§ 6.30 p.m.
§ Lord Hardy of Wath rose to ask Her Majesty's Government what steps they propose to take to promote long-term balance in the supply of energy.
§ The noble Lord said: My Lords, I start by saying that I have no intention of advocating the establishment of a complex bureaucratic structure devoted to energy forecasting. We cannot see what lies around the corners of history but we ought to pay a little more attention to the possibilities and threats that lie ahead. The farmer cannot precisely forecast what his harvest will be next year, but it would be a poor farmer indeed who did not consider what seeds he should plant.
§ It may be relevant to quote another natural illustration. In 1972 the Treasury produced a cost-benefit analysis on forestry which showed that not a single tree should be planted in Britain for commercial reasons. Three weeks later the Russians trebled their timber prices; other producers followed suit and the analysis was rendered absurd. But it had already been etched into the stone of the administration. Voices were raised in the other place; there was a debate in this House and 22 Peers expressed their anger or disapproval. Only one beleaguered Minister was left to try to rescue the Government. The Minister today does not need to feel that he needs to be rescued on this occasion; the present Government may be pursuing a wise course.
§ The fact remains that there are serious problems. One can illustrate that by reminding the House that a few weeks after that forestry debate OPEC exercised seller's power and we saw the more than tripling of oil prices, which had an effect which should have taught lessons—they may now have been forgotten, 20 odd years later.
§ For much of the post-war period coal provided the UK energy base. For part of that time Keynsian policies were pursued and the National Coal Board actually charged less for its coal than it might have done, in order 1110 to stimulate the wider economy. Even then for some years it was touch and go as to whether the need was met. Indeed, in recent years difficult situations have only been avoided by heavy lifts from stocks of coal.
§ By the 1950s it was recognised that the larger coalfields of Yorkshire and the Midlands would have to command priority and receive vast investment to promote the technical development which was achieved. In those areas little was done or allowed to be done to prepare for the economic diversification which technology would exercise by reducing manpower needs in the pits. From the 1950s large numbers of miners were transferred from the North East, Wales and Scotland to areas like ours. When I entered the House of Commons in 1970, hundreds of those men were working at the 12 collieries within my constituency and the other seven collieries within the South Yorkshire area of the National Coal Board. Of the 15 collieries which existed then, only one remains in the now metropolitan borough of Rotherham,—Maltby, with 40 million tonnes of reserves and recipient of vast sums of money in investment to prepare for a future. But now there is anxiety about its position and this year there may only be 250 men working there.
§ So, within a short time contraction of the industry has been dramatic, and that despite the huge increase in mining productivity which has been unmatched in the rest of the British industrial sector. The cost of that contraction has been enormous. The loss of income, the cost of unemployment and redundancy, the cost of environmental regeneration, the cost of bureaucratic paraphernalia which has been established to supervise the change have exercised a remarkable effect; but the social consequences may have been even more severe.
§ Now it seems that the contraction may continue despite the continuing increase in productivity to which I have referred. That increase has not been properly recognised. I remember three years ago Mr. Heseltine addressed the All-Party Energy Studies Group. During his address he regretted that the improvement in mining productivity had only just begun. The noble Lord, Lord Haslam—who regrets he cannot be with us tonight—expressed concern about that statement and pointed out, as I am sure the noble Lord, Lord Ezra, could point out, that that remarkable increase in productivity had been continuing for a very long time. It is a pity that it has been so greatly ignored.
§ The advance has been remarkable. But what has also been remarkable is the locking away and sterilisation of reserves. That has been incredible. The 14 collieries most recently closed had reserves locked away of 600 million tonnes—perhaps locked away forever. That is an important natural resource of which we have taken an irresponsible view. Are we to lose a lot more? The Budge collieries alone have reserves of over 2,500 million tonnes. If we question the theory of reserves upon which Mr. Macgregor pronounced while he was chairman of British Coal, there may be more then many people imagine. Mr. Macgregor refused to allow the counting of any reserves that could not be currently profitably mined. There was no account for further advances in productivity; there was no account 1111 for the eventualities of change which could occur or the need to avoid excessive import dependency. We perhaps ought to look again at the reserve question.
§ If the industry does not survive, even at a time when man is more eagerly scratching at this planet's surface for coal and mineral ores, we shall also see the mining engineering industry whither away. That industry has earned £1,000 million in exports over the past few years. A home base must be adequate to sustain that.
§ Recent contraction may largely have been affected by the nature of electricity privatisation in 1987. That may have been the starting gun for the "dash for gas". Some of us may recall that in the early 1980s British Gas had a public duty to secure the national gas supplies. To do so, it felt it necessary to purchase the Sleipner field in the Norwegian sector. There was a long delay while the Treasury concerned itself with the exchange implications that that could present and in the end the proposal was rejected. The Minister then announced that there were an additional 625 trillion cubic feet of gas in the British sector in the North Sea available to us. And there were: I would not dispute that figure. But what was never stressed was that much of that gas lies in small and distant pockets far costlier than the gas in the southern basin of the North Sea which was originally available at 2.8p a therm. Now we see the attempt to use that gas as fast as possible and hang the consequences for posterity.
§ People may say that there are gas reserves elsewhere. There are. There are gas reserves in Algeria, Russia and Kazakhstan. A few years ago, some of us met leading players in the gas industry and they told us how much was being invested in Kazakhstan. One of them said to me, "I hope that you will visit it. We will make the arrangements". I said that I had recently met leading Kazakhstani politicians as they were entering democracy. I did not find them stupid. They are glad to welcome our investment; they will perhaps be eager to ensure that we have a return; but they ain't about embracing Britain as the partner which most deserves to benefit from their national assets. They may be a little more careful than we have been.
