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I appreciate the noble Baroness’s argument that we should be careful about regulation, but the Government have demonstrated their care. We did not regulate in this area after the first initiative in 2003 and we have come to this position only as a result of evidence that has been produced. I mentioned the Treasury Select

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Committee, but the Consumers’ Association also brought to our attention the difficulties that arise when insurance is not sold as well as it should be. The noble Baroness will therefore recognise that we are motivated not by the wish to regulate but by a clear and defined need.

I do not need to repeat the arguments or the statistics that the noble Lord, Lord Sheikh, gave to the Committee. One of the benefits of this House is that someone such as he, who has vast experience and detailed knowledge of an industry of this kind, can make as good a job of understanding the issues as the Government. I cast no aspersions on the team that supports me; it is absolutely excellent. I would regale the Committee with a vast battery of statistics at this stage, but the noble Lord, Lord Sheikh, has largely presented the case for the order in detail and in such a way that I need not detain the Committee.

4.30 pm

I need to address the question of this being a distraction for the Financial Services Authority, with some noble Lords saying that it has other big fish to fry. Of course it does. How could one not be aware of the challenges facing the Financial Services Authority, given the circumstances in which we have had the Northern Rock situation over the past five or six months, which has dominated a great deal of the financial and economic agenda? To suggest that this small amount of additional regulation will break the back of the Financial Services Authority’s capacity to cope with its work stretches things somewhat far. It will be recognised that the scope of the legislation is very limited. We think that an extension is necessary, but we do not have the slightest doubt about the capacity of the FSA to monitor this position, and no one who has suggested regulation has indicated that a major problem might be the Government’s ability to guarantee that their regulatory authority would not be up to the job.

On other challenges, I will listen to the noble Baroness, as I am obliged to. Some of the big challenges will not go away in the short term, as she well knows. In an area such as this, to suggest that, because a body has a major issue before it, it cannot be expected to have the regulatory capacity for a relatively marginal issue such as this is stretching credulity too far. Will small firms go under because of this additional regulatory burden?

Baroness Noakes: I always like to make sure that the Minister is answering the points that I make. I did not at any point suggest that any small firm would go under; I suggested that small firms would not carry on doing travel insurance.

Lord Davies of Oldham: I apologise to the noble Baroness. Her point is important and we want to encourage the take-up of travel insurance. The percentage to which the noble Lord, Lord Sheikh, referred, is a great worry. A far too high percentage of people travel without cover; they are taking conspicuous risks. I agree with her that the objective is not in any way to reduce the availability of travel insurance, nor to produce a disincentive to participation.

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As far as travel firms are concerned, this issue is a small element in their overall operations; the profit dimension is between 1 per cent and 2 per cent. Therefore, I do not think that one is saying that regulation in this area would be the straw that breaks the back of an organisation or causes it to recast its position. It is essential that those who provide travel insurance are capable of providing the product that fulfils the intended purpose. The consumer needs support in this area. After all, it will be recognised on all sides that insurance is one of the more complex consumer goods to purchase. With a great deal of other consumer goods, the guarantees are all too clear, although the small print on guarantees regarding direct consumer goods needs to be looked at carefully. With insurance, it is notoriously difficult for people to be sure of the range of their coverage; we all know the nature of exemptions and excess clauses, which present difficulties of understanding. We want the providers to be fully qualified and regulated and to give an effective service.

We maintain that we have sufficient evidence after several years that there is a problem here in which a small additional burden of regulation, which is well within the capacity of government and which the industry is readily able to bear, creating fairness across the industry and all companies involved in travel provision, merits action being taken. Therefore, I hope that noble Lords will support the order.

On Question, Motion agreed to.

Electricity and Gas (Carbon Emissions Reduction) Order 2008

4.35 pm

The Minister of State, Department for Environment, Food and Rural Affairs (Lord Rooker) rose to move, That the Grand Committee do report to the House that it has considered the Electricity and Gas (Carbon Emissions Reduction) Order 2008.

The noble Lord said: The order places on electricity and gas suppliers an overall target for reduction of carbon emissions in the household sector in Great Britain, known as the carbon emissions reduction target, or CERT; while I do not generally use acronyms, because of the constant reference to this I will say “CERT” from now on. We held extensive informal consultations with a wide range of stakeholders on the development of the CERT, culminating in the issue of formal consultations in May 2007.

