Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2026
Lord Whitehead Excerpts(6 days, 3 hours ago)
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Lord Whitehead
That the Grand Committee do consider the Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2026.
Relevant document: 47th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
My Lords, this order was laid before Parliament on 16 December 2025.
The UK Emissions Trading Scheme, or UK ETS, was established—perhaps I should say “re-established”—under the Climate Change Act 2008 by the Greenhouse Gas Emissions Trading Scheme Order 2020 as a UK-wide greenhouse gas emissions trading scheme, contributing to the UK’s emissions reduction targets and net-zero goal. The scheme is run by the UK ETS Authority, which is a joint body comprising the UK Government and the devolved Governments acting as one. Our aim is to be predictable and responsible guardians of the scheme and its markets.
Under the UK ETS, operators are required to monitor, report on and surrender allowances in respect of their greenhouse gas emissions. Although most allowances are purchased at regularly held auctions, operators in certain sectors at risk of carbon leakage are given a number of allowances for free; there are referred to as “free allocations”. Free allocations reduce the exposure to the carbon price for sectors at risk of carbon leakage and reduce the risk that decarbonisation efforts could be undermined by production and the associated emissions moving to other countries.
Under the UK ETS, an operator is the person or company with control over an installation. Installations are stationary units at which regulated activities take place. Sub-installations represent operations carried out at an installation for which operators that receive free allocation are required to report activity levels for the purposes of the UK ETS.
We have brought forward this statutory instrument to enable important changes and improvements to the scheme. The first change it makes is to enable operators of installations to be able to notify their regulator that they wish their activity data for the 2020 scheme year, or 2020 and 2021 scheme years, to be excluded from the calculation of their historical activity levels for the 2027-30 free allocation period. This is in recognition of the fact that production levels may have been impacted during the Covid-19 pandemic. These operators will be able to notify their regulator during the second stage of the 2027-30 free allocation application, from 1 April 2026 to 30 June 2026, that they wish to exclude their activity data for 2020, or 2020 and 2021.
A legal change to the free allocation regulation is needed because existing legislation would require regulators to calculate historical activity levels using activity data from all five years of the baseline period from 2019 to 2023. So, if amendments are not made, there will be no legal basis for regulators to exclude data from 2020, or 2020 and 2021, from the historical activity level calculation for any applicant. Using activity data for these years could result in historical activity levels that do not reflect normal activity, meaning that operators would receive less free allocation than they would otherwise be entitled to receive.
The second change the instrument makes is to gradually phase out free allocation for sectors covered by the UK carbon border adjustment mechanism—the UK CBAM—starting over the 2027-30 allocation period. This phase-out will be implemented through applying a UK CBAM reduction factor to the calculation of free allocation, and will apply at sub-installation level. To do this, operators will be required to report on which of their sub-installations serve the production of UK CBAM goods. This will enable regulators to apply the UK CBAM reduction factor to the relevant sub-installations.
A legal change is needed as operators currently classify their sub-installations only by a specific benchmark and the corresponding carbon leakage status of that sub-installation. This instrument requires operators also to classify each sub-installation as “UK CBAM” or “not UK CBAM”. Benchmarks are the efficiency standards used to calculate each installation’s free allocation entitlement. Installations closer to their benchmark have a higher proportion of emissions covered by free allocation, rewarding more efficient installations and incentivising decarbonisation.
The third change the instrument makes is to use current benchmarks for the purpose of calculating free allocation for stationary installations for the 2027 scheme year. This instrument also provides for the ability to update the benchmark values used to calculate free allocation for the years 2028, 2029 and 2030 of the 2027-30 allocation period. Maintaining current benchmarks for the 2027 scheme year will allow time for industrial participants to adjust to the changes.
A legal change to the free allocation regulation is necessary because, under existing legislation, there is no provision to update benchmarks during an allocation period. The principal intent is to use the updated ETS phase 4 benchmarks in the 2028, 2029 and 2030 scheme years; this will be decided once the EU benchmark values are available and will be subject to assessment of the impact.
Installations that permanently cease to operate are required to report on their activity in the final year of operation so that free allocation can be recalculated to reflect the cessation of activity. This amendment clarifies that operators must report on their activity levels in instances of permanent cessation or the surrender or revocation of their permit.
These intended changes follow comprehensive engagement and consultation with stakeholders. The UK and devolved Governments carried out consultations that covered the provisions included in this statutory instrument. The free allocation review consultation ran between 18 December 2023 and 11 March 2024, seeking views on proposals to alter the free allocation methodology for UK ETS stationary sectors to better target those most at risk of carbon leakage and ensure that free allocations are fairly distributed. The free allocation review carbon leakage consultation ran between 16 December 2024 and 10 March 2025. It sought views on a draft UK-focused carbon leakage list compiled by applying UK data to the existing carbon leakage list, as well as the trajectory for phasing out free allocations for sectors that will be covered by the UK carbon border adjustment mechanism. The relevant responses to these consultations were summarised in the UK ETS authority’s response.
In conclusion, the changes in the draft order will deliver on commitments made by the UK ETS authority, improve the fairness of the scheme and increase certainty for both regulators and operators. These changes will ensure that free allocation continues to provide meaningful support to UK industry while maintaining the incentive to decarbonise and rewarding efficient installations. The amendments to the UK ETS will support its role as a key pillar of the UK’s climate policy. They demonstrate that we will take action to improve the scheme where necessary. I beg to move.
Baroness McIntosh of Pickering (Con)
My Lords, I am grateful to the Minister for so comprehensively outlining the contents of the SI. Once again, I welcome him to the House and his position. We knew each other in the other place over a number of years and I was a great admirer of his during that time. I also welcome my noble friend to his Front Bench position, and I look forward to working with him in that capacity. I congratulate the noble Earl on the Lib Dem Benches for his conversion to a life peerage. We are now equals in that regard.
I will take the opportunity to put a few questions to the Minister. I understand that the year 2026 is a stand-alone year before we proceed to 2027 onwards. Is that of particular significance in regard to the changes that the Minister outlined? I understand from paragraph 11 of the Secondary Legislation Scrutiny Committee’s report that, in response to a number of concerns that were raised, the department
“emphasised that UK industry and wider stakeholders had ‘repeatedly’ called for linking with the EU ETS”.
The committee went to great pains to say:
“According to the DESNZ, linking does not mean re-joining and is expected to reduce costs for UK businesses by giving them access to a larger, more liquid market”,
and it said that it had published the submission.
Perhaps I ought to say that I am a pro-European Conservative, so it would not bother me if we rejoined the EU ETS. I know that I am in a minority of one in the Conservative Party on this point, but I want to put that on the record. It raises the question of why industry will be concerned. As I understand it, the UK ETS is very ambitious and operates with a stricter emissions cap, initially set at 5%, which I understand is higher than that set by the EU ETS. If that is the case, does the Minister agree that there are very strong arguments that the UK industry would wish to follow the EU ETS in this regard?
Lord Whitehead (Lab)
I thank noble Lords for their contributions to this debate, which were absolutely up to the rather technical nature of this SI—although I would say that the noble Lord, Lord Moynihan, managed to take in a large landscape on the whole question of whether a decarbonisation policy is good or not. I suggest that that debate is for another day because we are talking about some specific changes that are being made to a specific policy.
That policy relates, of course, to an overall adjunct to decarbonisation policy in general, which is to secure a good carbon price to underpin moves towards developing a more sustainable, low-carbon, green economy based on making sure that fossil fuels are at the margins of the energy economy, rather than at the centre of it; and that incentives are put in place for that to happen and for the economy to run on low-carbon energy in general.
If the noble Lord, Lord Moynihan, considers that a bad idea overall, perhaps he might say so; he has moved a little way along that path. I do not think that the Bank has yet cashed in all its good will, but we need to set one or two things straight about how that relates to this SI. The free allowances that are presently in place for a number of energy-intensive industries that are in danger of carbon leakage as a result of low-carbon policies are being continued for 2026 but are being tapered down—not because the Government think that they are a terrible idea and that we ought to stop giving out free allowances but because we are on the road to CBAM, which is in itself a comprehensive shield against carbon leakage.
Having a series of free allowances running alongside a CBAM arrangement would therefore duplicate the protections that are, and should be, in place. Having a mechanism that enables the CBAM process to come into place, while making sure that the industry has the free allowances it needs to move towards CBAM, seems a very sensible thing to do to keep the overall low-carbon energy show on the road in the longer term. I have not heard from the noble Lord, Lord Moynihan, whether he thinks that CBAM is a bad idea; the industry generally thinks that it is a very good idea.
Lord Moynihan (Con)
The Minister has put two points back to me. First, I have no dispute with that; I think that decarbonising the industrial sector over time is a sensible policy. The problem is that, if you try to accelerate that decarbonisation into 2030 and you must raise electricity prices to the level the Government have done through a carbon tax, you make industry uncompetitive. If you make industry uncompetitive on the altar of long-term decarbonisation, you will have serious employment problems; that precise point was made by an MP in another place in speaking on behalf of ceramics.
My issue, therefore, is not with the long-term decarbonisation of industry; I am totally at one with the Minister on that point. My point is that, if you hurry this along on an artificial timescale of three years, you will have to put up carbon taxes and you will put businesses out of business, in effect, from the moment when they must face these carbon taxes, which are not imposed by their competitors around the world; they may, therefore, find themselves uncompetitive.
I am not arguing against CBAM but I am making the obvious point that, if you then remove these allowances—say you have free allowances of 10 out of 100, and you take 10 of those free allowances away—you have to acquire the other 10 allowances from the market. There is a significant additional cost; that is outlined very clearly in the impact assessment before us today. Indeed, paragraph 18.8 of that document states:
“These factors combined can lead to domestic prices being consistently higher than import prices, enabling substantial price pass-through”.
It is right here in the very document that we have been considering today, and it proves my point about an increase in prices—a significant increase from what are already very expensive electricity prices—that must then be passed through. Also, the nature of that pass- through goes even further than what I have said. Paragraph 18.7 of the impact assessment says:
“The results suggest that most sectors could pass about 80-90% of cost increases to consumers”.
It is the consumers who will feel the pain of this measure; that is the Government’s own clear statement on page 70 of the impact assessment.
Lord Whitehead (Lab)
The Government are of course very well aware of the whole question of how energy prices should be kept within reasonable bounds. By the way, the noble Lord went on a bit about gas a moment ago. He should remember his own period in government, when the Government spent something like £70 billion trying to bring prices back down when they had got completely out of control with the spikes in the price of shipped gas coming into the UK, which rose to 600p per therm at one stage in the mid-2020s.
You could say that, because the Government at that time did not control international gas prices in the way that the noble Lord seems to think can be done— I very much doubt that the various measures he is proposing to regulate international shipped gas prices would have the effect on volatility that he thinks they would have—we are still open to that enormous volatility in gas across the world. Indeed, just recently the price spiked quite substantially—probably not to the extent that happened in the early 2020s, but that is a spectre that continues to haunt us with reliance on international gas and not going to a low-carbon economy.
I am on the side of insulating the UK economy from those enormous global changes in gas prices, particularly by moving, broadly speaking, not to a no-gas economy but to a low-gas economy as far as the future is concerned. That will be of tremendous benefit to UK industry and exports, and jobs and industry in general, because we will have a stable energy economy for the future, which will allow us to plan ahead properly without the spikes, volatility and panics that we have seen over the last few years. I think the noble Lord wants me to give way again.
Lord Moynihan (Con)
May I say how flattered I am that the Minister thinks that I was in government on this side of the turn of the century? I must look a lot younger than I thought I did. I have to go back to 1990, to be precise, when I was Minister for Energy and we started the offshore decarbonisation of gas. In fact, we stopped flaring at that time, at the same time as we set up a non-fossil fuel obligation to encourage renewables. We had low domestic and industrial gas prices in the United Kingdom because we encouraged combined-cycle gas turbines. I just wanted to place that on the record, but I say it in a spirit of deep gratitude to the Minister for thinking that I was in government only recently and that I obviously look far too young to have been a Minister in 1990—or perhaps I look far too old.
