White Paper On Energy

Meeting The Energy Challenge A WHITE PAPER ON ENERGY
MEETING THE
ENERGY CHALLENGE
A White Paper on Energy

MAY 2007
Meeting the Energy Challenge
A White Paper on Energy
May 2007
Department of Trade and Industry
Presented to Parliament by the Secretary of State for Trade and Industry

By Command of Her Majesty
May 2007
CM 7124 £40.00
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Contents
Foreword by the Rt Hon. Alistair Darling MP 4
Executive Summary 6
Chapter 1: Energy and climate security: a global challenge 28
Chapter 2: Saving energy 48
• Section 2.1 Fuel Poverty 76
Chapter 3: Heat and Distributed Generation 83
Chapter 4: Oil, Gas and Coal 105
Chapter 5: Electricity Generation
• Section 5.1 Investment Framework 125
• Section 5.2 Networks 138
• Section 5.3 Renewables 143
• Section 5.4 Cleaner Coal and Carbon Capture
and Storage for Fossil Fuels 170
• Section 5.5 Nuclear Power 180
Chapter 6: Research and Development,
Demonstration and Deployment, and Skills 216
Chapter 7: Transport 235
Chapter 8: Planning 253
Chapter 9: Devolved Administrations, English Regions
and Local Authorities 275
Chapter 10: Impact of our Measures 281
Chapter 11: Implementation 296
Annexes
Annex A: Fourth Annual report on progress towards
the 2003 Energy White Paper goals 306
Annex B: Summary of updated energy and
carbon emissions projections 328
Annex C: UK Position on the EU Emissions
Trading Scheme 334
Annex D: Consultations 338
3
Foreword by the
Rt Hon. Alistair Darling MP
The Energy Review last year spelt out the big
challenges we face: the need to work with other
countries to tackle climate change by cutting
greenhouse gas emissions, and the need to ensure
we have secure energy supplies. Both are vital for our
future prosperity. Both are global issues that call for
international and UK action.
The evidence supporting urgent action on climate

change continues to mount. Sir Nicholas Stern’s report
last autumn underlined the importance of acting now
and in concert with other countries.
Meanwhile, world energy demand continues to grow and is likely to be met

largely by fossil fuels for some time to come. This means rising greenhouse
gas emissions and greater competition for energy resources.
The UK’s reserves of oil and gas are declining. While significant amounts still
remain in the North Sea, production has hit its peak and is now falling. We will
make the most of the reserves we have, but as our economy grows, we will
become increasingly dependent on imports in a world where supplies are
concentrated in less stable regions.
Energy companies are also going to be making large investments in the

coming years to update and replace ageing power stations and other
infrastructure. We need to create the right conditions for this investment,
so we get timely and increasingly low carbon electricity supplies.
This White Paper sets out a framework for action to address these challenges
and help us manage these risks.
It sets out our international strategy which recognises that we need to tackle
climate change and energy security together. Influenced by the UK, Europe
has made a good start. The European Council agreed earlier this year to a new
strategy, including commitments to competitive markets and cuts in
greenhouse gas emissions, and a central role for the EU Emissions Trading
Scheme as the potential basis for a global carbon market.
Department of Trade and Industry MEETING THE ENERGY CHALLENGE

We shall need to influence the wider international community in the same
direction, notably in getting consensus on the post 2012 Kyoto Framework
for reducing greenhouse gas emissions.
The White Paper also sets out the measures we are taking here at home.
Our measures will help us all become more energy efficient, showing
consumers how they can cut their energy use, making big organisations like
supermarkets limit their emissions and setting tougher standards for the
homes we build and the products we buy.
We also want to mobilise the enthusiasm and potential of individuals and

communities to generate their own energy locally, through solar panels and
wind turbines for example. We are therefore bringing forward a range of
measures to support more distributed forms of energy.
But we shall still need large scale energy investments. Our aim will be to
ensure that companies have a wide range of low carbon options available so
we can retain a diverse energy mix, which is good for our security of supply,
and will help us to become a low carbon economy. This is why we are
strengthening our support for renewable electricity and will be launching a
competition for the demonstration of carbon capture and storage - which has
the potential to reduce carbon dioxide emissions from fossil fuel power
stations by as much as 90%. We are also proposing reforms to our planning
system, so that applications are handled in a more efficient way, both for
developers and the public.
Alongside this White Paper, we are publishing a consultation document on

nuclear power so that we can take a decision before the end of the year on
whether it is in the public interest for companies to have this option available
when making their investment decisions.
The Government’s measures, including those in this White Paper, put us on

track by 2020 to cut carbon emissions by more than a quarter compared to
1990 levels, as well as making significant cuts in gas consumption.
We are determined to become a low carbon economy. But further measures

will be needed if we are to achieve our long-term goals and in the light of
further international agreements, in Europe and more widely. This White Paper
sets out a framework for action to enable us to make real progress
now toward tackling climate change and ensuring secure and affordable
energy supplies.
Foreword by the Rt Hon. Alistair Darling MP

Executive Summary
Energy is essential in almost every aspect of our lives and for the success
of our economy. We face two long-term energy challenges:
• tackling climate change by reducing carbon dioxide emissions both
within the UK and abroad; and
• ensuring secure, clean and affordable energy as we become increasingly
dependent on imported fuel.
As we set out in The Energy Challenge published in 2006, the context in

which we are seeking to meet these challenges is evolving, in particular:
• the growing evidence of the impact of climate change and wider
international recognition that there needs to be a concerted global effort
to cut greenhouse gas emissions, especially carbon dioxide;
• rising fossil fuel prices and slower than expected liberalisation of EU
energy markets at a time when the UK is increasingly relying on imported
energy;
• heightened awareness of the risks arising from the concentration of the
world’s remaining oil and gas reserves in fewer regions around the world,
namely the Middle East and North Africa, and Russia and Central Asia;
• in the UK, companies will need to make substantial new investment in
power stations, the electricity grid, and gas infrastructure.
This White Paper sets out the Government’s international and domestic
energy strategy to respond to these changing circumstances, address the
long-term energy challenges we face and deliver our four energy policy goals1.
It sets out how we are implementing the measures in the Energy Review
Report in 2006, as well as those announced since, including in the Pre-Budget
Report in 2006 and the Budget in 2007.
1 Our four energy policy goals are:

• to put ourselves on a path to cutting the UK’s carbon dioxide emissions - the main contributor to global
warming - by some 60% by about 2050, with real progress by 2020;
• to maintain the reliability of energy supplies;
• to promote competitive markets in the UK and beyond, helping to raise the rate of sustainable economic
growth and to improve our productivity; and
6 • to ensure that every home is adequately and affordably heated.

The challenges
Climate change, as a result of rising greenhouse gas emissions, threatens
the stability of the world’s climate, economy and population. More than
two thirds of the world’s carbon dioxide emissions come from the way
we produce and use energy, so energy policy has to play a major part in
meeting this challenge.
The causes and consequences of climate change are global, and while
national governments can and should take action, the ultimate solution must
be collective global effort. On current trends, global emissions are set to reach
double pre-industrial levels before 2050, with severe impacts on our climate
and the global economy. A key conclusion from the Stern Review2 was that in
the long-term the cost of inaction would be far higher than the cost of tackling
climate change now. It also makes clear that the costs are lowest if nations
act together.
At the same time energy demand worldwide continues to increase, particularly

in the United States and emerging economies, such as China and India. On
the basis of present policies, global energy demand will be more than 50%
higher in 2030 than today, with energy related greenhouse gas emissions
around 55% higher3.
Even if we realise more potential for increasing low carbon sources of energy,
it is clear that coal, oil and gas will play a significant part in meeting the
world’s energy needs for the foreseeable future, and we need to find ways
to reduce their emissions. Also, with the UK increasingly reliant on imported
energy, we need to manage the risks arising from the concentration of fossil
fuel reserves in fewer and further away places, some of them in less stable
parts of the world.
Increased competition for resources will see international trade in fossil

fuels double by 2030. This trend and factors such as abuse of market power,
poor energy market information, infrastructure security risks, and regulatory
uncertainty (particularly concerning government actions to tackle climate
change) could add to the risks to energy security and prices.
The International Energy Agency (IEA) forecasts that $20 trillion of investment
will be needed to meet these challenges by 2030. The investment decisions
that will be taken over the next two decades will be critical in determining the
world’s climate and the security of its energy supplies. At home it is likely that
the UK will need around 30-35GW of new electricity generation capacity over
the next two decades and around two thirds of this capacity by 2020. This is
because many of our coal and most of our existing nuclear power stations are
set to close. And energy demand will grow over time, despite increased
energy efficiancy, as the economy expands.
2 http://www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/
sternreview_index.cfm
3 World Energy Outlook, IEA, 2006. See http://www.worldenergyoutlook.org/ 7
Executive Summary
Our strategy
To deliver energy security and accelerate the transition to a low carbon
economy requires urgent and ambitious action at home and abroad.
We need to:
• save energy;
• develop cleaner energy supplies; and
• secure reliable energy supplies at prices set in competitive markets.
Our strategy continues to be based on the principle that independently

regulated, competitive energy markets, are the most cost-effective and
efficient way of delivering our objectives.
The Energy Review Report identified a number of areas where the

policy and regulatory framework governing energy markets needs to be
strengthened. This White Paper sets out our response, involving increased
international cooperation as well as action at home. The key elements of
our strategy are:
• Establish an international framework to tackle climate change

This should include a shared vision for stabilising the concentration of
greenhouse gases in the atmosphere. We also want a strengthened EU
Emissions Trading Scheme (EU ETS) to deliver a market price for carbon
and to be the basis for a global carbon market. This will enable carbon
emissions to be reduced in the most cost-effective way.
• Provide legally binding carbon targets for the whole UK economy,
progressively reducing emissions
The draft Climate Change Bill creates a new legal framework for the UK
achieving, through domestic and international action, at least a 60%
reduction in carbon dioxide emissions by 2050, and a 26-32% reduction
by 2020, against a 1990 baseline. The Government will be required to
set five-year carbon budgets, placing binding limits on aggregate carbon
dioxide emissions. There is provision in the draft Bill for the targets to be
amended in light of significant developments in climate science or in
international law or policy.
• Make further progress in achieving fully competitive and transparent
international markets
This will enable companies to get fair access to the energy resources we
need. Effective markets will ensure that the world’s finite resources are
used in the most efficient way and ensure that we make the transition to
a low carbon economy at least cost. Further liberalisation of EU energy
markets is an important part of this.
• Encourage more energy saving through better information, incentives
and regulation
By removing barriers to the take up of cost-effective energy efficiency
measures, all of us, business, individuals and the public sector, can take
steps to reduce emissions and our energy dependence. We are also
working in the EU and G8 to promote energy efficiency internationally.
• Provide more support for low carbon technologies
We need to bring about a step change in global investment to bring
forward low carbon technologies. The private sector on its own may not

invest adequately in research, development, demonstration and deployment of
these technologies. This White Paper describes how public / private sector
collaboration and increased international collaboration can address this
problem.
• Ensure the right conditions for investment
We need a clear and stable regulatory regime, including for valuing carbon,
to reduce uncertainty for business and help to ensure sufficient, timely
investment. We also need to improve our planning system and to provide
better information and analysis of long-term energy market trends to inform
energy purchasing and investment decisions.
Many of these elements have an important international dimension.

And in this White Paper, we are bringing them together for the first time in
an integrated international energy strategy which describes the action we
are taking to help deliver secure energy supplies and tackle climate change.
Our improved framework will help businesses, individuals and the

Government deliver more energy saving, cleaner energy supplies and timely
energy investments.
Saving energy
The starting point for our energy policy is to save energy. It is often the
cheapest way of reducing carbon emissions, certainly in the short-term. It can
also contribute to security of supply, for example by reducing our need for
energy imports, and reduce fuel poverty through lower bills.
We need action here in the UK and internationally. Many of our energy using
products, like cars and domestic appliances, are traded internationally, so to
be fully effective we need international agreements on higher standards of
energy efficiency. We will therefore press for higher EU and international
standards to improve vehicles’ fuel efficiency and increase the energy
efficiency of products, including by reducing levels of stand-by power.
We support the Commission’s proposals to save 20% of the EU’s energy
consumption through improved energy efficiency by 2020. And we are
working with our G8 partners to deliver commitments to promote international
cooperation on product labelling and standards.
At home, we will take action to build on the growing interest among

businesses and individuals in playing a direct part in tackling climate change by
saving energy.
Saving energy: business

Energy intensive businesses already face incentives to save energy and
reduce emissions, for example through Climate Change Agreements, and
through the EU ETS. Large non-energy intensive public and private sector
organisations in the UK such as hotel chains, supermarkets, banks, central
Government and large Local Authorities account for around 10% of the UK’s
emissions. Emissions trading could deliver significant energy savings in this
sector. We have therefore decided to introduce a mandatory cap and trade
Executive Summary
scheme, a Carbon Reduction Commitment, which will apply to the largest
organisations in this sector; those whose mandatory half hourly metered
electricity consumption is greater than 6,000MWh per year. Such companies
generate the large majority of emissions from this sector. The Government
will shortly consult on how it can best be implemented.
To ensure all businesses have the necessary information on the energy

consumption of their buildings, we shall require all business premises to have
an Energy Performance Certificate, when they are built, sold or rented out.
These certificates describe a buildings energy ratings and set out what steps
can be taken to improve their performance, saving energy and reducing
energy bills.
We shall also consult on a requirement for energy suppliers to extend, to all

business users in Great Britain, advanced and smart metering services, within
the next 5 years. This will not apply to the smallest business users, nor to
larger businesses with half hourly meters.
Saving energy: households

We want new homes to be zero carbon as soon as practically possible. We
are consulting on making this mandatory from 2016, and we will announce a
decision later this year.
We will also continue to improve the energy efficiency of existing homes.

The average household could avoid emissions of around 0.5 tonnes of carbon
a year, save energy and lower energy bills by becoming more energy efficient4.
Our programmes have already reached half the UK’s homes. We are making
the appliances within our homes more energy efficient. For example, we are
working with retailers and manufacturers to phase out energy inefficient light
bulbs by around 2011, and we are publishing with this White Paper proposals
for higher standards in consumer electronics.
We will continue to ensure that energy suppliers work with householders

to save energy and carbon emissions. We launch alongside this White Paper
our statutory consultation on a Carbon Emission Reduction Target (CERT)
for 2008-2011. This is the new name for the Energy Efficiency Commitment
and reflects the new scheme’s focus on reducing carbon emissions. The
consultation proposes that energy suppliers double their current effort. Longer
term, from 2012, we want to develop this scheme to support a transformation
in the way suppliers view their relationship with the end consumer, helping
their customers save energy, by shifting their focus to the provision of energy
services, rather than simply selling units of energy.
We will empower consumers to make more informed energy choices by

requiring the provision of clearer information on bills and more advice about
energy efficiency. We will launch an on-line CO2 calculator which will enable
households to know how their everyday activities contribute to emissions.
We are also undertaking trials of smart meters and real time displays which
enable people to track their energy use conveniently in their homes. Subject
to the results of these trials we intend to work with energy companies to roll
10 4 www.energysavingtrust.org.uk

these out to households over the next 10 years. In the meantime, real time
displays will be provided with any new meters fitted from 2008. Because it
will take a number of years before a new meter and display can be rolled out
to every household, we have decided that between 2008-2010, real time
displays, will be available free of charge to any household that requests one.
We will also introduce Energy Performance Certificates for new and existing
homes. Anyone selling, leasing or renting their property will need to provide
a Certificate setting out the energy performance of the building.
To maximise the impact of the Certificates we will better co-ordinate advice
and support to householders on energy efficiency and microgeneration.
The Government’s intention is that, by the end of the next decade, all
householders will have been offered help to introduce energy efficiency
measures, with the aim that, where practically possible, all homes will
have achieved their cost-effective energy efficiency potential.
Saving energy: transport

The UK is leading the way in Europe to bring about a tough new set of
mandatory standards for the fuel efficiency of new cars. We welcome the
Commission's recent Communication5 and in particular their intention to
introduce mandatory targets for new car fuel efficiency. The EU needs a
long-term strategy for improving vehicle fuel efficiency including an objective
beyond 2012 that average new car emissions should reduce to 100 grams
of carbon dioxide per kilometre. We will continue to work closely with the
Commission and other interested parties as the proposals are developed.
The achievement of these new standards is likely to be challenging.

To support progress towards them and to achieve carbon savings in other
modes of transport we will be working with the industry to implement a Low
Carbon Transport Innovation Strategy, which is being launched alongside this
White Paper. This will provide the framework and resources to help bring
cleaner, more fuel efficient vehicles to market and stimulate innovation.
We have also been pushing in Europe for inclusion of aviation in the

EU ETS, and we support the Commission’s proposals to do this. We are
also urging serious consideration of the inclusion of surface transport in
the Scheme which has the potential to deliver further carbon savings.
Transport is an area where choices and the behaviour of individuals could

make a large impact. In March 2007, the Government launched a climate
change communications campaign to raise awareness amongst drivers of what
they can do to help reduce emissions. Tax measures can also play a part and
we are encouraging cleaner fuels through favourable Company Car Tax and
Vehicle Excise Duty for smaller, more fuel efficient vehicles. We will continue
to examine how fiscal and other policy instruments can achieve our aims.
5 http://ec.europa.eu/environment/co2/pdf/com_2007_19_en.pdf 11
Executive Summary
Saving energy: public sector
The Government must also play an important part. By 2012, we will have
made the central Government office estate carbon neutral. We will bring
forward plans for funding of energy efficient new social housing and public
sector buildings, and energy efficient procurement of new public sector cars
and energy using products:
• large public sector organisations will be required to reduce emissions
by participating in the Carbon Reduction Commitment scheme;
• we are making it a condition of Government funding that all new social
housing built by registered social landlords and other developers and all
new homes developed by English Partnerships comply with level 3 of
the Code for Sustainable Homes;
• buildings greater than 1,000m2 occupied by public authorities and by
institutions providing publicly funded services to large numbers of
people will be required to display a Certificate showing the energy rating
of the building and the steps that can be taken to improve its energy
performance; and
• from 2008, we will set challenging energy efficiency standards for all
new products and services that the Government procures.
Clean energy supplies

While saving energy is often the most cost effective way to reduce emissions,
if we are to meet our goals, we also need to move towards cleaner energy
supplies of heat, electricity and transport fuels.
Heat and distributed energy

More than two thirds of the UK’s heat comes from gas that is fed through
the nationwide gas grid. Gas can be converted to useful heat at over 90%
efficiency in modern condensing boilers. This centralised system has kept
down costs through economies of scale and allowed us to provide secure,
cost-effective delivery of gas directly to many of our homes and businesses.
The largest and most cost-effective carbon saving in this sector
in the short to medium-term will therefore come through improved energy
efficiency, supported by the energy saving measures in this White Paper.
The long-term possibilities for large scale alternatives to gas for the production
of heat may be through the production and use of hydrogen and low carbon
electricity. However, development of hydrogen as a heating source would
require costly new infrastructure to manufacture and distribute the hydrogen.
Similarly, a switch to low carbon electricity for heating would require existing
heating systems in homes and buildings to be replaced.
In the short and medium-term, a combination of new and existing

technologies are opening up new possibilities for carbon reduction by
producing and using heat and electricity at a local level; that is, distributed or
decentralised energy. This includes microgeneration, district heating schemes,
combined heat and power and biomass fuelled heating at community and
industry scale. Biomass heating is already cost competitive with fossil fuels
for some purposes. Alongside this White Paper, the Government is publishing
its Biomass Strategy, which aims to expand the supply and use of energy
12 from this renewable fuel source in a sustainable way.

We are also publishing the results of the joint Ofgem-DTI review of distributed
electricity generation promised in the Energy Review Report. Based on the
work of that review, we are taking forward a number of proposals and
measures that will assist more widespread deployment of distributed
electricity and heat generation in the UK including:
• more flexible market and licensing arrangements for distributed, low
carbon electricity supply, to be implemented by the end of 2008;
• greater clarity on the terms offered by energy suppliers to reward
microgenerators for the excess electricity they produce and want to export
back to the grid;
• provision of information and advice to those individuals, communities and
developers considering distributed energy solutions, alongside advice on
energy saving; and
• incentivising Distributed Network Operators to ensure more efficient and
speedy connection to networks.
These measures will reinforce other steps we are already taking to boost
distributed energy, including:
• implementation of the Microgeneration Strategy, Our Energy Challenge:
Power from the people published in March 2006, with planning permission
for microgeneration becoming easier from autumn this year and financial
support to build the market for microgeneration;
• measures to encourage deployment of combined heat and power (CHP),
including: exemption from the Climate Change Levy; improved treatment
under Phase II of the EU ETS; and better planning guidance to ensure that
the CHP option is considered;
• our commitment to require all new homes to be zero carbon, from a date
to be fixed following consultation. Using low carbon distributed energy
technologies will be a key way for developers to meet this requirement.
Taken together, these measures will help to ensure that decentralised energy
can continue to grow alongside the centralised system6. We shall also carry
out further work on the options available for reducing the carbon impact of
heat and its use and we shall take into account the implementation of the
European Council agreement to a binding renewable energy target for 2020
(see ‘EU energy policy’ paragraphs later in this summary). However, the
current higher costs and low level of penetration of many of these
technologies will mean that, even with substantial growth, they will not keep
pace with the need for new electricity generation capacity, as existing coal
and nuclear power stations close.
Cleaner large scale electricity generation

We have a diverse mix of power stations: coal and gas account for over one
third each; nuclear about a fifth; and renewables around 4%. This diversity
helps avoid over-dependence on a single fuel type, contributing to security
of supply.
Companies will need to make substantial new investments over the next 20
years, as many of our nuclear and coal power stations close. These investment
6 Alongside these measures, we have also established a Foresight Project that will help inform our
understanding of any long term issues arising from the parallel development of the centralised and
decentralised systems. This is due to report in summer 2008. 13
Executive Summary
decisions will affect our generation mix. In setting the market framework
in which these decisions are taken, the Government needs to ensure that,
over time, we also move towards a low carbon mix.
A key part of this framework is the EU ETS which, by establishing a carbon

price, ensures companies investing in new power stations take account of
the cost of carbon. This provides incentives for investment in low carbon
electricity generation. In this White Paper, we set out steps to build
a more effective EU ETS. We also set out steps designed to increase the
options available for investment in low carbon technologies, for example
renewables and carbon capture and storage. We are also launching a
consultation on whether it would be in the public interest for new nuclear
power stations to be an option available to companies making investments
in new generation capacity.
Renewable electricity
Renewables are key to our strategy to tackle climate change and deploy
cleaner sources of energy. We have a target that aims to see renewables
grow as a proportion of our electricity supplies to 10% by 2010, with an
aspiration for this level to double by 2020. The Renewables Obligation (RO) is
the main mechanism for incentivising this growth. This White Paper confirms
our intention to strengthen the RO, increasing the Obligation to up to 20%
as and when increasing amounts of renewables are deployed. We have also
decided to retain the link between the Retail Price Index (RPI) and the RO buy-
out price from 2015/16.
We shall introduce banding of the RO to offer differentiated levels of support

to different renewable technologies. This will encourage the increased
development and deployment of a broader set of renewable technologies.
Alongside this White Paper, we are launching a consultation document on the
specific bands we propose to introduce and our other proposals to strengthen
and modify the RO. Our intention is that the new bands will come into force
in 20097. Based on our projections our proposals to strengthen and modify the
RO will see electricity supplies from renewable sources tripling between now
and 2015 to around 15% of the total electricity supplied. The RO and the
Climate Change Levy exemption is projected to provide around £1billion of
annual support for deployment of renewable electricity in 2010, rising to
around £2billion of annual support in 2020. A strengthened EU ETS should
also support investment in renewables.
In addition to creating the right financial framework, we need to lower

important practical barriers to renewables investment:
• large scale renewables projects will benefit immediately from the improved
planning inquiry rules that we introduced from the beginning of April 2007;
• longer term, as set out in the planning White Paper 2007, Planning for
Sustainable Future published in May 2007, we shall implement fundamental
reform of the planning system which will bring benefits to all large scale
energy infrastructure, including large scale offshore and onshore renewable
electricity project; and
• we shall act jointly with Ofgem and National Grid to remove key barriers
to connecting renewables projects to the transmission grid.
14 7 This will be subject to the availability of Parliamentary time and State Aids clearance.

Looking ahead, we shall need to take into account the implementation of the
European Council agreement to a binding renewable energy target for 2020
(see ‘EU energy policy’ paragraphs later in this summary).
Fossil fuel electricity generation and carbon capture and storage

The need to reduce carbon emissions whilst ensuring secure energy supplies
means that we cannot rely on renewables alone. This is because we need a
diverse electricity generation mix. Moreover, some of the most cost- effective
renewable technologies, such as wind, are intermittent and cannot produce
electricity on demand.
We will continue to need fossil fuels as part of a diverse energy mix for some
time to come. But in order to meet our carbon reduction goals, sources such
as coal and gas must become cleaner. And it is in our own vital interests that
the technologies necessary to mitigate the emissions from burning fossil fuels
are developed and deployed as rapidly as possible – especially as fossil fuel
use by emerging economies, such as China and India, is growing rapidly as
their economies expand. Carbon capture and storage (CCS) is an emerging
combination of technologies which could reduce emissions from fossil fuel
power stations by as much as 90%.
CCS with electricity generation has not yet been proven on a commercial
basis, although some key elements of the process have been demonstrated.
So the next step is commercial scale demonstration. In the Budget in 2007
the Government therefore announced that it would launch a competition to
demonstrate commercial scale CCS on power generation in the UK. The
Government intends to launch the competition in November 2007, with the
aim of having the demonstration operating early in the next decade. When
operational, this will make the UK a world leader in this globally important
technology. Successful demonstration of CCS would be a major contribution
by the UK to global efforts to tackle climate change.
The Government has also set up a taskforce to examine the regulatory framework
to ensure that it facilitates CCS, with a consultation on the options for regulation
of the full chain of CCS technologies to be launched later this year.
Nuclear power
Nuclear power currently accounts for approximately 18% of our electricity
generation and 7.5% of total UK energy supplies. It is a low carbon source of
electricity and makes an important contribution to the diversity of our energy
supplies. Without our existing nuclear power stations, our carbon emissions
would have been 5 to 12% higher in 2004 than otherwise8. However, most
of the existing stations are due to close in the next 15 years or so, based on
published lifetimes.
The Government left open the question of nuclear power in 20039 and said
that before any decision to build new nuclear power stations, there would
need to be the fullest public consultation and proposals in a further White
Paper. Since then, we have:
8 Sustainable Development Commission, The Role of Nuclear Power in a Low Carbon Economy, Paper 2:
Reducing CO2 emissions – Nuclear and the Alternatives, March 2006
9 Energy White Paper, Our Energy Future – creating a low carbon economy, HMG Cm 5761 15
Executive Summary
• seen increasing evidence of climate change and wider international
recognition of the need for global action;
• made significant progress in tackling the legacy waste issue;
• observed significant changes in the economics of nuclear power relative
to other electricity generation technologies. This has been driven by two
main factors: greater than expected increases in fossil fuel prices; and the
introduction of a market price for carbon which requires investors to take
account of the cost of carbon emissions in their investment decisions. Both
of these factors have increased the relative costs of fossil fuel electricity
generation; and
• seen some energy companies expressing a strong interest in investing
in new nuclear power stations.
We are also now closer to the point where significant amounts of our existing
generation capacity, including nuclear power stations, will need to
be replaced.
In considering whether it is in the public interest to allow private sector

companies to invest in new nuclear power stations, we need to take account
of the wide range of uncertainties that make it difficult to predict the future
need for and use of energy. For example, it is difficult to predict how fossil
fuel, raw materials and carbon prices will change in the future, all of which will
affect the relative economics of different electricity generation technologies.
We do not know with certainty at what speed different renewable
technologies will develop. We cannot yet be sure that it will
be technically feasible or economic to apply carbon capture and storage
technology safely to electricity generation on a commercial scale. And we
do not know how demand for energy might vary over the next 40-50 years.
Moreover, we cannot know what the international political landscape might
look like by 2050, although we do know that oil and gas supplies are
increasingly concentrated in countries which are in less stable parts of
the world.
Given the long timeframes involved, this uncertainty is inevitable. We

believe a market-based approach within a clear policy framework provides
an effective way to help us manage this uncertainty and deliver our energy
policy goals. This is because companies are best placed to weigh up and
manage the complex range of interrelated factors affecting the economics
of energy investments.
The private sector will be best able to help us deliver our goals and manage
the associated risks when they have access to a wide range of low carbon
investment options. The Government’s role is therefore to provide a policy
framework that encourages the development of a wide range of low carbon
technologies, so we can minimise the costs and risks to the economy of
achieving our goals.
We have modelled a number of different future scenarios as part of the

analysis to support this White Paper. The modelling indicates that it might be
possible under certain assumptions to reduce the UK’s carbon emissions by
60% by 2050 without new nuclear power stations. However, if we were to
plan on this basis, we would be in danger of not meeting our policy goals:
16

• security of supply: we would be reliant on a more limited number of
technologies to achieve our goals, some of which (e.g. carbon capture and
storage) are yet to be proven at a commercial scale with power generation.
This would expose the UK to greater security of supply risks, because our
electricity supplies would probably be less diverse as a result of excluding
nuclear; and
• reducing carbon emissions: by removing one of the currently more cost-
effective low carbon options, we would increase the risk of failing to meet
our long-term carbon reduction goal.
There would also be a risk of higher costs to the UK economy: by excluding

nuclear as an option, our modelling indicates that meeting our carbon
emissions reduction goal would be more expensive.
We recognise that, as with all generation technologies, there are advantages

and disadvantages with new nuclear power. But having reviewed the evidence
and information available we believe that the advantages outweigh the
disadvantages and that the disadvantages can be effectively managed.
On this basis, the Government’s preliminary view is that it is in the public

interest to give the private sector the option of investing in new nuclear power
stations. This view is subject to the consultation we are launching on this
issue alongside this White Paper. However, if the Government confirms this
preliminary view, it would be for the private sector to fund, develop, and build
new nuclear power stations in the UK, including meeting the full costs
of decommissioning and their full share of waste management costs.
Section 5.5 of this document, contains the executive summary of the nuclear
consultation document10 published alongside this White Paper.
The consultation document sets out evidence and information on a range of

issues, and respondents are invited to form their own view based on this
information. In considering this consultation, respondents will be able to take into
account the information brought forward as part of the forthcoming consultation on
geological disposal as part of the Managing Radioactive Waste Safety programme.
Alongside the nuclear consultation, the Government is proceeding, on a

contingent basis, with a range of facilitative actions to reduce regulatory and
planning risks to prepare for the possibility that the Government concludes
that it is in public interest to allow private sector companies the option of
investing in new nuclear power stations. Details are set out in the consultation
document.
Low carbon transport

The main opportunity for carbon reductions from transport in the near-term
lies in reducing energy use, through a combination of increasing the fuel
efficiency of vehicles and through the choices we make in using them and
other transport modes; and in the longer term in innovation in vehicle design
and through spatial and transport planning. Similarly, we are determined to
make more progress in using cleaner fuels in the near-term and to explore
opportunities for suitable alternative fuels in the longer-term.
10 http://www.dti.gov.uk/energy/whitepaper/consultations/nuclearpower2007 17
Executive Summary
The Government will introduce the Renewable Transport Fuel Obligation
(RTFO) in 2008-09. It will require suppliers of transport fuel to ensure that a
proportion of the fuel we use in our vehicles comes from renewable sources.
By 2010-11 this proportion will rise to 5%, resulting in carbon emission
reductions – equivalent to taking a million cars off our roads. The Government
intends to go beyond this 5% level once important cost, standards and
especially sustainability concerns can be addressed.
Renewable energy: bringing the elements together

The Government’s policies, including proposals in this White Paper, will help
increase the proportion of energy the UK sources from renewables.
We do this; notably:
• in electricity generation, by strengthening and modifying the Renewables
Obligation, by reforming the planning system and by removing barriers to
the growth of decentralised electricity generation;
• in heat, by publishing a Biomass Strategy which identifies opportunities for
increasing the use of renewables in energy production and by announcing
further work to develop a more strategic approach to heat; and
• in transport, by requiring through the RTFO that an increasing proportion
of our transport fuel should come from renewable sources.
Looking ahead, we shall also need to take into account the implementation
of the European Council agreement to a binding renewable energy target for
2020 (see ‘EU energy policy’ paragraphs later in this summary).
Research, development and demonstration of new low carbon

technologies
The Stern Review notes that policy to support innovation and the deployment
of low carbon technologies is a key means of mitigating climate change. New
technologies for producing and using energy in electricity generation, heating
and transport offer the potential to reduce carbon emissions in the future
more cost-effectively.
We will shortly be launching the Energy Technologies Institute. This is a joint

venture between the public and private sectors with a minimum budget of
around £600 million over ten years devoted to the research and development
of emerging low carbon technologies, including for transport. It will provide
the UK with a world-class means for delivering energy technology research.
Our ambition is that it will become part of a global network connecting the
best scientists and engineers working in these fields. In addition, the
Environmental Transformation Fund will open in 2008. This will bring together
Government’s support for demonstration and deployment of low carbon
energy and energy efficiency technologies with support for energy and
environment-related international development.
The Government is also publishing alongside this White Paper a Low Carbon
Transport Innovation Strategy which sets out our approach to stimulating
innovation in low carbon transport technologies. The Strategy reflects the
important role that new technology will play in delivering long-term carbon
emissions reductions in the transport sector, and provides a framework for
accelerated technology development across the whole innovation system. It
provides substantial new funds for research, development and demonstration
18

projects, to bring forward the greatest value for UK industry as well as
environmental gain.
Security of supply
The UK faces two main security of supply challenges:
• our increasing reliance on imports of oil and gas in a world where energy
demand is rising and energy is becoming more politicised; and,
• our requirement for substantial, and timely, private sector investment over
the next two decades in gas infrastructure, power stations; and electricity
networks.
We need to manage the potential risks associated with higher imports of

fossil fuels. These include:
• increased competition for energy resources in the face of growing global
energy demand;
• reserves becoming increasingly concentrated in fewer, further away places;
• the need to purchase supplies from markets which are neither transparent
nor truly competitive; and
• the possibility that there will be insufficient investment in key producer
countries in new oil and gas production.
We will also need to see significant private sector investment in infrastructure

to bring the energy we need from overseas to the UK. For example, our
current projections of gas demand imply that we will need to increase our gas
import capacity by 15-30% by 2020. Much of the investment we need to
achieve this is already in train.
In electricity markets we will need investment in new generation capacity

of around 30-35 GW over the next two decades to replace power station
retirements and meet rising electricity demand as the economy grows.
The timeliness of this new investment will be key to ensuring security of
electricity supplies.
Many of the measures to tackle climate change set out in this White Paper
will also bring benefits to the UK’s security of energy supplies. For example,
our efforts to save energy in business, households and the public sector will
reduce the need for energy imports by reducing overall demand. Similarly,
saving energy will reduce the level of new investment we need in large scale
electricity generation; as will an increase in renewables and decentralised
energy, including microgeneration. Finally, by increasing the number of low
carbon generation investment options available to the private sector, we will
increase the diversity of our energy supplies, reducing electricity security of
supply risks.
In addition, to meet our security of supply challenges, we will:

• maximise the economic production of our domestic energy sources which,
together with our energy saving measures, will help reduce our
dependence on energy imports;
• work for more effective and transparent international energy markets so
that our companies can get fair access to the energy resources we need;
and 19
• strengthen the UK energy investment framework so that investors have
Executive Summary
the confidence to make timely investments in new gas and electricity
infrastructure consistent with our energy goals.
Maximising economic production from our domestic fossil fuel

reserves
Fossil fuels will continue to play an essential role in our energy system for
the foreseeable future. We must therefore maximise the economic recovery
of the UK’s remaining reserves of oil and gas by boosting investment in the
North Sea and ensuring it remains competitive as it matures. We are working
with the industry on the basis for establishing new infrastructure to the West
of Shetland to enable additional oil and gas to be exploited. We are also
putting in place measures to remove barriers to commercial deal making,
particularly for smaller firms, such as improving the speed and simplicity of
the North Sea licensing process. The Government has emphasised the
importance it attaches to an appropriate and stable fiscal regime for the UK
Continental Shelf.
Coal continues to play an important role in our energy mix. In autumn 2006,
we established the Coal Forum. This brings together the key players from
the coal industry and the power sector to develop strategies to maximise
economic production of UK coal. The Coal Forum has confirmed
the importance of a continuing role for coal as part of a diverse and resilient
energy mix and identified a number of potential benefits from use of UK
produced coal. Making the best use of UK energy resources, including coal
reserves, where it is economically viable and environmentally acceptable to
do so contributes to our security of supply goals. The Government believes
that these factors reflect a value in maintaining access to economically
recoverable reserves of coal.
Effective and transparent international energy markets

Greater exploitation of our own domestic resources will only slow the rate
of growth of the fossil fuel imports we need to meet our energy needs –
imports are certain to increase. Companies need confidence in the
international markets in which they buy fuel. An open European market is
an essential part of this, allowing companies to source adequate and
competitively priced supplies of energy from abroad, particularly gas. We
therefore welcome the strong action the Commission is taking to enforce the
2003 EU internal market legislation, and support the proposals set out in the
Commission’s 2007 Strategic Energy Review and endorsed at the Spring
European Council 2007. We will also press for greater transparency beyond
the EU through our work bilaterally and through international organisations
such as the International Energy Agency.
Improving the UK’s energy investment framework

We must ensure we have the right domestic investment framework so that
companies make sufficient, timely investments:
• in infrastructure to transport energy from overseas markets to the UK
and then on to the final consumer; and
• in new power stations, as existing stations close.
20

Timely, credible information is key to the effective functioning of energy
markets and to support timely investment decisions, whether in gas import
and storage infrastructure or new electricity power stations. We will therefore
publish from this autumn better information and analysis on future energy
supply and demand trends to help inform energy suppliers and consumers
with their investment and purchasing decisions and help inform the
development of Government policy.
Another key barrier to timely investment is the effectiveness of the planning

system. The Planning White Paper 2007, Planning for a Sustainable Future11,
sets out radical changes to the planning system which will enable us to take
decisions on key national infrastructure in a way that is timely, efficient and
predictable, and which will improve the accountability of the system, the
transparency of decisions, and the ability of the public and communities to
participate effectively in them.
We will legislate as soon as Parliamentary time allows with the aim of

introducing this reformed system in 2009 comprising three key elements:
• a strategic context where Ministers set a clear national case for important
energy infrastructure;
• a streamlined and efficient decision making process which allows all
aspects of a major project to be considered together and decisions to be
taken by an independent body; and
• a strong commitment to effective public consultation, including when
Ministers prepare National Policy Statements on the case for new
infrastructure and through a new obligation on developers to consult before
they submit their applications.
Improved market information and reforms to the planning system will help
all energy infrastructure investment. In addition, this White Paper sets out
measures to strengthen and clarify the investment framework which are
specific to the gas market and to the electricity market.
Improving gas security of supply

Our policies to save energy, encourage a diverse low carbon electricity mix
and maximise economic recovery of gas from the UKCS will all help gas
security of supply by reducing our need for gas imports. In addition, the
following changes, alongside the reforms in the Planning White Paper Planning
for a Sustainable Future, will help to reduce regulatory uncertainty
for companies investing in gas infrastructure, helping to improve gas
security of supply:
• we propose to rationalise the different offshore gas development consent
regimes and create, as far as possible, a unified, single consent regime
with a harmonised set of requirements and procedures;
• we will introduce a new offshore licensing system which will facilitate the
development of offshore gas storage and unloading of Liquefied Natural Gas;
and
• over the last six months, we have prepared new guidance to assist those
considering investing in gas storage projects and associated infrastructure
under the existing planning system.
11 http://www.communities.gov.uk/index.asp?id=1143104 21
Executive Summary
Improving electricity security of supply
Our strategy will address the risks to security of electricity supply and the
need for substantial new investment in power stations and networks in the
following ways:
• by encouraging the development of low carbon electricity generation
technologies and a market framework that encourages companies to invest
in them, thereby helping to ensure a more diverse and secure electricity
mix for the future. Specific measures include:
– reinforcing our commitment to building a more effective EU ETS to
provide companies with confidence in there being a price for carbon
over the long-term. While we are confident that our efforts to
strengthen the EU ETS will be successful and that the draft Climate
Change Bill demonstrates our long-term commitment to carbon
reductions, we will keep open the option of further measures to
reinforce the operation of the scheme in the UK should this be
necessary to provide greater certainty to investors;
– strengthening our policy on the Renewables Obligation, announcing
plans for demonstration of carbon capture and storage on a commercial
scale, and resolving, subject to the consultation we are publishing
alongside this White Paper, whether it is in the public interest for new
nuclear power stations to be an investment option for companies
investing in the UK; and
– the proposed publication of a new Planning Policy Statement on Climate
Change which will require planners and local authorities to recognise the
national need for renewable and low carbon electricity generation.
• in April 2007, we introduced new secondary legislation to update the
inquiry rules for large scale electricity generation projects and associated
infrastructure that should streamline the consenting process. We have
prepared new guidance to assist those considering investing in electricity
generation projects, combined heat and power projects and associated
infrastructure; and
• the recent Ofgem transmission price control and last year’s price control on
distribution networks will allow for substantial new investment to replace
ageing infrastructure and connect new generating capacity.
EU energy policy
Since the Energy Review Report in 2006, the European Council agreed in
March 2007 to a common European strategy for energy security and tackling
climate change. This includes further steps to complete the internal market
in gas and electricity, and endorsement of the objective to save 20% of the
EU’s energy consumption in 2020 compared with current projections. The
agreement commits the EU to a binding target of reducing greenhouse gas
emissions by 20% by 2020 and by 30% in the context of international action.
The agreement assigns the EU Emissions Trading Scheme the central role in
the EU’s long-term strategy for reducing greenhouse gas emissions.
The European Council agreement also recognises the potential importance

of carbon capture and storage and sets a target for 20% of the EU’s energy
to be from renewables by 2020. The target covers the energy we use in heat
and transport as well as electricity. The Council also agreed a 10% binding
minimum target, to be achieved by all Member States, for the share of
biofuels in EU petrol and diesel consumption; this is subject to conditions,
22 including that the production of biofuels is sustainable.

The 20% renewables target is an ambitious goal representing a large increase in
Member States’ renewables capacity. It will need to be taken forward in the
context of the overall EU greenhouse gas target. Latest data shows that the
current share of renewables in the UK’s total energy mix is around 2% and for the
EU as a whole around 6%12. Projections indicate that by 2020, on the basis
of existing policies, renewables would contribute around 5% of the UK’s
consumption and are unlikely to exceed 10% of the EU’s.13
The Commission has been asked to bring forward detailed proposals –

including for each Member State’s contribution to the EU targets on
greenhouse gases and renewables – by the end of this year. The Commission
will need to take account of individual national circumstances and discuss and
agree their proposals with Member States and the European Parliament during
2008/09. In developing proposals for the renewables target, the Commission
will need, as agreed by the European Council, to give due regard to a fair and
adequate allocation, taking account of different national starting points and
potentials, including the existing level of renewable energies and energy mix.
All this means there is uncertainty as to the size and nature of the UK’s
contribution to the EU greenhouse gas and renewables targets. To inform
the decision we will need to analyse the full implications of the proposed UK
contributions including: technical feasibility, cost effectiveness, our existing
and potential capacity for deployment of low carbon technologies including
renewables, our overall energy mix and the wider implications for energy
policy including energy security and reliability.
We are already in discussion with European counterparts on these issues. In

parallel we are conducting detailed analysis to explore how the targets agreed
at the EU Spring Council can be implemented in the most effective way. We
shall be engaging actively with interested parties, including energy producers
and users, in taking this work forward.
After a decision has been reached on each Member State’s contribution to the
EU agreement, we will bring forward the appropriate measures, beyond those
set out in this White Paper, to make our contribution to meeting these targets,
and in particular to increase the share of renewable electricity, heat and
transport in our mix by 2020. In the meantime, the measures and market
framework set out in this White Paper allow us to make significant progress
on this important agenda.
Fuel poverty
Our policies to ensure sustainable and reliable supplies of energy through
competitive markets benefit all UK consumers. However, we also need to
consider the social implications of our policy. Our goal remains to ensure that
every home is adequately and affordably heated.
12 The UK figure is from the Digest of the United Kingdom Energy Statistics (DUKES), 2006. The European
figures come from Eurostat. http://epp.eurostat.ec.europa.eu/portal/
page?_pageid=0,1136239,0_45571447&_dad=portal&_schema=PORTAL
13 The UK figure is based on DTI projections – for more detail see UK Energy and CO2 Emissions Projections,
May 2007 http://www.dti.gov.uk/energy/whitepaper. The European figures come from the EU Commission
Renewable Energy Road Map. Renewable energies in the 21st century: building a more sustainable future,
COM(2006)848 final. 23
Executive Summary
A range of policies have been put in place to help achieve this, including the
Warm Front programme (and its equivalents in the Devolved Administrations)
and the Winter Fuel Payment. The Government has also introduced a number
of measures to help low income households including the Pensions Credit and
Working and Child Tax Credits.
The number of households in fuel poverty is still significantly lower than

1996: falling from around 6.5 million households in 1996 to less than 4 million,
despite the price increases of recent years which have reversed some of the
progress we have made. However, we expect long-term global energy prices
to remain higher than previously. In order to meet our continued commitment
to the most vulnerable in society, further action is therefore necessary.
We will better target existing assistance to ensure those who are entitled
to support receive it, for example, by enabling the sharing of benefit data
between organisations responsible for tackling fuel poverty. We will also be
changing Warm Front to offer more benefit entitlement checks. We will be
working with energy companies to encourage all companies to put in place
an effective programme of assistance for vulnerable customers. Together with
the measures stimulated by the funding announced in the 2006 Pre-Budget
Report, we expect our new initiatives to take around 200,000 households
in the UK out of fuel poverty.
However, it is clear that we shall need to do more if we are to meet our

goals for eliminating fuel poverty. We are examining our fuel poverty policies,
looking at the ways in which they might be improved. Next steps will be set
out in the UK Fuel Poverty Strategy Fifth Annual Progress report in summer 2007.
The impact and cost of our proposals

The proposals in this White Paper constitute a comprehensive, ambitious and
well integrated package which will help us make further progress towards our
energy policy goals.
Impact on our energy goals

We estimate that the measures outlined in this White Paper will deliver annual
savings of between 23 and 33 million tonnes of carbon (MtC) in 2020. If our
measures achieve the upper end of the range of savings, we shall be on track
to achieve by 2020 real progress towards our 2050 goal, as set out in the
2003 Energy White Paper. It would also put us just within the 2020 target
range of a 26-32% reduction in carbon emissions on 1990 levels set out in
the draft Climate Change Bill.
There are additional proposals under consideration which could deliver further
carbon savings e.g. surface transport in the EU ETS, the roll-out of smart
meters. In addition, we are consulting on whether it is in the public interest
to allow companies to invest in new nuclear power stations. Any additional
measures required to achieve the UK’s contribution to the EU’s Spring Council
agreement could further reduce UK carbon emissions.
24

Our package of policies will also improve the reliability of our energy supplies
by: maintaining a diverse energy mix; supporting and stimulating the growth
in indigenous energy supplies; incentivising the efficient use of fossil fuels;
and strengthening the market framework to deliver sufficient and timely
investment. As a result of our measures, electricity consumption could be up
to 15% lower in 2020 and gas consumption up to 13% lower than it would
otherwise have been, thereby reducing our need for gas imports. Overall,
we estimate that our measures will improve the energy efficiency of the UK
economy by around 10% by 2020. This would be over and above the 25%
improvement we already expect over that period.
Some existing policies to tackle climate change, including the EU ETS and
the Renewables Obligation are contributing to higher energy prices. We have
analysed the impact of our new measures on retail energy prices. On the
basis of this analysis, we estimate the overall impact of our package of
measures, (excluding EU ETS) as contributing an additional 4% to electricity
prices and 3% to gas prices by 2020. Many of our measures are targeted at
improving energy efficiency; such measures will have little impact on energy
bills, and in some cases will help reduce energy bills as consumers act to
realise their potential savings.
We face challenges in meeting our fuel poverty targets, in part because of

higher energy prices. Better targeting of existing support along with measures
announced in the Pre-Budget Report in 2006 will however reduce the number
of households in fuel poverty by around 200,000.
Impact on the economy

The Stern Review concluded that the benefits of strong, early co-ordinated
action against climate change far outweigh the economic costs of doing
nothing. It estimated that the cost of not taking action could be equivalent to
losing between 5 and 20% of annual global GDP whereas the costs of taking
action can be limited to around 1% of annual global GDP, if the world pursues
the optimum policies.
For this White Paper, building on Stern’s modelling on a global scale, we have
conducted economic modelling of the impacts on the UK economy of tackling
climate change. The analysis indicates that the costs of achieving a 60%
reduction in domestic carbon emissions could be between a 0.3% and 1.5%
reduction in the UK’s GDP in 205014. However, because it is more difficult for
the economy to adjust over the short to medium term, our modelling shows
that the cost of achieving a reduction in domestic emissions of 30% by 2020
could be higher, resulting in GDP being around 1.3% to 2% lower in 2020 than
it otherwise would have been depending on the level of fossil fuel prices.
Even if the cost were 2% of GDP in 2020, we would still see the economy
grow by 40% between now and 2020.
This should not be taken as analysis of the effects of the Energy White Paper
policies, but rather an estimate of the macroeconomic costs of achieving our
carbon goals. The measures in this White Paper are intended to harness the
14 All of the costs presented in this section represent the change in GDP in one year rather than a cumulative
impact or an impact on the GDP growth rate. In the case of the 2050 figures, the costs are compared to a
scenario in which there is no carbon constraint on the economy. In the case of the 2020 numbers, the
costs are compared to a scenario where no carbon price is applied to the economy. 25
Executive Summary
most cost-effective ways of making carbon savings. Moreover, the modelling
results presented here are based on domestic action. UK costs would be
lower in the context of multilateral action and if there is scope for the UK to
invest in more cost-effective abatement opportunities abroad, such as through
the EU ETS, as provided for in the draft Climate Change Bill. Therefore, we
believe that they will deliver significant carbon savings by 2020 at a lower
cost than the 1.3-2% range.
Delivery
Meeting the challenges of energy security and climate change will require
strong international co-operation as a priority, both in taking forward the
EU energy strategy and more widely. At home, it will require action by the
Government, business and individuals. It is the Government’s role to create
the right conditions and incentives so that everyone can play their part.
Success will require not only the right conditions for the large scale
investment we need but also the skills and experience in our workforce to
deliver that investment and ensure that our vital infrastructure is effectively
and safely run. We are asking the Sector Skills Councils to report on skills
gaps in the energy sector and action being taken to address them.
Some of the measures in this White Paper do not require legislation and
will be taken forward over the coming months. Some will require further
consultation. Other measures will require legislative changes: it is our
intention to bring forward those proposals as soon as Parliamentary time
allows. Plans for this will be closely co-ordinated with those for the Climate
Change Bill.
We will further develop our policies in the light of the implementation of

the EU’s strategic energy policy, in particular the legislation on further
liberalisation of the EU energy markets, on Phase III of the EU Emissions
Trading Scheme and on the implementation of the EU greenhouse gas and
renewable energy targets.
We will take forward the proposals and further work set out in this White
Paper, in accordance with the principles of better regulation. In keeping with
our better regulation agenda we are undertaking a review to be completed in
autumn 2007 of major climate change instruments looking to ensure there are
no unnecessary duplications, inconsistencies or conflicts between existing
regulatory regimes and suggest how these can be resolved in order to
ensure that the regulatory burden on business is kept to a minimum.
Some matters which relate to energy policy in Scotland, Wales and Northern
Ireland are the responsibility of the Devolved Administrations, and therefore,
decisions on those matters are made in the light of each administration’s
particular circumstances. In line with the devolution settlements in Scotland,
Wales and Northern Ireland, all proposals in this White Paper which touch on
devolved matters will be progressed in accordance with the principles set out
in the Memorandum of Understanding. It is expected that the Devolved
26

Administrations will want to consider in due course how to take forward
their responsibilities that are relevant to energy policy. The Department of
Enterprise, Trade and Investment in Northern Ireland has already indicated that
it is committed to achieving the UK's energy goals and developing initiatives in
tandem with the UK Government.
27
Executive Summary
CHAPTER 1
Energy and climate

security: a global
challenge
1.1 The United Kingdom has a challenge in common with every other nation
of the world. Energy is essential for economic growth, and although the link
between growth and energy use has become weaker the world’s demand for
energy is increasing rapidly, leading to greater competition for finite natural
resources. Energy that comes from fossil fuels produces greenhouse gases
which if not mitigated, threaten the stability of the world’s climate (see Box
1.1). We will need to tackle that challenge as our own natural resources
decline, and we become more dependent on imported fuels. We need therefore,
to establish a strategy which delivers both energy and climate security. It is
not sustainable to achieve one without the other. The investment decisions
taken over the next two decades, will be critical in determining the world’s
energy and climate security and, therefore, its economic future.
1.2 This chapter sets out:

• The global nature of the energy security and climate challenges;
• how global trends will affect the UK; and
• the UK’s integrated international strategy to mitigate climate and energy
security risks.
BOX 1.1 RISING GLOBAL ENERGY DEMAND WILL INCREASE

CARBON EMISSIONS
The International Energy Agency’s “business as usual” analysis takes

into account policies already enacted or adopted by Governments up to
mid-2006*. It forecasts that between 2004 and 2030:
• global primary energy demand will rise by 53%, leading to a 55%
increase in global carbon dioxide emissions related to energy;
• fossil fuels will remain the dominant source of energy worldwide,
meeting 83% of the increase in energy demand;
• emissions from power generation will account for 44% of global
energy-related emissions by 2030, as demand for electricity rises;
• coal will provide the largest incremental source of power generation,
with the majority of this increase likely to be in China (55%);
• over 70% of the increase in global primary energy demand will come
from developing countries, reflecting rapid economic and population
growth; and
• some $20 trillion of investment will be needed throughout the energy
supply chain.
The challenge facing the world is to meet rising energy demand, to
support economic growth while moving towards a low carbon economy.
* IEA, World Energy Outlook, 2006

28

The impacts of climate change and the case
for action
1.3 The role of human activity in changing the climate is now clearer than ever
and there is strong evidence of the need to take urgent action to combat
climate change11 .
1.4 Atmospheric concentrations of carbon dioxide are at their highest for

at least 650,000 years12. The current stock of greenhouse gases in the
atmosphere is equivalent to around 430 parts per million (ppm) of carbon
dioxide13, compared with only 280 ppm before the industrial revolution.
Increased concentrations have already caused the world to warm by 0.74°C in
the last century and will lead to at least a further half degree of warming over
the next few decades, regardless of what we now do to reduce emissions.
1.5 If annual global emissions were to remain at today’s levels, the stock of
greenhouse gases in the atmosphere would reach double pre-industrial levels
by 2050: at around 550 ppm. At this level, there is a high probability of a global
average temperature rise exceeding 2°C. In reality, however, global emissions
are set to accelerate from today’s levels, as demand for energy rises.
1.6 In its World Energy Outlook 2006, the International Energy Agency (IEA)
considers what would happen if countries were to adopt all policies currently
considered to address energy security and energy-related climate change. Even
in this scenario, global emissions related to energy are still projected
to rise by 31% by 2030.
1.7 The Stern Review of the Economics of Climate Change14 highlights the
economic costs of failing to act to tackle climate change:
“With 5-6°C warming – which is a real possibility for the next century – existing
models that include the risk of abrupt and large-scale climate change estimate
an average 5-10% loss in global GDP, with poor countries suffering costs in
excess of 10% of GDP.”
1.8 Moreover, Stern estimates that the dangers of unabated climate change
could be equivalent to at least 5% of GDP each year and could possibly rise
to 20% of GDP or more if a wider range of risks and impacts are taken
into account.
1.9 The costs of mitigating climate change, though significant, are substantially
lower and are manageable for the world’s economy.
The annual cost of stabilising greenhouse gases in the atmosphere at between
450 and 550 ppm of carbon dioxide equivalent is estimated to be around 1%
of GDP in 205015.
11 Conclusions of the Fourth Assessment Report of the Intergovernmental Panel on Climate Change
12 The Stern Review of the Economics of Climate Change, 2006.
See http://www.hm-treasury.gov.uk/independent_reviews/stern_review_economics_climate_change/
sternreview_index.cfm
13 Greenhouse gas emissions can be measured in terms of their estimated global warming potential on an
equivalent basis to those from carbon dioxide
14 The Stern Review of the Economics of Climate Change, 2006
15 The Stern Review of the Economics of Climate Change, 2006 29
Energy and climate security: a global challenge

1.10 Even to achieve stabilisation at 550ppm, Stern’s analysis suggests that,
global greenhouse gas emissions need to peak in the next 10-20 years. Stern
points out that new investment over the next 10-20 years will have a profound
effect on the climate in the second half of this century and the next. Failing to
take the right action now and over the coming decades risks major disruption
to economic and social activity, which would be very difficult to reserve.
1.11 Climate change is not simply an environmental problem, but a threat to

international peace, security and development. It has far-reaching implications
for the global economy and our prosperity. The most recent report of the
Intergovernmental Panel on Climate Change (IPCC)16 predicts that climate
change will bring severe consequences, including rising temperatures and
higher sea-levels, as well as an increase in extreme weather events such as
heat-waves, floods and droughts. As a result:
• up to 100 million people worldwide could be at risk of flooding by the
2080s;
• in Bangladesh, for example, a 1.5m sea-level rise would lead to
displacement of 17% of the population; and
• between 75 and 250 million people in Africa could face increased pressure
on water resources as early as the 2020s, while rain-fed agriculture could
have yields reduced by 50% in some countries.
1.12 These regional impacts will have global repercussions as we see the
growth of environment related migration. Regional impacts could also create
potential disruptions to international production and trade.
1.13 Taking urgent action to mitigate the effects of climate change is the only
strategy consistent with long-term economic growth and global stability. The
UK’s views on a long-term international framework for tackling climate change
are set out in Box 1.2
BOX 1.2: BUILDING A LONG-TERM INTERNATIONAL FRAMEWORK

FOR TACKLING CLIMATE CHANGE
We need to work with other nations to establish an international

framework to tackle climate change from 2012 onwards (once the first
Kyoto commitment period comes to an end). It will need to be consistent
with the principle of common but differentiated responsibilities established
in the UN Framework Convention on Climate Change.
The UK considers that there are five essential elements to this framework:
• A shared vision of the long-term goal for stabilising greenhouse gas
emissions to provide a yardstick for international efforts and give
certainty to business about the future direction of travel;
• carbon pricing and emissions trading; establishing a global carbon
price would stimulate investment by the private sector in clean
technology and energy efficiency. Emissions trading, driven by deeper
emissions targets in developed countries, could generate significant
transfer of resources to developing countries through innovative
mechanisms such as the Clean Development Mechanism;
16 IPCC 2007. Working Group II: Climate Change 2007; Impacts, Adaptation and Vulnerability; Summary for
30 Policy Makers

BOX 1.2 CONTINUED
• international cooperation on technology and energy efficiency to

stimulate and accelerate research and deployment of low carbon
technologies and overcome barriers to cost-effective action to reduce
demand for energy;
• incentives for sustainable forestry management that reflect the value
of avoiding deforestation; and
• support for developing countries to adapt to the unavoidable impacts
of climate change.
More detail on these issues and the Government’s wider international

climate change work programme can be found at
http://www.defra.gov.uk/environment/climatechange/internat/index.htm
Securing energy supply

1.14 On current trends, world demand for energy is set to increase by 53%
between 2004 and 2030. Even if action is taken to save energy, reflecting the
need to reduce emissions, a significant increase in demand is still likely,
requiring a substantial response in energy supplies.
1.15 The IEA17 reports that global oil and gas reserves are sufficient to sustain
economic growth for the foreseeable future. But they are concentrated in
relatively few locations around the world (see Box 1.3)
BOX 1.3 PRIMARY ENERGY RESERVES
Proven oil reserves are concentrated in the Middle East and North Africa,
together accounting for over 62% of the world total. As a result, the
OPEC* share of global oil production is projected to increase from 40% in
2006 to around 50% in 2030**. Outside OPEC, only Russia, Central Asia,
Latin America, and Canada are likely to achieve any significant long-term
increases in oil production.
Although natural gas resources are more widely dispersed than oil, some
56% of proven reserves are found in just three countries: Russia, Iran and
Qatar. Liquefied Natural Gas (LNG) – which can be transported by tanker -
is set to play a more important role in future. However, because pipelines
will remain the principal means of transporting gas, gas markets will
remain regional in the short to medium-term.
By contrast, coal is found in very many countries around the world and is
easily transported. For these reasons, coal already provides 40% of global
electricity and is likely to play an important role in the world’s energy mix
for many years to come. But its emissions are high: over twice those
produced by burning gas. Further improvements in the efficiency of coal-
fired generation and technologies such as carbon capture and storage will
be necessary if the world is to make good use of fossil fuel to provide
reliable energy without undermining climate security (see chapter 5.4).
* Organisation of Petroleum Exporting Countries
** IEA, World Energy Outlook
17 Resources to Reserves – Oil and Gas Technologies for the Energy Markets of the Future, IEA 2005 31

1.16 The future pattern of energy supply and demand points to a growing
mismatch between the regions in which energy is needed and those in which
natural resources are located. As a result, we can expect to see increasing
trade in fossil fuels between regions of the world. Longer supply lines, will
increase the risk and impact of disruptions to energy supplies. Figure 1 gives an
impression of the regional energy flows for gas in 2030 as forecast by the IEA.
FIGURE 1.1 REGIONAL ENERGY FLOWS OF GAS (2004 AND 2030) – IEA WORLD
ENERGY OUTLOOK, 2006 (BILLION CUBIC METERS)
1.17 Our security of supply challenge, therefore, lies in recovering and

bringing energy resources to market. The IEA estimates that between 2005
and 2030, worldwide investment of over $8 trillion is required in the gas and
oil sectors, and over $11 trillion in the power sector, much of which is likely to
be in developing countries18.
1.18 A number of risks have the potential to defer or restrict the level of
future energy investment which could undermine the reliability of future
energy supplies:
• Oil and gas supplies are concentrated in regions which include less
stable parts of the world;
• resource nationalism is rising, with a greater degree of state intervention
restricting or discriminating against equal access to resources. Energy
reliability may be affected if energy reserves are used for political ends
which conflict with commercial objectives;
• the role of ‘national champions’ in natural resource production brings
risks because, nationalised industries lack the incentives to exploit natural
resources in the most efficient manner, or to produce the same levels of
investment. They may also be more susceptible to political influence;
• significant market power, including over reserves and the use of pipelines
for energy transportation, enables some countries to exert significant
influence over prices and supply. Co-ordination between a number of
32 18 IEA, World Energy Outlook, 2006.

supplier countries about production levels and investment decisions could
increase their market power, reducing market effectiveness;
• inadequate information about the production, consumption and stocks of
fuels can exacerbate fluctuations in oil and gas prices. This volatility can
deter long-term investments;
• regulatory uncertainty can also undermine confidence amongst
investors. While there is a consensus emerging that our climate is
changing, views about the direction of climate policies and their potential
impact on the demand for energy differ sharply between energy-
consuming and producing nations; and
• the threat of terrorism, accident and natural disaster can: increase the
likelihood of supply disruptions, particularly when energy is being moved
across great distances; hamper investment; and increase the costs of oil
and gas production.
How will these trends and risks affect the UK?

1.19 As our own natural resources decline, and are only partly replaced
by indigenous supplies of energy such as wind, the UK will become more
dependent on imported fuels to meet its energy demand. By 2020, around
80% of our fuels are likely to come from overseas.19
1.20 As a result, the UK will face greater exposure to developments in the

global energy system, including other countries’ reactions to global trends.
In particular:
• The UK faces the costs of dealing with the impacts of sustained increases
in global emissions:
– direct costs, such as storm damage, implementing protection measures
(such as coastal defences) and the loss of valuable low-lying land under
rising sea levels;
– the loss in value of assets in areas most at risk from climate change
impacts and the associated increase in insurance costs; and
– a share in the global costs of managing accelerating immigration,
as populations are forced from their homes;
• consumers could face higher and more volatile energy prices not only
because of higher demand and the need to exploit resources in more
challenging circumstances, but because of insufficient investment and less
efficient methods of production and transportation;
• international relationships with both consuming and producing nations on
a wide range of issues may become more complex, if energy supply is
used as a political lever; and
• the UK will be more vulnerable to the risk and impact of overseas
disruptions to energy supplies in future, caused by international disputes,
accidents or terrorism, as supply routes become longer and cross more
borders.
19 Based on DTI baseline projections of energy demand and domestic production (without measures included
in this White Paper). See UK Energy and CO2 Emissions Projections, May 2007
www.dti.gov.uk/energy/whitepaper 33

Our international energy and climate strategy
1.21 Our new international energy and climate change strategy is designed to
ensure security of energy supply and accelerate the transition to a low-carbon
global economy. This Government has long been active in promoting the need
for integrated climate and energy policies on the international stage,
particularly through Europe (see Box 1.4). We need to do more to save energy,
but demand will continue to rise, and we must promote investment to secure
supplies of energy consistent with economic growth, while reducing
emissions. The measures required to achieve this will need to be put in place
over the next two decades.
BOX 1.4 EU ENERGY POLICY
At the summit led by the UK in 2005, EU leaders gave the European

Commission a mandate to develop a common energy policy for the first
time. In March 2007, the European Council approved an ambitious climate
change and energy package to build a low carbon economy in Europe. The
Council agreed:
• That developed countries should continue to take the lead by reducing
their greenhouse gas emissions by 30% by 2020 compared to 1990
levels with a view to reducing them by 60% to 80% by 2050;
• that the EU should cut greenhouse gas emissions by 30% by 2020
compared to 1990 levels in the context of a global and comprehensive
international agreement; and make a firm independent commitment to
cut greenhouse gases by at least 20% by 2020;
• to implement the EU’s energy efficiency action plan as the means of
reducing the EU’s energy consumption by 20% by 2020; and
• on a binding target of a 20% share of renewable energies in overall EU
consumption by 2020, and a 10% minimum binding target for the use
of biofuels.
The Council also welcomed the Commission’s intention to establish a

mechanism to stimulate the construction and operation by 2015 of up to
12 demonstration plants of CCS technologies in commercial power
generation, with the ambition for all new fossil fuel plants to be fitted
with CCS by 2020, if it is technically and economically feasible to do so
(see section 5.4).
We are already in discussion with European counterparts on these issues.

In parallel we are conducting detailed analysis to explore how the
agreement can be implemented in the most effective way, and how the
UK can best contribute to it. We shall be engaging actively with interested
parties, including energy producers and users, in taking this work forward.
34

1.22 Our international strategy is built around four main elements:
1. Promoting open, competitive energy markets which provide fair access

to energy supplies, foster investment throughout the energy supply chain and
deliver diverse, reliable supplies at competitive prices. Governments are
responsible for establishing the market framework, based on clear, stable
and non-discriminatory rules, and for the effective regulation of the market.
Effective markets will ensure that the world’s finite natural resources are used
in the most efficient way and ensure that we make the transition to a low
carbon economy at least cost. Governments also have a role in planning for
contingencies (such as major disruption to supplies), where markets alone
would be unable to manage the impact.
2. Taking action to put a value on carbon emissions. It is for governments

to ensure that the costs of environmental damage caused by carbon
emissions are taken into account by consumers and businesses. Establishing
a price for carbon provides an incentive to use energy more efficiently and
ensures investments reflect the costs of climate change. This enables low-
carbon technologies to compete with other forms of energy production,
reducing emissions and improving our energy security.
3. Driving investment to accelerate the deployment of low carbon

technologies. We need to bring about a step-change in global investment
in low carbon technologies, including renewables. This will help ensure that
the UK and other nations benefit from a diverse supply of low carbon
technologies, including those which enable the use of fossil fuels in ways
which are consistent with reducing greenhouse gas emissions. Governments
have a role in supporting research, development and demonstration of near
commercial and new technologies, as well as scaling up international
collaboration to promote the deployment of existing low-carbon products.
4. Promoting policies to improve energy efficiency. This is the most cost-

effective means of tackling emissions while improving energy security. We
need to work in cooperation with other governments and with businesses
throughout the supply chain to set high environmental standards, encouraging
innovation and competition to phase out the least efficient products, as well
as share experience about market and other mechanisms to encourage the
efficient use of energy. We will work with developing nations to find ways to
secure reliable and affordable energy supplies which contribute to sustainable
growth and poverty reduction. We will encourage them to move beyond older
technologies to acquire the most efficient and sustainable solutions as a first
choice in their economic development.
35

Open, competitive energy markets
1.23 In order to create the right framework for investment, our priorities are to:
• establish fully liberalised European energy markets by 2010;
• extend the application of market principles beyond the boundaries of the
European Union;
• improve market-functioning and transparency in the global oil and gas
markets;
• promote good governance, including investment, amongst producer
countries; and
• ensure there is a robust assessment of our exposure to risks, as the UK
imports more fuel, and consolidate international plans for contingencies.
1.24 An open European market is essential to ensure that the UK can draw
on adequate and competitively priced supplies of gas to meet demand.
Without it, we face the threat of supply disruptions and volatile prices. It is
now generally recognised that further action is necessary to achieve full
liberalisation. We therefore welcome the strong action the European
Commission is taking to enforce the package of EU legislation passed in 2003,
and its taking decisive action when competition rules are broken. We strongly
support the proposals set out in the Commission’s Strategic Energy Review,
endorsed at the EU Spring Council in March 2007.
1.25 To ensure a fully liberalised European market by 2010, we will:

• Support more effective unbundling. When one company owns energy
production, supply and the transmission networks, it has an incentive to
exclude new entrants to the market. We believe the most effective way to
prevent this situation is to ensure that the company which owns and
operates the network has no production or supply interests - “ownership
unbundling”;
• support proposals to increase the powers of EU regulators to the highest
level and improve co-operation between regulators. At present EU
regulators are only responsible for protecting national consumers and
many have limited powers;
• increase transparency to enable greater cooperation between
transmission system operators in Europe. Common network standards
and access to transmission and distribution systems must be developed
and made binding in order to increase network security across the EU; and
• promote consumer choice to ensure that all EU non-domestic consumers
have a real choice as to their supplier.
36

1.26 To extend the application of market principles beyond EU
boundaries, we will:
• Support wider membership of the Energy Community Treaty20 to include
countries such as Ukraine and Turkey, and work with EU member states in
using this Treaty as a potential model for other areas;
• continue to raise the profile of energy within the Euromed partnership
and campaign for full engagement by all participants;21
• work to establish a process which encourages countries such as
Azerbaijan, Kazakhstan and Turkmenistan to determine and develop their
gas and oil potential and to facilitate the development of new transit
infrastructure, in the interests of enhanced competition and more diverse
supplies into Europe; and
• maintain our advocacy of open and competitive markets by encouraging
greater implementation and wider membership of the Energy Charter
Treaty22 and ensure that negotiations on a new set of Partnership and Co-
operation (trade) agreements with third countries (beginning with Russia in
2007) reflect its principles.
1.27 To improve market-functioning and transparency further, we will:

• support international efforts to improve the consistency and clarity of
reporting on global oil and gas reserves;
• promote the UK as an attractive market for LNG, including as a gateway to
Europe through inter-connectors;
• work through the International Energy Forum to promote better
understanding about future demand for energy, particularly in relation to
the impact of climate change policies; and
• support the proposal included in the European Commission’s Strategic
Energy Review, to establish an Office of the Energy Observatory to collate
and monitor data on the energy supply and demand balance across the
EU, in the short and medium term, and identify the potential need for
future investment.
20 Details available at www.energy-community.org

21 The Euromed energy partnership is part of wider efforts to develop a free-market area covering North
Africa, Turkey, Syria, Jordan, Egypt, Israel, the Palestinian Authority and Lebanon. Euromed should
encourage inward investment in the region, and enhance Europe’s security of supply.
22 Details available at www.encharter.org 37

1.28 To build on and improve our contingencies planning, we will:
• support the IEA's efforts to encourage non-member countries (such as
China and India) to develop and maintain complementary contingency
arrangements, as the proportion of oil consumed outside the OECD
continues to rise; and
• use the newly established EU network of energy security
correspondents23 and membership of multilateral organisations to share
information about risks to energy security.
1.29 To promote good governance amongst producer countries, we will

campaign for the Extractive Industries Transparency Initiative (EITI)24 to
become a global standard, to ensure that oil, gas and mining revenues
contribute to sustainable development, poverty reduction and therefore,
political stability. In particular, we will:
• work to engage China, Russia, India, Brazil and South Africa whose
state-owned companies are increasingly important global players;
• campaign for a UN General Assembly resolution on extractive industry
revenue transparency to strengthen international action; and
• monitor energy sector governance in major producing countries and be
prepared to offer UK advice and expertise where necessary or requested.
Putting a value on carbon

1.30 Our priorities are to:
• achieve agreement for the EU to adopt a more ambitious carbon trading
scheme in Europe to serve as the basis for an effective global carbon
market; and
• move toward a truly global carbon market which delivers an effective
carbon price internationally by:
– encouraging the development and subsequent linking of national and
regional emissions trading schemes; and
– improving developing country participation through improvements to
the Clean Development Mechanism (CDM)25 to provide greater
certainty and continuity in the market.
1.31 The best way to encourage a change in investment patterns towards a

low-carbon economy, and the most cost-effective way of reducing global
emissions, is to establish a price for carbon. Credible, long-term frameworks
for tackling climate change provide clear signals to industry about the future
path of emissions. Trading mechanisms such as the EU ETS and the CDM
allow cost-effective sharing of the burden of reducing carbon emissions. In
addition, the CDM provides a valuable means of securing low-cost emissions
reductions, while promoting the deployment of low carbon technologies in
developing countries. Alongside the development of a global carbon market,
a range of other policies and regulatory measures will play an important role
in ensuring energy efficiency the deployment of low-carbon energy.
23 An EU network designed to monitor and exchange information about international risks affecting the
Union’s energy security to ensure that the Union can take timely action when faced with specific,
indentifiable threats.
24 Details available at www.eitransparency.org
25 CDM is a mechanism that allows developed nations to achieve part of their greenhouse gas emissions
reduction obligations under the Kyoto Protocol by funding projects in developing countries that reduce
38 emissions

1.32 We are clear about the need to strengthen the EU ETS to deliver a
meaningful carbon price as part of the Commission’s wider set of energy
policy commitments and targets. By engaging business in the process of
developing our position we can understand how best to strengthen the EU
ETS to give business longer-term predictability for their investment decisions.
Continuing to streamline the scheme in line with better regulation principles
will also reduce administrative burdens and improve the cost effectiveness of
the scheme.
1.33 We want the EU to:

• Agree a new and ambitious Directive. This will be based on proposals
which the Commission should bring forward as soon as possible;
• make early decisions on emissions caps to provide business with
confidence that there will be a meaningful long-term carbon price.
Announcing our long-term intentions for the EU ETS will provide early
certainty for investors in low carbon technologies and signal EU-wide
commitment to reduce carbon emissions beyond 2012. We need to
signal the downward direction of EU emissions reductions much further
into the future;
• set EU ETS caps to help deliver the EU’s commitment to cut its greenhouse
gas emissions in a cost-effective manner by 30% by 2020, in conjunction
with other industrialised countries (and a 20% reduction in any event).
The carbon constraint imposed by EU ETS should tighten over time;
• move towards increased auctioning of allowances in future phases of the
EU ETS to improve the efficiency of allocating allowances, while taking
account of competitiveness implications;
• allow carbon capture and storage installations to be brought within the
scope of the EU ETS during Phase II, and for them to be explicitly
recognised in the Directive from Phase III;
• explore the potential to expand the scheme to cover additional sources of
emissions, including surface transport, and press ahead with the inclusion
of aviation;
• consider the scope for greater harmonisation of the ways in which
member states operate the scheme, particularly in areas such as
allocation, to tackle concerns about competitiveness impacts; and
• move to ensure the EU ETS is at the centre of a global carbon market
post–2012, by considering how the Directive should be amended to
facilitate the future linking of EU ETS to other schemes.
1.34 Full details of our strategy to strengthen EU ETS are set out in Annex C
to this White Paper. In March 2007, we published a paper calling for views on
some of the key issues we believe are important to the future operation of
the Scheme.26 This will further develop our understanding of the views of
industry, NGOs and other interested parties.
1.35 We are confident that the EU ETS will evolve to deliver a robust long-
term carbon price signal to investors. However, we will keep open the option
of further measures to reinforce the operation of the EU ETS in the UK if this
should be necessary to provide greater certainty to investors.
26 Available on Defra website at

http://www.defra.gov.uk/environment/climatechange/trading/eu/future/review/index.htm#5 39

1.36 To scale up and reform the Clean Development Mechanism to
provide greater certainty and continuity in the market, we will:
• work through the EU to strengthen the EU ETS to stimulate demand for
CDM credits;
• press the UN to ensure that CDM credits from projects registered before
2012 will remain valid after 2012 and therefore be eligible for compliance in
ETS Phase III;
• support development and piloting of new trading instruments which
facilitate enhanced participation of developing countries, including different
ways of crediting emissions reductions within the CDM, such as
programmatic and sectoral approaches;
• press the UN on early recognition of carbon capture and storage as a low
carbon technology in the CDM in order to support its demonstration and
deployment in major emerging economies such as China and India; and
• seek to ensure that the UN project mechanisms including the CDM,
deliver real emission reductions. The UK supports the continued
improvement in the procedures for the setting of baselines, and for the
establishment of additionality. Increased transparency and public scrutiny
can also play an important role in ensuring high standards are met.
Driving investment to accelerate the deployment of low carbon

technologies
1.37 Our priority is to overcome the barriers to the deployment of low-

carbon technologies, in developing countries and in particular to:
• promote the development and deployment of near commercial and new
technologies;
• create the right incentives for private sector investment, as well as directly
supporting the development of new technologies where this is justified;
and
• mobilise finance for low-carbon energy investment on a wide scale,
including through creating policy and regulatory incentives.
1.38 The bulk of the investment necessary to deliver energy and climate security
will come from the private sector. But governments have a responsibility to
create the right incentives and frameworks to enable a rapid transition to a low
carbon economy. While putting a value on carbon can help to “pull” investment
towards low carbon technologies, there is also a role for governments in
“pushing” that investment, by encouraging research, development,
demonstration and deployment of these technologies. There are considerable
benefits from international collaboration given the large costs involved.
1.39 Analysis in the Stern Review suggested that, in 2004, around $33 billion
was spent worldwide on supporting low-carbon energy technology
deployment. This public support needs to be doubled at least, and may need
to increase five-fold, over the next 20 years to encourage private investment
and deployment at the necessary level.
40

1.40 We welcome the agreement by the European Council, in March 2007, to
set stretching targets for tackling greenhouse gas emissions. The Council also
agreed a package of measures for advancing the deployment of low carbon
technologies, including CCS (see Box 1.5) and renewables. In particular, the
Council agreed that the EU should have a binding target for 20% of its energy
consumption by 2020 to be met by renewables. The target covers the energy
we use in heat and transport as well as electricity. They also agreed a 10%
binding minimum target, to be achieved by all Member States, for the share
of biofuels in EU petrol and diesel consumption; this is subject to conditions,
including that the production of biofuels is sustainable.
1.41 The 20% renewables target is an ambitious goal representing a large

increase in Member States’ renewables capacity. Latest data show that the
current share of renewables in the UK’s total energy mix is around 2% and
for the EU as a whole around 6%27. Projections indicate that, on the basis
of existing policies in the UK and the EU, by 2020, renewables would
contribute around 5% of the UK’s and are unlikely to exceed 10% of the
EU’s consumption28.
1.42 In developing proposals for the renewables target, the Commission will
need, as agreed by the European Council, to give due regard to a fair and
adequate allocation, taking account of different national starting points and
potentials, including the existing level of renewable energies and energy mix.
1.43 After a decision has been reached on each Member State’s contribution
to the EU Spring Council agreement, it is very likely that the UK will need to
take further measures, beyond those set out in this White Paper. We will bring
forward appropriate policies to increase the share of renewable electricity,
heat and transport, in our mix by 2020 and make our contribution
to meeting this target. We shall need to make efforts across the whole
spectrum of energy policy from energy efficiency to the development of a
wide range of energy technologies. In the meantime, the measures and
market framework set out in this White Paper allow us to make significant
progress in deploying renewables.
BOX 1.5 CARBON CAPTURE AND STORAGE (CCS)
It is in our own vital interest that the technologies necessary to make coal
generation low carbon are developed and deployed as rapidly as possible,
since fossil fuels will continue to be a significant part of the energy mix
globally for some time to come (on the basis of governments’ present
policies, fossil fuels will provide almost 70% of global electricity demand
by 2030)*.
* IEA, World Energy Outlook 2006
27 The current UK figure is from the Digest of United Kingdom Energy Statistics (DUKES), 2006.
The current European figures come from Eurostat. http://epp.eurostat.ec.europa.eu/portal/
page?_pageid=0,1136239,0_45571447&_dad=portal&_schema=PORTAL
28 The 2020 projections for the UK figure is based on DTI projections – for more detail see ‘UK Energy and
CO2 Emissions Projections’, May 2007 http://www.dti.gov.uk/energy/whitepaper. The 2020 projections
for the European figures comes from the EU Commission Renewable Energy Road Map. ‘Renewable
energies in the 21st century: building a more sustainable future’ COM(2006)848 final. 41

BOX 1.5 continued
The development and wide-scale deployment of carbon capture and

storage is therefore important for our climate change and energy security
objectives, since CCS has the potential to reduce carbon dioxide
emissions from fossil fuel power stations by as much as 90%. We
therefore need to drive the development and deployment of low carbon
technologies that can be applied to fossil fuel fired power generation
including CCS.
In March 2007 the European Council agreed to strengthen Research and

Development and develop the necessary technical, economic and
regulatory framework to deploy CCS by 2020. The Council also welcomed
the Commission’s intention to establish a mechanism to stimulate the
construction and operation by 2015 of up to 12 demonstration plants of
CCS technologies in commercial power generation, with the ambition for
all new fossil-fuel plants to be fitted with CCS by 2020, if it is technically
and economically feasible to do so. The UK Government committed in the
Budget in 2007 to launch a competition to support the commercial scale
demonstration of CCS. When operational, this will make the UK a world
leader in this globally important technology (see section 5.4 for further
details).
The UK welcomes the EU aspiration and considers the UK demonstration

to be a potential contribution to this approach. In addition, we would like to
see the EU-China Near Zero Emissions Coal (NZEC) demonstration closely
coordinated with the wider European demonstration effort. China is a
crucial partner for collaboration as its domestic energy security is heavily
dependent on rapidly expanding coal fired power generation which has
significant implications for future carbon dioxide emission levels.
NZEC was announced in September 2005 at the EU-China Summit. It

is expected to result in the construction of the first CCS demonstration
project outside the OECD by 2020. The project has three phases:
• Phase 1 (2006–2008) – to identify early demonstration opportunities;
• Phase 2 (2009–2010) – to define, plan and design the project; and
• Phase 3 (2011 onwards) – to construct and operate the project.
Phase 1 is already underway with €1.5 million of EU funding and a UK
contribution of £3.5 million.
The project is making good progress. The detailed scope has been agreed
with our Chinese partner, the Ministry of Science and Technology, and the
procurement process for European partners has been completed. We will
announce details of the successful consortia shortly.
Other international outreach and collaborative initiatives are set out in

section 5.4.
1.44 To overcome global barriers to the development and deployment of low

carbon technologies, to create the right incentives and to mobilise finance for
42 clean investment on a wide scale, we will:

