HL Deb 29 March 2004 vol 659 cc1073-99

6.5 p.m.

Further consideration of amendments on Report resumed.

Clause 107 [Use of green certificates issued in Northern Ireland]

Lord Whitty moved Amendments Nos. 191A to 191C: Page 89, line 14, leave out "Authority for Energy Regulation" and insert "authority Page 89, line 18, leave out subsection (2). Page 89, line 23, at end insert— (4) In Article 56(1) of the Energy (Northern Ireland) Order 2003 (S.I. 2003/419 (N.I. 6)) (power to amend Part 7 of that Order to take account of amendments of corresponding Great Britain provisions), the reference to amendments made to sections 32 to 32C of the 1989 Act includes a reference to subsection (1) of this section. (5) Subsection (4) extends to Northern Ireland only.

On Question, amendments agreed to.

Clause 108 [Distributions to Northern Ireland suppliers]:

Lord Whitty moved Amendment No. 191D: Page 89, line 29, leave out from "are" to end of line 31 and insert "Northern Ireland suppliers."

On Question, amendment agreed to.

Lord Triesman moved Amendment No. 191E: After Clause 108, insert the following new clause—

"SUPPLEMENTARY PROVISION RELATING TO RENEWABLES OBLIGATION IN GREAT BRITAIN

  1. (1) In subsection (3) of section 32 of the 1989 Act (definition of renewables obligation), for "and 32C" substitute "to 32C".
  2. (2) In subsection (7) of that section, for paragraph (d) substitute—
  3. (3) After subsection (8) of that section insert—
  4. (4) In section 32A of that Act (supplementary provision relating to orders under section 32), in subsection (3) for the words from "the differences" onwards substitute "no supplier would by virtue of the differences be unduly disadvantaged in competing with other suppliers".
  5. (5) After that subsection insert—
  6. (6) In subsection (7) of that section, for "obligation imposed" substitute "matters dealt with".
  7. (7) The requirements of section 32(7) of that Act (consultation before making an order) may be satisfied in the case of an order containing provision made by virtue of this section by consultation that took place wholly or partly before the commencement of this section."

The noble Lord said: My Lords, Amendments Nos. 191E, 191F, 191G and 191H make further provisions relating to the issue of ROCs with respect to Northern Ireland. First, Amendment No. 191E makes a number of supplemental changes relating to the issue of Great Britain ROCs for renewable electricity supplied in Northern Ireland. To avoid overlap between GEMA's role and that of the Northern Ireland Authority for Energy Regulation in respect of such electricity, the Northern Ireland Authority will issue NIROCs for generating stations located in Northern Ireland, including its inland waters but not UK territorial waters adjacent to Northern Ireland, and GEMA will issue ROCs for all other generators. GEMA may not, however, issue a ROC in respect of electricity supplied in Northern Ireland, and must revoke any such ROC that it has already issued, if the Northern Ireland Authority notifies it that the authority is not satisfied that the electricity in question has been supplied to customers in Northern Ireland. For electricity supplied in Great Britain, the position will remain unchanged, with GEMA as the only issuing authority.

Turning to the other amendments in this group. Amendment No. 191F also provides for the sale of NIROCs that relate to Northern Ireland NFFO—pronounced "noffo"—output, separately from the renewables electricity to which the NIROCs relate. Without this provision, Great Britain suppliers are unlikely to participate in auctions of NIROCs with the underlying electricity since they would have no use for the electricity which cannot be exported from Northern Ireland to Great Britain because of the interconnector limitations.

Finally, the Government are taking powers in Amendment No. 191F to allow a proportion of the funds arising from the auctioning of Northern Ireland NEFO ROCs to be paid to DETI. The DETI's existing obligation to pay moneys received into the Consolidated Fund of Northern Ireland will apply to moneys that DETI receives as a result of exercise of this power. However, DETI intends to request that a budget allocation is made for an amount of money equal to any such payments into the Consolidated Fund to be used for the promotion of the use of renewable energy sources in Northern Ireland. This provision is similar to the provision already available in England and Wales and which is being sought by Scotland within this Bill. On the basis of the ROC prices reached in recent equivalent Scottish auctions of ROCs, the total proceeds of the Northern Ireland NFFO auction are expect to amount to between £4 million and £5 million per annum during the early years and declining thereafter until the contracts expire in 2010.

Amendment No. 191G makes clear that both GEMA and the Northern Ireland Authority are entitled to enter into arrangements for GEMA to carry out Northern Ireland renewables obligation functions of the Northern Ireland Authority. Clause 109 currently refers only to GEMA as being entitled to enter into these arrangements.

Amendment No. 191H replaces a reference to Ofreg with a reference to the "Northern Ireland Authority" and is a minor drafting change. I beg to move.

On Question, amendment agreed to.

Lord Triesman moved Amendment No. 191F: After Clause 108, insert the following new clause—

"ISSUE OF GREEN CERTIFICATES IN NORTHERN IRELAND

(1) Article 54 of the Energy (Northern Ireland) Order 2003 (S.I. 2003/419 (N.I. 6)) (which contains provision corresponding to provision contained in section 32B of the 1989 Act) is amended as follows.

(2) After paragraph (2) insert—

"(2A) In paragraphs (1) and (2) 'Northern Ireland' does not include any part of the territorial sea of the United Kingdom.

(2B) The provision that may be contained by virtue of this Article in an order under Article 52 includes—

  1. (a) provision for the person to whom a certificate is to be issued to be determined either before or after the supply of the electricity to which it relates; and
  2. (b) provision for a determination as to the person to whom a certificate is to be issued to be made in accordance with such arrangements as may be specified in or determined under the order.

(2C) In the case only of a certificate relating to electricity that has been acquired, or is required to be acquired, under a qualifying arrangement, the arrangements within paragraph (2B)(b) that may be specified in or determined under the order include arrangements—

  1. (a) requiring the determination of the person to whom the certificate is to be issued to be made by reference to financial bids made in respect of the certificate or in respect of both the certificate and the electric ity t o which it relates; and
  2. (b) requiring that person to make a payment, in accordance with his bid, to such person as may be specified in or determined under the order.

(2D) In the case only of a certificate relating to electricity that has been acquired, or is required to be acquired, under a qualifying arrangement, provision falling within paragraph (2B)( b) may require the relevant person—

  1. (a) to make and implement the arrangements that are specified in or determined under the order; and
  2. (b) to comply with directions given to him by the Authority for that purpose.

(2E) A person who receives a payment in accordance with provision made by virtue of paragraph (2C)(b) shall apply the money received in such manner as the Department may direct.

(2F) A direction under paragraph (2E) may require that the money received or part of that money be paid to the Department.

(2G) Part VI shall apply in relation to a requirement imposed by virtue of paragraph (2D) or (2E) on a person who is not an electricity licence holder as if he were an electricity licence holder."

(3) After paragraph (3) insert— (4) An order under Article 52 may confer on the Authority functions in Northern Ireland in relation to the issue of Great Britain certificates.

(5) In this Article— 'Great Britain certificates' means certificates that are or may be issued by the Gas and Electricity Markets Authority in accordance with provision included, by virtue of section 32B of the Electricity Act 1989, in an order under section 32 of that Act; 'qualifying arrangement' means an arrangement made pursuant to an order under Article 35 of the Electricity Order (or such an arrangement as modified or replaced by virtue of an order under Article 57 of this Order); 'relevant person' means, in relation to electricity that is acquired, or is required to be acquired, under a qualifying arrangement, the person who acquired it, or who is required to acquire it.

(4) The requirements of Article 52(6) of that Order (consultation before making an order) may be satisfied in the case of an order containing provision made by virtue of this section by consultation that took place wholly or partly before the commencement of this section.

