‘(1) The Secretary of State shall by regulation establish a carbon dioxide emissions performance standard of 300g/kWh as the maximum level of carbon dioxide that may be emitted per unit of output by all new, extended, or upgraded electricity generating stations with a capacity of 50 megawatts or more.
(2) In addition to the emissions performance standard required by subsection (1) the Secretary of State shall by regulation establish the maximum level of carbon dioxide that may be emitted per unit of output for all existing electricity generators of a capacity of 50 megawatts or more.
(3) The level of the emissions performance standard introduced pursuant to subsection (2) shall be set with a view to requiring, within a reasonable period of time, widespread deployment of technology, or other actions necessary to completely phase out unabated electricity generation from fossil fuels, on time scales consistent with the advice of the Committee on Climate Change.
(4) In establishing the level of the carbon dioxide emissions performance standards required by subsections (1) and (2) the Secretary of State shall obtain and take into account—
(a) the most up-to-date scientific knowledge about climate change;
(b) the advice of the Committee on Climate Change, particularly in relation to carbon budgets, medium- and long-term emission reduction targets, and future emissions from the electricity generating sector.
(5) Regulations made under this section—
(a) shall be made by statutory instrument;
(b) shall not be made unless a draft has been laid before and approved by resolution of each House of Parliament.
(6) The regulations required by subsections (1) and (2) shall be laid before Parliament within six months from the date on which this Act is passed, with the emissions performance standard required by subsection (1) entering into force no later than 12 months from the date on which this Act is passed.’.
I beg to move, That the clause be read a Second time.
The new clause would be an important step towards decarbonising the UK’s energy supply. I am taking the opportunity to propose the introduction of an emissions performance standard for the power sector, because it is unclear when the next chance will come. At the earliest, I understand that the Government do not expect a new Energy Bill to be presented before next spring and, as I have said on many previous occasions in Committee, the urgent need to tackle climate change does not allow for that kind of delay. By inserting the enabling powers for an EPS into the Bill, the Committee would allow the Government to set out detailed EPS measures in secondary legislation immediately before the outcome of the EMR, as opposed to having to wait for at least another year.
Before the general election, the Prime Minister and the Chancellor of the Exchequer promised that they would support an emissions performance standard, but it would restrict greenhouse gas from carbon gas plants to the level of a modern gas-powered power plant—about 300 to 400 grams of CO2 per kWh. Indeed, both coalition parties criticised the previous Government’s policies which aimed for a standard of 600 to 700 grams of CO2 per kWh. I was surprised therefore to find proposals for a standard of 600 grams of CO2 per kWh in the recent consultation on electricity market reform. The Select Committee on Energy and Climate Change recently argued that, in order to be worth while, the EPS level needs to be much higher, stating that the Government
“should either abandon its half-baked Emissions Performance Standard proposals or replace them with a much tighter option, with a long-term trajectory for tightening the standard progressively over time.”
It is extremely important, if we are to minimise greenhouse gas emissions from fossil fuel power generation, to place a strong emissions performance standard at the centre of the Government’s proposals for reforming and decarbonising the UK’s electricity market. That is why I want an EPS of 300 grams of CO2 per kWh to apply to all new and modified power plants of over 50 MW within 12 months of the Energy Bill being enacted. The WWF, the Royal Society for the Protection of Birds, Greenpeace, Christian Aid and Friends of the Earth all support this approach, which would prevent the building of unabated coal-fired power stations while ensuring that new gas plants would require heat recovery, and hence a more strategic and appropriate siting closer to demand centres.
The Government’s EPS proposals are much too weak, and will have limited impact in producing the decarbonised electricity market that they should be aiming for. Many observers have described them as being merely a backstop. For example, I am greatly concerned that the Government’s proposed EPS levels fail to ensure that the maximum power will be extracted from each unit of coal and gas through the inclusion of combined heat and power in all fossil fuel energy plants. A stronger EPS, as set out in the new clause, should form part of a formal decarbonisation objective for the power sector by 2030. Such an objective would help to provide a clear sense of direction for the electricity market framework and ensure that the framework as a whole is focused on delivering a low-carbon power sector during the next 20 years or so. It would also ensure that investments are directed towards the lowest carbon forms of electricity generation by providing regulatory certainty.
Experts in the field have made it clear that an EPS is the only mechanism that can guarantee that only the least carbon-intensive forms of electricity generation will be allowed to be built in the UK. Without the EPS that I propose in the new clause, there is a risk that the UK will be locked into the use of highly carbon-intensive forms of electricity. The standards proposed under the Government’s electricity market reform mean that carbon capture and storage will need to be fitted only to a limited amount of capacity in a new coal-fired power station, which means both that new coal plants could still be built with a significant amount of unabated emissions, and that gas plants will continue to be built completely unabated for the foreseeable future.
