Energy: Gas Prices

My Lords, I also congratulate my noble friend on introducing this debate. It is always remarkable how, when we start a debate on energy subjects, it moves from its initial direct focus. The debate has now become very significant, involving the whole international scene for energy, and it is clear that energy problems are not exclusively national. We have gone beyond the focus that my noble friend rightly puts in her Motion on the immediate gas problems and through the remarkable survey by the noble Lord, Lord Owen, of the international scene and his interesting contributions vis-à-vis Russia. I have some sympathy with the Russians. They have a huge short-term gain in energy but, in the long term, they may be vulnerable, as all major oil suppliers will find themselves to be. I was particularly interested in what the noble Lord had to say about how the nuclear issue is being handled in this country. From there we went to my noble friend Lord Jenkin, who is always fascinating. He warned us about what is likely to be the realpolitik of the approach of European nations to gas and fuel supplies. He gave us a particularly interesting detailed report on the Hatfield colliery proposals and the joint operation with KRU. Assuming that that all comes about, it will be extremely useful. This country is in some ways fortunately situated in that much of our electricity supply infrastructure is ancient and needs replacing. I understand that there is a problem with installing carbon-capture technology an add-on to existing power stations, so we are quite well situated if this technology comes on stream and works as it is supposed to do. From there we went to my noble friend Lord Patten, who interestingly introduced the very important point about the machinery of government. Although we have a Minister of State for Energy, he is within the department of the noble Lord, Lord Sainsbury, and has to work with every other government department. A while ago when I asked the noble Lord, Lord Bach, whether energy policy was driving carbon dioxide emissions or whether carbon dioxide emissions were driving energy policy, I could not get an answer. Perhaps the Minister will be able to give me an answer in his response, but his noble friend was unable to do so. I want to introduce yet another dimension to this issue, step back and have a look at the consequences of the great strategic issue of global warming which all countries have to face. The issue must eventually have a dramatic impact on the energy market. We are already beginning to see that. In its first year, the European emissions trading scheme has regrettably proved to be an almost complete failure due to the gross over-allocation of emissions certificates by our mainland colleagues. Eventually, however, the scheme must begin to have a major impact on the energy market. The problems of pollution caused specifically by carbon dioxide emissions are beginning to be priced back into the fuel. Ultimately, they will be priced back to the customer. We will be in quite difficult territory here for some time. We need to think for a moment about the Government’s aspiration for a 60 per cent reduction in CO2 emissions by 2050. That seems a very long way away, and in the context of this debate, it is. There is an old saying about prophesy being an avoidable sin. I certainly do not seek to prophesy what will happen over the coming 45 years, but if that aspiration is real and if it becomes much more generally accepted internationally and not just accepted across the political spectrum in this country as it is now, then dramatic changes in the energy market will begin to come about. That implies that by 2050 the market in mineral hydrocarbons will be dramatically reduced from the level we are at present accustomed to. One of the consequences of that may well be at some point a dramatic reduction in the price of those mineral hydrocarbons in all their forms. That must be faced. So, those major international suppliers should enjoy their period in the sun. The responses to this sort of problem take many different perspectives and go into many different fields. One of the things that has fascinated me within the last week was to read a report in which a governor of a mid-western state said: ““Gee, we produce 3 million or 4 million tonnes of wheat every year, which we export. We ought to be keeping that here and turning it into ethanol””. American energy security and American energy demand will be met, and it will be met in very many ways. If that is one of the ways, then the impact of that decision—if it is taken by other states, and particularly if energy prices stay anywhere near where they are now—will have a dramatic effect on the world’s food markets. The whole business of foreign aid and the whole spectrum of how we begin to feed ourselves will change dramatically. Indeed, my noble friend Lord Patten has already touched on that point in his description of imported biomass for coal-firing. Later today we will debate a Private Member’s Bill on energy, which will very much deal with micro-generation. There is a great deal in that Bill about the use of biomass, biofuels and so on. However, all those systems use land. Mankind generally and not just in this country will have to work out how to balance our energy demand with our need for food. That will have a very serious impact indeed. I do not begin to know how the balance between these various factors will be worked out. What I do know is that it will engross all of us more and more over the coming years. I hope that it will not be too much of a battle of party-political infighting except inevitably, of course, over the day-to-day detail. This is a global problem that has to be faced. It must have an impact on what we are discussing today, albeit the problems that we are discussing today are essentially short term in their nature. We need to keep this issue in the back of our minds but also recognise its strategic implications. The issue will have a major impact on investment policy. If there is ultimately to be a reduction in what I call the mineral hydrocarbons supply side, then it will begin to have major financial implications because people will begin to wonder whether the return on investment will be there and so on. So there are very important background issues that will need to be watched. Whoever is in charge of this policy will certainly have an interesting and difficult time.