Economy, Energy and Tourism Committee

Meeting date: Wednesday, January 12, 2011

Official Report 555KB pdf

---

United Kingdom Energy Policy

I welcome everyone to the first meeting of the Economy, Energy and Tourism Committee in 2011, and I wish you all a happy new year. It is the final term before the election, but I am sure that the committee will continue to work in the co-operative way that it has worked throughout the past three and a half years.

We have two items on today’s agenda. For the first item, I am pleased to welcome the Rt Hon Chris Huhne MP, who is the United Kingdom Secretary of State for Energy and Climate Change. He is running a little late thanks to the vagaries of British Airways or BAA.

We are a little short of time as the secretary of state has to leave by about 10.40, so I ask members to keep questions brief to give all members an equal opportunity to ask questions. I invite Chris Huhne to introduce his supporting cast and to make brief opening remarks before we move to questions.

Thank you very much. I am here with Phil Wynn Owen, who is the senior director general in charge of our flagship programme on the green deal and many other parts of the department. I offer many apologies for starting late—I am afraid British Airways seems to have it in for me at the moment. Fortunately, I am not quite as late as I was in getting to Cancún, when it managed to delay the flight for a whole day. Nevertheless today’s delay has meant that I am late for you.

I will, if I may, cut my opening remarks as short as possible to give you more time for questions. I am delighted to be here—Scotland is a key part of our ability as the United Kingdom to deliver on our energy ambitions.

We have four key pillars to our energy strategy. The first, and perhaps the newest and in many ways most important, is to put energy saving in pride of place as part of our energy policy. All the evidence shows that the cheapest and quickest way to cut the gap between energy demand and energy supply is not to use energy in the first place.

We have—Phil Wynn Owen is responsible for it—the most ambitious and comprehensive programme of energy saving of any of the G20 leading industrial nations. We have been working closely with the Scottish Government on that, because it is a devolved responsibility. We have been delighted with the amount of co-operation, and I am pleased that we have had a good relationship with John Swinney on the matter. We have managed—I hope—to reach a situation in which we can have a genuinely UK-wide set of changes that will make a dramatic difference.

The other three elements of our energy strategy all involve energy production. We believe that there could be a substantial increase in electricity demand in the period to 2050, as we move to a vision of an economy that is increasingly fuelled by electricity—including, for example, our vehicles and the residual heating in our homes. There could easily be a doubling in our electricity demand, so ensuring that the electricity is coming from low-carbon sources is a key priority.

We have three pillars to the overall strategy, one of which—the nuclear element—does not apply in Scotland. We have a clear commitment to a dramatic increase in renewables, to new nuclear and to what is perhaps the most important and exciting potential development: carbon capture and storage. That last commitment has enormous implications for Scotland, as Scottish Power at Longannet is the remaining bidder for the £1 billion of UK funding for carbon capture and storage.

I attribute an enormous part of the success that our department has had in ensuring that we got the funding for carbon capture and storage out of the public expenditure round to the fact that we were able to demonstrate the clear lead in the science that the UK has by looking at the publications on CCS in peer-reviewed journals. I pay tribute in particular to the researchers at the University of Edinburgh, which is the leading institution in research on CCS. That is a very significant matter for Scotland.

At this point I will shut up and let you get on with questions.

Thank you for those opening remarks. I will begin by asking you about the energy saving side, because I have raised that—as members of the committee will be aware—as being one of the key issues in energy, which is as much about reducing demand as it is about how much we produce. I refer to heat in particular, because it is sometimes forgotten that while we talk a lot about electricity reduction, heat accounts for 50 per cent of our energy use. Perhaps you can explain a bit more about what the UK Government is doing and how it is working with the Scottish Government to promote the reduction of energy use, particularly in terms of heating.

The renewable heat incentive was a key priority for our department in the comprehensive spending review. We got a good settlement, and we will come forward with details on the incentive through the course of the year. We agree with your analysis, convener, that heat must be a key part of meeting our renewables targets, including the target of a 15 per cent reduction in emissions by 2020 and our greater ambitions further on.

