§ 2.59 p.m.
§ Lord Kirkhill rose to call attention to the need for a positive policy for the development and conservation of the nation's energy resources; and to move for Papers.
§ The noble Lord said: My Lords, today we live in an energy hungry world in which the whole prosperity and lifestyle of the industrialised nations, not to mention the future prosperity of the third world, depends largely on reliable, adequate and reasonably priced sources of energy. It is often suggested that there is no real energy problem in the world because so many different sources are now available. But half the world's energy comes from oil. The production rate is unlikely to increase significantly and must begin to fall in the future because new discoveries are not keeping pace with extraction. Even with energy conservation measures in the developed countries, the problem is bound to increase in the future. In this country, along with other nations, we have been made increasingly aware of the problems associated with world energy supplies since the Arab-Israeli war in 1973.
§ The revolution in Iran, the Russian invasion of Afghanistan and the Iraq-Iran conflict are reminders that not only is the flow of oil in ultimate danger of running out but, in the Middle East at least, it is also critically vulnerable to more immediate political stresses and strains. In the United Kingdom, however, we are fortunate in being one of the few industrialised nations to have significant reserves of coal, oil and gas in addition to our potential for nuclear power. After many years of being a net importer of energy we are now self-sufficient, and throughout the 1980s domestic production should be large enough to ensure that the nation has a net energy surplus.
§ Our immediate prospects are therefore bright but it is important to avoid complacency, bearing in mind that the full benefits of the North Sea are likely to be available only for a limited period. Present expectations are that by the 1990s the country will 567 again become a net importer of fuel as indigenous oil and natural gas taper off. In the world as a whole the future picture is one of increasing pressures on available fuel supplies. The requirement of the developing countries for fossil fuels is certain to grow, and these nations will expect the industrialised countries to help to relieve pressure on supplies by developing alternative energy sources.
§ So far as this country is concerned, we have now reached the stage when we need a positive policy for the development and conservation of the nation's energy resources. We need to plan now against the day when domestic production of oil and gas will be falling off and when these fuels become so valuable that developed and available alternatives make good economic sense. Indeed, much more should be done now, I believe, to investigate the long-term possibilities of producing oil from coal—a move which would reduce the amount of coal available for power stations and which must lead to an eventual increase in coal production and the further development of the nuclear power plant manufacturing industry. Incidentally, can we be told by the noble Earl the Minister when he replies whether the Government agree? So far theirs would seem to be a policy of silence on this matter rather than an affirmation of a publicly-discussed strategy.
§ It has to be emphasised that there is no basic shortage of energy, at least in the medium term. The real question is the cost of energy and its management, particularly in relation to the timing and introduction of new sources. The national economy is dependent on securing supplies of energy at economic prices. We need to be competitive in this with overseas countries in Europe in particular. There is a long time-scale for planning in the energy industries. It is usually 8 to 10 years before a change of policy has any major implications, and it is therefore essential to aim for stability in policy rather than for abrupt changes. Such changes, when they occur, always involve higher costs on the supply side and as regards consumers' installations. Have the Government such an aim? Do they accept that stability in policy is vital? If so, how do they reconcile recent and current legislation with such a dictum? If not, of course the question answers itself.
§ One of the main requirements for a national energy policy is the creation of a climate which is favourable for future sensible investment decisions. This means a sound approach to energy pricing and a clear specification of the return which the energy industries should aim at on the massive investments they need to make. A substantial proportion of national investment will be taken up by energy investment in the years ahead. A suitable pricing and financial discipline is therefore a necessity. Unsatisfactory pricing policies distort energy and other markets; and the clumsy use by the present Government of cash limits, set in such a way as to influence tariff levels in the energy supply industries, is a classic example of what I have just mentioned. It results in inadequate financial provision for investments needed for future energy supplies, little encouragement to conserve energy and the provision of misleading information to customers on how to choose forms of energy use appropriate to their situations.568
§ The world energy outlook suggests that attempts to supplement indigenous fossil fuel reserves with oil imports will become increasingly expensive. Also, the outlook for United Kingdom energy is uncertain; oil and gas production are likely to have reached their peak and will be falling by the year 2000. Clearly, the coal and nuclear power industries will then assume increasing strategic importance when other fossil fuel supplies begin to decline. Total known United Kingdom reserves of coal are estimated to be 190,000 million tonnes, about a quarter of which are recoverable using established technology.
§ The Coal Board's ability to maintain, and in the longer term increase, coal production will demand a continuing and substantial level of investment in new and more efficient pits to replace existing high-cost pits, which will become exhausted well before the end of the century. The National Coal Board is currently modernising existing pits and investing in new capacity; but, Selby apart, it is unlikely that this will contribute significantly to coal production before 1990. Indeed, it is likely that environmental and social pressures for the National Coal Board to justify their plans for new pits will increase, with subsequent delay to planned investment.
§ In passing, it is worth mentioning that if the new chairman's past record in dealing with trade unions is considered—that is, he tries to ignore them if he possibly can—the future harmony in the coal industry may be in serious jeopardy. In my view, the coal industry's prospects can be realised only if new capacity is introduced to improve overall productivity and cost structure, enabling the price of coal to remain competitive with that of other fuels.
§ I turn now to the consideration of North Sea oil production. It is expected to exceed United Kingdom demand throughout the 1980s, although substantial quantities of certain grades of oil will still be imported for economic advantage and to satisfy industrial needs. The world oil market is subject to a variety of political and financial influences and its price may continue to be affected by the operation of cartels such as OPEC.
§ In 1981 the Department of Energy estimated that United Kingdom oil reserves lay between 1,900 million and 4,100 million tonnes, and forecast that offshore oil production of 80 million tonnes in 1980 would increase to between 90 million tonnes and 120 million tonnes a year in the mid-80s. Yet by the year 2000 there will be a net oil import requirement of 35 to 50 million tonnes a year. Self-sufficiency might be extended into the 1990s if there are further discoveries of oil—for example, in other parts of the United Kingdom continental shelf—and with rising crude oil prices that leads to the development of small fields that have hitherto been considered as being uneconomic. However, in 1975 our trade deficit in oil was nearly £5 billion. In 1980 oil exports exceeded imports by £19 million. A slower rate of depletion would prolong the benefits to the balance of payments. We would also benefit from greater security of oil supplies towards the end of the century, and give industry more time to introduce new, efficient equipment and to adjust to new patterns of energy supply.
§ In such a situation, the Government stand indicted by their excessive zeal to support oil discovery and production at the hands of the multi-nationals—a 569 modest BNOC presence proving, it would seem, too much to accept by this most partisan of Governments. There is, of course, the great political divide between Government and those of us on these Benches. A major public asset, as North Sea oil undoubtedly is, should not be principally the responsibility of the entrepreneur but should be held in public account.
§ Let us forget the present Government's behaviour for a moment and consider the availability of natural gas, which will, of course, depend on the size of the reserves and the pattern of their depletion. The Department of Energy's 1981 estimates suggest remaining reserves of possibly 76 tera-cubic feet, and another 12 tera-cubic feet might be recovered from gas found in association with oil, provided that a gas-gathering pipeline is built for the northern basin of the North Sea. Gas production from the United Kingdom continental shelf in 1980 was 1.31 tera-cubic feet, meeting 77 per cent. of the United Kingdom's demands. The remainder was imported Norwegian gas.
§ Ultimately, as gas reserves diminish, the gas industry will need to rely on increasing supplies of substitute natural gas produced from coal. This will lead, obviously, to still higher gas prices. In my view, it is imperative, therefore, that the current wastage of North Sea reserves through gas flaring is brought to an end. Perhaps the Minister, when he comes to reply, will be able to tell us whether or not the Government agree with that view and, if not, why not.
§ Quite obviously conservation is clearly an important element in future energy projections. The extent to which energy can be conserved has been a source of much discussion over the past decade, and in some quarters the need to save energy has been elevated to a principle in itself. Such an approach implies that it is right to waste other scarce resources in order to conserve energy—a proposition which I do not believe bears serious examination. Further, I do not believe that Government can claim that the current level of resources devoted to conservation does justice to its important position in our overall energy strategy.
§ This country's conservation is not only minuscule but is fragmented. The diversity of schemes and diffusion of effort among Government departments blurs policy initiatives. I consider it to be imperative that positive steps are taken as a matter of urgency to overcome these weaknesses. As a first step, the central recommendation of the Rayner Report should be implemented; that is, the setting-up of a new division of the Department of Energy to co-ordinate and improve ministerial control over energy conservation. Having done this, Government expenditure on conservation schemes must be raised to the levels enjoyed by our EEC partners. In addition, the bureaucracy which has built up around the administration of grants has resulted in the strangulation of many good schemes in both the domestic and the industrial sectors, and this is a well-known fact. Again, this must be put right.
§ Above all, we must not allow the momentum for change to be dissipated by spurious arguments as to the effectiveness of conservation. The Government need to recognise that conservation raises particular difficulties in promotion and implementation, which 570 are much more difficult than on the supply side where in the main it is in the hands of reasonably competent specialised industries. Conservation demands the cooperation of individual owners or local authorities, and it is not clear that exhortation is enough to persuade them to adopt reasonable conservation measures. Conservation measures can also be technically demanding and owners are not always clear to whom they can go for unbiased advice.
§ I suggest, therefore, that it would be in the national interest to provide more finance by way of grants or low interest rate loans for the purpose of conservation, and to set up, through established agencies or industries, a national co-ordinated network of advisory centres which would undertake work under guarantee.
§ We hear much talk about the so-called renewable or benign sources of energy, such as the wind, the waves, the tides, the sun and, of course, geo-thermal power. We must maximise the contributions from all these sources, but they can only scratch the surface of the problem. However, it might be worth while to spend just a few moments considering their practicability. In this country the sun offers no prospects for the generation of electricity, but the use of solar power may prove attractive for the provision of low-grade heat, such as domestic water heating, and in that application may prove a useful partial substitute for more conventional forms of energy. The wind, the waves and the tides all offer substantial energy sources, but windmills are visually intrusive and noisy. Their necessarily small capacity will involve a network of inter-connecting lines and the wind does not blow steadily or continuously, so there is a need for alternative sources of generation, or alternatively for large storage.
§ A considerable amount of work is going on here and in other countries towards the development of wind generators, but when we reflect that 500 such machines, each built on a tower taller than a super-grid transmission tower, would be needed to have the equivalent peak output of one modern power station I think it can be seen that the siting of such a windmill farm, if I might call it that, could not be an easy matter. For this reason, it has been proposed that the mud flats on the Dogger Bank might be sufficiently remote from an urban area to be a possibility. This may indeed prove to be the case, but of course transmission costs would be correspondingly higher. It seems quite likely that eventually we shall see a useful contribution from wind power, but necessarily a marginal one. However, in isolated areas wholly reliant on diesel generation, as many of the islands offshore of the North and East of Scotland are, windmills may have a role to play.
§ The United Kingdom is particularly well situated in relation to power from the waves. A number of devices have been developed, ranging from the well-known nodding ducks, through articulated rafts to air turbines which have been devised to harness the kinetic energy of the tides. The power available on our Western Approaches is very substantial and, in theory at least, could provide some 10 per cent. of our total energy demand. But the difficulties are formidable, involving very large devices which would have to be anchored securely and which would have to perform in 571 hurricanes and in the presence of at least 50-foot waves. Even given the necessary sea-keeping qualities, the problems of transmitting the resultant power to shore and of maintaining the devices in service would be truly formidable. I very much doubt—I express an entirely personal opinion—whether the economics would prove to be attractive.
§ Some work is going on in this country on geothermal power. Some heat has been extracted from rocks in the vicinity of the Poole power station in Dorset which is now contributing to the overall performance of the power station there. Certain other areas of the country look promising but it seems clear already that we can expect no large contribution from this source. Perhaps we should be grateful for this. In general, where geothermal energy is readily available the earth's crust is thin and earthquakes are a substantial hazard.
§ Mine has, of necessity, been a brief survey of alternative energy sources. Nevertheless, it is clear that some of them may eventually become viable. Probably their total contribution in the year 2000 will, at best, represent only one or two per cent. of our energy requirements. How, then, will our descendants cope with their need for energy as our oil and gas reserves begin to run down? I am of the view that the only established technology capable of substituting for our failing resources of oil and gas will be nuclear energy. No credible alternative exists. Indeed, we cannot turn off and on the construction of new nuclear stations, as we would a tap. Able and experienced engineers in the nuclear design and construction industry are not going to hang about kicking their heels, on the offchance of the Government authorising another station in a few years' time. It takes many years and a long learning curve to put together the high quality teams needed to build our stations successfully.
§ It is no good the Government failing to grasp the nettle and then crying over spilt milk, which is largely of their own doing, if the performance of the United Kingdom contracting industry is not as high as they would like. Indeed, the United Kingdom contracting industry, and the United Kingdom nuclear design and construction industry in particular, have demonstrated—and are demonstrating, I believe—at Heysham and Torness that, given half a chance, they can match and beat the performances of their competitors overseas. These stations were authorised by the previous Government and they have been sustained by the present Government, but it has been reported that it took more than £150 million of taxpayers' money in relaunching costs to provide the proper manufacturing facilities necessary to make a job of them. Surely that is an example of Stop-Go and lack of stable Government policy at its very worst.
§ In my view, our future energy strategy should pursue several paths simultaneously. To replace falling oil and gas reserves we shall need to maintain coal output and to increase nuclear power production as extensions of our present technologies. At the same time we must pursue the development of new energy sources, recognising that their practical and economic potential remains to be demonstrated and that their contribution will be slow in achievement. We must also seek to extend the life of our fossil fuel resources 572 and limit the substitution problem by the vigorous promotion of such conservation measures as can be economically justified. Above all, we should aim to use all fuels more efficiently, more cost effectively and more wisely.
§ In the course of these remarks, I have asked some questions of the Minister: for example, what is the Government's attitude to the long-term possibilities of producing oil from coal? What are the Government's aims as to stability in policy, given some recent aberrations? Do the Government intend to bring gas flaring to an end? Do the Government intend to implement the major recommendations of the Rayner Report? Notwithstanding, I should like to put on record the intentions of the Labour party when we resume office, as outlined in our Programme 1982. We shall ensure that everyone can afford adequate heat and light at home. We shall give priority to the coal industry and to the use of coal as a fuel. We shall assist major towns and cities to set up combined heat and power schemes. We shall begin a massive conservation programme, led by insulation for council housing and giving incentives to industry on agreed plans to save energy. We shall greatly increase spending on the development of renewable resources.
§ My final thought is that perhaps the innumerable papers which exist dealing with conservation, combined heat and power projects and, as I would describe it, the present Government's non-policy, et cetera, could themselves be burned and thereby contribute to the nation's energy requirements. What we distinctly are short of is action. I beg to move for Papers.
§ 3.27 p.m.
§ The Earl of Lauderdale
My Lords, the House will be greatly indebted to the noble Lord, Lord Kirkhill, first, for choosing this subject for debate; secondly, for bringing to it a personal knowledge of one aspect of the energy industry, namely oil, which he developed for some years as a very distinguished Provost of Aberdeen; and, thirdly, for the temperate mood in which he addressed himself to the subject, although, of course, as was to be expected at a time like this—"Will Maggie, or won't she?"—there were one or two side swipes which one could have written for him beforehand. However, the main thrust of his speech I found to be satisfactory.
