19:03 Mr Tim Yeo (South Suffolk) (Con)

I am delighted that the House is debating this important subject. Its importance can be gauged by the fact that by 2020 the amount of possible spending under the levy control framework will be £7.6 billion a year, more than double the total budget of the Department of Energy and Climate Change. The fact that the money comes from consumers rather than taxpayers is, as far as parliamentary scrutiny is concerned, rather beside the point. The two categories largely overlap, and as the sums are so large it is essential that Parliament should scrutinise effectively and carefully how they are spent. I shall come back to that point.

I begin by drawing attention to my entry in the Register of Members’ Financial Interests. In doing so, I emphasise again that my views on climate change and the need to cut greenhouse gas emissions were formed more than 20 years ago, when I had ministerial responsibility at the old Department of the Environment in John Major’s Government. I studied the science as it then was and concluded—as, I hope, an open-minded layman—that the increased concentration of greenhouse gases in the atmosphere was likely to be a significant and possibly the main cause of the observed changes in the climate that the world was and still is experiencing.

I hope and believe that we are now seeing the last gasps of the flat-earthers in the debates on climate change. The Intergovernmental Panel on Climate Change fifth assessment report has reinforced the overwhelming scientific consensus that the conditions of climate stability that the world has enjoyed in the past few hundred years and which have made possible the unprecedented and phenomenal success of one of the earth’s most recently arrived species—human beings—are now threatened by the activity of that same species.

I warmly welcome the public statements made in various parts of the world in the past few days by my right hon. Friends the Prime Minister, the Chancellor of the Exchequer and the Secretary of State for Education, all of whom have endorsed those scientific conclusions. That mainstream acceptance of the science, which is shared on a bipartisan basis by the Opposition, is very helpful because it allows us to concentrate on what the real debate should be about: how should we in Britain tackle the challenge of cutting our own greenhouse gas emissions? How can we play our part in helping the whole world move towards a low-carbon economy?

However, we need to be aware that other countries are now moving quickly—surprisingly quickly in the case of China, perhaps. Even in the United States a substantial change in what is happening on the ground has occurred in the past few years. Those extra costs will disappear entirely if the price of carbon rises, as seems probable if international concern about climate change intensifies in the next few years. I am confident that those countries—I hope that Britain will be among them—that lead the way towards a low-carbon economy will in the medium term not just have done the right thing environmentally but reap an economic benefit, in the form of lower costs and improved competitiveness, as the price of carbon rises, whether owing to the widespread introduction of carbon taxes, to a carbon price driven by emissions trading or, as seems most likely, to a combination of the two.

All that is directly relevant to this debate. I warmly welcome the establishment of the levy control framework and the pathway to 2020 helpfully set out by the coalition at the end of 2012. That was reassuring for investors and gave great encouragement to those of us such as me who are extremely concerned about climate change. It encouraged us to see that a realistic amount of support will be available to promote and support low-carbon electricity generation, including a significant element of renewable energy.

On to the key issue of expenditure control, levy control framework spending will, by its nature, be very hard to predict: the lower the price of gas, the greater the cost of the contracts for difference that has to be met from the LCF. Given that the Department for Energy and Climate Change forecasts that, by 2020, as much as a third of all LCF spending will be accounted for by CfDs, it would be helpful to know what assumptions my right hon. Friend has made about gas prices in the pathway through and up to 2020 in arriving at the estimate of about £2.5 billion of LCF spending that is to be allocated to meet the cost of CfDs.

On the subject of controlling costs, I would be very interested to hear the Minister’s comments about the value for money offered by different technologies. The main aim of the renewables obligation, feed-in tariffs and CfDs is to help Britain meet its greenhouse gas emission reduction targets by encouraging low-carbon electricity generation, but affordability is also a very important aim of energy policy. I note with interest that the Government believe that offshore wind may make the biggest contribution of all the technologies currently included for support by the LCF.

I am not sure whether the total comes under public expenditure. The money is not coming from taxpayers; it might merely affect electricity prices. In the context of the fact that the Committee on Climate Change now sets carbon budgets a minimum of a decade in advance and that we now have a fourth carbon budget that covers the period up to 2028—even the third carbon budget goes beyond the period for which we know the levy control framework total—I am simply asking for some indication of the Government’s thinking. Will the total be maintained in real terms at £7.6 billion index-linked, given that a very big demand on levy control framework money will be made in the early to mid-2020s if the nuclear power station goes ahead?

