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					The Climate Change Bill




Submission by British Energy Group plc
June 2007




                                             sixth in
     the British Energy series of seminars
Draft Climate Change Bill                                Submission by British Energy Group


                           Draft Climate Change Bill
                     Submission by British Energy Group plc
British Energy welcomes the opportunity to contribute its views to this Consultation into the
Draft Climate Change Bill. The issues in question are of great significance to the public as
well as many UK business sectors today and in the long term.

British Energy is the UK’s largest electricity generator. We own and operate the country’s
eight most modern nuclear power stations, one coal-fired power station, four small gas plants
and we also hope to develop two large wind generation projects. Our fleet of nuclear stations
make the largest single contribution to tackling climate change in the UK. Carbon emissions
from our coal plant are subject to the constraints of the EU Emissions Trading scheme.

We have engaged fully in the climate change policy debate over the years and have responded
to many significant consultations and inquiries, most recently the Stern Review, Energy
Review, and the EAC’s inquiries into nuclear, renewables and Climate Change and Beyond
Stern. Our Submissions to these can be found on our website (www.british-energy.com).


(I) Summary key points

•   It is important that there should be interim targets at 2020, 2030 and 2040 to create
    the certainty and confidence needed to stimulate long-term, low-carbon investment
    decisions that will help meet the 2050 target.

•   Targets have a clear purpose, but critically, it is the choice and deployment of
    instruments that will deliver emission reductions. Careful consideration should be
    given to match the most appropriate instrument to the sector or activity in order to
    deliver the optimal overall result without causing undue congestion in policy ‘space’.

•   The UK should establish a CO2 target. However, if Government chooses a
    greenhouse gas target, this should be clearly broken down into, for example, CO2 and
    non-CO2 gases to provide practical data and guidance to those responsible for
    emissions.

•   It is important that the Government’s review process should not undermine the
    targets or instruments, and the resultant carbon price, since this would serve to
    weaken the certainty industry needs for its investments.

•   Regardless of progress against the carbon target, ‘keeping the lights on’ will remain a
    fundamental requirement for everyone in the UK. Therefore, Government should
    identify and implement policies which satisfy both climate change and security-of-
    supply criteria.

•   The Climate Change Committee should take the form of a high-prestige, robustly
    independent ‘Board’, expert in the science, technology and economics, and able to
    scrutinise the fundamentals rather than the minute details of Government policy.

•   It should be for Government to report to Parliament on progress against the carbon
    budget and this report should be the subject of a published review by the Climate
    Change Committee.




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Draft Climate Change Bill                                  Submission by British Energy Group


(II) Detailed Comments


Targets and Budgets

Setting statutory targets

Question 1 - Is the Government right to set unilaterally a long-term legal target for
reducing CO2 emissions through domestic and international action by 60% by 2050
and a further interim legal target for 2020 of 26-32%?

1. Climate change poses an unprecedented global threat and indeed recent analysis suggests
   the target for reducing carbon emissions by 60% by 2050 may not go far enough to avoid a
   rise in global temperature by the 2 degrees C that is thought may bring on the more
   dangerous consequences of global warming. The Stern Review also suggests that delaying
   action to reduce emissions simply leads to an increase in the cost and difficulty of
   achieving the same level of reductions at a future date.

2. We believe the UK needs to take strong domestic action to reduce carbon dioxide (CO2)
   emissions and to do so effectively, it is right for Government to set a long term objective
   with an interim target. However, in order to create the necessary certainty and confidence
   required to stimulate long-term investment decisions, further interim targets at 2030 and
   2040 would be appropriate.

3. One of the issues politicians should be looking to resolve is how to achieve a framework
   for target-setting between Westminster and the devolved administrations which is mutually
   consistent both in terms of ambition and timescales.

4. Looking beyond the UK, it is clearly important that other countries are encouraged to set
   ambitious objectives of their own and there is a pressing need for a framework to establish
   targets beyond the boundaries of the EU. However, by taking action unilaterally, UK
   Government has the opportunity to send a strong political message both domestically and
   overseas about its conviction on the urgency and importance of the issue. Such a
   demonstration of leadership may be helpful in galvanising international co-operation.

