Examination of Witnesses (Questions 280-299)
MR STEPHEN ALDRIDGE, MR NICK HARTLEY, MR GORDON MACKERRON AND DR CATHERINE MITCHELL
WEDNESDAY 24 APRIL 2002
280. I made the point about 50 years ahead and I am now talking about 20 years ahead. Let us not move away from this point. You are now saying that we could meet the Kyoto targets for 2012, but if we follow all that is in your report and do nothing else, because nuclear power will decline after 2012, we shall then go backwards. In answering do not go much further than 2020.
(Mr MacKerron) I promise. We developed scenarios for 2020, the purpose of which is to explore the various ways in which things can evolve. It is true that if we met the 20 per cent target for renewables, and nuclear power winds down, as it almost inevitably will over that timescale, and other developments were unfavourable to carbon emission cuts, we may not have made a large advance. On the other hand, there are other recommendations in our report, especially about energy efficiency and CHP, and should those come to pass and should the overall rate of economic growth not be very high, we would be in a position of some improvement on the position as it would be at 2012. I think you are right to say that there are other possible developments that may mean that we shall not be in such a good position.
281. I attended a seminar of the Government's Chief Scientific Officer a couple of weeks ago and he outlined a scenario within the target that you have whereby we end up with three per cent extra carbon emissions by 2020.
(Mr MacKerron) The point is that we were not, as Nick said, trying to set out a complete and comprehensive plan. We have never tried to argue that those particular targets that we have recommended should be the sum total of all targets or policy making over that 20-year period. As things evolve it may be necessary to institute further policy measures to reduce a possibility of carbon taxation and emission on a wider scale, which would begin to have the effect of getting us to a more favourable position. It is fair to say that we did not try to look at the next 20 years and say, "Here is all that is necessary to move towards any particular level of target emissions".
282. When the Committee went to Germany a couple of weeks ago to see what the Germans were doing, the Germans spoke of Britain's position extremely enviously, both in terms of the different energy sources that we have available and in regard to the much greater capacity that we have to produce renewable power. It is greater than any large European country by some way. When comparisons of our capacity to produce renewables are made with what most European countries can produce, and when we make comparisons between our targets and theirs, there is a case to argue that we are being particularly parsimonious in the targets that we set. If countries with far less capacity can set more ambitious targets, what is wrong with us?
(Dr Mitchell) I would disagree with that.
283. You disagree with which bit?
(Dr Mitchell) I disagree that we are being particularly parsimonious with the targets. If you look at the targets that are in place around Europe, other than in Denmark, we are pretty much in line with them. Our 10 per cent target relates to an increase of what is known as new renewables, as compared with the conventional, large hydro power and biomass. With our 10 per cent we are pretty much in the middle of the European countries.
284. My point was not that our target in comparison with Germany or France or Italy was not similar. The Germans have a tiny bit of coastline and therefore much lower wind capacityhardly any capacityby which to produce any tidal or wave generating power. Looking across the Channel at Britain, they are bound to think that they could do loads if they only had what Britain has. Despite that our target is the same. That is the point that I was making.
(Dr Mitchell) You could look at it in that way. Certainly we have a wonderful range across all the resources. But in terms of bringing them forward I think that the 10 per cent target for 2010, which is in place for the renewable obligation, is more or less in line. I agree it is not in the same way, but if we adopt the 2020 targeta legislated onewe will be ahead of most countries because most of those countries abroad have aspirational targets.
285. Your August scoping note set a target of either 20 per cent or 30 per cent for 2020, but you went for the lower figure?
(Mr Hartley) Yes. We looked at the 30 per cent target and the criteria that we used was that of cost. I am pleased to endorse what you say about the potential that we have in terms of the physical potential. But the fact remains that renewables are still an expensive means of generating electricity. We are convinced that the cost of renewables will fall as learning takes place and there is greater deployment of those resources. A 30 per cent target looked to us to entail a greater cost than we considered was justified. It would be nice if experience shows that we were wrong and that the costs come down even faster than we envisage. In that case the targets can be reviewed. That is one characteristic of targets. Over a period as long as 20 years, it will be easy to take stock in 10 years' time and to see what the right target is. In terms of cost, there is no doubt that even the 20 per cent target is likely to cause some pain.
286. When as a Committee we visited Germany, it is fair to say that one thing that impressed us was how seriously geared-up the Germans were in this area. They already have advanced plans for large offshore wind farms, 30 kilometres out in the Baltic. They are putting in a great deal of time and effort. By comparison, our approach in the UK could be argued to be relatively timid. This morning you have already told us that the key driver behind this review was environmental, and specifically carbon reduction. If that is the case, why have you been relatively timid in relation to the targets that you are recommending to achieve that objective?
