Security of Supply

– in the House of Commons at 2:45 pm on 12th January 2006.

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[Relevant documents: The Twelfth Report of last Session from the Trade and Industry Committee on Fuel Prices (HC279) and the Government's response thereto, and the First Report of this Session from the Trade and Industry Committee on Security of Gas Supply (HC632–I).]

Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

A notice about the relevant documents should have appeared in the Order Paper. Copies of all three documents are available in the Vote Office.

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Roy.]

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry 3:01 pm, 12th January 2006

The debate supplements the first report to Parliament on United Kingdom security of gas and electricity supplies that was laid in July 2005. In the 2003 Energy White Paper, we set the objectives of secure, sustainable, affordable energy for all in a competitive, transparent energy market.

Overall, Britain is in a strong position. We have a broad range of energy supply and a balanced mix of electricity generation. Around 19 per cent. of our electricity comes from nuclear, 33 per cent. from coal, 40 per cent. from gas and 4 per cent. from renewables. Although the proportion from renewables is small, it has almost doubled in the past four years, and is today sufficient to supply more than 2 million households. On gas infrastructure, the market is planning to deliver some £10 billion of investment in gas import and storage projects between 2005 and 2010.

The UK has enjoyed some of the lowest energy prices in Europe for more than a decade. Even after the recent price increases, our domestic gas remains the cheapest in Europe. According to Ofgem, domestic energy bills are £140 less than they were in 1990.

Our liberalised markets mean that the cost of industrial gas is also competitive. In the past 14 years, the cost of energy to British industry has been around £8 billion less than the cost to German industry. However, there are problems and challenges ahead that we have to acknowledge and resolve.

First, we need to reduce greenhouse gas emissions. Despite recent increases, we are still on track to achieving our target under the Kyoto protocol. However, there is much more to do if we are to meet our aim of a 60 per cent. reduction by 2050.

Secondly, our energy reserves are in decline. North sea production has declined more quickly than predicted. Britain has already moved from being a net exporter to a net importer of gas, and soon we will become a net importer of energy overall, in common with most other developed nations.

Photo of Bernard Jenkin Bernard Jenkin Deputy Chair, Conservative Party

We keep hearing the mantra that gas production in the North sea has declined more quickly than predicted but I have yet to meet anyone in the industry who agrees with that analysis. Centrica, which owns the Morecambe bay field and is meant to be the culprit, has clearly said that production has reached a plateau and is declining according to expectations. There has been at least a communications failure between the Government and the industry, or perhaps the Government have not been told the truth, but it is not good enough to keep telling us that gas supplies have declined more quickly than anticipated because that is not true.

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

Strangely enough, that is a question that I have asked myself, because I have been trotting out that line since last summer, and I decided that, in view of this important debate, I ought to look a bit more closely into the matter. I am not sure about Centrica, because it is not involved in the North sea, but I found that every credible analysis published said that North sea gas would decline, and that we would move from being a net exporter to a net importer between 2005 and 2007. Wood Mackenzie, in its August 2001 multi-client report entitled "Running Short of Gas: The Outlook for UK and Irish Gas Markets"—which, I am told, is very authoritative—said:

"It is probable that the UK will become a net importer of gas in either 2005 or 2006."

Others put it at between 2006 and 2007. On Tuesday, I was with a number of energy suppliers, who themselves admitted that this was the case. I do not know of anyone who did not have a misconception of how quickly North sea gas would be reduced. However, the hon. Gentleman has asked a valid question, and I asked it myself because I wanted to explore it at that level of analysis.

Photo of Daniel Kawczynski Daniel Kawczynski Conservative, Shrewsbury and Atcham

The Secretary of State mentioned renewable energy. I believe that the renewable energy target set for us by the European Union is 2 per cent. by 2012. Does he think that we will meet that target?

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

Our target is 10 per cent. by 2010. We have an aspiration to move to 15 per cent. by 2015, and to 20 per cent. by 2020. All of that is on the route to a 60 per cent. reduction in carbon emissions by 2050. The Secretary of State for Environment, Food and Rural Affairs is leading on this, and will publish the climate change review programme shortly. That will show what we need to do to get back on track. We are undoubtedly not as far forward as we need to be, although we have made some very good progress. That report will be published in the very near future.

Photo of Michael Weir Michael Weir Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Trade and Industry)

May I take the Secretary of State back to the question of the gas supply? Is he aware of the research by Professor Alex Kemp of Aberdeen university that discloses that there are up to 20 finds to the west of Shetland that have not yet been developed? Most of them are fairly marginal, but the changes in the tax regime introduced by the Chancellor have meant that they will become even more marginal. Is that sensible when we are apparently relying on gas from faraway countries in central Asia? Will the Secretary of State consider introducing incentives to assist the development of these marginal fields?

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

We have issued more licences in the past year than ever before—a record number. In regard to the tax regime, all Governments have to strike the right balance between the amount of tax relief that they give to companies exploiting this natural resource and the interests of the country in which it is found. The Chancellor said in his pre-Budget report that the tax regime should change, but he also gave a guarantee that there would be no further changes during this Parliament.

Photo of Robert Smith Robert Smith Opposition Deputy Chief Whip (Commons), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Energy and Climate Change), Shadow Spokesperson (Scotland)

The unfortunate thing about that reassurance from the Chancellor is that it contradicts his reason for imposing the increase. He claims that that reason is the high price of oil, yet he says that if the oil price were to go down or to collapse, he would not take the tax away. Clearly, therefore, the tax is linked not to the high price of oil but to his need to get money at short notice.

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

If the oil price were to collapse, we would then face a very different set of problems from those that we are facing now.

Photo of Bernard Jenkin Bernard Jenkin Deputy Chair, Conservative Party

Gas production in the UK is effectively taxed at a rate of 75 per cent., which is one of the highest tax rates in the world. The increase in tax on North sea oil is simply not in the long-term national interest.

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

The Chancellor pointed out in his pre-Budget report the corresponding taxes on exploration in the United States and other parts of the world, and his proposals are consistent with those. However, we shall return to that issue at the time of the Budget.

The first of the challenges and problems that we face relates to renewables, and the second is the fact that our energy reserves are in decline, as I mentioned earlier. The third is that prices have been rising. We all have to face the fact that the days of cheap energy have gone, probably for ever. World prices for fossil fuels have increased by a half over the past three years, and oil prices have reached record highs. This in turn has had a direct impact on gas prices. Those global effects have been compounded by the decline in North sea production and market nervousness about a tight gas supply situation in a winter predicted to be colder than usual.

Fourthly, our nuclear reactors, which currently supply a fifth of our energy, will all be decommissioned by 2035, and most of them will be out of service by 2025. Decisions need to be taken on whether we need a new generation of nuclear power stations, or whether we are content to see nuclear disappear from our energy mix.

Photo of Tobias Ellwood Tobias Ellwood Opposition Whip (Commons)

Does the right hon. Gentleman agree that had the EU sorted out a proper gas market two or three years ago, we would not be affected by such high gas prices now? As France and Germany own much of the infrastructure, they can subsidise their gas prices and pass those prices on to the UK domestic market.

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

The hon. Gentleman is absolutely right. I will deal with that during my speech.

Photo of David Drew David Drew Labour, Stroud

On nuclear, even at this late stage, will my right hon. Friend reconsider the decision to sell Westinghouse, given that if this country is to have a nuclear future, we must have the means to bring forward the technology and expertise? Westinghouse was one way of providing that, and surely it is a travesty that we are pushing ahead with the sale at this time.

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

I thought long and hard about this issue, as did my hon. Friend the Minister for Energy. In effect, keeping Westinghouse in British ownership would inhibit our ability with regard to future nuclear new build. If the UK were to go down that route—that is a big "if"—it would be difficult for companies to find an objective view from a publicly-owned Westinghouse. In addition, in relation to developments in China, where Westinghouse is involved in building four nuclear power stations, there is a large degree of risk involved, and the British taxpayer should not be involved in meeting that risk. For that and other reasons, although it is an important issue that we considered long and hard, I think that the sale of Westinghouse is the right road to go down.

Photo of Joan Ruddock Joan Ruddock Labour, Lewisham, Deptford

I know how scrupulous my right hon. Friend is in other presentations, and I am sure that his remark that nuclear contributes one fifth of our energy was a slip of the tongue. I think that he might have meant to refer to our electricity generating capacity. In terms of primary energy, of course, nuclear contributes around 7 per cent.

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

I am grateful to my hon. Friend for correcting that, on the record, in Hansard.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

The Secretary of State paints a long-term picture of diminishing oil and gas, problems with nuclear and so on. Will he address the imminent and important question of the 33 per cent. of our energy that we get from coal, much of it imported? A number of mines are left in Britain, one of which is Haworth, which employs 288 men and will be closed within weeks, not years, if money is not allocated to it to save those jobs. I ask him to get on with it and get the decision made. I see that the Minister for Energy is whispering to him, and I hope that he has said that he will pay the money shortly. Is that correct?

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

Not entirely correct. My hon. Friend the Minister for Energy was saying to me that we are aware of the issue, we are due to respond soon to the company's request, and we will do so. As for making progress on the five issues, I will do so if I can stop taking interventions and get on to some of the good news.

Photo of Paddy Tipping Paddy Tipping PPS (Rt Hon Jack Straw, Secretary of State), Foreign & Commonwealth Office

My hon. Friend Mr. Skinner has made a strong point about Haworth colliery, whose work force is listening closely to the debate. The Minister for Energy said in an Adjournment debate in Westminster Hall yesterday:

"We are considering the proposal on Haworth colliery and I will respond to the company in the very near future."—[Hansard, Westminster Hall, 11 January 2006; Vol. 441, c. 97WH.]

The clock is ticking, and we need a decision before the end of January. If we are to have an indigenous coal industry, we need a positive decision.

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

Those two interventions have achieved their purpose. We recognise the need to move swiftly, and we are even more determined to move swiftly than we were before we started the debate.

The fifth problem or challenge that we face is rapid change in the geopolitical climate. Rapid economic growth in countries such as India and China is placing huge demand on world markets. China is already the world's second largest consumer of energy. The international dimension of those problems was highlighted over the new year, during the dispute between Russia and Ukraine over gas supplies. That dispute has reminded us all of the need for diverse energy supplies, which applies both to what energy we source and to where it comes from. A vital challenge for the G8 this year will be to ensure that when supplies are scarce, the scarcity does not lead to conflict as it might have in the past but is resolved through diplomatic channels.


A vital challenge for the G8 this year will be to ensure that when supplies are scarce, the scarcity does not lead to conflict as it might have in the past but is resolved through diplomatic channels.

The "vital challenge" is really in the hands of Russia, the chair of the G8 for 2006. Incidentally, when it assumed the chairmanship Russia cut off energy supplies to Ukraine.

Submitted by I J

Photo of Joan Walley Joan Walley Labour, Stoke-on-Trent North

Does my right hon. Friend accept that there is a difference between scarcity of supply and gas price speculation? Intensive gas users are finding that the market itself is causing price increases. Gas can be sold as many as 27 times before it is used.

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

I shall come to that shortly, but it is the spot market that is causing a problem. I know from recent discussions with energy producers that in this country we are far more inclined to buy from the spot market than to contract on the futures market. Perhaps that sends a message to companies.

Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

Does the Secretary of State agree that one of the difficulties with the market is that the vast majority of demand, and variability in demand, relates to fixed prices? As the spot market covers only a small part of the overall market, changes tend to be exacerbated.

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

We should see the position in proportion. The problems are really affecting intensive energy users. The situation is caused by the market, and the market will find a way of resolving the issues. However, for the purposes of this winter and, I would suggest, next winter, we must concentrate on how to facilitate our transition from being a net exporter of energy to being a net importer.

It is against the backdrop of those five challenges and problems that we will conduct our review of energy policy.

Photo of Eric Martlew Eric Martlew Labour, Carlisle

I believe that there is a sixth dimension. Only a year ago, my constituency experienced the worst flooding in the United Kingdom. Electricity was cut off in 150,000 properties for three days because of substation flooding. The substation involved has now been proofed, but according to United Utilities there are nine more substations—large ones—in the north-west which are much more likely to be flooded than the one in my constituency. As global warming advances, there is an immediate danger to electricity supplies throughout the country. Many substations were built near rivers because they needed the water for cooling purposes. Will the Minister look into the problem?

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

I am aware of the problems in Carlisle, and of the enormous efforts made by my hon. Friend, as a constituency Member, to help the town recover. I have described five problems that affect the security of energy supply, which is the title of our debate. My hon. Friend has raised the important issue of electricity generation, which will be covered by the review to which I shall refer shortly. It can also legitimately deal with the safety of substations in the context of environmental damage such as that experienced in Carlisle.

Photo of Andrew Miller Andrew Miller Chair, Regulatory Reform Committee

The point raised by our hon. Friend Mr. Martlew is important in the a geopolitical context. Climate change will clearly be a big driver in the energy debate. Is it not important for Britain to maintain its pre-eminence on the nuclear side, so that we can promote our standards of safety and control in that industry elsewhere in the world?

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

My hon. Friend brings me to the next part of my speech, which is about the energy review. As I have emphasised before, this is a review with no pre-determined outcome. It embraces all sources of energy; it is not a review of nuclear energy alone. On 23 January, we will publish the review consultation document, which, I hope, will draw out the breadth of opinion on these complex issues. Ahead of that review, in today's speech I want to focus on the security of our gas supply, which has understandably been the cause of greatest concern in recent weeks.

Gas generates around 40 per cent. of the UK's electricity, and approximately 35 per cent. of final UK gas consumption is used in our homes. Because of the decline in North sea production, we knew that this winter was going to be tighter than in the past. Combined with an early cold spell, that caused the problems that we witnessed in November. Gas storage was drawn down earlier than usual and prices rose to historically high levels, despite the fact that there was actually enough gas to meet demand. The price increase meant that many power generators reduced their gas use by switching to other forms of generation, which substantially reduced demand and helped to balance the market. For some major industrial energy users, these abnormally high prices created significant problems.

Looking back, ahead of the winter we had worked closely with the industry and others to try to ease the effects of high gas prices through the gas prices working group, and through the report on, and seminars on, the forward gas market. Last year, new gas import and storage capacity came on stream, including the new liquefied natural gas terminal at the Isle of Grain, which has received eight shipments since it opened in November. The interconnector doubled its capacity and has been importing at record levels recently. Moreover, new storage capacity came on line at Humbly Grove, in Hampshire.

