Select Committee on Environmental Audit Appendices to the Minutes of Evidence


Memorandum from the Environment Agency

Environment Agency submission following publication of the Performance and Innovation Unit Review


  The Environment Agency welcomes this opportunity to provide a submission to the Environmental Audit Committee. The Agency regulates power stations and on-shore gas production facilities and it is this interface with the energy markets, together with our interest in and responsibilities for climate change issues, which form the basis of our close interest in energy related activities. The Environment Agency is intending to contribute to the current debate and support the process of tackling change.

Summary Points

  Publication of the PIU review and the Government's forthcoming consultation and commitment to legislation provide a rare moment to achieve major policy shifts and expedite action.

  The scenarios out forward in the PIU report show that it will be possible to deliver a 60 per cent reduction in carbon dioxide emissions by 2050. The Agency calls on the Government to adopt this as an aspirational goal, acknowledging that the environmental objective will tend to take precedence in energy policy.

  The Agency calls for a long-term 2050 target for renewable energy to supply 50 per cent of the UK's non-transport energy needs.

  The major focus of future energy policy should be to reduce demand and increase the use of renewable energy and CHP.

  The Agency supports a high profile energy productivity programme to deliver the 40 per cent improvement in domestic energy efficiency recommended by the PIU.

  Sustainable energy will require more than supply changes in the energy sources of our energy system—it will require a total change in the way the energy system operates.

  An improved approach to planning for renewables is required which cascades down from regional targets to community level with increased public participation.


  2.1  It is vital that the UK develops a clear energy policy that makes transparent our objectives for the future. We note that one major conclusion in the IPCC'S Third Assessment Synthesis Report is that early action to reduce emissions is needed: the lower the level of stabilisation of greenhouse gases the greater the benefits in terms of avoided damages associated with climate change[10].

  2.2  We welcome the recasting of government energy policy objectives proposed by the PIU Energy Review and strongly support their conclusion that "where energy policy decisions involve trade-offs between environmental and other objective, then environmental objectives will tend to take preference."[11] It will be important to devise mechanisms whereby the environmental objective can take precedence. Until now this has been impeded by the difficulties in capturing external costs and other routes have not always been deployed. The Agency intends to support the implementation of this objective.

  2.3  In addressing the environmental impacts of our current energy systems, whilst maintaining a secure energy supply, we need to have a clearly defined vision of future energy production and consumption. The scenarios set out in the Energy Review help to achieve a holistic and integrated view of the phase-out of fossil fuels and the scope for their replacement by renewables, or other low-carbon energy technologies. Furthermore they demonstrate that it is possible to provide an energy system which can achieve the 60 per cent reduction in carbon dioxide emissions by 2050, recommended by the Royal Commission on Environmental Pollution and endorsed by the Environment Agency.[12]

  2.4  We support the view put forward in the Energy Review that any shift towards renewable energy must be in the context of an overall reduction in energy demand. The priority of Government energy policy should be a high profile energy productivity programme to deliver the 40 per cent improvement in domestic energy efficiency recommended by the PIU, together with medium and long-term targets to reduce fuel and electricity consumption from business and transport sectors. As the Review affirms, energy efficiency can make a very large contribution, has very low (or negative) net costs, has no conflicts with other policy objectives and is flexible.


  3.1  Achieving switches to sustainable energy will need to overcome inertia in systems and the overcoming of barriers. The Energy Review sets out a coherent policy framework that covers these issues so that in the longer term higher levels of renewable energy supplies are achieved. We will be looking internally to see how a major scaling up of the renewable energy technologies will interact with our responsibilities and will work with new partners on this area.

  3.2  The Environment Agency supports the Government's target to source 10 per cent of UK electricity from renewable sources by 2010 and the target proposed by the PIU of 20 per cent by 2020. We would argue that energy recovery from non-renewable components of waste streams or from mixed waste incineration should be excluded from both targets. The 10 per cent target is challenging but achievable, given the low base of installed renewable energy from which the UK starts. It will give a much-needed boost to the UK renewables industry. As the Government recognises, renewable energy is a substantial new industrial driver, which needs fostering. With stimuli, it may well be possible for the 2020 target to be exceeded, as such targets have regularly in countries such as Denmark.

  3.3  For renewable energy to succeed in the longer-term it will be necessary to make changes to the UK electricity system so that it will be able to accommodate an increased contribution from embedded generation and intermittent sources. Whilst some renewable energy sources produce electricity on an intermittent basis, a substantial amount can be predicted reliably. To achieve renewables penetration beyond 10 per cent or 20 per cent, we will need to adjust our transmission and distributions networks, and utilise versatile storage technologies such as regenerative fuel cells.

