HL Deb 04 June 1998 vol 590 cc535-51

7.48 p.m.

Lord Ezra rose to ask Her Majesty's Government what progress is being made in the formulation of an energy policy.

The noble Lord said: My Lords, I thank all noble Lords who have waited until this late hour to take part in the debate. However, it is earlier than it would have been had we tried to debate it on the previous occasion that was scheduled when we gave up at about midnight.

The purpose of the Question is to ask the Government when they propose to introduce a co-ordinated energy policy. It is a matter on which they spoke many times when in opposition. They are in the process of carrying through a number of important reviews. The issue is whether there should be a general policy within which current and future reviews will be carried out rather than wait until various aspects of energy policy are dealt with and then try to bring them together. That issue is implicit in my Question.

The studies which are under way or have been completed include the utilities regulation report, which touches on this subject. The inquiry into energy sourcing and power stations is reported to be near completion. There is the climate change programme, the inquiry into the electricity pool, and the review of renewables policy. There may be others to which the noble Lord will wish to refer.

I should have thought that by now the elements of an overall energy policy are becoming clear and that there should be no further delay in introducing one. In my opinion, there would be four dimensions in such a policy; the competitive dimension, the social dimension, the security dimension and the environmental dimension. The skill will be in reconciling those various aspects because they will not necessarily be compatible.

We start with competition, which is acknowledged to be the basis of energy policy at present. Indeed, we in Britain have led the way. The noble Lord, Lord Wakeham, who, I am glad to see, will be taking part in the debate, was very much involved in that process. The policies now being applied here in energy are being taken up progressively within the European Union with the recently announced electricity and gas directives.

However, competition cannot solve all the problems in the energy sector, as indeed the recently published document on the regulation of the utilities made clear. For example, there is the case of the networks—whether it be wires or pipes—which must be subject to regulation because they are operated by monopolies. But there is also the social factor to be considered. That came out clearly in the report on regulation.

I was disturbed to read in an article in the Financial Times of 28th February that the opening up of the electricity and gas markets has led to a degree of mis-selling and to the misleading of potential consumers; indeed, some quite serious cases were mentioned. That sort of mis-selling, which, unfortunately, we have had in the pension sector and in other financial sectors, now seems to be spreading. Therefore, some regulation in that respect will be required.

However, the social aspect of energy policy goes deeper than that, especially as regards people who are disadvantaged. They have to be specially cared for. It is a sad fact that there are still many homes in this country inhabited by people on low incomes, especially the elderly, which are inadequately heated because they were built a long time ago and their owners do not have the necessary resources for improvement.

The home energy efficiency scheme, which was set up to cater for that social need, has gone a long way towards doing so. Unfortunately, its resources were cut by 30 per cent. by the previous government and it is now a question of whether the present Government, who opposed that cut, will restore it. In addition, there is the approach that my noble friend Lady Maddock introduced with the Home Energy Conservation Act, which has stimulated local authorities to do much to improve energy efficiency particularly for the benefit of those on low incomes.

In turn, that leads me to the question of security of supply. While there is no shortage of energy at the present time and prices are relatively low, nevertheless, those of us who have been in the energy business all know that the situation can change very rapidly. It is an important element of energy policy that there should be some degree of security. That is where the present review affecting the coal industry comes into the picture. I hope that the Government will propose a solution which will enable coal not only, in the short term, to face up to the present difficulties but also, in the longer term, to continue to be a major source of supply in this country so as to provide an element of security.

However, if that is to be done it is important that there should be further developments in the application of clean-coal technology. Unless coal can be used in ways which are acceptable from the environmental point of view, it will not be possible to see a long-term role for coal. That leads me to the environmental aspect to which I referred—namely, the fourth aspect of the problem—which will need very positive action on the part of the Government.

We have a market situation which is not in the least encouraging people to save energy. If it is considered that the climate change problem is a serious one, then positive action must be taken. Let us hope that that will emerge from the review currently being undertaken. There will be need not only for legislation; resources will also be required. The issue of a levy on gas and electricity must be seriously considered. There was a gas levy at one time which raised substantial resources for energy efficiency schemes. But it was discontinued. I hope very much that it will be looked at again; otherwise, the necessary resources will not be available to carry out the sort of improvements that are required. Such levies can be relatively small and will not seriously affect electricity and gas bills.

Further, there needs to be a degree of local action in such matters. This is where my noble friend's Act comes into the picture. I am involved in an initiative which is trying, on a local level, to achieve the sort of energy savings which the Government have in mind nationally. It is based in Nottingham. We have formed the Nottingham Energy Partnership, which I am glad to say the noble Lord, Lord Clinton-Davis, will be publicly launching before long. It aims to activate all users—that is, domestic, commercial, industrial and transport—towards achieving energy savings.