5. This approach also provides a statement of intent which will be essential in preparing both
   business and the public for the changing world that lies ahead. However, we note that the
   Draft Bill proposes giving Government considerable scope to review the targets on various
   grounds including the ‘risks of acting unilaterally’. It is suggested that the 5 yearly
   budgets may be amended to ensure environmental goals are being achieved in a
   ‘proportionate way’. These caveats would appear to undermine the initial target somewhat
   and weaken the certainty industry needs for its investments.

6. Targets have a clear purpose, but critically, it is the choice and deployment of instruments
    that will deliver emission reductions. Careful consideration should be given to match the
    most appropriate instrument to the sector or activity in order to deliver the optimal overall
    result without causing undue congestion in policy ‘space’.




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Draft Climate Change Bill                                      Submission by British Energy Group


Question 2 - Is the Government right to keep under review the question of moving to a
broader system of greenhouse gas targets and budgets, and to maintain the focus at
this stage on CO2?

7. To date the UK has made good progress in reducing the greenhouse gases (GHGs) other
   than CO2. However, to a large extent these reductions could be described as the ‘low-
   hanging fruit’: CO2 currently represents about 85% of GHGs in the UK and to make real
   progress towards the proposed 2020 target, it is evident that CO2 must now be made the
   primary focus of efforts. We therefore believe the UK should establish a CO2 target.
   However, if Government were to opt for a GHG target then this should be broken down
   clearly into CO2 and non-CO2 gases to provide practical data and guidance to those
   responsible for the emissions.


Carbon budgeting

Question 3 - Should the UK move to a system of carbon management based upon
statutory five-year carbon budgets set in secondary legislation?

8. The five year cycle of budgets seems a sensible way of breaking down the challenging
   long term targets into manageable steps. It is important that there is a limited degree of
   variability within the budget period to accommodate unexpected external events without
   allowing too much ‘slack’. However, it is important to understand the budget does not in
   itself constitute a ‘system of carbon management’. This will only be established when the
   instruments needed to deliver the carbon reductions have been put into place.

9. Annual targets would not be practicable: a 12 month period would be too short to allow for
   exogenous effects such as the impact of fuel price spikes or severe weather conditions.
   Such peaks and troughs could however be expected to even out over the course of a five
   year period.

10. We support the proposal that Government should be able to set the budget without
    recourse to primary legislation

Question 4 - Do you agree there should be at least three budget periods in statute at
any one time?

11. This is a critical issue for business. It is vital for potential investors in the electricity sector
    to have certainty and transparency about the required level of carbon emission reduction
    over a significant period as this is likely to be critical to the viability of low-carbon plant.
    Given that investment in generating plant can span more than a 40 year period in some
    cases, it is important in terms of investor confidence that additional interim targets are set
    at 2030 and 2040.


Reviewing targets and budgets
.
Question 5 - Do you agree there should be a power to review targets through
secondary legislation, to ensure there is sufficient flexibility in the system?




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Draft Climate Change Bill                                 Submission by British Energy Group


12. It would be sensible to allow for review of the targets in light of significant advances in
    scientific knowledge and in the event of international developments. However, other
    caveats in the draft Bill e.g. ‘risks of acting unilaterally’ and the need to ensure
    environmental goals are met in a ‘proportionate’ way would appear to offer significant
    latitude for interpretation.

13. The consultation paper states that targets would only be reviewed where there was a
    significant change of circumstance and that there should only be a review after open
    advice from the Committee on Climate Change. This is a clear illustration of why it is
    essential that the Committee is seen to be independent of Government.

14. If review of targets via secondary legislation is to be justified, the precise criteria for
    allowing such a review should be set out unambiguously in the Bill.

Question 6 - Are there any factors in addition to, or instead of, those already set out
that should enable a review of targets and budgets?

15. The impact on maintaining security-of-supply is an obvious consideration that should be
    taken into account because regardless of progress against the carbon target ‘keeping the
    lights on’ will continue to be an absolutely fundamental requirement for everyone in the
    UK. The logical time to take account of security of supply implications is upfront at the
    point when targets are set. Government should seek to identify policies which satisfy both
    security-of-supply and climate change criteria.