By contrast, a strong EPS would require the retrofitting of CCS technology on existing unabated coal and gas plants by a particular date, thus sending a clear and early signal to stimulate the CCS supply chain in the UK. Given that coal plants have an operational life of up to 40 years or more, and that gas plants have an expected operational life of 25 years or more, it is clear that a strong EPS is needed if policy is to remain consistent with the decarbonisation trajectory called for by the Committee on Climate Change in the fourth carbon budget.
In addition, introducing a tight EPS structured to deliver a substantial decarbonisation of the power sector by 2030 would send a strong signal to the international community about the UK’s unequivocal commitment to tapping its own emissions of greenhouse gases. If it does not introduce a co-mechanism such as a tight EPS, the UK would miss the opportunity of substantially reinforcing its negotiating influence at international climate talks. While there would, of course, be some costs related to introducing a strong EPS, the Government’s own impact assessment of their electricity market reform proposals suggests that there would also be significant savings. For example, even under a weaker EPS, the UK power sector would have to buy fewer European Union emissions trading scheme allowances, saving about £11.8 billion, and the running costs per power plant—fuel, for example—could be about £7.7 million lower. There would also be air quality benefits, which some have estimated at between £500 million and £1 billion.
In conclusion, by failing sufficiently to limit the emissions allowed from electricity generation, the Government risk not only locking the UK into carbon-intensive energy generation for the foreseeable future, but dangerously limiting the attractiveness of low and dearer carbon power alternatives.
It is great to serve under your stewardship this afternoon, Mr Crausby, as we head into the closing part of our discussions. I welcome the intention of the new clause tabled by the hon. Member for Brighton, Pavilion, and I also share some of her worries—to which I shall return in a moment. However, I wish to express a strong word of caution. According to my reading of the new clause, it sets out not only a firm direction of travel in decarbonisation, but the specifics through a detailed EPS right here, right now under the Bill. The hon. Lady has explained eloquently why she considers that that is not only rational, but appropriate. I wish to explain why we need to apply a little caution right here, right now, and that is related to recent history.
The Government were wrong to rush ahead of their wider EMR reforms by announcing the carbon floor price in the Budget. Carbon floor prices are usually a signal, but that announcement did several things in a “cart before horse” way. It put the Treasury clearly in control of an agenda that should be driven by DECC through the Government and assisted by the Treasury, not the other way round. The carbon floor price has now set the context in which all other measures will be framed and judged by industry and others, including the fear of duplication of measures and the overloading of certain industry sectors with unnecessary costs and complexity; and, of course, as has often been remarked, the windfall that this has created for both the nuclear industry and the existing renewables industry.
On the latter point, the Government still have the opportunity to rescue the windfall in such tight, stringent financial times—of which we keep being reminded—and target it effectively, if they want to, at energy-efficiency and demand reduction in energy-intensive industries. That is why I want to add a word of caution about adding another item outside the whole package in one go. We have done it wrong already, and we now need to bring forward a package as an entity.
We firmly believe that the Government should have presented the elements of the EMR together as a package, under the leadership of DECC. The Minister should have explained the interrelationships between the elements and how he will balance the different measures; it should not be done in a piecemeal fashion. We would apply the same logic to the EPS, the detail of which would best be dealt with together with the whole of the EMR, albeit with the proviso that one of the most significant elements has already been laid out. I suspect that the summer and autumn will be a time for lively debate and for fashioning consensus out of areas of agreement and disagreement, including the calibration of the EPS and other measures in the EMR.
The new clause does not, as described in the very good and detailed supporting brief from Greenpeace and others, constitute what is termed an enabling clause that would allow the detail to be thrashed out later; it puts forward a detailed, prescriptive and precise level for the EPS that, far from enabling, is disabling of any further debate in the light of other mechanisms in the EMR. If it were an enabling clause, we might see more potential in supporting it to produce the fine detail, but we will go into the autumn with the 40 or 50 other pieces of secondary legislation in the Bill and the EMR, so we will be busy.
We agree with the principle of an EPS—it is important to put that clearly on the record—and the spirit of the new clause that, with other measures, will ensure that the setting of the EPS drives us with real determination towards a low-carbon future. We do not believe that the Bill is the right place to repeat the lesson of the carbon floor price and to glue another piece of the jigsaw immovably in place, separate from the other pieces, so that we can unstick them only by returning to primary legislation.
