Treaty of Lisbon (No. 2)

It is fitting that energy forms part of our debate, given that the whole concept of the EU grew out of the European Coal and Steel Community, but energy is one of the less satisfactory areas of the European project and, to be frank, I do not think that the proposals in the treaty will do a great deal to improve the situation. European policy swirls around the concept of liberalising energy markets and the belief that such liberalisation will lead to a better deal for consumers, but, given the recent experience of UK consumers and the swingeing energy price rises that we have suffered in our so-called liberalised market, it is at least questionable whether we are getting any real benefit from it. It is often argued that one of the reasons for that is the non-liberalised nature of the European market and its interaction with the UK market, especially through the gas interconnector. The Independent put it well when, on 8 January, it reported:"““For their short-term supplies, companies on the Continent come to the liberalised UK market where the wholesale price is significantly less than the oil-indexed gas sold on the European market. Their short-term supplies met, the European groups then hoard their stored supplies, crimping demand and driving the price up further still.””" In other words, the actions of the major European suppliers mean that prices in the UK rise. We have heard today about moves to centralise further the European companies' hold on various markets. The purposes of the new energy provision, article 194, are to"““ensure the functioning of the energy market…ensure security of energy supply in the Union…promote energy efficiency and energy saving and the development of new and renewable forms of energy””" and"““promote the interconnection of energy networks.””" None of us would have any great problem with any of that, and we certainly do not intend to oppose this part of the treaty—it is all very much motherhood and apple pie stuff. My difficulty is that although it all looks great on paper, what is actually happening in the EU seems to me to be somewhat different. The Commission has been trying for some years to liberalise the markets, and in September last year it produced its third liberalisation package. The proposals consist of four documents that would amend the existing gas and electricity legislation, and a fifth that would establish a new agency for co-operation among energy regulators. The Commission's aim is clearly to remove barriers to creating a fully functioning internal energy market, which it believes will ensure open and fair competition and effective regulation, leading to lower prices for European consumers in a single European electricity grid, which it wants to have in place by January 2009. I have already expressed scepticism about whether the liberalised market truly leads to lower prices, but the real fly in the ointment of the proposal is that the Commission wants to achieve a liberalised market using the mechanism of unbundling ownership—in effect, breaking up the vertically integrated energy companies that operate on the continent and having separate ownership of generation and transmission networks. That is all very well in theory, but as I pointed out earlier in an intervention, several of the large European states—France and Germany in particular—are dead set against that approach, because their idea of energy security is based on the concept of having national champions in the energy market through promotion of big vertically integrated energy companies with a large element of state ownership, or at least state influence. Electricité de France—EDF—is a classic example. There is a conflict in article 194 between the idea of security of supply and the idea of liberalisation of markets, because there is no definition of how we are to achieve security of supply, and there is a fundamental difference between the UK Government's approach and the approach favoured by France and Germany, for example. In passing, it is worth nothing that the UK Government see new nuclear power stations as important for future energy security, yet the company most likely to invest in them is one in which the major shareholder is the French Government. It is also highly unlikely that France and Germany will agree to ownership unbundling that reduces their Governments' influence over the internal energy markets. That is doomed to failure. When I put that to the Secretary of State, he said that qualified majority voting was the key, but at the end of July last year, not only France and Germany, but Austria, Bulgaria, Cyprus, Greece, Latvia, Luxembourg and Slovakia sent a joint letter to the Commission arguing that ownership unbundling should be only one of a few options. Cyprus and Malta have also expressed additional fears about that. Even with qualified majority voting, we will be unlikely to get agreement on unbundling in that way. As is the case with all things European, it is likely that a compromise will eventually be reached. Hopefully, it will be along the lines of what is known as the Scottish solution, which operates by separating transmission operators while leaving the integrated companies. However, being European, who knows what will come out of all this? I am interested to hear what the UK Government's position on the energy market will be if the full unbundling option does not proceed. Are we in for many years of arguing about that before we come up with a compromise? The provisions of the treaty will not change things, because we could do much of what is proposed by using existing legislation. We might be putting those provisions on the face of the treaty, but it will not make a great deal of difference. I want to raise a specific point on article 194 and its relation to article 100. Much has been said about that, and the circumstances in which help would be given to other nations. I find many of the arguments somewhat bizarre. A great deal of concern has been raised about the position of Gazprom in the European market. It is active not only in the eastern part of the European Union, but also in the western part, where it has tried to buy up transmission capacity. Indeed, at one time it was looking at Centrica. As the hon. Member for Esher and Walton (Mr. Taylor) hinted, the article gives confidence to members of the EU in the east that the west will come to their aid if Russia, or Gazprom, tries to cut off their gas supplies. Members of the Select Committee on Business, Enterprise and Regulatory Reform—or on Trade and Industry, as it used to be called—who visited some of the eastern European countries during our investigation found clearly that that is, rightly, a serious concern for them. They see the EU as their anchor in democracy against Russia, but they are worried about the gas situation. The article is sensible because it gives them confidence that they will not be left out in the cold—no pun intended—if Gazprom does that. We had a brief diversion into biofuels. I remember speaking to a representative of a major oil company about the future of biofuels, and that person talked about second- generation biofuels—those that come not from palm oil or corn but from wood and wood offcuts. The representative said that they would be made in areas with large forests. Guess where that is going to be in Europe? Eastern Europe and Russia. So there is a potential problem with biofuels, too, if we do not get this right. No debate on energy would be complete, as I am sure the Minister will be delighted to hear, without a reference to our old friend transmission charges—something that I have discussed with him on the odd occasion. I have mentioned the discriminatory nature of transmission charges in the UK before, particularly with reference to renewable generators in Scotland. However, the subject also has a European dimension. If the Commission is serious about creating a European grid, the question of transmission charges throughout Europe will have to be addressed. Under the Commission's proposals, national regulators are given an obligation when fixing or approving tariffs to ensure that network operators are given incentives to foster market integration. Scottish and Southern Energy, among others, has pointed out that one of the key obstacles to effective market integration is the discontinuity in generator tariffs at national borders. The guidelines limit the maximum average generator charge, but that still leaves scope for massive discontinuities at national borders due to extreme locational tariffs in some member states. That is an important consideration in the UK, as the guidelines say that the average UK tariff should be €2.4 per megawatt-hour. The UK complies with that average, but that disguises a vast range of locational charging arrangements set by the national grid and approved by the regulator—in our case, by Ofgem. The European guidelines allow differentials, but state that a differential of €20 per kilowatt-hour would be an extreme example of locational pricing and a significant barrier to European trade. However, in the UK the difference between northern Scotland and southern England is more than €40 per kilowatt-hour—twice the extreme example cited by the European Union. If the treaty goes through, as I am sure it will, and the new electricity measures come into being, I look forward to the European Commission taking an interest in that extreme example of discriminatory pricing and overturning the UK Government's refusal to do anything about it. That subject is linked, too, to the new European decision on renewable energy generation. In an intervention, I mentioned the interesting fact that although the EU is now setting renewable generation targets for each member nation, there is a proposal for other countries to trade certificates of origin. That could lead to a great deal of trading of renewable energy. That could be a huge benefit, particularly in Scotland, because of the potential for renewable generation. I look forward with interest to seeing how it will be implemented in the UK. I realise that time is running out, and so I shall bring my speech to a close. It seems to me that much of the debate about European energy before the treaty was presented to us was about who should set energy policy—Brussels or London. In our view, both are wrong. Scottish energy policy should be controlled from Edinburgh.