(5) This section extends to Northern Ireland only."

On Question, amendment agreed to.

Clause 109 [GEM A's power to act on behalf of Northern Ireland regulator]:

Lord Triesman moved Amendments Nos. 191G and 191H: Page 89, line 37, after "GEMA" insert "and the Northern Ireland Authority for Energy Regulation ("the Northern Ireland Authority") Page 89, line 38, leave out from "arrangements" to second "for" in line 39 and insert "for GEMA to act on behalf of the Northern Ireland Authority

On Question, amendments agreed to.

Lord Triesman moved Amendment No. 191J: Page 89, line 40, leave out "OFREG's" and insert "the 2003

The noble Lord said: My Lords, this is a small amendment, as noble Lords may be delighted to know, which deletes the reference in subsection (2) of Clause 109 to Ofreg and replaces it with a reference to the Northern Ireland Authority. The result of this amendment is that subsection (2) of Clause 109 defines, the 2003 renewables obligations functions", as being those functions conferred on the Northern Ireland Authority under or for the purposes of Articles 52 to 55 of the Energy (Northern Ireland) Order 2003. This brings consistency of language to this part of the Bill, with the relevant Northern Ireland legislation. It is desirable to have clarity and consistency, and it is on that basis that I commend the amendment. I beg to move.

On Question, amendment agreed to.

Lord Triesman moved Amendment No. 191K: Page 90, line 1, leave out "OFREG's" and insert "the 2003

On Question, amendment agreed to.

Lord Triesman moved Amendment No. 191L: Page 90, line 2, leave out "OFREG" and insert "the Northern Ireland Authority

The noble Lord said: My Lords, the speed has almost caught me out. I have turned past the amendment; forgive me. I think that we have covered the amendment.

The Deputy Speaker (Lord Brougham and Vaux)

My Lords, it stands on its own.

Lord Triesman

My Lords, I apologise. It is also a textual amendment that inserts "the Northern Ireland Authority" to replace "OFREG". Whether or not it stands on its own, it has exactly the same impact as previous amendments. I beg to move.

On Question, amendment agreed to.

Lord Triesman moved Amendment No. 191M: After Clause 109, insert the following new clause—

"CONSULTATION IN RELATION TO NORTHERN RELAND RENEWABLES ORDERS

(1) This section applies where the Department of Enterprise, Trade and Investment in Northern Ireland amends the provisions of Part 7 of the 2003 Order (renewables obligations for Northern Ireland suppliers) by way of an amending order to take account of amendments of the 1989 Act made by this Chapter.

(2) In the case of a renewables order containing provision made by virtue of the amending order, the requirements of Article 52(6) of the 2003 Order (consultation before making a renewables order) may be satisfied by consultation that took place wholly or partly before the amending order came into force (including consultation taking place before the commencement of this section).

(3) In this section—

(4) This section extends to Northern Ireland only."

The noble Lord said: My Lords, I shall speak to Amendments Nos. 191M and 191N. The first relates to the timing of consultations on a renewables obligation order for Northern Ireland, allowing the DETI to consult on the detail as soon as possible and, if necessary, before it has made the amending order that it needs to make to reflect the changes introduced to the Electricity Act by the Bill. The new clause extends to Northern Ireland only.

The second amendment, Amendment No. 191N, allows the DETI to modify energy licence conditions in relation to amendments made to the energy order. Its principal purpose is to ensure that some or all the proceeds of the sales of the Northern Ireland NFFO NIROCs can, if appropriate, be used to offset the cost of the Northern Ireland NFFO to Northern Ireland consumers. That is already the case in relation to funds from the sales of the Northern Ireland NFFO electricity itself. That power will be able to be used for funds that have not been directed to other renewable uses by the DETI.

The amendments are useful and will ease the implementation and administration of renewable energy policy in Northern Ireland. I beg to move.

On Question, amendment agreed to.

Lord Triesman moved Amendment No. 191N: After Clause 109, insert the following new clause—

"MODIFICATION OF CONDITIONS OF NORTHERN RELAND ELECTRICITY LICENCES

(1) In Part 7 of the Energy (Northern Ireland) Order 2003 (S.I. 2003/419 (N.I. 6)) (renewable energy sources), after Article 58 insert—

"58A MODIFICATIONS OF LICENCES IN CONNECTION WITH ENERGY ACT 2004

(1) Where the Department or the Authority considers it necessary or expedient to do so in connection with—

  1. (a) amendments of this Order made by section (Issue of green certificates in Northern Ireland) of the Energy Act 2004, or
    2. 1079
  2. (b) provision made by an order under Article 56 to take account of amendments of the Electricity Act 1989 made by Chapter 3 of Part 2 of that Act of 2004,
it may modify the conditions of an electricity licence.

(2) The power to make modifications under this Article includes power to make incidental, consequential or transitional modifications.

(3) Before making a modification of a licence condition under this Article the Department shall consult the Authority and the licence holder.

(4) Before making a modification of a licence condition under this Article the Authority shall—

  1. (a) consult the licence holder; and
  2. (b) obtain the consent of the Department to the modification.

(5) Paragraphs (3) and (4)(a) may be satisfied by consultation—

  1. (a) that, in the case of a modification within paragraph (1)(b), took place wholly or partly before the order in question comes into force; and
  2. (b) that, in any case, took place wholly or partly before the commencement of this Article.

(6) Where the Department or the Authority makes any modifications under this Article it shall publish those modifications in such manner as it considers appropriate.

(7) The power conferred by virtue of paragraph (1)(a) may not be exercised after the end of the period of two years beginning with the commencement of this Article.

(8) The power conferred by virtue of paragraph (1)(b) may not be exercised in relation to an order under Article 56 after the end of the period of two years beginning with the day on which the order comes into force."

(2) This section extends to Northern Ireland only."

The noble Lord said: My Lords, I beg to move.

Baroness Carnegy of Lour

My Lords, the fourth and fifth lines from the bottom of page 8 in the Marshalled List make up proposed new paragraph (2) in the amendment, which reads: The power to make modifications under this Article includes power to make incidental, consequential or transitional modifications". Are those modifications limited in any way? When Parliament legislates in such a way, it is usual to make quite sure that such modifications are limited to the matter under consideration in the relevant part of the Bill.

Lord Triesman

My Lords, the geographical limitation is quite clear; it is self-evidently to Northern Ireland. The energy licence conditions in general are modifications simply intended to ensure that the proceeds of the sale of NFFO NIROCs in Northern Ireland are used to offset costs to Northern Ireland consumers. I do not think that there is a limitation placed on the extent to which that may be achieved; it will probably he conditioned in large measure by the sums realised.

On Question, amendment agreed to.

6.15 p.m.

Lord Ezra moved Amendment No. 192: After Clause 109, insert the following new clause—

"CHAPTER 4

ELECTRICITY GENERATION USING CLEAN COAL TECHNOLOGIES

OBLIGATION IN CONNECTION WITH ELECTRICITY FROM COAL After section 32C of the 1989 Act there is inserted—

"32D OBLIGATION IN CONNECTION WITH ELECTRICITY FROM COAL

(1) The Secretary of State may by order impose on each electricity supplier falling within a specified description (a "designated electricity supplier") an obligation to do what is set out in subsection (3) (and that obligation is referred to in this section and sections 32E to 32G as the "clean coal obligation").

(2) The descriptions of electricity supplier upon which an order may impose the clean coal obligation are those supplying electricity—

  1. (a) in England and Wales;
  2. (b) in Scotland; or
  3. (c) in Northern Ireland,
excluding such categories of supplier (if any) as are specified.

