RT HON ALISTAIR DARLING MP, LORD TRUSCOTT, MR DARON WALKER AND MR PAUL MCINTYRE

21 JUNE 2007

  Q20  Judy Mallaber: In the White Paper, a box 4.3 on coal, shows in 2006 about a third of the total UK coal demand and about half the demand for steam coal was met by imports from Russia. Are you not worried that we are so dependent on Russia for our coal imports?

  Mr Darling: As I said to you earlier, I do not want to become overly dependent on one particular country. It does not follow therefore that I do not want to trade with one particular country. You are right we do import coal from Russia and as long as those supplies come as contracted for we have no complaint. We also of course import coal from other parts of the world. Our starting point is it is up to the particular generator to chose where they secure their own supplies. The government does not tell them they should import from one place or another. The thrust behind the White Paper is at a higher level to make sure that strategically we do not become dependent on one form of energy. Just as we do not tell importers of oil that it needs to come from country A or B, we do not tell coal importers that their coal has to come from one country and not another.

  Q21  Judy Mallaber: The other side of this is that the UK coal producers have told us it is unprofitable to sink new shafts let alone new pits yet we have a load of coal in this country. They seem now to be more concerned, from what I can see, in just exploiting the land assets rather than coal production apart from when it comes to open-cast mining where our guidelines on environmental considerations and the role of local authorities have, in recent decisions, been thrown out the window. We seem to be getting the balance wrong. We are not having further production in deep coal and yet we are having a whole lot of environmental concerns as a result of open-cast mining. Overall we are dependent on imports.

  Mr Darling: The decision as to what fuel to burn and where the fuel is procured must be a matter for the generators. I have said on a number of occasions that in relation to coal it cannot be for the government to say that coal has to come from one particular part of the world or another or it has to come from Britain. We do not have quotas. There are two things: firstly, in relation to open cast, as you know there were some people who wanted us to have a presumption in favour of open cast, in other words to tilt the balance in favour of applications. I am very aware of the fact that these can be very controversial. I know in your part of the country there is a fair degree of controversy there. What we try and do is strike a balance. Rather like the North Sea where we have a group called PILOT which is a working group between the industry and ourselves, we have a coal forum which Peter chairs which we established to try and encourage the production of coal in this country. What we cannot do is to get ourselves into a position where we are not far of specifying where the coal comes from.

  Q22  Judy Mallaber: There is not a role for government in encouraging further exploitation of our coal reserves in deep coal mining.

  Mr Darling: You could only do that by subsidising it.

  Q23  Judy Mallaber: I would just say that the criteria, in terms of the environmental considerations on open casting have been thrown out the window and our policy has been changed. I do not know if that is something that is going to be looked at again.

  Mr Darling: I am aware of your views on the matter. They were not changed in the Energy White Paper. That is something I know you have raised with some of our colleagues.

  Q24  Chairman: On the subject of the Russian bear again, on page 116 there is a very interesting chart showing where you think we will be getting our gas from. There has been press speculation recently and some of the energy companies are saying we are likely to get up to 30% of our gas from Russia but it looks to me like it is about 2% or 3%, or possibly 4% or 5% on page 116, 4.3. Why this difference of estimate?

  Mr Darling: There is a lot of speculation about what will happen in the future. What is beyond doubt is if we do not do anything else as the nuclear contribution declines then more and more will come from oil and gas and it will probably be imported. It may come from the North Sea but a lot of it will be imported. We cannot be certain from where it will come because it will depend on prices in different parts of the world. At the moment, as of today, we actually have negligible quantities of gas and oil directly coming from Russia. I am not saying there will not be some through arrangements we have to buy gas and oil from Europe which may have Russian gas in it, for example, but if you look at where we get most of our imported gas at the moment it comes through Norway, The Netherlands, Belgium, 9% from Algeria, 5% from Egypt and 2% LNG from Trinidad. I do not want to single out any one country. Perhaps, as you mentioned the subject, I can only say what I said in Moscow earlier this year that we have a very open liberal economy in this country and we think that has contributed to its growth and its success over the last ten years. We are happy to do business with anybody who wants to do business with us but these relationships have to be built on business not on politics. What people want when they enter into a contract is the certainty that contract will last for its term.

  Q25  Chairman: It looks like you are not expecting that much gas from Russia.

  Mr Darling: Not at the moment but Russia is sitting on vast quantities of oil and gas. It remains to be seen how much it can get out and how much it can exploit and where it sells it. At the risk of repeating myself, one should not put all one's eggs in one basket.