Lord Whitehead (Lab)
I thank the noble Lord for that correction as far as his status in previous Governments is concerned. I was making a point not about his own distinguished period as an Energy Minister, which I appreciate was much earlier and perhaps in a rather happier energy era than we have today, but about the mangled response from the Conservative Government to the last gas volatility crisis in this country, and what resulted in terms of the money going out of the Exchequer for the attempts to protect domestic consumers and businesses from that spike, since he raised it as one of his concerns about this SI.
I ought to add, by the way, that, in the Government’s industrial strategy—yes, we have an industrial strategy, unlike previous Administrations—we announced additional support for 7,000 energy-intensive firms through the British industrial competitiveness scheme, which will reduce electricity costs by up to £40 per megawatt-hour. Through the British Energy supercharger, the Government are increasing support for the most energy-intensive firms by covering more of the energy network charges they normally have to pay. From 2026, the discount on these charges—namely, legacy costs, capacity market feed-in tariffs and so on—will be discounted by 90% from their present 60% level. That is a substantial boost to industry, as far as prices are concerned, by the direct actions of the Government under these circumstances.
I am conscious that I have spent rather too long addressing what the noble Lord, Lord Moynihan, has perhaps wound me up to talk about more than I might otherwise have done. I have to now address the questions that were put to me by the noble Baroness, Lady McIntosh of Pickering—who I applaud for being, as it were, on the side of these particular measures and ideas from the other side—and the noble Earl, Lord Russell.
I have, to some extent, covered the questions that the noble Baroness put to me. The first allocation period will be extended to 2026 to ensure that the changes implemented from the free allocation review come into force in 2027, to align with the introduction of UK CBAM. On her questions on bills, emissions trading has been a key element of power sector decarbonisation. Therefore, maintaining a strong UK ETS and, dare I say it, aligning it with the much wider market that we can enter into, for the stability of the ETS, will not be a joining of the EU ETS but a linkage of the UK ETS to the EU ETS. The UK ETS will continue. It has been determined following a recent consultation discussion that it will continue until at least 2040.
Baroness McIntosh of Pickering
I want to press the Minister. We are being more ambitious under his scheme than under the original scheme, the EU ETS to which the UK originally subscribed. We are going for a stricter emissions cap, initially of 5%, and will probably be more ambitious as we go forward. We also have a shorter timeframe in which to subscribe. We are all being clobbered by this. It impacts on the Government’s growth agenda, as I mentioned, and on the cost of living that my noble friend mentioned from the Front Bench. I am honorary president of the warm homes front, and I know that particularly those living in challenging circumstances in heating their homes and in fuel poverty will find this incredibly difficult.
Lord Whitehead (Lab)
The issue is fairly complex because of the benefits and disbenefits that apply from having a really ambitious carbon pricing target. On the one hand, it drives the decarbonisation of home heating, domestic electricity delivery and all sorts of things like that in a low-carbon way, and, arguably, that is a substantial reducer of the price of household bills in the longer term.
Baroness McIntosh of Pickering (Con)
If it is going up from £100 to £138 per household, when are we going to see the reduction that we were promised in the general election?
Lord Whitehead (Lab)
The Government recently introduced an average reduction of £150 off electricity bills, through placing legacy bills into Exchequer arrangements rather than putting them back to households through obligations. We will continue to look at that on a wider basis. That is a good start for reducing energy bills, as it changes the nature of how the low- carbon economy works.
The noble Lord, Lord Moynihan, asked why we are changing these arrangements in a fairly rushed way. Part of the answer is that, if we are to have a good CBAM in place—after all, it is coming in a year after the EU CBAM—we have to get our skates on. We also have to get our skates on in linking the UK ETS with the EU ETS. The noble Earl, Lord Russell, is aware that, just six months after the linkage arrangements were agreed in principle at the EU-UK summit last April, the November negotiations and discussions started, and they are still under way at the moment. There are a number of answers on timescale and so on that I cannot give right now, but I assure the noble Earl that these are clearly under way and that there is a clear out from those negotiations.
I am conscious that we have spent a long time on this. I will write to the noble Earl and the noble Baroness on the remaining outstanding issues. I hope that I have been able to give a reasonably reassuring position on the need for this SI and the wider context of the underlying direction of all this policy and why this SI leads to a much better and more stable series of arrangements for both the UK ETS and CBAM, as it comes forward.
Earl Russell (LD)
We have had a good debate on this. We may have strayed slightly off the topic into some broader areas, but it is important that these issues are discussed and that, when we disagree, we disagree well. I thank everybody and the Minister for their responses.
Warm Homes Plan
Lord Whitehead Excerpts(1 week ago)
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Earl Russell (LD)
My Lords, I welcome this Statement. Promised nearly two years ago as a “flagship response” to soaring energy bills and poor home efficiency, it has taken some time. Delays have consequences, particularly for the millions of families living in homes that are cold. They are paying the price.
That said, this plan brings forward welcome innovation and greater policy coherence, particularly through its focus on climate adaption and mitigation. It marks a significant milestone amid a national affordability crisis and an accelerating climate emergency. But if warm homes are one side of the equation, cheap, clean energy and market reforms are, indeed, the other. We need both to succeed.
The commitment to £15 billion of public investment is ambitious and right. Ministers forecast upgrades for 5 million homes and relief from fuel poverty for 1 million families by 2030. These are the benchmarks by which this plan will be judged. Too many families still live in cold and damp homes, causing ill health and rising health costs. Labour is right to call out the “lost decade” under the Conservatives, when investment collapsed and home upgrades fell by 90%. Greater vulnerability followed Russia’s invasion: 85% of our homes were still dependent on fossil fuels, and £40 billion in emergency support was required. This was the cost of the Conservatives’ delay.
Against this backdrop, the plan’s innovative pathway is welcome. Partnerships with British climate tech firms could, if implemented well, build a world-class retrofit industry, but SMEs need support, predictable regulation and open markets to bring products from design to real homes quickly. The proposed retrofit innovation panel and sherpa approval models are positive, if they deliver.
I am concerned about the six-month cliff edge gap between previous schemes winding down and new schemes starting. I ask the Minister for greater clarity, particularly on the use of the £1.5 billion reserve to help fill this gap.
I welcome the focus on climate adaption. Increasing heat will be a slow-motion killer, so homes must be built for cooling as well as warmth. Including air-to-air heat pumps and supporting communal ground source systems is vital. Passive measures are also needed. The plan’s emphasis on consumer-led energy flexibility is encouraging, with an ambition to triple solar by 2030. Integrating solar batteries, EVs and smart meters can turn homes into virtual power grid participants, cutting bills and easing pressures on the grid. However, this “rooftop revolution” will falter without faster grid connections, planning reform and more resources for local authorities.
The transition must create good jobs and uphold ethical standards. I supported the amendment from the noble Lord, Lord Alton, to the Great British Energy Bill on forced labour. Our clean energy revolution must not rest on exploitation. What measures are we undertaking with our EU partners and others to build our solar manufacturing capacity?
Despite the promising direction and other areas of overlap, this plan stands in isolation from Great British Energy and our community energy plans. This is a missed opportunity. We welcome the support for the UK heat pump industry but question whether £19 million will be enough. The dilution of deployment ambition is troubling—well below the 600,000 a year target by 2028. Even with a £7,500 grant, typical households still face a £5,000 shortfall, which will be too costly for many.
I reiterate the Liberal Democrats’ call for free heat pumps and insulation for low-income families. We welcome the innovation financing models but ask for greater details. Can the Minister assure the House that these will be properly regulated and transparent, and will not put people’s homes at risk?
The new rented sector standards, benefiting some 3 million over the next four years, are also welcome, but how will their effectiveness be measured? We welcome the warm homes agency as a single point of leadership. What more can be done to make sure that people are not the victims of energy scams? Can the Minister explain how the plan will be monitored and reviewed, and confirm some level of flexibility?
Too often in the past, insulation was missing or simply done badly. Government must work to restore confidence. It is essential that we do insulation and we do it well. Without insulation, the best technology cannot prevent heat loss.
Finally, I agree with the Opposition: we need energy market reform, and clean energy needs to be affordable. Electricity costs are too high; while they are that high, households will not change from fossil fuels, so we must balance levies and take them off bills.
To conclude, we welcome the ambition and the funding, but ambition must now be met with urgency, coherence and fairness. Ministers must close the funding gap, put insulation back at the heart, reform markets to make clean energy affordable, and back British workers and innovators. If Ministers rise to that challenge, this plan can deliver not just warmer homes but a fairer, cleaner and more secure future for Britain.
The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
I thank the noble Lord and the noble Earl for their contributions on this Statement. I think I can say that both of them were pretty supportive, which is nice for something as large as this. I therefore bank that support, as it were, and will address myself to the very pertinent questions that the noble Lords put forward.
In banking the support, it is worth reflecting on the real scale and the extent to which there are winners all round in the proposal before the House. As the noble Earl, Lord Russell, said, it is £15 billion altogether. I might add that in respect of the total commitment by this Government, this is, all things considered, about two and a half times the total commitment of the previous Administration regarding overall energy-efficient measures. The noble Earl is also right to point out the collapse in measures that took place under the previous Government. Overall, this scheme is determined to get it right not only this time but for all sections of society.
The noble Lord, Lord Moynihan, pointed out what will happen to the 80% who he thought would not be particularly affected by this. When you look at the breadth of the proposals in the warm homes plan, there is indeed something for everybody in it. There are low-cost and interest-free loans for the private sector. For the private rented sector, there is the quite dramatic commitment to make sure that landlords spend £10,000 uprating their properties to what will provisionally be band C EPCs by 2030. By the way, there is no real evidence that landlords have put rents up in relation to their commitments to the previous level of spending £3,500 to increase to band E.
For the social housing sector, there will be grants and particular investments in that form, and, of course, substantial investment in seeking out those in fuel poverty and bringing treatments forward for their homes that will substantially uprate their warmth and decrease their bills. We really will decrease their bills, sometimes quite dramatically, and make sure that those are permanent changes, not just ones that go with the volatility of the energy market.
The noble Earl asked about the whole question of forced labour and solar panels. I appreciate his point. We live in a world in which it is difficult to assess accurately who is doing what as far as forced labour is concerned. In the Modern Slavery Act we already have the wherewithal to take action, if we can identify those circumstances. Certainly, this Government would want to do that. We are collaborating with the Solar Stewardship Initiative, which seeks to have a more accurate spotlight on the issue of forced labour. It is something we are very well aware of. The noble Earl will understand that this is a difficult area to get absolutely right straightaway, but it is work that is ongoing.
The noble Lord, Lord Moynihan, mentioned the ambition for heat pumps. I have a memory, from another time in the other place, about what happened with that ambition. The previous Administration declared a three-year programme for a total of 90,000 heat pumps, underwriting 30,000 per year for three years, up to 2025. Then there was a gap of three years, when nothing would have happened. Suddenly, in 2028 or 2029, there would then be 600,000 heat pumps installed per year—a piece of Guillermo del Toro magical realism, if ever there was one. That is what we are seeking to avoid on this occasion.
We want to have real targets, which we can actually meet. That is also important in terms of investment in UK heat pump manufacture, for example. We need to know that there is a steady market for those heat pumps, where they are increasingly manufactured in Britain—boiler manufacturers turning to heat pump manufacture—and that we have that target in place and we can reach it. With the measures in the warm homes plan—the £7,500 underwriting for heat pumps currently; the new underwriting for air-to-air heat pumps; the ability of heat pumps to be put into area schemes; and low-carbon loans and grants—there is every prospect that we can get to the target of 450,000 in an organised and effective way.
I am conscious that I have not been able to reply to every point that noble Lords made in response to the Statement. If I have missed anything, I will be happy to write to both noble Lords, so that we can have a full set of answers to their questions today.
The Deputy Speaker (Lord Ashton of Hyde) (Non-Afl)
The noble Lord, Lord Campbell-Savours, is taking part remotely. I invite the noble Lord to speak.
