House of Commons Energy and Climate Change Committee The Work of the Department of Energy and Climate Change

Oral evidence

Wednesday 15 September 2010

Rt Hon Chris Huhne MP, Secretary of State for Energy and Climate Change, Moira Wallace OBE, Permanent Secretary, DECC, Phil Wynn Owen, Director General, National Climate Change and Consumer Support, and Jonathan Brearley, Director, Energy Strategy and Futures

Ordered by The House of Commons to be printed Wednesday 15 September 2010

HC 474-i Published on 16 November 2011 by authority of the House of Commons London: The Stationery Office Limited £5.50

The Energy and Climate Change Committee

The Energy and Climate Change Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department of Energy and Climate Change and associated public bodies.

Current membership Mr Tim Yeo MP (Conservative, South Suffolk) (Chair) Dan Byles MP (Conservative, North Warwickshire) Barry Gardiner MP (Labour, Brent North) Ian Lavery MP (Labour, Wansbeck) Dr Phillip Lee MP (Conservative, Bracknell) Albert Owen MP (Labour, Ynys Môn) Christopher Pincher MP (Conservative, Tamworth) John Robertson MP (Labour, Glasgow North West) Laura Sandys MP (Conservative, South Thanet) Sir Robert Smith MP (Liberal Democrat, West Aberdeenshire and Kincardine) Dr Alan Whitehead MP (Labour, Southampton Test)

The following members were also members of the committee during the parliament:

Gemma Doyle MP (Labour/Co-operative, West Dunbartonshire) Tom Greatrex MP (Labour, Rutherglen and Hamilton West)

Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk.

Publication The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the internet at www.parliament.uk/parliament.uk/ecc. A list of Reports of the Committee in the present Parliament is at the back of this volume.

The Report of the Committee, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in a printed volume. Additional written evidence may be published on the internet only.

Committee staff The current staff of the Committee are Sarah Hartwell-Naguib (Clerk), Dr Richard Benwell (Second Clerk), Dr Michael H. O’Brien (Committee Specialist), Jenny Bird (Committee Specialist), Francene Graham (Senior Committee Assistant), Jonathan Olivier Wright (Committee Assistant), Edward Bolton (Committee Support Assistant) and Nick Davies (Media Officer).

Contacts All correspondence should be addressed to the Clerk of the Energy and Climate Change Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 2569; the Committee’s email address is [email protected]

List of witnesses

Wednesday 15 September 2010 Page

Rt Hon Chris Huhne MP, Secretary of State for Energy and Climate Change, Moira Wallace OBE, Permanent Secretary, Phil Wynn Owen, Director General, National Climate Change and Consumer Support, and Jonathan Brearley, Director, Energy Strategy and Futures, Department of Energy and Climate Change. Ev 1

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Energy and Climate Change Committee: Evidence Ev 1

Oral evidence

Taken before the Energy and Climate Change Committee on Wednesday 15 September 2010

Members present: Mr Tim Yeo (Chair)

Dan Byles Christopher Pincher Gemma Doyle Laura Sandys Tom Greatrex Sir Robert Smith Dr Phillip Lee Dr Alan Whitehead Albert Owen ______

Examination of Witnesses

Witnesses: Rt Hon Chris Huhne MP, Secretary of State for Energy and Climate Change, Moira Wallace, Permanent Secretary, DECC, Phil Wynn Owen, Director General, National Climate Change and Consumer Support, and Jonathan Brearley, Director, Energy Strategy and Futures, gave evidence.

Q1 Chair: Secretary of State, a very warm welcome Chris Huhne: Yes. to the Committee. This is your first appearance—our Chair: The Committee on Climate Change wrote to first meeting with you. We are delighted to have you. you, I think it was last week, saying that it thought Thank you for making the time. the current renewable energy target was about right, There is a great deal we would like to talk about, but has significant delivery risks. It said the target obviously, and I hope it is going to be a good tour should neither be reduced nor increased. Is that your d’horizon. Congratulations on your appointment view? anyway. I remember you described it to me as your Chris Huhne: Yes. I think that I’m persuaded by the dream job, so I hope it is proving to be a dream and line that the Committee took. I think the 15% is not a nightmare. demanding, given where we are at 3%. We have Chris Huhne: So do I. Thank you very much, Mr inherited the third worst installed rate of renewable Chairman, and congratulations to you too for being capacity in all of the 27 member states of the one of the first of the elected Select Committee European Union. Only Malta and Luxemburg have a Chairs. I think it is a very important development for worse installation rate for renewables than we do. So, Parliament, and I very much look forward to working we have a lot of catching up to do and I’m determined with you as a newly invigorated Committee. I think and very happy to make sure that we are hitting that Ministers are always in favour of tremendous 15% target. There are risks even with that, given that Parliamentary scrutiny in principle. Well, I hope in we are starting so far behind, and there is a lot of practice that it is—and I am sure it will be—very room to catch up. good. It would be nice, and I don’t disguise the fact, clearly, that obviously we asked the Committee to look at Q2 Chair: I think we start off from a pretty revising the target, to see if we could be more supportive position of you and the Department. We ambitious, but I am convinced that it is better to be may be quite critical of some other areas of more certain about meeting what is going to be a very Government policy. I hope we will not have to be too demanding target than, at this stage, to be more confrontational with you because I think we would ambitious on the 2020 15%. like to give you as much support as we can in what is clearly quite a challenging period. Do you want to Q4 Chair: It sounds as though, from what you say, introduce your colleagues, first of all? particularly about the low starting point, that you Chris Huhne: Yes, absolutely. On my right is Moira share that Committee’s view that meeting even an Wallace, who is our Permanent Secretary and not just existing target requires, in its words, “a step change in any old Permanent Secretary, but the founder of the the rate of progress and entails significant risks which Department—so very crucial. On her right is Jonathan should be addressed as a matter of urgency”. Brearley, who is Director on the energy side and who Chris Huhne: I think it does require a step change is deputising today for Simon Virley, who is our and that is exactly what we are intending to do in the Director General, who, unfortunately has had a minor Department. I think the Prime Minister was very clear operation and is recovering from that; and on my left when he made the Department one of the very first is Phil Wynn Owen, who is the Director General in Departments that he visited when we came into charge of climate change and consumer matters. I will Government that we intend to be the greenest attempt to answer all the easy questions and they will Government ever, and part of that commitment is very answer the difficult ones. firmly to meet our renewable energy targets. That is going to mean that we are devoting a lot of attention Q3 Chair: Okay. We will give you lots of easy ones to ensure that we pick up our position from being the to start with. Can we start with renewable energy? laggards of Europe at the moment. cobber Pack: U PL: COE1 [E] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Ev 2 Energy and Climate Change Committee: Evidence

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley

Q5 Chair: In the annual energy statement you made Q8 Albert Owen: Just to be clear, that money has just before the House rose, you referred to the delivery not been ring-fenced, the announcement by the plan that you are working on. When is that likely to previous Chancellor? see the light of day? Chris Huhne: There are ring-fenced amounts of Chris Huhne: I am not sure we have a firm deadline money for particular Departments, for example, DFID on that, Jonathan? and Health. Jonathan Brearley: No. Albert Owen: With respect, I understand the general Chris Huhne: Not yet. I think that, as part of the view. I am asking about this announcement. annual energy statement, obviously, we announce Chris Huhne: There is, sadly, nothing ring-fenced work that is ongoing. There are issues, particularly on on that. the planning side, which it is often difficult to predict Albert Owen: That is clear. Thank you. in terms of the outcome. We have also had some worries about the financing of some of the big Q9 Laura Sandys: If one then starts to look at, let’s renewable projects, particularly big wind farms, and say, green investment and green jobs and the we are working on that side as well because this is a technologies that go with that, are you finding that major investment project. So, we are ramping up our other Departments, such as BIS and the Treasury, emphasis on delivery and we will let you know when understand that, in many ways, the coalition has made we have a plan that we can share with you. a platform of green jobs and green growth being one of our major drivers for economic recovery? I just Q6 Sir Robert Smith: One of the great potentials of wanted to know what your feelings were that your the UK is offshore renewable energy. At the moment, Department, through investments—whether that be there is a lot of renewable wind potential, but, in the port infrastructure, whether that be marine energy long term, marine and tidal. You have talked about the parks—these are actually platforms that will assist investment challenges. Are there also logistical other Departments? Do you feel that there is a grasp challenges in terms of the supply chain and the skills of that across Government Departments? base or do you think the industry will respond Chris Huhne: I think there is. I have had regular positively to the incentives when they come? discussions, indeed, with the other Departments which Chris Huhne: As I am sure you know, we have a are most responsible for delivering on the green commitment in the coalition agreement of the growth agenda. Obviously BIS is the lead Department Government to continue with the ports competition, on that, and I was discussing it indeed yesterday with designed to try and provide a basis for some of the Vince Cable. I think we are all very aware, including investments which we want to attract, particularly for Phil Hammond of Transport and including Eric wind turbine manufacture, for example, and I’ve Pickles of CLG1, of the importance of green growth certainly had discussions with GE. We have interest as a really key driver for the recovery from what has, from Siemens and from Mitsubishi as well as potential after all, been the deepest recession since the second investors and given the very substantial investment world war. that is going to have to happen in offshore wind in the One of the things which was very noticeable about the UK, if we are going to meet those targets, then I think recovery from the depression in the 1930s was that a it makes an awful lot of sense that that investment lot of the recovery happened in entirely new should go ahead. industries. It was not a question of the old industries The exact form, obviously, is still under review and simply bouncing back. If you look at the suburban everything is still subject to the comprehensive areas outside our major cities, they were largely built spending review. It would not be comprehensive if it in the 1930s around new light industries and I think were not, and so we are not in a position to announce the green industries have the same sort of potential to firm details on that before the spending review is over, really drive growth. but I think it is very important to bear in mind the It is interesting that this is not just, for example, in supply chain for all of these sources of energy and we manufacturing kit. It is also, I think, “Don’t obviously want to make sure as much as possible is underestimate the potential job implications too of the being manufactured in the UK. Green Deal”, because, as we move to a situation where we are putting in comprehensive energy-saving Q7 Albert Owen: Can I just ask you, Secretary of measures into people’s homes, first of all, people live State, and welcome to this Committee, about the port right the way throughout the UK, so there is no competition you are talking about and that missing regional bias in this. Secondly, this is enormously link where we have the land availability and the labour intensive for a labour which does not need to offshore. Is there a competition? Do the ports have be very highly skilled—people can be trained up quite to apply for it and is it safe from the comprehensive quickly—and we will be looking at literally thousands spending review? of jobs and an enormous increase in the size of the insulation industry. That, in itself, together with the Chris Huhne: I can’t say whether it is safe from the very substantial investment which Ofgem predicts as comprehensive spending review because nothing is £200 billion over the next 10 years in replacement safe until everything is safe. We actually make the energy infrastructure assets, has an enormous effect announcements on 20 October, I think it is and that is on total demand in the economy and I think it is a big just, I’m afraid, the nature of a comprehensive enough effect genuinely to have a macro-economic spending review. As you know, we are facing impact. extremely tough choices right the way across Government. 1 Department of Communities and Local Government cobber Pack: U PL: COE1 [O] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Energy and Climate Change Committee: Evidence Ev 3