(3) Subject to the provisions of this section and sections 32E and 32G, the clean coal obligation is offered to designated electricity suppliers who, before a specified day, produce to the Authority evidence of a specified kind showing—

  1. (a) that it has supplied to customers in the United Kingdom during a specified period such amount of electricity generated from coal by using clean coal technologies as is specified in relation to such a supplier;
  2. (b) that another electricity supplier has done so (or that two or more others have done so); or
  3. (c) that, between them, they have done so.

(4) Before making an order, the Secretary of State must consult—

  1. (a) the Authority;
  2. (b) the Council;
  3. (c) the electricity suppliers to whom the proposed order would apply;
  4. (d) the generators of electricity from coal; and
  5. (e) such other persons, if any, as he considers appropriate.

(5) In this section— clean coal technologies" means specified technologies for the generation of electricity from coal that meet specified pollutant emission performance criteria. specified" means specified in the order.

(6) An order under this section shall not be made unless a draft of the instrument containing it has been laid before, and approved by a resolution of, each House of Parliament.""

The noble Lord said: My Lords, with the amendment are grouped Amendments Nos. 193 to 195, which are consequential. The amendment deals with the need as I see it for an obligation for the use of electricity from coal. I moved a similar amendment in Grand Committee on 12 February and have taken careful note of what was said on that occasion. I have drafted this amendment accordingly.

Coal now represents our most substantial energy reserve. We are running out of oil and gas in the North Sea and shall become increasingly dependent on imports. It is therefore important to work out ways in which those reserves of coal can be used effectively to diminish our import dependence. As we all know, the problem with coal is that, burnt in traditional methods, it creates a lot of pollution. However, there are ways in which it can be burnt to minimise that pollution.

The Government have supported the concept of clean coal technologies—I refer specifically to page 92 of the energy White Paper—and have drawn attention to the fact that they can be relevant not only to our use in this country, but even more so to countries such as China and India that will use substantial quantities of coal. They have very big reserves of coal for the future and it is important, from the point of view of the global environment, that they burn that coal in as efficient a manner as possible. Therefore, the existence of plant in the UK demonstrating the ways in which that could be done would be of considerable importance not only here, but in the promotion of our activities abroad.

The amendment is drafted to limit the possibility of introducing such an order until substantial consultations have taken place and until, under its proposed new subsection (5), "clean coal technologies" are defined as, the generation of electricity from coal that meet specified pollutant emission performance criteria".

In other words, we are talking about issuing orders for the use of coal after it has been treated in a green manner, and after very full consultation.

Let us be quite clear: even if, as I hope, such a provision were included in the Bill, it would take a long time before the fuel could come on to the market. It would be at least three years before one, two or perhaps even three medium-sized electricity generating plants would be constructed and the order could bite. Therefore, there is not very much commitment to financial involvement.

On the other hand, such a provision in the Bill would achieve two important things. First, it would encourage the coal industry, which now has grave doubts about its future, and to which I believe the Labour Party has traditionally given its wholehearted support. Here is a way of reinforcing that support, having regard to future environmental considerations. Secondly, as I have pointed out, this could open up enormous prospects for exports. But I do not believe that we can persuade possible overseas customers to accept our technology unless we have something to show them. At the moment we have nothing. We have a limited amount of research, which is much overshadowed by greater research efforts in the United States and elsewhere.

This could be a positive measure that is much in line with the objectives of the energy White Paper. It could help to diminish our growing dependence on imports and could give some prospect of a future to our largest remaining indigenous energy resource. Therefore, I beg to move.

Lord Jenkin of Roding

My Lords, I was intrigued by the comments of the noble Lord, Lord Ezra, about the traditional support given by the Labour Party to the coal industry and I thought of the enormous burden that now rests on the shoulders of the noble Lord, Lord Randall, because of his position as sole occupant of the Labour Back Benches. I beg the House's pardon, because the noble Lord, Lord Carter, has just appeared. That makes two.

The noble Lord, Lord Ezra, makes an important point. Very little is being done in this country to advance the cause of clean coal technology. Indeed, it is not many months since one of the effects of NETA—the electricity trading arrangements—drove DRAX almost out of business, operating for only four hours out of 24. That was not a clever move, because DRAX power station has the greatest amount of flue gas desulphurisation in this country. The noble Lord is correct to say that there is a huge amount of work being carried out in other countries and that should be the case here.

I remember a visit I made some years ago, as a shadow energy spokesman, to the Coal Industry Research Establishment, just outside Cheltenham. There I encountered a technologist who appeared to be working on his own on the underground gasification of coal as a much better way of exploiting our coal resources than by sending men down the pits. I put my arm around his shoulder and said, "My friend, I don't know whether you realise it, but you may have the entire future of the coal industry on your shoulders". I do not know what became of that research, but it is one of the ways in which—through underground gasification—one can produce a product that can be treated effectively with a variety of refining techniques and produce what the noble Lord, Lord Ezra, seeks: the ability to take heat from coal without generating carbon dioxide and other noxious gaseous emissions. We ought to be doing that.

After consulting briefly with several people in the electricity industry, I found that they had not heard of the amendment tabled by the noble Lord, Lord Ezra, and they felt that to introduce it at this stage might be premature. But I hope that the Government will take seriously the comments of the noble Lord about the need to step up research on clean coal technology. It is essential because, as the noble Lord said, we have hundreds of years of reserves and it would be foolish if a technology were devised that we could not use. Although we may not feel able to support this particular amendment, the thought behind it is extremely important.

Baroness Carnegy of Lour

My Lords, the noble Lord, Lord Ezra, knows a great deal about this matter. It would appear that we need the widest possible range of energy sources and we need to use our own coal in the best possible way. I can see the problems of timing, but the main point is that the Government must bear in mind the tremendous advantage that there has been to this country by exploring for oil in the deep sea. That technology has been sold to our enormous advantage across the world—to China and many other countries—because the oil industry had sufficient vision to see that, as the oil in the North Sea reduced, the industry's skill and technology could be sold. Surely we need to do that in the case of clean coal—and that is the noble Lord's most important point.

I hope that the Government will not just dismiss the amendment as a pipe dream—the matter should be attended to now regarding the export of expertise. We must ensure that we have that expertise to export.

Lord Whitty

My Lords, the role of clean coal technology is likely to be important in our energy policy and the sustainable use of our coal resources. Coal-fired power generation is likely to be with us for many years and if we are to meet our energy targets we need to use it significantly more cleanly than at the moment. I somewhat refute the suggestions that the Government have been doing nothing about this matter. We have recognised for some years that clean coal technology has a role to play and we have been investing in R&D in this area. In fact we have committed some £9 million of support for this programme, including 39 projects and another £4 million for cleaner coal technology over the next two years. That includes not just the cleaner use of technology and the mitigation of negative carbon effect; the DTI also has a programme under way looking at the feasibility of underground gasification of coal, referred to by the noble Lord, Lord Jenkin, which could also make a contribution. As the noble Baroness, Lady Carnegy, said, it could help not only us but elsewhere in the world.

In addition we are starting to develop, in collaboration with the energy industries, a new carbon abatement technology strategy and coal will be a key element. Some of that will be published next year. So I do not believe that the Government's commitment to clean coal technology should questioned. We have our own R&D and we learn from international R&D.

However, the amendments before us would effectively create a clean coal obligation. A mechanism for clean coal similar to the renewables obligation would be hugely more complicated. We know that renewable technologies do not create any emissions, but for fossil fuels there are not only carbon emissions but a number of other gases which can damage the environment, particularly sulphur and NOx, for which developments are also taking place. The measurement of how far the clean coal technology was contributing to carbon saving also needs to take account of what we are doing in relation to other gases. Also, it is not easily offset against the renewables obligation and other more straightforward measures that are required of industry in that regard.

