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Energy Bill

I am grateful to the noble Baroness and the noble Lord for speaking to this amendment. I note that the noble Lord wants to hear where the Government stand in general, broad terms on this issue, so he will forgive me if I take a little time. We sympathise with the broad objective, but we do not believe that the amendment would serve to increase the effectiveness of the Government’s actions to reduce carbon dioxide emissions. We believe that, as currently formulated, the amendment could be counterproductive. However, I do not want any unnecessary polarisation of this debate, because as much as anything this is a probing amendment. The amendment is very important and I do not believe that the overall respective positions are very far apart on this matter. In particular, we agree—as does the noble Baroness—with the concept of a cap on carbon dioxide emissions. We differ on how this cap should be set. We are convinced that the most appropriate level for any carbon dioxide cap on electricity generation is that it should be part of a broader overall cap on such emissions within the economy and not at individual power station level. This gives the market freedom to deliver carbon reductions in the parts of the economy where they are most cost effective. Moreover, because climate change is not a battle just for us in the UK, the effectiveness and credibility of any such carbon dioxide cap is strengthened if the cap is set at multinational not just national level. That is why we believe that the right strategy is to deliver a cap and the resultant carbon emission reductions through the EU Emissions Trading Scheme. I will first explain our emissions reduction strategy. We are committed to meeting our greenhouse gas reduction target. The Climate Change Bill, the first of its kind anywhere in the world, will set out a framework for achieving that through legally binding targets and ““carbon budgets””, and will help to provide the certainty and confidence that business and individuals need to encourage them to make the necessary long-term investments in low-carbon technologies. Within the strategic context, our approach is that set out in the White Paper. It is intended to secure the twin objectives of achieving emissions reductions, but at the same time maintaining reliable energy supplies. The key to delivering these objectives is the trading scheme. The EU ETS sets an overall cap on EU-wide greenhouse gas emissions, but allows companies to decide the most cost-effective way of delivering them. The cap is an ambitious one: in the Commission’s proposed draft directive, for example, emissions covered by the scheme will be 21 per cent below 2005 levels by 2020, which is a very challenging target indeed. Furthermore, the cap includes emissions from all the EU’s power stations that exceed the 20 megawatt threshold, and will continue to decrease annually after 2020 in keeping with the EU’s emission reduction targets. Importantly, the cap cannot be expanded. Therefore, any new power stations will have to fit within the existing emissions limits set at the EU-wide level. This means that any limit on emissions from a particular power station or group of power stations would not lead to additional carbon savings overall. The EU ETS is at the heart of our global effort to tackle climate change, and we have been working closely with the Commission and other member states to ensure that in phase 3 and beyond, the EU ETS is strengthened and consolidated with increased transparency and improved stability. We have seen the scheme already develop with forward contracts for EU emission allowances currently trading at around €25 per tonne of carbon dioxide. Companies will have to take that real and substantive financial cost into account when making their investment decisions. We are confident that going forward, the strengthened EU ETS will play a pivotal role in cutting the power sector’s emissions in the UK and Europe. It will do so in a way that is consistent with the market principles which help to make carbon savings in the most cost-effective manner possible. I do not know whether the Committee is with me or not. Because of this existing framework, the amendment proposed by the noble Lord, Lord Redesdale, would not have the effect of further reducing the carbon emissions from power stations. Amendment No. 60 would give the Secretary of State the power to make regulations prescribing a greenhouse gases emissions performance standard for new generating stations and would prohibit the consenting of new stations under Section 36 of the Electricity Act 1989 unless they are compliant with that standard. It would have the effect of constraining the possibilities for delivering the diverse energy mix that the UK requires for ensuring the security of supply, while also impinging on the effectiveness of the EU ETS. The amendment is clearly targeted at energy generated from fossil fuels, particularly coal. We believe, and we hope to explain, the important role that fossil fuels play—and should play—going forward in the UK energy mix. I return briefly to why the Government believe that the existing framework for tackling carbon emissions is right and how new fossil fuel power stations can be compatible with an overall drive to reduce emissions. As the Committee knows well, the UK potentially faces a growing energy generation gap, with about a third of our existing capacity closing by 2020. Nine fossil fuel power plants, comprising around 12 gigawatts of capacity—about 20 per cent of peak demand this