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley

If you look at the Government’s fiscal programme, we when we were doing the coalition negotiations and I are obviously tightening over time, over the next four think Oliver Letwin, on the Conservative side, and years, by typically 1.5% of GDP a year. On a back- myself literally forgot to put the renewable heat of-the envelope calculation, if you look at all the incentive in. As a result, people have turned round impact of replacement energy infrastructure assets and they have seen this enormous detail on everything plus what we are going to see with Green Deal, you else but, “Why isn’t the renewable heat incentive in are looking at a programme which has the potential, there?” And I have been trying to be as clear as I if we deliver it in the Department, and that is a really possibly can, since taking the job, that we see heat key objective for us, of offsetting the demand as being an absolutely essential part of meeting our restrictive effects of some of that fiscal tightening. In renewable targets. It simply will not be possible to fact, the equivalent would be somewhere between 1.5 meet the 15% target without heat. So there will be a to 2% of GDP—the impact of the energy heat part of our renewable strategy. Again, it is infrastructure investment and also the Green Deal. subject, I am afraid, to the comprehensive spending review so announcements, in terms of the detail, have Q10 Dan Byles: Secretary of State, would you agree to await the outcome of that. But I think it is that for that to work we need certainty and stability absolutely essential and I think the Treasury within the business environment? understands that. Chris Huhne: Absolutely. Q13 Chair: Just on that point about the relationship Q11 Dan Byles: I have had a number of SMEs between this and the comprehensive spending review, express some concern about the future of the why does the Treasury take an interest in incentives renewable heat incentive, the levels of feed-in whose cost is borne by consumers rather than tariffs—there is concern that the feed-in tariff levels taxpayers? might be reduced next year, for example—and they Chris Huhne: The Treasury view, and I don’t mean feel, at the moment, they don’t have the certainty to by that the old 1930s Treasury view of fame but the enable them to really start investing, to actually get current Treasury view, is that they should be involved with this new green economy. concerned about taxable capacity. They take the view Chris Huhne: We want to provide as much clarity that, if a legislative charge is imposed on consumers and regulatory certainty as we conceivably can. I was through the levy system, then, in effect, this has an in business myself and I entirely appreciate the equivalent effect to a tax. It isn’t a tax, but it has an importance of making sure that that framework is equivalent effect to a tax and might therefore limit settled and stable and that people can plan for it. their taxable capacity in some other area. This is If you look at the feed-in tariffs, the situation is that obviously an ongoing debate and there are other views if you go for an installation now you know exactly about the importance of this particular point. what the return is going to be all the way through, and I’m absolutely determined that, unlike in some other Q14 Chair: I am glad there are other views. It sounds EU countries, there will be no question of investors like a typical Treasury power grab to me. It has got being able to call us and criticise us for having nothing to do with them at all. There are all sorts of retrospectively changed terms. That would be other things that might be taken into account on that completely out of order against our parliamentary and sort of argument—indeed, the revenues they might legal traditions. So, I think that if investors go for a receive from the jobs that are created if these particular scheme, they can rely on that in terms of incentives are put in place for various types of the feed-in tariffs. renewable energy. We would give you as much It does not mean, of course, that we cannot review support as possible in seeing the Treasury off on that in future feed-in tariffs and make announcements for particular issue. It really does not seem to me to have investors that we will change the terms if we think anything to do with the CSR at all, and it would be that they are not generous enough or that they are extremely damaging to the whole prospect of reaching too generous. our renewable energy target if they are allowed to try and influence the levels at which these consumer paid Q12 Dan Byles: That is a specific concern I have had for incentives are actually set. from the people who manufacture the equipment and Chris Huhne: Mr Chairman, I very much hear what are looking to build a business based on selling this you have to say on that and I will make sure that equipment in the future. Their concern is that, if the the Treasury Ministers and Treasury officials are fully feed-in tariffs are reduced next year, for example, that, briefed on your views. suddenly, their business model isn’t going to look as I would simply say that the Treasury is, of course, the viable as it was. lead economic Department and I am perfectly happy Chris Huhne: Yes. I accept, obviously, that we must to go through the whole process with them of try and reduce those uncertainties as much as we can. assessing what the economic impact of DECC policies On dealing with your first point on the renewable heat actually is. incentive, I think I have to take a bit of the blame for As I have said in answer to Ms Sandys’ question about some of the uncertainty on that because, having been green growth, I think that it is very significant in terms involved in the coalition negotiations, we produced of the macro-economic story that the Government will such a detailed list of all of the things that we wanted have to tell about the recovery from this recession. So to see on the environmental, energy, climate change there is a big agenda for us to discuss. We are an agenda that, as you know, it was extremely rushed economic Department in DECC and there should be cobber Pack: U PL: COE1 [E] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Ev 4 Energy and Climate Change Committee: Evidence

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley no two ways about that. The Treasury, as the lead important part of the budget and we have to deal Department, clearly has an interest in the whole gamut with it. of those impacts and I think it is legitimate to have a discussion with them on that, but I certainly also think Q17 Albert Owen: It is not completely dead, though, it is very important that Departments should be able because it is an industry in itself, isn’t it, to get on with doing what the Department is charged decommissioning? As the Chairman said, there are with doing. going to be jobs created in this area that are going to create tax revenues for the Treasury, so it is not Q15 Albert Owen: Coming back to the impact of completely dead. I hear what you say. spending cuts, what progress has been made by your Chris Huhne: Dead in the sense that— Department to achieve the £85 million as part of the Albert Owen: You have inherited it? coalition spending plans? Chris Huhne: In the sense that we have inherited it, Chris Huhne: We have obviously gone through that. and the vast bulk of the spending sadly is dealing with That was, as you know, part of our contribution to the problems which, frankly, should have been dealt with package that the Chancellor announced as part of the by my predecessors many, many years ago. The costs emergency budget, and we looked, particularly, at of those problems are much, much greater as a result efficiencies within the Department. I asked officials to of the fact that we did not deal with them many, many come up with a range of options which would be least years ago. So, in that sense, I am absolutely damaging to the core objectives that we have. It is determined that we will not delay these decisions never easy for a Department like DECC to make cuts again because, frankly, if we do, we will simply be because we are so new and that leads to all sorts of bequeathing an even worse problem to future issues, not least the fact that the baseline that the generations. Treasury is using for the public expenditure review is You are right in the sense, obviously, that new nuclear a baseline which was set when we did not exist. So will create waste and there will be a decommissioning there are all sorts of issues there. But we did play our issue. It is absolutely essential that, in future, we deal part in delivering the £6 billion of savings and I think with that in a timely manner with proper investment we have been able to do that without major disruption. that deals with deep geological depositories and so The £25 million came from efficiency savings in forth to deal with the waste vitrification rather than the DECC and in our delivery partners— Carbon Trust situation that we have had over the last few decades in and Energy Saving Trust and Ofgem2—and the this country, which is deeply unsatisfactory, both in remainder had to come necessarily from programmes. our own terms and by comparison with the way other We argue that we did take great care to ensure that we countries have dealt with their problems of waste have made, I hope, sensible decisions on that and the and decommissioning. detail of the £34 million saving on low carbon technology support followed on from the overall Q18 Albert Owen: I totally agree with you. I think announcement, and we made that in July, and we are almost together on nuclear now. We were not followed pretty close a departmental review of our a few months ago, but I think you are moving on that spending in that area. journey towards a proper system. I am doing this gently in accepting the fact that you are right about Q16 Albert Owen: But isn’t your flexibility the nuclear decommissioning legacy. I think that you hampered by the fact that 80% of your annual are absolutely right to say that. expenditure is committed to nuclear Chris Huhne: I have to say, I don’t think we have decommissioning? ever been different on this, Mr Owen, because when Chris Huhne: It is not quite 80%, I think, but it is I was doing the Opposition’s environment brief on this certainly a very, very substantial amount. The overall I welcomed, for example, CoWRM’s3 report on the budget of the Department is about £3.2 billion and it deep geological repository. It seemed to me that that is getting on for about half. So, you are right that it is is the best option for dealing with the waste that we an enormous slice. have and the most realistic way forward. So I don’t Albert Owen: I am sorry, did you say it was half? think there is a political division on that matter. Chris Huhne: It is getting on for half, yes. So it is an enormous slice of the overall budget and that is Q19 Albert Owen: We might explore that a little legacy. It is dead money. It is money, frankly, that all further on. But one point is that you are saying about of us would prefer not to have to spend at all because the NDA, for example, that it has the opportunity to it is dealing with past problems rather than the future, generate more money to help your Department by and what we obviously want to see, both officials and extending the life of existing stations. Ministers, is the Department driving what is a very Do you have a direct policy on this? I know there are exciting process—the third industrial revolution, safety issues which are paramount. The inspectorate moving to electrification of the decarbonisation of the has to clear these, but is there an active policy that economy and to have to deal with that deadweight of you have got that you have asked the NDA to look at old costs is a problem. But it is, as you say, a very all these nuclear stations now with a view to extending them because the economic climate is good? 2 Note by Witness: Ofgem is not funded directly from DECC’s Departmental Expenditure Limit in the way that the other Chris Huhne: No, because I think that is a decision bodies referred to are and did not receive cuts to its budget that the operators have to take in the first instance. as part of the savings DECC made. 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Energy and Climate Change Committee: Evidence Ev 5

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley incentive to run the investments which they have got don’t know what sort of advocacy you can put for as long as they conceivably can. You can see what forward. has been going on in Germany, for example. Chris Huhne: I think you are absolutely right. I think Therefore, it is appropriate for us—obviously, if that DECC is clearly the lead Department on climate applications come forward, that will be dealt with change, but you are absolutely right that we cannot through the usual regulatory channels. But I don’t deliver on the agenda that the Prime Minister has set think it would be appropriate. The incentives are at being the greenest Government ever unless we have already clearly there. the active co-operation and drive of, in fact, nine Whitehall Departments. Q20 Albert Owen: I hear what you are saying. I We are obviously responsible, as the lead Department, understand it very clearly. I don’t have to go to for the decarbonisation of the energy sector, but Germany. Close to my own area we have a nuclear Treasury does green taxes; Transport obviously does power station which is applying for an extension and electric vehicles; DCLG does building regulations; we which will be good for the local economies, but also do energy efficiency; DFID does fast-start finance in for energy security purposes and the low carbon the international context, and indeed the wider longer- agenda that you are mentioning. Surely, you should term issues of raising funds to get developing give some leadership in this and say, “Look, it is our countries to the table; FCO, absolutely crucial in intention, as a country, to produce safe nuclear delivering on the agenda. Which Department have I generation for as long as possible.” forgotten? Chris Huhne: It is certainly our intention to produce There is really no other policy area, in my view, which low carbon alternatives as quickly as possible and the has engaged so many Departments across Whitehall in coalition agreement very clearly envisages that new this core objective since wartime. This is an absolutely nuclear will have a role in that. I have made it very dramatic need for joined-up government. The ones I clear that a deal is a deal and my job as the Secretary have forgotten Moira has highlighted—BIS. BIS, of of State for Energy and Climate Change is to deliver course, on the green economy and DEFRA on on that deal—exactly as I would expect, for example, adaptation and DEFRA also on product standards. So, Michael Gove, Education, to deliver on the pupil this is nine Departments. premium, which was a Liberal Democrat idea within the coalition agreement, I’m delivering on the nuclear Q23 Laura Sandys: Do you feel that those elements which are in the coalition agreement, and I Departments are taking up their responsibilities on intend to do that. mitigation in particular, which obviously would I think that, on the specific issue of extending life, the include DEFRA as one of the lead Departments? incentives are very clear for British Energy. If it wants Chris Huhne: I am very confident about DEFRA to do that, I don’t think that there will be any push- because it is a very key part of its remit. The frank back, and it obviously makes the applications in the answer is that some Departments have it higher up normal way. their list of priorities than others, but that is one of the reasons why we are actively, within Government, Q21 Albert Owen: Sure, and Magnox and the other looking at ways of improving the co-ordination companies. But isn’t this a golden opportunity for you between Departments. One of the things which we are to generate more money at a time when everybody attempting to do and which we will be doing is to set else has to cut back? That is my point. out a carbon plan for the whole of Government so that Chris Huhne: I think that you do have to bear in mind you can see, for each of those nine Departments—the what is the appropriate role for the Department in Ministry of Defence, by the way, is another one terms of setting the policy framework and the because the Ministry of Defence is responsible for the appropriate role for the individual economic actors. Meteorological Office which does really key work and Although, in the energy sphere, it is absolutely crucial internationally important work on climate change. So, that we have a proper framework of policy and that this is a massive cross-cutting Government effort and people know where we are going and that we are there is no way—I have had a longstanding view— providing regulatory certainty and clarity, I don’t think that you can put or even should attempt to put all of we can remove all decision-making capability from the climate change delivery in one or even a small the companies involved. group of Departments. It has to be cross- Albert Owen: Give some incentive. Thank you. Governmental. That is why leadership from the top, from the Prime Minister and the Deputy Prime Q22 Laura Sandys: Obviously, your Department, Minister, is absolutely crucial. I think we have that, through the comprehensive spending review, is and I think that we will try and put in place a looking at its budgets, but do you feel that, as a framework which makes sure that those Departments Department that has to advocate, particularly on which might be inclined to see this as a lesser priority climate change mitigation, whether other Departments than some of the things which they have to deal with are looking at that particular aspect and, in some day to day don’t forget about it. ways, because it is not their core role, might be Laura Sandys: Of course, the Treasury as well, downgrading it when they are putting in submissions which is at the core. to the Treasury? Chris Huhne: I mentioned the Treasury on green I am just concerned that everything you are looking taxation, but the coalition agreement is very clear on at in climate change impacts almost every other green taxation. We are committed as a Government to Department. That would be a concern for me and I increasing the proportion of tax revenues from green cobber Pack: U PL: COE1 [E] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Ev 6 Energy and Climate Change Committee: Evidence

