HC Deb 18 January 1982 vol 16 cc129-36

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

10.40 pm
Sir Anthony Meyer (Flint, West)

I asked for this debate because I was dissatisfied with the reply that I received from my right hon. Friend the Secretary of State for Energy on 21 December. I asked my right hon. Friend whether the energy objectives of the EEC member States could not be best achieved by a Community energy policy; and he replied that the achievement of the objectives which he had defined does not imply a common energy policy of a centralised nature, such as the common agricultural policy, nor is there any reason to suppose that other Community countries would be prepared to agree to a policy that would give a substantial benefit to one member country."—[Official Report, 21 December 1981; Vol. 15, c. 610.] It is my contention that a Community energy policy in the EEC would be the most effective way of achieving the energy objectives of individual member States, the objectives as defined by the Secretary of State, and that the example of the common agricultural policy is one to follow, though avoiding the complications and the bureaucracy of the CAP, rather than to shun. The United Kingdom is far better placed than any other EEC member to advance a sensible energy policy and to get it accepted. The argument that should appeal to the super-subtle mind of the Secretary of State—I can hardly expect such deviousness from so untainted a politician as the Under-Secretary of State—is that merely by putting forward a scheme in which our good European intentions would be so manifest, we would enormously enhance our wilting reputation for being good Community members and thus appreciably improve our chances of achieving our other objectives within the EEC.

The objectives of an energy policy, whether purely national or European, are to give industry and consumers assured supplies of energy at competitive prices. I believe that to some extent these objectives can be promoted by a centrally administered EEC policy to be applied within each member State, but I accept that the difficulties and the objections are powerful. I do not accept that they are so totally insuperable as the Department of Energy has always maintained under successive Governments. The CAP, with all its defects, has maintained a stable agricultural industry and assured supplies of food, even at times of world shortage, at prices which on average have not been nearly so far above world prices as most people seem to think. Such a policy can point the way to a Community energy policy which would be to the long-term benefit of the peoples of each member State as well as to the Community as a whole.

If the argument against making any attempt to secure a common internal energy policy for the EEC, even to the limited extent of rapid convergence of national energy pricing policies and the intensification of cross-frontier and cross-channel energy transfers, is not accepted because of the difficulties posed by the entrenchment of national energy traditions, the arguments for a real effort to get a common external energy policy for the EEC are infinitely more compelling and more urgent.

As Mr. Geoffrey Denton puts it in his article in the March 1981 Three Banks Review, the EEC should … operate as a unit, the better to secure its interests as against those of the US, Japan and other consumers. This is especially important given the weakness of the US resolve to stop and reverse its growing dependence on oil imports, and the great power of Japan as a trading nation to buy its way out of trouble by paying what the oil producers demand. The US has actually subsidised energy imports which, seen from Europe, is a ludicrous policy for a country with the largest energy consumption per capita, and one of the lowest prices, in the world. Pressure on the US to change the direction of its policy is a high priority for an EEC Common External Energy Policy. Can it seriously be argued that those objectives can be more effectively secured by even such relatively energy rich countries as the United Kingdom trying to exert pressure on their own? All the arguments for joint EEC external action for resisting United States or Japanese commercial pressure, which even so sceptical a European as the Secretary of State for Trade fully accepts, apply with equal or greater force in the matter of energy. Europe acting as one can limit the extent to which the United States can make every consumer and every firm in Europe pay for America's insatiable thirst for cheap petrol.

If the main objective of a Community energy policy is to assure supplies of energy at competitive prices and because Europe is not self-sufficient in energy sources, it follows that a main element in any Community policy must be an attempt to reduce dependence on outside sources of energy, and to ensure that supplies from outside are as immune to interruption as possible. The latter objective is best secured by the EEC using its full muscle power, as the world's largest trading bloc, to get good long-term supply contracts. The former objective, that of reducing reliance on outside supplies, can be achieved by various methods—by stimulating new sources of energy and by encouraging energy saving techniques.

At first sight, those two approaches can be almost equally well applied by individual nation States. The French nuclear programme is there to prove it. On the other hand, might not the rest of Europe, and perhaps even France herself, be enjoying cheaper and more secure energy supplies had not Gaullist France strangled Euratom in its cradle? I shall take another example nearer home, in my constituency. As the Minister knows, the Point of Ayr colliery in my constituency is to be the site of a twin pilot plant for the conversion of coal to oil by a pair of related processes evolved by the National Coal Board at its experimental centre at Cheltenham. I need hardly say how important that project is to my constituency in terms of jobs and spin off, nor need I stress its long-term significance to the United Kingdom, given that our oil will run out before our coal. None the less, in purely commercial and national terms, the scheme is so nearly marginal that the NCB is having a job to raise from private sources the necessary investment capital.

