency supports debate and challenge on individual
policies as well as the overall policy mix, and the Government
does not currently see a strong rationale for publishing further
assessments at fiscal events.
Paragraph 71:
Government should also use the Autumn Statement to introduce a
new target: to reduce the proportion of energy subsidies that
support fossil fuel, rather than low-carbon, consumption.
12. As the Government has stated in its evidence
to this inquiry, and elsewhere in this response to the inquiry,
the Government does not accept the committee's assertion that
it has any fossil subsidies.
Paragraph 27: Energy
subsidies play an important and justified role in alleviating
fuel poverty, which remains a significant challenge. The Government's
proposed change of definition of 'fuel poverty' and weakening
of the legislative commitment—to 'address' it rather than
'eliminate' it—will place a greater imperative on the Government
to demonstrate that it is committed to making fuel poverty a thing
of the past. Unless the Government is prepared
to make that commitment and show how it will be delivered, the
changes to the fuel poverty definition and target, in part being
made through amendments to the Energy Bill, should be stopped.
13. The Committee has recognised the important role
that Government can play in fuel poverty. The Government is committed
to addressing fuel poverty, and helping households that are struggling
with their energy bills. This is why the Government has, through
the Energy Act 2013, proposed changes to the legislative framework.
14. The changes to the Warm Homes and Energy Conservation
Act ensure that a statutory duty to address fuel poverty will
be maintained beyond the current target date of 2016. Far from
a weakening the Government's legislative commitment, this represents
a strengthening, ensuring an on-going long-term focus on fuel
poverty.
15. Without the Government's amendments to the fuel
poverty target, the 2016 target would have lapsed completely.
Instead the Government now has to adopt a new target, debated
in both Houses of Parliament. Importantly, the Government's proposals
also mean that there must be a strategy in place setting out how
the Government will be delivering the new target. This strategy,
due to be published in spring 2014, will show how the new fuel
poverty target will be delivered.
16. These changes will ensure that as we move forward
with our plans to upgrade the energy efficiency of housing stock
in this country, the fuel poor do not get left behind.
Paragraph 29: To
aid transparency, if the Government introduces its proposed new
measure of fuel poverty, it should also continue to publish statistics
on the current metric for the remainder of this Parliament, alongside
the new figures. In the Autumn Statement, the Government should
make clear how any changes to green levies will change the amount
that those in fuel poverty will have to pay, by how much and how
soon.
17. The Government understands the committee's concerns,
and would like to reassure the committee that it has already committed
to continuing to publish the old 10% definition in its Annual
Fuel Poverty Statistics. DECC Ministers repeated this commitment
in Parliament in November 2013.[2]
Paragraph 28: The
Government is undertaking a review to examine the scope for reducing
'green levies' in energy bills. While such levies currently account
for 9% of bills, they may not increase bills in the longer term
because they will drive energy efficiency. The review cannot significantly
assist the poorest bill-payers in the short term simply by scrapping
some green levies, because the biggest component of such charges
in bills—the Energy Company Obligation and Warm Home Discount—is
currently already directed at them (paragraph 23). If the
review finds some levy savings in energy bills, perhaps by
shifting them to general taxation, the imperative for energy
efficiency measures must remain the priority because of
the underlying need to tackle climate change by reducing our
emissions.
18. Over the last year the Government has extended
energy efficiency support to help households insulate their homes,
by introducing the world first Green Deal and the Energy Company
Obligation. On 2 December 2013 we announced a package of measures
that will cut consumers' bills, while retaining our ambitious
carbon targets and safeguarding green jobs in the UK.
19. On 2 December 2013 the Government announced a
series of proposals aimed at reducing the impact of energy bill
rises. Households will see an average saving of around £50
a year as a result of the proposed changes. The savings will be
secured by:
· Reducing the cost to deliver the Energy
Company Obligation (ECO). We expect the proposed changes to ECO
will result in £30-£35 off consumers' energy bills,
on average, in 2014. The existing dedicated support in ECO for
low income and vulnerable households will be maintained and extended
from March 2015 until March 2017; and
· Establishing a rebate, which will save
customers £12 on their electricity bill, for the next two
years, worth a total of £600 million.