  3.4  Even longer-term targets would help to send the right directional signals to energy markets. We recommend a target for renewable energy to supply 50 per cent of the UK's non-transport energy needs by 2050. This would place renewable energy policy within a longer-term framework for substantially reducing carbon dioxide emissions and transforming our energy system.

  3.5  Some renewable energy could become highly decentralised with individual consumers generating their own power through photovoltaics or micro-wind turbines. It is important for the financial viability of these micro-generators that they are allowed to participate in the electricity market. "Net metering", or even "premium metering", should be compulsory so that they can sell electricity back to the network when they are not in need of the power themselves. We were disappointed that there is no facility in the Utilities Act to facilitate the introduction of two-way metering of electricity. The extra cost at time of replacement is minimal and we urge the Government to rethink this option as a way of introducing an enabling technology and sending a clear signal.

  3.6  Some renewable sources, for example biomass and solar, are capable of generating both electricity and heat, and their overall energy efficiency is greatly enhanced by doing so. This does require a more holistic approach but is worth including in forward planning as it will have a mutual benefit in environmental and economic terms.

  3.7  We urge the Government and OFGEM to implement the recommendations of the Embedded Generation Working Group in as short a time period as is possible. Removal of the market barriers to embedded generators is a prerequisite to the delivery of long term renewables and CHP targets.[13]


  4.1  The Agency is concerned by the low installation rate of renewable energy over recent years and recognises that the annual rate of installing renewables capacity will need to increase by seven fold in order to meet even the 10 per cent renewable electricity target. There is therefore an imperative to use every opportunity to remove barriers and shape policies in such a way that enable a higher rate of uptake. The operation of OFGEM may need to be considered to see how it might contribute to the removal of barriers.

  4.2  Official statistics show that renewable energy contributed 2.8 per cent of electricity generation in 1999. This figure includes energy from landfill gas and waste combustion. Much of the content of waste is from non-renewable sources and should not be promoted as a renewable energy source, or included as a contribution to Government renewable targets. Landfill gas should decline over time as organic matter is excluded from waste streams going to landfill nevertheless, whilst it is being produced its use as an energy source has a double environmental dividend. It not only converts the methane into a less harmful greenhouse gas (carbon dioxide), but also offsets the carbon dioxide emissions that would have been generated elsewhere if a fossil fuel plant had been used to generate the electricity.

  4.3  The figure of 2.8 per cent disguises the true rate of long term expansion. The majority of the existing "renewable" electricity comes from large-scale hydropower landfill gas and refuse combustion; many of these have no further expansion potential. Those sources that have a larger contribution to make in the future, such as off-shore wind, energy crops, PV, wave and tidal power produce a minuscule fraction or nothing yet. This reinforces the challenges ahead and the need for a more pro-active approach in shaping the energy future for the UK for which there is a large competitive advantage.


  5.1  We understand the Government's desire to reduce energy prices through improvements in the efficiency of the energy industry as this leads to economic benefits for the country. However, cutting costs for consumers should focus on reducing demand as well as lowering the price, as there are substantial economic costs associated with the inefficient use of energy in the UK, and the decreasing price of energy tends to perpetuate inefficient use. The environmental costs of electricity generation are not currently reflected in the price and we believe that the domestic sector should also be brought within the carbon levy in the longer term. We acknowledge Government policy in this area, such as the Climate Change Levy and the energy efficiency initiatives of the Energy Saving Trust, but we feel that more effort and resources need to be allocated towards encouraging energy efficiency. We support the proposal of the PIU that energy efficiency in the domestic sector should be improved by 40 per cent by 2020.

  5.2  It would be unacceptable to allow high energy prices to have a negative impact upon low-income households. This committee has voiced its opinion on fuel poverty very clearly, which we share as it prevents us from meeting our duties in a different way. However, we feel that such fuel poverty is best alleviated by directly tackling low incomes and poor quality housing rather than lowering fuel prices for all. We recognise and commend the Government's intentions to increase their support in this area through expanding their Home Energy Efficiency Scheme and Energy Efficiency Standards of Performance programmes and would urge that it remains a priority for additional resources until the problem of fuel poverty is fully turned around.