The noble Lord said that we must address our minds to the situation which will arise when the supply of indigenous oil from the continental shelf falls away. He said that the real questions are the cost of energy and its management—a bracket of considerations that is common ground to all sides of the House. The noble Lord minimised the lead times involved. He spoke of eight to 10 years. I should have thought they were more like 15. But in any case the noble Lord urged stability in policy. Again this would be common ground, I hope, on all sides of your Lordships' House. The noble Lord also threw in the suggestion—without being specific—that recent legislation was in some fashion in conflict with this. But yesterday we got through the Committee stage of the Energy Bill without a Division. The noble Lord called for a sound approach to energy pricing. Nothing could be more common sense than that; I should hope that that too would be common ground.
573 On conservation, the noble Lord, taking his words almost verbatim from the recent report of Sub-Committee F on the rational use of energy, referred to the diffusion of effort among a dozen Government departments. Again this is common ground. The noble Lord asked when the recommendation contained in the Rayner Report will be carried through. We are awaiting the Government's answer. The gossip in the Lobbies is that the Government are going to accept this recommendation; we shall no doubt quite soon now hear. The noble Lord also treated renewable resources as the marginal things that they are—well done again. I am only sorry that he had to take a side swipe at the new coal board chairman. At one point, moreover, he referred, without being specific, to "misleading" information. He also referred, naturally enough, perhaps, to his objection to cash limits on the energy supply industry.
Those are all legitimate areas of discussion and, as I have said many times before in this House, I hope that we can discuss these matters objectively, without rancour and without too much party bias. One thing is absolutely certain, and it is that in energy policy no Government ever carry the can for their mistakes or ever get the credit for their successes, because the results are only seen 15 years later. Although I believe that we shall have three terms of this Government, I would not believe that of any other! That is my only sideswipe this afternoon.
I found this Motion somewhat anodyne. It calls for a "positive" policy. Who is against that? It calls for the development of energy resources. Who is against that? Conservation also is mentioned, and I have yet to meet the man who is not for that as well. A positive policy demands more than a general denunciation of sin. I believe it is vital for us all, whatever may be the party to which we belong—treating this subject as being worthy of an all-party council of state and something to which we should seriously apply our minds for the sake of future generations—to be humble and to admit our mistakes.
Very few prophecies have so far come true in the energy field. Only a few years ago we were told that there was going to be a great uranium shortage, and yet today such a shortage is not even in sight. The British National Oil Corporation—to which I shall turn shortly—was conceived for an epoch of rising prices. What is our concern now? It is to stop prices falling. If we are to look at the long term, it is no use confusing the issues by introducing party points. We must be clear as to our objective, and this should be our first requirement.
Are we aiming to sterilise nature's ever-changing environment? Some would have it so. Are we aiming to prolong the pillow-soft comforts of our present self-indulgent way of life? Some would say that this is a natural human right. Is it our aim above all to safeguard jobs whatever and wherever they are? Again, for some that would be the prime objective of energy policy. I wish to suggest—and I believe that I have the noble Lord, Lord Kirkhill, with me on this—that the real objective is to provide the best and cheapest power for industry. Even if we choose that as our main objective, there are baffling dilemmas before us. There is the dilemma between the present cheapness of power and its very availability in 30 years' time. There 574 is the dilemma between the choice of lower prices now and what has come to be known as the long range, marginal cost of replacement.
In the matter of coal one speaks with great deference and hesitancy when two eminent noble Lords who are to follow have great experience of this industry. I should like to put it to your Lordships that the critical questions about the coal industry do not relate to strikes, nor to redundancies as such, nor to how the unions are behaving, nor even to whether National Coal Board chairmen are well chosen or not.
The real questions relate to the whole switch in the shape of British industry, from heavier to lighter. This switch is not peculiar to Britain: it is common to the whole of Western Europe. The British economy is now using only 310 million tonnes of coal equivalent of energy a year as against 346 million tonnes (about 10 per cent. more) in 1972–73, when on the one hand the Plan for Coal was being gestated and, on the other hand, the OPEC price rise was beginning. This figure could be down to 300 million tonnes in 10 years' time. The decline in the shape of British industry and its dramatic change from heavy to light—if you like, from the drop-forge to the gasket and the micro-circuit—is the factor that must condition to a large extent the future of the coal industry, whatever our emotions and national pride may be.
Although face productivity for the past year rose by something like 5 per cent. over the year before, and is in itself a very encouraging sign to an industry in which I have always believed—and I have always stated that belief—the fact is that the projections of 1972–73 on which the still extant Plan for Coal were based, are simply out of date. The situation has changed and this is just one more case of predictions being utterly wrong. That is always the case in the energy field.
If phasing-in the best investment for the coal industry and phasing-out the worst is the means by which production can be brought to match price demand by 1987 or 1988, that will still mean some drastic changes. It looks like absolute wastage, without replacement, of something like 25,000 men who are now over the age of 55. That may be, in social terms, acceptable in itself—that those jobs, as they end, will not be replaced. But the consequence can only be a new generation of an aging workforce. It is greatly to the credit of the industry that the average age of the NCB work force is today 39. This is to be applauded and we are grateful for it—but if one has to phase out 25,000 men, and one is naturally trying to phase out the older men, and do it without recruitment there is a consequential change in the structure and, above all, in the age levels of the subsequent workforce.
Another consequence which must be faced—and I am quite certain from my own information that it is being faced very seriously by the National Coal Board and in the Government's thinking on the subject—is the trend that there must be towards coal liquefaction. Another trend is toward the production of gas for chemical feedstocks. I hope and believe that ultimately, although the experts are much divided on this, underground gassification will be developed.
I turn now to oil. The Government were attacked and indicted this afternoon for their excessive zeal for the multinational oil companies' development when, if I understood the noble Lord, Lord Kirkhill, 575 correctly, he was arguing for a somewhat more conservative policy on depletion. The noble Lord called for an end to flaring, and I must say that I did not know any wasteful flaring was still going on in the United Kingdom sector, although maybe there is. On this subject, we surely have one thing to say about the present Government and it is that, despite blindness and blunders—which I shall list—the Government can be brought to see the light. That is something very rare in Governments of other parties.
First, we were treated to the project of a gas gathering pipeline. It was a strange idea, that one could somehow or another secure private enterprise risk investment in a public utility for public utility rates of return—all without a Government guarantee. How that idea took root I cannot conceive, and I have met very few people who can understand or explain now how it arose. If one is going to persuade private enterprise to invest in a public utility at public utility rates of return as a risk investment, then there must be a Government guarantee. I think that was a blunder and vital time was wasted on it.
Then a second blunder was the endeavour to make water run up-hill by using the gas gathering system as if it was a relevant factor in discussing with different companies their development programmes in the North Sea. Of course, development slumped, and then suddenly—my goodness! the street of Damascus called strait is nothing to what happened—the Department of Energy discovered that for a whole two and a half years, no Annexe B's had been submitted for North Sea oil development and they had better buck up and get some. So that was the second mistake, to couple the gas gathering pipeline and companies reluctance to participate with talks with those companies who wanted to develop their fields and were in fact, by silly production profiles, being discouraged.
The third blunder was the tax régime. The Treasury pushed for short-term revenue while forsaking the long-term considerations. At last these points have been grasped. On all three the Government have at last relented. So I believe we should honour, not vilify, a Government which is humble enough to see its mistakes and correct them. Then there is a very significant success to the Government's credit in the oil area. Having freed—wait for it your Lordships on the other side—BNOC's exploration activities from the restraint of Treasury control—that is what privatisation accomplished—we were left with a rump BNOC, still called BNOC, available to do its original purpose, which was to safeguard the national trading interest. What this Government have done is to make quite clear to BNOC that if in the endeavour to support the price of crude, or alternatively in the endeavour to prevent a helter-skelter collapse, BNOC loses money, then this very anti-subsidy Government will subsidise it. There is nothing ideological about that. Here is a Conservative Government cutting subsidies wherever they can but recognising the need for what is left of BNOC to do a particular trading job and in particular to influence the price.
I believe the Government deserve very considerable credit for their handling of BNOC and, through BNOC, their treatment of the North Sea crude prices as an element in stability at a time when we could have 576 had a collapse. I do not say we shall not have a collapse, but the procedures so far undertaken by this Government, using BNOC as their chosen instrument, have been satisfactory, have won the acclaim of Sheikh Yamani and other OPEC spokesmen, and have led to, at any rate, a steadying of the price when there could have been a disastrous breakdown. So on oil I give the Government a beta-plus. I have one question to ask before I leave that subject. We are awaiting any day now the results of the Eighth Round of licensing. Will the Government have a similar round next year, and in general terms what areas of the continental shelf do they expect that to cover?
I turn to the question of nuclear power. Here again—and I can say it happily in the presence of my noble friend the Minister, because he was not responsible at the time to which I am referring; indeed I am not sure he is not actually a product of that catastrophe—I think this Government have to live down the perfectly dreadful complacency shown in the face of one of the best informed debates this House has had in 15 years. On 8th December last the noble Earl, Lord Halsbury, moved his Motion on the need for pressing on with the development of the commercial fast reactor. Some 15 of your Lordships supported him in that plea: among them were two former Secretaries of State for Scotland; there were five or six speakers with expert knowledge; there were two former heads of the Atomic Energy Authority; there were eight more who were very knowledgeable. They all said the same thing. It was that we simply could not stand still on the programme for the commercial demonstration fast reactor—the CDFR—otherwise we would be left behind and would be in a very bad shape 15 or 20 years hence. The House was treated by the Minister who was put up to answer—I am not going to name him—to a fifth form essay which took little note of the arguments. Somebody made the rather ironic comment—which I think is worth repeating, because it was a terrible performance—"Now we know he can read".
The public argument for delay that we were given is scarcely credible, that energy demands will be less than are expected 35 years hence—predictions 35 years hence! That is two and a half lead times. Nobody can predict what the situation is going to be 35 years hence. Look back 35 years; look back 10 years. That argument was intellectually unworthy. Then there were private arguments put in circulation coupled with it. One was a doubt about future uranium costs, but since it is re-used the gross cost is not really very important. How are you going to judge uranium costs 35 years hence, especially when you are saying it may not be there?
The second point made privately was that the important consequence of the commercial demonstration fast reactor will be its engineering reproduction all over the world. Here is an undertaking which it is said we ought to pursue in harmony and in conjunction with one or other of the big international consortia. There is a Japanese-American consortium and there is a Franco-German consortium. The suggestion was made that we really ought to wait until we can talk to them and find out which are the best partners before we come committed to going ahead ourselves. But of course the real answer is the reverse. If we do commit ourselves to going ahead now, to holding the design 577 and research teams together, to pursuing the matter as is perfectly possible at the state we have reached, then either of those two rival consortia will be very glad to come in behind us.
So there are three short points which I believe should be considered by the House and by the Government over the years. Do we want to keep our world lead in innovation, or do we just want to lapse into a licensing situation, as has now happened with the thermal reactor system, the PWR? The second question is: do we want a power source burning 99 per cent. of its fuel, and consuming—not making—plutonium? Do we want such a power source based on a negligible fuel cost, because it is re-used anyway? From the point of view of industries' eventual competition on the world scene, with cheap power, this is a very critical question indeed. Finally, do we want to do all this ahead of the rest of the world, because that is where we are now?
I believe there is still time for the Government to give the go-ahead, to make the jump from the 250 Mw to the 1250 Mw scale station that is being talked about. We all know that there is still a very serious technical problem about leaks in the steam generation boiler units and those problems have yet to be overcome. But of course if you slow down the research, if you say there is no hurry until the year 2020, it is very unlikely that the design teams and the research teams now gathered and focussing on this will hold together for the purpose indefinitely. So to press on hard now will hold the research and development teams together. I believe, as do others, that this will prove to be much cheaper in the end. If the Government are again humble enough to revise their view on this I shall vote them an alpha double plus now, and after the next two elections as well.
§ 3.50 p.m.
§ Lord Ezra
My Lords, there is not the slightest doubt that the subject which has been introduced by the noble Lord, Lord Kirkhill, is one of the greatest importance. He has spoken on it with a depth of understanding of the problem. The noble Earl, Lord Lauderdale, has treated us, as we have come to expect, to a vigorous tour de force in which he has covered many important aspects of this problem. He hinted that it might well be that I would want to say something about his remarks on the coal industry. Indeed, I shall do that in a moment.
But I should first like to raise a general aspect of this problem. Although there is no doubt of the importance of the whole energy issue, it is a fact that over the years we have blown hot and cold in regard to it. At the time of the 1974 and 1979 oil crises we were full of thoughts of how we were to develop alternative energies, reduce our dependence on those undependable external sources, improve energy efficiency, and so on. But during the subsequent recessions which followed 1974–75, and the current one, the whole emphasis has been dimmed. The interest in the matter has been diminished. Indeed, one can understand why people are a little reluctant to take firm decisions in the energy sector, because one must reconcile so many variable considerations.
There is the question of efficiency. Everybody will agree that we must produce energy as efficiently as 578 possible and use it as efficiently as we can. We do not need to argue about that. However, there is also the question of security. Many people would agree that, long-term this is a desirable objective. It does not necessarily agree with being the most efficient at any particular point in time. There is the question of short-term market fluctuations, such as we are going through at the moment. There is the question of structural changes in the market place, to which the noble Earl, Lord Lauderdale, referred. There is the question of the environment, with its increasing pressure. There is the question of consumers' interests; there is the question of the long lead time in investment and research. So when one contemplates the whole of this variable situation, and momentarily the pressures on energy seem to have diminished, then the temptation must surely be to let it look after itself.
However, in my submission that would be a very dangerous conclusion to reach. The energy crisis is still with us. It might be temporarily subdued due to external economic factors, but that it will re-emerge in the next few years, and thereafter, there is no doubt at all. The trouble is that if one wants to cope with future uncertain crises one cannot wait for those crises. One has to make the decisions today, and those decisions are generally of a long-term nature.
The noble Earl, Lord Lauderdale, said that in his opinion the prime objective must be to produce the cheapest energy for the use of our industries and for our homes. That sounds all right, but, as I think he went on to say, that could be a rather dangerous precept because what is cheapest today could be the most expensive tomorrow. I should like to submit that our objectives should be slightly different. We should have two objectives. The first is that we should aim to maintain self-sufficiency and security in energy. That is by far the most important consideration. We have seen the enormous damage that can be caused by undue dependence on third parties.
Let us say we limit our dependence on third country oil from the Middle East but at the same time increase dependence in Europe on gas from Russia, or increase our dependence on coal from America, Australia and South Africa. When the situation changes those countries will change their policies. I am very familiar with the international coal trade. It is a marginal trade; only 10 per cent. of all the coal produced is traded. Therefore, it is subject to very major changes, because the bulk of the coal is sold in the countries of production. We know that in Australia, for example, as the market firms up not only do the producers increase their prices but the Australian Government impose an export tax. There is the same tendency in Canada. Undoubtedly United States coal, which is quoted so competitively in the world market today, can change overnight if conditions change.
Therefore, I submit to your Lordships that our first objective, if we are to learn at all from past experience, must be that we should aim to maintain self-sufficiency and security. Our second objective must be to do that as efficiently as possible.
