My Lords, I thank the noble Lord, Lord Judd, for his amendments. The Government recognise that energy production and consumption should be sustainable. That is why Ofgem has been given duties to contribute to the achievement of sustainable development and to have regard to the effect on the environment of activities connected with the conveyance of gas and the generation, transmission, distribution and supply of electricity.
Ofgem can also consider sustainability implications when it carries out impact assessments for important regulatory decisions. The amendments before us would require Ofgem to demonstrate that it has complied with its general environmental duties. We agree that Ofgem should be accountable. It already has to produce an annual report on matters that fall within the scope of its functions, including its environmental obligations. This accountability will be reinforced by the strategy and policy statement as Ofgem will be required to set out its strategy for implementing the statement in forward work programming. It will also be required to report annually on its contribution towards furthering the delivery of the policy outcomes.
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The amendments would also require the Government to issue social and environmental guidance. It may help here if I explain why the Bill removes the guidance provision. The Ofgem review found that the guidance has not achieved coherence between the Government’s energy strategy and the regulatory regime. They recommended that it should be replaced by a strategy and policy statement. This statement will set out the Government’s strategic priorities, the main considerations which have informed their energy policy and the policy outcomes which are to be achieved to implement this policy.
Ofgem must have regard to the strategic priorities when it carries out its regulatory functions and it must carry out these functions in the way it considers best calculated to further delivery of the policy outcomes. This is a stronger requirement than applied in the guidance, to which Ofgem only had to have regard. The Bill therefore goes further than the noble Lord’s amendment and the statement will be a fitter mechanism for achieving coherence between energy policy and regulation. The strategy and policy statement can include material on social and environmental matters. We will take the current guidance into account as we develop its contents but keeping the guidance alongside would dilute the value of the statement.
The amendments would require the Secretary of State to publish guidance on wider public engagement, which would apply before he decided either to leave the strategy and policy statement unchanged or to withdraw it after a review. The Bill already provides for the Secretary of State to consult Ofgem, Scottish and Welsh Ministers and such other persons as he deems appropriate. In practice, when the Government review the statement, they will consult a range of stakeholders before deciding how to proceed. Guidance on wider public engagement, as proposed by this amendment, is therefore unnecessary. I should also stress that the strategy and policy statement will not be used to introduce new policies. It will reflect on established policy, which would have been consulted upon previously, as appropriate.
The noble Lord, Lord Judd asked whether the repeal of the social and environmental guidance would reduce protection for social and environmental matters. I hope that I have reassured him that social and environmental matters will be taken into account in identifying which policy outcomes should be included in the strategy and policy statement. Ofgem already is required to have regard to social and environmental matters as part of its existing remit.
The noble Lord also asked what practical difference the strategy and policy statement would make. I hope that he is reassured that it clearly lays out the strategic priorities of the Government’s energy policy and that the policy outcomes are expected to be achieved as a result of implementing that policy. Ofgem will have new duties to have regard to those strategic priorities when carrying out its regulatory functions and must carry out these functions in a way that it considers best calculated to further the delivery of a specified policy outcome.
I hope that the noble Lord feels reassured that the Government have taken very much into account his concerns on sustainability. Ofgem has a range of powers and duties, including its principal objective to protect the interests of existing and future consumers in relation to electricity conveyed. These statutory duties are applied through the price controls that regulate the monopoly networks. The aim is to drive real benefits for consumers and to provide companies with strong incentives to meet the challenges of delivering a sustainable energy sector at a lower cost.