§ The country should recognise that we are not giving an adequate response to the dependency question. That point was made repeatedly by my noble friend Lord Orme, to whose maiden speech we are looking forward. As our spokesman on these matters in the other place, he offered wise advice 10 years ago and it is a pity that it did not receive more attention.
§ Renewables will help. I am certainly not over-critical of renewables, but we need to be a little cautious. I remember a few years ago 1 was speaking in a debate in Europe about the energy future. A Dutch expert said that the United Kingdom should meet all its needs by the development of wind power. I pointed out that there is a place for wind power, but to reach the scale of production that he suggested we would have to have a windmill on every bit of exposed ground in the British Isles. I said that I cared for the landscape and that I did not wish to see most of the migrating birds across our country decapitated. So we need to have a sense of balance about wind power. Close to my home a field has 1112 been devoted to growing willows for energy purposes. Renewables have many advantages but the downside has not been fully explained. As the farmer who previously used the land wintered 200 ewes on it, the cost of that loss does not seem to have entered into the equation.
§ We should pay more attention to conservation. After all, the richer homes in Britain are warmer at a lower price than millions of poorer homes which cost more to heat but are colder. They have not enjoyed the benefits of energy conservation provision. There are employment consequences which could be seized in that regard. There is also nuclear power. I do not deny the prospect of nuclear power. However, over the postwar years Britain was often badly misled about the costs and opportunities involved. The achievements were overstated, the costs were often ignored and there was generally a hard sell approach. That was certainly demonstrated to me when I entered the other place in 1970 and attended a meeting to brief us about the nuclear industry. It soon became clear that a number of points had been brushed aside. The City clarified the position in 1987 when it stopped the previous government privatising the nuclear industry. It was not privatised until after the electricity consumer had paid heavily through the levy on his bills, a levy which in part was devoted to rewarding France for its exports to us through the cross-Channel link. I am delighted that the present Government appear to be more sensible about the matter than the previous one.
§ Last July I visited Chernobyl. I stood beside that awful place, looking at the sarcophagus shielding the horror which may still be leaking. I stood beside a friend, a distinguished Swiss parliamentarian and doctor, and watched his Geiger counter which was acting rather vividly. We walked through the adjoining similar power station. I did not wear an indicative badge—no one did. I always assumed that people wore those badges in such establishments. We travelled through a large exclusion zone, some of it still occupied. We drove through a city which is still empty—horribly empty—and which was built relatively recently to accommodate the people engaged at Chernobyl. 1 do not feel that international concern for this place has been sufficient. I could not bear to attend the hospital where children are cared for, and will need to be cared for, as a result of the events at that place.
§ In November, Professor Littlechild addressed the all-party energy studies meeting. Some noble Lords may have been present. His speech concentrated on price and the need for the benefits of competition. Perhaps his remit has been too narrow, but there was no concern for future of supply and no concern for economic eventualities. I asked questions. Some were answered. One was not. It is a question that has often been asked in recent months and needs attention today. It is claimed that the electricity provided from coal-fired stations is cheaper than that provided from many gas-fired stations and yet coal is denied an adequate share of the energy market.
§ That question is important, particularly given the costs if there is further contraction of coal. I wish to make it clear—a number of noble Lords will he aware 1113 of it—that I am a rather green politician. I recognise that we have to have far greater care for the environment. It is 20 years since I first called for the cleaning up of our coal-fired power station capacity. It is a pity that only two stations have been adapted. One of those is now burning petrocoke and we may well be burning orimulsion—at great cost, because it is imported. I trust that the Government will ensure that the environment is cared for. But I trust that they will also pay considerable attention to the need for a more balanced energy policy than we have seen over the past decade.
§ 6.45 p.m.
§ Lord Orme
My Lords, it is 33 years since I made my maiden speech in another place. I am a refugee from that place in your Lordships' House. I wish to put on record my appreciation for the help I have received from both Members and staff. That is extremely important. It is often assumed that people who have lived at the other end of the Palace know all about this place and how it works and operates. You do not. In consequence, you have to learn about it. I am on that learning curve at the moment.
When I made my maiden speech then it was about the steel industry and British manufacturing. I felt that industry was crucial to the United Kingdom. Here we are today discussing the future of the energy industry, particularly the mining industry. I feel that the economic future of Britain is tied to the success of our economy, particularly in terms of what we produce and sell. If our economy is not successful we will not be able to sustain 55 million people on these islands. It is therefore essential that we should have a balanced energy policy. We are a nation self-sufficient in energy—more self-sufficient than most countries in the world—whether it be nuclear energy, to which my noble friend has just referred, gas or coal. These are assets for which many other nations would give their right arm. They do not have them. However, if we do not take action, we are in danger of frittering away those assets. We should have a balanced energy policy.
I was energy spokesman for the Labour Party in the other place over the period of the miners' strike in 1984. I have not said a lot since about the strike—perhaps one day I will—but this is not the occasion for it. I endeavoured along with many of my colleagues to try to reach a peaceful settlement of that dispute. We were not successful and many things flowed from that. We are paying the price today.
Following the strike and in the next Parliament I was a member of the special Trade and Industry Select Committee which dealt with energy and, in particular, the future of mining. We came forward with positive proposals to assist that industry. Despite the negative efforts of Michael Heseltine and Professor Littlechild we produced a unanimous report. However, the report was not implemented, the industry was privatised and tens of thousands of jobs were lost. The coal was locked under the ground instead of being used—coal which through modern technology could be used not only to produce power but for many other purposes.