20. In addition, electricity distribution network
companies are taking voluntary action to reduce network charges
in 2014-15. The majority of network expenditure is on replacing
ageing infrastructure as well as maintaining and operating the
networks. This action will not slow down investment but will enable
a further one-off reduction of an average of around £5 on
electricity bills in 2014-15, which energy suppliers will be able
to pass on to their customers.
21. The Government is committed to helping low income
and vulnerable households and our recent announcements have provided
new longer-term certainty on dedicated fuel poverty activity under
ECO, by protecting the Affordable Warmth and the Carbon Saving
Communities Obligation.
22. For both of these elements the Government proposes
leaving the original targets set for March 2015 in place and then
setting new targets, at the same full level of ambition, for the
period to March 2017.
23. The December 2011 Carbon Plan[3]
was clear that if the UK is to cut our greenhouse gas emissions
by 80% by 2050 that energy efficiency will have to increase across
all sectors, not only the building sector. The Carbon Plan set
our four possible scenarios for 2050, relative to 1990, which
imply a per capita demand reduction of between 31% and 54% relative
to 2007. The Government is committed to realising the energy efficiency
opportunity in the UK, and in November 2012 the Government published
the first ever Government Energy Efficiency Strategy. This set
out the direction of travel for the next couple decades and in
December 2013 the Government published an annual update to this
strategy, setting out the progress made over the last year.
Paragraph 42:
Renewables energy has an important part to play in delivering
the UK's emissions reduction targets, and allowing the UK to play
a full role in tackling climate change. Subsidies for renewables
are, in turn, an essential lever to provide certainty to industry
and drive investment in those technologies. While the Government
has a helpfully positive view on the need to increase the
level of emissions reduction ambition in the EU, it should
rethink its hostility to a separate continued target for the deployment
of renewables. Even without such a continued EU target, however,
the Government should be ready to fully use the scope for renewables
subsidies to help meet our climate change obligations.
24. The Government agrees with the committee that
renewable energy has an important part to play in delivering the
UK's emission's targets, and allowing the UK to play a full role
in tackling climate change. As was set out in its written evidence
to the committee,[4] the
Government is already providing targeted financial support in
the form of the Renewable Obligation, Feed-in Tariff scheme and
the Renewable Heat Incentive (RHI) to increase the deployment
of renewables.
25. Electricity Market Reform (implemented by the
Energy Act 2013 which received Royal Assent in December 2013)
will create two key mechanisms: Contracts for Difference (CfDs)
and the Capacity Market, which will provide the longer term institutional
and financial structure to attract investment into energy infrastructure.
CfDs will provide support for all low carbon technologies, including
renewable energy, and will help deliver the renewable electricity
needed for the UK to meet its 2020 target. Importantly, the Government
has a strong commitment to cost effective renewable energy as
part of achieving a diverse low carbon energy mix.
26. In December 2013, the government set out decisions
on the CfD strike prices for renewable technologies for the period
2014-15 to 2018-19.[5]
They will enable a technology mix that is value for money for
consumers, and is within the upper limits on annual spending on
low-carbon generation as agreed in the Levy Control Framework.
Ultimately the Government wants to move to a market-led process
when conditions allow and, as part of these reforms, the Government
is committed to working with renewable energy developers to build
on progress already made.
27. The Government also recognises that we need maximum
flexibility between all options to reduce the UK's carbon emissions.
This is the best way of introducing competition to drive down
price. Flexibility gives us the ability to capitalise on transformational
technology breakthroughs in which ever technology they occur.
28. In respect of a continued EU target each Member
State is different, and will need to pursue different technologies,
in different orders and in different ways. For example some have
district heating that can easily be switched; some have lots of
cheaper land—others are very sunny. Each will need to decide
the best path for reducing emissions—binding targets are
blunt instruments that do not pick up these differences.
29. The world in 2014 is a different place to 2007
when the 2020 target was first set. Renewable electricity is now
being deployed at scale; over the next decade some technologies
will be able to compete on cost with fossil fuel alternatives.
As technologies start to mature, any new target risks forcing
us to pay unnecessary subsidies. This is inconsistent with the
development of a mature, sustainable and competitive low carbon
energy market.
