Committee (2nd Day)

Part of Energy Bill [HL] – in the House of Lords at 4:30 pm on 9th September 2015.

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Photo of Baroness Worthington Baroness Worthington Opposition Whip (Lords), Shadow Spokesperson (Energy and Climate Change) 4:30 pm, 9th September 2015

My Lords, I am grateful to the noble Lord, Lord Oxburgh, for introducing this amendment, to which I was very pleased to add my name. Like the noble Lord, I would like us to take a step back and think about this debate in context. I am grateful to Professor Myles Allen at the Oxford Martin School and Professor Stuart Haszeldine from Edinburgh University, who have provided some very interesting briefing materials on the amendment. Myles, in particular, has a very interesting way of describing the challenge that faces us. To help us comprehend this issue and that of climate change and the problem of the unburnable carbon, to coin a phrase from the Governor of the Bank of England, Mark Carney, let us imagine seven lumps of coal, each representing half a trillion tonnes of available fossilised carbon. That represents what we know to be the available fossil fuel reserve: 3 trillion to 4 trillion tonnes of usable carbon. It might actually be much higher than that. Our seven lumps of coal might be closer to 14 if we include unconventional sources such as shale gas, tight gas and tar sands. So we have an awful lot of stored carbon on this planet.

Over the past 250 years we have burned and dumped into the atmosphere one lump; that is, half a trillion tonnes of carbon. As a result, temperatures have now risen on average by 0.9 degrees globally; there is a time lag so that figure may go up. We should remember that 0.9 degrees globally means very different temperatures at the poles. There might be double the warming—closer to 2 degrees—happening in the polar regions, where of course there are large amounts of ice, in both the Greenland ice sheet and the Arctic itself. I know that the noble Viscount, Lord Ridley, will speak shortly but this is reasonably uncontested science. This is simply the physics of the additional loading into the atmosphere.

At the rate we are currently burning fossil fuels, it will take us just another 30 years to burn the next lump— the second of our seven lumps of available carbon—which will likely exhaust our safe carbon budget. We can have a debate about “safe” and about the scale but, by and large, in about 30 years’ time we will have emitted as much again as we have since the Industrial Revolution.

The third lump will almost incontestably take us over the 2 degree limit. Two degrees is the supposed safe threshold—again, this number will probably be revisited time and again but it seems likely that beyond that point we will be into the realms of an unsafe climate. The next lump takes us to 3 degrees, and so on.

Now, if we have 14 of these lumps and we are burning through them at the rate that we are, the obvious conclusion is that we are going to have to come up with some mechanism for either leaving some of this carbon untouched or burying the associated greenhouse gases back underground, if we want to use these resources. So far most of the debate has been about trying to burn that second lump of coal a little bit more slowly and nobody is facing up properly to the scale of the challenge of what we do with our carbon assets and how we transition into a new future.

I think there is something in the air—sorry to be a little bit cheeky but there are also 400 parts per million of carbon dioxide in the air—and there is a mood shift. It probably is precipitated by the Paris talks. International negotiations provide a useful chance for us as a global community to take stock and assess what we are really doing to address this problem. I hope that Paris will be a success but it is evident that that is just a staging post and the hard work will start afterwards, when we sit down and consider the implications of what we are setting out to try to do in terms of decarbonising our energy systems.

Obviously, we should pay tribute to the companies and individuals and, indeed, all the previous Energy Ministers who have helped us to lift ourselves out of poverty and have a higher standard of living using our hydrocarbon resources, but the game is changing and in the future we are going to have to recognise the risk of climate change and take action to mitigate it. For our generation and for future generations, this is something that we simply have to do.

So, in the run-up to Paris, here we are with an Energy Bill that seeks, on the surface of it, to extract more hydrocarbons from the North Sea—and, as a side issue, to not have any more onshore wind. That does not seem completely in tune with the general sense outside these Chambers, government and Whitehall that we need to take climate change seriously. What we are trying to do in these Committee sessions is to make sure that this Bill is fit for purpose in terms of the challenge it is trying to address and is making good use of our parliamentary resources.

I happen to think that the idea that has been circulated and which the noble Lord, Lord Oxburgh, is now encouraging us to debate has merit. I am not saying that it should be policy, and there are many unanswered questions that relate to it, but it has some very interesting features. We should first acknowledge that although we have carbon budgets in the UK that cover our whole economy, in reality there is nothing in policy measures that prices carbon into the heat and transport sectors. There is a cap on electricity and on emissions coming from heavy industry, some of which is of course from gas. That is taken care of: there is an EU scheme and a UK top-up measure, so we at least have some handle on that. When it comes to the other sectors, which mainly means the distribution of gas into the heating of buildings and the use of oil as petroleum in transport, we do not have a policy that explicitly addresses the emissions. We have taxation, of course, and we hope that the Treasury is recycling some of that into good things, but by and large it is an uncapped sector in which there are very few measures—I cannot readily think of any—that address the totality of those emissions from those sectors.