1114 That Select Committee met morning, afternoon and night. It set up a record of meetings for a Select Committee in the other place. We fought to try to be forward-looking and to deal with the question of not just the mining industry but of a balanced fuel economy. We brought forward a blueprint. No one said that it was perfect, but at least there were proposals which called out to be implemented. But unfortunately they were not. Therefore, that Select Committee's recommendations are on the shelf. We are facing a changed situation at the moment.
I turn now to the current all-party Select Committee in the other place. It was recently told that while coal producers typically make £4 profit on every tonne of coal produced, the generators make a profit of £30 per tonne. The grid transmission system makes about £2.50 per tonne and the distribution companies make a profit of £19 per tonne. That means that coal going into power stations at £35 per tonne is being sold to us as electricity users at over £160 a tonne. That is the rip-off in the coal industry. I am pleased to say that the Government have intervened.
I wish to place on record the statement made by the Prime Minister that there would be a reprieve in the short term for eight pits and 5,000 jobs. That was helpful. He went further and said:This six month period will provide an opportunity for the UK coal industry to look at further ways of improving competitiveness. It also gives us the opportunity to consider what role the UK coal industry could play in meeting the UK's longer term energy requirement—within a framework which takes full account of our need to maintain dependable. sustainable and diverse energy sources at competitive prices and without prejudice to our environmental objectives".That is to be very much welcomed. Can the Minister give the House any forward information as regards what is happening, because in this six-month period action has to be taken and proposals brought forward, otherwise we shall come to a dead stop and there will be no further development.
Almost in parenthesis, I welcome the task force for the mining industry which has been set up by John Prescott. That is something which is long overdue. In consequence, it is extremely important for the mining communities. People still live in those communities. They see, feel and live poverty in many instances. Therefore, something has to be done. I very much welcome John Prescott's task force as such.
But our overall concern must be to have a balanced energy policy, which Britain is in a unique position to achieve. As I have already said, we have North Sea oil, gas. nuclear power and particularly coal. With modern technology the environmental problems, as I said, which coal caused in the past have now largely disappeared.
I welcome the fact that the Government want a level playing field for coal. The energy Minister, Mr. John Battle, has a series of measures in hand, including a further moratorium on gas-fired power stations, depending on the outcome of a review on the security of electricity supplies. Again, I welcome what the Minister has to say about the timescale for that. It must not be short term. Not many industrial countries have our level of resources. We have to develop and exploit them.
1115 I believe that this short debate is an extremely important one. We are talking about the future of the British economy and of the resources that exist within our country at the present time. Those resources have to be used and developed. Therefore, I hope that the Government will pursue the policy that they have already started.
§ 6.55 p.m.
§ Lord Gray of Contin
My Lords, this is the first occasion on which I have had the good fortune to follow a maiden speaker. On behalf of the whole House I would like to extend to the noble Lord, Lord Orme, our warmest congratulations on a truly memorable maiden speech. For those of us who have been fortunate enough over the years to know him in another place, it is a great pleasure for us to welcome the noble Lord to this House.
I personally remember him in three forms in another place. I remember him at times as being a rumbustious Back Bencher; I remember him as a well-informed and not-to-be-trifled-with Opposition spokesman, and I remember him as a courteous and always very well briefed Minister. We enjoyed the contributions that he made in the other place. We look forward to hearing him often for many years ahead in this House.
I would also like to thank the noble Lord, Lord Hardy, for giving us the opportunity to discuss this very important matter tonight. I enjoyed listening to his speech. I have to admit that there were parts of it with which I did not wholly agree, but that is the way of politics.
There is no doubt in my mind that in future energy balance and the choice of fuels for generation will be governed to a large extent by the environmental concerns over global warming. That is an area which is difficult for coal. There is an ever-increasing role in the selection of these fuels for power generation. It has to he considered in that light. A reduced dependence on coal has played a major part in helping the United Kingdom towards its real target.
I can well understand the concern of both speakers who preceded me in their worry about those who live in milling communities. There is no doubt that we all feel for those people. But there are ways of dealing with circumstances when pits have to close. We have experienced that in the past and we shall no doubt experience it again.
I point out to the noble Lord, Lord Hardy, that it was not just the past Conservative Government which closed pits. Many, many pits were closed over the years by successive governments, both Labour and Conservative. So it has been a continuing policy with which I would not disagree. I believe that both governments took the right action, and that is now being proved by the fact that coal pollutes. We have had constant complaints from Scandinavia about the amount of pollution which it receives as a result of our coal-fired power stations. So while one is sad at the near demise of the coal industry, one has to be realistic and look for alternative sources for power generation.
The future calls for electricity generation by CO3-free means, with maximum support for renewables and nuclear power. Fossil fuel-burning power stations are 1116 the worst culprits. During 1995 alone, 44 million tonnes of carbon dioxide were pumped into the air above the United Kingdom. The dash for gas has helped somewhat, since gas-burned fuel produces about half the amount of greenhouse gases of coal, but even then it remains a substantial polluter. By contrast, nuclear power stations produce negligible amounts of carbon dioxide emissions.