As you said, nearly 50 per cent of carbon emissions come from heat. In many cases there are technologies for providing renewable heat that completely bypass the electricity generation process—well, not completely, as we need electricity to run them. The obvious ones are air-source heat pumps, ground-source heat pumps and solar thermal energy, which will be available for support under the renewable heat incentive.

We have worked closely with the Scottish Government on that and look forward to having a scheme that is as joined up as possible.

10:00

The green deal relates to home insulation, in particular. Can you expand on what is proposed and the timescales for developing the green deal?

In the green deal we want to focus on insulation, because in many ways that should be the sine qua non of everything else. It is a bit crazy to slap a solar panel on a house or to put in a ground-source heat pump if you have not done the basics of energy insulation. In many ways, the green deal is the foundation of what we need to do.

I characterise the green deal as having two elements. The first is to ensure that the energy savings that flow from a major and holistic energy-saving package that is installed and retrofitted in a home can be paid for not just by the existing homeowner or tenant but by the next one. That will allow the private sector to provide most of the funding for the improvements, as it will be able to recoup its investment not just over the period of the existing tenancy or the existing owner-occupier’s time in the property but over the life of the improvements. There was a broad measure of cross-party support for that approach. Although my party, the Liberal Democrats, was the first to come up with the idea, I am delighted that it was one of those that were pinched pretty rapidly by the Labour Party and the Conservative party. In this area, there is a substantial degree of cross-party consensus, which includes the Scottish National Party.

The other side of the green deal, which is different from what has gone before and has not really been recognised, is the level of ambition. We are trying not merely to do energy saving in the way in which it has been done before, with a bit of extra loft insulation here and a bit of cavity wall insulation there, but to conduct a survey of each home that is likely to be with us in 2050, to ensure that we come up with a specification for energy insulation that will make that home fit for purpose and consistent with our clear statutory obligations to bring about an 80 per cent reduction in carbon emissions nationally by 2050. Inevitably, that means that we are looking to go into each home once; we do not want to have to go back in in 10 or 20 years, especially given the amount of hassle that is involved for householders. We really want there to be a one-off retrofit for each home.

The consequences of that level of ambition, which I do not believe has been matched in any other leading industrial country, is that we will create a very substantial new industry. At the moment, the energy insulation industry employs about 27,000 people. We calculate that, as it ramps up to provide the green deal and to retrofit our existing housing stock, it will eventually employ about 250,000 people. What is really significant about the industry is that it will be active everywhere in the UK. It will have no national or regional bias, because our homes exist everywhere in the UK. The green deal will be a significant programme that will support small businesses in particular, and the construction industry. It will have a dramatic effect, as it will absorb a substantial number of people who might otherwise be unemployed. There will be substantial economic implications as well as the obvious implications for energy saving, climate change and our energy security.

One of the interesting things about the green deal is the question of who is paying for it. Under the ECO, or energy company obligation, substantial subsidy is going first and foremost to those in fuel poverty, and also to those with hard-to-treat homes, such as homes with solid walls where we would need either external or internal solid-wall insulation. To the extent that the overwhelming majority of that is being paid for by private sector funding, what is actually happening is that it is being funded from energy savings that are being made by cutting our import bill. You could argue that the green deal is actually being funded by the gulf oil and gas producers that would otherwise be sending us oil and gas. It is a pretty good programme for boosting the UK economy.

You asked about the timetable. Perhaps it would be helpful if I laid out a few of the key milestones for this Parliament and the UK Parliament.

We have primary legislation in train in the UK Parliament at the moment. The Energy Bill has at its heart the green deal clauses. I think that this Parliament will shortly be considering a legislative consent motion from the Scottish Government, on which we have worked closely with Scottish Government officials. We hope to get royal assent for the bill by next summer, subject to the vagaries of Parliament. We will then proceed to secondary legislation, which will fill in a number of the details of the scheme. We plan to introduce the green deal, which will be private sector led, with suppliers from autumn 2012. As Chris Huhne said, a new energy company obligation will be introduced at the start of 2013, which will be designed to underpin and support the green deal.