I feel that the time has come for the Government to put together various strands of policy. They are becoming very clear and the issues are pretty obvious. As I said at the beginning, the skill will be in bringing them together to make a coherent whole.

7.56 p.m.

Lord Hardy of Wath

My Lords, the House will be grateful to the noble Lord, Lord Ezra, for initiating this debate. Indeed, as we all know, he brings experience and knowledge to these matters in a very high degree. I do not wish—and the rules of the House will not allow me to do so—to speak at great length. Some of the points that I make may have been made before. Nevertheless, I believe that they are of such significance as to merit reiteration.

The major points that I should like to make are as follows, and my noble friend will probably be as aware of them as I am. The cost of producing coal in the UK is one-third of the cost of producing it in Germany and one-quarter of the cost of producing it in France and Spain. The costs of producing coal in Britain fell by 18 per cent. during the past two or three years. That was the result of investment approaching £1 billion. Our achievement has been well and harshly bought. Therefore, it would be foolish for that investment to be wiped out.

The industry provides 50,000 jobs in Britain and, most importantly, sustains a major export-earning capacity and a capacity to export earnings which the world may well need very much in the next century. Moreover, we have the largest coal reserves in Europe and have already locked away far too much. In a previous debate, I referred to a colliery in my constituency which the noble Lord knows well; namely, Silverwood colliery. It was one of the 30 collieries which Mr. Heseltine saved—indeed, one of the collieries with "a long future". The neighbouring colliery of Kilnhurst had been closed and its reserves were added to those of Silverwood. Nevertheless, Silverwood was still closed. The closure of such collieries—and there have been many of them—creates enormous economic, environmental and social problems. Therefore, for us to embark upon a policy of inflicting mass local unemployment to no long-term national good would not be very sensible.

The costs of production are interesting, but the cost of electricity burnt by the various fuels is also very significant. For example, the price of UK deep-mined coal has fallen by half in real terms in recent years. The price of electricity has fallen by 20 per cent. The comparison is important. The price of coal has halved and the price of electricity has fallen by one-fifth. I cannot understand the reaction of the stock market which appears to anticipate an announcement by Her Majesty's Government which may be helpful to coal. I believe it would be helpful to the electricity consumer too.

We must bear in mind that the cost of electricity from coal-fired stations is 1.5p per kilowatt hour. The cost of nuclear power is double that. The cost of electricity from the older gas-fired stations is 3.2p per kilowatt hour—a great deal more expensive than that from the coal-fired stations. The newer gas-fired stations produce cheaper electricity, but even so it is 50 per cent. higher than the cost of coal-fired generation. Should we therefore seek to burn gas with feckless abandon, particularly when we should understand that gas reserves, proved and potential, are by no means sufficient to give great confidence that the supply of gas at reasonable prices will last for the lifetime of the gas-fired stations?

We must understand also that there are already pressures to treat with derision the Monopoly and Merger Commission's identified need for 10.5 gigawatt gas capacity—that is 17 per cent. of our total energy requirements—by the year 2001. We already have 12 gigawatt gas capacity at present. I know that the emission problem is serious. However, the United Kingdom ought to understand that it is already more than fulfilling the second sulphur protocol. To go further may well be unwise and could add £200 million to the cost of electricity and would ignore the evidence of the CBI which called for the removal of distortions which favour a particular energy source and prevent the establishment of the level playing field which is all that the coal industry has asked for for a long time.

We must understand that we need to burn coal cleanly. If we opt out of the coal industry that will not necessarily help the environmental cause. If we stop producing coal, India, China and other countries with vast reserves will continue to mine it and burn it. They will not have the advantage which we could gain of a return to clean coal technology, which I know the noble Lord, Lord Ezra, was eager to sustain during his time at the National Coal Board.

Not long ago I attended a meeting where I was told there would be no coal in future and that we would have to rely on gas, nuclear and renewables. Renewables have a major role to play. Only this week a Question was asked in the House about coppicing. A field close to my home which was coppiced had previously sustained overwintering sheep.

I shall finish shortly as I know my noble friend would not wish me to trespass upon the patience of the House. Nuclear energy has a role to play but we need to ensure that in future the nuclear industry will not seek markets and seek public support on the basis of grossly inaccurate financial calculations and a rather dismissive attitude to the environmental problems which are associated with that industry. Coal can be burnt and it is in the nation's interest to do so. It is in the world's interest that it should be burnt cleanly.

8.3 p.m.