I thought that the Minister was a bit like Oscar Wilde, who could resist everything except temptation, but perhaps he will resist it on this matter. I understand why the floor price policy was introduced, but it does not cut greenhouse gas emissions by a single kilogram, and it raises the costs of British business. If the Treasury’s priority is to help Britain to become more competitive, it is slightly bizarre for it to insist on that policy. There are of course now widespread rumours that we will soon hear that the floor price for carbon will be frozen, instead of going ever upwards. If that is the case, the sooner that it is made clear, the better.

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19:29 John Robertson (Glasgow North West) (Lab)

It is a pleasure to follow the hon. Member for South Suffolk (Mr Yeo). He does an excellent job as Chair of the Energy and Climate Change Committee and it is a pleasure to be a member of it.

My great fear is that we are losing sight of climate change. With the country in austerity, people see cheap fossil fuel as an answer to their prayers as they try to keep costs down. However, climate change causes long-term damage, as we have seen with the recent floods, which are more than a little unusual. Some of us believe that that is down to climate change in at least a small way, if not in a large way.

“fuel poverty, energy and climate change goals”

It is looking at only one half of the equation. We need to look at the impact of the levies on consumers’ bills, whether it is as high as the energy companies say it is or not. However, we can see their worth only if we know what the impact is. The Department of Energy and Climate Change says that its energy and climate change policies will reduce bills by about 11% or £166 by 2020. How can we know if that is the case if we do not know what the impact of the policies will be? We need to be sure about the impact on people’s energy bills.

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19:51 Dr Alan Whitehead (Southampton, Test) (Lab)

The first curiosity is that the levies are not in the estimates: according to accounting conventions, they cannot be. One of the central things to which the Energy and Climate Change Committee drew attention was the fact that because the current accounting regulations mean that levies cannot be placed within end-of-year accounts or estimates for the Department, some fairly urgent action is needed to bring those issues back under the parliamentary gaze and make them accountable to and discussable by this House.

As we heard from the hon. Member for South Suffolk (Mr Yeo), the Chair of the Committee of which I am proud to be a member, much work to decarbonise the UK’s energy economy is underpinned by levies on energy bills. The chosen instrument that the Government have introduced to control those levies is the levy control framework, which is itself a very curious beast that was introduced by sudden fiat in the Budget of 2011. It was announced in the additional document to that Budget called “The Plan for Growth” but without, as far as I know, any debate, pre-scrutiny or other examination of its effect as regards the inclusion or exclusion of various levies. Subsequently, without that examination, it has controlled, pretty selectively, DECC’s spending on support for renewable and low-carbon energy.

Some levies have, of course, already gone down the taxation route. The renewable heat initiative was to have been a levy but it is now funded from general taxation. The warm home discount has recently gone from being a levy to being funded by general taxation, and—still to come—the money to support carbon capture and storage has shrunk to £1 billion and is also funded from general taxation, with no clarification as to whether subsequent CCS gets a CfD, and will eventually be in the LCF. Perhaps it will get capacity payments that are levied but not in the LCF, or perhaps it will just get support from tax. There is, therefore, no consistency about what is controlled and what is not, and apparently no clarity on the horizon.

We know that ECO will now not even remotely reach its suggested policy target of 180,000 hard-to-treat home treatments by 2015, but we have not had a chance to discuss or debate either the initial policy or its revisions. The whole question of levies lies, it seems, outside the policy and scrutiny process. Both the NAO and the Energy and Climate Change Committee found that to be highly unsatisfactory, and suggested imperative remedies. In a letter to DECC, and in its most recent report on the LCF, the Committee suggested:

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20:11 Sarah Newton (Truro and Falmouth) (Con)

The Government are right to back renewable energy. It is particularly important to look at marine renewable and geothermal. As a Member of Parliament representing the south-west of England, hon. Members would expect me to say that. I was absolutely delighted when the Government set up the South West Marine Energy Park. I can perhaps give the hon. Member for Southampton, Test (Dr Whitehead) some of the evidence he was asking for, on the positive impact of the Government’s policies on renewable energy, from my experience in my constituency.

As a result of the announcement before Christmas of the strike prices for renewable energy, we have seen a huge increase in interest from overseas investors into marine renewable energy in my constituency. We are the home of the Falmouth bay test site, the FaBTest site, which is a very innovative partnership between the university of Exeter, the Falmouth Harbour commissioners and local businesses. It is an excellent site to pilot and test marine renewables which enables developers to understand how much energy can be created and the economics of it, which can then be scaled up to fully deployed devices on the wave hub. We have seen investment already, from Scandinavian countries, to build new devices that are currently being deployed, with a great pipeline to come. It is attracting not only investment but a great deal of new, high-quality engineering jobs to my constituency, all of which is to be welcomed.

