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6 pm

Dr. Vincent Cable (Twickenham): I commend the performance and innovation unit report. It gave not just a good canter around energy issues, but a good sense of strategic direction. It made it clear that although affordable energy was an essential driver, there are a lot of risks. Among those risks, one is pre-eminent: global warming and the need for a low-carbon economy.

The report dealt with security of supply in an intelligent, unemotional and balanced way. It brought out the fact that there are good arguments in relation to security of supply, which we must deal with, but there are also rather disreputable arguments, which are fundamentally economically nationalist and protectionist. I think that we had a bit of that from the Welsh Nationalist and from the Conservative spokesman, who was particularly striking as he was talking about free trade yesterday, but not today.

There was a helpful contribution from the hon. Member for Croydon, South (Richard Ottaway), who made a distinction between different types of energy security. It is worth while breaking them down. One has nothing to do with Russian gangsters and Arab fundamentalists. It is about how to manage the relationship between the producer, the consumer and the regulators—the California problem: how to create an environment where energy producers can invest as, say, oil companies do over 30, 40 or 50 years in gas projects or, for a big new power station, over a decade or more, when consumers are looking for short-term advantage; and how to balance those issues. It is the job of the regulator to do that by creating an environment in which one can have long-term contracts. There is a genuine issue that Mr. McCarthy is familiar with but has not yet fully solved.

There is a second problem, a different issue: disruption of production. There can be disruption of production for a variety of reasons: technical reasons, failures in the grid, man-made disruption—as we had with the energy blockade a couple of years ago—and disruption of raw material supplies from overseas. However, there is a solution: if there are risks and they can be quantified, one builds up strategic reserves. One of the lessons of the

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blockade two years ago was that the oil companies and the Government had not correctly built up the right level of strategic reserves.

There is a third type of energy security issue, again a different one, which is about price shocks. The problem is that we are not economically an island. The fact that a country has indigenous oil and gas does not protect it from oil and gas shocks internationally. The Brent crude price is linked to the middle east price. There is an international gas price and an international coal price. Having indigenous production does not insulate us from those factors.

When we talk about energy security of supply, we need to be more specific about what time horizons we are talking about. That is crucial. I go back to what my hon. Friend the Member for Hazel Grove (Mr. Stunell) said. The debate should focus on 50 years from now, when the world will be very different. It will be dominated by renewable energy and major advances in energy efficiency, possibly things such as carbon sequestration, which would in the long term be the future of the coal industry. Many of the worries people are expressing are not about that period half a century on, but about the intermediate position, when we have a relatively high proportion of gas in the electricity mix. A lot of those security issues surround that precise issue.

There is a high percentage of gas in the electricity input for good reasons. It has been competing with coal on price because it is cleaner, emits less sulphur and emits 60 per cent. of the carbon dioxide. It is competing with nuclear power on economic grounds because nuclear power has environmental risks, so there are good reasons why gas has that position, at least in the medium term. A lot of the negative comments about gas are misconceived. I make two brief points about it.

The first is the running out of supplies issue. The hon. Member for Stourbridge (Ms Shipley) made some helpful historical points. We always underestimate the availability of reserves. In the oil and gas industry, constant exploration takes place. There is horizontal drilling and deep-water drilling. No one knows how much gas and oil there is west of Shetland in the deep continental shelf. All the current estimates of supplies could be way out. They constantly have to be revised.

The more important point is that the sophistication and robustness of the international gas business and market has been underestimated. Several of the many pipelines that exist are in north Africa, which represents just one corner of the business. There are also pipelines going through Spain, Italy, Algeria and Russia. Although Algeria has experienced a civil war and Russia has been through a period of upheaval, such events have had not the slightest impact on the supply of gas from those countries. Gas is increasingly supplied by boat and liquefied natural gas carriers, rather than through pipelines. Various means of supply therefore exist within the gas industry itself. Although we must be responsible and think about the threat of terrorism and so on, alarmist talk about it has been wildly exaggerated.

In the very long term, gas must of course be phased out, but because it is a carbon-based fuel rather than because of foreign suppliers. The reason why gas will have to go is that some 60 per cent. of the molecule by weight is carbon. In due course, it will have to be replaced by renewables. We should focus on creating a set of

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incentives through which renewables can be brought onstream rapidly, and in the right manner. The way to do that is to create a level playing field and send the right signals by establishing a carbon tax and a renewables obligation. We should not try to pick winners, or be highly prescriptive about which renewables will be competitive in 20, 30, 40 or 50 years' time, because we do not know the answer.

Yesterday, the European Commission produced a particularly daft initiative: a biofuels directive that establishes a renewables obligation specifically for biomass. Perhaps biomass is the fuel of the future—I have no idea—but to narrow the field in that way is to adopt completely the wrong approach. In establishing a very strong long-term commitment to renewables, we must accept that we do not yet know which are the fuels of the future. A strong argument exists, therefore, for diversity and variety and for having an open mind about which fuels will come through in the long term.

6.7 pm

Paddy Tipping (Sherwood): The title of today's debate—"Energy: Towards 2050"—shows clearly that we are talking about long-term policies. Our discussions and decisions in the coming months and years will have real consequences for the economic activity, living standards and—perhaps most importantly—environment of our children.