Lord Wakeham

My Lords, the previous time I addressed your Lordships on matters relating to energy was on 20th October 1992. It was a time of great concern for the British coal industry.

I took the opportunity of that debate to set out the then Government's energy objectives. I should like to quote today what I said then. It is the Government's energy policy to achieve, through promoting competition and developing competitive markets: secure energy supplies at the lowest possible prices; diversity of supply and in decision making; meeting the customer's needs with maximum efficiency; and maximising the economic exploitation of the UK's energy resources, while at the same time meeting the growing requirements of environmental policy".—[Official Report, 20/10/92: cols. 669 and 670.] I think that this was the right policy then, and I think it is the right policy now.

I declare an interest in energy matters as I am a Director of the Enron Corporation of Houston—the largest natural gas company in the world—which has significant operations across the globe, including in the UK and the rest of Europe.

As I said, I stand by the statement I made on behalf of the then government back in October 1992. However, things have clearly moved on since then and this short debate—for which we are much indebted to the noble Lord, Lord Ezra—is therefore most opportune.

At the time of the 1992 debate, the big question was what size the coal industry would become in a competitive environment. It was inevitably going to be smaller, but in my judgment there would always be a market for coal-fired generation. Six years on, we face the same question. I have a great deal of sympathy for the Government as they seek to answer it. However, if they try to tackle the problem by non-competitive, interventionist means, they will do great damage, not just to the energy industries, but to the wider credibility of the Government on economic matters. It is simply not necessary to do so.

It is in my judgment possible to help the coal industry substantially and to do so by using the market rather than restricting competition, as is rumoured. The key to the problem is the mothballed fossil fuel generators. The effect of their being mothballed is to restrict competition. They should therefore be brought back into use, but only as free-standing competitive forces and not as part of the portfolio of the major generators who dominate the pool. As free-standing generators—operating at their written down value—these stations would be able to generate electricity efficiently and at comparable prices with electricity generated from gas.

The effect of these stations re-entering the market would be that we would use significantly more coal for a number of years, increase competition in the pool and reduce the use of gas—because only the most economical gas projects would go ahead. The alternative to this—artificially to restrict the development of a competitive market by continuing the moratorium on gas-fired generation—would be to keep electricity prices artificially high; to protect the existing dominance of a few players in the market and to reduce competition accordingly; to destroy many construction industry jobs and a great deal of inward investment; and certainly to damage seriously the confidence of overseas investors in the United Kingdom.

Why do it? It is simply not necessary because there are many ways in which the output of the mothballed generators can be sold competitively into the marketplace. I therefore urge the Government not to take a massive, anti-competitive step in the wrong direction, and one which would, in any case, not deliver the result they want.

I have heard it said that there is only one show in town. That is simply not so. There are several solutions, all of which would use more coal and at the same time protect the consumer from unnecessary price rises.

8.8 p.m.

Lord Cooke of Islandreagh

My Lords, I am grateful to the noble Lord, Lord Ezra, for introducing this debate. I believe that a national energy policy is an imperative at this time. As the noble Lord said, the different elements are all there. It is a matter of pulling them together and producing a reasoned, balanced policy. I hope that that will not be a party political matter because the policy should cover several decades and be periodically updated.

I listened with care to the noble Lord's coverage of the elements in the national policy. I approve of them. The noble Lord explained them well. I shall not cover that ground and waste time.

I listened with interest to the remarks of the noble Lord, Lord Hardy of Wath, in relation to coal. I agree with most of what he said. We must not forget coal. It will be needed before the end of the next century. We must continue with research into burning coal cleanly. As the noble Lord said, that could be of help not only to this country but to the world; it is an important factor in reducing emissions throughout the world.

I am sure that this policy, when it is put together, will take account of the undertaking at the recent Kyoto conference to reduce CO2 emissions by 20 per cent. over the next 11 or 12 years. That is the subject of my remarks. I wish to suggest ways in which a substantial reduction in CO2 emissions can be made relatively quickly. I believe that such measures must be incorporated into national policy when it is formulated.

Thirty per cent. of all energy used in the UK is in the domestic field; 23 per cent. is used by industry, offices, public buildings, schools, hospitals and so on. A high proportion goes in heating. Here I must declare an interest. The company of which I am chairman manufactures insulation for buildings, offers insulation products designed to solve particular problems, and promotes building systems which have low energy costs.

Generally speaking, the heating of buildings in the UK is very energy wasteful. Building regulations have included a Part L which sets a requirement for insulation and has done so for 40 or 50 years. However, the standards set in the past were the lowest in Europe. That is partly because energy was cheap and seemingly inexhaustible, and partly because as a nation we were slow to appreciate comfort conditions in the home. Not long ago, if you felt cold, you put on an extra jersey. But we are now catching up. We are trying to heat old homes which were not designed to be heated and wasting perhaps 60 per cent. or 70 per cent. of the energy in attempting to warm up the countryside.