We plan to review the workings of the green deal after a year, not least in order for the secretary of state to decide whether to trigger the powers on the private rented sector within the bill, where again we have worked carefully with Scottish Government officials to ensure that we respect the existing powers relating to Scottish property law and so on, so that the Scottish Parliament can choose which way to go on that issue.

I will add something on that. In Scotland you have greater powers than will be the case under our legislation to prod the green deal into action. I hope that we could set up a friendly competition to see who can get there first. That would be good news for all of us.

Good morning, secretary of state. Your ambition is welcome. Our particular ambition for the development of renewables helps Scotland, Britain and Europe in our strategic needs. Key to getting that money early is the release of the fossil fuel levy, which has become tied up by Treasury rules. Is there any way that it could be released early, given that it is clear from the discussions in the Treasury that it is prepared to release it in three years in a different form?

Having been through the spending review, I can sympathise with Rob Gibson’s implicit comment on Treasury rules.

As you know, that is a matter for the Treasury, I am afraid, and not for the Department of Energy and Climate Change. We were very clearly committed in the coalition agreement to making available the fossil fuel levy. As I understand it, the Chief Secretary to the Treasury, Danny Alexander, has stated that a quarter of the money that has been allocated for the green investment bank in 2013-14—in other words about £250 million—will be ring fenced and earmarked for Scottish use. Clearly, the full amount that will be available will depend on the exact structure and form of the green investment bank. I would like it to be very clearly a bank, my common-or-garden definition of which is something that borrows and lends.

If the £1 billion of capital that has been allocated to the green investment bank is taken together with the capital that we hope to find from the asset sales that we are considering—for example, sale of the URENCO company, which is in DECC—we could have capital of £2 billion, which, in extremis, could support lending to green projects of up to £100 billion. In other words, we would be looking at a multiple of the capital figure as far as its impact on Scotland was concerned.

The design and phasing of the green investment bank must meet Treasury concerns about our fiscal credibility and contingent liabilities for the British taxpayer and so forth but, as I understand it, the commitment that Danny Alexander has made—with the approval of the Treasury, obviously—to ring fence that money is clear. In effect, that is how we will meet the coalition commitment on the fossil fuel levy.

I understand that, and I welcome the partial help that those arrangements will provide, but because of the financial structures and strictures under which we work in Scotland, the development of renewables will be stalled for three or four years, which cannot be good for our overall carbon reduction targets. I suggest that we need to receive better news on that from London, because the present arrangements will not help at all in the interim period.

The way I think about the financing constraints and the green investment bank is that it is clear that we can provide substantial incentives for renewables through existing mechanisms such as the renewables obligation certificates or through our proposals on electricity market reform and the contracts for difference. The way I think about the green investment bank, in particular, is that it is a way of releasing particular blockages in the private commercial financing system for low-carbon projects.

As an economist by background, my view is that the argument is about what is the most effective and cheapest way for the British taxpayer and energy consumer to get the level of investment in low-carbon electricity generation that we need. In my view, if we were to go down the route of incentivising that only through our means—whether through ROCs or contracts for difference—we might have to pay a substantial extra subsidy to get around the blockages in private financing. The argument for the green investment bank is that there are market failures in private financing that we can release.

However, I think that it is more important that we get the green investment bank right than that we get it quickly. If we can get it quickly and get it right, that would be the best of all possible worlds, but we are looking at financing a transition that will take place over decades. I do not think that many people realise not just the scale of the investment, but the timescale that we are talking about. If we are to decarbonise the power sector, that will go on well into the 2030s. An awful lot of other major projects, such as high-speed rail to Scotland, might benefit from the green investment bank, so I want to get the institution right. If that means getting it there in 2013-14 rather than getting it there this year, that is what I would prefer to do, because we are talking about a process that will be a long haul.

10:15

Again, it might help if I chip in on the timetables. Government-published business plans aim for completion of the design and testing of the green investment bank concept by May of this year. Vince Cable’s department—the Department for Business, Innovation and Skills—has in its business plan a target date of September 2012 for the green investment bank to be operational. If that happens, it could be investing much earlier than 2013-14, for instance from the potential proceeds of Government asset sales. We may not need to wait the full two and a bit years until 2013-14 to see the green investment bank going live.