If we are to aim at those two objectives and work our way through the conflicting considerations to which I referred, then we must have a very clearly defined strategy. I believe that that has to comprehend greater efficiency in the production and distribution of our 579 existing sources of energy; a major exploration programme related to these sources to maintain them as long as possible, and a greater efficiency in their use; and—something that has tended to be reduced in these days of financial stringency—the maintenance of a major research programme in improving the use of existing resources and developing new ones.
I believe that we can apply a policy of this sort to each of our forms of energy and reconcile some of the difficulties to which I have referred. Let us take coal—a subject with which I have a slight familiarity. The noble Earl, Lord Lauderdale, referred to Plan for Coal, in which I was personally very much involved in 1974 with my colleague, the noble Lord, Lord Gormley. The noble Earl said that the figures attached to this plan are now out of date, with the implication that we must start again. But the figures were not the key part of the plan at all. At the time those figures were estimated, the steel industries of the world were in a booming condition, and economies were moving upwards. I remember being personally criticised by a number of our consumers, whom I had approached, for being too modest in the estimates. So the estimates then were what they had to be, and no doubt if we made them today they would be different. But that was not the issue. Of course there had to be some figures; one could not produce a plan of that sort without figures.
What the plan was all about covered three basic considerations. First, we had to improve the efficiency of the industry by introducing a stimulus to those who worked in it. It was agreed by all parties—the unions, the Government and management at the time—that this could best be achieved by the introduction of an "effective incentive scheme". This was done. It took time and there were arguments about it, but it was done. The noble Earl referred to the improvements in productivity which have taken place quite recently.
Secondly, it was agreed that it was essential in an industry which had been starved of investment in new capacity during the preceding 15 years that we should catch up with this and that that new investment should be used to take the place of those mines which inevitably, through the long time that they had been in existence, were going to be exhausted of mineable coal. And that programme was put in hand.
Thirdly, it was agreed that we should aim through our research and development programme to transform coal into a high technology industry. All those things were put in hand and a great deal of progress was made. Indeed, on the last point, as a result of this concerted effort between the industry and the manufacturers of equipment, a very substantial export business was built up, showing that British mining technology was then, and still is, leading in this particular aspect. This is what was being aimed at. The significance of that plan is, I repeat, not the figures but what we were trying to do. I should personally be disappointed in the new chairman of the Coal Board if one of the first things that he was to do was to say that we need a new plan. What we need to do is to persevere with those objectives. Those objectives are of a long-term nature.
The noble Earl also referred to the fact that he thought that the structural change in industry and in 580 industrial activity was going to mean a reduced demand for coal. I am afraid that I do not agree. I shall tell him why. I believe that we have to decide that the appropriate fuels must be used for the appropriate purposes. We have a very valuable resource at our disposal in the North Sea: the oil and the gas. It is the most valuable natural fuel product being produced in the world today—high quality oil and high quality gas. But we know that its life is limited.
Therefore we must do two things about it. First, we must make sure that it is used in the most efficient and effective way for those purposes where it can bring the greatest benefit; and, secondly, of course, maximise exploration. I accept that the Government's changes in the recent Budget will stimulate exploration, and I think that that is very desirable. But that means that a lot of the traditional load of energy for which oil was being increasingly used at one time should be vacated. I think that it would be quite wrong for the general steam-raising load to be taken up by oil or gas, which should be used for much more sophisticated purposes. It is that area—
§ The Earl of Lauderdale
My Lords, is there any proposal now that oil and gas should be used to replace coal in power stations? Surely the trend is the opposite.
§ Lord Ezra
My Lords, if I could reply to the noble Earl, I am not talking about power stations. I am talking about general usage in industry, to which he was referring, and about the enormous potential there is in industry for the conversion of boilers from oil and gas to coal. There is a substantial financial advantage in so doing. The thermal cost of coal is very much lower than that of oil or gas, and rightly so. There is now encouragement by the Government in grants of up to 25 per cent. of the cost of conversion, and there are benefits being provided by the European Community. These are things that are moving in the right direction.
I was a little disappointed, having regard to the views that I share so often with the noble Earl, that he should not have recognised that there is this great future for coal. There is a rational use of energy opening up for this country when each form of energy can find its natural, most effective market, and that is the direction in which we should be going. So I think that this plan for the coal industry fits in with what should be our general energy objective.
I should like to comment very briefly on the electricity industry, an industry with which I have had very close connections for many years and whose technical and professional skill is probably the highest in the world. But I think there is a risk that, if we believe that the only way forward for the electricity industry is to build more and more big power stations, fuelled by whatever means, we shall be going the wrong way. As we debated yesterday in the Committee stage of the Energy Bill, there is increasing interest in combined heat and power schemes.
The electricity industry are in the process of closing down a number of their smaller stations in order to concentrate operations at the bigger ones. On the face of it, that sounds a very sensible and rational thing to do, but the trouble is that you cannot operate these combined heat and power schemes from the very big 581 stations. They are too remote from the centres of population, the amount of waste heat is too large and the pipelines would cost too much. The points at which you want to do this are the smaller stations, near or in the urban areas, such as the small stations along the Thames which are now being closed down—such as Battersea, Deptford, and so on.
So I should like to submit that, in our approach to the most efficient use of energy and the most efficient use of existing energy resources, we give very serious consideration to prolonging the life of such smaller stations as would otherwise be closed by means of converting them to combined heat and power schemes, involving district heating, and, wherever possible, using waste material as a source of combustion. This would be a really big step forward.
There are other ways in which we must be developing this theme. Certainly the whole question of energy efficiency—and I do wish that we could use the term "energy efficiency" when we mean this rather than "energy conservation" which means so many things—is crucial. We are not yet doing enough on energy efficiency, as, indeed, the recent debate on the rational use of energy in industry demonstrated. There are three ways in which energy efficiency can be stimulated: by advice, by pricing and by investment. The advice has been plentiful. The prices have increased substantially. Both have had their impact. But what is now needed is investment. We must begin seriously investing in energy efficiency systems. This is related both to industry and the home.
I must say that I share the view which was expressed on the occasion of that debate that we really do need a new initiative in this field, and that it would be helpful if the Government were to see their way to creating a strong central body co-ordinating the work in energy efficiency and looking at ways in which we can now enter into this third, vital phase. How can we invest in efficiency instead of just talking about it? That is what is needed now.
I think that out of all these considerations, bearing in mind that if one's objective is the long-term energy security of the country, there are ways now, and there is the need now, to develop positive policies. I would say that there is the risk that, if we do not develop these positive policies now, the freedom to make decisions later will be very much blunted. People talk about keeping options open, as if that is synonymous with doing nothing. I am afraid that in the field of energy, because of the long lead times, doing nothing now will close options tomorrow. Therefore, I strongly recommend that we do agree, in this debate in which I believe all share the same basic views, the time has now come for very positive policies in this area.
§ 4.8 p.m.
§ Lord Strabolgi
My Lords, it is a great pleasure and a privilege to follow the noble Lord, Lord Ezra. I am sure that what he has said has given all of us great food for thought, including, I hope, the Government. I should like to join with the noble Lord, Lord Ezra, in saying how grateful we are to my noble friend Lord Kirkhill for initiating this debate, and for his able exposition of the present situation concerning the nation's energy resources. As my noble friend said, the debate also gives us an opportunity to question 582 Government policy, and here there is much to be questioned.
In a most interesting and constructive speech the noble Earl, Lord Lauderdale, said that energy should be treated in a non-party way, and that we should not be introducing party points. As someone who used to have to bat from the Government Front Bench against his party volleys, I cannot help regretting that he did not take this non-party line when in opposition. However, it was very refreshing to hear criticisms of the present Government from their own Back Bench. It always makes the debates in this House particularly worth while when one hears such an independent line from time to time.
The present Government started off on the wrong foot right from the beginning, when they abolished the Energy Commission, soon after they came into office. The Energy Commission was composed of representatives from the TUC, the CBI, the Department of Energy, and the consumer bodies. It did useful work—I think everybody was agreed—as an advisory body to the Secretary of State, in particular over advanced planning in a field where planning is more than ever necessary. But planning in almost any form seems to be anathema to the present Government. So the Energy Commission had to go. As my noble friend Lord Kirkhill said, we need to plan now. Since then the Government have shown their dislike of the public sector by privatising nationalised industries for the sake of privatisation whenever they could, irrespective of whether or not there was any advantage to the nation.
In the case of gas, for example, there have been great difficulties, and these continue. Let us take Wytch Farm, for instance. As your Lordships know, this is Britain's biggest onshore oil field. It is owned jointly by the British Gas Corporation and BP. The BGC has been ordered to sell its half of the field because, for some obscure reason, through some deep-seated ideological obsession, the Government have decided that British Gas should have no part in oil production. This is what they have decreed.
But the snag arose, as snags do, when bids were well below the corporation's valuation of £500 million, and were even short of independent estimates. Naturally, the BGC does not want to sell its precious assets, which are also national assets, at only £150 million to £200 million. But this is not good enough for the Government when they have a mania for privatisation. Although as usual the Government say that it is nothing to do with them, it appears that explicit orders have been given by the Secretary of State to accept a low bid, so that privatisation can be rushed through at any price.
Why should a public corporation be forced to sell its interest at a figure well below its true value? The nation is the eventual loser from this self-indulgent whim on the part of the Government. Perhaps when he comes to reply, the noble Earl will tell the House a little more about this strange and, on the face of it, rather shabby episode.
The privatisation of Britoil must have been a great disappointment to the Government last November, when underwriters were left with 75 per cent. of the shares on their hands. In contrast, Amersham International, which was sold I think only for 583 ideological reasons, and which should never have been sold at all, was deeply under-valued. Soon after the sale the shares rose rapidly, to the profit of private investors, but not, I am sorry to say, to the profit of the Exchequer.
In the North Sea the oil producers have been complaining bitterly for the last two years at least about the onerous fiscal regime (which was referred to by the noble Earl, Lord Lauderdale) and the heavy tax burden, which was such a disincentive to exploration. Nothing was done in 1982, despite very many representations by the United Kingdom Offshore Operators' Association, but happily the Chancellor has at last seen the light; and the concessions in this year's Budget are to be welcomed, belated though they are. They will particularly help the smaller fields, and even at this late hour it is hoped that activity—both exploration and drilling activity—which has been stagnant, will increase again.
With coal (which was dealt with so ably by the noble Lord, Lord Ezra, with all his great experience) we face a conflicting situation. The miners are working hard and producing more, and I should like to pay a tribute to them. Productivity rose from 4 per cent. to 5 per cent. in the last quarter of the financial year. But ironically, and tragically, due to the recession and the Government's mismanagement of our affairs, consumption of coal fell to 110 million tonnes, the lowest level since 1967; and the continuing industrial stagnation will probably lead to a further reduction during 1983–84.
The closure of pits has led to the creation of areas of very severe unemployment, though I concede that for reasons of modernisation many pits have to be closed. Job losses in the industry have averaged 7,000 a year over the past four years. Here I should like to quote one of the conclusions from the second report of the Energy Committee of another place, dealing with the subject of pit closures, which was published on 21st December last. The report states:The Department of Energy, as sponsor of the Board and guardian of the taxpayer's interest, must take a more active and less purely responsive role in ensuring, firstly, that the Board has full Government support in any effort it might make to reduce the industry's surplus capacity (especially that with the highest costs), and, secondly, that a new strategic plan is developed for the coal industry at the earliest opportunity.This emphatically does not entail interference by the Department in the day to day running of the industry but it does mean a closer involvement in setting the industry's strategic course and in ensuring that it is maintained".Here I agree also with the noble Lord, Lord Ezra, that we should use the energy sources for the purpose for which they are best suited. I hope that what the noble Lord said will be taken on board, read, marked, learnt, and inwardly digested by the Government.
We wish Mr. Ian MacGregor, the new National Coal Board chairman, well. This is of course a political appointment—no more, and no less. Mr. MacGregor has a reputation as a strong man, even, I believe, as a butcher, as I have seen stated in the press. I hope that he will now show that he is a diplomat as well, and that he will establish the same kind of working relationship with the NUM that the noble Lord, Lord Ezra, had with my noble friend Lord Gormley. I hope, for the sake of this great industry, and the nation, that the 584 Government have made the right choice. Certainly it has been a very expensive choice. It has cost a lot of money in transfer fees, with yet another £1½ million going to the lucky Lazard Frères, in New York. When they have a whim the Government seem to throw money about like confetti!
There is much work to be done in research into exploiting other uses of coal, such as oil from coal, and gas from coal, as the noble Earl, Lord Lauderdale, and the noble Lord, Lord Ezra, said. All this work, which is vital to our industrial future, should not be dependent surely on the availability of private capital. A future Labour Government will make adequate public funds available.
As has been conceded, conservation of our energy resources is also essential for the future. The Government believe in conservation by the price mechanism. This is inherently discriminatory, since it affects those in the community who are least able to look after themselves, and who spend a much greater proportion of their incomes on fuel.
Since the last election until, say, last autumn, the retail price index increased by nearly 50 per cent. But the price of gas increased by over 94 per cent., electricity by over 82 per cent. and solid fuel by 72 per cent. This is particularly hard on the energy intensive industries, on the elderly and on pensioners. I wonder sometimes whether the Government have any idea of the suffering caused to the lower income groups and to those made unemployed by their policies. Germany and Italy provide low interest loans for industry to invest in energy saving. The Select Committee of another place has called for a new energy conservation agency or a Department of State even, so that responsibility for conservation is no longer divided among several Government departments. I believe that low energy houses consume between 30 and 70 per cent. less energy compared with similar houses built to current regulations.
The report of the Select Committee on Energy of another place is absolutely scathing about the Government's approach. This is, of course, an all-party Committee. It points out that the Government are not prepared to undertake measures that cost money. They never are. The report goes on to say that since 1979,the total energy conservation budget has been reduced by around 20 per cent. in real terms between 1980–81 and 1981–821".The report concludes:The reduction appears to the Committee to reflect the Government's fundamental disinterest in conservation, especially where public expenditure is involved".The report points out, moreover, that contrary to the Government's ideology—this may of course be a bitter pill for the Government to swallow—the market mechanism does not work in the energy conservation sector. The Association for the Conservation of Energy has reported that over 150,000 new jobs could be created if Britain were to adopt a major energy conservation programme. The report also said that such a programme would save £2,800 million worth of fuel a year.
May I ask the noble Earl when the Government propose to publish the Rayner scrutiny report on "How the Government Handles Energy Conservation"? This was referred to by my noble friend Lord 585 Kirkhill. Why has publication been so long delayed? Are the Government reluctant to publish the report because it is critical of Government policy particularly during the run-up to the general election?
Energy conservation has the strong backing of the CBI which, again, has been critical of the way in which the Government have been dragging their feet. The CBI is on record as saying that Government grants to conservation can be justified on the grounds that in such cases the benefits to the community as a whole from conservation outweigh those to the individual. The vice-president of the European Parliament's Energy Research Committee, who is a British Tory MEP, says:Among the northern countries within the Common Market Britain now brings up the rear on conservation by a long way".Those are the words of Mr. Madron Seligman. To rely on the price structure alone is surely not a viable policy. It can indeed be counter-productive since the higher the price consumers have to pay for energy the less money is left for investment by them in measures necessary to conserve energy. This applies whether they are domestic consumers or industrialists.