The current building regulations are, in theory, almost up to European standards. Unfortunately, new houses built to that standard use at least 25 per cent. more energy than the theoretical energy cost. That has been going on for many years without ringing any alarm bells. I believe that it will be relatively easy to reduce the energy requirement for new homes by 25 per cent. initially, and later by 50 per cent., and that, combined with a resolute programme to raise the standard of insulation in our existing housing stock, will substantially reduce CO2 emissions.

Three factors account for most of the additional energy requirement. The first is air leakage. There is no standard for air tightness in the regulations. Most houses are like sieves. Secondly, the regulations do not take proper account of the effect of cold bridging, which reduces the effect of insulation. Thirdly, poor construction standards are widespread in the building industry. Those defects can be verified at any time by tests for air tightness and infra-red photography.

To indicate the scale of the energy losses, I quote from figures recorded for houses constructed in the West Midlands for the same housing association. Four houses were built to a system developed by my company and were compared with three new brick and block houses built close by with similar floor areas, all with all-electric heating, hot water and ventilation systems. The national energy ratings were similar. The running costs were monitored by Midland Electricity. The average total energy cost in 1995 for the four system-built houses was £37 per month; for the brick and block houses, it was £69 per month. The annual savings were £384 per house, or 46 per cent. I emphasise that the houses were built to the same energy rating and should have had similar heating costs. It is most likely that the reasons for the difference in cost were air leakage and cold bridging.

My view is that revised Part L building regulations should be put into operation quickly to meet the problems I have mentioned. That will reduce carbon emissions by dwellings built to such standard by a minimum of 25 per cent. In addition, the new regulations should become effective on the date announced. At present, housing developers rush through planning approvals under existing regulations whenever new regulations are threatened, and there is a delay of one or possibly two years before new regulations become effective.

But that is only a start in terms of what can be achieved. Houses are being built today by people who are interested in energy saving, with an energy requirement that is down to 50 per cent. less than the theoretical figure for current regulations. It is being shown that such houses can be built at little increase in cost. I sincerely hope the Government will appreciate what is achievable and will propose a radical upward step change for homes and public buildings, perhaps giving three or four years' notice in order to allow the construction industry time to develop building methods to meet future demand.

I have gone into this matter in some detail and there is no time for me to go further. However, I hope that the policy will include a proper reform of the building regulations.

8.16 p.m.

Baroness Young of Old Scone

My Lords, energy policy impacts highly on the environment, as has already been stated. Climate change is undoubtedly happening. The estimated cost of climate-induced severe weather events in 1996 was 50 billion dollars' worth of damage. We set targets in 1992 for the industrialised world which we have failed to reach; we have exceeded them by 10 per cent. and that percentage is rising by 1 per cent. a year. We have now set more stringent targets at Kyoto, and the UK Government have a commitment to an even higher target than the protocol for CO2 emissions. Therefore the challenge must be to cut drastically the use of fossil fuels.

I wish to examine two areas: first, energy use and, secondly, energy sources. Many speakers have referred to the potential for demand management in energy efficiency. The Energy Efficiency Best Practice Programme and the Energy Savings Trust, between them, have estimated potential CO2 reductions in the industry and services sectors of 30 per cent. and in the household sector of 25 per cent., with the potential for reductions being even greater if we embrace leading-edge technologies. I hope that we shall hear from the Minister tonight as to what action the Government intend to take in a range of areas to promote energy efficiency and demand management, including a regulation for energy efficiency standards, advice to households and industry and energy services packages being promoted by the regulatory system to produce warm homes for fuel-poor people. Energy efficiency capital funding schemes such as the Energy Savings Trust and Neighbourhood Energy Action can give assistance to fuel-poor families possibly funded through energy generation efforts. The need for the Government to promote research and development into energy efficient technologies continues. I hope that we shall see Sir Colin Marshall pressing forward very quickly with his initiative on industrial energy, and that we shall see either a tax or tradeable permits, but certainly something by way of economic instrument very soon.

I now turn to energy sources. We have seen the dash for gas, which helped with CO2 reduction and a reduction in other pollutants. However, there must be a question about long-term sustainability. Nuclear power is unviable on economic and long-term safety grounds.

Several speakers have referred to cleaner coal technologies. Those technologies do help in relation to sulphur and Nox, but they do not contribute much in terms of CO2 reduction. In particular, open-cast mining is damaging in terms of its impact on biodiversity and habitats. I welcome the proposed tightening of the minerals planning guidance for open-cast mining.