It is worth restating that Labour members of the Committee support an EPS. We will have the opportunity to introduce real detail into the package when the next energy Bill is brought forward. The detail in the new clause may be appropriate in that context, and I recognise the coalescence around the precise positions set out in the new clause of the many organisations cited by the hon. Member for Brighton, Pavilion, including Friends of the Earth, WWF, the RSPB, Greenpeace and Christian Aid. However, that needs to be done in context and not set out in another measure on its own.
While we recognise the need, in the transition to a low-carbon future, for carbon sources—including gas, hopefully with CCS, at the earliest opportunity, as we discussed in a previous debate—the new clause gives us the opportunity to ask the Minister how he will avoid the UK being drawn inadvertently into a high-carbon electricity system by default. Month by month and year by year, he will come under increasing pressure to consent to more and more higher-performing but traditional unabated gas power stations before the EMR is fully in place.
What monitoring is the Minister doing of the growth in megawatt capacity of consents both now, and of what he can see coming down the line? Will he be willing to decline consents if, as was mentioned by the hon. Member for Brighton, Pavilion, there is a fear of being locked into a high-carbon future and he determines that there is a risk of that happening? If so, at what point will that take place? What forecast of the expansion of new gas generation does he anticipate, and has he assessed whether that forecast is still compatible with the transition to a low-carbon future?
As the Minister will know, we recognise that we need gas as part of the transition to where we should go. But the question is: how far and how fast should that be, and how do we avoid getting locked inadvertently into what might be a high-carbon future, simply because of the pressure or because other things do not happen in time—be they CCS, nuclear, grid connectivity, the round 3 renewables take-off or any of those “what if?” scenarios? At what point will he say that we cannot rush headlong down the road of unabated gas or, for that matter, coal?
If the actual limit was not set in the new clause, could the Minister accept it as a true enabling clause, thus allowing the levels to be debated in full and set in secondary legislation, or is it his intention to set the fine detail in the next energy Bill? If the former, he could bring forward a wider enabling clause on Report. If the latter, could he indicate his thinking on the appropriate calibration, and whether the levels described in the detailed provision are completely out of line, or broadly in line, with a scenario he can envisage?
It is a pleasure to serve under your chairmanship, Mr Crausby, in our final session. The Government have made clear their absolute commitment to introduce an emissions performance standard, and to set it in law. We were the first party to commit to an emissions performance standard. We have consulted on the measure, further demonstrating that commitment. We propose that the emissions performance standard should act as a regulatory backstop regarding the amount of carbon that new fossil-fuel power stations are allowed to emit, ensuring that new coal provides the UK with security of supply consistent with our carbon targets.
The EPS should also provide regulatory certainty. It must not deter the investment in capacity we need over the coming years to keep the lights on, and it should support our ambitious plans on carbon capture and storage, which has yet to be demonstrated at commercial scale. Set at the right level, an emissions performance standard can be a real driver for new investment, but if set at the wrong level it will stifle the investment we need to see.
As the hon. Member for Ogmore has said, this should also be seen as one of a range of measures. It needs to be seen alongside the other measures in the market reform package. The hon. Gentleman mentioned the carbon floor price, which is a tax measure, so it is right that the Treasury lead on that matter. That measure starts in 2013, and it is important to give longer-term clarity ahead of other measures starting in about 2017. It was right for the Treasury to set that out, in order to give industry clear confidence at an early stage. That is why the two aspects have been separated. On all other measures within the electricity market reform process, the Department of Energy and Climate Change is clearly leading and developing policies.
If, as the Minister says, the measure needs to be taken then, will he consider advocating that the Treasury ensure that, in these stringent times and as a general principle, we target any windfall? It was described as a measure to incentivise new low carbon, not to reward existing low carbon. Will he argue to the Treasury that we should find a way to identify the amount of windfall, and to target that at the energy-intensive industries with which he is in discussion as a result of that measure?
I know the hon. Gentleman has an inevitable desire to tax anything he sees moving. We do not share that view. We believe it is right to try to give investors confidence. One reason for the time scale we have set is that it gives clarity. Had we said that we would introduce the measure in 2017, with an election coming along in 2015, people would have said, “Well, we will have to wait and see. We cannot make commercial decisions based on what one Government say they expect their successors to do.”
By introducing the measure in 2013, we have given a much greater degree of investor confidence. Alongside that, we recognise that there are other consequences on high-energy users. That is why we are working with the Department for Business, Innovation and Skills and the Treasury to ensure we address those concerns. Having seen the effect in Germany, we would not be tempted down the path of simply putting a windfall tax on the renewable or nuclear industry.
Does the Minister accept that in effect, we have a windfall tax on the taxpayer in order to fund existing renewables and nuclear? That was not the intention of the carbon price floor. The measure has been poorly designed. I am advocating not a new tax but getting back the money we have just thrown away.