(Dr Mitchell) I do not think that we are being timid about what we are recommending.
287. You are certainly not being aggressive.
(Dr Mitchell) We have said that all energy policy decisions should be reviewed regularly and that nothing should be set in stone. At the moment, we have just under three per cent of our electricity coming from renewables. We have said, "Let us have a 20 per cent target in 2020 in order to establish a rate of deployment, enable learning to take place, for costs to come down". I think that 20 per cent is about right because if we do better than that, with the wonderful resources that we have, the target can be increased. It is important to have the 20 per cent target at that level to give confidence to the industry and to allow learning to occur. With a target less than that, clearly we would not have done that. We are at this low level now and 20 per cent is considerably higher, and if we are able to deploy at a greater rate, as I hope we are, we should review that target. It can go up because we know that we have the resources.
288. Basically we inherited the three per cent. The bulk of that is hydro-electric power, some of which dates back to the Second World War. We have not really done anything to get there. It was there already. You have said that if we need to go beyond the 20 per cent, we can, but we cannot unless someone invests in the technology by which that can be done. Industry is reluctant to do that because they do not see Government giving any kind of lead.
(Dr Mitchell) It is important to have the 2020 target in order to give confidence about Government commitment and it is important for encouraging those industries around the renewables industry to link into that. Frankly, the important thing now is to increase from that three per cent that we have today by removing those barriers to their development. We shall not reach that 10 per cent target, nor the 20 per cent target unless we overcome those barriers that we have today. While a target is very important, you can have a 50 per cent target, but if you do not get rid of the barriers today it will mean nothing. It is a combination of both: targets and removal of barriers. While we have a 20 per cent target that we put forwardwe know there is a large resourceif we do better we can talk about increasing the target. A target is important, but it is only 50 per cent of the equation.
(Mr MacKerron) In terms of giving the relevant industry confidence, the existence of a target that far ahead is important. The fact that it is 20 or 25 per cent is not material to investment decisions now, but it is material to the idea that there would be continued Government support on a long-term basis for the development of renewables at a good pace. We know that in the year 2002 it is impossible to know exactly what that pace will be by the year 2020. The existence of a target and the fact that there is some progressive commitment to the industry is more important than the precise number. To go much higher than the 20 per cent we thought would impose much larger costsdisproportionately higher the higher the target is.
Mr Francois: We have spoken to industry and they do not see it in those terms.
289. I can see the rationale for keeping open all the options. That may be a rationale that is also supported by the markets. It may slow down our progress towards the targets. In Germany we saw how they have aspirations of something like 50 per cent from renewables by 2050. That is quite a long way off. They have also decided to shut down their nuclear industry, whereas here we are keeping open all the options. By saying that we shall keep open all the options are we slowing down our desire to go for one option and make a big meal of it?
(Mr Hartley) The nice thing about renewables is that there is not just one option. There is a whole range of options. That is what marks out renewables technology from others and gives them flexibility. We certainly consider that it is important to develop a range of renewables that are particularly applicable to the UK circumstance. Having said that, I started by talking about the uncertainties that are involved in energy policy making and one of the remarkable things, looking back over the energy policy scene 50 years ago, is that the world was very different and technologies change rapidly. The technological options change. It is difficult to anticipate now precisely what options will be available in 20 years' time, let alone in 50 years' time. It is central to our report to say that at the moment it would not be sensible to put all our eggs in one basket. We need policy making that maintains the necessary degree of flexibility.
290. You talk about internalising the costs of nuclear energy. How fast should that happen? Could we do that straightaway?
(Mr MacKerron) Yes. A substantial proportion of the costs of nuclear power are already internalised. There are difficulties about calculating the full extent of internalisation until we are sure what kind of long-term waste strategy we adopt. The DEFRA consultation on that is taking some time to reach a conclusion. In principle, all externalities should be internalised as soon as possible. In saying that we do not contradict in any way, but we endorse the existing Government policy. Historically, one of the main difficulties has been that fossil fuels have not internalised their externalities. One of the major recommendations is that we should move towards a system of carbon valuation so that that particular kind of externality is internalised. We do not see any particular barrier in the short term from making sure that externalities associated with nuclear power are internalised. There are practical problems about the calculations but we are not in favour of any delay, and nor is anyone else, in ensuring that it is taken account of as swiftly as possible.