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley taxation and I have no reason to doubt that the lacking cavity walls, will need extra help because Treasury will be as committed to that as every other energy savings then will not be enough, does that part of Government. mean that the one-off comprehensive arrangement that you have suggested could be the case for the Green Q24 Dr Whitehead: You mentioned the central role Deal may, nevertheless, need to be supplemented by that the Department plays in energy efficiency. What other measures as far as the energy efficiency of priority do you give that in terms of the overall homes is concerned? different activities that the Department is undertaking? Chris Huhne: The actual package of measures will Chris Huhne: I think the energy efficiency side is be appropriate for the particular home, whatever it is. probably the biggest new element and although the So, for example, obviously if it is a cavity wall home last Government, to give credit to Ed Miliband, was built after the 1930s, then it is relatively easier and catching up from a place, frankly, where it was pretty cheaper to get up to a reasonable standard than a pre- bad—I have already mentioned the legacy that we had 1930s non-cavity wall. There are some pioneering on renewables—the legacy on energy efficiency is cavity walls going back to the 1880s, but, in general, pretty poor. If you look, for example, at the housing that is the case. stock in the UK, we are in a situation where we are With solid wall insulation, which we will need for using more energy to heat our homes than, for non-cavity wall older homes, then that is something example, they do in Sweden. Maybe that is because which does not pay for itself in terms of the energy we have a temperate climate and we have traditionally savings at the moment. Maybe, as we learn by doing, wasted it because we have not had to worry too much the costs will come down. I am sure they will. But, in about it. If you are in an intemperate climate, like the interim, we will have to have an element of cross- Sweden, you actually take more care of these things. subsidy to make sure that those homes go ahead. But it is pretty outrageous, when you think about it. The other key element of cross-subsidy which I hope The average temperatures in Sweden are seven that we will be bringing forward in the Bill is for the degrees below what they are in the UK in January and fuel poor. I think it is incredibly important that we yet we are actually spending more. tackle fuel poverty at source by improving the I think the absolutely key priority for the Department, efficiency of the homes of the fuel poor rather than which is reflected in the fact that this is the key part sticking plaster after the event, although that is of our Green Deal, the energy Bill that we will be inevitable in the short run. A very important part of bringing forward in November, is a comprehensive Green Deal also is to provide that cross-subsidy scheme for improving energy efficiency in British element to deal with the fuel poor and the reason for homes. What we are aiming to do is to produce a that is because many of the fuel poor actually don’t scheme which is a bit different to the last run sufficient heating in their homes because they Government—not just pay-as-you-save, in other cannot afford it. So if you install energy efficiency words, allowing a framework which all parties are measures, what actually happens is that they don’t committed to of making sure that the capital save energy. They take it in terms of putting up the investment in energy efficiency was serviced and thermostat, which is actually a good thing because we repaid through the bills and through the energy don’t want little old ladies dying in the winter. We savings of the householder, but also making sure that actually want them to have a more comfortable the packages which are put in are sufficiently existence. So there aren’t any fuel savings in those ambitious that the British home will only have to be circumstances which we could use to pay for the visited once between now and 2050 to deliver on the installation package of the Green Deal. That is why climate change objective which all three of the major that also requires cross-subsidy. parties were committed to in the Climate Change Act, That is the thinking at the moment. Obviously, the Bill namely an 80% reduction in carbon omissions. is in the process of being drafted and we aim to land That is, I think, a new development. It is a level of it in Parliament in November. No doubt, we will have ambition which has not been articulated before, but it a lot of discussions. But I very much hope in this area, seems to me, in terms of the economic costs of doing as in many others, that we will have genuine cross- this, it would be nonsense for us to do a partial party support because I see this area as being one retrofitting of a home and then go back in again in 10 where I really don’t want to have a load of party years’ time or 15 years’ time and do the rest. So, there political shenanigans. I know you, Mr Whitehead, is a very strong incentive to getting householders at have got a very long track record in this particular the moment when it is most economically efficient to area, and, as a neighbouring MP to me, we have been install retrofitting measures, which is generally when able to work together on these issues over many years. they are moving in and getting a new bathroom or a I hope that will continue to be the case. new kitchen or whatever it happens to be. That is the right moment to put in the Green Deal and that will Q26 Dr Whitehead: Yes. Clearly, we should sort the have a really impressive effect, I believe, in improving energy efficiency of the entire properties in the energy efficiency of the housing stock. Of course, Southampton and Eastleigh out first, I think. most of the stock which we will be, as a nation, using Chris Huhne: Absolutely. in 2050 is housing stock that has already been built. Q27 Dr Whitehead: But, in the context of the Green Q25 Dr Whitehead: When you said, on 24 June, at Deal itself, one of the principles that has already been the Economist UK energy summit that some people, articulated is that the energy efficiency changes that such as the fuel poor and those in hard to heat homes will be placed into homes—and I applaud the notion cobber Pack: U PL: COE1 [O] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Energy and Climate Change Committee: Evidence Ev 7

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley that it is a one-off visit—will have to pay for player in this area, and the other members of the big themselves in terms of the changes to the household six. B&Q is a potential entrant into the area. It is very bills that will come forward from those changes. interested in selling a Green Deal alongside the new Indeed your colleague, Minister of State Greg Barker, bathroom and the new kitchen as part of the refitting emphasised that principle of the Green Deal just when you move house. The model that I was thinking recently. of in terms of the financing of this is, in the initial Does that suggest that the Green Deal therefore stages, clearly the company is likely to take the reduces its ambition in terms of concentrating on financing on its own balance sheet. But, as the scheme those elements of the home which can indeed, as it grows, and as the numbers of people who are involved were, financially wash their face as far as bills are grow, it will be possible for the company to package concerned? If that is the case, you have implied that up the Green Deal loans and to securitise them and you made some form of energy commitment from the get them off their balance sheet into the market. energy companies in order to make that difference, At the moment the securitisation market is looking possibly through the green investment bank. pretty lame, but, by the time we have got the Chris Huhne: No. We are envisaging that we would legislation through and by the time the thing is picked reshape and reform the CERT and the CESP up, I am pretty confident that that route will be open obligations so that, effectively, this becomes what we and that there will be a relatively limited need for the would call, maybe an eco-obligation which would do companies involved to actually take the lending on the cross-subsidy directed at these two key areas: the their own balance sheet. They will soon be able to hard-to-treat homes, solid wall insulation, and the fuel find a market through the securitisation market for poor. That is designed to make sure that every getting it off their balance sheet and bringing new household can have a reasonable assurance—we finance into the area so that, effectively, it revolves cannot give a guarantee, for reasons that I will and you can expand the scheme very dramatically. But explain—that if they install the Green Deal, they will we are looking at a very substantial scheme. This is a have lower energy bills, so that it is clearly in their scheme which is going to create a whole new industry, interest to install the Green Deal. which will have people going in on a scale which we The reason why we cannot give an absolute guarantee have never dreamed of, in terms of energy insulation, is because if you, for example, or somebody goes and up until now into homes, right the way across the marries a Brazilian who wants to turn up the country. I think go-ahead local authorities are going temperature in the winter and you decide to run your to be particularly interested in this because it is thermostat four degrees higher than you were something that they are going to be able to pioneer previously running it, I cannot guarantee that your and lead and actively encourage in their areas and that energy bill is going to be lower, even with the Green will have an impact, for example, on employment in Deal. So, obviously, behavioural issues come into this. their areas in absorbing quite a lot of people who have But if your behaviour does not change, then the Green traditionally been quite hard to re-employ because of Deal will reduce your energy bills and that is a key the relatively low skill set. part of our thinking in doing it. We want to make sure that anybody who opts for the Green Deal is going to Q29 Sir Robert Smith: I should just remind the be able to get an advantage out of it. Committee of my entries in the British Energy and Chair: I should have thought if you had married a that, relevant to these questions today, I am Honorary Brazilian you would have your temperature lower Vice-Chair of Energy Action Scotland, a fuel poverty rather than higher. charity, a shareholder in Shell and Vice-Chair of the Oil and Gas All Party Group. Q28 Dr Whitehead: Could I just press you briefly On this energy efficiency, one of the things that has on the question of the role then that the green been put to me by the manufacturers of heating investment bank might play in all this? Is it your view appliances—obviously they have a certain prejudice that the green investment bank may have a role in perhaps—is that they can contribute a lot to energy underwriting the financing of such arrangements and, efficiency if someone moves from a very inefficient if that is the case, are there circumstances under boiler to a very efficient boiler and that you need to which, as it were, the credit worthiness of the build in to this Green Deal that part of the process properties involved, and particularly those people who because they install lots of boilers across the country are in less favourable economic circumstances, might every day and that is another entry point. It is not just come into play as far as the underlying mechanisms the new bathroom or the new kitchen but upgrading are concerned? the heating system, which is an important part. Is there Chris Huhne: I have been very heavily involved in any thought as to how they can be brought into the the discussions within Government on the scope and Green Deal because I understand there were concerns the remit of the green investment bank. I think it is a because of the time scale? really crucial institution and it is going to play a really Chris Huhne: Let me say two things. The Green Deal important part in the transition which we need to is envisaged specifically as getting insulation and organise in our economy towards a low carbon future. energy efficiency up to standard. You are absolutely But, actually, we have not envisaged having a role in right that the technological vintage of the boiler, is this particular Green Deal because it seems to us that often absolutely crucial in terms of that. the financing actually will be there from private We are looking, particularly in terms of the fuel poor, participants. We have had a lot of discussions with at making sure that there is a potential within the companies like Scottish and Southern, already a Green Deal to fund boiler replacement. But remember cobber Pack: U PL: COE1 [E] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Ev 8 Energy and Climate Change Committee: Evidence

