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Lord Dormand of Easington: My Lords, before the noble Lord sits down, I wish to ask a brief question. I know that it is a timed debate. Does he agree that some of his suggestions do not lie in the hands of the Government of this country? I referred to a number of matters relating to the European Union where it is difficult to get either action or satisfaction.

Lord Ezra: My Lords, I believe that the whole policy should be discussed with the European Union to gain its full support and agreement. For example, it might be possible for the demonstration plant to get some resources from the European Union. However, I

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believe that the initiative must come first from the Government, and they then need to consult the European Union on that and related matters as soon as possible.

6.50 p.m.

Lord Northbrook: My Lords, I congratulate the noble Lord, Lord Hardy of Wath, on initiating this important debate. Without doubt, the British coal industry has experienced serious problems during the past two decades. Economics and the environment were the principal reasons for pit closures in the 1980s and 1990s and now the driving forces are still environmental. As already mentioned, they include the problem of subsidies in Germany, Spain, France and Poland, which are almost certainly illegal.

The falling price of coal is a major additional factor, with the price down an astonishing 50 per cent during the past five years. It is particularly sad that Ellington is to close at a time when other employment in manufacturing in the north-east is under threat from government policies which pushed manufacturing into the recession from which it is just emerging.

In the 1980s and 1990s, the United Kingdom coal industry continued its long-term decline. In 1997, production stood at 45.8 million tonnes, down more than 11 per cent from 51.9 million tonnes in 1996. That represents less than one half of the 1987 figure of 98.7 million tonnes. In 1997, the UK imported more than a quarter of its coal. The decline in production has been apparent for some eight years. Peak output was 292 million tonnes in 1913, about one third of which was exported. Production remained fairly constant at between 170 and 190 million tonnes until 1957 when it began to decline, being replaced by oil and subsequently gas and nuclear power.

The same trend is apparent in the employment figures. In 1913, more than 1.1 million men were employed in more than 3,000 deep mines. On nationalisation in 1947, 1,500 pits employed 750,000 men. By late 1992, there were 41,000 miners in 51 British Coal pits; in late 1998, only 13,000 miners in 23 deep mines remained.

During the past 20 years or so, the industry has not been sufficiently competitive to survive against coal produced more cheaply elsewhere in the world. In order to ensure the survival of the industry in this country, it was necessary for governments of all parties to agree to close down uneconomic pits, regrettably leading to the loss of more than 200,000 jobs. The effect of that was movingly described by the noble Lord, Lord Hardy.

By the end of the previous Conservative administration, a smaller but much more viable industry had been created. When the Labour Government came to power the industry was expecting that decisions would continue to be made on its future, taking market conditions and economic viability as the main criteria. However, it did not expect to read that Labour would put further obstacles in its way.

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In its manifesto, the Labour Party made clear that it would fight global warming through a new target of a 20 per cent reduction in CO 2 emissions by 2010. The Labour Party in opposition assured the coal industry that coal mining jobs would be safe. Yet the Deputy Prime Minister has signed up to achieving an even higher target for CO 2 emissions than was demanded at Kyoto. Can the noble Lord, Lord McIntosh, quantify what effect that will have on the coal industry in terms of pit closures and loss of jobs? Furthermore, can he say how the Government will reach the target to which they signed up in Kyoto?

Another major problem faced by the UK coal industry is that it is not operating on a level playing field with regard to subsidies. Our industry is unsubsidised, whereas the total subsidies to the German, French and Spanish coal industries between 1995 and 1998 were £14.5 billion. Those subsidies are highly unfair and probably illegal. Most European states outside the UK have been accused of subsidising their coal to the detriment of UK producers, although EU rules forbid giving one company an unfair advantage over a competitor.

In response to a Question asked by the noble Lord, Lord Mason of Barnsley, the Minister, the noble Lord, Lord Sainsbury, stated that,

    "we are working with our colleagues in Europe to make certain that action is taken to reduce the subsidies".--[Official Report, 4/11/99; col. 269.]

Will the Minister explain what progress has since been made on the issue?

I understand that outside the EU, Poland has been dumping cheap coal in this country. Can the Minister refer that serious problem to his colleagues in the Foreign Office? It should be suggested to Poland in clear terms that as a pre-condition of it joining the enlarged European Community, such practices must cease with immediate effect.

Returning to the UK coal industry, the Government are making a conscious effort to help by imposing a moratorium on gas-fired power stations. Thirty-six applications in the pipeline were frozen. However, as is often the case with the Government, the actuality has been different from the rhetoric. Between the announcement of a new policy in October 1998 and the end of October 1999, the Government approved 16 new gas-fired projects, most notably one of 500 megawatts in South Wales just before the Welsh Assembly elections. The 2,000 megawatts of approvals overall potentially displace 5 million tonnes of coal from the electricity market, the equivalent of two collieries.