Before I say anything more about nuclear power, I wish to declare an interest. For the past three years I have been an adviser to Scottish Nuclear Limited. I helped the company with the run-up to its privatisation, and I still advise it. However, my interest in, and dedication to, nuclear power goes back far before that point. Indeed, it dates hack to the late 1950s when the then Conservative Government decided to site the prototype reactor at Dounreay. My home is not far from Inverness and for 13 years I represented in another place the constituency immediately north of that, Ross and Cromarty, which in its turn, on its north boundary, marches along with that of Caithness and Sutherland, which houses Dounreay.
I have debated publicly in defence of nuclear power and I stand by everything I have ever said about it. I still believe that it is the cleanest form of energy available to us. I believe that it has been unfortunate in its parentage because people still associate it with the atom and that has been a difficult hurdle for it to overcome. There has also been confusion by the anti-nuclear groups over nuclear power for peaceful purposes and nuclear power for war purposes. In 1996 British nuclear power stations by their very existence prevented 65 million tonnes of carbon dioxide from being emitted. Worldwide, nuclear power stations prevented the emission of 2.3 billion tonnes—that is, assuming that had they not been there, the power would have been generated by coal.
Alternative sources of energy certainly have a part to play. I agree entirely with the noble Lord, Lord Hardy. on wind power. Of course, it has a part to play, but before long the environmentalists will become just as disgusted by huge areas of windmills as they are by the various types of pollution from other sources. As far back as 1983, when I was at the end of my four-year period as Minister of State for Energy, the Department of Energy estimated that by the year 2000 the total contribution towards power generation which could be expected from all the alternative sources taken together was 8 per cent. I understand that that has been revised downwards; that the forecast is now 6 per cent. and that there is even doubt about alternative sources achieving that target.
So, the question of sources of power for the future is now a problem. Again, I agree with the noble Lord, Lord Hardy, that we must consider the years ahead and not only the immediate future. I was irritated by my own party in government when it decided about 10 years ago not to go ahead with the fast-breeder reactor. One of the reasons given was that it was not expected to be required for 30 to 40 years. Well, I0 of those years have already passed. The noble Lord, Lord Orme, reminded us that it is now 33 years since he made his maiden speech in another place. I am quite sure that it does not seem like 1117 33 years ago to him because time passes very quickly. I believe that we were extremely short-sighted when we decided not to go ahead with the fast-breeder reactor.
Mention has been made of Chernobyl. In passing, I say only that we all shared the world's despair as a result of Chernobyl. However, I remind noble Lords that the Chernobyl power station could not have been built in this country because our safety requirements are such that it would never have been approved. I know that Chernobyl happened and that the statement that I have just made does not help very much, but it is worth remembering that the safety record of our nuclear industry in this country is second to none.
The Department of Trade and Industry has forecast for the next 25-year period from 1995 to 2020 a dramatic reduction in the use of coal and the growing importance of oil-related fuels, with gas becoming dominant, and the near-extinction of nuclear power with only Sizewell B still operating in 2020. If I could make just one suggestion to the Government, it would be that they do not write off nuclear power. I believe that it has tremendous potential for the future. Indeed, unless in 20 years' time we want to be going cap in hand to the French to be updated on their technology, we shall need to develop our nuclear industry. An apocryphal story is told about the French to the effect that they build their power stations first and have their public inquiries afterwards. We will never know whether or not that is the case, but necessity has governed their actions. Our energy problems are those of success, not of failure. We are an energy-rich country. France is an energy-poor country and I believe that that is why the French have made such progress with their nuclear programme.
Mr. John Battle recently announced a review of security and diversity of fuel supplies to avoid over-dependence on any one fuel or technology. That seems eminently sensible, provided that it does not imply any interference from government by way of regulation or financial involvement. Here, I come to the only point in the maiden speech of the noble Lord, Lord Orme, with which I disagreed: I do not want to see any more government intervention. We have had plenty of government intervention over the years and there is no doubt that since the market has been allowed to operate in the area of energy, there has been great success. Competition enables the generators to choose their fuel at competitive prices. Competition enables the industrial companies to choose their suppliers, and competition is now enabling even householders to pick and choose fuels. Nothing should be done to inhibit this healthy situation, but the long-term situation needs to be carefully considered. That is where I believe that the nuclear industry provides the answer. Again, I thank the noble Lord, Lord Hardy, for giving us the opportunity to discuss this important topic.
§ 7.9 p.m.
§ Lord Ezra
My Lords, in taking part in this debate I must declare an interest as having been actively involved in the energy sector for many decades and being currently chairman of companies involved in the distribution and use of energy, with particular regard to 1118 greater efficiency. I should like to join with the noble Lord, Lord Gray, in congratulating the noble Lord, Lord Hardy, for initiating this debate. As has been pointed out, he has been a long-term supporter of the energy sector, particularly the coal industry, but is also supportive of environmental issues. He described himself as a green supporter of coal, if one can see those two colours blending harmoniously.
I regret that there are not more noble Lords participating in the debate at this stage; but at least those who are represent all sides of the House in the three main parties, are very knowledgable on the subject and in their various ways are dedicated to the energy sector. Therefore, we make up in terms of quality what we may lack in quantity. I hope that we shall have quantity on a future occasion.
I was delighted to hear the maiden speech of the noble Lord, Lord Orme, on a subject about which he is not only knowledgeable but feels passionately. I remember working closely with him when he was involved in shadowing energy when the Labour Party were in opposition. I always found it most helpful and invigorating to hear his views. Like the noble Lord, Lord Gray, I hope that we shall hear those views on many future occasions.
