I noted the views of the Committee on Climate Change with great interest. I also note that, up to now, both Government parties have accepted its recommendations without alteration.
Deciding the intensity target now, or even in 2014, when the fourth carbon budget will be reviewed, would helpfully clarify the position. Alternatively, emissions performance standards could be amended to curtail the operation of unabated gas plants after 2030, instead of allowing grandfather rights for those power stations until 2045.
I stress that my Committee was one of the first to call for Britain’s shale gas reserves to be exploited, but basing energy policy on the assumption that Britain has decades’ worth of cheap, recoverable shale gas reserves before a single flow test has been completed in this country would be reckless. Shale gas is a game changer in America, but there is no certainty that similar benefits in the UK would be so dramatic. Therefore, particularly as a result of high transport costs, the price of gas in both Europe and Asia may be significantly different and possibly higher than that in America for decades to come. Gas will and must play an important part in our energy mix, but we need low-carbon technologies as well. Carbon capture and storage has huge potential benefits, but there is no guarantee that it will be available at an economic price.
The model in DECC’s “Pathways to 2050” helpfully shows how hard it will be to achieve emissions reductions without new nuclear power stations. To bring new nuclear and other low-carbon technologies forward, we need clarity on strike prices. I accept that, initially, strike prices must be set centrally, but I hope that we can move to an auction system before too long. Auctioning would allow the benefit of cost reductions in the more mature low-carbon technologies to be captured for the benefit of consumers much more quickly than if strike prices are decided centrally in perpetuity.
Turning to energy efficiency and the demand side, we must be hard-headed about value for money. I commend the success in energy-rich Texas where, on some days, 30% of the electricity is generated by wind power without any subsidy at all. As has been shown in Texas, demand-side measures can reduce the need for capacity market payments, even if they do not eliminate that need entirely. Better incentives for electricity storage or a bigger strategic reserve are other ways of addressing problems of capacity and peak demand. I hope that the Government amendments will reflect the most cost-effective way of tackling those issues.
We also need more clarity about how the incentives for energy efficiency will be funded. If the cost of capacity market payments will be met from outside the LCF total—I am sorry, but I am trying to do this in six minutes—surely the cost of energy efficiency payments could come from the same pool. The LCF is the levy control framework.
I firmly believe that countries that decarbonise their energy and transport industries and their built environment will enjoy a huge competitive economic advantage in the long term. Some low-carbon technology involves a small upfront cost compared with fossil fuel-based alternatives, but even those costs will fall significantly as economies of scale are achieved. As concerns about climate change become more acute, as I believe they will in the next 15 years, and the carbon price rises, driven either by emissions trading or carbon taxes, investment in low-carbon electricity will prove to be not only right environmentally, but beneficial economically.
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