Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 480-499)


10 OCTOBER 2006

  Q480  Rob Marris: Do I understand correctly that it is broadly a question of leaving it to the market and therefore you do not have in mind numbers of new nuclear power stations because that will depend on the energy mix as determined by the market. Do I understand you correctly there?

  Malcolm Wicks: Yes. Government will not be building nuclear reactors, will not say they want X number of nuclear reactors. I always thought myself that if at the moment one fifth of our electricity is from nuclear, if the market came forward with something to replicate that broadly in the future, from my own point of view it seems to me that would make a useful contribution to the mix. We are not going to do anything to facilitate that, nor this percentage nor that percentage.

  Q481  Rob Marris: Do I take it that if you are doing nothing to facilitate that, there will be no direct subsidies for new nuclear build?

  Malcolm Wicks: No direct subsidies, no.

  Q482  Rob Marris: And there will be no indirect subsidies either.

  Malcolm Wicks: No.

  Q483  Rob Marris: Is that right? Is that the Government's position? No direct subsidies and no indirect subsidies. Am I clear on that?

  Malcolm Wicks: No cheques will be written, there will be no sweetheart deals.

  Q484  Rob Marris: Is new nuclear power station building viable without a high price for carbon under the Emissions Trading Scheme?

  Malcolm Wicks: The carbon framework incentivising carbon reduction hopefully through the development of the ETS is very important here. Also of course what is important and we set out some arithmetic on our cost benefit analysis, is the economics of nuclear vis-a"-vis the economics of gas and oil.

  Q485  Rob Marris: Under the ETS does the price of carbon not partly determine the economics of new nuclear?

  Malcolm Wicks: Yes, it does, but I am also saying that the price of gas and alternative fuels is also important. Although it would be a silly energy minister who would predict prices, nevertheless the economics have moved in favour of new nuclear because of the relatively high price we have seen recently of oil and gas. It is not just to do with the ETS it is to do with a wider economics judgment.

  Q486  Rob Marris: What if, at the European level if we get it, the ETS works in a way which most people would see as desirable, namely emissions fall, in that scenario the price of carbon is going to fall and that is likely to make new nuclear less economically viable. What would the Government seek to do in that situation, which is in one sense a desirable situation if the price of carbon is falling because there are fewer emissions because people have cleaned up their act literally and metaphorically?

  Malcolm Wicks: We are certainly not there yet. The whole objective is to see CO2 emissions fall. I think this line of questioning is rightly focusing on the importance of ETS but it is not the only focal point and prices of rival fuels are also pretty important.

  Mr McIntyre: On the point about the carbon price and the possibility that it might fall if emissions fall, the carbon price will be determined by the relationship between emissions and the allocations that the emitters get. It is not just determined by the level of emissions. On the wider point, we did publish with the review our economic study, our cost benefit analysis of nuclear which sets out some scenarios for the future. The economics depend on a number of factors not just the carbon price. They depend on assumptions about future gas prices because gas is probably the alternative fuel for the generators and also for nuclear costs, so these scenarios take combinations of those factors and the conclusion we reached was that on the scenarios which are more likely the cost benefit analysis for nuclear comes out as positive. There were also some scenarios where it came out as negative and obviously a judgment has to be made as to which of the scenarios is more likely, but overall we felt that the judgment was positive.

  Q487  Rob Marris: Are you familiar with the work of Amory Lovins at the Rocky Mountain Institute who suggests that the opportunity cost of spending money on nuclear build is actually bad for the environment because you get a bigger bang for the buck, a better improvement for the environment if an equivalent amount of money is spent in energy consumption reduction and in generation through other means?

  Malcolm Wicks: I have met him in the States and talked to him and am aware of his views. I am aware of a range of views and they do not all point in the same direction. Our own judgment, to repeat myself really, is that to tackle the issue of climate change—there are other related issues about energy security which are relevant to nuclear but in terms of climate change—we just have to have a multi-pronged approach. We made a judgment which might be controversial that nuclear probably should be part of that. For those who are sceptical about the economics—I am not myself, but for those who are sceptical and think it cannot be afforded—then the test will be, will it not, when the market does not come forward with any proposals?

  Q488  Rob Marris: As long as I can get you to reiterate—and I was pleasantly surprised at your statement—that there will be no direct subsidies for new nuclear build in the United Kingdom and there will be no indirect subsidies. Did I understand you correctly?

  Malcolm Wicks: That is right. We are not in the business of subsidising nuclear energy.

  Q489  Miss Kirkbride: Unlike the whole of the industry, do you believe that it is possible to see a private nuclear build programme in this country unless the Government successfully negotiate the long-term price of carbon? Can it still happen?

  Malcolm Wicks: A thriving carbon market, hopefully through the ETS, will help bring forward—

  Q490  Miss Kirkbride: Help or be crucial, be the deciding factor?

  Malcolm Wicks: I should say help. We are repeating ourselves on this side now. I think the price vis-a"-vis gas is also pretty critical in this.