The question posed by the noble Lord, Lord Hardy, raises the whole issue of energy policy. I should like to deal with it in that wider context. I believe that there are three prime aspects of energy policy which are interrelated but not always consistent with one another. The skill of government must be to try to reconcile these three strands in an effective manner. The first objective of energy policy, much emphasised by the noble Lord, Lord Gray, is to create an effective competitive framework. Obviously, that is in the interests of the consumer. The second objective is to achieve long-term security of supply, which is also not necessarily always consistent with the first objective. The third objective is to safeguard the environment, which is also not necessarily consistent with either of the other two. Underlying all this are very important social and economic considerations; in other words, the consideration of energy policy has a much wider impact, being such a basic industry. I should like to deal with each of these aspects in turn and see where that leads us.
I deal first with the competitive framework. There is no doubt that Britain has moved a long way in this direction. It is ahead of other countries in the European Union who are presently grappling with the introduction of some modified form of competition in the electricity and gas sectors. On the other hand, in Britain these two markets will in the course of this year be fully opened up to competition. However, there are problems in this process as we begin to see. First, while the markets are effectively being opened up there is still a substantial concentration of power on the supply side. In the case of gas, Centrica (as the former British Gas is now known) is the dominant operator, although it is now far from the monopoly that it once was. In the case of electricity, generation is concentrated substantially in the hands of four major companies.
1119 Quite apart from this concentration of power on the supply side, there are very serious social implications of opening up such a basic market as energy to full competition. Both the gas and electricity industries when nationalised paid great attention to consumers on low incomes, the elderly and the disabled. I believe that they led the way in dealing with those matters in a sympathetic manner. These two considerations as well as others lead to the view that regulation must continue in this sector. I cannot see the day when we will be able to do without regulation of any kind. The Government are at present reviewing the regulatory system. We impatiently await the results of that review. Perhaps the noble Lord, Lord Haskel, will inform the House when the results may he expected.
The next issue in energy policy is security of supply and the maintenance of a desirable balance between the different sources of energy, which was the specific point raised by the noble Lord, Lord Hardy. I do not believe that this is an issue that can be left to be resolved by the free operation of the market place. The present abundant supply of energy at relatively low prices may give the impression that the risk of shortages is no longer likely to arise. As the noble Lord, Lord Hardy, pointed out, this situation may not necessarily last into the future. Like other noble Lords who have spoken and who have been much involved in this area, experience shows that the energy situation can change very suddenly. I speak from my experience. I joined the coal industry at its start. We were then in the midst of an energy shortage. I can remember attending meetings of the OECD in Paris in the early 1950s when it was demonstrated that the future need for coal would far surpass the capacity for production. What were we as one of the major producers in western Europe going to do about it?
Two years later the whole situation changed dramatically with the rapid arrival of oil from the Middle East at low prices with the capability of taking over much of the market for coal. That situation continued until the 1970s. However, during the 1960s the Department of Energy produced a report on energy policy which stated in terms that so far ahead as the department could see oil would be plentifully and cheaply available. I remember having discussions with Dick Marsh, the then Minister responsible, and arguing the point with a team from the National Coal Board. In the early 1970s the situation changed dramatically. Just as people had been forecasting unlimited supplies of cheap oil in the 1960s, they began projecting how high the price of oil might become from the 1970s onwards. When we moved into the 1980s the situation changed yet again. We are still living in a period of relative abundance of supply and cheap prices. As the noble Lord, Lord Hardy, has pointed out, the sources of energy, particularly gas and oil, will be more and more concentrated in uncertain parts of the world; in Algeria, where currently there are troubles; in the Middle East, which is a seething cauldron; and in the former Soviet Union countries. Those are the supply side side uncertainties.
On the demand side, while in western Europe the demand is unlikely to grow at a very fast rate, in developing countries demand will grow a great deal 1120 more rapidly in the years ahead once they overcome their present problems. The European Commission has forecast that whereas today the consumption of energy in oil equivalent terms is 8.5 billion tonnes, by the year 2020 it may well be 13 billion tonnes, which is a very substantial increase. The Commission has also shown in its report on energy policy in the European Union that whereas now it is already dependent on imports for half its supplies by the year 2020 the figure may be three quarters. That is not due to a very rapid increase in demand but to a reduction in indigenous supplies.
All of this points to the uncertainty of the route ahead and therefore underlies the need identified by the noble Lord, Lord Hardy, to achieve a better balance in our energy supplies. In the case of coal, which both noble Lords spoke about so eloquently, it is known that world reserves are greater than those of any other source of energy. Those reserves are being very rapidly developed in other parts of the world. Of course, we must develop renewables as much as possible, and nuclear energy must play its part.
We are now facing the risk that coal in the future may play less than the part it should play. That means that we should be husbanding more effectively our valuable reserves of gas and enabling coal to take up more of the market. There is no doubt that that should be attempted. I see that as implicit in the measures which the Government have taken in the short term, which have been referred to. I have always been worried about the increasing use of gas in power stations. We are putting into power stations one of the most valuable forms of natural energy which can be used to 90 per cent. efficiency by direct use, converting it into another form of energy and losing about half its inherent benefits. That has never seemed to me to be an effective way of using that gas. Indeed, until recent years, it was something that was prevented under EU regulations.
If coal is to be used more in power stations, its efficiency in use must be increased, and, above all, its environmental disadvantages must be overcome. That leads to the third leg of energy policy: the environmental aspect. As emerged from the previous debate, that is playing an increasing part in government policy, as it rightly should. The Kyoto Conference re-emphasised the world's concern with the potentially serious impact of climate change. I am delighted by the prominent role that the Government played in that. The Government have committed Britain to giving an example to others by achieving the high target of a reduction of 20 per cent. in CO, emissions by 2010, as we well know.