We are keen to see Treasury and Scottish Government officials sit down together to discuss the fossil fuel levy and the potential investment in Scottish renewables, which are important to our and your plans. The Treasury has offered such discussions; it is the lead on that.

So, ultimately, we have to wait and see. In the meantime, while we are talking about 2013 and so on, we are talking about attempting to meet carbon reduction goals by 2050—indeed, by 2020. Surely, the delay of two or three years means the kind of lack of early spending that Opposition parties here have criticised the Scottish Government for, because we do not have money to do it.

The green investment bank is not—

The fossil fuel levy is.

The fossil fuel levy and the green investment bank are not the only tools that we have available to us. Obviously, it would be nice if we could get the green investment bank operating this year, but we have a lot of other mechanisms, including ROCs. We are determined to be the fastest-improving country in Europe on renewables, for the simple reason that we start so far back. We are 25th out of 27 European Union member states—that is the legacy that we have inherited as a Government—and there is only one way to go. The only two European Union member states that have a worse record than us are Malta and Luxembourg, which is pretty shocking.

It is indeed.

To start on the topic that Rob Gibson finished with, can you confirm that the current proposal is that, when the fossil fuel levy is released to the green investment bank, it will be offset by a reduction in the Scottish consolidated fund?

I think that you need to talk to the Treasury on the details of how everything will work, because it is not my departmental responsibility. However, as I understand it, the proposal is that a quarter of the money that the Treasury has earmarked for the capital of the green investment bank will be ring fenced for Scotland. In effect, that is the Treasury’s way of fulfilling the commitment to ensure that there is money to match the fossil fuel levy. As I understand it, under Treasury rules, the Treasury regards fossil fuel levy money not as money that can be spent—the spending totals are determined separately—but as a means of financing the money that can be spent.

In other words, under the current Treasury rules an offsetting provision would be required on the other side of the budget.

With the solution, the Treasury appears to be benefiting enormously from the fungibility of money, which is something that I remember encountering as part of my banking studies a long time ago. The point is that you can find a pot of money from somewhere else and come to the same conclusion.

One concern has been alluded to in reference to the pace of development on ports infrastructure, which is critical this year and next year in order to exploit offshore wind opportunities in particular. The previous UK Government postulated in its last budget a £60 million fund for the UK, and I understand that your department’s decision has been to focus that fund on England alone. Is that correct and, if so, what is your proposition on how Scotland can compensate for loss of access to that fund?

We obviously have to take legal advice on what our powers are and what we can actually do. There are two elements on the powers. First, the fund is industrial support, which is a devolved matter. We took the position from the point of view of our responsibilities that it would be trespassing on your terrain if we were to extend the scheme north of the border.

The second legal constraint under which the Scottish Government and Parliament and Westminster labour is, of course, the European state aid rules. However, I was delighted that the Scottish Government found £70 million for port development in Scotland, because that allows us jointly to go to potential foreign investors and show that there is even more than we originally hoped for in the joint pot, and we will be even more attractive than we would otherwise have been in seeking to get those investors in. As a result of that, we have had a lot of interest. We have had expressions of intent from GE Energy, Gamesa and Siemens so far, and when I was in Beijing recently with the Prime Minister I had expressions of interest from two Chinese offshore wind companies about the possibility of manufacturing in the UK.

I am firmly of the view that we will develop a substantial manufacturing capacity and that it will be a key industry for us, so I very much welcome what the Scottish Government has done on that.

That is helpful.

What about the electricity market reform that you have proposed in recent weeks?

It is a consultation; it is not a firm proposal. We will consult on the consultation document that we have published, and we aim to come forward with a white paper that sets out our firm proposals. In talking to the First Minister about the matter, I was clear that we really are consulting. We want the Scottish Government’s views and we will very much welcome the views of the committee as well.

Thank you for that. My understanding of the principal model on which you are consulting is that it involves the abolition of ROCs, which you mentioned in a couple of previous answers. As the existing mechanism for stimulating renewables development, ROCs have been effective throughout the UK, but in Scotland we have had the additional benefit that we have been able—on a cross-party basis—to vary ROCs for different technologies where that has been helpful. I presume that, before proposing the abolition of ROCs, you talked to the renewables sector about the issue. What was its response to the proposal?