So, today, storage and import capacity is up, gas supply has met demand each day this winter, and storage levels are healthy. However, I am not satisfied with the under-use of some of our import infrastructure. Although the interconnector has been importing at new highs and has responded to price signals, it still has not delivered gas to the UK at full capacity. The lack of liberalisation of EU energy markets, which was mentioned in an intervention, is at the heart of the problem. Ofgem has asked the European Commission to investigate urgently the interconnector's operation, and I am pleased to say that this work is now well under way.

We know that a tension exists between the liberalised energy markets in Britain and the largely unliberalised energy markets in Europe.

Photo of Tobias Ellwood Tobias Ellwood Opposition Whip (Commons)

I am very grateful to the right hon. Gentleman for allowing me to intervene a second time. The Government were recently in charge of the EU presidency for six months. Was that not an ideal opportunity to get to the core of this issue and to sort out a gas market in Europe?

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

The hon. Gentleman's interventions are beautifully timed. I was about to say that, thanks to the work of my hon. Friend the Minister for Energy at the December Energy Council, the European Commission agreed to make full use of its legal powers to tackle the serious malfunctions in EU energy markets. Member states have also agreed a wide range of actions designed to bring about tangible improvements in the functioning of European gas and electricity markets.

Looking ahead, in the next couple of years new pipelines from Norway and the Netherlands will open, which will eventually be capable of providing up to a third of our annual gas needs. Two new LNG terminals are being constructed at Milford Haven, and further terminals are planned at Canvey Island and Teesside. Two further storage facilities are currently under construction at Aldbrough and Holford.

Photo of Michael Clapham Michael Clapham Labour, Barnsley West and Penistone

In the next 18 months to two years, 28 per cent. more gas is likely to be available as it comes down from Norway, and there could be a second dash for gas. If that occurred, at the same time as we are seeing a move to decommissioning nuclear stations and some of the old coal-fired stations, by 2020 we could be as much as 70 per cent. dependent on gas. That would be to the great detriment of the UK. Does my right hon. Friend feel that we need a mechanism to limit the proportion of electricity generated by gas to the current 40 per cent.?

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

No, I do not rush to that kind of conclusion, but I agree that it highlights the need for diversity of supply. The whole point of the review is to look forward to ensure that, as well as the other issues relating to a properly competitive market, dealing with fuel poverty and climate change, we must ensure security of supply. That means diversity, and not being too dependent on any one source of energy. The point that my hon. Friend has raised is a crucial issue for the review—and it may come to the conclusion that there should be a level above which gas should not go. Who knows? I do not.

Several hon. Members:


Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

I shall take one more intervention, and then I shall make some progress.

Photo of Philip Hollobone Philip Hollobone Conservative, Kettering

Is it not the case that, because we shall now be importing such a huge amount of gas, Britain's electricity generation industry will, for the first time in our history, be too dependent on primary fuel sourcing from overseas? Never before in our history will we have been so dependent on fuel imports to generate electricity.

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

The hon. Gentleman is absolutely right. That is exactly the issue at the heart of the review—not only what we are sourcing from abroad but where we are sourcing it from. As for gas, Norway and the Netherlands are hardly unstable countries, and they will supply the major part of it. None the less, that is an important element in the review, and I agree with what the hon. Gentleman said.

The investments will increase supply. But, given the background of our increased reliance on imported gas over the next 15 to 20 years, and the important investment decisions that multinational companies will be making on where to invest, in which the price of energy will be a crucial factor, we cannot rely on those developments alone. We need to remain alert to new ways of increasing supply, and be quick to build on new developments in the way in which we supply, import and store gas.

Rapid advances in technology are taking place, with the potential to make a real difference. Britain's legal framework needs to be capable of dealing with those developments. Today, I can announce new measures to increase the potential for gas storage in the UK. First, we will revise the legal regime covering new offshore gas storage and offshore gas unloading. When parliamentary time is available, I will introduce legislation to achieve that.

Over the next decade, companies will be able to use new technology to create salt caverns offshore and store gas in them. There is strong potential for gas storage in a number of geological formations offshore, in areas such as the Irish sea and the southern North sea. That could significantly add to the UK's gas supply capacity. There is already commercial interest in creating those new facilities. We will ensure that the right framework is in place to allow them to be created. The new framework will also facilitate innovative proposals for unloading liquid natural gas tankers at offshore mooring buoys connected by pipeline to the shore.

Secondly, we will also examine the onshore consents regime, with the possibility of further legislation if appropriate. This work will move forward in parallel and in conjunction with the energy review, and the Barker review of land use planning, established by the Chancellor and Deputy Prime Minister.

Photo of Adam Afriyie Adam Afriyie Conservative, Windsor

At the same time as the review, and the Government, are considering the regulation governing the storing of natural gas, will they also review the legislation surrounding the storage of carbon dioxide in those same geological formations?

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

Yes, indeed. International law requires us to do that, so it will be an important part of our review.

Photo of John Grogan John Grogan Labour, Selby

Is there a case for giving Ofgem power to oversee offshore gas as well as onshore gas so that it can oversee the whole market and ensure that it operates efficiently?

Photo of Alan Johnson Alan Johnson Secretary of State for Trade and Industry

There may be, and we shall look at that element in the review. It has been raised with us, but we have also heard the case against doing that, so the argument remains finely poised.

Our energy market, like energy markets around the world, is facing long-term challenges. The days of cheap indigenous supplies are over, and, like most other countries, we will have to import more energy and pay more for it. As we move forward with the review, my hon. Friend the Minister for Energy and I will look to involve closely the many people in the House and outside it who have a keen interest in this important issue. Ensuring safe, affordable energy for all in a way that minimises CO 2 emissions must be our first priority, and I welcome the opportunity to debate these important issues on the Floor of the House today.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry) 3:30 pm, 12th January 2006

I thank the Secretary of State for giving us this debate. It has been some time a-coming; we have been calling for it for six months or more, but I imagine it will be the first of many on an important topic.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

I am very flattered. I apologise, Mr. Deputy Speaker, to you and the House for not being able to be here for the winding-up speeches. They are in the capable hands of the Minister, who will, I hope, still be in his flattering mood, and of my hon. Friend Charles Hendry.

In July, the Department issued a report on the 2003 Energy White Paper. It said:

"Our goal is that people and businesses can rely on secure supplies of energy—gas, fuel and electricity—at affordable prices delivered through competitive markets, whilst minimising the impact on the environment."

Well, that sweeping statement might not quite be motherhood and apple pie, but it is quite a tall order in what is an increasingly highly complicated world. Two years on from the White Paper, the ambitions described in that statement look somewhat distant. The best we can say is that progress has been mixed. In some respects, and contrary to the best intentions of new Labour, we have moved not forwards but back. This winter, we shall see real signs of the Government's failure to achieve those aims over the past eight years and their failure so far—we hope it is only "so far"—to equip Britain for the energy security challenges of the 21st century.

There is considerable upheaval and uncertainty in the energy sector worldwide, which affects both our immediate supplies and our wish to establish a viable, enduring, long-term energy policy framework. We are witnessing the massive expansion of demand from Asia. Gas and oil prices have risen significantly: insufficient domestic capacity and storage have contributed to a quadrupling of gas prices. Following the explosion in Hemel Hempstead, we have seen restrictions in the supply of jet fuel to our main airports—

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

No, there definitely have been. I was grounded for two hours on the apron the other day. [Interruption.] Well, I thought that the Secretary of State was shaking his head.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

Of course it was a big fire. It was exactly the kind of security issue that we have to grapple with in any sensible review and in the very debate we are having this afternoon.

Insurgency in Iraq and nuclear fears in Iran contribute to habitual doubts about political stability in the middle east. A spat between Russia and Ukraine has recently caused spikes in the gas price, and fears remain that Russia will again flex its political muscles and disrupt supply.

All that is but part of the global backdrop to the challenges of creating a sustainable energy policy. To that uncertainty, one needs to add all the domestic questions of the financial and economic framework in which investment decisions—necessarily long term—have to be made, some conditions of which are utterly unhelpful to those decisions.

The UK is increasingly vulnerable on energy security. That manifests itself in the higher prices we are paying for energy when compared with our competitors. I shall come to the causes and security issues shortly, but I should like first to examine the scale of the problem. Whereas we cannot, of course, be insulated from the impact of global price shifts, the problem is that we are suffering more than we need to and are paying more than we ought to. Whereas small UK companies paid 12 per cent. less for electricity than those in France in July 2004, by October 2005 they were paying 15 per cent. more.

In respect of gas, the Energy Intensive Users Group has said that

"new contract prices to large industrial consumers are already more than 30 per cent. higher than their equivalents in France, and more than 40 per cent. above those in Germany—a situation that is set to get worse over the coming months."

That is both unnecessary and a serious threat to our economic competitiveness.

In recent months, four European countries have overtaken us and now pay cheaper prices for natural gas. There are also increasing problems for domestic users: the consumer price index shows that end-user fuel bills rose by 14 per cent. in the past year.

Paradoxically, as the Secretary of State was honest enough to admit earlier, Britain is becoming more dependent on gas at a time when elsewhere in the world there is greater optimism about, and progress being made in, alternative and diversified energy sources. The clean coal and carbon capture schemes, among others, offer genuine hope for the conversion of existing technologies. Meanwhile, Denmark and Portugal lead the world in the provision of wind and wave power.

Photo of David Taylor David Taylor Labour, North West Leicestershire

The hon. Gentleman mentioned the potential for clean coal technology. There has been a bonfire of the policies in the Opposition, so will he say whether the Conservatives can see emerging from the smoke a substantial role for coal in increasing diversity of supply? If so, would that include the 800 million tonnes in the Asfordby coalfield, which largely lies beneath his constituency?

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

It is very sad that the Britain's most modern deep mine, which is in my constituency, ended up being closed because of geological faults. We can have an honest discussion of these matters, and I commend the Government for holding the energy review. It is a bit late, but it is happening. The Opposition will track the review, and hold a parallel one of our own. The challenge facing us is a cross-party matter: if there exists usable domestic coal that meets the environmental objectives about which we all agree, coal will indeed have a role in future. However, we must prove that the technology that renders coal clean for use is available and generally applicable. If we can do that, the answer is yes, we can use coal; if not, the answer is more likely to be no.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

It is always a deep pleasure to give way to the hon. Gentleman.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

If the shadow Minister is so concerned about clean coal technology, why, when the Tories were in power, did he support the closure of the Grimethorpe processing plant? That plant used clean coal technology.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

I supported the closure because the technology was not ready and the economic argument was not convincing. However, if the Secretary of State thinks that it is a viable option now, I am sure that he will open it up again especially for the hon. Gentleman.

As I said, the Opposition called for ages on the Government to hold a comprehensive review. We repeated that call for more than six months, and it was echoed by the director general of the Department's own energy group. However, we have the review at last, and we look forward to doing our bit and making as good a contribution as possible.

My objective this afternoon is to present what we consider to be the key issues in energy security that we hope will be addressed by the energy review. I shall be interested to hear from the Minister for Energy when he thinks that the review will be concluded. That will give us an idea of the full timetable, given that the Secretary of State helpfully announced the beginning of the review earlier this afternoon.

The first issue is energy efficiency. Unnecessary energy consumption is a burden on the environment, costs the UK more than needs to be the case, and makes us more vulnerable than other countries. The Opposition's second concern has to do with our dependence on imports. Our supplies of fuel should come from the most diverse possible range of sources, and we should favour liberalised markets over those that might be subject to irrational Government diktats.

The third issue is renewable energy and the diversity of technology. The energy supplies that we need should come from a diverse pool of technologies, so that there is sufficient flexibility to adapt and adjust to changes in individual markets. That is a medium to long-term aim, but we need to get moving on it as soon as possible.

Let us start with energy efficiency. Energy efficiency encompasses everything from the insulation in our lofts to the decentralisation of our energy supply. We need a proper programme for efficiency that reduces our dependence on energy, and in our homes we need to be doing more with less, which reduces demand and thus CO 2 emissions. This is not just a marginal issue: it is essential for alleviating fuel poverty.

We need to become more efficient in the way that we use energy and we need to lose less in the way that we transmit it. On 30 January last year, the Environmental Audit Committee reported that the Government

"is failing to incorporate its own rhetoric on sustainable development into housing policy".

That is especially true with regard to new builds from the Office of the Deputy Prime Minister. Without dramatic reforms, housing could account for 55 per cent. of the UK's carbon emissions by 2050. That is almost double today's amount. We are alarmed to see that, yet again, the ODPM has committed itself to a course of action aimed at increasing the number of new houses built, without considering sufficiently the wider implications for sustainability or energy efficiency.

We therefore hope that the energy review will look further into encouraging and improving energy efficiency, which is especially important given the rise in CO 2 emissions in each of the past two years. Measures to do with better insulation and hybrid cars could be a start, but more radical options are becoming available that offer even greater benefits. For example, as I have mentioned, the current centralised infrastructure of energy production and distribution is an area for further study. An astonishing 65 per cent. of the energy available from the fossil fuels burnt never reaches the homes and businesses that pay the bills. Some is lost in the inefficient generation process, but yet more is lost in transmitting electricity over great distances. Decentralised models, including combined heat and power systems, substantially reduce that loss. If the Government were serious about climate change and energy security, they would look seriously at decentralised models. Instead of following the good examples that have been set, the Government are setting one of the worst examples imaginable by failing to convert their talk about microgeneration into a serious policy to achieve it.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

If it is not true, I look forward to the Minister saying so when he winds up, so that it is on the record.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

Well, it needs to be put there again.

Woking borough council has shown what it is possible to do in this area. While the Government continue to consume ever more energy, Woking council's decentralised energy system has reduced its energy consumption by 44 per cent. despite—perhaps the Minister can explain this—overcoming massive regulatory hurdles.

The Woking model implements a range of measures to increase efficiency and reduce emissions. Sustainable combined heat and power sources have been built in the borough that are up to 90 per cent. efficient. Those, along with solar and other renewable sources, provide power on a local scale, and so reduce the energy losses in transportation, and hence their overall consumption. To be fair to the Minister, at least the Government have awarded Woking beacon status in recognition of its work.

Local generation and the savings made also raise fundamental questions about the use of the national grid. The efficiency and structure of the national grid must form part of the energy review.

