Climate Change: Carbon Budgets

My Lords, I, too, congratulate the committee on this extremely readable report. It is a great asset to be able to debate a report that I sat down and read from start to finish only this morning, which is no mean feat considering how difficult the issue can be. I must also declare an interest as one of those involved in passing the Climate Change Bill. It is gratifying indeed to see this report come forward. I start by saying that I am a sceptic, not of climate change—I think that that would be idiotic, a word which I use advisedly—but of the EU carbon trading scheme. I have set that out before. I therefore have a problem with the report. If you believe that the EU ETS will fundamentally not work because of the financials on which it is based, you will have a problem with how we are looking at carbon in the next few years. One of the interesting things raised by the e-mails, and the reason why the press jumped on them, is the fact that everyone is looking for a get-out by establishing that climate change is not happening and proving that the scientists are lying to us. The size of what we have to undertake is quite staggering. The report clearly sets out how little impact the measures we have taken over the past few years have had on our energy consumption. Calling it a step change is a slight understatement because we have to leap over a huge chasm. I, too, take massive issue with one part of the report—the part about aviation. It is interesting that we are talking about the aviation figures for 2050. It is interesting not because of the science on how much energy will be used—although I take on board the fact that a massive expansion in aviation will require a reduction in somebody else’s budget, an issue which I will move on to later—but because we are hitting peak oil, a fact which most people seem to ignore. Although the price of oil might fall during a recession, the price will rise massively as oil becomes scarcer and more industries want to use it. I believe that cheap air fares will not survive the next decade and that budget airlines will be seen as a blip. I do not see air travel in the same way as others. So, according to that view, there is no need for a third runway at Heathrow. The report raises a real issue which I hope the climate change committee will take on board. It seems to be skewed towards electricity. When we talk about the energy needs of this country, many people talk as though electricity is the sole energy source. Gas, in the form of heating for homes, also is a major provider of energy. Of course, 50 per cent of our emissions come from homes and buildings. We should therefore not underestimate the problems with gas. On electricity, I very much hope that the committee will start looking at balancing the grid, which is a major problem for this country. New nuclear power stations are planned but will not come online until about 2030. One of the issues is how we can best use our current energy infrastructure. I am particularly concerned about the grid, which seems to have been neglected in many of the reports. Many of the White Papers have not talked about the electricity grid itself. An inefficient grid will waste enormous amounts of energy. I very much hope that the Government will look over the next couple of years at the whole issue of energy storage. This is the holy grail of electricity. With energy storage, you could turn renewables into base load and vastly increase the value of energy coming from energy storage. I declare an interest as a shareholder in an energy storage company called Highview, which will produce electricity from liquid nitrogen. However, I shall not go any further into that because, whenever I mention it, it takes people a long time to work out how you can use liquid nitrogen. However, I believe that energy storage in many forms—whether through liquid nitrogen or batteries—will be a real issue. I know that the Americans are spending enormous amounts on this. One real concern that I have is that we are underestimating a key contributor to carbon in this country: boilers. I am very boring on the subject; I have raised boilers a great many times, and it does not seem to catch the public imagination as it should. It is an issue. However, a group called G2Action has calculated that we have a slight issue with boilers; even if we start converting at the present rate to A-rated boilers, we will miss the target for reduction in CO2 from boilers that is set down by 1.5 billion tonnes by 2050. I went through the figures myself and the reason for that is that, although we can increase the efficiency of boilers so that they are at 97 per cent efficiency—and you cannot get very much more efficient than that—they are not being replaced fast enough. Even when you get to that efficiency rate, the increase in the number of households in the country negates that saving. It is a real concern. Therefore, we have to look at ways in which to deal with that. Suggesting a change to an A-rated boiler would be a helpful hint to people. However, I have just changed my own boiler at a cost of £5,000. I know that I will save that, but it is a large financial leap. I have worked hard with Ofgem over the past two or three years to look at CERT on boilers to see whether we could come up with some financial incentives. Boilers have been included in CERT, but at an average of £65 per boiler it is insignificant and irrelevant. So CERT has failed as a financial mechanism for boilers. The one way in which to deal with the problem of boilers is by decarbonising the gas grid. The only way in which we could look at doing that is by looking at renewable gas through biogas. This is an area that I am particularly keen on and have spent a great deal of time on recently. Indeed, I set up the Anaerobic Digestion and Biogas Association and became its chair to look at the anaerobic industry. We have been working very hard on that recently and found that there is probably about £680 million of plant under development or in the planning process at the moment. To give the size of the market that I believe will take place, there are probably about 1,000 plants; 75 per cent of those will be in the agricultural sector, while 25 per cent of those will deal with municipal waste. From those 1,000 plants, we could produce between 10 per cent and 20 per cent of our domestic gas. That will be vital because, by 2015, we will import about 80 per cent of our gas. Therefore, the more gas we can produce from the renewable sector, the more it will affect gas prices. We have a massive problem with gas storage, which leads to the fact that the spot price on gas is what we are paying, rather than the underlying price. The report talks about the renewable heat incentive, and there were certain question marks over biogas. Gas produced by anaerobic digestion plants, of which there will be quite a large number, then pumped into the grid, is a form of heat, using the gas as an energy-carrier medium. It is probably one of the most efficient mediums to carry energy to the household, if it is fired through a condensing boiler, because you do not lose the heat through a district heating system in the process. That is of particular interest with regard to the renewable heat incentive; one application for that incentive that DECC is considering at the moment is how heat can be dealt with and subsidised. That is a real issue, and I very much hope that the consultation process that is starting in January is looked at carefully. We will have to look at a high price for the renewable heat incentive for biogas, but it will have a major impact on our supply chain and the cost of gas. Far more than that, it will have a massive impact on the carbon content of the gas going into the national gas grid. That is a fundamental issue that we will have to look at with the RHI. I hope that the renewable that everybody is talking about next year is anaerobic digestion and biogas and that the next document that comes before Parliament from the climate change committee looks carefully at its role.