• promote and exploit international sources of collaborative funding such
as the EU Framework Programme and lending from the European
Investment Bank. We are actively participating in the development of the
first EU Joint Technology Initiatives to extend EU support into
demonstration of low-carbon energy technologies;
• transform UK funding of research and development, increasing levels of
investment and bringing together public and private sector contributions;
and
• consider how to reduce tariffs and other barriers to the trade of low
carbon goods and services, and so accelerate the deployment of low-
carbon technologies.
1.45 The new Energy Technologies Institute will seek international

opportunities to deliver its remit on research and development. As well as
supporting innovation and energy efficiency, the UK’s new Environmental
Transformation Fund will help development and poverty reduction through
environmental protection in developing countries. In addition, we will:
• disseminate the lessons learned from UK technology development among
major emerging economies, sharing policy expertise and our understanding
of economic incentives;
• work in partnership through multilateral organizations such as the IEA, the
Carbon Sequestration Leadership Forum and the International Partnership
for the Hydrogen Economy to share knowledge and to overcome barriers
to deployment;
• work with emerging economies like China and India to deliver collaborative
research and development, building on UK technology expertise. DTI and
the UK’s energy research organisations will make an announcement later
this year about a joint programme of funding for collaborative R&D with
developing countries;
• work with developing countries and relevant organisations to develop new
mechanisms to assist their efforts in adopting a low-carbon development
path; and
• work with the international finance institutions (for example the World
Bank’s Clean Energy for Development Investment Framework)29, to scale
up financing for low carbon energy projects in developing countries
including by the the private sector.
Promoting energy efficiency

1.46 Our priorities are to:
• achieve the EU target of saving 20% of the EU’s energy consumption
by 2020 by improving energy efficiency across member states;
• push for the rapid implementation of five priorities contained within
the EU Energy Efficiency Action Plan: transport; improved efficiency
requirements for equipment; improving consumers’ energy-saving
behaviour; technology and innovation; and realising potential energy
savings from buildings in order to complement and facilitate action in
the UK;
29 The Clean Energy for Development Investment Framework aims to increase access to modern energy in
Africa, help large emerging economies adopt low carbon energy options and help countries to adapt to the
impacts of climate change. In March 2007, the World Bank produced an action plan leading up to the G8
Summit in Japan in 2008. 43

• work with G8 partners to implement the actions agreed at the Gleneagles
Summit in 2005 and at St Petersburg in 2006 and commit to further
efforts to promote energy efficiency; and
• continue to work with the international development community to
improve access to clean energy and increase energy efficiency in the
developing world.
1.47 Increasing our energy efficiency is the least expensive and most
immediate way of addressing all of our energy and climate goals
simultaneously. Saving energy reduces carbon emissions, cuts fuel bills for
consumers and boosts profits for business. The IEA has estimated that global
energy demand would be 50% higher today, without the energy savings
achieved since 1973. And there is substantial potential for further savings to
be made. Energy efficiency is a crucial element of our international strategy.
We therefore support the Commission’s proposal to develop an International
Framework Agreement on Energy Efficiency with both developing and
developed countries.
1.48 To help ensure rapid implementation of the EU Energy Efficiency

Action Plan, we will:
• Press for adoption and implementation of the new EU minimum energy

performance standards for 14 priority product groups including boilers,
water heaters, consumer electronics, copying machines, televisions,
stand-by modes, chargers, lighting, electric motors and other products by
the end of 2008 (see also chapter 2) and where possible, raise standards
by voluntary actions, in advance of EU regulations;
• improve consumer product information, for example, through updating and
broadening of the EU Energy Labelling Framework Directive and stimulate
innovation and competition in the supply chain to provide more energy
efficient goods and services;
• realise significant energy-saving potential in the buildings and transport
sectors, in particular by:
– supporting the EU move to expand the scope of the Energy
Performance of Buildings Directive;
– encouraging the adoption of an ambitious market transformation
strategy to deliver zero-carbon new homes across the EU; and
– improving vehicle efficiency standards;
• drive energy efficiency in the energy intensive sectors through
strengthening the EU Emissions Trading Scheme;
• help small and medium-sized businesses to finance energy efficiency
investments by working with European financial institutions; and
• ensure energy efficiency is given greater attention in the EU’s external
relations and dialogues with energy producers and consumers and support
and help facilitate an international framework agreement for energy
efficiency to act as a high level platform for international co-operation and
collaboration.
1.49 To implement the priorities agreed at Gleneagles in 2005 and

St Petersburg in 2006, we will work with G8 partners to:
• Implement the IEA’s “One Watt Initiative” by helping to develop and by
adopting practical standards for stand-by power consumption for new
44 appliances to be one watt or less by 2010;

• develop coherent product policy measures, through the International
Task Force on Sustainable Products and through other co-operative
mechanisms, which are effective in providing reliable consumer
information and in driving up efficiency standards, including for
set-top boxes and digital televisions, energy efficient lighting and
fuel-efficient tyres;
• adopt ambitious standards for energy efficiency in buildings and
promote a shift to low and zero-carbon homes;
• develop and deploy cleaner, more efficient and lower-emitting vehicles,
whilst raising consumer awareness of the environmental impact of their
vehicle choices;
• take forward further recommendations for action from the International
Energy Agency expected in 2007 and 2008; and
• enhance international co-operation on energy efficiency by working
closely with key emerging economies.
1.50 To improve access to clean energy, especially for poor households

and communities, we will work with the international development
community to:
• Use effectively the new Infrastructure Consortium for Africa, to address
critical constraints to the provision of regional infrastructure in Africa and
provide a platform for brokering investments, including in clean energy
production such as hydropower;
• commence in 2007 a five-year, £3.8m energy research programme to
improve access to reliable and affordable energy services in developing
countries, especially in rural areas using renewable energy resources;
• launch a 4-year £4m energy partnership programme aimed at starting and
growing small and medium sized energy service enterprises in low-income
developing countries;
• increase attention to energy within European Union development
assistance programmes, such as through our support for the EU Energy
Initiative in the promotion of sound and affordable national and regional
energy policies in Africa. This includes efforts to make use of local and
natural resources including renewable energy to improver access; and
• identify the options and implications of producing liquid fuels from crops as a
possible way of reducing developing countries’ reliance on imported fossil fuels.
BOX 1.6 ACCESS TO ENERGY FOR DEVELOPING COUNTRIES

In developing countries, the lack of reliable and affordable energy supplies
and services is both a cause and a symptom of poverty. The IEA estimates
that about 1.6 billion people – a quarter of the world’s population – have no
electricity in their homes. A far greater number of people – about 2.4
billion – collect basic biomass fuel (such as charcoal, wood, straw and
animal waste) for their daily heating and cooking. We are working with the
international development community such as the United Nations, the
World Bank and other international finance institutions and with the
European Community to improve access to clean energy, especially for
poor households and communities. We have helped to set up a new
Infrastructure Consortium for Africa, with a secretariat now established in
the African Development Bank.
45

Taking this agenda forward
1.51 Our place in Europe, and our ability to influence through Europe, is of
particular importance. We benefit by being part of a larger energy market and
by speaking to other governments with a common voice.
1.52 Our relationships with the world’s major economies will remain important.
• As a net importer of energy, the United States shares our interest in the
efficient operation of energy markets. The Federal Government has a
strong track record in long-term development of energy technology, such
as hydrogen fuel cells, building on America’s strength in commercial
innovation. The United State’s experience – and view about the need for
urgent action to tackle climate change – will be significant in developing a
multilateral framework for action beyond 2012.
• So too will be the support and leadership of Japan, under whose
presidency G8 leaders will receive a report on international co-operation
since the Gleneagles summit. We want this report to make a positive
contribution to discussions within the United Nations about a framework
for addressing climate change beyond 2012.
1.53 We will also take an active role in multilateral discussions. The

international institutions have an increasingly important role as energy and
climate security are recognised as global challenges. They can play a vital role
not only in generating evidence, but facilitating the development of new
policies and encouraging collaboration where it is needed most:
• The Kyoto Protocol is a very important milestone: a treaty, ratified in 150
countries, which sets legally binding targets and timetables to reduce
emissions for developed countries. But this can only be a first step – since
the first committment period runs only to 2012. By then, global emissions
are expected to have reduced by only 5%. The United Nations
Framework Convention on Climate Change offers a process to agree
action beyond this date. We will campaign for a comprehensive post–2012
framework agreement which will move more investment into low-carbon
energy (see Box 1.2);
• the International Energy Agency offers independent policy advice to the
OECD member countries. It continues to play an important role in co-
ordinating measures to deal with international oil supply emergencies.
But its remit is changing, as energy markets develop. We will support the
IEA’s proposals to increase capacity in gas market analysis, in its work on
sustainable energy, including supporting international collaboration on new
technologies, and its outreach to major producers and consumers of
energy outside OECD, particularly India and China; and
• the International Energy Forum is unique in bringing together all of the
world’s major energy-producing and consuming nations, including those of
the OECD, OPEC, Russia, China and India, among others. As a member of
the Secretariat’s Executive Board, the UK will look to focus the biennial
ministerial debate in ways which help to tackle regulatory uncertainty and
promote investment.
46

Summary of our international energy and climate
Strategy:
Maintaining security of energy supplies and avoiding dangerous climate

change are the greatest challenges facing the international community. A
successful global transition to a low-carbon economy will require urgent
and ambitious international action. The UK will take a lead in influencing
the international community to respond to the challenge, working
particularly closely with and through the European Union, to:
• promote open, competitive energy markets which provide fair access
to energy supplies and foster investment and deliver secure supplies
at competitive prices;
• take action to put a value on carbon emissions to ensure that
investment decisions fully reflect the costs of climate change;
• drive investment to accelerate the deployment of low carbon energy
technologies; and
• promote policies to improve energy efficiency, to cut emissions
and reduce our dependence on fossil fuels, consistent with
economic growth.
47
Title of Chapter/Section here

CHAPTER 2
Saving energy
Using energy more efficiently is a cost effective way of
cutting carbon dioxide emissions. It can also improve
productivity and can contribute to the security of our
energy supplies by reducing our reliance on imported
energy and ensuring we make maximum use of our own
and global energy resources. Improving the energy
efficiency of homes can also reduce energy bills and help
ensure that the most vulnerable can afford to heat their
homes.
2.1 This chapter sets out how we will:
• help businesses and households understand the link between their own
actions and climate change and how they can become more energy
efficient -– ensuring they have the support and information they need to
make the right choices;
• provide greater incentives for energy suppliers to deliver energy efficiency
improvements in the home and for businesses to invest in energy
efficiency measures;
• use the Government’s procurement power to stimulate the energy,
buildings and products markets to deliver more energy efficient, lower
carbon solutions to our future energy needs; and
• stimulate innovation and competition in the supply chain by setting out
now the future energy performance standards we expect of our homes,
buildings and the products used in them. (Energy efficiency in transport is
covered in chapter 7).
2.2 The Devolved Administrations have an important role to play in respect of

energy efficiency. In line with the devolution settlements in Scotland, Wales
and Northern Ireland, all proposals in this chapter which touch on devolved
matters will be progressed in accordance with the principles set
out in the Memorandum of Understanding.
2.3 Increased energy efficiency has already made a significant contribution

to our energy and climate change goals. Existing energy saving policies and
measures from our Energy Efficiency Action Plan30 and the Climate Change
Programme Review31 will stimulate energy efficiency in businesses, the public
sector and households and will together reduce carbon emissions by up to
10 million tonnes of carbon (MtC), accounting for 40% of total UK carbon
savings by 2010. By 2020, we expect these policies to deliver around
12–13 MtC reduction in carbon emissions compared to business as usual.
30 Defra (2004) Energy Efficiency: The Government’s Plan for Action. Cm6168.
48 31 Defra (2006) Climate Change. The UK Programme 2006. Cm 6764

FIGURE 2.1 CARBON EMISSIONS FROM THE UK ECONOMY (NETCEN 2004,
INCLUDES INTERNATIONAL AVIATION AND SHIPPING) 168.3 MTC PER YEAR
Source: NETCEN 2004
FIGURE 2.2 INDIVIDUAL ANNUAL CARBON EMISSIONS,

AVERAGE PER CAPITA CARBON EMISSIONS
IN 2005: 1.16 TONNES OF CARBON PER YEAR
Source: Defra
In the home, three-quarters of carbon dioxide emissions come from the

energy used for heating and providing hot water and a fifth from lighting and
appliances. Domestic energy consumption has been increasing slowly but
steadily since the 1970s largely as a result of the spread of installed central
heating and the increase in the number of energy-using goods (see also
Figure 2.2). As a result of Government action, through measures such as the
Energy Efficiency Commitment and improvements to building standards, we
expect domestic energy consumption and carbon emissions to fall by 2010.
However, if we are to see a large enough reduction in carbon emissions from
this sector in order to help meet our 2020 and 2050 goals, we need to
continue action beyond 2010 to improve energy efficiency.
49
Saving energy
Energy Efficiency: the potential
2.4 In the Energy Review Report we estimated that there is the potential to
make further cost effective cuts in our carbon emissions through energy
efficiency. As technologies develop, the non-energy intensive business sector
could save up to 5 MtC and the public sector 1 MtC by 2020 through adoption
of cost-effective energy efficiency improvements. The Carbon Trust estimates
that businesses in the UK waste some 10–20% of the energy they buy
through poor control of heating, air conditioning and ventilation and through
leaving lights and appliances on when not in use.
2.5 Collectively, individuals are responsible for over 40% of the UK’s energy
use and carbon dioxide emissions (see Figure 2.1). The Energy Saving Trust
estimates that at home we waste over £900 million per year by leaving
appliances on when not in use. Our analysis for the Energy Review Report
indicated that through energy efficiency and behavioural measures to reduce
waste, households could save a further 9 MtC a year by 2020 and cut their
energy bills at the same time.
2.6 Improving energy efficiency requires everyone – individuals, businesses

and Government to take action. Individuals and businesses can play their part
in reducing the waste of energy, by investing in energy efficiency measures
for the home and workplace and by choosing to purchase more energy
efficient buildings and products. Government will encourage and enable action
by businesses and individuals by providing the right information and ensuring
that the regulatory framework is in place to incentivise action and to deliver
continuing improvements to the energy efficiency of buildings and products.
Energy efficiency: the barriers

2.7 Our analysis for the Energy Efficiency Innovation Review32 suggests that
there are several key barriers currently hindering greater take up of energy
efficiency amongst both businesses and individuals. Issues of behaviour and
motivation are significant barriers to investment in large organisations; energy
saving is rarely core business. For small and medium-sized enterprises
(SMEs), hidden costs, such as management time, are a common barrier.
For the manufacturing sector finance is an important issue while in the
commercial sector, where use of energy in buildings predominates, lack of
information, split incentives (e.g. between the landlord who would make
the investment and the tenant who would benefit) and motivation are
key barriers. For the individual, lack of information and motivation are
primary barriers.
2.8 To achieve the potential energy savings that we have identified requires a
mix of policies designed to stimulate change to:
• create incentives and reduce barriers to greater energy efficiency by
businesses, individuals and government;
• support more energy efficient choices through improved awareness,
32 HMT(2005) The Energy Efficiency innovation Review: Summary Report. Joint HMT/Defra study.
50 Available at: http://www.hm-treasury.gov.uk./media/FB4/AE/pbr05_energy_675.pdf

information and services which can deliver energy efficiency; and
• focus the Government’s procurement power to help deliver greater energy
efficiency in buildings and products and to support our ambition for greater
use of renewable power.
2.9 For the long-term we set out our commitment to:
• raise the energy efficiency standards of our future building stock and of
the products we buy.
Saving energy – business

2.10 As part of our drive to reduce carbon emissions, the Government is
committed to providing a clear, flexible and stable policy framework within
which businesses can make cost-effective long-term planning and investment
decisions. This is why, on 13 March 2007, the Government published its draft
Climate Change Bill which sets out clearly our long-term targets to reduce
carbon emissions. We are also committed to ensuring that emissions
reductions are delivered in the most cost-effective manner possible. We
believe that the use of carbon pricing and emissions trading, such as through
the EU ETS, provides a cost effective means of delivering carbon savings.
In keeping with the Government’s better regulation agenda, we are
undertaking a review of our major climate change policies to ensure that they
continue to be effective and that the regulatory burden on business is kept to
a minimum.
2.11 Business commitments to tackling climate change are growing, with

more companies making voluntary climate change agreements and public
statements of action to achieve low carbon or carbon neutral businesses. The
UK Corporate Leaders’ Group on Climate Change have argued that investing in
a low-carbon future should be “a strategic business objective for UK plc as a
whole”. On 24 April 2007, the Climate Group launched a campaign with
business leaders, communities and Government; ”We’re in this together”33
details businesses’ commitments to provide practical ways for individuals to
reduce their carbon footprint.
2.12 Industrial energy consumption has fallen by 47% since 1970 and by
14% since 1990. In contrast, demand for energy by the service sector has
increased34. Since 1980, electricity and gas consumption in the services sector
have both increased by about 80%35.
2.13 Many firms recognise the benefits that investment in energy efficiency
can bring, through lower costs, improved competitiveness and improved social
and corporate standing. However, short-term cost considerations, lack of
information and market failures can act as barriers to investment.
2.14 To overcome these, the Government recognises that it has a role to play:
firstly, by creating the right incentives for long-term investment in cost-
effective energy efficiency measures; secondly, by raising awareness, and
33 http://www.together.com/
34 The service sector includes both commercial and public services
35 DTI (2006) Digest of UK Energy Statistics. http://www.dtistats.net/energystats/dukes06.pdf 51
Saving energy
enabling business to make more energy efficient choices through provision of
better information on energy use and climate change; and thirdly, by setting
now the future regulatory framework that will drive improvements in the
energy efficiency of commercial buildings and products.
Creating incentives to reduce emissions

2.15 The Climate Change Levy (CCL) was introduced in 2001 to encourage
businesses to reduce energy demand. Subsequently the EU made it a
requirement for all Member States to tax the business use of energy. To
maintain the levy’s environmental impact, from 1 April 2007 CCL rates are
being increased on a yearly basis in line with inflation.
2.16 We now have Climate Change Agreements with over 50 industrial

sectors. The current agreements will run until 2013. Participants receive an
80% discount from the Climate Change Levy, provided that they meet either
their carbon emissions or energy efficiency targets. To ensure these targets
remain challenging but realistic, they are periodically reviewed and the current
2010 targets will be reviewed in 2008. Subject to State Aid approval,
participants meeting their 2010 targets will continue to receive the CCL
discount until March 2013.
2.17 These existing measures have been instrumental in tackling emissions

from the energy intensive industrial sectors but do not effectively target
carbon emission reductions from the wider business and public sectors. The
Energy Efficiency Innovation Review demonstrated that there are significant
opportunities in the large non-energy intensive sectors to improve energy
efficiency which are not currently being exploited.
The Carbon Reduction Commitment

2.18 In the Energy Review Report, Government committed to deliver carbon
savings of 1.2 MtC per year by 2020 from large commercial and public
sector organisations.
2.19 Our consultation on potential measures for achieving these reductions36

indicated strong support for a mandatory rather than a voluntary measure.
Government has therefore decided to implement a UK mandatory cap and
trade scheme, the Carbon Reduction Commitment (CRC), to secure the
1.2 MtC per year in 202037. We will seek enabling powers under the draft
Climate Change Bill to introduce these new trading arrangements.
2.20 To minimise administrative burdens, a key issue raised during the

consultation process, we will focus the scheme on large organisations for
whom energy efficiency benefits would outweigh administrative costs.
36 Our analysis supporting this consultation together with consultation responses can be found at:
http://www.defra.gov.uk/environment/climatechange/trading/index.htm
37 We will deliver the total savings of 1.2Mtc through a combination of the CRC, delivering 1MtC and
52 the Energy Performance of Buildings Directive which will deliver around 0.2MtC.

CRC will therefore target emissions from energy use only by organisations
whose mandatory half hourly metered electricity consumption is greater than
6000 MWh per year. This would generally capture organisations with annual
electricity bills above £500,000.
2.21 Government proposes that CRC will target both carbon emissions from
direct energy use as well as indirect carbon emissions (i.e. from electricity). To
avoid overlap with existing measures, the CRC would target neither emissions
covered by the Climate Change Agreements nor direct emissions covered by
the EU Emissions Trading Scheme. In addition, organisations with over 25% of
their energy use emissions in Climate Change Agreements would be
completely exempt.
2.22 To further minimise administrative burdens, CRC allowances will be

issued to participants via an auction process. Participants will be able to
determine their own emissions targets within the scheme. CRC will also allow
self-certification of monitoring, reporting and verification of energy use and
emissions, backed by an independent risk-based audit regime.
2.23 CRC will be broadly revenue neutral to the Exchequer. The auction
revenue will be recycled to participants by means of a simple, direct, annual
payment proportional to average annual emissions since the start of the
scheme, with a bonus/penalty depending on the organisation’s position in a
CRC league table.
2.24 In order to ease participants into the new regime, and to allow
Government to establish more accurate data on emissions across the target
sector, CRC will feature an introductory phase, with a simple fixed-price sale
of allowances. In addition, the Government proposes a safety valve to avoid
spikes in the price of allowances. The Commitment will feature a moderated
buy-only link to the EU ETS, through which the CRC participants will be able to
buy allowances at the higher of the prevailing EU ETS price and a minimum
CRC floor price. There will be no link between CRC and the existing voluntary
UK Emissions Trading Scheme/Climate Change Agreement market.
2.25 In order to ensure delivery of a cost-effective, workable scheme,

Government recognises the importance of further consultation with interested
parties. We will therefore publish in June a consultation on the detail of how
the proposed CRC can best be implemented.
2.26 In relation to coverage and delivery, key areas for further consideration will
include: the definition of an organisation within CRC; rules to exempt small
sources of emissions; the approach to monitoring, reporting and verification/
audit; and for local authorities, the treatment of street lighting within CRC.
2.27 In terms of market design, areas for further consultation include auction
and league table design – which government recognises is a key issue. We will
also consult on the length of the gap between auction payment and revenue
recycling in recognition of concerns raised during the consultation. Analysis
indicates that retaining at least a six month gap is necessary to maintain the
signalling effect of the CRC auction.
53
Saving energy
2.28 We will use the experience we gain from the first phase of the CRC to
determine whether, over time, it would be cost effective and proportionate to
extend the scheme to organisations with lower energy consumption.
Improving information
2.29 Businesses require tailored and specific information on how best to
invest in energy efficiency. Government therefore intends to improve the
information made available to businesses on how to improve the energy
efficiency of their premises and on their energy usage.
2.30 We will consult later this year on the requirement to display Energy
Performance Certificates in business premises in England and Wales.
These Certificates will provide an energy rating (from A to G) for these
buildings and will set out what steps can be taken to improve their energy
efficiency. The information will be an important aid to businesses in meeting
their climate change commitments, whether regulatory, such as through the
EU ETS or the new CRC, or through voluntary action.
2.31 Government is also working with a range of interested parties to

consider how we can improve the wider sustainability of our existing building
stock, reducing water requirements as well as energy requirements, for
example. We are also working to identify other measures that will reduce the
carbon emissions of existing non-domestic buildings, by raising awareness
of the ways to improve energy efficiency and by encouraging the take up
of energy efficiency measures in workplaces (see Box 2.1).
BOX 2.1 RAISING AWARENESS AT WORK
The Carbon Trust, a Government funded organisation, has worked with

Comet Group plc to achieve significant energy savings through staff
training and awareness across its 10,000 employees in 260 stores, offices
and distribution centres. Together, a core training programme and energy
efficiency video were created. The modular training programme was
designed to adapt to different building types and varying levels of staff
requirements. Examination of half hourly energy data from each store
provided the measurement of success achieved through increased
awareness. This low cost activity delivered annual savings of over 3,000
tonnes of carbon.
54

Energy metering in the business sector
2.32 Advanced meters which provide readings on either an automatic half-
hourly basis for electricity or on a daily basis for gas are already mandatory for
large users of energy. This kind of information, combined with energy saving
advice, enables businesses to make informed decisions about investment in
energy efficiency and recent evidence supports this (see Box 2.2).
Increasingly, suppliers and metering companies are offering such
services to smaller energy users.
BOX 2.2 ADVANCED METERING FOR SMEs – A TRIAL BY THE

CARBON TRUST
The Carbon Trust conducted a trial of “smart” electricity, gas and water
meters with over 580 smaller businesses, providing them with new
meters or clip-on devices to record and transmit their energy data. (For a
full report see: http://www.carbontrust.co.uk/default.htm)
The businesses received accurate and frequent information about energy

consumption for at least one year. A proportion also received e-mail,
telephone or on-site energy efficiency advice. Over the year, potential
carbon savings of 12%, on average, were identified; of these about 3%
were realised by those receiving half-hourly data only, but over 7% by
those also getting e-mail advice.
The Carbon Trust’s analysis suggests that smart metering would be cost-
effective for firms with profile class 5–838 electricity meters and their
equivalents in gas. The sectors with the greatest carbon saving potential
are wholesale/retail, manufacturing and financial & business services.
Firms with multiple sites can achieve lower costs and greater savings than
others. Payback periods for single site SMEs are around four years for gas
meters, but longer for electricity meters.
2.33 Government will therefore consult this year on a proposal that energy
suppliers should extend to all but the smallest business users in Great Britain
and those larger businesses not already subject to half hourly metering,
advanced and smart metering services within the next five years.
This could achieve annual savings of 0.1–0.2 MtC per year by 2020.
We will explore with interested parties what further help should be given to
businesses to maximise the use of advanced metering and the savings that
can flow from it.
38 Below the mandatory half-hourly electricity metering market (that is, those with maximum electricity demand
below 100kWh) suppliers allocate business customers to six profile classes 3-8, based on their electricity
consumption. Most business customers fall in classes 3 (with a standard “domestic” meter) and 4 (with an
Economy 7-type meter). The electricity consumption of these businesses thus closely resembles that of
domestic customers. We propose to exclude business customers with profile class 3 and 4 electricity meters
and those non-daily read gas customers whose consumption is less than 73,200 kWh per year. 55
Saving energy
2.34 The Government will also consider with interested parties what
advanced metering services (or other means of providing real time
information) might be appropriate for the smallest business users and,
if necessary, what might be done to bring about their deployment.
2.35 The Gas and Electricity Markets Authority (GEMA) has statutory
responsibilities for ensuring the accuracy and performance of gas and
electricity meters. We propose to transfer these responsibilities to the
National Weights and Measures Laboratory (NWML), an executive agency
of the DTI, when a suitable legislative opportunity arises. This will simplify
the regulatory framework by giving a single UK point of contact, through
NWML, for business on all the technical aspects of measuring instruments,
including meters.
Saving energy – households

2.36 We have already achieved a great deal to help households through
policies such as the Energy Efficiency Commitment, Warm Front39 and Decent
Homes to deliver energy efficiency improvements to homes in the UK. As
a result of Government policy, about half of all homes have benefited from
some form of energy efficiency intervention. But there are around eight
million homes in the UK that could still benefit from cavity wall insulation40.
This type of energy efficiency measure pays for itself in less than three years
through reduced energy bills and together with other cost-effective measures,
such as loft insulation, and more energy-efficient boilers, which we estimate
could potentially reduce carbon emissions by up to 9 MtC per year by 2020.
2.37 Government has an important role to play in helping individuals make

choices that save energy and reduce their carbon footprint (see Box 2.3): by
providing support and assistance to individuals looking to make greener
lifestyle choices; by providing information on energy use and its impact on
carbon emissions; and by ensuring that the regulatory framework is in place to
deliver improvements to the buildings, products and services that individuals
can buy.
39 See http://www.defra.gov.uk/environment/energy/eec/index.htm and

http://www.defra.gov.uk/environment/energy/hees/index.htm
40 Review of the Sustainability of Existing Buildings:
56 http://www.communities.gov.uk/pub/373/TheEnergyEfficiencyofDwellingsInitialAnalysis_id1504373.pdf

BOX 2.3 INDIVIDUAL ACTION
The Government’s proposals in this White Paper for supporting individuals

to take action are:
We will provide greater support and assistance to individuals by:
• ensuring greater availability to the householder of energy saving
measures from energy suppliers through the Carbon Emission
Reduction Target;
• extending until 2020 the obligation on suppliers to help make
households more energy efficient; and
• improving advice and help to households in reducing emissions.
We will improve awareness of climate change and information on energy

use by:
• enabling individuals to measure their carbon footprint through an on-line
CO2 calculator;
• requiring Energy Performance Certificates, which provide information
on the energy performance of homes and buildings and the steps that
can be taken to improve that performance and reduce energy bills;
• providing historical information on energy bills, requiring energy suppliers
to provide free electricity displays and expecting smart electricity and gas
meters to be installed within every home over the next decade, all of
which will help give households the information they need to save energy.
We will set out now the standards we expect in the future for our homes
and the products we use in them:
• driving higher energy efficiency standards for the products we use at
home and at work;
• phasing out the use of energy inefficient light bulbs;
• raising building standards to make homes zero carbon – through greater
use of energy efficiency and low and zero carbon forms of energy; and
• introducing an ambitious new Planning Policy Statement on Climate
Change to help support the development of communities which can
make use of low-carbon and renewable sources of energy.
And we will:
• lower the planning barriers to the installation of microgeneration in the
home (see chapter 3);
• ensure energy generating householders (i.e. through microgeneration)
are rewarded for electricity they sell back to the grid (see chapter 3);
• remove barriers to supplying distributed energy through more flexible
market and licensing arrangements (see chapter 3);
• make it easier to find information and advice on distributed generation
of energy (see chapter 3); and
• provide advice on smarter driving and new car purchases
(see chapter 7).
57
Saving energy
Improving support and assistance
2.38 We want to see all homes achieve their cost-effective energy efficiency
potential. Our intention is that by the end of the next decade, all householders
will have been offered help to adopt energy efficiency measures. We will do
this through an ambitious programme: increasing the level of delivery by the
energy suppliers of energy efficiency measures into the home under the
Carbon Emission Reduction Target; extending our obligation on suppliers until
at least 2020; raising awareness of climate change and providing households
with the information and advice they need through improvements to billing
and metering and through Energy Performance Certificates, to improve the
energy efficiency of their homes.
Energy Efficiency Commitment/Carbon Emission

Reduction Target
2.39 The Energy Efficiency Commitment (EEC) is a key success of the
Government’s energy efficiency policies to date. This Commitment requires
electricity and gas suppliers in Great Britain to achieve targets for the
promotion and delivery of energy efficiency into their customers’ homes. They
can choose from a range of measures in order to deliver their obligation; for
example, some have met 20% of their obligation by installing loft or cavity
wall insulation while others have met 70% of their target in this way. EEC has
also encouraged innovative approaches to the delivery of energy efficiency,
including partnerships with Local Authorities, charities and community groups
and has provided incentives for the deployment of new innovative energy
efficient technologies.
2.40 The EEC has had a range of social benefits, supporting Local Authority
objectives under Decent Homes and the Home Energy Conservation Act (see
section 2.1 on fuel poverty). Whilst it does not have a specific fuel poverty
objective, it does require suppliers to direct 50% of energy savings towards
a priority group of low-income customers. Evaluation of the first phase of
the EEC suggests that this priority group benefited from reduced energy bills
and increased comfort, worth around £1.8 billion.
2.41 EEC phase 1 (which ran from 2002–2005) stimulated about £600 million
of investment in energy efficiency and delivered net benefits to householders
in excess of £3 billion (see Table 2.1). EEC 2 (2005–2008) requires broadly
double the level of activity of EEC 1 and is expected to deliver 0.5 MtC
annually in 2010.
2.42 The Climate Change and Sustainable Energy Act 2006 allows the
Government to expand the range of measures that can be used by energy
suppliers to deliver their commitments under EEC. Following our initial
consultation, in July 2006, on the shape of EEC phase 341, we launch alongside
this White Paper our statutory consultation on a new Carbon Emission
Reduction Target (CERT) for energy suppliers for the period 2008–2011. The
CERT will replace EEC. It has the same underlying framework and purpose as
the EEC, but with an expanded range of measures, including microgeneration
58 41 http://www.defra.gov.uk/environment/energy/eec/index.htm

TABLE 2.1: EXPECTED CARBON SAVINGS FROM THE ENERGY EFFICIENCY
COMMITMENT/ CARBON EMISSION REDUCTION TARGET, 2002 – 2011
Expected Carbon savings in 2010 (MtC/y)
Original Revised42
EEC1 (2002–2005) 0.36 0.3
EEC2 (2005–2008) 0.62 0.5
CERT (2008–2011) 0.9–1.2 1.143
and behavioural measures, within the scheme. It also proposes an increased

carbon target on energy suppliers, effectively requiring them to double their
current effort, significantly increasing activity in well established markets like
insulation and encouraging a big push into new markets like microgeneration.
Because of the scale of CERT, even more customers are likely to benefit both
directly and indirectly from supplier activity.
2.43 The legislation for CERT is expected to be in force by the end of 2007,
allowing Ofgem and energy suppliers to prepare for its start in April 2008.
2.44 To facilitate a smooth transition from EEC2 to CERT, we have already

published the carbon savings to be attributed to energy efficiency measures
allowed under CERT44. We will also allow energy suppliers to start work on
their CERT targets early and allow unlimited carry-over of over achievements
against their current EEC2 targets.
2.45 The Government has also decided to commence the relevant provisions
of the Climate Change and Sustainable Energy Act. This has allowed the
Government to include in the statutory consultation on CERT the use of
behavioural measures and all forms of microgeneration.
A supplier obligation
2.46 The Government is committed to continuing to deliver carbon savings
from the domestic sector using some form of supplier obligation until at least
2020, delivering an annual saving of 3–4 MtC by 2020. As the most cost-
effective opportunities to improve energy efficiency are taken up over time,
realising energy efficiency savings will become increasingly expensive and difficult
to achieve. If we are to continue to deliver carbon savings from households, we
need to bring about a change in consumers’ approach to energy use.
2.47 We believe that harnessing the opportunities to bring about this change
will require a transformation of the market for the supply of domestic energy.
Suppliers and customers need to have a shared incentive to reduce domestic
emissions, and to work in partnership to achieve this.
42 The savings for EEC1 and EEC2 have been reduced slightly following recent research showing that the
actual energy savings achieved as a result of insulation are lower than previously assumed.
43 Not final: subject to the outcome of statutory consultation.
44 http://www.defra.gov.uk/environment/energy/eec/pdf/illustrativemix-final2007.pdf 59
Saving energy
2.48 Creating this shared incentive will require an innovative policy, which
changes the way the supplier views their relationship with the end consumer.
Rather than selling units of energy, the suppliers’ focus needs to shift to the
marketing of energy services. By harnessing opportunities to change
householders’ behaviour, it will be possible to achieve substantial carbon and
energy savings whilst maintaining the level of “energy service” enjoyed by
customers. This is possible because customers demand energy for the
services it provides: heat, light and power for electrical appliances, rather than
demanding energy per se.
2.49 Encouraging suppliers to make this shift from compliance with the
regulatory requirement to implement energy saving measures, as under EEC,
to a model where securing carbon savings offers profitable opportunities will
be challenging, and cannot be made in one step. It will require suppliers to
develop alternative business models, earning profits through a combination of
low carbon measures, related services and sales of energy.
2.50 CERT is a first step towards creating such a marketplace, with its
rewards for innovative approaches and domestic microgeneration. The
continued obligation on suppliers to 2020 will provide a further incentive to
move in this direction, whilst the Carbon Reduction Commitment (CRC) will
provide incentives for similar market developments in the commercial sector.
2.51 Market transformation will also require changes to other aspects of

energy markets. Steps to improve billing, and over time to roll out smart
meters to domestic customers, set out in this White Paper, will improve the
opportunities for suppliers to develop alternative business models. Equally,
energy services relationships are likely to involve longer-term contracts
between suppliers and customers. Such contracts will be further facilitated by
Ofgem’s proposed removal, in the context of the Supply Licence Review, of
the “28 Day Rule”45. Removing this rule will make it possible for suppliers to
offer more innovative contracts to customers, for example “packages”
whereby the supplier makes investments in the customer’s home in return for
the customer committing to a fixed term contract.
2.52 We are in the process of evaluating the costs and benefits of the various
options for a supplier obligation which would further support this market
transformation by providing stronger incentives for energy suppliers to reduce
the carbon emissions of their customers. The options under consideration
include setting supplier targets in terms of absolute reductions in carbon or
delivered energy as discussed in the Energy Review Report, as well as
alternatives such as a further evolution of the measures-based approach as
under EEC and CERT.
2.53 The emerging evidence shows that there are pros and cons for each
approach. A cap and trade demand reduction obligation would give suppliers
greater flexibility over the measures they choose to deploy and would improve
45 This rule requires that all domestic supply contracts must be capable of being terminated with 28 days
notice, and so may act as barrier to contracts where suppliers make up-front investments in their
60 customers’ homes with the intention of recouping this investment over time.

their incentives to innovate. However it may not promote take-up of those
opportunities to cut household carbon emissions that would be most cost-
effective over the long-term. EEC has proven strengths, which could be built
on by an evolution of a “measures-based” approach. These include a focus on
measures with longer-term benefits and the opportunities it offers for
suppliers to engage with local authorities, appliance retailers and others in
addition to their own customers.
2.54 We intend to reach a clear conclusion on the direction for the post–2011
supplier obligation in 2008. As part of this process a call for evidence will be
issued in summer 2007 to enable interested parties to offer their views at an
early stage in the policy development process.
BOX 2.4 PERSONAL CARBON ALLOWANCES
The concept of a personal carbon allowance is one of a number of

potential long-term ideas undergoing academic research in the UK. Under
such a scheme, individuals would manage their own carbon emissions; a
national emissions cap would be set, and emissions rights (in the form of
carbon credits) would be allocated across the population as a whole.
Individuals would surrender their carbon credits upon the purchase of, for
example, electricity, gas or transport fuel. Those who need or want to emit
more than their allowance would have to buy allowances from those who
emit less. Over time, the overall emissions cap (and hence individual
allocations) could be reduced in line with international or nationally
adopted agreements.
Following the Energy Review Report, the Government commissioned an

initial scoping study from the Centre for Sustainable Energy into the
feasibility of using personal carbon allowances. Their main findings were
that:
• by having an overall cap on carbon, a personal carbon allowance could
guarantee a certain reduction in domestic carbon emissions;
• it is unlikely that such an allowance could work in isolation from other
policies;
• such a scheme might have the potential to achieve emissions savings in
a fairer way than a carbon tax; and
• there is little evidence currently available about key wider issues critical
to the success of a personal carbon allowance such as public and
political feasibility, technical feasibility, cost, and relative effectiveness.
The Government believes that the current system of taxation strikes the
right balance between protecting the environment, protecting the most
vulnerable in society and maintaining sound public finances. There remain
many high-level questions about whether a personal carbon allowance
scheme could be proportionate, effective, socially equitable and financially
viable, particularly when compared or combined with existing policies and
other options for controlling carbon emissions; whether it could be a
61
Saving energy
BOX 2.4 continued
practical and feasible option; how such a scheme might work in practice;
and whether it would avoid placing undue burdens on individuals. The
Government is therefore undertaking a programme of work intending to
look into these issues in more detail.
Raising awareness and improving information

2.55 Government is working with the wider public sector, business and
voluntary organisations to ensure that consumers are given the right advice
and support to understand the impact they have on the environment and allow
them to make better, more environmentally friendly lifestyle choices. In
particular, the Government is committed to working with Ofgem and the
Energy Saving Trust (EST) to ensure consumers have accessible, transparent
and user friendly information on the “green electricity” tariffs available to them.
Raising awareness of climate change

2.56 As a key part of our work, the Government is helping individuals
understand the link between their own actions, carbon dioxide emissions and
climate change. Through the EST we are already engaging with one million
households annually, providing advice on energy efficiency and carbon
emissions reductions. We are going further: a Government-wide
communication campaign, called “Act on CO2”, is already underway, including
events such as a Citizens’ Summit on Climate Change and on-line, press and
TV advertising. A web-based CO2 calculator will be launched shortly together
with a new short film and an educational brochure.
2.57 The CO2 calculator, produced in partnership with the EST (which will be
available at http://www.direct.gov.uk/actonCO2), provides individuals and
households with a profile of their direct CO2 emissions, based on their
lifestyle. The calculator gives tailored recommendations about how these can
be reduced. The short film describes the link between individual action and
CO2 emissions and will be distributed through channels such as community
groups. To stimulate young people to discuss climate change and global
warming, we have sent a pack containing the film, together with Al Gore’s
film, “An Inconvenient Truth” and other resources to all secondary schools
in England.
2.58 To give greater clarity and assurance to consumers who decide to offset
their carbon emissions the Government also consulted on a voluntary Code of
Best Practice for carbon offsetting. In order to meet the terms of the
proposed code, companies marketing offsetting products would need to fulfil
certain criteria, including use of credits from the regulated market (such as
those approved by the UN) and provision of specified information to the
consumer. We intend to launch the Code by the end of 2007.
62

2.59 Community level organisations have the potential to play an important
role in communicating climate change and in helping their communities make
real and lasting changes to their day-to-day lives. Government needs to
understand what mobilises individuals to take action and what role
community organisations can play in that. In the Energy Review Report, we
committed to undertake a study looking at the role of “community level”
approaches to mobilising individuals and the role of local authorities in
particular, in making them work effectively. Initial findings by the Centre for
Sustainable Energy and Community Development Exchange46 imply that
effective community initiatives are likely to be a necessary component of a
coherent national approach to tackling climate change.
Improving information on energy use

2.60 Ensuring householders have direct access to information about their
energy use within their homes will enable consumers to manage that use
and reduce their carbon emissions. Following our consultation on billing and
metering47, the Government intends to roll forward a package of measures in
Great Britain which will change the way in which energy use is communicated
to customers.
2.61 The Government believes that additional information on bills or

statements can help customers reduce their energy consumption. We
propose that historic information, preferably in graphical form, which
compares energy usage in one quarter with the same period in the previous
year, should be provided on domestic customers’ energy bills or statements,
or, for those customers with internet-based contracts, electronically. We will
work with gas and electricity suppliers to incorporate this requirement within
supply licences. This measure will deliver annual carbon savings of up to 0.2
MtC by 2020.
2.62 In the Energy Review Report we also said that we would consult on the
frequency at which customers are provided with accurate bills and the
Government has investigated the levels of actual meter readings. Ofgem
advises that, on average, over 87% of customers in the domestic sector
receive at least one bill based on an actual meter-read each year. Initiatives
such as the Billing Codes of Practice introduced by energy suppliers, together
with existing distribution industry codes, are intended to maintain these
levels. The Government does not, therefore, propose any further action in this
area at this time.
46 For detail see http://www.defra.gov.uk/environment/climatechange/uk/individual/index.htm

47 DTI (2006) Energy Billing and Metering: Changing Customer Behaviour.
http://www.dti.gov.uk/files/file35042.pdf 63
Saving energy
BOX 2.5 THE ENERGY DEMAND RESEARCH PROJECT
The Energy Demand Research Project, co-funded by the Government and

industry, will involve several thousand households receiving smart meters
or feedback devices, displaying real-time energy use. The project, managed
by Ofgem on the Government’s behalf, will trial different ways of improving
billing and metering. The trials will provide information on reductions in
energy use that consumers make in response to different forms of
feedback about energy usage and will test consumer response to time of
use tariffs that encourage energy use to be switched away from peak
periods. The latter has the potential to deliver savings by reducing the need
for investment in new energy infrastructure to meet peak demand. Final
details of the project are currently being negotiated with participating
companies, following which the trials will commence swiftly. The project
will run for two years, with regular reports on emerging findings and will
inform the further development of policy on smart meters and associated
feedback devices.
2.63 Suppliers are already rolling out advanced meters in the business
sector and are considering the business case for smart meters in the
domestic market. The evidence coming from the trials of smart meters and
real-time displays (see Box 2.5) will underpin future decisions on smart
meter deployment.
2.64 Our expectation is that, within the next 10 years, all domestic energy
customers will have smart meters with visual displays of real-time information that
allow communication between the meter, the energy supplier and the customer.
The display will provide customers with readily accessible information about their
energy usage. The Government will work with suppliers, Ofgem and other
interested parties in these developments, including through our Energy Demand
Research Project. We expect suppliers to roll out smart meters when it is cost-
effective to do so and within the timescales we have set.
2.65 Through smart meters, readings can be taken remotely, ensuring that
all bills are accurate. Meters can be remotely switched between credit and
prepayment, reducing supplier and customer costs. Electricity suppliers will
be able to offer new products that may incentivise customers to use less
energy at peak times or to use less energy overall.
2.66 We welcome the progress being made by suppliers, with the support of
Ofgem, to remove barriers to the roll out of smart metering. Suppliers and
manufacturers are also examining the scope for developing communication
systems that can be shared between electricity and gas meters, as well as
the scope for commercial arrangements to share both communications
systems and data between companies.
2.67 In the Energy Review Report, Government stated its intention to discuss
with Ofgem, the energy suppliers and interested parties how best to roll out
rapidly the provision of real-time electricity displays. Government believes
displays should be provided with smart meters in the longer-term, and has
64 considered their role in the shorter-term.

2.68 We believe that customers who are interested in real-time electricity
displays should have ready access to them. Whilst the displays are available
through retailers, energy suppliers may be in a better position to deliver
them cost-effectively to customers, and some suppliers are doing so on
a small scale.
2.69 We therefore propose that, from May 2008 and where technically
feasible, every household having an electricity meter replaced and every
newly built domestic property will be given a real-time electricity display, free
of charge. The display must show real-time information about electricity
consumption and cost and meet a minimum performance requirement of 95%
accuracy in the normal range of energy use by a household.
2.70 In addition, from as soon as possible in 2008 to March 2010, any

household requesting a real-time display for their electricity meter should be
given one free of charge by their energy supplier. We estimate annual carbon
savings from these cost-effective short-term measures of up to 0.3 MtC by
2020. The Government will also consider how to incentivise innovation in
relation to household displays of gas consumption and cost.
2.71 Government also supports energy supplier initiatives to offer customers

information through transmitting energy use data via digital technology to
a television, mobile telephone or personal computer. We will discuss with
interested parties what part Government can play beyond the work that is
already in hand.
2.72 The Government will consult on the implementation of these proposals

in the context of our ambition to see a roll out of smart meters within ten
years. The provision of real-time displays with smart meters has the potential
to transform how households manage their energy use. Our objective is to
see households have access to this new technology as soon as possible to
enable them to control their emissions.
2.73 We estimate that these proposals for billing and real-time displays will
deliver annual savings of up to 0.4 MtC by 2010, in line with the Government’s
commitment under the Climate Change Programme; and up to 0.5 MtC
by 2020.
2.74 It is possible that some of our metering and billing proposals set out in
this White Paper will be taken forward in the context of the implementation of
the Energy Services Directive.
Delivering lower carbon homes

2.75 Government believes that empowering and encouraging homeowners
to identify potential energy and carbon saving opportunities can increase the
uptake of energy efficiency and microgeneration measures.
2.76 To realise this, Government is committed to increasing the provision of

support to householders in England and Wales, to make the process of
improving the energy efficiency of homes as clear and as easy as possible.
65
Saving energy
2.77 By requiring all homes put on the market to have an energy rating –
similar to the ratings domestic appliances already get – Energy Performance
Certificates will give all buyers and renters of homes transparent, accurate
information on the energy running costs of their homes, and practical advice
on how to improve it, helping them cut their fuel bills and their carbon
emissions. The Certificates will apply to new buildings and the sale and rent of
existing buildings. Together with the display of certificates in larger public
buildings, required under the EU Energy Performance of Buildings Directive,
this policy will deliver annual carbon savings of between 0.6 – 1.6 MtC per
year by 2020.
2.78 Certificates in themselves are not enough. We are aware of the

importance of giving householders the support they need to make the
changes recommended within Energy Performance Certificates. Working with
Energy Saving Trust and other key participants, we are exploring how we
can provide a better service for households that brings together in one place
advice on approved local suppliers, information about grants available, advice
on microgeneration, as well as signposting householders to other initiatives
such as the recently expanded Warm Zones and help from energy suppliers
under EEC/CERT.
2.79 The Government has already introduced a reduced rate of VAT for
the professional installation of a range of energy saving materials and
microgeneration technologies within residential properties. To provide a further
incentive to householders, the Government is urging the European
Commission and European Finance Ministers to introduce a reduced rate of
VAT for energy saving materials for DIY installation.
2.80 Based on our discussions with major banks and building societies, the
Government anticipates that these measures, have the potential to create a
market for “green” financial products designed to help householders invest in
energy efficiency measures and microgeneration.
Saving energy in the public sector

2.81 The public sector generates a fifth of UK Gross Value Added (a measure
of economic output), employs a fifth of the UK workforce, and produces 3%
of UK carbon dioxide emissions from buildings and official travel.
2.82 Reducing these emissions will not only ensure the public sector plays its
role in addressing climate change but also offers the prospect of better value
for money for the taxpayer through decreased costs and enhanced public
service delivery. Government leadership in this area is also critical to the
success of the measures targeting action by consumers and business,
and Government can help stimulate the market for more energy efficient
buildings, goods and services by using its purchasing power to lever improved
standards. Recent reports from the Sustainable Development Commission48
and the National Audit Office49 illustrate the need for us to do better.
48 See http://www.sd-commission.org.uk/sdig2006/
66 49 NAO (2007) Building for the Future: sustainable construction and refurbishment. HC 324 Session 2006-2007

2.83 In June 2006, targets for the Government estate were announced
alongside the report of the Sustainable Procurement Task Force50. These
targets include commitments by each Department to:
• reduce carbon emissions from their offices by 12.5% by 2010/2011 and by

30% by 2020, relative to 1999/2000 levels, and achieve a carbon neutral
central Government office estate by 2012;
• increase energy efficiency per m2 by 15% by 2010 and 30% by 2020,
relative to 1999/2000 levels;
• reduce carbon emissions from road vehicles used for Government
administrative operations by 15% by 2010/2011, relative to 2005/2006 levels.
2.84 The recently published UK Government Sustainable Procurement Action

Plan and the HMT report on Transforming Government Procurement form the
Government’s response to the Task Force. The Action Plan sets out our goal for a
low carbon, more resource efficient public sector and our plans for reaching this
goal. This includes meeting updated and extended procurement standards for an
increased range of products and an ongoing requirement to meet the Office of
Government Commerce’s common minimum standards for the built environment.
These standards incorporate the earlier commitment to procure buildings for the
central Government estate in the top quartile of energy performance51. Progress
against the commitments for the Government estate will be scrutinised and
reported on by the Sustainable Development Commission.
2.85 Subject to any future investigations by the National Audit Office or

Environmental Audit Committee, we will invite the Sustainable Development
Commission to conduct a health-check review of our plans and progress in 2008.
2.86 As well as using new and updated efficiency standards in our own
procurement activities, Government will promote them to others in the public
and private sectors. We will publish, by spring 2008, guidelines setting out
criteria for energy efficiency and energy savings to be used by the public
sector in its procurement procedures. By providing a ready market for more
efficient goods, we aim to stimulate competition amongst manufacturers to
bring forward more efficient goods and services. We will also work across
Government to address the opportunities that collaboration can bring for more
effective electricity and gas procurement.
2.87 The Government and the public sector can show leadership by
performing well under existing and new policy frameworks, such as the EU
ETS and the Carbon Reduction Commitment. These apply to large public
sector organisations, such as large Local Authorities, Universities, Hospitals
and central Government Departments.
2.88 The CRC will help the central Government Department estates to
achieve their 30% emissions reduction target by 2020, and will complement
the 2012 carbon neutral target. Reducing absolute emissions would reduce
50 Defra (2006) Procuring the Future, Sustainable Procurement National Action Plan: Recommendations from
the Sustainable Procurement Task Force.
51 Defra (2004) Energy Efficiency: The Government’s Plan for Action. April 2004. Cm 6168 67
Saving energy
the amount of carbon offsetting that may be required to achieve carbon
neutral status. The CRC scheme will give due credit for the use of
on-site renewables.
2.89 The Government is already rebuilding and refurbishing every secondary

school in the country. As part of this programme, it will put £110 million over
the next three years towards testing a bold aim of even higher standards for
new and refurbished schools; to reduce their carbon emissions through a
combination of energy efficiency, use of renewable energy and offsetting.
2.90 We will also make it a requirement that all future Service Families
Accommodation in the UK should meet Rating 3 of the Code for Sustainable
Homes. We expect that this would apply to all future contracts let by 2008
at the latest.
2.91 In addition, from April 2008, buildings greater than 1,000m2 occupied
by public authorities and by institutions providing public services e.g.
government offices, hospitals, schools, museums and libraries, will be
required to display a certificate showing an energy rating for the building and
the steps than can be taken to improve its energy performance. This measure
is expected to deliver annual carbon savings of about 0.2 MtC by 2020. We
are committed to widening the requirement to all public and private sector
buildings where it can be demonstrated that this is cost-effective to do so
and will consult on this later this year.
2.92 Our measures will have a direct impact on how the Government spends
around £60 billion of its annual budget on procurement of goods and services.
Overall, our measures to save energy in the public sector will result in annual
savings of between 0.7-1.2 MtC per year by 2020.
Setting the standards for the future

2.93 Government has an important role to play in setting out clear milestones
for the future, particularly for improving the energy efficiency of products and
buildings. By consulting on our intended policy framework now, we can
ensure that the construction industry, product manufacturers and retailers
are able to plan to deliver our goals over the next 10–20 years.
Raising products standards

2.94 From their manufacture, through their use and final disposal, consumer
goods account for a considerable proportion of the energy that we use in the
UK. Minimising the amount of energy and resources consumed during each
product’s life cycle, through improved design, is therefore critical to the
delivery of our policy to cut carbon emissions and to achieve our wider policy
objectives for more sustainable consumption and production.
2.95 In the average home the number of energy using appliances has more
than doubled since the 1970s (see Figure 2.3) and we expect this trend to
continue. Without steps to improve their energy efficiency, by 2010 their total
68 UK energy consumption could exceed 100 TWh.

2.96 Our current analysis suggests that by raising product standards we could
reduce annual emissions by between 1–3 MtC by 2020. To do this will require a
range of measures and approaches, including: international agreements; European
and domestic legislation; and voluntary action through the supply chain to
enhance markets for more cost-effective energy efficient goods and services.
2.97 We will focus our efforts on the major energy using products such as
motors, lights, household appliances, electronics and air conditioning. These
are internationally traded goods. So, while the Government will take steps
domestically to improve take up of energy efficient products, we need to work
internationally and through the EU to stimulate global innovation and
competition to raise standards and to bring greater choice and efficient
products to UK consumers.
FIGURE 2.3 ELECTRICAL PRODUCTS IN THE UK HOME AND THEIR TOTAL

UK ELECTRICITY CONSUMPTION, 1970 AND 2004
1970 2004
Source: Energy Saving Trust report, Rise of the machines
2.98 Working through the International Task Force on Sustainable Products

we will deliver on our Gleneagles G8 commitments to promote international
cooperation on product labelling and standards and help develop practical
standards to reduce stand-by power and to implement the International
Energy Agency’s (IEA) 1 Watt initiative.
2.99 The European directive on the Eco-Design of Energy-using Products (the

EuP directive) will deliver mandatory measures to improve the energy
efficiency of a range of products. Our immediate priorities in Europe are to
press for rapid delivery of mandatory measures to improve energy efficiency
and to reduce stand-by power and improve lighting standards. While we
welcome the European Commission’s stated intention to work towards
regulating against inefficient bulbs by 2010, with a phase out over the
following years, we intend to take action in the UK in advance of this. 69
Saving energy
2.100 We are working closely with UK manufacturers, retailers and trade
associations to be the first European country to phase out inefficient GLS
bulbs for the majority of domestic use, where an efficient alternative exists,
by 2011. This will reduce annual UK carbon emissions by up to 1.2 MtC by
2020 and lead to a saving of around £30 on the average household energy bill. To
encourage the purchase of low energy light bulbs, the Government has written
to the European Commission and European Finance Ministers to recommend
the introduction of a reduced rate of VAT for energy-efficient products.
2.101 Domestically we will also deliver changes to the UK market for

other energy using products. As announced in the Budget in 2006, we will
do this by working with the UK supply chain and seek commitments from
manufacturers, retailers and service providers to deliver more efficient goods
and services. We have met with the major UK retailers of electronic and
electrical goods; all have agreed to look in more detail at the energy
consumption of the products they are selling and at the scope for action.
Many retailers are already responding to this challenge by raising the issues
with their own suppliers and with firm commitments to encourage more
efficient lighting and other products.
2.102 To support this work, Government, through our Market Transformation

Programme (MTP), will publish a series of consultation papers setting out our
analysis of how the performance of energy using products will need to
improve over the next 10–20 years, including proposals for product standards
and targets to phase out the least efficient products. These standards will, for
example, guide our priorities for European action and for commitments we are
seeking from UK business. These will be updated annually. We are publishing
alongside this White Paper our first consultation paper, which focuses on the
consumer electronics sector. This sets out how we expect the performance of
major consumer electronics available in the UK to improve over the next
13 years including televisions, video players/recorders, digital TV adapters
(set-top boxes) and external power supplies/battery chargers. If the proposals
set out in the consultation paper were implemented this could save up to 1.6
MtC per year by 2020 if all products were to meet earliest best practice levels
of performance. For example, through promoting technological improvement
we are aiming to reduce the stand by power requirement of new TVs by 85%
by 2015, compared to today's average.
70

BOX 2.6 MEETING PRODUCT STANDARDS
As part of our work with retailers and manufacturers we have been

exploring how we might translate the sometimes complex sets of technical
standards and energy efficiency targets into an understandable and practical
business planning tool. We are examining the development of an “online
calculator” (http://www.mtprog.com). This could be used by retailers,
manufacturers and others to test, easily, if individual energy-using products
or their range of products will meet the Government’s published indicative
product standards (e.g. for stand-by power and energy efficiency).
The calculator could be used to examine the scope for changing

performance specifications or sales volumes in order to improve the
overall carbon footprint of the range of products supplied. The calculator
might also provide a convenient way for retailers and manufacturers to
provide information to Government about their achievements and future
plans to raise product standards.
Raising building standards

2.103 Changes to Building Regulations in England and Wales in 2006
have achieved a 70% improvement in the energy efficiency of new houses
compared to pre-1990 standards. At 2006 prices, the average 2-bedroomed
semi-detached house built in 1970 would cost £515 per year to heat and emit
1.2MtC/yr compared to a house built to 2006 Building Regulations which
would cost £85 per year and emit only 0.2MtC/yr. Of the UK’s carbon
emissions, 45% are from buildings, with housing making up 27% and the
non-domestic sector 18%, so tackling their emissions will make a significant
impact on our carbon goals. We need to ensure that developments in the
future are as energy efficient as possible; this includes the estimated nine
million new homes to be built between now and 205052.
Delivering zero carbon homes

2.104 In the consultation “Building a Greener Future: Towards Zero Carbon
Development”53, we propose future changes to Building Regulations such that
by 2016, all new homes built in England will have to be zero carbon. This
means that, over a year, the net carbon emissions from all energy use in the
home would be zero (heating, lighting, hot water, and all appliances), achieved
by improving the energy performance of the home and increasing the use of
renewable and low carbon sources of energy, either installed in the individual
home or supplied to an entire development.
52 Source:
http://www.communities.gov.uk/pub/173/BuildingaGreenerFutureTowardsZeroCarbonDevelopment_id15051
73.pdf
53 http://www.communities.gov.uk/index.asp?id=1505157. 71
Saving energy
2.105 The consultation document proposed interim steps to be set out in
progressive changes to Building Regulations; by 2010, all new homes would
show a 25% improvement in energy performance compared to current
Building Regulations and, by 2013, a 44% improvement. Our initial estimates
are that these measures could reduce annual emissions by between 1.1 and
1.2 million tonnes of carbon (MtC) by 2020.
2.106 The Government is currently considering responses to the consultation

and intends to announce its policy on the timetable for zero carbon housing
later this year. We will consult on the details of the next set of changes to Part
L of the Building Regulations in 2008.
2.107 The Code for Sustainable Homes54 provides a single national standard
to guide industry in the design and construction of sustainable homes,
considering not just energy but water, materials, waste and ecology. It is a
means of driving continuous improvement, greater innovation and exemplary
achievement in home building. The Code sets out what is expected to be
required to meet future Building Regulations.
2.108 There are six star ratings in the Code (see Table 2.2), each with
mandatory minimum standards for energy efficiency and water efficiency.
Code Rating 3 should be achievable via energy efficiency improvements to the
design, construction and fabric of the building. To go beyond that rating would
require not only improved energy efficiency but also some form of low or zero
carbon energy generation, either within individual buildings (e.g. dedicated
solar water heating) or provided to whole developments through a shared
source of low carbon generation (e.g. wind turbines), thus helping the
deployment of low carbon technologies and encouraging greater distributed
forms of energy generation (see chapter 3). A 6-star home would be a
completely zero carbon home.
TABLE 2.2: MINIMUM ENERGY/CARBON STANDARDS IN THE CODE FOR
SUSTAINABLE HOMES
Code Star Rating Standard (percentage better than Part L 200655)
1 10
2 18
3 25
4 44
5 10056
6 A zero carbon home57
54 Code for Sustainable Homes - A step-change in sustainable home building practice” Communities and
Local Government - December 2006.
http://www.planningportal.gov.uk/england/professionals/en/1115314116927.html.
55 Building Regulations: Approved Document L (2006) - “Conservation of Fuel and Power.”
http://www.communities.gov.uk/pub/339/ApprovedDocumentL2AConservationoffuelandpowerNewbuilding
sotherthandwellings2006n_id1164339.pdf.
56 Zero emissions in relation to Building Regulations, i.e. zero emissions from heating, hot water, ventilation
and lighting.
57 A completely zero carbon home, i.e. zero net emissions of carbon dioxide from all energy use in the home
72 including from appliances.

2.109 The Budget in 2007 announced that from 1 October 2007 all new
homes meeting the zero carbon standard costing up to £500,000 will pay no
stamp duty, and zero-carbon homes costing in excess of £500,000 will receive
a reduction in their stamp duty bill of £15,000. The criteria for eligibility for the
stamp duty exemption were published in the Budget58.
2.110 The Government will use the Code to support housing developments
which are under our own control. In particular:
• we will now make it a condition of Government funding that all new
homes built by registered social landlords and other developers and all
new homes developed by English Partnerships will comply with Rating 3
of the Code for Sustainable Homes;
• we will require that the 2012 Olympic Village will meet at least Rating 3 of
the Code; and
• the Communities and Local Government Carbon Challenge (Design for
Manufacture II) will focus on delivering over 1,000 homes on an initial five
sites owned by English Partnerships, achieving low or zero carbon status
as well as enhanced environmental standards (Rating 5 of the Code for
Sustainable Homes). It will also take forward the standards of the earlier
Design for Manufacture competition.
2.111 Government is considering whether, from April 2008, all new homes
should be required to have a rating against the Code. This would provide a
rating of the overall sustainability of the home and would, as a component,
use the energy assessment carried out to determine the rating of the home
for an Energy Performance Certificate. We will consult on specific proposals
by the end of 2007.
2.112 If Building Regulations are to have an impact on carbon emissions then

it is important there is a high level of compliance. Amendments were made
in April 2006 to the regulations to simplify procedures. In parallel, over the
2005/2006 period, the Government delivered the largest ever training and
dissemination programme to improve awareness, understanding, and
compliance with new Building Regulations.
2.113 We will review implementation within three years. This will allow for
a sufficient population of buildings to be constructed to the new standards.
In the interim we will obtain feedback from building control bodies and other
stakeholders on the new compliance package and consider how best to
assess the impacts they have had.
2.114 Furthermore, we intend to introduce an extended time limit, via a

new Building Regulation, which will allow local authorities more time for
prosecutions against breaches of those parts of Buildings Regulations
dealing with energy efficiency aspects. We will consult on these proposals
later this year.
58 Budget note 26, http://www.hm-treasury.gov.uk/media/757/0A/bud07_budgetnotes_381.pdf 73
Saving energy
Delivering low and zero carbon communities
2.115 Delivering low and zero carbon homes requires not just changes to and
enforcement of Building Regulations. Our consultation on a draft Planning
Policy Statement (PPS): Planning and Climate Change59, sets out a clear and
challenging role for regional and local planning authorities in England to help
develop communities with lower carbon emissions, focusing on reducing the
need for travel and making best use of low carbon and renewable energy. The
Government is currently considering responses to the Planning and Climate
Change consultation, and will publish the final PPS this year.
2.116 To encourage investment and confidence in the potential building of low

and zero carbon communities across the UK, the Government has
commissioned a feasibility study. Using Thames Gateway as an exemplar, the
study will look at the potential to turn the area into a low carbon/zero carbon
development60. The study will define what is meant by low and zero carbon for
the Gateway and highlight the major role distributed power generation can
play in achieving low carbon development.
2.117 The economies of scale afforded by this development provide the

opportunity to go further and faster towards low carbon communities. The
feasibility study should also highlight the opportunities for reducing emissions
from existing buildings within the Gateway and for new environmental
technologies and low carbon businesses.
2.118 A new programme of work is being initiated across Government, led by

the Technology Strategy Board – the Innovation Platform on Low Impact
Buildings – which will accelerate the development of cost-effective solutions
to building zero carbon homes, and will tackle key challenges to upgrading of
the existing stock; for example, there are seven million solid-walled homes in
the UK which are technically difficult to insulate. This 5–7 year programme will
support research where there are clear innovation gaps and will build on
existing work, such as the EST’s Best Practice Programme and
microgeneration field trials. It will act as a technology accelerator by testing
clusters of new technologies in a number of Government – funded
demonstrator programmes, such as those run by English Partnerships and
through measures such as public procurement, will create markets for
successful commercialisation of these new technologies.
2.119 In tandem, the Office of Science and Innovation is running the

Foresight Sustainable Energy Management and the Built Environment Project.
This will explore the technological and social impact of future systems for low
carbon generation of heat and power and their interaction with current energy
systems61, with the aim of determining how the UK built environment can
evolve over the next five decades towards sustainable, low carbon
energy systems.
59 Draft Planning Policy Statement (PPS): Planning and Climate Change.

http://www.communities.gov.uk/index.asp?id=1505140
60 Thames Gateway Interim Plan: Policy Framework. http://www.communities.gov.uk/index.asp?id=1504558
74 61 More information is available at http://www.foresight.gov.uk/Energy/Energy.html.

Next Steps
2.120 Full implementation of all these measures would result in annual carbon
savings of between 7.0–11.7 MtC by 2020, some 30–35% of the savings we
expect from the measures set out in this White Paper. This represents a
considerable proportion of the energy efficiency potential that we identified in
the Energy Review Report. Policies such as zero carbon homes, the opening up
of new energy services markets and the feed through of new technologies
from our demonstration and research programmes will help not only to unlock
the remaining potential but deliver further potential in the future.
2.121 The carbon savings achieved from the energy efficiency measures set
out in this white paper comprise:
• 4.7–7.6 MtC from the household sector;
• 1.6–2.9 MtC from the business sector; and
• 0.7–1.2 MtC from the public sector.
2.122 In addition to the development of the polices we have set out in this
chapter, in order to comply with the EU Energy End-Use Efficiency and Energy
Services Directive, we will:
• produce a National Energy Efficiency Action Plan for submission to the
European Commission by 30 June, setting out the policies and measures
in place in the UK to deliver improvements in energy efficiency and meet
the energy saving target in the Directive; and,
• look at the possible need for additional energy efficiency measures in the
transport, business and household sectors, on which we expect to consult
this summer.
Saving energy
Summary of measures
We will:
• Drive energy saving behaviour in the large non-energy intensive sector
through introduction of the Carbon Reduction Commitment;
• Drive further energy efficiency improvements in the home through a
continued obligation on energy suppliers until at least 2020, with a
Call for Evidence on how we can deliver this in summer 2007;
• Require Energy Performance Certificates for all buildings, to be sold or
rented, providing an energy efficiency rating for the property;
• Improve information to the consumer on energy use in homes and
businesses through improvements to energy metering and billing and
the launch of an online CO2 calculator;
• Between 2008-2010, require energy suppliers to provide a free
real-time electricity display to all home owners who ask for one;
• Publish by spring 2008, public sector procurement criteria for energy
efficiency and energy savings;
• Publish targets to drive the energy efficiency of products and services.
The first of these, for consumer electronics, is published today;
• Work with manufacturers, retailers and service providers to obtain
supply chain commitments to meet the targets;
75
Saving energy
• Ensure that all new Government funding for homes built by registered
social landlords and other developers is made on the condition that
they comply with Rating level 3 of the Code for Sustainable Homes;
• As of April this year, require that all new homes developed by English
Partnerships or with direct funding from the Government’s housing
growth programmes comply with Rating level 3 of the Code for
Sustainable Homes; and
• Decide by the end of this year on the date for all new homes to be
zero carbon.
Section 2.1 –
Fuel Poverty
2.1.1 Every household in the UK should be able to heat and light their homes
affordably. However, for some people, meeting this basic energy need
accounts for a disproportionate amount of their income. The generally
accepted definition of fuel poverty is when a household has to spend 10% or
more of its income on energy to maintain a warm home. The root causes of
fuel poverty are the cost of fuel, the income of the household and the energy
efficiency of the home.
2.1.2 The Government’s UK Fuel Poverty Strategy, published in November

2001 set out our targets on fuel poverty and how we would tackle the
problem. We remain committed to enabling all households to afford to heat
their home adequately.
2.1.3 This section sets out the progress which has been made to date to
tackle fuel poverty and the scale of the problem which still exists in the UK.
It also reports on progress since the Energy Review Report, as well as our
short and medium term policies to tackle fuel poverty and reach those most
in need.
2.1.4 The Government has contributed significant investment and put in place
a range of policies which are having an increasing impact, namely:
• the Winter Fuel Payment for those over 60;
• the increased focus on Benefit Entitlement Checks in fuel poverty
programmes, including effective interaction with the Pension Service;
• the personal tax package measures announced in the budget earlier this
year will have taken up to 100,000 households out of fuel poverty in the
UK;62
• the Warm Front programme and its equivalents in the Devolved
Administrations;
• the measures directed towards the Priority Group of vulnerable customers
under the Energy Efficiency Commitment;
• the Decent Homes Standard; and
• the additional £300 million made available to fuel poverty programmes in
the 2005 pre-budget report, taking funding in England alone to over £800
million over 2005–2008.
76 62 http://ww.dti.gov.uk/files/file16495.pdf

Progress To Date
2.1.5 Since 1996, we have made good progress towards our fuel poverty
targets, having reduced the number of households in the UK in fuel poverty
from around 61/2 million in 1996 to around 2 million in 2004.
2.1.6 However, over the period 2004 to 2006, overall costs of fuel and light
increased by 35%, while gas prices increased by 45% and electricity prices
by 29% in real terms. These price increases represent significant challenges
to our fuel poverty targets.
2.1.7 The increases are estimated to have driven up total fuel poverty levels
by around 1.6 million households in England alone, with income
improvements offsetting this by around 300,000 households and energy
efficiency improvements by a further 100,000 households. This leads to an
estimated additional 1.2 million households in fuel poverty in 2006 compared
to 2004. The position, for England, between 1996 and 2016 is shown in
Figure 2.1.1. On the central price/income scenario it is estimated that 1.5
million households will remain in fuel poverty in 2010 and 700,000 in 2016.
This includes the effect of installing energy efficiency measures currently
available under fuel poverty programmes. It is clear that households remaining
in fuel poverty will need to receive additional assistance if we are to meet our
targets.
FIGURE 2.1.1 HISTORIC AND PROJECTED NUMBERS OF HOUSEHOLDS IN FUEL

POVERTY IN ENGLAND, 1996-2016
Source: DTI, 2007
• Positions in 2005 and 2006 are based on the modelling of the impact of income, energy prices movements
and energy efficiency measures on the number of vulnerable households in fuel poverty.
• Positions from 2007 to 2016 are based on modelling and show central, low and high price scenarios.
These are based on the fossil-fuel price assumptions published at the same time as the White Paper.
77
Saving energy
2.1.8 Other factors affecting progress include:
• households not taking up their entitlement to benefits or not coming
forward for assistance;
• homes that are difficult to bring up to a sufficiently high level of energy
efficiency in a cost effective manner; and
• difficulties in coordinating existing programmes that are delivering
measures to households.
Work to address fuel poverty

2.1.9 In the Energy Review Report, we identified that we would take forward
work to:
• get details of the help that is available to those who need it most;
• explore further ways to reduce household energy bills via energy
efficiency measures;
• ensure that the energy a household consumes is competitively priced; and
• ensure households who are eligible for benefits are claiming them.
2.1.10 We have acted on each of these commitments. Through industry and

the Government working together, we delivered a targeted mail out which
offered energy efficiency and income assistance to 100,000 Pension Credit
recipients. We are now looking to take this forward for next winter and plan to
re-evaluate the offer, widen the target group and integrate this activity within
our wider programme of promoting winter warmth. (See Box 2.1.1)
BOX 2.1.1 PROMOTING WINTER WARMTH
Following on from the commitment we made in the Energy Review

Report an Ofgem-led Steering Group was set up, comprising of suppliers,
voluntary organisations and Government representatives to work with
industry to encourage households with someone aged 70 or over in
receipt of Pension Credit to take up energy efficiency measures.
The big six UK energy suppliers agreed to fund a pilot mail out to 100,000
households within the target group. The aim of this pilot was to test the
feasibility of the Government and industry working together, to guarantee
eligibility through utilising Pension Service data and ultimately, to maximise
response rates and the eventual uptake of energy efficiency measures,
with a view to further roll out should it prove of value to all parties.
The mail out, which encouraged recipients to call an energy advice line so
that they could be offered free insulation as well as a benefits entitlement
check to help maximise their income, commenced in November 2006.
The pilot generated a good rate of responses, of 6.7%, with over 3%
of households receiving an energy efficiency measure or a benefit
entitlement check.
As a result, all parties have since agreed to review the scope for a wider
roll out of this concept, acknowledging the real results that can be
obtained by working together to meet common goals tangible benefits.
78

2.1.11 An additional £7.5 million was announced in the Pre-Budget Report
2006 to support the development of projects which use an area-based
approach to identify the needs of each household in order to provide them
with a co-ordinated and tailored set of advice and measures. This will
complement our already very successful fuel poverty and carbon abatement
schemes for the domestic sector, namely Warm Front, the devolved fuel
poverty programmes and the Energy Efficiency Commitment. It is anticipated
that this funding, which is being made available in 2007/2008, will build on the
experience of many existing area-based approaches, including that of Warm
Zones and will ultimately assist approximately 300,000 of the most vulnerable
households, community by community.
2.1.12 The introduction of new technologies is also being taken forward

through the main UK fuel poverty schemes. For example, Warm Front in
England has mechanisms in place for assessing alternative (usually low
carbon) technologies, which can then be brought into the portfolio of
measures offered by the Scheme. Alongside this, the Low Carbon Buildings
Programme is hoping to attract bids from social housing providers seeking to
install microgeneration in order to further demonstrate their value, particularly
for low income, hard to reach properties.
2.1.13 To ensure people are aware of the assistance that is available and
that it better meets their needs, we will put in place a cross-Government
communications campaign in time for winter 2007/2008, so that all the help
currently available, be it energy efficiency, benefits advice, tariff advice or
advice on how to stay healthy in winter is coordinated and easily accessible.
We will also be taking forward the lessons learnt from the recent energy
supplier funded mail out to pension credit households and exploring the use
of wider DWP communication opportunities, such as the annual benefit
up-rating letter to pensioners.
2.1.14 We want groups with different contacts and relationships to engage

and help with this work. Key partners include voluntary groups such as Help
the Aged and Age Concern, the fuel poverty charities such as National Energy
Action and the National Right to Fuel Campaign, the energy supply companies
(who established the Home Heat Helpline), the fuel poverty scheme
managers and the Energy Saving Trust.
2.1.15 It is essential that we use all means possible to target help and
support at those who need it most. We will therefore take forward action
enabling the sharing of benefit data in clearly specified and controlled
circumstances, if necessary by using legislation.
2.1.16 Our existing schemes continue to deliver significant support to a large

number of households, with over 1.5 million households having been helped
to date. To ensure we are providing help in all relevant areas we will be
extending benefit entitlement checks to all households requiring one who
come forward to Warm Front, rather than only those ineligible at application or
whose home cannot be brought up to a high level of energy efficiency.
2.1.17 The next phase of the Energy Efficiency Commitment (now re-named
CERT) is currently being considered. Access to benefit data would drive down
costs to locate low income households regardless of the overall size of the 79
Saving energy
Commitment and that of the Priority Group. We are also considering a
flexibility option to allow suppliers to have a reduced Priority Group share if
they direct some more expensive measures at those households most likely
to be fuel poor.
2.1.18 The scale of the future role of alternative technologies in terms of

tackling fuel poverty is currently unclear. We will therefore continue to
maximise the contribution of current cost-effective energy efficiency
measures across all housing stock. We will work to further encourage more
activity by Local Authorities to exceed the Decent Homes Standard and
promote best practice. The evidence is already that many Authorities already
routinely exceed the Standard.
2.1.19 As well as the funding for local area-based initiatives announced in the
recent pre-budget report, other methods of encouraging Local Authority action
are also under consideration. We are currently finalising a new model that will
enable each Local Authority to see the baseline fuel poverty level in their area.
We will be holding a launch event shortly with subsequent local events to
publicise this work and to stimulate more action to tackle fuel poverty.
The Home Energy Conservation Act Review and the Local Government
Performance Framework also offers scope for additional activity in this area.
2.1.20 As demonstrated by the fuel poverty statistics, it will still remain the
case that for the poorest consumers, energy prices remain unaffordable.
The Winter Fuel Payment continues to help some with these costs.
2.1.21 We welcome the initiatives announced by energy companies that help

their vulnerable customers to cope with high prices, and continue to
encourage more companies to take action in this area. We note that the
scale of these offerings varies between companies and we will be working
with Ofgem to evaluate each company’s Corporate Social Responsibility
measures to see exactly how these compare, drawing attention to the
most effective initiatives and highlighting where improvements are needed.
We see the provision of assistance to help their most vulnerable customers
as a key part of each company’s Corporate Social Responsibility programmes,
and will be looking for each company to put in place a proportional programme
of assistance.
2.1.22 If no further action is undertaken by companies, we will consider

whether to take the opportunity for legislation to enable the Secretary of
State to require companies to have an adequate programme of support for
their most vulnerable customers. In this context, we may consider the role of
mandated minimum standards for social tariffs in the context of the review of
the policy framework. We will work closely with the suppliers in taking this
forward.
2.1.23 We will also be working with Ofgem and energywatch to look at how
we can encourage some of the most vulnerable customers to realise the
benefits that other consumers have seen since liberalisation of the energy
market by switching supplier or payment method if appropriate.
80

2.1.24 Chapter 2 has set out our measures regarding new types of meters
and their potential to offer additional information and enable customers to
make choices about their consumption. Prepayment meters already allow
customers to monitor their expenditure on fuel, but are often more expensive
to use. Some companies have equalised their prepayment and standard credit
tariffs, but others have not, and the cost differential between direct debit and
prepayment meters (used by a relatively high proportion of low income
households) is increasing, standing at around £120 for a combined gas and
electricity bill in 2006 compared to £84 in 2005. While we recognise that pre-
payment meter customers do cost more to serve, we are concerned about
these increases, and will look at whether there are ways to encourage best
practice in protecting the most vulnerable consumers from the large
differences in bills because of the payment method they use.
2.1.25 All companies have taken some steps so that prepayment customers
are not unfairly disadvantaged by tariff changes as a result of delays in
updating their meters. Ofgem has been working with suppliers to address the
particular problems of the updating of prepayment token meters, but we will
consider ways of reducing the costs associated with pre-payment meters
more generally.
2.1.26 Gas remains the cheapest heating fuel. We have developed and tested
a model for delivering cost-effective gas network connections to deprived
communities and regional demonstration projects are going forward in North
East England and Yorkshire and Humberside. Gas connection projects
undertaken on a larger scale have the scope to make a significant contribution
to addressing fuel poverty. We are, therefore, discussing with Ofgem the
scope for incentivising gas network extensions through the gas distribution
price control, which will operate from April 2008.
2.1.27 We are midway through a full examination of our policy framework for
tackling fuel poverty, looking at the ways in which each of our measures can
be enhanced so that their effectiveness can be improved. It is clear we cannot
rely on one single approach to eradicate fuel poverty, but will need concerted
efforts across all root causes.
2.1.28 The policies and measures outlined above will take around an additional
200,000 households out of fuel poverty by 2010; however the overall package
and the long-term way forward will depend on the conclusion drawn after
examination of our policy framework for tackling fuel poverty. Next steps will
be set out in the UK Fuel Poverty Strategy Fifth Annual Progress report in
summer 2007. The report will outline action taken by the Government on a
range of factors impacting the fuel poor. It will provide further analysis of our
current position and outline action required to deliver on our objectives.
81
Saving energy
Fuel Poverty
Summary of measures
We will:
• take a more localised approach – in regions, Local Authorities and
individual communities – to tackling fuel poverty, actively generating
referrals and delivering cost effective measures;
• provide a Benefit Entitlement Check to all households that require one
who come forward to Warm Front;
• enable sharing of benefit information in clearly specified and
controlled circumstances, allowing help to be more easily targeted at
eligible households, if necessary taking forward legislation;
• issue guidance to encourage Local Authorities to exceed the Decent
Homes Standard and use the model of fuel poverty at a local level as
a stimulus for action;
• put in place an cross-Government communications campaign in time
for next winter, so that all the help currently available, be it energy
efficiency, benefits advice, tariff advice or advice on how to stay
healthy in winter is coordinated and easily accessible;
• as part of this, use DWP mailings to promote fuel poverty
programmes;
• work with energy companies and others to explore a further phase of
the Winter Mail Out communication enabling assistance to be directed
effectively towards those who need it most;
• work with Ofgem and energywatch to encourage vulnerable
customers to use the energy market to get the best deal, where
appropriate;
• work with Ofgem to determine the current levels of energy company
Corporate Social Responsibility Activity. We hope this will encourage
companies to do more in this area. If it does not, we will look to give
the Secretary of State powers to require companies to have an
adequate programme of support for their most vulnerable customers.
We will also be looking at whether there are ways to encourage best
practice in protecting the most vulnerable consumers from the large
differences in bills because of the payment method they use;
• continue to work with Ofgem on the scope for the gas distribution
price control to incentivise extension of the gas network to deprived
communities; and
• continue to keep this policy framework under scrutiny and report on
the way forward in the next Annual Fuel Poverty Progress Report,
which is to be published this summer.
82

CHAPTER 3
Heat and Distributed

Generation
Most of the UK’s electricity and more than two thirds of
the UK’s gas is supplied through a large nationwide grid.
This centralised system has kept down costs through
economies of scale and provided secure, cost-effective
delivery of energy directly to our homes and businesses.
As we seek to reduce the carbon emissions from the
electricity and heat we use, it is increasingly clear that
technological developments are opening up the possibility
of a more decentralised low carbon energy system with
local energy supply, ranging from household to
community-scale, which could play an important part
in our strategy.
3.1 Electricity and heat can be generated locally from renewable sources,
making valuable carbon savings. Losses incurred in transmitting centrally-
generated electricity to the point of use can be significantly reduced. The
costs of transporting heat mean that many of the options for generating heat
renewably have to be local. And even where fossil fuels are used, Combined
Heat and Power (CHP) can, in the right setting, ensure that these fuels are
used more efficiently by capturing and using heat and generating electricity in
a single process. A more community-based energy system would also lead to
greater individual awareness of energy and its implications for carbon
emissions, driving a change in social attitudes and, in turn, greater energy
efficiency63. The importance of Distributed Energy (DE), and the need for
further action was recognised by the Trade and Industry Committee in its
recent report64.
3.2 This chapter:

• sets out the potential benefits of more power and heat being produced
locally;
• describes what the Government is already doing to realise this potential;
• sets out the work we are doing to determine a strategy for decarbonising
heat;
• summarises the key proposals from the joint DTI/Ofgem Review of
Distributed Generation; and
• describes how regional and local activity can help drive progress towards
more locally-produced heat and power.
63 Research by the Sustainable Development Commission and the National Consumer Council shows that
people moving into homes with built-in renewable energy technologies report far greater awareness
of what they can do to reduce their climate impact, and their energy use. Sustainable Consumption
Roundtable, May 2006: I Will If You Will – http://www.ncc.org.uk/responsibleconsumption/iwill-summary.pdf
64 House of Commons Trade and Industry Select Committee: Local Energy – Turning Customers Into
Producers First Report of Session 2006-7. 83
Heat and Distributed Generation

3.3 These measures will help to provide a basis on which decentralised
energy can continue to grow alongside investment in the existing,
predominantly centralised system.
3.4 The Devolved Administrations have various responsibilities in relation to

the matters set out in this chapter. In line with the devolution settlements in
Scotland, Wales and Northern Ireland, all proposals in this chapter which
touch on devolved matters will be taken forward in accordance with the
principles set out in the Memorandum of Understanding.
Distributed Energy (DE): the potential

3.5 The distributed generation of electricity and production of heat are
collectively referred to as distributed energy. DE is not all low carbon.
However, in this chapter we use the term DE to cover energy that is both
local and low carbon. In practice this means some renewable energy, and
CHP. DE currently accounts for less than 10% of UK energy supply. The
Government wants to provide opportunities for DE to grow by removing
barriers and putting the right incentives in place to promote DE where it
proves to be cost-effective.
FIGURE 3.1 CURRENT CAPACITY OF CHP AND RENEWABLE GENERATION
Source: DTI, DUKES 2006

Note: Data is not separately collected for Distributed Generation, so this chart covers all CHP and renewable
generation. In practice some of the CHP will be connected to the transmission network and some of the
renewable generation (particularly wind) will generate electricity that is not used locally.
3.6 In many circumstances, heat and power sourced from DE technologies

are more expensive than from the national gas and electricity networks. But,
as the value of carbon is increasingly factored in to energy generation costs,
and some of the DE technologies become more established, DE’s relative
costs are expected to improve.
3.7 We worked with WADE65 to model the costs and benefits to the UK of a
greater take-up of Distributed Generation (DG)66 technologies over the coming
twenty years. Modelling of this type is subject to considerable uncertainty.
65 The World Alliance for Decentralized Energy.

