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Department of Energy and Climate Change

Volume 704: debated on Thursday 16 October 2008

My Lords, with the leave of the House, I shall now make a Statement on the new Department of Energy and Climate Change.

The new department brings together the Government’s work on three long-term challenges that face our country: ensuring that we have energy that is affordable, secure, and sustainable; bringing about the transition to a low-carbon Britain; and achieving an international agreement on climate change at Copenhagen in December 2009. These are our goals, and the new department is a recognition that when two-thirds of our emissions come from the use of energy, energy policy and climate change policy should not be considered separately but together.

In tough economic times, some people will ask whether we should retreat from our climate change objectives. In our view, it would be quite wrong to row back, and those who say that we should do so misunderstand the relationship between the economic and environmental tasks that we face. Of course there are trade-offs, but there are also common solutions to both; for example, energy-saving measures for households which cut bills and emissions, such as those announced in September by my right honourable friend the Prime Minister, or investment in new environmental industries, which both improve our energy security and reduce our dependence on polluting fuels. What we know from the Stern report in 2006 is that the costs of not acting on climate change are greater than the costs of acting. Only if Britain plays its part will a global deal to cut carbon emissions be possible. So, far from retreating from our objectives, we should reaffirm our resolve.

Over the summer, the Secretary of State for Environment, Food and Rural Affairs asked the independent Committee on Climate Change to review the long-term target for Britain’s emissions. Based on a Royal Commission report in 2000, the target had been set at a 60 per cent reduction in CO2 emissions. Since then, independent reports have added further to our knowledge. Arctic sea ice has melted faster than expected, global emissions have grown faster and the impacts of each degree of climate change are known to be worse.

Last week, the noble Lord, Lord Turner, wrote to me with the committee’s conclusions, and they have been placed in the Library of the House. His report found that to hold global warming to two degrees above pre-industrial levels, commonly accepted as the threshold for the most dangerous changes in the climate, global emissions must fall by 50 per cent to 60 per cent by 2050. The noble Lord concluded that for Britain to play its proper part, the UK should cut our emissions not by 60 per cent but by 80 per cent. He concluded that the target should apply not just to CO2 but to all six of the Kyoto greenhouse gases. He concludes that, while there are uncertainties about how to allocate emissions from international flights and shipping, they, too, should play their part in reducing emissions.

The Government accept all of the recommendations of the Committee on Climate Change. We will amend the Climate Change Bill to cut 80 per cent of greenhouse gas emissions by 2050, and that target will be binding in law. I hope that all sides of the House will support that. Indeed, I want to create as much of a consensus as we can on climate change.

However, we all know that signing up to an 80 per cent cut by 2050 is the easy part. The hard part is meeting it and meeting the milestones that will show that we are on track. For us in Britain, those will be shaped by the recommendation of the Committee on Climate Change, which will advise us in December on the first 15 years of carbon budgets—national limits to our total emissions. We will report next year on how we will meet them.

We are also determined to ensure that the signal and the commitment come not just from Britain but, as the Prime Minister has been making clear in recent days, from Europe, too. That means an agreement by the end of this year on the strengthening of the EU Emissions Trading Scheme and on the targets for 2020 that Europe should reduce greenhouse gases by 20 per cent unilaterally and by 30 per cent as part of a global deal, and that the EU should confirm its renewable energy target.

Earlier this year we published our draft renewable energy strategy. What is clear to me is not only the scale of that challenge but also the urgency of getting on with delivery. The renewables obligation has tripled supply in the last five years, and we are making further changes in its structure, in planning policy and in access to the grid. However, having heard the debate on this issue, including from many colleagues in this House, I believe that complementing the renewables obligation for large-scale projects with guaranteed prices for small-scale electricity generation and a feed-in tariff has the potential to play an important role, as it does in other countries.

So, having listened to the views expressed, including those in the other place, we plan to table an amendment to the Energy Bill to make that happen. I also believe that renewable power can play a bigger role not just in electricity but in heating, too. Heating produces almost half of Britain’s carbon emissions, and cleaner sources of heat can help us meet our target in 2050 and the milestones on the way. I am clear that we need to make rapid progress on this, too, and I will make further announcements soon.