We will implement some other measures that will encourage the control of emissions. The Large Combustion Plant Directive, which will primarily focus on sulphur and nitrous oxides when it is implemented in 2008, will also have an effect on coal burning. The emissions trading scheme that is due to start next year will encourage the control of carbon dioxide emissions from coal and other fuels. Both measures will help to drive the markets to more sustainable and more novel uses of coal within the technologies available—and will help us to develop better technologies. To express that in terms of an obligation would be difficult and complicated. It would divert from the renewables obligation and it would not be clear how much of a contribution it could make compared with other measures to support and deliver clean coal technologies that are either in place or will be in place in a few years' time, which will make some contribution to our carbon reduction objectives.

I support clean coal technology and want to see measures to speed up its adoption, but I do not think that an obligation is the way to do it.

6.30 p.m.

Lord Ezra

My Lords, I thank the noble Lord, Lord Jenkin of Roding, for his supportive remarks and the noble Baroness, Lady Carnegy. I thank the Minister for his encouraging remarks. What worries me is how we move from supportive remarks and from limited expenditure on research and development to having a plant or two in this country. I cannot see how that will happen. The way we are going, we could go on dribbling a few million pounds more here and there into research and development, which is minute compared with what is being done in the United States, for example, from which experience we should be learning.

When do we reach the point at which we can have a plant to demonstrate, to potential customers not only in the UK but in China, India and elsewhere? That is the problem that worries me, which I shall continue to explore and tackle. I hope the Minister and his colleagues in the Government will give it further consideration. The White Paper referred specifically to a demonstration plant. It states on page 92, which I quoted earlier: "With this in mind—namely, to have a plant which can be used as a demonstration for other countries— we have already put in place a programme of support for advanced traditional cleaner coal technologies which is intended to bring forward demonstrator projects that may help to showcase the relevant technology more widely". When is that going to be done? When will we see the hardware? When will we move from talk and limited amounts of R&D to having a bit of plant in place? It was stated in the White Paper, but lacking in the Minister's remarks. He did not indicate when we might see the plant in operation. That was the purpose of my amendment.

However, I would like to reflect on all that was said and consider whether to return to the issue at the next stage or in some other way. In the mean time I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 193 to 195 not moved.]

Lord Ezra moved Amendment No. 195A: After Clause 109, insert the following new clause—

"RENEWABLE TRANSPORT FUEL OBLIGATION

  1. (1) In order to comply with EU Directive 2003/301EC, which requires Member States of the European Union to demonstrate how biofuels are to be placed on their markets in increasing quantities to 2010, and to comply with the further requirement 1085 that Member States shall inform the Commission by 1st July 2004 of their initial targets for December 2005 and how they plan to meet these, there shall be a renewable transport fuel obligation for the United Kingdom.
  2. (2) The obligation shall require all producers selling road transport fuel in the United Kingdom to show that over the course of a calendar year a specified proportion of such fuel was biofuel.
  3. (3) For the calendar year 2006 this proportion shall be I per cent by energy content and this proportion shall increase annually by 1 per cent until 2010.
  4. (4) Producers, blenders and other relevant companies and persons shall make such returns to Her Majesty's Customs and Excise as may reasonably be required to demonstrate such compliance with the obligation both as to the amount of biofuel produced and used and the origin of the relevant feedstocks.
  5. (5) Biofuel producers, blenders and other relevant companies and persons shall receive the biofuel duty rebate due to them on fulfilment of their obligations under this section.
  6. (6) A shortfall on their obligation shall incur a proportional loss of such rebate as set out in subsection (5).
  7. (7) Any shortfall on the obligation shall in addition incur a penalty in proportion to the shortfall and this penalty, expressed as pence per litre, shall be fixed annually.
  8. (8) Any such penalty payments shall be pooled and the total amount distributed annually to compliant suppliers pro rata to supplies placed by them the market.
  9. (9) No fuel shall be recognised as a biofuel for the purpose of the obligation unless the carbon dioxide saving on a full life cycle analysis can be shown in the returns made under subsection (4) to be in excess of a 60 per cent improvement compared with the relevant fossil fuel comparator and in the case of biodiesel this shall be ultra low sulphur diesel and for bioethanol it shall be ultra low sulphur petrol.
  10. (10) For the purposes of the obligation, biofuels shall be defined as fuels produced from the biodegradeable fraction of agricultural products, wastes and residues (including vegetable and animal substances), forestry products and waste and the biodegradeable fraction of industrial and municipal waste.
  11. (11) The power conferred by this section on the Secretary of State and the Treasury to make an order or regulations is a power exercisable by statutory instrument under the affirmative procedure."

The noble Lord said: My Lords, this amendment, which deals with biofuels, was moved in Grand Committee. It is an important element in energy policy and it would be an important addition to the Bill. It proposes a renewable transport fuel obligation. From what we have just discussed I imagine that the Government do not particularly like the term "obligation", but it is appropriate in this case.

I have taken full account of what was said in Grand Committee. The revised amendment refers specifically to the EU directive 2003/30/EC, which has been available for some time—I believe that it was published last July—and on which consultations are meant to be taking place.

The proposal before us is to introduce legislation that would support the application of that directive. There is no doubt, both in the Government's mind and elsewhere, that there can be a big contribution to their objectives on reducing emissions by introducing progressively a proportion of renewable fuels into the energy consumed by transport. Through the development of biofuels that objective could not only be served but it would give an additional outlet for the agricultural industry, which is going through so much difficulty at the present time.

Many countries are already introducing an element of biofuel into their petrol. The biggest example is Brazil, where up to 20 per cent biofuels have been introduced into petroleum usage, but the Brazilians have substantial amounts of sugar at their disposal which creates biofuels. We are talking in much smaller terms of increasing annually by 1 per cent until 2010. That could be an enormous benefit both in the achievement of the environmental objectives and for the agricultural industry. We believe that the amendment is in line with the EU directive and we hope that the Government will be able to support it. I beg to move.

Lord Palmer

My Lords, I have put my name to the amendment because I believe that we have the opportunity to make a major step forward in achieving our national aims of cutting CO2, improving local air quality, increasing the sources of supply of road fuels and boosting the productivity of our farming sector at an affordable cost. I remind your Lordships that I am the unpaid president of the British Association for Bio Fuels and Oils, more commonly known as BABFO. I know how disappointed the noble Lord, Lord MacGregor, is not to be able to speak to the amendment.

The United Kingdom is moving towards a position of net imports of road fuels. World prices are also rising. Brent crude has been close to 30 dollars per barrel for some time. Political uncertainty in areas where we have to buy oil makes it sensible to build a domestic industry from our own sustainable resources. I cannot think how many times in this Chamber I have mentioned that North Sea oil will not last for ever.

In today's climate with world terrorism, a degree of self-sufficiency must be welcome. We still import 18 per cent of our petrol products. That figure is due to rise by 2 per cent this year.

As the noble Lord, Lord Carter, mentioned in Grand Committee, at present about half a million hectares of land lie idle under set aside—a scandalous waste of a natural resource. A similar area of land has been arable and could be brought back into cultivation for fuel. Such a move would be a major national gain in productivity, as the agricultural overhead costs relating to that land are effectively already being met by existing businesses. Such a productivity gain should be attractive to the Chancellor.

The Treasury has already provided a 20p per litre rebate for biodiesel and the same is promised for bioethanol by 2005. However, that is simply not enough to provide the kick-start to the industry that we need as biofuels cost twice as much as fossil fuels before VAT and duty.

I find that one of the most depressing things is how, once again, this country is being left behind by our European partners. Indeed, the noble Lord, Lord Ezra, mentioned what is happening in Brazil. Other countries are far and away advanced in technology, in usage and with a more relaxed tax regime than we are in this country.