I wish the hon. Gentleman success in selling that to the renewables industry—that he expects it to pay extra taxes at a time when it says it is not getting sufficient support from any of the technologies it wishes to see developed. We take a different view. We have set out a perspective on how to give certainty to investors over the longer term. That is going to be an important part of the process in future.
The issue we must deal with is the need for a significant amount of new investment in our electricity system. The words “barefaced cheek” came to mind when I listened to the Opposition spokesman, because we are trying to make up for an incredible lack of investment in our energy infrastructure over a long period. Over the course of this decade, we have to secure twice as much investment as we secured in the last decade—when the last Government were in power—every single year in order to give us energy security and keep the lights on.
This is an incredible challenge. Had we not been almost at the bottom of the European league table for renewables—above just Malta and Luxembourg—and if we had had more investment in renewables, that challenge would not have been so big. Had we not had the five-year moratorium on nuclear under the hon. Gentleman’s Government, we would have been five years further forward on new low-carbon nuclear technology. The investment that is necessary was knocked back because of decisions that were made, and that gives us a much greater mountain to climb now.
I do not want to delay the Committee, but first, we put the groundwork in place that is now leading to the round 2 and round 3 expansion. Secondly, why in the past year have we slipped from fifth to 13th in the global ranking of attractiveness for investment in renewables? That is under the coalition government, in one year. What has happened?
When a process of market reform is being undertaken, as we are doing and which the hon. Gentleman and his party said was not necessary when they were in government, that inevitably creates market uncertainty. We are looking at all the areas of uncertainty to give clarity. Because of the urgency—we are losing a third of our coal plant in the next five years and much of the rest by the end of the decade, and we are losing all of our nuclear except for Sizewell B by 2023—we must do much more to bring forward investment. Nuclear will take, at best, 10 years; the development of offshore wind will happen towards the end of this decade; the development of carbon capture and storage on a commercial scale will take to the end of this decade and into the 2020s; the development of renewable technologies like wave and tidal will come in the 2020s. We have a looming energy gap towards the end of this decade, for which the Labour Government were directly responsible, so we are going to need new investment in gas to give this country the energy security it needs. Gas needs to be a more important part in the mix, and we recognised in our “Pathways to 2050” that the role played by gas will be greater than the hon. Gentleman envisaged.
Before the Division, I was explaining that the appalling legacy that we inherited requires a tremendous amount of new investment in our infrastructure, on an unprecedented scale.
The Minister will be amazed to hear that I agree with quite a lot of what he says, but he surely must take cognisance of the fact that the last Tory Government did away with the cleanest, most technically advanced coal industry in the world. If our coal industry had been sustained and carried forward, we would not have the current problems with security of supply.
We completely agree that there is a very important long-term role for coal, although we could debate at great length why the coal industry went into decline and the problems of security of supply. Our coal supply became unreliable at the same time as gas became more greatly available; the combination of those two factors brought about a dramatic switch from coal to gas. That is one reason why we were better able to meet some of our Kyoto commitments than most countries.
The hon. Member for Ogmore asked whether I would be willing to consent gas plant without question. At present, there are no set rules on that, but we have said under the national policy statements that the Minister can take a view on whether the downside of consenting additional plant is sufficiently great to overturn a planning recommendation. Those issues can be taken into account, and we have clearly said that we will carefully monitor the growth, but we are not in that situation at the moment.
In the main, it comes down to company decisions and whether the company wishes to make the investment. In making such decisions, companies will take close account of the market structures that we are putting in place, which are designed to incentivise the investment in low-carbon technologies. The proposed contracts for difference and the carbon support price are designed to encourage people to invest in low-carbon technologies and give a clear signal to investors. It is against that background that the proposal for emissions performance standards within our market reform proposals should be considered. The EPS should support our commitment to decarbonisation and also provide sufficient certainty to make the UK an attractive place in which to invest.
We need new gas plant to be built as we make the transition to a low-carbon electricity system, so we must ensure that investors have sufficient confidence and certainty to build these plants. That is one of the reasons why we consulted on levels equivalent to 450 grams per kWh and 600 grams per kWh, which are above the emissions of a new gas plant. Those two very different perspectives were offered so that industry could let its views be known on which it thought would stifle or stimulate investment, and to ensure that we heard from the environmental groups about their concerns.