The Conservative Front Bench believes in the ending of the gas-fired power station moratorium because it drives up the price of electricity. Even the Labour dominated Select Committee on Trade and Industry stated:

    "We do not believe that this moratorium on Section 36 consents for new power stations will assist the coal industry in the short term ... We look to the Government to ensure that the moratorium is lifted as soon as is practicable.".

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Can the noble Lord, Lord McIntosh, give the House some guidance on the timetable for lifting the moratorium?

I want to address other issues with regard to the industry. First, there is the question of the import of French electricity via the French inter connector. According to figures from the RJB mining company, that displaces 7 million tonnes of coal each year. It is astonishing that the Government continue to allow these imports from a country which has failed to liberalise its electricity market as required by EU law.

The second issue that I want to address was brought to my attention by Scottish Coal. It is the plight of Scottish coal being transported to English power stations. According to Scottish Coal, existing contracted traffic flows suffer routinely a 30 per cent reduction in rail freight availability, putting pressure on cash flows and potentially putting Scottish Coal products out of business. Currently, Scottish Coal is short of 10 to 15 trains a week, thus costing the company one-third of a million pounds while RJB is short of 50 trains a week, costing the company £1.5 million. Coal Pro has recently launched a complaint and it is hoped that if the Office of the Rail Regulator can tackle the complaint it will be given every support by the Government.

In summary, we on these Benches recognise that times are very difficult for the coal industry. However, we do not believe in state aid for coal and we wish the unfair subsidy system carried out by France, Spain and Germany to be stopped. We believe that the Government's decision to impose higher emission limits than those agreed at Kyoto will cause serious problems for the industry. We favour more gas-fired power stations being built and we strongly favour an end to the moratorium on gas-fired power stations. I have put to the noble Lord, Lord McIntosh, some questions, and I should be grateful for a reply. My final question is: when can we expect the reform of the electricity pool system, which could be of help to the industry? I look forward to the Minister's response.

7 p.m.

Lord McIntosh of Haringey: My Lords, the Government are grateful to all noble Lords who have taken part in this well-informed debate. To have a debate on coal which is well informed and includes a noble Lord from Eton and one from Winchester is, I suppose, not bad. Above all, I congratulate my noble friend Lord Hardy on introducing the debate. He posed me 12 questions to which I shall try to reply as I go along. I shall try to sum up at the end if I can and if I need to, but I have been asked literally dozens of questions. I shall do my best, as I always do, but I shall write to noble Lords whose questions I fail to answer.

The key to understanding the fate of the coal industry and the potential future of the coal industry is to look at it in the context of energy policy as a whole. The key to energy policy is that the previous government did not have one. Indeed, they prided themselves on not having one and on saying that the market unrestricted should govern the future of

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different fuels. The trouble with that argument was that changes in the relative prices of different fuels at various times--year by year, and sometimes even month by month--made forward planning of energy policy difficult if not impossible. Certainly, the attempt to rely only on prices at any one time as the determinant of the constitution of energy and in particular of electricity generation was a nonsense.

When representatives of the coal industry came to us in 1997 and expressed their concerns about distortions in the energy market, which they said were killing coal, they asked for "fairness, not favours", which I believe is a proper position from which to start. In our response to them in the White Paper on energy policy of October 1998, we set out objectives for the coal industry which deserve to be repeated and emphasised here. We said that the objective should be that the supply of fuel--in particular, for electricity generation--should be secure, diverse and sustainable. The combination of those three criteria should enable fuel to be obtained at competitive prices.

Looking at those objectives, it is clear that that is not in itself a proper platform for the salvation of the coal industry, but it is one on which we can see how a coal industry may survive and how distortions which have damaged the coal industry in the past could be got rid of. Everything that noble Lords have said about the decline of coal and the risks of gas is true. It is certainly the case that the coal industry has declined in the way described; it is true also that in the pits which have survived and in other pits which have not been finally decommissioned, there are long-term reserves of coal under this country. In addition, it is true that the reserves of gas available to this country are limited in their duration. In response to my noble friend Lord Hardy, it is true that Britain will be expected to be a net importer of gas by 2010. We shall have to become used to the right way of describing such figures. I believe that a century ago one said "oughty-one" and "oughty-two"; I do not know whether that is worth reviving.

In response to a direct question from my noble friend Lord Hardy, it is true also that Europe will be a net importer of gas in the not-very-distant future. In the interests of security, diversity and sustainability, we must consider the long-term future of all the fuel sources which could contribute in particular to electricity generation. I shall return at the end of my remarks to our reform programme for energy generation if I have not covered it in the rest of my speech.

It makes common sense to ensure diversity of energy supply. An acceptable level of diversity is part of energy policy, to make it flexible to be able to respond to unexpected events or situations. The contribution of coal to power generation has declined; in 1990, it provided 72 per cent of electricity generation; in 1998, it was only 30 per cent. We do not have a fixed view on what the energy mix should be, or on the proportions of different fuels needed to guarantee security of supply and diversity, but we do not want to see our

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capacity to produce electricity competitively from coal being eroded by distortions in the market. That is why I talk so often about energy and not only about coal.