We must take a major step forward in our use of renewables. We are currently at a pathetic 2 per cent. of energy generation from renewable sources. The Government have set a target of 10 per cent. by 2010, which, in terms of the available technology, is quite modest. I welcome the extension of the non-fossil fuel obligation, but we need more. I welcome the fact that companies of the size of Shell and BP are now entering into areas such as off-shore wind, biomass and solar energy, but we need more. We are behind in the renewables development race. There are huge world markets out there, particularly in off-shore wind technology, for example, where the US and the Germans are the biggest players. The Dutch, the Danes and the Swedes are rapidly catching up, but we are nowhere as yet. In solar energy the Japanese are developing a massive world market.

One note of caution has to be sounded on the issue of renewables with regard to the potential environmental damage that some of those technologies can create. A sensible environmental assessment and a careful siting of many of these technologies can remove these environmental downsides. I look forward to the outcome of the government review on energy sources for power generation.

Perhaps I may mention again some of the wider economic issues surrounding the question of energy policy and its impact on the wider economy. We are in a transitional position in which we are no longer able to be dependent on some of the old technologies because of their overwhelming environmentally damaging impact. We need to manage that transition. We need to see jobs in fossil fuel industries decrease and jobs in sustainable energy technology industries increase. I believe that the support to the coal industry must be transitional because of coal's environmental impact. Energy for Sustainable Development has calculated that, in the face of the 20 per cent. CO2 reduction target, there would be room for a modest coal market—perhaps 13 per cent. or so of our energy output as opposed to over 40 per cent. which it currently represents. If we have to make major reductions beyond 20 per cent. in CO2 emissions, which I believe we shall have to do rapidly after 2010, there will probably not be a place for coal, with its carbon dioxide emissions. We need to see proper support for the coal industry in a transitional mode, but we cannot see coal continue if we are to deal with climate change, which is probably one of the most overwhelming threats the world has ever faced.

8.22 p.m.

Lord Ponsonby of Shulbrede

My Lords, with the leave of your Lordships, I wish to speak briefly in the gap. When he introduced the debate, the noble Lord, Lord Ezra, mentioned four aspects, on which the debate has concentrated: the element of competition; the social requirements of an energy policy; the security requirements of a diverse supply of energy; and the environmental requirements, to which a number of noble Lords have referred in the course of the debate.

I wish to raise a fifth aspect: the importance of Europe, and in particular of eastern Europe. Eastern Europe already provides a huge supply of energy into western Europe. The energy tends to be very cheap; and it tends to be a very dirty source of energy. The purpose of my intervention is to ask a question of my noble friend the Minister, although I know that it will probably be impossible to answer. How is this very dominant supply of energy from eastern Europe to be incorporated into a UK energy policy and a western European energy policy? It seems to me that the cheapness and dirtiness of this energy will be a very dominant factor in the way we form our own national energy policy.

8.24 p.m.

Baroness Maddock

My Lords, it is clear that all noble Lords who have stayed behind tonight care deeply about the issue of a proper energy policy for this country. The debate has ranged over the importance of the coal industry, what has happened to it and how we can deal with it in the future; the environment; energy efficiency; and renewables. We have now had thrown into the pot the European dimension. I hope noble Lords will forgive me if I concentrate on the area I know most about; namely, energy efficiency and conservation in our homes, which I believe is an important topic in this debate.

My noble friend indicated when he introduced the debate that I had had the opportunity to take a piece of legislation through the other House. I chose the Home Energy Conservation Bill. I did so partly because of my life experiences, of which I was particularly reminded when I was listening to the noble Lord, Lord Cooke. I lived for three years in the late 1960s and early 1970s in Sweden, when I had the experience of living in a properly insulated home. I have never since lived in such a well insulated home. But I partly chose the subject of home energy conservation because I believed that, if we were to have a proper, comprehensive energy policy which could target our sources effectively and produce warm homes, we needed to know the scale of the problem. That was the point behind the Home Energy Conservation Act.

The Act provided for local authorities to be energy conservation authorities, which were charged with drawing up annual reports. In those reports they had to state the energy efficiency of all the properties in their areas, across all tenures. They had to produce plans for how they could reduce carbon dioxide emissions by significant amounts. The Act did not lay down that the reduction was to be by 30 per cent., but fortunately the regulations did. They were required to draw up plans to deliver education about energy efficiency. Plans were required for working with local businesses and the community for job creation and for targeting the fuel-poor, which have been mentioned this evening. These energy authorities are required to send reports in to government each year with their housing reports—their HIP reports. We now have a good database on which to start targeting our action and our finances.