It is not too late, surely, for the Government to re-think their energy policy, much of which we on this side of the House believe to be wrong-headed and counter-productive.
§ 4.25 p.m.
§ Viscount Torrington
My Lords, I should like to associate myself with other noble Lords in thanking the noble Lord, Lord Kirkhill, for bringing forward this subject for debate. I must however confess that I am something of a cynic in this matter. Positive policies tend to get set in concrete, and tend to be based on perceptions and forecasts that can prove very wrong. In 1963, when I was an undergraduate at Oxford, I met a very senior geologist with the National Coal Board. A little gas had, I think, been discovered in the southern North Sea but this individual told me that there was absolutely no chance of oil ever being discovered under the North Sea. The little geology that I had been taught led me to think that he might just be wrong. If our energy policy had been based on that perception—it may be the case that some of his input would have gone into such a policy—we would perhaps look a little silly today when we are self-sufficient in oil production.
The Canadians recently produced a national energy policy and plan which most Canadians will I think admit has been something of a disaster and has led to a major flight of capital and capital equipment from Canada. Even more limited policy objectives have been frustrated by recent rapid changes in the energy situation world-wide. The National Gas Policy Act in the United States is probably about to be abandoned. It has in turn created a great many anomalies in the supply and demand for natural gas.
I had intended to touch on the Plan for Coal, but Lord Ezra has perhaps made my point for me. An energy policy is fine provided that you can bend the facts to fit the perception you want. There were indeed figures in the Plan for Coal but, as Lord Ezra has said, the figures are unimportant today. This argues I believe that in the energy scene a pragmatic approach is more important than a positive policy.
586 I should like to touch upon a few positive things that the Government have done. As other noble Lords have stated, the Government have perhaps plumbed the threshold of pain in the oil industry over taxation and sensibly drawn back. I know that the oil industry greatly welcomes the abolition of royalties which now means that the taxation on oil production is strictly related to profits and not to revenues. Fields will not be abandoned early simply because royalty has taken away profits that might otherwise exist as the difference between revenues and the cost of production.
I welcome greatly the allowance of all exploration expenditure as an offset against PRT. I personally believe that the Government did quite a clever deal in getting rid of BNOC at a price at which I should like to be able to float an oil company today. In other areas of energy, the Government have arranged that explorers and producers of gas can now make arrangements outside the control of the British Gas Corporation to sell their gas. I do not know that they will often want to do so. However, the mere ability to do so should keep the Gas Corporation honest and ensure that a sensible price is paid for gas, which in turn will encourage new exploration and production offshore in the southern basin of the North Sea, where, due mainly to the policies of earlier Governments, little activity has taken place for a decade.
On the electricity front, I know of various cases where private enterprise is examining with interest its forthcoming right to generate electricity. On the coal front, the Government have given the National Coal Board Mr. MacGregor. Like other noble Lords, I wish Mr. MacGregor success. The noble Lord, Lord Strabolgi, described this as a political appointment. I am not sure I understand what a political appointment is. I believe that Mr. MacGregor has been appointed because he is a man with a track record, with a thick enough skin to do the job and to grasp some of the difficult nettles within the coal industry. I, too, hope that he will do it as a diplomat and not as a butcher; I am sure that he will.
The noble Lord, Lord Kirkhill, touched on the need for nuclear energy to fill the gap after Britain's oil resources have run out. I do not think that we need a policy to make the simple perception that oil will, in due course, run out and we will be left either with importing oil as we did before—if there is any oil elsewhere to import—or on falling back on our coal reserves and, indeed, on nuclear energy.
The word "conservation" is very misused these days, perhaps almost as misused sometimes as that perfectly reasonable little Anglo-Saxon word "gay". I must express some worry that it is not the type of technology which we will be using for our future generation of nuclear power that is necessarily the most important aspect. The word "conservation" goes hand in hand with the rise of the Green Party in Germany and the conservationist movement. The real worry is whether we can maintain a sensible balance between conservation—and I use it in the "green" context—and what is best for the nation. We are in many ways in danger of turning this country into a museum with excessive preservation and conservation. I think that we are still a long way from finding a sensible balance.
587 I should like to put in one small plea on the subject of depletion control. I do not think for a moment that it is a deliberate depletion control, but we cannot conserve resources until we know what resources we have. I believe that in the United Kingdom there is a strong chance that considerable reserves of oil and gas will be found on shore. But the present licensing system is such that it acts as a de facto depletion policy or depletion control in that, for example, it takes something like a year from the time that a company or group of companies apply for a production licence covering an area over which they already have exclusive rights under an exploration licence, for such a production licence to be issued. I am told that the grant of a single production licence involves the issue of something like 3,000 individual documents or letters to so-called interested parties. The matter seems to have got out of hand in the sense that too many Ministers in the past have bought off too many interested parties by saying, "Of course you will be informed".
An oil production licence is pretty much like a game licence. Those of you who shoot go to the Post Office to buy your £9 game licence. It may entitle you to shoot, but if you were to go on to somebody's land without their permission and try to shoot you would get very short shrift. You have to get the permission of the landowner, whoever that may be. Similarly, as regards an oil production licence on-shore in this country, you have to go through all the normal processes of planning control in order to drill a well. So much of the prior consultation before the actual grant of a production licence seems to waste a great deal of the time of hard-pressed civil servants. Probably most of the people who are informed in advance never really take it in. They hardly look at the document and toss it into their wastepaper basket. I would simply like to put in a little plea on behalf of the on-shore oil industry in this country that the process is simplified.
§ 4.34 p.m.
§ Lord Taylor of Mansfield
My Lords, I would like to join with the noble Lords who have previously spoken in expressing appreciation to the noble Lord, Lord Kirkhill, for introducing a debate on what to this nation is a very important subject—namely, energy. The subject which he has chosen for discussion this afternoon provides an opportunity for us to ventilate our thoughts on the important question of energy. The noble Lord who has just sat down made a reference to the appointment of Mr. MacGregor as chairman of the National Coal Board. I did not intend to mention that matter at all. All I would say in that connection is that I hope that the incoming chairman will act as sensibly and as objectively as his predecessor, the noble Lord, Lord Ezra, has spoken to us this afternoon.
There cannot be anyone either in this House or outside it who doubts or denies the importance and the necessity for energy in our sophisticated, modern society. When I was ruminating on what I was going to say in this debate I had a mood of reflection which I thought I would mention to your Lordships. It is on record that in 1913 the total output of deep mined coal was 287 million tons, 95 million tons of which went for export. That indicates that coal not only met the 588 energy requirements over a fairly long period, particularly at that time and for many years afterwards, but also made a valuable contribution to our export trade.
The figure that I have mentioned is the maximum of all time. It had never been reached previously and it has never been reached since. But I would state here and now that, although that figure seems enormous in the light of present-day figures, there were more than 1 million men engaged in the industry. Since that time and over the past 70 years there have been vast changes in the field of providing energy to meet the nation's requirements. Alternatives have been discovered in the form of oil, natural gas and, more recently, nuclear power.
So far as I see it the position that we have reached is that there is complete unanimity, whether we sit on the Conservative side of the House or on this side of the House, that there must be an adequate supply of energy. The difference arises as to which fuel or which combination of the four existing primary fuels shall be used in meeting the energy requirements of the nation.
It would be appropriate if at this stage I were to relate the contribution of the four basic fuels to which I have referred to the energy requirements of the nation. The total consumption in the United Kingdom in 1981, which is quite recent and the latest year for which I have figures, was 317.3 million tonnes of coal. Of that total the percentages of the four primary fuels that I have mentioned were as follows: the contribution of coal was 37.4 per cent.; oil, 34.9 per cent.; natural gas, 22.7 per cent.; nuclear electricity, 4.3 per cent.; and hydro-electricity 0.7 per cent. The figures I have just quoted are from the Digest of Statistics for 1981 of the Department of Energy.
I recently read a comment on this question of energy that any discussion or document on the policy must be dominated by consideration of the time factor. Or, put in another way, in the form of a question, how long will the known resources of primary fuels last seeing that the need for energy has been, still is and will always be with us? I submit it is a very important question. I propose to say a few words about it.
For instance, take our own indigenous supply of oil, to which the noble Lord, Lord Ezra, made reference. The evidence one is able to obtain about this is that the likelihood is that supplies of oil from the North Sea will begin to decline towards the end of the present century. Natural gas too may be declining by about the same time. The rate of contribution from the known resources of these two of our indigenous fuels has not a very long life.
The primary fuel for nuclear power is not indigenous. Like oil pre the 1960s and until recently, uranium was imported over long distances and from politically dangerous areas. I mention that to indicate that oil at that time was like uranium; it had to be imported. So far as one is able to judge at the moment, uranium is not indigenous to our country. Coal is the remaining one of the primary fuels used which has a long life span. I came across some figures put out by the National Coal Board when the noble Lord, Lord Ezra, was the chairman. These said that Britain has some 46,000 million tonnes of recoverable reserves; sufficient to last 300 years at current rates of production.
589 The Labour Party recently published a pamphlet entitled Energy. It is a very good pamphlet too. It is objective, it is analytical, and I should like to quote one observation from it:Energy is a central issue and one which is here to stay. Man's future depends to a considerable extent on the quantity and quality of energy, and its production and distribution must be of considerable concern".Having made those general remarks about the importance of the question of energy I want to make one or two observations about the Plan for Coal of 1974. As is well known, this was drawn up by a tripartite body comprising the Government of that time, the National Coal Board, and the unions representing the workers in the industry. I should like to make the observation here that the National Union of Mineworkers is not the only union in the mining industry. There is of course BACM representing the colliery managers, and there is NACODS representing the deputies and shotfirers, and they too, like representatives of the Government and the Coal Board, were also part of this tripartite body in 1974 which drew up an interesting report. Is it necessary for me to say that we have here two noble Lords who were members of that tripartite committee: the noble Lord, Lord Ezra, representing the Coal Board, and the noble Lord, Lord Gormley, representing the National Union of Mineworkers.
They reported on many aspects. Not only on projected outputs; not only on the necessity for research and development; but on social matters as well, and there is one which I should like to mention. The Government of that time made a contribution of £100 million to the pneumoconiotics in their claim for damages at common law. They also promised a contribution of £18 million towards the mineworkers' pension scheme.
Respecting other matters, especially the industry's contribution to energy requirements, I now want to quote from the noble Lord who was then Mr. Derek Ezra and chairman of the Coal Board. This is what he said:Coal's major role and new importance in the, entirely changed energy situation facing Britain is clearly presented in the National Coal Board's Plan for Coal. It is the most ambitious forward strategy ever prepared by the mining industry, calling for [huge new] investments, first to stabilise and then to expand the nation's coal mining capacity over the next decade".In a sentence, the 1974 Plan for Coal was to increase coal's contribution to energy demand. Today there are signs, there are straws in the wind—and perhaps the noble Earl who is to reply on behalf of the Government to the debate will say something about this—indicating that the present Government are to diminish coal's contribution to energy demands rather than increase it.
I believe that the turning down by the Minister of the Environment of the Coal Board's application for coal mining operations in the Vale of Belvoir was a sign of the abandonment by the present Government of the 1974 plan. Incidentally, the Belvoir episode is not at all praiseworthy for the momentum that was displayed in arriving at a decision as to whether the NCB would be given permission to mine coal in the Vale. From the date of the application in 1978, four and a half years went by before the Minister for the Environment gave his decision turning down the 590 recommendation of the inspectorate's inquiry regarding the application by the National Coal Board to mine coal in the Vale of Belvoir. In announcing his decision, refusing the application, he suggested that the Coal Board might make a fresh application for a modified scheme and it might be approved in the future. I now understand that the Leicester County Council has given its permission for the development of a mine at Asfordby, but the NCB is still not sure as the Minister for the Environment has still to have his say. That was reported in the Financial Times last December.
Further, another straw in the wind was an article in the Observer newspaper by a man named Geoffrey Lear:Miners' fears that the Government intends to run down this industry received stark confirmation in the energy projections given in evidence to the Sizewell inquiry (published by the Department of Energy). They show that the Government has totally abandoned targets set for the expansion of the industry and expects nuclear power to boom".I said earlier that the 1974 plan was to increase coal's contribution to energy requirements. It now appears from what we have read in the press, with no pronouncement yet by the Government, that the 1974 plan has gone. Is it likely to be treated like the report of the Redcliffe-Maud committee on local government?
Not only have the miners made known their opposition to the rumoured reports of the projected growth of nuclear power—which means fewer collieries and loss of jobs—but, no doubt for different reasons, there is a volume upsurge of opinion and hostility to this projected growth of nuclear power. The environmentalists and the Friends of the Earth are very loud in their protestations; but what they fear regarding nuclear energy is likely to happen.
The Labour Editor of the Observer quite recently wrote:The Government intends"—where they get their information from I do not know—to drastically reduce Britain's use of coal over the next 30 years to as low a figure as 80 million tons".Assuming that these reported assumptions become realities and that energy requirements in that span of time will be equivalent to 400 million tons of coal, coal's contribution would be one-fifth or 20 per cent. compared with the figure I mentioned for 1981 of 37½ per cent. The social consequences of this would be awful; the closing of collieries, greatly reduced manpower, men with no other experience except mining thrown on to the road.
On Monday, 18th April, again according to a newspaper report in the Guardian,Mr. Fairhall wrote that a number of local authorities from Cleveland to Cornwall have associated themselves with the Town and Country Planning Association opposing the £1,200 million nuclear power station at Sizewell. They regard it as a high risk venture. The report is a fairly lengthy one, not only detailing opposition to the Central Electricity Generating Board's proposals but proposing a conservation campaign, better use of existing coal-fired power stations, conversion from oil to coal and mothballing coal-fired stations as a reserve.
591 I conclude with a quotation from a letter written by my noble friend Lord Gormley, some 12 months ago. He said this:If this country is going to recover from the recession caused by the huge rise in oil prices since 1974, we must surely develop the assets nature has given to us.There is no better example of wealth than that which can be found in the proposed Leicester coalfield.
§ 4.57 p.m.
§ Viscount Hanworth
My Lords, the first point that I should like to make is that nothing we can do on energy conservation or in using renewable energy sources will produce an immediate and dramatic effect. However, for this very reason we should take all reasonable measures in both directions now. It is unfortunate that the fright we had on energy shortages a few years ago has subsided. Nothing has really changed in the meantime, only that due to the industrial recession there is an oil surplus and the subject is no longer news. There will of course be a period of energy shortage at some future date, if only because the needs of the developing countries will increase and world oil reserves, and our own North Sea gas in particular, are declining assets. I know the argument that reserves declared by oil companies are restricted to what it is commercially necessary to investigate, but this does not really affect the argument—only, possibly, the timescale.
The most cost-effective method of energy saving is undoubtedly improved thermal insulation of both industrial and domestic buildings. The payback time in the cost of energy saving can often be less than two years. I should like to consider the domestic side in some detail. Domestic space heating represents about 18 per cent. of the nation's total energy requirement, and domestic hot water another 10 per cent. At last, in 1981, the Government brought in legislation to improve the minimum standards of insulation for new houses, but the requirements still compare unfavourably with those of our continental neighbours.