Lord Campbell-Savours (Lab) [V]
My Lords, I welcome the Government’s emphasis on solar. Is my noble friend following developments in the use of perovskite, a material that potentially greatly increases solar panel efficiency by as much as 30%, while reducing panel manufacturing costs? Are we monitoring the work being carried out by Oxford PV, a company—among others—at the forefront of the development of this technology? Can we be assured that, if it turns out to be commercially viable, we will back manufacture of the product in the United Kingdom and not leave it to the Germans or Chinese to take control of the market?
Lord Whitehead (Lab)
I thank the noble Lord for his question. It might be helpful if I go into a brief disquisition on perovskite and its qualities, to inform the House about the noble Lord’s question.
Perovskite is, quite simply, a wonder product in terms of solar development. It is a mineral, but largely made synthetically, and manages to trap a wider spectrum of the sun’s rays than traditional silica does. So-called tandem panels which have a silica panel underneath and a perovskite film on top have an increased efficiency of 20% to 30%—which is a fantastic addition. With solar on a field basis, far more power can be got out of a smaller series of solar arrays. As far as home solar is concerned, an enormous boost can be achieved—perhaps half the power used can be got from the roof, with the same amount of solar panels than would have been put on previously. It is a very exciting development.
Oxford PV is the company spin-out from Oxford University, which is engaging in the development and commercialisation of those tandem panels. There is also a pilot production line under way in Germany.
The Government have been very supportive of Oxford PV in its journey. There was an original grant for Oxford PV of, I think, £668,000 in 2014 and there have been grants from UKRI subsequently. Oxford PV is presently in some discussions with the Department for Business and Trade, as this is something that we very much look forward to developing for the great advantage of the solar world generally. I assure the noble Lord that the Government are active in this pursuit, with the prizes that it can bring.
Baroness Ritchie of Downpatrick (Lab)
My Lords, I thank my noble friend the Minister for his very extensive Statement on the warm homes plan today. Does he agree that heat pumps are most effective when paired with insulation? Could he say a little more about what the Government will do to increase insulation in existing homes now that the ECO scheme is ending? If the future homes standard is going to be published and implemented, when will that take place? Bearing in mind all the floods that we have seen over the last number of weeks and days, what further climate change adaptation measures will be considered? Maybe the Minister would write to me on that final issue.
Lord Whitehead (Lab)
I thank the noble Baroness for that contribution. The question of heat pumps and insulation is very clear: heat pumps do not work as well as they should if a property is poorly insulated, so increasing insulation hand in hand with heat pump installation is a very wise thing to do. However, among other things, the warm homes plan tries to take a measured view of where fabric improvements are perhaps necessary and needed, and where other forms of enhanced energy considerations could take their place. There are properties that are very difficult to insulate to the right standards but, with solar, batteries, heat pumps and such things, they can come up to the sort of standard you require. So this warm homes plan is a little more careful about the combination of various factors. Elements of the plan will involve fabric—probably about 700,000 homes will continue to get fabric uprating—but other factors will be coming into being.
I will be happy to write to the noble Baroness about the future homes plan and how that will work out. It is under way at the moment and will, among other things, ensure that new homes, when built, will be of a sufficient standard that they will not need fabric uprating for the future, because it will be in the definition of those new homes. That is going to be produced shortly and I will certainly inform the noble Baroness about its progress as soon as I can.
Lord Grantchester (Lab)
This is great news, my Lords. It would be good to be reassured that the warm homes agency will act as a one-stop shop to provide advice to consumers to help them navigate through the best options for their homes. The fuel poverty strategy rightly recognises the importance of using and sharing data to support more effective targeting and delivery of fuel poverty interventions, such as energy efficiency upgrades and installations of low-carbon technologies. Can the Minister outline how the Government intend to use anonymised and aggregated smart meter data to enable those interventions to reach those households in greatest need?
Lord Whitehead (Lab)
There is a large number of applications of anonymised and aggregated data from smart meters, assuming that you have enough smart meters installed in any one place to make the data meaningful. We still have some problems with that and the smart meter rollout but, in general, it can be used for a variety of applications. For example, the warm homes programme is looking to develop area-based applications wherever possible: having the data on where people in fuel poverty are and what areas have a concentration of such people gives you a very good chance of making sure that you can relate the investment that you are putting in with actually making a difference on fuel poverty. Previously, one of the problems with schemes was that we just did not know where those people were. Quite often, the schemes operated a scattergun approach that did not really hit the target as they should have done.
Baroness Young of Old Scone (Lab)
My Lords, I welcome the Statement from the bottom of my heart because, for a long time, I have been very uneasy that we have approaching 1.6 million children living in conditions that can only be described as Dickensian. It simply should not happen in a modern UK. We are uniquely exposed to the volatile gas price and we have the least energy-efficient houses in Europe. It is a litany of failure and I think that this plan goes some way to turning that around, at long last.
It tackles three very important issues as far as I am concerned. I want to explore one in particular with the Minister. It tackles the cost of living issue, which is going to be even more important in view of the volatility of the global political situation. It tackles the health impacts on poor families and of poor building standards, and it creates UK jobs. But when the Environment and Climate Change Committee took a look at some of the issues to do with consumer behaviour and change to new systems, the lesson that came out loud and clear from all the witnesses we saw was that they wanted help to make it easier and cheaper to switch from inadequate, polluting and ineffective standards to modern technologies. The role of the warm homes agency is very welcome and is really important. Can the Minister tell us a bit more about how that agency will be tasked with ensuring that the schemes that are in place do not fail and that the sort of consumer confidence to make the change that is going to be really fundamental to this is going to be promoted?
Lord Whitehead (Lab)
My noble friend is right to focus attention on the extent to which consumers and the general public will have confidence in the changes that are afoot and will be able to make decisions as to how they participate in those changes in the best way possible. I think that is one area where, as a country, we have been quite lacking in the past—although I exempt from this the nation of Scotland, which for quite a while has had a national advice agency in place, giving impartial advice and assistance and seeing that through to installation.
One of the functions of the warm homes agency will be to provide unbiased, informed advice and assistance to ensure that what is being proposed for individuals’ homes—and after all, they are the things that are most important in their lives and the things they are most concerned to get right—are done with a high degree of transparency, reliability and effectiveness. I hope that will be an early development of the warm homes agency as it comes into place. In the context of what we have seen just recently with the problems that ECO4 has had and the Public Accounts Committee report on it, we really do have to have that advice in place, and also that regulation to make sure that the standards that we think we are delivering to people really can be applied properly.
Lord Whitty (Lab)
My Lords, I put on record my profound support for this very significant commitment, which meets not only the fuel poverty objectives but the environmental and economic objectives in developing our energy policy. The Minister may dimly recall that many years ago I was the Minister who brought in and developed the Warm Front programme, which was so tragically cut off in 2010.
In parallel to the information to consumers—and in particular to the least well-off consumers—about their options on insulation and heating, there needs to be a commitment to an effective employment policy, because a lot of new skills are going to be needed. To ensure quality control, we need to ensure that those who are working for the installers under the authority of the warm homes agency are effectively trained and that there is a forward plan for them. At the moment we do not have adequately skilled people on the ground, and a lot of those who are there are getting on a bit. So a new, significant programme of training and retraining is going to be needed in parallel with this commitment, which in general is a fantastic one. I congratulate the department on it.
Lord Whitehead (Lab)
My noble friend is quite right. We are going to need a great deal of upskilling of individuals who are participating in this programme to make sure that they provide the best possible service that they can. Indeed, to return to that PAC report on ECO4, that was perhaps an element of the process whereby people were putting, in particular, external home cladding into place without really knowing what they were doing. It is very important that we do that and that we see the jobs that are going to come out of this programme—200,000 or so of them—as permanent, long-term, skilled jobs and not fly-by-night little contract jobs. We want to make sure that we are investing in real jobs and good jobs.
I bear the scars of the previous things and congratulate my noble friend on his hand in Warm Front, which he will recall, along with programmes such as CERT and CEFs, really made a difference at that early stage. It is tragic that they all collapsed in the way they did. The opportunity now not only to bring back the lessons learned from those programmes but to expand them in the way that has been done warms the bottom of my heart.
Offshore Wind
Lord Whitehead Excerpts(2 weeks, 1 day ago)
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Earl Russell (LD)
My Lords, I start by welcoming the noble Lord, Lord Moynihan, to his position, and I look forward to working with him.
On these Benches, we welcome the results of allocation round 7, which has secured a record 8.4 gigawatts of future offshore wind capacity, including 192.5 megawatts of innovative, floating offshore wind, and seen £22 billion in private investment. This marks an important step forward on our clean power journey and towards our future energy independence—enough clean energy to power the equivalent of some 12 million homes or roughly equivalent to 12% of national energy demand.
This shows that, when properly managed, Britain can lead the world in clean, secure and affordable energy. After the chaos of the previous Government’s failed allocation round 5, which delivered no offshore energy contracts at all, this progress is indeed an enormous relief. This auction confirms what my party has long argued—that offshore wind is the future backbone of our energy electricity system.
Projects such as Berwick Bank in Scotland—set to become the largest offshore wind farm in the world—and the one in Wales, the name of which literally means “sea breeze” and is the first major Welsh project in over a decade, show that progress is being made.
But this is not only about climate targets; it is about our future national energy security. In an increasingly unstable world, every turbine we build reduces our reliance on volatile fossil fuel markets. Securing Britain’s wind power means freeing ourselves from the price shocks of the global gas markets. We should recall that the Office for Budget Responsibility estimated that the UK’s energy support response for the war in Ukraine, driven by fossil fuel prices, cost us £78.2 billion over 2022-23 and 2023-24. In contrast, CBI figures show that the green economy grew by 10% in 2024, and AR7 secures an important future pipeline of continued and sustained green jobs and green British jobs.
The UK has some of the best wind resources in the world and, when we harness our renewables—wind, solar and tidal—we strengthen our energy independence. Despite what some may claim, wind power remains the most effective long-term way to bring down energy bills. The Energy and Climate Intelligence Unit reports that, in 2025 alone, wind generation reduced wholesale electricity prices by around one-third. The average strike price in this round, around £91 per megawatt hour, remains extremely competitive. By comparison, building and running a new gas power plant today would cost around £147 per megawatt hour, making wind power roughly 40% cheaper.
However, we must be candid about the challenges that the sector faces: rising bid prices, driven by global supply chain pressures; high interest rates; and soaring material costs, particularly for copper and steel. I therefore ask the Minister what steps the Government are taking to address these issues so that our 2030 onshore wind targets remain achievable.
The contracts for difference mechanism protects consumers and secures inward investment. It is a policy that has stood the test of time, but it can still be improved. Is the Minister considering extending CfD contract lengths from 20 to 25 years? This could provide greater certainty, lower financial costs and ultimately deliver cheaper electricity. Similarly, we think that moving older renewable projects from more expensive renewable obligation certificates to new CfD contracts could save typical households up to £200 a year.
More broadly, urgent action is needed to reduce energy costs by other means. Now that the Government have ruled out zonal pricing, I ask the Minister what alternative market reforms are being pursued to drive down energy bills. Despite rising renewable generation, gas still sets the market price around 97% of the time. Are proposals being assessed to move gas plants into a regulated asset base? As has been suggested, this could save some £5.1 billion a year by 2028, according to calculations done by Greenpeace. If we do not urgently upgrade and streamline our transmission systems, this record capacity will remain stuck in connection queues instead of reaching our homes and businesses. Does the Minister agree that a long-term, properly resourced spatial energy plan is now urgent and essential to ensure that these connections happen at speed?
The Liberal Democrats have a clear vision for 90% of the UK’s electricity to be generated from renewables by 2030. AR7 is indeed a welcome step on the road, but more must be done to ensure that we reach our targets, reduce the cost of energy bills and update our transmission systems.
The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
I thank the noble Lords for their contributions this evening. They were deeply contrasting in both tone and content: one I substantially agree with; the other I do not at all. We need no guesses as to which is which. I am particularly disappointed by the contribution from the Opposition Benches and the noble Lord, Lord Moynihan. I think I have already welcomed him to his place in Questions, but this may be the first time we have sat across the Benches for a Statement or other debate, so a further welcome would not go amiss. I hope this, as it is shaping up to be, will be the beginning of a good debate between us in the House.