Much to my surprise, the Government came up with some grants to go with the Home Energy Conservation Act: £10 million was made available over a period of three years. This week we have come to the last bids for the money given on the back of that Act. I should declare an interest here as I have had the opportunity, as a non-voting chairman, to chair the committee that has distributed the money each year.

The interest from local authorities has been enormous. In 1996, 138 authorities applied for grants and we were oversubscribed by five times. In the end, 72 authorities were in receipt of grants totalling £5.6 million which were made to pump-prime local initiatives, which would run for a number of years, with continuing investment involving partners in all sectors.

In 1997, the bids were five times over the allocation. We learnt from the year before and introduced priority areas. One of those priority areas was schemes to reduce fuel poverty, particularly schemes for improving health and sustainable schemes which did not need grant aid for more than one year. Another priority area was schemes which generated employment, and particularly training. At that time we were looking at the provision of gateway jobs. That was before the New Deal, but this year the bids are looking at involving the New Deal project. Another area we looked at was the private rented sector, which is a very bad area as regards energy efficiency. We were desperately trying to find schemes that would work in the way that we wanted them to work. That was quite difficult, but the position has improved this year. We also looked at schemes to enable the development of energy service provision, particularly the development of energy saving companies (ESCOs), which link energy efficiency measures to fuel supply, which is something that noble Lords have talked about tonight.

The scheme is administered under the auspices of the Energy Saving Trust. Partnership has played a key role. Installers, retailers, manufacturers, financial institutions, housing associations and utilities are all involved. Public networks have been formed between energy conservation authorities, health authorities, schools and education authorities. Voluntary groups have played a part through charities, credit unions and community groups. Groups of local authorities often get together to form consortia to bid for money. As I said earlier, in 1997 there was only £2.5 million of funding, but the research done by the Energy Saving Trust shows that from those grants we drew in, in total, probably £20 million to be spent on the energy measures I outlined. In relation to good job creation, the work being done on the finances shows that the cost of providing jobs in that way has been extremely efficient.

I hope that I have convinced the Minister. I know that in the Department of the Environment, Transport and the Regions there is considerable support for continuing the scheme. In theory, the grants come to an end this year. I hope that the Minister will be looking at ways in which we can build on what happened following the Home Energy Conservation Act. My biggest fear when the Act was passed was that nothing would happen because it was an enabling Act. Quite frankly, if grants had not been given it could simply have lain there. Much has come from it.

Perhaps I can conclude by returning to one issue which came up again recently—it comes up every year. I refer to the problems of fuel policy for elderly people. This was one of the aspects which we asked local authorities to examine. I regret that recent figures from the Department of the Environment, Transport and the Regions, show that 2.5 million households live in homes cold enough to increase the risk of ill-health during the winter because people cannot afford to heat them. Every winter 250 elderly people die as a result. Lone pensioners account for 44 per cent. of households in that situation. I hope that the Government can see that the work done is good and include it in a comprehensive energy policy.

8.31 p.m.

Earl Attlee

My Lords, I too am grateful to the noble Lord, Lord Ezra, for tabling this Unstarred Question. The noble Lord has been pre-eminent in the field of energy policy for many years, while I have had a formal involvement for only a few weeks. However, at the time of the passage of the Coal Act in 1994 I was able to visit, I think it was, Rosington Colliery operated by RJB Mining. I was struck by the enthusiasm of not only the management team, but also of the men who were literally at the coalface. They were enthusiastic, but at the same time they recognised that their future depended upon competitiveness, marketing and of course the emissions policy.

I listened with great interest to my noble friend Lord Wakeham who was heavily involved in the reorganisation of the energy industry. He made the point that there are two solutions to the coal question: intervention or leaving it to market forces and recommissioning mothballed power stations.

The noble Baroness, Lady Young, covered the interesting subject of renewables. There are all sorts of interesting technologies being developed and I look forward to seeing what comes from further rounds of NFFO to support them. However, between 1980 and 1995, despite a large increase in electricity demand, the policies of the last government resulted in substantial reductions of emissions from the electricity industry. According to government figures, total emissions of CO2 are down by 24 per cent.; SO2 by 47 per cent. and NOx by 33 per cent. Of course, those improvements were not made without great hardship and trauma, particularly from those who worked in the deep-mining industry. One must recognise also that working in a deep mine is arduous and hazardous and any accidents are often serious.