Paragraph 70:
More fundamentally, the Government needs to demonstrate leadership
in increasing the deployment of renewables and in promoting energy
efficiency through the careful and targeted use of subsidies and
levies, to provide certainty over the longer term for the investment
in the technologies that these will depend on. In the Autumn Statement,
the Government should make a start on that path by making it clear
which minister and which department will be responsible for fully
delivering our climate change obligations in a way that avoids
maintaining harmful fossil fuel subsidies and protects the fuel
poor.
Renewables
30. The Government has already shown leadership in
the deployment of renewables, demonstrated by the success of measures
taken to date.
31. The Government is committed to achieving the
UK's 2020 renewables target in the most cost effective way, minimising
the impact on consumer bills. We are making very good progress
towards meeting our 2020 target. 4.2% of UK energy consumption
was met by renewable sources in 2012, up from 3.8% in 2011.[6]
In particular, there has been significant growth in the renewable
electricity sector with renewables' share of total electricity
generation more than doubling since 2010, reaching a record 15.5%
in the second quarter of 2013. This demonstrates the huge private
sector investment that is being made in UK renewables. The success
of renewables deployment is down to the careful and targeted use
of market based support mechanisms.[7]
32. As well as the RHI,[8]
the Renewable Heat Premium Payment (RHPP) scheme has supported
over 17,000 household installations since its launch in August
2011: 6,000 in RHPP phase 1 (Aug 2011-Mar 2012) and an expected
11,000 in RHPP phase 2 (Apr 2012-Mar 2013), which has been extended
to run to March 2014.
33. Looking to the future, EMR will provide future
support for all low carbon technologies, including renewable energy.[9]
These reforms provide the longer term institutional and financial
structure to attract private capital. Furthermore, the 2012 'Strategic
Framework for Heat' document sets out how we might change the
way we produce and consume heat to meet our carbon reduction target
and renewable energy target. 'The Future of heating; Meeting the
challenge', published in March 2013, sets out a plan to support
the transition to low carbon heating.
Energy Efficiency
34. The Government has put energy efficiency front
and centre in its energy policy. In the 2012 Energy Efficiency
Strategy we set out our ambition to see the UK get closer to using
only the energy it really needs, since then we have made significant
progress towards this objective.
35. The Government has extended support to help households
insulate their homes, by introducing the world first Green Deal
and the Energy Company Obligation; and on 2 December 2013 we announced
a package of measures that will cut consumers' bills, while retaining
our ambitious carbon targets and safeguarding green jobs in the
UK.
36. The Government has also set up the Green Investment
Bank, which has energy efficiency as a key priority, paving the
way for innovation; announced plans to launch, at least, a £20
million pilot to trial Electricity Demand Reduction within EMR;
and concluded the procurement competitions for the provision of
data and communication services needed to support the roll out
of smart meters.
37. The Government is exploring opportunities to
build on the progress already made as part of the implementation
of the EU Energy Efficiency Directive, which seeks to deliver
20% energy efficiency savings by 2020 (from the 2007 baseline).The
UK submitted its Article 3 notification to the European Commission
on 30 April 2013, which was set at the level of 129.2 million
tonnes of oil equivalent for final energy consumption on a net
calorific value basis. The represents an 18% reduction in final
energy consumption (equivalent to a 20% primary energy reduction)
by 2020, relative to a 2007 business as usual projection. Based
on current projections the UK will exceed the target.
Responsible Minister
38. The Minister with overall responsibility for
our climate change obligations, in the sense of our legally binding
carbon budgets under the Climate Change Act, is the Secretary
of State for Energy and Climate Change, supported by Ministers
of State and the Parliamentary Under Secretary of State at the
Department of Energy and Climate Change.
39. The shift to a low carbon economy is however
a shared objective across Government, and other Ministers and
their Departments have important roles to play—notably DfT,
Defra, CLG, BIS, the FCO, DfID and of course HMT, Cabinet Office
and Number 10. It should also be noted that responsibility for
climate change adaptation in the UK (as opposed to mitigation,
or adaptation in developing countries) rests with the Secretary
of State for Environment, Food and Rural Affairs.