I said at the start that our objective was a climate change policy that was fair and an energy policy that was sustainable. Today’s structure of the energy market was designed in a world of abundant supply, British energy self-sufficiency, low commodity prices and an emerging debate, though not a settled consensus, on climate change. Today, all those assumptions have changed. There is international competition for resources, a need for new investment in supply, structurally higher energy prices and an urgency about carbon emissions. To respond to this new world, we need a market that secures future supply, including with investment in nuclear power and carbon capture and storage; more to incentivise cuts in carbon emissions; and more to help homes and businesses. These are big issues that we need to address for the future. Today, however, I want to signal a direction of travel on affordability.

Last week, the energy regulator Ofgem highlighted what it believed to be unjustified higher charges for 4 million electricity customers in areas not connected to the gas main. It also believes that, even taking account of higher costs facing companies from customers with pre-payment meters, many homes that use them are being overcharged. Unfair pricing which hits the most vulnerable hardest is completely unacceptable. I made that clear to the representatives of the big six energy companies when I met them yesterday. I also told them that the Government expect rapid action or explanation to remedy any abuses. I will meet them again in a month to hear what they have done. We and Ofgem are determined to see these issues addressed. Ofgem is consulting on its findings until 1 December as part of a due process. If the companies do not act in a satisfactory way, we will consult on legislation to prevent unfair pricing differentials.

For us, markets can provide enormous benefits in dynamism and efficiency, but they will work properly only if they are regulated effectively in the public interest, including with a strong independent regulator. There is more to do to help consumers, and we will not hesitate to act. A climate change and energy policy that is fair and sustainable, and meeting our obligations to today’s and future generations—that is the work that we are beginning in my new department, and I commend this Statement to the House.

My Lords, that concludes the Statement.

My Lords, I thank the noble Lord, Lord Hunt of Kings Heath, for his Statement, and I welcome him to his new position as Minister of State. This is his sixth department—I added them up this morning—but energy and climate change will undoubtedly be the most exciting. I hope that, between us, we might just manage to keep the lights on and save the world.

I am pleased to note that the Minister’s first Dispatch Box Statement contains so much that is welcome to us. I have a great hope that the new department will continue to listen and to be persuaded by our arguments on climate change policy. Unfortunately, I note that the new department has not managed to escape the usual government practice of prioritising the press over Parliament. I know that we on these Benches make that point frequently, but I live in hope that repetition will eventually have its effect.

In an article in the Guardian this morning, the new Energy and Climate Change Secretary complained that the green lobby groups have,

“an assumption of bad faith”.

Does the Minister not feel that this unfortunate assumption may have arisen because the Government’s standard operating procedure is to announce policies in a way which has more regard for newspaper headlines than effective legislation?

Nevertheless, I was very happy to read this morning, and to hear this afternoon, that the Government have decided to accept the climate change committee’s target of an 80 per cent cut in carbon emissions. Can the Minister confirm that this target will continue to be kept under review and, if necessary, adjusted in the light of further scientific information?

I am also extremely pleased to hear that the Government have finally accepted the necessity of a guaranteed price for small-scale electricity generation. Peers from these and other Benches, including those behind the Minister, have for some time been pushing for that to be included in the Energy Bill. I look forward to examining the government amendment in the hope that it will satisfactorily replace the amendment that I have already tabled.

The Minister has just made some reassuring noises about the Government’s concern about continuing fuel poverty. However, his promise to talk to six energy companies is rather less than we on these Benches would like to hear. Does he not think that the Conservative Party policy to expand the role of the Post Office card account, whereby lower income people who do not have bank accounts could take advantage of preferential rates available via direct debit payments, would do much more to benefit these people?

The Statement contained some very welcome assurances, but there are many more issues, and many more decisions that the Government will need to take. The Government would have us believe that the creation of a new department is a sign of their commitment to taking the necessary steps towards making meaningful progress on climate change and energy. A restatement of their commitment is certainly necessary after a decade of delay and dithering in this area. I therefore look forward to hearing much more from the Minister in the very near future about specific proposals in the many areas that need addressing urgently. I hope that this reorganisation will indeed signal progress rather than just mask continuing indecision.

