Address in Reply to Her Majesty's Most Gracious Speech

Part of the debate – in the House of Lords at 5:39 pm on 26 June 2001.

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Photo of Lord Ezra Lord Ezra Liberal Democrat 5:39, 26 June 2001

My Lords, I support the remarks of the noble Lord, Lord Faulkner of Worcester, when he referred to the difficulties of having a debate on such disparate subjects as education, environment and agriculture. On the same occasion last year a number of noble Lords emphasised the point. From these Benches my noble friend Lady Sharp and I were quite vigorous on the subject. We asked the usual channels to do something about it. I do not know how long it takes the usual channels to listen to the grass roots. Now that they have 18 months before this occasion arises again perhaps they may do something.

I was glad to note the re-affirmation in the gracious Speech that the Government regard,

"tackling climate change and making a reality of sustainable development" a priority. I also welcome the announcement yesterday that there is to be a wide-ranging energy review in which the climate change issue is bound to be a major consideration. This is a subject on which I spoke in the equivalent debate last year. I come back to it again because I remain concerned that the Government will not achieve their climate change objectives unless there are major policy changes.

Let me start with the objectives. The Government have committed themselves to reducing carbon emissions by 20 per cent compared with 1990 by the year 2010. An essential part of that is to increase the amount of electricity generated by renewable sources to 10 per cent by that date, with a similar objective for combined heat and power.

In its substantial report issued in June last year, the Royal Commission on Environmental Pollution expressed doubts about whether the Government's objectives for 2010 could be achieved without further action being taken and was particularly concerned about the position after 2010 when it considered that as a minimum a 60 per cent reduction in carbon emissions should be achieved by 2050 in view of the increasing problems arising from climate change. I must say that I share the concern of the Royal Commission on both counts.

The trouble is that in the shorter term, in the period up to 2010, the Government have, as a result of a number of measures, made the achievement of the specific targets for renewables and CHP much more difficult. Instead of the 10 per cent objective by 2010 the present trends seem to indicate that we would be lucky to achieve half that figure by that date.

Let me deal with some of the obstacles. While energy produced from renewables escapes the climate change levy, this is only partly true in the case of CHP. These schemes, which produce both heat and electricity and therefore achieve much greater efficiency in the conversion of primary energy than electricity-only schemes such as power stations, are tailored to meet customers' heat requirements. At certain times they produce more electricity than those customers require. They must therefore export the electricity to the grid. When that happens it attracts the levy. The effect of this unreal distinction is that many CHP schemes have now been put on hold.

A more serious impediment affecting both renewables and CHP schemes arises from the introduction on 27th March of the New Electricity Trading Arrangements (NETA). Under the balancing mechanism of those arrangements a substantial penalty is levied on electricity generators which cannot precisely estimate how much they are likely to supply to their customers and to cover those supplies by contract. Any shortfall or oversupply bears a substantial financial penalty. But by their very nature these schemes cannot precisely forecast how much electricity they will produce. The most telling example applies to wind farms, which cannot make forecasts because they cannot tell in advance what will be the effect of the wind. A number of suggestions have been made about how this difficulty might be overcome but so far Ofgem, the regulatory body, has not agreed to make any change. However, it has been asked by the Government to conduct a review into the first two months of the impact of the balancing mechanism of NETA on smaller generators such as renewables and CHP. In addition, an independent inquiry has been launched in which a number of Peers, including myself, will be involved.

A related issue is the development of embedded generation. This is small-scale generation which links into the local electricity network rather than the national grid. There is an increasing trend towards smaller-scale electricity generation which has many environmental and economic advantages, especially when based on combined heat and power systems. The ultimate form of embedded generation is microgeneration which can take generation down to the scale required for domestic premises. Much work is being done on this--and here I declare an interest. Because I believe that this is an important future trend contributing to the more efficient use of energy, I have recently taken the initiative of forming a company under the name of Micropower which is supported by five of the largest groups interested in this sector. In taking this initiative I believe that I am responding to the challenge posed by the Chancellor of the Exchequer about innovation and the formation of new small companies. For microgeneration to succeed a suitable regulatory framework is needed and recommendations for that were made in the recent embedded generation report. I understand that the Government will shortly consider this report in depth.

The problems associated with meeting the climate change targets in the year up to 2010 are overshadowed by the difficulties likely to arise after that date. There will then be the withdrawal of further nuclear plant, and their replacement is a matter which requires urgent consideration. This will no doubt be a priority in the newly announced energy review. In this situation it is obvious that renewables and CHP should be further developed and there could also be a role for my old industry, the coal industry, so long as clean coal technology is successfully developed. It is important that agreement should be reached very quickly on the construction of a clean coal technology demonstration plant of the capacity of about 400 or 500 megawatts. Such a plant would require three years to build and could then be used to demonstrate the contribution that this technology could make in the period after 2010.

The Government have announced that one of their key objectives in this Parliament will be the delivery of policy objectives, especially in education, health, law and order and transport. There is a strong case for adding the environment to this list. The technology for reducing carbon emissions, which is the main issue within the environmental sector, is well proven. The noble Lord, Lord Palmer, referred earlier to the contribution which could be made by biofuel. New technologies such as microgeneration are being vigorously developed. What is needed is a regulatory and fiscal framework which will encourage such developments and not hinder them. I hope that the new energy review will deal with this issue.