  5.3  Government research has shown that the impacts on energy prices of delivering a low carbon economy are likely to be small. The Energy Review estimated that the 20 per cent renewables target by 2020 could be achieved with an increase of electricity prices of 5 to 6 per cent. The Inter-departmental Analysts Group (IAG) report into Long-Term Reductions in Greenhouse Gas Emissions, concluded that moving to a carbon-free generation system by 2050 could result in anything between a 20 per cent increase to a slight fall in electricity prices.[14] The Group, which included economists from DTI, the Treasury, DEFRA and the PIU, also estimated the overall effect on the economy of delivering carbon-free electricity would be between +0.1 per cent to -0.2 per cent of GDP (with GDP having grown three-fold by then). These are very small effects, which may even be beneficial to the economy as a whole.


  6.1  We urge Government to encourage and enable research into how electricity networks can be modified to accommodate increasing contributions from CHP and renewable energy sources whilst maintaining quality of supply.

  6.2  The Agency believes that the Government must be bold in its support for new and renewable energy whilst acknowledging the issues that they raise. The process of enabling an energy transition from a fossil fuel based economy to a non-carbon alternative will take a very long time to engineer, whereas the threat of climate change is severe and potentially close at hand. Therefore we must act quickly to stimulate the development and expansion of renewable technologies within the UK economy. Potentially, renewable energy is a vast global industry.

  6.3  Government should implement measures that encourage the deployment of renewables at the domestic scale. For example, improved support for energy insulation materials coupled with a future levy on domestic fuel with exemptions for low-income households, would increase the financial favourability of small-scale renewables. Solar heating systems for house roofs, small wind turbines and other new technologies, such as fuel cells, have the potential to play a huge role in meeting household energy demand (and thereby indirectly reducing household primary energy demand) in the future. Two-way metering with a fair price for small scale generated electricity as a way of enabling small but vital step changes should be encouraged.


  7.1  We encourage the involvement of local and regional communities in the development of renewable energy and suggest that their participation, and acceptance of their responsibility to deliver local contribution to national targets, is vital to success.

  7.2  There is a long way to go in raising public acceptability of the high profile renewables, such as onshore wind, to necessary levels. We feel that there needs to be far greater public involvement in a proactive decision-making process regarding renewable energy developments and their environmental and economic benefits. We welcome the new assessment of regional targets for renewable energy recently announced by the Government and the Community Renewables initiative. These are practical steps towards increasing renewable energy output bringing the generating infrastructure closer to the consumer through an increasing number of smaller, local generating units. The traditional centralised electricity system relies upon a relatively small number of large generating units dotted around the country which takes electricity production (and its environmental impacts) out of sight and out of mind for most people. Thus the development of renewable energy will force the issue of how and where electricity is being produced and the corresponding environmental and social costs. It is for this reason that a new approach to planning and public participation is required for the successful development of renewable energy.


  8.1  Sustainable energy has been neglected in previous energy policy, and we believe that if the Energy Review is implemented in full the Government will have gone a long way to properly integrating environmental priorities into energy policy. We support the recommendation that the central energy policy objective of the Government should be amended to be "the pursuit of secure and competitively priced means of meeting our energy needs, subject to the achievement of an environmentally sustainable energy system."

  8.2  We also welcome the proposal for a Sustainable Energy Policy Unit to be established by May 2002 to implement the findings of the PIU Review. Some aspects of energy policy and regulation, notably the recent introduction of New Electricity Trading Arrangements (NETA), have clearly placed sustainable energy at a disadvantage. These contradictions in Government policy need to be addressed urgently if we are to deliver our targets for renewable energy and CHP.


  An assessment of the role, if any, to be played by nuclear power must take full account of the financial and economic costs of the management and storage of radioactive waste and the regulatory framework. The Agency would, in any case, question the commissioning of new nuclear generating capacity in the absence of a sustainable long-term strategy for radioactive waste management. It will also be vital to take account of the need to secure the consensus of the general public if a longer-term role for nuclear power is envisaged.

April 2002

10   IPCC 2001, Climate Change 2001. Synthesis Report Contribution of Working Group I, II, III to the Third Assessment Report of the Intergovernmental Panel on Climate Change. Back

11   Performance and Innovation Unit (2002) The Energy Review. Cabinet Office. Back

12   Royal Commission on Environmental Pollution (2000) Energy-the changing climate. 22nd Report. TSO. Back

13   DTI (2001). Embedded Generation Working Group Report on Network Access Issues. DTI/OFGEM/DETR. Back

14   IAG (2002) Long-term Reductions in Greenhouse Gas Emissions in the UK. Report by an Inter-departmental Analysts Group. DTI. Back

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