My Lords, from these Benches, I very much welcome the Minister to this portfolio and we very much look forward to what I know is his strong commitment and his ability to persuade not just the rest of the House but the rest of the Government about the importance of this area. He is clearly already making good progress.

We absolutely welcome this Statement. It goes further than I could have hoped and would have expected. That is a very positive sign indeed. We also congratulate the noble Lord, Lord Turner, on his work in the climate change committee and in many ways regret that he will be moving on, although his appointment to the FSA is clearly good.

On the movement from a 60 per cent to an 80 per cent target, the Statement shows how Britain can indeed lead the global debate around the need for action on climate change, but I remind the Minister that the way that that 80 per cent is defined allows all sorts of ways in which this country can get around that target internally. No doubt, we will have that debate when the Climate Change Bill comes back to the House.

Including other greenhouse gases in those targets is logical and ties in with the Kyoto process. We on these Benches were arguing for that within the Climate Change Bill. The Government will have a 10 per cent better start in terms of the 1990 figures than they would have had if they took account of carbon dioxide only. I hope that that will help us to meet the targets.

Aviation and air was an area that I was particularly interested in. The Statement, says that,

“they, too, should play their part in reducing emissions”.

We would all agree with that, but I ask the Minister to clarify whether those emissions will be within the 80 per cent target or not. That is what we need to understand.

The feed-in tariff has been particularly successful in generating renewable energy, particularly within Europe. Another reason that we welcome it is that it has one other effect, which is that it allows much greater participation by smaller organisations and individuals, households and families, who can involve themselves in, and benefit from, the generation of renewable energy.

However, there is still a huge challenge in the area of fuel poverty. Clearly, we welcome the fact that oil energy prices have come down to a more sensible level over the past couple of months, and I hope that the same will also apply to gas, but at the same time we do not want those energy prices to be too low. However, there will be great challenges to households. Reining in the number of people who move back into fuel poverty will require the Government to take decisive and strong action—perhaps more than is suggested in the Statement—and we look forward to a further report from the Government on how this action will move forward.

Again, we on these Benches congratulate the Government on taking the bull by the horns in terms of the Turner recommendations, and we very much welcome this as the Minister’s first Statement in his new role.

My Lords, first, I warmly welcome the comments of both noble Lords on the Statement. They set a very good foundation for the consensual way in which my right honourable friend the Secretary of State has today intimated he wishes to proceed. Given that we are talking about matters which fall to be dealt with immediately and have huge long-term impacts, I am sure that a consensual approach is the right way to go forward.

I very much agree with the noble Lord, Lord Teverson, that the noble Lord, Lord Turner, has done an extraordinary piece of work. The balance of national interest is a nice judgment, and he will be very much missed from the Committee on Climate Change. I also wish to point out the outstanding work that he did in relation to pensions, of which of course I had experience as a pensions Minister. Indeed, the noble Baroness pointed out that with my current role I have now been round Whitehall quite a few times. I hope that that adds to what I bring to the job, as I think that experience within different government departments is helpful.

One thing that I have learnt already is that, while much of the action has to take place internationally in the agreements that we reach, in relation to the energy industry and those who are concerned about the impact of climate change, there is also a job to be done within government in ensuring that there is commitment to this agenda and that it is driven by all departments. Again, I thank the noble Lord, Lord Teverson. I have a personal interest in this matter, although I bring no expertise. I remember being appointed the Department of Health’s green Minister in 1999. I attended meetings of green Ministers then and have continued to take an interest in the role that other sectors and other government departments can play in this hugely important agenda.