Photo of Malcolm Wicks Malcolm Wicks Minister for energy, Department of Trade and Industry

I am enjoying the hon. Gentleman's cleaner and greener remarks, but I wished to point out that because we are interested in micropower and microgeneration, we have been consulting on the barriers to it and we shall issue a report in the coming months. I would like to award the hon. Gentleman beacon status, but he needs to do a little more homework first.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

I am certainly a beacon of something, but I am not sure of what. I look forward to reading that report when it is published in due course. That brings me conveniently to my second point, which is that the Government could have done more to secure our existing energy sources. Given our heavy and increasing reliance on gas, surely alarm bells should have rung more loudly in Government when we became a net importer of gas in 2004.

The UK continental shelf used to act as a strategic reserve for gas. That was a crucial national resource. The immediate supplies are no longer there. I should be fascinated to hear from the Minister what estimates his Department has made of the extra oil and gas there would have been from the North sea had they not been so heavily taxed, especially by a windfall tax. That means that our import capacity and storage facilities are now perilously inadequate. [Interruption.] I hear protests from Labour Members, but it is an elementary economic principle that if one thumps something with a tax, one gets less out of it. The representations that we have heard give clear calculations that there would be much more oil and gas coming out of the North sea if they were not so punitively taxed by the Chancellor.

Paradoxically, we are highly dependent on gas, whose market structures are full of imperfections, and yet oil, so often labelled as a commodity controlled by a cartel, is in fact much more freely and flexibly traded in a much more free and transparent market. I caution Joan Walley against railing against speculators as she did, and urge her to study the workings of energy markets the better to understand how prices are set. The thing about the free market is that that is not the case for gas, and that is our key electricity-generating fuel.

The persistence of oil index pricing in the European market imposes costs to the tune of £10 billion a year on British consumers. The recent large increase in the price of gas on the continent has little to do with broad supply and demand issues for gas as a commodity, but rather derives from the more general problems in the European gas market. As my hon. Friend Mr. Ellwood said earlier, the Government did nothing about that when they held the presidency of the Union.

Moving on to my third point, we can improve our energy security position—

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

One day, the hon. Gentleman will move on, but I am waiting.

Photo of Paddy Tipping Paddy Tipping PPS (Rt Hon Jack Straw, Secretary of State), Foreign & Commonwealth Office

I am waiting too; I have been waiting a long time. The hon. Gentleman has made a great deal of the role of the market in energy supply. Does he agree that the key discussion point for the energy review will be how far the market operates and how far the state has a responsibility for guaranteeing energy supply? The market has served us well historically, but it may now be more important to have more direct Government intervention. Is that the view of his party?

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

That is quite a serious point, and it is not an unreasonable one. Markets, in my view, serve the interests of energy extremely well, but inevitably there are issues of security, spare capacity and the ability to swap from one commodity to another which markets cannot always automatically do as quickly as consumers desperately need them to. The interrelationship between the state and a free market is crucial for that and also for the investment climate in which people take long-term decisions. That question should be in the review, and we will look at it sensibly and responsibly, as the hon. Gentleman implied.

Several hon. Members:


Photo of Adam Afriyie Adam Afriyie Conservative, Windsor

My hon. Friend may not be aware that Centrica's headquarters is based in my constituency. At a recent meeting that I had with its chairman and several others, they made it very clear to me that they have been making representations to the Government for many years, saying that the Government should sort out the liberalisation of the gas markets in the European Union. Does my hon. Friend share my alarm that no serious action has been taken by the Government on that front?

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

I fully agree with my hon. Friend. That, too, will be a serious focal point for the energy review.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

I hope that hon. Members will forgive me if I do not give way. I do not want to deprive the many Members who want to speak of the opportunity to do so.

We can improve our energy security position by establishing a technologically diverse energy supply sector. Let us take a look at the Government's record on that so far. Far from increasing our diversity, we have been shutting it down. Gas power now accounts for 40 per cent. of the electricity supplied in the UK, approximately double the reliance of 10 years ago. Nuclear power currently provides about a fifth of our electricity needs, but most of our nuclear power stations, as the Secretary of State said and we all know, are set to close, probably over the next 15 years or so. That will leave a capacity of only 7 per cent. of the country's needs.

New investment in nuclear power is obviously an option that we need to examine carefully. It has positive implications for climate change, diversity and the continuity of supply. Without nuclear build, many people believe that we shall struggle to meet our 2010 CO 2 obligations, even though most of our CO 2 challenge lies in sectors other than power generation. However, nuclear power raises serious concerns about national security, the handling of waste and its long-term economics.

Photo of Alan Whitehead Alan Whitehead Labour, Southampton, Test

I am listening carefully to what the hon. Gentleman is saying, especially his comment that a number of people suggest that nuclear power will be essential to meeting our 2010 renewables targets, when were we to press the nuclear button tomorrow not a single kilowatt of nuclear power would be produced for the next 12 years.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

If the hon. Gentleman had listened a bit more carefully, he would have heard the rest of what I said. I suggest that he reads Hansard.

The Secretary of State has to contend with the serious problem that for those wanting to invest in energy generation, in our current investment climate, the only viable sector that justifies long-term investment is gas. That is a massive problem for the balance that I imagine he wants in investment decisions. The present investment climate, which makes gas more attractive than anything else, compounds and risks compounding further our dependence on gas as our principal source of fuel.

Photo of David Drew David Drew Labour, Stroud

Will the hon. Gentleman give way?

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

Will the hon. Gentleman forgive me for not giving way? He has already intervened and perhaps he can catch Mr. Deputy Speaker's eye later.

The Government have told us that renewable energy sources will satisfy our need for diversity. However, it looks increasingly unlikely that their target of 20 per cent. of energy from renewables by 2020 will be achieved. Even if it is met, it has been estimated that by then 60 per cent. of electricity generation would come from gas. That would constitute a large increase in our dependence on gas, which, with its volatile price, undermines the energy stability that we all want. In addition, due to the depletion of North sea gas reserves it has been estimated that 80 per cent. of our gas would be imported, so considering the gas element alone, it means that we would be dependent on imports for nearly half our electricity.

Unfortunately, the current raft of measures designed to encourage diversity is failing; for example, the costs imposed on generating companies by the Government's renewables obligation are passed on to consumers, who will end up subsidising renewable energy by as much as £1 billion a year by 2010 and £1.5 billion by 2015. However, although the renewables obligation provides enough subsidy to make onshore wind profitable, it does not do enough for any of the other technologies, and a viable and significant renewables sector depends on a range of renewable generation technologies.

Those technologies face the gap between the grant funding available for early stage development and the price support available through the renewables obligation. Until the gap is bridged, offshore wind, biomass, wave, tidal and solar power will be largely or wholly confined to demonstration projects, unable to complement and compete with onshore wind. It is reasonable to be highly concerned that the Government are creating perverse incentives for onshore wind, which is a controversial and visually intrusive technology, while disincentivising other renewable energy technologies, which are less so. The result is that far from increasing our diversity, we are shutting it down. So I say again, gas power accounts for 40 per cent. of the electricity supplied in the UK—approximately double the reliance of 10 years ago and the diversity we want is not marching forward as it should, and could.

There has been too much delay already regarding energy policy. We need to see emphasis on the efficient use of energy, perhaps in many places following the Woking model, greater security of energy supply and a more technologically diverse approach to energy sources. Perverse incentives that act to make it less likely that renewable energy sources will be developed need to be reformed and made to work. We look forward to constructive proposals to deal with the key issues and a firm commitment from the Government not to hesitate further in working to secure our energy supplies for the future.

Several hon. Members:


Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

Order. I must remind the House that Mr. Speaker has placed an eight-minute limit on Back-Bench speeches that takes effect from now.

Photo of Nick Brown Nick Brown Labour, Newcastle upon Tyne East and Wallsend 3:55 pm, 12th January 2006

The context of today's debate must be global warming—the most important single problem that this country faces. It is an international problem. Our contribution to its solution will not alone solve the whole problem, but as a nation state we have a duty to set a lead. We must punch above our weight, and we must play our full part as a country in international efforts to find a solution. It therefore logically follows that there should be no solution to the question of security of energy supply that exacerbates the problem of global warming. Indeed, the solutions that we find must bear down on that problem.

As the Secretary of State made clear in his introductory remarks, the energy issues that face our country are not immediate, but they are marching remorselessly towards us and the lead times for any solution are, of necessity, long. The key features of the issue are well understood—the declining output of existing nuclear stations and the reduction in output from coal-fired power stations by about half over the next 15 years. Thus, there is a need to replace existing capacity and to meet future and, we would all accept, rising demand.

The implication of all that is increased reliance on the international energy market. Other countries are in that position—I do not accept that it is unreasonable—but we must understand that, if we take the same approach, we will compete with those countries against a background of clear and steadily rising demand. We must face up to the fact that the international energy market is not the free market that we would like it to be. Indeed, even in the European Union, the energy market is not the free market that we would like it to be. I commend the Secretary of State's efforts to liberalise that market, but we are not there yet.

We must also recognise that there is an increasing tendency for national Governments in exporting countries to intervene in industry issues for reasons that are unrelated to the gas or oil market. In other words, they view their possession of a desirable resource as an extension of foreign policy, as well as something to sell to people who want to buy. We must take that into account when we consider our own nation state's security of supply.

A modern, post-industrial economy is inter-reliant and fundamentally reliant on electricity. Issues such as the just-in-time delivery of foodstuffs and other goods, the running of the transport network, modern communications and modern information technology all rely on electricity. I suppose that that is stating the obvious, but that does not make it any the less important.

The Secretary of State was straightforward enough to say that price rises, which cynics might say could be a conservation measure, seem inevitable. Again, we must accept that, if price rises come, they will impact on the elderly, the vulnerable and our industrial competitiveness.

How should we respond? I do not believe that conservation and considering new methods of generation are rival policies. I strongly agree with the Secretary of State's point on the importance of diversity of supply and we should continue the good work being done on home insulation and driving up energy efficiency standards in building regulations, for example. Much has been done, but much remains to be done.

There are good ideas in the industry. I wish to draw the Government's attention to a recent project in which Siemens, located in Heaton in my constituency, and Alcan, which runs an aluminium smelter on the Northumbrian coast, secured significant energy efficiencies simply by refurbishing the turbines in an existing power plant. I commend that approach to the Government and the House.

The North sea is a mature oil and gas field, but it still has reserves and we should encourage the use of new technologies to maximise the extraction potential and get the maximum benefit from it. Now is not the time to engage in a technical debate on the working of the North sea tax regime, but there is a strong case for the Government and the industry to work in partnership on ensuring that we maximise the gain from the North sea fields.

Significant losses occur in electricity transmission between generators and end users, but developments in conduits have the potential to reduce that loss and to increase efficiency. We should take an interest in those developments, and if new investment is required, so be it. In addition, if our aim is to reduce the losses that occur during transmission between generator and consumer, it is logical to locate power plants closer to consumers of power. There is a north-south divide in this country, with generating capacity located predominantly in the north and demand—certainly increasing demand—tending to be in the south. There would be consequential issues arising from such a policy, but if we are serious about reducing inefficiencies in electricity supply, we have to face up to that divide. I urge the Government to do that.

There are potential contributions from other sources: wind farms and other renewables have been mentioned and I think a case can be made for reconsideration of hydroelectric schemes, but I urge Ministers to give particular consideration to carbon sinks and clean coal technology. Output from conventional coal-fired power stations will decline; if it is possible—economically possible—to invest in clean-coal technology and new methods of carbon capture, we should do so. Having said all that—

Photo of Robert Smith Robert Smith Opposition Deputy Chief Whip (Commons), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Energy and Climate Change), Shadow Spokesperson (Scotland) 4:03 pm, 12th January 2006

I declare my entry in the Register of Members' Interests as a shareholder in Shell.

I welcome the chance to debate security of energy supply. In a sense, the point at which Mr. Brown finished is the point at which I begin. Like Mr. Duncan, I think that the crucial first step in achieving security of supply is to ensure the efficient use of existing supply. The better we use what we have, the less we need to worry about imports and finding new sources of generation.

Much remains to be done. On Tuesday, European Standing Committee C is to debate Europe-wide energy efficiency measures. It is estimated that efficiency could be improved by at least 20 per cent. across the European Union.

Provided that they are applied effectively, it makes sense to work through building regulations for new build and for extensions, but we have to deal with existing buildings as well because our housing stock will not be replaced quickly. Many people who face fuel poverty will not necessarily move into new housing stock, so it is crucial that we tackle the energy efficiency of the existing housing stock. We have relied on low fuel prices and improved incomes to tackle fuel poverty. However, someone's income can vary according to their circumstances, and if we can tackle the energy efficiency of our housing stock we will reduce people's dependency on energy so that they are less likely to find themselves in fuel poverty. We still face a major hurdle in improving consumer confidence so that people accept the new technologies, install them and understand what can be done to maximise the energy efficiency of their home. There is a problem, too, with marketing and presentation, as people do not see that the increased investment in their house can be offset against its improved value and long-term savings in energy bills. We need to find innovative ways of enabling people to measure energy conservation in their home and in their energy bills. A complete household energy package will demonstrate the benefits of conservation over time in reduced bills, thus enabling people to see more clearly the equation between conservation and investment.

Given the current high prices, it is a good time for the Government to press the case for energy conservation, and to use public information to convey both its importance and the opportunities available for conservation. Energy conservation and increased security of supply are important and do not just affect heating and electricity. Transport is a major contributor to carbon emissions, as well as a major consumer of energy. Replacing crude fuel taxes with road user charges would be a more effective way of ensuring more efficient use of fuel while ensuring that people who live in communities where road transport is the only available form of transport are not penalised. Replacing the climate change levy with a carbon tax will focus the economic signals on the importance of saving and conserving energy.

Our debate has touched on the important benefits that can be derived from improvements in the distribution of energy and the way in which we can bring energy generation closer to consumers' homes. Every year, 1 million or so gas boilers are replaced, and it would be beneficial if people had the confidence to replace them with a mini combined heat and power plant to generate electricity in their home and provide heat at the same time. Again, that would reduce demand and the need for large distribution systems, thus leading to a more efficient market.

In many ways, this debate has been triggered by the high prices this winter. The Secretary of State said that there is a problem partly because world energy prices are high. As has been said, the international oil market sets the price of oil around the world. Gas remains a much more regional market, although it is becoming more connected as more liquefied natural gas is processed and gas is shifted from one market to another. We have seen an extreme example of what can happen in an isolated part of the regional market. The UK is in transition from its status as a supplier that meets its own energy needs to one as an importer, and has experienced problems in coming to terms with new gas imports. The transition to the new market arrangement coincided with forecasts of cold weather, which did not improve confidence in a thinly traded market. What guidance is given to the Met Office on the way in which it makes its predictions? Is more caution creeping into its predictions and, to avoid accusations of omitting predictions of bad weather, has it over-predicted bad weather? Do the Government monitor the Met Office's predictions, which have a major impact on the market.