  Q26  Chairman: How many eggs do we need for the basket is my next question. In the White Paper we are told that National Grid, paragraph 5.1.13, holds capacity contracts for 25 gigawatts of new electricity generation plant over the next seven years so there are quite a lot of people planning to put power into the system. That seems to contrast with your estimate of an additional 25 gigawatts by 2020. Is there a gap at all that needs to be filled? The figures in the White Paper could be read to suggest there is not a gap at all.

  Mr Darling: Firstly, on the plus side, there are signs of generators coming forward with new plant. In the last year or so, following last July when the government was able to provide some clarity in the direction of travel, there have been a number of announcements. Of course one thing we need to finally resolve this year is the question of nuclear. On the downside there is new capacity coming forward but there is also capacity coming out. A lot of our power stations are aging. We went through a period in recent years where nobody was building anything new. Normally you would expect them to be coming on all the time. That is encouraging. The bigger question is in the longer term. What do you do not just in relation to replacing capacity but in replacing it with low carbon capacity rather than oil and gas which a lot of the new stuff is. The other thing we have not touched on yet, which I am sure we will at some stage, is renewable. We were obviously way behind other countries in getting going but in the last two years we have doubled the capacity that we had and we aim to triple it up to 2015. That is a very welcome step but it is slow not least because of the planning process.

  Q27  Chairman: There is a slight puzzle that National Grid seems to have these contracts for 25 gigawatts of new capacity.

  Mr Darling: I will get Paul to explain the basis on which we made the calculations.

  Mr McIntyre: Perhaps I can try to explain the National Grid point. As the White Paper points out in the paragraph you drew attention to, these are not firm commitments but are indications from companies about their investment plans. They are not firm commitments so they are not comparable figures with the ones used in our modelling.

  Q28  Chairman: It says contracts although in some cases they are not firm commitments, the implication being most of them are firm commitments.

  Mr McIntrye: I have not got the figures to hand but not all of them are.

  Q29  Chairman: I would appreciate some clarity. If my interpretation is correct, it would significantly reduce the case for a new nuclear build, for example.

  Mr Darling: If I did not think there was a problem I can assure you I would not have bothered with the White Paper; we can all adjourn and retire and sit on the terrace. I think there is a problem. One of the government's many important duties is to make sure the lights do not go off.

  Q30  Chairman: I would like to discuss the capacity contract arrangements with you but we do not have time for that. There is another issue which is very important in determining new nuclear, new renewable build as well, and that is carbon pricing and the EU Emissions Trading Scheme which I have asked you about on several occasions. I was interested to see repeatedly in the White Paper, particularly in 5.1.34, you say the government will "keep open the option of further measures to reinforce the operation of the EU ETS in the UK should this be necessary for greater certainty for investors". I welcome that statement. I am sure that is right. How will you decide whether you need to do more?

  Mr Darling: As I said in my reply to the first question, I think the EU ETS is absolutely critical and it would take a lot to persuade me to give up on it. I am encouraged that phase two is much better than phase one. The test will come in phase three when there are some quite big issues to decide, not least whether it should be country-wide or across sectors, the whole question of auctioning and so on. What we are making clear is I recognise that investors need to make decisions that will span 30, 40 or 50 years and they want to be sure that there is a carbon price. What we have said is we think the ETS is the best way of doing this and I would like to see that expanded and strengthened. In case there was any doubt about it, we would not allow a situation to arise that were it not to be successful there would be absolutely nothing in its place. I think it is far better to do these things multilaterally, for obvious reasons, rather than unilaterally. We want to send a very clear signal that I believe carbon pricing is essential for what we want to achieve, and preferably on a European basis, but, if necessary, if we had to do it in Britain alone we would be prepared to do that.

  Q31  Chairman: What sort of additional measures might you take in relation to the ETS? If phase three does not delivery in sufficient time or for the confidence of investors, what sort of measures will be taken in the UK?

  Mr Darling: What we are referring to there is if you do not have a European carbon price should you have a UK carbon price. Because I believe that the European carbon price in this case is an example where Europe can work to the benefit of everybody, that is what we should be concentrating on and I am confident of that. I think it would be idle to spend much time speculating on "what if". Whereas 12 months ago I was beginning to wonder whether we would get a phase two that was worthy of the name, we now have signs. If you look at the forward carbon prices they are far more encouraging than what it is today.

  Q32  Chairman: The investors need that certainty.

  Mr Darling: They do. If you are asking to put money into any power station, some of which will be generating in 50 years time, they need to know the basis on which they are making those investment decisions.

  Chairman: I would be fascinated to see when you have to return to the subject or not—not you but your successor or successors.

  Q33  Mr Berry: I welcome very much what the government has been doing to promote renewables. Where I live not too far away is the River Severn with the second largest tidal range in the world and, as the White Paper points out, the potential to generate 5% of the UK's electricity requirements. I am aware that the Sustainable Development Commission is due to produce a report on the broad range of issues—the phrase used in the White Paper—by September. Could I first of all ask if that is on schedule?