It is worth just reiterating what actually happened in AR7 for the House to judge whether this was the miserable failure that the Opposition Benches appear to suggest it was or the great success that I and, I think, the noble Earl, Lord Russell, think it was.
In AR7, we procured 8.4 gigawatts of new, clean, low-carbon power for this country. That is new capacity over and above what we have at the moment and, indeed, represents no less than 40% of the installed capacity of offshore wind so far. In one round, the amount of wind capacity we have has leapt. That is at a clearing price 20% below the administrative ceiling price—a very competitive auction was undertaken—and that is within the bounds of present energy market prices. In the likely future that we see, it is not only below or around market prices; it is also a stable cost. Whereas, of course, we do not know where gas and other energy prices are going because of the extreme volatility in the world, and of gas prices over the last five years.
Interestingly, between this Statement being read in another place and repeated now, gas prices have leapt by nearly 40%. We are in a volatile gas market. Do not forget, prices went up as high as 600p per therm in the period just after the invasion of Ukraine. Compare the volatile price of gas fuels if we go down the energy route suggested by the Opposition—more purchases of unabated gas-fired power stations. Do not forget that this is not only an auction about energy prices and capacity; it is an auction about low-carbon energy prices and capacity. Among other things, if the Opposition had their way, we would apparently invest in a huge number of unabated natural gas power stations. That means we would be locked into that high-carbon system of generating power for perhaps another 30 to 40 years, which would be completely insupportable in terms of anybody’s energy ambitions.
The noble Lord says that he wants our energy policy to be characterised by security, affordability and clean energy. In this round, we achieved a great step forward for our energy security: this is all homegrown energy, not energy coming in on ships from elsewhere, or that is the responsibility of a dictator or a cabal of overseas energy organisations. This is British home-grown local energy that we have procured, and with it a bright future.
On affordability, the noble Lord referred to the levelised cost of energy, which he said was no longer the way to compare prices. That is a little bit surprising, because that is exactly what the last Government did in previous rounds. In the previous round—AR5—they secured precisely zero low-carbon energy, so compare and contrast, if you will, with what we are talking about today.
It is true, as the noble Earl, Lord Russell, says, that the clearing price of this auction ought to be put in the context of what you can do to try to get new capacity on board as far as this country is concerned. You can either buy a series of gas-fired power stations at a cost of £134 per megawatt hour—the levelised cost of energy—or you can procure low-carbon capacity which both meets your climate targets and keeps the prices down on a constant basis of affordability for the future.
The result of the auction is actually good for affordability and for the stability of prices in the future. If we are thinking of building new capacity at £134 per megawatt hour levelised cost of energy as against £91, and we have procured something like five gas-fired power stations-worth of energy output with this auction, as far as we are concerned, there is really no contest.
Finally, as I have said, it is clean energy. This is what I thought we were all committed to for a period in the past. It is extremely disappointing that the Benches opposite appear to have decided to move away from clean energy and go back to gas and dirty energy, which we really cannot sustain as far as our future is concerned.
Baroness Bennett of Manor Castle (GP)
My Lords, for the Green Party I welcome both this Statement and the decisions that it records.
I have a question about a specific area which is going to need vastly more development. The allocation includes two floating offshore wind projects. They have higher prices but there is a clear strategic intent if the Government are going to meet their target for offshore wind. We do not have enough sites for turbines embedded in the seabed and we are going to need these floating turbines.
If the Government are going to move beyond these demonstration-type levels and deliver pipeline depth and cost reductions, this will need to advance very fast. Can the Minister give us a picture and a sense of where the Government see this going in terms of floating offshore wind?
Lord Whitehead (Lab)
I thank the noble Baroness for that intervention. It gives me an opportunity to confirm the two floating offshore wind projects that have been agreed under this auction round. I might add, by the way, that the auction rounds were not a sort of shoo-in for anybody who wanted to come along and invest, as some people have portrayed them. They were very competitive. The number of entrants to the auction was substantially larger than the number of contracts finally agreed. Among other things, this shows that there is a real appetite for this kind of investment going forward.
That is the case with floating offshore wind. Although the two schemes that were agreed—one in Scotland and one in the Celtic Sea—are not, shall we say, final, full-scale arrays as far as floating is concerned, they represent a tremendous step forward in the development of offshore beyond the continental shelf in the UK. Huge new areas offshore from the UK can be opened up to offshore wind.
Of course, that price is not the same as the price we achieved with the mature, bottom-based offshore wind that we have been talking about, but, if we look at the original administrative strike prices when offshore first took off, they were not dissimilar to the sort of prices that we are now seeing for floating offshore wind. I am confident that, once those arrays get larger, and with the flow of fabrication and assistance which the noble Baroness will probably know is already happening very positively, in the Celtic Sea in particular, the net benefit for Great Britain of floating offshore wind will not just be a large number of jobs and more income coming into different areas of the UK than has been the case for bottom-based offshore at the moment. It will represent a technology that really will allow the whole of the UK to participate in the offshore wind revolution, not just the areas which hitherto have had the main developments in their particular zones.
The Celtic Sea, in particular, is just a taster of what is going to come in the not too distant future—and, by the way, it will be a future in floating offshore wind that will be a British future. Home-grown technology will lead in this particular area, which will not only have an impact in UK but will have a substantial export impact as well.
Lord Teverson (LD)
My Lords, I also welcome the noble Lord, Lord Moynihan, and his expertise to the Front Bench. He is certainly a very effective parliamentarian, even if I do not agree very much with his narrative. But we will see where we get to there.
I also welcome the Government’s announcement, but it is important that we remember that electricity is only part of this country’s energy need. The other sides are, in particular, transport and heating. I am concerned that, although the Government may remain strong on electricity generation, we are getting whispers of them moving backwards in those other areas, including on electric vehicles, heat pumps and finding alternatives to space heating. I would like reassurance from the Government that that is not the case. I certainly hope it is not. Also, where are we now on the future homes standard? That is absolutely fundamental for how we move forward domestically on energy consumption.
Lord Whitehead (Lab)
I am afraid the noble Lord will have to wait for about a week before the warm homes plan comes out. That will contain, so I am reliably informed, a great deal of detail about precisely the areas of heat, efficient low-carbon homes, heat pumps—all the sorts of things that are the other side of the energy revolution. We hope they will begin to be combined together into coherent programmes, working with each other to ensure that, among other things, that greatest piece of low-carbon energy—the energy you do not use—is properly incorporated into overall programmes.
I assure the noble Lord that this is uppermost in our minds. We are aiming, as we always have, to develop a comprehensive palette of policies that will deal with all aspects of low-carbon energy, energy security and energy efficiency. Indeed, the noble Lord will note that the AR7 announcement is not complete, inasmuch as there are further pots to be reported on, including solar, tidal, geothermal and various other things, in the next week or so. So I hope we will come back to this Chamber and compare and contrast notes on the picture that we will have when those two things have actually happened. I think the noble Lord will be pretty pleased with what will result from it.
Baroness Young of Old Scone (Lab)
My Lords, I commend the Minister on this Statement and welcome it very much. It is a welcome return from the terrible days when you put out an auction and nobody played the game. It really was quite heartbreaking when we had those dreadful doldrum days.
I shall focus on something that the noble Lord, Lord Moynihan, raised, which is the increased demand for energy, particularly that caused by data and AI centres. The one thing we must not allow to happen is that we accept that that is a given. We have been fairly effective in keeping the whole concept of energy efficiency alive, and the warm homes standard is going to be a good example of that. The question about the predictions of the energy demand of AI needs to be approached in a different way that says we cannot simply see demand increase but must adopt measures that mean that some of these centres are using not only the most up-to-date modern technologies but are encouraging future technologies in order to reduce their impact on the environment, by not only energy use but water use. I would love to say that photonics is the answer if I only knew what photonics is, but technologies are being talked about that will impact on AI demand. I would appreciate a comforting voice from the Minister that at this very new point in seeing a further increase in demand, we will not lose sight of trying to examine seriously possible technologies.
Lord Whitehead (Lab)
My noble friend makes an important point about the amount of work we still have to do and the extent to which we have to integrate what we are doing into a whole low-carbon system that works. For example, one consequence of the previous Administration’s grievous neglect of grid development and of methods of supporting grid development is that, if we can get grid queues shorter and develop the grid itself and use it more efficiently, a lot of the constraints in the system that we are seeing at the moment will fade away. The system will be used far more efficiently with a greater amount of electricity flowing around it, making much more efficient use of what we have already.
I agree that there are some unprecedented demands coming our way, particularly as far as data centres are concerned, and we need to look at imaginative ways in which we can not only make sure that we are ready for that demand, but start to look at how those data centres can fuel their own requirements, for example, by developing data centres in conjunction with heat sources so that their heat requirements can be dealt with on site. Ways in which local grid systems, outside constraints, can feed into data centre development need to be looked at in the context of a whole system analysis of how an efficient energy system is going to work for the future. We recognise that getting a fabulous result as far as offshore wind is concerned is only part of the issue. It is a much wider issue than that, and one we have got to get right in terms of what we know will be a substantial demand for electricity in the years ahead.
Lord Moynihan of Chelsea (Con)
My Lord, I congratulate my noble and homonymous friend on his new position, which I am sure he will occupy with distinction. The Minister asked a question about dirty energy and how could we possibly promote it. In fact, the truth is the reverse. The Minister is promoting dirty energy. Having deindustrialised this country with impossibly expensive energy, we now buy our steel, our goods and even the solar panels for this renewable energy from China, which makes them using power from energy generation stations fuelled with coal, of which they build one per week. The dirt is going up into the atmosphere and, amazingly, it travels around the world. It does not just hang over China. That is where the dirt is. It is a complete mistake to believe that this side is against clean energy; we are just for sensible energy.
I noticed also that the Minister did not reply to my noble friend’s remark about intermittency and the fact that, right now, we have quite a lot of offshore wind, but it is not being used much because the wind ain’t blowing. Does he think that these new contracts for difference will make any difference to the wind as it decides whether to blow or not? I do not believe so.
I agree with the noble Earl, Lord Russell, that we can lead the world. We are leading the world in high electricity prices right now. Regardless of whether we have offshore wind, we will need gas, as the noble Lord implied earlier, and we are closing down our gas; we are refusing to build new gas wells in the North Sea. So, what are we doing? We are buying it from the North Sea from Norway. It was announced today that Norway’s sovereign wealth fund, its $2 trillion oil fund, has embarked on a major sell-off of its holdings in London-listed small-cap and mid-cap companies, even as Rachel Reeves hails a new golden age for the City, blah blah.
The noble Baroness, Lady Young, said, “In the bad old days nobody played the game; it is great that now they are playing the game”. Can the Minister confirm that the private equity houses, which are the major financiers of these contracts, agreed this very high price, which will further ruin our economy, only if they got 20 years? Is that why the noble Baroness is able to rejoice that somebody is playing the game now, because they got 20 years in which our economy will be ruined?
Lord Whitehead (Lab)
I do not recognise the scenario that the noble Lord paints. Not only is this AR7 settlement good for energy prices—indeed renewables and low-carbon energy have reduced overall prices by 25% because of the effect of the merit order and the driving of gas to the margins in terms of prices—but the industrial work that will be undertaken will be enormously good for a large number of jobs with the fabrication and erection of piles, jackets and all sorts of things which go with this. By the way, the Government are producing a clean energy bonus to make sure that that work is in Britain, so it is a major industrial step forward for this country in its own right.
The noble Lord mentioned that I had not said anything about intermittency. I thought that I had dealt with that issue by saying that one thing we have to do as far as our energy is concerned is run the whole system smartly. Wind, both onshore and offshore, has tremendously increased its efficiency—ie, the proportion of time it produces wind—and the issue at the moment is not whether wind collectively produces a large output on a reliable basis. After all, we had over 80 days last year when renewables and low carbon completely fuelled our energy economy. The fact is that intermittency is a problem only if you do not have a smart system to use that energy where you have it in the smartest possible way. That is why, among other things, there has been such a development imperative on batteries and other low-carbon forms of storage that distribute the energy in a much more coherent way from the sources that we have.
