To answer the first question, I think a great deal is riding on there being a legally binding contract in Paris next year. Clearly, if Paris turns out to be a complete fiasco and everybody goes in their own direction, we will have to contemplate a future roughly like the one the Governor of the Bank of England thinks we may be facing. As for the potential of an agreement in Paris, I am encouraged by the combination of bottom-up and top-down measures, which may be a rather better way of getting a world agreement than some of the other arrangements there have been in the past. That is why it is particularly important that we contemplate serious bottom-up measures in this country.
On the second question, my personal view is that not only is shale gas in the category of reserves that are unburnable but at present we already face the likelihood that known fossil fuel reserves would have to stay in the ground if we do not do something about how we burn them—never mind us fracking rocks apart to provide new sources. The position with the carbon budget is that serious, as the Chair of the Energy and Climate Change Committee pointed out. That is why, from a wider point of view, I question whether drilling large amounts of shale gas out of the ground to add to the pile of unburnable fossil fuel is necessarily the best long-term policy idea anyone has ever had.
What may change some of those scenarios, however, is, as I have mentioned, the extent to which we move on to the ambition that I think we should have, namely that a good proportion of the new gas-fired power plants—and, perhaps, some coal-fired ones—are properly equipped with carbon capture and storage, as at Boundary dam,
Saskatchewan. That way, they can properly play their role in our energy mix while keeping us to our carbon targets.
My view—one also emphasised by the Committee—is that if we are to do that, we cannot simply hope that over the next few years those arrangements will be economic from the market’s point of view. We need to give carbon capture and storage a continued policy leg-up, which can best be done through a device such as contracts for difference for the next few plants to come through after the first two competition plants. To do that, we have to look carefully at the levy control framework we have at the moment, particularly as it moves from the period up to 2020 into the period of 2020 to 2025.
It is urgent that we clarify what a levy control framework will look like over that next period, and, in particular, one that includes carbon capture and storage and other forms of energy assistance. That way there will be certainty in the market so that those developments can take place, as we move forward. At the moment, the levy control framework not only does not have room for even one more large wind farm but disappears off a cliff in 2020 in any event.
I add to the wider philosophical debate about the advantages of carbon capture and storage the practical point that we need urgent thought about just how we support CCS over the next period, so that we have the investment in it that we know will be needed if the outcomes I have described do not come to pass. We need investors to be secure in their minds that they can make carbon capture and storage a reality of the British energy scene, with the benign consequences I have outlined this afternoon.
3.36 pm