One of the reasons I feel so strongly about this is, as a farmer in Scotland, I discovered by chance that my oilseed rape was being exported to Austria and Germany and made into fuel. If they can do it, why cannot we?

Everybody I meet is lost as to why the Government will not embrace this with open arms; every countryside body supports it; every farming body supports it; every environmental body supports it; and all the farming press support it. Only last week, two well respected magazines mentioned this very amendment. One even had a half-page form for farmers to fill out and send to their MP.

All this leads one to believe that biofuels should no longer be left in the wilderness and just to confirm that, on 11 March the other place debated biofuels. It is one of the most interesting and informative debates I have ever read in the other place. I wish I had time to quote all 36 columns from Hansard. Every speaker, from all sides of the House, argued the case for biofuels in a most constructive manner. All speakers, without exception, were pro-biofuels. Indeed, the amendment we moved in Committee was even mentioned.

In the words of the honourable lady, Mrs Spelman, no one has dissented on the matter under discussion. This is quite extraordinary".—[Official Report, Commons, 11/3/04; col. 1741.] Indeed it is and I so wonder why. Yet it was sad to read at col. 1746 that the Minister said that the "case was persuasive" and yet the Government felt unable to support the amendment.

The amendment would ensure that all the benefits I have described would accrue to the nation as a matter of certainty. I commend it to the House and hope that the noble Lord, Lord Whitty, will accept it. After all the years of fighting for this cause, we are so nearly there.

I leave your Lordships with one final but perhaps vital thought. A tonne of fossil fuel not burned today is available for future use, but every tonne of biofuel not produced today is lost for ever.

Lord Dixon-Smith

My Lords, I hesitate to intervene in the debate not because I have any quarrel with the principle being enunciated but because I have something to say about the effectiveness of biofuels. There is no doubt that from an agricultural point of view the introduction of biofuels—be they bioethanol from wheat or sugar beet in this country or biodiesel from oilseed rape—is highly desirable. However, we should not assume that it will solve the nation's energy problems and that aspect concerns me.

I will not bore the House with all the arithmetic, but let us put the problem in perspective. If all the land that is set aside in this country were used for the production of biodiesel, it would produce only 3 per cent of our annual consumption of diesel oil. That is all. If all the land in the country were put into the production of biodiesel, we would still have the most enormous deficit in fuel.

That is not to say that such a contribution is not worth making. To the extent that biodiesel is carbon neutral, it is better than pure consumption of mineral hydrocarbon fuel, but we have a huge problem. The difficulty is that plants are inefficient converters of solar energy. If, for instance, one put the same area of land into photoelectrics—I know that the present economics make it impossible—we would produce 10 or 15 times as much energy. We need to think carefully about what we are doing when we are in the business of green energy.

I do not oppose the policy—it is completely supportable—but we should realise that it can make only a marginal contribution to our national energy problems. I speak in order to make apparent the scale of those problems. They will not be solved by any easy measures and it is important to realise that the scale of the difficulties we face nationally and globally are far more severe than anything most people have begun to think about.

6.45 p.m.

Baroness Carnegy of Lour

My Lords, my noble friend clearly believes that the people who advocate biofuels are over-egging the argument. Should all the set-aside land in the country be turned to that crop, and should we get 3 per cent of our energy from it, it would be wonderful because all that land is useless. In fact, it is a blot on the landscape and it depresses everyone.

As the Minister knows, there is a great problem for farmers: they do not know in what direction they should go because the problems of the CAP are by no means solved. Farmers throughout the country are trying to decide how to react and to respond and it is extremely difficult to know what to do.

From the agricultural point of view alone, to be able to produce a small amount of energy from crops grown for that purpose would be a great help. It would be an objective and eventually help us move away from our false position on funding. Doubtless, that funding will diminish in time if the EU can persuade its members thus. Therefore, the Minister should raise his head a little more when he goes sneaking into the DTI to be briefed on the Bill. It is not merely a question of how much energy can be produced.

I want to counterbalance what was said by my noble friend Lord Dixon-Smith. He knows all about farming and will appreciate my comments. However, he was right to point out that it is not a huge part of the whole, but it is an important element and we are being extremely sleepy about it. I speak as someone who lives in an area where a great deal of rape is going to Europe to be processed in the way described by the noble Lord, Lord Palmer. It is extremely depressing.

Lord Tombs

My Lords, I support the amendment partly on its own merits and partly on broader grounds to which I shall turn in a moment.

I would not write it off on the grounds of its limited contribution, as did the noble Lord, Lord Dixon-Smith. I believe that the contribution available from that amount of land from photovoltaic sources is far less accessible than what is proposed in the amendment. Therefore, I think it is worth doing.

The broader aspect I wanted to tackle is that so far what is described as the Government's energy policy is really an electricity policy. It involves sources that substitute for conventional means of generating electricity. Electricity is a big polluter but it is not the biggest. The biggest polluters are transport and gas, to which no attention has been given. This is at least a toe in the door towards looking more broadly at other forms of energy which pollute. I commend that broader point to the Government's consideration. I would like to believe that they are thinking more broadly than the easy route that they have so far followed. I support the amendment.

Lord Carter

My Lords, in speaking to support this amendment I should also declare an interest as the unpaid vice-chairman of the British Association for Bio Fuels and Oils, or BABFO.

I will come clean. I phoned the Public Bill Office on Friday afternoon to add my name to the amendment to find out that I was too late to do so. Even former Chief Whips get the procedure wrong occasionally.

I will deal quickly with the points raised by the noble Lord, Lord Dixon-Smith. Nobody is suggesting that this is the answer to our energy problems. I wish to make two simple points. First, it would be useful if we could use land that is currently in set-aside. I will return to that point. Secondly, there is a proposal that all London taxis should run on biofuels. That would make a significant reduction to the rate of pollution in London.

I moved this amendment in Grand Committee. As we have heard from the noble Lords, Lord Ezra and Lord Palmer, the amendment refines the arguments that were expressed then, so there is no need to repeat them at length. There is a very strong case for biofuels on environmental grounds, as they contribute to the reduction of CO2 emissions. Recent figures show that emissions in the field of road transport are increasing. That is the one area of activity where they are doing so. On economic grounds, it is very efficient. We are quickly meeting our environmental objectives. It provides a viable agricultural alternative to the rural economy.

I will quote from the evidence that was given to the Environment and Agriculture Sub-Committee—EU Sub-Committee D—on which I sit. The committee is currently investigating climate change. We heard evidence from Sir David King, Chief Scientific Advisor to the Government. He said that we should support all sorts of technologies that will lead to reductions in carbon dioxide emissions. I said that the technology that he mentioned was for the long run, but a simple technology—the use of biofuels—is immediately available. He then said: I do think, once again, that we need this broad menu approach. Biofuels across Europe is seen to be a big step forward in this way. We do have to recall just the one limitation here, and this is around the question of land use. If we are moving away from farming for food production, then biofuels might be a good way to move into land use". I said that very large areas of land with nothing growing on them at all which are in set-aside could be used for biofuels. He came up with a marvellous quote: Biofuels are considerably smarter than set-aside, yes". As we are discussing agricultural alternatives, I hope the Minister will not use the example of the biomass of the willow coppice. This argument is now completely exploded. The mid-term review had made the future uncertain for farmers. The idea that they will put land into willow coppice and wait from seven to 15 years for a return is not in accord with reality.

Since we met in Committee, there have been a number of developments. Friends of the Earth has had a meeting with interested parties. They produced some interesting ideas on tradable and levy-exemption certificates. Two members of BABFO, Wessex Biofuels and Wessex Grain, have done some extremely sophisticated modelling on the way that these might work. They point to the existing scheme in the electricity industry—renewable obligations certificates or ROCs. They have devised a simple mechanism that could be used.