16. Government must recognise that reviewing targets will risk the creation of stranded assets
    with consequences for those investing in new technology. It should also be acknowledged
    that such decisions would have a highly detrimental effect on subsequent investor
    confidence.

17. It is important that the Government’s review process should not undermine the targets or
    instruments, and the resultant carbon price, since this would serve to weaken the certainty
    industry needs for its investments.


Counting overseas credits towards the budgets and targets

Question 7 - Do you agree that, in line with the analysis in the Stern Review and with
the operation of the Kyoto Protocol and EU ETS, effort purchased by the UK from
other countries should be eligible in contributing towards UK emissions reductions,
within the limits set under international law?

18. Yes, allowing some level of overseas credit would appear to be a practical option, not least
    because of engagement with, and involvement of developing countries on this important
    issue. However, we are concerned about the possible impact on momentum to reduce
    emissions domestically. The UK has an opportunity to demonstrate leadership on this
    issue and to do so with credibility it will need to maintain a strong focus on domestic
    action.

19. If the focus over the next 5-10 years were predominantly on overseas credits, there could
    be serious implications in terms of lock-in domestically, i.e. where investment in
    electricity generating plant with an operating life of many decades is done without
    emphasis on reducing carbon emissions.




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Draft Climate Change Bill                                   Submission by British Energy Group


Banking

Question 8 - Do you agree it should be permissible to carry over any surplus in the
budget? Are there any specific circumstances where you consider this provision should
be withdrawn?

20. Whatever mechanism is put in place the fundamental point is that it must not have the
    potential to undermine the targets.

21. In the event of a surplus, the first question should be whether the target set was too low
    and consideration should be given to tightening it – if this can be justified on cost benefit
    grounds. It would be the wrong signal entirely to take the foot off the gas – particularly
    when the adequacy of the 60% target is now being questioned.

22. However, a limited amount of banking is acceptable and it would be perverse to penalise
    early action.

23. In practice, banking occurs within the EU’s Emissions Trading Scheme (EUETS) so it
    would be contradictory to prevent similar degree of flexibility in carbon budgeting not
    least because EUETS could be used to meet the budget.


Borrowing

Question 9 - Do you agree that limited borrowing between budget periods should be
allowed?

24. This is probably a pragmatic necessity - for example resolving a short term threat to
    security of supply could require there to be some flexibility in the system - but the effect of
    borrowing should not be cumulative. A limit of 1% seems reasonable provided that the
    figure is not allowed to slip upwards subsequently.

25. Whatever mechanism is applied it must not have the potential to undermine the target.

26. The independence of the Committee on climate change would have to be seen to be robust
    given the Committee’s key role in approving the borrowing.


Compliance with carbon budgets and targets

Question 10 - Is it right that the Government should have a legal duty to stay within
the limits of its carbon budgets?

27. Yes. This is a positive step in indicating a long-term commitment by Government to
    address this important issue. However, the ‘penalty’ for failure to meet the legal duty
    needs to be determined and made transparent to all stakeholders.




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Draft Climate Change Bill                                 Submission by British Energy Group


The need for an independent analytical organisation

Question 11 - Do you agree that establishing an independent body will improve the
institutional framework for managing carbon in the economy?
28. Yes. This is an important mechanism for achieving broad political and public support.
    However, we would favour a small high–prestige ‘Board’ scrutinising Government policy
    rather than the creation of an unwieldy office which duplicated work undertaken by the
    various government departments.


Functions of the Committee on Climate Change

Question 12 - Do you agree that the Committee on Climate Change should have an
advisory function regarding the pathway to 2050?

29. The benefits of the Committee would be in providing an overview and fulfilling a
    scrutinising role. It is important to have an independent expert body providing advice and
    continuity to span the changes of Government on the road to 2050.

30. It would be essential for the Committee to have good access to current scientific research
    and analysis to maintain an understanding of the pathway to 2050 and the changing
    technical and economic capabilities and barriers along the way.

31. However, it is also essential that Government has strong internal expertise within
    Whitehall to ensure informed interaction with the Committee.

Question 13 - Do you agree with the proposal that the Committee on Climate Change
should have a strongly analytical role?