  Mr Darling: It is. I had rather hoped to get it by the end of the July. It is on schedule unfortunately and that means September.

  Q34  Mr Berry: It is ahead of schedule.

  Mr Darling: It was supposed to be July, the end of next month, but now it is two months later than that. I would not call that ahead of schedule. It is now on time and on target.

  Q35  Mr Berry: It is going to be the broad range of issues relating to tidal power that the Commission is going to be looking at. Could you tell the Committee what happens next? There is clearly debate about a barrage or tidal lagoons or tidal streams or whatever. There is the issue of financing it, the business case, the technology. The potential here, as you and your Cabinet colleagues have pointed out very publicly, is very great. Where do we go from here and how quickly?

  Mr Darling: You are right that this could have tremendous potential. The first thing we need to reconcile as a country, and actually which Europe needs to reconcile, is in relation to tidal power there will always be a tension between the adverse effects that putting a barrier across a river could have. Even siting generating capacity in a tidal stream—because it does not have to be a physical barrier, you can place generators either on the river bed or in the river—there is an environmental impact and effect. Whenever you interfere with flows of water it has an effect somewhere. As you know, the big environment concern in relation to the Severn is if you built this barrier what would happen, especially upstream with rising water levels, the effect on the bird life, insects and so on. You also have to balance that with what would be the positive effect to the environment by the fact we were generating electricity in a way that might as a whole be environmentally less damaging than if we were building conventional power stations or even wind power stations which do have a visual impact, even the offshore ones. There is a second issue which is very important and that is the financing of it because this is not cheap. We have not even sat down to do the numbers properly but simply looking at it you can see the costs would be substantial. The first stage is we asked the Sustainable Development Commission to look at this. They will take slightly longer because I met them recently and said it would be helpful if you would look at the specific issues, also the broader issues, the sort of issues that we, as a country, ought to be taking into account. In addition to that, David Miliband, Secretary of State for Environment, and myself believe that the government needs to take a firmer step in trying to crystallize the issues that are at stake here. As you know, whenever you propose anything you get people who are for it and people who are against it. What we need to do is work through what are the real issues we are going to address. Both of us feel that is something that the government does need to have a view on. At this stage you are talking about exceptionally big projects which are at an early stage. I personally would like to come to a view rather more quickly than some people think as to whether or not it is likely to be a possibility or not. There are very big issues to decide. I think all of us would acknowledge that if you put a physical barrier across a river the size of the Severn it will have some effect.

  Q36  Mr Berry: Part of the effect might be to reduce flooding in Somerset. My key point is energy policy. Various individuals or organisations, Greenpeace for example, and others, have for quite some time been saying to government there should be a strategic evaluation, a comprehensive evaluation, of this case. Am I right in understanding that the Commission is simply going to be looking at the general issues but in terms of the nitty-gritty, the research that government would have to Commission before it could commit to this, would be something that would happen reasonably quickly after you had the report?

  Mr Darling: Part of the reason I hoped we would get the report in July is it would then allow the government to fairly quickly say these are all the issues we need to look at and then set out a process for doing it. We will not have the report now until September but I agree with you this is something that I do not want to leave lying because there are big issues. It not just for the Severn; there are similar schemes, maybe not as big. People say we do not want onshore wind farms how about offshore but that raises issues. I suspect that once you get into any offshore there are issues. Perhaps using tidal flows in an estuary or a river might be better than some other forms of wave generation. I still believe that despite the fact it has been a slow start and a difficult start that marine generation using sea power has a potential. The problem with the sea that it can, often as not, break up the generating plant very shortly after you get the first onset of winter—sometimes in Scotland in the summer too.

  Q37  Miss Kirkbride: My apologies for being late to the meeting. I think you did briefly refer in your earlier answers to the importance of solar power and wind power as another renewable energy source. It seems to me that when the government is looking at these issues it is extremely complicated and difficult to do barrages on the Severn because of all those planning issues and Greenpeace and everybody, whereas the easier hits are surely in the home where you can get householders, on the whole, to pay for it. You can rely on their willingness to do it because it is the right thing to do and they might get cheaper energy sources in the future and cut their bills. I wonder whether the government is making enough of this. It was my understanding, and perhaps you could tell me what your understanding is, that one of the obstacles to it is the cost of them and therefore the likelihood of being able to see a return on solar panelling or wind power over the lifetime you are likely to spend in your house. Yet if more people did it they would be cheaper and therefore the thing could become a virtual circle.