It is argued that as our climate is milder than that of much of Europe, lower standards of insulation are acceptable. If we are concerned with energy conservation, not just comfort, this is a fallacy. Although our climate is less extreme, the times during which heating is required are longer. This can be shown in terms of "degree days". For each day the difference is taken between the average outside temperature and acceptable inside house temperature. This is then totted up for all the days heating is in use. By this criterion Edinburgh requires almost as much heating for a similar sized house as one in Bergen; Glasgow more than Zurich and London is similar to New York. This simple method of assessment can be faulted; nevertheless, it gives a reasonable guide.
Because the Government, I am afraid, seem to ignore it, I must give some comparative figures for our own and our European partners' legislation. For roof insulation, our mandatory U-value is 0.60. For the Scandinavian countries, it is no less than three times better. For France and Eire, it is 33 per cent. greater. For walls, much the same applies but the differences are not quite so great. Britain remains one of the few 592 countries with no mandatory requirements for the insulation of floors in spite of the fact that up to one-third of the heat loss in a living room can arise in this way. For a long time the Government's response to pleas for higher insulation standards for new houses has been that market forces will look after the issue. I am afraid, I must say, that this is most certainly absolute nonsense for the present time and the near future at any rate. The private builder and even councils are primarily concerned with price. It will take a long time before the public start to demand higher insulation and it becomes an important selling point. Even then, with the housing shortages, consumers do not have much choice and cannot greatly influence the market.
The real worry is that we are now building substandard houses for a future generation when energy costs in real terms will be much higher and good thermal insulation even more important than it is today. With the exception of loft insulation, filling the cavity walls, if they exist, and expensive double glazing, it is difficult and expensive to improve the insulation of an existing building.
I should like now to discuss briefly renewable forms of energy. I am sure that we should continue with research and development in this field and try out prototypes; but wave power and wind power have the disadvantage of variable output and of environmental problems—quite apart from whether they can be reasonably economic. No one, I think, apart from extremists, would be prepared to double or treble their bills for electricity to avoid nuclear power stations. Allowing for the variability of wave power and wind power, the estimate for providing the same useful output as that of one of the new CEGB 1,500 megawatt power stations would be as follows: for wave generation (which might provide up to a maximum of 65 kilowatts per metre of wave front) 40 miles of wave generators; for wind power, a 2.5 megawatt wind generator now has a blade diameter of 300 feet, and even to equal the maximum putput of a specified CEGB station, 300 of them would be required.
In fact, the CEGB estimate that, taking into account the variable wind velocity, more than 1,000 of them would be needed. They would then provide between 2 per cent. and 3 per cent. of the yearly requirement for electricity in this country. Combined heat and power, if fully developed, could provide a saving of 14 million tons of coal a year. That is equivalent to the consumption of about four of the type of CEGB power station mentioned. The Severn barrage is potentially the most worthwhile source of renewable energy as it could contribute about 6 per cent. of Britain's electricity requirements. There are also six other places in the British Isles where such barrages could be built and together give perhaps twice the output of the Severn Estuary scheme.
Other possible contributions to alternative energy sources are small amounts from burning refuse, solar energy for augmenting domestic hot water and geothermal energy, which is, as yet, an unknown quantity. A rather intriguing possibility is that of using waste heat from refrigerators to provide domestic hot water. It then acts as a heat pump with a coefficient of performance of about 2, which implies that it could provide double the amount of heat used to run the 593 refrigerator—say 700 watts. It should be able to provide almost enough hot water for a small household. I only hope that somebody will look at this and possibly do some research to see how practical this might be.
§ 5.6 p.m.
§ Lord Lovell-Davis
My Lords, there is a certain irony in the fact that we are today debating energy policy when, as far as I can see, the Government have no energy policy, unless surrendering to market forces and privatising sections of our national oil and gas industries, to both of which my noble friend Lord Strabolgi has referred with scorn, can be called a policy. Otherwise, the Department of Energy, which, in the present economic climate, should be one of the most active and important departments of state, seems to have become an archive for reports and recommendations some of which never see the light of day once they have disappeared inside Thames House.
In our debate last month on the report of the European Communities committee on the rational use of energy in industry, Members of your Lordships' House expressed concern that the Department of Energy either cannot or will not publish any meaningful comparisons of the cost efficiency of conservation set against spending on nuclear power. But there is reason to believe that the figures are around somewhere and that they indicate that not only are there major benefits to be gained from investing heavily in conservation but also that there is a serious imbalance in favour of the energy supply industries. It seems that from all sides concerned bodies—in reports, in giving evidence and through the media—are counselling the Government to adopt and implement a major programme of energy conservation. The Association for the Conservation of Energy recently claimed not only that such a programme would pay for itself in five years and save £2,800 million of fuel a year but that it could create many thousands of new jobs—up to 155,000 on their estimate. In spite of the comments about employment of my old sparring partner the noble Earl, Lord Lauderdale, if that is the fact it could be a very welcome bonus to investment in energy conservation.
It was recommended specifically in the report on the rational use of energy that a central agency be created with overall responsibility for energy conservation for the efficient use of energy. I agree with the noble Lord, Lord Ezra, that "efficient use of energy" is better than the over-used word "conservation". This department would draw together and co-ordinate the activities and tasks at present inefficiently and ineffectively spread over a whole band of Government departments.
One hardly expects departments of state to move quickly to implement any recommendation, however sensible it may be, however many informed people may have made it or, even, sometimes, however much Government backing it may have. But this particular recommendation for major investment in conservation has been on the table for 10 years. We have to question seriously, first, the degree of interest within the department which is supposed to be informing and advising its Secretary of State; and, secondly, the 594 perception of the Minister himself, who should be able to identify the elements which make up a rational, integrated energy policy. For the almost unbelievable fact is that the conservation of energy, the proper husbanding of the energy resources that we have—and North Sea oil will not last all that much longer—has been, and is being, treated as though, in the words of Mr. Rod Chapman, the Guardian's correspondent, it were "a side-show". Politically unexciting it may seem, but it is not a side-show. The way we use our resources now will have, one way or another, a tremendous effect on the future of this country. With our energy supply policy in disarray, it could make or break us.
That brings me to the specific questions which I hope the noble Earl the Minister will be able to answer before this debate comes to an end. The first, of course, concerns demand—and in spite of what the noble Earl, Lord Lauderdale, said about the problems of predicting demand, I should like to know whether the department have projections of demand for the next five, 10 or 20 years on which presumably they are basing such plans as they may be putting together.
We are witnessing the Sizewell B inquiry which resumed yesterday. The CND, perhaps naturally, question the connection between the civil nuclear power programme and the production of atomic weapons; but many other people, within and outside the locality, are concerned about safety and they have reason to be. We are in dangerous territory. Just 40 years after we entered the atomic age and Enrico Fermi and his team toasted their success in creating the first chain reaction by drinking Chianti out of paper cups on a squash court where they had built their first unpredictable pile, we still seem to be unsure of exactly what sort of monster we have created.
Although we were the first to exploit nuclear generation of electricity, the United States are now well ahead of us, and they are having their problems. It is one thing for Sir Walter Marshall to pin his colours to the nuclear option, but worrying facts remain. In recent months in the United States the Ohio River plant has been closed down for safety violations after 10 years under construction. The Virginia Electric Power Company has written off 540 million dollars rather than bring its planned nuclear power plant into operation. The Zimmer Plant in Ohio has been closed—and that was only because a private detective, pursuing a matrimonial case, persisted in following up his findings that safety work had not been properly carried out. Then there is the appalling case of Three Mile Island—and before any Member of this House assumes that the opponents of nuclear power generation are cranks, I suggest that he or she reads the proceedings of the district courtroom in Centre Street, Manhattan, on the subject. They are sobering. They led the managing director of the Tennessee Valley Authority to state unequivocally:We should be fundamentally re-examining the nuclear option".Even the man who was the chief scientist at the Ministry of Power when Britain's first nuclear power station was built in 1956, Sir Kelvin Spencer, has warned that development and operational experience have disclosed hazards which were not considered in the 1950s. He even goes so far as to say: 595Nuclear generation has become a worldwide economic disaster".He may be right.
I am not an opponent of nuclear generation of electricity, provided that we have to go along that path to meet future demand and provided that it is safe and will not stack up unacceptable problems for us in the future. But I do want to be convinced that these criteria are met and that those responsible for making projections of demand and proposing the most responsible way to meet the demand they have identified know what they are talking about.
That brings me to the other aspect of the United Kingdom energy scene that I want to touch on in this debate. So far as oil and gas are concerned, I endorse what my noble friend Lord Kirkhill has said. He covered the subject very fully and I shall not weary your Lordships by going over it again. In the context of the rational use of energy, I am concerned about the level of depletion policy and the flaring of gas. But since we seem to be in an area of some uncertainty about the resources available to us and the way we should go about electricity generation, I should like to hear more about coal. We know that, of all our energy resources, coal is the most likely to sustain us, as my noble friend Lord Taylor of Mansfield has pointed out. North Sea oil may last us into the early years of the next century and gas could go on for rather longer; but coal reserves could see us probably well into the 23rd century. The noble Lord, Lord Taylor, set out those figures.
So what are our plans for coal? As the noble Lord, Lord Ezra, has said, coal should have a great future. The Government—and this has already been referred to by several speakers—have appointed Mr. Ian MacGregor as the chairman of the National Coal Board; but apart from hacking the industry into the emaciated shape in which this Government likes to see our nationalised industries, what long-term plans have they given him within which to work? The noble Lord, Lord Ezra, referred to the 1974 Plan for Coal and my noble friend Lord Taylor of Mansfield said that he had reason to believe it was being abandoned. I should like to know whether that is the case.
The other day approval was given for the development of a coalfield beneath the Vale of Belvoir. Selby is about to come on stream, delivering 10 million tonnes of coal a year by 1987. At the same time, we have apparently enormous stocks of coal—as the miners discovered to their cost when they were contemplating strike action. Nevertheless the miners are exhorted to increase output and, as my noble friend Lord Strabolgi said, they rose to the task. Where does all this extra coal fit into the overall energy picture? That is another question I should be glad if the Government would answer. I have always believed that coal is our greatest energy asset and that we should do everything in our power to develop coal technology and make the best use of it that we can. But that means planning and getting the coal element into integrated overall energy policy. What I should like to know is: how do the Government and the Department of Energy see the short-term, the medium-term and the 596 long-term futures of our coal industry? What really is their view of "The Role for Coal"?
This debate—the choice of the Opposition in your Lordships' House—may seem to some less appropriate politically than a debate on some of the crushing social problems which are facing us today and on which the present Government's policies, I believe, threaten the whole basis of a society that has been so carefully assembled by caring people for most of this century. However, this is an important debate and I am glad that my noble friend Lord Kirkhill initiated it.
The idea, the prospect, of being starved of indigenous fuel is unimaginable. As the noble Lord, Lord Ezra, said, it is vital that we go for self-sufficiency in fuel. We depend absolutely on our resources of energy and we shall do into whatever future may lie before us. One has only to look around to realise that most of the things we depend on to maintain our way of life would not exist without coal, gas, oil and electricity. Our energy resources are basic to the lives of all of us and it is about time that the Government took the advice of the noble Earl, Lord Lauderdale, and addressed themselves seriously, without political dogma and the simplistic ideals of monetarism, to resolving one of the major problems which face almost every country today, and certainly the industrialised countries—that of ensuring that they have the power to keep going. And the fact of the matter is that we seem to have no integrated policy to do any such thing.
§ 5.20 p.m.
§ Lord Bowden
My Lords, this has been an extremely interesting debate and the House has had the opportunity to hear several of the best informed men in the country who can discuss the subject with authority. I find it, therefore, very hard to know what I myself can profitably say. Much of what I had intended to say has been said by the last two speakers.
I was thinking of talking about the problems of conservation, the extreme importance of improving the standard of insulation of houses, and also the importance of improving the efficiency of motors, and so on, in factories. That is because it is just as good to double the efficiency of a motor in a factory as it is to buy twice as much power. It can be very much cheaper to the community, although, perhaps, not so cheap to the individual factory if power is as cheap as it is today. But this has already been said, and I should like, therefore, to take another aspect of this important problem.
First, I want to point out that the amount of money which is now being spent on nuclear power, on nuclear power research and on the building of nuclear power stations is quite enormous. It has been said by one of the Select Committees of the House of Commons that the nuclear power industry is the worst investment that the country has ever made. This may or may not be true, and I would not wish to argue about it here and now. But I would make the point that it is quite extraordinary that we should be contemplating the building of more power stations at the enormous expense of, probably, about pound;1,500 million each when we are at the same time not prepared to put in a proper pipeline to collect the gas which is being flared-off in the North Sea.
597 Is it true—perhaps the Minister can answer this question—that the amount of power which is being flared-off in the form of gas, which has to be burned to get rid of it in the North Sea, is as great in total as the whole of the power which is now being generated by nuclear power stations in this country? If anything even approaching this is true, it seems to me that our priorities are wildly wrong and should be reconsidered. It is important that every cubic foot of gas which can be saved should, in fact, be saved.
Of course, we have the problem, too, that when we get it ashore most of the mains leak, and half of the power which comes in at the top end, as it were, never reaches the consumer, because the mains have become porous with time. This is another problem to which the Government should address themselves, but which so far they have neglected. What I am trying to suggest is that we would be doing much more to improve our national position than we are in fact doing were we to divert funds now being spent on new nuclear power stations on to some of the simpler problems to which, for example, the noble Viscount, Lord Hanworth, referred a moment ago.
I should like to suggest, also, that there are many other ways of saving fuel and making more efficient use of the fuel we have. For example, we could do much more than we have been doing on the improvement of fluidised beds for furnaces, which would make it possible to use inferior quality coal and all sorts of rubbish to generate power and heat up the countryside. I feel that the idea of combined heat and power production has been oversold. The reason why I think that is because such plants are being taken out far more often than they are being put in. There is the famous case of the Battersea power station, which is probably the first and one of the most significant of all combined heat and power stations in the whole world—and look at what has happened to Battersea! On a smaller scale—
§ Lord Bowden
Nevertheless, my Lords, the unfortunate fact is that it was a very good heat and power plant and it is not being used any more to provide that combination. I had once to deal on a trivial scale with a combined heat and power plant in Manchester which generated a small amount of power and provided heat for the university. We had to scrap it for the very same reason, that the turbines were getting worn out and it would not have paid to renew them. When I discussed this idea with people in this country and abroad, we came up with the idea that it is not usually worthwhile to install a combined heat and power plant unless you can build it from the very beginning to cover a very substantial area.
To put in steam pipes is very expensive indeed. It is very much cheaper to supply the heat in the form of gas down a pipe, which is much the cheapest way of providing heat anywhere. But if you cannot do that, it 598 is often cheaper to provide electric power and then make more extensive use of heat pumps. They can be used as a sort of adjunct to a refrigerator, but they can also be used in their own right and they can very materially increase the efficiency of the process. By the time you have used a heat pump at the end of the electric mains, you have probably got up to an overall thermal efficiency of nearly 60 per cent., rather than 30 per cent., which is very much better. In some countries, a heat pump is often used as a source of heat in winter and as an air conditioning plant in summer. This combination is economic and is more likely to be worthwhile installing than any of the combined heat and power plants which we have so far heard of in this country.