84 66 A definition of DG is provided in paragraph 3.46

It is necessary to develop possible scenarios for the likely future take-up of
the different DG technologies and to project costs for each of these
technologies over time. On the basis of the scenarios that we have modelled,
the relative costs of DG depend upon the balance of a number of factors. On
the one hand, fuel costs and carbon emissions are typically lower with an
increased penetration of DG. However, CHP is an important component of any
feasible DG scenario and offers only limited reductions in fuel use and carbon
emissions relative to the most modern gas-fired generation. On the other
hand, plant capital costs are typically lower for centralised generation. It is
generally believed that transmission and distribution infrastructure costs would
be lower with increased DG. However, the location-specific nature of these
costs means that it has not been possible to model this effectively.
3.8 Overall our findings suggest that the costs to the UK of some DG
technologies may be competitive with the costs of centralised technologies,
but that overall system costs are likely to be lower if we retain a framework
where DG is a complement rather than an alternative to centralised
generation. However, this work is only a starting point and cannot give
conclusive results about the relative costs of DG. We will carry out further
analysis that incorporates the heat and electricity aspects of a decentralised
energy system. Such a model is required to enable more robust conclusions
about the relative costs of DG to be drawn.
3.9 The market is best placed to decide which technologies are most effective
in supplying the UK’s energy whilst also meeting our carbon reduction goals.
It is for the Government to ensure that the opportunities
for DE are opened up so that it is a viable option for the market to consider.
DE is the current main option for increasing the use of renewables for
heat generation.
3.10 Our policies on DE will also play a part in the UK’s contribution to the
EU’s climate change and energy policy. In March 2007, the European Council
committed the EU to a binding target of reducing greenhouse gas emissions
by 20% by 2020 and by 30% in the context of international action. The
agreement commits the EU, amongst other things, to a binding target of a
20% share of renewable energies in overall EU consumption by 2020. This
applies to heat and electricity, where DE has a key role to play, as well as
transport. The Commission has been asked to bring forward detailed proposals
for each Member State’s contribution to the overall EU renewables target.
After a decision has been reached, and each Member State has agreed its
contribution, we will bring forward appropriate policies to deliver the UK’s share.
3.11 Whilst DE has the potential to reduce carbon emissions, and help
security of energy supplies by diversifying the UK’s sources of energy,
significant growth of DE supply would represent a considerable change from
the status quo. The current market and regulatory structures have been
designed primarily to meet the needs of large, transmission-connected
generators. There are some technical constraints on making DE compatible
with the grid, as well as planning issues and other barriers such as upfront
costs, and a lack of information about the possibilities available.
85

TABLE 3.1: EXAMPLES OF LOW CARBON DISTRIBUTED ENERGY TECHNOLOGIES
Technology Description Commentary
Total DG All generating technologies The Energy Networks

connected to distribution Association (ENA) reports
systems the total generating capacity
connected to distribution
networks67. At the end of
2006 the total was 12.7GW.
However, this does include
conventional generators
(e.g. small Combined Cycle
Gas Turbines (CCGTs) as
well as renewable
generation
Distributed Heat Technologies
Solar water heating Uses the heat of the sun The DTI’s Microgeneration
to produce hot water Strategy68 reported almost
80,000 UK installations
Heat pumps Uses the warmth stored in The Microgeneration

the ground or air, via a Strategy reported over 500
cycle similar to that used UK installations
in refrigerators, to heat
water for space heating
Biomass Small-scale biomass The Microgeneration

installations from ~10kW Strategy reported some
to ~2MW that provide 150 pellet boiler
space and water heating installations – likely to be a
by combustion of wood, conservative figure
energy crops or waste
Distributed Electricity Generation Technologies
Solar Photovoltaics Panels, often roof- The Microgeneration

(PV) mounted, generate Strategy reported some
electricity from daylight 1300 UK installations
(not just direct sunlight)
Wind Large wind turbines that The BWEA69 reports 140

convert wind energy operational projects
directly to electricity (onshore and offshore)
having a total capacity of
2065MW
67 http://www.energynetworks.org/spring/engineering/pdfs/DGSG/Connection_Activity_DNOs_Dec2006.pdf
68 http://www.dti.gov.uk/energy/sources/sustainable/microgeneration/strategy/page27594.html
86 69 http://www.bwea.com/ukwed/index.asp

Micro-wind (<100kW) Small wind turbines It is estimated70 that there
generate electricity – can are over 20,000 small wind
now be roof-mounted as turbines with a total
well as attached to tall capacity of 7MW
masts
Micro-hydro Devices that capture the The Microgeneration

power of flowing water Strategy reported some
and convert it to electricity 90 installations
Biomass /waste Installations range from DUKES 2006 reports that

landfill gas generation total capacity is approaching
stations to large power 1400MW. See Biomass
only facilities approaching Strategy for map of
40MW installations
Combined Heat & Power Technologies
Biomass /waste Installations range from See Biomass Strategy for

100kW biomass CHP to ~ map of installations
85MWth/20MWe
Micro-CHP, and CHP Small devices, usually gas- DUKES 2006 reports 1263
up to 1MWe fired, that produce installations having a
electricity and capture the combined capacity of 206
waste heat produced as a MWe
by-product. CHP used on
this scale tends to be for
heat and power for a
single house or on a
community or commercial
scale (i.e. a housing
estate, or office block)
CHP from 1MWe – CHP on this scale tends to DUKES 2006 reports 196
10MWe be large community installations having a
projects or small industrial combined capacity of 771
applications MWe
CHP over 10MWe CHP on this scale tends to DUKES 2006 reports 75
be large gas-turbine installations having a
industrial applications that combined capacity of 4814
require a substantial heat MWe
load on a continuous basis
70 By AEA Energy and Environment: see http://www.restats.org.uk 87

3.12 The DE challenge is therefore to make sure that new market
opportunities are identified, that the market and regulatory environment is
“user-friendly” for smaller participants, that potential barriers are identified and
addressed, and that genuine market failures are resolved.
3.13 The Foresight Sustainable Energy Management and the Built

Environment project, also referred to in chapter 2, will consider the long-term
impacts of more decentralised ways of generating low carbon heat and
electricity, and their interaction with current energy systems. This will include
looking at the long-term potential and challenges of distributed generation,
and its role and relationship with centralised generation. The work will
examine the critical uncertainties, map possible future directions and test
the policy implications, and will report in summer 2008.
3.14 There are a number of measures we can take in the short-term, as well
as a range of existing policies, which will help support the take up of DE. The
energy efficiency policies set out in chapter 2 will also drive investment in DE
as, increasingly, take-up of the most cost-effective energy saving measures,
such as insulation, will have been exhausted.
Existing and recent Government measures

3.15 Existing policies which will stimulate the take-up of DE include particularly:
• the zero carbon new homes policy;
• support for renewables, microgeneration and CHP; and
• public sector leadership.
Zero carbon new homes

3.16 The Government’s drive towards zero carbon homes will increase
demand for DE. In Building a Greener Future71 the Government proposed that
all new homes in England should be zero carbon from 2016. A firm decision
on this timetable will be announced later this year. By 2016, if we meet our
housing supply ambitions, there will be an additional 200,000 homes every
year, the majority of which will be newly-built, zero carbon homes. This will
include homes which will use DE sources of energy.
Support for renewables, microgeneration and CHP

3.17 Government has also taken a number of steps to promote some of the
specific DE technologies. The proposed changes to the Renewables
Obligation, set out in chapter 5, will boost support for renewable Combined
Heat and Power (CHP), including the recovery of energy from waste and
some types of microgeneration technologies. Defra’s Waste Strategy,
published in May 2007, sets out our broader policy on improving the
recovery of energy from waste, which will also boost DE.
3.18 A number of incentives are available for people looking to invest in

microgeneration technologies for their home, school, community, or business.
They are available under:
• Warm Front Programme (and its equivalents in the Devolved Administrations);
71 http://www.communities.gov.uk/pub/173/
88 BuildingaGreenerFutureTowardsZeroCarbonDevelopment_id1505173.pdf

• Low Carbon Buildings Programme; and
• Enhanced Capital Allowance Scheme.
3.19 The Low Carbon Buildings Programme will provide £86 million of grant
funding for microgeneration installations in homes, communities, public and
private sectors to 2009. This includes the additional £6 million72 announced by
the Chancellor in Budget 07 to fund householder installations only as a final
tranche of funding for Phase One of the programme. Following this new
funding and the high demand for the householder stream of the programme
we have redesigned it – details can be found at www.lowcarbonbuildings.co.uk
3.20 Fiscal incentives are also important. A reduced VAT level of 5% is

applicable to the installation of most microgeneration technologies. The list of
applicable technologies was lengthened with the addition of ground-source
heat pumps, air-source heat pumps and micro-CHP in the 2004 and 2005
Budgets. As announced in the December 2006 Pre-Budget Report, legislation
in the Finance Bill 2007 will ensure that, where private householders install
microgeneration technology in their home for the purpose of generating
power for their personal use, any payments they receive from the sale of
surplus power or Renewable Obligation Certificates to an energy company are
not subject to income tax.
3.21 CHP benefits from a range of existing policies, including exemption from
the Climate Change Levy and Business Rates. In addition, incentives for CHP
have been improved by fully rewarding its carbon saving in the EU Emissions
Trading Scheme (ETS) Phase II, which begins on 1 January 2008.
Public sector leadership

3.22 The public sector has a role to play in promoting DE. The Government
has committed to carbon emission reduction targets73 and its office estate
becoming carbon-neutral by 2012. We will publish a report on ways in which
local authorities can contribute to our climate change objectives, including by
increasing levels of DE, by August 2007.
3.23 The Carbon Trust has allocated £10 million to Partnership for Renewables
which provides support for public sector organisations wanting to invest in DE.
It plans to have 500MW of renewable energy projects, primarily 3-5MW wind
turbine projects, constructed or under development within the next five years
by attracting private sector investment of up to half a billion pounds.74
Heat
3.24 Decarbonising heat, by more DE and other means, is important as heat
accounts for around 47% of the UK’s total carbon emissions (including
emissions from electrical heating) – equivalent to 71 million tonnes of carbon
(MtC) in 2005.75 Generating heat uses around half of the UK’s total energy
consumption by end-use. Nearly three quarters of that energy is used for
72 This £6 million takes the total level of funding available to householders to £18 million.
73 Commitments announced in June 2006 (and repeated in the March 2006 Sustainable Procurement Action
Plan) aim to reduce carbon emissions from Government offices by 30% by 2020, relative to 1999/2000
levels.
74 www.carbontrust.co.uk/commercial/enterprises/pfr.htm
75 UK NAEI (2005). 89

space and water heating, primarily in the domestic sector and to a lesser
extent in the commercial and public sectors. The remainder is used by
industry as an input to a wide range of processes; a small proportion is also
used for cooking. The vast majority of heat demand in the domestic,
commercial and public sectors is met by gas supplied through the gas
distribution network;76 industry tends to use a mix of heating fuels. Gas can be
converted to useful heat at over 90% efficiency in modern condensing boilers.
FIGURE 3.3 CARBON DIOXIDE EMISSIONS BY SECTOR, 2005
6%
19% 28%
Transport
Heat
47% Electricity
Other
Source: Defra
Note 1: Heat emissions comprise 35% direct emissions from heat and 12%
indirect emissions from electricity used to generate heat.
Note 2: other emissions include those from non-fuel combustion, agricultural
and industrial emissions which do not relate to heat and electricity.
FIGURE 3.4 HOW HEAT FOR ENERGY IS USED
Source: DTI
90 76 Some 77% of UK homes have gas central heating (2004 figures).

3.25 There are three options for reducing emissions from heating:
• reduce the absolute demand for heating by improving energy efficiency.
The largest and most cost-effective carbon savings in the short-term will
therefore come through improved energy efficiency, supported by the
energy saving measures in chapter 2;
• make more use of CHP, which is covered later in this chapter; and
• increase the proportion of heat generated through less carbon-intensive
technologies (see detail below on renewable heat and biomass), including
producing heat from low-carbon electricity.
3.26 DE has the potential to reduce the carbon content of both electricity and
heat. However, there are some key differences between heat and electricity
which dictate different policy approaches. For example:
• heat has to be produced relatively close to its point of use (in contrast with
electricity which can travel great distances without substantial loss);
• renewable heat technology currently requires a distributed approach,
whereas large scale renewables are already an option for reducing the
carbon content of electricity;
• affordable heat is a critical part of the fuel poverty agenda; and
• electricity cannot easily be stored77 whilst heat can.
3.27 Many current policies contribute to reducing carbon dioxide emissions

from heat – for example the EU ETS, the Climate Change Levy, tax incentives
for CHP and the Energy Efficiency Commitment78 (EEC) all contribute to
reduced carbon emissions from heat. In addition, policies such as the Warm
Front programme to tackle fuel poverty helps to reduce emissions. However,
the Government recognises the value of considering the heat sector in a
holistic and focussed way and exploring the scope for further reductions in
carbon emissions from this sector.
The Government will conduct further work into the policy options
available to reduce the carbon impact of heat and its use in order to
determine a strategy for heat. The work will look at the full range of
policy options, including the range of existing policy mechanisms such
as the EU ETS.
Renewable heat
3.28 Renewable heat is a potentially important means of reducing carbon
emissions. The Government is committed, through the Climate Change and
Sustainable Energy Act 2006, to promote the use of renewable heat.
Renewable heat will also need to play its part in contributing to the UK’s share
of the EU renewable energy targets. Renewable heat is already competitive in
some circumstances and benefits from capital grant support; it is also
incentivised through EU ETS, in some cases.79
77 While electricity storage technologies are available, costs and technical constraints mean they are not
widely used. Further developments may make storage a viable power system option in the future.
78 The new name for EEC Phase 3 will be the Carbon Emission Reduction Target (CERT)
79 Capital grant support for renewable heat and renewable CHP has been provided through the DTI/Big
Lottery Fund Bioenergy Capital Grants Scheme and Clear Skies Initiative. There is currently support
available through the Low Carbon Buildings Programme, and a new round of the Bioenergy Capital Grants 91
Scheme, funded by Defra, has recently closed.

3.29 However, the renewable heat market has been slow to develop,80 and
currently less than 1% of UK heat demand is supplied from renewable
sources. A 2005 report by Future Energy Solutions81 said that, by 2010, 1.8%
of UK heat demand – rising to 5.7% by 2020 – could be produced from the
range of renewable heat sources. The initial results of a draft Ernst & Young
study, commissioned by DTI and Defra, indicate that renewable heat could
provide significant carbon savings. They also find that various market failures
exist, including the limited application and effectiveness of carbon pricing in
this sector, which have slowed its development. This analysis is at a very early
stage. The Government will continue to develop its thinking in this area.
3.30 The Government-appointed Biomass Taskforce, in its October 2005

report,82 indicated that the proportion of UK heat demand supplied from
renewable sources could rise to 3% by 2010 and 7% by 2015, provided a
range of barriers were addressed, including:
• the lack of a carbon price;
• low investor confidence;
• lack of awareness in the construction and supply sectors; and
• fragmented supply chains.
3.31 In its response to the Biomass Task Force, the Government committed
to producing a Biomass Strategy,83 which is published alongside this White
Paper. It brings together current Government policies on biomass and is
summarised in Box 3.1. It provides a coherent framework for the development
of biomass.
BOX 3.1 SUMMARY OF THE BIOMASS STRATEGY
The strategy identifies significant potential to increase the domestic supply

of biomass, through the more efficient utilisation of agricultural land,
unmanaged woodland and waste. Our analysis shows a hierarchy of use in
terms of cost of carbon saving, with biomass heating as the most cost
efficient use for energy. The Strategy is intended to realise a major
expansion in the supply and use of biomass by:
• providing targeted support in key areas such as expansion of energy
crops and biomass heat installations, through direct grants and other
measures such as the schools building programme;
• sourcing an additional 1 million tonnes of wood from unmanaged
woodlands;
• increasing land used for production of perennial energy crops by
some 350,000 hectares;
• increasing the utilisation of organic waste materials; and
• stimulating technology development.
80 The main available renewable heat options are distributed: microgeneration (solar thermal, heat pumps)
and biomass (still expensive on a small scale) for residential use, and larger biomass for commercial and
industrial installations.
81 http://www.dti.gov.uk/energy/sources/renewables/policy/renewable-heat/page15963.html
82 http://www.defra.gov.uk/farm/crops/industrial/energy/biomass-taskforce/pdf/btf-finalreport.pdf
92 83 http://www.defra.gov.uk/environment/climatechange/index.htm

Combined Heat and Power (CHP)
3.32 CHP is a potentially carbon-efficient technology which captures the heat
generated as a by-product in electricity generation. Typically the process is
fired by fossil fuels, though biomass CHP is growing in importance. CHP
installations vary in size from micro-CHP installations, an alternative to the
domestic boiler, through community schemes generating heat for housing
developments and office buildings, to industrial sites equal in size to a
medium-sized power station.
3.33 The carbon savings from generating electricity in CHP installations, and
making use of the heat for either heating or cooling processes, depend on
many site-specific factors, including the size of the scheme and the nature of
its heat load. Indicative carbon efficiencies are illustrated in Table 3.2.
TABLE 3.2: CARBON SAVINGS OFFERED BY GOOD QUALITY CHP84 RELATIVE TO THE
SEPARATE PRODUCTION OF HEAT AND POWER FROM GAS85
Size of up to 1 MWe 1-50 MWe over 50 MWe

installation
Efficiency 18-30% 7-21% 10-23%

savings
3.34 The more consistent the demand for heat throughout the day, the more
economic CHP can be. Hence the best sites for CHP are industrial sites in
continual operation. Community-scale projects are most effective where a
range of different heat and cooling demands (residential flats, office blocks,
municipal buildings) are aggregated within the system to ensure broadly
constant overall demand. However, the costs of generating electricity using
CHP are often higher than for standard centralised generation, even though
there is a financial return for the heat that can be sold.
3.35 Therefore, in recognition of the carbon savings Good Quality CHP offers,
Government has introduced a number of support measures to encourage
development of such schemes, including:
• exemption from the Climate Change Levy;
• Business Rates exemption;
• full reward for the carbon saving of CHP under the allocations for EU ETS
Phase II, which will inform our thinking for Phase III;
• Enhanced Capital Allowances for power stations and equipment; and
• Renewable Obligation Certificate (ROC) eligibility for the biomass element
of fuel used in energy from waste plants that utilise CHP, as explained in
chapter 5.
84 Good Quality CHP denotes those schemes that meet the energy efficiency criteria prescribed by the UK’s
CHP Quality Assurance Programme (CHPQA). Such schemes are entitled to certain financial benefits.
Further information on the programme can be found at www.chpqa.com.
85 Source: data from the CHPQA programme on a “best available technology” basis. The range reflects the
use of a range of technology types at the margins of the size boundaries and the use of alternative
counterfactuals for the efficiency of a gas plant. 93

3.36 In addition to these measures to make CHP more financially attractive,
Government has taken steps to increase awareness of the opportunities for
CHP amongst users of heat. Since the publication of the Energy Review
Report, DTI has published revised guidance for power station developers
which includes industrial heat maps. We will work to develop those heat maps
with Regional Development Agencies (RDAs) and local authorities.
3.37 Defra will work with local authorities on guidance to ensure that anyone
replacing a mid-sized furnace as part of a boiler plant (over 400kW) is aware of
the potential for CHP. In addition, the proposals announced here on export
reward, market and licensing arrangements and connections will potentially
improve the economics of CHP schemes.
Microgeneration Strategy
3.38 In March 2006, Government published the Microgeneration Strategy:
Our Energy Challenge: Power from the People.86 It aims to create conditions
under which microgeneration becomes a viable source of energy generation
for homes, communities and businesses. Actions to address the constraints
on the uptake of microgeneration are summarised below.
Cost constraints
3.39 The costs of installing microgeneration technologies are relatively high.
The aim of the Government’s £86 million Low Carbon Buildings Programme,
launched in 2006, is to demonstrate the potential of microgeneration
technologies, and also stimulate the market by demonstrating their potential
and providing grants to householders, public, not for profit and commercial
organisations across the UK to cover installation cost. The aim of the
programme is to drive up demand for microgeneration which in turn will
lead to price reductions, making it more accessible across the board.
3.40 Further financial incentives include:

• rewarding the export of excess electricity, as discussed later in this chapter
• benefits associated with Renewable Obligation Certificates (ROCs), Climate
Change Renewables Levy Exemption Certificates (LECs) and Renewable
Energy Guarantees of Origin (REGOs). Clear guidance outlining the
benefits of each and explaining how to obtain these will be published
shortly. A typical domestic microgenerator would generate renewable
electricity with a ROC value of around £40 at current market prices.
However, as the Renewable Obligation was designed to support large-scale
renewable generation, it has been difficult for householders to access this
value. The changes to the Renewable Obligation introduced
in April 2007, which are set out in chapter 5, are designed to remedy this.
86 http://www.dti.gov.uk/energy/sources/sustainable/microgeneration/strategy/page27594.html
94

Technical constraints
3.41 We are addressing a number of technical constraints to make it easier
for microgenerators to connect to the grid. The smallest87 microgenerators no
longer need to obtain permission to connect to the network, and new wiring
regulations will be published in January 2008 that will make it easier to
connect microgenerators into existing electrical installations. DTI is working in
partnership with Ofgem, energy supply companies and Distribution Network
Operators (DNOs)88 to ensure that network and market systems are able to
cope with growing demand for microgeneration.
3.42 As discussed in chapter 2, smart metering is key to the overall

development of the energy market and in particular allowing more
sophisticated import and export tariffs to be introduced. It is important that
smart meters interact intelligently with microgeneration.
Regulatory constraints/opportunities
3.43 The Microgeneration Strategy highlighted the role of Planning and
Building Regulations. We are using these policies to support microgeneration.
For example, the Code for Sustainable Homes was published in December
2006 along with the consultation on the move towards all new homes being
zero-carbon by 2016.
3.44 We believe that the planning regime should be more supportive of

microgeneration and, as a first step, we are committed to extending permitted
development rights for householders which will mean that, under certain
circumstances, planning permission would not be needed before installing
microgeneration on a home.89 This change will take effect in
autumn 2007. Government is also considering how a similar approach could be
extended to other buildings, for example, relating to agricultural and other
commercial uses.
Development of the microgeneration industry

3.45 As well as addressing these constraints, the Microgeneration Strategy aims
to help development of microgeneration technologies, in the following ways:
• a map of funding available for microgeneration R&D has been published on
the DTI website to point companies to major funding sources in the UK90;
• a route-map of all technologies is being developed by DTI and industry to
address the specific challenges faced by each individual technology;
• DTI is working with the Sector Skills Councils to ensure the skills base
develops to support the levels of demand in manufacturing, installing and
maintaining microgeneration technologies;
• the Microgeneration Strategy recognises the importance of educating
children in energy efficiency through their schools. Schools can access
funding through the Low Carbon Buildings Programme; and
• working with industry to move away from grants-based funding to a more
sustainable model.
87 The ENA’s Engineering Recommendation G83/1 allows this approach for generators up to 16A/phase.
This approach applies up to a total generation capacity of around 4kW (micro-wind turbines and domestic
CHP units are typically 1kW devices).
88 A DNO is an entity licensed to distribute electricity through cables and has a duty to provide connections
to premises.
89 http://www.communities.gov.uk/index.asp?id=1508888. The Communities and Local Government
consultation period closes on 27 June 2007.
90 http://www.dti.gov.uk/energy/sources/sustainable/microgeneration/strategy/implementation/page36314.html 95

Distributed Generation (DG) Review
3.46 Beyond this range of existing measures, the Energy Review Report in
July 2006 announced a joint DTI/Ofgem Review of the specific barriers to DG
(including CHP). DG refers specifically to those decentralised technologies
which generate electricity, and are connected to the distribution grid, as well
as transmission-connected CHP91. The full DG Review Report is published
separately alongside this White Paper92.
3.47 The UK energy market was established to meet the needs of large
centralised generation. Aspects of the system disadvantage smaller players,
such as distributed generators, particularly those involved in community
generation projects. The system was also generally designed for one-way flow
of electricity from large power stations, through the high-voltage transmission
grid and into distribution networks across the country, rather than the sharing
of electricity around sites within a distributed, more community-based
network.
3.48 Some decentralised technologies (such as wind and solar) generate

electricity intermittently, whilst CHP schemes primarily respond to the
demand for heat rather than electricity. Consequently, the output of
distributed generators often does not exactly match the electricity demand
profile of particular consumers. As electricity cannot easily be stored, DG
therefore requires the ability to both import from and export to the
distribution network.
3.49 We consulted widely as part of the review. Key barriers to DG, identified
by interested parties, were:
• Cost – DG technologies tend to have relatively high capital costs, being
largely non-mass produced. The rewards for exporting excess electricity
produced by distributed generators are seen as small and difficult to
access. More generally, the true cost of carbon is not yet fully reflected in
the price of electricity, which disadvantages lower carbon technologies.
• Lack of reliable information – there was a low awareness of DG options
amongst potential consumers; grants and rewards such as ROCs were
perceived as being hard to access; and the lack of a comprehensive
accreditation scheme for suppliers and installers put people off untried
technologies.
• Electricity industry issues – due to the nature of the existing network
structure, it could be hard for small generators to connect to the
centralised system, and the DNOs did not approach the connection of
distributed generators in a sufficiently positive way. The cost to suppliers of
rewarding small generators for exporting their excess electricity was a
further disincentive to the industry.
• Regulatory barriers – the difficulties of getting planning permission for DG
technologies was raised, especially in the context of community
developments and new housing, where the associated costs and delays
acted as a disincentive.
91 Most centrally-generated electricity is transported via the high-voltage transmission grid, only stepping
down onto the lower voltage distribution grid to complete its journey from the power station to the
customer. Transmission-connected CHP is included because the heat will be used locally.
96 92 http://www.dti.gov.uk/energy/whitepaper

3.50 In the context of Government’s overall energy policy goals, we believe
that any action to address these barriers should:
• stimulate take up of cost-effective, low-carbon forms of distributed
generation;
• provide a means of enabling distributed generators to realise a reasonable
economic value from their schemes;
• reduce complexity involved in setting up as a distributed generator.
Requirements on these smaller players should be proportionate to their
size and the use they make of the wider public network; and
• encourage, where possible, further development of DG within the licensed
framework, rather than outside of it.
3.51 In light of these principles, the Government proposes a four-point

package of measures as set out below.
Improving information and awareness

3.52 There is a lack of comprehensive and user-friendly information on DE.
Some help (including from Government) is available to support householders,
local authorities and developers to implement DE solutions, but the
information is patchy or located in a variety of places. In some cases the
required information does not exist.
3.53 Chapter 2 sets out the Government’s strategy for getting citizens more
engaged in combating climate change and advising them on how to reduce
their carbon footprint. Defra launched a communications campaign in April to
promote their “Act on CO2” brand, including a CO2 calculator. A key aim of this
campaign is to encourage behaviour change and get the general public to take
steps to reduce their carbon emissions.
3.54 As part of this, we intend to improve the provision of information and

advice on DE, including:
• providing information about different technologies and how they work in
the household, alongside the advice to households on energy efficiency set
out in chapter 2;
• ensuring the availability of guidance on the potential benefits of
microgeneration including how to maximise the financial benefits (grants,
access to ROCs, export reward); and
• providing information for local authorities and developers on how to use DE
to help achieve their emission reduction goals, including the role of
planning policy, information on specific technologies, the role of Energy
Service Companies and other financing options. We are considering how
we could improve the advice and support available to the Core Cities and
Local Authorities to help them deliver key opportunities for carbon
abatement, including DE and innovative programmes of support for
householders. DTI, Defra and CLG will jointly publish a report by August
2007 to help local authorities93 meet our climate change objectives
including by increasing levels of microgeneration and DE.
93 Local authorities in England and Wales will be under a statutory duty to have regard to this report in
exercising their functions. 97

3.55 In addition to the provision of information we will improve confidence by
introducing a microgeneration certification scheme covering products,
installers and manufacturers. This will provide consumers with independent
certification of microgeneration products and services, and a route for
complaints. A pilot scheme94 covering product installation, and a Code of
Practice, opened for the transition phase in May 2007, building on the existing
Clear Skies and Solar PV accreditation schemes. It will be supported by DTI
initially, with the objective of the industry taking the responsibility for it in due
course.
We will ensure that this improved information on DE provides a

comprehensive picture of all the options, costs and benefits to help
accelerate the take up of DE. We will keep under review the need for
further measures.
More flexible market and licensing arrangements

3.56 Licences are required for the generation, distribution and supply of
electricity,95 though in some circumstances exemptions are applicable96.
Licensed parties have to comply with a range of licence conditions to ensure,
amongst other things, the safe distribution and supply of electricity, and to
provide consumer protection. Licences also require the licensee to be a party
to relevant industry codes, which are technically complex and therefore
require significant expert resource to understand and comply with; the kind of
resource that the smaller distributed generators do not have.
3.57 The wholesale electricity market was established around a centralised

model. Therefore, the complexities and associated costs facing small
generators in fully participating in this market, and the obligations that
suppliers have to meet to trade across public networks, are significant
discouragements to DG. Those that have established DG schemes have
reported that success has come from finding solutions in spite of the system,
rather than because of it.
3.58 For example, the Woking Borough Council DG scheme uses a private
network, making full use of the licensing exemptions framework, to avoid the
costs and complexities. Exemptions take enforcement of issues related to
consumer choice, protection and safety largely outside of the remit of the
regulator; on a small scale this has minimal impact on the market. However,
in the future, as we hope to move towards increased levels of DG across the
country, Government is committed to improving the market opportunities so
that DG can flourish inside the licensed framework.
94 http://www.ukmicrogeneration.org.uk
95 Apart from transmission connected CHP schemes, for the majority of DG schemes transmission licences
are not applicable.
96 The Electricity (Class Exemptions from the Requirement for a Licence) Order 2001 provides for those that
generate, distribute or supply specified, smaller amounts of electricity to remain exempt from the need to
be licensed. Most DG schemes fall inside the exemption limits for generation. Such an unlicensed
generator who supplies up to 5MW in aggregate, of which no more than 2.5MW is supplied to domestic
consumers, can supply electricity across public networks, therefore making use of both the generation
98 and supply exemptions framework.

3.59 Ofgem has proposed fundamental simplifications to the existing supply
licence, and implementation of the modified licence is planned for June 2007
this year. It will contain half the number of standard conditions and will set out
simpler, clearer obligations. It will retain only those obligations necessary for
the energy market to function properly and to protect the interests of
customers, especially those who are vulnerable. However, there is a
requirement for a broader review of industry arrangements, including those
relating to energy trading, to facilitate DG.
To address these barriers DTI and Ofgem will consult later in 2007 on
options for more flexible market and licensing arrangements for
distributed low-carbon electricity within the licensed framework, to be
implemented by the end of 2008.
3.60 One important future model for delivering DG is the Energy Services
Company (ESCo). The Government will be taking forward further work to
examine the potential role of ESCos and ways in which we can support their
development. Box 3.2 explains the concept and summarises current
government action in this area.
BOX 3.2 ENERGY SERVICE COMPANIES (ESCOS)
An ESCo is a company that provides a customer with energy supply

solutions (such as heating and lighting) rather than simply gas and
electricity. An ESCo could provide a customer with a combination of
energy-saving advice and equipment, renewable generation, planned
maintenance, fuel and finance. Government recognises that ESCos offer a
useful model for market delivery of its energy objectives, as they can bring
together different areas of expertise, skills and investment to facilitate the
cost-effective development and implementation of distributed energy
systems.
Government’s role in providing the framework to enable ESCos to develop

involves:
• providing the right incentives through the development of efficient
energy and carbon markets;
• removing barriers, such as addressing poor quality information on
energy consumption through improved billing and metering. Ofgem has
proposed the removal of the 28-day rule as part of its Supply Licence
Review, and this has already been subject to extensive consultation.
This Review will enable suppliers and consumers to reach longer-term
agreements and facilitate the energy services approach;
• addressing lack of awareness and expertise by providing information
and encouraging the sharing of experience among public sector, utility,
corporate and financial stakeholders;
• overcoming risk and uncertainty by setting a standard framework for
processes (such as contracts) and facilitating accreditation; and
99

BOX 3.2 continued
• ensuring competitive market conditions by making it easier for new

market entrants while maintaining service standards.
Following the commitment in the Local Government White Paper, we will

continue to work with the Core Cities to identify opportunities for low-
carbon energy services, where developing a relationship with an ESCo
could lead to better delivery of carbon emissions reduction. We will also
work with the British Council of Shopping Centres to take forward the
option of DG in new shopping centre developments.
Clearer export rewards for smaller generators

3.61 Many distributed generators produce more electricity than they need.
This excess electricity can be sold (“exported”) to suppliers in order to earn
some extra income for the generator and supply a small amount of electricity
to the system.
3.62 Suppliers are not currently required to make an offer for exported
electricity. Most suppliers do now offer tariffs, but few of these tariffs are
widely advertised and the terms vary considerably between suppliers. This
makes it difficult for customers to determine which tariff will best meet
their circumstances.
3.63 The tariffs available generally offer a lower price for exported electricity
than the retail price for imported electricity. This reflects the expected
difference between wholesale and retail price in any market, including the
cost of transporting the exported electricity to a customer and the transaction
costs for the supplier. In many situations where traded volumes are small it is,
in fact, uneconomic (at present) for suppliers to purchase this electricity.
3.64 Transparency of prices offered by each supplier for exported electricity

in a simple and easy to understand format is the first step to addressing this
barrier.
All six major energy suppliers have now committed to publishing easily
accessible export tariffs.
3.65 There are a number of technical changes that would help suppliers to cut
their administration costs, thus making it more cost-effective to offer a tariff
for exported electricity. We welcome the engagement of industry thus far on
these changes, and will continue to work with them to progress this work.
100

3.66 We will keep under review whether it is necessary to use the powers
granted under The Climate Change and Sustainable Energy Act 2006,97 which
allows Government, from August 2007, to vary supply licences to require
suppliers to offer to acquire electricity exported by their customers. Our decision
will be informed by Ofgem’s work, announced in Budget 2007, to examine
how green homes could benefit more from prices paid for electricity exported
to the network, and how the market for rewarding microgenerators develops.
Facilitating connections for distributed generators

3.67 Distributed generators can range in size from a few KW to 100 MW or
sometimes more. The smallest microgenerators no longer need permission
from a DNO to connect to the distribution network – they can simply connect
and inform the DNO that they have done so98. Generators above this limit,
however, need to go through a more onerous process and several responses
to the DG Call for Evidence99 suggest that DNOs could make the connection
process quicker and easier for their customers. In line with the Government’s
desire for DG to compete on a level playing field with conventional generation,
the Government believes that it is important that distributed generators can
connect to the grid easily and efficiently.
3.68 There is no evidence of fundamental technical barriers to connection for

DG100. Instead the process for connection needs to be simplified for DG to
make it more accessible and cost-effective. We recognise the significant
progress that has been made in addressing barriers, much of it through the
Energy Networks Strategy Group (ENSG) co-chaired by DTI and Ofgem.
3.69 However, more is needed to ensure that DG can play its full part. The
Government welcomes Ofgem’s initiatives to:
• extend cost-reflective charging to the distribution network. This benefits
local generation because it potentially allows credits to generators where
they provide benefits to the network;
• extend its Innovation Funding Incentive to the end of the next price review
period (likely to be 2015) and to extend eligibility for Registered Power
Zones to generation connected in the next five years;
• allow developers of DG a choice of connection provider
• review during 2008, as part of the next price control review, the incentives
and investment drivers for DNOs to connect DG; and
• review how the DNOs’ Long-Term Development Statements can be made
more useful to distributed generators.
3.70 More broadly, it will be important for network operators to invest in the
light of these longer-term developments. We have funded work on long-term
scenarios through the ENSG and we welcome Ofgem’s plans to undertake
long-term analysis (see chapter 5). Taken together, these connections
97 Sections 7 and 8, Climate Change and Sustainable Energy Act 2006:

http://www.publications.parliament.uk/pa/cm200506/cmbills/017/2006017.pdf
98 See footnote 87
99 http://www.dti.gov.uk/energyreview/implementation/distributed-energy/page35076.html
100 http://www.dti.gov.uk/files/file31648.pdf: Econnect carried out a study of the network reinforcement
costs for increasing DG penetration. It found that almost 20% penetration of microgeneration could be
accommodated without network reinforcement, but that for larger DG power stations, average
reinforcement costs will rise from current levels. More details are in the DG Review Report. 101

measures should better facilitate the connection of DG to distribution networks.
This will increase incentives for DG and increase the possibility for DG to
compete alongside centralised generation to supply GB’s electricity needs.
3.71 The Ofgem-chaired Transmission Arrangements for Distributed

Generation Group (TADG) is currently considering the interaction between DG
and the transmission system, and plans to report its findings later this month.
Many respondents to the Call for Evidence were concerned that this work
could be detrimental to DG, by eroding the “embedded benefits” that reward
DG for the network benefit it brings. The Government would not want to see
additional barriers erected to DG. However, charges should be cost-reflective,
with charges being proportionate to the costs imposed, and with parties
appropriately rewarded for any benefit contributed. In general, the
Government believes that the burden of regulation on a distributed generator
should be proportionate to its use of the network.
Driving demand for DE at local and regional level

3.72 Local authorities and regions have a key role to play in facilitating the
development and uptake of DE – as community leaders, through their
knowledge of local opportunities, and through their powers and
responsibilities for planning and regeneration. Some local authorities and
regions are already at the cutting edge of efforts to develop DE schemes in
the UK. Government has taken steps to support this drive for low carbon
energy generated locally, particularly in its planning and development policy.
Government has made it clear that it expects all planning authorities to make
full use of the positive approach to renewables set out in Planning Policy
Statement 22 on Renewable Energy.
3.73 Chapter 2 sets out the additional measures that the Government is
taking to improve energy efficiency and reduce the carbon footprint of the
built environment. The Government's ambition is that all new housing
development in England should, by 2016, be zero carbon, and has consulted
on a timetable for moving towards that standard101. The measures to support
the move towards zero carbon homes and development, and thereby
stimulate demand for DE include in particular:
• the draft Planning Policy Statement: Planning and Climate Change which
expects planning to be a positive force for change by helping to create an
attractive environment for innovation and for the private sector to bring
forward investment in renewable and low carbon technologies;
• measures to improve the energy performance of Building Regulations so
that over time all new homes meet the energy and carbon standards set
out in the Code for Sustainable Homes;
• time-limited stamp duty exemption for new zero carbon homes102; and
101 http://www.communities.gov.uk/pub/173/
BuildingaGreenerFutureTowardsZeroCarbonDevelopment_id1505173.pdf
102 From 1 October 2007, all new zero-carbon homes costing up to £500,000 will pay no stamp duty, with
zero-carbon homes costing in excess of £500,000 receiving a reduction in their stamp duty bill of
£15,000. The exemption will be time-limited for 5 years until September 2012, with the Government
considering the case for an extension before then. For further details see Budget Note 26 in
102 http://www.hm-treasury.gov.uk/media/757/0A/bud07_budgetnotes_381.pdf

• low to zero-carbon demonstration projects – notably the Carbon Challenge
and the Thames Gateway study. In the Thames Gateway, CLG will be
supporting the development of decentralised energy projects in specific
locations such as Barking, and by working with English Partnerships to
develop a portfolio of energy projects that a future ESCo could take
forward.
3.74 The English Regions, particularly through the RDAs with their role in
supporting sustainable economic development, regeneration and innovation,
will play an important role in identifying and securing opportunities for
distributed energy. As well as their role in helping developers identify potential
customers for heat, RDAs will act to support innovative energy financing and
delivery models in their regions. RDAs will also support the development of
DE projects (such as anaerobic digestion plants) for example, by supporting
the development of energy supply chains and skills, and by ensuring
regeneration projects meet high standards of carbon efficiency.
This is covered in more detail in chapter 9.
Next steps
3.75 The measures in this chapter should substantially improve the
environment for DE in the UK. The measures to promote lower carbon
developments will drive demand for decentralised heat and electricity
generation. Meanwhile,
a number of barriers to DE projects are being removed, making DE a more
realistic alternative to the traditional, centralised approach.
3.76 It is for the market to decide on the best mix of technologies but we are
committed to ensuring that DE solutions have a real opportunity to compete.
We are establishing a new Distributed Energy Unit within the DTI to monitor
the development of markets for these technologies, to drive the
implementation of these measures and to ensure that any further barriers to
DE that may be identified are addressed. Our further work will take account
of the impact of these measures and proposals for implementing the EU
renewables target, as they are developed over the next few years.
103

Distributed Energy
Summary of Measures
• to remove barriers and encourage more widespread deployment of
distributed generation we are bringing forward a package of
measures, including:
– information, and guidance on options in distributed generation;
– more flexible market and licensing arrangements for distributed,
low-carbon electricity supply, within the licensed framework, to be
implemented by end 2008;
– more clarity on the terms offered by energy suppliers to reward
micro-generators for the excess electricity they produce and export;
and
– making it easier to connect to and use the distribution network.
• these measures will support the drive for distributed energy from the
Government’s move to zero carbon homes;
• we are conducting further work into policy options to reduce the
carbon impact of heat, including reviewing the impact of the range of
existing mechanisms;
• we are publishing the UK Biomass Strategy to maximise the supply
and use of biomass – wood, energy crops, waste, and more – in the
production of sustainable energy; and
• we are continuing to take forward implementation of the
Microgeneration Strategy, announced last year, including making it
easier to get planning permission and providing funding to help meet
the costs of installation.
104

CHAPTER 4
Oil, Gas and Coal

In chapter 1 we set out the challenging international
context against which the UK needs to maintain the
security of its energy supplies. A key feature is the growing
global demand for fossil fuels, with damaging implications
for climate change. To meet growing global demand for
energy, substantial investment will be needed to extract,
transport and process primary energy reserves, which
particularly for oil and gas, are concetrated in regions that
include less stable parts of the world. The UK is expected
to remain reliant on fossil fuels for many years and to
become increasingly dependent on imports of these fuels
from international energy markets.
4.01 This chapter:
• Looks at the current UK energy market outlook, the prospects for future
energy demand and the need for increasing energy imports;
• describes the UK’s strategy to address and manage energy security of
supply risks;
• sets out how we will encourage efficient use of fossil-fuels and stimulate
production of non fossil fuel energy;
• sets out how we will improve the regulatory and policy framework to
ensure we maximise economic recovery of the UK’s fossil fuels reserves;
• highlights the role of effective energy markets in delivering security of
energy supplies;
• sets out our plans to improve energy market information and analysis of
medium-term trends in energy supply and demand;
• sets out our plans to ensure the UK is meeting the challenge of increased
gas imports by strengthening the conditions for investment in gas storage
and import infrastructure and through changes to the planning and licensing
regime; and
• outlines our plans to ensure we have robust emergency planning
arrangements.
Current UK energy market outlook

4.02 Today around 90% of the UK’s energy needs are met by oil, gas and
coal. Renewables and other low carbon technologies will play an increasing
role in our energy mix over the longer term; however, fossil fuels will continue
to be the predominant source of energy for decades to come. In fact, global
fossil fuel resources are still plentiful, and markets are well-developed to deal
with increased trade. By 2020, fossil fuels are expected to still supply the
great majority of UK energy needs (see Figure 4.1).
105
Oil, Gas And Coal

FIGURE 4.1 PRIMARY ENERGY DEMAND BY FUELS (2020)103
Source: DTI, 2007
4.03 While the UK has benefited from indigenous reserves of oil and gas for
many years, as the North Sea matures, we will become increasingly
dependent on imported energy. By 2010, gas imports could be meeting up
to a third or more of the UK’s total annual gas demand, potentially rising to
around 80% by 2020 on the basis of existing policies. The UK is also already a
net importer of oil, and by 2020 imports could be meeting up to around 75%
of the UK’s coal demand.
4.04 We therefore need to be confident that the market for fossil fuels,
supported by appropriate Government policies, continues to ensure reliable
supplies of these fuels at competitive prices to people and businesses (see
Box 4.1). We also need to make sure that an appropriate market framework is
in place to mitigate the impact of the use of fossil fuels as we move towards
a low-carbon economy.
BOX 4.1 DRIVERS OF SECURITY OF SUPPLY
Security of supply requires that sufficient fuel and infrastructure capacity is

available to avoid socially unacceptable levels of interruption to physical
supply and excessive costs to the economy from unexpectedly high or
volatile prices.
Security of energy supplies requires sufficient, diverse and reliable:

• supplies of energy to meet customers’ demand;
• capacity on the import, transmission and distribution networks to
deliver supplies to customers.
In turn, ensuring these conditions are met requires:

• sufficient investment globally in production, storage and transportation
of fuels;
103 Based on DTI projections – for more details, see UK Energy and Carbon Emissions Projections,
106 May 2007 www.dti.gov.uk/energy/whitepaper

BOX 4.1 continued
• diversity of supply sources and types of capacity for example storage,

import capacity, demand flexibility (e.g. through fuel switching by power
stations or large consumers) in order to minimise the risk of large
amounts of supply being unavailable at the same time;
• reliability of infrastructure such as producing fields, pipelines, import
terminals and the rail network to bring primary fuels into the UK
market, especially when demand is high; and
• effective price signals: to indicate where scarce fuels are most valued;
to inform short-term consumption decisions that influence demand; and
to influence longer-term investment decisions.
In addition, due to the high variability of demand and the inevitable risk of
physical outages in some part of the supply chain, flexibility or “spare”
capacity on the system is required to act as a buffer in these
circumstances. This “spare” capacity can take a number of different forms
such as oversized import infrastructure; storage and stocks capacity; or
demand-side flexibility.
Our strategy to manage energy security

of supply risks
4.05 Whilst imports are not in themselves a threat to security of supply, our
reliance on fossil fuels and higher levels of import dependence will bring new
associated risks, as the UK will face greater exposure to developments in the
global energy system (these risks are highlighted in chapter 1). However, we
have a clear strategy to manage these risks.
4.06 Our starting point for addressing these risks must be to reduce our
overall energy use through greater energy efficiency. The measures to achieve
this are set out in chapter 2. Beyond that we must also support the
development and deployment within the UK of non fossil fuel energy to reduce
our dependence on fossil fuels and to diversify the range of energy sources
available to the UK104. This includes renewables and, subject to the consultation
being launched with this White Paper, new nuclear power. At the same time,
as we will continue to rely on fossil fuels for the foreseeable future, we need
to encourage the adoption of low-carbon technologies, such as carbon capture
and storage, to mitigate the impact on the climate of the continued use of
fossil-fuels. Measures to achieve these are set out in chapter 5.
4.07 Given our own hydrocarbon reserves, the UK can also to some extent
reduce its dependence on imported fossil fuels by ensuring that that we
maximise economic recovery of the oil and gas from the UK Continental
Shelf (UKCS) and from remaining coal reserves.
4.08 However, it is clear that even with these measures we are set to
become increasingly reliant on imported energy over the longer term. This
104 Though renewables may bring their own security of supply risks, such as intermittency. 107
Oil, Gas And Coal

brings exposure to longer supply chains and a wider range of markets,
broadening the range of political, infrastructure-related, weather-related
and other risks with the potential to affect supplies into the UK.
4.09 Many of these risks are outside our immediate control and cannot be
totally avoided. Given the complex interplay of factors that determine the
supply of and demand for energy, we believe that well-functioning markets are
the best way to deliver security of energy supplies, and to diversify sources,
supply routes and import points for energy. With the regulators, we will work
to ensure the UK has an effective market framework conducive to investment,
supported by improved arrangements for providing energy market information
to increase the transparency of the energy market.
4.10 Given the particular risks associated with our increasing reliance on gas,
and since it is through pipelines in other EU Member States that our companies
need to get much of the gas they need, we will push for the completion of
the EU energy market liberalisation. In addition, we will continue to promote
efficient, open and transparent energy markets abroad to ensure fair access
to gas infrastructure. We have consulted on the robustness of our gas market
framework and are publishing our response alongside this White Paper. The
consultation was published on 16 October 2006 and concluded on 12 January
2007105. We will also propose to legislate and reform the planning and licensing
system to ensure timely investment in storage and new import infrastructure
and take steps to improve our emergency planning arrangements.
Encouraging energy efficiency and non fossil fuel

energy
4.11 Our efforts to improve the energy efficiency of our economy by directly
reducing energy demand and by promoting alternative technologies are a key
part of helping to ensure security of supply. Government is committed to
increasing energy efficiency in the industrial, commercial, public and domestic
sectors. Chapter 2 sets out our measures to promote energy efficiency by
providing incentives and better information. We also set out our ambition for
the roll out of smart meters to allow consumers to become more flexible and
responsive to market signals. Government and Ofgem will also continue to
encourage consumers to become more flexible and responsive to changes in
prices through continued dialogue with market participants.
4.12 There is also potential to reduce our demand for fossil fuels by using
fuels more efficiently, e.g. through Combined Heat and Power (CHP), while
other distributed energy (DE) solutions could bring forward renewable
technologies. The Government wants to remove barriers to the deployment
of DE technologies so that they can grow (see Chapter 3).
4.13 In the transport sector, as part of the Government’s overall strategy for
carbon emissions reduction, we will introduce a Renewable Transport Fuels
Obligation. This obligation is designed to ensure that by 2010 at least 5% of all
road transport fuel will come from renewable sources, thus reducing the
expected demand for oil. Chapter 7 provides more detail.
105 Responses are available on the DTI website at: http://www.dti.gov.uk/energy/review/implementation/gas-
108 supply/cons-responses/page37145.html.

4.14 As outlined in chapter 5, we will also encourage the adoption of low
carbon technologies, including carbon capture and storage, and we will
support the development and deployment of non-fossil fuel energy, such as
from renewable sources, and, subject to the consultation being launched with
this White Paper, new nuclear power.
Maximising economic recovery of fossil fuels

in the UK
Oil and gas
4.15 The UK still has significant oil and gas resources. While some 37 billion
barrels of oil equivalent (boe) have been produced to date, estimates of the
hydrocarbons remaining to be produced from the UK Continental Shelf (UKCS)
range from 16 to 25 billion boe.
BOX 4.2 OUTLOOK FOR UKCS OIL AND GAS PRODUCTION
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
FIGURE 4.2 ACTUAL AND POSSIBLE FUTURE UKCS OIL AND GAS PRODUCTION
Source: DTI, 2007
Total oil and gas production from the UK Continental Shelf (UKCS) peaked
in 1999 and has been declining since. If recent trends continue production
could fall from three million barrels of oil equivalent (boe) a day now to
around 1 million boe a day by 2020. However, if a high level of investment
is maintained, the rate of decline could be slowed. This would deliver
significantly higher production (an extra 0.6 million boe a day from 2020 to
2030) and, consequently, greater recovery of the UK’s remaining oil and
gas reserves (4 billion boe extra production by 2030). The challenge is to
maintain the competitiveness of the UKCS as it becomes increasingly mature,
in order to maximise economic recovery of known and “yet-to-find” reserves.
109
Oil, Gas And Coal

4.16 If we are to maximise economic recovery of remaining UKCS reserves
we must maintain a supportive regulatory environment that attracts a wide
range of companies to exploit existing and prospective fields.
4.17 Government is already working closely with industry to boost UKCS

investment over the next 10 to 15 years:
• Under the Stewardship initiative Government works with individual
companies and joint venture groups to identify areas where additional
investment would be beneficial and to optimise improvements of mature
fields; and
• PILOT – the high level industry/Government forum set up in 1999 – has
brought forward the introduction of the “Promote” licence and “Fallow”
exercise. The “Promote” licence, introduced in 2003 encourages smaller
companies with limited resources to work up plans to either sell to or bring
in other investors. The “Fallow” exercise, introduced in 2002, places areas
of the UKCS in the hands of those able and willing to exploit it, thereby
avoiding unnecessary inactivity.
4.18 As the large fields in the North Sea become fewer there will be a natural
progression to multiple smaller developments, of interest to smaller
companies or joint ventures. An important part of facilitating this transition will
be to reduce and remove the bureaucratic barriers to commercial deal-making.
A small group of industry participants, initiated by PILOT, has started to
explore how best to rapidly tackle the various issues associated with reducing
barriers. In parallel, we will introduce web-based systems for both licence
applications and licence assignments which will substantially speed up
transactions and reduce costs, especially for smaller firms.
4.19 The Government also recognises that the North Sea fiscal regime has
an important role to play in delivering the best possible future for the UKCS
through promoting investment and production, whilst ensuring a fair return
for the UK taxpayer from our national resources. Since the 2005 Pre-Budget
Report the Government has been engaged in discussions with industry on
wider structural concerns over areas of the North Sea fiscal regime. A
discussion paper was published alongside the Budget 2007 that summarised
these discussions and set out the Government’s initial conclusions, and the
criteria that any changes to the regime should meet106. The conclusions
included a statement that will alleviate existing industry concerns by clarifying
that Government is not attracted to any mechanism that would remove
Petroleum Revenue Tax and then rebalance the fiscal regime through an
increase in the Supplementary Charge. The discussion paper will now form
the basis for further, more focused, discussions with industry over the coming
months that will assist Government in its consideration of the issues raised
and possible options for further action.
4.20 The growing proportion of smaller independent operators working on the

UKCS have also stressed the need to pool knowledge and resources and
share outcomes. Supporting the development and deployment of new
technology will help address the challenges of exploiting more technically
difficult and undeveloped areas of the UKCS.
110 106 Details available at: www.hm-treasury.gov.uk/media/708/8E/bud07_northsea-222.pdf.

4.21 Following The Energy Challenge, we launched a fresh £5 million call for
proposals for collaborative R&D projects, with priority given to projects that:
identify additional and incremental hydrocarbon reserves; help to access such
reserves cost-effectively; sustain and improve existing production from mature
fields; and improve environmental performance with specific technology
development. DTI will continue to work closely with ITF (the Industry
Technology Facilitator – an industry not-for-profit organisation) to effect
technology “brokerage” between funding bodies and the industry.
4.22 The measures outlined above will encourage maximum economic

exploitation of existing fields in the North Sea. However. there are also areas
of the UKCS where some reserves remain untapped. The reserves in the
West of Shetland are estimated to represent around 17% of the UK’s
remaining oil and gas. There is already some oil production in the area – the
challenge is to unlock gas potential (about 60 billion cubic metres has already
been discovered) in this particularly challenging location. The West
of Shetland Task Force, announced in The Energy Challenge is a joint
industry/Government group which includes DTI, BP, Chevron, DONG Energy,
ExxonMobil and Total. It is tasked with finding technical and economic
solutions which will allow for infrastructure (including pipelines) to be put in
place that could allow gas development and exploration of this area.
4.23 The Task Force is seeking a collective approach that will result in new
infrastructure to promote wider development of the area. Four main
development scenarios have been identified that have potential to go forward
for more detailed analysis. Currently, overall development costs are expected
to be in the region of £4 billion and the economics are sufficiently encouraging
for the Task Force to consider more detailed technical and commercial
assessment of specific options. The economic and technical analysis so far
has shown the need to drive down project costs and find additional reserves
to underpin any development.
4.24 Commercial agreements will play a major role in the decision to proceed
and the Task Force will be actively engaged in finding innovative solutions to
the commercial issues. Further appraisal drilling is already underway on
Chevron’s Rosebank field and, encouraged by the Task Force, Total and their
partners are making plans for drilling an exploration target in the Laggan area.
The DTI is hopeful that further appraisal drilling, on another discovery in the
area, will take place next year. The Task Force anticipates making a report to
Ministers in summer 2007.
Coal
4.25 A key driver of UK coal investment is demand from coal-fired generators
in the UK. The Energy Challenge recognised that coal-fired generation makes
an important contribution to the UK’s energy security and the flexibility of the
UK energy system, while acknowledging that in order to have a long term
future its environmental impact must be managed effectively.
4.26 Generators have already committed significant investment to enable

20 gigawatts of existing coal-fired power stations to comply with new EU
emissions legislation107. Plans for new coal-fired power stations have also been
107 The EU Large Combustion Plant Directive restricts emissions of sulphur dioxide and nitrogen emissions
from coal and oil plants. 111
Oil, Gas And Coal

announced which use state-of-the-art cleaner coal technologies and are
designed to accept carbon capture and storage (CCS) equipment when this
becomes commercially viable. Details about the Government's actions to
promote cleaner coal and CCS on fossil fuels are set out in section 5.4
4.27 England, Wales and Scotland still have significant recoverable coal
reserves. These reserves have the potential not only to help to meet our
national demand for coal and to reduce our dependence on imported primary
fuels, but also to contribute to the economic vitality and skills base of the
regions where they are found. However, a number of factors affect the extent
to which these reserves may be recovered, including the costs of recovery
compared with the market value of the coal and the implications of planning
considerations including potential environmental impacts.
4.28 Following the publication of the Energy Review Report the Government
convened a Coal Forum. This brings together coal producers, generators,
unions and equipment manufacturers and the Government to examine the
opportunities and challenges facing coal in the UK, to bring forward ways of
strengthening the industry, and working to ensure that the UK has the right
framework to secure the long-term future of coal-fired power generation;
optimise the use of our coal reserves, where recovery is economic; and
stimulate investment in clean coal technologies108.
BOX 4.3 UK COAL PRODUCTION
British coal production fell significantly over the last decade. In 1998 over
40 million tonnes was produced, while by 2006 production had fallen to
18.6 Mt, with the shortfall made good through imports. The main sources
of imported coal (used mainly but not exclusively for generation) were
Russia (22.6 million tonnes – 51% of steam coal imports) and South Africa
(13.1 million tonnes – 30% of steam coal imports). Some projections show
UK coal production in 2020 at 13 million tonnes, with net imports at 35
million tonnes. However, the total demand for coal in the UK will depend
on commercial decisions, particularly those made by generators, within
the regulatory and economic environment that develops over this period.
Table 4.1 Coal production and demand – Million tonnes
1998 2003 2004 2005 2006
Indigenous
41.2 28.3 25.1 20.5 18.6
production
Imports 21.2 31.9 36.1 43.9 50.3
Total demand 63.2 63.0 60.4 61.9 68.2
Of which:
48.6 52.5 50.4 52.1 57.7
Generation
Source: DTI, Energy Trends March 2007
108 Further details of the Forum and its papers may be found on the Energy pages of the DTI web site:
112 http://www2.dti.gov.uk/energy/sources/coal/forum/page37276.html

4.29 The Coal Forum does not discuss commercial matters, though the Forum
has acted as a catalyst for meetings between producers and generators
outside the Forum, which have generated a wider appreciation
of the long-term investment needs of mine operators. The Coal Forum will
publish an interim overview report in summer 2007109.
4.30 Emerging findings from the Coal Forum suggest that continuing access
to supplies of UK produced coal benefits both the generating industry and
other industrial coal users; such supplies can help to manage any potential risk
to supplies from international coal markets.
4.31 Making the best use of UK energy resources, including coal reserves,
where it is economically viable and environmentally acceptable to do so,
contributes to our security of supply goals. The Government believes that
these factors reflect a value in maintaining access to economically recoverable
reserves of coal.
Ensuring effective energy markets

4.32 Even taking account of the measures outlined above, we will need to
import increasing quantities of oil, gas and coal from international markets. It
is therefore vital that international energy markets function in an effective and
transparent way so that energy companies can access international energy
supplies and have the confidence to invest in new infrastructure to bring them
to the UK. At the same time we need the UK energy market to operate within
a clear and credible regulatory framework that provides a supportive
environment for investment, and is sufficiently flexible and resilient in the
event of shocks.
4.33 Overall, our market framework to date has provided a high level of
security and diversity, as evidenced by the UK’s record of continuous energy
supply and lack of involuntary interruptions. However, we recognise that
periods of market tightness, as seen for example in the gas market during
winter 2005/06, can lead to high and volatile prices causing real difficulties for
energy consumers. And so we have reviewed our market-based approach and
identified a number of steps to improve the effectiveness of our energy
market framework.
Energy security of supply information

4.34 Transparent credible information is essential if markets are to function
effectively. Both energy consumers and producers need to take a long term
view of future energy supply, demand and prices, and to understand the
information underpinning the Government’s policy decisions. Energy suppliers
need to be able to anticipate changes in energy needs sufficiently far in
advance to provide the necessary supply capacity and delivery infrastructure.
Energy consumers need access to reliable and credible information about
future trends in energy, so they can make informed decisions about the
terms under which they purchase energy supplies.
109 The report will include details of the work of the Forum and its sub-groups and will put forward members’
ideas for the future of the Forum. 113
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4.35 Despite inevitable uncertainties over future events, we believe that in-
depth, high-quality scenario analysis, making use of current information and
trends has a role to play in providing early warnings of market tightness and
assisting energy market participants with their investment decisions. It can
also enable Government to assess security of supply risks and, help early
identification of areas where policy may need to be reviewed to ensure
security of supply.
4.36 In this White Paper, we therefore commit to introduce a new security

of supply information service the Energy Markets Outlook from autumn 2007
with a remit to provide professional and clear forward-looking energy market
information relating to security of supply. We also support the proposal
included in the European Commission’s Strategic Energy Review, to establish
an Office of the Energy Observatory to collate and monitor data on the energy
supply and demand balance across the EU, in the short and medium term,
and identify the potential need for future investment.
4.37 The Energy Markets Outlook, which will replace the Joint Energy
Security of Supply Working Group (JESS), will be jointly run by DTI and Ofgem
and will draw on analysis from National Grid, the wider industry and other
sources. It will gather information on the likely drivers of the future energy
demand and supply balance, and develop ways of analysing and interpreting
this information. We will seek to engage market participants in discussion on
the strategic challenges for the security of UK energy markets and their
economic impact.
4.38 The principal output will be an annual report, which will provide an
update on key drivers of security of energy supply, and provide scenario-
based analysis of the future supply-demand balance. The report will focus on a
limited number of key indicators and scenarios, but it will be supported by in-
depth analysis looking across a range of primary fuels (oil, coal and uranium
as well as gas and electricity); demand drivers; and developments in the
international energy and carbon markets. This analysis, along with more
detailed background information, will be published on a new and regularly
updated website.
Meeting the challenge of increased

import dependence
Oil market
4.39 As UKCS oil production declines, we will continue to rely on the global
oil market to source our oil supplies. Currently, the UK is well integrated into
global markets for oil. The majority (66%) of UK oil demand is derived from
demand for transport fuels which is expected to increase modestly over the
medium term. Although the UK currently produces about the same quantity of
oil as it consumes, commercial reasons mean that more than 60% of this
production is exported (mostly to the EU or United States). More than three-
quarters of the crude oil refined in the UK comes from either the UKCS (35%)
or from Norway (46%), with the remaining supplies mainly sourced from
Russia (8%) and the Middle East (2%).
114

4.40 International policies (see chapter 1) to improve the functioning of the
global oil market, in order to ensure that companies have access to a wide
range of reliable, flexible, and competitively and transparently priced supplies
are important in ensuring security of oil supplies. Given the high volumes of
oil the UK already imports, existing infrastructure is well placed to cope with
higher volumes.
4.41 We have, however, reviewed our oil refinery capacity (see Box 4.4) and
taken steps to ensure our oil emergency stocking system is better placed to
deal with the increasing levels of oil import dependence we face.
BOX 4.4 REVIEW OF OIL REFINING CAPACITY
To meet end-consumer demand, crude oil is refined into various products

such as petrol, diesel, or jet fuel. The UK currently has nine refineries
which produce around 82 million tonnes of oil products per year. UK
refineries were originally designed to produce a greater proportion of
petrol rather than diesel. While investment has taken place to increase the
yield of diesel and jet fuel from UK refineries – in line with rising demand –
it has typically been more economic for companies to rely on international
trade in oil products to balance the mismatch between domestic product
demand and production.
We commissioned a review* of UK oil refining capacity last year to inform

future Government policy. The review was undertaken by Wood Mackenzie
and is published alongside this White Paper. It found that refining
continues to add considerable value to the UK economy. The review also
identifies key challenges affecting the dynamics and competitiveness of
the UK refining industry:
• evolving trends in UK demand for oil products. The industry faces the
challenge of responding to rising demand for diesel and jet fuel and
falling demand for petrol both here and in export markets;
• declining availability of North Sea crude oils. As local crude oil supplies
decrease, refiners face increased costs from either importing similar
quality crude oils from further away or investing in capital equipment to
process lower quality crude oils; and
• evolving qualities of oil products, including the introduction of biofuels.
We will continue to work closely with UK refiners as they address these

challenges.
* Wood Mackenzie, Review of UK Oil Refining Capacity May 2007
4.42 The Government has also established with industry an Aviation Fuel Task
Group. It will analyse future jet fuel demand at Heathrow and other UK airports
up to 2030 and what fuel supply infrastructure may be needed to meet
demand. We will also look at the infrastucture needed for other oil products.
115
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Gas market
4.43 It is, however, in the gas market where the significant rise in expected
import levels presents the most significant challenge. UK gas demand is set to
continue growing over the next fifteen years, driven mainly by increased
demand from the power sector. As gas production from the UKCS declines,
we will import increasing quantities of gas from international markets.
4.44 By 2010, imports could be meeting up to a third or more of the UK’s

total gas demand, potentially rising to around 80% by 2020. In the medium
term, limited liquidity in the market and shipping distances mean that gas will
still be largely supplied regionally through pipelines. Norway will remain a key
supplier and is expected to provide up to around a third of our supplies by
2020. Other supplies will come from continental Europe, and from the
development of the Liquefied Natural Gas (LNG) market110. Overall, as a result
of this increase in imports, we will benefit from greater diversity of supply, but
be more exposed to the risk and impact of any overseas disruptions to energy
supplies as supply routes become longer and across more countries. Figure
4.3 shows a possible scenario for the future gas supply mix to the UK,
including supplies from Norway, LNG and continental Europe111.
FIGURE 4.3 POSSIBLE SCENARIOS FOR UK ANNUAL GAS SUPPLY MIX
110 Liquefied Natural Gas (LNG) is natural gas which has been liquefied by reducing its temperature to minus
160 degrees Celsius at atmospheric pressure, usually to allow for transportation by ship.
111 This chart is based on Wood Mackenzie estimates for supply sources to the UK to 2020. This represents
only one potential picture of what our future gas supply mix might look like. Other estimates are available,
116 for example in National Grid Ten Year Statement.

4.45 Worldwide LNG supplies and import capacity are expected to double by
2010112. This means LNG will play an increasingly important part in the gas
supply mix for both the UK and Europe, and could play a particularly important
role in creating a global market for gas by linking the two largest consuming
regions: Europe and North America. LNG can also enable gas importing
countries to have more diverse gas supplies and import routes, thereby
potentially increasing security of supply and competition.
4.46 Since liberalisation of the gas market, we have sought to establish a

commercial and regulatory framework that provides incentives to market
participants to ensure that conditions for security of supply are met: sufficient
investment, infrastructure reliability, source and import route diversity. Details
of our approach are described in Box 4.5.
BOX 4.5 GAS MARKET FRAMEWORK
It is not possible to entirely eliminate all risks of gas supply shortfalls, so

the UK’s gas market framework provides an environment within which
participants in the market can consider the costs and benefits of mitigating
the risks of potential supply shortfalls and deliver an appropriate level of
security of supply.
Our market framework relies on the price mechanism to balance demand

and supply. Prices provide signals to gas market participants (producers,
shippers, suppliers and consumers) who then respond with the
appropriate consumption and investment decisions.
In the short term price signals provide incentives for market participants to
take action to bring the gas supply and demand into balance, for example
by encouraging suppliers who have the ability to do so to increase the
amount of gas provided; and large consumers (such as gas-fired power
stations) to reduce their consumption. In the longer-term, price signals
indicate the need for greater capacity or market flexibility, and encourage
market participants to undertake investments to provide new capacity,
and to improve their demand responsiveness or the diversity of their
supply sources.
In connection with the price mechanism, the regulatory framework further

ensures that market participants have incentives to ensure security of
supply to gas customers, through four main mechanisms:
• Cash-out arrangements by which shippers/suppliers that fail to

provide enough gas to deliver on their contracts on a daily basis must
pay an imbalance charge or cash-out price, exposing themselves to
potentially very high costs;
112 National Grid’s Ten Year Statement notes that 2007 and 2008 should see the delivery of over 30 LNG
tankers, including those with capacities of over 200,000 cubic metres, some 50% higher than the
capacities of existing tankers. These changes will improve the economics of LNG transportation,
making it increasing viable to transport LNG over longer distances. 117
Oil, Gas And Coal

BOX 4.5 continued
• emergency cash-out arrangements which apply when there is

insufficient gas to meet demand, further enhance the incentives for
shippers to avoid a gas emergency by increasing the penalty that they
would pay for having insufficient supply to meet their customers’ needs;
• supplier/Shipper obligations – Ofgem implements the relevant EU
legislation, licence conditions and the Uniform Network Code (UNC)
that place the necessary economic incentives on suppliers to ensure
availability of supplies to domestic customers even in the event of
severe conditions (conditions which may be expected to be exceeded
in only 1 year out of 50, i.e. a “1 in 50 winter”); and
• safety monitors (otherwise known as storage monitors) ensure that
there is a minimum amount of gas available in storage, across all storage
sites in the UK to underpin the safe operation of the gas transportation
system in a severe winter. These safety monitors act to protect the gas
supply of domestic and other non-daily metered customers.
4.47 This framework has already supported major investments by market

participants in a wide range of new gas import (pipelines and terminals) and
storage infrastructure, as a response to the challenge of increasing import
dependency. In total around £10 billion of investment in new facilities is in
place or planned over the next few years.
4.48 In winter 2006/07 new investments in import capacity were completed,

such as the expansion of the Interconnector from Belgium (IUK), the
construction of the Langeled pipeline from Norway and the BBL
Interconnector from the Netherlands, which all became operational in the
latter part of 2006, as well as the Teeside Gas Port project providing additional
LNG import capacity, which started operation in February 2007. In addition,
there are LNG import facilities being constructed in Milford Haven, which will
further diversify the sources of gas used to supply the UK.
4.49 Storage capacity available in Great Britain is also set to increase substantially.
If all the planned storage projects go ahead the proportion of peak day demand
that could be met by storage operating at its maximum level would increase from
24% in 2006/07 to between 40% and 60% by 2015/16113. Our current forecasts of
gas demand also imply that, depending on the severity of the winter, we will need
to increase our import capacity by 2020 by an extra 12bcm to 24bcm – equivalent
to 15%-30% of 2006/07 import capacity114. Plans are already in train to deliver
some of this investment.
4.50 Whilst this is encouraging evidence of our energy market responding to

increasing import dependence we need to ensure this framework is fit for
purpose in managing the risks of import dependence over the longer term.
Given this and considering the difficulties of winter 2005/2006 we have
113 Peak day demand here is assumed to be “1 in 20 winter” demand.