That is also why we announced a programme to reform the electricity markets so that all fuels, including coal, could compete fairly. I agree not only with my noble friend Lord Hardy, as I have said, but also with the noble Lord, Lord Ezra, that the prospect of substantial decommissioning of nuclear power stations without their replacement will affect us in the near future.

The White Paper identified lack of competition among generators as one of the distortions of the electricity market. My noble friend Lord Hardy asked about the price paid for the divestment of Ferrybridge C, Fiddlers Ferry and Drax--but I forget the first one he mentioned. That divestment was part of our policy set out in the White Paper to remove distortions in electricity generation. I have no evidence that the high price is such as to encourage the import of coal, but certainly the fact of divestment and the removal of distortions cannot be bad for coal.

The electricity market is now open to competition at all levels. Separation of supply and distribution in the electricity market will be achieved through market forces and regulation, and formalised through legislation which we intend to introduce as soon as possible.

I was asked by my noble friend Lord Dormand and the noble Lord, Lord Ezra, about electricity trading arrangements and, in particular, about the Electricity Trading Pool. We published a blueprint for those on 21st October. The utilities Bill was mentioned in the Queen's Speech; it will be brought forward as soon as possible and it is our intention that the new electricity trading arrangements will be introduced before the end of the year.

I was asked by a number of noble Lords about the stricter gas consents policy, a phrase I prefer to the term "moratorium" used by the noble Lord, Lord Northbrook, because there have been more approvals than refusals. Refusals for gas-fired plants are painful decisions to take because applications for gas-fired plants in many parts of the country are greatly supported by local people. I remember taking part in a debate on Baglan Bay in Wales last year, where the pressure from south Wales--which does not have an excess of electricity generation--for approval for the combined heat and power neighbourhood heating plant was strong. Indeed, Baglan Bay has been approved. However, I emphasise to my noble friend Lord Dormand that 4 gigawatts of capacity have been refused in the 14 refusals, which is not insignificant. It is equal to half of the whole output of RJB Mining and it constitutes significant support for the coal industry. I note what the noble Lord, Lord Northbrook, said officially on behalf of the Conservative Party: that the Conservative Party is against those stricter consents and, therefore, to that extent is against this support for coal.

With regard to how long the policy will continue, the White Paper made it clear that the policy will be relaxed as soon as the Government are advised by the

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director-general of electricity supply that the reform programme has been undertaken and that distortions in the market have been removed. That does not mean completing every aspect of the programme but, certainly, we must have the new electricity trading arrangements in force before the consents policy can be relaxed. That does not enable me to give a strict calendar date.

I was asked by many noble Lords about subsidised coal and unfairly priced coal imports. Of course, it is true that Germany in particular, Spain and, to a lesser extent, France heavily subsidise their coal industries. Historically, that goes back to the European Coal and Steel Community, which pre-dates the European Community. The levels of subsidy which they give to their coal industries are permitted by the agreements of the European Coal and Steel Community and result from the fact that they were already at a high level from the base date of 1993. As has been pointed out, at that time we were subsidising our coal industry by only £12 million but those countries were able to give subsidies of £3 billion or more, which is still a reduction of the 1993 figure.

The noble Lord, Lord Lucas, believed that there was nothing to be done about that and the noble Lord, Lord Northbrook, asked me about progress on the matter. There has been some progress; for example, with regard to graded anthracite, we have complained about the unfair practices of two subsidised German anthracite producers. In 1998, the Commission requested repayment of aid by the German companies involved. With regard to Spain, our complaint to the Commission has resulted in confirmation that any UK exports to Spanish power stations will be eligible for the same subsidy as that paid for Spanish coal.

I recognise that in many respects we are constrained by our international obligations. The current ECSC agreement comes to an end in 2002. We shall have to negotiate for the most favourable replacement--if there is to be a replacement--of that agreement when the time comes. Again, with regard to the inter connector with France, that is a treaty obligation and there is nothing that we can do about it in the short term. However, so far as concerns the electricity industry in France, we are certainly pursuing the anti-competitive practices which enable France to export subsidised electricity to this country.

I was asked in particular about Polish coal. Noble Lords will want to know that Helen Liddell, the energy Minister, has recently met the Polish energy Minister. We understand that the coal industry will lodge an anti-dumping or anti-subsidy complaint with the European Commission concerning Polish coal imports. I do not believe that it is appropriate for me to intervene in their negotiations on accession to the European Union, but I cannot imagine that this is a matter which will be ignored when those discussions take place.

The important point I make about German, French and Spanish subsidies is that there is no German, French or Spanish coal imported into this country. Even if the subsidies did not exist, there would still be

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little chance of United Kingdom coal being exported to those countries in competition with unsubsidised coal from other parts of the world. Theoretically, of course, that is enormously important but in practical terms it does not make very much difference to the UK coal industry.

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