“Keeping the lights on and saving the world” is a very apt description of what we are trying to do and I do not think I can better it. I shall bear it in mind when we come to debate the Energy Bill, the Climate Change Bill and no doubt the Marine Bill in a future Session of Parliament. I appreciate the welcome given to the decision to go for an 80 per cent target and the welcome for the feed-in tariffs. I suspect that we will still wish to hear what noble Lords have to say on Report before coming to a final decision about what amendment to put forward, so our debate—if it is not next week, it will be the week after—will be very important to us in that respect. Although I have not participated in the Energy Bill, I know that there have been very good and serious debates, and it is clear from my right honourable friend’s Statement that considerable attention has been paid to them by my department. In a sense, that is my answer to the noble Baroness, Lady Wilcox, who had a go at us for the way in which some details have come out. I understand her point.

Fuel poverty is a very important matter. Although we have seen considerable progress and a reduction in the number of fuel-poor households, rising energy prices have had an undue impact on that number. As I said, my right honourable friend the Prime Minister announced a series of measures to provide some support in this area, together with support in terms of energy efficiency in individuals’ homes. I recognise that there is a long way to go but, in signalling his intent to the industry, I think that my right honourable friend has shown his determination to keep a very close eye on what is happening.

The noble Lord, Lord Teverson, welcomed the decision to move from a 60 to an 80 per cent target. Certainly, it puts us in a stronger position to lead the debate internationally, where I am sure this country has a huge role to play. He said that the definition is all and that there was a risk that, if the definition was not right, there would be ways of getting round the target. I assure him that that is certainly not our intent. This is a very important Statement in respect of the Government’s determination to deal with these matters effectively, and we will want to ensure that a robust mechanism is put in place.

I know that international aviation and shipping emissions have been the subject of considerable debate. I reiterate that our commitment to a long-term climate strategy includes aviation and shipping. The interim advice of the Committee on Climate Change included a recommendation that the scope of the Climate Change Bill should not be extended to international aviation and shipping. I think that that was very much to do with the problem of agreeing measurements, and therefore our approach is to exclude international aviation and shipping from the Climate Change Bill. However, I come back to the point that both noble Lords raised: of course we must keep the target under review in the light of emerging circumstances. I also understand that from 2012 international aviation is to be embraced within the European Emissions Trading Scheme. I hope that noble Lords will take that as an indication that it is not our intention simply to put aviation to one side; it is a very important factor in all of this. I thank both noble Lords for their very constructive comments on the Statement.

My Lords, I warmly congratulate my noble friend on his appointment to what is a crucial new post. I also warmly welcome the Prime Minister’s decision to create this new department, bringing together energy policy and policy on climate change, which, as we all recognise, are inextricably linked. We must hope that this decision will bring greater clarity, focus and coherence to these important areas of policy for our nation, for the economy and, not least, for individual consumers of energy. Is it not clear that the decision in the 1980s to abolish the Department of Energy resulted in damaging our ability as a nation to meet the new challenges that we now unavoidably have to face? In that regard, as the creation of new nuclear-power-generated capacity is absolutely essential in meeting what have now moved from challenging targets to heroic targets for the elimination of greenhouse gases, can my noble friend give the House any indication of the estimated timescale for bringing new nuclear-generated capacity online?

My Lords, I thank my noble friend for that instructive comment. I recall the days of the Department of Energy and certainly agree that it is important to have appropriate focus within government on energy questions. I would not wish to undermine the work that has been done on energy in BERR, but the new department allows us to give considerable focus to these pressing matters on energy policy alongside the challenge of climate change.

My noble friend rightly referred to the importance of nuclear energy, and I know that noble Lords generally share that view. Clearly it is a low carbon-emitting energy source and has an important role to play in the future, as has been signalled by the Government. Of course, the takeover of British Energy by EDF is a signal of positive future investment in the nuclear energy programme. I understand that we are on track for electricity to go into the grid from a new build by 2017. Clearly that will be an important signal and contribution to energy supply in the future.

My Lords, I have three questions but I preface them by saying that bringing together the energy aspects of Defra and of BERR into this new department is wholly to be applauded. I say that as the first Minister who ever had the title Minister for Energy. We have waited a long time for it. I was surprised that the Prime Minister did not do it on appointment in his first reshuffle, but it is happening now.