291. Would the externalities that should be internalised include such things as additional security costs in the light of 11 September? I am thinking of the need to secure nuclear fuels that are being transported and the need to protect places like Sellafield. What MoD costs are there? I know that the Government have been secretive about what is involved. How far should that point be considered?
(Mr MacKerron) It is difficult to divide it up. Much of the cost of any extra protection that is necessary at Sellafield would be attributable to a large volume of waste, some of which is military and some of which dates back 50 years. It would not be reasonable to suppose that the whole cost of any extra protection that may be necessary at Sellafield should be visited on the whole of the current nuclear generating industry or any future part of it. Clearly, to the extent that it concerns greater costs of transporting nuclear fuel and spent fuel, one would expect that to be a proper cost to be recognised and borne by those in that industry.
292. Given that your report is meant to provide a strategic framework to which Government can respond and take the whole energy area forward, having regard to climate change and so on, I do not feel that you have answered the point raised by Mr Challen. If on the one hand you say that there are uncertainties, and therefore we cannot put all our eggs in one basket, we have to be able to start now, to have the roadmap to meet the targets in order to get to where we want to be. It seems to me that at some stage there has to be an understanding and a recognition that decisions have to be made to close down some options. If you do not close down those options you will be preventing the option that you want to develop from being taken on board by policy makers. Surely, the role of your report and the guidance that you are giving to Government is to set at what stage and at what time some of those options should be closed off. You cannot have all the options all the time. At some stage decisions have to be made. I do not believe we have understood where you see nuclear power fitting into that. As long as you keep open that option on the issue of externalities, the less likely it is that you will have the framework within which all the renewables that you are talking about will be developed. What is your position on that? In the talks behind the scenes, what have you been saying irrespective of what is in the report? Where do you put the pressure on?
(Mr MacKerron) In the report one of the things that we said was that for current nuclear technology there is no case for public support. Because there is no Government policy that precludes nuclear development on the ground, we saidit is truethat the industry can put forward proposals for the existing types of nuclear technology. Because we said that there is no case for the public support of that technology, and because the economics of that technology are currently not favourable, in the current commercial conditions, I do not think that we would expect significant proposals to come forward. It is important to remember that nuclear power, in a way like renewables, is not just a single technology. There are possibilitiesno more than that yetthat the new generation of nuclear powermore modular in design, more decentralised and with very low waste characteristics and with better passive safety characteristicsmay be developed to a point of commercial development. If that were to be the case, and if there were real difficulties in meeting emission targets by other means, it would be useful to have those technologies available for deployment at some future time. For that reason we propose that the Government should give some support to that kind of development. To try to answer you specifically about making a decision on when and what to close, we did not have any explicit discussion about when that moment may be in relation to nuclear power, other than to say that it is not yet the time.
(Mr Hartley) I accept the question as being a real one. I emphasise that my view is that this is an ongoing process. Some of the ideas in our report have never quite been in the public domain in the way in which we have put them now. Therefore, there is a need for a widespread debate about how they should be implemented and how policies should be adapted. One point I would make is that we emphasise that there should be a further fundamental review of energy policy some time later in the decade. We put the date at 2007, but it may be then or somewhere around then. By that time some of the uncertainties about which I have spoken are likely to be resolved. A particular uncertainty that is likely to be resolved by 2007 is the next stage of the international climate change agreement. At that point it will be much easier to see how UK climate change policy, which was not the focus of our report, should be refocused in 2007 to meet those new commitments. Also by that time we shall have a better idea about how the various technological options will pan out and how far nuclear costs will be reduced and how far renewables costs are likely to be reduced.
Mr Francois: And the next general election will be out of the way!
293. I want to pick up on what you have just said. You talk about the new ICC arrangements. Surely, any policy document providing a framework for energy policy, if it is to be truly successful, needs to be cost-cutting. Therefore, the fundamental principle that we want to underpin energy policy needs to determine those actions that are being taken in another forum, whereby we are trying to get international agreements on ICC and so on. You have to have a starting point that underpins policy development in other areas as well. I still see hedging and waiting until 2007. We still have not got the fundamentals right. We need a fundamental set of values that can shape where we are taking the policy, do we not?
(Mr Hartley) The climate change agreements are likely to be the prime driver rather than the reverse. We were at some pains to emphasise that considerations of UK international competitiveness and industrial competitiveness would tell against us taking a stance on climate change which was substantially out of line with the stance of our industrial competitors. When the rest of the world moves, I think that we shall be able to move along and we shall be able to see the policy developing.