32. It should be for Government officials to underpin progress at the detailed level going
    forward. We would see the Climate Change Committee providing high level review and
    scrutiny rather than having a strongly analytical role.


Factors for the Committee on Climate Change to consider

Question 14 - Are these the right factors for the Committee on Climate Change to take
into account in assessing the emissions reduction pathway? Do you consider there are
further factors that the Committee should take into account?

33. The range of factors covered in the Consultation implies a very large structure and breadth
    of policy expertise – science, engineering, social policy, fiscal, and environmental, and
    developments in the EU and elsewhere. It is difficult to imagine a satisfactory process
    whereby such a wide-ranging and diverse group could reach satisfactory collective
    conclusions.




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Draft Climate Change Bill                                  Submission by British Energy Group


Membership and composition

Question 15 - Do you agree the Committee on Climate Change should be comprised of
technical experts rather than representatives of stakeholder groups?

34. We would agree that members should be technical experts rather than representatives of
    stakeholder groups; however, it is important that the Committee feels able to draw upon
    the extensive expertise within stakeholder groups as and when appropriate.

35. The Committee will need to develop a collegiate approach. It is important that the
    appointed experts should have sufficient breadth of knowledge and experience to enable
    them to take a view on relevant issues outwith their particular specialism.

Question 16 - Are these the appropriate areas of expertise which should be
considered? Do you consider there are further areas that should be considered or any
areas that are less important?

36. The range of expertise is too broad. For example, it is unclear why this group need to
    consider social issues or the international scene more than it would do naturally through its
    climate change expertise. Beyond that, technology should be interpreted as part of the
    energy policy expertise.

37. The Committee should take a high level view of the issues. We do not believe there is a
    case for establishing the Committee with a remit to ‘drill down’ into the detail of policy.
    This approach would simply encourage duplication of work and over-bureaucracy.

38. Whilst the list of expertise is too long, it is notable that Adaptation is not included. We
    would presume this is because the intention is to deal with this important issue separately
    and we would support this.


Enabling Powers

Extending the suite of domestic trading schemes

Question 17 - Do you agree with the principle of taking enabling powers to introduce
new trading schemes?

39. It will be necessary to achieve contributions to emission reductions from all sectors of the
    economy and this will require the deployment of suitably tailored instruments. In the first
    instance there should be confidence that the instruments to be applied to each sector are
    the most appropriate. In this instance, there is sufficient knowledge and experience in the
    workings and relevance of emissions trading schemes, to justify Government taking the
    requisite enabling powers.




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Draft Climate Change Bill                                   Submission by British Energy Group


Benefits and structure of enabling powers

Question 18 - Do you consider that these powers are sufficient to introduce effective
new policies via secondary legislation? If not, what changes would you make?

40. We would hope that these powers would be adequate and that new powers would not be
    necessary.


Reporting

The need for regular, independent monitoring of the UK’s progress

Question 19 - Do you agree that the Committee on Climate Change should be
responsible for an independent annual report on the UK’s progress towards its targets
which would incorporate reporting on a completed budget period every five years?

41. It should be for Government to report to Parliament. The Committee should however
    fulfil a useful role in scrutinising this and publishing its findings. It is important that the
    Government’s report to Parliament should provide an adequate breakdown of detail for
    each sector so that there may be appropriate analysis of sectors.


Adaptation

Question 20 - Is statutory reporting the best way to drive forward progress on
adaptation while at the same time ensuring Government is able to develop flexible and
appropriate measures reflecting developments in key policy areas?

42. This would not be a satisfactory way to proceed in our view. It is not clear how Adaptation
    could be reported adequately. We would question why this crucial issue is given so little
    prominence in this consultation.

43. We would argue that Adaptation needs to be the subject of a separate Bill in due course
    given the different sphere of policy analysis and measures required. A policy framework
    is required that impacts on all areas of development e.g. planning, water, housing,
    transport, tourism and agriculture.




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   British Energy Group plc, 3rd Floor, 1 Sheldon Square, London W2 6TT.
       Telephone: +44 (0)207 266 8300 Facsimile: +44 (0)207 266 8305
  Website: www.british-energy.com Email: environment@british-energy.com


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