I have often thought about the combination of a heat and power plant, but by the time you have installed scrubbers to get the smell out of the gas which is coming from the chimney it can be a very expensive and rather unrewarding task, unless you are building a new city and designing it from the very beginning around such a plant. In fact, very large district heating is uncommon these days. If the original district was planned in a casual sort of way and if most of the individual plants providing heat were built separately by the owners of the houses or factories, it is not usually economically possible to take them out and install a centralised plant, as is necessary if the combined scheme is to work. This has proved, over a period of many years, to be the economic Achilles Heel in what would otherwise be an extremely important idea.
What I plead for is that the Government should realise that it is not enough merely to support nuclear power. It is acutely important that every other available technique should be used as often as possible, and whenever it is practicable, because very often the work could be done at about one-hundredth of the cost of a nuclear power station and it might produce a result which, over at least a small area, was of comparable importance. It is just as important to be able to live in comfort because your house has been thermally insulated as it is to be able to live in comfort because you are burning a great deal more coal. It is also just as important to be able to work your factory better because you have installed more efficient motors, or perhaps have installed hydraulic drives and have improved the load factor, as being able to use much more electric power provided at great expense by the central authorities.
Therefore I plead with the Government always to remember that it is not sufficient to consider just one type of fuel or one source of power. It is acutely important that every form of energy should be considered. Every possible method by which the efficiency of everything which we use as energy can be improved should be considered. This may make it unnecessary for us either to mine coal, our principal resource, in large quantities, or to burn oil, or, most important, to flare-off gas. I should be most grateful if the Minister could tell us what is going to be done about the new pipeline to collect gas in the North Sea and bring it ashore so that it can be used to supplement the other sources of fuel that we have in this country.
§ 5.31 p.m.
§ Lord Tanlaw
My Lords, we on these Benches are grateful to the noble Lord, Lord Kirkhill, for instigating this debate. I am sorry that the noble Lord, Lord Gormley, who was due to speak before me, is not in his seat. I believe that he would have had a major contribution to make but I understand that he has been delayed in his journey from the Channel Islands.
The noble Lord, Lord Bowden, mentioned combined heat and power, a subject which has been mentioned more than once this week and often in this debate. It surprises me that the report of the House of Commons Select Committee on Combined Heat and Power is not available to us today. We are not allowed to see it until Thursday. I do not quite understand why its publication has been delayed. It would have been most helpful to those of us who are taking part in today's debate. It would also have been most helpful to those of us who took part in the Committee stage of the Energy Bill.
The Rayner Report has also been mentioned. This is another report which has not seen the light of day. We are unable to see it officially. Nevertheless, as a member of Sub-Committee F, I have had an opportunity to see it in order to take part in the subcommittee's report on the rational use of energy. Then the Armitage-Norton Report on the industrial use of energy is still not available to us as parliamentarians. And the Select Committee on Energy's Report on Energy and Buildings is also not available to us. These reports have been sitting around for a considerable time. We are trying to discuss energy and to debate an Energy Bill and amend it in Committee, yet for some reason best known to the Government these reports are being withheld from Members of Parliament. I am not quite clear what this means; but in terms of the general election, which has been mentioned today, it seems to be a total waste. If there is to be an early general election, the people who contributed to these reports will find that their efforts have been wasted. There seems to be an unduly long delay in Government thinking when they instigate a report, when it is all put together and made available. Sometimes, therefore, they look extremely dated when eventually they are published.
Nevertheless, I am very pleased to be able to take part in this debate and to follow up a number of the essential points, of a non-political kind, that have been made not only by my noble friend Lord Ezra but by many other noble Lords. First, the noble Earl, Lord Lauderdale, who is not in his seat, made the valid point that the use of energy has been very considerably reduced. If I recall correctly the figures which he gave, the noble Earl said that the figure has gone down to 336 million tonnes of coal equivalent and could possibly go down to as little as 300 million tonnes of coal equivalent. When it reaches this figure I presume the noble Earl thinks that there will be 6 million people unemployed. Meanwhile, with 3 to 4 million people unemployed, there is obviously a great reduction in energy consumption. One of the reasons is that industry is virtually at a standstill in most parts of the country, despite what the Government and certain aspects of the press have said. The engineering and the industrially related companies to heavy industry are waiting for Government policy to change.
600 Investment is needed in heavy industry, in the coal industry and in the railways. However, such an indication has not been forthcoming from the Government. Obviously there is a lack of energy use when workers are looking at stationary machinery. I hope that the noble Earl will be patient with me. I am not just being critical but I hope constructive in what I have to say.
The alternative which has been mentioned by other Members of your Lordships' House is investment in conservation. The noble Viscount, Lord Torrington, who is also no longer in his seat, seemed in my view to confuse conservation and preservation. These are two entirely separate matters. Conservation does not mean maintenance of the status quo. It means the efficient use of energy, the rational use of energy, and so on. There are many other phrases to describe it. The noble Viscount made remarks about the Green Party in Germany and some of their friends. The supporters of the Liberal Party would not be too keen on what he said. The noble Viscount clearly misunderstood the representations which are made by those who are proud to say that they are conservationists.
One of the ways in which to get a Government report on to the Library table is to withdraw it and then to put a restrictive notice on it. I have in my hands from the House of Commons Select Committee on Energy the restricted report by the energy policy unit of the Department of Energy entitled Investment in Energy Supply and Energy Use. A copy of this report was made available by the House of Commons Select Committee to the Library of the other place. I have made a copy available in the Library of your Lordships' House so that noble Lords may see this very important paper which was unfortunately suppressed by the department, because it has not been officially released. But I am fortunate enough to have a copy and I shall be pleased to quote certain parts of it because I believe that it is relevant to what some noble Lords have said.
The noble Lord, Lord Bowden, asked why we should invest all this money in nuclear power stations. If one compares the investment of £1.3 billion which is needed to build a nuclear power station and the investment of £1.3 billion in the conservation industry, I believe—and this report makes it quite clear—that the end result produces a favourable answer in terms of investment in conservation. For instance, 155,000 new, long term jobs would be created by such an investment. My right honourable friend Mr. David Steel mentioned this figure in a speech on this subject which he made outside Parliament only a month ago. The Association for the Conservation of Energy say that if £24 billion were spent over the next 10 years an immense saving, of 11 per cent. or more, of the total present delivered energy consumption in the main sectors of our economy, would be achieved. The figure of 11 per cent. is taken from the Department of Energy's energy policy unit report. It works on an investment of only £20 billion over 10 years.
I am asking the Government to consider yet again what I call lateral thinking. There are social needs as well as merely economic needs when one is considering investment in power stations. As my noble friend Lord Ezra said, it is not just a question of building 601 more large power stations but of looking at future demand and the needs of the people in the year 2000 and after. Therefore it is somewhat surprising that the gas industry wants to spend £20 billion on the gasification of coal. This is admirable, but I wonder whether this is the moment for the gas industry to spend that amount of money on gasification. Earlier this year we heard in a debate that our gas reserves may be considerably more plentiful than was first thought. This is why I disagree slightly with the noble Lord, Lord Kirkhill. I believe he quoted the brown book figures. These are what I call the low field figures. Many oil and gas companies consider them to be a little on the pessimistic side, in view of the new discoveries which may be made as a result of the exploration programme which has been initiated by the Government and which will take place over the next 12 months. These figures may have to be revised upwards—and there is no question of their having to be revised downwards.
This returns me to the question of combined heat and power. Whether or not combined heat and power from reconditioned urban generating stations could take over the space heating market which the gas boards presently have and control it after the year 2000 is a question that has yet to be answered. I am grateful to the noble Lord, Lord Kirkhill, for this debate because he has focused attention on conservation. We have not heard from the Government as to how they view conservation. Indeed, the reports we have not been allowed to see—such as the Rayner Report—are highly critical of the Government and of Government departments in their attitudes and methods of implementing conservation policy; they are complicated, diverse and in many ways ineffective. That is basically what was said in the evidence we had from Sub-Committee F, as it was in the Rayner scrutiny.
Will the noble Earl say what the Government are going to do and what precisely is the view that the Government take towards conservation in the energy equation? Is the noble Earl prepared to say that if £1.3 billion were spent on conservation in the widest possible sense—on the conservation industry, on installations (of the kind the noble Viscount, Lord Hanworth, spoke about), and on simple and semiskilled jobs—this would produce 155,000 long term jobs? Does he not agree that that would be more beneficial in many ways than ordering a power station that we may not need?
Finally, I should like to switch back to a subject again raised by the noble Lord, Lord Kirkhill—that of alternative energy sources. The noble Lord mentioned windmills, wave power, and so on. I felt that the noble Lord did not give these alternatives as much credibility as those of us who are closely concerned with them believe exists. Of course there is not much sunshine in this country, and to produce photovoltaics is one way, and a quick way, of ending up in the liquidator's hands. However, there is a large export potential for solar heaters, for windmills, and for wind and wave energy in the developing world.
I have put this suggestion before in your Lordships' House and I am quite happy to put it again. There are often small companies involved in the manufacture of these items, run by enthusiastic young people who 602 wish to see some of their products being sold in the developing world. These companies do not have the infrastructure, the sales force or the finance to sell their products abroad. The Overseas Development Agency does have this power.
When we give aid or credit to developing countries, I feel that a percentage of that aid should be specifically earmarked for what the noble Lord, Lord Kirkhill, and I, call passive energy systems. If the country receiving aid does not order a windmill or a water turbine that is British-made, then that earmarked credit should not be switched to the purchase of a diesel engine. This is one way of ensuring that alternative energy can be made to pay and can make a major contribution in some parts of the world where it is most necessary. The Intermediate Technology Group and many other organisations know exactly where these markets are. I should like to hear the noble Earl say that more enthusiasm and lateral thinking in his department will be helpful.
Finally, I believe it was the noble Lord, Lord Kirkhill, who asked whether windmills would be sited offshore in the Wash. I should like to ask in turn, what is to happen to all the oil and gas platforms when they are defunct? These platforms are situated offshore in permanently windy areas and will remain there to rust and become scrap. We could possibly look into the new use of these platforms in the operation of wind turbines. These platforms are already there, and they are already unsightly. So to those people who say that windmills look nasty because they are constructed from lots of steel and stick out of the sea I would reply, "What else are oil and gas platforms at the moment?" When the oil and gas is defunct, why should we not consider installing wind turbines on these platforms? This would not make them any less unsightly but this development could make quite an energy contribution in certain areas.
These are just one or two suggestions in what is proving to be an interesting debate and I look forward to hearing what the noble Earl the Minister has to say in his reply.
§ 5.45 p.m.
§ Lord Bishopston
My Lords, the House is indeed grateful to my noble friend Lord Kirkhill for having raised this issue of energy, which is so important to the nation. Without adequate energy of the right kind, and at a reasonable price, our ecomomy could not function. There is another factor which is of vital importance, and that is long-term confidence in the securing of supplies. We certainly need an overall and comprehensive strategy with the long-term aspects in mind. I know the importance of energy and energy strategy because for nearly 15 years I had the honour to represent Newark in Nottinghamshire, which is an area with six coal mines, some oil interests and power stations in a part of the East Midlands which has deservedly won the title of the powerhouse of the country. I was pleased also to hear the contribution of my noble neighbour, who represented Mansfield for many years, too.
There have been a number of debates recently in your Lordships' House: one on pricing policies, one on conservation in industry following the Select 603 Committee report, and many Questions. Such detailed examination is important, but even more vital is the need to see energy needs and the ways of accommodating them within an overall policy. Energy policy is so important that even when discussing aspects of it, as we are today, in what might be termed a piecemeal fashion, we should try to see them as being part of a larger energy backcloth in order to get true perspectives.
Energy is one of our essential public services. It is so vital to our national life that it should not be a matter for political differences. There should be some agreement that energy should be under public control, if not public influence, and that this should be so whether or not there is a mixture of provision by the public and the private sectors. The noble Earl, Lord Lauderdale, criticised this Government quite frankly for expecting private enterprise to provide enormous sums for investment in energy production.
§ The Earl of Lauderdale
My Lords, that was not quite what I was saying. I was saying, in respect of the gas-gathering pipeline, that it was absurd to expect private enterprise to put risk capital into a public utility for public utility returns without a Government guarantee.
§ Lord Bishopston
My Lords, that is precisely the point I was making, and I am glad to have the noble Earl's clarification. The whole point behind the case for the principle of public ownership is that one cannot expect the private sector to risk enormous sums of capital and other resources in providing these essential social services. Therefore, the public sector has to come into it. If the case for the private sector is that we want industry to stand on its own feet and not to be interfered with by Whitehall, then we must recognise that even sending a cheque as a public subsidy is a form of interference. One cannot have it both ways. If the public are going to put their money into the private sector, surely there should be some say-so as to how this money is spent and what policies are pursued in its spending.
The debate in which we are engaged concerns the need for a positive energy policy and for conservation of energy. The two go very well together. The dictionary reminds us that the word "positive" means:explicitly laid down, definite, admitting no question".We all want positive policies, but one is entitled to ask: how does the Government's record on energy match up to that definition? In a number of the speeches made today there has been an element of uncertainty about the future. Within a few weeks of taking office, even without thinking about it, the Government set about disbanding the Energy Commission—a well-proven body of people representing all sides of the industry, including the producers, commerce and industry, the consumers and the unions, as well as the Government.
The noble Earl, Lord Lauderdale, and the noble Lord, Lord Ezra, mentioned the unknown factors which those concerned with energy production have to take into account. But there are aspects in respect of which the Government could remove uncertainties with their policies. The Energy Commission, a body 604 set up in 1977, was of course concerned with the Energy Act 1976. Those who had been concerned with the policies and performance of one of our most important basic services, on which the economic health of the nation depends, were given the boot, they were dispersed. On 26th July 1979 Mr. David Howell said:While I intend to consult widely on the formation of energy strategy and on energy matters generally, I do not believe that the Energy Commission is the most effective means of achieving this consultation. I have, therefore, decided that it should be disbanded.In the recent debate on energy conservation following the report of the Select Committee, I asked the noble Earl, Lord Avon, who was to reply and to whom I had given notice, what had happened to the Energy Commission and what has taken its place. The Minister did not reply to my question then and he has not done so since. I ask him: if he knows what is going on and what body is doing the work of the former Energy Commission, and doing it more effectively, which was the suggestion in Mr. Howell's statement, will he be good enough to tell the House? And I think it had better be a very good reply.
So the word "positive", in the terms in which we are debating this Motion, and which I am sure all noble Lords will accept as essential in relation to energy policy, does not apply, of course, to Government policy. Following on what I have just said, one asks who has a say in the running of the industry apart from the Secretary of State, because no one seems to know. I feel sure that noble Lords will agree that confidence is a vital element in any successful energy policy, as is knowledge of what is going on and also being satisfied that the policy being pursued is a wise one.
Confidence is also essential to ensure investment of the massive sums of money which energy production and distribution demand; there can be no doubt about that. Let us look a little more closely at the Government's record. There is not one aspect of energy policy being pursued by the Government so far which has been untouched, where there has not been some change or some uncertainty. Noble Lords who sat here during the many days of the debate on the Oil and Gas (Enterprise) Bill, now an Act of Parliament, will realise the difficulty which Ministers had—and I am not being personal about this—in giving adequate replies to the technical questions which were asked by noble Lords in all parts of the House.