That will require the mobilisation of a great deal of effort. A major energy efficiency drive, much greater than anything previously launched, will need to be put in hand. Such processes as combined heat and power, which enormously increase the efficiency of overall power operations, will need to be spread more widely. If long-term security of supply is to be achieved by using coal more extensively, particularly in power stations, clean-coal technologies, for which we have long pressed in this House, will need to be developed at a faster rate, and projects on a commercial scale—the technology is ready for that—will need to be launched with the minimum of delay. The campaign to stimulate 1121 energy efficiency and reduce atmospheric emissions has to be handled both at national and at local level. Positive action by Government has to be supported by equally positive action in the regions. I happen to be involved in two initiatives in leading cities. One is in Sheffield where for some years effective use has been made of the heat produced by the local incineration scheme by piping it in the form of hot water throughout the city. Users now include public buildings, hospitals, universities and commercial and industrial consumers. There has been a substantial net saving in emissions as a result of that initiative.
In the city of Nottingham, where there is also an incineration scheme generating energy, an energy partnership has been formed to review the whole of the city's usage in order to identify further measures for savings. The aim is to achieve within Nottingham the Government's emission target. If those two examples—there are some others—were followed more widely, that would make a big contribution towards achieving the Government's objective.
Energy policy, which is inherent in the Question posed by the noble Lord, Lord Hardy of Wath, depends, as I have said, on a reconciliation between achieving the benefits of competition, developing secure and diversified energy sources and improving the environment. Underlying those issues are important social and economic implications, with which we are all familiar. The Government are at present undertaking a series of reviews which touch on various aspects of energy policy. They are all important reviews. I hope that soon the various strands will be brought together in the form of a coherent long-term policy which will contribute to the sustainable economy which the Government are committed to achieve. I hope that the noble Lord, Lord Haskel, will be able to tell us when we might expect that long-awaited White Paper on an all-embracing energy policy.
§ 7.25 p.m.
The Earl of Courtown
My Lords, first, I congratulate the noble Lord, Lord Hardy, on introducing this important debate. His Motion argues for an energy policy. I, as the noble Lord, Lord Orme, said, support that objective. Our approach, as my noble friend Lord Gray of Contin said, when we were in government was based on the principle that competition in open markets is the best means of providing a secure, diverse and sustainable energy supply.
I acknowledge that there were difficult issues to address at times. Change is never easy. And one reads the reports from Spain of the strikes against cuts in coal production now taking place in the Asturias. Those are being forced by the falling demand for coal as a fuel and by those targets for cleaner energy to which all nations have agreed—targets which were reaffirmed by the Deputy Prime Minister, Mr. Prescott, in his recent visit to the Tokyo Summit.
We cannot interfere in the market without raising the price of fuel to domestic consumers, many of them the very poor people about whom this House has always rightly expressed concern. We cannot interfere in the 1122 market without raising the costs of energy to business and industry, making Britain less competitive in the world and threatening British jobs; and we cannot insist on burning more coal without raising CO, emissions, risking the achievement of the very targets to which Mr. Prescott recently recommitted us. But jobs today in any given industry cannot be put before the future environmental interests of our children and those after them.
It has been said that the policies of the previous government were harsh. But the reality is that privatisation, liberalisation and competition have increased efficiency and served both individual consumers and British industry. Major price reductions have followed.
The noble Lord, Lord Hardy, referred to the coal industry. Here, too, the Government's policy appears to be confused. In opposition Labour published a six-point plan—as it put it—to "save" the coal industry. It promised firmly,no more licences would be issued for gas-fired power stations".Yet, the Government recently awarded a licence to BP to operate a 1200 Megawatt gas-fired power station. I understand in an Answer given by the noble Lord, Lord Simon, to my noble and learned friend Lord Fraser of Carmyllie that there are a further 28 applications before the department. Could the Minister tell me what would be the annual equivalent in tonnes of coal used that would be displaced if those licences were approved?
In addition, the Government cannot both favour the coal industry and reduce CO2, emissions by 20 per cent. as they have pledged. Which objective do the Government put first? We shall look forward to hearing. As the noble Lord, Lord Ezra, said, we are still awaiting the results of one of the Government's "reviews" into utility regulation. In opposition, the Government hinted that they would move from regulation via price to controls on profits. What will be their decision? If we cannot be told today, can we be told when the review will actually be published?
I hope that whatever the outcome, the Government will not lightly throw away a system that has led to lower prices and better service. I trust that they will be sufficiently "New Labour" to use competition and not regulation as the first friend of the consumer.
I hear that the opening up of competition in the electricity market is due for April. We have all seen the promises of lower fuel prices that have been flooding through letter boxes and filling newspaper advertisements as a result. I hope that the opening up of competition will not be delayed. Can the House be told the position on this, which is of vital interest to British households?
My noble and learned friend Lord Fraser of Carmyllie recently asked the Government about yet another review—a review into whether there are plans to limit future increases in gas-fired electricity generation, and, if so, on what environmental grounds. When will that review be completed?
1123 I must not detain the House much longer. I hope that in this vital sector, where we have succeeded in setting a pattern for energy policy which other countries are now copying, the constant shifts and interference and the raft of reviews announced by this Government will not cause excessive confusion and damaging uncertainty. The Government must make up their minds; announce a clear, coherent and practical energy policy; do all they can to promote greater competition in the energy sector; and continue lowering prices to help industry and make people better off. That is the way to serve the whole nation in the long run, including the families of those remarkable and brave people who built the coal industry of which the noble Lord, Lord Orme, is justly so proud.