I am sure that we could look at this in lots of ways but the idea being circulated in the briefings is elegant. It simply states that upstream, at the very point at which a product is brought out of the ground or imported into the country, we would place an obligation on those importers and extractors so that they then source the least-cost ways of storing a proportion of their emissions underground and addressing the impact of their product. What I like about this is that it would create an obligation that sits in the hands of the private sector. It would also create an obligation on a group of people who have a great interest in seeing carbon capture and storage come to fruition because it lengthens their business plan. It gives them an opportunity to continue what they are doing without imperilling the planet, so they seem the right people to talk to.

We all know that certain companies, including Shell, are pushing ahead. They are seeking contracts for difference from the Government to move ahead with a CCS project. But I am sure they would readily admit that in a world in which their competitors are not doing the same, it is incredibly difficult to do this. If they say that they will take on an extra price burden, they are necessarily dependent on government subsidy to get it going because of the fact that their competitors will not be doing the same. They will come under shareholder pressure saying, “Why are you taking on these extra costs when no one else is?”. So we can either carry on in this way, giving out subsidies and negotiating bilaterally with these companies, or we can say, “Let’s try to do it a different way, creating the right framework to get the right players involved”. They bring unrivalled engineering expertise and excellence with their knowledge of the North Sea. If we genuinely think that the North Sea offers a new economic opportunity for the UK—and I think that is the case, not just for our emissions but for Europe’s—then let us harness these giants of engineering and get them to apply their minds to this task.

As the noble Lord, Lord Oxburgh, mentioned, there would of course be a modest price passed through but if we start at a low percentage of emissions then it would be almost unnoticeable—certainly much less than the fuel duty we currently charge. I think we would find that the cost of carbon capture and storage that was uncovered would be far and away lower than we can imagine. I know from my time in the Civil Service that we would imagine what costs were going to be, but then be completely startled when industry went off and did the things we asked it to do. It came in at much lower cost. One of the best examples of that is the carbon market set up under Kyoto, where at the time of negotiation the belief was that chemical companies which produced HFC gases would have to be buyers of permits. It turned out that as soon as someone did the maths, they were completely capable of reducing their emissions at very low cost and bringing forward huge amounts of certificates to the market, which then crashed the price. They were sellers at such a volume that they managed to make the price almost negligible, so apply market forces to these problems and you will see costs coming in lower than civil servants and we are able to imagine at the moment. That is hugely important because affordability of decarbonisation is a massive challenge. We must keep our focus on that. We will not have a licence to carry on if we keep having high costs when we do not need them to be so high.

As your Lordships can tell, I am quite in favour of this provision because it has a market element but I do not want to trivialise the role of the Government at the moment in helping to stimulate the demonstration projects. I wish nothing that I have said today to make investors feel nervous that we are somehow not going to back the demonstration projects at White Rose, Peterhead and Grangemouth. They are very important projects—the first of a kind—and we want to see them succeed. I think it is fair to say that there may well need to be more state involvement in making the infrastructure work and so that it is done at the right scale for those demonstration projects. However, if we look a little further forward beyond those demonstration projects, we know that we need to get into a world where these technologies are, as far as we can make them, standing on their own two feet and competing with each other to keep costs low.

CCS is a group of technologies, and there are a whole host of different ways of capturing and storing carbon. One way is to put it into the North Sea; another way that I was very interested to learn a bit about in recent months is the mineralisation of CO2 into building aggregate. I know that is something that the noble Lord, Lord Oxburgh, has looked at in the past and been a great advocate of. There is more than one way of taking those waste gases and making them safe: give them to the oil and gas industry, or to somebody in the private sector, and I am sure noble Lords will be surprised at some of the things that they come up with. That will be all to the good if we can expand that marginal abatement cost curve of CCS and find the really successful, low-cost options.

I do not wish to detain the Committee any further, but when it comes to this bigger question of tackling climate change and assessing what we are trying to do, we need to have a thorough debate about this. This amendment is a probing one, aimed at encouraging the Government to think about what has been said today and to acknowledge that they will look at it. In the run-up to Paris, this Energy Bill gives us an excellent platform to think about positive things. I was, I think, a little critical of the Minister at the start of my comments today, but I hope that we will continue in a very constructive way through the remaining parts of the Bill. This amendment tabled by the noble Lord, Lord Oxburgh, has very great merits and I look forward to hearing from noble Lords on other Benches and from the Minister.