The CERT is planned to run from 1 April 2008 to 31 March 2011 and will build on the success of the previous two phases of the energy efficiency commitment, with the current phase ending in March this year. Gas and electricity suppliers will meet their targets by encouraging and assisting household consumers to take up carbon abatement measures, specifically the promotion of measures for the following purposes: achieving improvements in energy efficiency; increasing the amount of electricity generated or heat produced by microgeneration; increasing the amount of heat produced by any plant that relies wholly or mainly on wood; and reducing energy consumption. By reducing

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carbon emissions and using energy more efficiently, household consumers will have the opportunity to reduce their carbon footprint, lower their fuel costs or be able to enjoy greater comfort.

The main aim of the CERT is to make a significant contribution in the household sector to the United Kingdom’s targets and ambitions under the climate change programme. The CERT will have an overall target of 154 million tonnes of carbon dioxide over its lifetime. That is equivalent to annual net savings of 4.2 million tonnes by 2010, which is equivalent to the emissions from 700,000 homes each year. This will build on the 2.9 million tonnes of CO2 that we expect to be delivered by the previous phases of the energy efficiency commitment.

The CERT will also give particular help to low-income consumers and the elderly, who spend a larger proportion of their income on energy or are more vulnerable. Energy suppliers will be required to achieve at least 40 per cent of their target by directing activity at householders in receipt of income or disability benefits or tax or pension credits. In order to ensure a focus on the most vulnerable members of our communities, we have also included all those customers aged 70 or over. The CERT will also introduce a new priority group flexibility option, which will support energy suppliers that wish to focus some of their CERT activity with low-income customers on those who are especially vulnerable or at risk of fuel poverty, using measures that will make a real practical difference for those hard-to-treat households. We expect that these new approaches will allow the CERT to contribute effectively to the alleviation of fuel poverty. On 6 December, the UK Fuel Poverty Strategy fifth annual report was published. It sets out our wider approach to tackling fuel poverty in the UK.

We also want to ensure that we are ready for the carbon reduction challenges ahead. The CERT will introduce creative and significant support for innovation, offering space for energy suppliers to explore and experiment with totally new routes for carbon abatement in the household sector, including specific encouragement for microgeneration activity. The order sets an overall obligation on all relevant electricity and gas suppliers of 154 million tonnes of carbon dioxide over the lifetime. This is a challenging target at about twice the level of the current energy efficiency commitment, but we believe that it is achievable and will drive the effective promotion of carbon reductions in the household sector.

The cost of meeting the obligation will fall on energy suppliers. However, we expect that, even if suppliers pass those costs on in full to customers, that would be no more than about £105 per household for the three years of the programme, or about 70p a week. Those costs are balanced by a range of direct and indirect benefits. We expect the average ongoing financial benefit for consumers, in terms of lower energy bills or increased comfort, to be about £29 per year for the lifetime of the measures installed, which could be up to 40 years in the case of cavity wall insulation, for example. An equivalent measure would be to fit four energy-saving light bulbs, which, over their lifetime, would pay for the cost.

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The regulator, Ofgem, is responsible for administration of the CERT. The order provides the framework for Ofgem to set the targets for individual electricity and gas suppliers and to monitor their progress in achieving them. Ofgem will also be responsible for enforcement. We intend to monitor the continuing development of the CERT. Ofgem is required to report annually to the Secretary of State on suppliers’ progress towards achieving their targets. We want to help and support householders in understanding and reducing their carbon footprint. The CERT will be an important part of this process and will sit effectively with other major policies and initiatives aimed at meeting our climate change ambitions in this sector.

Looking to the future, the Government have already made a commitment to some form of supplier obligation after the CERT to at least 2020. The new flexibilities introduced with the CERT, including new routes for innovation and for working with those most vulnerable in our society, will offer the opportunity to prepare effectively for new approaches.

I hope that the Committee will agree to the Motion. I am most grateful to the noble Lord, Lord Jenkin of Roding, who has given me advance notice of some of his questions. I am happy to set out some of the answers before he speaks, so that he can comment on them later.

Lord Jenkin of Roding: I hope that the noble Lord might comment, but I think that my noble friend Lord Cathcart will want to speak first.

Lord Rooker: I shall therefore comment on those issues later. I beg to move.

Moved, That the Grand Committee do report to the House that it has considered the Electricity and Gas (Carbon Emissions Reduction) Order 2008. 5th Report from the Statutory Instruments Committee.—(Lord Rooker.)