I stress that I have been in touch with the NCB as recently as last Thursday, to ensure that no snags have arisen. I have been assured that there have been no snags. On the other hand, it is clear to me that that is just the sort of project that the EEC should be backing to the hilt instead of the relatively modest £7 million contribution that it is making. The oil companies should be fighting to get in on a good thing instead of playing Lady Bountiful because such a scheme, which offers the prospect of assured indigenous oil supplies until well into the next century, while it may be semi-marginal for the United Kingdom with the North Sea coming on full stream, is of tangible and immediate benefit to the EEC as a whole.

What about the gas-gathering pipelines? I understand that those are schemes that are dear to the hearts of energy Ministers but which have fallen victim to the Treasury's mania for saving 20p today, even if it will cost £1 million in five years' time. Those schemes, too, could not have been described as marginal even by the British Treasury, if they had been evaluated in the context of a wider and longer-term energy policy.

At present, the British concentrate on getting their oil and gas ashore to Britain and the Norwegians theirs to Norway, with a bare minimum of purely bilateral mutual concessions for short-term objectives. A longer-term policy with a European dimension would envisage the day when United Kingdom supplies of gas were dwindling and Norwegian supplies exceeding requirements and would devise a pipeline system connecting Norway and the United Kingdom with the rest of Europe—a system under which we at first might be giving more than we received but of which we should be eventual beneficiaries.

If there is to be a common energy policy of any kind, it will need money to finance the joint policy, although even the most visionary of European integrationists are not thinking in terms of billions of pounds. As one of the objects is to reduce imports of energy from outside the Community, the obvious source of finance is some kind of charge on imported coal, oil and gas. If this were set at a relatively high figure such as 6 per cent. or 10 per cent., it might have a really sharp impact on oil imports. It would also make a dramatic contribution towards solving the problem of the United Kingdom's unfairly large budgetary payments to the EEC, as we should not be net contributors under this head because we import so little energy. On the other hand, I recognise that the implications for other economic activities and for the United Kingdom's and the EEC's foreign commercial relations are so far-reaching that such an idea is in present circumstances a non-starter. However, a very low levy of, say, 1 per cent., while it would do nothing in itself to discourage imports and would make a negligible contribution to the solution of the United Kingdom's budgetary problem, would yield some £750 million per year, which could finance a number of really worthwhile projects in new energy sources or energy saving which might not be commercially viable without the Community energy policy providing the funds for them.

In conclusion, I make plain what my charge against the Department is. I say "Department" and not "Minister" because I find disappointingly little change even under a new Government or a new Secretary of State or, perhaps even more relevant, a new Permanent Under-Secretary of unrivalled experience in European matters and universally admired judgment. I do not assert that the Department has been dragging its feet. I know that the Minister will tell me that we have paid our subscriptions in full and promptly by pledging the required reserves both to the international energy agency for major crises and to the EEC's own programme for sub-crises. I accept in advance what he will tell me, but he will not, I think, succeed in convincing me that we are taking all the tricks that are there for us to take.

As Malcolm Rutherford puts it in his recent book, "Can We Save the Common Market?": The Oil is already flowing to Europe, but Britain has so far failed to seek any compensating political reward. It is as if it were all happening by accident, with no foreign policy conclusions to be drawn. The initiative lies with Britain. It is the only member with the resources credibly to propose a common energy policy. And the rest of the Community knows that this is so, because, whenever Britain starts to talk about energy, the Community begins to listen. The energy card is the one that no other member holds, and it is sheer timidity, or maybe just a surfeit of defeatism, not to play it. Failure to use the card means wasting it, not conserving it, because the oil is being consumed in any case. I do not think that I can improve on that. We have a unique opportunity and we are throwing it away.

10.54 pm
The Under-Secretary of State for Energy (Mr. David Mellor)

I am very glad to have the opportunity to respond to my hon. Friend the Member for Flint, West (Sir A. Meyer) on the subject of EEC energy policy. The House has the warmest admiration for my hon. Friend and for his experience in foreign affairs and, above all, for his commitment to the European Community, which is restated regularly and eloquently in the House. I particularly welcome the fact that he is now taking an especial interest in energy policy.