Clearly, for many years, domestic users and energy users with normal contract supplies have benefited from the market. However, as has been said, the transition investment will be made later and, as can be expected simply by relying on the market to send the signal, there are spikes in the market. Both as a nation and as individual energy users, we must decide whether the benefits of the good years, when we do not need investment, are worth the price of uncertainty and upheaval in the transition years. Other markets have probably paid over the odds in past years, but they have not experienced upheaval in times of transition and new investment. There may not be power cuts and loss of energy, as the Secretary of State and the Minister have often assured us, but self-disconnection because of fuel poverty is a serious problem for people on prepayment meters. Self-disconnection by large industry is a major problem for the economy. A large business may be geared up to disconnecting from supply and not operating during high peak times, but the supply chain is affected and that hidden way of balancing energy supply has a knock-on effect on the economy.

The Secretary of State said that the pipes are coming and the LNG shipment terminals are being built, connecting us to new supplies. However, as he has also said, the pipes have not always been full and the ships have not always turned up. With winter projection models of the stability and balancing of the UK energy market, more awareness is needed of the interaction with markets beyond our borders. The pipe is not an adequate solution unless there is fuel flowing though it. As the Secretary of State said, we must consider the liberalisation of the market and ensure that both ends of the pipe are operating in the same market. That will bring more stability to supplies and more confidence and predictability to prices.

Photo of Michael Weir Michael Weir Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Trade and Industry)

Is there not a danger in relying too heavily on gas coming through the interconnector from the European mainland? When we have severe winters in the UK, there are also likely to be severe winters and increased demand in the northern European continent, which will also seek the gas coming through its territory. Is there not a danger of that gas being diverted, rather than coming through the interconnector?

Photo of Robert Smith Robert Smith Opposition Deputy Chief Whip (Commons), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Energy and Climate Change), Shadow Spokesperson (Scotland)

We need an open market with similar storage regimes at both ends of the interconnector so that forward supply and planning can be built into the risks and the models for trading on that market. That will not work if there are two different markets. The market is further distorted by the fact that the quality of gas in mainland Europe is different from that of UK gas. It would be interesting to hear from the Minister how his Department intends to take account of gas quality standards, and how we will adapt our trading arrangements to deal with gas of a different quality that flows from the European market.

Norwegian supplies will improve the situation in the next two years. Alarm bells have been set off by what happened in Ukraine. The upside of that was that the Russians saw that if they want to reach their markets, they need to continue to make supplies. No matter how rogue the nation, the nation at the other end of the pipeline will not get the money unless it provides the goods. Sellers need money as much as consumers need supplies. I welcome the legal changes that are coming to encourage more storage. That will greatly improve the situation on this side of the market.

The North sea must be recognised for its major contribution to the UK economy, in capital investment, jobs, tax and supply of fuel. The Department of Trade and Industry has done much to encourage the maximisation of its continuing potential. The North sea still has much to offer. The fallow fields initiative and the access to infrastructure have been extremely welcome, but as has already been remarked in the debate, it seems perverse for the Chancellor to increase the tax regime during his pre-Budget report at such a crucial time when we are trying to encourage more investment in gas and more supply, exploration and production.

What is even more perverse about the way the Chancellor has treated the industry this time round with his tax shock is the fact that he introduced it two thirds of the way through the financial year, making the planning environment even more unstable for investors. Also, as I said in my intervention, he will not reduce the tax if oil prices fall. The tax is clearly not designed to send signals to investors that he is interested in encouraging their investment. On top of the previous tax shock, it has sent disturbing signals to the market about investment.

The Chancellor should consider abating petroleum tax on older fields, because they are the hubs that allow us to explore the smaller fields around them. He should also consider how the tax impacts on tariffs, because the Department of Trade and Industry is trying to encourage the maximum use of pipelines and infrastructure, so it is perverse for the Chancellor to increase the cost of using the pipelines through extra tax. A lot of gas remains to be extracted, so it is important that we get the matter right.

The North sea has an important role to play in carbon capture and storage to reduce the environmental impact of carbon fuels. The Miller project off Peterhead is a good example of the North sea's potential as a place to dispose of carbon rather than putting it out into the atmosphere, which causes environmental disruption. Preserving activity in the North sea while we develop the technology is vital, and if we get ahead in that technology there are markets in China and India, which must produce carbon in meeting their energy needs. We must therefore find a solution on carbon capture, which, as we heard in yesterday's Westminster Hall debate, also offers a potential future for coal.

Our nuclear industry has left us with a massive clean-up bill for historic waste of £56 billion and rising. Nuclear energy was originally described as too cheap to meter, but it is leaving us a major legacy. It makes sense to use the existing plant for its maximum life, because the cost has already been incurred, but we need a permanent solution on waste. The incentives to build new capacity for nuclear power would be better directed towards dealing with the problem, which Mr. Duncan mentioned earlier, of the signals to the different renewables sectors, in which we need to encourage diversification.

Photo of Daniel Kawczynski Daniel Kawczynski Conservative, Shrewsbury and Atcham

Are the Liberal Democrats totally opposed to any future investment in the next generation of nuclear power stations?

Photo of Robert Smith Robert Smith Opposition Deputy Chief Whip (Commons), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Energy and Climate Change), Shadow Spokesperson (Scotland)

The Liberal Democrats are not opposed to research, but we are opposed to the development of a new generation of nuclear power stations, which would be a mistake. Research in nuclear fusion offers potential long-term benefits for this country's economy and science base.

Britain is an island with a huge coastline, and wave and tidal power have major contributions to make in the long term. The Scottish Executive have already seen the problem of the imbalance of incentives sent to the renewables sector by encouraging the marine sector with their tripling of the renewables obligation, which will restore the investment balance and encourage marine renewables.

Photo of Alan Duncan Alan Duncan Shadow Secretary of State (Trade and Industry)

Following on from my hon. Friend Daniel Kawczynski, under what conditions would the hon. Gentleman favour investing in a new generation of nuclear power stations?

Photo of Robert Smith Robert Smith Opposition Deputy Chief Whip (Commons), Shadow Spokesperson (Business, Innovation and Skills), Shadow Spokesperson (Energy and Climate Change), Shadow Spokesperson (Scotland)

At the current time, we do not believe that it would make sense to invest in nuclear power stations, because we do not want to waste large sums of consumers' and taxpayers' money when there are better options. We do not want the environmental impacts, security concerns and terrorist risks that nuclear power could offer this country. A new generation of nuclear power stations is not the right solution, because we should not produce more waste when we do not have a proper solution to the current problem.

The skills developed in the hostile environment of the North sea have a lot to offer the marine renewables sector. Biomass is a major renewable that also has a lot to offer: our rural economy is currently going through major change, and given what has happened to farming and forestry, the new markets that biomass could produce would benefit our rural economy, our security of supply and our environment.

Gas is in the headlines but high oil prices also hit sectors of our economy that do not have access to gas. Farming, contracting, fishing and transport as well as domestic and industrial heating away from the gas main suffer from high oil prices. Perhaps the Minister could expand in his winding-up speech on how the European Union dialogue with the Organisation of Petroleum Exporting Countries is progressing on tackling long-term stability through exploring and producing enough oil from OPEC to stabilise world oil prices.

People say that we should not depend on the rest of the world but we cannot escape the fact that we live in an interdependent world. The Secretary of State mentioned the G8 and what we are trying to achieve at the World Trade Organisation. It is crucial that we do not allow protectionism and do not accept the argument that the national interest would be best served by cutting ourselves off from the rest of the world. The only way to protect ourselves from global forces and world markets is to ensure that they operate efficiently and effectively. We cannot run away from them; they will have an impact on us, no matter how much we try to be self sufficient.

The Government need to redouble their efforts on energy liberalisation and ensure that their proposals for storage capacity stabilise the market. In the long-term, we need to use our scarce energy resources with greater efficiency, make full use of our potential to capture carbon and unlock the renewable resources that nature has given us.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central 4:21 pm, 12th January 2006

I greatly welcome the debate but it is a pity that we have been given only three hours for it, approximately an hour and 40 minutes of which will be taken up by Front Benchers, given the length of time that they have already taken and the winding-up speeches later. It is a shame that we get such a short debate on an issue that is so important.

The debate is timely. Although I listened carefully to the Secretary of State's comments on our current energy supplies and our security, we read newspaper articles that refer to the "crisis" in our electricity and gas power supplies. Although we have probably not yet reached the crisis, given the long lead-in times for any new development—nuclear, gas, coal or anything else—we must start making decisions now and not wait any longer while establishing reviews, investigations and consultations about how to progress.

The Secretary of State pointed out that we face several problems with our existing energy supply. We are a net gas importer; our nuclear plants are ageing; our oil supplies in the North sea are expiring; our coal mines have been neglected, ignored, mothballed or simply closed; renewable sources have not come on stream as fast as they should; and perhaps we rely too much simply on windmills. While all that is happening, demand, which we have to meet, increases relentlessly year after year.

I am surprised that the Government have decided on yet another review, because the previous one took place only in 2003. The White Paper that was produced then states:

"By 2020 we could be dependent on imported energy for three-quarters of our total primary energy needs . . . we may become potentially more vulnerable to price fluctuations and interruptions to supply caused by regulatory failures, political instability or conflict in other parts of the world".

What more do we need to know? Those words were in a White Paper three years ago. How many times do we have to say it? We need to take some action now.

I went to the Library this morning and dug out a list of the Energy Committee's reports between 1987 and 1992. It is depressing that Energy Committee reports 16 years ago have the same titles as Trade and Industry Committee reports now. The reports then, as now, were on nuclear power, gas, renewables, clean coal technology and so on. We have known about the problems for a long time and we need to take action to deal with them now.

We have a diverse selection of fuel sources, and every commentator tells us that security of supply will be achieved through that diversity, by ensuring that we have several energy sources. However, each source has its own problems. The problem with nuclear power is its ageing reactors and the cost of dealing with the existing nuclear waste, which is estimated at £56 billion. What are we to do with that waste? We do not even know how to get rid of it yet, and we are probably talking about tripling the amount that we produce if the proposed new stations go ahead. We do not know what to do with the nuclear waste that we already have.

Photo of Eric Illsley Eric Illsley Labour, Barnsley Central

Not with only eight minutes to make my speech; I am sorry.

Who will pay for the nuclear power and for the new stations? How will we get the planning permissions through, given the 15 years that it took to get Sizewell going, and given that we cannot alter the planning legislation? This Government tried to do that shortly after 1997. What about the underfunding, or unfunding, of the nuclear liabilities? Back in 1990, when the previous Conservative Government tried to privatise the nuclear energy industry, they simply could not do it. When the Energy Committee at the time asked for the financial reports on that privatisation from Kleinwort Benson, Rothschild and all the rest—believe me, you could have jacked your car up on those reports, Mr. Deputy Speaker—they discovered that the City of London and the private investors were not prepared to invest in it because it was too expensive and too risky. I cannot see anyone wanting to invest in it now, either. So who will pay for these nuclear power stations? Will the Government and the taxpayer foot the bill, then franchise them out under some private finance initiative scheme so that private industry can run them? Are we going to let private industry take all the profit while the taxpayer pays all the costs? I can see that going down very well.

I mentioned coal earlier. We have an anti-coal DTI at the moment. There are elements in the DTI who simply do not want to know about British coal. They want it to wither on the vine and die away. Because of environmental restrictions, the energy supplied by coal will be down to 16 per cent. later this year anyway. My hon. Friend Mr. Skinner has already mentioned Haworth and Rossington is in the same situation.

In fairness, some of the mining companies that bought into the coal industry after 1994 have not been the best, but coal still has some advantages, one of which is clean coal technology. I should point out that that technology has been around for 25 years. When the Energy Committee produced its report in 1990, the first evidence that we took was from Texaco, whose representatives came to us and said, "What are you doing? We've already got clean coal technology in America. Come and look at it." It was already there; it has been around for a long time. We do not need to reinvent the wheel. The power station at Grimethorpe copied the technology that was already running a power station in Stockholm back in 1990. Clean coal technology is already here.

The other major advantage of coal is that we can stockpile it, as the Conservative Government realised in 1984. They stockpiled a lot of it for a long time. It does not run out, and we can quickly build the stations to use it. However much the DTI does not like coal, and however much people think that it is a dirty fuel, it will clearly be part of any solution, given the 10 years or so that it will take to get the nuclear power stations built. As my hon. Friend Dr. Whitehead said, if we press the nuclear button tomorrow, those stations will still be 10 or 12 years away. We have coal here, now, and we can use it.

The problems associated with gas are well documented. Even before the Ukraine situation, there were problems. Companies in my constituency, including Potters Ballotini, Rockware Glass and Carlton Brick, are experiencing problems. I chair the all-party group on the packaging industry, and we have made representations to Ministers. When I raised the question of gas supply at Question Time in December, I was told that there was no problem and that we had plenty of it. So why did the price quadruple in December? Somebody is trading it and manipulating the market to cause those problems.

I shall finish by mentioning co-firing, or co-generation. This uses biomass with coal. At the moment, renewal obligation certificates are available to anybody—Drax power station, for example—using renewables such as oil cake, olive cake and biomass co-generated with coal. They get a 25 per cent. ROC for doing that, which will reduce to 15 per cent. That should be extended beyond April of this year.

Photo of Michael Jack Michael Jack Conservative, Fylde 4:29 pm, 12th January 2006

Mr. Illsley, in advocating coal, should not regard nuclear power as a rival. I support the development of clean coal technology and a wide range of alternative energy supply developments. This debate on energy security, however, illustrates one key issue—diversity is the key to security. The Government, in a document signed by the Foreign and Commonwealth Office, the Department of Trade and Industry and the Department for Environment, Food and Rural Affairs, said:

"Britain's prosperity and wellbeing depend on access to secure and affordable energy supplies, and on mitigating the potentially catastrophic effects of climate change."

I agree with that statement and therefore support diverse energy sources.

Given the way in which Organisation for Economic Co-operation and Development countries have been depleting relatively cheap supplies of hydrocarbon fuels against a background of rapidly escalating world demand for energy, it is clear that we must take action immediately to deal with the energy security issue. In 1990, for example, 65 per cent. of the energy to generate electricity came from coal, which, by 2004, had decreased to 37 per cent., while the corresponding figure for gas increased from 0.7 per cent. to 35 per cent. A major change has therefore taken place in the energy market.