It really is not a scenario that I recognise. I do not think the British economy is going to be ruined by this; on the contrary, this is going to be a great leap forward for the British economy. After all, as has been said on a number of occasions, the green economy in Britain is growing three times as fast as the general economy. This is where the growth is going to come from over the next period, and is very much a leading part of that growth and the new industrial future.
Baroness Bennett of Manor Castle (GP)
My Lords, the Minister referred to onshore wind. Under previous Governments, we saw onshore wind come to a grinding halt for reasons of apparent short-term political advantage. Onshore wind has the potential to be part of community energy schemes. Offshore wind inevitably tends to involve large multinational companies, but onshore wind gives communities the chance to decide for themselves how to generate their own energy and use local resources. Can the Minister outline where the Government are going with that?
Lord Whitehead (Lab)
I am sure the noble Baroness will be aware that one of the first things that the new Labour Government did when we took office was, literally at the stroke of a pen, to remove the ban on onshore wind. We have subsequently made sure that onshore wind enters the allocation rounds. At a local level, Great British Energy will undoubtedly be supporting quite a lot of onshore wind and a number of other community and local renewable resources. The future for onshore is set very fair. After all, it is even cheaper than offshore and just as reliable and long term—indeed, it is marginally better in its overall performance. Onshore is something that we very much want to see as part of the overall package. The noble Baroness will have to wait for about a week before she sees what we have come up with as far as the allocation of further pots is concerned.
COP Climate Negotiations: Cities
Lord Whitehead Excerpts(2 weeks, 6 days ago)
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Lord Rees of Easton
To ask His Majesty’s Government what steps they have taken to respond to the call from C40 Cities to give city representatives a formal role in the COP climate negotiations.
Lord Hunt of Kings Heath (Lab)
My Lords, on behalf of my noble friend—and, I assume, with his consent— I beg leave to ask the Question standing in his name on the Order Paper.
Lord Whitehead (Lab)
I thank the noble Lord for the Question. I was so eager to answer that I was up before he asked it.
The Government recognise the essential role that local places, including cities, play in accelerating to net zero and taking climate action. The Government regularly engage with C40 cities and other interested non-governmental and civil society organisations on the international climate negotiations. This engagement helps to inform our negotiating mandate each year for the COP—the Conference of the Parties. The UNFCCC and the governing bodies comprise more than 190 states and the European Union, which are signatories to the respective treaties. As a multinational treaty body process, negotiations are therefore primarily among parties’ government representatives. In giving this Answer, I pay tribute to the immense work that the noble Lord, Lord Rees, has done in this area, in terms of cities within the UK and on an international basis.
Lord Hunt of Kings Heath (Lab)
My Lords, I endorse the Minister’s tribute to my noble friend Lord Rees. Does he agree that when it comes to countries such as the US, where the Administration have set their face against policies in relation to both mitigation and adaptation, the role of states, local authorities and businesses in flying the flag for determined progress in relation to climate change is vital and that, as a country, we should therefore engage as much as we can with local authorities in those countries because of the contribution they can make?
Lord Whitehead (Lab)
I heartily endorse that sentiment, particularly given that there are 14 US cities in the C40 group and over half of US states already have climate change commitments and net-zero mandates within their areas. We can see that even if the United States has decided at the federal level to take its bat home as far as climate change is concerned, there will still be a lot of work done at state and city level. As a country, we should engage fully with all those actors at the various levels of the United States administration.
Lord Grayling (Con)
My Lords, following the Office for Environmental Protection’s comments in the last few days that the Government are failing to meet the environmental targets set by the previous Government and are on track to fail to meet the 2030 commitments, does the Minister accept that it will be much harder for the United Kingdom to set a standard internationally if it is not doing it at home?
Lord Whitehead (Lab)
I do not think the UK can really be determined as failing in its targets at the moment. We will shortly see this Government’s response to legal challenges about the soundness of plans that the Government had put forward recently. We have published a new version of those plans and we are confident that it is robust and will get us to the targets that we need to get to.
Earl Russell (LD)
My Lords, by 2050 we will see both 2 degrees of warming and two-thirds of global populations based in cities. How we adapt our cities to extreme heat and extreme weather events will be at the very centre of humanity’s survival. The Minister has previously talked about encouraging UK cities to become partners in these global processes. Is not the noble Lord’s Question absolutely fundamental and right, and is it not time that the Government took a stronger stand on these matters?
Lord Whitehead (Lab)
The question of the role of cities in climate change generally is fundamental; by 2050, 80% of people in the world will live in cities. The cities in the C40 group are largely ahead of their respective sovereign Governments on emission reductions. Cities can and should play a central role in that march towards net zero. Certainly, the UK Government, among other things, are helping to fund the C40 cities organisation and are completely committed to making sure that cities play the leading role in climate change mitigation and adaptation.
Baroness Boycott (CB)
My Lords, it is now accepted that the majority of the world live in cities, so they are the victims of climate change more than pretty much anyone else. It seems extraordinary that they do not have proper representation at COP. To declare an interest, I was instrumental in London joining the C40 and I ran the London Food Board; I know what power and influence you can have among cities. Given that “climate change” seem to be words that you are not allowed to say at the moment and that—I use the privilege of the House of Lords to say this—yesterday I was told that the BBC is considering not sending as big a team to the COP this year because people are bored, is it not the Government’s responsibility to make sure that cities have a foot in the door and a loud voice at this table?
Lord Whitehead (Lab)
I am sure the noble Baroness will be aware of what the UK Government have done to support cities in the COP negotiations. There are, as we might say, good COPs and bad COPs. COP 28— a particularly good COP—was the occasion of the UK support for, and promotion of, the CHAMP pledge, the Coalition for High Ambition Multilevel Partnerships, which involves cities centrally in what is happening in COP negotiations in future. The Local Governments and Municipal Authorities Constituency, the LGMA, is the official body as far as COP is concerned, but the UK is committed to making sure that the C40 cities group—which, after all, is led now by the Mayor of London, Sir Sadiq Khan—will play a central role in COP negotiations in the future.
Lord Spellar (Lab)
My Lords, will there not be greater support for these measures from the citizens of those cities and towns in the UK if they can see the benefit coming through to them in their work? What steps are the Government, and those towns and cities when they are commissioning work, taking to ensure that, whenever possible, the work is sourced from the United Kingdom, unlike so many cities that are, for example, buying buses from China with all the other attendant issues?
Lord Whitehead (Lab)
I think that is one-all now.
The noble Lord will be well aware that we have founded, among other things, Great British Energy, which has a substantial brief within it to promote low-carbon and community-based energy groups— 100 local projects up and down the country, which will very much relate low-carbon and climate change futures with local populations and, of course, make sure that the contributions that come forth from those projects are UK-based.
Baroness Jones of Moulsecoomb (GP)
My Lords, C40 was set up in 2005 by the then Mayor of London, Ken Livingstone; at that point it was C20, with only 20 cities. Now there are 96 cities, with a quarter of the global economy and a twelfth of the world’s population. They are driving the fight against climate change and deserve a seat at the negotiations. I ask the Government to rethink their decision not to invite them.
Lord Whitehead (Lab)
The noble Baroness puts forward an accurate picture of how the C40 group was originally founded. I was not going to mention in this Chamber that it was founded by Ken Livingstone because I was worried that some of the responses might not be as positive as the noble Baroness’s. She is right that the original group of 18 has expanded to a huge international co-ordination group of 90-plus cities. That is why, among other things, the UK Government are one of the relatively few sovereign contributors to the C40’s work and its projects, running to multi-million pounds. The UK is very keen to make sure that those groups go forward, but it is a question of how the multilevel representation comes forward within the COP process overall.
Lord Moynihan (Con)
My Lords, I declare my interests as non-executive chair of Amey and Acteon. In returning to the Front Bench, I pay respect to the Minister’s outstanding parliamentary contribution and extensive knowledge of energy and net-zero policies. I have no hesitation in asking him whether he agrees with the Prime Minister’s warning at COP 30 that the “consensus is gone” on fighting climate change? Does the Minister agree that it is now time to pause to reflect that last week, on the bitterly cold day of 5 January when the UK generated 47 gigawatts of electricity, over 52% had to come from gas because the wind was not blowing, and that fully developing our own offshore natural gas reserves, akin to the strategy adopted in Norway, would not only increase our energy security but be environmentally preferable and cheaper for the people living in British cities than relying heavily on imported LNG from the Middle East and the US?
Lord Whitehead (Lab)
I warmly welcome the noble Lord to his place as the opposition spokesperson as far as DESNZ is concerned. He has had a distinguished career in energy, being a former Energy Minister himself, and a distinguished business career in renewables. I look forward to having a very fruitful and constructive dialogue with him over the next period, as the energy discussions move forward.
As far as his question is concerned, I say gently that last year had the highest-ever number of days that were powered completely by renewable energy—more than 80 days—so his concern about particular days being powered by mainly non-renewable power should be set against that overall trajectory, which will continue, particularly with the results of AR7 that have just come out today.
Net Zero: Civil Society and Faith-based Organisations
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The Lord Bishop of Norwich
To ask His Majesty’s Government what steps they are taking to include civil society and faith-based organisations in work to reach net zero emissions by 2050.
The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
Our recently published Energising Britain plan sets out how we will work with communities so that everyone can benefit from our clean energy superpower mission. It highlights how we are already engaging people and local organisations to design and deliver climate and nature policies that reflect people’s needs and views. The plan also outlines new ways to collaborate, including an annual “Energising Britain” event and the Youth for Climate and Nature panel.
The Lord Bishop of Norwich
My Lords, I thank the Minister for his reply. Gus Speth at Yale said that the real issue in reaching net zero is tackling “selfishness, greed and apathy”. Pope Francis called for an ecological “conversion”. Both civil society and faith-based organisations can provide thought leadership in this sphere. I wonder whether the Minister might share with us his thoughts on how we can build upon that in implementing the strategy that he has just outlined so that these groups can be more engaged in the ongoing dialogue about net zero.
Lord Whitehead (Lab)
The Energising Britain plan, among many other things, sets out ways in which local communities and faith groups can play a central role not just in the clean energy superpower mission but on the road to net zero. In my experience, working with local communities, covenants and faith groups in various parts of Southampton has proven a tremendous moral driver to that mission. I hope that the Energising Britain plan will take full account of just how much moral and practical leadership can come about as a result of energising those communities and local faith groups.
Lord McColl of Dulwich (Con)
My Lords, does the Minister agree that, as there is no scientific evidence that we can change the climate, the right reverend Prelate’s bishop friends are relying for their scientific information on supernatural powers?
Lord Whitehead (Lab)
The noble Lord will be pleased to know that I do not agree with anything that he has said this morning in this Chamber. It is absolutely clear that the science says that we have a severe problem as far as global warming is concerned, and we need to take action to deal with it. That is precisely what we are doing in government at the moment.
Baroness Winterton of Doncaster (Lab)
My Lords, there will be a number of civil society and faith-based organisations in the ex-mining areas of South Yorkshire. Does my noble friend the Minister agree that reaching out to them, perhaps through parish councils, would be an excellent way of explaining the benefits of net zero in creating local jobs? For example—he will not be surprised to hear this from me—Sheffield Forgemasters could play a role in manufacturing small modular reactors and other renewable equipment.
Lord Whitehead (Lab)
The question of how local communities, particularly those which have previously been involved in the high-carbon economy, can ensure that they are not left behind in the low-carbon economy is very important to us. The question of a just transition to net zero is also very important. My noble friend mentioned Sheffield Forgemasters, which is crucial to the local communities and the areas of Sheffield in which it resides. Ensuring that the content of future low-carbon energy projects is as high as possible within the UK, and preferably comes to those local industries, is an important part of that just transition.
Lord Bird (CB)
Does the Minister agree that getting rid of poverty would be one of the greatest ways of achieving net zero?