The main trade body in renewables has expressed concerns about a change in the system, but my soundings suggest that, among those who are in favour of and are pushing renewables, there is a substantial amount of support, the more they look at the potential proposals.

I should clarify that we are consulting on whether there should be a parallel system, so ROCs might not be abolished. I suppose our preferred proposal is for ROCs to be grandfathered and then phased out by 2017, but an important part of the consultation document, as you will no doubt have seen, is our determination to ensure that there is no gap for people to fall through between any change of regime.

Perhaps I can explain why we think that contracts for difference—in particular, the feed-in tariff with contracts for difference—will be an advantage for renewables compared with ROCs. Speaking as an economist, I argue that what contracts for difference give an investor in renewables that ROCs do not give is security of price. Contracts for difference effectively guarantee a price for the electricity that is produced by an offshore wind farm, for example, whereas with ROCs, we cannot guarantee that. We can make an assessment and a forecast, but it is not as certain as guaranteeing a price. As we move forward into the major expansion of our low-carbon generation, in order to ensure that the British energy consumer and taxpayer have the best possible deal, we will want to run a Dutch auction so that we get the contracts for difference guaranteed price as low as we can in delivering what we want to deliver.

However, the point remains that the move will assure investors by removing an existing risk in the ROCs regime. As a result, it should have two effects: first, it will encourage investment simply because there will be less uncertainty about pricing; and secondly, it should reduce the cost of capital. After all, if there is less uncertainty, commercial lenders ought to be prepared to lend at a cheaper rate to investors than they would otherwise. We believe that there are potentially substantial economic advantages for renewables in having the extra certainty that is implied by the feed-in tariff and contracts for difference compared with the ROCs regime, and I very much hope that in my meeting later with one of Britain’s best energy economists—who, I gather, is doubling up as the First Minister at the moment—I can persuade him that this is good news for Scotland. I certainly have a lot of respect for Alex Salmond’s energy economics expertise.

Should this guaranteed minimum or intervention price apply in the same way to renewables, carbon capture and nuclear, or are you actively consulting on having three separate and parallel systems of support for each of those industries?

We are suggesting that the low-carbon contracts for difference be available to all low-carbon sources. However, to pick up the point that quite rightly was made about the necessity to flex and indeed increase support for early-stage technologies, I point out that in the consultation document we made it explicit that there could be a premium for different technologies that are at an early stage. For example, offshore wind will clearly attract a premium over the overall low-carbon price, and I would expect the premium for tidal stream to be greater and for wave power, which is even further away from commercial exploitation, to be even greater.

As an economist, I feel that the economic literature provides a very sound basis for providing subsidy to early-stage pioneer technologies and no basis at all for providing any extra subsidy to mature technologies, which should be able to wash their face. With contracts for difference—or, indeed, with ROCs—we would, as technologies were developed and started to be produced on a commercial scale, reduce the level of extra support so that, by the time they became mature, they received no extra support at all. That would be more transparent with feed-in tariffs and contracts for difference than it would be with ROCs.

But they would all receive initial public support through the guaranteed price system.

Absolutely.

Good morning, secretary of state. I have a couple of questions. First of all, although there is widespread political support for the green investment bank, I am not sure that the public have fully bought into the idea or even understand what it will do. What can you and the UK coalition Government do to get across what the green investment bank is actually about and the contribution that it can make to the energy debate?

I am also keen to find out how independent the GIB will be. This morning, you suggested that you want it to be a bank and to be considered as a bank, and said that, instead of being a short-term operation, it should be in place for the long haul. If that is the case, how can you ensure that if the GIB needs additional funds in the future—obviously, we have been through banking bailouts in recent years—it will not need to go to whichever party is in power in London to get them? Also, how can you ensure that bankers’ bonuses for the GIB, which will be funded by the public sector initially, will be limited or nil in order to instil more public confidence in the institution?