I begin by saying that it is right that the Community should have an energy policy suited to the needs and aspirations of member States. However, European Community energy policy guidelines must give member States the flexibility to frame their energy policies in the light of their own circumstances and priorities, but within an overall Community framework. Progress, to be real, must be based on consensus, and due regard must be had to national circumstances and interests. The Community must aim to develop sensible Community policies on areas of shared concern, but the structure must be based firmly on national programmes, complemented, where appropriate, by action at the Community level. In our view, only in that way can a realistic and effective Community energy policy emerge.

Much has already been achieved by the Community—for example, on the fundamental question of oil consumption, which was at the heart of what my hon. Friend had to say. The EEC has set itself energy policy guidelines for 1990 about reduced oil dependence and oil use. As the House will know, these objectives are three-fold: first, to reduce to 0.7 or less the average ratio between the growth in energy consumption and the rate of growth of GDP; secondly, to reduce oil consumption in the Community to about 40 per cent. of gross primary energy consumption; and, thirdly, to cover 70 to 75 per cent. of primary energy requirements for electricity production by solid fuels and nuclear energy.

The Commission has placed upon it the obligation to report on progress towards obtaining these guidelines, and the United Kingdom is playing its full part in achieving them. Indeed, in 1980 our oil consumption was about 40 per cent. of the United Kingdom's gross primary energy consumption, and more than 88 per cent. of our electricity was generated from coal and nuclear sources.

The Community's energy policy is continuously evolving. Under the United Kingdom Presidency during the last six months of 1981, the Community made important progress in several areas. I should like to refer briefly to the Energy Council held on 27 October last year, at which I had the honour of sitting at the United Kingdom desk.

On energy pricing, which lies at the heart of so much of the concern that hon. Members express about our partners in the Community, the Council reached substantial agreement on conclusions that were formally adopted at a meeting on 3 December. These conclusions stated, first, that consumer prices must not be kept at artificially low levels and prevented from providing reliable market signals; secondly, and perhaps most important, that any differences in pre-tax energy prices that do not arise from genuine competitive advantage or from priorities consistent with Community energy objectives must be clearly identified and, to the extent that they arise from differences in public policy, progressively reduced; and, thirdly, that consumers should have adequate access to information on energy prices and the methods by which prices and tariffs are determined.

The Energy Council reached agreement on guidelines for dealing with a limited shortfall in oil supplies as a basis for consultations with other industrialised countries in the IEA. The aim is to devise procedures that might be adopted to prevent a shortfall in oil supplies leading to unrealistic pressure on prices. This is plainly a matter where it is of the essence that there should be not just Community agreement but the widest agreement among industrialised nations.

Looking to the future, there was also a most useful discussion on a Commission paper on the development of the Community's energy strategy. The conclusion reached was that the Council should keep this under review and refer to the matter again at a subsequent session as part of the developing discussion.

Finally, and of relevance to those who rightly look to the EEC as a source of finance for research and development schemes on energy matters within the Community, the Council approved the seventh round of Community projects in the hydro-carbon sector, totalling 26 million ECUs. The House will be glad to know that United Kingdom projects represented about 25 per cent. of the total, which shows that we are obtaining a proper benefit from the scheme. Real progress was made and we look for further developments in the next 12 months.

Turning to some of the points made by my hon. Friend, particularly about the problems posed by the international oil situation, I have already mentioned the limited shortfall provisions, designed to deal with the sort of situation that arose as a result of the Iranian revolution and the beginning of the Iran-Iraq war.

We all know that the level of oil consumption is at the heart of Community discussions. The shock of the oil price increases in 1979 and 1980, following on the heels of the tremendous rises in 1973, has had a salutary effect on oil consumption across the world. For example, in Japan and the Federal Republic of Germany substitutions of other fuels for oil have proceeded apace, along with growing efficiency in the use of energy.

High energy prices are unpleasant to live with, but, where prices have been allowed to signal real costs to consumers, worthwhile savings have been made. Progress has been made even in the United States, following the acceleration of the de-control of oil prices by the Reagan Administration. I agree with my hon. Friend that international pressure on issues such as unfair pricing is better exercised collectively and that our membership of the EEC can only be helpful. We are active members of the Community in that regard.