114 This figure implies capacity is not fully utilised – source Oxera, An assessment of the potential measures
to improve gas security of supply, 2007
118

recently consulted on security of supply arrangements in the gas market115.
The consultation looked at the effectiveness of current gas security of supply
arrangements and at possible options to improve market functioning.
4.51 Alongside the consultation we commissioned further analysis of the

potential risks to security of supply in the medium term and to quantify the
costs and benefits of the options considered in the consultation116. Fuller
details of the responses and the analysis can be found in the Government
response to this consultation published alongside this document.
4.52 Many respondents to the consultation as well as the analytical work

carried out for this Energy White Paper indicated that the current framework,
although effective, does not eliminate all the risks to security of supply. The
analysis illustrated that the probability of gas supply interruptions was very
low until the middle of the next decade117. After that, modelling shows that the
risk of supply interruptions increases, but overall the probability and the
average size of possible interruptions is low (the expected annual supply
shortfall is significantly less than 1% of demand).
4.53 However, both the consultation responses and analysis highlighted that
none of the options considered in the consultation are without downsides and
could potentially hinder rather than improve security of supply118. The
responses and analytical results indicated that:
• actions to facilitate and encourage greater flexibility and energy efficiency
among consumers and suppliers in all sectors were welcome;
• the benefits of installing distillate back-up at new gas-fired power stations
need to be balanced against the potential for displacing investment in other
gas infrastructure and the full costs and impact on the electricity
generation sector;
• further regulation of the use of gas storage or further changes to imbalance
pricing, given Ofgem’s recent modifications, would not deliver net benefits
to security of supply.
• the benefits of extending supplier obligations to cover industrial and
commercial customers, or introducing some form of capacity mechanism
were very uncertain given the potential for displacing commercial
investment, and, as indicated by the analysis, would most likely generate
a net cost to society.
4.54 Our conclusions, therefore, based on the consultation responses and

analytical work suggest that the supply side policies considered in the
consultation would potentially not deliver any substantial net benefit and could
instead have an adverse impact on market participants incentives to provide
security of supply. Hence, as highlighted by respondents, to manage future
gas security of supply risks better, Government will take action to:
115 The consultation was published on 16 October 2006 and concluded on 12 January 2007. Responses are
available on the DTI website at at: http://www.dti.gov.uk/energy/review/implementation/gas-supply/cons-
responses/page37145.html
116 See www.dti.gov.uk/energy/whitepaper for the report “An assessment of the potential measures to
improve gas security of supply” by Oxera Consulting Ltd. 2007
117 The analysis assumes that all infrastructure currently in the process of being constructed will come
forward as expected, that £5.4bn of additional investment takes place over the period to 2020 and that
potential demand side response will remain at the levels observed over winter 2005/06.
118 See Oxera Consulting report and the Government response to the consultation for more detail on the
analytical results and the consultation responses. 119
Oil, Gas And Coal

• Reduce gas consumption by encouraging energy efficiency and demand-
side flexibility through the measures outlined in chapter 2 such as smart
metering and billing through the Carbon Emission Reduction Target (CERT)
scheme;
• ensure effective markets by improving the effectiveness of the gas market,
through improved energy market information and working with Europe to
improve competition in the EU gas market; and
• increase gas storage and import infrastructure by facilitating the
construction of gas supply infrastructure both onshore and offshore,
through reforms to the planning and licensing regime.
4.55 Our actions to address the first area is set out above in the context of
our measures aimed at reducing the use of fossil fuels and improving the
efficiency with which we use them. Details of our responses under the last
two areas are set out below, alongside our commitments to manage gas
quality issues and to improve gas emergency planning procedures. Taken
together, we consider this is a clear strategy to manage the risks to security
of supply.
Improvement to the effectiveness of the gas market

4.56 It is essential that the UK and international gas markets function in an
effective and transparent way in order to be sufficiently flexible and resilient in
the event of shocks, and to provide a supportive environment for investment.
In particular, the liberalisation of the EU energy market is necessary to ensure
that the UK will have access to adequate and competitively priced gas from an
open, transparent and liquid European gas market. Chapter 1 outlines the
actions we are taking to ensure EU gas market liberalisation is achieved.
4.57 It is not possible, however, to eliminate all risks of gas supply shortfalls.
In this context, the European Commission, in its Strategic Energy Review,
considered the need for effective mechanisms to be put into place to ensure
flexibility in the event of an energy crisis – in particular the role of strategic
gas stocks in providing security of supply. In the Energy Review Report, the
Government has already considered and rejected the case for domestic
strategic gas storage119. We continue to believe that the key to security of
supply lies with a regulatory framework that incentivises commercial storage
and with liberalisation of the gas market in Europe. However we look forward
to seeing a robust cost-benefit analysis from the Commission on the issue of
strategic stocks, including a robust assessment of how to mitigate some of
the potentially serious unintended consequences of administered “strategic”
gas storage (e.g. the displacement of investment in commercial storage and
market flexibility).
Changes to the Planning and Licensing regime

4.58 One of the biggest issues raised by all interested parties in the
responses to the gas consultation was the delays and bureaucracy of the UK
planning system, and the impact this can have on security of supply. More
than 5.6bcm of new gas storage capacity (compared to 2005/2006 levels) is
either under construction, planned or proposed. This could equate to more
119 The analysis of the option to build strategic storage, in fact, did not resolve the uncertainty over the
impact such a Government intervention would have on the UK market. Strategic storage would dull the
incentives for commercial investment into storage, thus reducing the volume available commercially, and
120 possibly reducing the overall level of security of supply.

than doubling UK storage capacity in the UK by the middle of the next decade,
if projects are not unduly delayed by planning, technical, or other factors.
4.59 Last year the Secretary of State announced measures to review the
current regulatory framework in the UK for gas supply infrastructure onshore
and offshore. The Government is consulting on proposals to address this need
for simplification of the onshore gas planning regime as part of the planning
White Paper 2007, Planning for a Sustainable Future. This sets out proposals
for the new planning system and consults on rationalising the regime for
nationally significant gas supply infrastructure projects in England to bring all
decision making under the proposed independent infrastructure planning
commission120. More detail on measures to improve planning matters related
to streamlining of onshore gas consents regimes can be found in chapter 8.
4.60 Offshore developers can also face undesirable regulatory uncertainty, as

well as a complex regulatory framework. This can result in increased risks and
costs for developers that may act as a barrier to entry, in obtaining finance, or
to agreeing to invest in a project.
4.61 A consultation on offshore gas supply infrastructure activities was

published on 24 November 2006 and concluded on 16 February 2007. The
consultation put forward proposals that aimed to clarify and modernise
legislation for specific offshore activities, namely the storage of natural gas
under the seabed and the unloading of Liquefied Natural Gas (LNG) at sea.
Developments in technology mean that it is possible to store gas under the
sea in man-made salt caverns and other geological structures, as well as in
depleted oil or gas fields (such as the existing Rough storage facility in the
North Sea). There is also commercial interest in creating “energy platforms”
offshore where LNG can be transported, regasified, and piped to the UK
mainland, avoiding the need to build and gain consent for LNG terminals.
4.62 The Government response to the consultation is published alongside this

White Paper121. To summarise, respondents were generally extremely supportive
of proposals to explicitly provide for these new offshore developments in
legislation. New legislation would provide a simpler consents procedure,
involving two determining authorities – the Crown Estate, who would issue
geographically bound authorisations for the use of the sea-bed or water column,
and the DTI, who would issue a Gas Storage Licence for offshore gas storage,
or an LNG unloading licence as appropriate. Because offshore gas storage and
pipeline developments may often be associated
with offshore petroleum developments, for which the DTI is the regulator,
it is appropriate to build in this way on the existing arrangements. Gas
storage in partially depleted oil and gas fields would still require a Petroleum
Production Licence.
4.63 The benefits of a new, bespoke regulatory framework, which would

be achieved by new legislation were thought to include: a clear route to
investment decision making; a reduction in administrative burden; and
certainty over legal operation and construction of such facilities. This would
120 In the light of the wider proposals for planning reform, the White Paper, Planning for a Sustainable Future,
consultation question on this topic meets the proposal made in the Energy Challenge to consult this
autumn on gas supply infrastructure.
121 See www.dti.gov.uk/energy/whitepaper 121
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meet the concerns of respondents, many of whom indicated that the current
framework, whilst not prohibiting such activities, gave rise to real legal
uncertainties and presented an unnecessary burden to developers.
4.64 We will bring forward legislation as soon as Parliamentary time allows,

as the market is keen to take forward a number of new offshore projects.
BOX 4.6 GAS QUALITY ISSUES
The UK’s increasing dependence on imported gas has also raised the issue
of the relationship between our regulated gas quality specification and the
qualities of gas available on international markets (especially LNG
transported by ship). The Government has accordingly commissioned
substantial research. In the light of the initial results, we have announced
our intention to propose changes in Great Britain’s regulated gas
specification to take effect before the end of the next decade. We
undertook a public consultation and we will soon publish a response
document. Meanwhile Ofgem is leading an exercise to assess the
potential impact of gas quality constraints on the supply of gas to the
GB market in the short-to-medium term, in order to inform market
participants’ investment decisions on options to mitigate the impact.
This work will help to resolve uncertainties about the regulatory and
commercial framework for managing gas specification, and it will also
ensure that the UK remains in the best position to influence developing
proposals at the EU level.
Changes to ensure robust emergency

planning arrangements
4.65 The UK market has delivered high levels of reliability for the supply of
gas and oil, to consumers. But no matter how robust our arrangements, there
is always a possibility – although very small – of there being an unexpected
shortfall in supply.
4.66 The UK has international obligations to hold stocks of oil for use in the
event of international or local disruption. UK industry successfully responded to
the aftermath of Hurricane Katrina in the US Gulf of Mexico in 2005 by releasing
stocks as part of its contribution to the international response coordinated by
the IEA. These stocking obligations will increase as the UK becomes an
increasing net importer of oil, with a significant and progressive net increase
expected from about 2016. We are currently changing the basis of the UK oil-
stocking system so that it is better suited to meet these obligations in the long
term. We will also work with industry to ensure that there continues in the
future to be sufficient storage to meet our international obligations and that our
contingency arrangements remain regularly tested and reviewed. Domestically,
we expect to complete this year an update of the emergency plan, for
disruption to road fuel supplies.
122

4.67 DTI consulted in 2006 on proposals to update our response to an
unexpected disruption in gas supply, focusing on the protection of vulnerable
consumers. In parallel, Ofgem has been working with gas consumers on the
market and operational response to any problem with gas supply. We are
currently analysing the responses to our consultation and discussing the
issues raised with network operators and other involved parties. We will
publish proposed changes this summer. We have already put in place
streamlined administrative procedures to make the system work better.
Impact of our proposals

4.68 Using energy and therefore fossil fuels more efficiently is a cost-
effective method of both tackling emissions and increasing energy security. By
reducing our demand for gas and oil, we reduce our exposure to security of
supply risks, including the potential risks associated with imported energy.
Our proposals can reduce gas consumption directly by reducing demand for
gas i.e. in heating our homes; but also indirectly by reducing demand for
electricity so reducing the need for new gas-fired power stations. If we
assume that this reduction in electricity demand comes from gas-fired plants,
our measures could in total lead to up to 15bcm of gas savings in 2020. This is
up to 13% below what it would otherwise have been.
4.69 Our proposals to improve the framework for investment in the UK

Continental Shelf (UKCS) aim to maintain the competitiveness of the UKCS
in order to maximise economic recovery. If a high level of investment is
maintained, this could potentially deliver substantially higher oil and gas
production – up to an extra 0.6 million barrels of oil equivalent (boe) a day
from 2020 to 2030. About half or slightly more of this extra production
would be oil and the remainder would be gas.
4.70 Overall, the reduction in gas demand would reduce our projected gas
imports by up to around 17%, which, combined with the possible increase
in domestic gas production, could bring our gas import dependence down to
around 60% of projected gas demand in 2020, compared to around 80% if
we did not implement our measures.
4.71 A diverse mix of supply sources and routes is also fundamental in the
management of our import risks. Strengthening our market based approach
will improve the flexibility and responsiveness of the market, and help to
manage the risks to security of supply. Changes to the planning regime and
new and better market information arrangements will help market players to
bring forward timely investments in infrastructure and provide sufficient
supply capacity.
123
Oil, Gas And Coal

Oil, gas and coal
Summary of Measures
Our policies recognise the continuing importance of fossil fuels in
maintaining reliable and affordable energy supplies, but aim to manage
our reliance on them, their potential environmental effects and the risks
associated with higher levels of import dependency, by:
• Encouraging energy efficiency to reduce the use of fossil fuels by;
– saving energy and encouraging energy market flexibility through
the promotion of energy efficiency measures and information and
the rollout of smart gas meters (see chapter 2);
– reducing our reliance on fossil fuels by boosting the development
and deployment of renewables and, subject to consultation,
enabling new nuclear power to be an option for the private sector
(see chapter 5); and
– encouraging the adoption of technologies which mitigate the
environmental impact of fossil fuels e.g. carbon capture and
storage (see chapter 5).
• Supporting and maximising economic production of fossil fuels in the
UK, we:
– will continue to work with the industry to maximise economic
recovery of the UK’s oil and gas reserves, including assessment of
the potential for establishing infrastructure West of Shetland and
by maintaining an appropriate fiscal regime to attract investment;
and
– believe that, where it is environmentally acceptable to do so, there
is a value in maintaining access to economically recoverable
reserves of coal.
• Ensuring effective energy markets at home and abroad; we will:
– introduce in Autumn 2007 a new security of supply information and
analysis service helping to provide the information about supply
and demand trends that market participants need to take decisions,
including on new investments;
– support the European Commission’s efforts to secure effective
liberalisation of EU energy markets and work to secure more open
and transparent energy markets elsewhere;
– set out a comprehensive package of measures to improve the
onshore Energy Planning System and, following the consultation
on the planning White Paper, establish a new consenting regime for
all major energy infrastructure;
– legislate to modernise the regulatory framework so that we have a
fit for purpose licensing regime for offshore gas storage and
unloading of Liquefied Natural Gas (LNG); and
– improve the UK economy’s resilience in the face of shocks to
energy supplies by improving our emergency planning
arrangements.
124

CHAPTER 5
Electricity Generation
Section 5.1 – Investment
Framework
Over the next two decades, the UK will need substantial
investment in new electricity generation capacity to
replace a number of closing coal, oil and nuclear power
stations and to meet expected increases in electricity
demand. We want to ensure we have an investment
framework which encourages investment to come forward
at the right time and as much as possible in low carbon
forms of generation.
5.1.1 This section sets out:
• the current framework within which the electricity market functions;
• the challenges for the future given the need for substantial new
investment over the next two decades; and
• our analysis of various future scenarios which may influence companies’
investment decisions and our policy conclusions based on the results of
this analysis.
5.1.2 There are many uncertainties about the future and we cannot know
today which mix of electricity generation technologies will be the most
appropriate for delivering our energy policy goals over the medium to long-
term. We believe that a market based approach is the best way to manage
these uncertainties, providing the flexibility to be responsive to developments
we cannot yet know. Operating within this framework, market participants are
best placed to manage the complex range of interrelated factors affecting the
profitability of electricity generation investments and how these might evolve
over time.
5.1.3 When markets work well, prices reflect the true costs to companies of
generating electricity and the value consumers attach to buying electricity. For
instance, electricity price rises over and above generation costs would lead to
investment in new electricity generation capacity, as firms see that there are
returns to be made. At the same time, price rises also encourage consumers
to be more energy efficient.
125
Electricity Generation: Investment framework

5.1.4 The effective functioning of Great Britain’s electricity market is
overseen by an independent regulator, the Office of Gas and Electricity
Markets (Ofgem). Ofgem’s responsibilities for ensuring competition and
enforcing regulation are a key contribution to achieving our energy goals. In
Northern Ireland, similar responsibilities are carried out by the Office for the
Regulation of Electricity and Gas (OFREG). Promoting competition in energy
markets incentivises companies to operate more efficiently and manage their
investment risks effectively, placing downward pressure on prices and
increasing service quality (see Box 5.5.1).
5.1.5 To date, the UK has benefited from one of the most competitive and
reliable electricity markets in Europe with “cost-reflective” prices and few
outages. Where outages have occurred, these have been the result of short-term
network failures rather than shortages of electricity generation capacity.
BOX 5.1.1 RESPONSIBILITIES OF OFGEM
Ofgem holds key responsibilities which both directly and indirectly

contribute to security of energy supply. These include: regulating the
natural monopoly networks in gas distribution and electricity transmission
by the issuing and modifying of licences; investigating and penalising
licencees who breach their licence conditions; and setting price controls.
Ofgem’s duties in relation to ensuring competition include protecting

consumers’ interests, ensuring that markets are as free of distortions as
possible and that price signals are accurate and reliable, hence helping
new investment.
The regulator also has a key responsibility for ensuring that adequate,
timely investment in the transmission network infrastructure occurs. Such
investment is important not just to replace old network equipment but
also to enable connections to the grid of new electricity generation such
as that from renewables.
Additionally, Ofgem regulates the operator of the national transmission

system, National Grid, via a set of licence conditions that require National
Grid to maintain a balanced system. These features of the regulatory
framework contribute to delivering electricity supplies via a network that
Ofgem analysis showed to be 99.99% reliable in 2005.
Ofgem also has a statutory duty to contribute to the achievement of

sustainable development, consistent with its role as an independent
economic regulator. The Government considers this duty an essential
element of Ofgem’s remit and attaches great importance to Ofgem
making an effective contribution towards this objective.
126

5.1.6 However, in recognition that the market alone will not deliver the
Government’s wider social and environmental goals, our policy framework also
provides incentives to ensure that firms take account of the emissions they
produce and the environmental impact of those emissions.
5.1.7 With the introduction of the EU Emissions Trading Scheme (ETS) in

2005, power station operators now face a cost for emitting carbon dioxide. By
requiring firms to take account of the cost of carbon emissions in their
decision making, the EU ETS incentivises investment decisions that reflect
our carbon objectives. We recognise the importance of a clear and stable
carbon policy framework in creating the confidence and certainty necessary to
underpin long-term changes in firms’ behaviour, investment and use of
energy. This is especially important for investments in long-lived assets (such
as power stations) which will have an impact on the UK’s carbon emissions
for several decades.
Current UK electicity generation mix

and challenges ahead
5.1.8 The UK currently has around 76GW (gigawatts) of electricity generation
capacity to meet annual consumption of about 350TWh (terawatt hours) and
winter peak demand of about 63GW. This level of capacity is roughly 20%
higher than the expected level of peak demand122. The composition of the
UK’s existing generation fleet is largely a result of the considerable number of
new gas-fired power stations built during the second half of the 1990s –
known as the “dash for gas” – when the economics of new gas power stations
were particularly compelling. Consequently, few new power stations have been
built during the early to mid-2000s. During this time consumers have benefited
from lower electricity prices, driven by the increased competition in electricity
generation and due to the excess of generation capacity.
5.1.9 The UK also has a diverse electricity generation mix. In 2006, 36% was
generated by gas-fired power stations, 37% from coal, 18% from nuclear, and
4% from renewables. The remainder comes from other sources such as oil-
fired power stations and electricity imports from the continent (see Figure
5.1). This diverse generation mix avoids exposure to the risks associated with
heavy dependency on a single fuel or technology type, helping to maintain
secure supplies of electricity. A diverse mix in electricity generation also
provides the system with the flexibility to accommodate variations in demand
at different times of the day (i.e. at peak vs non-peak times), or year (i.e. in
winter vs. summer), and in response to changes in fossil fuel prices.
122 National Grid 2006 GB Seven Year Statement puts the plant margin (capacity over and above winter peak
demand) in 2006/7 at 22.6%. 127

FIGURE 5.1.1 2006 UK ELECTRICITY GENERATION MIX
Source: DTI, 2007
BOX 5.1.2 EU ENVIRONMENTAL LEGISLATION
Most of the UK’s power station closures over the next decade are being
driven by EU environmental legislation aimed at reducing sulphur dioxide
and nitrogen oxide emissions.
The Large Combustion Plant Directive (LCPD) imposes two separate

constraints on coal and oil stations. One requires that about 11GW of
“opted-out” coal and oil stations close by end 2015 and the second
restricts the operation post-2016, of around 20GW of coal stations that
“opted-in” to meet the requirements of the LCPD. The extent to which
the operation of power stations is affected by this second constraint
depends on how much further investment firms decide to make in their
power stations between now and 2016 to comply with reduced limits
for nitrogen oxide emissions.
5.1.10 The current generation mix means that the UK’s electricity generation
sector accounts for about one third of the UK’s total carbon emissions or
47 MtC per year. The sector has made some progress in decarbonising
since 1990, largely as a result of the increased share of gas-fired generation
in the mix.
5.1.11 Over the next two decades, the UK will need substantial investment
in new generation capacity to replace the closing coal, oil and nuclear power
stations, and to meet expected increases in electricity demand. Our analysis
shows that 22.5GW of existing power stations may close by 2020123. Of this,
8.5GW of coal-fired capacity will close to meet the requirements of the EU
123 Redpoint Energy, Dynamics of GB Electricity Generation Investment: Prices, Security of Supply,
128 CO2 Emissions and Policy Options, 2007

Large Combustion Plant Directive (LCPD) by end 2015; as will about 2.5GW of
oil power stations (see Box 5.1.2). Around 7GW of nuclear power stations are
also scheduled to close between now and 2020, on the basis of their
currently published lifetimes.
5.1.12 If we are to maintain levels of electricity generation capacity

equivalent to those available today, then new power stations need to be built
in good time to replace these closures and to meet increases in demand. On
this basis, around 20-25GW of new power stations will be needed by 2020.
5.1.13 Further investment is likely to be needed in subsequent years as

further power station closures take place and to meet further increases in
demand. Our modelling suggests that up to an additional 10GW of electricity
generation capacity may be needed by 2030. The indicative investment plans,
as reported by power companies to National Grid, reveal that transmission
capacity contracts exist for around 25GW of new electricity generation plant
over the next seven years (although in some cases, these are not firm
commitments). Announcements of new power station build since the Energy
Review Report demonstrate investors’ preparedness to make decisions about
new power stations on the basis of the policy framework that we set out in
the Report.
5.1.14 Given that it is not at the moment technically or commercially feasible

to store electricity on a large scale, some level of spare generation capacity is
necessary in order to be able to meet electricity demand when, for example,
power stations suffer unexpected outages or demand levels rise above
normal. However, it is difficult to determine the “correct” level for this excess
capacity. For instance, sustaining large amounts of spare capacity that is never
called upon is expensive. On the other hand, if there is not enough spare
capacity there is a higher risk that electricity supplies could be interrupted.
5.1.15 In a well-functioning market, the expectation that prices would be

high and volatile in the event of a capacity shortage provides an economic
incentive for the provision of some spare generation capacity. Market
participants are exposed to high costs should they run short of power relative
to their supply commitments and would have to resort to sourcing supplies
elsewhere at short notice. Moreover, for any market participant, maintaining
a buffer of spare capacity can be relatively inexpensive compared to the
potential costs of there being a power shortage. Consequently, market
participants do place a value in having some spare generation capacity
available to mitigate the risk of shortages. These factors contribute to
encouraging an excess of electricity generation capacity sufficient to
accommodate fluctuations in demand and supply.
5.1.16 The extent to which companies will build new power stations depends
on the expected profitability of such investments. Expected profitability will
depend on how they believe factors such as fossil fuel, carbon and electricity
prices, technology costs and regulatory/planning risks will evolve over time.
Investors have indicated that uncertainties over the market and regulatory
framework are particularly difficult to assess. For those investments at the
margins of profitability, companies may decide to wait until such uncertainties
are reduced, before investing. Given the importance of timely investment to
ensure sufficient levels of generation capacity are available, regulatory 129

uncertainties can contribute to increased risks to security of supply. For this
reason, it is important for Government to act to minimise regulatory uncertainty
and in so doing, minimise the risks to security of electricity supplies.
5.1.17 We therefore need to ensure that our policy and regulatory framework
provides investors with the certainty and incentives to deliver sufficient,
timely investment in a diverse mix of electricity generation capacity that is
consistent with our environmental and security of supply goals.
5.1.18 Given the size and complexity of the whole electricity system, from
the generation of electricity to supplying end customers, it is impossible to
guarantee supplies of electricity 100% of the time. For this reason, we need
a set of electricity priority user arrangements which aim to protect certain
critical users from power cuts during a national electricity shortage, in the
highly unlikely event that a shortage does occur.
Analysis of future developments

in electricity markets
5.1.19 To understand the wide range of factors which influence investment
decisions we have undertaken analysis of a number of scenarios of the
dynamics of investment in electricity generation124 (see Box 5.1.3). This has
helped us to understand the key issues and areas where we need to
strengthen our market framework. This analysis has reinforced the findings
reported in the Energy Review Report125. In particular, we do not expect to see
a significant increase in capacity-driven security of supply risks before around
the middle of the next decade, based on the current framework. Even then,
the probability and size of any “shortfall” are still likely to be very small, to be
of short duration and to affect peak times.
5.1.20 Our analysis of possible interventions in the form of capacity

mechanisms that could incentivise firms to build and/or maintain additional
spare generation capacity has shown that whilst they have the potential to
improve security of supply outcomes, they could impose significant costs
and so may not provide an overall benefit to the UK. There are also risks
associated with the design and implementation of such mechanisms which
can lead to unintended and undesirable consequences. The difficulties
inherent in devising capacity mechanisms include:
• creating opportunities for companies to use the system to their own
advantage, thereby increasing costs to consumers but without bringing
significant benefits;
• encouraging too much or too little investment;
• the risk that existing power stations will be disadvantaged unless capacity
payments were also available to them; and
• other unintended consequences that may exacerbate the problems we
are trying to address (e.g. higher carbon emissions or lack of diversity
in the generation mix).
124 Redpoint Energy, Dynamics of GB Electricity Generation Investment: Prices, Security of Supply, CO2
Emissions and Policy Options, 2007.
130 125 DTI, The Energy Challenge: Energy Review Report, July 2006 (http://www.dti.gov.uk/files/file31890.pdf)

BOX 5.1.3 MODELLING APPROACH
The analysis undertaken for this White Paper was aimed at understanding
the factors that influence power station investment decisions. Improving
our understanding of and ability to quantify the factors that delay or deter
such investments allows us to better assess the probability and magnitude
of the costs associated with high or volatile prices or possible electricity
outages. The analysis also captures the implications of different scenarios
and policy options on other key variables, such as CO2 emissions.
The modelling simulates the decision making process of investors on the

basis of: the underlying costs of new investment; investors’ expectations
of electricity prices given uncertain demand and supply scenarios; fuel
prices and carbon prices; and the lead times associated with bringing new
generation capacity onstream. The modelling captures the dynamic
interaction between closure and new build decisions, their effect on
outturn and expected prices and price volatility, and the effect these new
price expectations have on the economics of existing and new power
stations, and determining companies’ investment decisions.
In assessing where possible imperfections of the current market framework

lie and how these could be improved, our modelling attempts to capture
some of the uncertainties affecting investor behaviour, including:
• the expected economics of new investment;
• the pattern of closures and new build that is driven by the commercial
decisions of individual companies;
• expectations of future electricity demand; and
• interventions by Government, for example on climate change policy.
We have modelled a number of different possible future scenarios with

the express aim of analysing the key factors that significantly affect
investment behaviour. The outputs of the modelling under different
possible scenarios include:
• the mix and the timing of new electricity generation capacity over the
next 20-30 years;
• whether the amount of electricity generation capacity would be
sufficient to meet our energy needs; and
• whether the new investment would be consistent with our carbon
emissions reduction goals.
Despite its sophistication, it is important to recognise that this analysis is a

modelling exercise. It does not remove the need for judgements about the
risks presented and the costs/benefits of any interventions to address those
risks. The outcomes of the analysis are also highly dependent on the required
input assumptions because investment decisions in electricity generation rely
on a complex interplay of factors including investors’ expectations of future
events e.g. fossil fuel and electricity prices, the future development of the EU
ETS. In order to respond to this, we have undertaken modelling of a number of
scenarios, using different input assumptions to explore differences in possible
future investment behaviour.
131

Impact of investor behaviour on security of
electricity supplies and carbon emissions
5.1.21 We modelled investment behaviour under a range of scenarios based
on different cost and price assumptions including fossil fuel prices, carbon
prices and the possible future development of the carbon market (for further
details of the modelling approach see Box 5.3). In all scenarios modelled,
investors respond to expected power station closures and higher electricity
demand with significant new investment in power stations over the next two
decades. Of critical importance for the UK’s security of supply and carbon
reduction goals however, is the timing and technology mix of these new
power stations. In particular, the UK needs sufficient new electricity
generation capacity to maintain the present high level of confidence that
supply will be able to meet demand throughout this period. Additionally, this
new build needs to be consistent with our environmental goals.
5.1.22 In most scenarios examined, we see some decline in the amount of

capacity that is in excess of expected peak demand between now and the
middle of the next decade. As a consequence, we could expect to see an
increase in electricity prices and in the risk of supply interruptions, especially
at peak times though the overall probability of a supply disruption would still
be very small. The primary driver of this decline in spare capacity is the
coincidence of closures of coal-fired power stations affected by the LCPD
and by retiring nuclear power stations.
5.1.23 Our modelling indicates that limited visibility of future fossil fuel,
carbon and electricity prices, and investor uncertainty over the continued
existence and form of the EU ETS post 2012 are key factors affecting new
investment decisions. These uncertainties increase investment risk, making it
more difficult for companies to assess whether a particular power station
investment will be profitable. Investors have highlighted that they are
particularly concerned about international carbon frameworks after 2012, given
that a post-Kyoto framework has yet to be agreed globally and the Directive
underpinning EU ETS is under review, with changes set to take effect from
2012. This is why we attach a great deal of importance to successful
negotiation on the strengthening of the EU ETS.
5.1.24 Our modelling also shows that by providing investors with greater
certainty about the future carbon policy framework we can expect to see
increases in the level of spare capacity and reductions in the volatility of
electricity prices, bringing benefits to the wider economy by lowering the risk
of electricity supply interruptions and reducing costs to the economy. Greater
certainty over expected prices facilitates firms’ assessment of the investment
risks and returns of possible future projects. Additionally, greater certainty that
the costs of carbon will be incorporated into electricity prices improves the
economics of low carbon generation.
5.1.25 The combination of power station closures and type of new power
stations built over time will affect carbon emissions. Whilst the scenarios
assessed all show some improvements in the carbon intensity of the power
sector, the results are very sensitive to assumptions about fossil fuel and
carbon prices. These determine the choice of electricity generation technology
132 and decisions by operators on how much they run coal and gas stations

respectively. For example, where fossil fuel and carbon prices favour coal-fired
generation, carbon emissions will be higher than if prices favour a higher
proportion of gas-fired generation.
5.1.26 In the same way that reducing the level of uncertainty in carbon
market policy appears to reduce investment delays, it also increases the
number of low carbon power stations that get built and consequently, reduces
carbon emissions.
5.1.27 In comparing the low carbon generation choices available to investors,

our analysis indicates that in the period up to 2030, nuclear (if available to
investors as an option)126 and renewables would be more likely to come
forward than carbon capture and storage (CCS). This result occurs under all
the combinations modelled and reflects the higher assumed costs of CCS
relative to the costs of nuclear and the additional support provided through
the Renewables Obligation. However, there remains considerable uncertainty
about the costs of CCS because it has not yet been integrated and
demonstrated with electricity generation on a commercial scale. The 2007
Budget announced that the UK will launch a competition to establish
a commercial scale CCS demonstration on power generation; this
demonstration will help provide a better understanding of the likely costs and
timing of the wider deployment of this technology (see section 4 of this
chapter for further details on CCS and the competition).
Policy conclusions
5.1.28 Our modelling and other evidence gathered since the Energy Review
began in November 2005 has helped us to understand the key elements of
uncertainty affecting companies’ investment decisions – particularly future
carbon and electricity prices and the future balance of electricity supply and
demand. In addition, companies have highlighted other uncertainties which
are at least partly under Government’s control. For example, companies have
pointed to the delays and uncertainty inherent in the UK’s planning system as
an important barrier to timely investment.
5.1.29 Given the difficulties of successfully developing and implementing any

capacity mechanism, we believe that a policy response aimed primarily at
reducing key policy and regulatory uncertainties, and at removing any
unnecessary barriers to investment, will allow us to manage effectively future
security of supply risks.
5.1.30 Our policy proposals for strengthening our electricity generation

investment framework are therefore aimed primarily at reducing key policy
and regulatory uncertainties by:
• strengthening the EU ETS and the carbon market;
• providing high quality forward looking information to facilitate timely
investment in electricity generation;
• making immediate improvements to the planning regime for electricity
126 Whether it would be in the public interest for new nuclear power stations to be an option available to
companies making investments in new electricity generation capacity is subject to the consultation we
are launching alongside this White Paper. 133

generation, and working towards more fundamental reforms of the
planning system; and
• reducing policy uncertainty by clarifying our policy on renewables, carbon
capture and storage and the next steps we propose to take on the issue
of civil nuclear power.
Strengthening the EU ETS

5.1.31 This White Paper sets out the Government’s aims to secure agreement
to a number of changes that would strengthen and reinforce the EU ETS to
provide firms with greater long-term carbon market certainty (further details on
the EU ETS and valuing carbon are set out in chapter 1). We want the EU to:
• agree to a new and ambitious Directive. This will be based on proposals
which the Commission should bring forward as soon as possible;
• make early decisions on emissions caps to provide business with
confidence that there will be a meaningful, long-term carbon price.
Announcing our long-term intentions for the EU ETS will provide early
certainty for investors in low carbon technologies and signal EU-wide
commitment to reducing carbon emissions beyond 2012. We need to
signal the downward direction of EU emissions reductions much further
into the future;
• set EU ETS caps to help deliver the EU’s commitment to cut its
greenhouse gas emissions in a cost-effective manner by 30% by 2020,
in conjunction with other industrialised countries (and by 20% in any
event). The carbon constraint imposed by the EU ETS should tighten
over time;
• move towards increased auctioning of allowances in future phases of the
EU ETS to improve the efficiency of allocating allowances, while taking
account of competitiveness implications;
• allow carbon capture and storage installations to be brought within the
scope of EU ETS during Phase II, and for them to be explicitly recognised
in the Directive from Phase III;
• explore the potential to expand the scheme to cover additional sources
of emissions, including surface transport, and press ahead with the
inclusion of aviation;
• consider the scope for greater harmonisation of the ways in which
Member States operate the scheme, particularly in areas such as
allocation, to tackle concerns about competitiveness impacts; and
• move to ensure the EU ETS is at the centre of a global carbon market
post-2012 by considering how the Directive should be amended to
facilitate the future linking of the EU ETS to other schemes.
5.1.32 Full details of our strategy to strengthen the EU ETS are set out in
Annex C to this White Paper. In March 2007 we published a paper calling for
views on some of the key issues we believe are important to the future
operation of the scheme127. This will further develop our understanding of the
views of industry, NGOs and other interested parties.
127 Available on the DEFRA website at

134 http://www.defra.gov.uk/environment/climatechange/trading/eu/future/review/index.htm#5

5.1.33 Further evidence of our determination to reduce carbon emissions is
the UK’s draft Climate Change Bill which creates a legal framework requiring
us to put in place the necessary policies to deliver our carbon goals.
5.1.34 We are committed to strengthening the EU ETS to build investor

confidence in the existence of a multi-lateral long-term carbon price signal.
We will push for full clarity over the fundamentals of Phase III of EU ETS
as early as possible in order to provide investors with sufficient information
to form a view of the future carbon price to factor into investment decisions
in the power sector. Given the scale of investment in new generation assets
required in the UK over the next two decades, UK investors need clarity over
carbon market fundamentals in good time if they are to make investment
decisions consistent with the Government’s energy policy goals. We will
therefore keep open the option of further measures to reinforce the operation
of the EU ETS in the UK should this be necessary to provide greater certainty
to investors.
Providing better forward looking market

information and analysis
5.1.35 In autumn 2007 we will introduce a new market information service.
This will provide energy market information and analysis relating to supply
and demand scenarios over a fifteen-year time frame.
5.1.36 The availability of high quality forward-looking information is critical to

the efficient and effective operation of energy markets. Energy suppliers need
to be able to anticipate changes in demand and power station closures
sufficiently far in advance to invest in the necessary supply capacity and
delivery infrastructure. Improved information will also help consumers make
better informed decisions about the nature of the contracts they enter into for
their energy supplies. Despite inevitable uncertainties over future events, high
quality scenario analysis that makes use of current information and future
trends can provide early warnings of potential market tightness and assist
energy market participants with their investment decisions, whether they are
energy companies or business customers. The new information arrangements
will also help Government monitor the effectiveness of its policy framework.
Full details of the new information arrangements are set out in chapter 4.
Improving the planning system

5.1.37 The planning system is becoming ever more challenging for potential
investors. Although progress has been made by local authorities in handling
planning decisions, more than 65% of firms in the UK believe that more
should be done, and the recent Barker Review on land use planning found
that there were still major delays associated with central Government
decisions128. Planning is consistently one of the top six concerns for inward
investors in the UK. In chapter 8 of this White Paper, we set out the
immediate changes we have made to improve the planning system for
128 Barker Review of Land Use Planning: Final Report – Recommendations, December 2006
(http://www.hm-treasury.gov.uk/media/4EB/AF/barker_finalreport051206.pdf) 135

electricity generation projects, including new regulations to streamline and
improve the efficiency of planning inquiries. We also describe the more
fundamental reforms to the planning regime which are being taken forward in
the context of the recent Planning White Paper.
Clarifying policy on specific technologies

5.1.38 In addition, we confirm in this White Paper our proposals to
strengthen and modify the Renewables Obligation. These proposals to be
implemented in 2009, will increase the level of renewables investment and
deployment. More details are set out in section 3 of this chapter and in the
renewables consultation document launched alongside this White Paper.
5.1.39 Following the announcement in the Budget in 2007, we set out in

section 4 further details of the competition we will launch to develop in the
UK demonstration of carbon capture and storage on power generation at
commercial scale. We also set out the programme of work to remove
regulatory barriers to the development of CCS. This is the first step towards
creating a long-term future for the continued use of fossil fuels in electricity
generation that is consistent with both our climate change and our security
of supply goals.
5.1.40 Finally, in section 5 of this chapter, we include the executive summary

of the nuclear consultation we are launching alongside this White Paper.
This consultation will allow us to take a decision in the autumn on whether
companies should be allowed to invest in new nuclear power stations as an
option, alongside other forms of low carbon electricity generation in helping
us tackle climate change and ensure security of energy supplies.
Updating and simplifying electricity priority

user arrangements
5.1.41 The UK has a set of priority user arrangements in place to protect
certain critical users from power cuts during a national electricity shortage,
in the highly unlikely event that this occurs. We are currently reviewing the
electricity priority user arrangements and will launch a consultation on these
in summer 2007.
136

INVESTMENT FRAMEWORK
Summary of measures
We believe the UK’s energy needs are best delivered by a liberalised
energy market. The Government’s role is to set the overall market
and regulatory framework that enables companies to make timely
investments consistent with the Government’s policy goals on
climate change and security of energy supplies.
We are bringing forward proposals to strengthen our existing

electricity generation investment framework with the aim of
reducing policy and regulatory uncertainty, and improving the
functioning of the electricity market.
In this White Paper we:

• reinforce our commitment to the EU ETS, working with our
international partners to strengthen the scheme to ensure it
delivers a meaningful long-term carbon price signal. We also keep
open the option of further measures to reinforce the operation of
the EU ETS in the UK should this be necessary to provide greater
certainty to investors. Additionally, the draft Climate Change Bill
demonstrates the UK’s determination to reduce carbon emissions;
• set out our plans to provide high quality forward-looking market
information and analysis;
• explain how we will take forward a fundamental reform of
planning for all energy infrastructure as part of the work set out in
the Planning White Paper;
• describe the new regulations introduced in April 2007 that
streamline the planning inquiry process for large scale electricity
generation, bringing greater certainty to all participants;
• confirm and strengthen our commitment to the Renewables
Obligation;
• set out further details of a competition to develop in the UK
demonstration of carbon capture and storage on power
generation at commercial scale, and a programme of work to
remove regulatory barriers to the development of CCS;
• consult on whether it would be in the public interest for new
nuclear power stations to be an option available to companies
making investments in new electricity generation capacity with
the aim of taking a decision on new nuclear later in the year; and
• announce our intention to review the electricity priority user
arrangements and launch a consultation on these in summer 2007.
137

Section 5.2 – Networks
A secure and reliable electricity system requires timely
investment in the power stations used to generate
electricity. We also need investment in transmission and
distribution networks to transport the electricity from the
point of generation to the point of use.
5.2.1 Great Britain currently benefits from a high level of network reliability.
However, over the coming years substantial investment is needed to respond
to growth in electricity demand, to enable connection of new low carbon
technologies and replace rapidly ageing assets.
5.2.2 This section:

• assesses the current performance of the network system;
• highlights the scale of the investment challenges we face in both
transmission and distribution networks;
• explains the flexible investment mechanisms and increased allowances
Ofgem have put in place to enable investment to support the growth of
renewable generation; and
• describes the work that Ofgem will be taking forward jointly with industry
to help ensure our networks are fit for the energy system in the long term.
The transmission and distribution system

5.2.3 In GB, electricity is transported over high and low voltage power lines.
The transmission network (high voltage), on the whole, receives electricity
from large power stations which in turn enters, via transformers, the low
voltage distribution system. Most consumers receive their electricity from
the low voltage network.
5.2.4 National Grid owns the England and Wales transmission system, with
Scottish Power and Scottish and Southern Energy each owning a part of the
transmission system in Scotland. As transmission owners, these companies
are responsible for building and maintaining safe and efficient networks and
are regulated by Ofgem. National Grid (NG) also has the responsibility of
overseeing and managing the flow of electricity across the whole GB
transmission network, including the elements owned and operated by
Scottish Power and Scottish and Southern. In this role, National Grid is
known as the transmission system operator.
Performance since privatisation

5.2.5 Controllable costs of the network companies have fallen by up to
50% since privatisation, while operational performance has improved. The
electricity transmission system has operated with a reliability of very nearly
100% (historically between 99.9997 and 99.9999%). Very little electricity has
138 been lost from unplanned outages. GB distribution network reliability is also

among the best in Europe according to a recent CEER benchmarking report,
Third Benchmarking Report on Quality of Electricity Supply129. Power cuts
relating to underlying performance (i.e. leaving aside the impact of major
storms) are down by 20% since 2002.
5.2.6 Some electricity is lost – mainly as heat – as it is transmitted through

the networks. Less than 2% of electricity is lost over the transmission
network, with around 5% lost over the distribution system. The network
businesses are incentivised to reduce losses through a range of measures,
and performance continues to improve.
Need for significant investment in the electricity

transmission network
5.2.7 Whilst the current transmission system is clearly operating highly
effectively it will need significant investment to ensure we maintain this
high level of system performance and reliability of electricity supply. This
investment is required because of the ageing of the transmission networks
and the need to connect and transmit electricity from renewable generation.
Ofgem has already recognised the importance of providing appropriate
funding for asset renewal. It has also designed flexible funding and
investment mechanisms so that transmission companies can deal with the
different demand and generation patterns that might emerge in the future.
5.2.8 Ofgem has recently agreed price control funding arrangements with the
transmission network owners for the period of 2007-12. These arrangements
incorporate considerable allowances for capital investment for transmission
owners, totalling over £5.1bn across the gas and electricity transmission
systems. For the electricity element, which sums to around £4.3bn, the
allowances represent an increase of 160% over the previous five-year price
control period. These allowances include funding for the rapid growth in
demand for transmission investment in Scotland as a result of new renewable
generation projects. Ofgem considers that the agreed transmission funding
arrangements provide an appropriate balance of risk and reward for the
transmission companies, whilst offering good value to the consumer. The
funding provided should enable the transmission companies to continue to
operate their systems at the same high level of reliability and maintain a high
level of customer service.
5.2.9 Much of the new transmission investment is driven by the needs of

the generation companies that use (or plan in the future to use) the network.
The plans for additional investment in the transmission system recognise
that there is a large volume of primarily wind electricity generation that will
connect to the transmission system over the coming years. However, the
exact volume and timing are uncertain and, as a result, connection of these
renewable generation stations presents new challenges.
129 http://www.ceer-eu.org/portal/page/portal/CEER_HOME/CEER_PUBLICATIONS/
CEER_DOCUMENTS/2005/CEER_3RDBR-QOES_2005-12-06.PDF 139
Electricity Generation: Networks

5.2.10 The uncertainty over future demand for network investment is one
of the reasons that Ofgem has developed flexible funding mechanisms for
transmission businesses through the price control process. These
mechanisms are designed to ensure that network companies receive
appropriate allowances on an ongoing basis for connecting new generation.
5.2.11 These mechanisms also enable Ofgem to link network investment

funding to long-term financial commitments by the generators wishing to
use the network. These financial commitments help electricity transmission
companies to identify where to invest, and will reduce the risk that business
and domestic customers have to pay for unnecessary investment.
5.2.12 In addition to flexible funding mechanisms, Ofgem is working with

industry to develop measures to make it easier to connect new generation in
the shorter term. Amongst these measures are: greater clarity as to the terms
of connection offers, greater flexibility in connection offers, and enhancing the
consistency between connection offers and the practical considerations arising
from planning consents. More details on these and other examples, where the
Government and Ofgem are working together to make improvements to the
current system, are set out in the Renewables section of this chapter (see 5.3).
Need for investment and flexibility

in the electricity distribution system
5.2.13 As in the case of transmission, Ofgem recognised the need for
increased investment in the distribution networks in its last electricity
distribution price control review. Ofgem increased funding allowances for
investment for the period 2005-10 by approximately 50% over levels of
expenditure in 2000-05. The Distribution Network Operators’ (DNOs) capital
investment funding over the period total more than £5.7bn. Ofgem also
introduced new incentives to encourage innovation and strengthened
incentives to improve network reliability and reduce losses. Network
investment has had a positive effect on network reliability, with a 20%
reduction in the duration of power cuts following the introduction of explicit
incentives in 2002130.
5.2.14 Most of the electricity distribution companies are now indicating that
the investment allowances set by Ofgem at the last review are higher than
they are choosing to spend in the period 2005-10131.
130 Ofgem: 2005-06 Electricity Distribution Quality of Service Report, December 2006, available at
www.ofgem.gov.uk notes a 20% reduction in customer minutes lost.
131 Ofgem: Electricity Distribution Cost Review 2005-06, January 2007, available at www.ofgem.gov.uk
explains that, in aggregate, the electricity distribution companies now intend to spend 95% of the capex
140 allowances set by OFGEM at the last electricity distribution price control review.

Dynamic investment allowances
and sustainable development
5.2.15 Ofgem has worked closely with the transmission and distribution
licensees to develop a suite of price control proposals that incentivise
investment to connect renewable and distributed electricity generation and
improve the environmental performance of the electricity network. This is
being done by:
• allowing companies flexibility in the level of funding that is provided in the
event that extra generation, particularly renewable generation, wishes to
connect to the transmission system;
• providing incentives for companies to reduce the leakage rate of sulphur
hexafluoride, a major greenhouse gas; and
• preparing a new regime to provide for offshore generation network
connections (see section 5.3 of this chapter).
Long-term scenario planning

5.2.16 It has been argued that funding for transmission investment through
the price control process should be set for periods longer than five years in
order to provide distribution and transmission companies with more
confidence to invest. But levels of investment needed more than five years
ahead are highly uncertain. In fact, recent experience suggests that licensees
are already facing increasingly varied network demands which are difficult to
predict even within the timeframe of a five-year price control. As outlined
above, Ofgem has therefore taken the view that a better way to provide
investment confidence is by enabling funding to be more flexible and linked
to changes in demand.
5.2.17 However, the flexible approach within the existing price controls does
not address the need to consider and examine possible longer term scenarios.
For example, it is important to ensure that the flexible five-year allowances
set in price control periods are compatible with any plausible longer term
outlook for the network. Ofgem therefore intends to look at a range of future
scenarios that could arise as a consequence of Government policy and market
development including, for example, a significant shift in the UK fuel mix and
the associated integration of renewable generation capacity with intermittent
or variable output.
5.2.18 The scenario analysis is likely to focus on medium and long term
timeframes, stretching several decades ahead. It will also look at the drivers
of future energy demand and potential changes to the supply side. On the
demand side, key issues will include the growth in demand for energy
services, the scope for energy efficiency, technological and social trends
and the requirements to meet carbon emissions limits. On the supply and
generation side, key areas for consideration will include the different fuels
and technology types likely to proliferate, fuel security and the development
of a viable decentralised system (including microgeneration) alongside
today’s predominately centralised system.
141
Electricity Generation: Networks

5.2.19 Ofgem will publish an open letter in May 2007 giving notice of its
intention to convene a cross-industry workshop. The workshop, expected in
summer 2007, will consider longer term scenario planning issues and will
have the following aims:
• to establish a process for further work on scenario planning;
• provide a clear timeline for this work;
• seek views from the industry of the major challenges for the future of
energy markets and the implications for the electricity networks; and
• agree how the work will be made publicly available.
5.2.20 Following the workshop Ofgem will convene further industry meetings
as appropriate. Ofgem’s role in the process will mainly be to provide guidance
and a framework for scenario planning work to be conducted by industry.
Ofgem expects to publish its first report on long term scenarios for the
electricity networks in the first half of 2008.
142

Section 5.3 – Renewables
The UK has some of the richest renewable resources in
Europe – particularly in terms of our wind and marine
(wave and tidal stream) resources. If they can be captured
effectively they can make a significant contribution to our
long-term energy goals relating to climate change and
security of supply.
5.3.1 In this section, we set out:

• the progress made in deploying renewable electricity generation, and the
barriers to the further development of UK renewables in the short, medium
and long term; and
• actions being taken to tackle those barriers including:
– how we intend to strengthen and modify the Renewables Obligation;
– how we will reduce uncertainty and shorten overall timescales in the
planning process for renewables projects; and
– how we will improve access to the grid for onshore and offshore
renewables generation.
5.3.2 The Devolved Administrations have an important role to play in respect

of supporting electricity generation from renewables. In line with the
devolution settlements in Scotland, Wales and Northern Ireland, all proposals
in this chapter which touch on devolved matters will be progressed in
accordance with the principles set out in the Memorandum of Understanding.
Renewable energy has a key role to play in

reducing carbon emissions and achieving security
of supply
5.3.3 Renewable energy is an integral part of the Government’s strategy for
reducing carbon emissions as renewable energy resources produce very little
carbon or other greenhouse gases132. For every 1GW of fossil fuel fired
electricity generation capacity displaced by an equivalent amount of renewable
electricity, carbon emissions would be around 0.7MtC to 1.5MtC lower.
5.3.4 Renewables can also make a contribution to security of supply, by

diversifying the electricity mix and reducing the need for energy imports.
However, some renewables, such as wind, are variable (often described as
intermittent). Above a certain level these security of supply benefits have
to be weighed against potential disadvantages arising from having a larger
proportion of UK electricity generation coming from variable sources.
5.3.5 Recognising the potential benefits of renewables to the UK’s energy

objectives, in 2002 the Government introduced the Renewable Obligation
Reducing CO2 emissions – nuclear and the alternatives; March 2006. 143
Electricity Generation: Renewables

(RO) to drive and support the growth of renewables generation. The
Obligation allows generally higher cost renewable electricity generation to
compete directly with conventional, fossil fuel based electricity generation133.
The Government further underlined its commitment to renewables by setting
a challenging target of increasing renewable electricity generation to 10% of
electricity by 2010. It also set out an aspiration to double this by 2020.
5.3.6 Renewables also form a part of Europe’s climate change and energy
policy. In March 2007, the European Council agreed amongst other things,
a binding target of a 20% share of renewable energies in overall EU
consumption by 2020. This applies to transport and heat as well as electricity.
The agreement also commits the EU to a binding target of reducing
greenhouse gas emissions by 20% by 2020 and by 30% in the context of
international action. The EU Commission has been asked to bring forward
detailed proposals for each Member State’s contribution to the overall EU
renewables target. After a decision has been reached, and each Member
State has agreed its contribution, we will bring forward appropriate policies
to deliver the UK’s share.
5.3.7 The UK has a significant tidal energy resource which could make a
major contribution to the UK’s supply of renewable energy. In Box 5.3.1
we set out details on the Sustainable Development Commission’s study in
this area.
BOX 5.3.1 TIDAL POWER
A major study led by the Sustainable Development Commission (SDC) is

currently underway that is looking at issues related to harnessing tidal
power in the UK. Tidal power represents a significant untapped resource.
The geography of the UK means that we are particularly well positioned to
harness the power of the tides to generate cleaner energy.
The SDC study will consider a wide range of locations and technologies,
including the potential of tidal power in the Severn Estuary and the
proposals for a tidal barrage there, which could potentially supply up to
5% of the UK’s electricity demand from a renewable, low carbon source.
Tidal power could make a significant contribution towards meeting the
twin challenges of climate change and security of supply.
The SDC is considering, in its study, a broad range of issues including

environmental impacts, financing, and public acceptability of the various
options. The SDC’s final report, which is expected in September 2007,
will assess the role of tidal power in a low carbon electricity system from
a sustainable development perspective. The Government will consider the
SDC’s report and recommendations before indicating what it considers to
be appropriate next steps.
133 A fuller explanation of the Renewables Obligation is set out in box 5.3.2 and at
144 http://www2.dti.gov.uk/energy/sources/renewables/policy/obligation/page15630.html

What progress have we made in deploying
renewable electricity generation in the UK?
5.3.8 UK renewable electricity generation has increased significantly since
2002. In 2006 electricity supplied from RO eligible sources stood at around
4% of the UK’s total, up from 1.8% in 2002.
5.3.9 Since January 2006 we have seen the installation of more than 540MW
of wind and around 80 MW134 of other renewables, including landfill gas,
photovoltaics and biomass. More than 2GW of wind is now connected to the
grid – with the first GW taking around 14 years to become operational and the
second only 20 months. A further 1,260 MW of renewables capacity is under
construction; 4,600 MW has been consented, and 11,400 MW is in planning
processes across the UK. We estimate that around £1billion has been either
invested or committed to new UK renewable projects in the past year.
5.3.10 Figure 5.3.1 shows the rate of progress on renewables growth

since 1990.
FIGURE 5.3.1. GROWTH IN ELECTRICITY GENERATION FROM RENEWABLE

SOURCES SINCE 1990
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Source: DTI 2006
134 Renewable Energy Statistics Database – www.restats.org.uk/2010_target.htm 145

5.3.11 Progress continues to be made and the rate of deployment is forecast
to grow through 2007 and beyond:
• construction has started on Europe’s largest onshore (322MW) windfarm
at Whitelee, in Scotland;
• construction on a fresh round of offshore wind projects has started or will
start shortly. These include Robin Rigg (180MW), Lynn (90MW), Inner
Dowsing (90MW), and Gunfleet Sands (180MW). All of these projects are
being supported under the Government’s £97 million offshore wind
demonstration programme;
• a further 1.9GW of offshore wind has been consented, including the
London Array offshore wind farm, which at 1GW will be the world’s
largest offshore wind farm; and
• new biomass projects to be commissioned during 2007 will include the
UK’s largest dedicated biomass plant at Lockerbie (44MW) and a 30MW
project at Wilton.
The challenges
5.3.12 Despite good progress to date, there are barriers slowing the rate of
renewables deployment in the UK in both the short and long term:
• Firstly, the most competitive renewable technologies, such as onshore
wind and hydropower, are either constrained by the scarcity of suitable
sites or, in the case of co-firing of biomass with coal generation, by caps
on the total level of generation qualifying for support under the RO. In
addition the maturing technologies, like offshore wind and biomass, that
we will rely on for the next phase of renewable electricity deployment are
proving more expensive than anticipated. As a result, in its current form,
the RO will not deliver sufficient financial support to deploy these at the
levels needed to keep us on track towards our 20% aspiration.
• Secondly, securing planning consent for renewables, and in particular
onshore wind, can be an especially difficult process, with developers
facing uncertainty and significant risk of delays. There is currently
more than 11GW of renewables capacity awaiting consent under the
planning system135.
• Thirdly, there are significant challenges and delays in connecting
renewables generation projects to the transmission and distribution
network, affecting both onshore and offshore renewables.
5.3.13 In the following sections, we set out the actions we are taking to
tackle each of these challenges.
146 135 Renewable Energy Statistics Database – www.restats.org.uk/2010_target.html

Strengthening and modifying
the Renewables Obligation
5.3.14 The RO has been successful in stimulating investment in renewable
energy projects. It does this by placing an Obligation on licensed electricity
suppliers to source an increasing proportion of their electricity sales from
renewable sources or to pay a penalty (the buy-out price). The RO’s aim is to
provide a framework of financial incentives to invest in renewables with the
long-term goal of supporting the transition of renewables into the mainstream
of the UK’s competitive electricity market. The level of the Obligation is
currently set to increase in annual steps from 7.9% in 2007/08 to 15.4% by
2015, and to remain at that level until 2027 when the mechanism will end.
Generators receive an RO Certificate (ROC) for each 1MWh of renewable
electricity they generate. These are sold to electricity suppliers, allowing them
to demonstrate how much renewable generation they have sourced. Details
of the RO scheme are given in Box 5.3.2.
BOX 5.3.2 THE RENEWABLES OBLIGATION
The buy-out price is the fixed penalty that an energy supplier pays for
each MWh that it falls short of its obligation. The buy-out price is linked to
the Retail Price Index (RPI) and for 20007/08 the price is £34.30 per MWh.
The suppliers pay this money into an account administered by Ofgem
(the Buy-out Fund) and each year the accumulated Fund is shared among
those suppliers who have presented RO Certificates (ROCs). The
combination of the buy-out price and the extent to which suppliers have
fallen short of their obligations determines the nominal value of a ROC and
the total support available for each MWh of renewable electricity under
the RO. When the Obligation as a percentage of total electricity supplied
is greater than the share of actual renewable generation, the value of a
ROC will be by definition greater than the buy-out price.
5.3.15 The RO was designed to bring forward the most cost-effective

technologies first and it has been very successful in doing this. However, if we
want to move significantly beyond 10% renewables we need to bring forward
other renewable technologies, particularly offshore wind and biomass. To
encourage investment in these technologies, as well as continuing investment
in onshore wind and other more developed sources of renewables generation,
we need to provide appropriate levels of support, reflecting the development
and technology risks and the costs of each technology. We also need to give
investors the certainty they need to commit to renewables investment.
5.3.16 In the Energy Review Report we set out our proposals for
strengthening the performance of the RO. These included:
• a commitment to raise the RO to 20% on a “guaranteed headroom” basis
i.e. so that the obligation level is only raised when the growth in
renewables generation justifies it;
• breaking the RPI link from 2015-16 to keep the overall costs to consumers
broadly similar to those within the existing projections; and
147

• proposals to “band” the Obligation to differentiate levels of support to
renewable technologies to maximise the contributions from established
and emerging technologies.
5.3.17 We published a consultation document – Reform of the Renewables

Obligation and Statutory Consultation on the Renewables Obligation Order
2007 136 – in October 2006 seeking views on these proposals. The consultation
closed on 5 January 2007137.
5.3.18 The majority of the responses to the consultation supported the

proposals set out in the Energy Review Report as the best way to improve
the RO within the current funding regime.
5.3.19 Some respondents expressed a preference for additional capital grant

support but recognised that given the significant overall funding support
already available for renewables, additional capital grant support was unlikely
and that reform of the existing scheme was therefore necessary. A minority
of respondents proposed replacing the Obligation on the grounds that it is not
cost effective and does not provide sufficient certainty to investors. A number
of other mechanisms were proposed, including Government-backed ROC
contracts and a feed-in tariff system.
5.3.20 We have given these issues serious consideration but do not believe
that there is a strong case for radical change. While a number of other EU
member states have used mechanisms such as feed-in tariffs, it is hard to
draw firm conclusions as to the effectiveness of these mechanisms from
international comparisons, as other forms of support also vary. For example,
some other EU Member States offer preferential access to the grid alongside
any direct financial support. The UK’s previous renewables support – the Non
Fossil Fuel Obligation (NFFO) – was a feed-in tariff scheme but was not itself
successful in supporting mass deployment of renewable capacity.
5.3.21 The Government therefore remains firmly committed to the RO as the

principal means of driving the deployment of renewable electricity in the UK.
And we have taken account of the strong message from respondents about
the need for certainty and continuity in order to build on existing levels of
investment. However, we also recognise the need to make changes to the
RO’s structure to improve its overall performance. Our view is that our
proposed package of modifications, in particular banding, will address many
of the concerns that have been raised.
5.3.22 Any plans for modifying the RO have also to take into account the
likely future developments both in the market and in other policies which
bear on the industry. For example, market developments are likely to include
changing costs for projects (driven by technology developments and by shifts
in the international market for items such as wind turbines). Changes in the
regulatory environment will include future phases of the EU Emissions Trading
Scheme (ETS) and the consequent cost of carbon dioxide emissions faced by
fossil fuel generators (affecting wholesale electricity prices) and proposed
major reforms to the planning and grid connection regimes.
136 http://www.dti.gov.uk/files/file34470.pdf
137 Responses to the consultation are available at
148 http://www.dti.gov.uk/energy/review/implementation/renewables-obligation/page34483.htm

5.3.23 The further ahead we look, the greater the uncertainty about: future
technology costs; the likely carbon price under the EU ETS; the future
wholesale electricity price; and the impact of our measures to improve
planning and grid access. It is against this background that we have undertaken
analysis and modelling of renewables deployment for this White Paper.
5.3.24 This analysis has revised our estimate of the level of renewable
electricity generation that the existing RO will deliver. Latest estimates based
on central projections for electricity prices suggest that the RO in its present
form will deliver around 11.4% of the electricity supplied by 2015/16 (the point
when, under the existing regime, the Obligation would reach, and level off at,
15.4%). This is lower than earlier projections and is a result of the rising costs
in many of the major technologies over the last year or so. Costs for key
elements such as wind turbines have risen by some 25% over the past
1-2 years and look set to rise further over the next 2-4 years because of the
rising prices of major commodities such as steel and the increased international
demand for the finished product. This further underlines the case for the
changes we propose to make to the RO if we are to make additional progress
on renewables deployment.
5.3.25 On the basis of the consultation responses and our further analysis,
we therefore confirm in this White Paper our intention to increase the
Obligation level to up to 20% on a guaranteed headroom basis and to
introduce banding. In the longer-term we expect the EU ETS to mature
and make renewables a relatively more attractive option.
5.3.26 The recent changes observed in the costs of renewables technologies

underline the challenges in making precise predictions about renewables
deployment in the longer term, and in designing our policies to maximise
deployment. Although developing rapidly, many of the renewables
technologies supported under the RO – and the international supply chains
that support them – are still maturing and costs will therefore continue to
vary over the medium-term. In designing the changes to the RO set out in
this White Paper, we have sought to maximise renewables deployment in
the period up to around 2013-2015. Although still uncertain, we can be more
confident about the projected impact of our proposals up to that point.
5.3.27 We summarise the broad thrust of our decisions below. The detail is
set out further in the consultation document we are publishing alongside
this White Paper.
Obligation levels
5.3.28 The Government remains committed to its existing decisions on
Obligation levels and to retaining the Obligation until 2027.
5.3.29 We will raise Obligation levels to up to 20% on a “guaranteed

headroom” basis – our aim is to raise the Obligation as necessary to keep
it ahead of the actual levels of generation. The “guaranteed headroom”
approach will be used to revise current Obligation levels – set out to be
15.4% in 2015/16 – if they are likely to be exceeded by the level of renewable
electricity generation on the system.
5.3.30 Banding is likely to result in a change to the currently direct 1:1 149

relationship of one ROC being awarded for each 1MWh of electricity
generation. Therefore, alongside the proposals on banding, we propose to
change the way the Obligation is set so that in the future it will be defined in
terms of the number of ROCs rather than in terms of output of renewable
generation. This will help to provide greater certainty for investors, the need
for which was emphasised by respondents to last year’s consultation.
5.3.31 We believe this revised approach to setting long-term Obligation levels

has the additional benefit of managing future costs to consumers, by linking
growth in the Obligation to the renewable sector’s ability to deliver. It also
gives greater certainty to investors for the period up to and beyond 2015-16.
The RPI indexation of the RO buy-out price

5.3.32 In the Energy Review Report, the Government proposed removing
from 2015-16 the link between the buy-out price under the RO and the Retail
Price Index (RPI). The intention was to mitigate the expected increase in the
cost of the RO to consumers once the obligation began to rise above the
previous 15.4% limit.
5.3.33 Since that time we have seen rises in the costs of renewable electricity
technologies. Moreover, new analysis138 commissioned to inform our banding
proposals indicates that we are likely to see further rises in the costs of
renewable electricity technologies in the period to 2010. The implication of this
is that the projected deployment of renewables is now lower than at the time
we published the Energy Review Report. The updated analysis therefore
indicates that the projected level of renewables deployment for the banding
regime under consideration would lead to a fall in the total financial support
provided by the RO when compared to the existing regime, even though it
would still increase the overall level of renewables deployment. A number of
respondents to the recent renewables consultation made a similar observation
and argued strongly against the removal of the RPI link from 2015-16 on
the basis that it would lead to an overall reduction in the support available
to renewables.
5.3.34 One of our objectives when considering proposals to band the RO

was to increase deployment of renewables, while maintaining broadly similar
costs to consumers. The Government has therefore decided to retain the link
between the buy-out price and RPI from 2015-16 as part of confirming new
proposals to band the RO. This will provide a greater stimulus for the deployment
of renewables over the lifetime of the RO. A banded RO retaining RPI is
predicted to deploy around 40% more renewables between 2009 and 2015
than the current regime would have over the same period.
“Banding” the Renewables Obligation

5.3.35 Banding means that technologies could be awarded more or less than
one ROC for each MWh of electricity they produce depending on the stage of
the technological development and associated costs. The aims are to bring
forward emerging renewable technologies; increase deployment; and improve
the overall cost effectiveness of the RO. In particular, banding recognises the
practical constraints that apply to the most mature renewable technologies,
such as onshore wind, and help us bring forward the next generation of
138 Ernst and Young: Impact of Banding the Renewables Obligation: Cost of Electricity Production 2007 –
150 available at www.dti.gov.uk/energy/whitepaper

renewable technologies. We believe “banding” achieves the best balance
between the overall cost effectiveness of support for renewables deployment
and investor confidence. We will, however, continue to support emerging
renewable technologies that are not yet close to mass deployment through
other measures (see discussion of emerging technologies below).
5.3.36 The bands will be set on a market-based assessment of the

development of different groupings of renewable technologies rather than on
a technology specific basis. This approach has a number of advantages over
a technology specific approach, including:
• it reduces the complexity of banding; and
• avoids the risks inherent in attempting to define the levels of support
too narrowly.
5.3.37 We are publishing alongside this White Paper a consultation on

proposals based on four technology bands covering the span of technologies
from the lowest cost to the higher cost, emerging technologies (these are set
out in Table 5.3.1). With the exception of co-firing (discussed below), we
propose that bands be fixed until March 2013 in the first instance, shortly
after Phase III of EU ETS is expected to come into effect.
5.3.38 We intend that subsequent reviews of the bands will be in line with
future phases of EU ETS. Criteria for deciding any future adjustments will be
set out in advance to ensure that changes in future support levels for new
projects are understood and predictable. Retaining the option to review
support levels but on a clearly defined and prescribed timetable gives policy
makers flexibility to adjust support levels for new projects to reflect changing
market conditions and the rate of technological advance while minimising
impacts on developer certainty and investor confidence.
Table 5.3.1 Proposed banding regime
Level of support
Band Technologies
ROCs/MWh
Sewage gas; landfill gas; co-

Established firing of non-energy crop 0.25
(regular) biomass
Onshore wind; hydro-electric;

co-firing of energy crops; energy
Reference 1.0
from waste with combined heat
and power; other not specified
Offshore wind; dedicated

Post-demonstration 1.5
regular biomass
Wave; tidal-stream; advanced
conversion technologies
(gasification, pyrolysis and
anaerobic digestion); dedicated
Emerging technologies 2.0
biomass burning energy crops
(with or without CHP); dedicated
regular biomass with CHP; solar
photovoltaics; geothermal
151

5.3.39 We will also work to ensure the success of our banding proposals by:
• giving industry confidence in the band setting process. We are therefore
proposing to put in place arrangements to provide Ministers with
independent advice on future support levels; and
• ensuring the band reviewing process is open and transparent. This will be
based on a thorough assessment of costs and market developments, and
will involve consultation with industry and other interested parties.
More details of our key proposed principles for banding are set out in the
accompanying RO consultation document.
Treatment of co-firing under a banded RO

5.3.40 As explained in the Energy Review Report we believe that co-firing
continues to have a role to play in reducing carbon emissions from
conventional generation stations, particularly coal. Co-firing is also one of the
most cost-effective renewable technologies. From 1 April 2009, the current
caps on co-fired ROCs will be removed and the level of support co-firing
receives will be reduced.
5.3.41 We do not propose to grandfather co-firing over the lifetime of the RO

but will adjust the level of support according to need (see below for broader
proposals on grandfathering). We set out the reasons for this proposal in the
consultation document.
5.3.42 We believe there is a case for continuing to support energy crops so

as to promote the development of an effective domestic supply chain for this
valuable resource. From 1 April 2007, co-firing of energy crops was removed
from the current co-firing caps. We also propose that co-firing energy crops
receive more support than other forms of co-firing, including for the necessary
capital investments. Taken together we believe these measures, in addition to
other measures in the Biomass Strategy 139, will continue to promote the
development of the energy crop sector.
5.3.43 It is important to ensure that co-firing and large dedicated biomass

schemes are sustainable over the long-term. We will therefore require
co-firers and developers of larger biomass power stations to submit to the
regulator an annual report on the biomass they have used, its origins, and
whether it has been sourced under existing codes of practice or accreditation
schemes, for example, the UK Woodland Assurance Standard140 and the
Roundtable on Sustainable Palm Oil141.
Treatment of energy from waste under a banded RO

5.3.44 Generating energy from that portion of waste that cannot be
prevented, reused or recycled has both energy and waste policy benefits.
Energy generated either directly from waste or through the use of a refuse-
derived fuel has benefits for security of supply. In addition, the biodegradable
fraction of waste is a renewable resource. The RO will remain open to the
biomass fraction of waste used in good quality CHP stations and power
stations using gasification, pyrolysis, and anaerobic digestion. The respective
139 The Biomass Strategy is published alongside this White Paper, refer to
http://www.dti.gov.uk/energy/whitepaper
140 http://www.ukwas.org.uk/
152 141 http://www.rspo.org/

levels of support for the different technologies are shown in Table 5.3.1.
We also propose to bring forward new legislation which will enable us to
overcome the current barriers to eligible energy-from-waste power stations
receiving ROCs. More detail on this and other deregulatory measures seeking
to reduce biomass fuel costs and promote biomass CHP are set out in the
consultation document accompanying this White Paper142.
5.3.45 Anaerobic digestion is an emerging technology which is currently

under-developed in the UK. It offers the potential to generate renewable
energy – not only electricity, but also heat and fuel – from manures and
slurries and certain organic wastes such as food waste, whilst at the same
time mitigating methane emissions from agriculture and landfill143.
Grandfathering
5.3.46 We recognise the impact that changes to the RO could have on
investor confidence. We therefore aim to reflect this in the treatment of
existing projects with the detailed definition of ‘existing projects’ to be
confirmed through the consultation on the RO we are launching alongside
this White Paper. Our proposal is that following the introduction of “banding”
currently planned for 1 April 2009144 all projects that would otherwise be
eligible for less than one ROC per MWh and which:
• have commenced operation by that date; or
• have received planning permission and pre-accreditaion from Ofgem by
that date and subsequently commence operation within two years;
will remain eligible for one ROC per MWh.
5.3.47 Those projects145 that became operational after 11 July 2006 (when
our banding proposals were first raised) and following the introduction of
banding, fall within a higher band will receive the new (higher) number of
ROCs from the moment that banding comes into force. Those projects that
became operational on or before 11 July 2006 and, following the introduction
of banding, would otherwise have fallen within a higher band, will remain
eligible for one ROC per MWh only.
5.3.48 We set out the exceptions to the grandfathering principle in the RO

consultation document.
Impact of these proposals

5.3.49 Recent analysis of the renewables market and renewables
technologies costs has revised our estimate of the level of renewable
electricity generation that the existing RO regime is likely to deliver. As already
mentioned, modelling by Oxera for this White Paper146 suggests that the RO
in its present form would deliver a central estimate of 11.4% of the electricity
supplied in 2015-16. This is lower than earlier projections and is a result of
rising costs for many of the major renewables technologies over the past
1-2 years.
142 http://www.dti.gov.uk/energy/whitepaper/consultations
143 The Biomass Strategy and the accompanying Anaerobic Digestion Working Paper set out how we will
work with interested parties to drive a faster growth in anaerobic digestion by local authorities,
businesses and farmers.
144 The target date for implementation is 1 April 2009 subject to the availability of Parliamentary time and
State Aids clearance.
145 The Grandfathering process is set out in the more detail in the accompanying consultation document.
146 Oxera Consulting Ltd. Reform of the Renewables Obligation – What is the likely impact of changes?
2007; http://www.dti.gov.uk/energy/whitepaper 153

5.3.50 In the preferred banding regime identified above, we estimate that
the level of renewable generation delivered by the RO will grow from around
25TWh to around 47TWh between 2009 and 2015. This growth in renewables
will bring about a further change in the generation mix, thus making the
electricity sector less carbon intensive.
5.3.51 As mentioned above, we have focused the design of the new

regime on maximising the renewables deployment we might achieve by
around 2013-15. We can be more confident about the projected renewables
deployment over this time frame than we can over the long-term. This is
because the further we go into the future the greater the level of uncertainty
around key assumptions such as technology costs, the carbon price and
wholesale electricity prices. Moreover, focussing on this time frame is
consistent with the date we first intend to review the bands we are proposing
to put in place (i.e. 2013). By around 2013, we will know more about, for
example, likely future renewable technology costs as well as how Phase III
of the EU ETS has unfolded.
5.3.52 Modelling for this White Paper shows that our proposals could
increase the electricity supplied from renewables by up to around 8TWh in
2015 relative to the RO in its present form. By 2015-16, some 13.5% of
electricity demand is estimated to be supplied by renewables eligible under
the RO. By including those renewables that are not eligible for support under
the RO, this would bring the projected total amount of electricity supplied
from renewable sources to around 15% by 2015-16.
5.3.53 The additional growth in renewables delivered by our proposals will

also contribute to our security of supply by increasing the diversity in the
electricity mix by reducing reliance on gas-fired technology and thereby
reducing our demand for gas147.
5.3.54 Based on our central projections – albeit with the caveats highlighted
above – about the particular uncertainty associated with projecting the
deployment for developing technologies such as renewables into the long
term – we estimate that renewables would represent around 15% of the
UK’s electricity sales in 2020, reducing our projected carbon emissions by
around a further 0.8 million tonnes of carbon. More details on the impact of
our proposals to strengthen and modify the RO are set out in chapter 10 of
this White Paper and in the accompanying RO consultation and Regulatory
Impact Assessment published alongside it.
147 Assuming renewables replaces gas fired generation, it would reduce gas demand by up to
154 1.3 billion cubic metres.

Support for emerging technologies in a banded RO
5.3.55 While the Government intends that emerging technologies generating
electricity from a renewable source (such as wave and tidal and advanced
waste conversion technologies) will benefit from some additional revenue
support through RO banding, we believe that revenue support alone is not
the best way to promote the demonstration and early deployment of these
technologies in all cases, especially as the costs and performance
characteristics are relatively uncertain.
5.3.56 Emerging technologies require targeted support in these early phases.

This means both financial support as well as the wider development
framework – for example, supportive planning and infrastructure regimes can
reduce risk, accelerate development and deployment, and promote learning.
5.3.57 Therefore, while banding will provide a longer-term market pull for
emerging technologies, we believe capital grant schemes and tailored policy
initiatives are the appropriate and more cost effective mechanisms for
reducing commercial risks at the earlier stages of technology development
and demonstration. Maintaining the focus of the RO on those technologies
which can deploy at lower and more certain cost, and at a large scale, also
best serves our medium-term carbon reduction and security of supply goals.
As emerging technologies develop, they will increasingly benefit from a
banded RO. Future reviews of the levels of banded support will consider the
position of these technologies and the appropriate level of support to
facilitate deployment.
5.3.58 Funding for the capital costs of developing emerging energy

technologies will therefore still be needed. The new Energy Technologies
Institute and Environmental Transformation Fund are the means of providing
it. These will complement support provided through the banded RO. More
details can be found in chapter 6.
5.3.59 We currently support wave and tidal technologies through the existing
Marine Renewables Deployment Fund (MRDF). We will continue to provide
support for the demonstration and deployment of marine renewables alongside
the banded RO. This support is likely to form part of the Environmental
Transformation Fund.
5.3.60 Microgeneration remains an important contributor to renewables

generation. We have already taken steps to make it easier for microgenerators
to gain access to the benefits of ROCs (see below). We are also bringing
forward proposals for microgeneration as part of our proposals on distributed
energy. More details of our proposals are set out in chapter 3. We propose to
place microgeneration projects in the same technology bands as their larger
scale generation counterparts.
Next steps and timetable

5.3.61 Greater detail on all our RO related proposals is set out in the
accompanying consultation document published alongside this White Paper.
To provide a clear route map for developers and investors, we will take
decisions on the future bands after the consultation and in advance of the
necessary enabling legislation. These “bands” will then apply until 2013.
155

Results of the recent statutory consultation on the RO
5.3.62 Our recent consultation also included a series of more minor changes
to the Renewables Obligation Order and these came into force on 1 April
2007. The detail is set out in the explanatory note accompanying the Order148.
These include specific de-regulatory measures which will:
• make it easier for small and micro-generators to seek support via the RO;
• allow generators to claim support for a wider range of biomass fuels as long
as at least 90% of the total energy content is derived from biomass; and
• remove caps on co-firing energy crops.
5.3.63 As mentioned previously there are a range of other issues, beyond

those related to the RO, which currently act as barriers to greater
development of renewable energy. These issues are addressed in the
following sections.
Planning
5.3.64 As already mentioned, planning is one of the most significant barriers
to the deployment of renewables. For example, according to industry
statistics, it takes an average period of 21 months for windfarms to secure
planning consent under the Electricity Act regime149.
5.3.65 In the Energy Review Report we therefore set out a series of

initiatives and proposals aimed at reducing uncertainty and shortening the
overall timescales from application to a final decision on consent. These were
based on three underlying principles:
• improving the strategic (i.e. national policy) context against which individual
planning decisions should be made;
• introducing more efficient inquiry procedures in the current consent
regimes; and
• exploring options for more timely decision-making.
5.3.66 Each of the planning reforms in these areas is detailed in chapter 8 of

this White Paper.
5.3.67 Recognising the particular difficulties faced by renewables in securing

planning consent, the Government is also:
• underlining that applicants will no longer have to demonstrate either the
overall need for renewable energy or for their particular proposal to be
sited in a particular location;
• creating the expectation amongst applicants that any substantial new
proposed developments would need to source a significant proportion of
their energy supply from low carbon sources (including on and off-site
renewables);
• encouraging planners to help create an attractive environment for
innovation and in which the private sector can bring forward investment in
renewable and low carbon technologies; and
• giving a clear steer to planning professionals and local authority decision-
makers, that in considering applications they should look favourably on
renewable energy developments.
148 The Renewables Obligation Order 2006 (Amendment) Order 2007.
156 149 BWEA Onshore Wind: Powering Ahead, March 2006.

5.3.68 In addition, new regulations that came into force in April 2007 to
improve the efficiency of planning inquiries for electricity generation projects
greater than 50MW should help large scale renewables projects seeking
planning consent (see chapter 8 for more details).
5.3.69 In December 2006, we launched a consultation on a draft of the

Planning Policy Statement (PPS) on Climate Change. It contains a number
of key policies on renewables:
• It significantly strengthens the requirement on planners to recognise
the national need for renewable technologies and other low carbon
energy technologies.
• There is also a clear steer to planning professionals and local authority
decision makers not to question the national need for renewables and
other low carbon technologies, or to question the need for a particular
project to be sited at a particular location.
• Substantial new developments should seek to source a significant
proportion of their energy supply from low carbon sources (including on
and off-site renewables).
5.3.70 We aim to publish the PPS on Climate Change at the earliest

opportunity. We will publish guidance to accompany the Statement.
BOX 5.3.3 RENEWABLES STATEMENT OF NEED
We remain committed to the important role renewables has to play in

helping the UK meet its energy policy goals. In this publication we are
reiterating previous commitments we have made, not least in the 2003
Energy White Paper and Planning Policy Statement 22 on renewable energy
(PPS22), on the importance of renewable generation and the supporting
infrastructure. We intend this to reconfirm the UK Government policy context
for planning and consent decisions on renewable generation projects.
As highlighted in the July 2006 Energy Review Report 150, the UK faces
difficult challenges in meeting its energy policy goals. Renewable energy
as a source of low carbon, indigenous electricity generation is central to
reducing emissions and maintaining the reliability of our energy supplies
at a time when our indigenous reserves of fossil fuels are declining more
rapidly than expected. A regulatory environment that enables the
development of appropriately sited renewable projects, and allows the UK
to realise its extensive renewable resources, is vital if we are to make real
progress towards our challenging goals.
New renewable projects may not always appear to convey any particular
local benefit, but they provide crucial national benefits. Individual
renewable projects are part of a growing proportion of low carbon
generation that provides benefits shared by all communities both through
reduced emissions and more diverse supplies of energy, which helps the
reliability of our supplies. This factor is a material consideration to which
all participants in the planning system should give significant weight when
considering renewable proposals. These wider benefits are not always
150 http://www.dti.gov.uk/energy/review/ 157

BOX 5.3.3 CONTINUED
immediately visible to the specific locality in which the project is sited.

However, the benefits to society and the wider economy as a whole are
significant and this must be reflected in the weight given to these
considerations by decision makers in reaching their decisions.
If we are to maintain a rigorous planning system that does not

disincentivise investment in renewable generation, it must also enable
decisions to be taken in reasonable time. Decision makers should ensure
that planning applications for renewable energy developments are dealt
with expeditiously while addressing the relevant issues.
5.3.71 The Energy Review Report also sets out a commitment to a reform
of the planning system for major energy infrastructure projects in the longer
term. These reforms will cover all large onshore renewable projects with a
capacity of greater than 50MW and offshore with capacity greater than
100MW. We expect them to bring real benefits with an expectation that the
decision making phase (including inquiry) will take no longer than nine months
except in particularly difficult circumstances. The details of the reforms are
discussed in chapter 8, and in the planning White Paper 2007, Planning for
a Sustainable Future151.
5.3.72 Taken together, we believe this package of proposals will increase

the speed and quality of decision-making on existing and future renewable
projects reducing costs and risks for developers and uncertainty for
local communities.
Improving grid access for renewable generation

Context
5.3.73 As already mentioned in section 5.2, in Great Britain, electricity is
transported over high and low voltage power lines. The transmission network
(high voltage), on the whole, receives electricity from large power stations
which in turn enters, via transformers, the low voltage distribution system.
Most consumers receive their electricity from the low voltage network.
5.3.74 National Grid (NGET) owns the England and Wales transmission
system, with Scottish Power and Scottish and Southern Energy each owning
a part of the transmission system in Scotland. As transmission system
owners, these companies are responsible for building and maintaining safe
and efficient networks and are regulated by Ofgem. NGET also has the
responsibility of overseeing and managing the flow of electricity across
the whole GB transmission network, including the elements owned and
maintained by Scottish Power and Scottish and Southern Energy. In this role,
NGET is known as the transmission system operator. NGET is also required
to co-ordinate the process of making connection offers to prospective system
users. This involves having in place a series of rules for achieving grid
158 151 Planning for a Sustainable Future; May 2007; www.communities.gov.uk

connection and developing those rules as necessary with the aim of operating
the system in an economic and efficient manner (as required by its
transmission licence).
5.3.75 To reach our aspiration of 20% of electricity supplied from renewable

generation by 2020, approximately 20GW of renewable capacity would need
to be connected to the GB transmission system. Our aim is to connect new
renewable generating capacity to the electricity network as quickly and as
cost-effectively as possible. The majority of the new renewable generation
is likely to be variable onshore and offshore wind. In the longer term, this
implies the need for an electricity transmission system that does not attempt
to accommodate all generation simultaneously, but where transmission
access is shared amongst different forms of generation. Such a system would
mean that the transmission system could accommodate an increased amount
of generating capacity for a given amount of transmission capacity. The
current technical, commercial and regulatory framework for transmission
access will need to change to facilitate the cost-effective integration of more
diverse generation technologies into the electricity system.
5.3.76 The energy generated from wind is more variable than conventional
generation and can only make a limited contribution to overall system security.
However, even at relatively high degrees of renewable penetration (e.g. 20%)
analysis suggests that the additional system balancing and system margin
costs associated with this variability are relatively low.152
5.3.77 We are making progress in connecting new renewables projects.