294. Should we not be shaping the rest of the world?
(Mr Hartley) The report lays out three different approaches to climate change policy: one is a totally leading role; one is a totally reactive role; and there is an intermediate role, in which some leadership is given, but the implications of policy for competitiveness are a key element of decision making. As I understand itI am not a spokesman for the Governmentthe Government's position in the climate change White Paper is that they want to take a role that is leading without actually fully committing us to the kind of cuts that the Royal Commission have suggested. That leading role has advantages. It has advantages in terms of enabling industry to develop new products that can be beneficial in a world market, but it also recognises that industrial competitiveness matters as a constraint.
295. We need to turn that constraint into an opportunity so that we end up with a win-win situation for energy, global security and competitiveness in the national economic framework. That is where your report is positioned to achieve that.
(Mr Hartley) The question is how far ahead one can afford to be without adversely jeopardising one's competitiveness. I agree that to some extent a leadership role enables a country to develop new products for which there are likely to be world markets, but there must be limits to that.
296. We are already being left behind. In Germany they are moving across to renewables to establish business worldwide and they are becoming leaders in that area. I think we are already missing an opportunity.
(Mr Hartley) We are suggesting a considerable increase in the amount of renewables in the UK energy mix. We see the importance of developing a whole range of new renewables industries that have the potential of being deployed in the UK and outside.
297. I have found the last 10 minutes or so absolutely fascinating. My colleagues' questions have been to the point, and to some extent they have reflected the Chairman's opening observations about the absence of engineers in your team. It has brought to my mind a poet, Hans Magnes Enzenberger from the 1960s. I believe he wrote a poem called "Song for those who know" which says: "Something should be done and right away, this much we know, but it's always too soon, too late or too expensive". I think what my colleagues are asking is that we understand; we have been thinking this way too. We expected some clear direction from you but there is an absence of hard engineering views all the way through. There is a need to make decisions on whether you are going to opt for wave power, or wind power, or nuclear power, but you have to understand for the engineering in advance and you have to know what you are doing. Without being unkind, it does not seem that you do know what you are doing.
(Mr Hartley) One of the building blocks in our report was some rather detailed work that was done for us on the potential for reducing the unit costs of various renewables technology by increasing the amount of deployment. Some people say that those sums that form quite an important part of the underlying calculations in our report are optimistic. We do not think that they are. We think that there are huge potentials for reducing the unit costs of renewables. We thought quite a lot about which kind of renewables are likely to come through fast and what methods will produce the best mix.
(Mr MacKerron) We had a substantial input from Imperial College and from UMIST in relation to engineering activities precisely on engineering and learning considerations about the rate at which we may expect the cost of renewables to fall.
298. Perhaps I can interrupt, although I hate to do that because it is very rude. The point that the Chairman was making and that I wanted to make is that there was not an engineer among you. The view of an engineer should be part of not just the philosophical approach, but also part of the delivery. That is needed to condition your thought. Engineering is not something that you add on; it is something that is part of this organic whole that we were hoping you may produce.
(Mr MacKerron) We must plead guilty to having no engineer among us. I do not think that we would accept the notion that because none of the members of the team was an engineer that we have failed to take on board the fundamental engineering considerations that underlie our recommendations. On some of the conclusions about the excessive costs of, at the moment committing ourselves to more than a 20 per cent target for renewables, this was derived from an engineering consideration of the likely rate of progress in particular technologies. As we keep emphasising, those engineering considerations may be relaxed by further technical developments and we hope they are. We would regard ourselves as having taken as full account as necessary of those things. We accept that you may not agree.
299. If your report is about us achieving a low carbon economy, and we have already heard from Mr Jones about difficulties with the scenarios about renewables helping us achieve that within the mix that you suggest, how reliant is your report on energy efficiency? How dependent is the renewables part of your report on meeting your energy efficiency targets?
(Mr MacKerron) It is fair to say that we said plainly that we thought that an enhanced commitment to energy efficiency should be at the centre of future energy policy. We stand strongly by that. We regard both renewables and energy efficiency as fundamental contributions to the low carbon economy. Putting it the other way round, if we found it hard to deliver an acceleration in energy efficiency improvements within the economy then clearly something serious would have gone wrong. We have had a commitment on the part of Government to energy efficiency of a kind for some time. Things have been delivered but they could be delivered more quickly. We wanted to highlight that contribution and to suggest particular targets for the household sector and make a range of recommendations for how Government might take a stronger lead in the future in pursuing energy efficiency because it is at the heart of what we argue for.