As far as electricity generation is concerned, nuclear has chugged on serenely at around 20 per cent. I am an avowed enthusiast for maintaining our share of nuclear-powered electricity generation. My constituency is home to the production of the majority of the fuel for Britain's nuclear power stations, and I know that by 2020, with the existing shutdown programme, the percentage of electricity from nuclear sources will be down to 7 per cent., with all the implications that that has for diversity of supply and greenhouse gas emissions.

Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

Are the raw materials for nuclear energy imported, or are they mined locally?

Photo of Michael Jack Michael Jack Conservative, Fylde

I am sure that we are already buying nuclear energy from France through the interconnector, so the issue is of some importance to the United Kingdom.

I have been impressed by the work done on new designs. I suggest that the hon. Member for Barnsley, Central considers the OECD report, which compares and contrasts the full life costs—capital, running and decommissioning costs—of a range of new models of nuclear reactor. Even in Finland, the price of electricity generated from new nuclear reactors is comparable with that generated from gas and coal, considerably cheaper than wind, solar and micro-hydro power and cheaper than combined heat and power. That is a significant difference from the old days when we built nuclear power stations that were unable to cover their full costs without public subsidy. It is worth remembering that while Magnox power stations account for £13 billion of the £56 billion costs of Britain's nuclear legacy, our advanced gas–cooled reactors and pressurised water reactors are already covering their decommissioning costs in terms of their fuel and sites.

Photo of Michael Jack Michael Jack Conservative, Fylde

No, I have given way once, and I wish to conclude my remarks.

The advanced-passive reactor, the AP1000, is already a proven technology in the world. If Britain were to move towards a family of those reactors, capital and other costs would decrease considerably. Some 1,300 man years of design and safety work has already been carried out on that type of design. In terms of fuel efficiency, the newer forms of nuclear reactor are some 10 times more economic than current counterparts—for each gigawatt of power produced, they require 30 tonnes of fuel per year, compared with 300 tonnes of the same fuel required by Magnox power stations. Those new designs are very safe and have a passive safety system, which is not reliant on electric pumps or other automated facilities as is the present case. In terms of proven technology, they have a good safety record.

The hon. Member for Barnsley, Central rightly pointed out that coal could be stored. Uranium can be stored just as easily, and as it comes from friendly sources such as Australia and Canada, it is not subject to some of the political vagaries of the international hydrocarbons market. The fuel space needed for a family of 10 AP1000 reactors could be accommodated in one small house for a year. It is not a large physical challenge to ensure that we have continuity of supply as a result of the review.

Members have spoken of the need for renewable energy. I strongly support it, whether it is land-based and harnessed from wind, harnessed from waves, or indeed obtained through the use of biomass, particularly in the context of bulk heat supplies. I note, however, a cautionary report from the company E.ON on the German experience of wind energy. Its 2005 wind report forecast that to ensure that wind can maintain its place in the energy mix, in 2020 Germany will need 48,000 MW of wind capacity—the equivalent of 2,000 MW of conventional plant. That demonstrates that if there is to be continuity of supply from wind energy, an awful lot will be needed.

Sir Robert Smith neatly sidestepped the critique issued by the former energy Minister Brian Wilson, who observed in the House that while in general the Liberal Democrat party seemed to be in favour of wind, whenever a specific project was suggested they objected to it. I heard nothing from the hon. Gentleman to disabuse me of that idea.

I strongly concur with what has been said today about energy saving. I applaud the Government's provision of money to mobilise citizens to become involved in energy-saving projects, but there must be a concerted effort by local authorities, the Department for Environment, Food and Rural Affairs, energy providers and everyone else to make citizens understand what they can do individually by reducing electricity consumption or improving the efficiency of their houses.

My purpose in speaking has been to emphasise the importance that I attach to nuclear energy. I hope that the Government will soon reach a conclusion on the review. We in the United Kingdom must maintain our nuclear skills, particularly in fuel manufacture, design and build. I firmly believe that nuclear energy is one of the key technologies for the future, and that the United Kingdom can play a positive role by replacing its existing nuclear power stations with a new generation of AP1000 designs.

Several hon. Members:


Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. Before I call the next speaker, I remind the House that the winding-up speeches will probably begin in a little over an hour. A good many Members are still seeking to catch my eye. There is already an eight-minute limit on Back-Bench speeches, but if Members could take rather less than their allotted time it would be very helpful, not just to the Chair but to others who are waiting to speak.

Photo of Michael Clapham Michael Clapham Labour, Barnsley West and Penistone 4:38 pm, 12th January 2006

I shall begin where the Secretary of State began. He pointed out that electricity generation in this country is divided among a number of diverse sources, 40 per cent. being provided by gas, 33 per cent. by coal, 20 per cent. by nuclear power, perhaps 4 per cent. by renewables and a little by oil. That diversity provides some security, which I feel should be the nub of the argument. Nevertheless, enormous pressures are building up which will have an impact on the energy market. The International Energy Agency has said that over the next 30 years the demand for energy will increase by about 1.7 per cent. per annum. That increase will bring about new build of power stations. In Europe alone we will require 130 GW of energy replacement and new energy. Let me give the House an idea of how much that is. Drax power station, which is the largest power station in Europe, is 4 GW, so we will need to build a lot of Draxes to meet an energy demand of 130 GW over the next 30-odd years.

The point has been forcefully made that in moving over to gas, the threat is that we could become over-dependent on it. Gas is currently scarce, and we know that some 400 million cu m of gas is used daily. The Secretary of State said that we can meet likely demand this winter, and we know that gas supply is likely to increase when the Norwegian interconnector is through. In fact, as a result there is likely to be a 28 per cent. increase.

Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

Does the hon. Gentleman accept that, as the production figures show, although it is feasible to import gas into storage, market pressures operate to prevent that from happening?

Photo of Michael Clapham Michael Clapham Labour, Barnsley West and Penistone

Market pressures certainly do operate in that way. As my hon. Friend Joan Walley pointed out earlier, speculation in the market causes certain problems. Companies in her constituency have closed down and sold gas on, so there are difficulties associated with the market mechanism that need to be looked at.

When gas capacity increases by 28 per cent., there is likely to be another dash for gas, unless a mechanism is put in place to prevent it. Given the likely simultaneous decommissioning of coal-fired and nuclear power stations, unless we can restrict that dash for gas, 70 per cent. of our electricity generation needs may have to be met by imported gas. In the first instance, such gas will come from Norway, but within five years Norwegian gas is likely to become very scarce, so we will be dependent on gas coming down the pipeline from Russia. Russia has become an energy superpower that will provide energy for the whole of Europe. There are real dangers in that. The phenomenon of terrorism and the problems that may arise because of international disputes put us in a very vulnerable position. I therefore hope that during the review, the Minister will look seriously at the question of how we move forward. One driver will be climate change, which will be the big issue for the Minister to examine when he considers all the factors that impact on the review.

As was pointed out in strong terms by my hon. Friend Mr. Illsley, coal is seen as a dirty fuel and we have got to get beyond that. The increase in the global energy market over the next 30 years is likely to occur in carbon fuels, and we have to be able to burn those fuels in a way that is compatible with our environmental aspirations. Clean coal technology provides that opportunity, and it is already here. Mitsui Babcock is producing supercritical boilers with a carbon capture facility; some are already being exported to China. We need to incentivise generators to invest in new clean coal technology. The first phase will be supercritical boilers with carbon capture, and the second is likely to be integrated gasification combined cycle units. I understand that four projects have already been given approval, so we are likely to see developments there too.

I believe that clean coal technology can help to provide the solution that the Minister is looking for. It would allow us to burn coal, capture the carbon and use that carbon either for sequestration in the North sea or in other projects—for example, infusing carbon dioxide into coal seams to enhance the gasification process. There is already a project running in Scotland; Strathclyde university is involved, and it may go commercial.There are a number of ways in which we can deal with carbon dioxide. Clean coal technology will help us to provide a sound energy base, but it also provides another opportunity. If we are to deal with the global carbon dioxide problem, we shall have to transfer technology into the countries that now use enormous amounts of coal, such as China, India, Brazil and the up and coming new economies. We need to invest in clean coal technology, and I hope that the Minister will see it as part of his solution.

The UK coal industry was privatised by the Conservatives in 1994. They privatised it into a failed market situation when it was below its critical mass, and they knew that it would wither away. Since then, the industry has been dependent on the Government, and had it not been for the present Government, it would already have passed on. There are now seven producing collieries, six in England and one in Wales, and there is a possibility of a new mine being sunk in Margam. That will be done in partnership with Corus, and it is for metallurgical coals.

The English coalfield needs investment. I hope that my hon. Friend the Minister is prepared to make that investment to ensure that it can continue to make a contribution to energy security.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford 4:47 pm, 12th January 2006

I shall not say anything this afternoon very different from what I have said on previous occasions on this subject, but I shall say it with greater urgency, because of present circumstances in the world, and with a greater hope that it will be taken seriously both by the Government and by my Front-Bench colleagues, who, as we heard this afternoon, are to conduct their own parallel energy review.

There have been two dramatic developments in the world over the past few months that we cannot ignore. One is that although the evidence of climate change has been apparent to us anecdotally for some years, because of such things as the changes in the seasons in this country, there is now empirical evidence, based on the latest measurements, that the amount of cold water sinking in the North Atlantic, which is the mechanism for the gulf stream, is falling. That is terrifying, because if the gulf stream failed, or was reversed, in a few generations' time this country would have a climate comparable with that of Labrador today.

That is a major threat, and we have to take it seriously. We know that we are not likely to reach the 60 per cent. reduction in carbon emissions by 2020 to which we have committed ourselves—at least, not without some major new action.

The second new development is the substantial rise in the price of natural gas, which has doubled over the past couple of years, coupled with the fact that we have become a net importer of natural gas. Anyone who knows anything about the energy business knows that all gas and oil fields follow a bell curve pattern: once exploitation begins, production increases quite rapidly, then there is a plateau for quite a long time, but when the field begins to run into diminishing returns, production falls sharply away. I am afraid to say that the news can only get worse on natural gas against a background of rising international prices and energy demand. Being dependent on the Netherlands and Norway is, as has been said, relatively reassuring, but once we come to find a substantial proportion of our natural gas deriving from Algeria or Russia and other such countries, we will need to be very worried.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

I cannot as I am trying not to go into extra time.

Against that background, I do not think that energy saving is enough. Of course, we all want to go in for energy saving, but we have to recognise that demand for energy will be increasing at the very time when some of our power stations, particularly the nuclear ones, have to be decommissioned. We must replace those sources of energy with new ones. We must also provide for new energy in future. Simply to talk about energy saving, as the Liberal party does, is a complete abdication. It is a cop-out, not a responsible policy line.

Nor do I believe that renewables can be the answer. After all, all we have had so far from renewables has been wind. There has been no progress on ambitious ideas about mobilising tidal energy. Wind is very expensive. Subsidies disguise the additional economic cost, and wind is available on average for only 30 per cent. of the time. It is not a baseload source of energy, and although it is fine if it provides 4 per cent. or even 10 per cent. of energy—a few percentage points would be very desirable—it eventually becomes impractical, because we would need so much back-up capacity that the fixed costs of the back-up for when there is no wind, which is on average roughly 70 per cent. of the time, become excessive. That is not a solution.

The only solution is that supported by colleagues and me. I very much endorse what my right hon. Friend Mr. Jack said, and what he has also said on many occasions. We need to go, ambitiously and bravely, for a major programme of building new nuclear generators. In other words, we need to do, 20 years later than they did, what the French have so successfully done. I should like us to commit ourselves in the next few years to building, say, 10 new EPR stations, or perhaps dual reactor stations. Ten of those with 3 GW to 4 GW each would produce in 25 or 30 years time about half our current energy needs.

If we are to move down that road, Parliament will have to take some decisions. We shall have to make a decision on a licensing regime. The nuclear inspectorate of the Health and Safety Executive has gone to sleep over the past few years so far as licensing new models is concerned, even though new stations have been built in France, Finland and elsewhere. The inspectorate has done no work on that, and there will be enormous delay in getting it into gear. We should go for an EU regulation and licensing regime, which would enable us to leverage on the experience of the French and the Finns.

We have to do something about the planning regime. We cannot possibly have the absolute fiasco of the Sizewell B inquiry, which I think lasted six years. From my experience in Northern Ireland, I can see what happens when we put a lot of lawyers in a room and pay them large amounts of money daily, as in the Saville inquiry. It all goes on for years and years and years.

If we are going to do what I suggest, it will have to be done by private Bill procedure. Of course, private Bills can be prayed against, and Parliament can hear the evidence. We would never have built a railway system in the 19th century if it had not been for private Bills. I think we have to get back to that. I remember in my first Parliament supporting the private Bill on Felixstowe dock and harbour. We would never have had the Felixstowe dock without adopting that procedure, and what a success that has been.

Then there is the climate change levy. We should not give a bonus to existing stations, which are making a reasonable amount of money and are rapidly depreciating. But for new nuclear build, we should exonerate energy produced by those stations from the levy. There is no real logic about applying the climate change levy to nuclear energy, which produces no carbon at all and does not affect the environment. We should remove that anomaly.

Finally, we need to do something about limiting regulatory risk. The state—be it in London, Brussels or Vienna—is in a broad sense responsible for regulation, and if we are to get private sector capital investment in building new nuclear power stations, investors must be sure of the rules of the game on, for example, fuel treatment, recycling and decommissioning. They must be sure that the rules will not suddenly be arbitrarily changed. If the rules are changed, it is reasonable to require the state that changes them to meet the associated economic costs.

Investors in the energy industry and others are looking at an average oil price of $50 a barrel, and that offers a viable reason for revisiting the nuclear programme. As I said, two of our EU partners, Finland and France, have made that analysis already. France is gaining immense benefits—some of the figures were quoted earlier in the debate—from the very brave decisions that it took in the 1970s. That is the way forward for us too, and I hope that the Government, and my colleagues on the Opposition Front Bench, have the courage to say as much over the coming months. We need to make a decision without delay.

Photo of Colin Burgon Colin Burgon Labour, Elmet 4:55 pm, 12th January 2006

The recent dispute between Russia and Ukraine has given the debate a sense of urgency, and the question of energy has entered the public consciousness in a way that I have not known before.

I was surprised by the reaction of some right-wing think tanks and Government spokesmen in the US—the terms may be interchangeable—in criticising Russia's role in the dispute. The advice when communism collapsed was that Russia needed a big dose of marketisation, so there is a whiff of hypocrisy in the air. The US has never been afraid to use its muscle in the energy sector, the oil embargoes that it has imposed on Cuba being only one example.