Lord Whitehead (Lab)
I completely agree with the noble Lord that getting to net zero is an ethical and—shall we say?—spiritual concept that involves justice in the process. Justice involves getting rid of poverty, among other things. But I remind the noble Lord that low-carbon activity—for example, cutting substantial money from people’s energy bills as a part of that process—is a substantial way of cutting poverty on the road to net zero.
Earl Russell (LD)
My Lords, three in four of our young people are moderately or extremely concerned about the impact of climate change. What action are the Government taking to include young people much more in decision-making processes to make sure that their voices are heard? Specifically, I ask the Minister: what intention do the Government have to have citizens’ assemblies so that young people’s voices are included in policy-making?
Lord Whitehead (Lab)
The noble Earl will be aware of the many actions that the Government are undertaking to ensure that young people are committed, involved and energised as far as climate change and net zero are concerned. That is among the reasons why we have developed the Youth for Climate and Nature panel, which is part of our Energising Britain plan. It is also the case that some of the highest commitment to the green transition to low-carbon energy is to be found among young people, and they therefore need to be fundamentally included at both the community and faith level in the work that we are doing.
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, notwithstanding the Minister’s original Answer referencing the Government’s Energising Britain plan, the Government’s shortened clean energy objective is disfiguring huge swathes of the countryside and alienating local communities. A 180-kilometre transmission line is being built from Norwich to Tilbury; Carmarthenshire residents have been locked in a battle with authorities over pylons for over two years; and most recently a new 71-acre substation is being proposed in north Cumbria despite opposition from locals. Given that by the time many of these projects are completed undergrounding cables will have become far more affordable—already, comparative costs for undergrounding have plummeted from 10 to four times that of overgrounding—does the Minister believe that this approach is the best way to win the support of rural communities for net zero?
Lord Whitehead (Lab)
The noble Baroness will be well aware of the tremendous amount of work that needs to be done on the infrastructure changes to bring about net-zero energy for the future. Of course, that entails bringing forward new infrastructure—which, by the way, the previous Administration completely fell down on in terms of the green transition—but that needs to be done, in terms of the theme of our discussion today, with the involvement of local communities and local areas in getting that new infrastructure in place in a satisfactory way. The question of undergrounding or otherwise of cables for the future is something that clearly needs to be considered, as does the overall benefit of that new infrastructure for those communities in terms of bringing their bills down, bringing clean energy to their communities and making sure that the green transition is carried forward as best as possible at local level.
Lord Spellar (Lab)
I commend the Minister for his favourable mention of government/publicly owned Sheffield Forgemasters and its role in the small modular reactor programme. Could he therefore reassure the House that the vessels for the first-in-class modular reactors, which we are funding through Rolls-Royce, will in fact be built at Sheffield Forgemasters and not shipped in from overseas?
Lord Whitehead (Lab)
As I think my noble friend will be aware, we are in the process of developing a first modular nuclear reactor with Rolls-Royce. Considerable progress has been made in that development but as yet no decisions have been taken about exactly where the components of that new modular reactor will be built, subject to the general commitment that the highest possible percentage of the components for small nuclear reactors, and other parts of the nuclear programme, will be sourced in the UK. Certainly, it will be the Government’s intention to make sure that that commitment is met to the greatest possible degree.
Heat Networks (Market Framework) (Great Britain) (Amendment) Regulations 2025
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Lord Whitehead
That the draft Regulations laid before the House on 30 October and 24 November be approved.
Considered in Grand Committee on 15 December.
Heat Networks (Market Framework) (Great Britain) (Amendment) Regulations 2025
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Lord Whitehead
That the Grand Committee do consider the Heat Networks (Market Framework) (Great Britain) (Amendment) Regulations.
The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
My Lords, these draft regulations were laid before the House on 30 October.
Heat networks have a crucial role to play in our decarbonisation ambitions and energy security mission. As proven internationally, they can provide low-cost, low-carbon energy for all, particularly in high-density areas such as our major cities. They are one of the most versatile forms of renewable energy, as they can access heat from a variety of sources, including waste heat from growth sectors such as AI. This potential has fuelled government ambition. By 2050, we aim to grow heat networks from the current 3% of the UK’s heat demand to around 20%.
However, the growth of this sector depends on consumer trust, underpinned by good regulatory foundations. That means we must deliver a fair deal for the nearly half a million households that already rely on a heat network. The current lack of regulation means that many people are experiencing poor customer service, with unreliable heating and a lack of clarity on what makes up a bill. This cannot continue. That is why, for the first time, we are establishing a regulated market framework to protect heat network consumers that supports the case for sector growth.
Earlier this year, when this House approved the Heat Networks (Market Framework) (Great Britain) Regulations 2025, we paved the way for consumers on a heat network to receive protections comparable to those in gas and electricity markets. The powers for the Secretary of State to introduce these regulations were provided by the Energy Act 2023. They will apply across Great Britain. We have also consulted the Scottish Government, as per Section 220 of the Energy Act. I thank them for their support in this matter. These regulations do not apply to Northern Ireland; the Northern Ireland Executive have their own powers to introduce regulation.
The regulations made in March introduced the authorisation regime. This will work in a similar way to the domestic gas and electricity licensing regime. From regulatory commencement, Ofgem will have the powers to investigate and take action in cases of unfair pricing, establish protections for vulnerable customers and require suppliers to put in place robust complaints-handling processes. It will also be a requirement on heat network suppliers to treat their customers fairly. This instrument is therefore the last piece of the puzzle that will enable this market framework to go live from 27 January.
The instrument simply builds on previous regulations by introducing amendments that will expand the authorisation regime that Ofgem will implement. The changes include the provision of powers to Ofgem to assist with the conduct of pricing investigations, which will be essential to protect customers from unfair, high and opaque prices. It will also introduce deemed contracts to ensure that the rights of households and their supply of heat are protected even when no formal contract is in place.
Noble Lords may also note that this statutory instrument includes provisions to protect consumers if a heat network becomes insolvent. A special administration regime, or SAR, will seek to ensure that customers do not experience interruptions to their supply of heating and hot water in the event of a heat network operator or supplier insolvency. The rules for this will be set out in separate statutory instruments that will be put forward to this House in future.
The instrument also makes it clear that air conditioning systems will be explicitly excluded from the scope of these regulations, as we believe that including them would not be proportionate or in the interests of consumers, and air conditioning systems normally stand aside from the heat network itself.
In addition to the above, these amendments include provisions to partially revoke parts of the Heat Network (Metering and Billing) Regulations 2014. This is designed to avoid duplication in legislation, as there are some existing requirements and obligations on heat supplies in the metering and billing regulations that will now be streamlined rather than entirely removed.
Finally, these amendments make changes to the scope of the Energy Ombudsman scheme. The addition of small businesses aims to align the scope for heat networks with the scheme’s application in gas and electricity markets.
I wish to make noble Lords aware, by the way, that there is a slight error in Regulation 10, which would have the effect of applying a different definition for a micro-business from that in gas and electricity markets. Officials will ensure that this error is rectified as soon as possible through the medium of a negative statutory instrument in the very near future.
We have committed to maintain minimum technical standards, which will be a key part of the market framework, and we aim to consult on proposals shortly. However, to be clear, these are not in scope of this statutory instrument and draft regulations will be brought forward to this House in due course.
I understand that four public consultations dating back to February 2020 have informed these regulations, which have helped the department to develop the final market regulation proposals. The detailed Ofgem authorisation conditions and associated guidance are still being consulted on and will be published before the authorisation regime commences on 27 January 2026.
In conclusion, this instrument and the one made in March will enable the Government to do what has never been done before, as we introduce regulation to the heat network sector. The only way to realise the Government’s growth ambition for heat networks is to ensure that customers can trust heat networks to provide safe, reliable and cost-effective heat. These regulations therefore represent a huge step forward, providing heat network consumers with much-needed protection similar to that in other utility markets that already exist. We must get on with the job and introduce the final elements of the market framework that will not only help to drive up consumer standards in this sector but help to promote market growth. I beg to move.
Baroness Bennett of Manor Castle (GP)
My Lords, I thank the Minister for his clear and comprehensive introduction to this SI and I welcome the fact that we are getting this long-overdue regulatory framework for heat networks. I agree with him that they are an important part of our energy future. Based on renewable and low-carbon emissions, they can give people reliable, secure energy supplies to meet their heating needs.
My questions are based on a report from Citizens Advice in July this year, titled System Critical: No Margin for Error in New Heat Network Rules. That “no margin for error” is why we are here interrogating this. As that reports outlines, and as the Minister said, since the rising price of gas after Russia’s invasion of Ukraine, we have seen serious problems in this sector.
My first question relates to what the Minister said about regulatory commencement on 27 January. The report says that Ofgem
“must outline the standards expected”
from providers, how it will act
“to improve systems and processes”,
and how it will deal with some of the terrible behaviour we have seen from some of the providers. Given that 27 January is not far away at all, my question to the Minister is: how prepared is Ofgem to act on this? We will of course already be in the middle of winter and people will already be accruing bills, which will be a real issue.
My other question relates to my personal experiences, particularly with Camden council estates. We know that many heat networks were installed in the 1960s and 1970s and have lots of problems, including that they are not controllable. People find themselves being heated even when they do not wish to be heated. There are real problems with controls, systems, leakage and all those kinds of issues. I am interested in the Minister’s view of how those issues will be addressed under this framework.
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, I thank the Minister for setting out the purposes of these regulations. We welcome them, so I shall not overburden him with questions beyond those already asked by previous speakers. It is somewhat frustrating that I did not spot the error in the amendments to Regulation 56 in the current Regulation 10; I must do better. These measures represent another step towards the full regulatory framework for heat networks that consumers have waited too long to see. From January 2026, the full authorisation regime and the special administration powers are due to come into effect—a significant milestone that we welcome wholeheartedly.
As the Minister said, we must be clear about the situation facing many people with heat networks. Years of unregulated, decentralised heating have left households paying high and unpredictable costs, receiving confusing bills and unable to switch supplier or seek meaningful redress. Citizens Advice has warned that, for some, bills have doubled or even tripled, which is simply untenable.
Therefore, while we support these regulations, their success will depend entirely on effective implementation. A framework on paper is not enough; consumers need enforceable, practical protections. As the noble Baroness, Lady Bennett of Manor Castle, rightly identified, it is essential that Ofgem is fully prepared and properly resourced to take on its new responsibilities from 27 January. It must be able to intervene when prices are unfair, when service standards fall short and when vulnerable households are at risk of disconnection. Clear complaints processes must be in place, and operators must be held to account. Like the noble Earl, Lord Russell, I would be grateful if the Minister can provide assurances today that Ofgem will be ready from day one, with no gaps or uncertainty for existing heat networks customers.
The introduction of a special administrative regime is similarly welcome. But, again, the test will be in its delivery. Consumers must have confidence that, should a provider fail, essential heating will continue uninterrupted, particularly for households in the winter months. The demand and use of heat networks will continue to play an increasingly important role in our energy system, and it is vital that this regulatory framework is implemented swiftly and effectively. Consumers must be able to rely on heat that is affordable, transparent and properly overseen. Without that assurance, the sector will not expand at the scale required.
These regulations take us closer to a regime that commands consumer confidence; the task now is to ensure that the protections set out in the Energy Act are delivered in practice for the half a million households that depend on these networks.
Lord Whitehead (Lab)
I thank noble Lords for their valuable contributions to this debate. A number of them go to the heart of why we are doing what we are doing today: the question of the state of many of the older heat networks that exist in this country. They are very far from the sorts of standards that we would expect to bring forward in new heat networks, and they have often operated with very sub-optimal arrangements for many years, to the considerable detriment of customers.
Therefore, the regulatory regime that we are introducing should give an enormous amount of succour to those who have suffered under those heat networks over a long period. As mentioned by the noble Baroness, Lady Bennett, there are heat networks from the 1960s and the 1970s which simply have not updated what they do, and they will be held accountable for what they do in these networks by the new regime under Ofgem. Ofgem can introduce fines for the systems if they are found wanting and, as a measure of last resort, can ensure that those networks are transferred to the running of another organisation entirely.
