I thank the noble Lord for making that comment. I simply say that that is a complaint against the CFDs, which we will come on to discuss under Part 2 of the Bill. This is Part 1, which simply states the purposes of the Bill. There are many things that the noble Lord said with which I agree. If we had focused more on setting a framework of legislation, with clear outcomes and the right policies to create the link between those outcomes and the responsibilities placed on government and the commercial people who have to deliver on them, we would be in a much better place than we are. I said at Second Reading that I believe in markets. I believe that, as legislators, we should set a clear framework and allow the markets to live with the least-cost solutions. We are not in that position right now—that is not the Bill that we have in front of us—but this part of the Bill could be an important element in doing just that. The amendments would create that framework of certainty and guarantee a trajectory of travel. That is what is lacking in the Bill at the moment.
As others have said—I do not want to repeat it—the Bill does not set a decarbonisation target; in fact, it prevents a decarbonisation target from being set and seeks to tie the hands of future Governments. That is very regrettable. Moreover, it is simply enabling. It simply says that the Secretary of State “may”, if he or she chooses, set a decarbonisation target. Of course, that is going to create uncertainty. Why the discretion? Ministers in the Commons were keen to point out that they were in disagreement not about the principle but merely about the process and the timing. If that is true, why is there a need for discretion? Why the “may”? It seems to me totally illogical; it creates needless uncertainty. A number of noble Lords have used different phrases—“government vacillation”, “infirmity of purpose” and “gratuitous increase in uncertainty”. The discretion seems completely illogical and gratuitous and I hope that, at the very least, this process will bring some clarity to that issue.
However, we would go much further and, as other noble Lords who have spoken in favour of the amendments have said, require the target to be set now. There is no reason to delay it by two years. It unnecessarily politicises the issue and kicks it out beyond the next election when we have people lining up now to invest in the supply chain.
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There is a distinct difference between those people who may operate and own the plant, and who are going to receive CFDs, and the people who will bring the value of those CFDs to the UK. They are the people to whom we should be listening. The noble Lord, Lord Deben, was very clear that there are people now facing imminent decisions about whether to locate their factories, their manufacturing plant and their supply chain businesses in the UK or elsewhere. If we fail on that, we will lose jobs. We will still have the targets that were set in the carbon budgets and we will still have the renewables obligations out to 2020, but we will not be benefiting from the jobs and investment. It seems completely illogical that we should allow that to occur. Those are the people to whom we should be listening when they come to us with many hundreds of millions of pounds wanting to create jobs. We are ignoring them and that is highly regrettable.
I could go on to make party-political points about why the uncertainty has arisen, but I will resist the temptation. It is fairly obvious that, as the noble Lord, Lord Lawson, said, there are two government strategies on energy and that there is a lack of consistency in the messages coming out, which makes these provisions all the more important. I urge the Government to recognise that they have the potential to do away with that whole element of uncertainty and to help investments to flow.
This Bill has enormous enabling powers within it. The discretion given to the Secretary of State by this Bill is astounding—to negotiate and sign contracts with anyone, for any length of time and, it seems, at any price. That is a great privilege and, to quote Spiderman,
“With great power comes great responsibility”.
There is no responsibility in this Bill. The Government have given themselves enormous powers but they have not said what they are taking those powers for. Clearly, what they want those powers for is to deliver low-carbon energy, yet they are dragging their feet, resisting the creation of a fair and flexible requirement to deliver a certain level of carbon intensity within a certain time period. Speaking on behalf of consumers and civil society, I say that, if we are to allow the Government this degree of latitude, the very least that we can ask in return is some clarity of purpose. We need some obvious sign that this is not a Bill cooked up to allow us to have one nuclear project built for a state-owned French company, but that it is about a much broader picture—securing investment and low-carbon infrastructure across the board in the UK.
We must look at that, because currently there are no requirements on the Secretary of State to do anything. If he or she seeks not to sign any contracts, or decides that it is simply all too much, there is nothing to require them to do so. In fact there is nothing in the Bill, or in current policy, that gives any transparency to what will happen in the 2020s. We have, as many have mentioned, binding EU targets for renewables until 2020, but after that there is no guidance. We know also that the Secretary of State is active in Europe against European targets for 2030, so it is no wonder that renewables industry supply chain companies are nervous and require more certainty before investing.
Much has been said about the link between the carbon budgets and the setting of decarbonisation targets. That is a fallacious argument. The carbon budgets do a very different job from policies that seek to reduce carbon emissions directly in the UK. I should declare an interest, because I was a member of the Civil Service team that drafted the Climate Change Bill, so I know what the carbon budgets require of government. They require us to stay within a very flexible budget that includes traded emissions. This is an important distinction: the power sector is governed by an emissions cap set by the European Emissions Trading Scheme. The carbon budget cannot alter that, so the level of effort required in the power sector is equivalent to the allocation of allowances under that scheme. That is how the carbon budgets work. That means that abatement can occur anywhere. It can occur in other parts of the world. There is a requirement on the Committee on Climate Change to advise on how much flexibility there is, but it is certain that the carbon budgets include that tradable flexibility.