  Q491  Miss Kirkbride: The Prime Minister is going to be very disappointed because the industry does not believe it can happen unless the Government play their role in the long-term price of carbon.

  Malcolm Wicks: That is not what I am hearing.

  Q492  Chairman: Is the difference not that the companies which like to build nuclear reactors can take a view on what is going to happen to gas prices and oil prices using their informed judgment of the market? However, the price of carbon is set by Government effectively and they have to know what the Government's intentions are and you are being a bit Delphic about it. I actually have to say that I think it would help; I think Julie is right. What I hear from the industry is that they have to have greater certainty in the long-term price of carbon to make that decision.

  Malcolm Wicks: We are very committed to the long-term nature of an emissions trading scheme. We hear all the time—I agree with you on this—that the industry wants certainty.

  Q493  Chairman: Is the truth not that you are trying to be good Europeans. You are making the pledge to ETS but actually in the document you are rightly saying that the Government will go beyond ETS if it has to in order to deliver nuclear power. That is what you are saying, is it not?

  Malcolm Wicks: I am saying that the ETS is very critical to this but it is not the only factor.

  Q494  Mr Bone: You are very clear that there will not be any indirect subsidies for new nuclear build. I am surprised that I have heard that today. Does that mean there will be not a single tax advantage for building new nuclear build, as one example, because that would be an indirect subsidy?

  Malcolm Wicks: No, there will not be any special fiscal arrangements for nuclear. It should not be a surprise, with respect, because we have said it very clearly in the Energy Review. You could pursue this if you wanted by saying that nuclear waste is quite a complex subject and we are going to look very carefully at that to make sure that the full costs of new nuclear waste are paid by the market.

  Q495  Roger Berry: The thing I do not understand about the argument is that the Government said that energy security is a policy objective. The energy security is being identified as a benefit of nuclear, as indeed for some other energy sources. I do not understand a policy which says that energy security is an objective and that nuclear helps fulfil this objective and yet the Government will offer no incentives to achieve that objective by providing support for nuclear. I just do not understand it.

  Malcolm Wicks: Where we are in terms of trends and policy objectives is that at the moment all the projections show an increasing reliance on imports, particularly for gas. I gave a figure earlier: by 2020 it could be 90% of our gas being imported and it is only 10% at the moment. Is that a worry? I personally think it is a worry and what we have to strive for in the future is a better balance between the imports we shall need to make—and we need to be careful about where they come from; they must not all come from one region and some should come in as liquefied natural gas, some from pipelines from Norway, et cetera. We need a better balance between that and a bit more self-reliance and a bit more home-grown energy. Fortunately some of the things we need to do about global warming, energy efficiency, renewables, nuclear, carbon capture storage are some of the same things we need to do for energy security. We have set out a framework which we think will deliver that.

  Q496  Roger Berry: But if the Government's policy towards the nuclear industry is that this is a matter for the market to decide, but we have a problem of energy security which has to be addressed by Government, I do not understand how on the one hand in relation to nuclear you say you will let the market decide and there will be no intervention, yet one of the reasons we are sympathetic to nuclear is precisely because it gives us greater energy security. You have a policy objective which suggests a policy instrument doing something to support those energy sources which promote energy security, yet you are telling us that you are not going to do that.

  Malcolm Wicks: It is because we have confidence that the policy framework we are putting forward will deliver that balance between home-grown energy and imports that we are achieving. We feel that will happen. One exception to this, where we are more interventionist, is with renewables. I do not know whether we are coming onto that. There we have said that we should like to see 20% of our electricity coming from renewables by 2020 and through things like the Renewables Obligation and one or two other mechanisms, grants, we are trying to facilitate us hitting that target.

  Q497  Mr Binley: I am sorry, Minister, but I really am confused. Last year the Government promised that they would make a final decision on nuclear for better or for worse and I hear prevarication on this subject which gets cloudier and cloudier. The nuclear energy people tell us that decision needs to be made very quickly because of the timeframe to which you have alluded. Can you tell us when the decision will be made?

  Malcolm Wicks: You have not heard prevarication from me because we have said in the Energy Review document that we feel that nuclear should be part of the mix in the future. I have also said—and this is consistent with where we are in terms of the balance between government policy and a liberalised market—that it will be for the market to deliver that. We are now going to pursue a range of consultations to see what barriers there might be in terms of planning, for example, which might get in the way of that. We are not a command economy. Some colleagues here may regret that. We are not in the business of saying there will be ten nuclear reactors, one in your constituency maybe, and we are going to pay for them and lay the concrete and so on.

  Q498  Mr Binley: One in yours?

  Malcolm Wicks: Possibly. We are not in that business and I doubt you would want us to be in that business.

  Q499  Mr Binley: At some stage somebody has to make some decisions about this.

  Malcolm Wicks: I thought we had? I thought there had been some controversy about that.

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