Paragraph 51:
The Hinkley Point C deal will be scrutinised by the European Commission
for state aid implications. It makes no sense to claim that a
subsidy applicable to more than one technology therefore does
not constitute a subsidy. It is already clear that new nuclear
is being subsidised. The contractor for Hinkley Point will be
able to use the guaranteed strike price for the electricity generated
to raise capital at lower cost. It is debateable which of the
various other Government-termed 'support mechanisms' and 'insurance
policies' also constitute subsidy. Even in terms of the Government's
'similarity' definition of 'no public subsidy for new nuclear',
there are aspects of support which are not 'similar' to that provided
for other types of energy, notably on decommissioning and waste.
40. As was stated in the written evidence to the
committee, it is the Government's policy that there will be no
additional support given for new nuclear power unless comparable
support is provided to other types of low-carbon generation, as
defined in a written statement made to Parliament in October 2010,
and in a debate in Parliament in February 2013 . This means that
new nuclear will receive no levy, direct payment or market support
for electricity supplied or capacity provided by a private sector
new nuclear operator, unless similar support is also made available
more widely to other types of generation, including as part of
the Government's reform of the electricity markets.
41. As the committee notes, new nuclear power will
benefit from any general measures that are in place or may be
introduced as part of wider reform of the electricity market to
encourage investment in low-carbon generation. This is about creating
a level playing field for all forms of low carbon electricity
generation, not subsidising nuclear.
42. It is important to note that it will be for energy
companies to construct, operate and decommission nuclear power
stations. It will be for the Government and the independent regulators
to ensure appropriate levels of safety, security and environmental
regulation.
43. The Government has always been clear that EDF
will only be offered an investment contract for Hinkley Point
C new nuclear power plant if it is value for money, affordable
and in line with our policy that we will not provide support for
new nuclear unless similar support is provided to other types
of low-carbon generation. It would also have to be consistent
with state aid rules. It is quite possible to meet the technical
tests for state aid (because we are supporting low carbon generation
over high carbon generation) while being 100% in line with our
policy on nuclear.
44. Implementation of the EMR programme is subject
to State Aid approval, including Contracts for Difference for
renewables as well as nuclear.
Decommissioning and waste
45. The Government does not accept that there is
any subsidy in relation to the costs of decommissioning and waste
management for new nuclear power stations. The Government will
not repeat the mistakes of the past, where the taxpayer has footed
the bill for dealing with decommissioning and has put a robust
framework in place to ensure that these liabilities are met by
the operator and that the risk of recourse to the taxpayer is
remote.
46. The Energy Act 2008 requires operators of new
nuclear power stations to have secure financing arrangements in
place to meet the full costs of decommissioning and their full
share of waste management and disposal costs. Under the Energy
Act, all new nuclear operators are required to have a Funded Decommissioning
Programme (FDP) approved by the Secretary of State before nuclear-related
construction can begin and to comply with that programme thereafter.
In the FDP the operator is required to make prudent provision
for their liabilities, such that the risk of recourse to the taxpayer
is remote.
47. There is no question of subsidy in the Government's
policy that new build must pay its "full share" of waste
management and disposal costs. This policy refers to the approach
taken to the allocation of costs for any facility that is shared
between new build and legacy operators. For example the Government
expects to dispose of spent fuel and intermediate level waste
from new nuclear power stations in the same geological disposal
facility that will be constructed for the disposal of legacy waste.
Our policy is that the price to be charged for the disposal of
new build wastes in this facility should cover not only the incremental
cost of disposing of new build waste, but also a contribution
to the fixed costs of constructing the facility. Hence rather
than being a subsidy this represents a benefit to the taxpayer,
as these are costs that will need to be incurred anyway in order
to dispose of legacy wastes.
Paragraph 60:
Field allowances for North Sea oil and gas do not fully offset
relatively high starting rates of corporation tax and petroleum
revenue tax. The allowances nevertheless represent a subsidy because
the higher tax rates compensate for the use of state-owned fossil
fuel deposits.
48. As the Government stated in its written submission,
and reiterated during the oral evidence, the UK does not have
any fossil fuel subsidies.