§ 7.30 p.m.
§ Lord Haskel
My Lords, I congratulate the noble Lord, Lord Hardy, on bringing forward this topical debate. His interest in energy matters is longstanding. He represented a coalmining constituency for many years and for 18 years he was chair of the Parliamentary Labour Party Energy Group with great distinction. I also congratulate my noble friend Lord Orme on his maiden speech.
My noble friend's Question expressed concern about the balance of energy supply into the long term. The Government share those concerns. They are a little less concerned with some of the short-term points made by the noble Earl, Lord Courtown. We also note concern about the environment. Much of the current focus on the balance of our energy mix derives from the decline we have witnessed in the coal industry during the past decade, particularly in the past five years. As my noble friend Lord Hardy reminded us, an industry which was once our main source of energy and employed million men is now down to a few thousand. My noble friend Lord Orme reminded us that that industry, perhaps more than any other, has special political significance for any government but particularly for a Labour Government.
To some extent, that industrial change is a reflection of wider economic, technical and social change. I say to the noble Lord, Lord Gray, that the major specific cause of significant change in the energy sector has been the privatisation of energy utilities and the liberalisation of energy markets. Privatisation has meant that the CEGB's central control of electricity generation in England and Wales and its paternalistic national interest approach to its market no longer holds sway. Now we have diversity of companies in the generation market and profitability, the bottom line, is often their main driver.
The new opportunities and pressures of the liberalised market have led to the acceleration, development and introduction of new kinds of generation equipment and networks which are more closely linked to the needs of the businesses and customers which use the power, power being generated close to the load with less need for transmission over long distances.
Such devolution makes sense in a number of ways, but it makes it harder to ensure the integrity of the whole of the electricity system. Furthermore, customers are 1124 becoming more sophisticated in terms of their expectation of competitive pricing and the quality of supply and of supplier responsiveness. A major innovation has been the combined cycle gas turbine, or the CCGT, which offers generator savings in construction time and costs, in operating costs and in compliance with environmental standards. The noble Lord, Lord Ezra, has reminded us of that on many occasions. Its rapid take-up is a reflection both of these inherent advantages and of the laissez-faire policies of the previous government which allowed through about 40 power station application more or less on the nod, without taking any particular view as to whether additional capacity was necessary in order to meet likely electricity demands. About half of those stations are still being built or have not even been commenced. Therefore, if we never give consent for another gas station the market for coal will continue to become weaker.
Therefore, during the past few years the way in which we generate our electricity and the mix of fuels we have used has changed and is likely to change further. The noble Lord, Lord Hardy, asked what steps were being taken to promote a long-term balance in the supply of energy. However, to arrive at any sensible answer we need, first, to ask ourselves three basic questions similar to those put by the noble Lord, Lord Ezra. Can the operation of open markets be relied on to deliver the right kind of energy mix now and in the future? If markets may not deliver the right balance on their own, how in a liberalised regime can the Government encourage them to do so? Is full or partial self-sufficiency in energy supply important against the current background of low world energy prices and free trade?
In order to address those fundamental issues, the Government are carrying out a review of power sources for electricity generation. Noble Lords asked when the reviews will be completed. The terms of reference of the major review was announced before Christmas. It will be carried out by the Department of Trade and Industry and I expect that it will take about six months to examine the issues thoroughly and to prepare a report. Interested parties are invited to submit views to the review by 16th February. However, I am sure that the review will bear in mind the warning of the noble Lord, Lord Hardy, about forecasts. In assessing our future policy, we will take into account the contribution made by each fuel to our overall goal of ensuring security, diversity, sustainibility and competitive prices.
The review has been driven by concerns expressed by a number of sources, including the National Grid Company. While the review is in hand, the Government have proposed to defer consideration of applications for consent for new power stations. It seems sensible to pause for thought while we work out whether there is a problem. Clearly, at this early stage I cannot speculate on the conclusions.
§ Lord Haskel
My Lords, I shall write to the noble Lord about that. I am not sure of the position of the review, but I know that it is well advanced.
My noble friend Lord Hardy was concerned about the depletion of our sources of gas, as were other noble Lords. Simple extrapolation from current production and estimates of reserves is notoriously unreliable, rather like the forests, since both our figures change over time. For example, remaining discovered reserves of UK gas are about 25 per cent. higher than was the case in 1980, even though production since that time has been equivalent to half of that 1980 figure. Although production has tended to increase, the discovery of new reserves has generally matched the increases such that the ratio of reserves to production has not changed much. Published reserve figures do not include anything for oil or gas which is yet to be found.
The noble Lord, Lord Hardy, is right to say that gas being found on the UK Continental Shelf is in smaller fields. The advance of technology and the infrastructure already in place have meant that those smaller fields can be exploited at a cost which is not expected to affect significantly the final price of gas.
Concern was expressed about imported gas and the unreliable sources of supply. It would be mere speculation to worry about where supplies might come from in 10 or 20 years' time. Security of supply will be a prime commercial concern to gas suppliers who will take whatever steps are necessary to ensure that. But Russia has provided a very reliable gas supply to several European countries. Our nearest large potential supplier is Norway, with which we already have pipeline links. The world gas market is still developing and may well become as open and competitive as that of oil.