The noble Baroness, Lady Bennett, also mentioned the report encompassing a number of these issues from Citizens Advice, and that is why its work as a consumer champion is so important. I can assure the noble Baroness that Ofgem will be ready for regulatory commitments. It has raised no questions about its capacity to introduce these regulations and to make sure that they work to maximum capacity from day one. Ofgem will, however, take action such as collecting pricing data and various other things to refine how the regulations may work over the early period of their operation.
I can assure the noble Baroness, Lady Bloomfield, and the noble Earl, Lord Russell, and all the noble Lords who raised concerns, that Ofgem will therefore be ready for regulatory commencement. Ofgem will be publishing what methodology will be used to determine reasonable pricing. This has recently been consulted on by Ofgem. However, the exact benchmark of what is considered fair pricing will not be published first, so that heat networks do not move their prices to the top of that benchmark.
Overall, therefore, I assure noble Lords that the scheme will work to the best of its design and ability from the word go and will properly encompass all the many and varied types of heat network we have in operation, with a view to bringing them all up to the same standard, rather than down to the same standard, for the future. Indeed, the instrument simply builds on previous regulations by introducing amendments that will expand the authorisation regime that Ofgem will implement. We have also heard mention of deemed contracts, which will be in place to ensure that the rights of households and their supply of heat are protected, even when there is no formal contract in place.
I am sure noble Lords will want to join me in thanking the District Energy Association heat authority, which tried to put a voluntary system into operation to secure compliance and uprating of systems. That has worked for 10 years. In itself, it has worked very well, but it encompasses only part of the heat network arena. This will cover everybody, so it will be a great step forward in that respect.
On the question of consultation, I understand that the four public consultations that have already taken place, dating back to February 2020, have informed the regulations, but the detailed Ofgem authorisation conditions and associated guidance are still being consulted on and will certainly be published before the authorisation regime commences on 27 January.
In conclusion, I consider that these regulations, which will include the most vulnerable, will now make sure that pretty much everybody enjoys statutory protections. Heat networks are indeed the future, and we must do everything we can to support their growth and instil confidence in that growth as it takes place. Sound and proportionate regulation is therefore central to delivering this and I beg to move.
Baroness Bennett of Manor Castle (GP)
One of the responses provided by the Minister provoked a question in my mind; at this point, I should perhaps declare that I am a vice-president of the Local Government Association.
The Minister said that there would be fines for systems—we were talking in particular about those long pre-existing, 1960s and 1970s-type systems—and that they could potentially be transferred to another authority. Of course, many of these systems will be owned and run by either councils or arm’s-length organisations that used to be owned by councils or housing associations. I will understand if the Minister wants to write to me, but are the Government considering the fact that many of these will not be commercial providers?
Lord Whitehead (Lab)
The noble Baroness makes a good point in relation to what are, as I have said, a huge number of systems of very different quality and status. Making regulations in respect of those sorts of bodies is very difficult, because they are all mini electricity or gas networks in their own right; indeed, they are mini networks that could fall by the wayside if they are regulated in a way that is not sympathetic to their particular arrangements. Noble Lords can see, I think, that these arrangements do not exactly coincide with what is in the existing gas and electricity sectors, but do try to take account of those particular circumstances.
Within that, there is a serious bottom line: these bodies must provide good value for their customers, provide good levels of redress and ensure that they are operating to the best of their capacity. Those are the sorts of things that Ofgem will ensure are looked at and regulated properly, with an eye on the fact that heat networks are not in the same position as electricity and gas networks. That bottom line is there in these regulations and should not be set aside easily. Otherwise, Ofgem will certainly be doing the business of ensuring that those bodies work properly.
I think there is nothing further for me to say, other than that I commend these regulations to the Committee. I hope, by the way, that what I have said this afternoon satisfies the noble Baroness, Lady Bennett, as far as her question is concerned; if she has any further concerns, I will be happy to write to her.
Oil and Gas Authority (Carbon Storage and Offshore Petroleum) (Specified Periods for Disclosure of Protected Material) Regulations 2026
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Lord Whitehead
That the Grand Committee do consider the Oil and Gas Authority (Carbon Storage and Offshore Petroleum) (Specified Periods for Disclosure of Protected Material) Regulations 2026.
The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
My Lords, these technical regulations were laid before the
As set out in the Energy Act 2023, carbon storage licensees are responsible for complying with various obligations, including the reporting of information and samples obtained through the conduct of licensee authorities to the NSTA. We believe that the wealth of data that carbon storage licensees gather during exploration or storage activities is a national resource and its publication will accelerate the deployment of CCS in the UK. That is why we introduced the Oil and Gas Authority (Carbon Storage) (Retention of Information and Samples) Regulations 2025, which came into force in May 2025. These regulations specify the types of information and samples that carbon storage licensees must retain and the periods for which they must retain them.
The regulations we debate today set out when the NSTA can publicly disclose carbon storage information and samples provided to it by carbon storage licensees, and which types of information and samples may be disclosed. They also amend when the NSTA can publicly disclose information on the drilling or operation of wells under offshore petroleum licences. The timeframe for this was set out in the Oil and Gas Authority (Offshore Petroleum) (Disclosure of Protected Material after Specified Periods) Regulations 2018—try saying that in one breath—and this amendment to the 2018 regulations will bring the NSTA disclosure powers across CCUS and offshore petroleum into alignment.
Information and samples play a very significant role in the UK carbon dioxide storage industry, and access to high-quality data for the NSTA, industry, academia and the public will enable efficient use of the UK’s storage potential. The carbon storage information and samples published will support sharing of knowledge and lessons learned, including best practices and innovation, ultimately leading to cost reductions and advancement of the sector. This includes accelerating the North Sea energy transition. The NSTA helps drive this transition by realising the significant potential of the UK continental shelf as a critical energy and carbon-abatement resource. These regulations will further provide opportunities for the industries based offshore, with the very significant potential that exists for storing carbon dioxide in depleted oil and gas fields and other geological formations in the UK continental shelf.
The NSTA has consulted on both the carbon storage and offshore petroleum aspects of these regulations. The consultation on the amendment of well data confidentiality closed in September 2022 and a response was published in February 2023. The consultation on the proposed regulations for the disclosure of carbon storage information and samples closed in April 2024. That consultation will ensure that the regulations are effectively introduced. A response was published in October 2025. This means that the feedback received from those consultations was positive and has been carefully considered in shaping these regulations to ensure that they reflect industry needs and best practice.
CCS is not optional; it is essential for Britain’s energy security and industrial competitiveness, and for our clean-power future. These regulations may be technical, but their impact is profound. They unlock a wealth of data that will accelerate deployment, drive innovation and maximise the UK’s carbon storage potential. This is about making Britain a clean energy superpower, safeguarding jobs, securing investment and delivering net zero in a way that strengthens our economy. I urge the Committee to approve these regulations without delay.
The regulations reflect extensive consultation and positive engagement with industry and stakeholders. They are practical, robust and future-focused, designed to ensure that the UK remains at the forefront of clean energy technology. This is about more than disclosure; it is about delivering on our net-zero commitments, safeguarding energy security and creating opportunities for growth and jobs in the industries of tomorrow. I beg to move.
Lord Hunt of Kings Heath (Lab)
My Lords, I very much welcome the regulations and totally agree with my noble friend about the importance of CCUS to meeting our net-zero targets. Only a few weeks ago, the Whitehead review made the same point about GGRs: you cannot achieve net zero without this. I look forward to my noble friend responding to the Whitehead review and no doubt accepting all its recommendations.
These regulations seem to fall within what the review said about regulation. Certainly, I very much agree that this is an important element for market investment and certainty. Paragraph 5.4 of the Explanatory Memorandum says that the UK continental shelf holds
“an estimated 78 billion tonnes of theoretical CO2 storage capacity”.
Clearly, there is huge potential for the UK. The Explanatory Memorandum mentions that, potentially, there are many countries that we could reach agreement with for storage in the UK continental shelf. So, can my noble friend tell the Committee the extent to which we are now in discussion with some of our European neighbours about the huge potential of storage in the North Sea?
Lord Whitehead (Lab)
I thank noble Lords for their valuable contributions to this debate. I will briefly try to address some of the important points made. First, perhaps I ought to knock on the head the possible suggestion from my noble friend Lord Hunt that I will be marking my own homework when it comes to the review I undertook a little while ago of greenhouse gas removals. I can assure him that others in the department will be doing that, not me. Although I hope that they will take on board the things that are in the review, it is entirely up to them and not me to do so. But I reflect that that report, among other things, was very positive about the role that CCUS can play, particularly in developing our net-negative approach to net zero over the next period.
As the noble Lord mentioned, we ought to think for a moment about what an enormous asset we have in the North Sea as far as CCUS is concerned. An estimated 78 billion tonnes of theoretical CO2 storage capacity is distributed across the UK continental shelf, and that is one of the largest, if not the largest, potential CO2 storage capacity in Europe. Therefore, the UK has the opportunity to offer cross-border CO2 transport and storage services to neighbouring countries. We very much welcome interest from EU and EEA countries, and we are committed to exploring opportunities to overcome the regulatory barriers to cross-border CO2 transport and storage networks alongside neighbouring countries with common interests. Noble Lords will know what progress the Norwegians have been making in this area, so there is no time to lose with making this work as well as it can.
I thank the noble Earl, Lord Russell, for his questions. I appreciate the detail in his questions. In the interest of accuracy, I think it is best that I write to him, particularly in terms of the NSTA consultation. He will know that NSTA has already consulted very substantially on a number of these aspects, but it is true that some consultations are continuing. I cannot give the exact dates by which they will be concluded, but I am sure he will get a satisfactory answer when I send him a letter to that effect.
The noble Baroness, Lady Bloomfield, asked about investor confidence in CCUS. This is something we are taking seriously. A lot of this should have been underpinned by what has been happening with the track one cluster investments in CCUS. Very large amounts of money have been committed over the next 25 years to making those investments work fully. Therefore, from the UK Government’s point of view and an investor point of view, both sides should be completely clear that the UK is deadly serious about this. We are prepared to make the long-term investments and have the long-term infrastructure underpinning it to make the whole enterprise as successful as it can be in terms of the emergency we have in front of us for carbon capture and storage.
CCUS will complement our transition to home-grown clean energy. It will safeguard our energy security, and it will decarbonise power and industry in a way that drives growth. It is recognised as a core sector within our industrial strategy, which backs clean energy industries as a priority growth sector and is central to delivering our growth mission. I have mentioned that key to that is ensuring investor certainty in the process as it develops.
I will conclude by reaffirming that these regulations are not just a technical adjustment—very technical though they appear. They are essentially a strategic enabler for the UK’s energy transition. By providing both the public information and some investor security and clarity as the regulations come forth, I think we have got the right balance in making this happen as far as these regulations are concerned.
The Oil and Gas Authority (Carbon Storage and Offshore Petroleum) (Specified Periods for Disclosure of Protected Material) Regulations 2026 will unlock critical data, strengthen transparency and accelerate the development and deployment of carbon capture, usage and storage across the UK continental shelf. These regulations, as I have underlined, reflect extensive consultation and positive engagement with industry and stakeholders. They are practical, robust, future focused and designed to ensure that the UK remains at the forefront of clean energy technologies.
Drax
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The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
I have read the report to which the noble Baroness refers with interest, and there are questions both for Drax and for the authors of the report. Compliance with biomass sustainability requirements under Drax’s existing subsidy arrangement is a matter for Ofgem, but we work closely with it to ensure that these arrangements remain fit for purpose. Ofgem’s detailed investigation into Drax in 2024 did not find evidence that unsustainable biomass had been used by Drax, but shortcomings in data governance were identified and Ofgem has required Drax to commission a global supply chain audit, which is currently ongoing.
Baroness Jones of Moulsecoomb (GP)
I thank the Minister for his reply, which goes a bit further than I expected. Drax specifically claims to stop sourcing from old-growth deferral areas and old-growth management areas in British Columbia, but the majority of old-growth forests fall outside those designations. Will the Minister and the Government suggest to Ofgem that it should not accept Drax’s definition of old growth and perhaps exclude the majority of British Columbia old-growth forests from subsidies?
