Tim Yeo, Conservative MP and chair of the energy and climate change select committee, has issued a stinging rebuke to George Osborne’s Treasury for their meddling in the design of the government’s flagship energy bill. He has called for Ed Davey’s department to "escape the control of the Treasury" which "has never been signed up to the green agenda".
Yeo’s select committee publish their pre-legislative scrutiny of the draft energy bill today. The report highlights the battle that Davey and DECC are losing to Osborne and the Treasury. Three major concerns are highlighted.
First, the proposed "contracts for difference," which are meant to encourage investment in low-carbon energy production, are criticised as "unworkable". Writing in today’s Financial Times, Yeo outlines how the simple, long-term contracts underwritten by the Treasury which were proposed in DECC’s original consultation "rang alarm bells in the Treasury". As a result they were "struck out of the draft bill" and replaced with "an alternative contract system so complex and confusing it may not be legally enforceable".
The committee go on to set out related concerns around the contractual regime. These include concerns that:
- The reforms may squeeze smaller independent companies out of the electricity market resulting in even greater levels of market concentration;
- A cap on green levies imposed by the Treasury may result in higher costs for consumers; and
- The proposed process for setting the guaranteed price that nuclear generators can expect to receive for creating electricity "lacks sufficient transparency"
Second, Yeo’s committee says that the government should "set a clear target to largely decarbonise the electricity sector by 2030, giving investors certainty about the direction of energy policy." This follows pressure from a number of NGOs and think tanks, including IPPR, which submitted evidence to the review. The government’s advisory body, the committee on climate change, had stated that "the carbon intensity of power will need to fall from around 500g/kWh today to 50g/kWh in 2030". But the draft energy bill reduced this ambition by stating only that ‘power sector emissions need to be largely decarbonised by the 2030s’ with carbon emissions intensity at 100gCO2/kWh.
In our submission we stated that:
“The bill should be explicitly tied to the carbon budgets by setting a target to r educe the carbon intensity of the grid to 50gCO2/kWh by 2030. This is the most important step the government can take to provide certainty to industry about the direction for the energy market.”
The select committee has adopted our suggestion and recommends that:
“The Government should set a 2030 carbon intensity target for the electricity sector in secondary legislation based on the recommendation of the Committee on Climate Change.”
In a leaked letter, Osborne has explicitly called for Davey to reject this recommendation on grounds that it would be "inefficient" and "inflexible" and, instead, support polluting, "unabated gas" up to 2030 and beyond. Davey must reject his advice and heed Greenpeace’s warning that "the 2030 goal is the most significant test of the Lib Dems energy and environment credentials. If they cave in now they will be judged to have failed."
Third, the select committee report says the draft bill is "fundamentally flawed by the lack of consideration given to demand-side measures, which are potentially the cheapest methods of decarbonising our electricity system." They estimate that current policy is only delivering around one-third of the potential reduction in energy demand that is needed by 2030. Among other ideas they call for "the draft Bill to provide the Secretary of State with powers to introduce a Feed In Tariff for energy efficiency, if this cannot be achieved through existing legislation."
Yeo’s outspoken attack on the Treasury, which refused to give evidence to the select committee, shows that concerns about Osborne’s role extend deep within the Conservative party. But the report also shows that, once again, the Lib Dems are losing out to the Tories in Whitehall. To step out of the shadow of his predecessor, Davey must go back to the drawing board and develop proposals which will keep energy bills down, improve competition and encourage essential investment, rather than deferring to the short-term thinking of Osborne.