I turn to the question of gas power station consents. The noble Earl, Lord Courtown, raised that matter. I shall have to write to him about the specific power station which he mentioned. The matter of tonnes equivalent of coal is quite complicated. We do not have the figures. It will depend on the assumption in relation to which coal stations might be displaced and how often they would otherwise have been running. Rough estimates could be made, but I shall write to the noble Earl about that.
He asked also about future power stations. The Secretary of State for Trade and Industry will consider reasoned requests for exceptions to be made in particular cases and in doing so, she will be mindful of the environmental and other benefits of combined heat and power. But I should make the point that of the five stations consented to by the present Government, which had previously been consented to in principle, three were industrial combined heat and power schemes and the fourth involved a significant combined heat and power element.
The noble Lords, Lord Ezra and Lord Gray, spoke about CO2 emissions. All forms of fossil fuel energy emit carbon dioxide which is a major contributor to 1126 global warming. The noble Lord, Lord Ezra, made the important point that improving efficiency in the electricity sector is one relatively simple way in which to reduce emissions. Fortuitously, the switch to gas for power stations has made a significant and, to the Government, cost-free contribution to our expected achievement of our emission targets for the year 2000. That is a reflection both of the higher conversion efficiency of CCGT technology and the lower carbon content of the fuel. A unit of electricity from a coal-fired power station produces about twice as much CO, as the same unit from a CCGT. That is just a simple point of physics and chemistry.
At the climate change conference in Kyoto last month, European member states agreed to an 8 per cent. cut in a basket of six greenhouse gases by 2010. Over the coming months, the European Union will agree how each individual member state will share the burden of that overall target.
I turn now to the question of coal to which all noble Lords referred. The generators are continuing to buy UK coal, but not as much as they used to. As I have explained, the reason is the competition from gas but another factor is competition from imported coal. In spite of increased productivity, about which my noble friend Lord Hardy spoke, and in spite of the large reserves about which my noble friend Lord Orme spoke, coal sales are declining. Some producers have found markets for their output. The Longannet mine in Scotland has just agreed a six-year contract for its output and the smaller English and Welsh producers have also secured contracts. But RJB, the largest producer, has not secured markets for all its output. The Government have helped to facilitate negotiations between RJB and the generators for coal deliveries up to the end of June 1988. That will enable RJB to continue to reduce operating costs and, it is hoped, to improve its competitive position.
My noble friend Lord Hardy referred to the fact that the closure of mines has a great social consequence, especially where the mines are remote and communication is poor. I can only repeat, as many noble Lords will be aware, that on 6th October of last year, the Deputy Prime Minister announced the establishment of a task force to pioneer options for revitalising former coalfield areas. I understand that that task force will make its recommendations by March 1998, to be followed by a national conference for all interested parties in September 1998.
My noble friend Lord Hardy spoke of the mining equipment industry which will be facing difficulties if the indigenous mining industry contracts further. While I recognise that there are benefits in having a home market for one's products, that does not in itself determine the health of an industry. I know that the industry is in fact working with the DTI on finding out how it can more usefully demonstrate the equipment both in the UK and overseas. However, I should add that Indy car racing does not exist outside North America but nearly all the cars used in that sport are made here in the United Kingdom.
1127 The noble Lord. Lord Gray, drew our attention to nuclear power. Nuclear power contributes about one-quarter of our electricity. Noble Lords were concerned about the future and safety of nuclear power stations. My noble friend Lord Hardy and the noble Lord, Lord Gray, spoke movingly about their concerns in relation to Chernobyl. Nuclear power stations are making a substantial contribution to our electricity generation. But the Health and Safety Executive concluded recently a programme of in-depth reviews for the safety of each of the UK's Magnox nuclear power stations. Following that safety review programme, the Health and Safety Executive is satisfied that, subject to continued satisfactory results from normal tests and inspections and further periodic safety reviews, the UK's remaining eight operating Magnox stations can continue to operate safely. And so it makes sense to use what we have while we have it. I say to the noble Lord, Lord Gray, that whether new nuclear power stations are built in future will depend on the generator's perception of costs and benefits compared with the other options.
My noble friend Lord Hardy asked about the generation costs of coal and gas power stations. It has been suggested that it is cheaper to generate electricity from coal than from gas. It is difficult to generalise. We believe that the marginal cost of generation from gas plant is lower than from coal. There is the issue of some early take-or-pay gas contracts which might have encouraged generation from gas even though coal was 1128 cheaper because of prohibitions on the resale of that gas. We have asked the Director-General of Gas Supply to look into that.
The issues covered by this Question are numerous and complicated. They devolve from technical, economic, social and industrial change and from actions of the previous Administration over a number of years. They intertwine with other responsibilities and policies, such as those relating to the environment and to trade, and are not amenable to a quick fix. That is why we are taking our time to review thoroughly the whole question of energy policy.
Before Christmas the Prime Minister announced in another place that the Government would review the long-term energy requirements of the nation to ensure that we have an energy policy consistent with a competitive industry and the long-term energy needs of the country. As I said, those reviews are in hand in a number of energy policy areas. When those reviews have been concluded, we shall be better placed to take a reasoned view of how best to take forward our energy policy objectives. Indeed, when they have been completed, I shall welcome the opportunity to debate them in your Lordships' House.
If I have not responded to any points raised this evening, I shall write to the noble Lord concerned. In the meantime, I thank all noble Lords who took part in the debate and, in particular, I should like to thank the noble Lord, Lord Hardy, once again for giving me the opportunity to respond to the points he made.
§ House adjourned at nine minutes before eight o'clock.