Lord Whitehead (Lab)
There are two points to make in response to the noble Baroness. The report to which she refers talks only circumstantially about old-growth forests and not old-growth forests that are in any way directly sourced by Drax. As regards the new contract for difference for the next four years that the Government have entered into with Drax, the criterion is now 100% sustainability, which obviously excludes old-growth forests.
Baroness McIntosh of Pickering (Con)
My Lords, why is Drax sourcing sustainable wood from abroad when we now have a very intensive tree-planting growth policy in this country? Also, Yorkshire farmers would benefit if we were to go back to sourcing fast-growing willow coppice trees and miscanthus and sending them to Drax to use. Why did we stop doing that?
Lord Whitehead (Lab)
The noble Baroness will know that Drax is the largest single power producer in the UK and is responsible for about 5% of UK power. That means that it uses an enormous amount of biomass in its process, having converted from coal some while ago. The question, then, is where Drax gets its biomass from, bearing in mind that the amount of biomass that is being grown in this country falls far short of the desideratum in terms of sourcing—particularly in view of the length of time that it has taken to grow that biomass. Therefore, sourcing from abroad appears to make some sense, though not necessarily for the long-term future.
Baroness Young of Old Scone (Lab)
My Lords, the Minister’s own department is consulting on sustainability criteria for biomass as we speak, which will inform future subsidy eligibility and reporting requirements for the rest of the market. In addition, the Financial Conduct Authority is still investigating Drax’s biomass sourcing statements. What safeguards have been built into the new Drax contract that covers 2027-31? Will the results of these two inquiries produce changes to the terms of the recently signed Drax contract?
Lord Whitehead (Lab)
I cannot assure the noble Baroness that terms will be changed during the new contract. However, the LCCC will be responsible for making sure that the 100% sustainability criteria that have been entered into in the new contract will be strictly observed. That is a substantial step forward from the previous oversight arrangements.
Lord Birt (CB)
My Lords, the Minister appears to be completely unaware that “Panorama” proved conclusively two or three years ago that Drax does indeed burn old-growth forests. However, the new agreement that the Government have negotiated with Drax for 2027-31 will require Drax not to burn wood from primary or old-growth forests and to enhance the system for an independent audit to monitor compliance with that obligation. What will the sanctions be if Drax is non-compliant?
Lord Whitehead (Lab)
If Drax is non-compliant, the subsidy goes. There is no subsidy in the case of a non-compliant organisation of any kind. If that happens, it will be the end of Drax.
Earl Russell (LD)
My Lords, Drax is under investigation by the FCA regarding its past sustainability claims, which is no small matter. Despite that, the Government decided to put pen to paper to extend Drax’s contract. Why did the Government not choose to wait until the FCA investigation had concluded? What legal advice was taken and what risk assessment was made before the Government chose to extend that contract?
Lord Whitehead (Lab)
We did that because the conclusion of a contract for 2027-31 ensures that Drax continues to produce a very large amount of energy, which is very important for the country; that it does so under enhanced sustainability requirements; and that it moves from being a baseline producer to a dispatchable producer, with a top level of 27% of output within that contract. There is also the implied understanding that the contract will pave the way towards moving to CCS on the back of the contract, making Drax a net-negative producer in the long term.
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, in 2021, Drax was axed from the S&P green bond index over doubts that its practices were carbon neutral. That decision seemed to be endorsed by that famous “Panorama” programme. I bow to the noble Baroness, Lady Jones of Moulsecoomb, for her detailed knowledge of forestry, but it appears that Drax has been importing wood pellets from old-growth forests, even before accounting for the emissions caused by transporting the biomass here from abroad. Given that this is patently not a green company, does the Minister agree that the subsidies for 27% of Drax’s generation capacity are unwarranted and should be withdrawn? Further, if Drax is found to be non-compliant and closes down, does he also agree that the land and extensive grid connections could be better used in the Government’s SMR programme?
Lord Whitehead (Lab)
No, I do not agree that the various connections relating to Drax could be better used for an SMR programme, because of the particular location of Drax within the cluster in the north-east of the country, which is particularly important for carbon capture and storage, and, indeed, hydrogen. Drax plays a part in that process in that area. The noble Baroness perhaps ought to read the report that is before us very carefully, because it does not actually say that Drax has sourced old-forest timber. Timber is sourced from third parties, goes into the Drax pellet facility, and may or may not to Drax’s knowledge include old-forest material—which, by the way, is outlawed by the Government of British Columbia. There are a number of questions to answer, but not necessarily for Drax. There are a number of people who perhaps have questions to answer as well.
Lord Hunt of Kings Heath (Lab)
My Lords, on the subject of questions to be answered, does my noble friend not think it surprising that the noble Baroness, Lady Bloomfield, intervened, given that it was the party opposite—the Conservatives—that, in government, signed contracts with Drax? The scale of the subsidies as a result was very large indeed.
Lord Whitehead (Lab)
My noble friend makes a very sound point, in that the new contract that has been signed costs taxpayers half as much as the old contract did. It is on more sustainable terms and, as I have said, makes Drax move towards being a dispatchable plant, which is much more in line with the power grid generally, than any of the things that were done under the previous Administration.
Tropical Forest Forever Facility
Lord Whitehead Excerpts(1 month, 3 weeks ago)
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Baroness Sheehan
To ask His Majesty’s Government what contributions and initiatives they have undertaken in support of the Tropical Forest Forever Facility.
The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)
My Lords, the UK has had a long-standing role in protecting forests and supporting efforts to halt and reverse deforestation. While the Government did not announce an investment in the Tropical Forest Forever Facility at COP, we very much remain supportive of the TFFF and are proud to have substantially assisted Brazil to develop the initiative. We will continue to provide support to the TFFF, including through co-funding the World Bank trust fund that will operationalise the facility and through the AIM4Forests programme, which will provide critical technical assistance to support delivery of the TFFF.
Baroness Sheehan (LD)
My Lords, I welcome the Minister to his new role. It is deeply disappointing that the Government have let down historic allies such as Brazil, Norway and Germany by not investing in the Tropical Forest Forever Facility at COP 30. It is a desperately needed initiative to end tropical deforestation, and it has cross-party and public support. I have two questions for the Minister. First, why will the Treasury not count investment in the TFFF as an asset on its public balance sheet? Secondly, when will the Government implement the long-overdue Schedule 17 due diligence provisions under the Environment Act?
Lord Whitehead (Lab)
The decision on whether to invest in the TFFF, as it came up, following the intense work that the UK did in developing it with the Brazilian Government, was very much part of the question of our fiscal position around the time of the Budget. That does not mean that this is necessarily gone for ever; it will be under continuing review in the future. I will write to the noble Baroness on the implementation of the schedule that she alluded to, because I am not exactly sure of its status at present.
Lord Grayling (Con)
My Lords, I appreciate that the Minister may need to write to me too to answer my questions. In the autumn the Joint Intelligence Committee produced a report on the impact on the UK of global biodiversity loss, which the report is believed to say is very significant. Will the Minister please find out what has happened to that report? When will it be published? Will the Government continue to make clear that biodiversity loss, the loss of forests and global deforestation are damaging to us all?
Lord Whitehead (Lab)
I will indeed have to write to the noble Lord about where exactly that report is at the moment. I remind him that the UK is extremely active on its biodiversity arrangements, particularly its forestry and woodland arrangements. The target for the 16.5% coverage of woodland and forestry in England by 2050 is already being substantially adhered to: 21,000 hectares of new woodland were introduced last year, which is a generational record. The UK will continue to act in that manner on its biodiversity commitments.
Lord Grantchester (Lab)
My Lords, I pay tribute to our Secretary of State for DESNZ and his team for their dedication to keep attention on the climate agenda. Does my noble friend agree that, besides finance, the United Kingdom’s organisational support and commitment to encourage deeper participation from other nations are critical to realising effective change?
Lord Whitehead (Lab)
Yes, I agree with my noble friend. The UK continues to be one of the major donors to forest conservation and restoration, and we expect to deliver on the £1.5 billion of spending on forests pledged at COP 26. The UK is co-chair of the Forest & Climate Leaders’ Partnership, a coalition of more than 30 Governments working together to accelerate delivery of the goal to halt and reverse forest loss by 2030. This played an instrumental role in delivering key commitments for indigenous peoples and local communities —who are, after all, the best stewards of tropical forest development and protection—including a commitment that will regularise land tenure in 160 million hectares of forest, one of the most effective ways to protect forests. We also backed the Belém call for the Congo Basin, which will deepen forest protection in the world’s second-largest rainforest.
Lord Bellingham (Con)
My Lords, further to the noble Baroness’s Question, is the Minister aware that Ed Miliband said that the TFFF is a key game-changer in reversing the destruction of rainforests and that that is why the Government worked closely with the World Bank and with the Brazilian Government to get this in place? The Minister mentioned that the last Budget was a problem in terms of UK decision-making, but France had similar issues, as did Germany, Malaysia, Singapore and Norway—I could go on—but all those countries came up with hard cash to support this very worthy scheme. Was Ed Miliband overruled?
Lord Whitehead (Lab)
No. The particular circumstance surrounding the TFFF itself, as I am sure the noble Lord will be aware, was one of intense UK participation in the setting up of the TFFF. As the noble Lord mentions, we consider it to be an essential and significant initiative as far as the future of forests and biodiversity is concerned across the world. That is why we put so much effort into getting this off the ground and support the continued funding for the operationalisation of that fund. It is just that, at that particular moment, we were not able to produce some additional funding for the TFFF initiative. We very much welcome that other countries have initially put some in. As I have mentioned, it does not mean that the issue is gone and forgotten; it is under continuous review for the future.
Baroness Bloomfield of Hinton Waldrist (Con)
My Lords, this might as well have been considered a Defra Question, so I offer my sympathies to the Minister. But here we are, and I am always grateful to be able to ask a DESNZ question, my first to the new Minister. In the COP 30 Statement repeat last week and his initial response today, the Minister did not rule out contributing to the TFFF fund in the future. He may not have had the opportunity to read the letter entitled “Nuclear necessities” in yesterday’s Times, signed by 14 senior academics and luminaries in that industry. Given our country’s current economic situation and the need for large capital investment to meet the Government’s own green targets, can the Minister now rule out funding the TFFF and instead guarantee that future funding will, as the letter requests, prioritise re-establishing our critical domestic infrastructure, perhaps including a medical isotopes reactor and a thermal hydraulics facility—preferably in north Wales?
Lord Whitehead (Lab)
I very much welcome the noble Baroness to her new position on the Front Bench opposite, and I hope we will have constructive discussions in the future. She underlines the question of the different priorities that are ahead of us at the moment in terms of where to put money at particular junctures. I must admit that I am not a habitual reader of the Times, so the noble Baroness is one step ahead of me there, but I will have a good look at that letter. What she says underlines that at the moment this country has a huge number of sometimes not always well-anticipated demands on our funding—nuclear is one of them, and obviously defence is another—and that clearly has an effect on where you put money at particular points, however much your heart tells you that you would like to do so.
The Earl of Kinnoull (CB)
My Lords, the Minister mentioned earlier the tree planting that has been going on in the United Kingdom. Is he aware that the biggest threat to those trees reaching maturity and helping with the net-zero calculation is the grey squirrel? Can he give signs of the Government’s determination to deal with the grey squirrel problem and the main research in fertility control going on at the government laboratories at the Animal and Plant Health Agency?
Lord Whitehead (Lab)
I am not sure I can give the noble Earl the assurance that the Government will go out and shoot large numbers of grey squirrels in the near future. I accept that squirrels, deer and other similar animals are probably the biggest threat to what we plant as a woodland plantation and whether it actually gets to maturity in 50 years so that it can make its impact on reafforestation and carbon emissions reduction. That is one reason why the UK is concentrating its woodland afforestation and forest development efforts on managed plantation woodlands, so that the best protection is available within those woodlands from the sort of predation that the noble Earl mentions as a barrier to the development of mature woodlands and forests.