Since January 2006 around 630MW of renewable generation capacity has
been connected to the grid helping to reduce carbon emissions.153
5.3.78 Investment in essential infrastructure is underway with further

significant investment already agreed. For example:
• Ofgem has agreed £560 million for essential transmission network
investment to allow low carbon generation in Scotland and Northern
England to connect to the grid. This investment programme is already
underway and is expected to be completed, subject to planning consent,
by around 2012.
• Ofgem and the Great Britain transmission licensees154 have agreed a five-
year Transmission Price Control, commencing on 1 April 2007 that allows
for a doubling in real terms of electricity transmission network capital
expenditure compared to the previous five-year price control period. This is
additional investment of some £4billion at 2006/07 prices GB wide, with
the real increase in Scotland equivalent to around 250%.
5.3.79 The price control proposals also allow the transmission companies
flexibility under certain conditions to make further investments automatically
without the need to reopen the entire price control review. This mechanism
will be of particular benefit to renewable generation.
152 http://www.ukerc.ac.uk/content/view/258/852
153 Renewable Energy Statistics Database, http://www.restats.org.k/2010_target.htm
154 The three transmission licence holders are Scottish Power and Scottish & Southern Energy in Scotland
and NGET in England and Wales. 159

5.3.80 In the recent Transmission Price Control Review Ofgem raised the
possibility of a competitive approach for very large extensions to the
transmission network, in particular the connections for Shetland, Orkney and
the Western Isles. In other words, companies other than the three current
owners of GB transmission assets would be permitted to compete for
licences to own and maintain these new parts of the transmission network.
This may ultimately lead to more competitive and innovative connection
solutions for the Scottish Islands. Ofgem intends to consult further on this
issue during 2007.
The challenges to improving renewable grid connection

5.3.81 Although recent progress is encouraging, a number of key challenges
to speeding up the rate of connection of renewable generation remain.
These are:
• the need to manage more efficiently the queue of developers waiting for
grid connection;
• the need for reform to the arrangements for access of renewable
generation to the transmission grid;
• ensuring the technical standards for the grid do not disproportionately
burden renewable generators; and
• ensuring that in the longer-term we have a framework that continues to
meet the grid-related challenges associated with an increasing proportion
of renewable generation.
5.3.82 Two programmes of work will be taken forward: the first to meet
the immediate challenges of managing the connection queue, access reform
and reviewing technical standards; and the second to set a longer-term
strategic direction.
Action in the short term
Managing the GB Queue

5.3.83 The GB Queue (sometimes called the BETTA Queue) refers to
projects in Scotland that applied for connection ahead of the introduction of
the single GB electricity trading and transmission arrangements (BETTA) in
2005. These projects benefited from transitional arrangements allowing
them to be dealt with in an order determined by the date of application.
Consequently, projects in Scotland now hold connection offers that do not
necessarily reflect their actual state of progress. For example, projects with
planning consent are behind projects that have not yet applied for consent,
while other projects hold connection offers in excess of the capacity for which
they are seeking planning consent. Examples of connection congestion are
now being seen in England and Wales as well as in Scotland.
5.3.84 We need a robust approach to maximising connections for the most

viable, closer to operation renewables projects.
5.3.85 NGET has now issued a consultative open letter that seeks views
from market participants on approaches to improving the management of the
queue, including steps that NGET plans to take in the near future. The aim is
to ensure that the most efficient use is made of transmission capacity by
160

freeing up connection opportunities and making them available to those best
able to use them155.
5.3.86 The approach proposed by NGET includes taking a more robust

approach to contract management. NGET will do this, for example, by more
closely monitoring and managing project milestones in connection
agreements to ensure projects are on track, and by introducing an amnesty
period to allow projects to seek certain changes with no consequences. NGET
is also consulting with industry on approaches to allocating the connection
opportunities made available through these measures. The consultation
closed on 26 March 2007. NGET has now published its initial conclusions
and expects to publish final conclusions by the end of May 2007.
Access Reform
5.3.87 Access to the transmission network is governed by the Connection
and Use of System Code (CUSC), a contractual framework for connection
to, and use of, the high voltage transmission system. This is overseen by
industry’s own governance arrangements. Ofgem are responsible for
making decisions on any modifications proposed through these governance
processes. NGET currently offers standard access products (commercial
arrangements which offer varying degrees of certainty as to the level of
access to the network) which have been developed with traditional forms
of electricity generation in mind. The development of more flexible access
products may help to connect more renewable generation earlier.
5.3.88 Any changes to the arrangements for grid connection need to take
into account the relative costs and benefits to consumers of connecting
additional generating capacity. This is especially true in constrained parts of
the network where there is more generating capacity than the transmission
network is able to accommodate.
5.3.89 Whilst the £560 million, already agreed for essential network
investment to connect low carbon generation in Scotland and Northern
England to the rest of England, and the recently agreed five-year Transmission
Price Control Review, are welcome, this investment will take several years
to complete.
5.3.90 In the meantime, some renewable generators may be restricted

from gaining access to the transmission network due to the volume of new
generators of all types seeking access to remote capacity constrained areas
of the transmission network. For example, there are currently approximately
12.3GW of projects seeking connection in Scotland, and around 9.3GW
(including renewable and gas-fired generation) in Wales. Reform of access
arrangements is, therefore, an important element in promoting early access
to the network for renewable generators.
5.3.91 Important work is already underway:

• An industry working group, co-ordinated by Ofgem, reported on
approaches to improving grid access in April 2006156. As a consequence
155 http://www.nationalgrid.com/NR/rdonlyres/54E69BF1-2421-4C81-9A34-
BB9977965174/15473/IndustryConsultation1.pdf
156 A framework for considering reforms to how generators gain access to the GB electricity transmission
system: a report by the Access Reform Options Development Group; April 2006; available at
http://www.ofgem.gov.uk 161

NGET has introduced interim alternative arrangements to the Final Sums
Liability financial securities regime that has alleviated some of the
significant concerns previously raised by renewable developers. The new
arrangements provide a greater degree of certainty for developers about
the extent of the financial liabilities they commit to when their project
triggers reinforcement work on other parts of the transmission network.
• National Grid has now proposed an enduring approach to financial
securities for grid reinforcement works which, through a non-refundable
commitment when a connection offer is accepted, should discourage
speculative projects. This should create space for more viable projects to
move forward more quickly. The Government believes that this approach
will be most effective where the new rules are applied on a mandatory
basis to existing and future generators. However, the ultimate decision
will be for Ofgem, in response to proposals from NGET and industry.
5.3.92 NGET, supported by the DTI, the transmission licensees and industry,
will continue to take forward a programme of work through current industry
governance arrangements to deliver improved renewable generation access
arrangements in the immediate term including:
• making further progress on developing access products that should allow
more renewables projects to connect earlier. These access products will
however need to strike the right balance between supporting access to
finance for developers and the overall costs of system operation;
• a review of the operational measures to increase the capacity and
utilisation of existing transmission infrastructure. This will include
consideration of innovative approaches to network management and
operation. Findings will be presented in a report to Ofgem highlighting
geographical areas where there may be scope to connect additional
generation capacity but using the existing infrastructure;
• consideration of the costs and benefits of a “risk-based” approach to the
management of connection offers by anticipating the rate at which projects
are likely to withdraw before taking up the connection offer. Successful
application of this approach could allow some projects to connect earlier
than might otherwise be possible; and
• work with Ofgem and industry to address any regulatory constraints acting
as a barrier to renewables access.
5.3.93 Key practical factors to be considered in developing these solutions

are the obligations upon NGET as the Great Britain System Operator to
ensure that it does not discriminate between generators, that it maintains
required security standards, and operates the system economically and
effectively. Proposals for change will be brought forward through industry
governance arrangements in the usual way and considered by Ofgem.
5.3.94 Ofgem will report to the Gas and Electricity Markets Authority (GEMA)
and the Secretary of State for Trade and Industry on progress on all these
issues in September 2007, enabling decisions to be taken by Ofgem by the
end of 2007.
162

Setting the right technical standards
5.3.95 The technical standards that generators must conform to, and to
which grid reinforcements are delivered, are set out in the Supply Quality and
Security Standards (SQSS) and the Grid Code. The SQSS and the Code are
the responsibility of NGET as the system operator. These standards need to
be set at the right level to support the connection of renewable generation, at
least cost to consumers and with no reduction in the very high levels of
system security that Great Britain currently enjoys.
5.3.96 SQSS need to reflect the different demands that variable generation
places on the network and avoid “over-engineered” solutions that may
increase costs and cause delays disproportionately for renewable generation.
Research for the DTI by the Centre for Distributed Generation and Sustainable
Energy (DGSE) indicates that the current methodology for determining the
transmission capacity required to accommodate wind generation may need
refining157.
5.3.97 NGET will complete an inclusive and transparent review of SQSS in

order to ensure that they reflect the particular characteristics of renewable
generation. Key considerations will be the appropriate planning standard in
order to maintain system security and the appropriate level of additional
investment needed to ensure that system operation remains economic
and efficient. The review is expected to be completed by the end
of 2007.
BOX 5.3.4 CENTRE FOR DISTRIBUTED GENERATION

AND SUSTAINABLE ENERGY (DGSE)
Three years ago, the DTI established the DGSE to address some of the
grid-related implications of a sustainable future. The Centre has
undertaken a number of important projects in this area, including work to
identify the relationship between variable generation and transmission
investment and to investigate the future dynamic performance of the
electricity system with a high penetration of wind.
Additional funding of £1 million has now been allocated to expand the

Centre’s activities. Specifically, the Centre is currently undertaking work
associated with the integration of wind generation. This will include the
development of a better understanding of the impacts of extreme weather
on the availability of wind generation; the impact of the likely distribution
of wind generation in the UK; how to minimise the impact of variability by
the use of storage and demand side measures; and the development of a
comprehensive, consistent and publicly available set of wind data to
support future studies.
157 Transmission Investment, Access and Pricing in Systems with Wind Generation, February 2007
http://www.sedg.ac.uk 163

Action for the medium and long term
5.3.98 Ofgem and the DTI supported by NGET, the other transmission
licensees and industry, will review the present technical, commercial and
regulatory framework for the delivery of new transmission infrastructure and
the management of the grid to ensure that they remain fit for purpose as the
proportion of renewable generation on the system grows. The review will set
out proposals for changes to the framework in the medium and long term,
consistent with the Government’s energy policy goals and better regulation
agenda, which will better support the connection of renewable generation
to the grid.
5.3.99 This will include consideration of:

• the clarification of transmission access rights;
• the ways in which access to the network can best be shared between
different forms of generation, taking into account the access reform work
currently underway;
• whether the current approach to transmission system planning and
operation is likely to give the most efficient outcome, drawing on the work
NGET has already done;
• consideration of the extent to which the existing mechanisms for system
and energy balancing remain appropriate in incentivising the timely
connection (and disconnection) of generation. This is an important part of
the longer term vision of having a flexible system so that when electricity
generated from renewable sources is available (e.g. when the wind is
blowing) it can efficiently and cost-effectively replace electricity from fossil
fuel fired forms of generation. This will include consideration of the role
constraint costs play in the transmission system; and
• a review of relevant industry governance arrangements to ensure that they
continue to deliver timely, strategically-driven changes to the framework for
access to the grid that are consistent with the evolving UK electricity
generation mix.
5.3.100 Ofgem and the DTI will provide an interim report to GEMA and the
Secretary of State for Trade and Industry in December 2007, and a final report
setting out recommendations and a delivery plan in May 2008. The interim
report will include consideration of the case for amending primary and
secondary legislation.
The framework for offshore renewables

5.3.101 Our proposals on banding the renewables obligation, improving the
planning consenting process and making it easier to connect renewables
projects to the grid will help both onshore and offshore renewables projects.
However, the Government also recognises that there are issues relating to
planning consent, decommissioning and grid connection that are specific to
offshore renewables.
5.3.102 We believe it is important to provide a long-term market for offshore

renewables and for this we need long-term clarity on offshore development
rights. Working with the Crown Estate, which owns the rights to the
development of the seabed, we have run two competitions for the
164 development rights for offshore wind farms. Our aim is to provide regular

opportunities to bid for offshore projects as well as speeding the consenting
process. We will publish proposals for further offshore renewables
developments by the end of 2007. Further calls for development will be
preceded by Strategic Environmental Assessments (SEAs)158 and may also
require Appropriate Assessments159, which together will take a minimum of
1-2 years depending on areas of interest for possible development. Subject to
the results of the SEAs it is likely that a further tendering process for offshore
renewables leases would conclude at the earliest in 2010. This process will
be developed in a way that is consistent with the Government’s intentions to
introduce marine planning, as set out in the Government’s Marine Bill White
Paper, and reforms in the Planning White Paper.
5.3.103 In addition, by introducing new rules for planning inquiries to consider

applications under the Electricity Act, we have for the first time included
specific offshore provisions that will allow efficient offshore inquiries. These
will build on the approach taken in the Electricity (Offshore Generation
Stations) (Applications for Consent) Regulations 2006.
5.3.104 We have also put in place a statutory decommissioning regime to

ensure we achieve an appropriate balance between exploiting our offshore
renewable resources and safeguarding the marine environment. We will
explore ways of strengthening that regime to ensure that funds set aside for
decommissioning are secure for that purpose (in the event of insolvency)
and which will make it easier for Government to recover the costs of
decommissioning in the event of operator default.
Offshore grid issues

5.3.105 A number of smaller Round 1 offshore wind farms are already
connected to the onshore grid via low voltage connections. However, the
larger Round 2 projects will connect to shore via high voltage or transmission
systems160. In the Government Response of March 2006 to the joint
DTI/Ofgem consultation on the regulation of offshore electricity transmission,
the Government concluded that the best system of regulation for offshore
electricity transmission was by a licensed price control approach, similar
to onshore.
5.3.106 Delivering cost-effective and timely connections from offshore

projects to the onshore GB electricity transmission and distribution networks
is crucial to the exploitation of this potential offshore resource. Certainty about
how the grid connection costs161 will be funded, and the regulation that
controls them, is key for Round 1 and Round 2 developers.
5.3.107 Offshore developers also require clarity about interim arrangements

to enable them to proceed with their projects while the details of the new
regime are worked up.
158 European Directive 2001/42/EC on the assessment of the effects on the environment of certain plans
and programmes.
159 Birds Directive: Council Directive 79/409/EC on the conservation of wild birds and Habitats Directive:
Council Directive 92/43/EEC on the conservation of natural habitats and of wild fauna and flora.
160 All references in this section to “high voltage” or transmission are to 132kV or more (i.e. the definition
applicable to relevant offshore lines when s.180 Energy Act 2004 is commenced).
161 We estimate that grid connections are likely to form up to 10-15% of capital costs for projects. 165

5.3.108 Since the decision in March 2006, a significant amount of work has
been undertaken by the DTI and Ofgem, in conjunction with the industry, to
deliver the new offshore transmission regime.
Progress
5.3.109 In April 2006 Ofgem published a scoping document inviting
comments on the proposed work plan for implementation of the offshore
transmission regime.
5.3.110 In May 2006 Ofgem and the DTI set up the Offshore Transmission
Expert Group (OTEG) to provide technical advice and information necessary to
developing the new regime.
5.3.111 In August 2006 the Energy Minister announced that NGET’s role as
Great Britain System Operator (GBSO) will be extended offshore. NGET will
be the system operator for both onshore and offshore parts of the
transmission system and, until the relevant provisions of the Energy Act 2004
are commenced and appropriate modifications made to NGET’s licence for
these purposes, is acting as offshore GBSO designate in the context of
helping to develop the new offshore transmission regime.
5.3.112 In November 2006 the DTI and Ofgem published for consultation
the options being considered for the next significant stage in the process
of establishing a new offshore transmission regime; that is the model for
awarding offshore transmission licences. The consultation closed on
8 January 2007. In March 2007 the Government announced it had concluded
that a competitive, non-exclusive approach to awarding offshore transmission
licences is the appropriate model to follow offshore. We believe this method
of licensing will achieve the lowest costs of connection for offshore
generators and consumers, and enable significant amounts of offshore
generation to connect to the onshore grid.
5.3.113 The Government has also listened to offshore developers’ concerns

about the need for interim modifications to enable them to proceed with their
projects before new offshore Transmission Owners are licensed to operate
offshore. The Government response and an accompanying Ofgem Scoping
Document contained further details on how this would be achieved.
5.3.114 The DTI and Ofgem are proceeding with the next phase of the
project to make the appropriate modifications to transmission licences, codes
and agreements for the purposes of offshore transmission. A further policy
statement will follow in July 2007.
5.3.115 In November 2006 the Government also gave notice of and

consulted on a proposal to grant a class exemption from the requirement to
166

hold a licence for offshore distributors. The Electricity (Class Exemptions from
the Requirement for a Licence) (Amendment) Order 2007 came into force on
6 April 2007. This lighter touch approach to low voltage lines offshore will
help smaller wind farms to operate within the regulatory framework, and
also help any future wave and tidal projects that wish to connect to shore
at this voltage.
5.3.116 And in December 2006 the Government consulted on the minimum

security standards which should apply to offshore transmission networks.
That consultation has closed and the Government announced in April 2007
its decision that it is appropriate to have a lower security standard offshore.
Further consultation on the modifications required to the GB SQSS resulting
from this decision will be taken forward in tandem with the offshore
transmission licensing model.
5.3.117 Taken together, we believe these decisions give developers clarity

about the fundamentals of the regime to allow them to move their projects
forward prior to the final regime going live. Setting these high-level decisions
will also allow us, in partnership with Ofgem – and in consultation with
industry – to progress the technical drafting of appropriate modifiations to
licences and codes and agreements throughout 2007 with the aim of
implementing the new offshore regime in 2008 (subject to commencement
of the relevant statutory provisions). Government and Ofgem will work with
developers before the final regime is in place to consider issues which arise
relevant to investment decisions, with the aim of enabling investment in
offshore wind projects to continue.
Renewables
Summary of Measures
We are introducing a series of measures to strengthen delivery of
renewables generation. These include:
Strengthening and modifying the Renewables Obligation by:

• extending the Renewables Obligation (RO) up to 20% on a headroom
basis;
• retaining the buy-out price link to the RPI;
• introducing banding of the RO to target support at the needs of
groups of individual technologies and promote wider deployment;
• lifting the current limits on the amount of co-firing generation that
qualifies for support under the RO; and
• putting in place appropriate grandfathering provisions, meaning that
most existing projects will continue to receive the current number of
Renewable Obligation Certificates for each MWh of electricity they
produce, providing certainty for existing investments.
167

Improving the planning consenting process for on and offshore
renewables by:
• delivering on the broader planning proposals set out in the 2006
Energy Review Report and in the 2007 Planning White Paper (more
detail in chapter 8 on planning);
• publishing a statement of need for renewables (as in Box 5.3.3). This
emphasises the importance of renewables in helping us to meet the
UK’s climate change and energy policy goals, and is a material
consideration in all planning inquiries;
• building on this statement of need, and the existing Planning Policy
Statement (PPS)22 on renewables, by putting renewables generation
at the centre of the proposed Planning Policy Statement (PPS) on
Climate Change;
• consulting on proposals to improve the resilience of overhead power
networks. These are designed to strike a better balance between a
flexible approach for minor upgrades and the need for a new consent
for major upgrades, a particularly important issue for the
development of renewables; and
• working on strategic assessments which will underpin future
development rounds for offshore wind.
Improving Renewables Grid Connection onshore and offshore by:

• working intensively with NGET, Ofgem and industry to implement
changes that will help bring forward connection opportunities for the
most viable renewable projects;
• working with Ofgem and NGET to consider, and where appropriate
implement, reforms to the rules relating to grid access in order to
improve the opportunities for more renewable projects to connect
earlier; and
• establishing an offshore transmission regime that enables offshore
generators to connect to the onshore grid in an economical, efficient
and timely manner. This regime includes interim arrangements
enabling projects to proceed before new offshore Transmission
Owners are licensed to operate offshore.
168

169

Section 5.4 – Cleaner Coal
and Carbon Capture and
Storage for Fossil Fuels
Coal will continue to play a significant role in global
electricity generation for the foreseeable future, partly
because it is the most abundant global fossil fuel but also
because it brings security of supply benefits. For example,
coal-fired power generation is a flexible electricity source
that can respond effectively to changing levels of demand.
It also helps to maintain a diverse energy mix.
5.4.1 However, coal is more carbon intensive than oil or gas. On current
policies, world carbon dioxide emissions from electricity generation are
projected to increase by two thirds over the period 2004-2030 and much of
this is driven by the continued use of coal. China and India alone account for
60%162 of this increase in emissions, with China building 105GW of new coal-
fired power capacity in 2006 (at an average rate of around one new 1GW
power station every four days)163.
5.4.2 Since investments in electricity generation typically have a long lead

time, including commercial scale demonstrations, there is a premium on early
action. A clear, demonstrated affordable pathway to the less carbon intensive
use of fossil fuel would significantly boost the confidence of coal reliant
countries, such as China and India, in being involved in a long-term
international climate change framework to reduce emissions. The global
challenge is therefore how to accelerate the deployment of technologies that
allow us to continue to benefit from coal-fired power generation while
reducing greenhouse gas emissions.
The options for lower carbon fossil fuel-fired

power generation
5.4.3 There are three principal methods for reducing carbon emissions from
fossil fuel fired power generation:
• improving coal-fired power station efficiency;
• co-firing coal with biomass; and
• carbon capture and storage (CCS).
162 IEA, World Energy Outlook, 2006.

170 163 According to the International Energy Agency, 2007

Improving power station efficiency
5.4.4 Currently there is around 28GW of coal-fired power capacity in the UK.
Around 8GW of these power stations will close by 2016 because of the
requirements of the Large Combustion Plants Directive (LCPD). The LCPD
restricts emissions of sulphur dioxide and nitrous oxides from coal power
stations and other large-scale installations but places no restrictions on carbon
dioxide emissions. Developers of new power stations are using advanced
boilers, improved turbines and gasifiers which mean that less fuel is required
to be used to generate power. This increased efficiency of coal power stations
reduces emissions by up to 20% compared with less efficient power stations.
Some developers are also using these technologies to retrofit their existing
power stations.
5.4.5 The Government recognises that there is potential for further long-term
improvements in cleaner coal technology through technical innovation. This
is why, in addition to long-standing support for research and development,
further funding has been made available through the Carbon Abatement
Technology (CAT) Programme164. The CAT Programme was launched in June
2005, with the first call for proposals launched in September 2006. This first
call focused on pre-commercial demonstration of key components and
systems to support carbon abatement technologies. The successful proposals
will be awarded contracts shortly. The CAT strategy has also emphasised the
need for international collaboration on the development of cleaner coal
technologies. Our international low carbon technology strategy is described
in chapter 1.
Co-firing coal with biomass

5.4.6 Efficient coal power stations can combine their fuel with biomass and
thereby decrease emissions by about 10%. A number of power stations have
now been co-firing for several years and in doing so those companies have
benefited from support under the Renewables Obligation. As a consequence
co-firing coal with biomass is becoming a near-market commercially viable
option for reducing carbon emissions for existing power stations165.
5.4.7 The Biomass Strategy published alongside this White Paper has
examined how cost-effective co-firing is as an option for achieving carbon
emissions savings, compared with the alternative uses for biomass such as
heating, dedicated biomass power generation, the production of transport
biofuels and non-energy uses. The Biomass Strategy focuses not only on
how biomass should best be used in low carbon energy production but also
on optimising the supply of biomass in a sustainable way. It concludes that a
generally more cost-effective use of biomass is for heating, while recognising
that co-firing makes a valuable contribution to meeting the UK's renewable
energy and emissions reduction targets. The conclusions of the Strategy have
informed the recommendations on banding of the Renewables Obligation
in section 5.3.
164 http://www.hfccat-demo.org
165 The issue of continued support for co-firing was examined in the Renewables Consultation that followed
the Energy Review Report (see chapter 5.3 of this White Paper). The consultation concluded that, given
that co-firing of biomass is now becoming a more established commercial practice, the support it
receives from the Renewables Obligation will be reduced alongside the removal of the cap. The exact
level of support will be determined following a further consultation being launched alongside this White
Paper, http://www.dti.gov.uk/energy/review/implementation/page31829.html 171
Electricity Generation: Cleaner Coal and Carbon Capture

and Storage for Fossil Fuels
5.4.8 As with cleaner coal, the Government believes there is scope to
improve co-firing operations in existing power stations through the development
of advanced co-firing options. Development projects of this kind are supported
by Government through R&D and through the International Energy Agency.
Carbon capture and storage (CCS)

5.4.9 CCS involves capturing the carbon dioxide emitted when burning fossil
fuels, transporting it and storing it in secure spaces such as geological
formations, including old oil and gas fields and aquifers (natural underground
reservoirs) under the seabed. Carbon dioxide capture technologies are based
on three generic approaches: pre-combustion, post-combustion and oxyfuel166
and can be applied to coal or gas-fired power generation. CCS represents a
major technological challenge, and there are also cost uncertainties and
regulatory issues that still need to be resolved. As yet, no commercial-scale
CCS power station has been developed in any country, although some key
elements of the individual stages of the process have been demonstrated.
5.4.10 While there is a wide range of estimates for the cost of electricity
produced by CCS power stations, it is likely that CCS would not be
commercially viable unless costs fell substantially relative to the cost of other
cheaper forms of generation, or unless the carbon price rose sufficiently to
provide a larger financial incentive. Given the potential of this technology to
meet both our security of supply and climate change policy goals, the UK and
the EU are working towards commercial-scale demonstration and deployment
of CCS, in order to bring down the costs and to help make the technology
commercially viable.
Carbon capture and storage international context

5.4.11 It is in our own vital interest that the technologies necessary to make
coal low carbon are developed and deployed as rapidly as possible, since
fossil fuel generation will remain a significant part of the global energy mix
(on the Governments’ present policies meeting almost 70% of global
electricity demand by 2030167). The Government believes that the
development and wide-scale deployment of CCS is therefore important for
our climate change and security of supply objectives. CCS has the potential
to reduce carbon dioxide emissions from fossil fuel power stations by as
much as 90%168. The Stern Review169 highlighted the strategic role that CCS
technology could play globally to lower carbon emissions, with the potential
to contribute up to 28%170 of global carbon dioxide mitigation by 2050,
particularly in fast-growing economies with rising fossil fuel consumption
such as China and India.
166 Detail of technology design and transport and storage options can be found in the following documents:
DTI: A Strategy for Developing Carbon Abatement Technologies for Fossil Fuel Use, 2005.
(http://www.dti.gov.uk/files/file19827.pdf ); Analysis of carbon capture and storage cost-supply curves for
the UK, Poyry, 2007(http://www.dti.gov.uk/files/file36782.pdf)
167 World Energy Outlook 2006.
168 Intergovernmental Panel on Climate Change (IPCC).
169 The Stern Review – The Economics of Climate Change. Nicholas Stern, 2006.
172 170 International Energy Agency, Energy Technologies Perspectives, 2006.

5.4.12 In order to deploy CCS in these countries the technology needs to be
demonstrated on a commercial scale. Developing countries strongly indicate it
is for developed countries to show leadership and to prove the validity of the
technology, firm up costs and reduce technical risks.
5.4.13 The European Council171 has agreed that Europe should aim for all new
fossil fuel power generation built beyond 2020 to be equipped with CCS,
subject to the technology being technically and economically feasible. It also
recommended that the Commission work towards a series of up to 12 CCS
demonstrations by 2015. We welcome the Commission’s ambition in this area
and we support their suggestion that they make further recommendations
within the next couple of years, including further work on technical and
economic viability.
5.4.14 To facilitate the development of CCS in the UK and internationally

we set out in more detail in the sub-sections below how the UK is:
• progressing our understanding of the barriers to CCS deployment;
• launching a competition for demonstration of CCS on power generation
in 2007 (when operational, this will make the UK a world leader in this
globally important technology); and
• clarifying and developing the regulatory frameworks required (nationally
and internationally). Progress has also been made on a range of
international initiatives as set out in Box 5.4.1.
BOX 5.4.1 INTERNATIONAL OUTREACH AND

COLLABORATIVE INITIATIVES
The technical, economic, environmental and social aspects of CCS are

currently attracting worldwide interest, with over 20 countries pursuing
activities and programmes. A number of international initiatives have also
been established in the past few years, including the five CCS initiatives
which the UK began under its G8 Presidency in the G8 Gleneagles Plan of
Action. These include work on the definition of capture-ready power
stations, clean coal use in China and the “Early Opportunities for CCS”
workshops.
The Carbon Sequestration Leadership Forum is an organisation made up

of 22 countries to facilitate the development and deployment of improved
cost-effective technologies for CCS. The UK’s most recent contribution to
this was writing the public outreach strategy which will enable the
potential benefits of CCS to be communicated to a much wider audience.
The UK and Norway have been collaborating for 18 months on how we

should manage the transportation and storage of carbon dioxide in the
North Sea. In December 2005 Energy Ministers from both countries
signed an agreement to establish a North Sea Basin Task Force made up
of both industry and Government personnel to look into matters of common
171 http://www.consilium.europa.eu/uedocs/cms-data/docs/pressData/en/ec/93135.pdf 173

BOX 5.4.1 CONTINUED
interest. This Task Force is currently overseeing two key pieces of work
examining a compatible regulatory regime and a common carbon dioxide
transport infrastructure. The report on transport infrastructure will be
completed in July 2007.
The UK has also been very active in the EU Technology Platform for Zero
Emissions Fossil Fuel Power Plant. At both industry and government
levels we have been taking a leading role in developing strategies for
deployment and research of CCS technologies on a European scale. The
Technology Platform’s aim is to have commercially viable CCS as a
technology of choice by 2020.
There are a number of proposed cleaner fossil fuels and CCS projects that
European consortia are invited to apply for under the first call for the
Seventh Research Framework Programme (FP7). The call was launched
on 22 December 2006 and will close in May 2007.
The UK initiated and is leading a joint EU-China project to build a

commercially viable near-zero emissions coal (NZEC) power station in
China. Work on Phase 1 of NZEC is now underway, to identify early
demonstration opportunities of CCS in China. Further details on NZEC are
provided in chapter 1. The Government is continuing to work with the US
through an Implementing Arrangement on Fossil Energy research and
through a Memorandum of Understanding with the Ministry of Science
and Technology in China on low carbon technologies.
The Government is also starting collaboration with India to develop

understanding of CCS. The Government supported a CCS research
conference in India in January 2007.
Carbon capture and storage in the UK

5.4.15 The demonstration of commercial-scale CCS on power generation in
the UK could enable the technology to be proven and facilitate a better
understanding of the costs. In turn this could contribute to the deployment
of CCS on a national and international basis.
5.4.16 The 2006 Budget launched a consultation on the barriers to wide-scale

commercial deployment of CCS in the UK and the potential role of economic
incentives in addressing those barriers, the responses to which were
published in December 2006172. The Government also set up a Task Force to
examine the regulatory framework that will facilitate CCS. The Task Force is
clarifying existing UK regulation and its application and is identifying the need
for new regulation, including:
• The licensing of carbon dioxide storage sites and activities; and
• The decommissioning and long-term liabilities associated with storage
facilities.
172 http://www.hm-treasury.gov.uk/pre_budget_report/prebud_pbr06/other_docs/
174 prebud_pbr06_carbonresponses.cfm

5.4.17 The CAT Programme included £25 million of capital grants
(increased to £35 million in PBR 2005) for the pilot demonstration of key
CCS components, to act as a bridge between R&D and commercial-scale
demonstration.
UK carbon capture and storage demonstration

5.4.18 In the 2007 Budget the Government announced that it will launch a
competition to develop the UK’s first commercial-scale demonstration of CCS.
When operational early in the next decade, this will make the UK a world
leader in this globally important new technology.
5.4.19 This decision was informed by the analysis from consulting engineers.
The engineers173 were appointed, following announcement in the Pre-Budget
Report 2006, to ensure that the Government’s understanding of the costs of
a CCS power station based in the UK was robust. Their findings confirmed
that the costs of a commercial-scale demonstration project are likely to be
higher than those of subsequent CCS power stations given that this will be
the first time the individual processes are integrated and tested at scale.
Companies would not bring forward a commercial-scale demonstration power
station without additional support because of the uncertain costs of full-scale
deployment. Even when CCS is included in the EU Emissions Trading
Scheme (see CCS: regulatory progress section below), it is not clear that
the carbon price would be high enough to make the cost of a demonstration
project economic.
5.4.20 There is a strong case for the UK demonstration of CCS on power

generation. The UK is well served with potential carbon dioxide storage sites,
particularly under the seabed in the North Sea. Providing financial support and
hosting UK-based CCS demonstration will help the Government meet its aims
for climate change and wider energy policy goals by:
• reducing risks and demonstrating costs of CCS, and taking the first step
towards longer term cost reductions and the deployment of CCS on a wide
scale nationally and more importantly, internationally;
• reinforcing the UK’s international leadership on climate change by investing
in CCS technology that in time has the potential to make substantial
reductions in global carbon dioxide emissions;
• helping to gain global agreement for a more ambitious drive to reduce
emissions by demonstrating that CCS can safely deliver large reductions in
emissions, and the extent to which it is affordable and reliable;
• giving UK business a lead in the design, construction and operation of CCS
technologies. This will have the advantage of helping to build the skills
base and demonstrate supply chains in the UK building on the existing
experience and expertise in the UK of operating in the UK Continental
Shelf. This should help put UK business in a stronger position to take
advantage of future CCS investment opportunities; and
• enabling the UK to develop a comprehensive regulatory framework for CCS.
5.4.21 The demonstration in the UK has been approached in three stages:

• Stage 1 – The Government has completed the analysis of the full economic
cost of a first-of-a-kind CCS power station and is working on the options for
delivery of necessary support.
173 PB Power was appointed in January 2007. 175

• Stage 2 – Following the 2007 Budget announcement, the Government
is engaged in designing a competition framework for the UK CCS
demonstration. Our intention is to launch the competition in November
2007. We recognise that individual companies will incur significant costs
to participate in the competition. The Government is therefore committed
to regular progress meetings with project developers and publication of
competition details as they are decided. We will hold early discussions on
the timetable for the competition including the relative merits of a one or
two phase competition. The criteria against which proposals will be
assessed are likely to include the need for any project proposal to:
– be located in the UK;
– cover the full chain of CCS technology on a commercial scale power
station (capture, transport and storage);
– be based on sound engineering design (reliable and safe) underpinned
by a full front-end engineering and design study;
– set out the quantum of financial support requested;
– be at least 300MW, and capture and store around 90% of the carbon
dioxide and thereby contribute at least an additional 0.25 Mt/yr of
carbon savings to the UK’s domestic abatement targets (relative to
a gas-fired power station of equivalent size without CCS);
– start demonstrating the full chain of CCS at some point between 2011
and 2014;
– address its contribution to the longer term potential of CCS in the UK,
(for example, through the potential of shared infrastructure) and to the
international development of CCS; and
– be supported by a creditworthy developer entity.
• Stage 3 will cover the competition process itself, including the competition
launch and the assessment of the proposals.
5.4.22 Since demonstrations are so costly there is general acceptance that

individual countries will only be able to host a limited number and that to
obtain maximum benefit information will need to be shared. This was
recognised in the Stern Review, which called for greater international co-
operation to accelerate technological innovation and diffusion of information to
reduce the costs. The successful demonstration of CCS in the UK should
contribute to the eventual deployment of this chain of technologies in the UK,
Europe and internationally.
5.4.23 As part of the competition, project developers will therefore also be

expected to include proposals for knowledge and know-how transfer to third
parties. These will need to be sufficient to meet the Government’s aims to
encourage the wider deployment of CCS in the UK, Europe and internationally,
particularly in countries with significant future energy needs such as China
and India. The UK is working with the Commission to ensure that the
development of CCS in the UK fits with the objective agreed at the European
Council in March 2007 to have in place up to 12 CCS demonstration projects
in Europe by 2015.
5.4.24 Any successful demonstration will have to satisfy regulatory, planning

and environmental requirements at the time of award. Project developers will
therefore be expected to work closely with the Government to ensure we
develop a suitable regulatory framework for CCS. We will also be consulting
176 more widely on these regulations.

Carbon capture and storage: regulatory progress
5.4.25 We have made substantial progress on regulatory frameworks for the
implementation of CCS. In particular:
• In November 2006, after two years work led by the UK, the global marine
environment convention, the 1996 Protocol to the London Convention, was
amended to allow carbon dioxide to be stored in geological formations
below the sea, a major step towards enabling the implementation of CCS.
This means that a basis has been created in international environmental
law to regulate CCS in sub-seabed geological formations for permanent
isolation, as part of a suite of measures to tackle the challenge of climate
change and ocean acidification.
• The Marine Bill White Paper, published in March 2007, sets out in more
detail the progress made internationally and also some of the options we
are considering for the regulation of sub-surface carbon dioxide storage in
the marine environment.
• The UK CCS Regulatory Task Force has made good progress in preparing
the regulatory environment for the whole CCS chain. We will be consulting
on the conclusions of this work and on the options in the UK for regulation
of the full chain of CCS technologies later this year.
5.4.26 In addition, in the light of the European Union’s strategy to develop

CCS by 2020, there has been much debate about the concept of “capture
readiness” and the implications for Section 36 consent applications to build
new and/or to retrofit existing fossil fuel power stations. The IEA, as part
of the Gleneagles action plan, is investigating the concept of capture
readiness for all fossil fuel power stations and its report is due to be
published in May 2007.
5.4.27 We are considering whether we should require future fossil fuel

power stations to be built “capture ready” and if so what the options would
be for doing this. We will need to recognise that for some projects the scope
for CCS (e.g. because of geographical location or other technical limitations)
may be limited. We will launch a consultation later this year on the aspects of
capture readiness which should be included in future applications for consent
and how practically we might deal with this issue in the consenting process.
5.4.28 Progress is being made this year on regulatory frameworks in a

number of international fora:
• The OSPAR convention is the current instrument guiding international co-
operation on the protection of the marine environment of the North-East
Atlantic. It is additional to the London Convention for this region. Technical
guidelines are being developed, and a proposal has been made by Norway,
the UK, France and the Netherlands for an amendment to the OSPAR
Convention to allow storage of carbon dioxide in sub-seabed geological
formations. This will be formally considered for adoption by OSPAR
in June 2007.
177

• Following the recommendations of the EU Climate Change Programme’s
Working Group on CCS, the European Commission is reviewing the
application and amendment of EU legislation for CCS, including the EU
Waste and Water Directives. The outcomes are expected to be announced
in proposals in autumn 2007.
• The Government is continuing to work with the Norwegian Government
through the North Sea Basin Task Force to develop a common set of
principles to regulate the transport and storage of carbon dioxide beneath
the North Sea. The Task Force will submit a report to the UK and
Norwegian energy ministers in 2007 which will lay the foundations for a
regulatory framework to enable CCS to develop effectively, safely and in
line with the Government’s environmental principles.
• The Government has been pushing for recognition of CCS in the EU
Emissions Trading Scheme, and in 2006 the EU Climate Change
Programme’s Working Group on CCS supported this view, and the
Commission will address this in an EU proposal expected in autumn 2007.
As an interim solution for Phase II (2008-12), the Commission has said that
CCS projects can be “opted-in as a new activity” under Article 24 of the
EU ETS Directive 2003/87/EC, and the Government is proactively pursuing
this route with the Commission to ensure recognition in Phase II.
• The Government has been working through the EU to ensure that CCS is
recognised in the Clean Development Mechanism, in particular to support
its future deployment in China and India. Following a UN climate change
meeting in Nairobi in November 2006, there is an agreed process to
consider the issues towards a decision in 2008.
Cleaner coal and Carbon Capture and Storage

for fossil fuels
Summary of measures
We are committed to enabling the development of low carbon fossil fuel
fired power generation:
National actions
• We committed in the Budget in 2007 to launch a competition to
support the commercial-scale demonstration of CCS. When
operational, this will make the UK a world leader in this globally
important technology. Demonstration will enable the technology to
be proven and will contribute to the roll out of CCS on a national and
international basis.
• To support the potential deployment of CCS we will be launching a
consultation on the options for the regulation of the full chain of CCS
technologies later this year.
• We will be awarding contracts shortly to the successful prototype
projects under the Carbon Abatement Technology (CAT) strategy to
develop technologies for fossil fuel use that abate emissions.
• Later this year we will launch a consultation on the issue of capture
readiness in future applications for consent under Section 36 of the
Electricity Act.
178

International actions
• We will publish our joint study with Norway on the infrastructure
needed to transport and store carbon dioxide below the North Sea
in July 2007.
• We will work with the European Commission and other Member
States on an EU strategy to develop CCS for new fossil fuel power
stations by 2020, if technically and economically feasible to do so.
• We will continue to promote the reform of international regulations
affecting CCS.
• We are actively pursuing recognition of CCS in Phase II of the EU
Emissions Trading Scheme and full inclusion within the scheme
beyond 2012.
• Work on Phase I of the Near Zero Emissions Coal project in China is
underway, as is dialogue with other countries on the demonstration/
deployment of CCS.
CCS demonstration in the UK could save 0.25 -1.0 Mt/yr of carbon by

2020 (depending on the size, technology and the number of
demonstration power stations built).
179

Section 5.5 – Nuclear
Power
Alongside this White Paper we are publishing a
consultation document setting out the information and
evidence that we have considered in reaching the
preliminary view that it is in the public interest to give
the private sector the option of investing in new nuclear
power stations as part of our strategy to tackle the
challenges of climate change and security of
energy supply.
5.5.1 We recognise that this is a complex issue, in which there is significant

public interest. This consultation will help us take a decision on the future of
nuclear power in the UK, and whether it should be available as an option for
companies investing in the UK energy market.
5.5.2 It is important that consideration of new nuclear power be seen in the

context of our wider energy policy. For this reason the executive summary
of the nuclear consultation is included below (with footnotes renumbered
to ensure continuity in footnote numbering within the Energy White Paper).
To view the full consultation document go to
http://www.dti.gov.uk/energy/whitepaper/consultations/nuclearpower2007
Nuclear Consultation Document Executive Summary

Our energy challenge: climate change and energy security
1. Energy is an essential part of everyday life in the UK. We use it to heat and
light our homes, to power our businesses and to transport people and goods.
Without a clean, secure and sufficient supply of energy we would not be able
to function as an economy or a modern society. In delivering this energy we
face two major challenges: climate change and energy security.
2. Climate change represents a significant risk to global ecosystems, the

world economy and human populations. The scientific evidence is compelling
that human activities, and in particular emissions of greenhouse gases such
as carbon dioxide, are changing the world’s climate. In 2005, 40% of global
carbon dioxide emissions were created by the generation of electricity174.
3. Temperatures and sea levels are rising. There is no scientific consensus on just
how long we have to avoid dangerous and irreversible climate change, but the
overwhelming majority of experts believe that climate change is already underway,
and without action now to dramatically reduce carbon dioxide emissions, we will
have a hugely damaging effect on our country, planet and way of life.
180 174 International Energy Agency (IEA), World Energy Outlook, 2006.

4. The Stern Review of the economic impacts of climate change175 highlighted
the need for an urgent, coordinated international response. The analysis is
stark. It suggests that working together to mitigate the problems of climate
change now would cost about 1% of global GDP per annum by 2050 with a
range of up to 4% to take account of a number of variables including the
availability of technologies. But as a comparison, it could cost around 5% of
global GDP per annum in the long term if we do nothing. This cost could rise,
to as much as 20% of GDP, if we take into account a wider range of issues
such as human health and the environment.
5. Historically, the UK has met most of its energy needs from domestic sources:
coal, until the middle of the 20th century, and since the 1970s, oil and gas from
the North Sea have driven our economy. Since the 1950s, nuclear power, fuelled
by imported uranium, has generated a significant proportion of our electricity,
reaching a peak of 30% of electricity output in the 1990s. Over the past decade
nuclear power met about one-fifth of our electricity needs. If we had built fossil
fuelled power stations rather than nuclear power stations, the UK’s total carbon
emissions from all sectors might have been 5% to 12% higher in 2004176.
6. In the future, the UK will increasingly depend on imported oil and gas at a time
of rising global demand and prices, and when energy supplies are becoming
more politicised. At the same time, we know that over the next two decades or
so almost one third of our coal and oil fired power stations are likely to close
because of environmental legislation, and while nuclear operators may achieve
life extensions at the existing UK plants, all but one of our nuclear power stations
are due to have closed by 2023, based on their published lives. This will create
new risks that need to be managed by our energy strategy.
7. Our aim should be to continue to raise living standards and the quality of
life by growing our economy, while at the same time cutting waste and using
every unit of energy as efficiently as possible. But based on existing strategies
to reduce energy demand, the IEA predict global energy consumption is likely
to grow by about 50% by 2030177. Therefore we will also need to transform the
way we produce the energy we need for light, heat and mobility.
Question 1
To what extent do you believe that tackling climate change and
ensuring the security of energy supplies are critical challenges
for the UK that require significant action in the near term and a
sustained strategy between now and 2050?
175 Sir Nicholas Stern, The Stern Review: The Economics of Climate Change, October 2006
Reducing CO2 emissions – Nuclear and the Alternatives, March 2006.
177 International Energy Agency (IEA), World Energy Outlook, 2006. 181
Electricity Generation: Nuclear Power

Government’s energy strategy
8. The strategy the Government has adopted for meeting the twin challenges
of tackling climate change and ensuring energy security focuses on:
• saving energy;
• developing cleaner energy supplies; and
• securing reliable energy supplies at prices set in competitive markets.
Our strategy is set out in more detail in the Energy White Paper, published
alongside this consultation178.
9. Competitive energy markets, with independent regulation, are the most

cost-effective and efficient way of generating, distributing and supplying
energy. In those markets, investment decisions are best made by the private
sector and independent regulation is essential to ensure that the markets
function properly. However, energy markets on their own will not deliver our
wider social and environmental objectives, particularly tackling climate change.
That is why we have taken action, both at home and internationally to create
a framework of incentives, rules and regulations that encourage energy saving
and investment in low carbon technologies.
10. Capping and trading is a central tool for achieving carbon emission
reductions. The EU’s Emissions Trading Scheme (ETS) sets caps on emissions
and puts a price on carbon emissions for the first time. This gives firms the
incentive to make investments consistent with our carbon goals, whether by
driving energy efficiency or investments in low-carbon energy. Electricity
generating technologies such as renewables and nuclear power, benefit
because they have low carbon emissions, giving them an advantage as an
investment option compared with fossil fuel power stations.
11. At home, since 2002, we have required a growing percentage of

electricity to be generated from renewable sources through the Renewables
Obligation. The level of the Obligation is currently set to increase in annual
steps from 6.7% in 2006/07 to 15.4% by 2015 and to remain at that level
until 2027 when the mechanism is due to end. However, as announced in
the Energy White Paper we will raise the levels of the Obligation up to 20%
as necessary to keep ahead of actual levels of generation.
12. We therefore remain committed to the Renewables Obligation as a

mechanism to ensure continuing investment in renewable electricity generation
technologies. In the Energy White Paper we set out our proposals to strengthen
and modify the Renewables Obligation. These proposals, to be implemented in
2009, will increase the level of renewables investment and deployment. It is
very likely that following the European Council agreement on renewables we
shall need to take further measures to increase the supply of renewable
generation in the UK.
13. The proposals in the Energy White Paper, published with this consultation,
along with the draft Climate Change Bill strengthen the policy framework on
energy security and the reduction of carbon levels through carbon budgeting and
182 178 Energy White Paper 2007, Meeting the Energy Challenge http://www.dti.gov.uk/energy/whitepaper

an effective carbon price. These will be constants in the face of future uncertainty
and developments, such as the details of how the EU’s renewables target will
be implemented and its contribution to carbon reduction in the period to 2020.
EU Energy Policy
14. Since the Energy Review Report in 2006, the European Council agreed
in March 2007 to a common strategy for energy security and tackling climate
change. This includes further steps to complete the internal market in gas and
electricity, and endorsement of the objective to save 20% of the EU’s energy
consumption in 2020 compared with current projections. The agreement
commits the EU to a binding target of reducing greenhouse gas emissions
by 20% by 2020 and by 30% in the context of international action. The
agreement assigns the EU emissions trading scheme the central role in
the EU’s long-term strategy for reducing greenhouse gas emissions.
15. The European Council agreement also recognises the potential importance
of carbon capture and storage and sets a target for the share of energy from
renewables of 20% by 2020. The target covers the energy we use in heat
and transport as well as electricity. The Council also agreed a 10% binding
minimum target, to be achieved by all Member States, for the share of
biofuels in EU petrol and diesel consumption; this is subject to conditions,
including that the production of biofuels is sustainable.
16. The 20% renewables target is an ambitious goal representing a large

increase in Member States’ renewables capacity. Latest data show that the
current share of renewables in the UK’s total energy mix is around 2% and for
the EU as a whole around 6%179. Projections indicate that, on the basis of existing
policies in the UK and the EU, by 2020, renewables would contribute around
5% of the UK’s consumption and are unlikely to exceed 10% of the EU’s180.
17. The European Commission has been asked to bring forward detailed
proposals – including for each Member State’s contribution to the EU targets
on greenhouse gases and renewables – by the end of this year. In developing
the proposals, the Commission will need to take account of individual national
circumstances and discuss and agree their proposals with Member States and
the European Parliament during 2008/09. In developing proposals for the
renewables target, the Commission will need, as agreed by the European
Council, to give due regard to a fair and adequate allocation, taking account
of different national starting points and potentials, including the existing level
of renewable energies and energy mix.
179 The UK figure is from the Digest of the United Kingdom Energy Statistics (DUKES), 2006.
The European figures come from Eurostat.
http://epp.eurostat.ec.europa.eu/portal/page?_pageid=0,1136239,0_45571447&_dad=portal&_schema=PORT
AL
180 The UK figure is based on DTI projections – for more detail see UK Energy and CO2 Emissions
Projections, May 2007 http://www.dti.gov.uk/energy/whitepaper. The European figures come from the
EU Commission Renewable Energy Road Map. Renewable energies in the 21st century: building a more 183
sustainable future COM(2006)848 final.

18. All this means there is some uncertainty as to the size and nature of
the UK’s contribution to the EU greenhouse gas and renewables targets.
To inform our discussions and negotiations, we will need to analyse the full
implications of the proposed UK contributions including: technical feasibility,
cost effectiveness, our existing and potential capacity for deployment of low
carbon technologies including renewables, our overall energy mix and the
wider implications for energy policy including energy security and reliability.
19. We are already in discussion with European counterparts on these issues.

In parallel we are conducting detailed analysis to explore how the EU Spring
Council agreement can be implemented in the most effective way. We shall
be engaging actively with interested parties, including energy producers and
users, in taking this work forward.
20. After a decision has been reached on each Member State’s contribution
to the EU agreement, it is very likely that the UK will need to take further
measures, beyond those set out in the Energy White Paper published
alongside this consultation, to make our contribution to meeting these
targets, and in particular to increase the share of renewable electricity,
heat and transport, in our mix by 2020.
Why we need to consider the future role of nuclear

power now
21. Nuclear power has been part of the UK’s energy mix for the past five
decades. Currently it provides about 18% of the electricity we use in our
homes and workplaces. In the UK, about one third of our emissions of
carbon dioxide come from electricity generation181. The vast majority of
those emissions come from coal and gas power plants.
22. Energy companies will need to invest in around 30-35GW of new

electricity generating capacity – as coal and nuclear plants retire – over the
next two decades, with around two-thirds needed by 2020. This is equivalent
to about one-third of our existing capacity.
23. The UK needs a clear and stable regulatory framework to reduce uncertainty
for business to help ensure sufficient and timely investment in technologies that
contribute to our energy goals.
24. Of the capacity that is likely to close over the two decades, two thirds is
from carbon intensive fossil fuel generation and about 10GW is nuclear and
therefore low carbon. So companies’ decisions on the type of power stations
they invest in to replace this capacity will have significant implications for the
level of carbon emissions. As an illustration, if our existing nuclear power
stations were all replaced with fossil fuel fired power stations, our emissions
would be between eight and sixteen MtC (million tonnes of carbon) a year
higher as a result (depending on the mix of gas and coal-fired power stations).
This would be equivalent to about 30-60% of the total carbon savings we
project to achieve under our central scenario from all the measures we are
bringing forward in the Energy White Paper182. Our gas demand would also
181 Updated Emissions Projections, July 2006, DTI, http://www.dti.gov.uk/files/file31861.pdf

184 182 DTI: Energy White Paper, Meeting the Energy Challenge, http://www.dti.gov.uk/energy/whitepaper

be higher, at a time when we are becoming more dependent on imported
sources of fossil fuels.
25. New nuclear power stations have long lead times. This time is necessary
to secure the relevant regulatory and development consents which must be
obtained before construction can begin, and there is also a long construction
period compared to other generating technologies183. New nuclear power stations
are therefore unlikely to make a significant contribution to the need for new
capacity before 2020.
26. Even with our expectations that the share of renewables will grow, it is likely
that fossil fuel generation will meet some of this need. However, beyond that
date there are still significant amounts of new capacity needed; for example, in
2023 one third or 3GW of our nuclear capacity will still be operational, based on
published lifetimes. Given the likely increase in fossil fuel generation before this
date, it is important that much of this capacity is replaced with low carbon
technologies. New nuclear power stations could make an important contribution,
as outlined in this consultation document, to meeting our needs for low carbon
electricity generation and energy security in this period and beyond to 2050.
Because of the lead-times, without clarity now we will foreclose the opportunity
for nuclear power.
27. The existing approach on new nuclear build was set out in 2003184:
“Nuclear power is currently an important source of carbon-free electricity.

However, its current economics make it an unattractive option for new,
carbon-free generating capacity and there are also important issues of nuclear
waste to be resolved. These issues include our legacy waste and continued
waste arising from other sources. This white paper does not contain specific
proposals for building new nuclear power stations. However, we do not rule
out the possibility that at some point in the future new nuclear build might be
necessary if we are to meet our carbon targets. Before any decision to
proceed with the building of new nuclear power stations, there will need to
be the fullest public consultation and the publication of a further white paper
setting out our proposals.”
28. Since 2003 there have been a number of developments, which have led
the Government to consider afresh the potential contribution of new nuclear
power stations. Firstly, there has been significant progress in tackling the
legacy waste issue:
• we have technical solutions for waste disposal that scientific consensus
and experience from abroad suggest could accommodate all types of
wastes from existing and new nuclear power stations;
• there is now an implementing body (the Nuclear Decommissioning
Authority), with expertise in this area, and Government is reconstituting
the Committee on Radioactive Waste Management (CoRWM) in order to
provide continued independent scrutiny and advice; and
• a framework for implementing long-term waste disposal in a geological
repository will be consulted on in the coming months.
183 Our conservative assumption is that for the first new nuclear plant the pre-construction period would last
around 8 years (to secure the necessary consents) and the construction period would last around 5
years. For subsequent plants this is assumed to be 5 and 5 years; respectively.
184 HMG Cm 5761: Energy White Paper, Our Energy Future – creating a low carbon economy, 2003. 185

29. The Government has also made progress in considering the issue of waste
management in relation to potential new nuclear power stations:
• this consultation provides the opportunity to discuss the ethical,
intergenerational and public acceptability issues associated with a decision
to allow the private sector to invest in new nuclear power stations and
generate new nuclear waste;
• the Government is developing specific proposals to protect the taxpayer.
Under these proposals, private sector developers would meet the full
decommissioning costs and full share of waste management costs.
The proposals would be implemented in the event that we conclude
that energy companies should be allowed to invest in new nuclear power
stations. They would need to be in place before proposals for new power
stations could go ahead.
30. Secondly, the high-level economic analysis of nuclear power, prepared for the
Energy Review, concluded that under likely scenarios for gas and carbon prices
and taking prudent estimates of nuclear costs, nuclear power would offer general
economic benefit to the UK in terms of reduced carbon emissions and security of
supply benefits185. Therefore, the Government believes that it has a potential
contribution to make, alongside other low-carbon generating technologies.
31. Thirdly, some energy companies have expressed a strong interest in

investing in new nuclear power stations. They assess that new nuclear
power stations could be an economically attractive low-carbon investment,
which could help diversify their generation portfolios. Their renewed interest
reflects assessments that with carbon being priced to reflect its impacts and
gas prices likely to be higher than previously expected, the economics of
new nuclear power stations are becoming more favourable.
32. Nuclear power stations have long lead times. If they are to be an option
to replace the capacity closing over the next two decades, and in particular
after 2020, a decision on whether allowing energy companies the option of
investing in new nuclear power stations would be in the public interest,
needs to be taken now. Energy companies would need to begin their initial
preparations in the near future in order to have a reasonable prospect of
building new generation in this period. Not taking the public interest decision
now would foreclose the option of new nuclear being one of our options for
tackling climate change and achieving energy security.
Our preliminary view on nuclear power

33. We face a great deal of uncertainty about our energy supplies over the
next couple of decades. Most obviously the pace of climate change and
geopolitical developments. But there are also uncertainties relating to future
fossil fuel and carbon prices; the speed at which we can achieve greater
energy efficiency and therefore likely levels of energy demand here and
globally; the speed, direction and future economics of development in the
renewable sector; and the technical feasibility and costs associated with
applying carbon capture and storage technologies to electricity generation
on a commercial scale.
186 185 DTI Analysis, http://www.dti.gov.uk/energy/whitepaper/consultations/nuclearpower2007

34. Faced with these uncertainties the Government believes we need
diversity and flexibility in the energy mix and a policy framework that opens
up the full range of low carbon options. As well as renewables, those options
should include the use of gas and coal with carbon capture and storage along
with nuclear power. We agree with the recently published fourth report of the
Intergovernmental Panel on Climate Change (IPCC) that nuclear power could
have a role to play alongside other low carbon energy sources in reducing
carbon emissions186.
35. Tackling climate change and ensuring energy security will require action
on many fronts: both supply and demand, engaging individuals and business.
Unnecessarily ruling out any of the options available is likely to increase the
risks of not achieving these objectives. Our preliminary view is that preventing
energy companies from investing in new nuclear power stations would
increase the risk of not achieving our long-term climate change and energy
security goals, or achieving them at higher cost.
36. Apart from large-scale hydro – the opportunities for which have been largely
exhausted in the UK – nuclear power is the only low-carbon form of baseload
generation, which is proven on a commercial scale. Without nuclear power as
an option, the alternative would be for energy companies to invest in significant
fossil fuel capacity, whether of the conventional kind or fitted with carbon
capture and storage technology, and to build renewable capacity over and
above our existing targets, particularly as we will need to replace existing
nuclear stations as they retire.
37. Nuclear power also has disadvantages, including producing radioactive

waste that needs long-term management and presenting health and safety
risks. The Government believes that they can be managed and mitigated so
that they do not in themselves provide a reason for not allowing energy
companies the option of investing in new nuclear power stations.
38. The Government is committed to the fullest public consultation on its

proposals before a decision is taken on whether it would be in the public
interest for energy companies to have the option of investing in new nuclear
power stations. Such a decision would mean nuclear power stations could be
developed alongside renewables and other low-carbon technologies, as part
of the electricity sector’s contribution to tackling the challenges of climate
change and energy security.
39. This is an important decision that will have implications for society for decades
to come, and on which some people will have strong views. Therefore we are
keen to gather responses from a range of perspectives to allow us to assess the
factors before reaching a firm conclusion. This consultation takes account of the
ruling of the High Court in February and the Government’s commitment in 2003187
to the fullest public consultation and the publication of a further White Paper
setting out confirmed proposals for new nuclear power stations.
186 Intergovernmental Panel on Climate Change (IPCC) Working Group III Report, Mitigation of Climate
Change, Summary for policy makers, May 2007, http://www.ipcc.ch/SPM040507.pdf
187 Energy White Paper Our Energy Future – creating a low carbon economy, HMG Cm 5761, 2003. 187

40. This consultation will help the Government to take a decision on the
future of nuclear power in the UK, and whether it should be an option for
companies investing in the UK's energy market. In reaching our preliminary
view, we have considered a number of issues relating to nuclear power.
In this consultation document we set out the information and evidence that
Government has considered in reaching its preliminary view:
• nuclear power and carbon emissions (chapter two);
• security of supply impacts of nuclear power (chapter three);
• economics of nuclear power (chapter four);
• the value of having low carbon electricity generation options: nuclear
power and the alternatives (chapter five);
• safety and security of nuclear power (chapter six);
• transport of nuclear materials (chapter seven);
• waste and decommissioning (chapter eight);
• nuclear power and the environment (chapter nine);
• the supply of nuclear fuel (chapter ten);
• supply chain and skills implications (chapter eleven); and
• reprocessing of spent fuel (chapter twelve).
41. The information and evidence, and the Government's preliminary conclusions,
in each of these chapters is summarised below. There are questions at the end
of each section; respondents are invited to answer these questions based on the
information in this summary and the full material in the document as necessary.
Nuclear power and carbon emissions

42. Nuclear power, unlike fossil fuelled power generation is carbon-free at the
point of generation and is low carbon overall. Some carbon dioxide emissions
arise at other points in the lifecycle, for example during the mining of uranium,
fuel preparation, and construction and decommissioning of the power station,
but this is true to some extent for all electricity generating technologies and
different technologies produce different quantities of emissions.
43. To provide an accurate picture of the potential contribution that nuclear power
stations could make to tackling climate change, a full-lifecycle analysis must be
made. In other words, the emissions from every phase must be measured.
There are a number of assumptions that need to be made in undertaking such
an analysis. For example, the type of electricity used for the preparation of
nuclear fuel: if it were from coal-fired power stations, emissions would be
significantly higher than if nuclear or renewable sources were used in the fuel
preparation process. As a result of these variables, there is a fairly wide range
of estimates in the studies that have looked at lifecycle carbon dioxide
emissions from nuclear power.
44. Research by the Nuclear Energy Agency (NEA) of the Organisation for
Economic Co-Operation and Development (OECD), and the International Atomic
Energy Authority (IAEA)188 found that nuclear power emits low amounts of carbon
dioxide across the whole lifecycle, between 7g/kWh and 22g/kWh. This is similar
to the carbon dioxide emissions from wind power and much less than fossil
188 Sustainable Development Commission, The Role of Nuclear Power in a Low Carbon Economy,
Paper 2: Reducing CO2 Emissions – Nuclear and the Alternatives, March 2006.
189 Sustainable Development Commission, The Role of Nuclear Power in a Low Carbon Economy,
188 Paper 2: Reducing CO2 Emissions – Nuclear and the Alternatives, March 2006.

fuelled plant189. Emissions from gas and coal-fired power stations are estimated
to be over 380g/kWh and 830g/kWh, respectively190.
45. The Government believes that, based on the significant evidence available,
the lifecycle carbon emissions from nuclear power stations are about the
same as wind generated electricity with significantly lower carbon emissions
than fossil fuel fired generation. As an illustration, if our existing nuclear
power stations were all replaced with fossil fuel fired power stations, our
emissions would be between 8 and 16MtC (million tonnes of carbon) a year
higher as a result (depending on the mix of gas and coal-fired power stations).
This would be equivalent to about 30-60% of the total carbon savings we
project to achieve under our central scenario from all the measures we are
bringing forward in the Energy White Paper. Therefore, the Government
believes that new nuclear power stations could make a significant
contribution to tackling climate change. We recognise that nuclear power
alone cannot tackle climate change, but these figures show that it could
make an important contribution as part of a balanced energy policy.
Question 2
Do you agree or disagree with the Government’s views on carbon
emissions from new nuclear power stations? What are your
reasons? Are there any significant considerations that you believe
are missing? If so, what are they?
Security of supply benefits of nuclear power

46. The Government is committed to ensuring sufficient, reliable, diverse supplies
of energy at affordable prices for electricity, heating and transport. Where supplies
of energy are limited or insecure, the result is likely to be unexpectedly high or
volatile energy prices. The UK faces two main security of supply challenges:
• our increasing reliance on imports of oil and gas in a world where energy
demand is rising and in some cases energy is becoming more politicised;
and
• our requirement for substantial, and timely, private sector investment
over the next two decades in: new gas import infrastructure and storage;
electricity generation to meet rising demand and replace retiring stations;
and the replacement of ageing transmission and distribution networks.
47. Having a diverse supply of energy is an important factor in security of supply.

This can mean both diversity in the type of fuel used, and also diversity in the
geographic distribution of fuel sources. Avoiding over-dependence on single sources
lessens the impact of “technology failure” or supply chain interruptions.
190 OECD Nuclear Energy Agency 189

48. To this extent, nuclear power, by generating about 18% of our electricity,
already makes an important contribution to the security of our energy
supplies, adding diversity to the energy mix and avoiding an over-dependence
on imported fossil fuels, particularly gas. However, by 2024, all but one of our
nuclear power stations will have closed, based on current published
accounting lifetimes.
49. There are also particular characteristics of nuclear power stations that
contribute to the security of our energy supplies. Nuclear generation extends the
geographic spread of our energy imports, because uranium reserves are located
in areas like Australia and Canada, which are different locations to where the
global fossil fuel reserves are found191. Its cost profile, with high capital but low
fuel and operating costs, means that the generation costs are relatively immune
to fluctuations in fuel prices. This is in contrast to fossil fuel generation, and
having nuclear power as part of the mix adds an element of stability to wholesale
energy prices in the UK. Nuclear power is most economic when run continually,
so it is well placed to meet the need for baseload capacity in the UK. Nuclear
power would complement the expansion in more intermittent renewable
generation such as wind power.
50. The Government believes that the best way to achieve secure energy
supplies is by encouraging a diversified mix of generating technologies,
and that energy companies should have the widest choice of technologies in
which to invest. We know that our nuclear power stations are coming to the
end of their lives; not allowing energy companies to invest in new nuclear
power stations would increase our dependence on fewer technologies and
expose the UK to risks to the security of our energy supplies.
51. The Government believes that allowing energy companies the option
of investing in nuclear power stations would make a contribution to
maintaining a diverse generating mix, with the flexibility to respond to
future developments that we cannot yet envisage. Allowing energy
companies the option of investing would therefore make an important
contribution to the security of our energy supplies.
Question 3
Do you agree or disagree with the Government’s views on the
security of supply impact of new nuclear power stations? What
are your reasons? Are there any significant considerations that
you believe are missing? If so, what are they?
190 191 NEA and IAEA, Uranium 2005: Resources, Production and Demand, 2006 (The “Red Book”)

Economics of nuclear power
52. It would be for private sector energy companies to propose and
fund the construction and operation of any new nuclear power stations,
including meeting the full costs of decommissioning and full share of waste
management costs. As with the existing nuclear power stations, there is a
potential government liability in accordance with international Conventions to
cover third party damages in the unlikely event of a major accident. If, within
this framework, private sector energy companies concluded that nuclear
power stations were not economic, or the financial risks were too great,
then they would not build them.
53. Whether nuclear power stations are economically attractive will depend
on, amongst other things, the contracts into which developers enter for the
electricity they generate, and their financing costs. The proposed Government
facilitative action (see chapter thirteen) would be important in reducing
uncertainty during the preconstruction period. Uncertainty in the regulatory
framework can increase costs for investors, especially financing costs.
54. The Government has updated the indicative cost-benefit analysis of new
nuclear power stations that was prepared for the Energy Review Report last year.
Our analysis uses a range of prices for carbon and gas, and a range to reflect
uncertainties in the costs of nuclear generation, in particular waste and
decommissioning costs. Our range of cost estimates also reflects different views
on the future commitment to pricing carbon and the extent to which gas prices will
remain linked to oil prices, which is currently an important factor in gas prices. The
conclusions are consistent with and backed up by those used in the 2006 IEA World
Energy Outlook report192.
55. Based on this conservative analysis of the economics of nuclear power,

the Government believes that nuclear power stations would yield economic
benefits to the UK in terms of reduced carbon emissions and security of
supply benefits under likely scenarios for gas and carbon prices. As an
illustration, under central gas and nuclear cases, and with a future carbon
price of €36/tCO2, the net present value over 40 years of adding 10GW of
nuclear capacity would be of the order of £15 billion.
Question 4
Do you agree or disagree with the Government’s views on
the economics of new nuclear power stations? What are your
192 International Energy Agency, World Energy Outlook 2006. 191

The value of having low carbon electricity generation: nuclear power
and the alternatives
56. There are many uncertainties in the energy market, both internationally
and at home. For example, it is difficult to predict fossil fuel, raw materials
and carbon prices long into the future, we do not know with certainty which
and at what speed new renewable technologies, such as marine generation
might develop, and it is not guaranteed that it will be technically feasible or
economic to apply carbon capture and storage technology safely to electricity
generation on a commercial scale.
57. Moreover, there are even greater uncertainties about the future of the
electricity market. Some technological developments could result in a
significant increase in the demand for electricity in the future. For example,
if hydrogen and electric technologies develop in the transport sector, then it
could have a significant impact on electricity demand193. Faster than expected
economic growth could also create increased demand for electricity, as could
the need to rely more on electricity for the provision of heat, as fossil fuel
reserves continue to decline. The possibility of electricity storage
technologies developing on an economic scale is another uncertainty
that could affect demand.
58. There is also uncertainty in the science of climate change and the
potential constraints that this could put on our energy strategy. Our goal to
reduce carbon emissions by at least 60% of 1990 levels by 2050 was in line
with the then recommendations of the Royal Commission on Environmental
Pollution194. The draft Climate Change Bill has provisions to amend our targets
for reductions in carbon emissions in the light of significant developments in
climate science or in international law or policy. A larger reduction in carbon
emissions would increase the need for low carbon energy sources.
59. Given these risks and uncertainties about the way the world and energy
markets may develop, it is very difficult to predict which composition of the
fuel mix or share of each technology in the mix is most appropriate to
minimise the risks and costs associated with achieving our energy goals.
For this reason, we believe companies are better placed to weigh up this
complex range of interrelated factors affecting the profitability of investing in
electricity generation (including how these factors might evolve over time).
Providing firms with a portfolio of options offers a hedge against risks like
technology failure or over-dependence on a limited range of fuel supplies.
60. It is possible, using economic modelling, to estimate the impact in the

medium and long-term of excluding the option for private sector investment
in new nuclear power stations on our ability to meet our energy policy goals
to tackle climate change and ensure energy security. In this consultation
document and as part of our work for the Energy White Paper, we have used
two different models to examine possible scenarios with and without the
option of nuclear power.
193 For instance, a successful transition to electric and hydrogen vehicles could see UK electricity demand
rise by 16 to 34% on 2005 levels. E4tech. A review of the UK Innovation System of low carbon Road
transport, http://www.dft.gov.uk/pgr/scienceresearch/technology
194 The Royal Commission for Environmental Pollution, 22nd Report Energy – The Changing Climate
192 http://www.rcep.org.uk/newenergy.htm

61. To examine how investment in new electricity generation capacity might
evolve in the period to 2030, we have used a dynamic model to simulate
investment decisions195. According to our analysis, in the period up to 2020,
excluding nuclear power has relatively little impact on our energy security
and climate change goals. This is because the long lead times for new nuclear
power stations mean that even if we decide that it is in the public interest to
allow private sector companies the option to invest in new nuclear power,
significant new capacity is not likely to be operational before 2020.
62. According to our economic modelling, in the period from 2020-2030,

not allowing investment in new nuclear power stations would increase the
risk to the security of our energy supplies because between 2-4GW less new
generation capacity is built. The modelling also suggests there would be a
less diverse generation mix as investors have fewer available options.
This implies there would be less spare generation capacity to cope with
unexpected variations in demand or problems with electricity supply. Given
the carbon price assumptions in the modelling, nuclear power becomes the
cheapest generation technology by around 2023. Consequently, the modelling
shows that expectations of electricity prices do not rise sufficiently to
stimulate new investment in other more expensive technologies until
much later in the 2020s.
63. This projected lower level of investment would put pressure on wholesale
electricity prices, because there would be less capacity than otherwise to
meet increases in demand during peak periods. In the period between
2020-2030, the modelling suggests that wholesale prices would be around
4% higher, on average, than if nuclear was included as an option. At the same
time, our carbon emissions in the period between 2020-2030 could be around
4MtC higher, on average, than if nuclear was included as an option. As
indication of the significance of this figure, 4MtC would be equivalent to
around 16% of the annual carbon savings projected in 2020 to be achieved
under the central scenario from all the measures in the Energy White Paper
“Meeting the Energy Challenge”.
64. It is extremely difficult to predict how the energy system will develop
in the very long-term (the next 40-50 years). It is therefore much harder to
predict what investments in new electricity capacity firms will choose to
make over this period. Indeed, even if the option of investing in nuclear were
available, companies may still decide to invest in other technologies if they
considered them to be more attractive investment options. Their investment
decisions are affected by their view of future electricity demand, the
underlying costs of new investments, their expectations of future electricity,
fuel and carbon prices, expected closures of existing power stations and the
construction lead times for new power stations.
195 Redpoint Energy, Dynamics of GB Electricity Generation Investment: Prices, Security of Supply,
CO2 Emissions and Policy Options, 2007. 193

65. However, for the period to 2050, we have used a model of the entire UK
energy system (UK MARKAL-Macro model) to explore the changes to the
amount and use of energy required if we are to deliver our goal of reducing
carbon emissions by 60% by 2050 at least cost196. In all the scenarios we
examined where nuclear is available as an option, our modelling shows new
nuclear power playing a role in meeting our 2050 goals, even where the cost
of alternative technologies falls significantly.
66. Where nuclear is excluded as an investment option, the modelling shows

that to meet the 60% goal, more investment is needed in alternatives such
as wind, and coal with carbon capture and storage. For example, wind would
have to grow from the current level of around 1-2% today to 30% of the
generation mix in 2050 in such a scenario. In addition, further carbon
emissions savings in other sectors such as transport would be required. We
would need to see profound behavioural changes in the way we use energy.
For instance, demand for electricity would have to decline by 6% compared to
today’s levels even though over the same period the economy is projected to
grow to three times its current size.
67. Our modelling indicates that excluding nuclear is a more expensive route
to achieving our carbon goal even though in our modelling, the costs of
alternative technologies are assumed to fall over time as they mature. It also
assumes that we are able successfully to deploy CCS safely and cost-
effectively on a large scale even though currently, the technology has not yet
been proven at a commercial scale. The modelling also does not capture a
number of risks implicit in our assumptions. For example, technology costs
may not fall as much or as quickly as assumed.
68. The Government believes that given the wide range of uncertainties
it is difficult to predict with certainty the future need for and use of
energy and electricity.
69. We have modelled a number of different future scenarios as part of

the analysis to support the Energy White Paper. The modelling indicates
that it might be possible under certain assumptions, to reduce the UK’s
carbon emissions by 60% by 2050 without new nuclear power stations.
However, if we were to plan on this basis, we would be in danger of not
meeting our policy goals:
• Security of supply: we would be reliant on a more limited number of

technologies to achieve our goals, some of which (e.g. carbon capture
and storage) are yet to be proven on a commercial scale with power
generation. This would expose the UK to greater security of supply
risks, because our electricity supplies would probably be less diverse
as a result of excluding nuclear; and
• reducing carbon emissions: by removing one of the currently more

cost-effective low carbon options, we would increase the risk of
failing to meet our long term carbon reduction goal.
196 DTI, The UK MARKAL model in the 2007 Energy White Paper, http://www.dti.gov.uk/energy/whitepaper
Strachan N., R. Kannan and S. Pye (2007), Final Report on DTI-DEFRA Scenarios and Sensitivities using the
194 UK MARKAL and MARKAL-Macro Energy System Models, http://www.ukerc.ac.uk/content/view/142/112

70. By excluding nuclear as an option, our modelling also indicates that
meeting our carbon emissions reduction goal would be more expensive.
71. Therefore, the Government believes that giving energy companies

the option of investing in new nuclear power stations lowers the costs
and risks associated with achieving our energy goals to tackle climate
change and ensure energy security.
Question 5
value of having nuclear power as an option? What are your
Safety and security of nuclear power

72. Nuclear power stations pose safety, security, health and non-proliferation
risks that need to be managed. Accordingly, there is a regulatory regime in the
UK that caters for existing facilities and would protect against the risks arising
from any new nuclear power stations. This regime is subject to international
scrutiny. A recent review by the International Atomic Energy Agency (IAEA)
concluded that the UK’s regulatory regime was well advanced, flexible and
transparent, and the inspectors were highly trained, well-experienced experts197.
73. Before any nuclear power station can be constructed, permission is

required from the Nuclear Installations Inspectorate (NII), a division of the
Health and Safety Executive. The NII publish a number of Safety Assessment
Principles that set out guidance on what it looks for when considering the
safety of a nuclear power station.
74. The UK has not had an incident at a civil nuclear power station where there
has been an offsite release of radioactive material198. Analysis by the European
Commission on the potential for nuclear events suggests that in the UK the
probability of a major accident – the meltdown of the reactor’s core along with
failure of the containment structure – is one in 2.4 billion per reactor year199. By
comparison, it is thought that the risks of a meteorite over a kilometre hitting the
earth, which could have significant global environmental impacts, could be one in
0.5 million per year200.
75. However, a major nuclear accident, although having an extremely low likelihood
of occurring, would have potentially severe and wide-ranging consequences, so we
have to consider very carefully whether it is reasonable to run such a risk.
76. The health risk of exposure to radiation from nuclear power stations is
very small, and there are statutory radiation dose limits in place, both for
workers in the nuclear industry and the general public201. The average dose
to a member of the public as a result of discharges from the nuclear power
industry is 0.015% of the annual dose from all sources202. The independent
197 HSE report – The health and safety risks and regulatory strategy related to energy developments. An expert
report contributing to the Government’s Energy Review 2006.
198 Sustainable Development Commission, Paper 6: Safety and Security, March 2006.
199 European Commission, Externalities of Energy (ExternE), Methodology 2005 Update.
200 NASA Asteroid and Comet Impact Hazards, http://128.102.32.13/impact/intro_faq.cfm
201 Ionising Radiation Regulations 1999.
202 Radiation Doses – Maps and Magnitudes Second Edition, National Radiological Protection Board, now
part of Health Protection Agency. 195

Committee on Medical Aspects of Radiation in the Environment (COMARE)
has not identified any evidence of increased incidents of childhood cancer in
areas surrounding nuclear power stations203.
77. Although nuclear power stations pose some unavoidable terrorism risks,
the Office for Civil Nuclear Security (OCNS), the security regulator, is satisfied
that the existing security regime is robust and effective and that allowing new
nuclear power stations to be built would be unlikely to materially increase the
risks to the UK, because any proposals for new nuclear power stations would
be only be permitted to proceed if they met the stringent regulatory
requirements in full, based on the most up to date threat assessments.
78. The UK Safeguard Office, who oversee non-proliferation risks, believe that the
risk of diversion of nuclear materials from the building and operation of modern
nuclear power stations in the UK is very small, because of the regulatory and
market framework and the nature of the designs of nuclear power stations that
might be put forward.
79. Based on the advice of the independent nuclear regulators, and the
advances in the designs of nuclear power stations that might be proposed
by energy companies, the Government believes that the safety, security,
health and non-proliferation risks of new nuclear power stations are very
small and that there is an effective regulatory framework in place that
ensures that these risks are minimised and sensibly managed by industry.
Therefore, the Government believes that they do not provide a reason to
prevent energy companies from investing in new nuclear power stations.
Question 6
safety, security, health and non-proliferation issues? What are
your reasons? Are there any significant considerations that you
believe are missing? If so, what are they?
Transport of nuclear materials

80. Generating electricity from nuclear power stations requires the transport
of nuclear materials, such as uranium for fuel fabrication and spent fuel. There
is a wide range of radioactive material that needs to be transported for the
nuclear power industry; however, it is only certain materials such as spent fuel
where radioactivity levels, and therefore associated risks, are high. The
relative risks associated with the transport of the material are reflected in the
regulatory protections. For example, the regulatory requirements for flasks
used to transport spent fuel, the most radioactive nuclear material that is
transported, are the most stringent. By contrast, raw and enriched uranium,
and even freshly prepared fuel are not very radioactive.
203 The incidence of childhood cancer around nuclear installations in Great Britain, COMARE 11th Report,
196 July 2006.

81. Transport of nuclear fuel by rail, road and sea has been carried out for the
past 40 years by several countries that use nuclear power. In this time, in the
European Union, there have been no accidents involving the transport of
nuclear materials that have caused death or serious injury to persons or
significant harm to the environment from a radiological cause204.
82. Workers in the transport industry receive an average annual dose of radiation
of less than 0.7 millisieverts (mSv) from the transport of radioactive material. This
is much less than the limit for radiation workers of 20 mSv per year, and is even
below the dose limit of 1mSv for the general public from activities covered under
the Ionising Radiations Regulations 1999. Conservative estimates of the dose to
the general public from the transport of radioactive materials are a hundredth this
level, no more than 0.006 mSv per year205, compared to an average annual dose
from natural background radiation of 2.6mSv206. According to the Health
Protection Agency, these doses are extremely low207.
83. All such transport is subject to regulatory requirements aimed at ensuring

that these movements are carried out in a safe and secure fashion. This is
embedded in IAEA regulations and implemented in the UK by the Department
for Transport (Dangerous Goods Division). The European Parliament concluded
in 2001, in its resolution on Transport of Radioactive Material, that the risks
associated with the transport of radioactive material are low 208.
84. Based on the assumption that spent fuel would not be reprocessed (see
chapter twelve) and that developers would be expected to provide appropriate
storage arrangements capable of being maintained safely until the spent fuel is
ultimately removed for disposal (chapter eight), allowing private sector energy
companies to invest in new nuclear power stations would not create the need
to transport spent fuel to a reprocessing facility and then subsequently to a
repository. Instead, spent fuel would be held in interim storage, during which
time, the initial radioactivity would decline as the more active isotopes decay,
and only a single movement, of somewhat less radioactive waste, could be
made to the repository.
85. Given the safety record for the transport of nuclear materials, the
assumption that spent fuel will not be reprocessed and the strict safety
and security regulatory framework in place, the Government believes that
the risks of transporting nuclear materials are very small and that there is
an effective regulatory framework in place that ensures that these risks are
minimised and sensibly managed by industry. Therefore, the Government
believes that they do not provide a reason to not allow energy companies
to invest in new nuclear power stations.
204 Health Protection Agency, Survey into the Radiological Impact of the Normal Transport of Radioactive Material
in the UK by Road and Rail,
http://www.hpa.org.uk/radiation/publications/w_series_reports/2005/nrpb_w66.pdf.
in the UK by Road and Rail, http://www.hpa.org.uk/radiation/publications/w_series_reports/2005/nrpb_w66.pdf.
206 Sustainable Development Commission, Paper 6: Safety and Security.
in the UK by Road and Rail, http://www.hpa.org.uk/radiation/publications/w_series_reports/2005/nrpb_w66.pdf.
208 Official Journal of the European Community, Safe transport of radioactive material, A5-0040/2001, 2001 197

Question 7
transport of nuclear materials? What are your reasons? Are there
any significant considerations that you believe are missing? If so,
what are they?
Waste and decommissioning

86. Nuclear power stations generate long-lived radioactive waste that needs to be
handled and stored carefully and ultimately disposed of in an appropriate long-term
management facility. The UK has a significant legacy of nuclear waste. Although the
majority of this waste is of a low level of radioactivity, there are also higher level
wastes and spent fuel from nuclear power stations that need to be managed.
87. In 2007, the Government updated its policy on low level waste management
and gave responsibility to the Nuclear Decommissioning Authority (NDA) for
developing and maintaining a national strategy for the handling of low level nuclear
waste. This will include identifying additional disposal capacity because the UK’s
existing facility will not provide enough capacity for the expected waste from the
decommissioning of the existing UK nuclear power stations.
88. In 2001, Government launched the Managing Radioactive Waste Safely

programme to consider the issues of managing and disposing of the UK’s
higher level radioactive waste. As part of this programme, in October 2006,
the Government’s response to the independent Committee on Radioactive
Waste Management’s (CoRWM) recommendations acknowledged that geological
disposal coupled with safe and secure interim storage is the best nuclear waste
management approach currently available for existing waste.
89. The Government will shortly publish a consultation on the implementation

process for developing a long-term waste management solution. The responsibility
for planning and implementing geological disposal has been given to the Nuclear
Decommissioning Authority.
90. The CoRWM terms of reference focussed principally on legacy waste

and the focus of CoRWM’s public and stakeholder engagement was always on
the existing and committed wastes and materials as there were no new build
proposals for them to consider in detail. However, as part of their report on the
inventory of waste that needed to be managed, the Committee made reference
to the potential implications of a new build scenario. CoRWM set down that its:
“recommendations are directed to existing and committed waste arisings” 209.
CoRWM stated that they had: “no position on the desirability or otherwise of
nuclear new build” 210 and CoRWM believed that “its recommendations should
not be seen as either a red or green light for nuclear new build” 211.
91. CoRWM stated that: “solutions for existing and unavoidable future wastes
would also be robust in the light of all reasonably foreseeable developments
in nuclear energy and waste management practices” 212, although they felt that
209 CoRWM’s Managing our Radioactive Waste Safely (CoRWM Document 700), CoRWM’s
Recommendations to Government, July 2006. http://www.corwm.org.uk/content-1092
210 CoRWM statement on Nuclear New Build 16 December 2005.
198 212 CoRWM statement on Nuclear New Build 16 December 2005.