The situation in the energy industry is that it is now impossible to plan and invest for the future as there is no published energy policy. We are all aware that Section 36 applications are subject to a moratorium, but we do not know for how long that will be the case. An example of the impact of that is the proposed Baglan Bay CCGT plant which should be an eminently sound project as National Grid identified a one gigawatt generating capacity deficit in South Wales.

There are many other projects in the pipeline. In addition, officials at the DTI will be experiencing difficulty with giving advice and making low-level decisions as there is no policy to which to refer. I am sure that the Minister will agree that gas will still represent only 40 per cent. of UK generating capacity by the year 2000 and 55 per cent by the year 2005. That compares to 65 per cent. that coal enjoyed only eight years ago.

In the Government's pre-Budget report of last year, reference was made to the current review of the North Sea fiscal regime and its aim of ensuring that an appropriate share of North Sea profits is taxed while maintaining a high level of oil industry interest in the future development of the UK's oil and gas reserves. The Minister needs to take account of the effect of the so-called windfall taxes and any perception of lack of stability in the fiscal regime. That will be a crucial factor in encouraging the development of existing fields in order to improve the recovery factors. The Minister may have to consider varying the rate of tax as a basin matures, so that new technology can be developed with less risk rather than simply developing new opportunities away from the UK continental shelf.

The Minister will no doubt be happy to confirm his confidence in his honourable and right honourable friends in the DTI. That being the case, why is it necessary for his right honourable friend the Paymaster General to become so closely involved in the future of the coal industry? There have been reports in the press this week concerning the possibility of redistributing the assets of National Power and PowerGen in order to benefit the consumer, with propping up the coal industry as a side effect. Can the Minister say whether the coal industry problem can be solved without either legislation or arm-twisting combined with hidden deals? Further, can he assure the House that any solution will not disadvantage the consumer?

If the Minister and/or the Environment Agency relaxes the emission limits for coal, how can they be sure that the coal burnt will be British rather than cheaper imported coal? I fully accept that some adjustments to the electricity pool are desirable. The current arrangements have worked to increase competitiveness but it is clear that there is opportunity for improvement in the light of experience. We look forward to seeing the conclusion of this review.

This Government acted big at Kyoto. They claim to be a green government but, at the same time, they face severe challenges as regards what to do with the coal industry. We look forward to the conclusion of the various reviews and to examining the Government's energy policy when it appears.

8.38 p.m.

Lord Clinton-Davis

My Lords, first, I join with all those noble Lords who have complimented the noble Lord, Lord Ezra, on introducing the debate. There have been some interesting comments—so diffuse however that it will be extremely difficult for me to cover the entirety of the ground and I apologise in advance.

Most noble Lords have spoken from a position of some expertise but a different form of expertise in almost every case. I know that the noble Lord, Lord Ezra, is particularly interested in the progress being made in formulating an energy policy and in the reviews. He initiated, or was involved in, a similar debate some four months ago in this House. My noble friend Lord Haskel, who spoke for the Government on that occasion, said that the Government were carrying out a thorough review of the whole question of energy policy. He said that it was essential to get the answers right rather than rush into conclusions; after all, we have been in office for only just over 12 months. I want to assure the House that matters are proceeding well and we are now much nearer to announcing a comprehensive energy policy.

We have already taken some action to address specific problems; for example, in tackling subsidised and unfair competition from coal in Germany and Spain and in passing the Fossil Fuel Levy Bill to remove subsidy from nuclear power and to create a more level playing field in the wholesale electricity market.

Our broad energy policy is to ensure secure, diverse and sustainable supplies of energy at competitive prices. Those are all desirable aims. It is a much more formidable task, however, to work out the detailed steps to be taken to integrate such aims, not least when some are in conflict.

Security, diversity and sustainability of supply have been the keystones of energy policy for several years. The difference now is that we are looking hard at those concepts and trying to define their actual meaning in terms of how markets need to develop. It may be that progress in one area leads to the detriment of another, so that we shall constantly need to weigh the overall balance of advantage.

The issues involved are numerous and complicated, devolving from technical, economic, social and industrial change and from the actions of the previous administration over a number of years. They intertwine with other responsibilities and policies, as we have heard tonight, notably those relating to environment and trade.

Many of the problems we confront today reflect the way in which the energy industries were privatised: much too cheaply, based on too much ideology, and with insufficient regard paid to longer term implications. That, in turn, has created new problems since the structure of the industries and the new regulatory regimes were, in my submission, not properly thought through. The large and continuing structural changes in the electricity industry over the last few years have brought into focus the frailties of the system which was set up in the early 1990s. That is part of the inheritance that this Government have received.

The mistakes of privatisation and subsequent changes to the utility sector mean that we now have to overhaul the regulatory framework, upon which the noble Lord touched at the beginning of his speech, to ensure that prices and service standards properly balance the needs of consumers and investors.