10:30

That was a lot of questions. Speaking as a Liberal, I wish that we could enthuse people more about process issues and not merely outcomes. In my view, the way in which we decide and do things is often key to what the outcomes are. However, you probably share my experience on the doorstep that it is often quite difficult to concentrate people’s minds on what they regard as secondary issues about how to reach objectives rather than on the objectives themselves. That is one of the problems that we have with the green investment bank. It is a means of reaching the low-carbon economy that we want, but it is—frankly—difficult enough getting public buy-in to the vision of a low-carbon economy, which is crucial to our future prosperity, let alone getting them to understand that the green investment bank is an important leg in the argument, because of the market failures and everything else. However, we will keep working on that and I hope that we will have some success.

On your point about additional funding, if the green investment bank is set up as a proper bank it will obviously have its own capital. We envisage that, first, £1 billion will be allocated for 2013-14 and that extra capital will be brought in from asset sales so that it has, say, a £2 billion capital base. That will allow the green investment bank to access the interbank market, the capital markets and the syndicated credit market. It will therefore have all the access to funding that a normal bank has, providing obviously that it has the normal credit ratings and that the markets perceive it to be soundly run with a good governance structure, which is why it is important that it is run on sound principles and is independent. On that basis, it will regularly be able to secure on-going funding.

If, at any point, more capital was required as opposed to the on-going funding of the liabilities side of its balance sheet, it would obviously have to go back to its shareholders. If they were a mixture of private and public shareholders, there could be a rights issue or any of the normal means of finding more capital. I do not think that I am letting anybody into any secrets by saying that the first and opening position, and probably the last and closing position, of HM Treasury is that it wants to scamper as far away as possible from any contingent liabilities, which means that it will want to ensure that under no circumstances does it pick up potential contingent liabilities. The capital base, the lending practices of the bank and the governance structure will therefore be key from the point of view of not only market credibility but the Treasury.

Bonuses will obviously be part of the Government’s arrangements, but we will have to allow the management team some flexibility to determine what they are going to do in that respect. We certainly have not even considered the issue. The important thing at this stage is to determine the remit of the institution and its broad structure, make announcements and get under way in setting it up. Do you want to add anything, Phil?

I have just a few compatible process points that may help to answer Mr McMillan’s question. Subject to the work that I mentioned that BIS is leading to determine key design parameters by May, it is likely that there will need to be legislation to establish the bank and to formulate its degree of independence and its on-going relationship—if any—with Government and other stakeholders. It is also likely that an application for a banking licence will have to be made to the responsible authorities, and that to form the bank the Government will need to be party to appointing fit and proper persons, otherwise it will be quite hard to get a banking licence to run the bank. I would be surprised if the legislative process and/or the appointments and contractual negotiations with fit and proper persons—usually people who have run a bank before—to run the institution did not answer a number of Mr McMillan’s questions, including those about the contractual terms and whether they include any bonuses.

I thank both of you for your comprehensive responses, but you probably understand that, on public buy-in, the public might not be convinced if an institution that receives public money to help the green economy and the economy as a whole pays out large bonuses to bankers. A lot of public support could be lost at the outset.

Obviously, we are in danger of trespassing on the general public debate about bankers’ bonuses, but the institution will need to ensure that it has the expertise to perform, particularly in the energy area. It will take a view on what it needs to pay under the contractual arrangements.

To digress slightly, one reason why Edinburgh has a particular claim as the potential site for the green investment bank is the substantial expertise on the energy lending side that exists here. I have no doubt that, when we are determining where the bank should be located, other places in the UK with a financial locus, such as Leeds and London, will bid for it as well. It was when I was in the financial sector and when I was an economic and financial journalist that I first became acquainted with the expertise of one of Britain’s best energy economists, who now doubles up as the First Minister. Edinburgh has a substantial advantage in that respect.

We are short of time and one or two members need to get in, so please be brief, Stuart.

I want to ask about the secretary of state’s statement to the House of Commons on electricity market reform on 16 December. Towards the end of it, he said:

“by 2030 consumer bills will be lower than they would have been if we had not reformed the market.”—[Official Report, House of Commons, 16 December 2010; Vol 520, c 1065.]

That argument was put some years ago in discussing the creation of nuclear power stations. How can you guarantee that, with more renewables technology, more nuclear power stations and more fossil fuel stations, consumer bills will be lower by 2030?