“significant practical issues would arise, including the size, number and
location of waste management facilities” 213. CoRWM also commented that
“the prospect of a new nuclear programme might undermine support for
CoRWM from some stakeholders and citizens and make it more difficult to
achieve public confidence" 214. CoRWM considered that “should a new build
programme be introduced… it would require a quite separate process to test
and validate proposals for the management of wastes arising” 215.
92. We agree with CoRWM that the creation of new waste involves ethical
considerations. The key ethical question that needs to be considered as part of
the discussion on the future role of nuclear power is whether to create new
waste; once new waste is created it would need to be managed and disposed
of, in the same way as existing waste. We believe that the most appropriate way
to consider both the public acceptability and ethical issues is as a part of the
discussion of the wider climate change and energy security considerations.
93. Nuclear power could provide significant benefits to future generations,

particularly in terms of reducing carbon emissions and contributing to energy
security and thereby supporting economic growth. It is likely to be more cost
effective than alternative forms of low-carbon generation216. However, the
creation of nuclear waste is also a potential burden while it requires active
management or care and maintenance, and radioactive waste remains potentially
hazardous for many years to come. This needs to be balanced against the
likelihood that without new nuclear power, a greater proportion of the capacity
needed to replace the existing nuclear and fossil fuel stations would come from
additional fossil fuel power stations. Increasing the amount of fossil fuel plant
would increase the emissions of carbon dioxide into the atmosphere, adding to
the growing problem of man-made climate change. Further, a decision not to allow
energy companies the option of investing in new nuclear power stations would
mean that one less source of electricity generation would be available to future
generations, which could have implications for future diversity and security of
supply. The ethical issues around radioactive waste are discussed further in the
CoRWM report on “Ethics and Decision Making for Radioactive Waste” 217 (although
the discussions reported in that document focus primarily on legacy waste).
94. Allowing energy companies to build new nuclear power stations would create
new radioactive waste that needs to be managed. Compared to the existing
nuclear power stations in the UK, the designs of power stations that might be
constructed would create less waste by volume because of the improved, more
efficient reactor designs which use fewer components. Because of their longer
expected lives, they would generate more electricity. However this means that
there would be a larger increase in the radioactivity compared to the increase in
volume of waste – principally from spent fuel – although as with all radioactive
substances the activity would decline over time.
95. Scientific consensus and international experience suggests that waste

from new nuclear power stations does not raise such different technical issues
compared with nuclear waste from legacy nuclear programmes as to require a
213 CoRWM statement on Nuclear New Build 16 December 2005, Addendum (March 2006).
214 CoRWM statement on Nuclear New Build 16 December 2005.
216 DTI Cost Benefit Analysis of Nuclear Power, http://www.dti.gov.uk/energy/whitepaper
217 Ethics and Decision Making for Radioactive Waste – CoRWM Document Number 1692. 199

different technical solution. It could therefore technically be accommodated in the
same disposal facilities for intermediate level waste and high level waste/spent
fuel as the existing legacy. If waste from new nuclear power stations were
accommodated together with legacy waste, it would increase the overall size and
cost of a geological disposal facility. However, it is likely that some of the initial
infrastructure costs would be common to legacy and new wastes. The additional
costs resulting from accommodating new build waste would arise principally from
the construction of additional vaults.
96. The number of new nuclear power stations that energy companies might
choose to build would have an impact on whether all of the new waste could be
stored in the same repository as the legacy waste. The impact of the increase in
the time during which the repository would need to remain open if waste from
new nuclear power stations were to be added, would also need to be assessed.
These issues would be addressed through the Managing Radioactive Waste
Safely (MRWS) programme.
97. Placing waste in a geological repository is a long-term solution. CoRWM

envisaged a facility being opened around the middle of this century, and receiving
waste for several decades. In the meantime, waste from any new nuclear power
stations would be managed in accordance with the Government’s requirements
and the NDA national strategy for interim storage. This is likely to require on-site
storage in facilities capable of holding the waste in a safe condition for long
periods until the waste repository is ready to receive it.
98. Any private sector developers of new nuclear power stations would be required
to meet their full decommissioning and full share of waste management costs. In
the report of the Energy Review, the Government established principles that would
underpin arrangements to ensure that operators of nuclear power stations were
obliged to accumulate sufficient and secure funds to cover these costs. The
development of these robust financing arrangements is considered further in this
consultation document. The arrangements would need to be agreed before
proposals for new nuclear power stations could proceed.
99. The Government believes that new waste could technically be disposed
of in a geological repository and that this would be the best solution for
managing waste from any new nuclear power stations. The Government
considers that waste should be stored in safe and secure interim storage
facilities prior to a geological repository becoming available.
100. We consider that it would be desirable to dispose of both new and

legacy waste in the same repository facilities and that this should be
explored through the MRWS process.
101. There are also important ethical issues to consider around whether
to create new nuclear waste, including the ethical implications of not
allowing nuclear power to play a role, and the risks of failing to meet
long-term carbon emissions targets. The Government has taken a
preliminary view that the balance of ethical considerations does not
require ruling out the option of new nuclear power. However, we intend
that these ethical issues should be considered through this consultation
document and respondents are invited to give their views.
200

Question 8
Do you agree or disagree with the Government’s views on waste
and decommissioning ? What are your reasons? Are there any
significant considerations that you believe are missing? If so,
what are they?
Question 9
What are the implications for the management of existing nuclear
waste of taking a decision to allow energy companies to build
new nuclear power stations?
Question 10
What do you think are the ethical considerations related to a
decision to allow new nuclear power stations to be built? And
how should these be balanced against the need to address
climate change?
Environmental impacts of nuclear power

102. Nuclear power stations, like any other form of power station, affect the
local environment and landscape. Construction, transport of materials, water
usage for cooling, mining, fuel fabrication and the transmission of electricity
also lead to environmental effects. Not all of these considerations are unique
to nuclear power. Other electricity generating capacity, including renewables,
can have an impact on the landscape and on local wildlife.
103. The land necessary to build a 1.2GW nuclear power station is estimated
at 25-75 hectares, compared to 100 hectares for a 1.8GW coal-fired power
station218, although additional space could be required to fit carbon capture and
storage technology to a coal-fired power station. This compares to estimates by
the British Wind Energy Association of 1,000 hectares for a 1GW windfarm 219.
104. An opportunity to assess and mitigate the environmental and landscape

impacts of new power stations is through the electricity development consents
process, which considers these issues in detail and provides an opportunity for
public involvement in the process. The Government’s recent white paper
“Planning for a Sustainable Future” proposes reforms to the planning system for
nationally significant infrastructure220. As part of the existing and proposed process,
developers have to prepare a detailed Environmental Impact Assessment.
105. As with all energy infrastructure developments, it would be for private

sector energy companies to decide where to put forward proposals for any new
nuclear power stations, if the Government concludes after this consultation that
they should be allowed to make such investments. Industry has indicated that
the most viable sites are likely to be adjacent to existing nuclear power stations.
106. The Government proposes to undertake a strategic siting process to develop

criteria for determining the suitability of sites. This strategic assessment would
consider the high-level environmental impacts of new nuclear power stations.
More information on detail of this assessment is in the accompanying consultation
document on the detail of this proposal 221.
218 http://www.publications.parliament.uk/pa/cm198889/cmhansrd/1989-02-03/Writtens-2.html
219 http://www.bwea.com/ref/faq.html#space
220 http://www.communities.gov.uk/planningwhitepaper

107. The Government believes that the environmental impacts of new
nuclear power stations would not be significantly different to other forms
of electricity generation and given the UK and European requirements in
place to assess and mitigate the impacts, that they are manageable.
Therefore, the Government believes that they do not provide a reason to
not allow energy companies the option of investing in new nuclear
power stations.
108. We recognise the need for a strategic assessment of the

environmental issues relating to new nuclear power stations. If the
Government confirms its preliminary view that it is in the public interest
to allow energy companies the option of investing in new nuclear power
stations, we propose to undertake an SEA as part of a Strategic Siting
Assessment, the detail of and proposed timetable for which is set out in a
detailed consultation alongside this consultation on the issue in principle.
Question 11
environmental issues? What are your reasons? Are there any
what are they?
The supply of nuclear fuel

109. The UK does not have readily available indigenous sources of fuel for
nuclear power stations and imports most of the uranium for the existing
nuclear power stations from Australia. Therefore, in the context of increasing
international demand for energy, we have considered availability and access to
fuel. The IAEA/OECD estimate that conventional uranium resources that can be
mined for less than $130kg/uranium (about $60/lb), roughly the average price in
2006 222, would last for 85 years based on the world’s nuclear electricity generating
capacity in 2004 223. Much of these reserves are in Australia and Canada.
110. Since 2000, uranium prices have increased significantly. However, the
price of nuclear fuel represents a much smaller part of the cost of electricity
than it does for other generating technologies, so these price rises have not
had a material impact on overall generating costs. The increasing price of
uranium will make more of the reserves that have already been discovered
economic to extract. It also provides an incentive for further exploration.
On the basis of newly discovered reserves, there is no evidence to suggest
that we will need to mine significantly lower-grade ores 224, in which case
carbon lifecycle emissions of nuclear generation should not materially change.
111. Based on the significant evidence that there are sufficient high-grade
uranium ores available to meet future global demands, and the relatively
small impact that allowing energy companies to invest in new nuclear
power stations in the UK would have on global demand for uranium, the
Government believes that there should be sufficient reserves to fuel any
new nuclear power stations constructed in the UK.
222 http://www.cameco.com/investor_relations/ux_history
223 NEA and IAEA, Uranium 2005: Resources, Production and Demand, 2006 (The “Red Book”)
224 NEA and IAEA, Uranium 2005: Resources, Production and Demand, 2006 (The “Red Book”)
202

Question 12
supply of nuclear fuel? What are your reasons? Are there any
what are they?
Supply chain and skills capacity

112. As the demand grows globally for new power stations of any technology,
there could be shortages in the capacity to supply some of the components
and shortages of the human skills needed to build them.
113. Proposals by industry to build significant numbers of new nuclear power

stations would require a strengthening of the science, engineering, project
management and on-site trade/technician skills base in the medium term 225.
Industry would also need to train a new operations workforce over the
course of construction.
114. If nuclear power is to be viable, the market needs to respond to interest

from firms in developing new nuclear power stations by increasing its ability
to meet rising demand. The long lead times for nuclear power stations allow
time for industry to plan ahead through such measures as placing early
contracts well in advance to secure slots in manufacturers’ order books for
the production of certain components, and for training and recruitment. Such
moves could reduce the risks that industry will suffer from shortages of skills
and a lack of capacity in the supply chain. Furthermore, the work of the Sector
Skills Council is supporting skills development 226. Initiatives such as the
Nuclear Skills Academy and new higher-education programmes should also
help to maintain the UK’s skills base in nuclear science and technology.
115. The Government believes that the international supply chain and skills
market should be able to respond if the Government were to allow energy
companies to invest in new nuclear power stations. This view is based on:
• the long lead times associated with new nuclear power stations;
• the financial incentives for the private sector to meet the demands
created by the building of new nuclear power stations; and
• the facilitative work that Government, the academic sector and
industry are undertaking to support skills development in the
relevant sectors.
Therefore, the Government believes that the supply of skills and supply
chain capacity do not provide a reason to prevent energy companies
from investing in new nuclear power stations.
Question 13
supply chain and skills capacity? What are your reasons? Are
there any significant considerations that you believe are
missing? If so, what are they?
225 Nuclear Employers Survey 2005, http://www.cogent-ssc.com/research_and_policy/LMI_and_reports/

Nuclear_Employers_Survey.pdf
226 A Skill Needs Assessment for the Nuclear Industry, http://www.cogent-ssc.com/pdf/SNA/Nuclear.pdf 203

Reprocessing of spent fuel
116. Nuclear power stations generate radioactive waste and spent fuel. Spent
fuel may either be disposed of or recycled to separate out the useful uranium
and plutonium. In some cases reprocessing can help to manage safety and
environmental risks, for example there is no proven alternative to reprocessing
fuel from the early Magnox reactors in the UK, which cannot be stored long-term
in water. However, reprocessing also raises particular concerns about the
creation of separated plutonium which would require the long-term storage, the
management of associated waste streams, which in the UK include regulated
radioactive discharges to the Irish Sea, and the transport of spent fuel and
nuclear materials.
117. The private sector has made no proposals to reprocess spent fuel from
any new nuclear power stations.
118. The Government has concluded that any nuclear power stations
that might be built in the UK should proceed on the basis that spent fuel
will not be reprocessed and that accordingly waste management plans
and financing should proceed on this basis.
Question 14
reprocessing? What are your reasons? Are there any significant
considerations that you believe are missing? If so, what are they?
Other considerations
119. We recognise that making a decision on the potential role of nuclear
power is a complex issue, and that there are many issues that need to
be considered.
Question 15
Are there any other issues or information that you believe need to be
considered before taking a decision on giving energy companies the
option of investing in nuclear power stations? And why?
Our proposals on nuclear power

120. The Government is not itself proposing to build nuclear power stations.
We have, however, reached the preliminary view that private sector energy
companies should have the option of investing in new nuclear power stations,
subject to the following conditions:
• the developer preparing an environmental Impact Assessment 227 and
securing development consent;
• the developer securing the necessary permissions from the independent
regulators to ensure that the nuclear power station could be operated
safely, securely and without detriment to public health;
• a decision by the Secretary of State, that the proposed design is Justified
(in accordance with the Justification of Practices Involving Ionising
Radiation Regulations 2004) 228;
227 in accordance with the “EIA Directive” 85/337/EEC
228 Justification is a high-level assessment to determine the benefits and detriments associated with a
particular class or type of nuclear practice. Before a new class or type of practice can be introduced into
204 the UK, it must be justified.

• the proposal being in a site that meets the suitability criteria as identified
through a Strategic Siting Assessment. This Assessment would also meet
the requirements for a Strategic Environmental Assessment (in
accordance with EC Directive 2001/42);
• the establishment, in legislation, of arrangements to protect the taxpayer
and ensure that energy companies meet their full decommissioning costs
and full share of waste management costs. These would need to be
agreed before proposals for new nuclear power stations could proceed.
As with the existing nuclear power stations, there is a potential
Government liability in accordance with international Conventions to cover
third party damages in the unlikely event of a major accident;
• a decision that the management of waste arising from new nuclear power
stations would be explored through the Managing Radioactive Waste Safely
(MRWS) process.
121. Within this framework, we think it is likely that energy companies will come
forward with proposals for new nuclear power stations, although we cannot predict
this with certainty. Their decisions will be affected by their view on the underlying
costs of new investments, their expectations of future electricity, fuel and carbon
prices, expected closures of existing power stations and the development time for
new power stations. We cannot know all of these things today and believe we
should reflect this uncertainty by having a diversified approach in our energy policy.
This will reduce the risks associated with this uncertainty, for example, by
preventing over-reliance on a limited number of technologies.
122. The Government believes that, given the many uncertainties in the
energy market over the coming decades, not allowing energy companies the
option of investing in new nuclear power stations would increase the risks of
not achieving our long-term climate change and energy security goals, and if
we were to achieve them, it would be at higher costs.
123. Having reviewed the evidence, the Government’s preliminary view is that
the advantages of giving the private sector the widest choice of investment
options, including nuclear power stations, outweigh the disadvantages. Moreover,
we believe that through the regulatory protections already in place, and other
risk mitigation approaches described in this document, the risks can be
effectively managed.
Question 16
In the context of tackling climate change and ensuring
energy security, do you agree or disagree that it would
be in the public interest to give energy companies the
option of investing in new nuclear power stations?
205

Question 17
Are there other conditions that you believe should be put in place
before giving energy companies the option of investing in new
nuclear power stations? (for example, restricting build to the
vicinity of existing sites, or restricting build to approximately
replacing the existing capacity)
Our proposals for facilitative action

124. If we conclude that energy companies should be allowed to invest in
new nuclear power stations, the Government would carry out a package of
facilitative action designed to reduce the regulatory and planning risks
associated with investing in nuclear power stations.
125. The package of measures is designed to reduce the uncertainties in the

pre-construction period for new nuclear power stations through improvements
to the regulatory and planning processes. The measures will also set out
arrangements for the funding of decommissioning and waste management
and disposal. The proposed package of measures covers:
• taking steps to improve the process for granting planning consent for
electricity developments by ensuring it gives full weight to national,
strategic and regulatory issues that have already been the subject of
discussion and consultation. This could take the form of a National Policy
Statement, consistent with the reforms proposed in the 2007 Planning
White Paper 229. We would:
– develop criteria for suitable sites for new nuclear power stations through
a Strategic Siting Assessment, subject to relevant European and
domestic legislative requirements; and
– continue our consideration of the high-level environmental impacts
through a formal Strategic Environmental Assessment in accordance
with the SEA Directive 230. Applicants for specific proposals would still
need to carry out a full Environmental Impact Assessment;
• running a process of “Justification” (in accordance with the Justification

of Practices Involving Ionising Radiation Regulations 2004);
• the nuclear regulators pursuing a process of Generic Design Assessment 231

of industry preferred designs of nuclear power stations to complement the
existing licensing processes. This would consist of an assessment of the
safety and security of power station designs and their radiological
discharges to the environment; and
• developing arrangements that would protect the taxpayer by ensuring that

private sector operators of nuclear power stations securely accumulate
the funds needed to meet the full costs of decommissioning and full
share of waste management costs. This would need to be agreed before
proposals for new nuclear power stations could proceed.
229 Planning for a Sustainable Future, May 2007, http://www.communities.gov.uk/planningwhitepaper

230 European Directive 2001/42/EC.
206 231 This is sometimes referred to generically as “pre-licensing”.

126. The power to consent to the construction of power stations greater than
50MW capacity has been executively devolved to Scottish Ministers and is
also devolved in Northern Ireland. In developing the proposals above we will
need to take account of any areas in which the Devolved Administrations
have competence.
Question 18
Do you think these are the right facilitative actions to reduce the
regulatory and planning risks associated with such investments?
Are there any other measures that you think the Government
should consider?
127. The Government has previously consulted on a similar package of proposals,

through the July 2006 consultation on a Nuclear Policy Framework. Because the
proposal has been refined, we are consulting again on this issue. If respondents
would like us to reconsider their responses to that consultation, then they should
indicate this in their response to this consultation.
128. Alongside this in-principle consultation, there is a linked technical

consultation on the details of running a Justification process and a Strategic
Siting Assessment. Respondents to this consultation may wish to consider
the information brought forward in this consultation 232.
129. If after these consultations, we confirm our preliminary view that energy
companies should be allowed to invest in new nuclear power stations, we will
set this out in a further Energy White Paper later this year.
130. In summer 2007, the Government will also be launching a consultation on

proposals for implementing the Committee on Radioactive Waste Management’s
recommendations for geological disposal of higher activity radioactive wastes as
part of the Managing Radioactive Waste Safely (MRWS) programme. This
consultation will specifically consider the geological repository development
programme and site selection process. The consultation is expected to launch in
June 2007. Respondents to this consultation may want to see the more detailed
information on geological disposal that will be published in the MRWS
consultation before responding to this consultation.
Proceeding with facilitative action on a

contingent basis
131. There is a limited window for replacing a significant amount of our
existing electricity generating capacity. Energy companies will need to invest
in around 30-35GW of new electricity generating capacity – as coal and
nuclear plants retire – over the next two decades, with around two-thirds
needed by 2020. This is equivalent to about one third of our existing capacity.
We know that there is an urgent need to tackle climate change.

132. New nuclear power stations have long lead times. This time is necessary
to secure the relevant regulatory and development consents which must be
obtained before construction can begin, but there is also a long construction
period compared to other generating technologies 233.
133. New nuclear power stations are therefore unlikely to make a significant
contribution to the need for new capacity before 2020. Even with our
expectation that the share of renewables will grow, it is likely that fossil fuel
generation will meet some of this need.
134. However, beyond that date there are still significant amounts of new
capacity needed; for example in 2023 one third or 3GW of our nuclear capacity
will still be operational, based on published lifetimes. Given the likely increase
in fossil fuel generation before this date, it is important that as much of this
capacity as possible is replaced with low carbon technologies. Nuclear power
stations could make an important contribution to this need and make a
contribution to our energy security.
135. However, without early clarity on the Government’s policy, we will

foreclose the opportunity for nuclear power because of the long lead times.
There will not be a time when climate change and energy policy will stop
evolving and adapting. Meeting our energy challenges will require changes
to the UK energy system, it is important that we make progress now.
136. We therefore believe it is prudent to start working on this facilitative

action now, on a contingent basis, so that no time is wasted if we do
conclude that nuclear power has a role to play. We will therefore be starting
work on some of these activities, in particular on the Generic Design
Assessment process and the arrangements for waste and decommissioning
funding, on a contingent basis alongside this consultation. We will review
whether to continue with this work in the light of the consultation responses.
RESPONDING TO THIS CONSULTATION

Consultation Questions
This document sets out a summary of the key challenges of tackling climate
change and ensuring energy security that the UK faces:
1. To what extent do you believe that tackling climate change

and ensuring the security of energy supplies are two key
challenges for the UK that require significant action in the near
term and a sustained strategy between now and 2050?
The document also sets out the evidence and information that we have
considered and the preliminary conclusions that we have reached following
our assessment of this evidence. We invite respondents to consider the
evidence we have presented, and to comment on the following questions:
233 Our conservative assumption is that for the first new nuclear plant the pre-construction period would last
around 8 years (to secure the necessary consents) and the construction period would last around 5
208 years. For subsequent plants this is assumed to be 5 and 5 years respectively.

2. Do you agree or disagree with the Government’s views on
carbon emissions from new nuclear power stations? What are
3. Do you agree or disagree with the Government’s views on the

security of supply impact of new nuclear power stations? What
are your reasons? Are there any significant considerations that
you believe are missing? If so, what are they?

economics of new nuclear power stations? What are your
reasons? Are there any significant considerations that you

value of having nuclear power as an option? What are your
reasons? Are there any significant considerations that you

safety, security, health and non-proliferation issues? What are

transport of nuclear materials? What are your reasons? Are
there any significant considerations that you believe are
8. Do you agree or disagree with the Government’s views on waste

and decommissioning ? What are your reasons? Are there any
significant considerations that you believe are missing? If so, what
are they?
9. What are the implications for the management of existing

nuclear waste of taking a decision to allow energy companies to
build new nuclear power stations?
10. What do you think are the ethical considerations related to

a decision to allow new nuclear power stations to be built? And
how should these be balanced against the need to address
climate change?

environmental issues? What are your reasons? Are there any
what are they?

the supply of nuclear fuel? What are your reasons? Are there
any significant considerations that you believe are missing? If
so, what are they? 209

the supply chain and skills capacity? What are your reasons?
Are there any significant considerations that you believe are

reprocessing? What are your reasons? Are there any significant
considerations that you believe are missing? If so, what are they?
The purpose of this major consultation exercise is to provide interested parties

with information on nuclear power, and to assist parties to reach an informed
view on the future of nuclear power in the UK. Based on the responses and
evidence gathered during this consultation, we will consider whether it is
appropriate to confirm our preliminary view as Government policy, and to allow
energy companies to invest in new nuclear power stations.
15. Are there any other issues or information that you believe
need to be considered before taking a decision on giving energy
companies the option of investing in nuclear power stations?
And why?
In their responses to the consultation, we encourage parties to include the

reasoning behind their conclusions and any evidence that supports their views. In
reaching a conclusion on the future of nuclear power, we will assess the responses
to this consultation and the evidence and information that it brings forward.
16. In the context of tackling climate change and

ensuring energy security, do you agree or disagree
that it would be in the public interest to give energy
companies the option of investing in new nuclear
power stations?
17. Are there other conditions that you believe should be put in
place before giving energy companies the option of investing in
new nuclear power stations? (for example, restricting build to
the vicinity of existing sites, or restricting build to approximately
replacing the existing capacity)
Alongside this in-principle consultation, there is a linked technical consultation

on the details of running a Justification process and a Strategic Siting
Assessment. Respondents to this consultation may wish to consider the
information brought forward in these consultations 234.
18. Do you think these are the right facilitative actions to reduce
the regulatory and planning risks associated with such
investments? Are there any other measures that you think the
Government should consider?
210 234 http://www.dti.gov.uk/energy/whitepaper/consultations/nuclearpower2007

How to respond
This consultation seeks views on the information and arguments set out on
whether the private sector should be allowed the option of building new nuclear
power stations.
We want to hear from members of the public, industry, non-Governmental

organisations (NGOs) or any other organisation or public body.
We are seeking views on whether the Government has considered the

relevant arguments; whether we have considered the arguments reasonably
and whether there are other important arguments we have overlooked. Your
views will contribute to the shaping of the policy on the future of civil nuclear
power in the UK. They will help Government assess the arguments before it
reaches its final decision on the future of new nuclear build.
We will consider carefully the responses we get and this will enable us to
take a decision on nuclear power later in the year.
The Government will give greater consideration to the arguments and evidence
than to simple expressions of support or opposition to new nuclear power
stations when considering responses to this consultation and whether to
confirm our preliminary view.
The consultation began on 23 May 2007 and will close on 10 October 2007.
There are a number of ways to let us know your view.
Online
Visit our website at http://www.direct.gov.uk/nuclearpower2007. The online
consultation has been designed to make it easy to submit responses to the
questions. On registration you will be provided with a user name and
password to enable you to edit or update your submission as many times
as you wish whilst the consultation is open.
By letter, fax or email

A response can also be submitted by letter, fax or email to:
Response – Nuclear Power Consultation 2007

FREEPOST SEA 12430
Thornton Heath
CR7 7XT
Tel: 020 7215 3331

Fax: 020 8683 6601
Email: [email protected]
If you are responding on paper you can use the response form which is
available on request by contacting the DTI Publications Orderline (the address
is on page 37).
211

Additional points about this consultation
When responding please state whether you are responding as an individual

or representing the views of an organisation. If you are responding on behalf
of an organisation, please make it clear who the organisation represents and,
where applicable, how you assembled the views of members. The website
registration form provides space to do this.
After the consultation has closed, all responses (including respondents’

names) will be published unless respondents specifically request that their
responses be kept confidential. This will apply to all responses whether
submitted online, posted, faxed or emailed. Please indicate on your response
if you want us to treat it as confidential. You should also read the section on
confidentiality and data protection.
The deadline for responses is 10 October 2007.
Consultation events
In addition, over the next few months we want to meet with representatives
from NGOs, industry, local authorities and many other organisations. These
meetings will enable us to explore in more detail the views of interested
parties.
We will also be hosting a number of regional deliberative events across the

UK for members of the public. These events provide an opportunity for the
public to input their considered and informed views. They will enable us to
understand the views of the public after they have heard the key facts and
arguments in the consultation. Discussion at the events will address the same
key questions in the consultation document. The public will be recruited to be
demographically representative of the UK population. Recruitment will be
through direct invitation of randomly selected households on selected
electoral registers.
Summaries of the events will be published on our website when available

during the consultation.
Confidentiality and Data Protection
Information provided in response to this consultation, including personal

information, may be subject to publication or disclosure in accordance with
the access to information regimes (these are primarily the Freedom of
Information Act 2000 (FOIA), the Data Protection Act 1998 (DPA) and the
Environmental Information Regulations 2004).
If you want other information that you provide to be treated as confidential,

please be aware that, under the FOIA, there is a statutory Code of Practice
with which public authorities must comply and which deals, amongst other
things, with obligations of confidence.
In view of this it would be helpful if you could explain to us why you regard
the information you have provided as confidential. If we receive a request for
212

disclosure of the information we will take full account of your explanation,
but we cannot give an assurance that confidentiality can be maintained in all
circumstances. An automatic confidentiality disclaimer generated by your IT
system will not, of itself, be regarded as binding on the Department.
The Department will process your personal data in accordance with the DPA
and in the majority of circumstances this will mean that your personal data
will not be disclosed to third parties.
Additional copies
You may make copies of this document without seeking permission. Further
printed copies of the consultation document or copies of the response form
can be obtained from:
DTI Publications Orderline

ADMAIL 528
London SW1W 8YT
Tel: 0845 015 0010

Fax: 0845 015 0020
Minicom: 0845 015 0030
http://www.dti.gov.uk/publications
Copies of the document in Welsh, Braille, large print and audio are also
available on request from the Orderline. An electronic version can be found at
http://www.direct.gov.uk/nuclearpower2007. A Welsh version of the
document will be available at the same address.
Help with queries

Questions about the policy issues raised in the document can be addressed to:
Query – Nuclear Power Consultation 2007

FREEPOST SEA 12430
Thornton Heath
CR7 7XT
Tel: 020 7215 3331

Fax: 020 8683 6601
Email: [email protected]
213

Taking part in other related consultations
As we explain in the Executive Summary, there are a number of other
consultations which you may want to find out more about:
• Alongside this in-principle consultation, there are linked technical
consultations on the proposed Justification and Strategic Siting
Assessment processes. You can take part in these by visiting the website
http://www.direct.gov.uk/nuclearpower2007. Alternatively you can request
a copy of the document by contacting the DTI Publications Orderline.
• Managing Radioactive Waste Safely (MRWS) Consultation. This
consultation will specifically consider the proposed implementation
framework for the geological disposal of the UK’s higher activity radioactive
waste including the approach to site selection. The consultation is
expected to launch in June 2007. Respondents to this consultation may
want to see the more detailed information on geological disposal that will
be published in the MRWS consultation before responding to this
consultation. You can take part in this by visiting http://www.defra.gov.uk or
by phoning the Defra Helpline on 08459 33 55 77 or emailing
[email protected].
214

215

CHAPTER 6
Research and Development,

Demonstration and
Deployment, and Skills
Our move to a secure and low carbon economy requires the
development of technologies, products and processes
to reduce the carbon emissions from energy. We need to
harness cleaner sources of energy, such as wind, waves and
tides, and find ways to decarbonise fossil fuels, including
through more efficient production and use. We also need
skilled people to develop, install and operate these
technologies. Without these developments we will be
unable to meet our carbon reduction goals and we will have
fewer sources of energy to rely on within our energy mix.
The Stern Review 235 notes that policy to support innovation
and the deployment of low carbon technologies will be a
key response to mitigating climate change. Stern also
identifies a range of important associated actions to support
increased take-up of new technologies including effective
carbon pricing and removing barriers to innovation.
6.1 The Government and industry are already investing in low carbon energy
technologies and we will continue to work together to overcome the barriers
to development and deployment. The development and deployment of new
technologies requires effective infrastructure, well-targeted funding, and the
skills to bring forward a low carbon energy future.
6.2 Without support new energy technologies are unlikely to develop within
the timescales necessary to reduce the risks of climate change. There are
several reasons for this. Firstly, there are significant costs and risks in energy
technology innovation including the long time periods involved in
development. Secondly, it is difficult for new technologies to displace existing
energy sources which are usually cheaper to produce and often benefit from
the economies of scale from widespread deployment. Thirdly, displacing
existing technologies is made all the more difficult if the cost of carbon is
not adequately reflected in the price we pay for energy.
6.3 The objective of Government support is therefore to promote the

development of new technologies from initial concept to the point where they
can be deployed commercially. On its own, the private sector may not invest
adequately, particularly in R&D, because individual companies cannot always
216 235 The Stern Review – The Economics of Climate Change. Nicholas Stern, 2006.

capture sufficient returns relative to the costs and risks involved. This is
demonstrated by the fall in energy R&D since privatisation. The Government’s
role is to address this market failure and facilitate a level of spending that
reflects wider economic benefits.

• the benefits of developing new low carbon technologies and more
efficient production and use of energy;
• how low carbon technologies, products and processes are developed and
the new and existing funding programmes in place to support this;
• the objectives of the new Energy Technologies Institute and the
Environmental Transformation Fund; and
• the challenges the energy sector faces in terms of longer-term skills
development and the actions being taken to address them.
The benefits of development of low carbon

technologies
6.5 Taken together, low carbon energy technologies now supply roughly 25%
of the UK’s electricity (4.6% excluding nuclear)236, and less than 1% of our
heat and transport fuels. If we can drive the development of low carbon
technologies there could be many benefits beyond the obvious emissions
reductions, including:
• Reducing security of supply risk – Diversity in the energy mix is
important to security of supply as it spreads the risk across a range of
technologies and reduces over-reliance on one particular source of energy.
• Innovation and wealth creation – Technology developments can bring
opportunities for UK companies. The focus of applied research through
the DTI’s Technology Programme is wealth creation through innovation,
and that programme and its predecessor have supported UK companies
on the path to bringing energy technology developments to market. This
will be continued through the Energy Technologies Institute and the
Technology Strategy Board (see paragraphs 684 and 690). In addition, the
Government has established the Commission on Environmental Markets
and Economic Performance (CEMEP) which will report later this year. It
will make recommendations on how the UK environmental goods and
services industry can make the most of the opportunity that environmental
protection can present for wealth creation and employment growth 237.
• Supply chain and service companies opportunities – Deployment of
technologies that have overcome the technical hurdles brings
opportunities for service organisations, from small scale installers of
microgeneration technologies through entrepreneurial project developers
to the major construction and finance houses required to develop offshore
wind farms. Some technologies create business opportunities by bringing
together new groupings of existing industries, for example carbon capture
and storage where utilities, oil companies and process plant design
experts are developing new relationships.
236 DTI: Digest of UK Energy Statistics, 2006.

237 A recent joint DTI/Defra report estimates that the UK environmental goods and services industry has the
potential to increase its turnover to more than £34 billion by 2010 and £46 billion by 2015
(http://www.dti.gov.uk/sectors/environmental/index.html). CEMEP’s membership is drawn from
Government, business, NGOs, academia, trade unions and public sector organisations.
217
Research and Development, Demonstration and Deployment, and Skills

• Informing our international strategy to drive rapid deployment
globally of low carbon technologies – Development and deployment of
low carbon technologies in the UK contributes to our international climate
change objectives. We build on experience and expertise in the UK to
develop our strategy overseas, establishing relationships at both a strategic
and technical level. These relationships influence the international debate
on new carbon technologies and help to facilitate the cost-effective roll-out
of technologies globally. International energy technology issues are covered
in more detail in chapter 1, which gives examples of projects where the UK
is collaborating with other countries to roll out new technologies.
The innovation system

6.6 All technologies broadly go through the same stages of development:
research through to deployment, which collectively constitutes the innovation
system (see Figure 6.1 below). In reality, the innovation system is far less
linear than implied by Figure 6.1. For example a project at the demonstration
and deployment stages may have further need for research and development.
Support for the research, development and demonstration of new
technologies forms the technology push aspect of innovation.
6.7 Market pull comes by providing the market mechanisms and incentives
that help create the demand for the wider deployment of new technologies.
One of the most obvious examples is the Renewables Obligation which has
been very effective at deploying new renewables technologies to produce
electricity; there is now over 2GW of wind power connected to the grid.
FIGURE 6.1. THE INNOVATION SYSTEM
218

6.8 The Government’s aim is to speed the development and deployment of
sustainable and affordable low carbon technologies which can help cut carbon
dioxide emissions. Our strategy, both nationally and globally, is based on:
• building credible long-term policy frameworks for tackling climate change
to provide clear long-term signals to industry which will shape their
investment decisions (such as carbon pricing through the EU Emissions
Trading Scheme) Also, through the draft Climate Change Bill, the UK is
setting a target to reduce emissions by 60% by 2050, with a reduction
of 26-32% by 2020;
• enabling private sector investment by setting direction and providing direct
support for innovation. This creates and develops new technologies that
have the potential to be rolled out affordably on a wide scale; and
• intervening to address other market failures through a stable framework
of policies and incentives. This includes providing the right framework
of legislation and economic incentives to encourage development
investment. The Government can also put in place systems to enable
technology collaboration and policies to overcome specific barriers to
development, which can range from awareness-raising to identifying
common standards and supply chain development.
6.9 As well as developing their viability, Government support also aims to

reduce the costs of producing energy from technologies. Emerging
technologies begin at a higher point on the cost curve. Over time the costs
are expected to fall to the point where they become competitive with existing
technologies, taking into account market pull measures such as the EU ETS.
6.10 The UK is focusing support on technologies that have the potential to

produce cost-effective clean energy for use in producing electricity, heat or
fuels for transport 238, and to help us use energy more efficiently.
Developing low carbon energy technologies

6.11 Low carbon technologies apply to all energy sectors; they can be large
or small scale, and are for use by individuals, households, communities,
business and the public sector. Key technologies include those already at or
near commercial deployment (including renewables, fuel cells, and improved
combustion technologies for fossil fuel and nuclear) and also those that will
enable our move to a low carbon economy over the longer-term (such as
carbon capture and storage, hydrogen, advanced biofuels, solar electricity,
wave and tidal, and nuclear fusion).
6.12 New technologies can also help us to use energy more efficiently, by
improving the efficiency of buildings, vehicles, power generation and
distribution. Advanced demand management techniques allow us to monitor
and regulate the use of energy, from smart meters in the home to the wide-
scale distribution of electricity. Innovation can help us to use less energy by
improving the efficiency of products. New technologies involving insulation
could improve the emissions from buildings (the UK housing stock is currently
responsible for around 27% of all carbon emissions in the UK). Further details
on saving energy can be found in chapter 2.
238 The Low Carbon Transport Innovation Strategy is detailed in chapter 7. 219

6.13 Innovation in electricity networks is also required in order to allow
renewable generation to access the electricity grid more quickly, maximise
the utilisation of existing network assets, and generally manage the
transmission and distribution of electricity more efficiently. A characteristic of
some renewable electricity sources is that their output will vary, for example
according to the strength of the wind. Innovation can help overcome the
challenge of managing the impacts of this variability efficiently and at
minimum cost.
6.14 The emerging technologies which could offer the most potential to the
UK are shown in Table 6.1. This also indicates the stage of development of
each of them. The development timescales in some cases are long, covering
decades rather than years.
TABLE 6.1. EMERGING TECHNOLOGIES IN THE UK
Technology Potential uses Development stage
Offshore wind For electricity Early deployment stage.

Further R&D is underway
to help cost reduction
Bioenergy For heat, transport and Many proven technologies

electricity (both in deployment stage. Second
dedicated biomass generation technologies in
electricity and co-fired early stages
with coal)
Wave and tidal For electricity – tidal Leading wave and tidal-
barrage could also be stream technologies at
integrated with demonstration stage.
transport infrastructure Tidal barrage is a mature
and coastal protection technology
Microgeneration For heat and/or Most technologies are proven

technologies (solar electricity to homes, and in the deployment phase.
photovoltaics (PV) and community buildings, Micro-CHP (Combined Heat
water heating, micro- small commercial and and Power) and small-scale
wind, micro-hydro, heat public sector premises fuel cells are at earlier stages
pumps, biomass,
micro-CHP and small-
scale fuel cells)
220

TABLE 6.1. Continued
Technology Potential uses Development stage
Hydrogen and fuel cells Fuel cells – distributed Fuel cells for portable power
stationary power in, e.g. laptops and mobile
generation, CHP, phones are at early
transport, portable deployment stage. Other
power. technologies are at the early
Hydrogen – transport, demonstration phase and
heating, and possibly further R&D is required to
balancing intermittent deliver major cost reductions
renewables for power and improved performance
generation in remote
situations
Carbon abatement For electricity No commercial-scale CCS

technologies generation. Efficiency power stations have been
improvements, and developed yet in any country,
carbon capture and although elements of the
storage (CCS) individual stages of the
process have been
demonstrated
Research technologies For electricity, heat or Technologies still in research

transport e.g. next generation solar PV
and, alternative ways to
harness solar energy, biofuel
cells, nuclear fusion
Demand management Technologies such as Products and processes

technologies products, materials, at various stages of
networks and storage development; for example
that use energy more smart domestic metering at
efficiently for electricity, the early deployment stage
heat or transport
Battery technologies For use in vehicles with Partial to full hybrid systems
hybrid systems as well currently entering the market,
as fully battery driven purely battery vehicles at the
demonstration phase or in
niche applications
Energy technology support mechanisms

6.15 The Government strategy to develop low carbon sources of energy is
devised and delivered in conjunction with a wide range of bodies including the
private sector and academia. Different organisations work together to provide
strategic advice, financial support and a coherent framework of policy and
action in this area, both domestically and internationally. The Government sets
the overall strategic direction: by ensuring that each part of the innovation
system works effectively with the whole system and bringing together
participants to set common goals; by setting the level of public funding to
leverage the investment from the private sector; and by working to expand
research and industrial capacity.
221

6.16 An important element of this work is to promote development and
deployment of low carbon energy technologies globally. Almost all of the
organisations and programmes discussed below are actively engaged in
international collaboration with both developed and developing countries.
For example, the Research Councils run joint programmes with developing
countries for collaborative R&D, and both the new Energy Technologies
Institute and the Environmental Transformation Fund have strong
internationally focussed aims. The UK has initiated the joint EU-China project
to build a commercially viable near-zero emissions coal power station in China
(NZEC) with funding from the EU and UK. Further details on NZEC are
provided in chapter 1.
6.17 Government support for energy innovation is rising sharply. In summer

2007 we shall be launching the new Energy Technologies Institute, with a
minimum budget of around £600 million over the next decade for R&D into low
carbon energy, drawing on private as well as public funding. The Environmental
Transformation Fund will be established from April 2008. Figure 6.2 sets out the
main support mechanisms. It also shows the public sector bodies that work
together, and with the private sector, to support the energy innovation system.
The organisations are shown under their main area of operation, although some
operate across several parts of the innovation system.
FIGURE 6.2 ENERGY INNOVATION – KEY PUBLIC SECTOR PARTICIPATION
6.18 The Energy Research Partnership was established in January 2006 to

bring together key organisations across Government, the research community
and business. The Partnership is a key senior level forum where UK
participants in low carbon energy innovation, including most of those shown
in the table above, come together to maximise the impact and coherence of
the UK’s investments in all aspects of energy innovation, extending from
fundamental research through to support for the deployment of emerging low
222 carbon technologies in the market place.

6.19 The Partnership has been instrumental in developing the Energy
Technologies Institute (see paragraph 684). Other work has focused on identifying
priorities for UK R&D, and on exploring key training and skills issues. Its report on
high-level skills shortages in the energy sector was published in March 2007239.
Innovation system support mechanisms – Research and Development

6.20 The UK Energy Research Centre (UKERC) was established in 2004
following the 2002 Energy Review. With funding of £13.8 million over 2004-9,
its objective is to provide a focus for energy research in the UK and for
international collaboration. UKERC organises outreach, networking and
integrating research activities with the involvement of research institutions
across the UK. The UKERC Energy Research Atlas and National Energy
Research Network were launched in October 2006.
6.21 The Research Councils’ Energy Programme brings together within

one framework all the Research Council activities on energy R&D and
postgraduate training. The programme is led by the Engineering and Physical
Sciences Research Council (EPSRC) and supports a full spectrum of energy
research to help meet the UK’s energy policy objectives, working to expand
international collaboration and UK research capacity in energy-related areas.
The programme has a high level of business and other user engagement.
Current consortia delivering the programme include work in marine energy,
solar pv, hydrogen (including storage and solar production), fuel cells (incuding
biofuel cells), bioenergy, carbon capture and storage, wind, transmission and
distribution (including the inclusion of intermittency and distributed
generation), energy storage, conventional plant and nuclear fission. There are
also teams working on energy demand reduction in buildings and in industry
and on understanding the links between lifestyle, societal values and the
environment. EPSRC funds the UK fusion programme (see Box 6.1). Research
Council’s expenditure on energy-related basic, strategic and applied research
and related postgraduate training is planned to rise to over £70mpa by 2007-8.
BOX 6.1 RESEARCH AND DEVELOPMENT INTO NUCLEAR FUSION
Research is underway on nuclear fusion which may emerge as a major

new source of energy in the longer term. A fusion power station would
create no greenhouse gases nor other polluting emissions during its
operation and no long-lived radioactive waste. Fusion uses basic fuels
which are abundant and widely available – hydrogen (from water) and
lithium. It is generally thought that technical feasibility of fusion power
generation could be demonstrated within 25 years given adequate
resources, with full-scale power generation in a prototype power plant
within 30-35 years.
Fusion has been achieved in JET (the Joint European Torus) in Culham,
Oxfordshire, and has resulted in the release of significant amounts of
fusion energy in a controlled manner for very short periods. JET, which
began operation in 1983, is the flagship of the European Fusion
Programme.
239 Energy Research Partnership, Investigation into high-level skills shortages in the energy sector, March 2007
http://www.energyresearchpartnership.org/files/ERP-Skills-Brochure.pdf 223

BOX 6.1 Continued
Knowledge gained from JET is a valuable input into design of ITER

(International Thermonuclear Experimental Reactor), a new experimental
fusion facility to be built in France. ITER will aim to demonstrate the
physics and engineering of fusion at the scale of a power station.
International collaboration is the best way of addressing the complex
science and technology questions and the scale of resources required in
order to harness nuclear fusion. The seven parties co-operating on ITER
are China, EU, India, Japan, Russia, Republic of Korea, and the US. The
UK is participating through its membership of the European Atomic Energy
community (EURATOM).
6.22 Applied research in the development stage benefits from substantial and
increasing UK and EU sources of funding. See chapter 1 for information on
the EU Framework Programme (FP). The current programme, FP7, has
allocated €2.3 billion (or £1.6 billion 240) for energy innovation over 7 years
from 2006.
6.23. The Energy Technologies Institute will launch in summer 2007. It is a

joint venture partnership which brings together public and private sector R&D
in the UK to set strategic direction and fund its delivery. It will provide the UK
with a world-class means for delivering applied energy technology research to
underpin eventual deployment. To do this, the Institute will connect the best
scientists and engineers working in academic and industrial organisations both
within the UK and overseas. The projects these teams deliver will accelerate
the progress of industrially applicable innovative energy technologies through
the innovation system to enable some commercial deployment within 10 years.
6.24 The objectives of the Institute are to:

• accelerate the deployment of new low carbon energy technologies,
including the efficient production and use of energy, in support of the UK’s
energy and climate change goals;
• provide a strategic focus in the UK for low carbon energy R&D;
• increase the level of funding in the UK for low carbon energy R&D;
• promote international technology collaboration;
• increase UK R&D capacity; and
• promote people, skills and knowledge sharing.
6.25 Some of the world’s biggest energy companies are already involved in
this unique venture and helping to drive the initiative forward – BP, E.ON UK,
Shell, EDF Energy, Rolls-Royce, Caterpillar, and Scottish and Southern Energy
Group. The funding contribution of members of the Institute, matched by
Government, provides it with a budget of a minimum of around £600 million
over a lifetime of a minimum of 10 years. Additional private sector partners
are being identified to match the Government’s commitment of up to £550
million over the next decade.
224 240 Based on May 2007 exchange rate.

6.26 The Institute will focus on a small number of specific R&D projects
relevant to industry, both commissioning and funding its own research and
supporting worthwhile projects run by third parties. This will include R&D
in support of demonstration (including possible funding for small scale
pre-commercial demonstrations) and eventual deployment, selected from
within a framework of the following general themes:
• large scale energy supply technologies
• energy security of supply
• end use efficiency/demand management
• transport
• small scale energy supply technologies
• support infrastructures (such as energy supply networks, storage skills
and capacity)
• alleviating energy poverty.
6.27 In selecting areas for investment, the Institute will be looking both for
technical viability and commercial attractiveness. Consequently, part of its
remit will be to consider longer-term energy market scenarios. This work will
be informed by technology “roadmaps” covering all stages of the innovation
system developed by DTI, the Energy Research Partnership and the UK
Energy Research Centre amongst others. The Institute will play an important
role in identifying and supporting the development of the technologies
available to achieve our targets for 2050 and beyond. By regularly updating
the market scenarios and technology roadmaps it will be able to provide
strategic direction and pull for the work funded in UK universities by the
Research Councils’ Energy Programme.
6.28 The R&D will be carried out in centres of excellence across the UK and
overseas. In deciding the Institute’s programme of work it will pay particular
attention to the technical and commercial viability of a technology, as well as
existing work underway elsewhere around the world.
6.29 From July 2007 the DTI Technology Programme will be directed by a
new executive body, the Technology Strategy Board, set up to drive forward
the Government’s Technology Strategy. The Technology Strategy Board will
work closely with the Energy Technologies Institute to align the direction of
funding of low carbon energy technologies. Requests for proposals for low
carbon energy projects will be handled under existing arrangements during
2007 to ensure a smooth transition from the existing Technology Programme.
6.30 Other organisations are also active in funding development and other
parts of the innovation chain. The Carbon Trust, an independent company
funded by Government, works with research institutions and industry to
identify and help accelerate innovative low carbon technologies. They offer
a variety of mechanisms of support including grants for R&D; strategic and
business development advice to start-up companies; funding to overcome
barriers to commercialisation; and technical expertise and venture capital
investment for low carbon businesses.
225

BOX 6.2 THE DEVELOPMENT OF WAVE AND TIDAL-STREAM
TECHNOLOGIES
Wave and tidal-stream energy technologies have the potential to make a

significant contribution towards our energy and climate change objectives.
There are currently a number of concepts at various stages of development
with a small number of devices having already been demonstrated at full-scale.
Since 1999, the Government has through the DTI, Research Councils and
the Carbon Trust programmes committed in excess of £100 million
funding to support RD&D of marine technologies. This includes support
for new infrastructure such as the European Marine Energy Centre in
Orkney, which provides dedicated testing facilities for marine energy
technologies and the proposed “Wave hub” in the South West which
could host a number of wave power projects.
The launch of the £50 million Marine Renewables Deployment Fund

(MRDF) and a similar scheme funded by the Scottish Executive has also
stimulated the interest of major power companies in the sector. The
MRDF moved to an “open call” basis in March 2007, so that the MRDF
can fund proposals at any time. The UK has in place the most
comprehensive set of support measures for the development of wave and
tidal-stream in the world. Even so, progress towards full commercialisation
of these technologies has been slower than expected. The Government is
working closely with the Renewables Advisory Board and others to drive
forward progress in this sector.
The UK is a founder member of the International Energy Agency’s Ocean

Energy Systems (OES) Implementing Agreement. OES brings together the
leading global players in marine energy to work on commercialisation
issues that need to be addressed at a global level such as standards,
testing and resource assessments.
Innovation system support mechanisms – Demonstration

and Deployment
6.31 Demonstration stage support generally takes the form of grants to
enable the capital costs and risks of full-scale demonstration of technologies
to be shared between public and private sector. Sources of capital grant
funding for low carbon energy technologies include the Government,
Devolved Administrations and Regional Development Agencies. The EU has
also announced its intention to support the demonstration of hydrogen and
fuel cell technologies through a Joint Technology Initiative.
6.32 In June 2006, the Government announced the creation of a new cross-
Government fund to invest in low carbon energy and energy efficiency
technologies. Led by Defra, DTI and DfID the Environmental Transformation
Fund brings together the Government’s work within the UK and internationally
to support, amongst other things, the demonstration and deployment of new
energy technologies, and to promote the better use of energy. An
international section of the ETF will support development and poverty
226 reduction through environmental protection in developing countries, including

action to tackle climate change. The Fund brings a new level of coherence to
our support for the transformation to a low carbon economy.
6.33 The Fund is a means to:

• support the demonstration and deployment of low carbon energy and
energy efficiency technologies for heat, electricity and transport in the UK
including biofuels and other renewables, and low carbon fossil fuel
technologies such as carbon capture and storage (CCS).
• pick up technologies emerging from R&D and help fund them through the
later stages of the innovation system. In turn, as we have seen, the
lessons from demonstration and early deployment may point to a need for
further research and development. To this end the Fund will work closely
with the Energy Technologies Institute, the Technology Strategy Board and
others to optimise the route to market within the UK and globally; and
• finance overseas development projects to support development and
poverty reduction through environmental protection, and help developing
countries respond to climate change. The international section of the Fund
will be dedicated to overseas development aims. Its work will include
bilateral projects in developing countries as well as multilateral facilities
such as the World and Regional Development Banks’ Clean Energy
Investment Frameworks. It will also support adaptation and provide
access to clean energy, and help tackle unsustainable deforestation.
6.34 The Fund will open in April 2008. Funding of £800 million for the
international element of ETF was announced in the 2007 Budget, for the three
years from April 2008-2011. Details of the domestic element over the same
period will be announced during 2007, in the context of the Comprehensive
Spending Review.
BOX 6.3 THE DEMONSTRATION OF HYDROGEN AND FUEL

CELL TECHNOLOGIES
Hydrogen and fuel cells (which can be powered from hydrogen) are linked
technologies with significant carbon-saving potential where the hydrogen
is produced from renewable or low carbon sources.
Fuel cells and hydrogen technologies face significant technical and

economic challenges if they are to displace the incumbent technologies.
A huge international effort (both public and private) is being devoted to
overcoming them. This will require fundamental and applied research,
development and demonstration. Non-technical barriers such as codes,
standards and regulations will become increasingly significant as the
technology moves towards demonstration and deployment, and efforts
are already being made at the international level to address this problem.
A new UK demonstration programme has been launched and the first call
for proposals opened in September 2006. The programme offers a total
of £15 million funding over three years for hydrogen and fuel cells. Basic
research is being supported by the Research Councils, including the
directed programme SUPERGEN, which is funding separate consortia
working on hydrogen and fuel cells. The European Commission is
227

BOX 6.3 Continued
expected to come forward with proposals later this year, for a Fuel Cell
and Hydrogen Joint Technology Initiative to support further applied
research and demonstration activities of these technologies. The use of
hydrogen as a transport fuel is also considered in chapter 7.
6.35 There are various mechanisms to support the deployment of low carbon
technologies in all sectors. These include the Renewables Obligation, the EU
Emissions Trading Scheme, the Climate Change Levy and the Renewable
Transport Fuels Obligation (from 2008). These mechanisms either help reduce
the operating costs and therefore make technologies competitive in the
market or penalise those technologies that have high emissions. The
Government also intervenes to address barriers to deployment, for example
through the reforms to planning procedures which are discussed in chapter 8.
6.36 Building credible long-term frameworks for tackling climate change are a
key part of providing clear long-term signals to industry about the future path
of emissions. Establishing a price for carbon gives industry certainty about the
value of emissions reductions while trading mechanisms such as EU ETS
allow cost effective sharing of the burden of reducing carbon emissions.
BOX 6.4 CHP FACILITY
A biomass Combined Heat and Power (CHP) facility at Balcas Timber, near
Enniskillen in Northern Ireland, was commissioned in 2005 and has
benefited from £2 million of capital grant funding from DTI.
The CHP plant makes Balcas' Enniskillen sawmill site self-sufficient in

electricity, with surplus electricity sold to the Northern Ireland grid. Its heat
is used in the production of biofuel pellets. The plant is one of the largest
biofuel pellet production facilities in the British Isles. The plant produces
enough biofuel pellets each year to meet the energy needs of 10,000
households.
The company sees the potential for replication of the project elsewhere in
the UK and announced in November 2006 plans for a £24 million plant at
Invergordon, with funding from Highland and Islands Enterprise. As well
as being carbon neutral and a direct replacement for fossil-fuels, biofuel
pellets are generally a cost-effective source of heat compared with oil.
Developing the right skills

6.37 The skills and competencies of the workforce are of growing importance
to the energy sector, as they are for the economy as a whole. It is crucial that
employers have the trained staff they need for the safe and efficient operation
of their businesses and the reliable supply of energy to their customers. It is
also crucial that workers have the skills and flexibility to handle the new
technologies and business practices that will emerge in the coming decades.
228

6.38 The Government’s Skills Strategy241 aims to ensure that employers
across all sectors can recruit people who have the right skills. The recent
Leitch Review242 illustrated the significant challenges that face the UK. It
recommended that the UK should commit to becoming a world leader in skills
by 2020, benchmarked against the upper quartile of OECD. Government has
an important role to play in providing the right framework and to work with
employer organisations and trade unions to ensure that education and training
is delivering the right skills. However, it is for employers to ensure that the
workforce is equipped with the work-specific skills they need.
Skills challenges in the energy sector

6.39 Although the energy sector employs a broad range of people with a
wide variety of skills, there are some challenges that are common to the
workforce as a whole. There is evidence of skills gaps across the energy
sector. For example, work undertaken for Cogent’s243 Sector Skills Agreement
showed 72% of companies experiencing skills gaps, notably in project
management, technical and practical skills. Skills gaps are also increasing
because the workforce is faced with unfamiliar processes and technologies.
Skills shortages, on the other hand, are likely to increase because the
workforce is older than the population as a whole and many will retire in the
coming decade. Workforce retirement will coincide with higher demand for
people to deliver the increased investment needed to replace old power
stations and infrastructure. Where they occur, skills shortages will affect all
levels from apprentices to graduates and above244.
6.40 Recruitment and training are key to developing a new workforce but
there is the additional challenge of transferring knowledge and experience
from the older generation. This is important because, even though new
technologies are being introduced, a significant proportion of today’s power
stations, gas terminals, refineries, transmission and distribution systems will
be in operation beyond 2025, albeit with more advanced and cleaner
equipment. We shall also of course see significant new investment in power
stations and in transmission and distribution networks.
6.41 Workforce mobility and retention place additional pressures on the

energy sector. Skills shortages tend to produce a churn of workers as they
move around the industry. Internationally, while the UK remains attractive to
workers from overseas, there are also rewarding opportunities for our own
workers in other countries. The UK must continue to be an attractive
investment option for the international companies currently operating here,
who have a key role in skills development and to new companies seeking
to invest.
Impact of the skills situation

6.42 Analysis by the Sector Skills Councils245 indicates that, over the next
five years, skills gaps and shortages in the UK should not represent a critical
threat to security of energy supplies. However, some labour market tightness
241 Skills: Getting on in business, getting on at work. White Paper, March 2005 and 14-19 Education and
Skills White Paper February 2005.
242 Leitch Review of Skills. Prosperity for all in the Global Economy – World Class Skills. December 2006.
243 Cogent is the Sector Skills Council for the oil and gas, nuclear and chemical process sectors.
244 Investigation into high-level skills shortages in the energy sector. Energy Research Partnership, March
2007 (http://www.energyresearchpartnership.org/files/ERP-Skills-Brochure.pdf)
245 Sector Skills Agreements published by Cogent and Energy & Utility Skills 229

is likely and there could be upward pressure on wages and prices that will
persist until supply/demand imbalances are resolved. These pressures will
signal the need for increased recruitment and training but the delivery of skills
takes time. Forward planning will require greater attention than it has in the
recent past.
6.43 In cases where skills shortages become acute, training might not be able
to fill immediate vacancies in time. Also, as older workers retire, know-how
and experience will be lost. Immigration may have to play a part in maintaining
the skills base in the short term and the Government will therefore ensure that
work permit policy can respond to requests for recruitment from overseas
when labour market tightness indicates that it is necessary. However, this will
not provide a long-term solution to the problem; the international demand for
skills is increasing and the UK will not be able to rely solely on immigration to
supply large numbers of workers. Nor would we want to be reliant on
overseas workers in place of developing our own people. Therefore, overseas
recruitment will be only part of the solution to bolster experience levels whilst
the skills of the UK workforce are further developed.
BOX 6.5 DIVERSITY
As might be expected from the age profile, the energy workforce is less
diverse than the wider population. Overall, only around 25% of the energy
workforce is female, compared to 43% nationally, and only around 4% are
from a black/ethnic minority background versus 8% for the whole
economy. Employers are now recruiting from a wider range of
backgrounds and the proportion of women and ethnic minorities is
increasing, although progress is not uniform. In companies that have made
good progress, for example those specialising in engineering design and
project management, diversity is working through to team leader and
senior professional jobs.
The DTI provides funding to the UK Resource Centre for Women in

Science, Engineering and Technology (SET) which works with a wide
range of energy companies to encourage the recruitment, retention and
progression of women in SET. This has included the provision of support
and advice on planning, sharing best practice, building a network between
companies and recognising success.
What is being done to address skills issues?

6.44 Much has already been done to tackle the skills challenge across the
energy sector, both to improve the broad policy framework around education
and training and to step-up recruitment and training. Current skills in the energy
sector are built on a legacy of apprentice and graduate training by the previously
nationalised industries, the oil industry and major manufacturers. While
Government takes the lead in education, employers take the lead in work-
specific skills development and they are best placed to continue to do this. For
its part, Government will work with employers, Sector Skills Councils (detailed
in driving the skills agenda paragraphs in this chapter), the trade unions and
230 other interested parties to help achieve a well-skilled workforce for the future.

Setting the right framework
6.45 Many companies, especially in the supply chain, have been faced with
short term business horizons, making it hard for them to justify taking on
apprentices or graduate trainees for whom they feel there may be no clear
future. The Government’s aim is to set the right overall market and
investment framework to enable companies to make investments in
infrastructure and people over the longer-term. This objective, which is
also supported by the regulator, will make it easier for companies to invest
in people.
Investing in education
6.46 As well as continuing to invest in and improve the teaching of science,
engineering and technology for all schools, the Government will work to
increase the numbers of female students and those from ethnic minorities
taking these subjects, support initiatives to increase apprenticeships, and
encourage more students to study science and technology subjects at
university. The Government will ensure that education and training policy,
including the initiatives that result from the Leitch Review, are informed and
guided by energy sector issues.
Driving the skills agenda

6.47 In the early years of this decade, Government replaced the industrial
training organisations with 25 Sector Skills Councils. The Sector Skills
Councils are employer-led and each includes at least 500 000 workers. They
are charged with developing a strategic approach to skills, which is defined in
a Sector Skills Agreement. This includes detailed skills and demographic
analysis, which is being used to develop plans to ensure that the needs of the
energy sector are met, both now and in the future. In addition, Sector Skills
Councils have a key role in defining skills and competencies, setting standards
and ensuring that training provision is of a high quality. They also network with
employers in their sector to support specific activities, some examples of
which are given in Box 6.6. In view of employers’ key role in skills
development, it is vital that they and their representatives are fully engaged in
the Sector Skills Councils, especially those concerned with the energy sector.
6.48 The energy sector has two Sector Skills Councils, Cogent (for oil and
gas, nuclear, refining and the chemical industries) and Energy & Utility Skills
(for power generation, gas and electricity transmission and distribution), plus
a training board (The Engineering Construction Industry Training Board) that
covers the design and construction of capital plant.
6.49 Trade unions are represented on the Boards of the Sector Skills Councils
– Unison on the Energy and Utility Skills Board; Transport and General
Workers’ Union, Prospect and Amicus on the Cogent Board. This gives trade
unions a key role to play in helping to direct, with employers, the strategic
skills agenda, as well as the valuable role they play in encouraging skills
development at local level.
231

BOX 6.6 EMPLOYER ACTION ON SKILLS
The Power Academy is an initiative by 15 key employers in the power

sector, six universities and the Institution of Engineering and Technology
that is sponsoring up to 60 undergraduates each year to study power
engineering at university.
Ambition Energy, a scheme led by Energy & Utility Skills that trained 2500
long-term unemployed to become Corgi-registered gas installers in the
period 2002-2006, has provided a model example of how to address skills
shortages by non-traditional routes of entry. Elements of both the Power
Academy and Ambition Energy can be seen in power sector schemes
being introduced in the USA to mitigate the impending retirement of the
baby boom generation.
The engineering construction workforce (responsible for building power

stations, refineries etc) faces a net loss to retirement at a time of
increasing demand for its services. The Engineering Construction Industry
Training Board, with the sector’s employers, is planning a step change in
recruitment and training that will deliver a highly-skilled workforce for
the future.
6.50 Several Sector Skills Councils are making use of additional Government
support to develop National Skills Academies for their sector. These will
provide a central focus for workforce development and will ensure that all
employers have access to the best quality training. Some details are given
in Box 6.7.
BOX 6.7 SKILLS ACADEMIES
Applications led by Cogent for the National Skills Academy for Nuclear and
separately for the Process Industries were given approval to progress to
the development stage at the end of October 2006. The employer-led
Academies will seek to deliver a coherent skills strategy that will address
the specific needs of the nuclear industry (around 20% of the UK’s
electricity currently comes from nuclear power), and chemical process
sectors. The Academy for nuclear intends, in its early years, to deliver 800
apprenticeships and around 150 Foundation Degrees for new entrants to
the industry, while re-training or up-skilling 4000 existing employees each
year to NVQ levels 2 - 4.
Energy & Utility Skills has begun a review, with its industry stakeholders,
of the long-term skills needs and the potential benefits of National Skills
Academies for the power and gas sectors. The Engineering Construction
Industry Training Board submitted a proposal for a national Skills Academy
earlier this year.
232

6.51 In England, regional economic strategies, prepared by the Regional
Development Agencies (RDAs) on behalf of the nine English regions, capture
the strategic skills priorities that will drive sustainable economic development
and regeneration. Each RDA comes together with the Learning and Skills
Council, employers, Sector Skills Councils and other partners in Regional Skills
Partnerships to drive forward the skills agenda in each region. Skills and
training is a devolved matter in Scotland, Wales and Northern Ireland and the
Devolved Administrations set their own strategies for tackling skills priorities.
Government will continue to work with RDAs and the Devolved
Administrations to develop the energy skills agenda, to ensure that:
• energy skills issues are better understood at regional and local level; and
• The existing structures for co-operative working between sectors and
regions on skills issues are made much more effective.
Supportive regulation and working with Ofgem

6.52 Skills development is recognised as a legitimate and very necessary
area of expenditure for companies operating within the regulatory framework.
The Regulator encourages investment in this area by clearly stating what
companies need to deliver to their customers and putting incentives in place
that reward those that innovate and enhance their efficiency and
performance. A consistent approach by the Regulator and clear strategy from
industry initiatives, such as the Power Academy, are also ways of encouraging
companies to put longer-term plans in place.
6.53 Ofgem’s Innovation Funding Incentive for electricity distribution

companies aims to re-invigorate R&D within the sector by bringing industry
and universities closer together, helping supply chain companies to bring in
new technology and developing technical skills for the future. The scheme has
recently been extended to include electricity and gas transmission companies.
This increase in research and development across the sector will, in turn,
further encourage the development of intermediate and high-level skills.
Skills for the future

6.54 All agree that the skills outlook is challenging and that we must ensure,
not only a transfer of skills, but of know-how and experience, to a new
generation of workers. In addition, we must develop new skills sets and
competencies to deliver and operate the low carbon economy, and maintain
the skills we need to deliver secure energy supplies.
6.55 We shall continue to work with the energy industry, the Sector Skills
Councils, and other interested parties to ensure that the job market is able to
provide the skills to match the deployment of new technologies. We are
asking the Sector Skills Councils to report on the skills gaps in the energy
sector and action being taken to address them.
6.56 The UK is fortunate to have excellent schools, colleges and training

organisations that can rise to the challenge, together with strategic direction
through the Sector Skills Councils to identify and manage what needs to be
done. Meeting the challenge will not only ensure that the energy industry of
the future has the skilled people it needs, but will also create a world-class
education and training capability that can bring overseas business to the UK.
Working together with the Sector Skills Councils and the National Skills
Academies, Government, employers and trade unions need to highlight the 233

career opportunities in the energy sector for young people now at school or
in higher and further education, so that the sector can better attract the
engineers and other skilled people it needs.
RESEARCH AND DEVELOPMENT, DEMONSTRATION AND

DEPLOYMENT, AND SKILLS SUMMARY OF MEASURES
We will facilitate the demonstration and deployment of sustainable

and low carbon technologies by:
• working with industry and key partners within the UK and
globally, to speed the route to market for emerging low carbon
energy technologies through a comprehensive programme of
public sector support;
• increasing UK R&D funding through the new public/private sector
Energy Technologies Institute;
• delivering the Environmental Transformation Fund in 2008 to
support demonstration and deployment and energy efficiency;
• continuing to work with the energy industry, the Sector Skills
Councils and other interested parties to ensure that the job
market is able to provide the skills to match the deployment of
new technologies; and asking the SSCs to report on the skills
gaps in the energy sector and action being taken to address them.
234

CHAPTER 7
Transport
Introduction
As the economy grows and becomes more globalised,
with more goods and services moving ever greater
distances, the importance of transport increases. The
recent Eddington Study showed that a good transport
network is key in sustaining economic success, linking
people to jobs, delivering products to markets and
supporting domestic and international trade.
7.1 Transport accounts for around a quarter of UK domestic energy use

and emissions of carbon. The majority of the UK’s transport greenhouse gas
emissions are carbon dioxide and road vehicles are responsible for 93% of
this. In addition to the climate impacts of transport, the heavy dependence of
the sector on oil at a time when the UK will increasingly rely on imported oil,
carries potential consequences for the security of our energy supply.
7.2 The latest DTI projections suggest that, without the further measures
included in this White Paper, domestic transport emissions may well continue
to rise gradually to 2020246. Longer-term projections suggest there is then
some potential for emissions to fall, associated with continued improvements
in energy efficiency and greater penetration of more fuel efficient and lower
carbon vehicles247.
7.3 There are a range of measures we can now take to address transport's
carbon emissions in both the short and longer-term. For transport to reduce its
climate change impacts we need to enable smarter, more energy efficient use
of transport and we need to reduce carbon emissions by bringing about
changes in the types of vehicles and fuels we use. In addition to this, these
policies to reduce transport's reliance on oil, diversify transport technology and
improve fuel efficiency will also deliver improved security of energy supply.
246 This includes road, rail and freight journeys as well as the aviation and shipping journeys that start and
end in the UK. The projections include only firm and funded measures. See DTI: Updated Energy and
Carbon Emissions Projections, May 2007, http//:www.dti.gov.uk/energy/whitepaper
247 DTI: The MARKAL Model in the 2007 Energy White Paper, http//:www.dti.gov.uk/energy/whitepaper, and
PSI: Final Report on DTI-DEFRA Scenarios and Sensitivities using the UK MARKAL and MARKAL-Macro
Energy System Models, http:// www.ukerc.ac.uk/content/view/142/112 235
Transport
7.4 This chapter:
• sets out the potential for emissions reductions in transport for both the
near and long-term;
• describes measures to be taken within the UK, the EU and internationally
to bring about emissions reductions from transport;
• explains the importance of new low carbon transport technologies and
measures to support these; and
• sets out policies which will enable individuals to make smarter, lower
carbon, travel choices.
7.5 The biggest potential reductions in emissions from transport will be

realised as new technology comes through in the medium to long-term.
However, it is important we act now. We want to achieve carbon savings
from measures that are cost-effective in the short-term, and to establish the
frameworks, market signals and information to secure a more fundamental
shift towards environmentally friendly transport in the future.
7.6 We must not forget that the challenge is global. Transport services,
vehicles and the fuels that power them are internationally traded goods. It is
essential we show leadership through our domestic policies so we can have
credibility and influence at an international level.
7.7. The inclusion of international aviation and shipping in the UK inventory

would alter our emissions projections. As an illustrative example we expect
emissions from UK aviation to grow from 10.2 MtC in 2005 248 to between
15.7MtC and 29.1MtC by 2050249, assuming that all domestic and only
departing international flights are allocated to the UK. Although emissions
from international aviation and shipping are currently not counted against our
domestic targets, we are working towards agreement in the UN on how to
allocate these emissions to individual nations. Our projections underline the
importance of international action to address emissions from these sectors.
Potential for emissions reductions in the

Transport Sector
7.8 The Stern Review 250 emphasised the importance of urgent and
cost-effective action on climate change across all sectors of the global
economy, but also noted that:
“Transport is one of the more expensive sectors to cut emissions from

because the low carbon technologies tend to be expensive and the welfare
costs of reducing demand for travel are high. Transport is also expected to be
one of the fastest growing sectors in the future. For these two reasons,
studies tend to find that transport will be among the last sectors to bring its
emissions down below current levels.”
7.9 As Stern has shown, the potential for significant short-term

cost-effective abatement in the transport sector is limited but in the long-term
248 Defra: 2006, http://www.defra.gov.uk/environment/statistics/index.htm

249 DfT: Aviation and Global Warming, 2006,
www.dft.gov.uk/about/strategy/whitepapers/air/docs/aviationandglobalwarmingreport
236 250 See chapter 1 for further details.

it is much higher. Analysis has suggested that, with appropriate measures,
reductions of 40-60% from domestic transport are possible by 2050, but as
figure 7.1 illustrates these would happen later than in other sectors.
7.10 This does not mean that short-term action to address emissions from
transport is not necessary or will have no effect. Indeed existing transport
policies, as set out in Climate Change The UK Programme 2006, will mean
that emissions from transport will be 15% lower in 2010 than if we had not
put the programme in place. But it does underline the importance of taking
early opportunities to cut emissions while also laying the longer-term
foundations for low carbon transport technologies.
FIGURE 7.1. UK MARKAL MACRO CARBON EMISSIONS REDUCTION BY SECTOR –

SCENARIO SHOWING LEAST COST ROUTE TO 60% REDUCTION BY 2050.
%
10
0
-10
-20
-30
-40
-50
-60
-70
-80
-90
-100
year
Source: MARKAL-Macro model. Central scenario, 2030+ trajectory.

Note: Energy Sector includes electricity generation and upstream oil and gas production.
7.11 As set out in the Energy Review Report, the Government is working
to tackle emissions from transport by: reducing the carbon content of fuel;
reducing the carbon emissions of vehicles; encouraging moves towards
more environmentally friendly transport and, where appropriate, using
emissions trading.
7.12 Our package of measures seeks to balance the demand for transport
and the need for mobility against ensuring that the costs of climate change
are met. A variety of mechanisms such as emissions trading 251 can ensure
that an overall environmental objective is achieved cost-effectively to sustain
productivity and economic growth, and that transport contributes to our
international policy goals.
251 See chapter 1 for details on international emissions trading schemes and flexible mechanisms such as
the Clean Development Mechanism (CDM). 237
Transport
7.13 Since its publication, the Stern Review has moved the international
debate on tackling climate change further forward, and its policy framework is
a useful way of presenting and understanding the Government's policies on
transport emissions:
• Carbon Pricing – through tax, trading or regulation e.g. fuel duty, aviation
in EU ETS, the Renewable Transport Fuel Obligation;
• Technology Policy e.g. the Low Carbon Transport Innovation Strategy
(LCTIS), Voluntary Agreements with manufacturers on new car carbon
emissions (VAs);
• Behavioural Change e.g. through investment in public transport, fiscal
incentives, further development of smarter travel choices, supported by
information and communication campaigns, and social research.
Transport policies to tackle climate change

Carbon Pricing – through Tax, Trading or Regulation
7.14 The first part of the Stern Review's policy framework is the principle of
carbon pricing, whereby the polluter should meet the full external costs of the
emissions they produce. The Eddington Study recommended factoring the
carbon costs into prices, which in turn provides an incentive to either be more
energy efficient or to invest in low carbon alternatives. The Government will
look to use carbon pricing mechanisms across all modes of transport in line
with the findings of the Eddington and Stern Reviews, through a variety of
means: taxation, trading and regulation. This section sets out the
Government's policies in this area.
Including Aviation in the EU Emissions Trading Scheme (EU ETS)

7.15 The Government believes that the best way for aviation to contribute to
the goal of emissions reduction is through a well-designed emissions trading
scheme. This will ensure that the emissions reductions take place in as
cost-effective a manner as possible, enabling emissions reductions to take
place within the sector or through the aviation sector paying for reductions in
other sectors.
7.16 The Energy Review Report set out the substantial progress that had
been made during the UK’s Presidency of the EU to include the sector in the
EU ETS. Since then the European Commission has published legislative
proposals to include aviation in the EU ETS (see Box 7.1 for details). The UK
welcomed this and will continue to support the debate in Europe on aviation’s
incorporation into the EU ETS. Our aim is to ensure its inclusion in a robust
and environmentally efficient way, as soon as possible.
7.17 We have now begun working with other Member States on the details
of the legislation. To help inform our negotiating position, the Government
launched a public consultation on 30 March 2007 and we will continue to
consult with industry and international partners as the negotiations progress.
Once the legislation has been adopted, we will use our influence to ensure it
is implemented appropriately and that the necessary monitoring and reporting
structures are in place.
7.18 As part of our ongoing consultation we will consider the potential impact
for UK carbon emissions. However, for illustrative purposes, our indicative
238 analysis suggests that, considering the contribution of domestic flights only

and depending on the cap on emissions, the UK could reduce its UK domestic
carbon emissions by 0.2-0.4MtC per year by 2020 252.
BOX 7.1 EUROPEAN COMMISSION LEGISLATIVE PROPOSAL TO

INCLUDE AVIATION IN THE EU ETS
In December 2006, the European Commission published a draft legislative

proposal on the inclusion of aviation in the existing EU ETS, to include
internal EU flights from 2011 and all flights entering or leaving the EU from
2012. The Government supports a proposal that covers at least all flights
departing EU airports, not just intra-EU flights.
The draft legislation proposes to allocate allowances through a

combination of benchmarking and auctioning, with the overall number of
allowances determined at Community level by reference to average
emissions from aviation in the years 2004-2006. The proposal does not
directly address the non-carbon emissions from aviation, but the
Commission has committed to put forward a proposal to tackle the effects
of oxides of nitrogen by the end of 2008.
The Commission’s impact assessment for the proposal, based on

stabilisation of aviation emissions at 2005 levels, suggests annual EU-wide
carbon savings of 12-50 MtC a year by 2020, compared to business as
usual emissions levels, depending upon the scope of the scheme. Given
some access to project credits (e.g. CDM) the impact of including aviation
in the EU ETS on allowance prices is likely to be limited.
Working through the UN

7.19 The Government recognises that for an international industry such as
aviation, a global solution is ultimately required. Thus the UK continues to play
a leading role in the International Civil Aviation Organisation (ICAO) to find
ways of minimising the adverse impacts of aircraft emissions.
7.20 We support the development of an international trading regime through

the ICAO and are contributing to work on developing guidance for states who
wish to include aviation in emissions trading schemes. In terms of the use of
other economic instruments, the UK recognises that provisions such as those
exempting aviation fuel from tax are anomalous, and we have been working
through ICAO to reach agreement on this matter. The UK is also pressing for
the modernisation of the Chicago Convention 253, particularly in relation to
security and the environment. The ICAO Assembly in 2007 will be the starting
point for work to help equip international aviation with a structure and legal
framework that builds on ICAO's good work, whilst taking forward an agenda
more reflective of today's world.
252 This is an illustrative estimate of the carbon emissions gap accounted for by UK domestic aviation in 2020
assuming a cap set at 2005 emissions in line with the current Commission proposal. This is based on
published DfT carbon emissions forecasts for 2020 under different scenarios and Defra 2005 actual data.
253 The 1944 Chicago Convention established the International Civil Aviation Organisation (ICAO) and is the
international treaty that governs civil aviation. 239
Transport
7.21 The UK’s policy on aviation was set out in the 2003 Aviation White
Paper and subsequent progress report (see Box 7.2).
BOX 7.2 AVIATION
The Future of Air Transport White Paper set out a long-term strategy for
the sustainable development of air travel to 2030, recognising growing
aspirations to travel as well as the needs of our economy and the need to
protect our environment.
A report on the progress of policy commitments was published on

14 December 2006. The progress report confirmed the Government’s
commitment to ensure that aviation meets the full cost of its climate
change emissions. This included the introduction of a new emissions cost
assessment to inform decisions on major increases in airport capacity and
consider whether the aviation sector is meeting its external climate
change costs. The Government will consult on the development of this
emissions cost assessment over summer 2007.
Surface Transport in the EU Emissions Trading

Scheme (ETS)
7.22 The Energy Review Report committed the Government to engaging
with key organisations, the European Commission and other EU member
states to ensure that the potential for inclusion of emissions from surface
transport in the EU ETS is given serious consideration. The EU ETS is
currently being reviewed by the Commission, and the Government has been
working to encourage the Commission and other Member States to consider
the inclusion of surface transport.
7.23 The inclusion of road transport in the EU ETS could be a cost-effective

means of delivering significant carbon savings. This could be done in different
ways, but one approach would be to require fuel producers to hold carbon
allowances to cover the total amount of carbon emissions resulting from
the fuel they sell. The benefits in terms of carbon savings would be highly
dependent on a number of assumptions, not least the number of allowances
allocated to the road transport sector. The tighter the cap on allowances
allocated to the transport sector, the greater the carbon savings but also
the higher the costs.
7.24 We will be carrying out detailed analysis of this approach, including

further consideration of the potential impacts on UK competitiveness and the
price of carbon allowances. The carbon savings arising from the inclusion of
road transport would depend on the number of allowances allocated to the
transport sector. For instance, analysis we have conducted for this White Paper
suggests that if the cap was calculated on the basis of a 2-5% under-allocation
to the transport sector, this could save in the region of 1-2MtC in 2020.
240

7.25 Taking this work forward we reaffirm the policy we set out in Climate
Change: The UK Programme 2006 and the 2006 Energy Review Report that an
EU-wide approach is preferred to address emissions from surface transport.
Fiscal Measures
7.26 When deciding which policy is most appropriate in addressing
environmental challenges, the Government must use the most effective
instrument, for example, regulation, voluntary agreements or fiscal measures.
The Government set out details of how environmental policy should be
developed in HM Treasury’s 2002 publication, Tax and the environment.
7.27 The Government has already demonstrated its willingness to use fiscal
measures to contribute to achieving its environmental goals in transport:
• fuel duty is a tax on vehicle use, sending a clear environmental signal to
motorists that driving less fuel efficient vehicles will be more expensive;
• in 2002, Company Car Tax was reformed to make it carbon-based; and
• Vehicle Excise Duty (VED) was reformed so that from March 2001 it
became graduated by carbon emissions. Budget 2006 reduced vehicle
excise duty for the lowest emission cars to zero. The UK’s VED structure
has been recognised by others as a template to follow with recent
announcements by both the German and Portuguese governments on
their intention to re-structure their equivalent VED taxes to reflect the
carbon emissions of vehicles.
7.28 Coupled with these initiatives to encourage the use of more fuel
efficient vehicles, there are also duty incentives for motorists to use
alternative fuels such as road fuel gases, and biofuels.
7.29 Budget 2007 announced further measures in support of the

Government’s objective to address the environmental impacts of transport.
The announcements included:
• raising fuel duty by 2 pence per litre from October 2007, to be followed by
a 2 pence per litre increase in 2008, and a 1.84 pence per litre increase in
2009;
• increasing vehicle excise duty for the most polluting cars (graduated VED
band G) to £300 this year, rising to £400 next;
• cutting vehicle excise duty for graduated VED band B cars to £35 per year;
and
• extending the 20 pence per litre duty differential for biofuels to 2009-10,
which, alongside the Renewable Transport Fuel Obligation, will mean a
35 pence per litre incentive in that year.
7.30 Based on the principles of policy already established, we will continue

to examine how fiscal and other policy instruments can achieve our aims.
241
Transport
Biofuels and the Renewable Transport Fuel
Obligation (RTFO)
7.31 The use of biomass to produce biofuels for road transport has significant
scope to deliver carbon savings as well as other environmental, social and
economic benefits. For this reason, the Government announced in November
2005 that it would introduce a Renewable Transport Fuel Obligation (RTFO) to
require transport fuel suppliers to ensure 5% of total fuel sales are from
renewable sources by 2010/11. This represents around 2.5 billion litres of fuel
per annum and is expected to come almost entirely from biofuels. We
estimate that at this level, the RTFO will save an estimated 1 million tonnes
of carbon each year, the equivalent of removing around 1 million cars from
our roads 254.
7.32 As confirmed by Budget 2007, the RTFO will be the UK's primary
mechanism to develop a healthy market for transport biofuels, as well as
delivering the objectives of the EU Biofuels Directive 255. Alongside the RTFO
the Government offers a 20 pence per litre duty incentive on biofuels, which
will be maintained until at least 2009 -2010.
7.33 The Government made clear in the Energy Review Report that it intends
to increase the level of the RTFO beyond 5% after 2010/11, provided certain
conditions are met:
• confidence that the biofuels will be produced in a sustainable way, so that
they deliver the maximum practicable carbon savings with the minimum
practicable adverse environmental impact;
• certainty that the use of blends of biofuel higher than 5% will not lead to
mechanical problems, particularly for owners of older cars which were not
designed to run on such mixtures 256; and
• confidence that the costs to consumers will be acceptable, both in terms
of fuel prices at the pump, and in terms of wider economic impacts,
including for example the impacts on food prices and other industries
which make use of similar feedstocks.
7.34 The Government published a further consultation on the details of the

RTFO on 22 February 2007 257. This consultation seeks views on both the
detailed implementation of the 5% obligation in 2010, as well as issues
relating to the future evolution of the RTFO including appropriate levels of
future targets.
7.35 Before increasing the level of the RTFO beyond 5%, the Government
will want to be satisfied that this would represent an effective use of our
biomass resources. We estimate that, should the Obligation be raised to 10%
by 2015 subject to the conditions above being met, then the UK could save
254 This estimate takes into account emissions from the production and processing of biofuels that are
produced overseas but used in the UK. However, these emissions will also be counted in other
countries' emissions inventories. Consequently the reduction to be made against the UK’s national
inventory as reported to the UNFCCC is 1.6MtC.
255 More information on the EU Directive can be found at:
http://europa.eu.int/eur-lex/pri/en/oj/dat/2003/l_123/l_12320030517en00420046.pdf
256 The European Committee for Standardisation is the group responsible for technical specifications of fuels
to be used in cars and lorries across Europe. They are currently looking into the technical difficulties of
introducing biofuel blends above the current 5% limit to the existing and ageing vehicle fleet.
242 257 Details of the consultation can be found at www.dft.gov.uk/consultations/open/draftrtfo/

up to a further million tonnes of carbon a year by 2020 258. However, alternative
uses of biomass include substitution for fossil-fuels in the generation of
electricity and heat, as well as applications in the oleo-chemical
industry 259.These can often deliver greater carbon savings at lower cost than
using biomass to produce high quality transport fuel.
7.36 The role of transport biofuels is considered further in the Government's

Biomass Strategy 260, which is published alongside this White Paper. In
addition, the Government is also exploring ways to broaden the use of
biofuels, and has facilitated pilots to explore other uses such as in trains.
7.37 Biofuels also form a part of the EU’s climate change and energy policy.
In March 2007, the European Council agreed, amongst other things, a binding
target of a 20% share of renewable energies in overall EU consumption by
2020. This applies to electricity and heat as well as biofuels. The agreement
also commits the EU to a binding target of reducing greenhouse gas
emissions by 20% by 2020 and by 30% in the context of international action.
The Commission has been asked to bring forward detailed proposals for each
Member State’s contribution to the overall EU targets. After a decision has
been reached, and each Member State has agreed its contribution, we will
bring forward appropriate policies to deliver the UK’s share.
7.38 The European Council agreement recognised the need to satisfy the
conditions referred to in paragraph 750. The agreement includes the cost-
effective introduction of a 10% by energy content biofuels target by 2020,
subject to production being sustainable, second-generation biofuels becoming
commercially available and the Fuel Quality Directive being amended
accordingly to allow for adequate levels of blending. The UK will continue to
work closely with European partners in developing these initiatives further. In
particular, we shall need to respond to the Commission's proposals for
revising the Biofuels Directive and for implementing the EU biofuel targets.
Technology Policy, Research and Development

7.39 The Stern Review notes that a carbon price alone might not be enough
to overcome the market failures in research and development (R&D) and that
therefore technology policy will have a role to ensure there is sufficient low
carbon innovation, including in the transport sector.
258 Illustrative analysis that does not prejudge later UK decisions on the appropriate level. Estimate
represents a 10% Obligation by 2015 under central oil price assumptions, and is additional to carbon
savings from a 5% Obligation by 2010. This estimate takes into account emissions from the production
and processing of biofuels.
259 Oleo-chemicals are chemicals derived from biological oils or fats.
260 The Biomass Strategy will be published alongside the White Paper and can be found at
http://www.defra.gov.uk/environment/climatechange/index.htm 243
Transport
Successor to EU Voluntary Agreements on new car
fuel efficiency
7.40 The Government recognises the need to provide clear market signals
that incentivise industry to innovate and develop more environmentally
friendly transport technology. Given the international nature of the automotive
industry, our focus is to drive change through the EU. To this end we will
continue to work with the European Commission and other interested parties
on developing successor arrangements to the current Voluntary Agreements
on new car fuel efficiency, which expire in 2008/9.
7.41 In September 2006 the Department for Transport (DfT) published a

discussion paper on policy options to replace the Voluntary Agreements 261.
Whilst the responses broadly recognised the progress made so far under the
Voluntary Agreements, concern was raised about the slowing rate of progress
and the likelihood of the targets not being met. There was therefore
considerable support for moving to a mandatory system to replace the
Voluntary Agreements. It also pointed to further issues that needed resolving
before a final decision could be agreed, for example potential costs, possible
benefits of trading and the way fuel efficiency targets are structured.
7.42 On 7 February 2007, the Commission published a Communication on

the review of the Community strategy to reduce carbon emissions from
passenger cars and light commercial vehicles. The Communication confirmed
that the Commission intends to bring forward a legislative proposal to reach
an average new car fuel efficiency target of 130 grammes of carbon dioxide
per kilometre (gCO2/km) by 2012, representing an improvement of around
30% over 1995 levels. Further carbon savings are to be delivered by a range
of other measures, such as the use of gear shift indicators and tyre pressure
monitoring systems, leading to an overall target of 120gCO2/km by 2012.
The Government welcomes the Commission’s intention to bring forward a
legislative framework and supports a move to demanding mandatory fuel
efficiency targets. Subject to understanding how the targets will be
implemented and subsequent impact assessment, the Government is
supportive of the Commission’s proposals. However, it is our view that the
proposals should also set out a longer-term strategy for improving vehicle fuel
efficiency. The Government announced in Budget 2007 that its longer-term
objective is that average new car emissions be reduced to 100gCO2/km.
7.43 There is a lot of further work to be done before any final decisions are
taken, including on the appropriate level of the fuel efficiency target and how
that target should be implemented. Final decisions will be subject to full and
open consultation with interested parties.
7.44 The Government believes it is essential that the legislative framework

enshrines certain key principles:
• Clarity and accountability so all parties are clear what is required to
ensure effective delivery and monitoring;
261 The summary of the responses can be found on the DfT website at:
244 http://www.dft.gov.uk/consultations/closed/reducingnewcarco2emissions/