Introducing an emissions performance standard now at 300 grams per kWh would require plant to take measures that could prove to be both impractical and uneconomic, and would be likely to make investment in gas unattractive; that in turn would be detrimental to the security of the UK’s electricity supply. The Government are already taking action on measures such as efficiency in generation and the use of biogas. It would also be a hammer blow to the long-term viability of the British coal industry, which the hon. Member for Wansbeck raised this morning and which the hon. Member for Blaydon mentioned just now. Any sense that coal was being taken off the agenda for the future would make it much more difficult to sustain the viability of the pits that have remained open in this country. Before the summer recess, we will launch a White Paper that will set out the way forward on the package of electricity market reform measures, including the EPS.
We will listen very carefully to the recommendations and will respond formally. Some of our responses to the Committee’s more recent advice will be forthcoming in the autumn. What we have said is that, like the CCC, we recognise that electricity generation needs to be decarbonised in 2030 and afterwards, so we need to take steps now to ensure that the investment that takes place understands and takes into account the need to decarbonise.
What we will also set out in the White Paper is how the EPS needs to evolve over time—the process in response to consultation on how it might be tightened, and the approach to grandfathering—so that people investing in gas now understand how that will happen and what will be expected of them in the future and so that there can be no doubt about the long-term environment. That will need to be tied in with our wider package of measures. The national policy statement will also be relevant to how we believe the electricity network needs to be decarbonised.
I agree with the hon. Member for Ogmore that to be as specific as the hon. Member for Brighton, Pavilion proposes in the new clause would deter investment. We do not have the luxury of a huge amount of surplus capacity on our side. We need to secure a great deal of new investment.
The hon. Gentleman asked whether we believe that this is a subject for enabling or detailed legislation. My instinct is towards more detailed legislation in due course, because I think that investors want the clarity of knowing that it has been enshrined in primary legislation. The sense that it is an enabling power, which in the run-up to every election there is pressure on ministers to tighten through a statutory instrument, does not give investors the secure investment scenario they need. The right way to go is to be as definite as we can be in primary legislation, but the approach the hon. Lady has set out is too tight. It would be damaging to investment, so I urge the Committee to resist the new clause.
In response to the hon. Member for Ogmore, I do not follow his reasoning for opposing the amendment. I do not see the negative implications of agreeing an EPS now—on the contrary, I see many advantages. The key advantage is precisely the investor confidence that the Minister says he supports. I am very glad that he supports investor confidence. The Government have not demonstrated that strongly in the energy field—we need only to look at the FITs review to see that. If the Government do now care about investor confidence that is a very good thing. Setting an ambitious EPS now would send a clear message to investors that we are serious about this agenda, and it would help to shape the decisions being made now about the kind of energy mix that we will have in this country. I am glad to hear the Minister re-emphasise his commitment to an EPS in principle.
I agree with the hon. Lady that it would give clarity, but the consequence would be that investment which might come to Britain would go somewhere else. There is no doubt that the measure she proposes, with the tightness she suggests, would drive away investment in coal and gas and lead to an energy shortage towards the end of this decade. We need some of that investment to come here. If by clarity she means driving it away, we cannot agree with that.
I do not mean driving all of that away, but I accept that there are some difficult questions to be answered. What the strict EPS would do is send the message that there is no role in this country for unabated coal. That is a bottom line if we are serious about climate change. We need then to work with the miners and others to make sure that there is transition and support for them into more sustainable industries, but the idea that in the 21st century we are going to see decades more of unabated coal—I stress unabated—is a fantasy. If the Government are serious about wanting green credentials, this will be a way of demonstrating it.
That we can reduce emission levels to 300 grams of CO2 per kWh as opposed to the suggested EPS of 650 grams of CO2 per kWh is pure fantasy. I am all in favour of looking at a policy of developing renewables, but to continue to attack the coal industry is unfair. The fantasy that we can get down to the levels the hon. Lady suggests will drive customers away and close British industry. We will then have to increase the net importation of energy, which in turn could result in huge carbon leakage between nations. The fantasy is reality as far as she is concerned, but I suggest she looks at the figures.
It is not just me saying this. Several of the Government’s own pathways to a greener economy do not use nuclear or coal. There is no fantasy in saying that we need to shift to that kind of green economy. However, the unions and miners and people who are in unsustainable industries have to be part of shaping that whole process. The idea we can just put our head in the sand and pretend we can have business as usual is wrong.
If we had a tighter EPS, the message would not be that we are shedding jobs, but that that Britain is at the forefront of the green revolution—that we are at the forefront of wanting more combined heat and power, for example, and that we are being much more serious about decentralised energy and the whole energy efficiency agenda. We are talking about one aspect of that in the green deal, but the agenda is much greater than that. I do not want to take up the Committee’s time, but I disagree with the Minister’s interpretation. A strong EPS would be good for jobs, for the economy and for the environment.