4.45 pm

Earl Cathcart: I thank the Minister for introducing this order. From our debates on the Climate Change Bill, I know that he shares my interest in reducing carbon emissions. While the Bill is setting out the framework for the effort to stem climate change, orders of this kind are the nuts and bolts. Thus, I welcome the opportunity to debate this order.

Under this Government, emissions have risen. There is no chance of the Government meeting their target of a 20 per cent reduction of CO2 by 2010. Scrutiny is therefore important. We need to ensure that opportunities for improvement are not missed, so it is important that the potential benefit of some of the provisions in this instrument are realised. The carbon emissions reduction target could play an important role in emissions reduction. Indeed, the housing stock in this country accounts for 27 per cent of our CO2 emissions. Targeting housing, then, is a welcome step.

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The CERT will build on the energy efficiency commitment, which stimulated tremendous investment—£600 million—in energy efficiency. The net benefits to householders are estimated to be over £3 billion. This can claim to be a success. However, I remain sceptical about the way in which the Government are rolling out a scheme and trying to stimulate microgeneration. The goal in all our efforts to stop climate change is to reduce emissions and to secure for the UK a genuinely greener energy sector. Thus, we must not be, as was said in another place, too quick to pick winners in the mix of available technologies. Reducing carbon emissions through the various microgeneration technologies that are allowed to be used by suppliers under this order is by no means bad in its own right. However, it skews the market towards a narrow way of thinking about reductions. There does not seem to be enough to stimulate real investment in further green technology that could provide potentially much greater benefits.

The point here is one of emphasis. Does the Minister think that enough has been done with this instrument to encourage innovation? If we are to tackle the problem of climate change, there needs to be nothing short of a revolution in energy supply. Does the Minister see this order as the best example of encouraging the necessary innovation? Suppliers can currently claim back 50 per cent if they make market transformative actions. Will the Minister explain what constitutes a market transformative action? What standards are used to judge this? Does he think that it is adequate to encourage suppliers to innovate?

My concern is that there does not seem to be a clear enough mechanism for making a real change to energy supply. There seems to be a risk that suppliers will focus on the cheapest short-term solutions that tick the box; that is, even if the targets can be met, that will be done in such a way that suppliers are locked into a higher-carbon method of providing energy than they would be if serious emphasis were placed on greater capacity for innovation.

The order places an overall target for reduction in carbon emissions in the household sector on energy suppliers. The regulation, enforcement and determination of what measures can be used to meet the targets will be the responsibility of Ofgem. This is also a cause for concern. The report of the Government’s own Sustainable Development Commission, Lost in Transmission?, calls for huge changes to the structure of Ofgem to ensure that it prioritises the transition to low-carbon energy supply. Has the fact that a large regulatory burden is placed on a body that has been criticised by this report been considered? Has the report been considered and have the necessary changes been made to Ofgem? The accountability of the suppliers to Ofgem and of Ofgem to the Government is unclear in this instrument. Could the Minister explain the mechanism that will ensure that suppliers are accountable to Ofgem?

As the instrument stands, we will not know the progress that suppliers are making towards the targets for a three-year period. Article 22 requires Ofgem to determine whether or not a supplier has met its obligations regarding emissions cuts. The cuts must occur between 1 April 2008 and 31 March 2011, after

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which Ofgem will present a report to the Secretary of State. Can Ofgem intervene, if progress is not being made to meet these obligations? Will there be any interim reporting? Is there any mechanism to ensure that the efforts made by the suppliers will be on course with meeting their obligations? What if suppliers do not meet the overall targets?

When the CERT was put out for consultation, grave concerns were expressed by some of those who would be involved, particularly regarding the targets, which some respondents considered very challenging. There was concern about the fact that there might be significant costs to consumers. What will happen if consumers do not get on board? Does the Minister think that there is a need to increase customers’ willingness to participate in the scheme through incentives or marketing? There was also concern that Defra’s estimation of the costs had been too low. Consumer participation seems to be essential in ensuring that this works. If the burden on the consumer is considerable, there will be no scope without further incentives to encourage microgeneration or other types of innovation. Considering the scepticism of the consultation, what further measures have been taken to ensure that the targets are feasible?