The feedback from those involved in informal consultation with the departments involved in biofuels—Defra, the Treasury, The Department for Transport and the Regions and the DTI—suggests that the current reluctance to commit to an obligation centres around the belief that an operable mechanism is not yet available, and that any commitment would prejudice the subsequent setting of UK biofuels targets.

A simple obligation mechanism along the lines already operated in the electricity industry could be readily established and would allow a flexible and efficient incentive to future biofuels production and use across a range of future targets.

While mandates and obligations are often assumed to have a similar application, they vary in one significant area. Where mandate requires a set action, effectively with no exception, obligation allows for non-compliance, but at a price. Although mandatory inclusion of biofuels would be superficially attractive to the Government as it would not be state funded, those mandated would have no choice but to obtain supply and pass on the cost. There is no clear incentive to do this efficiently, and no control over the cost, which would be passed on as "hidden taxation". In the case of obligation, the financial impact in the market is limited to the penalty on those not complying, and the proceeds passed to those who do comply as an incentive to increase supply. An extremely sophisticated financial model has been produced which could be made available to officials.

There was a debate in the House of Commons in March where this was supported by all parties, and there was also an Early Day Motion which has had a substantial number of signatures.

I am sure that my noble friend the Minister has been briefed to say that biofuels are one of a number of possibilities but we must await the outcome of a consultation. When will this consultation finish? Indeed, has it even started? The Government have known since July 2003 that targets stated by July this year are to come into effect in 2005. They have been extremely slow in getting that consultation started: I am not sure that it has started yet. Can my noble friend tell the House whether he would expect the results of that consultation to be available before this Bill completes its progress through the House of Commons?

I understand the Government's difficulty in going all the way to support a mandatory obligation. There is another possibility, which is to have a permissive approach. This would put the principle of an obligation into the Bill, but allow the Government to determine the timing, percentages, and so on, by regulation—what might be called a "sunrise clause". As most of this will come from fields of rape, that is particularly apposite.

I am sure that all of us who support the principle of obligation would be willing to discuss a more permissive approach in an amendment for Third Reading with the Minister and his officials. I hope that my noble friend can make some encouraging noises to that effect in his reply. We want to see a renewable transport fuel obligation in the Bill, but we are willing to discuss ways of achieving that aim which the Government would find acceptable.

Baroness Byford

My Lords, I thank the noble Lord, Lord Ezra, for putting forward this amendment, which we debated at great length in Committee. I do not want to cover all of the ground that various noble Lords have touched on today. However, I would like to pose some questions. This afternoon I hope that we can persuade the Government to take a step further in their view on this amendment. Even if they are not willing to accept it, perhaps they may give us some encouraging words and return to the issue at Third Reading. I hope that adding my voice to this amendment will have that effect.

When this was debated in Grand Committee, the noble Lord, Lord Whitty, said that he had great sympathy for the arguments put forward. Later on, when talking about climate change objectives, he said: Biofuels is clearly one of the few options in the short-tomedium term whereby transport could make such a contribution. It could also have some benefit, although relatively marginal, to air quality, as my noble friend Lord Carter said, and to agriculture and the rural economy".—[Official Report, 12/2/04; col. GC 541.] I would like to add my voice to the hopes experienced by the various people within the agricultural community. The noble Lord will not have been surprised at some of the headlines when the Budget was announced and there was nothing in it on this matter. Everyone was hoping to see headlines on 15 March announcing a "breakthrough in biofuels". Elliot Morley said that the Government would not support the renewable transport fuel obligation amendment to the Energy Bill. He added that any decision on implementing the directive, which lays down minimum targets for member states, would also be subject to public consultation. The noble Lord, Lord Carter, also spoke on that matter. I ask the Minister very directly when consultation is due to start, when it is due to finish, and how soon it will be in the public domain.

The Minister will not be surprised that on 17 March, after the Budget, a headline in Farmers Weekly read: Fuel fury from farming leaders". The farming community had very much expected something from the Budget. The publication stated: Farming leaders have slammed Chancellor Gordon Brown for a 'short-sighted' view on biofuels and a hefty tax rise on red diesel". The vice-president of the NFU, Meurig Raymond, went on to say: Today's budget leaves the fledgling biofuel industry in limbo … At a time of increasing public concern towards the environment and energy supply, the Chancellor's views on biofuels can only be seen as short sighted". I hope that the Government have taken those matters on board.

I do not wish to repeat what everybody else has said, but I shall refer to the debate that my honourable friend Michael Jack introduced—I think that it was on 11 March, but I shall not disagree with the noble Lord, Lord Palmer—during which Caroline Spelman said: However, it is worth noting that in January this year, the UK trade in oil was at a deficit of £37 million for the first time for more than 12 years, and that a deficit has been recorded showing a decline of £416 million from the previous month— those are big figures— So the situation is changing. That underlines the point that biofuels offer a strategic, if not immediately cheaper, alternative. That is another strong reason for their serious consideration". She continued: Several Members have pointed out that biofuels give the Government an opportunity to reduce carbon emissions by offering a closed carbon cycle. According to British Sugar"— I am sorry that my noble friend Lord MacGregor is not in his place today, because I know that he would have spoken to this amendment— a saving of up to 70 per cent. can be achieved through the use of biofuels".—[Official Report, Commons, 11/3/04; col. 1742.] I accept the interesting point raised by my noble friend Lord Dixon-Smith that, even if it happens, it would be only a small proportion. I do not think that any noble Lords present say that it will solve all our crises, but I come from an era in which we want to have eggs in many baskets. The figures that I have just cited explain why I think that this is probably one of them.

In his winding-up speech, the Minister Mr Morley recognised the weight of support for the Commons debate but added: A number of Cabinet Sub-Committees deal with energy policy and consider the issue of biofuels and the implementation of the energy White Paper, including this issue … We recognise that the biofuels directive can have an effect, although the targets are indicative—it should not be assumed that they are currently the Government's targets. Consultation will take place". Again, we in this Chamber get slightly frustrated in this regard. Not one department but several must deal with the matter; and consultation will happen but we do not know when. One thing about which we can be certain is when the Bill will have cleared this I-louse. The Minister went on to say that, although we could not support the form of the amendment tabled in the other place, the Government are not opposed in principle to some form of biofuels obligation for road transport … We will consider that as part of the process of consulting on the implementation of the biofuels directive. When that consultation is made public"— and I challenge the Minister as to when that is— therefore, it will include the issue of an obligation, which will be welcomed by many Members".—[Official Report, Commons, 11/3/04; col. 1746.] That is where we are at the moment; again we are in this very unsatisfactory position, as we have been without this Bill going through the House. On certain aspects we are waiting for consultations to happen. We are being asked to legislate for something, yet we do not know the outcome of the consultation. Other noble Lords have said it; I shall not repeat it. I accept that the amendment would be only a small part, but from the point of view of farmers, the agricultural industry and others who are looking forward to using different technologies, if the Government do not respond more positively, this will be a wasted opportunity.

7 p.m.

Lord Whitty

My Lords, I think that noble Lords know that I regard biofuels as an important contributor to the climate change objectives. They are among the few aspects that are almost instantly available in the context of transport's contribution, an otherwise difficult area where the problem is still escalating, which is not the case in other sectors, as noble Lords have said. Biofuels could contribute to the agriculture and transport sectors and help to achieve environmental diversity and security.

However, the contribution must be seen as proportionate. The noble Lord, Lord Dixon-Smith, was perhaps too much of a wet blanket on the matter, but nevertheless we should recognise that it has a limited effect on the overall figures. The main way in which the industry and campaigners have argued that the Government should support the issue involves quite large tax incentives. We have already given 20p on biodiesel and bioethanol, which was confirmed for the next three years in the Budget. Although people will argue about the matter, that is roughly the same incentive as given, relative to the price of petrol and diesel, in countries that have done so much better in developing biofuels.