49. Oil and gas produced in the UK is subject to
a tax on profits of 62% for new fields and 81% for older fields—significantly
higher than the mainstream corporation tax rate. This ensures
the taxpayer benefits from highly profitable fields.
50. The Government has introduced field allowances
for more challenging categories of field that are economic, but
commercially marginal at the high rate of tax. Allowances support
projects which would not have gone ahead at 62% or 81% tax rates.
Such fields are relieved of the 32% supplementary charge for a
portion of their profits—but they still pay ring fence corporation
tax at 30% for this portion, higher than the mainstream corporation
tax rate.
51. The Government does not accept the assertion
that the oil and gas tax regime represents a subsidy in any form.
Even taking into account the allowances, oil and gas companies
pay a higher rate than other companies on their ring fence profits.
The tax rates and associated allowances are designed in such a
way to maximise the economic production of oil and gas, while
ensuring a fair return for the taxpayer.
Paragraph 61:
As the Energy and Climate Change Committee reported in 2011, hydraulic
fracturing and horizontal drilling are both techniques that have
been present in the UK for many years. They are not new technologies.
Fracking is not a technology warranting financial support to become
viable and competitive, and on that basis it does not warrant
subsidy through a favourable tax treatment.
52. The Government announced a new allowance for
onshore oil and gas projects at Autumn Statement. This allowance
is not directed specifically at hydraulic fracturing; as the Committee
rightly points out, there has been hydraulic fracturing in the
UK for decades. The allowance is designed to support onshore oil
and gas projects whose small size and technical challenge lead
to higher costs, making them economic but not commercially attractive
at current tax rates. Very large conventional oil or gas fields
are likely to be commercially viable without fiscal support, and
so are excluded from the allowance by a volume cap of 7 million
tonnes of oil equivalent.
53. The allowance builds on the success of existing
field allowances in increasing investment in technically and commercially
challenging offshore fields. The onshore allowance reduces the
tax rate on a portion of a company's profits from 62% to 30%.
A company will continue to pay 62% on the remainder of its profits.
Paragraph 55:
The capacity payments regime will constitute a subsidy for gas-fired
electricity generation because in practice it is the only technology
that will be eligible for the payments when the capacity contracts
are deliverable in 2018-19.
54. The Government disagrees with the Committee's
analysis. The Energy Act 2013 has confirmed that the Capacity
Market will be open to technologies that provide electricity or
reduce demand for electricity. This means that the Capacity Market
is open to a wide range of technologies, including gas but also
existing coal and nuclear plants, as well as non-generation technologies
such as demand side response and storage—and is therefore
not just aimed at gas plant. The only barrier to participation
in the Capacity Market is if a generating unit is also in receipt
of low carbon support payments, e.g. Contracts for Difference
or Renewables Obligation payments. These plant are excluded to
ensure we do not pay for the same capacity twice.
55. As a result, the Government expects that the
Capacity Market will encourage competition between technologies,
including generation and demand side response, and between new
and existing plant.
Paragraph 69:
We do not believe there is any case for treating subsidies to
mature energy technologies where there is little likelihood of
cost reduction in the future in the same way as technologies that
can, over time, compete in the market place without long-term
subsidy. We consider that the Government should present a case
for subsidy, and hence for the application of EU state aid rules,
separately for each energy category.
56. The Government's policy is to incentivise the
energy industry to bring forward investment where there is a market
failure that would act as a barrier to do so in the absence of
those incentives. However, as stated above, the UK Government
does not provide subsidies for fossil fuels.
57. The Government does clearly present its case
for any support that it provides. This is achieved through the
consultation process, impact assessments and subsequent monitoring,
evaluation and review. This ensures that the Government can provide
confidence and certainty while ensuring that the policy advances
the Government's objectives in a coherent way that provides best
value for money. It also ensures that detrimental consequences
can be quickly and effectively addressed.