The Oil and Gas (Enterprise) Act 1982, which fought its weary way through many sessions of both Houses, is now law, and those who are concerned with these two vital industries are still asking many questions as to what the Act means both for them and for their industries. So the uncertainty continues. The Act sells off these two industries to private enterprise, not because there is merit in it—because the Government have given no case for the merit—but because of doctrinaire reasons. The proposed sale of gas showrooms was opposed on all sides. That has been put off to a later date. But how much certainty is there in that, and how can the British Gas Corporation plan for the future?
After the sale of Britoil it will be a relatively small trading company. Britoil's shares, as my noble friend Lord Strabolgi has said, have been sold at very low 605 prices, despite the warnings of those who know, despite the predictions of the City, despite the predictions of the media. They had to be sold by Government order, no matter the low price they would fetch. Now, of course, Wytch Farm, the oilfield owned and developed by the British Gas Corporation, has been ordered to go for disposal because the Government policy outlined in the Act says that the Gas Corporation shall not be able to develop any oilfields which it discovered, inevitably, as a result of its search for gas. There are rumours that the bids are very low. I believe we have a right to know whether the Government will withhold the sale if the price is too low, or whether they will, for doctrinaire reasons, ensure that the public are to lose millions of pounds on the deal by selling at any price. Can the Minister tell us what is happening with Wytch Farm, because this is a very important matter of concern to Members of all parties.
The development of our oil and gas resources in the North Sea and elsewhere is, of course, to the credit of both the public and the private sectors, whose exploration and technical superiority have made such progress possible. And, of course, it also brings in substantial revenue. A recent visit which I made with some of my noble friends to a gas platform in the southern North Sea made us realise all the more how much is involved both in investment and in the use of human resources. The noble Lord, Lord Tanlaw, has made several references to this sector tonight.
The Government claim that nationalised industries are inefficient and costly to the taxpayer, and raise prices unreasonably. But it is the Government which have ordered these industries to get a greater return on their capital. It is the Government which have ordered rises in energy prices 10 per cent. above the current rate of inflation. Then the Prime Minister turns round and says it is the nationalised industries which have put up prices far more than the private sector. This is the kind of hypocrisy which does no credit to those involved in this important industry.
§ The Earl of Lauderdale
My Lords, if the noble Lord would allow me, perhaps I could just ask him one question. He has used the word "hyprocrisy". Would he not agree, as regards Britoil, that that exploration company is enormously advantaged by being freed, on the one hand, from Treasury control in its activities, and, on the other hand, being freed of fiefdom to the oil firms?
§ Lord Bishopston
My Lords, perhaps the noble Earl might recall what he said a few moments ago. I thought he agreed with me when I mentioned about the uncertainty of those investing massive sums in the industry. We have to rely, of course, on the private sector in future to decide what is profitable rather than what is socially essential for the national interest. You cannot have it both ways. Those who are involved in the risk investment in the private sector have to look at the income rather than the job which the investment has to carry out, as in the case of the public sector. One thing the Government will not recognise is that such industries are so important that their responsibilities, the supply of energy and so on, make it essential that their main overall concern must be the public need, first and foremost. In providing those social services 606 they often have to do unprofitable things for which a public contribution is necessary.
The Government have done in privatisation what few businessmen would do, and that is to hive off the profitable parts, leaving the public sector to carry the rest with no profit offset to balance the loss-making areas. Soon we shall be told that the private sector is thriving and doing well, having been released, while the public sector is still hag-ridden with losses, which of course are inevitable when you are carrying out social responsibilities. Even more important, they have lost the element of public control which they inherited, and which I am sure must be restored.
We are, of course, in a recession, and this means that our economy is running at a greatly reduced pace with low economic growth. At the present time, with nearly 4 million unemployed, the demands for energy are greatly reduced. The question arises as to what energy needs will be in the next five or 10 years, and indeed in the long-term, and how they will be met. With no Energy Commission, with a fragmentation of our energy producing resources, the Government have no idea how they can be met, apart from the inevitable pluses and minuses in the oil price situation. So, significant changes in energy policy and costs can have economic consequences at a time when, in getting out of a recession—if we are—we are facing competitors in Europe and from elsewhere. So pricing is vital, influencing our policies in relation to various types of fuel and energy options. In the short term there are rises and falls but, of course, we must have regard to the longer term.
There are at least two problems facing us in energy policymaking, among many others. One is that which I have mentioned, meeting the needs of a growing economy. The other of course is what to do in a time of emergency, because when we talk about defence we have to recognise that our energy resources are vital. It is interesting that when we were facing the Falklands' situation—unpredictable as it was both in the immediate and medium term with no awareness as to what escalation may occur and what our energy resources would be—at that very time we were debating in this House the Oil and Gas (Enterprise) Bill which would dissipate our resources and hand them over to the private sector at a time when we might have wanted greater public control.
At that time the Government were rightly commandeering shipping, transport and other equipment when the demands of the Falklands were paramount. As I said, even at that time Parliament was discussing legislation to take vital oil and gas supplies and development out of the hands of the nation in order to privatise, with the priority for profit rather than the national interest. Indeed, if that had been the criteria the Falklands campaign would not have even been started, much less pursued. Moreover, your Lordships have recently debated the Select Committee report on energy conservation. That report, formulated by Members of all parties, had some strong things to say about the Government's conservation policy. I make only brief reference to this. In paragraph 49 it says:Where opportunities for energy saving are identified, and new investment is required, the investment is often not undertaken.607 It goes on to say:Evidence from many other of the Committee's witnesses confirmed this, and indicated that the current recession and uncertain prospects for recovery strongly discourage energy saving investment, even, when a short pay back period of one or two years is predicted.It says that,A surprising number of companies are not confident of staying in business long enough to reap the benefits. An analogy given to a member of the Committee by a senior businessman was that when the ship is sinking one does not bother overmuch about how efficient the engines are.That is not only a devastating comment on the Government's economic policy but on their energy conservation policies as well. I think the Minister might take this opportunity of telling the House what the Government's plans are to have a central authority to influence energy conservation. Britain has considerable energy resources, as noble Lords have mentioned. They are the largest in the European Economic Community and in 1980 were valued at well over £14,000 million. Although we have such good resources, we still must do much more to conserve and, as the noble Lord, Lord Ezra, said, make more efficient use of what we have.
I want to end in a constructive way by talking about future energy policies. One of the first things that we must do is formulate something like the Energy Commission, which was disbanded by this Government, and get together a representative body of people representing all interests; not least to ensure that everyone realises that it is everyone's business. This is needed to advise on the preparation and annual review of a comprehensive energy plan. We simply cannot go on in a divided, piecemeal way with the wrong objectives.
The main industries should get encouragement but we should not overlook the role of other smaller resources—to which my noble friend Lord Kirkhill referred—or other forms of energy. We need to review renewable resources. Coal must get a greater priority. There must be the establishment of tripartite machinery and the preparation of a new plan, updated for the coal industry. I believe these points were made by the noble Lord, Lord Ezra, and by my noble friend Lord Taylor of Mansfield. This must be done in consultation. Old plant needs to be replaced with coal-fired stations.
We must ensure that everyone can afford adequate heat and light in the home. In many towns and cities there must be consideration of combined heat and power schemes. Conservation and greater efficiency needs to be part of a massive programme, led by insulation of housing, with more incentives to industry and with the programme managed by a new energy conservation agency. There will need to be a continuing nuclear programme review and reassessment, taking into account all the factors concerned—environmental and energy needs as well.
The new Britoil must be brought back into public ownership and combined with BNOC to create a powerful national oil corporation with powers to engage in related activities. The need is there for proper influence or control in the interests of Britain's vital energy interests, and that should be obvious.
608 The nation, which has benefited from oil and gas revenue, must make even more of it in the future. North Sea oil this year is helping Britain to the extent of £14,500 million, but it is not enough to pay the unemployment benefit which is greater than that—I believe about £15,000 million—for the nearly 4 million men and women put out of work through the Government's economic policies. That money should, of course, be used not to pay people to do nothing but to finance economic development, including that of our fuel and energy industries, to get Britain into business and competitive once again, usefully employing those 4 million people. The next Labour Government, which may be only a few weeks away, must ensure that energy is a matter of national importance and of national concern and that it pursues energy strategies which will get maximum public support to ensure maximum co-operation.
Finally, I conclude with a tribute to all those engaged in our vital energy-producing industries. Their work provides Britain with the powerhouse, the heart, which does not need the transplant that Government policies are trying the inflict on it. Given wise policies, that heart will beat stronger and sounder and will rejuvenate a Britain which has been so jaded and lifeless as a result of the Government's policies in the past few years.
§ 6.8 p.m.
§ The Parliamentary Under-Secretary of State, Department of Energy (The Earl of Avon)
My Lords, I was going to start by saying that this debate has not been very political but I think that I have to withdraw my words. I am very grateful to the noble Lord, Lord Kirkhill, for his opening remarks and for suggesting this debate today. I was widely in agreement with the main thrust of his speech. I have only one criticism of this debate and that is we have covered such wide ground that it is almost impossible for me to do justice to all the various topics that have been raised.
While listening to the radio this morning in my bath I heard Joe Bugner, the boxer, speaking. He taught me a good lesson on how to save energy. He said that he saves energy now that he is 33 and no longer a young man by knocking out his opponents earlier. I feel slightly knocked out myself today.
In my remarks I want to suggest that there is a widespread misapprehension which has underlain much of the approach of recent administrations to energy. This misapprehension has given rise to the proposition which I have heard on a number of occasions since taking up my present post, which is that the Government do not have an energy policy. In order to discuss this proposition in context I should like to recall some of the facts about our position in the world energy scene. In 1982 the United Kingdom produced more oil than any other country in the world apart from Russia, the United States of America, Saudi Arabia and Mexico.
With regard to gas we are also in a remarkable position. The development of North Sea gas has made the United Kingdom the world's fifth largest producer of natural gas. With the renewed interest in exploration for gas in the Southern Basin and elsewhere, which is illustrated by the response to the 609 eighth round of licensing, significant additional gas reserves could well be found to supplement our remaining proven recoverable reserves.
The facts on coal are not so new—a number have been given out today—but are just as impressive. It remains a massive national resource of major long term importance to this country. I have the estimated operating reserves down here as 7 billion tonnes. I know that other noble Lords have quoted different figures, but that is the one that I have been given. That of course is enough to sustain current rates of production for 60 years at least. Total economically recoverable reserves could be very much higher.
As for nuclear power, Britain was fortunate in having early access to nuclear technology. In taking the lead in developing "atoms for peace", it constructed the first commercial nuclear power station at Calder Hall, and that, my Lords, was now some 27 years ago. We have nine Magnox stations working. We have seven advanced gas cooled reactors: two in use, two being commissioned, two under construction and one half-way between construction and commission. This is a good record, although some of them may not have come on time. I really do not think that the noble Lord, Lord Taylor of Mansfield, can call this high risk. They have a magnificent safety record. The noble Lord, Lord Lovell-Davis, took us on a tour of the United States and told us of all the disasters that there have been there. But we are in the United Kingdom, and we have a very good Nuclear Installations Inspectorate. It is first-class. I believe that it is one of the safest industries that there can be. We have a 100 per cent. record.
In combination, Britain's access to indigenous oil, gas and coal, and to civil nuclear technology, place it in a remarkably favoured position in the world energy scene. The question is: what is the correct policy response to that situation? In the past the argument has gone somewhat as follows, to put it simply. Energy was a vital national resource of strategic importance. So that it was essential for the Government, on the one hand, to control the exploitation of our natural energy resources in the national interest, and, on the other, to plan their integrated development. Government must forecast demand and plan the supply to meet it. Therefore, our energy resources should be exploited by state corporations under Government supervision.
Of course the North Sea has been an exception to this. Here the need effectively to tap the expertise of the world-wide industry made substantial private sector involvement unavoidable, and it is only right to pay tribute to the quality and commitment of those companies involved. However, even here a state corporation, the British National Oil Corporation, was to play the major role, and the activities of the private sector were to be closely regulated and constrained by Government and their agent, BNOC.
Against this background it has often been asked why, with all its energy wealth, is Britain in such poor industrial and economic health. It is clear that the British economy inherited by this Government had suffered from years of mishandling, part of which has been what I might call the "destructive consensus" on energy policy. This consensus has been broadly based on the argument I have already outlined. It is a 610 superficially attractive argument; but it is sadly—I might even say tragically—wrong.
One reason for this is that energy forecasts are invariably inaccurate. When Government take over from markets the responsibility for matching supply and demand, the consumer always suffers. And when ownership is by the state, efficiency and sensitivity to customers are liable to be casualties. In the case of coal, for example, losses are being made that no private company could possibly sustain. The British coal industry is a major burden on the taxpayer and consequently a drain of the economy when it should be just the opposite. That is no criticism of those who work or have worked in the industry, including the distinguished noble Lords here. I shall come later to answer some of their points. It arises rather from the inflexibility and reduced responsiveness to commercial conditions characteristic of a nationalised monopoly.
While the electricity and gas monopolies have not made these kinds of losses, it is clear that they have been slow to respond to market pressures. Few would argue that investment decisions taken by the electricity industry have been the best, or that its record in building power stations to time and cost has in the past been satisfactory. As far as gas is concerned, it is clear that the corporation's attitude, as by far the major purchaser of North Sea gas, has stifled private sector interest in exploring for new fields; and that the underpricing of domestic gas severely distorted the energy market and damaged industrial consumers of gas.
In sum, the result of the "destructive consensus" has been that Britain has consistently failed to make the most of its opportunities in the energy sector. That is not to say that our energy resources have made no contribution to the economy. Of course they have, and do. But it is to say that, given Britain's remarkable good fortune in its energy endowment, it is at least disappointing that these resources have not been developed in a way that resulted in a more healthy economy than the Government found in 1979.
This Government fully accept the importance of energy in the economy. Indeed, it is because of the importance of energy in the economy that the Government aim to release the energy sector to the greatest extent possible from the shackles of state control and planning in order that it can develop its full potential contribution to economic prosperity in Britain. Where industries remain in the state sector—whether temporarily or permanently—it is clearly essential that they should operate as much as possible as commercial bodies taking full account of market conditions and financial constraints. Only by the rigorous application of such principles can there be any prospect of at least partially avoiding the debilitating effect of state ownership. To this end the Government have agreed financial targets and external financing limits with the industries, and are setting them agreed formal objectives.
Better still, however, than the manufacturing of substitutes for market forces, is the opening up of the state-owned industries. In the North Sea, the exploration and production activities of the British National Oil Corporation have, as we all know, been moved into the private sector as Britoil, whose 611 prospects look bright. In general, the Government are committed to letting oil companies proceed with the development of the North Sea on the basis of their own judgment of the market place and with the minimum of interference.
The Government have given assurances on the exercise of their depletion powers—in particular that there will be no production cuts before 1985 at the earliest—which are designed to give companies the confidence to embark on new developments; and we expect the significant fiscal concessions announced in the Budget to give a strong new incentive to investment in the North Sea. As a result of these measures, I detect a strong breath of optimism in the oil industry, and this in turn will come to the aid of the onshore industries supplying the North Sea market. In particular, we should all be heartened by the renewed interest the oil companies are taking in what were previously only marginal commercial prospects.