We have already made some substantial moves, but there is the important development of the directive, as noble Lords have said. We will consult on the options for meeting the objectives of the directive. On timing, the Department for Transport will issue the consultative document after Easter. The normal 12-week consultation period will apply and therefore we will complete consultation around the summer. Given that we cannot do everything through fiscal incentives, we must consider the possibility of an obligation along the lines spelt out in the document, perhaps meeting some of the problems that simply adopting the terms of the amendment would create. For example, how would the obligation be policed? I assume that the main method of obligation is through the fuel companies. How would it be possible to impose such an obligation on companies not based in the UK when dealing with imported oil? What would be the best way of dealing with non-compliance and the question of who is committing the offence?

There are a significant number of practical concerns about how we would implement an obligation. Nevertheless, it is one of the means whereby one could deliver the objectives of the European directive, whether or not we agree the exact percentages within it. We certainly intend to consult on the matter. Accepting the amendment would commit us to pursuing that method of delivering substantial use of biofuels and the details of the quantum specified in the amendment without addressing some of the practical objections.

The debate in this House and elsewhere on the amendment and related matters is a useful precursor to the consultation exercise. However, it would not be appropriate for the House to persuade the Government to adopt the amendment as it stands before consultation is completed.

Lord Carter

My Lords, before the Minister sits down, perhaps I may ask some brief questions to seek clarification, even though we are on Report. If, by Third Reading, we were to persuade the Government that we could overcome the practical objections, and were able to produce an amendment that was permissive in the way that I have suggested—which would leave timing, percentages and so on in the Government's hands—would it include the principle of an obligation? I asked the Minister whether he could make any encouraging noises that would enable the Government to agree to the amendment or perhaps the approach suggested when the Bill reaches the Commons.

Lord Tombs

My Lords, before the Minister replies, perhaps I may refer to his comment that it is difficult to tax or to apply obligations to overseas-owned companies. Does he accept that in the electricity renewables obligation we do just that with French, German and American-owned companies operating in this country?

Lord Whitty

My Lords, yes, that is so when we are dealing with a limited number of suppliers and a limited number of channels into the electricity supply system whereas this obligation as drafted in the amendment would apply to a wide range of fuels. Therefore, it increases the complexity. I do not say that there is not a way round it but it is an important increase in the practical objections to the amendment.

On my noble friend's suggestion, I am sure that my colleagues and I would be prepared to talk to noble Lords and others about this area. However, I do not think that we shall reach a definitive conclusion in time for the process within this House, and probably not the process within another place. We already have a date for Third Reading. In view of progress today, it may or may not be met. Nevertheless, it is not far off. We need to ensure that we have genuine consultation, without the Government having made up their mind. I am open to discussing any alternative amendment that the noble Lord, Lord Carter, or anyone else, brings forward. But anything which appears to drive the Government to one conclusion on this matter would be somewhat difficult. With that qualification, I shall be happy to talk to anybody.

Lord Ezra

My Lords, I thank all noble Lords who have taken part in the debate, including the Minister. All seem to be in favour of doing something along these lines. There has not yet been consultation on the directive, the results of which could lead to a conclusion on how the directive was to be carried out. This could take some time.

None the less, before the Bill leaves this House it would surely be helpful if it made some provision on this important issue on which we have had two fairly lengthy debates. I am glad that the noble Lord, Lord Carter, supported by the noble Baroness, Lady Byford, put forward the suggestion about a more flexible amendment. The Minister was not sure about the timing. None the less, his response was that his door was open; he was ready to talk. I suggest, therefore, that we arrange a meeting between interested Peers and the Minister to devise an amendment—it can be brought forward at the next stage—which will not tie down the Government too much but which emphasises the importance which we all attach to this important issue. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Ezra moved Amendment No. 195B: After Clause 109, insert the following new clause—

"CHAPTER 4

MICROGENERATION

STRATEGY FOR MICROGENERATION

(1) For the purposes of promoting and developing the use of new and renewable energy sources, the Secretary of State shall within twelve months of the passing of this Act publish a strategy for microgeneration ("the strategy").

(2) In drawing up the strategy or any revision of the strategy the Secretary of State shall consider the role of microgeneration in—

  1. (a) reducing the emission of carbon dioxide,
  2. (b) alleviating fuel poverty,
  3. (c) reducing the need for reinforcement of electricity networks, and
  4. (d) ensuring security of supply of electricity.

(3) In preparing the strategy or any revision of the strategy the Secretary of State shall consult such persons as in his opinions of producers of energy by means of microgeneration.

(4) The strategy shall include such targets for the generation of energy by microgeneration as in the opinion of the Secretary of State are practicable and cost effective.

(5) It shall be the duty of the Secretary of State to take reasonable steps to—

  1. (a) implement the strategy, and
  2. (b) ensure that any targets included in the strategy are met.

(6) The Secretary of State may from time to time revise the strategy and any revised strategy may set new targets for the generation of energy by microgeneration and it shall be the duty of the Secretary of State to take reasonable steps to—

  1. (a) implement the revised strategy, and
  2. (b) ensure that any targets included in the revised strategy are met.

(7) In this section the following terms shall have the following meanings— new and renewable energy sources" means sources of production of energy from or by means of—

  1. (a) wind power,
  2. (b) solar power,
  3. (c) ground source heat,
  4. (d) micro combined heat and power systems,
  5. (e) micro hydro power, and
  6. (f) other low or zero carbon sources; "microgeneration" means generation of energy by means of equipment installed in, or for use by, a single unit or a small number of units of residential accommodation or office accommodation."

The noble Lord said: My Lords, Amendment No. 195B deals with a strategy for microgeneration. I declare an interest in the subject as I did in Grand Committee. I am interested in particular in the promotion of small-scale generation of electricity.

I emphasise that those who are involved in microgeneration were extremely pleased that the Chancellor mentioned in the recent Budget that it was intended to reduce the rate of VAT on microgeneration equipment from 2005 onwards subject to current tests being carried out successfully. This is an important step forward.

We consider that it should be complemented by another step: to devise a strategy for microgeneration development. When I moved a similar amendment in Grand Committee, the Minister said that he thought it unnecessary because the subject of microgeneration was being dealt with in a number of other ways. My response was that while that is no doubt the fact, it would be helpful if all these strands could be brought together in one document. It would help to focus attention. It would help to achieve what the Government attach great importance to; namely, to increase domestic energy efficiency.

This equipment will be available towards the end of this year and during next year. The sale of increasing quantities of the equipment will help to achieve not only a great increase in energy efficiency in the home—it will enable electricity as well as heat to be produced—but will also contribute to a reduction in CO2 emissions. There is substantial scope for the sale of such equipment in the boiler renewal market. It amounts to about 1 million items per year. So there is a substantial prospect of great improvement in the efficiency of domestic energy consumption through the promotion of this type of equipment.

The Government have already taken one step to promote this concept and I hope that they will be prepared as a second step to devise a strategy for microgeneration which will bring together all that is being done elsewhere, focus attention on the issue and enable us to go forward on the twin planks of government energy policy: to increase energy efficiency, in particular in the domestic market; and to reduce emissions. This development would help to achieve both objectives. I beg to move.

Lord Jenkin of Roding

My Lords, I added my name to the amendment because it seemed to epitomise what should flow from the final break-up of the Central Electricity Generating Board. So long as the CEGB was the primary producer of electricity, it was bound to consist of only large plants and huge transmissions lines, with the distribution that we know. Now that has gone. We are operating in a much freer market. There are opportunities for new technologies of exactly the kind the noble Lord, Lord Ezra, described in order to diversify the supply of electricity in this country.

