Energy bill avoids carbon pledge

New contracts will guarantee profits for firms that invest billions in offshore wind or nuclear

New electricity legislation will avoid a firm commitment to banish coal and gas by the 2030s.

Ministers previously said they wanted to make energy clean within two decades.

Environmentalists wanted that statement to dictate Tuesday's Draft Energy Bill but the government says it wants to retain flexibility on the target date.

It says it needs to ensure that power can be produced as cheaply as possible.

Energy Secretary Ed Davey says in the launch document: "We can meet our climate change goals by largely decarbonising the power sector during the 2030s."

But this is far from the recommendation from the official Climate Change Committee (CCC) that the only feasible way to hit long-term CO2 targets is to virtually decarbonise electricity before the 2030s with electricity being produced at no more than 50gCo2/kW. The Department of Energy and Climate Change (Decc) statement could result in something much less ambitious by the end of the 2030s.

Mr Davey told BBC News that the CCC's 50g target had not been ruled out. But CCC chief executive David Kennedy said: "This really is not helpful. The government wants to retain flexibility but in doing so it is just creating more uncertainty.

"The government must say what its policy is designed to achieve. Investors don't know if there's going to be a dash for gas then low carbon energy or straight to low carbon energy. This will deter the investment that the government says it needs."

Joss Garman from Greenpeace said: "By failing to set a clear goal for carbon-free electricity by 2030, ministers are opening the door to a dangerous new dash for gas that will put up both bills and carbon emissions, and increase our dependence on imported fuel. This means families and business will be exposed to rocketing international gas prices.

"The fastest and cheapest way to bring down bills and carbon emissions is by ramping up energy efficiency but Ministers have totally failed to deliver on this."

Look to the future

The Bill still heralds a low-carbon future for electricity, though, by introducing contracts to guarantee profits for firms that invest billions in new nuclear or offshore wind power stations.

The contracts will be subsidised by a levy on people's energy bills. The levy will be capped by the Treasury.

The plans will put up prices in the medium term, possibly by between £100 and £200 a year, although forecasts vary. The government predicts that the policies will save people 4% of their bills over 20 years by reducing dependency on volatile fossil fuel prices.

This projection is contested and is especially sensitive with 8.5 million people forecast to sink into fuel poverty by 2016.

The low-carbon economy will be boosted by rules that will make it impossible to generate with coal without carbon capture, and also by a carbon floor price which will force up the cost of generating with fossil fuels.

Environmentalists are disappointed that a previous plan to reward firms for saving electricity was dropped from the Bill because of technical difficulties.

The government says it will do more work with companies to reduce demand in the future.

The contracts for nuclear appear to be a de facto subsidy, although it is not permitted for governments to subsidise nuclear power either under European law or the conditions of the UK coalition governmemnt agreement.

The government is almost certain to face a fresh legal challenge on this new legislation.

'Dash for gas'

Environmentalists will also be worried that the Bill does not put an explicit constraint on any dash for gas.

The government expects that in future emissions from gas-fired power stations will have to be captured and pumped into underground rocks, although this technology is still un-tested at scale.

It says other provisions in the Bill will ensure that there is a balanced energy mix.

Ministers also say they want to introduce more competition into the energy market by making it easier for new firms to get a foothold.

Catherine Mitchell, professor of energy policy at Exeter University, told BBC News: "This legislation is really sad - in more than 20 years of studying energy I have never known so many people so horrified.

"Originally, four to five years ago, we looked to be heading for a sustainable energy policy but then the nuclear lobby came in and civil servants weren't able to resist. It's unbelievable that we will be tying ourselves in for maybe 40 years to a technology that will produce power at two to three times the wholesale cost.

"With that kind of money we should be looking at new technologies, smart solutions. Other countries in Europe have recognised that - I'm not sure why we've failed."

Energy Secretary Ed Davey told BBC Radio 4's Today Programme: "Let's be clear, there is no blank cheque for nuclear as there used to be in the past. There used to be a political imperative originally tied to the nuclear weapons program and then to political agendas.

"We don't have that now - unless nuclear can be price competitive, as the industry says it can be, unless it can be price competitive, these nuclear projects won't proceed."

But some will see this as a bargaining ploy to negotiate down the price of new nuclear rather than a genuine acceptance that there is a price beyond which nuclear should not go.