I underline the hon. Lady’s point that wave, tidal and other new forms of energy are beginning to secure a lot of investment, and invite her to attend the all-party group on renewable and sustainable energy meeting tomorrow on precisely that topic. We would be delighted to see her there.

I have seen evidence of the substantial impact of the new strike prices for renewable energy in the short period since they have been announced. Among all this good news, however, there are a few issues I would like to draw to the attention of the Minister.

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20:19 Mr Mike Weir (Angus) (SNP)

Last week the Prime Minister reaffirmed his view that man-made climate change is the most serious problem that affects us all, and it was good to hear that. Let us hope that this time he really means what he says, and will not move on as soon as he has hugged the next husky.

There are still people in the House of Commons, in the other place and outside who deny the reality of climate change in the face of mounting scientific evidence and, indeed, the evidence of our own eyes. The impact of climate change is variable, but it is also undoubtedly dramatic and dangerous. We cannot point to one weather event and say that it is a direct result of climate change, but we can see the pattern that is developing, and acknowledge that our climate is changing. Most of us agree on those points, but if we are to challenge the problem, we must obtain the money and take the measures that are necessary.

Totally free markets will not take us where we need to go, so the Government must continue their efforts to ensure that there is real action on tackling climate change and the greening of our energy system. An enormous amount of money is needed for that project, but it should not be seen purely as costs; it should also be seen as investment. As I said earlier to the hon. Member for South Suffolk (Mr Yeo), I was rather concerned about his description of offshore wind farms and the contracts for difference that were needed for them. Having sat through the debates on the Energy Bill and heard what was said about CfDs, I understood that they were variable so that an extra boost could be given to new, untried technologies that needed a lift in order to take off, and so that the subsidy given to established technologies could be reduced. That struck me as perfectly reasonable, because the huge cost of offshore energy will undoubtedly require that extra boost. I would caution against considering alternatives to it just because it is expensive; it has reduced the need for onshore energy.

As we heard from the hon. Member for Truro and Falmouth (Sarah Newton), renewables are making a great difference to local economies throughout the country. They are driving the development of many parts of the new economy. Renewable energy is now a significant part of Scotland’s economy: 11,695 people are in full-time employment in the industry, an increase of 5% over the last year, and the industry is confident that it will continue to expand and employ more people. The latest figures from the Department of Energy and Climate Change show that in 2012 renewables accounted for 40.3% of gross electricity consumption in Scotland—7.5% more than in 2011—and for nearly 30% of Scotland’s total, a record proportion.

In my constituency, there are plans for substantial offshore wind arrays that have the capacity not only to generate huge amounts of renewable energy, but to push investment opportunities and new jobs. However, that will happen only if the CfDs are there to make it happen. My area used to have huge engineering works that went in the dreadful recession of the 1980s, but engineering survived in niche businesses and we are now seeing a real revival in businesses associated with the oil and gas industry—which is vital to the north-east of Scotland and where businesses such as GE Oil and Gas in Montrose are expanding—and many more smaller firms that are part of the oil and gas supply chain and increasingly the renewable supply chain as well. That is where much of the future development will come from.

Figures produced by the Department of Energy and Climate Change break things down further, and that leads to an estimate that only 2% of the average dual-fuel bill is due to the renewables obligation, which up until now is what has supported large-scale renewable generation, feed-in tariffs and small-scale renewables. That amounts to some £30 a year on the mythical average bill.

A further major element in bills is the network costs charged to energy suppliers, which, according to the note, make up 20% to 23% of the costs. I have spoken on that issue many times in this House, as well as on the unfairness of the costs, which discriminate against generators, particularly renewable energy generators in the north of Scotland compared with major generators in the south. The regulator, Ofgem, has been looking into this matter, in a seemingly endless investigation, Project TransmiT, which I understand has been put back yet again to a possible introduction in April of next year. There must be more action and a fairer system of transmission reduces the costs faced by renewable energy. That would have a positive impact on bills by reducing the cost to the consumer.