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley that we have a very substantially attractive range of UK has a potential industrial lead. If you look at the incentives through the feed-in tariff for micro- low carbon energy generation technologies, at the generation and there is nothing to stop the private moment you would probably say that the Germans sector providers of the Green Deal offering micro- have the best market position in Europe on renewables generation alongside. It is not formally part of the and the French have the best market position on Green Deal, but they can put their financing in. You nuclear. have got some extraordinarily generous offers going Carbon capture and storage is genuinely an area where on at the moment from companies that are prepared the UK has a very substantial industrial advantage, to install photovoltaic on your roof providing they get starting from the fact that if you look at where the to keep the feed-in tariff and you get free electricity. research has been done, if you look at citations in The Green Deal is really an insulation measure with learned journals, there are more citations to British the possible exception of this fuel poor element and researchers—Edinburgh University and elsewhere— the boiler replacement is something that can be done than any other country, including the US. So CCS is, separately. I think, something where we can have a real There is another reason for doing it separately, which competitive advantage as well as being absolutely is that, if we get the energy insulation package up to crucial to the delivery of our low carbon goals because scratch so that it is consistent with delivering the 80% of the importance of CCS in balancing intermittently cut that we need to get more legislatively committed renewable energy—for example, wind. The nightmare to it in the Climate Change Act—and remember that for this Department on wind is the four clear still days this sector, residential housing, is responsible for a in February when there is no wind and everybody quarter of all the carbon emissions in the UK. So this wants electricity. You need something which can is absolutely key. If we don’t get this right, we won’t compensate for that and the only thing that is on the get it right. So this is absolutely key to all of our table, frankly, economically is coal and gas with climate change objectives. carbon capture and storage because the economics of But we won’t get there in one step. The key thing nuclear are actually very similar to the economics of about the energy insulation package is that it will have renewables. The cost is effectively all upfront and the a long life. It is legitimate to expect that, if it is marginal cost is virtually zero. Therefore, if you build installed next year, it will be there in 2050, whereas a a nuclear plant at £5 billion and going some, you want boiler, if it is installed next year, will not be there in to turn it on and you want to run it full blast for ever 2050. There is not a single piece of kit, I would think, because, frankly, it is not economic to turn it up and which would survive that long in terms of the down. So, coal and gas is still going to be the only replacement cycle. So, the actual kit to the boiler will technology in town that has the capacity to offset the have to go through one, two, possibly even three intermittency of wind. Storage can do some as well, replacement cycles. What we are envisaging over that but certainly CCS. We think this is absolutely key to period between now and 2050 is, effectively, that there our energy future and I was delighted that it was such will be technological advance and we may well find an important part, very clearly, of the coalition that we don’t know what the kit will be that people agreement. will be installing in 2040. But it may well be something which has absolutely no fossil fuel content Q31 Tom Greatrex: I think, certainly in my at all—ground source heat pumps. We want to constituency, it was longer than four days in late actively encourage air source heat pumps now and I January/early February this winter where there was no hope that the Green Deal providers will encourage wind and very low temperatures. So I think everyone people to do that, but it does not have to be a part of will have very recent experience of the issues you are the Green Deal, partly because of payback periods are talking about. inevitably going to be shorter. The longer the payback Can I just press you, though, on the time scale for the period on the insulation package, the easier it is to get first competition specifically? You will, I am sure, be the finance and to make it an ambitious project. aware of some of the concern amongst various people Chair: We are going to have to move on to carbon involved in this—a sense they may have—that things capture and storage. Robert has reminded me. I should are not progressing quite as quickly as they could to have drawn attention to my entry in the register as maximise that competitive advance that you talked well as chairman of AFC Energy, a renewables about. Specifically on the first competition, could you company. Tom. give us an indication on the time scale? Chris Huhne: Maybe I should ask Jonathan to give Q30 Tom Greatrex: One of the things you did not more detail on it, but, as I remember, we would be forget, and I am glad you did not forget it in the looking at moving fairly rapidly into the development coalition agreement, was CCS. Could you give the phase once a decision had been taken on the winner Committee a sense of where we are in relation to the of the competition and the profile will build up so first competition and the time scales? that the major investment would be taking place, I Chris Huhne: Yes. The preparation is under way. am thinking, in the third year of the comprehensive There is no difficulty with that. We are very much spending review and then would be coming on stream hoping that we are going to get—and, as you rightly shortly thereafter. Jonathan, do you want to add to say, we have the commitment in the coalition that? agreement for—carbon capture and storage Jonathan Brearley: The date it comes on stream demonstration projects. I think it is an extremely depends on the proposals themselves and when they exciting area because it is an area where, I think, the are ready, and there are two different proposals. In cobber Pack: U PL: COE1 [O] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Energy and Climate Change Committee: Evidence Ev 9

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley terms of where we are in the process, the two people unconventional gas going forward, then that will be inside the competition are part of the FEED4 studies, an option which will last us a long time. which are the front end studies, which allow us to understand more about the cost and the practical Q34 Sir Robert Smith: On the issue of gas security, challenges in developing demonstration projects. We what exactly are the Government doing to ensure expect those design studies to be complete in around resilient gas supplies? spring 2011, but we have not set a deadline for Chris Huhne: I think there are two parts to this. One finalising when the competition will be complete, but is clearly storage, and we continue to have plans to it will be after that. increase the amount of gas storage. The other part of it, because inevitably at the moment we are importing Q32 Tom Greatrex: Can I just ask you, on the a lot of gas, is to try and be sure that our partners that second competition, you will obviously be aware of are selling us gas are reliable and solid and are not the Committee on Climate Change recommendation going to disappear in the morning mists when we and you touched on the issue of gas as well. Is the really need it and are not going to do nasty things to intention that you will consider potentially having at us if they think that they want to put pressure on us least one of those as a gas CCS demonstration? or whatever. Chris Huhne: I have to be very careful on this I am delighted to say that our major partners in terms because I can rush ahead of where my officials are and of gas are Norway, which is a marvellously stable and we are considering all these matters very carefully, as reliable partner and I have had very good discussions I am sure you will realise. But I am certainly leaning with my Norwegian counterparts on this at the in that direction very strongly because it seems to me margins of the Clean Energy Ministerial in that, just talking around this area, what we have seen Washington, and, of course, Qatar in terms of over the last couple of years, really, is a rather liquefied natural gas. We are daily making substantial dramatic change in the whole nature of the debate investments in port facilities to allow them to continue about the sustainability of gas, in particular. to supply the UK market. I don’t make any secret of If you look at unconventional gas in North America, the fact that what I would like—the other element of shale gas and so forth, we are only beginning to gas security—would be to make it not just physically bottom out what might be the potential for secure, but to try and get some arrangement whereby unconventional gas in Europe and particularly, we will potentially protect it from price spikes. obviously, in the UK. If it were to transpire that we I am very worried about an energy future where we were able to have access to the same sort of potential may well face the sort of oil and gas price spikes that gas reserves that the US is increasingly discovering, we faced in the 1970s—the 1973Ð4 oil shock, the then, I think, given the other advantages of gas in 1979Ð80 oil shock and the more minor oil shocks terms of starting from a position where it is relatively since. Where we forecast what is going to happen to clean and so forth, I think it would be very remiss of oil and gas prices, there is a marvellous tendency to us not to have one of the CCSs as a gas project. That, say, “It is going to be $80 or $90”—or $108 in the certainly, is the way I am leaning, but I have to say case of the US Administration—“it is all flat and this is something which we are still considering at stable and we can plan on it.” That is not the way the the moment. world has worked in the past and I don’t believe it is At the moment, before we have a very clear view of the way the world is going to work in the future. So, what our domestic capacities are on gas, one of the if we could get supply arrangements which would advantages of coal, of course, is that we are still an lock in some guarantees on price, that would be great island which is very substantially resting on a vast too. But I have to say, don’t hold your breath on that amount of coal reserves. So, in the long term view, in one because suppliers—certainly Qatar, when I raised terms of energy security, that is also a consideration this with the Minister—are very happy with their which we very much have to bear in mind and energy arrangement, linking their gas price to the oil price, security marches absolutely hand-in-hand, in my view, and I suspect that, on the internationally tradable with climate change. It is one of the objectives of the supplies, that is likely to continue to be the position Department in moving towards a low carbon future. for a long time.

Q33 Tom Greatrex: Some groups think of this as a Q35 Sir Robert Smith: Does your Department still transitional technology that is there until other have ambitions to maximise our own gas production renewables are developed. Would you say it is here to from the UK continental shelf? stay or should be here to stay as part of our long-term Chris Huhne: The Department clearly recognises that energy requirements? we are in a position where we are trying to engineer Chris Huhne: As you probably know, in the green this massive transition towards a low carbon future. movement there is rather a lot of debate about what CCS, which is why we need the demonstration exactly is sustainable and how long does something projects, is not yet proven at a commercial scale, but have to last to be regarded as sustainable. we need to make that transition and that is why, despite the criticism that I have had from Greenpeace I am a great fan of John Maynard Keynes, the great and other organisations about drilling in the North sea Liberal economist, who memorably said, “In the long and the continental shelf, we take the view that we run we are all dead”. Certainly, if it looks as if we are need to continue to be an oil and gas producer as long able to rely on very substantial amounts of as we can because there is a big transition to be 4 Front-end engineering design. engineered here. With the best will in the world, cobber Pack: U PL: COE1 [E] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Ev 10 Energy and Climate Change Committee: Evidence

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley although I would love to be able to click my fingers security objectives and one of the reasons why I think and say we are going to move tomorrow to a world the move to a low carbon economy is so good for this which was low carbon and we did not emit any carbon country, one of the economic reasons, is not merely omissions and so forth, in reality this is a part of the for the development of all these green industries, but, economy where the investments which are sunk are as we move to a position where we become more self- so enormous that you can’t simply do that. So there is reliant in terms of energy and we are moving to a inevitably going to be a big transition period, and it is position where we are more reliant on low carbon like turning round an oil tanker. sources of energy, we will remove ourselves gradually from the line of fire when it comes to the sort of Q36 Sir Robert Smith: Do you also recognise that impact from oil shocks that we have had in the past. the skills base that has been built up in the UK on the Again, I have to put a very important caveat in here back of the oil and gas industry has great potential, because we are moving in the wrong direction at the both to deliver on the offshore renewables and on moment because of the reduction in oil and gas the CCS? production in the North sea. So, overall, the figure I Chris Huhne: I absolutely recognise that. I think that have in my head is that we were at 27% energy one of the most exciting things, actually, is the way dependent on imports for the last available year and in which the expertise which has been developed in that is projected to rise to between 45 and 55% over offshore oil and gas is now being used in offshore the next 10 years, to 2020. Therefore, we are going in wind. So, BiFab, for example, in the Firth of Forth, the wrong direction. But, in the longer view, in terms which has developed its expertise in producing rigs of our objectives for a low carbon economy and the for this very hostile environment in the North sea for transition to a low carbon economy, I think we can the oil and gas industry, is now producing platforms reverse that and, as we reverse that trend, I think that for offshore wind. So, a lot of the problems that the we will again find real advantages in being secure not industries face in dealing with this immensely just physically in our energy supplies, but also being challenging environment—the wind and wave and salt secure in terms of price stability. That is really and all the corrosive effects of the North sea—are important for businesses that have nothing to do with very much bits of expertise which can be used in green industries because if you are in the construction offshore wind and are being used in offshore wind, business, for example, it is very telling that a lot of and I am very much delighted that that has happened. the repossessions in houses in the US recently were, in part, because of high energy bills. So there is a real Q37 Dr Lee: You mentioned that energy security is vulnerability for all sorts of businesses which have a key strategic challenge for this Government, and nothing to do with the green area, which actually does indeed I suspect for Governments to come. You also impact more widely on the economy. So, this is an mentioned the Qataris’ liquefied natural gas and the important part of our national security. Norwegians were providing round about 70% of our oil and gas, I think it was. The International Energy Q39 Dr Lee: In that desire to become as self-reliant Agency, I see, concluded that about a $26 trillion as possible, does your Department have a position on investment was required by the world to avert the the use of thorium in the energy mix? energy shock that you have just alluded to. In view of Chris Huhne: Yes. I don’t think we have actually that—there is going to be a lot of grabbing of fossil taken a very formal position so far on thorium. resources; it’s already started in Africa, the Chinese Jonathan, do you want to comment? and so forth—has your Department had a direct input Jonathan Brearley: I don’t think we have. I think we into the strategic defence review? will come back with a note. Chris Huhne: Yes. I am on the National Security Council, which is the principal Cabinet Committee Q40 Dr Lee: I say that. There was a very interesting dealing with the defence review and we are very article over the summer in The Telegraph— explicitly looking at non-defence elements of our Chris Huhne: Yes, I remember reading it. national security as well as the defence elements, and we are very explicitly looking at ways in which we Q41 Dr Lee: There was a quote which says we have might reduce the risks which this nation faces in terms shown little appetite in this country and, “It is too of threats, whether it is on energy, security or other much of a huge paradigm shift to a new technology”. matters. So, yes, indeed we are. I think in view of the current state of play in the energy market, it strikes me—I don’t know whether Q38 Dr Lee: Is that specifically with regards to the that was a UK agency or whether the source of that Navy in view of the Somali piracy problem and LNG quote is from somebody in the Department. It was tankers, for example? Is that something that you have suggested that one of the reasons was that when one brought up? of the European organisations for nuclear research Chris Huhne: It is not specifically on the Somali went to the European Commission, dare I say it, the piracy problem, although that is an important issue to French saw it off at the pass because they have a address. I was thinking really more of the fact that a vested interest because they know a lot about the old very important part of our national security, it seems technology. You mentioned that they have cornered to me, is our ability to access the energy we need the market. In view of the fact that we all seek a niche physically, but also to access the energy we need at for Britain economically, it does strike me that reasonably predictable and stable prices. Both of those “leapfrogging” the French—excuse the pun—would elements, I think, are an important part of our national be a good idea. cobber Pack: U PL: COE1 [O] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Energy and Climate Change Committee: Evidence Ev 11

