asked Her Majesty’s Government:

What discussions they are having with other members of the G8 on current levels of world fuel prices.

My Lords, the United Kingdom has been discussing high oil prices with the G8 in several international fora. The G8 energy ministers’ meeting in early June concluded that oil prices at current levels are against the interests of both producers and consumers; there is a need for increased investment in oil production to keep markets well supplied as demand rises; we need vigorously to pursue energy efficiency and diversify away from fossil fuels by increasing use of low-carbon energy. We will be raising the issue at July’s G8 summit in Japan.

My Lords, I thank the Minister for that reply. While we would probably think that an oil price of up to $100 a barrel might be healthy, I presume the Minister would agree that where the price is moving to at the moment means that we risk both inflation and recession in the global economy. Does he expect to get an agreed policy out of the meeting in Japan next month or does he agree with Kevin Rudd, the Prime Minister of Australia, that we should apply a blowtorch to OPEC?

My Lords, what we hope to get out of the G8 is very much what the Prime Minister, along with others, got out of the Jeddah meeting last weekend: a recognition that current oil prices and their volatility are detrimental to the global economy, in particular for developing countries; an agreement that higher levels of investment are required throughout the oil supply chain; and that producers and consumers should take forward a programme of work to improve the long-term functioning of the oil market.

My Lords, if the Prime Minister is concerned about fuel prices and their effect on consumers and the economy, instead of making a journey to Saudi Arabia or Japan, would it not be better to make a journey next door to No. 11 Downing Street and ask the Chancellor to cut the duty which he is taking on these inflated prices?

My Lords, of course the Government recognise the impact of oil prices on motorists at the moment, and the Chancellor will look closely at that and other factors when considering whether to go ahead with the planned 2p per litre fuel duty increase. But I should say, and I would be interested to know whether the opposition parties agree, that Government policy remains that fuel duty should continue to rise at least in line with inflation as the UK seeks to reduce polluting emissions from fossil fuels and to support public services.

My Lords, the noble Lord has just touched on the issue I want to raise. Is he aware that the Government are producing conflicting messages? On the one hand we are trying to get the price of oil reduced so that we can do more trade, while on the other hand people are being exhorted to use their vehicles less and thus use less oil. What is the message? Are we to use our vehicles less or is the world to reduce the price of oil so that we can use more of it?

My Lords, there is no conflict. Our position on international energy markets is not in conflict with our climate change goals. The transition to a low carbon economy needs to be managed, and economic slowdown will not help that. Current energy prices are a risk to the low carbon economy, not a spur, especially if they cause a global economic slowdown. I remind the House that the result of oil prices as high as they are at the moment affects developing countries much more than anyone else.

My Lords, with regard to the statement just made by my noble friend, is it not correct to say that there is a difficulty and that what the Government are trying to do is strike a balance between the economy and the environment?

My Lords, all governments have to balance various interests. However, I want to make it clear that there is nothing particularly green about the current high level of oil prices. It is not the way to make the world go green; that needs to be done in a much more managed way than is the case at present.

My Lords, to allay the confusion over the Government’s current policy, will the Minister confirm the statement made to the Financial Times by the noble Lord, Lord Turner, chairman of the Climate Change Committee to be established under the Climate Change Bill, that an integral part of their climate change policy is to have still higher carbon-based energy prices?

My Lords, I do not know the words quoted by the very distinguished noble Lord, Lord Lawson, although I know where he comes from on this issue. We think that the price of oil worldwide at the present time is much too high, and that is where we remain.

My Lords, when the Government get to the July G8 summit, will they consider a proposal to the other G8 states for a collective agreement on the reduction of oil consumption worldwide in line with the reductions in CO₂ that have already been agreed? If the markets believed we meant business on this, would not that have a marked effect on world prices?

My Lords, one of the effects of the very high oil price is that it encourages methods not to use oil to the same extent as it is being used now. One of the current effects is that people are being much more careful in the way in which they use fuel.

My Lords, what proportion of these extortionate oil prices does the Minister think is made up by speculation? Does he believe that there is an oil price bubble and will it burst?

My Lords, we do not believe that speculation is the most important driver of these increases. The most important drivers are changes in the underlying balance of the market. In other words, demand for oil is rising faster than supply and the market lacks spare capacity. The decline in the value of the dollar is another important factor in driving dollar-denominated prices. One should not forget geopolitical tensions in oil-producing countries either. We do not think speculation plays the most important part.