I have spoken a great deal about prepayment meters before, and I will not do so again any great length again. However, I will just say that the citizens advice bureau in Scotland cites the case of a single parent with two children. The mother currently has to lose £7 to arrears every time she puts £10 in the meter. The £3 remaining is entirely insufficient to heat her home. Such things cannot be allowed to continue if we are serious about bringing the public on board. They must understand that we are serious about not only ensuring that the infrastructure is in place and that we move towards green energy, but about doing what we can to reduce energy bills.

All too often when we debate energy, we focus on electricity consumers. We must look at the whole system, and I am glad that we have the opportunity to do so today. I think that I have spoken for long enough, and I will end by saying that this is a good opportunity to make the point that we should not just look at green levies. There is a reason we have this ongoing system: to decarbonise our energy and ensure that bills stay low in future.

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20:40 Andrew Percy (Brigg and Goole) (Con)

Eggborough has been working on a £750 million conversion project that would have started on 6 January and been the UK’s largest infrastructure project in quarter 1 of this year. That investment would have secured 800 jobs, many of them in my constituency, and created even more jobs further down the supply chain. That is on hold. For the past couple of years, Eggborough and local MPs have had positive policy signals from the Department of Energy and Climate Change that conversion to biomass would be supported through the final investment decision enabling process. We are pleased as local Members of Parliament that Drax has been secured through that process, but all the signs were that a rapid conversion to biomass at Eggborough would be supported, not least to sustain that important generating capacity on the grid as well as to meet our renewable targets. This was a shovel-ready project, as I have said, with £750 million of inward foreign investment already in place. The final decision was dependent on the FID enabling process. Several drafts of the documentation were produced, and by the third and final draft something seems to have changed in the selection criteria. Just a few weeks before the final announcement applicants were informed of the change and, as a result, Eggborough was excluded.

There is a crunch coming in 2015, perhaps as low as 2% of capacity, and here we are, about to take off 2% to 4% of generating capacity. The appropriate notices have been issued to National Grid, Ofgem and DECC. The Government may not have made an assessment of the impact on bills, but others have. The loss of that capacity could result in a £38 rise in consumer electricity prices, with £25 due to capacity crunch forcing up the wholesale price, and an estimated £13 of additional cost to decarbonise using technologies that are more costly than biomass conversion.

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20:54 Lilian Greenwood (Labour)

Over the past three months, I have repeatedly raised my concerns about the impact that the Government’s panicked changes to the energy company obligation are having in my constituency, and I make no apology for doing so again today. As we have already heard, the energy company obligation is not covered by the levy control framework, even though the framework’s stated purpose is to cap the cost of levy-funded schemes and ensure that the Department of Energy and Climate Change achieves its fuel poverty, energy and climate change goals in a way consistent with economic recovery and minimising the impact on consumer bills.

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21:08 Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)

Members will be aware that levies have been applied to bills for various schemes. When the Government introduced the ECO scheme, the enthusiastic Minister of State at the Department of Energy and Climate Change, the right hon. Member for Bexhill and Battle (Gregory Barker) proclaimed it to be “transformational”. So transformational has it been that it has led to schemes, such as the one in Nottingham that we have just heard about, being abandoned. He has presented the cutting and spreading over time of ECO as though it is extending the scheme. That feat of verbal dexterity has not been surpassed in this debate so far.

My hon. Friend the Member for Southampton, Test (Dr Whitehead), who is a distinguished and long-serving member of the Energy and Climate Change Committee, underlined in his usual thorough and comprehensive way which levies are included and are not included in the levy control framework. I got the sense that he anticipates with keenness the forthcoming secondary legislation on the Energy Act 2013, which I hope we will see shortly. Indeed, I think he anticipates it almost as keenly as I do.

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21:24 The Minister of State, Department of Energy and Climate Change (Michael Fallon)

We have had a good debate, and I thank the Energy and Climate Change Committee and the National Audit Office for their recent reports on the levy control framework. I have written today to the Chair of the Committee, my hon. Friend the Member for South Suffolk (Mr Yeo), in response to some of the specific questions raised in the Committee’s letter sent last Tuesday. I hope that all members of the Committee have received a copy of that response.

Let us look first at why we need the levy control framework. We need to secure an energy future at a cost that we can afford, and that is a huge task. One fifth of our power stations will go off line in the next six or so years. By 2030, if nothing else changes, we shall be importing 70% of our gas. Eight of the nine existing nuclear stations are scheduled to have closed by the time Hinkley Point C opens. However, in the same framework, energy demand may have doubled by 2050. The generation mix will have to tip significantly towards low carbon if we are to meet our legally binding climate change targets.

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