Two elements have to be distinguished with respect to consumer bills. One element is comparing what we propose in the consultation document on electricity market reform with what would happen if we continued with the current regime, which is a patchwork quilt of different measures that have accumulated over time like barnacles on a ship’s hull. They do not necessarily fit together terribly well. By moving to feed-in tariffs with contracts for difference, we will provide substantial extra certainty to investors, and thereby reduce the cost of capital. Our proposals are likely to be cheaper than continuing with the existing policy because the cost of capital will be reduced, which will feed through to benefits to consumers.

A separate set of issues that many people think about involves the consumer costs of having a low-carbon system rather than a free market in which we do not take into account the enormous costs of carbon emissions—as Lord Stern has said, that is the biggest market failure of all time. If we took the advice of, say, Lord Lawson and ignored all that, we would probably have a system that relied on fossil fuels. Even then, people often say that that would be cheaper, but I do not accept that. Such a system would be cheaper only if fossil fuel prices stayed in their current range. If their prices went up substantially, the low-carbon alternative would be cheaper.

In the annual energy statement that was issued last summer, we provided a calculation, which I intend to update annually, that showed that moving to low-carbon generation and energy saving with the total package that we have set out would cost about 1 per cent on consumer bills throughout the UK in 2020, if oil cost $80 a barrel and gas prices stayed broadly in line. The break-even point with oil prices is about $100 a barrel. The US Administration projects the oil price in 2020 to be $108 a barrel. If it is right, our consumers will save money by going down the route of energy saving, renewables, nuclear and carbon capture and storage in comparison with a completely free market that ignores all those measures—the Lord Lawson option—and relies on gas and oil. We must think about consumer costs in a contingent way in the world post-Macondo—post-Gulf of Mexico—where the costs of extracting oil and gas will increase and where oil and gas prices could be substantially volatile.

The secretary of state is very short of time, so I ask the other members to ask their questions briefly.

I have probably been giving answers that are too long—I am sorry.

I call Gavin Brown, then Wendy Alexander, Christopher Harvie and Marilyn Livingstone—Marilyn has just arrived; she had to attend another committee meeting.

On the green investment bank, at what stage is the plan for asset sales? Could that be accelerated to guarantee that the bank is operational before the departmental expenditure limit moneys are provided in 2013-14?

I will take all the other members’ questions, after which Chris Huhne can answer. That will save time.

It is clear that achieving the emissions reduction targets in Scotland and the UK would be easier if the EU scheme moved to 30 per cent. Where are we in ensuring that the EU moves in that direction?

I concur with everything that Chris Huhne has said about the advantages of electricity market reform in bringing certainty to investors and having premiums for technologies depending on their distance from commercial development. However, one anxiety is whether the UK remains committed to decarbonising its power sector by 2030. Concern is felt that the electricity market reform process seems to downplay the reduction in overall energy demand. A word on that might help.

On the green deal, it is clear that the pace of Government action is much slower than Opposition politicians wish. It is important for governmental resources not to subsidise unnecessarily such work, but it is also important to get the incentives right. Are you moving towards setting targets for the number of households that you hope to reach in each of the next three years? If the incentives prove inadequate to reach those targets, will you revisit the incentives?

10:45

Have you factored into your forward projections the notion that we are entering a period in which there will be many more climatic events, notably, with the melting of the Arctic ice cap, inundation? The Thames barrier has been used more in the past couple of years than it has in its entire career, and our remedies for inundation, from Aggreko machines through to sandbags, are almost totally dominated by high-carbon measures. If we have inundation on the scale that, say, the Severn valley has experienced, will that not in a single year put us back even more than we might gain in the same year through energy conservation?

First, I apologise. I had to attend this morning’s meeting of the Rural Affairs and Environment Committee.

I do not know whether this question has already been asked, but I wanted to hear your views on support for the offshore wind manufacturing industry, incentives and access to long-term funding for companies at the leading edge of innovation and, importantly, the ability of those companies to expand to compete in the marketplace.

That was a wide range of questions—I hope that you can pick them all up, secretary of state.