My three questions are simple. First, there is some doubt about this outside the House, but the Nuclear Decommissioning Authority is hugely important with an enormous budget stretching over many years. While the news release about the responsibilities of Ministers refers expressly to offshore decommissioning, it does not talk about nuclear decommissioning. Will the Minister give an assurance that the Nuclear Decommissioning Authority will be one of the agencies that comes under the new department?

My second question, which will not altogether surprise him and to which we will no doubt return in the Bill, concerns fuel poverty. Huge emphasis has been placed on the need for much better targeting from the point of view of social tariffs and the CERT obligation. We have had only a tiny change—for pension credit in the Pensions Bill—so far, involving a very small group of people who could be within fuel poverty. Can the Minister say anything more about the targeting and whether that will be improved?

My third question is again perhaps a more technical one. When the Office of Nuclear Development was set up within BERR, one of the points made to me was that it would be largely concerned with the supply chain for nuclear development. Most of the industries concerned—engineering and others—will fall under the aegis of BERR. Obviously the Office of Nuclear Development will be part of the Minister’s department, but how will the supply chain of that office’s work function? There will have to be a very close collaboration between his department and that of the noble Lord, Lord Mandelson.

My Lords, the noble Lord said that they were three simple questions, but they were pretty fundamental questions, as I would expect from someone so experienced in this hugely important area. I must say how much I welcome his comments about the establishment of the new department. I have listened to him with great interest over the years on many matters, not least in your Lordships’ House on the question of the need for an effective energy policy.

On targeting, the noble Lord’s point is well made. Since my days at the DWP, I am not as well informed on that question as perhaps I ought to be, but I take his point that in dealing with fuel poverty we have to ensure that the money that is available is spent most effectively. I think that that was the point he raised. He will have understood from my comments and from the Statement of my right honourable friend that we understand clearly the importance of dealing with fuel poverty, particularly in these very difficult times.

On the question of the Nuclear Decommissioning Authority and the other question the noble Lord raised, he will understand that the department has been established for only 10 days and matters still have to be decided. I would rather not attempt to give him a definitive answer at this stage, but perhaps I might report both to him and to the House when we have finally established the whole set of responsibilities. It is fascinating to be at the creation of a new department with all the excitement and potential, but one or two practical issues must be dealt with.

I can tell your Lordships that the role of the NDA is critical. It is a non-departmental public body that was set up under the Energy Act 2004. The question is the sponsorship of that body, but it is a matter to which we are giving close attention. It is important, too, in relation to the fund that has been established and the future investment in our nuclear policy.

My Lords, there are advantages in bringing together two intertwined issues such as energy and climate change, but there is an important proviso, which is that no one faction within a department becomes dominant and drowns out the voice of the other. I regret that this happened once in my experience in the early days of the Department for the Environment, Transport and the Regions. The roads voice was largely suppressed, and it took many years before we returned to a more balanced policy.

Secondly, I welcome the creation of feed-in tariffs as an additional instrument, but with the caveat that care will be needed with the price that is set. Otherwise, in the metric of cost per tonne of CO2 avoided, we could find ourselves paying a lot more than we need, compared with other instruments that we could be using.

My third observation is about the 80 per cent target. Because we are expecting GDP to be growing over this period, the reduction is not 80 per cent but, in terms of grams of CO2 per dollar of GDP, we will need to reduce carbon by something like 95 per cent. In other words, we will have to run our whole society on about 5 per cent of the carbon that we use at present. That is a massive task, so it is essential that we bring others along with us. Otherwise we will have the double jeopardy of paying to decarbonise our economy and paying to raise our sea defences.

My Lords, I welcome those comments and certainly agree that is a hugely challenging target. I shall not trade figures with the noble Lord but he is right to suggest that it will be very tough indeed. I also accept that dealing with climate change can work only if there is international agreement. Given our wish, which I believe is shared by the whole House, that this country should take a lead, we have to be a good example. That means having a tough target and the determination to reach it.

The noble Lord made an important point about feed-in tariffs and the pricing structure. We are considering them at the moment and are deciding how to take forward the pledge made by my right honourable friend in the other place.