I understand that the price that Ukraine paid to Russia for gas was about one fifth of the level in western Europe. It could be argued that that was detrimental to the wider environment, and I am sure that the Russians would argue that it was also detrimental to their economy. However, we should not be surprised by what happened in that dispute, as greater marketisation will inevitably lead to more conflicts of that nature. I was glad to hear my right hon. Friend the Secretary of State say that diplomatic channels represented the best way to deal with such problems in the future.

The conflict between Russia and Ukraine caused certain people in this country to express their ideas about how to ensure security of supply in the future, but we must put the matter in context. As has been pointed out, we get roughly 70 per cent. of our gas from Norway; we do not get it from Russia.

At the head of the queue of people giving us the answers to our energy problems are those in the tremendously powerful nuclear power lobby. I do not want to go into too much detail, but I have several questions for them to answer. First, how will we manage the increased amount of nuclear waste? What about the costs of a new nuclear programme? I have read that six new stations would cost some £26 billion. Interestingly, some Opposition Members have said that the state should play a key role in underwriting the building of new nuclear power stations. I think that that proposal is very dangerous.

Another question has to do with wider security matters. If the UK goes nuclear, other countries will follow, and the existence of a broader nuclear skills base clearly increases the possibility that countries will acquire nuclear weapons. North Korea and Iran are obvious examples of that. American intelligence sources are occasionally worth listening to, and I understand that they have learned that al-Qaeda was thinking about attacking nuclear power stations—another factor that must be taken into consideration.

Even if a green light is given to new nuclear construction, decades will pass before such stations will be able to supply power. In contrast, measures can be introduced now to promote energy efficiency and renewable generation. I hope that the Government will not give way on the objective of getting 10 per cent. of electricity from renewable sources by 2010, rising to 20 per cent. by 2020.

Promoting energy efficiency is a wise, sensible and practical policy, but we must not forget to look at the efficiency of electricity generation. It has already been pointed out that electricity generators lose all but some 38 per cent. of the energy of their fuel through inefficient technology. On the consumption side, only 18 per cent. of houses in Britain are fully insulated. A detached house built in Britain, even under today's modern standards, consumes nearly 20 per cent. more energy than the equivalent home built in Denmark. Perhaps we should appoint an energy conservation tsar—we would have to clear it with the Russians first—who could massively raise public consciousness on the issue.

If security of supply means looking at what we can promote domestically, I add my voice to the strong case that has already been made for our deep-mined coal industry. Some 33 per cent. of our electricity is generated by coal, and 60 per cent. of that coal is imported. It is reckoned that in Britain we have 200 years of coal reserves, but only 40 years of gas reserves. We have used only 15 to 20 per cent. of our coal reserves in the past 100 years. As has been pointed out, carbon sequestration and underground gasification offer the prospect of clean coal technology, and it is much further advanced than people would have us believe.

There is a need for investment in the coal industry and we need to take a long-term view. I welcome the £35 million in grant aid from the Government to demonstrate the possibilities of carbon abatement technology, and I understand that it will come on stream in April this year for some four years. However, more operating and investment aid for coal should be considered. At present, the Government provide 30 per cent. of the cost of development work and the coal producer has to find the other 70 per cent. The current investment aid fund has been used up, but banks will not lend against the short-term contracts that are placed by the generators with the coal suppliers. In the United States, coal suppliers have 25-year contracts. Why cannot we have them in this country?

Coal mining is a long-term, capital-intensive business, requiring some form of Government intervention—that might not be popular with some—in the current structure of the market to ensure continued supplies of UK deep-mined coal. Loans, or loan guarantees, secured on future coal sales are a possible answer, and I hope that the Minister will address that point when he winds up.

I accept that we need an energy mix and should not rely on one particular fuel. However, I desperately want the UK deep-mined coal industry to be part of that mix. Action is needed urgently, because we now have only eight collieries and we lack the critical mass that the industry needs to retain the experience and skill and preserve it for the future. It may be an unpopular suggestion, but I believe that there is no future for the coal industry unless it is brought back into public ownership.

I question the 2003 energy review which concluded that the Government would not intervene in the market except in extreme circumstances. Markets are not infallible, and indeed they often tend towards short-term thinking. There is a role for Government and I hope that this review will confirm that.

Photo of Peter Luff Peter Luff Chair, Trade & Industry Committee 5:03 pm, 12th January 2006

I suppose that every Select Committee Chairman thinks that the subject his Committee covers is the most important facing the country, but there is a strong case for saying that the subject of today's debate is one of the very most important. Therefore, I hope that the Minister will accept that I am not being partisan when I say that I am very disappointed by the length of time available for this debate. Three hours is not enough, as the ridiculously short limit on Back Benchers' speeches and the competition to speak demonstrate. It falls short of the assurances that we were given about a full day's debate on this subject.

There was a very good debate on the issue yesterday in the acting Westminster Hall, introduced by Jim Sheridan. I am sorry that I was not able to attend, but I have read the report of it. I was struck by the considerable consensus in that debate, which we have seen again today, about the basic issues confronting us, especially the need for diversity of provision and—an issue I wish to emphasise—the protection of skills in the different energy sectors.

I have two initial thoughts. It is said to be a Chinese curse to wish that someone live in interesting times, but this is one of the most fascinating intellectual, technical, economic, environmental and geopolitical issues of our time. I am sure—from speaking to them privately—that Ministers relish the challenge they face. The trouble is that media coverage and public debate tend to be in inverse proportion to the seriousness of issues because the very complexity that we face in this issue tends to put people off. Sometimes, if we are honest, we are distracted from the most pressing issues by the interest in other less important issues.

I am glad that Colin Burgon mentioned the actions of Russia and Gazprom, which have done us in an incalculable favour. Digby Jones was, if we are being honest, being a bit alarmist towards the end of last year, and Ministers were probably right to be cautious in their response, but energy supplies are now extremely precarious and becoming more so. Until this winter is over, and it is not over yet because British winters can easily last until Easter, we cannot breathe easily. Whatever the weather, the Russians have not only done us a political favour by reopening the debate and forcing the issue up the agenda; they are also moving us closer to a proper wider European energy market wherein prices are rather closer to true market conditions.

Perhaps the Russians picked on Ukraine partly for political reasons, but they were selling their gas far too cheaply, and the movement to market prices will enable countries such as Ukraine to take more rational decisions about how they use energy and force them to close their windows in the winter. The growing concerns about energy prices and security of supply are forcing a much more mature debate in this country as well, as we have seen here this afternoon. The Russian action forced the issue right into the headlines. I am told that my Committee's grilling of the Minister for Energy on 31 October was the Christmas highlight of the Parliament Channel, with frequent repeat showings throughout the recess. The hon. Gentleman shakes his head, as I do, because sadly there is no appearance fee on the Parliament Channel.

The February 2003 White Paper struck many of us as rather disappointing, and it is welcome that a review is under way and being conducted with some urgency. As for its conclusion, I am not sure what early summer means, but I hope that the Minister can stick to that deadline. It took quite a long time from rumour, leak, briefing and a declaration of intention to actual announcement of the review, but I am glad that we have got it.

These are issues that, as previous speakers have said, have concerned the Trade and Industry Committee for many years now. In the last Parliament, there were two major reports, in early 2002 on the security of energy supply and early last year on fuel prices, under the excellent chairmanship of Lord O'Neill of Clackmannan. As this is the first time that I have spoken as Chairman of the Committee, I would like to pay a special tribute to Lord O'Neill. He was a fine Chairman and he is sorely missed; I am glad that he is still benefiting us with his expertise in another place.

It will come as no surprise to the Minister if I tell him that we meet next week to consider how we will conduct our parallel inquiry into the Government's review. Already in this Parliament we have looked at gas in a report published last month, to which the Government responded today. I had hoped to speak rather earlier in the debate and draw the attention of the House to the fact that the Government have responded to the report—not something that was put on the record in the Deputy Speaker's opening statement—and that the response is available in the Vote Office.

It is a very good response. In fact, I go so far as to say that it is one of the most exceptionally helpful, thoughtful and constructive responses I have known in my time as Select Committee Chairman, in this case and as Chairman of the Agriculture Committee. It treats all our recommendations with great seriousness and allays my concern in many areas. It makes encouraging noises about those people, other than the elderly, who suffer from fuel poverty. On industry, it says some helpful things about how it intends to help big users, and I am glad about that.

I have in my constituency a big brick manufacturer, Baggeridge Brick. We must recognise that the demand response of which the Government's response to our report speaks means that the capacity is not there, and brick factories have been closing. Hanson has already closed a quarter of its factories for the next month, and Baggeridge Brick has written to me to say:

"Unless something is done quickly to stabilise the gas price then the only possible outcome can be further job losses in the UK manufacturing sector and increased import penetration of building materials from Northern Europe."

That, I think, is right.

The question of European liberalisation is one of the other big themes of our report, and it has been a big theme of this debate. We all want it, and I think that I join in the criticism that not enough has been achieved during the presidency, but it is a very difficult thing to achieve. Can the European market be liberalised in the short term without requiring Governments and the private sector to tear up perfectly legal contracts? That is a legal challenge for us. Liberalisation of the European market is high on the Commission's agenda.

When we went to Brussels before Christmas I was very impressed with what I heard from officials there, but one cannot argue with the fact that the UK will struggle to buy gas in Europe unless either it is able to set up long-term contracts similar to the ones that already exist there with gas producers, so undermining development of the real gas market to which we all aspire, or European countries voluntarily, or as a result of being forced by the European Union, surrender their long-term contracts and trust themselves to the competitive market. These are difficult issues. I had hoped to say more about storage, but it has already been extensively covered, and I welcome both the Government's response to our report and the Secretary of State's helpful opening remarks.

The last energy policy White Paper in 2003 may have been disappointing in some respects, but its goals remain valid: cutting carbon dioxide emissions, maintaining the reliability of energy supplies, promoting competitive markets in the UK and beyond and ensuring that every home is adequately and affordably heated. Perhaps we can now have a rational debate in the context of the Government's energy review, where prejudices for and against any one energy source—including, I must say to the Liberal Democrats, nuclear power—are abandoned for hard fact in the face of compelling reality.

I will not prejudice my Committee's work, but I am sure that we shall conclude, as the House has, that over-dependence on imported gas from countries with less than perfect political stability is a bad thing; that renewables and clean coal technology have a crucial role to play—come back coal, all is forgiven; that energy efficiency needs to be improved to combat climate change, not so much in the industrial sector but in the domestic and transport sectors; and that the emissions trading scheme, which sets the price of carbon, will have a crucial role in deciding whether the private sector can invest in nuclear power. We may even approach consensus on the nuclear question, although carbon neutrality issues are much more complex than they seem: how much energy goes into mining uranium, or into building nuclear power stations or wind turbines?

This is one of the most important debates that the House will hold in this Parliament or the next. It does not end today; it merely begins. But at least in part, thanks to the apparently reckless actions of Gazprom, it may be better informed and more urgent—as it needs to be.

Photo of Joan Ruddock Joan Ruddock Labour, Lewisham, Deptford 5:11 pm, 12th January 2006

Unlike Peter Luff, I warmly welcomed the energy White Paper in 2003. For the first time, the Government acknowledged something that many of us had held true for a long time: we cannot separate energy generation and use from the environmental consequences.

The White Paper offered, in a global context, the way ahead for the UK for a generation. It showed an exciting prospect—facing the challenge of achieving a low-carbon economy—and pointed to important firsts, such as the first straw-fired power station in Cambridgeshire, the first commercially operational wave power station on the isle of Islay and the rapid development of wind turbines. None of the annual reports that were promised and have been issued since then—the last one was in July 2005—has indicated any need for a major change of direction. So what has happened?

Members and Ministers have cited climate change, but the White Paper stated that our first challenge was environmental and that climate change is real. It accepted the recommendation of the Royal Commission on Environmental Pollution for cuts of 60 per cent. in CO 2 by 2050. Today, the Secretary of State cited the more rapid decline in North sea gas and net importation, but that, too, was anticipated in the White Paper. It noted that the second challenge would be the decline in indigenous energy supplies and that we would be a net importer of gas in 2006. My right hon. Friend spoke about the decommissioning of our nuclear reactors. That is a fact. The White Paper said that probably only one nuclear plant would be open by 2025.

The importation of gas was recognised; the White Paper said that we would need additional supplies of both piped and liquefied gas from a range of sources, and noted that diversity of gas supply would be important. All the key issues were flagged up. The goals set to cut emissions, retain reliability of energy supply, promote competition and ensure that every house was adequately heated were all thought to be achievable without new nuclear build.

Nuclear is neither clean nor carbon-free. It produces highly toxic waste, which other Members have mentioned. It offers no solution to the problem of climate change. In a life cycle analysis, from the mining of uranium through to the decommissioning of the plant, nuclear power is in no sense carbon-free and in the worst-case analysis is just as dirty as a gas-fired station.

We need to examine more carefully the nuclear contribution to our energy needs. The debate has really been about electricity generation. Primary energy sources, however, show us that gas is 40 per cent., oil just over 30 per cent., coal 16 per cent., but nuclear is only 7 per cent. Transport uses 35 per cent. of our energy supply. Our domestic use is 30 per cent. Industry uses just 21 per cent. So nuclear power may be a significant source of electricity production, but not many of us heat our homes with electricity or drive cars powered by that source. The very sectors that have accounted for the greatest increase in demand—our home heating and the use of our cars—and created the worst pollution are not being served by the nuclear industry.

I suggest that the costs, the risks, the development time and the production of radioactive waste associated with new nuclear build are all far out of proportion to the potential emissions savings. Furthermore, the argument that new nuclear build is essential to meeting our CO 2 targets is an extremely dangerous one in the international context. The UK accounts for just 2 per cent. of global CO 2 emissions. We all know that the greatest future contribution to and threat from CO 2 emissions comes from China, India and Brazil and such developing economies.

Photo of Joan Ruddock Joan Ruddock Labour, Lewisham, Deptford

I am sorry, I cannot.

If we cannot cope with solving our CO 2 emissions without new nuclear build, what does that say for countries such as China? One new dirty coal power station is being built in China every week. Are we to suggest that China goes wholly nuclear to deal with its energy needs and its CO 2 emissions? That is absolute nonsense. How long would uranium last if China did so?