As for gas, higher prices now being offered by British Gas to producers, together with the measures taken in the Oil and Gas (Enterprise) Act to break the British Gas Corporation's special gas purchasing privileges and open the market more to competition, have resulted in renewed interest in exploration for and development of gas resources, particularly in the Southern Basin where, for example, 17 exploration and appraisal wells were started in 1982 compared with a total of two in the preceding four years. In electricity, the Energy Bill which had its Committee stage here yesterday will open the way for increased private electricity generation. It will also encourage area boards to participate in economic generation of combined heat and power.
In all the energy industries the Government are examining carefully the extent to which there are irreducible natural monopolies, and the necessity for state ownership in those cases. Even where regulation is clearly necessary, the conclusion that that entails state ownership is simply a non sequitur. We had an excellent and wide-ranging debate on energy conservation recently, and I do not propose to go over the same ground again. That debate on a report by the Select Committee on the European Communities highlighted the contribution increased energy efficiency can make to reducing industrial costs and, as a result, improving profitability.
A number of noble Lords spoke about CHP. The noble Lord, Lord Tanlaw, who is always quick to ask me why we have not got a report at any particular time, asked me why we had not released the report of the Select Committee of the House of Commons on CHP. It is being released tomorrow. I am afraid that it is up to them and not up to us. I may say, incidentally, that a copy of it did come on my desk as advance notice. I carefully did not read it in case I gave out some secrets which I should not do. The noble Viscount, Lord Hanworth, also addressed some remarks to CHP. He will know that we are at present studying the Atkins Report on this. We are not sitting on the matter. I have seen the progress report. It is a very complicated report. After considering the report of the Select Committee of the other place and this report, we look forward to making a response soon on CHP.
612 A number of noble Lords, including the originator of the debate, the noble Lord, Lord Kirkhill, spoke strongly in favour of the Energy Efficiency Office. I should like to say that I, too, am in favour of it. This question comes back to the Rayner Report; and this debate will help considerably with Government progress on that particular topic.
A number of noble Lords spoke about alternative sources of energy, or the renewables. I should like to say that the Government have decided to go strongly towards research in both wind and geothermal, as well as to keep passive solar and tidal in their minds. They have at the moment rather put wave to one side as not being an economic proposition. However, when we come to bio-mass, I believe that this is of incredible interest. The Government are watching it carefully, and are monitoring some experiments which are now going on.
The noble Lords, Lord Kirkhill and Lord Bowden, and the noble Earl, Lord Lauderdale, asked about gas flaring. There are technical and safety reasons why it is not possible to stop it completely. However, the three noble Lords will be encouraged to know that since 1979 oil production has risen by 24 per cent., and flaring has been reduced by a third. That is quite a positive step forward.
The noble Lord, Lord Kirkhill, also spoke about nuclear programmes, and I was very happy that he did. The noble Lord, Lord Bishopston, quoted from the party document on this subject. I hope that the noble Lord, Lord Kirkhill, will try to persuade his party not to stop Sizewell and scrap the Tory PWR programme. The Labour Party is on record as saying that the need for a continuing programme based on the British AGR will be reassessed when they are returned to office. I believe that when the right honourable Member of another place, Mr. Benn, was in office, he put his name to the kind of policies which we are now carrying forward. I think that it would be a great pity to have a stop-go situation, as the noble Lord, Lord Kirkhill, illustrated.
The noble Lord, Lord Kirkhill, also talked about coal liquefaction. A formal agreement between the Department of Energy and the National Coal Board is expected to be signed within the next few days, covering the definition phase of the 2½ tonnes per day coal liquefaction project. This definition phase will last about a year and cost about £1 million, to be shared equally between the department and board. The work will cover process design and preparation of tender specifications for detailed engineering, procurement and construction. If all goes well, the construction phase could begin in mid-1984.
The noble Lord, Lord Tanlaw, spoke about coal gasification. The British Gas Corporation has recently won further support from the European Commission for operation of its 5,000 tonnes per day slagging gasifier, now under construction in Westfield. This technology for the manufacture of substitute natural gas from coal is now being offered with commercial guarantees and offers significant improvement in capital cost and thermal efficiency relative to established technology. The Gas Corporation's research and development programme, currently costed at about £500 million over the next 20 years, is aimed at providing a full portfolio of technologies by 613 the end of this century; that is for the production of substitute natural gas from a wide range of available feedstocks.
My noble friend Lord Lauderdale spoke about future oil and gas developments, and gas gathering. He also made what I thought was a very nice slip of the tongue when he used the word "revenge", rather than the word "revenue". It is difficult actually to predict when companies will come forward with plans for future developments, but we think that proposals for up to 17 oil and gas developments might be submitted over the next two years or so. The Government are determined to encourage the development of new fields in order to maintain high levels of production from the United Kindom continental shelf into the 1990s and beyond. So far as gas gathering is concerned, companies have been seen to come forward with gas gathering schemes, and I am confident that they will continue to do so. This will help to achieve the Government's objective of ensuring that United Kingdom continental shelf Gas is brought ashore in an efficient and timely manner.
I understand that Shell and Esso's FLAGS line and its associated Western leg pipeline are now on stream. The Northern leg pipeline is due to start supplying gas to St. Fergus via FLAGS this year. Further proposals include the feeding of North Alwyn gas into the Frigg system, and a new line from Fulmar. This latter will be well placed to collect gas from accumulations along its route.
I am sorry that I am jumping from subject to subject, but that was how matters were raised in the debate, and so it is very difficult for me to do otherwise. My noble friend Lord Lauderdale then went on to speak about a fast reactor programme. The fast reactor is of course a vital technology for the future, and from our recent debate on this issue noble Lords will know that the Government are committed to maintain a substantial development programme based on Dounreay, in order that the country can have access to the technology when it is needed.
In his policy statement which preceded the recent debate my right honourable friend the Secretary of State for Energy made clear that in common with most other leading fast reactor nations, we now believe that the series ordering of fast reactors will begin in the earliest part of the next century, and thus will be on a timescale longer than we had previously envisaged. We should therefore have more time in which to develop further the technology and before undertaking the construction of a first full-scale reactor in the United Kingdom. The development programme will be geared to this timescale. I can also tell my noble friend that my right honourable friend is currently considering the advice that he has received from the industry about the precise nature of the nuclear programme. I can endorse that, because I have actualy seen the papers.
This evening we have probably talked about coal more than about any other subject. So I should like to turn to the Government's strategy on coal and tell your Lordships how that stands. I should like to say to the noble Lord, Lord Taylor of Mansfield, that I hope that he is happy that we are going ahead with Asfordby. The Government have given the go-ahead. I think that the noble Lord was under the impression that the 614 Secretary of State for the Environment had not given the go-ahead. In fact he has.
The Government have I believe shown beyond peradventure their faith in the future of the coal industry. We believe that coal has a vitally important role to play in the United Kingdom energy sector, provided that it can be supplied to consumers reliably and at a competitive price. The National Coal Board has a potential major role in meeting the nation's longterm energy needs, provided that it can produce coal efficiently and at prices which are competitive with those of other fuels, including imported coal.
We want the NCB to progress as soon as possible towards a sound and viable financial footing. The massive level of financial support to the industry is indicative both of the industry's serious financial problems and of the Government's commitments to its future. The board and the industry as a whole will know what the problems are, and what needs to be done, including a steady improvement in productivity and competitiveness, as a basis for winning new markets. The Government are providing constructive support for coal through the Coal Firing Grants Scheme and by providing exchange risk cover on ECSC loans for coal conversion projects.
The market for coal is also lower than expected. In 1982 United Kingdom consumption was about 111 million tonnes—about 16 per cent. lower than in 1973. This is a much smaller drop in demand than that faced, for instance, by the petroleum industry over the same period—which was 32 per cent. But it combines with a lower than expected rate of pit closures to create a growing imbalance between supply and demand. The board therefore faces several related problems—increasing stocks, heavily loss-making capacity, and almost total reliance on Government funds for investment and to make up operating losses. These problems will be the same, whoever is the chairman. The objectives which will be given to the new chairman, Mr. MacGregor, are the same as those which have been given to Mr. Siddall. Perhaps I may pay tribute to Mr. Siddall. With the noble Lord, Lord Ezra, present in the Chamber, we are rather apt to forget that there is a present chairman of the board who is also doing a very good job.
We had a discussion on the appointment of Mr. MacGregor when he was appointed. I would remind the House that he is both a Scot and a metallurgist, and I should also like to remind the House that in 1977 he was appointed by the Labour Party as a deputy chairman (part-time) of BL. We have the utmost confidence that he and the coal industry will work well together.
I should like to say a few words on the coal-firing scheme and the ECSC coal-firing loan scheme. This underlines our confidence in coal for the future. The coal-firing schemes have provided positive and constructive help to the coal industry at a time of high coal stocks and to industry and to commerce with their fuel costs. As my right honourable friend the Secretary of State for Industry said in March, the closing dates on both this scheme and the ECSC scheme have now been extended to the end of the year.
My noble friend Lord Torrington spoke about onshore petroleum licensing. We are pleased with the 615 continued interest and the high level of activity onshore. The Government have issued 94 exploration and 47 production licences, including 9 awarded last month. The number of exploration wells drilled over the last three years is 9½, 17 and 10 respectively—a total of 36½ wells compared with 19½ over the previous six years. I have, of course, noted his plea about easier licences. I feel, however, that licences need to get all the necessary permissions including planning permission for their operation.
The noble Lord, Lord Strabolgi, and I think also the noble Lord, Lord Bishopston, asked me about the present position on Wytch Farm. The Secretary of State met the full board of the corporation on 30th March. He explained that the Government had considered carefully with their advisers the advice put to them by British Gas and that it was both commercially justifiable and in the national interest that the corporation should take forward negotiations with the Dorset bidding group. He instructed the corporation to proceed accordingly. It undertook to do so. The noble Lord, Lord Strabolgi, mentioned the value of Wytch Farm. This is, of course, a matter of argument. The BGC put forward in 1981 a value of £450 million. The noble Lord will no doubt be aware that the independent firm of Wood Mackenzie more recently put forward a figure of £141 million to £213 million. The Government see no reason why a state corporation should be involved where the private sector is fully capable of taking its place.
The noble Viscount, Lord Hanworth, referred to the statutory requirements for the insulation of new houses. He quoted figures that indicated that United Kingdom standards were some way behind those of other European countries. The United Kingdom's minimum efficiency standard for roof insulation is, I believe, twice what he quoted, if I have his figures correctly. It is a U value of 0.35 rather than 0.60 to which reference has been made. One has to bear in mind that the lower the U value the higher the efficiency. A number of improvements to building regulations came into force on 1st April 1982. This underlines the difficulty that arises over comparisons of like with like across the Channel.
I wish to mention to the noble Lord, Lord Lovell-Davis, the paper, Investment in Energy Use as an Alternative to Investment in Energy Supply, to which the noble Lord, Lord Tanlaw, referred. The paper was published by the department. The noble Lord will find that it is an unprecedentedly thorough analysis and is now lying upon the Table of the House. It was prepared in particular as a contribution to discussion at the Sizewell inquiry. It undertakes an economic analysis of the extent to which investment in energy conservation can be seen as a substitute for investment in energy supply. I believe that the Select Committee in another place has commented favourably on the paper.
The noble Lord, Lord Lovell-Davis, also asked whether the department published projections of future energy demand. Yes, indeed. The department published projections of future energy demand as part of its evidence to the Sizewell inquiry. The Government recognise the need for such projections for planning purposes. They are not blueprints. Energy 616 demand will be decided in practice by energy consumers in the light of their developing circumstances and market conditions.
I should like to mention another paper to the noble Lord, Lord Tanlaw. It is the analysis of generating costs, published on 28th February by the CEGB. In this it estimates that the generation costs over the whole lifetime of the CEGB's most modern nuclear station—that is, Hinckley Point B—are less than those of either of its most modern coal-fired station or of major coal-fired stations commissioned between 1965 and 1977. I have looked at the paper. It is very complicated. I leave the synopsis there. If the noble Lord has not seen it, I shall be happy to ensure that he receives a copy.
The noble Lord, Lord Tanlaw, also asked about the employment potential of energy conservation investment. Investment in energy conservation measures has a potential to provide jobs through increased demand for conservation material and equipment. There is also scope for employment through implementing the measures themselves, although, in private homes, much of this work is done on a do-it-yourself basis. However, to the extent that spending on energy conservation displaces spending elsewhere, the overall employment implications will depend on the employment intensiveness of the displaced spending. I am not convinced that there is evidence that investment in energy conservation is significantly more employment intensive and likely to create more new jobs than other forms of economic activity. The case for energy conservation investment must depend primarily upon its cost effectiveness and its contribution to improving the efficiency of the United Kingdom economy.
The noble Lord, Lord Bishopston, asked me about the Energy Commission. I must apologise for the fact that I did not reply to him last time. It is because he speaks just before me and his questions are rather apt to go the bottom of the pile. I believe that the noble Lord replied to himself. The Government are no less committed than their predecessors to ensuring proper consultation on energy matters. However, the Government do not believe that a body such as the Energy Commission is the most efficient way of achieving this. We believe that direct consultation with those concerned on particular issues in the energy field is more likely to produce the required results. In addition, since its inception, the Select Committee on Energy in another place plays an important role in this regard, as does the Committee of your Lordships' House.
I think that I should now start to close my remarks as I seem to have been speaking for a long time. Some noble Lords opposite have advanced policies, a number of which I recognise from paragraphs on energy matters in the Opposition's document, The New Hope for Britain. I do not think that they will be surprised that these paragraphs inspire in me an entirely opposite sentiment from that of hope. The noble Lord, Lord Bishopston, outlined a policy for Britoil, putting it back into public ownership and combining it with BNOC to create a powerful national oil corporation with full powers to engage in all aspects of oil-related activities. The policy states:We will restore to the new corporation a minimum 50 per cent. stake in all fields discovered since 1975 and, in line with our 617 objective to bring North Sea oil into public ownership and control, the public sector will have a dominant role in all future oil and gas exploration and development in the North Sea".That policy, if implemented, would return us to, and well beyond, the position prevailing when the Government took office. In turn, for the reasons I have made clear, this could only lead to further mismanagement of British energy wealth as has happened in the past. By contrast, this Government's approach to the energy sector is to allow the market to allocate the resources involved with the minimum of interference from Government or other distortions. In our view, that is the approach that is likely to lead to the most efficient allocation of resources.
Energy pricing is one key to this approach. Energy should be priced at proper economic value. Another key is to allow market forces to operate more freely by removing from the state sector activities that do not need to be there. The Government provide information and advice on efficient energy use and help the market to operate properly on the demand side. I believe that this approach is a rational way of ensuring the proper managing of our energy resources.
§ Lord Kirkhill
My Lords, as I look around the Chamber and see noble Lords settling in for the next debate, I judge that the present debate has now lasted long enough. I believe that it was worth while instigating the debate in your Lordships' House not least because it allowed those of us who are critical of the Government's energy policy to state our case. It has also enabled the noble Earl the Minister, especially in the earlier part of his reply, to develop the extreme case of the present Government; namely, that consensus is to be undermined, that the nationalised industries are to be destroyed and that the caring and compassionate society mentioned by the noble Lord, Lord Lovell-Davis, is to be set on one side.
Notwithstanding, I pay tribute to the Minister for the careful detail of his later replies. I thank all noble Lords who have taken part this afternoon and I now beg leave to withdraw my Motion for Papers.
§ Motion for Papers, by leave, withdrawn.