I welcome the performance and innovation unit's report and the vigorous debate that is taking place. I want to focus on two key issues raised in the report, one of which is the prospect of cheap energy. Indeed, in his foreword to the report, the Prime Minister says:

He is of course right, but the conditions have changed. The days of cheap energy and cheap electricity are perhaps behind us. There are various reasons why energy is cheap at the moment, but by and large the practical reasons have disappeared.

There is an issue of principle here. We have discussed the need to invest in new plant and new equipment, but the notions of cheapness and of investment in the future do not sit easily together. One current problem in the nuclear industry is that of replacing nuclear with nuclear, which has not only environmental but cost implications. Power stations that produce electricity from coal are aged and need replacing, and by definition, higher prices will lead to a focus on conservation. I am therefore sceptical of the notion of cheap energy that underpins the report. Indeed, the renewables obligation belies that notion, because it clearly acknowledges that we must pay more for sources of renewable energy.

Another vital issue raised in the PIU report is the notion of a balanced energy policy. I feel that the report is complacent on that score. The hon. Member for Twickenham (Dr. Cable) spoke of the importance of gas. I do not deny its importance, but I think that it would be risky in the long term to allow 70 per cent. of our energy supply to depend on gas, 90 per cent. of it from abroad, by 2020.

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The Minister spoke emphatically of the need for a balanced energy policy. I want him to trust his own judgment, because the PIU report was made to and not by the Government. I hope that the voices we have heard here today calling strongly for a balanced energy policy will be heeded.

All sources of energy involve difficulties. The hon. Member for Twickenham, who produced a vigorous defence of gas, pointed out that in the long term there were sure to be problems, although they might not be as serious as we think. Although I support them, I consider the targets for renewables very challenging: I anticipate real difficulties in our achieving 10 per cent. by 2010 and 20 per cent. by 2020.

Planning issues have been mentioned, but there are other key problems with the transmission system: recyclables, or renewables, will require a different system. As has been said, the most important issue for the nuclear industry is the cost of disposal and decommissioning, which the private sector alone will not be able to meet.

That brings me to coal. As my hon. Friend the Member for Doncaster, North (Mr. Hughes) said, coal is an old friend. It has done its business over the years. It is indigenous and reliable. The problem is that it is not clean.

The coal industry has short-term difficulties, mid-term prospects and long-term environmental constraints. Let me tell the Minister how delighted I was with the coal aid operating scheme. I am extremely pleased that a new European Union framework has been established. It must, however, be translated into a United Kingdom context, and it is vital for that to happen by January, because, as the Minister knows, the current subsidy scheme runs out on 23 July. I am very keen on the notion of bridging, and I heard the Minister say that he would consider it on a case-by-case basis, but I think the industry needs more clarity.

The idea of investment aid, which is part of the new EU framework, is very important. I know it has been difficult to negotiate with partners, but it is good that for the first time we shall be investing in the long term—in new faces and new seams. At Clipstone colliery, for instance, there is a desire to access the black shale, at a cost of perhaps £20 million. There is a possibility of £6 million in support, which would be vital in the mid term.

In the long term, we need to do more to make coal environmentally friendly. It pains me a great deal that we in the United Kingdom spend less on clean-coal research than is spent in Japan, which has no coal industry. I hope the spending review will acknowledge that, and will make a move on clean coal technology.

It is vital to consider carbon sequestration, which, as has been said, involves real problems but is a source of help for the future. I would like to see a demonstration plant. I would like to see the public and private sectors working together. I would like to see coal producers and generators establish a clean coal plant. As we have heard today, coal is a growing fuel throughout the world—so we can demonstrate new technology and sell it across the world. We can sell it to China and India: it can be a world leader.

We need to consider other issues, too. Coal-mine methane is a legacy of the coal industry, and if we can tackle it, we will be in a win-win situation—it is a pollutant, but we can get energy from it. We made

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progress in this year's Finance Bill, but it is vital to go further. Methane from landfill is covered by the renewables obligation, but coal-mine methane is not. That issue is being tackled in debates on the Finance Bill at the moment, and I hope that the Minister will carefully consider the amendments that have been tabled, as they would provide an easy way out that would cost the Government nothing.

I hope that the Minister will also think about combined heat and power. He did accept that there were problems, but those problems are very real. Not only will we not achieve our target in 2010, but we have not yet achieved our 2000 target. Again, the renewables obligation for exported electricity and CHP plants, along with other measures, needs to be considered very carefully.

I want to say a few words about different forms of renewable energy sources. Biofuels are very important, and again, progress has been made. Biomass has real environmental benefits as a source of fuel; it is also good for wildlife. We should focus on biomass, but we should also look at the liquid fuels, such as biodiesel and bioethanol. Again, progress has been made in this year's Finance Bill—the rate of duty on biodiesel has been reduced by 20 per cent.—but it ought to be put on the same basis as hydrogen-based liquid fuels such as LPG, which benefit from a 40 per cent. rebate.

It is important that we make further progress in that direction. We need to do better. We need to ensure that we have an energy policy that has good consequences for our children: it must be balanced, and it must recognise the importance of the environment.

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