The noble Lord speaks with huge authority and experience about different balances of view within a department. I take what he said to heart. We should not be frightened of policy tensions within government. Simply moving the deckchairs—moving a division from one department to another—does not solve problems overnight, but it can lead to greater focus, a determination to ensure that the twin issues of energy and climate change are dealt with together, dealing with some of the tensions and, in the end, ensuring that we reach the right policy decisions. However, with all the doubts that can always be expressed about structural changes, it is clear that this is the right path to go down. It has huge potential, and it is a huge privilege for me to serve in the department.

My Lords, I add my welcome to the Minister in his new position and to the new department. I also welcome the fact that aviation is to continue to be dealt with in an international environment. Is the European Union still pressing ahead with its intention to bring flights into and out of Europe within the European Emissions Trading Scheme, ignoring wider international law?

In relation to the extension beyond carbon into the six Kyoto greenhouse gases, will the climate change committee now bring forward not only carbon budgets but budgets for all six Kyoto greenhouse gases on rolling five-year programmes over 15 years? Is the remit of the climate change committee for carbon budgets now to be expanded?

On the question of the level playing field and giving a lead to the rest of the world, can the Minister tell the House his assessment of the strong resistance from Poland and other countries to the speed at which this country wishes to go in dealing with emissions and getting agreement within Europe? Can he give the House any guidance on the discussions taking place and the progress being made on achieving a post-Kyoto agreement? Finally, can he confirm that the European Union is dropping its idea of having carbon taxes on imports as a way of trying to ensure that there is a level playing field for industry across the world and that we do not just export emissions to China and India? It would be helpful if the House could be informed on that point.

My Lords, I shall write to my noble friend on some of the details of the European negotiations.

I take his general point in relation to the discussions that are taking place. Different countries came to those discussions with a different approach. We will find ways of reporting progress to Parliament in due course. In the Statement, my right honourable friend referred to the risk that some countries will say that because of the current economic uncertainty, we should row back on dealing effectively with climate change and carbon emissions. My view and that of the Government is that it would be a disaster to row back. It has never been more important that we press on. I assure noble Lords that we will make that point time and time again. The fact that we have announced that we are setting ourselves a tough target for 2050 gives us a stronger position from which to argue with our European neighbours.

My Lords, I declare an interest as a current member of Sub-Committee B of the European Union Committee, which is imminently to report on the renewable energy replacement 20 per cent reduction by 2020. While welcoming the Minister’s report, I have to dampen some of his enthusiasm about the potential for achieving his targets given the appalling state of the technical supply chain in this country. In the event that we were to depend on what is available now, the Minister would have had to commence the wind farm programme on the seventh birthday of Jesus Christ. That would fully utilise the existing resource of offshore maritime installation facilities. It takes eight months to produce one offshore wind farm comprising 34 turbines. There are only two ships available in this country with the necessary cranage platforms capable of taking the turbines out to sea, and one of those has an unfortunate tendency to sink when it gets there. In the event that the boat capability was available to generate the development of these wind farms, somebody has got to find a way of very quickly building about 50 more of them at about £12 million each. There are none in production at present, so we have very limited resources with which to go forward.

In addition, there are two further major supply chain problems on which the Government could do something urgently. There is no gearbox capable of providing the optimum generation that can handle wind shifts of between 12 and 40 miles an hour. The only one that is available is—

My Lords, will the Government do something to obtain within the European Community a licence for a British company to manufacture the only good wind farm gearbox, which is made by Siemens and is currently not available to us? That is what we need most urgently. Secondly, can something be done to accelerate the technical development by universities of a means of storing surplus capacity to level the evenness of supply, which is the other major failure?

Alas, my Lords, in the discussions I have held within my new department the question of gearboxes has not yet been addressed. However, I take the noble Lord’s point seriously. The target for 2020 is challenging, let alone the target we have now set for 2050. We need to see considerable progress in renewables. We also need to see British companies developing technology, winning contracts and creating jobs because I am convinced that the renewables area goes hand-in-hand with investment in the UK and with developing skilled jobs. The noble Lord has brought to our attention the need to do everything we can to make sure that British companies take advantage of that, and I will take that back to the department.