I believe that that is right. It needs to be a focused strategy. That is what the amendment seeks. That is why I was happy to put my name to it.

7.15 p.m.

Baroness Miller of Hendon

My Lords, regrettably, time is running out. It was not helped by having two Statements. My noble friend Lord Jenkin and I were delighted to put our name to this important amendment.

Noble Lords may remember that in Amendment No. 2 on Clause 1 on Report we included microgeneration in the many matters on which the Government are required to report annually. The amendment has been so well moved by the noble Lord, Lord Ezra, and supported by my noble friend that I need do no more than indicate my support.

Lord Whitty

My Lords, the noble Baroness is correct. Slightly against my advice, the House passed an amendment requiring us to report on a number of matters including microgeneration. Therefore, in a sense the first part of the amendment is already on the face of the Bill as it will leave this House.

The second part deals with setting a target for microgeneration and a strategy for ensuring that targets are met. I am strongly in favour of the technologies of microgeneration of all kinds. They can contribute towards achieving targets for renewables and CHP, and the overall target for cutting CO2 emissions. That is why we have done a number of different things; I shall not go over all of them again.

That is why we allowed the contribution of CHP to be reflected in talking about annual output and annual export declarations. We have established the Distributed Generation Co-ordination Group, included research for microgeneration and micro-CHP, and so forth. The Chancellor referred to micro-CHP and a possible VAT reduction, which is subject to effective validation. Therefore, one can see that there is a whole range of support.

If, in addition to the broader objectives to which microgeneration will make a contribution, we want to impose a separate strategy, that will probably confuse the issue too far. We have a strategy for CHP to which micro-CHP will contribute. We have a strategy for carbon reduction more generally. I do not see the need for a "micro-strategy" to be set up as an alternative or separate strand. However, microgeneration—embedded generation of all sorts—will make a major contribution to the achievement of all our targets. But I cannot accept the second part of the amendment.

Lord Ezra

My Lords, I thank all noble Lords who have taken part in this short debate. I have noted very carefully what the Minister has said. The important point to emphasise is that this is a new technology. While we have supported CHP earlier, that is fine. But this is a new technology. The production of CHP in its microform is new. It is an area where we are leading in Britain, where every encouragement should be given.

Some measure of encouragement has been given already by the Chancellor. We consider that further encouragement should be given. On that basis, I should like to test the opinion of the House.

7.22 p.m.

On Question, Whether the said amendment (No. 195B) shall be agreed to?

Their Lordships divided: Contents, 106; Not-Contents, 87.

Division No. 2
CONTENTS
Addington, L. Howe of Aberavon, L.
Alexander of Weedon, L. Howe of Idlicote, B.
Anelay of St Johns, B. Howell of Guildford, L.
Astor, V. Hunt of Wirral, L.
Attlee, E. Hylton, L.
Avebury, L. Jenkin of Roding, L.
Barker, B. Jopling, L.
Biffen, L. Kimball, L.
Blaker, L. Kingsland, L.
Blatch, B. Laing of Dunphail, L.
Brooke of Sutton Mandeville, L. Livsey of Talgarth, L.
Brougham and Vaux, L. Luke, L.
Byford, B. Lyell, L.
Caithness, E. McNally, L.
Carnegy of Lour, B. Maddock, B.
Chalker of Wallasey, B. Maginnis of Drumglass, L.
Colwyn, L. Mancroft, L.
Cope of Berkeley, L. Mar and Kellie, E.
Craigavon, V. Marlesford, L.
Deedes, L. Masham of Ilton, B.
Denham, L. Mayhew of Twysden, L.
Dixon-Smith, L. Miller of Chilthorne Domer, B.
Dundee, E. Miller of Hendon, B.
Ezra, L. Monro of Langholm, L.
Fearn, L. Monson, L.
Ferrers, E. Murton of Lindisfarne, L.
Fookes, B. Newby, L.
Fowler, L. Noakes, B.
Freyberg, L. Northover, B.
Geddes, L. Norton of Louth, L.
Glenarthur, L. Oakeshott of Seagrove Bay, L.
Glentoran, L. Palmer, L.
Goodhart, L. Park of Monmouth, B.
Gray of Contin, L. Peel, E.
Hamwee, B. Phillips of Sudbury, L.
Hanningfield, L. Pilkington of Oxenford, L.
Harris of Richmond, B. [Teller] Razzall, L.
Hodgson of Astley Abbotts, L. Redesdale, L.
Hogg, B. Rennard, L.
Howe, E. Renton, L.
Rodgers of Quarry Bank, L. Southwark, Bp.
Roper, L. [Teller] Steel of Aikwood, L.
Rotherwick, L. Stoddart of Swindon, L.
Russell, E. Thomas of Walliswood, B.
Russell-Johnston, L. Tope, L.
Saltoun of Abernethy, Ly. Trumpington, B.
Sandberg, L. Ullswater, V.
Scott of Needham Market, B. Waddington, L.
Seccombe, B. Wallace of Saltaire, L.
Sharples, B. Walmsley, B.
Shutt of Greedand, L. Walpole, L.
Skelmersdale, L. Williams of Crosby, B.
Smith of Clifton, L. Willoughby de Broke, L.
NOT-CONTENTS
Acton, L. Hoyle, L.
Ahmed, L. Hunt of Kings Heath, L.
Andrews, B. Irvine of Lairg, L.
Archer of Sandwell, L. Jay of Paddington, B.
Ashton of Upholland, B. Jones, L.
Barnett, L. King of West Bromwich, L.
Bassam of Brighton, L. Kirkhill, L.
Bernstein of Craigweil, L. Layard, L.
Boothroyd, B. Lockwood, B.
Borrie, L. Lofthouse of Pontefract, L.
Brennan, L. Macdonald of Tradeston, L.
Brooke of Alverthorpe, L. MacKenzie of Culkein, L.
Brookman, L. Mackenzie of Framwellgate, L.
Burlison, L. Massey of Darwen, B.
Carter, L. Morgan, L.
Chan, L. Morris of Aberavon, L.
Chandos, V. Nicol, B.
Clark of Windermere, L. Patel of Blackburn, L.
Clarke of Hampstead, L. Pendry, L.
Clinton-Davis, L. Pitkeathley, B.
David, B. Plant of Highfield, L.
Davies of Coity, L. Ramsay of Cartvale, B.
Davies of Oldham, L. [Teller] Randall of St. Budeaux, L.
Desai, L. Rendell of Babergh, B.
Dixon, L.
Dubs, L. Renwick of Clifton, L.
Elder, L. Rooker, L.
Evans of Parkside, L. Sainsbury of Turville, L.
Evans of Temple Guiting, L. Sawyer, L.
Farrington of Ribbleton, B. Scotland of Asthal, B.
Gale, B. Simon, V.
Gibson of Market Rasen, B. Smith of Gilmorehill, B.
Golding, B. Stone of Blackheath, L.
Goldsmith, L. Symons of Vernham Dean, B.
Gordon of Strathblane, L. Taylor of Blackburn, L.
Goudie, B. Temple-Morris, L.
Gould of Potternewton, B. Tomlinson, L.
Grocott, L.[Teller] Triesman, L.
Harris of Haringey, L. Warner, L.
Harrison, L. Warwick of Undercliffe, B.
Haskel, L. Whitaker, B.
Hayman, B. Whitty, L.
Hogg of Cumbernauld, L. Wilkins, B.
Hollick, L. Woolmer of Leeds, L.

Resolved in the affirmative, and amendment agreed to accordingly.

Lord Davies of Oldham

My Lords, I beg to move that further consideration on Report be now adjourned. In moving the Motion I suggest that the Report stage begin again not before 8.32 p.m.

Moved accordingly, and, on Question, Motion agreed to.

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