• Cost effectiveness of different regulatory approaches on fuel efficiency
will have different costs and benefits. Greater flexibility will often ensure
greater cost-effectiveness;
• Environmental effectiveness to ensure achievement of the stated
environmental objectives;
• Comprehensive scope by applying the framework to all new vehicles
sold in the EU regardless of place of manufacture, and also seeking to
ensure further progress in fuel efficiency across all market segments; and
• Proportionality via thorough impact assessment, with particular attention
given to setting appropriate targets and timescales.
7.45 We will continue to work with the Commission, other Member States
and all interested parties with the objective of securing a Europe-wide
regulatory regime that is compatible with these principles. We are optimistic
that a satisfactory framework will be delivered. Our analysis suggests that in
the UK we could save 1.8-4.1MtC per year by 2020, depending on the extent
of fuel efficiency improvements we achieve 262.
7.46 This has the potential to be one of the Government’s biggest

interventions to tackle transport emissions. We will therefore push for an
ambitious and realistic long-term target that recognises the importance of
tackling climate change and of giving industry a clear signal to develop and
implement new technologies.
7.47 To achieve the kind of fuel efficiency improvement outlined above will
require considerable innovation. The private sector will need to sustain and
enhance its investment in vehicle technologies to improve their environmental
performance, the Government needs to provide the frameworks that support
and stimulate this investment, as well as encouraging a successful entry to
market of low carbon technologies.
Low Carbon Transport Innovation Strategy

7.48 The Government announced in the Energy Review Report last year that
it would develop a Low Carbon Transport Innovation Strategy (LCTIS).
Development of the strategy reflects the important role that new technology
will play in delivering carbon reductions in the transport sector over the long-
term. The strategy, published alongside this White Paper 263, assesses where
Government intervention is most usefully focussed and sets out a wide range
of actions Government is taking to encourage innovation and technology
development in lower carbon transport technologies.
7.49 Industry already spends a great deal on research and development

(R&D). For example the big automotive manufacturers spend several billion
dollars per year. However only a small proportion of this goes on riskier, less
developed low carbon R&D. A key role for Government is therefore to
stimulate investment in a broader range of R&D activities, including nearer
and further from market options. Essential to this will be the use of regulatory
262 llustrative estimate reflecting annual improvements in new car fuel efficiency of 1.5%–3.6% p.a. Actual
efficiency improvements will depend on the level of target set at EU level and application in the UK.
263 DfT: Low Carbon Transport Innovation Strategy, http://www.dft.gov.uk/pgr/scienceresearch/technology/ 245
Transport
frameworks such as carbon pricing and fuel efficiency standards, but also
Government funding aimed at accelerating the development and market
penetration of new lower carbon technologies.
7.50 Accordingly:
• DfT will contribute an additional £5 million per annum to the low carbon
transport theme of the Energy Technologies Institute 264 – ensuring transport
is at the heart of the Government's strategy to accelerate the development
of secure, reliable and cost-effective low carbon energy technologies;
• in conjunction with the Technology Strategy Board (TSB), DfT and EPSRC
will help finance and develop a new Low Carbon Vehicle Innovation
Platform 265 providing critical coordination and up to £30 million of support
from 2008/09 for UK technology research aimed at accelerating the
development of relevant technology. Assuming the Innovation Platform
develops successfully we would envisage extending the programme to
run over a number of years;
• with initial funding of £20 million, DfT will develop a new programme of
public sector procurement to promote and support low carbon vehicle
development, including small fleet demonstrations to provide early
markets for new innovative lower carbon vehicle technologies; and,
• to ensure that Government leads by example we have set a fleet average
car procurement target of 130gCO2/km by 2010/11 for new cars
purchased by Government and used for administrative operations. We will
keep the target under review and look to extend the scope of this target
following further analysis.
Low carbon innovation in the road sector

7.51 The road sector is the largest source of carbon emissions from transport
in the UK. In developing the LCTIS the Government asked consultants E4tech
to examine how the innovation system was functioning for some of the key
technologies 266.
7.52 E4tech’s work highlights a range of technologies that have, in

combination, the potential to make a significant contribution to carbon
reduction. These technologies include more advanced versions of hybrids,
including “plug-in” hybrids, fully electric vehicles, second generation biofuels,
and hydrogen fuelled vehicles, whether powered by an internal combustion
engine or a fuel cell. The steps outlined above will help more of these options
become commercially and technologically viable. However, the success of
hydrogen or electricity based technologies in delivering low carbon transport
will rely heavily on the UK's future elecricity generation mix, discussed in
Chapter 5.
264 See chapter 6 for more information on the Energy Technologies Institute (ETI).
265 Innovation Platforms are schemes designed to bring Government and funders together with the business
and research community in order to address a major market driven and societal challenge. Existing
Innovation Platforms include work on intelligent transport systems and services, in the context of road
congestion. More information can be found at:
http://www.dti.gov.uk/innovation/technologystrategy/innovation_platforms/index.html
266 E4tech: A Review of the UK Innovation System for Low Carbon Road Transport Technologies, March 2007,
is being published alongside the LCTIS and is available in full at
246 http://www.dft.gov.uk/pgr/scienceresearch/technology

7.53 Finally, Budget 2007 announced a review, to be led by Professor Julia
King and Sir Nicholas Stern, to examine the vehicle and fuel technologies
which over the next 25 years could help decarbonise road transport. This will
identify options for moving towards the Government’s longer-term objective
to reduce average new car emissions to 100gCO2/km. The review will report
its initial findings at the time of the 2007 Pre-Budget Report.
Low carbon innovation in other sectors

7.54 While the road sector currently accounts for the bulk of emissions from
the transport sector, rail, shipping and aviation also contribute significantly.
7.55 For aviation the Government is already providing around £45 million
per year, match-funded by industry, for the National Aerospace Technology
Strategy (NATS) to help develop the technologies to maintain UK
competitiveness in aerospace. This is in addition to the £5 million that is
being provided for the OMEGA project (Opportunities for Meeting the
Environmental Challenges of Growth in Aviation) looking at radical options to
mitigate the climate impacts of aviation. The EU Framework Programme 7,
commencing this year, will also provide significant aerospace backing,
including a major new Clean Sky Joint Technology Initiative combining EU
and aerospace industry funding.
7.56 In the rail sector the Government is working in a number of ways to

improve environmental performance. Examples include implementing
regenerative braking, optimising the rail network for energy efficiency, trialling
hybrid trains, and considering the longer-term role that hydrogen fuel cells
could play. In addition the Government is setting challenging targets for train
mass reduction and energy efficiency improvement for new trains and is
requiring flexibility to be built in, so that the cost of installing future new
technologies such as fuel cells will be minimised. The Government is
reviewing the case for further electrification of the network taking account
of environmental, economic and affordability issues. It will set out its
conclusions on this and rail's broader environmental performance in the
long-term rail strategy to be published in summer 2007.
7.57 Though an efficient way to move bulk freight, shipping represents a

growing source of carbon emissions. The Government commissioned
AEA Energy & Environment and Newcastle University to advise on technology
options available to improve the environmental performance of shipping 267.
Technologies identified include biofuels and sky sails, as well as technologies
to improve the fuel economy of commercial shipping. Over time, carbon
pricing approaches should be extended to the shipping sector as well as other
modes of international transport. To further this aim, the UK is contributing to
an International Maritime Organization work plan to identify and develop the
mechanisms needed to achieve the limitation or reduction of carbon
emissions from international shipping. At the same time, the UK will consider
the potential scope for regional emissions trading schemes and other
economic instruments that may prove effective.
267 AEA Energy and Environment: Low Carbon Commercial Shipping, February 2007,
http://www.dft.gov.uk/pgr/scienceresearch/technology 247
Transport
Encouraging Behavioural Change
7.58 The Stern Review noted that a third important dimension to the policy
framework required to reduce emissions is to enable people to adopt low
carbon behaviours. The policies presented below are aimed at achieving this
through raising awareness of the issues and identifying and removing barriers
to behavioural change.
Promoting the use of Public Transport

7.59 As highlighted in the Energy Review Report the Government recognises
the important role public transport has to play in reducing emissions. This is
why we are putting record amounts of investment into public transport to give
people a real alternative to using their cars. As a result, the UK now has the
fastest growing railway in Europe 268 and more journeys are now being made
on the network than at any other time in the last 60 years.
7.60 As part of this commitment to providing real alternatives to the car, local
and central Government are now spending around two and a half billion
pounds a year to provide bus services. The Government is also extending the
scope of Concessionary Bus Travel across England, guaranteeing everyone
aged 60 and over and disabled people, free off-peak travel on all local buses
anywhere in England from April 2008.
7.61 Availability of bus travel is increasingly important for giving people

choice and encouraging greater use of lower-carbon transport. In December
2006 the Government published proposals for a modernised national
framework for bus services, in Putting Passengers First 269. These proposals,
along with other measures to help tackle congestion and improve public
transport, will be included in a draft bill which is due to be published shortly.
7.62 Putting Passengers First also highlighted the potential case for
refocusing bus subsidy to provide a more direct linkage with the
Government's priorities of tackling congestion, improving the environment
and accessibility. The DfT is considering these issues further with interested
parties, including the scope for refocusing the current subsidy based on fuel
consumption into one which is more directly linked to performance and
environmental outcomes.
7.63 In addition to the investment outlined above, the Government has also
earmarked up to £200 million per year from the Transport Innovation Fund to
support packages of measures that combine demand management such as
road pricing, with modal shift, smarter travel choices and better bus
services 270. Already ten areas have been awarded more than £14 million of
pump-priming funding to support the development of proposals. The first bids
are expected to be submitted in July 2007. These proposals are expected to
reduce carbon and other emissions by improving services and reducing road
congestion.
268 DfT: Ten-year European Rail Growth Trends: A study by the Association of Train Operating Companies,
http://www.atoc-comms.org/admin/userfiles/
Ten%20Year%20European%20Rail%20Growth%20Trends%20July%202006.pdf
269 DfT: Putting Passengers First, http://www.dft.gov.uk/pgr/regional/buses/secputtingpassengersfirst
248 270 DfT: Transport Innovation Fund, http://www.dft.gov.uk/pgr/regional/tif/

Smarter Travel Choices
7.64 The Government has put in place a substantial programme to promote
changes towards more sustainable patterns of travel behaviour using a range
of measures collectively known as Smarter Choices. These include workplace,
school and personalised travel planning, travel awareness campaigns and
marketing and offer great potential to reduce congestion and carbon
emissions.
7.65 Local authorities are the key delivery agents for using Smarter Choices,
primarily through the land-use planning system and as part of their 5 year
Local Transport Plans (LTPs). The Government is also supporting the work of
the new National Business Travel Network to encourage more businesses to
develop voluntary travel plans which can reduce car use to the workplace.
7.66 By 2008, the Government will have provided over £100 million of
support for its Travelling to School Initiative. The initiative's objective is to
ensure every school in England has an active travel plan in place by 2010.
The funding includes £7.5 million each year to fund a network of 250 local
authority based travel advisers to work with schools and help them develop
and implement school travel plans. By summer 2007 over 50% of schools in
England are expected to have an approved school travel plan and more than
£70 million in small capital grants will have been allocated.
7.67 In March 2007 the DfT announced the results of its new scheme to
encourage more primary school children to walk to school through “walking
buses” or alternative walking initiatives. There was an extremely good
response with more than 3,200 primary schools in England (more than 1 in 6)
being awarded a grant. As a result, we expect to see the number of walking
buses across England triple, with significant health, environmental and
congestion benefits. The Government has also published Walking and cycling:
Links to Schools, which promotes to local authorities the success and
achievements of linking residential areas to schools via the National Cycle
Network, helping to demonstrate the possibilities and potential of active
travel.
7.68 As set out in the Energy Review Report the Government has a
continuing commitment to promoting active travel, encouraging people to
view cycling and walking as viable alternatives to the car. The Government
doubled Cycling England's budget in June 2006. And we have now begun
the national roll-out of Bikeability, the new standard for cycle training, taking
cycling proficiency into the 21st Century. The on-road element to this training
will provide greater reassurance about safety to parents and children, and so
further increase cycling.
7.69 We will continue to assess the potential of Smarter Choices measures

with ongoing programmes such as the Sustainable Travel Towns initiative 271,
to provide further evidence of the benefits, and guidance to others on how
to implement such measures. Although not complete, initial results are
promising, and show that in the target population area, public transport use
271 DfT: Sustainable travel demonstration towns,

http://www.dft.gov.uk/pgr/sustainable/sustainabletraveldemonstrati5772 249
Transport
has increased by over 10%, with car use among the targeted population
decreasing by a commensurate amount.
Raising Awareness – Communications Campaign

7.70 Building on our strategy to improve the overall environmental
performance of transport we are also keen to raise awareness amongst
motorists of what they can do to help reduce emissions. The scope for
reductions from individual motorists taking action is considerable. For
example, if everyone purchasing a brand new car chose the most fuel
efficient car within its class and price range, carbon emissions from new cars
could be reduced by 24%272. If all drivers in the UK adopted smarter driving
techniques carbon emissions from the fleet could be reduced by around 8%273.
7.71 To promote these benefits, a consumer-facing communications

campaign has been developed to cover smarter driving and new car
purchasing. The Smarter Driving strand was launched in March as the first
part of the Government’s Act on CO2 brand. The campaign will be rolled-out
over the coming months and will include advertising on Television and radio,
in national and motoring press, as well as on-line activity targeted at drivers
and new car purchasers.
7.72 The Smarter Driving strand of the campaign focuses on existing car
drivers and complements the work of the Driving Standards Agency (DSA) to
include eco-safe driving in the L-test for all new drivers from 2008 274. Advice
and training on eco-driving for van and HGV drivers is already provided
through DfT's SAFED (Safe and Efficient Driving) programme.
7.73 The car purchasing element of the campaign will build on the
introduction in 2005 of the colour-coded fuel economy label for new cars,
linked directly to Vehicle Excise Duty (VED) carbon emissions bands now
found in the majority of new car showrooms.
7.74 We are also making information available to consumers about the

carbon impacts of their journeys through our award-winning journey planner
Transport Direct 275. Currently, information is available on the carbon impact of
car journeys. By Summer 2007 we will launch a service that compares the
relative carbon impacts of different travel modes.
Other measures
7.75 In freight, the Government's Sustainable Distribution Fund successfully
encourages efficient operating practices in the logistics and haulage industry, in
addition to the Government freight grant scheme to encourage the use of rail
and water freight instead of roads. Together these deliver the Government’s
strategy to reduce the environmental impact of freight by minimising the
number of vehicles in use and the impact of the remaining vehicles.
272 This is based on 2005 registration data and WhatCar? classifications.

273 This is based on trials undertaken by the Driving Standards Agency (DSA). The fuel cost saving is
calculated using fuel prices taken on 5/1/2007. The carbon emissions were calculated using 2005 car and
taxi fuel sales figures from Transport Statistics Great Britain 2006.
274 Smarter or Eco-Safe Driving is a style of driving that helps the environment by reducing fuel consumption
and emissions whilst contributing to road safety.
250 275 DfT: Transport Direct, http://www.transportdirect.info

7.76 Effective planning policies can help shape the places in which we live
and work to promote sustainable patterns of development and economic
growth. Influencing the location and design of new development can reduce
the need to travel, particularly by car, minimising transport energy demand
and impacts on the environment and climate change. The Government
recently sought views on a supplement to Planning Policy Statement 1
(PPS1): Delivering Sustainable Development. The consultation document
Planning and Climate Change sets out how spatial planning should contribute
to reducing emissions, including consideration of the transport impacts.
Further details are available in chapter 8.
7.77 Aviation carbon offsetting, whilst not a substitute for the Government's
wider policy on aviation, is a valuable complementary measure to raise
awareness and enable the public to mitigate the impacts of their travel. The
Government has taken the lead, introducing an offsetting scheme for all
ministerial and official air travel. The scheme is expected to offset up to
100,000 tonnes of carbon dioxide annually. The Government has also recently
consulted on a Code of Best Practice for offsetting to ensure that schemes
offer a robust and verifiable service for consumers.
7.78 To ensure that the policies outlined above take account of public
attitudes and are targeted in the most appropriate way, we are also
conducting research to improve our understanding of the key issues affecting
public attitudes and travel choices. The DfT has embarked on a long-term
programme of social research that will provide an in depth understanding of
public engagement with climate change issues and transport.
Conclusion
The combination of these policies means transport can contribute to a
substantial reduction in carbon emissions
7.79 This package of savings is consistent with Stern's recommendations,

and includes policies to reduce emissions from transport in the short-term,
affect behaviour change into the medium-term and bring on the required
technologies in the longer-term for transport to make a significant and
meaningful contribution to the UK's climate change goals.
7.80 Our objective to secure a regulatory regime to improve the fuel

efficiency of new cars will further reduce carbon emissions in the Transport
sector by 1.8-4.1MtC per year by 2020. If the above conditions were met then
the Road Transport Fuel Obligation would be raised beyond 5% by 2010.
If, for example, it were to rise to 10% by 2015, the UK could reduce carbon
emissions by up to a further 1MtC a year by 2020. Further reductions can also
be expected from the aviation sector. For example, if aviation were included in
the EU Emissions Trading Scheme on similar terms to those indicated in the
Commission’s proposal, then we could expect to see reductions from UK
domestic aviation in the region of 0.2-0.4 MtC a year in 2020 276. These policies
276 This figure does not include any savings resulting from including international aviation in the EU ETS, the
impact of which on the UK inventory will only be quantifiable when agreement is reached on how to
allocate responsibility for such emissions. It is also worth noting that in 2005 domestic aviation
accounted for only 0.4% of the UK’s total carbon dioxide emissions. 251
Transport
could therefore have a total impact on UK carbon emissions of
2.0-5.5 MtC a year by 2020, and so ensure that the growth in domestic
transport emissions is counteracted.
7.81 In addition to these we would expect further savings from our policies
to encourage behaviour change and promote technology development. For
example, although more difficult to quantify, improvements to public
transport, encouraging people to make more sustainable travel choices and
fleet programmes to demonstrate the potential of new technologies will help
reduce carbon emissions. Finally, we have set out that we will continue to
investigate the costs and benefits of including surface transport in the
EU ETS. Much depends on the detail of how such a scheme was designed,
but our initial analysis suggests that it could reduce UK carbon emissions by
around 1-2MtC per year by 2020.
7.82 The scale of the challenge facing transport is considerable, and success
will rely on all parts of society playing their part: individuals, businesses,
Governments and international organisations such as the EU and the UN. If
we are to succeed we need to secure modern, efficient and clean transport
systems that allow businesses to operate effectively, goods to be transported
efficiently and people to access services and make the most of their leisure
time, all of which needs to be achieved whilst meeting our environmental
objectives.
TRANSPORT: SUMMARY OF MEASURES
We will:
• continue to support the European Commission’s recent proposal
to include aviation in the EU Emissions Trading Scheme (EU ETS);
• support a move to demanding mandatory fuel efficiency targets
for new vehicles and lead efforts to ensure that the inclusion of
surface transport in the EU Emissions Trading Scheme is given
serious consideration;
• deliver around 1 million tonnes of yearly carbon savings through
the Renewable Transport Fuel Obligation and consider the future
evolution of the obligation in the light of consultation responses
and the EU biofuels targets;
• invest in low carbon technologies through the Energy
Technologies Institute, help support new vehicle technologies
through a new initiative with the Technology Strategy Board, and
use public sector procurement to assist in fleet demonstrations of
new technology; and
• encourage changes in behaviour to reduce emissions from
transport, through fiscal incentives, further development of
smarter travel choices and consumer communications campaigns.
The combination of these measures could produce yearly domestic

carbon savings of 2.0-5.5 MtC in 2020.
252

CHAPTER 8
Planning
The planning system plays an important role in delivering
the necessary energy infrastructure to meet our national
needs. In so doing, it has to integrate national, regional and
local benefits; economic, environmental and social
objectives; and possible tensions between the interests of
individuals or local communities and the needs of society
as a whole. In The Energy Challenge, the Government set
out the importance of the energy planning system 277 to the
delivery of our energy policy goals and set out proposals
we would take forward to make improvements.
• The cost, delay and uncertainty created by the energy planning system and
the impact on our energy policy goals;
• the causes of this cost, delay and uncertainty;
• the progress we have made in implementing the package of planning
measures set out in The Energy Challenge; and
• how the further and wide ranging planning reforms proposed in the
planning White Paper 2007, Planning for a Sustainable Future 278, will
impact on the energy planning system.
The impact of the energy planning system on our

energy policy goals
8.2 We face a significant challenge in delivering substantial new energy
infrastructure. In electricity, we will need around 30-35GW of new generating
capacity over the next two decades with two thirds of this by 2020.
There will also need to be substantial investment in transmission and
distribution networks. To the extent that low carbon electricity projects are
stalled by the planning process, this would slow progress in tackling
climate change.
8.3 In gas, as our reliance on imports increases, we need more import and
storage infrastructure if we are to maintain reliable and affordable supplies of
energy. If developers cannot secure planning permission for electricity
generation projects and gas supply infrastructure projects in sufficient
numbers in a timely fashion, the UK could be exposed to rising security of
supply risks, with the potential for upward pressure on energy prices.
277 This report uses the term “energy planning system” to refer to the sum of all the different regimes
under which energy infrastructure projects secure consents. In many instances these consents will
be deemed to also grant planning permission.
278 http://www.communities.gov.uk/planningwhitepaper 253
Planning
8.4 The Government has made a number of improvements to the planning
system in recent years, both for decisions taken by local authorities and those
taken by central Government. However it is clear that the context for the
planning system is becoming even more challenging. Although progress has
been made by local authorities in handling planning decisions, more than 65%
of firms in the UK believe that more should be done, and the recent Barker
Review on land-use planning found that there were still major delays
associated with central Government decisions279.
8.5 Planning is consistently one of the top six concerns for inward investors
in the UK280. A 2006 report by Ernst and Young on the relative attractiveness
of countries for investment in renewables found that the UK’s position had
fallen because of concerns about planning issues281.
8.6 The current energy planning system is delivering decisions that have
been extensively considered, and provides for public participation in decision-
making, but there are several key challenges that present risks to achieving
our energy policy goals:
• It can take too long. On average, where a public inquiry has been held it
has taken 3 years to secure consent for electricity infrastructure projects 282;
• It can create too much uncertainty for communities, business and
developers. While consent applications remain undecided it can blight the
local community, affecting local property prices and the potential for other
development. Additional uncertainty is created where planning committees
in local authorities ignore the advice of their planning officers;
• It can be difficult and costly for local government, NGOs and local
people – and particularly people from hard-to-reach groups – to
participate effectively in the process and make their views heard. This
is in part because of the length of time inquiries can take and the expense
involved in participating in them. For example, the direct inquiry costs for
the Sizewell B public inquiry were £30 million283. This means that those
with the most resources, or the best knowledge of the system, can
sometimes have the greatest say in decisions. For other participants, such
as local authorities and community groups, the cost of participation can act
as a disincentive to involvement in the process, reducing the accessibility
of the energy planning system; and
• It can have knock-on effects for the UK energy market and wider
economy. In extreme cases, the cost and uncertainty can deter the private
sector from proposing projects that would improve the reliability of our
supplies and in some cases reduce carbon emissions. Investors may
instead choose to make their investments in other countries, to invest in
lower-risk options such as gas-fired power stations, for which planning
consent has historically been easier to secure, or to delay or postpone
investments. The costs of inquiries ultimately feed into higher prices for
279 Barker Review of Land-Use Planning: Final Report – Recommendations (http://www.hm-treasury.gov.uk/

media/4EB/AF/barker_finalreport051206.pdf)
281 Ernst and Young LLP: Renewable Country Attractiveness Indices, November 2006
282 DTI Analysis: Electricity Development Consents Team
283 The Energy Challenge, DTI, July 2006, Cmd 6887. The inquiry for this project was especially lengthy and
is considered by some to be longer than might be anticipated in the future, given subsequent
improvements in inquiry procedures
254

electricity and gas for consumers, with potential adverse effects on
international competitiveness.
8.7 There are inherent difficulties in making accurate assessments of the

cost, delay and uncertainty created by the planning process. Not all delays in
the completion of new infrastructure can be attributed to planning hold-ups,
for example:
• Projects might experience technical delays or financing problems;

• developers sometimes do not provide all the information and environmental
analysis necessary to support the proposed development 284; and
• local community engagement on projects is not always well handled by
developers.
8.8 However, the evidence the Government identified through the Energy
Review process suggests that obtaining planning permission can be a
significant problem285, and that the current planning system is a key
contributing factor.
Impact on gas supply infrastructure projects

8.9 The market is already responding to our need for new infrastructure to
help us import gas, and to store it until it is needed, with some £10 billion in
planned and actual private investment in gas supply infrastructure between
2005 and 2010.
8.10 However, there is a risk that planning delays or unpredictable decisions

will prevent new infrastructure of national significance coming on line in a
timely fashion. In 2006 there were four major decisions286 made on gas supply
infrastructure projects, with three of these being refused by local authorities.
One of these decisions is currently being appealed, and others may be in the
future. As with any appeal, the reasons for refusal will need to be examined
within the specific circumstances of the planning decision.
8.11 Of recent applications that have been considered by local authorities for
gas storage developments, it has taken an average of 25 months from an
application being made to a final decision on a project (including inquiry
processes)287. However, in one case, a decision is still outstanding 36 months
after application288. Extensive delays can create a climate of uncertainty, which
often makes it hard to secure capital for a project, or to continue financing a
project that may be subject to years of delay before a final decision is made.
Delays to new infrastructure projects can also affect the demand/supply
balance for gas, which although not necessarily leading to shortages, can
contribute to higher energy prices.
284 An obligation under European legislation: Consolidated EIA Directive. Directive 85/337/EEC as amended
by 97/11/EC and 2003/35/EC
285 The Energy Challenge, HMG Cmd 6887, July 2006
286 Stublach gas storage project granted permission by Local Authority June 2006, Caythorpe gas storage
project application refused by Local Authority June 2006; Welton gas storage project refused by Local
Authority February 2006; Canvey Island LNG project refused by Local Authority September 2006
287 Aldbrough submitted June 98, final decision February 00 (approved); Holford submitted February 02,
decision May 04 (approved); Welton submitted November 03, decision February 06 (refused)
288 It is important to note that a major factor causing delay in this case (Preesall) was that there were
specific concerns raised about the original environmental information provided by the developer and
whether it was compliant with European requirements. 255
Planning
Impact on electricity infrastructure projects
8.12 Although securing planning permission can be difficult for all types of
electricity generation, our analysis289 shows that low carbon technologies face
particular difficulties. For example it takes on average over 20 months to secure
planning consent for a large onshore windfarm290. In March 2006, there were 24
wind projects, with a combined capacity of 1.2GW that had already been under
consideration in the consent regime for more than 21 months291. In fact at the
start of 2007, 7.2GW of windfarms were awaiting a consent decision292.
8.13 The 7.2GW figure covers all sizes of windfarms and the problem of
delay, cost and uncertainty applies to smaller windfarms as much as bigger
ones. Smaller projects (under 50MW) are consented under the Town and
Country Planning Act system. On average, decisions for smaller windfarms
are taking 10 months in England, 27 months in Wales and 14 months in
Scotland293, against a target in England for local authorities to determine 60%
of all “major applications”294 within 13 weeks.
8.14 As part of our analysis of the nuclear question for the Energy Review
and the consultation document published alongside this White Paper, we
examined the evidence on planning inquiries for nuclear power stations and
found that proposals in the past have also encountered significant delays in
securing planning consent295. For example, the Hinkley Point C public inquiry
lasted more than 180 days and covered many of the same generic health and
safety issues as the Sizewell B inquiry even though it was based on the same
power station design.
What causes the cost, uncertainties and delays?

8.15 Since the Energy Review Report was published, two further reviews
commissioned by Government have reported 296. Both included an examination
of the issue of planning for major infrastructure. They concurred with the
findings of the Energy Review Report in identifying a number of major
causes of delay, uncertainty and cost in the planning systems for major
infrastructure projects:
• The relative significance of Government policies and the balance

of priorities can be unclear. Although the Government has taken action to
articulate national energy policy, inspectors and other participants in the
planning system must balance this against the full suite
289 DTI Analysis 2006: Electricity Development Consents Team

290 DTI Analysis 2006: Electricity Development Consents Team
291 BWEA: Onshore Wind – Powering Ahead, March 2006
292 BWEA: Real Power: Issue 8, December 2006. This figure represents projects awaiting consent under
both the Electricity Act and Town and Country Planning Act across all of the UK. A significant number of
these projects are in Scotland. Scotland already has developed plans to modernise their planning system
to make it more efficient, avoiding delays and uncertainty where possible, while ensuring community
interests are fully considered.
293 BWEA: Onshore Wind – Powering Ahead, March 2006
294 For non-residential developments, a major application is one where the floorspace to be built is 1,000
square metres or more, or the site area is 1 hectare or more,
http://www.communities.gov.uk/pub/642/DevelopmentcontrolstatisticsEngland200506_id1503642.pdf
295 As indicated in chapter 5, Government is consulting on whether new nuclear build should have a
role to play.
media/4EB/AF/barker_finalreport051206.pdf); Eddington Transport Study: http://www.hm-
256 treasury.gov.uk/independent_reviews/eddington_transport_study/eddington_index.cfm

of Planning Policy Statements when assessing the need for and the
environmental consequences of a project. It is not always clear which
elements of this framework should carry the most weight in the
assessment of any given case. Moreover, the costs of energy
developments tend to be local, tangible and short-term, whereas the
benefits are diffuse (gas storage projects provide benefits for users of gas
across the entire country), intangible (it is difficult to associate reliability of
the entire UK electricity system with the building of a single power station)
and long-term (power stations produce electricity for a long period of time,
whereas the main impact on the local community is during the
construction period). This situation creates uncertainty for developers as to
how local authority decision makers and consultees will balance the local
impact of a project against the national benefits.
• The system is cumbersome and complex with multiple decision

makers. As highlighted in the Energy Review Report297, the energy
planning system is a complex mix of consent regimes, with different local
and national accountabilities. For example, offshore windfarms require
consent under the Electricity Act from the Secretary of State for Trade and
Industry, and consent from the Secretary of State for Environment, Food
and Rural Affairs for a “FEPA licence298”. Sometimes separate consent will
also be sought from the local planning authority for onshore infrastructure
needed to connect the windfarm to the grid.
• Lengthy inquiry periods. The current system, whether decisions are

made by Ministers or local authorities, is based on often lengthy adversarial
cross-examination, and it is difficult to fully exclude certain issues from
inquiry, even if they have been established as Government policy, for
example the national need for certain types of development.
• Two separate phases of decision-making: recommendations by

inspectors and then final Ministerial decision. Both the preparation of
the Inspector’s report of a public inquiry and the subsequent Ministerial
decision can be subject to delay, and new matters and evidence that arise
during this period may need to be considered. For example, it took the
judge appointed as inspector for the Sizewell B power station inquiry over
22 months from the close of the inquiry to provide his report to the
Secretary of State, and then a further four months for the final decision.
• Legal challenge. Legal challenges can also be costly and time consuming
and create extra uncertainty for local communities and developers.
However, there is a clear need to allow legal challenge to ensure decisions
are made in accordance with legal principles and that procedures operated
by decision-makers are fair.
• Quality of applications. At present, most applications for consent to

construct infrastructure of national significance are well prepared.
However, some inquiries can be delayed because of poor preparation or
inadequate consultation. Thorough preparation by the developer and early
engagement with key parties including affected local communities, local
297 The Energy Challenge, Table 7.1, Pages 138-141

298 A FEPA licence is a licence under the Food and Environmental Protection Act 1985 257
Planning
authorities, and relevant public bodies such as the Environment Agency,
English Heritage and the Highways Agency, as well as with the
determining body, are essential if the project development process is to be
effective and the planning system is able to deliver decisions efficiently.
Immediate improvements to the Energy

Planning System
8.16 The Energy Review Report, in 2006 set out a comprehensive package of
measures that could be implemented swiftly while the Government
considered proposals for a more fundamental overhaul of the planning system
for nationally significant infrastructure. Work has progressed according to plan.
The package was based on three principles:
• Improving the strategic (i.e. national policy) context against which individual
planning decisions should be made;
• introducing more efficient inquiry procedures within the current consent
regimes; and
• more timely decision-making.
8.17 Since the Energy Review Report was published in July 2006 we have
already put in place the following:
• The statement of need on renewable generation which was published as

part of the Energy Review Report (and which is included in the renewables
section of chapter five);
• improved guidance for developers on Combined Heat and Power (CHP);
• the commitment to appoint high-powered inspectors for the most complex
and controversial energy proposals; and
• updated rules for inquiries held to consider applications for large
electricity projects.
Improving the strategic context
Planning Policy Statement on Climate Change

8.18 We committed to preparing a wide-ranging Planning Policy Statement
(PPS) on Climate Change. It will provide clarity on national policy on climate
change issues. Regional and local planning bodies will be expected to take the
policies in the PPS into account in the preparation of regional spatial strategies
(including the spatial development strategy for London) and local development
documents. We have recently consulted on a draft of the Statement which
puts the national need to cut carbon emissions and to secure renewable and
low carbon energy, centre stage of what is expected from planning. It does
this through the following:
• Underlining that applicants will no longer have to demonstrate either the

overall need for renewable energy or for their particular proposal to be
sited in a particular location;
• creating the expectation amongst applicants that any substantial new
proposed developments would need to source a significant proportion
of their energy supply from low carbon sources (including on and off-site
258 renewables);

• encouraging planners to help create an attractive environment for
innovation and in which the private sector can bring forward investment
in renewable and low carbon technologies; and
• giving a clear steer to planning professionals and local authority decision-
makers, that in considering applications they should look favourably on
renewable and energy developments.
8.19 The Government is currently considering responses to the consultation

on the draft PPS, which closed on 8 March 2007, and will publish the final
PPS later in 2007. Following publication of the final PPS, the Government
will be publishing best practice guidance to accompany the Statement. In
finalising the PPS and accompanying guidance, we will look to ensure
consistency with the Government’s energy policies for tackling climate
change set out in this White Paper.
Guidance for developers of electricity infrastructure projects

8.20 There is clear evidence that where developers properly understand how
the consenting system operates, and grasp the benefit of early engagement with
local communities, that this is reflected in lower costs, fewer delays and less
uncertainty in the planning process299. Therefore, we gave a commitment in the
Energy Review Report to prepare guidance on the electricity consents process.
8.21 Although the procedures set out in the guidance are not new, it is the
first time they will have been set out in this consolidated form. It is also
intended that the guidance should be of use to statutory consultees300,
environmental interest groups, and anyone with an interest in the energy
planning system, including members of the public.
8.22 We recently launched a consultation on this guidance, which covers a

number of important areas:
• Flowcharts of how the process operates, from pre-application to decision;

• best practice advice for developers;
• an explanation of the scope and requirements of the Environmental Impact
Assessment Directive301;
• applications, publicity and consultation requirements;
• planning conditions and associated works; and
• the decision making and appeals processes.
8.23 The Government believes that proposals for grid upgrades, where they
relate specifically to new generating capacity, should be considered as part of the
same project. Although there are separate application processes for each, where
possible such applications should be considered side-by-side. This assists the
consents process and will help to ensure the timely construction of both power
stations and the overhead lines needed to connect them to the grid. It also means
that where practical, both applications can be considered under the same public
inquiry. The guidance explains how developers should approach this issue.

300 Statutory consultees will differ depending on the consent regime and the location of the development.
They are the parties with which the developer must consult, for example, the Environment Agency
301 Transposed into legislation for England and Wales in the Electricity Works (Environmental Impact
Assessment) (England and Wales) Regulations 2000 259
Planning
8.24 We plan to issue the final version of the guidance in autumn 2007.
Guidance for power station developers on Combined Heat and Power

8.25 As part of Government policy to promote good quality CHP where
viable, there is an obligation on developers of large power stations to consider
opportunities for CHP, including community heating, when submitting their
applications for consent.
8.26 In December 2006, the Government issued new guidance for

developers on meeting their CHP obligations302. The guidance takes into
account comments gathered during the formal consultation process in 2004,
and also informal discussions with stakeholders since the publication of The
Energy Challenge. It is designed to make it easier to identify opportunities for
CHP and where it is clear there are no nearby potential heat customers, to
help developers more efficiently meet their obligation. The key improvements
to the guidance are:
• Providing more information on “heat maps” to allow developers to explore

opportunities for CHP more easily;
• setting out more clearly how developers can demonstrate that they have
considered the opportunities for CHP;
• rationalising the number of contacts to discuss how best to exploit CHP
opportunities; and
• providing case study examples of how developers have in the past
successfully exploited CHP opportunities.
Improving the resilience of overhead power networks

8.27 The resilience of the electricity networks is important in ensuring the
reliability of our energy supplies. The vast majority of interruptions to electricity
supplies that do occur in the UK are as a result of transmission or distribution
issues. The Government believes that a better balance can be struck between
a flexible approach for modest changes to existing overhead lines and the need
for new consents for more significant works. Although minor upgrades are
often controversial and do not have significant environmental effects, they are
currently required to comply with the full consent process.
8.28 In December 2006, the Government launched a consultation that sought

views on, amongst other things:
• Allowing the use of “design successors” without the need for a renewed
consent 303 ;
• allowing minor changes to existing infrastructure in National Parks and
Areas of Outstanding Natural Beauty with the acquiescence of the local
planning authority, without requiring fresh consent;
• maintaining the current requirement for lines within Sites of Special
Scientific Interest to be subject to the full consent process; and
• the costs and benefits assessment of such changes.
302 http://www.dti.gov.uk/energy/markets/consents/guidance/page27939.html (an English and Welsh version

is available)
303 The term “design successors” is used to refer to the introduction of new components that perform
broadly the same function as their predecessors, but improve the resilience of overhead lines because of
the designs of the new components. Key examples are insulated conductor systems such as Aerial
260 Bundled Conductors or Compact Covered Conductors.

8.29 The proposals in this consultation are intended to allow for better
maintenance of the existing overhead transmission and distribution lines, and
will allow some minor upgrades to be undertaken without the administrative
burdens and potential delays of requiring a new consent under Section 37 of
Electricity Act 1989.
8.30 Following this consultation, the Government will issue a response to

views expressed by consultees. The intention is to finalise this response
during 2007, and then to prepare Exemption Regulations to take effect as
soon as reasonably possible thereafter.
Introducing more efficient inquiry procedures
Updated inquiry rules for large electricity projects

8.31 In 2006, we committed to introducing streamlined inquiry rules in
England and Wales in April 2007 that took recent best practice304 into account.
On 9 November 2006, we launched a consultation on proposed new rules for
these inquiries305. In the light of the consultation, we made amendments and
laid the new Rules, “The Electricity Generating Stations and Overhead Lines
(Inquiries Procedure) (England and Wales) Rules 2007”, in Parliament. The
Rules came into force on 6 April 2007306.
8.32 The improvements to the Rules focus on the following areas:
• Increasing the information made available to the Inspector and inquiry

participants at the pre-inquiry stage. For example by requiring those who
objected to the application to register at an early stage (indicating the
intended degree of participation), in order to be automatically entitled to
appear at the inquiry. This will help the inspector propose or set a realistic
timetable for the inquiry, and help it to be run more efficiently.
• Designing improved pre-inquiry procedures. For example, by enabling
the Secretary of State to require that the applicant and relevant planning
authority prepare a statement of common ground. This will clearly identify
issues on which common agreement has been reached and therefore
should not need to be discussed in depth in the inquiry proper.
• Giving the Inspector more discretion to design a fit-for-purpose
inquiry procedure. For example, giving him the power to direct that
evidence on certain specified issues is given primarily in writing (although
participants may make limited oral submissions on these issues at inquiry).
This should help lead to shorter and more efficient inquiries; and
• Enabling e-communication to help reduce administrative burdens of
inquiries.
• Reducing the standard periods between the receipt of the application
and commencement of the inquiry, although these periods may, in
individual cases, be extended.
8.33 The new Rules also include specific new provisions to cater for inquiries
into applications under the Electricity Act for offshore generating stations.
304 In 2005, the Government introduced new inquiry rules for Major Infrastructure Projects considered under
the Town and Country Planning Act regime. http://www.opsi.gov.uk/si/si2005/20052115.htm
305 http://www.dti.gov.uk/energy/review/implementation/electricity-act-inquiry/page35205.html
306 These Rules can be found at http://www.opsi.gov.uk/si/si2007/20070841.htm and Guidance to
accompany them at http://www.dti.gov.uk/files/file38845.pdf 261
Planning
Streamlining of onshore gas consents regimes
8.34 The current process for securing consent for gas infrastructure projects
is complex, with various consents routes, and can be very protracted. There is
also concern that not enough weight is placed on the national need for such
infrastructure projects 307. Industry cite the number of decisions that have had
to be appealed as evidence of this, although there may be additional reasons
for applications being turned down.
8.35 The Government is consulting on proposals to address this need for

simplification as part of the planning White Paper 2007, Planning for a Sustainable
Future. This sets out proposals for the new planning system and consults on
rationalising the regime for nationally significant gas supply infrastructure projects
in England to bring all decision making under the proposed independent
infrastructure planning commission 308. This is discussed later in this chapter.
8.36 We recognise that any changes to legislation would not aid those
projects that are already engaged in the planning system, or which are close
to engaging in it, because we expect it will be two years before the new
regime is operational. However, we remain committed to taking any action
now where we can to make the consenting arrangements more efficient.
8.37 Some developers are exploring an alternative approach by consenting

applications for gas storage developments under the Gas Act 1965 309. There is
currently no existing guidance on this legislation, which is creating difficulties
for an increasing number of developers. The regime is also unfamiliar to other
interested parties, for example, those living in areas in which a storage facility
is proposed. Therefore, we are publishing alongside this White Paper, a
consultation seeking views on new draft guidance on the Gas Act 1965.
Based on this consultation, we will aim to publish guidance later this year. Our
objective is to help all parties to engage in the consenting process so that it
can be more efficient in considering applications.
Appointment of inspectors
8.38 The appointment of an individual to act as inspector for an inquiry is an
important decision that can have a significant impact on the timely and
efficient running of an inquiry. Any inspector needs to be well versed in the
running of inquiries or similar processes; if they do not adhere to the
procedures as set down in legislation there is a high risk of successful
challenge to the decision on whether or not to grant consent for the project.
8.39 Based on feedback gathered during the Energy Review, in particular

from potential developers, we believe that there could be benefits under
some circumstances in appointing a high court judge, barrister or similar
individual, who would be able to bring particular rigour to the timetable of any
planning inquiry, without compromising the ability of the inquiry to address all
the relevant issues. We will take forward our proposal as set out in The
Energy Review report to appoint a high-powered inspector from outside of the

308 In the light of the wider proposals for planning reform, the planning White Paper 2007, Planning for a
Sustainable Future, consultation question on this topic replaces the proposal made in the Energy
Challenge to consult this autumn on gas supply infrastructure.
309 The scope of the Gas Act 1965 is limited to the underground storage of gas by a licensed gas transporter
262 in natural porous strata (i.e. partially depleted oil/gas fields or aquifers, but not salt caverns).

immediate planning community for especially complex and controversial
inquiries, if we are satisfied that it would bring benefits.
Timely decision making
8.40 In The Energy Review Report, the Government highlighted that it was
considering a number of options for ensuring timely decision making of
applications for consent to construct important energy infrastructure. The time
taken for Government to make a decision can add considerably to the overall
time needed to secure planning consent. For example, it took over four
months for a decision to be made on granting consent for the Hinkley Point C
power station. An especially lengthy delay followed the second inquiry into
the North-Yorks overhead line, where the Inspector submitted his report in
December 1995 but a decision was not taken until March 1998.
8.41 We have considered a number of options to provide more timely

decision making and more certainty surrounding the decision making process.
In the long-term, timetabling of the inquiry and decision making process will
be a key element of the fundamental reforms (see below).
8.42 In the short-term, we are giving a voluntary commitment to take

decisions on whether to grant consent for applications made under s36 and
s37 of the Electricity Act for large electricity infrastructure projects within three
months of receipt of the inspector’s recommendations. This reflects the time-
limit for the determination of applications to construct nationally significant
infrastructure projects proposed in the planning White Paper 2007, Planning for
a Sustainable Future. This should lead to more timely decisions and, combined
with the requirement for the inspector to set a timetable for the inquiry, greater
certainty over how long the planning process should last for individual projects.
8.43 We would, in certain circumstances, where cases were especially

complex, announce a longer decision making deadline as soon as possible
upon receipt of the inspector’s recommendations. However, we are
committed to making decisions as quickly as possible and would expect in
most cases to give a decision within the three month deadline.
Fundamental reform of planning for nationally

significant infrastructure projects
8.44 The Energy Challenge made a commitment to providing more information
on reforms for major projects later in 2006, taking into account cross
Whitehall work on planning. The Eddington Study was published on 1
December 2006 and the Barker Review on 5 December 310. In the Pre-Budget
Report, the Government gave a positive response to the proposals in both
reports on infrastructure and planning. It also gave a commitment to publish a
planning White Paper in Spring 2007, setting out its proposals to take forward
their recommendations for reform of major infrastructure planning, including
nationally important energy projects. This commitment was reinforced in the
2007 Budget.
310 Barker Review of Land-Use Planning: Final Report – Recommendations (http://www.hm-

treasury.gov.uk/media/4EB/AF/barker_finalreport051206.pdf) Eddington Transport Study:
http://www.hmtreasury.gov.uk/independent_reviews/eddington_transport_study/eddington_index.cfm 263
`
Planning
8.45 The planning White Paper 2007, Planning for a Sustainable Future 311,
was published in May 2007. The remainder of this chapter summarises some
of its key proposals that bear on the energy sector.
8.46 A key component of the reforms proposed in the planning White Paper
2007, Planning for a Sustainable Future, is the creation of an independent
infrastructure planning commission (hereafter referred to as “the
commission”). The commission would examine and take decisions on
applications for nationally significant infrastructure projects above statutory
thresholds, as well as projects designated by national policy statements or
Ministers. Under these proposals there would be three main phases for
nationally significant infrastructure:
• The strategic phase. The Government would produce national policy

statements which would establish the national case for infrastructure
development and set the policy framework for infrastructure planning
commission decisions. The statements would explain how they integrated
strategic economic, social and environmental policy objectives to deliver
sustainable development. There would be public consultation on national
policy statements, and an opportunity for Parliamentary scrutiny before
they were finally adopted. National policy statements would be the
primary, but not the only, consideration for the infrastructure planning
commission in determining applications for development consent for
nationally significant infrastructure projects.
• The project development phase. An active pre-application phase that

would provide greater certainty for promoters of infrastructure projects and
will help ensure all developers more thoroughly prepare applications by:
– making better advice available to them;
– requiring them to consult publicly on proposals for development; and
– encouraging early and effective engagement with key parties such as
local authorities and statutory bodies.
• The decision-making phase. The commission would examine and take

decisions on applications for development consent for nationally significant
infrastructure projects, within the framework of the relevant national policy
statement. The planning White Paper 2007, Planning for a Sustainable
Future, envisages that, other than for particularly difficult cases, the
commission would work to a statutory time limit of nine months for its
examination and decision: six months for examination of the project and
three months for determination.
8.47 In addition, the planning White Paper 2007, Planning for a Sustainable
Future, proposes:
• Harmonising as far as possible, the different consent regimes to create a

single application process for these major infrastructure projects;
• streamlining the procedures for examining infrastructure projects of
national significance by improving inquiry procedures; and
• improving public participation across the entire process by providing better
opportunities for public consultation and engagement.
264 311 http://www.communities.gov.uk/planningwhitepaper

The strategic phase
8.48 Under the proposals Ministers would have responsibility for developing
national policy statements and the extensive work that will go into consulting
on and refining them. National policy statements would establish the national
case for new energy infrastructure to meet our energy policy goals.
They would also:
• Integrate government objectives and help deliver sustainable development;

• provide a more certain and stable base for investment in infrastructure;
• provide a clear and focused opportunity for consultation and debate on
national infrastructure development; and
• enhance ministerial accountability for policy setting.
8.49 National policy statements would be the primary consideration for the
infrastructure planning commission in reaching decisions and provide a
platform for more efficient inquiries and decisions.
8.50 Given their fundamental role in the proposed new system for nationally
significant infrastructure applications, national policy statements will play an
important role in providing certainty to developers of the national case for new
infrastructure. To achieve this they would need to be credible and well-
considered, helping to give them a degree of longevity, given the life of
energy infrastructure. However, they would also need to be sufficiently
flexible to respond to developments in the market. It will be important for the
legitimacy of national policy statements that they are subject to thorough and
effective consultation and to Parliamentary scrutiny. Proposals on this are set
out in the planning White Paper 2007, Planning for a Sustainable Future.
8.51 National policy statements would set out the Government’s objectives
for the development of nationally significant infrastructure in a particular
sector and how this could be achieved in a way which integrated economic,
environmental and social objectives. The way in which these objectives would
be considered and integrated may require Strategic Environmental
Assessment, which could be incorporated in a wider Sustainability Appraisal.
They would also:
• Indicate how the Government’s objectives for development in a particular

infrastructure sector had been integrated with other specific government
policies, including other national policy statements, national planning policy,
and any relevant domestic and international policy commitments; and
• consider relevant issues in relation to safety or technology, indicate any
circumstances where it was particularly important to address adverse
impacts of development, and include any other particular policies or
circumstances that Ministers consider should be taken into account in
decisions on infrastructure development.
8.52 Although it is expected that a number of national policy statements will

be produced for the energy sector, some high level issues covered by them
will be overarching in nature. Of particular relevance is the fact that it is the
Government’s policy for the market to decide what energy proposals to bring
forward in terms of specific technologies and locations to deliver the
Government’s objectives of ensuring security of energy supplies and tackling
climate change by reducing carbon emissions. 265
Planning
8.53 The final structure of the suite of statements likely to be required for the
energy industry has not yet been determined. However, it is expected that an
overarching framework for energy national policy statements, and some sub-
sectoral national policy statements for specific energy technologies, would be
put in place during 2009. Individual statements would contain more
information on, for example, the need for a particular technology, as well as
the generic safety, economic and performance aspects of that technology.
New and emerging technologies, such as carbon capture and storage (CCS),
would, where appropriate, be covered within the suite of energy national
policy statements, when the case for national treatment of such significant
projects has been established. Further details on the Government’s proposals
for the form and timing of national policy statements will be set out after the
consultation on the planning White Paper 2007, Planning for a Sustainable
Future has concluded.
8.54 Where possible, statements will also contain spatially-specific

information on developments, but this will vary from technology to
technology. It may be possible to offer generic criteria that will help clarify the
required locations for certain technologies – for example, underground gas
storage facilities, which require certain geological conditions.
8.55 However, energy national policy statements are likely to be less specific
in certain respects than for other sectors, because it will not be possible to be
capacity and location-specific; these are matters for potential developers to
consider as part of the Government’s market based approach to energy policy
and energy infrastructure development. With regard to offshore energy, we will
aim to dovetail the national policy statements and the Marine Policy Statement
envisaged under the Marine White Paper, published in March 2007.
8.56 National policy statements will be the primary consideration for the
commission in determining applications for development consent for
nationally significant infrastructure projects. They will also have important
implications for local and regional planning. Where appropriate, national policy
statements would set out the contribution the town and country planning
system would be expected to make to facilitate the delivery of infrastructure.
They will therefore influence planning decisions taken under the Town and
Country Planning Act, such as smaller onshore windfarm projects.
8.57 The current statutory framework for planning requires the preparation of
regional spatial strategies and local development plan documents. At present,
regional planning bodies and local planning authorities must have regard to
national policies and guidance when preparing these regional and local
development plans. The planning White Paper 2007, Planning for a
Sustainable Future proposes that this should be extended to ensure that they
also have regard to proposed national policy statements on infrastructure.
8.58 The Government intends that any national policy statements for the
energy sector would be developed for the whole of Great Britain or the UK as
appropriate. There would be no change to the various devolution settlements
on planning and the management of consent responsibilities in each of the
devolved administrations. The relevant national policies would be developed
266

with the full involvement of the Devolved Administrations so as to inform
strategy for this infrastructure throughout Great Britain or the UK. Welsh,
Scottish and Northern Ireland Ministers would be statutory consultees in the
development of relevant national policy statements. The Government
anticipates that close working in the development of Great Britain or UK wide
policy will mean that the national policy statements will also be reflected in
policy and decisions in the Devolved Administrations.
The pre-application stage: Improving the preparation of

applications
8.59 The Government believes that public consultation on proposals for major
infrastructure projects and early engagement with key parties such as local
authorities and relevant public bodies such as statutory environmental and
heritage bodies is extremely important.
8.60 The planning White Paper 2007, Planning for a Sustainable Future,
therefore proposes that before promoters submit an application, they should
be required to:
• Consult the public and, in particular, affected land owners and local
communities on their proposals before submitting an application to the
commission;
• engage with the affected local authority or authorities on their proposals
from early in the project development process; and
• consult other public bodies, such as statutory environmental and heritage
bodies, regional directors of public health, and relevant highway authorities,
as appropriate.
8.61 The infrastructure planning commission must satisfy itself that the
promoter has carried out adequate consultation before agreeing to consider
an application for development consent for nationally significant infrastructure.
8.62 Where the promoter is required to consult an organisation, that

organisation has a responsibility to give its views promptly and not cause
unnecessary delays. The planning White Paper 2007, Planning for a
Sustainable Future, therefore proposes that legislation should impose an
upper limit on the time the statutory consultees have to respond to a
promoter’s consultation.
8.63 The Government proposes that the infrastructure planning commission

would issue written guidance on the application process, procedural
requirements and consultation, and be able to advise promoters and other
interested parties on consultation and the application process as a whole.
To ensure that applications are thoroughly prepared and can be considered
efficiently, the commission would be able to send back applications which had
either not been adequately prepared or not been adequately consulted on.
The decision phase

8.64 The planning White Paper 2007, Planning for a Sustainable Future
proposes that the infrastructure planning commission would deal with
development consent applications for nationally significant energy
infrastructure in England and Wales, which exceeded statutory thresholds set
out in Box 8.1. 267
Planning
BOX 8.1 ILLUSTRATIVE THRESHOLDS FOR ENERGY
INFRASTRUCTURE PROJECTS FOR REFERRAL TO THE
INFRASTRUCTURE PLANNING COMMISSION
Nationally significant energy projects

The following energy projects will automatically be referred to the
Commission for a consent decision:
(a) Power stations generating more than 50MW onshore – the existing
Electricity Act 1989 threshold – and 100MW offshore.
(b) Projects necessary to the operational effectiveness, reliability and

resilience of the electricity transmission and distribution network.
This would be subject to further definition in the relevant national
policy statement.
(c) Major gas infrastructure projects (Liquefied Natural Gas terminals,

above ground installations, and underground gas storage facilities).
This would be subject to further definition in the relevant national
policy statement.
(d) Commercial pipelines of a length that puts them above the existing
Pipelines Act 1962 threshold of 16.093 kilometres/10 miles and licensed
gas transporter pipelines necessary to the operational effectiveness,
reliability and resilience of the gas transmission and distribution network.
Associated works
For energy, the main component of the project (for instance, a gas storage
facility, power station or windfarm) is likely to require associated works
such as gas pipelines, power lines or sub-stations. The planning White
Paper 2007, Planning for a Sustainable Future proposes that the
commission would be able to treat major projects holistically, considering
associated works essential to their construction and operation. For
instance overhead lines for power stations or surface access infrastructure
would be considered alongside the main project, where these had been
agreed with network providers. This would simplify matters for developers
and also ensure that the project could be considered in a holistic way by
interested parties.
Technological developments (such as the use of carbon capture and

storage with electricity generation projects) and changing sectoral
circumstances (such as increased dependency on gas imports) can mean
that there may also be other types of projects that become nationally
significant, and may require a national view.
8.65 The commission would appoint a panel of members (usually three to

five) to examine and determine the major applications, but would have
discretion, where it did not feel that a full panel would be required, to
delegate the examination of smaller and less complex cases to a single
commissioner supported by the commission’s secretariat.
268

8.66 The commission would be composed of experts in fields such as
national and local government, community engagement, planning, law,
engineering, economies, business, security, environment, heritage, and health
as well as, if necessary, specialist technical expertise related to the particular
sector. The commissioners would be appointed for their individual expertise,
experience, ability and diversity of background. They would not be appointed
as representatives of particular organisations, interests or political parties.
8.67 The secretariat to the commission would employ individuals with the
necessary technical expertise across the infrastructure sectors that the
infrastructure planning commission would consider. The commission would
also be able to draw on specialist technical advice from external sources
where necessary to assist it in the consideration of particular cases. The
complexity of energy infrastructure may mean that the commission might
need to have dedicated energy planning expertise within its secretariat.
8.68 In considering applications, the commission would gather the majority of

evidence in writing, probe it by means of direct questioning, and work to a
strict timetable. A specific open-floor stage would be introduced to inquiries to
allow interested parties who wished to express their views about the project
the opportunity to do so within a defined period of time.
8.69 We expect that the commission would consider around 10 major

infrastructure projects a year in total (including energy, transport, water and
waste projects) as well as a larger number of less complex cases, such as
works necessary to ensure the operational effectiveness and resilience of the
electricity transmission and distribution network. However, it is hard to be
specific because of the likelihood of fluctuations in the frequency with which
major infrastructure projects are brought forward, and there might potentially
be peaks of anywhere up to 25 major projects in some years. If, following the
consultation on the future of nuclear power in the UK, launched alongside this
white paper, the Government concludes that it is in the public interest to
allow companies the option to invest in new nuclear power stations, we
would expect the commission to determine such cases.
8.70 Technological developments (such as the use of carbon capture and

storage with electricity generation projects) and changing sectoral
circumstances (such as increased dependency on gas imports) can mean that
there may also be other types of projects that become nationally significant,
and therefore may require a national view. We would expect the commission
to be the decision maker for these types of project. It might also be
appropriate for the commission to consider applications that on their own
were below the normal thresholds, because they had potential cumulative
impacts with other applications above the thresholds. It is therefore likely that
a small number of other projects, not covered by the thresholds set out in
Box 8.1, might require national decision making.
8.71 DTI Ministers currently take decisions on overhead power line consents
and wayleaves. There is a particular issue regarding the future treatment of
projects necessary to the operational effectiveness and resilience of the
electricity transmission and distribution network, which is a critical factor in
the security of our energy supplies.
269
Planning
8.72 The electricity network needs to be robust as new, renewable sources
of electricity generation start to be developed to meet our climate change
objectives. The energy planning system must be able to take into account and
allow for the full implications of the drive towards a greater role for renewable
energy and for a more localised pattern of generation and distribution. Each
link of the electricity network is critical to the effectiveness and resilience of
the network as a whole, and thus to ensuring that we can sustainably and
cheaply transport power from generating stations to customers.
8.73 In these circumstances, the Government sees no obvious way to draw

a line between national and local projects, although the Government would be
interested in views on where such a line could be drawn. The Government is
consulting on this issue, as part of the consultation on the proposals
contained in the planning White Paper 2007, Planning for a Sustainable Future
and whether all of these projects should be considered by the infrastructure
planning commission.
8.74 The Marine (Bill) White Paper published on 15 March set out a new
regime for integrated management of the UK’s seas which complements the
proposals in the planning White Paper 2007, Planning for a Sustainable Future.
A new Marine Management Organisation would generally operate as the
consenting body for smaller projects in the marine area. The infrastructure
planning commission would be responsible for decision on proposed offshore
renewable energy developments over a threshold of 100MW. Both bodies will
take decisions within the framework of the marine policy statement and
relevant national policy statements.
Transitional arrangements
8.75 The energy planning system is complex, with a number of different
consenting regimes, which have evolved over time and are not all tailored to
the energy sector as it now stands 312. Simply transferring the current suite of
development consent regimes to the infrastructure planning commission
unchanged would be problematic. It would mean the process would remain
complex and time consuming, potentially limiting the efficiency improvements
that the new system could deliver. Therefore, the Government proposes to
rationalise the different development consent regimes and create, as far as
possible, a unified, single consent regime with a harmonised set of
requirements and procedures.
8.76 Finally, the Government believes that the move to a reformed planning
system will require careful management of transitional arrangements to
ensure that interested parties, including investors, understand the framework
within which they are operating at any given moment and retain confidence
both in the current system and the emerging new system. It is critical to
energy security of supply that investment is not undermined or delayed at a
time when the UK needs significant amounts of new energy infrastructure.
8.77 Establishing the infrastructure planning commission will need primary

legislation which we will propose to at the earliest opportunity. The need for
legislation means that the commission is unlikely to be in place before April
2009. Nationally significant infrastructure applications received before the
312 An overview of the energy planning system is available in The Energy Challenge, HMG Cmd 6887,
270 July 2006, Table 7.1, Pages 138-141

commission is established would be decided by the relevant Secretary of
State. Decisions on these applications would not be transferred to the
commission. We expect to put national policy statements for infrastructure
sectors in place before any applications in a sector are submitted to the
infrastructure planning commission. However if applications come forward
before the relevant national policy statement is in place the commission
would consider the application using the procedures proposed in this white
paper but would make a recommendation to Ministers for decision.
BOX: 8.2 TRANSITIONAL ARRANGEMENTS FOR PLANNING

DECISIONS ON NATIONALLY SIGNIFICANT INFRASTRUCTURE
Application received before Decision taken by Secretary of

commission is established State, under current
arrangements
Application received after Decision taken by Secretary of

commission is established, State, following recommendation
but before relevant national from commission (using new
policy statement in place procedures)
Application received after Decision taken by commission

commission is established using new procedures
and relevant national policy
statement in place
Improving Town and Country Planning for the

national level
8.78 The Town and Country Planning system is “plan-led”. Broadly speaking,
this means that the planning authorities prepare a development framework
and spatial plans that help determine what can be built and where. There are
two levels of plans. The Regional Spatial Strategy is the top tier of the
development plan. It is drawn up by the regional planning body and provides a
broad development strategy for a 15-20 year period (in London, the Mayor
prepares a Spatial Development Strategy). It looks at a range of regional
issues such as transport and housing and the potential impact of such
developments. The second level of plan is the Local Development
Framework, which is prepared by every local planning authority. They
comprise a series of documents that outline the spatial strategy for the area,
core policies and a monitoring and implementation framework. It is
supplemented by various documents such as site specific allocations and a
design guide and must also contain a statement of community involvement 313.
8.79 In considering applications under the Town and Country Planning

system, decision makers (primarily local authorities) will consider if the
313 More information about the planning system in the UK is available at www.planningportal.gov.uk and
http://www.communities.gov.uk/index.asp?id=1143104 271
Planning
proposal is in line with the relevant regional and local plans and any other
material considerations. National planning policy is set out in Planning Policy
Statements (PPS). PPSs are prepared by the government after public
consultation to explain statutory provisions and provide guidance to local
authorities and others on planning policy and the operation of the planning
system.
8.80 The Government has already carried out significant reforms of town and
country planning. These have improved the effectiveness of plan making and
development control, but we recognise that there is scope to make further
improvements to the Town and Country Planning system. This is of particular
relevance to the energy sector, given that planning decisions for energy
infrastructure are taken both at a national level and by local authorities.
8.81 The Government therefore proposes to:
• Simplify the national planning policy framework, clearly stating policy

requirements and separating these from supporting guidance and best
practice;
• strengthen the role of local planning authorities in shaping their
communities; and
• streamline the system as a whole to make it more accessible for all who
need to use it.
8.82 The specific context for smaller renewable and low carbon energy
developments will also be strengthened through the draft climate change
PPS, once finalised (see earlier in this chapter).
8.83 The planning White Paper 2007, Planning for a Sustainable Future, also
considers how local planning authorities can be supported to ensure that the
local planning decisions on smaller renewable energy projects are made
effectively and help to deliver national policy. As set out in that White Paper:
• Regional and local development plans would be expected to have regard to

proposed national policy statements on infrastructure;
• the Government will work with local authorities and with the industry to:
ensure that high quality renewable energy schemes are prepared; resolve
potential local impact problems; and improve the engagement with local
communities on the case for renewable energy;
• the Government will provide additional training for planning inspectors on
the policy context for determining appeals on renewable energy schemes,
including the need to deal with such cases promptly; and
• Ministers would have the power to direct that smaller projects which are
below the normal thresholds but are nevertheless of national significance,
or which have potential cumulative impacts with other applications above
the thresholds, should be treated as nationally significant infrastructure
projects and determined by the infrastructure planning commission.
8.84 The Government is also consulting on proposals to encourage

inspectors to award costs where appeals have been required on
unreasonable grounds.
272

8.85 The Government is also looking at ways to reduce the burdens on the
planning system by removing the need for planning permission for certain
developments within defined parameters. For example, the Government
proposes that broadly all forms of householder micro generation equipment,
should be permitted, subject to safeguards to minimise the impact on others,
without the need to apply for planning permission. These proposals have been
set out in a consultation paper 314. The Government is also proposing to extend
permitted development rights on micro generation to other types of land use
including commercial and agricultural development. Given the wide variety of
types of non-residential use, we will take a staged approach, with consultation
on detailed proposals for some types of non-residential building later this year.
8.86 As well as removing the need for planning permission in certain cases,
the Government is looking at ways to better resource the planning system
overall. For example, it proposes to consult on allowing the Planning
Inspectorate to charge for planning appeals. The Government is also
considering undertaking a pilot study with a small group of local planning
authorities who would be able to offer a premium service to applicants. This
approach would, for example, allow a local planning authority to charge an
enhanced fee for a planning application where it guaranteed that the applicant
would receive a decision in less than 13 weeks for major applications
(8 weeks for minor or other applications).
Planning
Summary of Measures
We have:
• taken forward the suite of reforms as highlighted in The Energy
Challenge in 2006, these have:
– provided clarity on Government policy on the strategic need for
energy infrastructure. We have achieved this through:
• consulting on a new Planning Policy Statement on Climate
Change, which will be finalised later in 2007;
• publishing a Statement of Need for Renewable Generation;
• consulting on new guidance for developers on the Electricity
Act consenting regime;
• publishing updated guidance for developers on Combined
Heat and Power projects; and
• consulting on proposals to allow minor upgrades to existing
overhead electricity networks without requiring the full
consents process.
– created more efficient procedures for planning inquiries.
We have achieved this by updating the inquiry procedure for
projects considered under the Electricity Act consenting regime.
The regulations came into force in April 2007.
– provided for shorter and more predictable timescales.
We have achieved this by giving a voluntary commitment to
make decisions under the Electricity Act regime within
3 months of receipt of the inspector’s recommendations.
314 http://www.communities.gov.uk/index.asp?id=1508888 273
Planning
We will:
• Following the consultation on the planning White Paper 2007,

Planning for a Sustainable Future, and subject to Parliamentary
approval, establish a new development consent regime for
nationally significant energy infrastructure. This new consenting
regime would focus on:
– ensuring that there is a clear policy framework for nationally
significant infrastructure;
– helping promoters improve the way that they prepare and
consult on applications;
– streamlining the procedures for infrastructure projects of
national significance by rationalising the different consent
regimes and improving the inquiry procedures for all of them;
– clarifying the decision making process, and achieving a clear
separation of policy and decision making, by creating an
independent commission to take the decisions on nationally
significant infrastructure cases within the framework of the
relevant national policy statement; and
– improving public participation across the entire process.
Reducing costs, delays and uncertainties will help create the right
market framework for the private sector to make the investments in
new energy infrastructure necessary to maintain the security of our
energy supplies, and help reduce carbon emissions. The changes
that we propose will, at the same time, improve the accountability
of the system, the transprency of decision-making and the ability of
individuals and communities to participate effectively in the
planning process.
274

CHAPTER 9
Devolved Administrations,
English Regions and Local
Authorities
9.1 Some matters which relate to energy policy in Scotland, Wales and
Northern Ireland are the responsibility of the Devolved Administrations, and
therefore decisions on these matters are made in the light of each
administration’s particular circumstances. For example:
• the Devolved Administrations each have their own programmes on fuel

poverty;
• the Renewables Obligation is the UK government's main policy measure
for supporting the development of renewable electricity generation in the
UK. As well as the Renewables Obligation Order for England and Wales,
separate Orders have been made for Scotland and Northern Ireland; and
• the Devolved Administrations have an important role to play in respect of
energy efficiency.
9.2 Following the recent elections in Scotland, Wales and Northern Ireland,
new administrations have been or will shortly be formed. In line with the
devolution settlements in Scotland, Wales and Northern Ireland, all proposals
in this White Paper which touch on devolved matters will be progressed in
accordance with the principles set out in the Memorandum of Understanding.
It is expected that the Devolved Administrations will want to consider in
due course how to take forward their responsibilities that are relevant to
energy policy.
9.3 The English regions and local authorities also have a range of powers to
assist the delivery of energy policy and an important role to play through
taking local level decisions and deploying resources within their communities.
This chapter explains how they are playing this role.
275
Devolved Administrations, English Regions and Local Authorities

English regions
9.4 The Energy White Paper 315 set out the importance of the work of the
English regions in the delivery of our energy policy goals. Since 2003,
partnerships of Regional Development Agencies (RDAs), Regional Assemblies
and Government Offices have all set regional energy priorities and taken
forward innovative projects to deliver national energy policy.
9.5 The RDAs have an important role to play in tackling climate change and
contributing to other energy policy goals, within the context of their regional
economic strategies. RDAs are well placed to contribute by:
• maximising UK business opportunities that arise through sector and supply
chain support, and promoting business energy and resource efficiency;
• supporting the deployment of essential energy infrastructure and skills at a
local and regional level; and,
• supporting low carbon innovation, through support for research and
demonstration of new and emerging energy technologies.
BOX 9.1 RDA DELIVERY
Since 2003, RDAs and the regional energy agencies they support,
have worked with key regional partners to:
• commit £59 million to supporting the development, demonstration and

commercialisation of new energy technologies;
• generate £52 million in income for UK companies by helping them
to identify and exploit new supply chain opportunities for supporting
energy sector companies;
• offer advice to 11,000 small businesses on energy efficiency; and
• support 220 new business and housing developments to set
standards for energy efficiency and carbon emissions significantly
above national building regulations.
9.6 The Government recognises that RDAs are the leading strategic
economic and sustainable development body in the regions, and within this
context will contribute to the Government’s energy objectives. Working
closely with the Government Offices and Regional Assemblies, RDAs will
have the key role in taking forward the implementation of this White Paper at
regional level.
9.7 As part of their role in delivering the priorities identified in this White
Paper at a regional level, RDAs have committed to:
• set carbon reduction targets in their corporate plans; publish an estimate
of the carbon they expect to save from their policies and programmes by
2010 and 2020; and update these estimates at least annually as they
develop new programmes;
315 DTI: Energy White Paper: our energy future – creating a low carbon economy, February 2003
276 http://www.dti.gov.uk/energy/policy-strategy/energy-white-paper-2003/page21223.html

• set out, by December 2007, which energy technologies they intend to
prioritise and support over the next 10 years. This will give a clear steer
to companies and potential investors, and encourage partnership working
between the RDAs and research and innovation organisations, including
the new Energy Technologies Institute 316;
• identify energy supply chain opportunities and set out priorities for
promotion and support (by December 2007);
• support small and medium-sized businesses on energy efficiency, piloting
in 2007-08 a streamlined business resource efficiency advice service
through Business Link (also co-ordinated through the Business Support
Simplification Programme) which will include working with a range of
business support providers including the Carbon Trust and other bodies
through the Business Resource Efficiency and Waste Programme (BREW);
• work with Sector Skills Councils and Regional Skill Partnerships to develop
programmes to support the development of key energy skills, including:
– engineering, project management and heavy construction;
– operation and maintenance;
– key suppliers and service providers to the energy sector;
– areas necessary to facilitate the move towards zero carbon development
including sustainable construction, the installation of energy efficiency and
microgeneration technologies, and the project management/legal skills
necessary for the establishment of Energy Services Companies (ESCOs);
• ensure all regeneration projects (from December 2007) and other
developments for which RDAs provide funding or land meet carbon
emissions standards significantly in advance of those required by Building
Regulations (e.g. at least 10 BRE Environmental Assessment Method
(BREEAM) carbon credits). This includes commercial developments not
covered by the Code for Sustainable Homes; and
• play a key role in advocacy for the development of critical energy infrastructure
and provide support through monitoring and advice on strategic proposals.
9.8 With their detailed knowledge of existing and likely locations for new
development in the regions, RDAs are ideally placed to identify opportunities to
exploit the sustainable use of heat. They are key consultees in the revised
guidance on CHP for developers considering proposals for new large-scale
power stations under section 36 of the Electricity Act. New power station
developers will be signposted to seek advice from RDAs on potential customers
for heat when considering the viability of heat recovery in new power plants.
9.9 RDAs are also well placed to pilot focussed approaches to financing and
managing the sustainable production and delivery of energy, for example,
through local ESCOs.
9.10 Where appropriate, RDAs will develop Community Energy Solutions

(CES) companies like those currently being piloted in the North East and
Yorkshire and Humber. These develop and deliver projects that bring together
gas network extensions, energy efficiency installations, advice on benefits and
small-scale renewables in communities with a high incidence of fuel poverty.
316 DTI: Energy Technologies Institute prospectus, September 2006 http://www.dti.gov.uk/files/file34010.pdf 277

BOX 9.2 COMMUNITY ENERGY SOLUTIONS
• One NorthEast and Yorkshire Forward have worked with the DTI to
develop a number of community-based projects to tackle fuel poverty.
The projects are being delivered through a Community Interest
Company (CIC), which enables CES to generate profits that are
reinvested back into the programme.
• Using initial funding of £4 million plus private and public sector
contributions, by 2009 CES will assist a minimum of 4,000 households
in twenty communities through gas network extensions and the
installation of renewables. As well as bringing fuel poverty, energy
efficiency, regeneration and public health benefits, the programmes
will provide local economic benefits by, for example, developing
economically viable supply chains for renewables and generating
training and employment opportunities.
Local Authorities in England

9.11 Local authorities have a growing role to play in helping to meet our energy
policy goals by leading carbon emissions reduction in their communities. The
Energy Saving Trust works with local authorities to develop and implement
sustainable energy strategies, through dedicated specialist support and training,
and a national web and telephone technical advice service.
9.12 The Carbon Reduction Commitment (CRC), as described in chapter 2, is

a mandatory cap and trade emissions trading scheme for all UK organisations
with annual electricity use in excess of 6,000MWh from mandatory half-hourly
meters, therefore covering many large local authorities. The scheme will
be an important enabling tool for the public sector to deliver its carbon
reduction targets.
9.13 The Government is also working with England’s core cities 317
(Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Nottingham
and Sheffield) to develop a joint statement or declaration on climate change.
This will build on the Nottingham Declaration 318, which has now been signed
by 200 local authorities and commits them to develop plans with their
partners and local communities to progressively address the causes and the
impacts of climate change and achieve a significant reduction of greenhouse
gas emissions from their own authority's operations.
9.14 The Local Government White Paper 2006 319 set out proposals for a new
Local Government Performance Framework, which will strengthen this role to
help meet the commitments made in the 2006 Climate Change Programme 320.
This framework will cover climate change, while the 2007 Comprehensive
Spending Review will make decisions on national outcomes, indicators and
national targets.
317 See http://www.corecities.com

318 See http://www.est.org.uk/housingbuildings/localauthorities/NottinghamDeclaration
319 DCLG: Strong and prosperous communities: the Local Government White Paper, Annex F on tackling
climate change, October 2006 http://www.communities.gov.uk/pub/99/StrongandProsperous
CommunitiestheLocalGovernmentWhitePaperVol2_id1504099.pdf
320 HM Government: Climate change, The UK programme 2006, March 2006
278 http://www.defra.gov.uk/environment/climatechange/uk/ukccp/index.htm

9.15 To help local authorities tackle climate change the seven ‘sustainable
energy’ beacon authorities 321 have developed self assessment tools to help
councils evaluate their own performance and provide guidance for
improvement. Twenty-one councils took part in a pilot programme to test the
format and adjustments will be made on the basis of the findings to the
programme before it is launched nationally later this year.
9.16 Ministers announced on 20 March 2007 a new ‘Tackling Climate

Change’ theme for the 9th round of the Beacon Scheme 322. The scheme
disseminates best practice in service delivery by granting beacon status to local
authorities that demonstrate excellence and innovation within a specific theme.
The new climate change theme covers reducing greenhouse gas impacts and
adapting to the impact of climate change. Local authorities can apply to achieve
beacon status on this theme until 29 June 2007.
9.17 Chapter 3 sets out the role that local and regional government has to
play in facilitating the development and uptake of distributed energy, through
their knowledge of local opportunities, and their responsibilities for planning
and regeneration.
Arrangements in London – a Climate Change Duty for the

Greater London Authority (GLA)
9.18 As a large metropolitan area and a major energy consumer, London
plays an active role in tackling climate change issues. The Government has
introduced, in the new GLA Bill currently before Parliament, a duty on the
Mayor of London and the Assembly to address climate change, including both
mitigation and adaptation policies. This will ensure that the GLA continues to
take action beyond the term of a particular Mayor or administration.
9.19 The Mayor will prepare a climate change mitigation and energy strategy
that must take into account and assist with the implementation of national
Government policies on energy and climate change mitigation. The strategy will
contain the Mayor’s proposals relating to minimising carbon dioxide emissions
from surface transport and the use of energy more broadly; supporting
technological innovation; and promoting the efficient production and use of
energy. It will also contain information about fuel poverty in Greater London. In
preparing the strategy, the Mayor must have regard both to guidance produced
by the Secretary of State and to national policies on climate change mitigation,
security of supply, competitive energy markets and fuel poverty.
Action taken by the GLA to address climate change mitigation

and energy
9.20 The Mayor has developed a Climate Change Action Plan for London 323.
This plan focuses on how London can deliver the most significant carbon
savings at lowest cost. The plan is centred on four programmes: Green
Homes, Green Organisations, Green Energy and Green Transport, and also
includes actions for the GLA family (GLA, TfL, Metropolitan Police Authority,
the London Development Agency and the London Fire and Emergency
Planning Authority).
321 See http://www.idea.gov.uk/idk/core/page.do?pageId=5747988

322 See http://beacons.idea.gov.uk/idk/core/page.do?pageId=1
323 Mayor of London, Action today to protect tomorrow, February 2007
http://www.london.gov.uk/mayor/environment/climate-change/ccap/index.jsp 279

9.21 The London Energy Partnership, set up by the Mayor to respond to the
challenges of climate change, security of energy supply and fuel poverty, has
recently published the following reports on its website324: Towards zero carbon
development – supportive information for boroughs; Making ESCOs work;
Skills for a low carbon London; and London carbon scenarios to 2026.
9.22 The Mayor launched the London Climate Change Agency (LCCA) in
2005 to action projects in areas with a strong bearing on climate change,
especially energy, transport, waste and water. It has implemented renewable
energy projects at the London Transport Museum, Palestra and City Hall, as
well as setting-up a joint venture energy services company – London ESCO325.
The LCCA and the London ESCO will deliver major combined cooling, heat
and power (CCHP) projects across London, and implement both large and
small scale renewable energy projects.
9.23 The London Hydrogen Partnership326 was launched in April 2002. The
Partnership provides a platform for funding bids and the initiation of projects
to create conditions where these technologies can thrive.
9.24 The GLA, LDA and Defra are funding the prototype phase of a Green
Homes ‘Concierge Service’ for London. This will trial, in 40 London homes,
the provision of auditing, commissioning and installation support for owner
occupiers seeking to improve the energy efficiency and renewable energy
generation of their homes.
DEVOLVED ADMINISTRATIONS, ENGLISH REGIONS AND LOCAL

AUTHORITIES
SUMMARY OF MEASURES
Following the recent elections in Scotland, Wales and Northern

Ireland, new administrations have been or will shortly be formed. It
is expected that the Devolved Administrations will:
• want to consider in due course how to take forward their
responsibilities that are relevant to energy policy.
The RDAs in England will:
• continue to set regional energy priorities and take forward
initiatives to support national energy policy, for example by
committing to publish carbon saving projections from regional
measures and prioritise support for energy technologies.
Local authorities in England will:
• have a strengthened role to play in tackling climate change
through measures in the new Local Government Performance
Framework; and be able to use the new self-assessment tools to
evaluate their own performance and provide guidance for
improvement on tackling climate change.
The GLA will:
• formulate both mitigation and adaptation policies to address
climate change in London under requirements in the new GLA Bill;
and prepare a climate change mitigation and energy strategy.
324 See http://www.lep.org.uk

325 See http://www.londonesco.co.uk
280 326 See http://www.lhp.org.uk

CHAPTER 10
Impact of our Measures

This chapter sets out how our proposals contribute
to progress against our long-term energy policy goals and
explores the wider economic implications of reducing
carbon emissions in the short and the long-term.
10.1 Together with the effect of the EU Emissions Trading Scheme, we

estimate that our proposals will result in annual carbon savings of between
23-33 million tonnes of carbon (MtC) by 2020. This means that, if all our
measures are fully implemented and achieve the upper end of the range of
savings we have estimated, we shall be on track to achieve real progress by
2020 towards our goal of reducing carbon dioxide emissions by 60% by 2050.
10.2 Our policies improve the security and reliability of our energy supplies
by reducing our dependence on imported energy, supporting the economic
recovery of indigenous energy supplies and strengthening our competitive
market framework.
10.3 Increases in global energy prices mean that fuel poverty in the UK
remains a significant challenge. We estimate that the measures specifically
designed to combat fuel poverty will reduce the number of UK households in
fuel poverty by around 200,000 by 2010.
Progress towards our energy policy goals

Impact on carbon emissions
10.4 The Government has a goal to achieve a 60% reduction in carbon
emissions by 2050, and to make real progress towards this target by 2020,
defined as UK emissions falling to within a range of 110-120 million tonnes of
carbon (MtC) by 2020 327.
10.5 The draft Climate Change Bill creates a new legal framework for the UK
achieving, through domestic and international action, at least a 60% reduction
in carbon dioxide emissions by 2050, and a 26-32% reduction by 2020,
against a 1990 baseline. The Government will be required to set five-year
carbon budgets, placing binding limits on aggregate carbon dioxide emissions.
There is provision in the draft Bill for the targets to be amended in light of
significant developments in climate science or in international law or policy.
10.6 The measures in this White Paper build on existing policies introduced
to tackle carbon emissions. The continuation of these policies is expected to
deliver an annual saving of around 25MtC in 2020 328.
327 This carbon goal was set out in the Energy White Paper 2003: Our Energy Future, Creating a Low
Carbon Economy
328 Table D1, Updated Energy and Carbon Emissions Projections, May 2007.
www.dti.gov.uk/energy/whitepaper 281
Impact of our measures

10.7 Depending on the assumptions made about future fossil-fuel prices,329 and
not taking into account any of the policies in this White Paper, carbon emissions
in the UK are projected to be 149 to 151MtC in 2020, 3 to 5MtC higher than our
central projections in the Energy Review Report published in July 2006 330.
10.8 Table 10.1 and Figure 10.1 below describe the carbon impact in 2020 of the
measures included in this White Paper, measures announced since publication of
the Energy Review Report and the potential impact of future phases of the EU
ETS. The estimates are presented as a range to reflect uncertainty about the
timing and impact of the measures. Box 10.1 describes the abatement potential
and cost effectiveness of some of these measures (and of technologies) in 2020.
10.9 Beyond Phase II (2008-2012) of the EU ETS, caps and hence the future
carbon savings to be delivered through the scheme, will be decided in line with
future national allocation plans. Table 10.1 therefore presents an illustrative
projection for carbon savings from the EU ETS in 2020 based on the assumption
that the cap on emissions applied to EU ETS sectors in the UK in 2020 is equal
to that agreed for Phase II. On the basis of our latest baseline emissions
projections, this would achieve annual carbon savings of 13.7MtC in 2020 331.
10.10 Policies introduced as part of this White Paper represent a

commitment to deliver additional carbon savings beyond those to be achieved
through the EU ETS. In setting future EU ETS caps, we will first take into
account how these White Paper measures impact on projected emissions, to
ensure a sufficient level of effort from the EU ETS is maintained. It is our view
that the carbon constraint imposed by the EU ETS should tighten over time.
10.11 We estimate that, together with the impact of the EU ETS, our proposals will
result in carbon savings of between 23MtC – 33MtC in 2020. This means that, if all our
measures are fully implemented and achieve the upper end of the range of savings we
estimate in Table 10.1, we shall be on track to achieve real progress by 2020 towards
our goal of reducing carbon emissions by at least 60% by 2050 (Chart 10.1).
10.12 The target set out in the draft Climate Change Bill to reduce UK carbon
emissions by 26-32% in 2020 on 1990 levels, corresponds to the “real progress”
aim in the 2003 Energy White Paper of reducing carbon emissions to within 110-
120MtC by 2020. The targets in the draft Climate Change Bill are expressed in
terms of carbon dioxide. Expressed in these terms 332, a 26-32% reduction on
1990 levels is equivalent to reducing emissions to around 438-402 million tonnes
of carbon dioxide (MtCO2) in 2020. We estimate that the measures in Table 10.1
will reduce carbon dioxide emissions in 2020 by 86-121MtCO2, so that UK
carbon dioxide emissions will be 469-433MtCO2 in 2020. If we take the upper
end of the range of savings we have estimated, we would be on course to
achieve emissions savings just within the range set out in the draft Climate
Change Bill (i.e. achieving just over a 26% reduction on 1990 levels).
329 These assumptions are published alongside this White Paper, and reflect the uncertainty over the outturn
of future prices in the modelling. They are consistent with the latest assumptions from the International
Energy Agency and the US Energy Information Administration.
330 See Annex B, DTI Updated Energy and carbon Emissions Projections. Part of the reason for the increase
in projected emissions is the additional new coal capacity projected by 2020 (up to 8GW), due to the
improved relative price of coal under the revised fossil-fuel price assumptions.
331 See Annex B for further explanation of EU ETS savings and implications for projected UK emissions.
332 In future, the Government will work in units of carbon dioxide, in line with the draft Climate Change Bill.
Figures in this document are quoted mainly in million tonnes of carbon for consistency with the Energy
282 Review Report. To convert carbon (C) into carbon dioxide (CO2) multiply carbon by (44/12).