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley

Chris Huhne: I’ll certainly come back to you with a become more difficult and remember that the oil price note on thorium. I have a hazy memory of the article, currently, the last time I looked—I think the end of but I seem to remember the Indians are doing it. last week—was about $76 a barrel and that is at the bottom of the worst global recession for many, many Q42 Dr Lee: The Norwegian company Aker has years. The potential for rises and the potential for purchased the fuel cycle because there is a lot of spikes is, I think, very substantial. So these are very thorium there. But we also have quite a bit of thorium, key issues. apparently in Cornwall. I would make two general points. One is that I think Chris Huhne: There are all hot rocks in Cornwall. that the issues that you raise are precisely why the way I tend to think about our future energy sources is Q43 Dr Lee: Yes. In view of the fact that there is almost on a portfolio basis. Perhaps this is partly my little nuclear wastage, and we have already had City background coming out. But if you are dealing lengthy conversations, and I have a sense that that is with a world of great unknowns where you can't a concern you have and that is one of the reasons that predict what the real winning technologies are going you are perhaps not as enthusiastic about nuclear to be, then the sensible thing to do is not to go “nap” power in the future long term—certainly it has been on one and say, “We are going to bet the farm on this reported in the past—is because of the problem of one”, whatever it happens to be. It is, actually, to make nuclear waste, which I would agree with. In view of sure that you have got a spread of potential sources. that, and that the thorium doesn’t, it just strikes me Just to give you an example, at the moment, given the that is something which, maybe, we should pursue. fact that, as we all sadly recognise, we are not the Chris Huhne: Not just on the thorium thing, but I did sunniest country in the world, installing a photovoltaic actually ask our excellent Chief Scientist, Professor panel generates about half of the electricity in the UK David MacKay, who I hope you have a chance to that it would if it were installed in Arizona. That is interview as well, about the prospects for fusion, very sad. If we could pass legislation making it which, of course, has always been held out as the great sunnier and making sure that it only rained at night, answer on nuclear which does not generate waste and that would be absolutely delightful, but we can't. the advice is that it is 40 years away, and it has been One of the things about PV is that if you look at the 40 years away for 40 years. cost developments of PV over time, unlike many other energy sources, it has got an absolutely dramatic Q44 Dr Lee: But that may be because we have not steady trend reduction in cost of about 6% a year. It taken the leap. We talk about 2050 as if it is around is not quite as dramatic as the reduction in cost of the corner when it comes to hitting targets. That is 40 computer memory, for example, which is running at years away. about 35 or 40% a year, but it does seem to be a pretty Chris Huhne: Yes. clear trend. In high solar areas, like Arizona, you are getting to the point where people are claiming that Q45 Dr Lee: I know money is tight, but this is an it is actually competitive with other sources. If that opportunity, possibly, to step on. continues on that trend, it may well become Chris Huhne: We will certainly look at it and we will competitive for us, even though at the moment it is come back to you with a note on thorium. not. So, I think we need to have a portfolio approach. The only other thing I would say if I may—and I Q46 Laura Sandys: Moving along in the direction am sorry about the long answer—is that affordability, that you are outlining, obviously one of the most which you quite rightly stressed, has to be considered important things that the Government can do is keep the lights on and keep them on at a price that is in the long term. If people run around and say, “Your affordable. policies today are costing X% on bills”, you have to The strategy that we are looking at, whether it turn round and say, “Well, hang on a minute. What includes the success of CCS technology; whether it are you assuming we can continue to buy oil and gas includes the certainty of investment into nuclear; and at?” That is why we have been absolutely transparent whether it includes, which it does, the certainty that about making a calculation about the overall impact certain countries will not be using energy for political of our policies on consumer bills. For 2020, we are ends, playing the market in a straightforward way— looking at a 1% addition to consumer bills, but the Chris Huhne: Absolutely. key thing is that is assuming an oil price of $80 a barrel. If you go to $90 a barrel, then consumers begin Q47 Laura Sandys: What sort of risk assessment to win on our policies of energy saving. If you go to have you done that all these different variables will what the US Administration is projecting at $108 a come into line and, to be frank, is there a plan B if, barrel, then, actually, consumers on our energy-saving in the next five, six years, we start to see that this policies are quids in. They are actually saving money. investment is not coming through; that we are looking So, we have to look at this very uncertain universe at future, quite significant, energy in security and and that implies two things. Let's get the energy pricing? saving right, because it is crucial for climate change Chris Huhne: I, personally, do believe that we are. If but it is also crucial for energy security, and let’s get you look at developments in the Gulf of Mexico, the the portfolio of alternative sources right because we increasing difficulty of marginal extraction with oil don’t know what's going to come up trumps in 20 and gas moving into deep water drilling and so forth, years' time. It may be thorium. Let’s make sure we I personally think there is no doubt that it is going to have got that portfolio so that we are not going “nap”. cobber Pack: U PL: COE1 [E] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Ev 12 Energy and Climate Change Committee: Evidence

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley

I can’t play God and pick a winner and say what is Moira Wallace: Can I just add on this? We do this in going to be the really successful energy technology. the short term and we also do it in the very long term. So, this summer we published the work we have been Q48 Laura Sandys: Absolutely, but there is still a doing on 2050 and literally it is a plan A, a plan B, risk assessment that needs to be done, for example, on a plan C, etc. It risk assesses what would happen if nuclear replacement, which is a massive capacity technology X just came to nothing, and actually what issue that we are going to be facing. would be the consequences elsewhere. So that is the Chris Huhne: Sure. analytical background to the sort of portfolio approach we are talking about and that is a big first for the Q49 Laura Sandys: Again, whether it is on an Department to look that far ahead. annual basis you are assessing whether that Chris Huhne: By the way, it is available to everybody investment will kick in, may I ask, if you feel there is on line. I am trying to popularise this as the executive a risk, whether you might want to come back to the toy of choice. You can go and sort your own energy Committee and discuss some of the risks that you see, mix out. You can say, “I don’t want this”, or “I don’t particularly in that sector, because that is going to be want that”, or “I want more of this and more of that”, a very large percentage of generation? and it is David MacKay’s calculator, the Chief Chris Huhne: It is absolutely key and we have Scientist's calculator. Do have a look at it because I announced, not just for nuclear but obviously for other think it really shows the inter-relationship between low carbon energy sources as well, that one of the different energy sources. It is a very useful tool. things we want to do is have a carbon price floor. That Moira Wallace: And demand reduction. So, you can was in the coalition agreement and that is under way assume that everyone marries a Brazilian and turns in terms of the consultation which we will be having the heat up or down. this autumn on reform of the climate change levy. We will continue to deal with these uncertainties. Q50 Dan Byles: I just want to briefly explore a bit The one thing I will say—and I will kick over to more about gas storage. You alluded to the need for Jonathan because he is aching to get on this—on this robust gas storage. This has been a controversial issue is I think that the appreciation of the risks here is in recent times. In January there was a bit of an sometimes the wrong way round. I think there is less argument in the press suggesting that we had as low of a risk of us having a problem with the lights going as eight days’ storage. out than there is of having a problem with our low On Monday, your Department, in a written answer to carbon objectives because, in order to keep the lights me on this question, said that actually at one point on, the big six have basically reverted to their default during this last winter we were down to a single day’s position, which is to throw up a gas plant to generate storage of gas. Some people argue that is not an issue electricity very quickly and that can be done in for the UK and that this is a red herring because of literally 18 months. our North sea reserves, but, of course, we know North The real problem here is that we are committed to that sea reserves have been declining since 2000 and so it low carbon future and we do have to make sure that is a growing issue. that risk is dealt with. I would just like you to perhaps explore where you Jonathan Brearley: I will start by saying that I have think we are with gas storage, whether you think we been in energy policy for around five years and what have a safe level of gas storage and how quickly you is remarkable to me is how dramatically and how see the levels of gas expanding. quickly our perceptions of the future energy mix changed. Chris has already mentioned unconventional Chris Huhne: We are committed to increasing gas gas. A few years ago, we were worried about that storage and that is under way, and I will ask Jonathan and now people are coming to us describing it as a to come in on the detail of what we are doing on that. game-changer. You have to take two elements of gas security into When we do things like reform the electricity market, account. One is obviously gas storage and the other is which is something that I am intimately involved in, the confidence that we have in our supplies. The we need to design a set of instruments that are robust reality is that I am very confident that the Norwegians to these changes in our perception. So, alongside will not only go on supplying us with a very nice Chris’ portfolio approach, we need to generate Christmas tree in Trafalgar Square every year, but also mechanisms that can actually adapt to our changing with gas. view of what the future might be. So, if it is thorium Jonathan Brearley: Just to add to that, what was or it is indeed importing solar from the north of interesting about this winter was when we were tight Africa, which others have suggested, we have a on gas, the vast majority actually came through LNG system which is robust to deal with that. imports. I think, when thinking about gas security, you Alongside that, I would add that, particularly for the need to remember that there are a number of different big electricity sectors, so for nuclear, for CCS and for things that you can do, of which gas storage is one renewables, we do have challenges outside the option. For example, just to say in context, energy economic challenges and those are delivery and efficiency is one of the key measures to improving practical challenges. That is why we set up the relative our gas security. Reducing people’s needs for heating offices, so the Office of Carbon Capture and Storage reduces our need for gas. So, we do see the need for and the Office of Renewable Energy Deployment, more storage but—I would add to that—we also see which work actively with the industry to identify the need for greater LNG capacity, import capacity those issues as they emerge and try and resolve them. here. We see the need for long term contracts and cobber Pack: U PL: COE1 [O] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Energy and Climate Change Committee: Evidence Ev 13