As my hon. Friend Mr. Clapham in particular has said, the answer clearly lies in the clean coal technologies and, as many Labour Members have said, in developing renewables. That is the way that we help the emerging economies and the least-developed countries of the world. If we are serious about our global leadership—I believe that we are—that is what we must do. I thought that that was what we were doing.

The second report on the White Paper was absolutely packed with positive achievements. The framework treaty with Norway will ensure that up to 20 per cent. of UK future gas demand comes from that country. Mr. Davies spoke about unreliable countries and cited Algeria as one of them, but Algeria has provided energy to Europe for 40 years without significant interruption. We have increased the renewables obligation to more than 15 per cent. by 2050. We have doubled the energy efficiency commitments, by making a £2 billion investment. We have exceeded the Warm Front scheme targets. We are developing carbon abatement technologies. We have taken action and have plans for a range of renewables. We have new buildings regulations. We have an energy efficiency fund. We could do all those things better and we could do more of them.

I particularly welcome the energy review, by which we can find out how to do better with the renewables obligations. Opposition Members may be surprised that France generates more electricity from renewables than we do, as do Germany and Spain. There is so much that we could do. We could raise our building standards to the highest that operate elsewhere in Europe. The borough council in my constituency uses only green energy. Why does not every local authority use only green energy? A state-of-the-art, low-energy school has been built in my constituency. Why is every school not built to that standard?

I tell Ministers that we must not lose our nerve. Nuclear energy production is now an old technology and, like all old technologies, it leads to environmental degradation. It is not the answer. We can do more on renewables. We can do much more on energy efficiency, which is responsible, and we can reduce demand without reducing our lifestyles. The energy review needs to be predicated on the basis that this country and the globe need environmentally sustainable development, which needs to be at the heart of the review.

Photo of Richard Ottaway Richard Ottaway Conservative, Croydon South 5:19 pm, 12th January 2006

Much as I was looking forward to the prospect of giving lengthy advice to my constituent—the Minister for Energy—in the interests of brevity I will keep my contribution short. I am not alone in finding the Russian Government's decision to cut off gas supplies to Ukraine chilling, and the implications are quite substantial. In truth, being dependent for our energy supplies on a country that is prepared to cut off those supplies will emasculate our foreign policy. In certain circumstances, our foreign policy could be affected by dependency on imported energy from risky nations.

That leads me to a conclusion with which Joan Ruddock will strongly disagree—that we must greatly increase our dependence on nuclear power. To me, the question is not nuclear versus coal but nuclear versus gas from risky sources. I am a strong believer in nuclear power. The French derive 75 per cent. of their energy from nuclear and 15 per cent. from hydroelectric, so 90 per cent. of their energy comes from their own sources. I agree with my hon. Friend Mr. Davies: at least 50 per cent. of our energy should come from nuclear sources.

Photo of Ed Vaizey Ed Vaizey Conservative, Wantage

One of the points that Labour Members have refused to hear by refusing to accept any interventions is that we have already lost the global leadership debate. They want to stop nuclear power, but India has already committed to getting 25 per cent. of its energy from nuclear sources.

Photo of Richard Ottaway Richard Ottaway Conservative, Croydon South

I am grateful to my hon. Friend for making that strong point. Both India and China are to use a mix of nuclear and coal generation. The hon. Member for Lewisham, Deptford wants to see clean coal technology; I do too, but not to the total exclusion of nuclear power.

My next point is on the lack of an investment structure in this country. Several investment projects are on hold because their promoters cannot envisage proper payback for the investment needed. Building a new generating station requires a 30-year payback period. At present we have the volatility of a spot market, which we have seen fall to a very low level in the past couple of years. No senior executive will commit to a 30-year payback unless he can foresee a steady cash flow that will pay for the station. The previous Minister for Energy promised to look into encouraging long-term investment in generating capacity. I hope that the present Minister will take up the issue.

Mr. Illsley made a very good point about co-firing. Co-firing is the burning of biomass in a coal-fired power station—10 per cent. biomass to 90 per cent. coal—and the biomass qualifies for the renewables obligation. The practice has been successful, and I believe that the Department of Trade and Industry is sponsoring research into how to achieve a biomass burn of more than 10 per cent. Burning 10 per cent. biomass means 10 per cent. less CO 2 emissions going up the chimney, so it is a good thing. However, in 2002 it was decided that the 25 per cent. cap on the contribution to renewables would be reduced to 10 per cent. in April this year. At the time that did not look like a stupid decision because gas and electricity prices and economics were very different, but the situation has changed. It now seems fairly bizarre to have decided to reduce the amount of biomass that can be burned in co-firing at a time when all the indicators suggest that we should be increasing the amount.

I wish the Minister for Energy well in his review. I believe that the suggestions made by my hon. Friend Mr. Duncan have merit. The truth is that we have a risky road ahead of us. The Minister has difficult decisions to make.

Photo of John Robertson John Robertson PPS (Dr Kim Howells, Minister of State), Foreign & Commonwealth Office 5:24 pm, 12th January 2006

We have been having an interesting debate. We have a pro-nuclear element on the Conservative Benches and an anti-nuclear element on the Labour Benches, so today I feel somewhat embarrassed to be standing on the Government side of the House, given that I am chair of the all-party group on nuclear energy. It will not take a genius to work out whether I am in favour of nuclear energy.

In this short contribution, I should like to take account of what has been said today and advance an argument about why we are debating this issue and why we should not discount one form of energy in favour of another. I was particularly disappointed by the Secretary of State's contribution—the Minister may wish to respond, either now or in his winding-up speech—as it appears that we have already conceded that we will import gas to meet our future energy needs. That is a great mistake. The country needs to look at its energy needs and try to provide its own energy. If that means that we cut gas imports, so be it. We do not need to put all our eggs in one basket and go down the nuclear route. We do not necessarily need new build, but we should replace our existing power stations. The efficiency of the new power stations will increase the electricity available from nuclear.

Photo of Malcolm Wicks Malcolm Wicks Minister for energy, Department of Trade and Industry

My hon. Friend has misunderstood the position. In the consultation document we say that unless things change there will be a heavy reliance on gas imports, and we ask what the implications are. That is not necessarily what will actually happen.

Photo of John Robertson John Robertson PPS (Dr Kim Howells, Minister of State), Foreign & Commonwealth Office

I thank the Minister for that correction. I am pleased that that is the case, but it is not what I thought I heard earlier.

I have visited Finland and Canada in the past few years, and have seen what is being done with waste in Finland. I accept concerns among hon. Members and, indeed, the general public about waste. Who knows? Perhaps the waste of today is the energy of tomorrow. We need to put that waste in a secure place so that it is safe but can be retrieved if we need it for future energy needs in the years and perhaps centuries to come. We should therefore not adopt a short-sighted approach.

We need the right mix. Clean coal technology is an excellent way forward. My hon. Friend Mr. Clapham said that it is here today, and I hope that that is the case, as we could make a great deal of money in China and we could sell the technology to other countries. We must pursue that approach. I was pleased to hear earlier this week that China and Britain are working together to try to promote clean coal technology in future, and I hope that that is successful. Unlike some hon. Members who spoke about renewables, I believe that we should put money into them, as we do not know what we will need in future. Usage has increased. How many households nowadays have more than one television? We used to crowd round the television and eat our tea, but today the kids go to their room, which is heated by its own fire, to play with their PlayStation and watch television. I do not know how we stop them doing so. Hon. Members have talked about increasing household energy efficiency. That has been tried in many countries, but it has never provided enough savings to spread the benefits across the whole nation.

Gas reserves in the North sea are going down, but they are still significant, and businesses should use them to provide heating or to supply gas-related products. However, perhaps we should think about cutting gas usage rather than increasing it. As for costs, which were mentioned my hon. Friend Joan Ruddock, I accept that electricity is expensive, which is why people use gas. Oil, too, was popular when it was cheap. If gas prices keep increasing gas will become expensive. It is a finite substance and it will not be available for ever. There may be a run on gas in 10 or 20 years' time, but supplies will not last for ever. The House and hon. Members should think not just about today's generation but about tomorrow's. It is important that we think a few years down the line.

I know that other Members wish to speak, but I want to mention a briefing that I received from the Institution of Electrical Engineers, supported by the Energy Institute, the Institution of Chemical Engineers, the Institution of Civil Engineers and the Institution of Mechanical Engineers. On the disposal of nuclear waste, the briefing stated:

"New nuclear build to maintain existing capacity would add only in the order of 10 per cent. to existing waste."

Some newspaper reports have said that that is not true, but it is. To discount the reprocessing of nuclear waste is to stretch the truth a bit far.

The report from the Committee on Radioactive Waste Management is due soon. I hope it will propose sound and reasoned ways of disposing of our waste. Other countries have gone down that road. The report from the Canadian body chaired by Elizabeth Dowdswell, who is well known in waste management circles, recommended the same solution as has been adopted in Finland—deep burial. Once the Americans have dealt with the litigation that has arisen, they plan to use a similar method in the Yucca mountains.

That is not necessarily the right way for us to proceed. We must remember that the waste is here now. It is not the new waste produced in future that will be the biggest problem. As I said, we can cater for that. Irradiated waste is already produced by our hospitals. Do we not want people to have X-rays or scans as part of their medical treatment? We need a place to store such waste, as well as nuclear waste. I hope CORWM will identify options for storage.

I have crammed a lot into a short space of time. The UK needs a balanced energy policy. No doubt the Minister shares that belief. We should exclude nothing. I do not want to be part of a party that is blinkered about any kind of energy policy. I will listen to everyone's views. I particularly mention the Liberals and the Scottish National party, who have already declared that they do not want nuclear under any circumstances. That is backward-looking and would not encourage me to look towards such a party for government.

Photo of Michael Weir Michael Weir Shadow Spokesperson (Work and Pensions), Shadow Spokesperson (Trade and Industry) 5:32 pm, 12th January 2006

I am surprised at the last comments from John Robertson. I remind him that his party is in government with the Liberals in Scotland.

The House will not be surprised to learn that the situation in the North sea is of particular concern to me and my party. I pointed out earlier that the existing gasfields west of Shetland were not being exploited, partly because of the tax regime. I was not encouraged by the response from the Secretary of State, which we have heard so often before. We were told that last time the Chancellor changed North sea taxation, he had created a stable tax regime. We are told now that there will be no more changes, but that is two years after he allegedly created a stable tax regime.

Security of energy supply does not mean that we necessarily have hands-on control of every part of our energy supply, but it does mean that we maximise what we have of our own. It makes sense for us to maximise the use of the gas in the North sea. After all, the dispute between Russia and Ukraine can hardly have come as a surprise. The use of energy as an economic weapon is well tried. Some of us are old enough to remember the oil price shocks of the 1970s.

We should be cynical about what is being said about the North sea. Papers released over the Christmas recess show that what was effectively a conspiracy was hatched some 30 years ago to deny the true level of oil and gas in the North sea and prevent Scotland from moving towards independence. At that time, we were told that if Scotland achieved independence, we would lose the entitlement to supplies in much of the central North sea, but the documents show that that was totally untrue, because Scotland would have been entitled to at least 80 per cent. of the oil. The documents also note that under the proposals advanced by the SNP, the life of the oil fields could have been extended to 100 years as opposed to the current situation.

Although the Minister for Energy has said that up to 80 per cent. of the UK's gas supply could come from abroad by 2020, that need not be the case in Scotland, which produces much more gas than we actually use. The Minister has said that the outcome of the energy review has not been decided, but the Prime Minister seems to be going out of his way to suggest that the outcome will be new nuclear power stations, which Scotland neither needs nor wants. At the moment, Scotland has 60 per cent. of Europe's oil reserves, more than 12 per cent. of Europe's gas reserves, nearly 70 per cent. of the UK's coal reserves—8 per cent. of the EU's total coal reserves—a quarter of the EU's potential for wind power, 10 per cent. of the EU's potential for wave power and 25 per cent. of the EU's potential for tidal power. A report commissioned by the Scottish Executive in 2001 found that renewable energy could produce six times Scotland's current electricity capacity. Indeed, offshore wind power alone could meet Scotland's needs two and a half times over, and the Pentland firth has been described as the Saudi Arabia of tidal power.

The Minister will not be surprised that I am going to raise the question of transmission charges with him again. Although we have heard a great deal about decentralised energy supply, which I support, the reality under the present regime is that if we are to invest in renewable power, we must get the transmission charging regime right. Scotland's potential for renewable power is being undermined by the regime imposed by Ofgem, which makes renewable power more expensive to produce in Scotland than, for example, in the south of England, yet there is no demand in the south of England and a great deal of demand in Scotland. To be fair to the Minister, he has announced that he will change the regime for the Scottish islands, but he has not done so for the highlands of Scotland. For the umpteenth time, I ask him to reconsider the matter.

We have heard a lot about the possible liberalisation of the gas market within the European Union. At the outset, the Minister said that gas in the UK is not expensive in European terms, but I refer hon. Members to Ofgem's evidence to the Trade and Industry Committee, which probed the issue. In response to my question on the difference in energy prices in the UK and Europe, Ofgem told me that it had carried out a

"'gas probe', which identified that effectively UK customers had paid an additional £3.8 billion in the 2003–04 period, and we equally identified that between 50 and 60 per cent. of that was due to the oil indexation which European gas contracts have".

The difference between the very liberalised market in the UK and the much more regulated market in the European Union results in a real cost to consumers of gas.

I was interested to note that at the Hampton Court summit at the end of the UK's presidency of the EU, the Prime Minister suddenly seemed to convert to the idea of an integrated European market, which the Government had resisted for a long time, including a common energy policy, a pan-European electricity grid and shared reserves of stored gas. I am sure that the European Commissioner is grabbing that with both hands. I understand that proposals will be presented by the end of the year. If that means a liberalisation of the market on the continent and a reduction of prices in the UK, it might be welcome, but we wait to see whether that will be the outcome of any such European policy.

Scotland has great potential as an energy producer. Scotland could be energy independent, but the problem is that it is not politically independent. Political independence would mean real potential for energy to power the Scottish economy as well as the potential to export.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform) 5:40 pm, 12th January 2006

We have had an excellent debate, but it is a tragedy that we had far too little time for it. It is sad that we were confined to three hours. The debate provided plenty of heat, power and light and I am sorry that we were deprived of outstanding speeches by my hon. Friends the Members for Wellingborough (Mr. Bone) and for Broxbourne (Mr. Walker) and the hon. Members for Aberdeen, North (Mr. Doran), for Southampton, Test (Dr. Whitehead), for Stoke-on-Trent, North (Joan Walley) and for Copeland (Mr. Reed).