As was recognised by all member States in the Council's discussion of limited shortfalls, the EEC, large as it is, is merely a part of the industrialised world and progress is to be made it is essential that agreement be reached by the other developed nations in the IEA.

My hon. Friend suggested that we do not gain political capital from our oil reserves. I remind the House that we have the oil available only because of the efforts of offshore licensees and operators, largely in the private sector, who put in the money and bought the expertise to exploit our resources. Those licensees have the freedom, subject to participation agreements, to dispose of their oil as they see fit, to our IEA and EEC partners. We cannot take the dubious benefits that complete political control over oil would confer, given our choice of harnessing private sector operators to exploit the reserves under licence. The only oil over which the Government have direct control is that taken as royalty and that taken at market price under the BNOC participation agreements.

My hon. Friend referred to the gas-gathering pipeline. There is no doubt that such pipelines will be constructed, but they will be built by the private sector, as has been the case with previous oil and gas exploration work. The northern leg pipeline is to be connected to the FLAG system—the Shell-Esso pipeline from Brent to St. Fergus. That is an example of what the private sector can achieve.

Much of the oil from the North Sea finds its natural market in the United Kingdom, but it is only in the past year that, in overall terms, we have become self-sufficient. The world energy market is not static. The demand for oil has fallen dramatically in OECD countries over the past two years. Most commentators expect oil to be freely available for a few years more, but it is important to make the most of what we have. Equally, we must take care not to over-rate its value. In the long term, it may be the case that oil will again become scarce and that political initiatives by the Community to seek out long-term supply contracts will become worth while. That moment is not now. I do not believe that we would be better placed by seeking to secure our supplies through a Governmental initiative than by leaving commercial operators, both State oil companies and the private sector firms, to trade in the market as now.

Another aspect of our common European Community policy to which my hon. Friend referred is the funding of research and development and demonstration projects. The Community has a good record of carrying out and supporting research and development into renewable sources of energy. The Commission's report on the achievements of the first four-year programme—a copy is in the Library—shows the range of projects that have already benefited. We are now part of the way through the second four-year programme, which is larger and going well.

A total of over £60 million expressed in European currency units is being made available on programmes covering energy conservation, solar energy, geothermal energy, hydrogen and energy systems analysis. The United Kingdom receives a good return from the programme. Now that our own research and development is in full swing, extensively developed under the present Government, we hope to do even better.

I turn to demonstration projects. I understand my hon. Friend's interest in the coal liquefaction project. We have done our best to stimulate Community interest in coal research and demonstration projects. Coal conversion now plays its part in the demonstration project schemes offered by the Community that include solar energy, geothermal and energy saving projects. The projected coal liquefaction plant illustrates the point I have already made about the link between national and Community arrangements. We have agreed to make available £5 million out of our own research budget. It is a substantial part of the budget. We know that substantial Community funds are also likely to be available.

We attach importance to the availability of funds from private industry as well. At the end of the day, research and development will need to be commercially exploited. It is of the essence that there should be a genuine partnership between the Government and the Community on the one hand and the oil companies on the other.

It would perhaps also be appropriate to mention, as my hon. Friend referred to Euratom, that the Community has always encouraged member nations to work together on nuclear research. The Community fusion programme is the most important Euratom research and development project. It has our full support. Its centrepiece is the JET project that has so far gone according to plan and time. The basic machine is scheduled for completion in 1983. It is hoped, in due course, that it will demonstrate the scientific feasibility of fusion, the first real step towards development of a fusion reactor. It is the only machine currently under construction that could acheive this.

There are a number of valuable Community programmes concerned with nuclear matters. The United Kingdom participates actively in all of them. In purely practical terms, we get back rather less than we contribute overall. There are, however, substantial benefits to United Kingdom scientific knowledge and useful contacts for United Kingdom industry. This is particularly true of JET.

It is the firm view of the Government that there is a balance to be struck between action at Community level and action at national level. The main contribution in meeting the guidelines set out by the Community will come from the national energy programmes of member States, and we believe that that must be so. But we are equally clear that it will be necessary for these to be supplemented by action at Community level where this is beyond the resources of the private sector and where this is best conducted at Community rather than at national level. We believe that this proper partnership between national activities and collective Community action is the firm base upon which Community energy policy can develop and flourish.

Question put and agreed to.

Adjourned accordingly at 10 minutes past Eleven o' clock.