58. Through EMR, the Government's ultimate aim is
to move to a technology-neutral competitive process as soon as
reasonably practicable. The Government published an update document
on competitive allocation for Contracts for Difference (CfD) on
16 January for a four-week consultation, closing 12 February.
The consultation clarifies which of the policy positions previously
set out in the EMR October consultation document and in the EMR
Delivery Plan, published on 19 December 2013, the Government is
minded to progress. For example, that Government believes it is
appropriate to move to immediate competition for established technologies.
59. For established technologies, the proposed move
to competition builds on the strong progress on cost reduction
and the well-developed pipeline. For less established technologies,
our aim is to ensure that that they can deploy at levels which
enable continued cost reduction and which ultimately support cheaper
deployment in the long-term. Competition will enable us to reduce
the costs of decarbonisation, limit the bill impacts of achieving
our low carbon objectives and drive efficiencies across the sector.
60. Ultimately, the Government expects there will
no longer be a need to issue CfDs due to the existence of a competitive
market which delivers low-carbon electricity without the need
for Government support.
Paragraph 36:
DfID should make, and publish, an assessment that compares its
aid expenditures and the extent of fossil fuel subsidies for each
aid-recipient country, and UK Export Finance should similarly
provide a comparative analysis of export finance support and fossil
fuel subsidies. DfID should then include these analyses in a revision
of its Environment Strategy, along with the two departments' assessment
of why continued aid and export support in each case overrides
the need for eliminating fossil fuel subsidies in those countries.
61. The Government welcomes improved transparency
of data and information on fossil fuel subsidies in developing
countries. Subsidies can have a potentially negative impact on
economic growth, macroeconomic stability and poverty reduction.
62. The data requested by the Committee on levels
of fossil fuel subsidies is available publically; although the
UK Government does not produce its own data on fossil fuel subsidies
or collate this information. There is no global consensus on the
definition of a fossil fuel subsidy, and so there is not one agreed
set of data on the level of subsidies in individual countries.
63. DFID publishes data annually on the levels of
UK Aid given to overseas countries[10]
and UK Export Finance (UKEF) reports details of the projects that
it supports in its annual report. However, neither DFID nor UKEF
consider there to be a direct link between levels of fossil fuel
subsidies and either UK Aid or export credits; nor that there
would be any impact on fossil fuel subsidies from changing the
level of UK aid or export credit support to individual countries.
64. Decisions for putting in place and holding fossil
fuel subsidies are made by individual country governments for
a variety of time-specific and locally-determined reasons, and
phasing out fossil fuel subsidies can be complex. In particular,
the removal of fossil fuel subsidies can adversely impact the
poorest and most vulnerable in an economy and a sudden change
in subsidies can cause civil unrest. For these reasons we do not
consider that it would be helpful to provide an assessment of
comparative levels of aid and export credits against fossil fuel
subsidies. In addition, it would be inappropriate for UKEF to
include a factor (levels of fossil fuel subsidies) unrelated to
the provision of risk protection that exporters seek in respect
of individual export transactions in its decision making; such
a factor is not considered by UKEF's overseas counterparts and
for UKEF to do so would put UK exporters at a competitive disadvantage.
65. The UK Government is working with international
partners, such as the World Bank and the G20, to support developing
countries to remove harmful fossil fuel subsidies with minimal
impact to the poorest and most vulnerable people. For example,
UK action to support energy efficiency and increase access to
renewable energy for the poorest in developing countries can help
to reduce their reliance on fossil fuels and so lessen the impact
of subsidy removal.
1 Annual Energy Statement 2013 ,DECC, October 2013 Back
2
HL Deb, 6 November 2013, Energy Bill Report Day 3
Back
3
The Carbon Plan, DECC, December 2011 Back
4
Paragraphs 20 to 44 of the Government's evidence to the committee. Back
5 ,
DECC, December 2013 Back
6
This 2012 figure is greater than our first interim target of 4.04%.
Across 2011 and 2012 the UK achieved an average of 4.0% with the
small shortfall being within the margin of error around the estimate. Back
7
Detail provided in paragraphs 20 to 44 of the government's written
evidence to the committee. Back
8
Details in paragraphs 36 to 42 of the Government's written evidence
to the committee. Back
9
See paragraphs 25 and 26 above. Back
10
Statistics on international development 2007-08-2011-12, DfID,
October 2012 Back
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