First of all, I can certainly tell the committee what the department is trying to do about asset sales, which is a BIS lead. We are trying to find a way of selling our remaining share in URENCO, the enriched uranium company. There are security sensitivities to take into account, but we are aiming to get over those, and if we can go as quickly as we can, we will do so. We are also looking at other asset sales across Government and in other departments and an interministerial committee, on which my esteemed and very capable colleague Lord Marland of Odstock is our representative, is working hard on the matter. I would love to go quicker if we could with asset sales, but it is a bit of a holy grail.

Turning to Wendy Alexander’s questions, I hope to get the debate about moving the EU scheme to 30 per cent going in the first part of the year and to reach a conclusion in the European council in the spring. A number of leading countries now back our position; we started the ball rolling with the French and the Germans, which was a good start. However, the French minister has changed and we have to ensure that the whole French Government has signed up to the proposal. Since we came up with the joint position on the move to 30 per cent, we have secured the backing of the Danes, the Swedes and the Spanish. We now have quite a substantial group, which is important, although the Poles and certain other central and eastern European countries face real problems that we need to address.

The cross-party ambition to decarbonise is as clear as it ever was. We are governed entirely by the Climate Change Act 2008, the 80 per cent reduction goal and the advice of the UK Committee on Climate Change. That structure, which the 2008 act put in place, is a very important way of keeping us on track, and I would not want to be the Secretary of State for Energy and Climate Change at the receiving end of any criticism.

The formulation of exact targets for the green deal is particularly difficult, given that we are relying on getting big private sector companies such as B&Q and Marks and Spencer involved in the process. We will be able to be clearer about that in due course, but it is always difficult to make firm projections at an early stage. The Energy Bill contains a number of incentives that we already talked about to regulate the private rental sector—of course, there are even more powers in that respect north of the border. For example, we want to ensure that tenants can get a green deal and that landlords cannot unreasonably refuse any such request. Those measures will come in from 2015, and we are considering other incentives. We are acutely aware that we will not get the private investment that we need to make the green deal work unless we put in place a very clear structure of incentives.

On the next point—[Interruption.] I am sorry—my handwriting is so awful—

It was about climatic events.

Indeed. I am entirely sympathetic to that point. In my recent discussions with insurers, I was very much struck by the fact that in the past 10 years flood damage claims in the UK amounted to £4.5 billion compared with £1.5 billion in the previous 10 years. I am, of course, talking in rough numbers—I am sure that the Association of British Insurers will provide you with the exact figures. Contrary to some press reporting, that enormous increase in claims cannot be attributed to only one event. We have experienced an increasing series of particularly extreme flooding events, and I am very worried about the situation. I should point out, though, that adaptation and the flood defences budget are the responsibility of Caroline Spelman, the UK Secretary of State for Environment, Food and Rural Affairs, and that the issue is, in any case, devolved to Scotland.

Nevertheless, Mr Harvie is absolutely right to say that the adaptation agenda will be increasingly important not only in flood areas but, over time, to the vast amount of our activity. I am not sure that people actually appreciate that. After all, if wind speeds increase, we will need to look again at how we fix our roof tiles, and if we have hotter summers, we will have to look at the specification of road tarmac to stop it melting. I very much agree that it is all going to have a profound effect.

I should say to Marilyn Livingstone that I answered a number of questions earlier about support for manufacturing in the ports, and I very much welcome the Scottish Government’s initiative in that respect. The industry is going to be vastly important—after all, the UK is already the world’s largest offshore wind power country and we are only in the foothills of what the industry will be able to do—and I very much hope that we will have substantial manufacturing capacity. We have already had a number of announcements. I hope that that situation will continue and, as I say, I very much welcome the Scottish Government’s initiative.

Thank you very much. I am very sorry for having to rush off and, indeed, for arriving late.

Thank you for taking the time to come along this morning. The session has been very helpful, but I am sure that further questions will arise and that you will be happy to take them in writing in due course. Please pass on to the Cabinet Secretary for Environment and Rural Affairs our apologies for delaying your meeting with him.

10:53 Meeting suspended.

10:57 On resuming—