Therefore, the question of actual policies to deliver real reductions in the UK is a wholly different issue. These are not policies to deliver on carbon emissions but policies to deliver investment in the UK. The noble Lord, Lord Deben, put it exactly right: these are policies about gaining benefit for UK plc. To illustrate this point further—please bear with me, as this may seem very technical—in introducing the carbon floor price the Government have already accepted that carbon budgets and policies to decarbonise are not one and the same. Many Members have spoken today about their fears about consumers and competitiveness and about not wishing to go too fast. I ask them to look carefully at the Treasury’s carbon floor price policy. It is certainly the worst example of exacerbating all
those issues, and to what end? It does nothing other than reward existing incumbents of low-carbon energy generation—those power stations that were built years ago, mostly with taxpayers’ money in the nuclear case or through the RO for renewables. They are now receiving an additional windfall that they were not expecting as a result of the CFP. This is the policy that noble Lords should be aiming their fire at, not at the very sensible decarbonisation target in the Bill.
I said that there has been a decoupling of carbon budgets from carbon intensity. Another example of that is the fourth carbon budget, where the Government have managed to create uncertainty out of what should have been certain by asking for it to be reviewed. The reason why it has to be reviewed is precisely the point that I have made: those carbon budgets are dictated by Europe through the ETS and the policies that we are talking about today concern UK investment and UK actual emissions, which are different things. We cannot pray in aid the carbon budgets in arguing against setting this target. It simply does not wash.
I am conscious that we have already had a lengthy debate. A number of other important issues have been raised. Of course it is in our interest to protect consumers—we believe that especially on this side of the Committee. We have a fabulous record of ensuring that the fuel-poor are protected. My noble friend Lord Whitty is a pre-eminent example of how we have pushed that agenda. We strongly believe that adopting a portfolio of energy sources will protect consumers in the long run. The CCC’s advice has shown that in the 2020s moving towards a varied portfolio of low-carbon supply will save consumers in the region of £25 billion to £45 billion. That is not a small sum and it demonstrates that at the moment nobody can predict the future. The simplest, safest and most sensible approach is therefore not to put all our eggs in one basket but to pursue a varied set of technologies to deliver on our security of supply, affordability and low-carbon objectives.
I wanted to talk a little about security of supply, but my noble friend Lord Davies put it better than I can. Of course, if you reduce uncertainty for investors, you reduce capital costs and you increase the level of investment in capacity, so you gain on costs, security and carbon. That is absolutely clear. I am delighted that he made that point so well.
People may be wondering whether, if we set these targets, they could be met. They can absolutely be met. They can be met with almost no investment in new capacity. That is simply because at the moment there is a huge amount of headroom in our electricity capacity. The carbon intensity of our power is very high. It was higher last year than it has been for many years—it reached 530 grams per kilowatt hour in 2012. That is for understandable reasons to do with the coal price and the gas price. Gas has been driving up emissions because it has been so expensive relative to coal. If we were simply to switch the merit order of the plant that we currently have, we could take 200 grams from that value, so we could take it down from more than 500 kilograms to close to 300 kilograms without building anything new or spending a lot of money on anything expensive. That is what is technically possible today, as the Committee on Climate Change has repeatedly
illustrated. An amendment that we will come to shortly is about staged carbon reduction targets and is built on the premise that it is incredibly easy for us to do this. Anyone who says that we are locking ourselves into expensive decisions misunderstands how electricity is being generated today and how decisions are made about which plant to operate.
Some noble Lords have argued today that we cannot do this and that it is not possible, too difficult or not flexible enough. First, there are great flexibilities in this system, which we would not wish to see removed. Secondly, noble Lords should think about what they are saying. President Obama said in his climate change speech the other week that people in America who deny that we can tackle climate change are betting against the ingenuity of the companies, financiers and engineers who are all capable of rising to this challenge. This is not rocket science. There is a plethora of technologies already out there today that can quickly become commercial. There will be a whole host more in my lifetime. If the Government say that we cannot hit these targets, it really is a vote of no confidence in our country’s fantastic ingenuity and engineering. That would be incredibly regrettable.
We should set the target and do so with confidence, knowing that it can be done and that we will be protecting consumers in future and boosting security of supply. There is absolutely no point in waiting for two years, when it will simply be kicked into the long grass and become a political issue that it need not be. We have a long history of cross-party support for action on climate change in this Parliament. It would be a great shame if it were to be disrupted now for fear of a very small and quite ill informed group of people who think otherwise.