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley companies can decide to use demand side response as of the rig. We are responsible for making sure that, if a way of managing that, as they did this winter. something does go wrong environmentally, we are in I think what I would say is that our gas storage does a position to react very quickly to that. Both of those need to increase, but it is not the only measure through things are absolutely essential. which we tackle gas security. I don’t think we should I have had regular contact obviously with DWP focus on that one thing when thinking about how we Ministers and a meeting scheduled with the Minister address it. responsible for the HSE side of this, and I think we are very seized of the fact that we want to learn any Q51 Sir Robert Smith: Politically, the Norwegians lessons we can from what has happened in the Gulf are very friendly, but they are commercial. Did they of Mexico to make sure that our regime is absolutely not have problems with Ormen Lange this winter top notch. I am also involved, and one of the things I when they had to sort out one of the valves? agreed with the Norwegian Minister because Jonathan Brearley: It was extraordinary this winter. obviously if they have a problem we have a problem In a sense, we had a situation which demonstrated the and vice versa—potentially vice versa—is that we will strains to the system that we can come under as we intensively swap notes about the experience of the had problems in Norway, and we also had one of the Gulf of Mexico to take that on board as well. When I coldest periods in 30 years and that did cause a gas last talked to Günther Oettinger, the Energy balancing alert and the need for interruptible Commissioner, who has expressed some concern contracts. However, what you didn’t see was large about deepwater drilling, he assured me that this was price spikes in the retail market, for example, and you not directed at us or the Norwegians, but was directed did see a constant flowing of gas. at some of the newer deepwater drilling which is Now, we do need to do more to build up our capacity, expected off southern Europe. as I say, around imports and around storage and we I think it is generally recognised that our regime is a do need to do more to change the incentives inside good one. I am not saying that it is perfect. I think the system to reassure ourselves that our suppliers are that we need to go on learning everything we can from able to source the gas that their customers need. what has happened in the Gulf of Mexico and I am However, what I don’t think we need to do is to particularly keen to make sure, for example, that on specify whether that should be lots and lots more the testing of blow-out preventers, which is an HSE storage or lots and lots more long-term contracts. Let’s responsibility, the problems that we saw with put the incentives in place to ask the shippers to Deepwater Horizon and battery failure are identified optimise as to what they see as the most likely source. and are dealt with and that we have means of regularly Chris Huhne: And the Qatari are very keen to sell us testing batteries and solenoids to make sure that we lots of energy. can actually operate these things at deep water. So, we Jonathan Brearley: One further piece of context is are very seized of this and we will go on as a that there is a lot of LNG in the market now because Department being very actively involved in trying to clearly the US is using a lot of unconventional gas make sure that we are absolutely at state of the art on which they did not expect to. So, in terms of the the regulation of deepwater drilling. international market, it is quite liquid at the moment. Q53 Dr Lee: You mentioned the Norwegians. My Q52 Chair: Just staying with self-sufficiency for the understanding is that it is more Government-led in moment, this Committee is currently conducting an terms of the regulatory framework for oil and gas inquiry on deepwater drilling, and we have another exploration in Norway than here where it is more session later today. On the information available to industry-led. Is that something you are concerned you at the moment, do you think there is any need to about in the light of safety concerns on the front page revisit the regime for deepwater drilling in UK of FT today, for example? waters? Chris Huhne: I am not sure that I would describe it Chris Huhne: We are. We have revisited it. As a in that way. I think that any Government, and that result of the Gulf of Mexico, I specifically asked the includes the Norwegian Government, obviously, rely team, which is largely based in Aberdeen—you can enormously on the expertise which is there in the see the large number of internal flights that the industry. Department is responsible for because we have two Dr Lee: They have seen fit to pause in Norway and sites, unlike many other Departments, and the we haven’t and they have gas predominantly and not Aberdeen site is responsible for the oil and gas oil. inspection regime and we did toughen that up. We put Chris Huhne: I don’t want to get my Norwegian in more resource in terms of inspectors and we are counterpart into trouble, but the reality is that they continuing to go through the review process. have not paused the drilling that is actually going on. We did go through a learning process after Piper So, anything that has been licensed in deep water on Alpha, which I don’t think the Americans had been the Norwegian shelf is continuing and their licensing through, and some of the lessons which I think will round is not yet under way. So, although they can say be learned from Deepwater Horizon and the Macondo that they are not awarding any new licences for the are lessons which we had actually taken on board as time being, they weren’t going to anyway. a result of Piper Alpha, and particularly having very So, I don’t think, in reality, there is much difference clear lines of responsibility to different regulators. For between the approach that my Norwegian counterpart example, the Health and Safety Executive is and we are taking. I think we are both very concerned responsible for the assurance, if you like, of the safety to make sure that the regulatory regime is absolutely cobber Pack: U PL: COE1 [E] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Ev 14 Energy and Climate Change Committee: Evidence

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley state of the art. We are not complacent because we I think was decisive in making sure the Russians must learn the lessons of the Gulf of Mexico, but I ratified in time, but I am acutely aware of how think officials are very seized of that and we will go important the European dimension is to making sure on making sure that we do deliver. that this is dealt with at a global level. I think an important part of our policy as a Q54 Dr Lee: I have just one final question, which is Government is to progress the climate change agenda, on the management of oil spills. Is your Department using the European Union very much as a way of satisfied with the regime in terms of what is amplifying our concerns and making sure that our acceptable to use in terms of techniques and national interest is dealt with on a global stage. procedures to manage an oil spill of that size, say, in the west of Shetland? Q56 Chair: On Cancun, what you would regard as a Chris Huhne: Again, we are reviewing exactly what successful outcome? we have previously had in place there and we have Chris Huhne: Well, there is a certain amount of also asked the industry to look at the arrangements sucking your teeth at that point, Chairman. The reality that have been put in place. We will be looking at that is that I think it is going to be difficult to come up and making sure that it is absolutely, again, state of with anything terribly material, certainly not a final the art. agreement at Cancun. What I hope is that we will be On a first inspection, I am sure we can learn more able to demonstrate real progress in some of the lessons from what has actually happened in the Gulf dossiers that will form a part of a final agreement on of Mexico and we have to remember, in some ways, climate change. So, for example, I hope that we might that clearly the North sea is a much more hostile be able to show real progress on forestry. I hope we environment—not more hostile than the Gulf of might be able to show real progress on the whole issue Mexico in the hurricane season, but certainly more of reporting and monitoring and verification, which is hostile than the Gulf of Mexico outside the hurricane absolutely key. season. So we do have other particular challenges If we are going to have an agreement, we have to be which we have to make sure we are meeting and we confident that every country is actually applying that are determined that we will do that. We are very much agreement fairly, and I hope that we will also see aware of that issue and are reviewing it actively. some progress on finance because, if the developing countries are going to come to the table, they are very Q55 Chair: There are several matters I want to try aware of the potential costs to them of climate change. and cover in the time set. Just very briefly, you and They make the absolutely legitimate moral point that some of your colleagues took an initiative within the some of the carbon that is out there in the atmosphere EU to start discussions about a more demanding doing the global warming was actually emitted by this emissions reduction target by 2020. How are those country 100 years ago, under the last Liberal discussions going? Government, I have to say, and therefore we have a Chris Huhne: We had a very good joint initiative, legacy issue which I think the developed world has to which was an article that I did with Jean-Louis own up to. The developing countries, I think, morally Borloo, my French counterpart, and Norbert Röttgen, make that point and we have to step up to the plate my German counterpart. Partly as a result of the both with fast-start finance and indeed with help for reaction to that, where we backed the more ambitious them in terms of the broader issues of climate change 30% emissions target by 2020, we agreed that it would finance. I hope those are three areas where we can be useful for us to meet on an informal basis and we demonstrate that there is some real progress and that actually had another meeting a couple of weeks ago we can try and get some sense of momentum back in Berlin as part of a series. We are determined, I into the talks. think, the three of us—the French, German and British We have the Copenhagen accord. If the Copenhagen Governments—to try to inject some momentum both accord is delivered, there are some real potential gains into the EU's domestic ambitions on movement there. Actually, there has not been a block on towards the low carbon economy, but also, of course, international progress. The Japanese, for example, as a way to reinvigorate the whole process of have been moving on cutting their carbon emissions international negotiations through UNFCCC and with a legal framework which actually is consistent, Cancun and, next year, South Africa. on my advice, with a 30% ambition in Europe. The I think all my experience suggests that, if we can act Chinese—their latest emissions data are rather too together with our European partners, we have much hunky. It actually shows that their increase in more weight in this area than if we are singing a emissions is about the same—the increase in one year different tune. I think we need to remember how is the same as the entire emissions of the UK, but they effective Europe was, both in delivering the first are also developing, at considerable pace, their green serious international treaty on this type of pollutant, industries and they recently overtook, for example, which was the Chlorofluorocarbons Treaty, and, Germany in the production of solar photovoltaic. So, secondly, how important Europe was in delivering I think, there is quite a lot going on, but we need to Kyoto as the first climate change treaty because, try and make sure that is funnelled into a sense of frankly, the Kyoto protocol would not have been renewed momentum at Cancun and that we can then delivered had it not been for European joint pressure set the stage for potentially reaching a final on a number of major players, particularly Russia, to agreement; it will not be at Cancun, but, maybe, in ratify. If the Russians had not ratified, it would not South Africa next year if we can get our ducks in come into force and it was the joint EU position which a row. cobber Pack: U PL: COE1 [O] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Energy and Climate Change Committee: Evidence Ev 15

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley

I think a real continuing problem is the fact that the Department. So, that is what we see in terms of the Americans have not delivered on climate change regulatory role. legislation in Congress and that is something which, The only other thing which I think is absolutely in turn, means that a big developing country emitter crucial is to mention that this is part of the process like China can go on and say, “Well, hang on a which will come up with electricity market reform, minute. The Americans are not delivering. Why and we are envisaging, with electricity market reform, should we curtail our development?” Therefore, I that we need to make sure that all of the various think it is absolutely crucial that the Americans do instruments that are potentially talked about in the pass clean energy legislation. After the mid-term industry and elsewhere actually fit together in a way elections, when our new colleagues in the Senate and that, hopefully, is as simple as possible, but also does in the House of Representatives have dusted not create unintended consequences. The review of themselves down and started thinking about what they Ofgem is really a way of ensuring that that happens want to do, I hope that they will seriously look at as well. I don’t know whether Jonathan would like to clean energy legislation. I think that we have a role, add something? actually, in helping to persuade some of them—the Jonathan Brearley: Again, in the context of that more forward-thinking Senators and Congressmen— investment challenge, the market reform process is that this is in the US’s interest, and I hope very much looking at the incentives and trading arrangements that you and the Committee would be helpful in through which we buy and sell our electricity. seeing them. In fact, we are expecting to see some Alongside that, we just need to reassure ourselves that leading congressmen and women over here in the the institutions we have in place are fit for purpose to latter part of the year and beginning of next year, to also drive that transition. That means looking at try to make the point to them that low carbon is about Ofgem and considering how we are to describe its role good business and is not about grinding the economy in a world where we are going through this enormous to a halt. I think it is something that many of us transition, and how we work with them, understanding appreciate and it is part of our cross-party consensus and maintaining their independence, to try and make in a way that, sadly, it is not in the US. that happen.