year—are scheduled to close by the end of 2015 as a result of EU environmental legislation. Seven nuclear power plants with a combined capacity of more than 6.5 gigawatts are also scheduled to close by 2020, with another 4 gigawatts in later years. The Government have made it clear that they want to see a step change in the use of renewable generation by 2020, but because most of that renewable energy will come from wind, which is an intermittent form of energy, we still need significant conventional capacity to provide back-up. In the shorter term, where the build rates of new renewables and nuclear will be constrained, we will have to continue to rely on fossil fuels for base load electricity generation. This view of the future is not confined to the UK. The International Energy Agency predicts, under its most positive scenario, that fossil fuels will still provide approximately 38 per cent of total worldwide electricity generation by 2030. Fossil fuel power stations have the capacity to operate flexibly and to respond effectively to fluctuations in supply and demand, which will be increasingly important as we increase the share of renewables in the mix. Any CO2 cap set at a level that prevents new coal-fired power stations without CCS could create a repeat of the ““dash for gas”” that occurred in the UK in the late 1980s and early 1990s. A further increased reliance on gas-fired power stations in our electricity supplies would leave us even more exposed to international gas markets as availability of our national resources declines. Coal-fired power generation also plays a key role in balancing the gas market when gas supplies are tight, mitigating security of supply concerns. The risk to security of supply of an overreliance on gas in the UK is not a theoretical point. As we saw in the winter of 2005-06, our power system’s ability to use less gas by increasing the consumption of coal was instrumental during this time of shortage in making gas available to industry and domestic users. Without this flexibility, prices would likely have been higher, thus adding costs to our economy and there would have been a greater risk of capacity-related blackouts. As we move to an era where we will be more dependent on imports for our energy needs, our need for a diverse electricity-generating mix will be greater than ever. We need maximum flexibility to allow us to withstand and respond to any possible fuel supply crunches. Fossil fuels, including coal, need to play a role in the UK’s electricity supply even with a transition to low-carbon power generation and a low-carbon economy. The effect of this amendment would be to rule out new coal power stations until such time as CCS technology is commercially available and economically viable. The cap imposed by the EU ETS, however, enables new coal-fired power stations to be constructed by requiring equivalent carbon dioxide savings to be made elsewhere in the economy. Significant improvements in design specifications already mean that new coal-fired plants would emit approximately 20 per cent less CO2 than older coal-fired power stations. Moreover, carbon capture and storage offers the possibility of reducing this still further, with a potential of up to 90 per cent reduction in CO2 emissions from such power generation. Therefore, alongside our work on the EU ETS, we are taking steps to ensure that CCS is a real option for the future. We are, of course, one of the very few countries in the world with a definite commitment to supporting a commercial-scale carbon capture and storage project. We are also considering whether we should require future power stations to be built ““capture ready””. We will be launching a consultation on carbon capture readiness shortly. It will seek views on European proposals requiring member states to incorporate capture ready considerations in the consenting process. This is contained in the EU proposal for a directive on geological storage of CO2. In particular, the consultation that we are launching will consider the factors which define what constitutes capture readiness for any new plants. We believe that a statutory limit on carbon dioxide emissions from individual new fossil fuel power stations would not give us additional help in our efforts to reduce greenhouse gas emissions. The noble Lord’s amendment would constrain the possibilities for delivering the diverse energy mix that we require as a country for ensuring our security of supply. With each new restriction, we further tie the hands of the market, limiting its options for investing in the infrastructure necessary to meet all our energy policy goals, which include tackling climate change. Finally, we also believe that advances in the design specification of fossil fuel power stations, the Government’s support for the development of carbon capture and storage and the concept of carbon capture readiness mean that it is consistent with the framework of the EU ETS for new fossil fuel powered plants to play their part in our economy’s transition into low-carbon generation. The noble Baroness, Lady Wilcox, praised the Californian arrangement. The context is quite different. We have decided to adopt a market-based approach to reducing emissions in the EU; there is no equivalent of the EU ETS in California. Frankly, placing artificial constraints on the market to deliver reforms makes no sense in the EU, where we have a sound market-based mechanism to reduce emission with the EU ETS. I am grateful to the noble Lord for moving his amendment and thus allowing a discussion of where we stand on this important issue.