The debate began with a speech by the Secretary of State, which he made in his normal balanced and reasonable manner. If he were not a politician, he would make a great country GP, able to tell people difficult things in a way that made them sound pleasant. He started by saying that this country was in a strong position. That must have been the press release, because when we got to the detail, he started to admit the genuine position: we are failing to meet our targets on renewables, and he is concerned about the extent to which reserves have declined. He admitted that prices have been rising through the roof, accepted that, nuclear power provision will be largely out of action in 20 years and made a gloomy assessment of the geopolitical challenges that confront us.

The Opposition welcome the Secretary of State's commitment to introduce legislation to create new offshore gas storage facilities. We support that in principle and I urge the Minister for Energy to say in his winding-up speech that it will be introduced as quickly as possible.

The extent of the Secretary of State's lack of concern about our increasing reliance on imported energy was worrying. My hon. Friend Mr. Duncan said in his opening comments that, by 2020, 60 per cent. of electricity generation in this country would come from gas and that 80 per cent. of that could be imported. That means that half our electricity supply would depend on imported gas. I find that worrying.

The need for diversity ran through the debate and my hon. Friend Peter Luff, who chairs the Select Committee, admirably set out the choices for that diversity. Everyone agrees about the need for it, but no one agrees about the exact balance.

Photo of Charles Walker Charles Walker Conservative, Broxbourne

To make use of the last line of my speech, does my hon. Friend agree that we need a diverse energy supply that is based on a robust and resilient domestic capability?

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

If that was the last line, it is a shame that we did not hear the rest. I agree that we need to ensure that we have diversity and that we must also build on our inherent strengths.

Mr. Illsley put the case for coal eloquently.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

Although the right hon. Gentleman has been present throughout our proceedings, I shall not give way because our time is so limited.

The case for coal was also made in an excellent speech by Mr. Clapham and by Colin Burgon. The case for nuclear power was eloquently and passionately put by my right hon. Friend Mr. Jack, my hon. Friends the Members for Grantham and Stamford (Mr. Davies) and for Croydon, South (Richard Ottaway) and John Robertson. The case against it was equally eloquently and passionately made by Joan Ruddock. The Liberal Democrats popped in to say that they wanted lots of research into nuclear power but, having done the research, they would do nothing about it.

There is a need for urgent decisions to avoid a crisis. The hon. Member for Barnsley, Central made the case for that clearly. He quoted from the White Paper of three years ago and said that we have known about the problems for a long time, but, three years on, we are still talking. He also expressed his concern at what he saw as an anti-coal DTI. I want to assure him that, as we consider the energy review, we will welcome representations from him and his colleagues about the case for coal, because we are genuinely open-minded on the issue, especially as we are now considering exciting new technologies such as clean coal and co-generation.

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

I will in a moment.

My other concern is the extent of the Government's complacency on these matters, and I think that my hon. Friend the Member for Wellingborough might wish to touch on that issue as well.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

Ofgem has told the Trade and Industry Committee that the forward electricity price in Europe is €50 per megawatt-hour, whereas it is €80 in the UK. Does my hon. Friend think that the European Union is letting us down?

Photo of Charles Hendry Charles Hendry Shadow Minister (Business, Enterprise and Regulatory Reform)

There is clearly a tremendous difference between energy prices in this country and elsewhere in Europe, and the Government missed the opportunity to do more to address that issue during our presidency of the European Union last year. Domestic and business customers are hurting now. Domestic prices have risen by 14 per cent. in just one year. Domestic electricity prices are 27 per cent. higher than they were in 2003, which is adding £51 a year to the average domestic electricity bill. Gas prices are 40 per cent. higher than they were three years ago, adding £111 a year to the average domestic gas bill. A survey by the Engineering Employers Federation found that gas was 47 per cent. more expensive, and electricity 34 per cent. more expensive, for energy users than a year ago. Those increases are having serious consequences for businesses, particularly those in the manufacturing industry.

Towards the end of last year, Michael Ankers, the chief executive of the Construction Products Association, wrote to the Secretary of State for Trade and Industry. In pointing out the consequences of these price increases, he said:

"Over the last week alone one company with a turnover of £3.5 million saw their gas cost increase by £400,000."

He concluded:

"The problem facing industry is here and now, and what is really alarming is to learn that the country is 'awash with gas'—as Energy Minister Malcolm Wicks told the Commons last week—at a time when prices have reached the levels they have. One can only conclude from this that gas supply is being deliberately restricted to keep prices high, and this suspicion is reinforced by the news that the inter-connector pipeline between Britain and the continent is only running at 65–75 per cent. capacity despite the enormous price discrepancy with countries in Europe."

Businesses are hurting as we speak.

A further aspect of the Government's complacency is that they have put off the big decisions that need to be made. By 2015, coal-fired power stations currently producing 13 GW of electricity will be obliged to close. The closure of nuclear power stations will remove a further 8 GW of capacity. In 10 years' time—taking into account a projected increase in demand of 40 per cent. of our present capacity—some 32 GW of capacity will have been closed. To avoid shortages in 10 years' time, we need new projects every year that will produce 5 GW of capacity, yet not a single large project was started last year. Will the Minister tell us what his predictions are for the years ahead, and how many new large projects are in the pipeline?

The Minister also needs to tell us what the Government are going to do, in concrete terms, to make the EU co-operate more widely. Ofgem has said that there are serious malfunctions in the energy practices of other European countries, and this is costing the United Kingdom £10 billion a year in higher charges. Why are the Government not doing more to address this? And why is energy so much more expensive here than elsewhere in the EU? We remain the largest gas producer in the EU, and we have fully liberalised markets, yet we still pay so much more.

Why is our storage capacity so low? This clearly poses a threat to the continuity of supply. We have gas storage capacity for just 11 days, compared with the EU average of 55 days. How many large new projects does the Minister expect to start in the coming years?

The Government are right to initiate an energy review to examine how we shall meet our long-term energy needs, meet out environmental goals, and reduce our reliance on imported sources of energy. We agree with all that, and we shall work with the Government to get the right long-term answers. The problems are here and now, however. Domestic customers and businesses are hurting—they have been hurting for months, and all that they have heard from the Government are complacent platitudes that we are awash with gas and that there is no structural problem. Until today, the House has been denied the chance to debate such issues.

My final plea to the Minister is that he must involve the country. He should not restrict the review to experts in the DTI, industry and academia. There is huge expertise in the House, as we have heard today, and huge enthusiasm in the country at large to be involved in the debate. We will manage to get energy conservation only if the public buy into it. Above all, we need them to buy into the solutions put forward in the energy review. It is a great tragedy that the debate has been so curtailed, but the Minister has many answers that we look forward to hearing.

Photo of Malcolm Wicks Malcolm Wicks Minister for energy, Department of Trade and Industry 5:50 pm, 12th January 2006

I agree that we have had an excellent debate with some significant contributions. I welcome Charles Hendry to his new post on the shadow Front Bench, as I do Mr. Duncan.

As my right hon. Friend the Secretary of State observed in his opening remarks, energy has dominated newspaper front pages over the past couple of months. Against a backdrop of declining indigenous energy supplies, about which we have heard a lot, increasing global energy prices and wider geopolitical uncertainty, as well as the concern about climate change, energy is rightly on all the agendas that count. If Members will forgive me for not name-checking every contribution—I want to deal with the debate in broader terms—we have seen that reflected in some significant speeches from both sides of the House.

Photo of Quentin Davies Quentin Davies Conservative, Grantham and Stamford

Will the Minister take an early opportunity after the debate to have a word with his right hon. Friend the Leader of the House and convey to him the strong feelings expressed on both sides of the Chamber this afternoon, to which I hope that he will add his own private views, which he might not want to express publicly, about the shortness of time that has been available to Parliament to deal with this strategically important matter? It is a disgrace.

Photo of Malcolm Wicks Malcolm Wicks Minister for energy, Department of Trade and Industry

I am sure that the Leader of the House will note that point. Only yesterday, coal was debated in Westminster Hall, and next week we are discussing civil nuclear energy. As every available Select Committee is asking me to give evidence, I feel adequately scrutinised.

Photo of Andrew Smith Andrew Smith Labour, Oxford East

Would not the Opposition have a somewhat stronger case in the debate that we all want if the Front Bench speech that we have just heard had offered one iota of an Opposition policy?

Photo of Malcolm Wicks Malcolm Wicks Minister for energy, Department of Trade and Industry

I was thinking of my London School of Economics tutor's more generous comment on my first essay—"A good start to a difficult subject." I thought that that caught the ambiguity rather well.

We have heard how North sea supplies are declining, but I emphasise—I agree with the Liberal Democrat spokesman on this matter—that we should not exaggerate that point. There is still a great deal of oil and gas in the North sea and other seas around our shores, and it is a vital British industry. Nevertheless, Britain's transition towards becoming a net gas importer is under way. Concerns about tight energy supplies during that transition period, together with other factors such as high fossil fuel prices and high global demand, have collectively led to very high industrial gas prices.

I will not debate the issue of prices now, but I think that it is a genuinely more complicated issue than some have claimed. Heavy users of gas are suffering price-wise, particularly when they buy in the short term, which is a commercial judgment for them. Many businesses and domestic suppliers have enjoyed relatively lower prices than in France, Germany and elsewhere on the continent, however. Those are the facts, but I understand why various colleagues do not want the facts to get in the way of a good argument.

Of course we recognise that the recent price spike has created those tough operating conditions. I have met representatives from many industries, such as the chemicals, metals, glass and ceramics industries, and we understand their current difficulty and pain. We are leaving no stone unturned and are working closely with representatives of those industries to mitigate the situation and reduce its impact wherever possible. Long before this winter—in early spring, before I held my present post, and in the summer—we were meeting key stakeholders to discuss issues relating to supply and demand. We met representatives of the North sea oil and gas industry, and emphasised that we needed to be in the best possible position in regard to repairs, spares, and partnership between companies so that we could achieve maximum output this summer. I have met supply companies, the Confederation of British Industry, the energy intensive users group and many others to ensure that we are as well prepared as possible during a difficult transition period.

As we have been reminded, however, this is not just about industry and business. Rising prices have an impact on vulnerable domestic householders, especially the elderly, who are physiologically less able than many others to cope with cold conditions. My right hon. Friend Mr. Brown made some important points about that. I believe that our record in government is good: more than 4 million households have been lifted out of fuel poverty since 1997, and the Warm Front scheme has helped more than 1 million vulnerable households to heat their homes more affordably. That is why the Chancellor increased funding for the scheme in his pre-Budget report. A scheme that has helped more than 1 million households is an important scheme.

In the pre-Budget report, we also heard about the extension of the winter fuel payments scheme during the lifetime of the current Parliament. That, too, is a popular and important scheme, which provides vital cheques just before Christmas. Those over 60 will receive £200, while others will receive £300. Measures such as pension credit—initiated by the Department for Work and Pensions, in which the Secretary of State and I used to serve—also concentrate resources on vulnerable people.

We have heard a good deal about the new infrastructure. The Secretary of State mentioned it today. Increasing supply will be key to reducing both industrial and domestic prices. We have also heard about the new LNG terminal at the Isle of Grain. Liquefied natural gas will become more important in the future. We have heard about the doubling of the interconnector import capacity, and about new storage capacity at Humbly Grove.

There are 10 potential new import projects in the pipeline—an unfortunate and not deliberate pun—which could expand the UK's import capacity by more than 1 billion cu m per year by the end of the decade. That is roughly equivalent to the UK's current total annual demand for gas. The Langeled pipeline from Norway could supply up to 16 per cent., and the new BBL interconnector could supply a further 10 per cent. of UK peak demand. Both those supplies would begin in December 2006. A further upgrading of the interconnector to treble its previous capacity could supply up to 15 per cent. of peak UK demand. Two major LNG import terminals are being constructed in Pembrokeshire, which could in due course provide for more than 20 per cent. of our annual consumption needs.

Supply has increased and will increase. The new infrastructure announced to the House today by my right hon. Friend the Secretary of State will ensure that as we become a net importer of gas, we will have a robust regime in place to facilitate gas import unloading and storage in the UK.

The slower pace of liberalisation in other EU states is clearly limiting those benefits, so the UK is pressing hard for full liberalisation. I take the partisan points that have been made, but I think the record will show that the European Commission is taking tough action to pursue liberalisation. During our presidency there was a meeting of EU Energy Ministers, and there were two significant reports from the Commission. I am proud of what has been done, and those who take a view on it would do well to read the record.

Let me say something about the international dimension. As we make the transition towards becoming a net importer, external international factors—some were highlighted by Mr. Jack—become more important. We have heard about the impact of rising energy demand in India and China, and the line connecting hurricanes Katrina and Rita with what has happened in the UK reminds us that international events produce at least a ripple, and sometimes something more serious, on our shores. We need to continue to have a strongly diversified energy system in respect of the different parts of the world from which we import energy, and of the different energy sources that will power Britain long into the 21st century.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

We need diversification not only abroad but here in Britain. I shall be next door to Haworth colliery at the weekend. Will I be able to give them the good news that the money is on the way?

Photo of Malcolm Wicks Malcolm Wicks Minister for energy, Department of Trade and Industry

My hon. Friend knows that we are still considering that issue, but we will respond as soon as possible.

It is for all the reasons that I have outlined that an energy review is now required. We are conducting that review and as the Secretary of State said, we will publish a consultation document on 23 January. We need a significant debate on this issue in the House and among interest groups and academics, but I agree that there must also be a public debate. We face some very serious decisions and our goal has to be clear: guaranteeing energy security, while safeguarding our planet from global warming. That is the strategic goal. It is a challenging and ambitious one and it raises a range of issues—issues that Members have debated in the Chamber today. It is important that—

It being one minute past Six o'clock, the motion for the Adjournment of the House lapsed, without Question put.

Photo of Andrew Robathan Andrew Robathan Opposition Deputy Chief Whip (Commons)

On a point of order, Mr. Deputy Speaker. In a written parliamentary answer to my hon. Friend Mrs. Spelman, the Deputy Prime Minister admits a serious error. He states that he has

"Issued this answer . . . to correct the record and to fully apologise to the House".

Could you guide me on this matter, Mr. Deputy Speaker, which involves a great deal of money and the non-payment of council tax on the part of a Minister who has of course presided over a rise in council tax? Do you believe that a written answer is a sufficient apology to the House, or should the Deputy Prime Minister come here in person to apologise?

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

This is the first that I have heard of the matter that the hon. Gentleman raises. It is now on the record and other people will have to make up their own minds about how important it is, and how it must be dealt with.