Q57 Chair: I am afraid that the rise of the Tea Party Q59 Dr Whitehead: Ofgem itself in Operation does not bode very well for the enthusiasm of the Discovery offered a number of scenarios for energy Congress to address climate change. market reform. I would imagine, as a keen supporter Chris Huhne: I am afraid you are almost certainly of John Maynard Keynes, you would have particular right on that. Although, I would not underestimate the views on, for example, the role of intervention in the possibility of making real progress on a clean energy market to secure demand in a difficult economy—one agenda, which is not necessarily badged as climate of Maynard Keynes’s central themes. change, but which is about energy security and low Does that cause you to have a particular view on carbon, in effect, and there are a number of which of those five scenarios that Ofgem put forward Republicans—Lindsey Graham, for example, I think for energy market reform might be the way in which has signed up to that agenda—who might get to a you are inclined to look as far as the wider structure point where we could actually see some useful US of reform is concerned? legislation next year. Chris Huhne: It is genuinely a case that we have detached the electricity market reform from the first Q58 Dr Whitehead: In the July Annual Energy Energy Bill that is due in November, precisely Statement, you announced that you were going to be because we want to really bottom out the full way in conducting a review of Ofgem over the summer and which all these instruments lock together and we don’t autumn. What are the main failures of Ofgem that want any unattended consequences, and we are at a caused you to decide that? fairly early stage in that. We would be aiming to have Chris Huhne: I would not want to say that they were a consultation process through the winter, and I think failures. I think that there are, obviously, always aiming for a White Paper in the spring. So, that would issues. When an organisation has been around for a be the timetable that we are looking at. substantial amount of time, you need to look at the It is absolutely crucial, of course, that Ofgem is way it is operating. Ofgem has a very important intimately part of that process because they have an regulatory role which is guaranteed by EU legislation enormous amount of expertise and experience in and which must be respected. dealing with the sector. So, that is also absolutely key. We know, for example, from the economic literature, But I am very aware that we need to get this slotted that regulators need to be fiercely independent if they together right and that there are potentially enormous are going to regulate properly. They are historically problems if we don’t. I don’t know whether Moira or prone to regulatory “capture”, in the phrase. I don’t Jonathan would like to add anything? think Ofgem falls into that category, but I don’t think Moira Wallace: The only thing I would say is that we there is any harm in reviewing that to make sure that are also looking at all our delivery agents that have it is being as tough as it needs to be with its charges. been around for some years, and the policy framework I think, on the other side of it, of course, Ofgem has and the delivery framework has changed a great deal quite a substantial set of responsibilities which are not in that time, so we are doing a look at all of them. We directly associated with its regulatory role, but are also looking at some of our partners in the energy through E-Serve, which are actually quite an efficiencies: Carbon Trust, Energy Saving Trust and important part of the delivery of objectives for the environment agencies. So, there is no question of us cobber Pack: U PL: COE1 [E] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Ev 16 Energy and Climate Change Committee: Evidence

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley picking on Ofgem. It is a general look at those who been doing neither. We have really just got to get on work with the Department and the Department itself, with it and deliver. As far as I am concerned, the whether they are in the right shape and have the Coalition Agreement is a deal and I am going to right priorities. deliver the deal. Chris Huhne: There is a real step change, with the Climate Change Committee, on the delivery on energy Q61 Gemma Doyle: Ofgem have been looking at the efficiency, for example, so I think that there has to be issue of mis-selling to energy consumers since about a change in the remit for the Energy Saving Trust in 2008, and as it doesn’t look as though there has been dealing with some of the Green Deal aspects. significant improvement and they still have problems with vulnerable consumers being mis-sold energy Q60 Dr Whitehead: Do you think there is a danger tariffs, do you think it’s about time to look at banning that this review process, and perhaps uncertainty in direct selling? the way energy markets may be reformed, will lead to Chris Huhne: I think it is quite hard to imagine investor uncertainty and difficulties in securing those banning direct selling in one sector and not in others. commitments that are necessary over the next period I don’t know how this would compare, for example, in order, indeed, to make that step change? with direct selling in things like double glazing and Chris Huhne: There is always a danger that the more elsewhere. This is an area where you do need very you have everything up in the air, in terms of potential substantial safeguards, which are already there in electricity market reform, the more uncertainty there direct selling—for example, cooling off periods and is. But we will attempt to limit that to as short a period so forth for consumer credit agreements, which were as we can while getting the answer right. So, we are largely introduced as a result of the EU legislation. committed to trying to get that White Paper out in the But I think you are absolutely right that we need to spring and then coming forward with the legislation keep an eye on this area and where people are subsequently, probably in the next session. surprisingly unresponsive to price signals. I think everybody in the Department is acutely aware One of the things that we are trying to do—and I am that one of our key roles is to make sure that we get going to ask Phil to give you some more detail on this the enormous investment which is going to be in a minute—as part of the legislation, which we will necessary if we are going to have this electrification be bringing forward later in the year, is to really of the economy—and remember that on our 2050 highlight for consumers what their options are in pathways we are talking about more than doubling terms of switching so that they will know what they electricity demand by 2050. So, a massive increase are going to pay at current consumption levels on their here if we are going to have electric vehicles and we existing tariff or an alternative tariff and so that that are going to be using increasingly electricity for will be clear on the bill. ground source heat pumps, air source heat pumps, any We want to try and make it as easy as possible for space heating, residual needs and so forth. So, this is consumers to know exactly where they are with their a massive agenda and we have to make sure that we energy use and if they can get a better deal from are getting the framework right if we are going to another provider. Anything we can do through deliver that investment. The big six, and any other provision of information in an easy way, through investors that we can attract, need to be able to look smart meters and so forth, to increase competitive at that framework and have total assurance that once pressure on them, we will do, and I think that is a we have got it there it is going to be stable, it is going very important part of safeguarding the consumer’s to be certain and it is going to do what it says on the interest. Phil may want to add something. tin. I am absolutely aware that it is not just, by the Phil Wynn Owen: Just to elaborate a little on what way, the big six, because they have pension funds, the Secretary of State has said, obviously Ofgem they have insurance companies who own their shares announced action a couple of weeks ago in the case and they, if they are going to embark on this massive of some cases of potential market abuse, so I would process of investment, are going to have rights issues not wish to comment on that while those and they are going to have big debt issues. So we also, investigations are under way, but I think the fact that as a Department, have an agenda of sensitising the they gave that signal gives a very positive sense that wider investment market to how important these we are moving forward on that agenda, although we energy infrastructure needs are and making sure that very much share your concerns. the wider investor market actually understands the In terms of the longer-term solution the Secretary of incentives that we are putting in place and understands State alluded to, it must be to help develop greater the framework. We have got to get it right. When we understanding, education and confidence on the part have got it right, we will go out there and sell it and of consumers in how they use energy and how they we will sell it hard, not just to the big six but also might be more energy-efficient, and in that context he to the investors, because we want to make sure that has mentioned two of the key things we are doing. investment happens. One is, we are planning in the Bill that will be At the moment, if I had to characterise where we are, introduced this autumn to seek parliamentary as I have already said, we are in a very bad place on authority to take powers to require further renewables. We are starting from way behind comparative information on energy bills. There were compared with other European countries. At the same a number of ideas in the manifestos of the parties to time, because there has been, I think, a not very the Coalition, concerning comparative information fruitful stand-off between the champions of nuclear locally or with past periods and so on, and we are and the champions of renewables, we have in effect looking at what we might do to require that, though it cobber Pack: U PL: COE1 [O] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Energy and Climate Change Committee: Evidence Ev 17

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley would be much better if we didn’t actually have to poverty, which is a massive problem across Great use those powers and if Ofgem could agree licence Britain. There is not only Warm Front, which you changes with the energy companies themselves. But mentioned—and obviously, as the Secretary of State we are going to take those powers so we can actually said, some of these decisions are subject to spending move towards a position where the customer can review allocations—but also the Energy Rebate understand his or her energy bill, because if you go Scheme, which was an innovative form of data home and look at your energy bill, I challenge you to matching that we have been undertaking both with understand everything on it—I certainly can’t the energy companies and DWP to target the most understand everything on mine. vulnerable older people on the guarantee element of Chair: Particularly if you are on a budget scheme. Pension Credit. It has been working well in recent Phil Wynn Owen: That is right. The other crucial months. programme is smart meters. At the time of the Annual Within the context of the CERT extension, which will Energy Statement, we published a prospectus and a go to the end of 2012, which covers the transition consultation on potentially accelerating that period we have touched upon, we have identified a programme, which will bring smart meters and real- super-priority group of recipients: 15% of the money time displays to every household in the land, and will have to go to help those most vulnerable people. those displays should bring significant consumer Of course, the Government also offers winter fuel benefits. payments and cold weather payments. A number of Chris Huhne: You will actually be able to see what these issues may be subject to spending review your energy use is at any one time. So, you will be allocations, but we will have to look across the piece, able, effectively, to see that a particular appliance is and of course we also have powers from last year’s leading to a particular amount of electricity use. Energy Act for a social price support mechanism potentially to be exercised by this Government going Q62 Gemma Doyle: You are suggesting that a forward, again subject to spending review allocations supplier would send a bill to a consumer, and on that and the Green Deal. So, there are a lot of mechanisms bill it would say that you could get a cheaper tariff we can use to make our best possible efforts in with another supplier. Do you think that is realistic? combating fuel poverty, which is a massive challenge. Chris Huhne: That is one option. This is a regulated Chris Huhne: The key point, I think, is to try and industry. The problem is, with a lot of these tariffs, make sure, as I said in an earlier answer, that we are that they are not simple, so many therms, so many dealing with the cause of the problem rather than the kilowatt hours at a particular price. They often have a sticking plaster for the symptoms. The holy grail in lot of other bells and whistles attached to them and fuel poverty, it seems to me, is targeting the people in therefore it is not always easy to understand. But I fuel poverty and one of the problems is that (a) fuel think you can say, “If a particular energy use were to poverty bounces up and down, depending on what is continue, then this would be available at another happening to the oil and gas price, and whether there tariff.” I quite like the idea of doing that with the is a cold winter and so forth and, secondly, we can banks as well, but unfortunately that is outside the identify who is in fuel poverty from general survey responsibility of DECC. evidence, but actually identifying individual people who are in fuel poverty is very difficult, which is why Q63 Gemma Doyle: A couple of questions on the this data matching exercise is so important. If we can Warm Front and the Green Deal. The current phase of do the data matching exercise effectively so that we the Warm Front ends in 2011, and the Green Deal, I can actually offer a benefit to these people—they get, understand, is due to come in in 2013. So, what I think, £80— measures are you going to put in place to cover that gap, to make sure that we are not falling behind on Phil Wynn Owen: Up to 250,000 poor pensioners will energy-efficiency targets and on fuel poverty targets? be receiving an £80 rebate, with a total of some £20 Chris Huhne: You are absolutely right that there is a million under that pilot, but I really think this is phasing process with Warm Front no longer being the cutting edge Government if we can make it work, principal way we deal with fuel poverty, but instead because it is taking benefits data from the Department having this Green Deal element, and we have to make of Work and Pensions, on guarantee credit sure that the two lock together properly and that pensioners—not savings credit pensioners, but nobody falls through the middle. The Warm Front, we guarantee credit pensioners, the really vulnerable envisage, will actually continue through, including ones—and taking energy market company data, having a “tail” of spending through the beginning of pooling them with all the necessary safeguards in a Green Deal, but the exact amounts of money are neutral place, and identifying the most vulnerable and obviously subject to the comprehensive spending getting money to them. review and we will have to wait—I will have to Chris Huhne: And not only getting money to them, wait—sadly, until we have reached decisions on that but also being able, then, to make them an offer on, before we can announce it. But we are very aware that say, Green Deal, so that in future they don’t have the the two schemes have to lock together, that people problem. If we can actually sort the root cause out, mustn’t fall through the middle and that, hopefully, it that is the real holy grail. will be seamless. Phil, do you want to add anything on that? Q64 Sir Robert Smith: The ones who fall through Phil Wynn Owen: There are a number of measures the net, though, are the ones that don’t use gas as their being taken or being planned to help combat fuel heating fuel and rely on other sources of heating fuel. cobber Pack: U PL: COE1 [E] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Ev 18 Energy and Climate Change Committee: Evidence