I also wish to express some concerns regarding fuel poverty. The energy providers will be obliged to achieve 40 per cent of their reductions by promoting measures to those on benefits and tax credits and to householders over 70. In the consultations, energy suppliers and climate change groups considered this target to be unachievable. Has the fact that this target has already been deemed unrealistic been taken into account? How are the energy suppliers to identify the priority group in the first place? I know that my noble friend Lord Jenkin of Roding may speak to this part of the statutory instrument. None the less, I want to mention the lack of clarity surrounding just how this group is going to be reached. Is the Minister convinced that enough people will volunteer for this scheme? Will energy companies be obliged to spend money advertising that there are schemes for those on benefits?

We must ensure that the benefits of this instrument will be long-term benefits. For example, this is supposed to promote microgeneration, but are there provisions that allow for small generation to sell back to the grid? Are there any price-controlling mechanisms to ensure that small generators can prove to be a worthwhile investment?

It would be a cruel fate to see measures such as these, with so much potential to make a real step towards stimulating green energy and energy reduction in this country, being scuppered by quick-fix solutions and ineffective accountability. I look forward to hearing the Minister’s response.

Lord Redesdale: We on this side also welcome the statutory instrument, especially the provisions for microgeneration and fuel poverty, which, given the recent rise in gas prices, will be very necessary for a growing proportion of the population.

The order omits to mention boilers, which are the most important generators of carbon in the domestic sector. It talks about insulation, which is a worthy and

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cost-effective way of keeping the heat in. It talks about cavity wall insulation, which is also needed, as vast numbers of properties do not have it. However, boilers have been neglected in this sphere, which seems rather strange, because boilers emit the carbon in the first place. Inefficient boilers, such as the 4 million G-rated boilers in this country, which account for 75 per cent of the energy produced through water heating and space heating, are an area where improvement could reap vast rewards in terms of carbon.

The Climate Change Bill is going through the House at the moment. While microgeneration is being given a degree of support in the order, just replacing G-rated boilers would ensure a much more effective reduction in carbon dioxide. That could be done by using EPCs—another flagship policy of the Government—through the HIPs to look at the state of boilers in every home. EPCs are of course carried out at the point of sale, but that does not have to be the case; many of the energy companies could carry out an EPC for any property in which they wished to install energy efficiency methods. The CERT could then be used towards replacing G-rated boilers. A G-rated boiler has a pilot light. I learnt a great deal about boilers recently, but I did not realise that a pilot light sticks 10 per cent of the energy straight up the chimney, with no benefit to the consumer at all. Removing the 4 million G-rated boilers, with a resulting 10 per cent efficiency gain on each and every one, would be a helpful method of vastly reducing the carbon dioxide.

One good thing about the statutory instrument is that it gives Ofgem the flexibility to look at these issues. One of the reasons why I make this point is that, although I know that Ofgem is interested in looking at this and can bring about the changes, I very much hope that there is a mood change within Defra to look at boilers, because the letters that we have received from Ministers until now have questioned the value of replacing G-rated boilers. The big problem with those boilers is that they are so simple that they rarely break down and you can keep them going for ages. I have a G-rated boiler, which I am about to change. However, my gas fitter turned around and said, “What a fabulous boiler. They’re so easy to maintain, this will go on for ever. They don’t break down. You shouldn’t get rid of this”. Of course that is fairly disastrous in carbon terms.

In the area of fuel poverty, many older people will have a G-rated boiler that they will nurse for many decades because of the cost of replacing it. The CERT could be a way of giving a grant towards replacing these boilers, which would vastly reduce the amount of carbon dioxide. I therefore very much hope that the Minister can say that he will look flexibly at this and that Defra officials will start doing the work to realise that this is a good thing.

Lord Jenkin of Roding: I must express my gratitude to the Minister for not answering my questions before I asked them. I thought that that was the usual way around, but he quickly recognised that that might be the best thing to do.

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I start my speech with a quotation from Hansard. As the Minister noted, I have given him notice of this. On 26 April, there was an exchange on the Floor of the House about fuel poverty. The questions were answered by the noble Lord, Lord Truscott, who was then a government Whip. I asked him what the point was,

The noble Lord answered by saying,

I ask the Committee to concentrate on the words “between government departments”, because it is not government departments that need to share information. Indeed, a huge amount of information is already shared between them. The order puts obligations on the supplier industries, which are the ones that must target households. Exactly the same question was asked last week when the order was debated in another place. Mr Phil Woolas, the Minister who replied to my honourable friend Greg Barker, did not even attempt to answer the question about how the industry was to get the names and addresses.

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