  Mr Darling: We dealt with the question of energy efficiency and households at some length prior to your arrival and I will get in a row if we go over that ground again. I dare say you will read the transcript with the fascination it deserves. In relation to your general point, let me say firstly my number one point in any of this is let us try to use less energy than we do at the moment. That makes sense at home or in business. In relation to wind energy, you are right that it is controversial, whether it is a wind farm or putting up an individual windmill on your roof. As those people who have tried it will know, there can be many difficulties despite the fact we have changed the planning system to make it easier. What I would say about individual windmills is they certainly have a role to play, they have an increasing role to play but they are not going to meet the gap from energy generation that we have at the moment and will have over the next few years. The National Grid in this country has served us well. There are many countries, America and Europe, who have had huge problems because their grids have failed. Our grid has a pretty good record. There are two things I would say in answering your point. For those countries who do have a lot more distributed energy, that is the small windmills like Denmark for example, they do also rely on being able to import a lot of energy from nearby countries including nuclear. When I launched the Energy White Paper I went to the National Grid control centre and it was quite a hot day, and a hot day across Europe, and I was struck by the very large amount of electricity leaving this country going to Germany. Why was it going to Germany, because the wind had stopped blowing and their extensive wind farms were lying completely idle. That again rather brought home to me that you need to make sure you do not put all your eggs in one basket. The final part which you have touched on, whether individual houses or a large scale wind farm, planning is a big problem and there is no getting around this. It is going to be one of the big issues that we are going to be discussing in parliament in the next session.

  Chairman: It is an issue we hoped to explore with you this morning but we are short of time.

  Q38  Mr Weir: Yesterday John Ashton, the Foreign Secretary's special representative on climate change, talked about China building two new coal-fired stations ever week and called upon more investment of carbon capture technology. He called for a fast track programme to make it universal technology. The White Paper obviously talks about it and makes the same point but the announcement of the competition caused a collapse effectively of the Peterhead project. Do you think the government is engaged in a fast track project in carbon capture?

  Mr Darling: We are fully engaged. I would share your frustration and the Committee's frustration that across the world people have not made faster progress. Let me deal with the UK. We intend that the competition, of which we know there are about seven companies involved including one in Scotland, will get under way with a decision being made in 2008. Why is it taking some time? This is an extremely expensive process. You are talking about hundreds of millions of pounds and you are talking about technology, which I have said many times before, does not exist in a commercial form anywhere in the world. The second thing I would say to you is something that I find very encouraging. Right across the world, and even in countries who you might think have a vested interest in producing as much oil and gas as they can like the Gulf States, they are now beginning to spend very substantial sums in looking at this new technology. I was in Saudi Arabia and Abu Dhabi last week and I was talking to both those countries specifically about what they were doing to make sure that we can carbon capture, how we can invest more in environmentally friendly industries. It is very encouraging that they are doing far more than many people realise. Going on to China, where I think John Ashton is about to visit or is visiting, China too is very aware of the fact it needs to grow its economy to help its population but it is aware that if it does not do something about the environmental impact it will come at a very high price. It is encouraging but the difficulty is this technology does not exist yet. Right across the world people are trying to get something under way. I would like Britain to be first. I would have liked the BP Miller field to be part of that but I recognise the fact that BP took the decision to keep that field open was going to cost them too much.

  Q39  Mr Weir: The point about China is they will not introduce carbon capture unless the West will develop it first. The Chinese have said that. The point about Peterhead, and you have said before it is a shame BP pulled out, is all to it do with the money and the competition but surely it was the most advanced project in the UK so would it not have been worthwhile to keep that going to demonstrate the working of this technology for export purposes?

  Mr Darling: I said to you in the last DTI questions, as I have said to your party leader and the First Minister of Scotland on a number of occasions, it is not open to the government to hand over a contract possibly worth hundreds of millions of pounds to one company, especially when it knows there are seven others in the field. We cannot do that. No government can do that. There are two things that I find encouraging: one is BP has explicitly said to us they do want to be involved in the future because they recognise as a big oil company they need to be involved. The second thing is there is a Scottish company in the running for this. Scottish Power and their new owners are very keen to become engaged here. I want Britain to be a world leader. I think there is a chance we could be first because when you talk to other countries, despite everything that you have said, we are further down the track than many other countries. You are also right that if you speak to China and India some of them will say "OK, we will do this but you go first." I do not mind that. Some of them have also said we are willing to contribute and I am very keen on that too. Carbon capture could be very successful. It could substantially reduce the amount of carbon we emit into the atmosphere. It is not the answer in itself because carbon capture after all is only capturing; it is not stopping the problem in the first place but I think it is an important part of it. I understand perfectly well the frustrations about the BP Miller field. It was always clear to me. When I visited three years ago they sat me down and showed it to me and said this is how it works and I said "Great, when do you start" but they said it is quite expensive. That is something we have to crack.