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley

Chris Huhne: You are absolutely right that, working with private sector providers who will be obviously, 15% of the population is off the gas grid. I making their own market decisions. am acutely aware that all of what we talked about on If it turns out that it is our role to have a strategic Green Deal, all of what we talked about on fuel framework which actually makes sure that this poverty, has to apply there as well, and a lot of the country has energy security and has enough electricity properties that are off gas grid are also all the ones in and goes through this very exciting third industrial rural areas, so solid wall insulation is going to be very revolution, electrification, and if we see that there is important. But I can assure you we have that very, on our pathways project, a particular problem in one very much in mind. This is meant to be a area, we will need to tweak the incentives to make comprehensive scheme. We are not going to leave sure that, overall, we are delivering. But I do caution people off the gas grid out. against the approach that we should be too Chair: I think we are coming to the end of our time. prescriptive. There has to be a role in a market We just want to touch briefly on nuclear new build. economy for the market. Dan. Q67 Dan Byles: I am delighted to hear you say that, Q65 Dan Byles: Obviously, we have talked briefly that you don’t believe the man from the Ministry about nuclear already. On current schedule, all bar one always knows best. But, obviously, nuclear power is of our nuclear power stations are scheduled to come not something that can respond quickly to changing off line by about 2023. I am just curious to know in market conditions. So, there does need to be more your forward modelling how much of that lost long-term strategic planning. Of course, it is very easy capacity you anticipate being replaced by new for the Government to inadvertently or otherwise put nuclear build? obstacles in the way of new build, particularly with Chris Huhne: Obviously, we’ve got the National something like nuclear. Planning Statements coming up. We have got a lot of Chris Huhne: Let me assure you on that, just because expressions of interest from three consortia. EDF is various parts of the press occasionally suggest that the most advanced, with likely replacement new this might happen. I reiterate exactly what I said. The nuclear from EDF on course by, I am assured, still for Coalition Agreement is a deal. The Coalition Agreement clearly envisages a part for new nuclear in 2018. There won’t, inevitably, be an exact matching the future energy mix and my job, as Secretary of of retirements from new build, and that is obviously State of this Department, is to deliver on the deal, and something which we have to work through, but we that is what I intend to do. There will be no obstacles will be in a position to say more about that around the put in the way of any energy source which can provide time when we produce the National Policy part of our future as a low carbon economy, and Statements. Jonathan, do you want to add anything? indeed we will facilitate that as fast as we possibly Jonathan Brearley: Just to add, what we don’t try can right the way across the board. I want to see this and do is specify exactly how much of different happen. generation we expect to see because that depends partly on the relative pricing of different technologies. Q68 Albert Owen: A thorny issue in your dream But we do expect the first station to be open by 2018. portfolio has been nuclear, and we don’t want to go over that—we have jousted about it in the Chamber— Q66 Dan Byles: So, you don’t have a view as to but there is a serious issue that my colleague has whether we will have a similar percentage of our raised with regard to investment here. What do you capacity produced by nuclear beyond 2023, a large consider to be a public subsidy for new nuclear percentage or a small percentage? You don’t take a build—and, I would add, the consortiums, including view on that? Horizon in my constituency, which is making great Jonathan Brearley: If you look at our 2050 pathways steps forward? work, we set out the different scenarios you might Chris Huhne: Just on your first point, let me assure have on the supply side and we look at essentially you that in my conversations with the potential what the different mixes might be and what that investors it has been quite interesting that means for the rest of the economy. If you had a very subsequently they have put out, I think, a very clear small proportion of nuclear power through the 2020s statement saying that they can work with me and that and 2030s, clearly you rely a lot more on your they don’t have a problem. We have had that from renewable sector and on carbon capture and storage, EDF—Vincent de Rivaz—and so forth. So, a lot of and that has some of the delivery risks we have talked the noises off, I think, should be discounted, because about here already. I think that the Coalition Agreement is very clear, Chris Huhne: I think, just to come back to the key policy is very clear— point about the approach here, which we have already talked about a bit in terms of dealing with these Q69 Albert Owen: But Secretary of State, there is enormous uncertainties about how different concern within the industry. You must be aware of technologies develop dynamically over time, we must that. avoid the temptation to think that this Department is Chris Huhne: Let me come to your second point, a branch of some sort of Soviet Gosplan, and it is which is a perfectly legitimate question, which is, going to set out production targets and there are going what is a subsidy? I am afraid this could probably to be so many left shoes, and the target must be met. keep a college full of economics PhD students going That is just not the world that we work in. We are for several years, and indeed, in extremis, is it a cobber Pack: U PL: COE1 [O] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Energy and Climate Change Committee: Evidence Ev 19

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley subsidy that we have a civil court system which Chris Huhne: Frankly, I don’t think there is any enforces contract? You could argue that that is a difference between any of the parties on that and I am subsidy to every business in this country, but actually afraid the guarantee of no subsidies is there for all to we wouldn’t have business if we didn’t have see in the red ink in the Red Book. enforcement of contract. I think that the key is really whether there is Q75 Albert Owen: If there is no difference, you are something which is specific to the industry. So, saying there is a level playing field for nuclear when anything which is general, in terms of applying, it comes to public subsidies? overall, a framework which delivers low carbon— Chris Huhne: Obviously, nuclear will benefit from the general framework which we have brought Q70 Albert Owen: So, on that, could you explain forward to encourage low carbon electricity your carbon flooring mechanism and how that would generation. That will be the carbon price floor. That benefit investors in the nuclear industry who have a will be the EU emissions trading scheme. Anything 30-year span, at least, of capital investment there? else which is of a general nature designed to How would they benefit from that directly? Are you encourage low carbon generation will be available to seriously saying that that, in the UK alone, would nuclear and my contacts with the industry—I think entice the investment? you are right that the industry was, itself, divided in Chris Huhne: The carbon price floor is not by any its views—EDF— means only attractive to nuclear. It will obviously be attractive to many other potential electricity Q76 Albert Owen: Not as divided as the Coalition, generators as well: wind and tidal—you name it. but that is another point. It is a serious matter. Chris Huhne: I’m not going to go there. The Q71 Albert Owen: How does it work? Coalition is absolutely clear in terms of the Chris Huhne: The consultation is precisely designed Agreement. That is what happens in Coalitions. If the to get a system and to consult on a system which two parties have different views on something, they actually can deliver the low carbon generation that we reach an agreement. We were completely open about want, and do so in a way that is acceptable in terms that at the beginning. We reached an agreement and it of its economic costs, and that is absolutely what the is my job to deliver on it. Chancellor has announced. Obviously, the Treasury is All I would say is that, in my contact with the in the lead on this rather than this Department. industry, obviously, we had some people in the industry saying that the carbon price floor would be Q72 Albert Owen: Exactly, and it is a tax and taxes enough. We had other people in the industry can change, which creates uncertainty. You talked preferring other options. The contacts that I have had about, very clearly from a business prospective, a with the industry recently have been quite interesting settled, stable environment. Does your Government in that they have converged on the view that the Department have settled plans that will allow carbon price floor will be enough, and I think that that investment on this type of nuclear build for the future is very interesting. which gives the stability, gives the base load that we need to meet the challenges that we have been Obviously, the consultation process has to go on and talking about? we will no doubt have lots of discussions with the Chris Huhne: I think you are absolutely right. industry and with the Treasury about the framework, Obviously, no Parliament can bind its successor. That what might happen and what the price may be and so is one of the fundamentals of our system. forth. I think, actually, the industry has converged on the view that this is a pretty good framework for Q73 Albert Owen: I am not even saying that, with delivery. respect. I am saying, on the Treasury, what is your You are right that there is longer-term uncertainty view? You have responsibility as the Secretary of because Parliaments can’t bind their successors, but I State here to create an environment of stability so that think there is also a very, very clear strong view across confidence is raised, so that people can invest in it. all of our parties that we don’t want to get into the Does this carbon pricing that you are talking about business of retrospective legislation, and that, I think, help in that? That is what I am saying. I am pro- can be a considerable comfort to investors in this nuclear, pro-renewable, pro-energy-efficiency, and context and indeed in others. have been for some time. I have been consistent, and I don’t see a contradiction in that. On the level playing Q77 Albert Owen: Two final points to clarify what field, you gave indications early on—this wasn’t Dan was asking. With the slight delay with the stirred up in the press—that there would be no consultation on the extension, are you confident that subsidies for nuclear. You created this problem, if you the new generic design assessments will be complete like, by some of your statements. and that new build can be ready for generation in Chris Huhne: Hang on a minute. I would merely 2018? point out to you that all three parties at the last Chris Huhne: I am assured that we are on course, election, including the Labour Party, said no new okay, for 2018. I, as I hope you come away with the subsidies for nuclear. impression, am determined to make all of these things happen. Q74 Albert Owen: I know what the Labour Party Albert Owen: I am more encouraged today than I said, because I helped formulate that policy. have been with your previous statements. cobber Pack: U PL: COE1 [E] Processed: [15-11-2011 13:16] Job: 013418 Unit: PG01 Source: /MILES/PKU/INPUT/013418/013418_o001_db_Corrected EnCC AM 15 September 2010.xml

Ev 20 Energy and Climate Change Committee: Evidence

15 September 2010 Rt Hon Chris Huhne MP, Moira Wallace, Phil Wynn Owen and Jonathan Brearley

Chris Huhne: This is the happening Department. We Chris Huhne: If you look at the pathways calculator, are actually going to make things happen. it is physically possible. What the pathways calculator does not do is put a price tag on it, and the price tag Q78 Albert Owen: I am going to ask you a rather is, as I have already described, in any case uncertain. provocative question now, though, but it is an So, for example, we have some renewables like important one. Will you, as the leader of your photovoltaics, which are coming down on a very, very Department, be voting in favour of new nuclear? steady trend, while nuclear costs are actually going up Chris Huhne: When we come forward, I will because of some of the supply issues, so we are obviously have to discuss that with my parliamentary dealing with a very uncertain world. colleagues, but I think you should be in no doubt that, Yes, if you look at the pathways calculator, you can in terms of the leader of this Department, we have got indeed get to a whole range of different scenarios, a deal which clearly envisages a role for new nuclear, but we are facing great uncertainties, and one of the and my job is to deliver on that deal. Discussions uncertainties is we have not yet proved coal and gas between me and the Chief Whip and my colleagues is at scale with carbon capture and storage. I think that, obviously going to be another issue because you also without that, it is going to be very difficult to make realise that the Coalition Agreement— any mix, frankly, add up, because, for the economic Albert Owen: I understand that—I am not always in reasons that I gave, it is not sensible to turn nuclear agreement with my Chief Whip. up and down, because you have this massive fixed Chris Huhne:—specifically says that Liberal cost. It is rather like with a wind turbine: you don’t Democrats will not vote against or in favour, so there turn a wind turbine off. Once you’ve installed the is an abstention issue there and that obviously applies damn thing, you want it to operate as often as it to Liberal Democrats whether they are in Government possibly can. So, we need CCS. Obviously, you can or whether they are outside Government. change the mix, but there will be a price tag. Jonathan Brearley: I just wanting to add, on the Q79 Albert Owen: But you are in a slightly different signals out of the industry, I know there is position. You are the person devising those policies, nervousness, but there are strong signals that people responsible for your Department, putting something are pushing ahead. We have three consortia who have before the House of Commons, expecting others to come forward with plans to build 16 gigawatts, which carry it. is a huge amount. Taking you back to Chris’ point Chris Huhne: And that is precisely why I told you about portfolio approach, if you lose any part of that very, very firmly that I intended to deliver on the portfolio, your risks of not being able to deliver agreement that we have made. increase, and nuclear is part of that, but so are Albert Owen: I hope you will be in the same Lobby renewables and so is CCS. as me, and I will leave it at that. Chair: Secretary of State, we are very grateful to you and your colleagues for your time. You have been Q80 Dan Byles: Obviously, with 14% of our very generous. We have covered a lot of ground. electricity roughly currently coming from nuclear, if There were some issues we might have explored in we get the environment wrong—and I accept this is more detail, but there will be future opportunities. So, not a command decision—and a significant amount of thank you very much indeed. that capacity is not replaced by new nuclear build, do Chris Huhne: And we will make sure you have a note you think we will be able to cope? Do you think that on thorium. there is sufficient capacity in the growth of renewables Chair: Thank you. and carbon capture to enable us to grow some of the fossil fuels? Do you feel that is your problem?

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