An unforeseen consequence of the liberalisation of the electricity markets was the rapid market driven switch to gas fired generation—driven, in large part, by market arrangements which did not work effectively. Gas fired power stations were able to enter the market at prices significantly above present levels and were able to ensure that they ran ahead of coal plant, which was paid less. The former administration granted consents for new power stations almost on request, which meant that permission was given for new gas fired generating capacity equivalent to about a third of the whole generation sector in England and Wales.

Questions have been raised about the wisdom of generating a significant proportion of our electricity from gas when demand for both fuels tends to peak at the same time and about the depletion of United Kingdom gas when we may need to rely on imports of gas, and whether that is a strategic security issue.

The market view of security is that commercial pressures on individual companies will ensure that they will do whatever is necessary to keep the lights on now and to meet likely future demand. That only works if the commercial pressures are pushing in the right direction. This Government felt that they needed to have a more informed view. We decided upon a review of energy sources for power generation to enable us to take that informed view on the future direction of energy policy. As I indicated, we hope to be able to announce those conclusions quite soon.

Energy is absolutely central to modern society and social function. Its importance is surely reflected in the fact that we are debating energy policy for the second time within a very few months.

I now turn to specific points raised during the debate, some of which I have already covered. The noble Lord, Lord Ezra, spoke about a levy on gas and electricity. That would, of course, be a burden on all consumers, including the poorer ones.

My noble friend Lord Hardy spoke of the cost of coal and the cost of electricity. I accept the thesis that he advances about the distortion of the market. That is why we are having a review of energy sources and reviewing electricity trading arrangements. Coal may indeed have been disadvantaged by the structure of the privatised electricity market.

I turn from that to the noble Lord, Lord Wakeham, whom I am delighted to see here, an old friend from another place. Of course, as he reminded us, he was Secretary of State for Energy and was responsible, I fear, for a substantial degree of the distortion of the electricity and the coal market structure which we inherited. He will not agree of course. I nevertheless assert it because I agree with what I have just said.

On the question of other companies using old coal plant, the Director General of Electricity Supply is looking at opportunities for third parties taking on surplus plant for National Power and PowerGen.

I turn to the contribution of my noble friend Lady Young who has an excellent reputation in relation to environmental causes, on many of which I have supported her before and will probably continue so to do. Emissions and energy efficiency are covered by the climate change consultation, following the Kyoto agreement. We recognise that the Kyoto agreement is just a milestone on the way to a radical reappraisal of the way in which we use energy. It is hard to say at this moment what that will imply, but, of course, the points she made will certainly be taken into account.

The points made about insulation and poor buildings are covered by the climate change consultation.

My noble friend Lord Ponsonby spoke about central and eastern Europe and the problems which will be confronted from that source. We are talking about the way in which we utilise our energy resources here, of course. Although central and eastern Europe does not figure centrally, and should not, in this debate, nevertheless it is a point worth noting. I cannot provide a substantive answer tonight but no doubt my noble friend will wish to pursue these matters in more detail on another occasion.

I turn to the contribution made by the noble Baroness, Lady Maddock. I can deal with only one of the points—the energy efficiency programmes which were really the key to what she was saying. We have a range of energy efficiency programmes. There is the capital receipts initiative, which will make nearly £800 million available to local authorities over the next two years for capital spending on housing and other regeneration schemes and which will specifically encourage energy efficiency. I accept that there is much substandard housing in this country, and there are a lot of poor people. I cannot undertake that we shall be able to achieve all this in the very near future, but we shall use our best endeavours to tackle the problem.

The noble Earl, Lord Attlee, was kind enough to provide me with a note of his specific points. However, I have already spoken for 11 minutes and I shall have to deal rapidly with some of them. I think he will understand that I shall not be able to deal with them all.

Many of the points the noble Earl raised will be dealt with in the announcement that will be made quite shortly. When he says that it is impossible to plan without policy, of course, that is why we are undertaking the exercise now. It is a pity that it was not done during the course of the previous government.

The question of the North Sea fiscal regime was more than touched on in the Budget. There is further consultation on that, and a decision will be made in the near future. The noble Earl mentioned unfair subsidies. I have already said that we have taken action in that regard because of Spain and Germany.

I have dealt as best I can in such a short time with a number of the points that have been made. I know that I have not done justice to all of them but I hope that I will not be unduly blamed for that. I thank the noble Lord, Lord Ezra, once again for introducing this subject, perhaps a little prematurely on this occasion because, as I said, I hope that we will be able to come back to the issue in the Statement that we shall be making in the relatively near future.