TABLE 10.1: ESTIMATED CARBON IMPACT OF OUR MEASURES, AND MEASURES
ANNOUNCED SINCE THE PUBLICATION OF THE ENERGY REVIEW REPORT.
MtC abated in 2020

Energy Efficiency
Better Billing 0.0 – 0.2
Real Time Displays in Households 0.0 – 0.3
Energy Performance of Buildings Directive (EPBD) 1
0.6 – 1.6
Zero Carbon Homes 2
1.1 – 1.2
More Energy Efficient Products3 1.0 – 3.0
Continued obligation on energy suppliers to make
carbon reductions in the household sector4 3.0 – 4.0
Business Smart Metering 5
0.1 – 0.2
New measure for achieving carbon savings from large
non-energy intensive organisations (Carbon Reduction
Commitment (CRC))6 1.0
Energy Supply
Changes to Renewables Obligation7 0.4 – 1.1
CCS demonstration project8 0.3 – 1.0
Transport
Successor to EU voluntary agreements on new
car fuel efficiency9 1.8 – 4.1
Renewable Transport Fuel Obligation10 0.0 – 1.0
EU ETS and offsetting measures
EU Emissions Trading Scheme11 13.7
Aviation in EU ETS (domestic)12 0.2 – 0.4
Carbon Neutral Government 13 0.2
Total 23.4 – 33.0
NOTE: Savings expressed in terms of million tonnes of carbon (MtC) under central
fossil fuel price assumptions and rounded to the nearest decimal point.
1
Excluding 0.2MtC included in the baseline. EPBD also supports 0.5-0.7MtC of the
savings from the continued obligation on energy suppliers to 2020, to make carbon
reductions in the household sector.
2
Savings as estimated in the Building a Greener Future Consultation. These savings
include the savings of the “Carbon neutral developments” policy as shown in the
Energy Review Report Table 8.1.
3
The range of carbon savings for products policy has been updated since the Energy
Review Report as part of an annual process. This also includes a larger coverage of
product groups and is net of overlaps with other policies.
4
The level of ambition from 2011 is committed to be equal to that under CERT,
delivering 3-4MtC of savings in 2020.
5
This estimate excludes 0.1-0.2MtC accounted for within the EPBD and CRC
estimate.
283

TABLE 10.1 CONTINUED
6
The Government is committed to achieving a 1.2MtC saving from this sector – this
estimate excludes 0.2 MtC accounted for in the EPBD estimate.
7
This estimate assumes a range based on different technology assumptions – the
low figure is based on high technology cost assumptions, and the high figure on low
technology cost assumptions.
8
This is based on around 0.3 GW to 1.9 GW of demonstration plant(s) displacing
equivalent gas fired generation without CCS.
9
Illustrative estimate reflecting annual improvements in new car fuel efficiency of
1.5%-3.6% p.a. Actual efficiency improvements will depend on the level of target
set at EU level and application in the UK.
10
Illustrative estimate of additional carbon savings that would occur were we to
extend the RTFO beyond 5%. Upper estimate assumes Obligation rising to 10%
by 2015. Lower estimate reflects RTFO remaining at 5% from 2010. Carbon savings
from a 5% RTFO are included in the baseline.
11
This estimate reflects the assumption that the cap for Phase II of the scheme is
unchanged in future phases. On the basis of our latest baseline projections, this
would require 13.7MtC of savings in 2020. The actual level of savings to be achieved
through EU ETS beyond Phase II (2008-2012) will be decided in line with future
national allocation plans.
12
Illustrative saving from UK domestic aviation, assuming a cap at 2005 emissions on
projected 2020 levels, in line with the current Commission proposal. Carbon savings
from international aviation have not been estimated in the absence of agreement on
how to allocate emissions.
Savings from central government office estate, whose emissions constitute around
13
one quarter of the total from the wider central government estate.
FIGURE 10.1. PROJECTED UK CARBON EMISSIONS AND CARBON IMPACT

OF OUR MEASURES#
180
170
160
150
140
130
120
110
100
Source: DTI Energy Model, Updated Energy and Carbon Emissions Projections May 2007. See Annex B.
#
UK carbon emissions, inclusive of carbon savings achieved through the EU ETS and other offsetting
284 measures. High and low policy measure projections based on estimates presented in Table 10.1.

10.13 In accordance with the requirements set out in the draft Climate
Change Bill, having set the five-year carbon budgets, it will be the duty of the
Government to lay before Parliament a report, setting out the proposals and
policies for meeting the budgets. As part of this process, the Government
intends to keep under review options for additional measures that will further
contribute to achieving our carbon goals.
10.14 For example, including road transport in the EU ETS could save in the
region of 1-2MtC in 2020, depending on the cap on emissions set for the
sector. This is on the basis of an illustrative assumption of a cap set to achieve
emissions of between 2-5% below projected road transport emissions.
As smart meters are rolled out to households, we might expect further carbon
savings, as households act in response to the improved information and
because improved metering would facilitate the transformation to an energy
services market.
10.15 Furthermore, we are consulting on the issue of nuclear power.

Following the consultation, should we conclude it is in the public interest for
new nuclear power stations to be an option available to companies making
investments in new generation capacity, it would be for the private sector
to come forward with proposals should they choose to do so. One new
nuclear plant could save up to 1.1MtC 333.
10.16 The UK is set to deliver savings beyond those in its Kyoto target of a
12.5% reduction in greenhouse gas emissions by 2008-2012. Based on the
latest projections UK greenhouse gas emissions are set to be around 23%
lower than 1990 levels in 2010 334. The EU has committed to cut total
greenhouse gas emissions by 20% on 1990 levels by 2020, or by 30% if in
conjunction with action by other countries. We estimate that the reduction in
domestic carbon emissions from our White Paper measures (and inclusive of
the estimated domestic abatement through the EU ETS) will result in UK
greenhouse gas emissions of between 147-159 million tonnes of carbon
equivalent (MtCe) in 2020, i.e. 25-31% lower than 1990 levels 335.
10.17 By reducing emissions of harmful greenhouse gases such as Sulphur

Dioxide (SO2) and Oxides of Nitrogen (NOx), as well as particulate matter
(PM10), our measures will also bring significant ancillary benefits, e.g. the
benefits to public health associated with improved air quality. These are
important to consider as the effects can be sizeable336. We estimate 337 that, as a
result of the additional measures in this White Paper and inclusive of domestic
abatement through the EU ETS, the improvements in local air pollution and
subsequent benefits in terms of public health could be between £500 million
and £740 million in cumulative terms up to 2020, with the annual benefit in
2020 ranging between £80 million to £120 million 338.
333 This assumes building of a new plant with a capacity of 1.6GW displacing an equivalent gas-fired plant.
334 Defra, Provisional 2006 UK Climate Change Sustainable Development Indicator. Savings are inclusive of
expected UK effort through domestic and international action.
335 See Chart B1 in Annex B. This estimate is based on the latest DTI CO2 emissions projections and Defra
provisional non-CO2 emissions projections (reference as above). The 25-31% range incorporates an estimate of
UK domestic abatement through the EU ETS, but excludes UK effort achieved through international action.
336 The Stern Review finds that ancillary benefits could lower the overall cost of mitigation by 1% of GDP. In the
IPCC 3rd assessment report, ancillary benefits were found to be in the order of 30-100% of abatement costs.
337 This analysis takes into account the reduction in energy demand and the ancillary benefits that accrue from
this. It does not, however, take into account changes in the electricity generation mix.
338 2007 Energy White Paper Cost-Benefit Analysis Synthesis www.dti.gov.uk/energy/whitepaper. Benefits are
presented in £2005 prices, discounted in line with HM Treasury guidelines. These estimates are a first 285
approximation and depend heavily on the final implementation approaches and "whole sector" emissions
profiles. Air quality impacts will require further evaluation when detailed options are considered for each policy.

BOX 10.1. UK MARGINAL ABATEMENT CURVE.
A marginal abatement curve shows, for a given year, the incremental cost
of reducing additional units of carbon, and shows where the most cost-
effective abatement opportunities lie. The shape of the curve changes over
time, and as part of this White Paper we have constructed a curve for the
UK showing the domestic abatement potential of a range of measures and
technologies in 2020.
FIGURE 10.2. MARGINAL ABATEMENT COST CURVE 2020
Under the central fossil fuel price assumptions published alongside this
White Paper, each technology or policy option was compared against a
counterfactual in order to calculate its carbon abatement potential – for
example, in the case of electricity generation, the alternative source of
generation was assumed to be a new combined cycle gas turbine (CCGT)
station. For energy efficiency and transport options, assumptions were made
about the fuel displaced and their associated emissions.
The curve should not be taken as a prediction of the exact volume of carbon
abated from each technology or policy, since the precise impact of policies,
and the timing of the entry and cost of a new technology, are both subject to
some uncertainty. This is particularly true for emerging technologies, such as
Carbon Capture and Storage (CCS), which is yet to be developed on a
commercial scale. The potential for nuclear power by 2020 is only indicative
and depends on whether the Government decides to allow private sector
companies the option of investing in new nuclear power stations.
Some of the measures in Figure 10.2 abate carbon at negative cost by

encouraging more efficient use of energy – for example, smart metering in
the business sector. The aim of the policies in this White Paper is to create
the conditions necessary for producers and consumers of energy
to pursue the most cost-effective ways of lowering carbon emissions. Not
all measures are cost-effective (i.e achieve carbon savings at negative cost),
particularly since the financial implications of carbon emissions for the
environment and public health (i.e. the “social costs of carbon”) are not
factored into this analysis. However, given the scale of the challenge we
286 face, we must act to innovate a number of technologies and implement a
wide range of measures if we are to meet our carbon goals.

Impact on security of supply
Efficient use of fossil-fuels
10.18 Using energy and therefore fossil fuels more efficiently is a cost-
effective method of both tackling emissions and increasing energy security.
By reducing our demand for gas and oil, we reduce our exposure to security
of supply risks, including the risks associated with imported energy. While the
interactions of producers and consumers in energy markets determines future
levels of oil and gas demand, we can evaluate the impact of our policies in
terms of our reduced demand for gas or increased UK gas production and
therefore reduced need for gas imports 339.
10.19 Our proposals can reduce gas consumption directly by reducing demand
for gas i.e. in heating our homes; but also indirectly by reducing demand for
electricity so reducing the need for new gas-fired power stations. We estimate
that our measures will reduce electricity demand by between 8% to 15% of
projected demand. In total, therefore, our measures could lead to up to 15
billion cubic metres of gas savings in 2020, equivalent to gas demand being
13% lower than it would otherwise be. This would reduce our projected gas
imports by up to around 17%, which, combined with the possible increase in
domestic gas production outlined in chapter 4, could bring our gas import
dependence down to around 60% of projected gas demand in 2020, compared
to around 80% if we did not implement our measures. Overall, we estimate
that our measures will improve the energy efficiency of the UK economy by
around 10% by 2020. This would be over and above the 25% improvement
we already expect over that period.
Indigenous energy supplies

10.20 Our proposals to improve the framework for investment in the UK
Continental Shelf (UKCS) aim to maintain the competitiveness of the UKCS
as it becomes increasingly mature, in order to maximise economic recovery.
If a high level of investment is maintained, this could potentially deliver
substantially higher oil and gas production – up to an extra 0.6 million barrels
of oil equivalent (boe) a day from 2020 to 2030. About half or slightly more of
this extra production would be oil and the remainder would be gas.
Strengthening the market framework

10.21 A diverse mix of supply sources and routes is also fundamental in the
management of our import risks. Strengthening our market based approach will
improve the flexibility and responsiveness of the market, and help to manage the
risks of supply disruptions. Changes to the planning regime and new and better
market information arrangements will help market players to bring forward timely
investments in infrastructure and provide sufficient supply capacity.
10.22 Providing incentives for low carbon generation, including through a

carbon price, should also help our generation mix become more diverse. Our
projections for the electricity generation mix, without taking account of the
measures in this White Paper, show a trend towards higher levels of gas fired
generation (see Annex B), which would reduce the diversity of our electricity
339 Here we assume a one-for-one relationship between reductions in gas demand, and reductions in gas imports. 287

generation mix. To encourage diversity whilst also tackling climate change we
need to enable other cleaner technologies to play a role. In the short-term this
means increasing renewables generation. Our changes to the Renewables
Obligation, including the proposals to band the Obligation, are expected to
increase the deployment of renewable generation up to 15% of electricity
supplied and support a wider range of technologies. For the longer term, we
are taking action: through continued support for renewable generation,
through demonstration to promote the development of CCS power generation
and, subject to consultation, deciding whether it is in the public interest for
the private sector to have the option to invest in new nuclear power stations.
10.23 Beyond 2020 if CCS is successfully demonstrated, and if, following

consultation, the Government decides it is in the public interest for new
nuclear power stations to be an option for investment in new generation
capacity, the share of gas fired plant in the mix is likely to be lower. By 2025,
for example, if (in addition to the increased renewable generation delivered
through the Renewables Obligation) we had 3 to 5 Giga Watt (GW) of coal-fired
CCS plants, the share of gas in the mix could be between 6% to 10% lower 340.
10.24 The EU recently agreed to a binding target of reducing its greenhouse

gas emissions by 20% by 2020 and by 30% in the context of international
action and set a target for 20% of the EU’s energy to be from renewable
sources by 2020. The renewables target covers the energy we use in heat
and transport as well as electricity. After a decision has been reached on each
Member State’s contribution to the EU agreement, we will bring forward the
appropriate measures, beyond those set out in this White Paper, to make our
contribution to meeting these targets, and in particular to increase the share
of renewable electricity, heat and transport in our mix by 2020. In the
meantime, the measures and market framework set out in this White Paper
allow us to make significant progress on this important agenda.
Impact on competitive markets

10.25 According to a recent report, the UK has the most competitive energy
market in the EU 341. Recognising our increased reliance on global energy markets,
we are committed to a strong international agenda to promote more open and
competitive markets overseas. We will work towards realising fully liberalised
European markets by 2010 and work with the European Union to extend the
application of market principles beyond its boundaries, as set out in chapter 1.
10.26 At home we are establishing a clear, stable framework for investment:

by clarifying our position on the Renewables Obligation and carbon policy;
improving the planning framework for large energy projects; and setting out
a clear process for deciding on whether it is in the public interest that the
private sector should have the option to invest in new nuclear power stations.
We will improve energy market transparency by providing accurate, timely
data through our new and improved market information arrangements. We
therefore believe our proposals within this White Paper will help to maintain
the UK’s position as one of the most competitive energy markets in Europe.
340 This is based on CCS replacing equivalent existing gas-fired generation capacity.
341 The Oxera report, Energy market competition in the EU and G7: preliminary 2005 rankings, shows that
288 the UK leads the EU rankings in both electricity and gas markets http://www.dti.gov.uk/files/file35324.pdf

Impact on prices and fuel poverty
Impact on energy prices
10.27 Together with other countries, the UK has experienced increases in
energy prices in recent years. Our existing policies to reduce carbon emissions
are also having an impact on energy prices: the commitment to increase the
share of renewable electricity under the Renewables Obligation by 15% by
2015, for example, is expected to increase electricity prices by around 5% by
2020, compared to what otherwise would have been. The existence of the EU
ETS also affects UK electricity prices as electricity generators pass on the
market value of carbon allowances. Assuming an EU ETS carbon price in 2020
of around €15-25t/CO2, the impact on retail electricity prices could be between
a 14-23% increase for industrial, and a 10-15% increase for household
consumers, compared to if there were no carbon price 342.
10.28 It is therefore important that the policies in this White Paper do not
greatly add to energy prices. Individually our measures on the demand side are
unlikely to have a large effect on consumer prices. We have analysed the full
impact of our measures, including the impact on energy prices, on an individual
basis. While some measures could contribute to increases in energy prices, our
analysis shows that they will also help to reduce energy bills by targeting
improved energy efficiency 343. For example, the cost of better billing, household
real time displays and business smart metering will modestly increase energy
prices, but will also lead to reduced energy bills if consumers act to realise
energy efficiency savings. The continued obligation up to 2020 on energy
suppliers to make carbon reductions in the household sector could increase
household energy bills by approximately 1.5%-2% relative to today's energy
bills, if all the costs are passed through to customers. But over time, we expect
these costs will be outweighed by the benefits of a permanent reduction in
energy demand.
10.29 Our proposals for changes to the Renewables Obligation, including

banding, could add extra costs to final consumer bills. Based on our preferred
banding regime described in chapter 5.3 the impact of the proposed changes
to the Obligation could increase electricity prices by around 2% in 2020,
compared to the existing regime.
10.30 Based on our analysis of individual measures, and given improvements

in energy efficiency as a result of our proposals, we expect the overall impact
on energy prices of our package of measures (excluding the EU ETS) to be
equivalent of up to an additional 4% and 3% on the average annual household
electricity and gas bill respectively in 2020 344. Some of these costs will be offset
by energy savings through improved efficiency. We place a strong emphasis on
a market-based approach, so that we can achieve carbon savings in the most
cost-effective way as possible.
342 DTI analysis based on the Defra RIA on Phase II EU ETS.

http://www.defra.gov.uk/environment/climatechange/trading/eu/phase2/pdf/overarching-ria.pdf.
343 2007 Energy White Paper Cost-Benefit Analysis Synthesis www.dti.gov.uk/energy/whitepaper
344 2007 Energy White Paper Cost-Benefit Analysis Synthesis. This is an illustrative figure based on the
estimated impact of the policies when implemented on an individual basis. The final impact on prices of
the proposals may be higher or lower than this, but this estimate does provide a broad indication of the 289
expected impact.

Impact on fuel poverty
10.31 The Government has a target of eliminating fuel poverty in England by
2016, as far as reasonably practicable, with an interim target to eliminate it
among vulnerable households by 2010. As described in chapter 2, we face
challenges in meeting our fuel poverty targets, in part because of rising global
energy prices. Recent rises in energy prices have resulted in an additional
1.2 million households in fuel poverty in the UK in 2006 compared to 2004,
though price cuts taking effect during 2007 should reverse some of this increase.
10.32 Our projections (before the measures in this White Paper) of the number
of households in fuel poverty between 1996 and 2016 are illustrated in Figure
2.1.1 in chapter 2, which shows that, under the central fuel price and income
assumptions, 1.5 million households in England will be in fuel poverty in 2010.
As incomes are assumed to rise faster than fuel prices, our projections show
this number will fall to around 700,000 in 2016.
10.33 Specific measures in this White Paper have been designed to help
reduce the number of households in fuel poverty. For example, a more joined
up Government communication strategy to raise awareness of the support
available, and more benefit entitlement checks to identify those eligible for the
available support schemes. In total, we estimate that our proposals will lead to
a reduction of around 200,000 UK households in fuel poverty by 2010.
10.34 It is possible that our package of measures may add to the challenges
we face in combating fuel poverty, through their impact on energy prices.
Our package of measures have been designed to improve the efficiency with
which energy is used and, in some cases, will be specifically targeted at the
fuel poor (for example, the priority group targeted under the Carbon Emission
Reduction Target (CERT)). By encouraging the uptake of measures (such as
domestic heat insulation for example), our proposals will not only reduce
carbon emissions; but in doing so will also reduce consumer energy bills by
reducing the amount of energy needed to heat households adequately.
10.35 We are midway through a full examination of our policies that tackle fuel
poverty, looking at the ways in which they might be improved. We will set out
our progress against our fuel poverty targets, and the next steps for our strategy,
in the UK Fuel Poverty Strategy Fifth Annual Progress report, due to be published
this summer.
Impact on the economy

10.36 The Stern Review highlighted the fact that climate change is a serious
global threat that requires an urgent global response. It stated that the
benefits of taking action far outweigh the economic costs of inaction. The
dangers of unabated climate change will be equivalent to at least 5% of GDP
each year and could possibly rise to 20% of GDP or more if a wider range of
risks and impacts are taken into account. In contrast, the costs of action to
avoid the worst impacts could be limited to around 1% of global GDP if the
world pursues optimal policies.
290

10.37 Building on the Stern Review, which focuses on the global picture, we
have used two models to explore the impact on the UK economy of reducing
carbon emissions (see Box 10.2). The newly developed MARKAL-Macro
model of the UK energy system is used to explore the potential long-term
costs to the UK of achieving a 60% cut in domestic carbon emissions by
2050345. In addition, we have commissioned modelling work to explore the
potential short to medium-term costs that might arise during the transition
to a low carbon economy 346.
Long-term impacts to 2050

10.38 We have used the UK MARKAL-Macro model (M-M) to analyse over
the long-term the optimal combinations of technology options consistent
with achieving our 2050 goal of a 60% reduction in carbon emissions at least
cost (see Box.10.2). The UK MARKAL-Macro model is a purely domestic
model, which, unlike our policy framework, does not allow for international
carbon trading347.
10.39 Analysis using the UK M-M model suggests the annual cost of reducing
UK carbon emissions by 60% by 2050 could be between 0.3% and 1.5% of
UK GDP in 2050. The range reflects uncertainty over future fossil fuel prices
and technological innovation – costs are higher when low carbon technologies
do not develop as rapidly or efficiently as currently envisaged; conversely,
higher fossil-fuel prices, or more enhanced development and take-up of energy
efficiency reduce the cost of carbon abatement in the long-term.
10.40 The MARKAL modelling indicates that the costs of carbon abatement
in the long-term could be significant, yet manageable. At the same time, they
demonstrate that to achieve our carbon goals at least cost, a considerable
change in our energy resources is required, including a concerted effort to
reduce the amount of energy we use348.
10.41 As in the Stern Review, these cost estimates are dependent on a

concerted level of effort by the international community to reduce carbon
emissions, so that the UK benefits from global economies of scale in
developing low carbon technologies. The modelling reflects a market in which
the costs of technologies come down so that they are harnessed at their full
efficient potential, and there are no barriers to their take-up. In reality, these
developments are not guaranteed. The Stern Review highlights the role of
Governments in developing low carbon technologies; for example, by
ensuring a strong carbon price signal, and by supporting the research,
development and demonstration of early stage technologies. The costs of
achieving our carbon goal may be higher if the UK does not benefit from the
lower technology costs associated with global efforts to reduce carbon
345 DTI The UK MARKAL Model in the 2007 Energy White Paper www.dti.gov.uk/energy/whitepaper;
Strachan N., R. Kannan and S. Pye (2007), Final Report on DTI-DEFRA Scenarios and Sensitivities using
the UK MARKAL and MARKAL-Macro Energy System Models, http://www.ukerc.ac.uk/content/view/142/112
346 Oxford Economics – Report on Modelling the Macroeconomic Impacts of Achieving the UK’s Carbon
Emission Reduction Goal www.dti.gov.uk/energy/whitepaper
347 Whilst this could imply that abatement costs could be cheaper than those estimated by the MARKAL- Macro
model, the opportunities available in an international carbon market in 2050 are, at the moment, uncertain;
and by then, the majority of cheaper abatement options abroad may have been exhausted.
348 The M-M model shows that substantial changes in behaviour – affecting the amount of energy we use
and constraining economic activity – are necessary to deliver a 60% reduction in carbon emissions by
2050. Such substantial changes could imply reductions in the welfare of energy users, which are difficult
to quantify (at least in financial terms) and are not captured in the cost estimates from the model. 291

emissions, or suffered adverse trade and competitiveness implications as a
result of acting unilaterally 349.
10.42 The long-term costs estimated by the M-M model are within the range
indicated by Stern for global costs, and also within the range estimated for the
2003 Energy White Paper.
BOX 10.2. MODELLING THE IMPACT OF CARBON ABATEMENT
There are a number of models that can be used to estimate the impact of
carbon abatement. The UK MARKAL-Macro model (M-M), developed from
the earlier MARKAL model used as part of the 2003 Energy White Paper,
is a “bottom up” technology model, covering the entire energy system.
In the M-M model, a quantity constraint can be imposed on the level of
carbon emissions to reflect government policy goals. The model then
optimises available technological options to meet the target at least cost.
Since 2003, the M-M model has been developed to better calculate the
macroeconomic impacts of carbon abatement, such as impacts on energy
demand and GDP. The M-M model is particularly useful for exploring our
energy system in the long-term, i.e. up to 2050, though it may be
expected to produce lower-bound estimates of the costs of carbon
abatement. This is because it is limited in its ability to capture the
obstacles (such as information barriers) that, in reality, can slow the uptake
of cost-effective abatement. Therefore, it does not capture the costs of
implementing policies designed to overcome these obstacles. In addition,
as a UK only model, it does not capture the potential trade or
competitiveness impacts arising as a result of differences in climate
change policy across countries.
Other models are more suitable for capturing the short-term dynamics of
reducing carbon emissions. They explicitly model the short-run path as the
UK makes the transition to a low carbon economy. When firms are forced
to pay a price for each tonne of carbon they emit, they take time to move
to a new “equilibrium” by reducing their demand for energy, or by using it
more efficiently (through investment in new technologies, for example).
Models that capture the short run dynamics do not necessarily have the
technological detail of “bottom up” models such as the M-M model, and
so do not fully capture the expected technological development as a result
of carbon policy, which can help lower abatement costs. Therefore, to
some extent, they will produce higher impact estimates.
We have commissioned Oxford Economics to explore the costs to the UK

of carbon abatement in the short to medium-term. As part of the study for
this White Paper, they have updated their model of the UK energy system
to take better account of induced technological change as a result of
climate change policy.
349 The M-M model is a UK-only model. Because it does not capture the effects of other countries’ actions,
the cost estimates for UK imply a degree of coordinated action, which would mitigate any trade and
competitiveness impacts. Furthermore, the cost and availability of technologies in the M-M model are
dependent on the development, demonstration and deployment of technology that might be expected
292 under global action.

Short to medium-term transition costs
10.43 By 2050, the economy will have had a long period of time to adjust to
government policy to mitigate climate change, imposed, for example, through
carbon emissions constraints and/or changes in energy prices. However, in the
short to medium-term, i.e. between now and 2020, the economy might find it
more difficult to adjust. Therefore, to supplement the MARKAL-Macro analysis,
we have commissioned further modelling to explore the potential short to
medium-term adjustment costs of reducing carbon emissions between now
and 2020.
10.44 Under a hypothetical scenario, in which all UK sectors face a unilateral

carbon price, sufficient to achieve a 30% reduction in UK domestic emissions
by 2020, UK GDP in 2020 is reduced by 1.3-2%, depending on prevailing
fossil fuel prices 350. This is equivalent to the economy growing by 40-41%
between now and 2020, compared with 43% if no further effort were made
to reduce carbon emissions.
10.45 The short to medium-term macroeconomic impacts vary according to

the approach and level of ambition. For example, imposing an immediate
carbon price on all sectors to achieve early, dramatic reductions would be
more costly than under a phased approach or one where the target was less
ambitious. For example, we have compared the imposition of a carbon price
of €60 t/CO2 to achieve early, dramatic reductions with a more phased
approach (where a carbon price is introduced at a relatively low level but
increases gradually). In the former, the cumulative loss of GDP over the period
could be twice as much 351. On the other hand the total cumulative reduction in
carbon emissions over the period is higher than under a phased approach, i.e.
243MtC compared with 117MtC.
10.46 These scenarios reflect the UK acting unilaterally. However, the UK is

actively pursuing a co-ordinated international effort in tackling climate change:
commitments under the Kyoto Protocol, and the recent EU commitment to
reduce EU greenhouse gas emissions by 20% by 2020 below 1990 levels,
and by 30% as part of an international agreement, are encouraging. Looking
ahead, our efforts to secure co-operation from large and fast growing
economies such as the US, China and India will be of crucial importance in
ensuring a truly global effort.
10.47 Acting unilaterally would mean the price of UK goods and services
would increase, relative to those produced in other countries (because UK
firms would incur a cost for the carbon emitted in their production and
operation, whereas other countries would not). However, the modelling
suggests that in the very short-term (i.e. up to five years), under a scenario of
coordinated global action, the UK could also suffer a negative impact on the
demand for its exports and therefore GDP, as other countries’ economic
output and demand for UK goods and services is depressed by similar policies
affecting their energy use. But over the medium-term, UK competitiveness
350 “Business as usual”emissions in the short to medium-term analysis by 2020 are 17% below 1990 levels,
therefore cost estimates reflect implications of reducing emissions by an additional 13% from the
business as usual; and a 30% reduction on 1990 levels overall.
351 1.6% of GDP in 2020 compared to 0.8% under central fossil fuel price assumptions. 293

would be better maintained if there is multilateral action, as the UK’s
competitors would face the same penalty for carbon emissions associated
with the production of goods and operation of services. If we act unilaterally,
the analysis suggests our GDP will be lower by 1.7% in 2020 compared with
no action; but acting to reduce emissions multilaterally reduces this impact to
1.3% of UK GDP in 2020 352.
10.48 International emissions trading reduces the overall global cost of

abatement by allowing emissions reductions to take place where they are
cheapest. Our policy framework allows for international action to reduce
carbon emissions through the purchase of emissions credits, provided this is
consistent with our international obligations. Through trading schemes such
as the EU ETS or the Clean Development Mechanism, the UK could achieve
significant carbon emissions reductions in a more cost-effective way and at a
lower cost to GDP than if all emissions reductions were achieved domestically.
10.49 We have explored scenarios in which the UK achieves a 30% reduction

in emissions by 2020, in part domestically but also through the purchase of
international allowances. If we assume that the UK purchases two-thirds of the
required level of abatement abroad, (at an allowance price equal to 80% of the
cost of domestic abatement), achieving a 30% reduction in carbon emissions
would cost 0.6% of GDP in 2020, compared with a GDP cost of 1.7% in 2020
if all reductions were achieved through domestic action 353. Although there is
uncertainty about the price and availability of emissions allowances in
international markets, particularly after 2012, it is a useful illustration of how
our market framework allows the UK economy to benefit from the most
efficient, low cost abatement opportunities at home and abroad.
BOX 10.3. SECTORAL IMPACTS
The Stern Review recognised that if some countries move more quickly
than others in implementing carbon reduction policies, some energy-
intensive industries will locate in countries without such policies in place.
A relatively small number of industries, particularly those which are most
energy intensive, could suffer significant impacts as a consequence of
pricing the cost of carbon emissions.
In the transition cost modelling we have conducted, output from sectors

such as basic metals, paper, and wood and wood products have been
highlighted to be particularly sensitive to achieving a significant reduction
in carbon emissions by 2020.
However, the design of instruments to tackle climate change is of key

importance and has the potential to mitigate some of the potential adverse
effects in some sectors. For example, our analysis shows that if the UK
invests in more cost-effective abatement options abroad through trading
schemes such as the EU ETS and the Clean Development Mechanism,
the effects on output are reduced by up to a half in basic metals and paper
sector, and around a third in wood and wood products.
352 Under central fossil fuel price assumptions.

294 353 Under central fossil fuel price assumptions.

10.50 The estimates of the short to medium-term costs should not be taken
as analysis of the effects of the Energy White Paper measures, but rather an
estimate of the macroeconomic costs of achieving our carbon goals. The
measures in this White Paper are intended to harness the most cost-effective
ways of making carbon savings (See Box 10.1).
10.51 By putting in place measures that create the conditions necessary for
producers and consumers of energy to pursue the most efficient and least
cost ways of reducing carbon emissions; and by encouraging multi lateral
effort and allowing for international trading this White Paper could significantly
improve the trade-off between carbon abatement and economic growth, and
by doing so, should deliver carbon reductions at lower cost.
295

CHAPTER 11
Implementation
Overview
We believe that the measures and proposals in this
White Paper constitute a comprehensive, ambitious and
integrated package which will make further progress
towards our security of supply and our carbon reduction
goals and bring about stronger international action.
11.1 The measures set out in this document aim to help maintain a stable
domestic policy framework to give business and individuals the confidence
to make decisions within that framework. However we need to be prepared
to keep the impact of our policies under review to ensure they deliver the
outcomes we are seeking. We will continue to do this and will, if necessary,
further develop our policies to ensure we can achieve our goals over
the long-term.
11.2 This chapter brings the White Paper’s principal measures together and
outlines how we intend to implement them. Some will require legislative
change, and others will depend on the outcome of public consultations. The
consultations being launched as a result of this White Paper are set out at
Annex D. This also sets out a summary of the consultations announced in
the Energy Review Report and since completed.
11.3 This chapter also outlines the key provisions in the draft Climate Change
Bill published on 13 March 2007, which sets out a framework for moving the
UK to a low carbon economy.
11.4 To give a comprehensive view of the progress made since the Energy
Review Report, this chapter includes measures which have already been
announced as well as those announced for the first time in this White Paper.
Principal measures in the Energy White Paper

International action
11.5 Maintaining security of energy supplies and avoiding dangerous climate
change are the greatest challenges facing the international community. A
successful global transition to a low carbon economy will require urgent and
ambitious international action. The UK will take a lead in influencing the
international community to respond to the challenge, working particularly
closely with and through the European Union, to:
• promote open, competitive energy markets which provide fair access to
energy supplies, foster investment and deliver secure supplies at
competitive prices;
• put a value on carbon emissions to ensure that investment decisions fully
296 reflect the costs of climate change;

• drive investment to accelerate the deployment of low carbon energy
technologies; and
• promote policies to improve energy efficiency, to cut emissions and reduce
our dependence on fossil fuels, consistent with economic growth.
Energy efficiency and saving energy

Energy metering and billing
11.6 We will ensure that real-time electricity display devices are available free
of charge to consumers who request them between 2008–2010, and will
ensure that all new and replacement electricity meters are fitted with a
display. We will consult on these proposals in the context of our ambition to
see a roll out of smart meters within 10 years.
11.7 We will consult on the implementation of a requirement for energy

suppliers to roll out advanced and smart metering services to all but the
smallest business users in Great Britain and those larger businesses not
already subject to half hourly metering, advanced and smart metering
services, within the next five years.
11.8 We will work with energy suppliers to ensure that household gas and
electricity bills contain historic information on energy consumption.
Reduce emissions from buildings

11.9 We will make it a condition of Government funding that all new homes
built by registered social landlords and other developers, and all new homes
developed by English Partnerships will comply with Rating level 3 of the Code
for Sustainable Homes. We will consult, by the end of this year, on whether all
new homes should be required to have a rating against the Code.
11.10 We will roll out a requirement for all buildings that are sold to have an
Energy Performance Certificate, to provide energy efficiency ratings.
11.11 We will announce our policy on the timetable for zero carbon housing
later this year.
Raise product standards

11.12 We will publish, consult on and update annually our action plans setting
out UK market analysis, standards, and indicative targets for more energy
efficient products and services. Our consultation on the first of these, for
consumer electronics, is published alongside this White Paper together with
our programme for delivering further plans.
11.13 We will seek firm commitments from businesses in the supply chain to
phase out the least efficient products and to help achieve our published
targets, and will work to be the first European Member State to phase out the
domestic use of the least efficient lightbulbs.
297
Implementation
Improve incentives for energy suppliers to reduce emissions
11.14 We will double the energy efficiency target for the Carbon Emissions
Reduction Target (CERT) (previously known as phase 3 of the Energy
Efficiency Commitment) due to start in 2008, and hold a statutory consultation
on the detail of the proposals in May 2007.
11.15 We will launch a Call for Evidence this summer to consider

alternative designs for the post 2011 phase of the continuing obligation on
energy suppliers.
Improve incentives for the business and public sectors to reduce

emissions
11.16 We will introduce a cap and trade scheme, the Carbon Reduction
Commitment (CRC), in the non-energy intensive business and public sectors
whose metered electricity consumption is greater than 6,000MWh/yr.
The CRC will target carbon dioxide emissions from both direct and indirect
energy use. We will shortly issue a consultation on the detailed design of
the scheme.
Public sector leadership

11.17 By spring 2008 we will publish guidelines setting out how energy
savings can be made in public sector procurement, and work with
manufacturers, retailers and service providers to help meet government
targets.
Fuel poverty
11.18 To help identify vulnerable households who would benefit from
information on tariff advice and energy efficiency measures, we will share
benefits data between key partners responsible for tackling fuel poverty in
clearly specified and controlled circumstances (if necessary, legislating to
achieve this). We will work with energy supply companies to investigate the
scope for voluntary initiatives on social tariffs, and will consider whether to
take the opportunity for legislation to enable the Secretary of State to require
companies to take action in this area.
Heat and Distributed Energy

11.19 We are taking further measures to assist the more widespread
deployment of distributed electricity and heat generation. These are:
• a more flexible market and licensing arrangements, to be in place by
end-2008;
• greater clarity on the terms offered by suppliers for microgenerators’
exports of electricity to the grid;
• improved information and advice on distributed energy; and
• action to ensure more efficient and speedy connections for distributed
generators.
11.20 We will develop further options to reduce the carbon impact of heat.
298

Oil, Gas and Coal
11.21 We will work with industry to maximise the economic recovery of the
UK’s oil and gas reserves, including assessment of the potential for
establishing infrastructure West of Shetland, and by maintaining a stable and
appropriate fiscal regime to attract investment.
11.22 We will introduce, in autumn 2007, a new security of supply

information and analysis service helping to provide the information about
supply and demand trends that market participants need to take decisions,
including on new investments.
11.23 We propose to legislate to modernise the regulatory framework so that

we have a fit for purpose licensing regime for offshore gas storage and
unloading of Liquefied Natural Gas (LNG).
11.24 We will improve emergency planning arrangements to increase the

UK’s resilience in the extremely unlikely event of a gas emergency. We have
already consulted on gas priority user arrangements and will be publishing a
report on our consultation, including proposed changes, this summer.
Electricity Generation
Renewables
Strengthen the delivery of the Renewables Obligation (RO)

11.25 This White Paper confirms our intention to strengthen the RO,
increasing the Obligation to up to 20% as and when increasing amounts of
renewables are deployed.
11.26 We will introduce a banded RO, increasing support for technologies

which are further from being competitive in the market, such as offshore
wind, biomass CHP, wave and tidal stream, and decreasing levels of support
to those technologies which need less, such as co-firing and landfill gas.
Improve the planning and consenting process for on and

offshore renewables
11.27 The planning section later in this chapter sets out our proposals for
improving the planning arrangements for all energy infrastructure, including
onshore renewables. In addition to these, the Government is working on
strategic assessments to underpin future development rounds for
offshore wind.
Improve renewables grid connection on and offshore

11.28 We will work with NGET, Ofgem and industry to improve the
management of the grid queue to help bring forward connection opportunities
for the most viable renewables projects. In addition, Ofgem and the DTI
supported by NGET, the other transmission licensees and industry, will review
the technical, commercial and regulatory framework for the delivery of new
transmission infrastructure and the management of the grid to ensure they
remain fit for purpose as the proportion of renewables generation on the
system grows. This will include, amongst other things, consideration of the 299
Implementation
ways in which access to the network can best be shared between different
forms of generation, and clarification of transmission access rights.
11.29 By the end of 2008, we intend to complete the development of an

enduring regulatory framework for the grid connection of offshore renewable
generation, which will enable timely and cost efficient connections to the
onshore grid.
Move towards commercial scale carbon, capture and storage

(CCS)
11.30 In the Budget 2007, we announced that we will launch a competition
to develop commercial scale demonstration of CCS in the UK, which will be
operational early in the next decade. When operational, this will make the
UK a world leader in this globally important technology.
11.31 The UK CCS Regulatory Task Force has made good progress in
preparing the regulatory environment for the whole CCS chain. We will be
consulting on the conclusions of this work and on the options in the UK for
regulation of the full chain of CCS technologies later this year.
11.32 We will pursue full recognition of CCS in Phase II of the EU ETS.
Nuclear power
11.33 Alongside this White Paper, we are publishing a consultation document
which brings together the evidence and information we have considered in
reaching our preliminary view that it is in the public interest to allow the
private sector the option of investing in new nuclear power stations. This
consultation takes account of the ruling of the High Court in February 2007
and the Government’s commitment in 2003 to the fullest public consultation
and the publication of a further White Paper setting out confirmed proposals
for new nuclear power stations.
11.34 Alongside the nuclear consultation, there is a linked technical

consultation on the details of running a Justification process and a Strategic
Siting Assessment.
11.35 As part of the Managing Radioactive Waste Safely (MRWS)

Programme, the Government expects to launch a consultation in June 2007 to
consider the proposed implementation framework for the geological disposal
of the UK’s higher activity radioactive waste, including the approach to site
selection.
11.36 Respondents to the nuclear consultation may wish to consider the

information brought forward in these consultations.
Research and Development, Demonstration and

Deployment and Skills
11.37 We will create a step-change in UK R&D funding through the new
public/private sector Energy Technologies Institute (ETI). The combined
Goverment/private sector funding contribution gives the ETI a budget of a
300 minimum of around £600 million over a lifetime of a minimum of 10 years.

Additional private sector partners are being identified to match the
Government’s commitment of up to £550m over the next decade. We are
asking the Sector Skills Councils to report on the skill gaps in the energy
sector and the action being taken to address them.
Transport
11.38 We will work with the European Commission and other international
partners on road transport emissions, and ensure the European Union gives
serious consideration to including surface transport in the EU Emissions
Trading Scheme (EU ETS). We will also pursue the inclusion of aviation in
emissions trading schemes in Europe and internationally.
11.39 We will continue to work with the European Commission, other

Member States and all interested parties in the development of the case for
demanding mandatory new car fuel efficiency targets.
11.40 We will deliver annual savings of around 1 million tonnes of carbon by

2010 through the Renewable Transport Fuel Obligation, and consider future
levels of the obligation in the light of responses to the current consultation on
the draft Order and the future design of the obligation354.
11.41 We will support the development of new low carbon technologies. The
new Low Carbon Transport Innovation Strategy355 (LCTIS) sets out a wide
range of actions the Government is taking to encourage innovation and
technology development in lower carbon transport technologies. The Strategy
will be delivered in partnership with the Technology Strategy Board and the
Energy Technologies Institute.
Planning
11.42 We are delivering on the planning proposals set out in the Energy
Review Report to provide clarity on the Government’s policy on the strategic
need for energy infrastructure; to create more efficient procedures for
planning inquiries; and provide shorter and more predictable timescales.
11.43 The Government is also consulting on proposals to reform the planning

system for nationally significant infrastructure projects, including energy, as
set out in the planning White Paper, Planning for a Sustainable Future,
published on 21 May 2007356. Following this consultation and subject to
Parliamentary approval, the Government will establish a new development
consents regime for such projects. This new regime would focus on:
• ensuring that there is a clear policy framework for nationally significant
infrastructure;
• helping promoters improve the way that they prepare and consult
on applications;
• streamlining the procedures for infrastructure projects of national
significance by rationalising the different consent regimes, and improving
354 http://www.dft.gov.uk/consultations/open/draftrtfo/?view=Standard
355 The strategy can be found at http://www.dft.gov.uk/pgr/scienceresearch/technology/
356 The Planning White Paper can be found at: http://www.communities.gov.uk/planningwhitepaper 301
Implementation
the inquiry procedures for all of them;
• clarifying the decision making process, and achieving a clear separation of
policy and decision making by creating an independent commission to take
the decisions on nationally significant infrastructure cases within the
framework of the relevant national policy statement; and
• improving public participation across the entire process.
Devolved Administrations, the English Regions

and Local Authorities
11.44 Some matters which relate to energy policy in Scotland, Wales and
Northern Ireland and are the responsibility of the Devolved Administrations,
and therefore decisions on those matters are made in the light of each
administration’s particular circumstances. It is expected that the Devolved
Administrations will want to consider in due course how to take forward their
responsibilities that are relevant to energy policy.
11.45 Regional Development Agencies (RDAs) in England will continue to

set regional energy priorities and take forward initiatives to support national
energy policy.
11.46 Local Authorities in England will have a strengthened role to play in

tackling climate change through measures in the new Local Government
Performance Framework; and will be able to use the new self-assessment
tools to evaluate their own performance and provide guidance for
improvement on tackling climate change.
11.47 The Greater London Authority will formulate both mitigation and
adaptation policies to address climate change in London, under requirements in
the new GLA Bill, and develop a climate change mitigation and energy strategy.
Energy legislation
11.48 Some measures announced in this White Paper will require legislation,
although in some cases this will depend on the outcome of public
consultations. We propose to take forward work in this area as soon as is
feasible.
Climate change legislation

11.49 On 13 March 2007 the Government published draft legislative
provisions on climate change for consultation and pre-legislative scrutiny 357.
This legislation would create the institutional and legal framework for carbon
reductions and make specific, quantified commitments that will complement
the policy objectives in this White Paper. Its main focus is on how we can
make the transition to being a low carbon economy. In summary the draft Bill:
• creates a new legal framework for the UK achieving, through domestic and
302 357 http://www.defra.gov.uk/news/latest/2007/climate-0313.htm

international action, at least a 60% reduction in carbon dioxide emissions
by 2050, and a 26-32% reduction by 2020, against a 1990 baseline. The
Government will be required to set five-year carbon budgets, placing
binding limits on aggregate carbon dioxide emissions. There is provision
in the draft Bill for the targets to be amended in light of significant
developments in climate science or in international law or policy.
• the carbon budgets will cap emissions over five-year periods, with three
budgets set ahead to help businesses plan and invest with increased
confidence;
• creates a new independent body, the Committee on Climate Change,
to advise on the setting of carbon budgets and to report on progress;
• contains enabling powers to make future policies to control emissions
quicker and easier to introduce; and
• provides a clear accountability framework, in particular relation to the
Government’s reporting to Parliament on mitigation and adaptation.
11.50 The Committee on Climate Change will make recommendations to the

Government on the level of the five year carbon budgets based on rigorous
scientific and economic analysis. The Government wants to establish an
economically credible emissions reduction pathway to 2050, and provide
clarity and certainty about the UK’s aggregate contribution to cutting carbon
emissions. The draft Climate Change Bill will set up a framework in which this
can be done. The draft Bill will give additional powers to create or extend
carbon trading schemes, providing Government with another tool to ensure
these budgets are met.
Better Regulation
11.51 The Government is clear in its determination to achieve its energy
policy objectives through an approach that is consistent with the principles
of better regulation.
11.52 We recognise that between now and 2020 there will be costs in
achieving our energy goals as the economy takes time to adjust. Even the
most cost-effective measures pose some short-term one-off costs for
business, including change in regulation, so called ‘transitional costs’. The
Government needs to enable businesses to make informed investment
decisions in order to maximise benefits from these measures.
11.53 In keeping with our better regulation agenda, we are undertaking a

review of major climate change instruments to ensure that the regulatory
burden (administrative and compliance) on business is kept to a minimum.
The review will primarily look at the EU Emissions Trading Scheme, Climate
Change Agreements, and domestic trading mechanisms such as the proposed
Carbon Reduction Commitment, but will also consider significant overlaps in
administrative requirements between these three instruments and other
policies that target emissions from business. We welcome the report by the
Better Regulation Commission: Regulating to Mitigate Climate Change 358 and
will shortly publish our response.
358 http://www.brc.gov.uk/downloads/07/climate_change.pdf 303
Implementation
11.54 We will continue to analyse the impacts, costs and benefits, of
regulation including transitional costs, and provide this information in impact
assessments for new policy. As part of individual impact assessments, we
will consider how we are going to implement, monitor and enforce these
measures on a case-by-case basis while having regard to the collective
regulatory impact on business and other parties.
Sustainable Development Strategy

11.55 The measures in this White Paper are also in line with the Sustainable
Development Strategy published in 2005 359. The Strategy takes account of
developments since the last Strategy in 1999, both domestically and
internationally, including the changed structure of government in the UK with
devolution in Scotland, Wales and Northern Ireland. All UK Government
Departments share responsibility for making sustainable development a reality.
11.56 For a policy to be sustainable it must: live within environmental limits;

ensure a strong, healthy and just society; achieve a sustainable economy; use
sound science responsibly; and promote good governance.
304 359 http://www.sustainable-development.gov.uk

305
Implementation
ANNEX A
Fourth Annual Report on

progress towards the 2003
Energy White Paper goals
Sustainable Energy Act 2003
The report is published in accordance with the Secretary of State’s obligations
under section 1 of the Sustainable Energy Act 2003. It describes progress
made in the reporting period 24 February 2006 to 23 February 2007 towards:
cutting the United Kingdom’s carbon emissions; maintaining the reliability of
the UK’s energy supplies; promoting competitive energy markets in the UK;
and reducing the number of people living in fuel poverty in the UK. The report
is based on information available to the Secretary of State at the date of
its completion.
The Annual Report fulfils a Parliamentary requirement to report on progress

on the UK’s energy goals during the set time period stated above and
therefore the document does not include the measures/elements announced
in the 2007 Budget or the decisions taken at the European Council in March
2007. Neither does it include the measures set out in the Energy White Paper
to which this Report forms an annex. However, to help the reader we have
included updates in footnotes on key issues.
1. The Last 12 Months: An Overview

1.1 The 2003 Energy White Paper set out our four goals1:
• to put ourselves on a path to cut the UK’s carbon dioxide emissions
by some 60% by about 2050, with real progress by 2020;
• to maintain the reliability of energy supplies;
• to promote competitive markets in the UK and beyond, helping to raise the
rate of sustainable economic growth and to improve our productivity; and
• to ensure that every home is adequately and affordably heated.
Action this year

1.2 The following are some of the main developments towards the four goals
over the last 12 months to February 2007:
• the revised UK Climate Change Programme was published on 28 March

2006 and set out a package of new measures to take us towards our 2010
domestic carbon emissions target;
• we published the Energy Review Report The Energy Challenge in July
2006 detailing what needs to be done to stay on track to meeting the goals
in the 2003 Energy White Paper;
1 DTI Energy White Paper 2003: Our energy future – creating a low carbon economy
306 (http://www.dti.gov.uk/energy/policy-strategy/energy-white-paper-2003/page 21223.html

• the Office of Climate Change (OCC) was established in October 2006.
It is a shared resource across the Government established with the aim of
ensuring that analysis and policy work is consistent and supports the
overall climate change strategy;
• the Stern Review of the economics of climate change was published in
October 2006 and confirmed that climate change is real and is a problem
that can only be solved by collective international action. The Stern Review
demonstrated that urgent action is needed to mitigate the effects of
climate change and that the costs of global action to mitigate the most
dangerous effects of climate change are significant but manageable, as
long as action is taken multilaterally;
• the UK’s National Allocation Plan (NAP) for the second phase of the EU
Emissions Trading Scheme (2008 – 2012) was accepted without change
by the European Commission in December 2006;
• in January 2007, the European Commission published its Strategic Energy
Review outlining proposals for the development of the internal energy
market in the European Union, including greater unbundling of energy
network businesses from other activities, more effective regulation and
greater transparency. We support these proposals, which we see as
complementary and essential if the market is to develop further;
• market investment in new and enhanced UK gas infrastructure has
continued with the completion of the Langeled and BBL pipelines allowing
increased flows of Norwegian and Continental gas to the UK and easing
the winter supply concerns; and
• investment continued in renewable energy sources to help meet our 2010
target of 10% of electricity coming from renewable sources of energy.
The opening of the Braes of Doune wind farm in February 2007 took the
UK’s wind generation capacity above 2GW, making us one of only eight
countries in the world to have reached this level. It took 14 years for the
first 6W of wind capacity to become operational and only a further
20 months for the second GW.
2. Reducing Carbon Emissions
Commitment
To put ourselves on the path to cut the UK’s carbon emissions by 60% by
2050, with real progress by 20202. The UK also remains committed to the
Kyoto protocol commitment to reduce greenhouse gas emissions by 12.5%
below 1990 levels by 2008-12.
Progress to date
2.1 Latest estimates show that total UK greenhouse gas emissions in 2006
had fallen 15% below 1990 levels, while provisional estimates indicate that
carbon dioxide emissions were 5% below 1990 levels in 2006.
2 The draft Climate Change Bill creates a new legal framework for the UK achieving, through domestic and
international action, at least a 60% reduction in carbon dioxide emissions by 2050, and 26-32% reduction
by 2020, against a 1990 baseline. 307
Fourth Annual Report on progress towards the 2003 Energy White Paper goals
Progress to date
FIGURE A1. GREENHOUSE GAS AND CARBON DIOXIDE EMISSIONS
250
200
150
100
50
2006 figures are DTI provisional estimates

Source: Department for Environment, Food and Rural Affairs
2.2 The revised UK Climate Change Programme was published on 28 March

2006 and set out a package of new measures to take us towards our
domestic carbon emissions goals. The Climate Change and Sustainable
Energy Act 2006 commits the Government to report annually to Parliament
on progress to reduce greenhouse gas emissions and steps taken to reduce
them. That report will be published shortly.
2.3 The Government's microgeneration strategy was published on 28 March

2006. The objective of the strategy is to create conditions under which
microgeneration becomes a realistic alternative or supplementary energy
generation source for the householder, the community and small business.
The strategy commits to tackling barriers currently preventing widespread
take-up. Microgeneration could provide 30-40% of the UK's electricity needs
by 2050 and help reduce household carbon emissions by 15% per annum.
Measures to tackle upfront costs include the Low Carbon Buildings
Programme, an £86 million capital grant programme. Phase 1 of the
Programme was launched in April 2006.
2.4 The 2003 Energy White Paper set out the importance of the work of the
English regions in the delivery of our energy policy goals. Partnerships of
Regional Development Agencies (RDAs), Regional Assemblies, and the
308

Government Offices have been operating in all regions to set regional energy
priorities, and to take forward innovative projects aimed at delivering national
energy policy and to maximise benefits for local communities and business.
Over the past twelve months, regional partnerships have taken forward the
following innovations:
• the North East has supported the planning system in delivering
improvements to energy efficiency and increased uptake of
microrenewable technologies;
• West Midlands completed the second phase of a Sustainable Housing
Action Plan;
• East Midlands launched an Affordable Warmth Strategy;
• the North West launched a Climate Change Action Plan;
• Yorkshire and Humber completed and launched a Regional Energy
Infrastructure Action Plan;
• East of England looked at how to support the development of distributed
networks for energy – including for offshore renewables;
• the South East set up the South East Sustainable Energy Partnership;
• the South West has committed £650,000 to the delivery of the South West
Bioheat Programme; and
• London prepared and launched a Climate Change Action Plan.
2.5 Following on from the Energy Review Report, the Government established
the Office of Climate Change (OCC) in October 2006. It is a shared resource,
reporting to ministers across the Government and has a vital contribution to
make to ensure that analysis and policy work is consistent. It also supports
the Government’s overall climate change strategy.
2.6 The Stern Review of the economics of climate change was published
in October 2006 and confirmed that climate change is real and that it is a
global problem that needs a multilateral solution. The main findings from
the Review are:
• the impacts of climate change on growth and development could be much
higher than previously thought;
• serious impacts will be felt around the world, including in developing
countries least able to adapt;
• action is urgent – the earlier we start, the greater the chance we have of
limiting the risks of dangerous climate change and the cheaper it will be;
• acting to reduce emissions and stabilise greenhouse gases at sustainable
levels could cost around 1% of world GDP, not acting could cost at least
5% and up to 20%; and
• the costs of global action to mitigate the most dangerous effects of climate
change are significant but manageable, as long as action is taken multilaterally,
with flexibility to respond to new scientific and economic information.
The Stern Review highlighted the need for a carbon price signal across
countries and sectors to ensure that emission reductions are delivered in the
most cost-effective way.
2.7 The European Commission published the results of the first year of the
EU Emissions Trading Scheme (ETS) from the Community Independent
Transaction log in May 2006. The first year results showed that the
infrastructure behind the scheme is sound and forms a solid base to build on
309
for the future. Compliance was excellent in the UK – almost all operators
submitted their verified emissions reports and surrendered the correct
allowances within the deadlines.
2.8 The UK submitted its Phase II National Allocation Plan (NAP) for the EU
ETS to the European Commission by the December 2006 deadline. Since then
the Commission has made its decisions on NAPs submitted by Member
States, with the UK’s NAP being accepted without change. The majority of
Member States have seen their overall allocation reduced by the Commission
in line with meeting their Kyoto commitments.
2.9 Following the release of the Stern Review, the Government published a
Vision Statement on Emissions Trading which reiterated our commitment to
building on the EU ETS as the main way to price carbon in the economy.3
The vision statement gives three areas that we would like to progress with
our EU partners:
• setting safe, stable and affordable emissions limits;
• building a global carbon market; and
• improving the efficiency of the scheme.
2.10 The Mexico Ministerial in October 2006 focused on how the three
strands of climate change mitigation (technology development and
deployment; financing of climate change projects; and the overall economics
of climate change), fit together and could be used to take forward the
Gleneagles Dialogue’s work on climate change. The overall message from the
second ministerial was one of increasing urgency.
2.11 The next meeting of the Dialogue will be hosted in September 2007
by the German Government during their G8 Presidency. The Japanese
Government also agreed to take forward the Dialogue in 2008, with a report
to the G8 summit in the summer. Both the German G8 presidency in 2007
and the Japanese G8 presidency in 2008 will continue to have a strong focus
on climate change and associated themes.
Increasing renewables
2.12 The Government has a target of 10% of electricity coming from
renewable sources of energy by 2010, with an aspiration for this level to
double by 2020. We have continued to work with interested parties to
alleviate the barriers that are preventing industry from achieving this target.
Recent action includes:
• with the opening of the Braes of Doune wind farm in February 2007, the
UK became one of only eight countries in the world to achieve more than
2GW of wind generation. It took 14 years to reach 1GW and only a further
20 months to reach 2GW;
• between March 2006 and February 2007, DTI granted consent for:
– a combined offshore windfarm and gas generating station – the Ormonde
project. This innovative hybrid project will be sited around 10km from
Walney Island (off the North West coast of England) and has the potential
to generate a total of up to 200MW of electricity, with around half coming
from the wind farm; and
310 3 http://www.hm-treasury.gov.uk/media/7E3/FC/foi_gore_2.pdf

– three Round 2 offshore wind projects with a total capacity of 1800MW.
Of these, the London Array development has the potential to be the
largest offshore wind farm in the world, supplying around 1% of the
UK's electricity supply equivalent to 750,000 households.
• in April 2006 the Scottish Executive gave consent to the Whitelee wind
farm project, with a capacity of 322MW and August 2006 saw the first
of two 5MW offshore wind turbines installed in the Moray Firth – the
furthest from shore and deepest in the water of its kind in the world.
Scottish Executive has committed £3 million to the project;
• in June 2006, the 19MW Callagheen wind farm was opened in Co.
Fermanagh bringing total large scale wind generation capacity in Northern
Ireland to 106MW. In addition some 1,200MW are the subject of Planning
Applications in Northern Ireland; and,
• the UK has seen planning approval in 37 small and large Renewable
Obligation eligible projects with a total capacity of 2676MW, including
15MW landfill gas and 9MW biomass4.
Renewables policy
2.13 We have made a number of changes to the Renewables Obligation (RO)
to improve its effectiveness following the 2005 RO Review. Further changes
to the RO were proposed in the 2006 Energy Review Report5 which set out
our ideas on strengthening the performance of the RO. One of the principal
changes proposed was to adapt the RO to provide greater support to
emerging technologies and less support for established technologies.
The Government’s preferred option for achieving this was through a
“banding” system. DTI published a consultation document – Reform of the
Renewables Obligation and Statutory Consultation on the Renewables
Obligation Order 20076 – in October 2006 seeking views from the renewables
sector on the above proposals7. The consultation proposed a number of
administrative changes, in particular, proposals to make it easier for
microgenerators to access the benefits of the RO.
2.14 The Energy Review Report stated that the Government was committed
to introducing fundamental change to the planning system for major energy
projects, this will include large onshore wind projects. In December 2006, in
his Pre-Budget Report, the Chancellor welcomed the Eddington and Barker
reviews which both made recommendations for the UK planning system.
These recommendations on planning for infrastructure can play a significant
role in ensuring the UK’s competitiveness and delivering our objectives on
climate change, the environment and energy security.8
4 Planning, Monitoring & Review of Renewable Energy Projects, Project Status: www.restats.org.uk
5 http://www.dti.gov.uk/energy/review/page31995.html
6 http://www.dti.gov.uk/consultations/page34162.html
7 The Government conclusions to this consultation can be found at: http//www.dti.gov.uk/energy/whitepaper
8 The Planning White Paper: Planning for a Sustainable Future, published in May 2007, sets out proposals in
planning reform. 311
2.15 The Scottish Executive consulted during 2006 on the creation of a Marine
Supply Obligation (MSO) under the Renewables Obligation (Scotland). This will
require suppliers, as part of their renewables obligation in Scotland, to supply a
specific proportion of their electricity sales from wave and tidal generation
located in Scottish waters. The buy-out price which suppliers would pay in
respect of any shortfall against their MSO would be at a considerably higher
level than the standard buy-out price, to reflect the higher costs of generating
power from wave and tidal devices.9 However, the level of the MSO will remain
at zero until there is generation from these technologies which allows suppliers
to meet it. Reviews of the MSO level will take place each year (on the basis of
transparent and published criteria), and the legislation amended accordingly.
2.16 Under the Clean Energy Programme, announced in May 2006, the
Scottish Executive committed £25 million over two years for the development
of wave and tidal energy, biomass, and hydrogen and fuel cells (as well as
additional funding for small-scale renewables).
2.17 In February 2006, the Environment and Renewable Energy Fund (EREF)
was launched providing an additional ring-fenced amount of £59.2 million
over two years to enhance and accelerate renewable energy development in
Northern Ireland. The EREF, which confirms the Government’s commitment to
reducing Northern Ireland’s high dependence on imported fossil-fuels, focuses
on four broad areas:
• research and demonstration (£15.2 million);
• accelerated deployment (£35 million);
• building market capacity (£2.5 million); and
• underpinning knowledge and raising awareness (£6.5 million).
3. Energy Reliability
Commitment
Our goal is that people and business can rely on secure supplies of energy –
gas, transport fuel and electricity – at affordable prices delivered through
competitive markets, whilst minimising the impact on the environment.
We are committed to maximising economic benefits for the UK’s oil and
gas reserves and maintaining production levels of three million barrels of
oil equivalent per day until 2010.
Progress to date
3.1 After a relatively tight gas market last winter (2005/06), supplies of gas and
electricity have comfortably met demand this winter and there have been no
potential shortages of supply since the Gas Balancing Alert in March 2006 and
the electricity Notice of Insufficient Margin (NISM) in July 2006. UK North Sea
gas production has continued to meet a significant proportion of demand, and
there have also been substantial and consistent flows through new import
infrastructure – the Langeled pipeline from Norway and the BBL pipeline from the
Netherlands. In addition, the Rough storage facility (in the Southern North Sea)
was repaired and was full ahead of the winter along with medium-range storage.
312 9 Legislation enabling the Marine Supply Obligation came into force on 1 April 2007.

Progress to date
FIGURE A2. GAS AND ELECTRICITY CAPACITY MARGINS –

MAXIMUM SUPPLY AND MAXIMUM DEMAND 1993/94 TO 2006/07
12 90
10 75
8 60
6 45
4 30
2 15
0 0
Data for winter 2006/07 are provisional

Source: National Grid and DTI
3.2 Wholesale gas prices have fallen considerably since last winter, with the
average for this February being 20p per therm compared to 65p per therm for
February 2006. This reflects the completion of new import infrastructure on or
ahead of time, increased confidence in the availability of supplies, and modest
demand due to mild weather both here and on the Continent. There has also
been considerable price convergence with the Continent on both the spot and
the forward markets.
3.3 On electricity, there was sufficient margin of installed capacity (22%)

to accommodate long-term outages at a number of nuclear and coal-fired
stations. Gas and coal were the most important contributors to the generation
mix, each accounting for around 40% of electricity generation, with nuclear
accounting for most of the rest. For coal, this is down on the 50% it supplied
last winter, largely because of increased gas fired-generation, reflecting lower
gas prices.
3.4 With reductions in the wholesale price, the situation for industrial
consumers buying gas at current prices should therefore have eased.
However, gas prices remain uncomfortably high for users who negotiated
contracts when the forward price was high, e.g. last summer, though there is
evidence that some of these contracts are being re-negotiated on a “blend
and extend” basis. 313
3.5 In July 2006, the Government established the Business Energy Forum to
ensure that sound preparations were made for winter. This is a high level
group, jointly chaired by DTI and CBI and bringing together Ofgem, National
Grid, energy suppliers and users and other key players in the energy industry.
The group met three times in 2006 to ensure there was effective
communication and co-ordination of effort. As part of this, DTI created a
dedicated webpage10 to provide information and signposting on winter energy
supply issues.
3.6 The work of the Gas Supply Infrastructure Task Force has been followed
up with a number of specific Government measures. These are: proposals to
streamline and simplify the existing onshore consents process (set out in the
Government’s 2007 Planning White Paper); proposals to deliver regulatory
certainty to those considering the offshore storage of gas and offshore
unloading of Liquid natural Gas (public consultation closed in February 2007,
and legislation is to be taken forward as soon as Parliamentary time allows);
and a focus on the provision of information to the public, and local decision
makers in particular. In May 2006, the Secretary of State published a
Parliamentary Statement of Need for Additional Gas Supply Infrastructure to
clarify the Government’s views on the pressing need for new infrastructure in
the UK. In addition, the Government continues to identify and tackle
regulatory obstacles to new gas supply projects, working with developers
from an early stage in the planning of new projects.
3.7 The North Sea continues to be critical to delivering the energy needs of
the country and there are still substantial quantities of oil and gas to be
produced. The Government is working closely with industry to ensure we
have the best licensing, environmental and business frameworks to attract
the investment needed to deliver the North Sea’s full potential.
3.8 The key PILOT (the UK industry/Government oil and gas forum) initiatives
in the last few years are acknowledged as highly successful by all sides:
promoting North Sea overseas and attracting new players; enhancing licensing
system; freeing up fallow (unworked) acreage; improving commercial
behaviours and infrastructure access; and finding ways to recover more oil
and gas from existing “brown” fields (Stewardship Initiative). The Government
and industry will continue to push in these and other areas to ensure that
North Sea investment and economic recovery of hydrocarbons is maximised.
3.9 The 24th offshore oil and gas Licensing Round demonstrated the
continuing attraction of the UK Continental Shelf. Offers of 150 oil and gas
exploration and production licences were announced in February 2007 to 104
companies covering 246 blocks, continuing the record numbers of licences
issued last year.
314 10 http://www.dti.gov.uk/energy/reliability/winter/page32154.html

4. Competitive Energy Markets
(including energy prices)
Commitment
Our goal is to promote competitive markets in the UK and beyond,
helping to raise the rate of sustainable economic growth and to improve
productivity.
Ensuring an open and competitive market throughout Europe remains a

priority for the UK.
Progress to date
4.1 The UK energy market remains the lowest in the EU1511 for domestic
gas prices, and below average for domestic electricity prices, and recently
announced price reductions will act to decrease prices. Price increases over
the past year have moved the UK above the EU median for industrial
consumers which have historically been below average.
4.2 The European Commission published its Strategic Energy Review – an

energy policy for Europe in January 2007. Among other issues, this made a
number of welcome proposals for the development of the internal energy
market. Key among these were:
• greater unbundling of energy network businesses from other activities; this
would ensure that vertically integrated companies are unable to use
privileged information from their network operations to block market entry
by competing suppliers and generators;
• more effective regulation; ensuring that all national regulators have
sufficient powers and independence to carry out their tasks; and
establishing a regulatory structure to oversee the development of cross-
border technical standards and trading arrangements, with several ways
of doing this suggested; and
• greater transparency; more information is needed from some transmission
system operators to ensure that markets can function, so minimum
requirements should be developed.
We support these proposals, which we see as essential if the market is to

develop further.12
11 EU15 refers to the 15 countries in the European Union prior to the expansion in 2004 and 2007.
12 These proposals were endorsed by the European Council in spring 2007. The Commission has been
asked to bring forward detailed proposals by the end of this year. 315
Progress to date
FIGURE A3. OVERALL COMPETITIVENESS SCORE FOR SELECTED EU ENERGY

MARKETS (USING PRELIMINARY 2005 DATA)
10
9
8
7
6
5
4
3
2
1
0
Source: Study undertaken by OXERA on behalf of DTI

http://www.dti.gov.uk/files/file35324.pdf
5. Tackling Fuel Poverty

Commitment
The goal of the UK Government is to seek an end to fuel poverty by
2016-18 with various interim targets in each Devolved Administration.
Progress to Date
5.1 The latest estimates published in the UK Fuel Poverty Strategy Fourth
Annual Progress Report 2006 indicate that, in 2004, there were approximately
two million households in fuel poverty in the UK. One and a half million of
those were vulnerable households. This represents a fall of around four and a
half million households overall, and of around three and a half million in the
number of vulnerable households, from 1996 levels. Fuel poverty is a
devolved issue, with separate targets and differing policy approaches across
each of the devolved nations. Official figures for 2005 will be produced later
this year in the UK Fuel Poverty Strategy Fifth Annual Progress Report 2007.
Scotland, Wales and Northern Ireland have dedicated advisory bodies to help
meet our fuel poverty targets.13
13 The Fuel Poverty Advisory Group for England’s Fifth Annual Report was published in April 2007 and
contained a number of recommendations that the Government will respond to in the UK Fuel Poverty
316 Strategy Fifth Annual Progress Report.

Progress to date
FIGURE A4. NUMBER OF HOUSEHOLDS IN FUEL POVERTY (UK)
Source: DTI, for further details on fuel poverty see

http://www.dti.gov.uk/energy/fuel-poverty/index.html
5.2 The number of vulnerable households in fuel poverty in England in 2004

remained at broadly the same level of 1.0 million, with 1.2 million households
in total in fuel poverty (around 6% of English households). Warm Front is
the Government’s main tool for tackling fuel poverty in the private sector in
England. The Scheme provides a package of heating and insulation measures
to vulnerable households in receipt of certain qualifying benefits. From the
introduction of the Scheme in June 2000 to the end of March 2007, over
1.4 million households received assistance. Warm Front also carries out
Benefit Entitlement Checks for those not eligible for the Scheme at the point
of application, or where the provision of measures has not increased the
energy efficiency of the property to an agreed level. The average increase in
income from a successful Check is around £1,300.
5.3 The number of households in fuel poverty in Scotland in 2004/05 was

419,000 (18% of Scottish households), an increase of 69,000 compared to the
previous year. The key scheme for tackling fuel poverty in Scotland are the
Central Heating Programme and Warm Deal. To date, the Central Heating
Programme has installed central heating systems and insulation in 81,000
homes. The Warm Deal Programme, which provides insulation measures
(primarily loft and cavity wall insulation), energy efficiency advice and a Benefit
Entitlement Check has so far insulated 238,000 homes, bringing the total
number of homes insulated in Scotland to 319,000, around 14% of the housing
stock. From January 2007, eligibility for Warm Deal was extended to include
households with disabled children. So far, the Scottish Executive has spent over
£300 million on these two highly successful programmes. As a result, the cost
of heating participating homes to an acceptable standard has halved. 317
5.4 The total number of households in Wales in fuel poverty in 2004 was
130,000, which represented 11% of Welsh households. Modelling to update
these figure to 2005, taking into account increases in incomes and fuel prices,
showed that there is likely to be 30,000 additional fuel poor households.
The Home Energy Efficiency Scheme (HEES) is the Welsh Assembly
Government’s main vehicle for lifting Welsh households out of fuel poverty.
To date, the Scheme has assisted over 70,000 households in Wales by
supplying central heating and energy efficiency measures. The Welsh
Assembly Government has made significant extra resources available with
HEES receiving a further £5 million in both 2006/07 and 2007/08. Since
August 2004, all households applying to the Scheme have been offered
benefits advice, to ensure that they maximise both the assistance available
to them under HEES and access benefits to which they are entitled. This
has resulted in £2.26 million in unclaimed benefits being identified.
5.5 The latest figures for 2004 show a substantial decrease in the numbers in
fuel poverty in Northern Ireland, from 203,300 (33% of all households) in 2001
to 153,500 (24% of all households) in 2004. Warm Homes and Warm Homes
Plus are the main instruments for tackling fuel poverty in the owner-occupied
and private rented sector in Northern Ireland. Since 2001, over 70,000
households have received assistance. Funding for the scheme has increased
significantly, from just over £3 million in 2001 to just over £20 million in
2006/07 and 2007/08. In addition, the eligibility criteria for Warm Homes Plus
was extended to ensure that the over 60s, in receipt of disability related
benefits, will now receive full heating systems as well as insulation measures
and a benefit maximisation programme was introduced in July 2006 to
provide a social security benefit health check to all recipients of the scheme.
5.6 Under the Energy Efficiency Commitment (EEC), electricity and gas
suppliers are required to meet targets for the promotion of improvements in
household energy efficiency in Great Britain. As a result of the focus on the
priority group of low-income consumers, EEC will make a contribution to the
alleviation of fuel poverty. As at February 2007, the second phase of EEC,
from 2005-08 had delivered around 50TWh of lifetime energy savings in the
priority group.
5.7 The Decent Homes Standard is a minimum standard below which homes
should not fall. It is a trigger for action and not a level that remedial work
should be completed to. Indeed the majority of local authorities and registered
social landlords are carrying out work well in excess of the thermal comfort
standard with 90% planning to install both cavity and wall insulation and loft
insulation even where the standard only requires one14. The standard requires
the presence of efficient heating and effective insulation in homes. Progress
is being made on thermal comfort at a faster rate than the other components
of the decent homes standard, and the number of social sector homes failing
on that criterion has more than halved since 1996 – from nearly two million
down to 850,000. The average SAP score for social housing in 2005 was 57
compared to 47 in 1996. The work that social landlords in particular have
carried out has contributed to reductions in fuel poverty.
14 Assessment of implementing decent homes in the social sector: Housing Research Summary
318 Number 238, 2007 http://www.communities.gov.uk

5.8 The 2005 Pre-Budget Report announced that an additional £300 million
would be made available to tackle fuel poverty across the UK. In England, this
means that funding for the Warm Front Scheme will exceed £300 million in
2006/07, and puts total funding for the Scheme over the 2005-08 period in
excess of £800 million. This represents a substantial contribution to our work
in this area, and will strengthen the ability of the Scheme to target and deliver
assistance to the most vulnerable households. It also announced a £300
contribution towards the cost of a central heating system for those
householders over 60 who are not able to receive Warm Front assistance.
5.9 In the Pre-Budget Report 2006, an additional £7.5 million was announced
to support the development of projects which use an area-based approach to
identify the needs of each household in order to provide them with a co-
ordinated and tailored set of advice and measures. This will complement our
existing fuel poverty and carbon abatement schemes for
the domestic sector.
5.10 The average price paid by households for electricity and gas in 2006,
compared to the average price for 2004, rose in real terms by 45% for gas
and 29% for electricity. This means that energy prices in 2006 were around
1984 levels for gas and around 1996 levels for electricity. Energy prices to
households began to reduce in early 2007, however the price increases will
have increased fuel poverty levels.15
5.11 We have acted on each of the commitments outlined in the Energy

Review Report in relation to fuel poverty. Through industry and the
Government working together, we delivered a targeted mail-out offering
energy efficiency and income assistance to 100,000 Pension Credit recipients.
We are now looking to take this forward for next winter. The funding from the
Pre-Budget Report 2006 supports the development of area-based projects.
New technologies are being brought into the portfolio of measures offered by
many of the main UK fuel poverty schemes. Alongside this, the Low Carbon
Buildings Programme is hoping to attract bids from social housing providers
seeking to install microgeneration for low income, hard to reach properties.
15 Projections for fuel poverty are included in the Energy White Paper: Meeting the Energy Challenge. 319
6. Additional reporting following the Energy Act 2004
Energy Sources and Technologies
6.1 Section 81 of the Energy Act 2004 requires the Government to include
information in this annual report about a range of energy sources and
technologies. Specifically “work carried out to develop or use listed energy
sources or technologies: clean coal technology; coal mine methane; biomass;
biofuels; fuel cells; photovoltaics; wave and tidal generation; hydrogeneration;
microgeneration; geothermal sources, and any other energy
source/technology which may cut carbon emissions.” Detail on each is in the
table below.
Type of energy Action proposed or taken to develop or deploy

source/technology
Carbon reducing Research and Development:
technologies A demonstration scheme for Carbon Abatement
(including coal) Technologies was launched in September 2006
(£35 million over 3 years) with the first call for
applications taking place in October 2006.
UK CCS Demonstration:
In January 2007, PB Power were appointed to
carry out an engineering study into the costs of
UK based Carbon Capture and Storage (CCS) power
generation demonstration, with a view to making a
decision on whether to support UK based CCS
demonstration in 2007.
Regulation:
• A regulatory task force was set up in May 2006
to consider and take forward issues related to
CCS regulation.
• In November 2006 we secured an amendment
to the London protocol allowing carbon to be
stored in sub-seabed geological formations.
• As an interim solution for Phase II of the EU ETS
(2008-12), the EC said in December 2006 that
CCS projects can be “opted-in as a new activity”
and the UK is proactively pursuing this route to
ensure recognition in Phase II.
International:
We continued to work with international partners
through the G8 and EU and bilaterally to speed
the safe deployment of CATS including CCS. For
example, the UK is leading the forthcoming EU
Near Zero Emissions Coal (NZEC) initiative in China
and is actively pursuing a similar project in India.
320

source/technology
DTI continued to be active internationally in a
number of bodies such as the International Energy
Agency’s Working Party on Fossil Fuels, the Carbon
Sequestration Leadership Forum as well as the
EU’s Energy Technology Platform for Zero Emission
Fossil Fuel Power Plants.
Combined Heat On 15 December 2006 DTI issued new Guidance to
and Power power station developers to maximise the use of
CHP where feasible. For the first time, this Guidance
gives developers access to information on regional
heat customers through DEFRA’s interactive heat
maps. The Guidance also includes clearer instructions
on what information is required from developers.
Coal Mine Methane Existing and planned commercial utilisation of gas
at major emitting sites, combined with funding
constraints, has meant that plans to introduce a
grant scheme for the flaring of methane emissions
has been postponed.
Biomass The Government published our response to the
Biomass Task Force in April 2006 and committed to
forming a long term strategy for Biomass.
In December 2006, DEFRA announced a five year
continuation of the scheme to support the
installation of biomass-fuelled heat and combined
heat and power projects in the industrial, commercial
and community sectors in England, with funding of
£10-15 million available for the first two years.
Biofuels The Government has developed its plans to
introduce a Renewable Transport Fuel Obligation
(RTFO) in April 2008 as one of the main UK policy
instruments in the transport sector to reduce
greenhouse gas emissions and to increase the
use of renewable fuels, helping to meet UK
international obligations under the Kyoto agreement
and the EU Biofuels Directive. The RTFO will require
transport fuel suppliers to ensure that a certain
percentage of their total transport fuel sale in the
UK comes from biofuels. The level of the RTFO
will be 2.5% in the financial year 2008/09, rising
to 3.75% in 2009/10 and 5% in 2010/11. The
Government issued a consultation document16 on
22 February 2007 covering both the detailed design
of the RTFO and how it might evolve over time
and beyond 5% provided that conditions around
sustainability, technical feasibility and costs to
consumers are met and that it represents an
effective use of UK biomass resources.
16 http://www.dft.gov.uk/consultations/open/draftrtfo 321
source/technology
Photovoltaic (PV) The Major PV Demonstration programme closed in
March 2006, although projects were given until
April 2007 to complete.
The PV field trials (domestic and large scale) have
been completed.
The Government continues to support PV through
the Technology Programme and the Low Carbon
Buildings Programme.
Hydrogen and A demonstration programme for hydrogen and fuel
Fuel Cells cells (£15 million over 3 years) was launched in
September 2006. The first successful projects are
expected to start early in the financial year 2007/08.
Wave and Tidal In 2006 the Government continued to support
research and development of marine energy
technologies primarily through the DTI’s Technology
Programme. Under the programme a further 7 new
research and development projects were supported,
with levels of assistance totalling £2.75 million and
typically at 50% of project cost. These new projects
brought the total number of ongoing marine energy
technology R&D projects supported by the DTI to
16 with grant support totalling £17.3 million.
In February 2006 DTI launched a £42 million “Wave
and Tidal Stream Energy Demonstration Scheme”
that will support the first multi-device demonstration
projects.
The Carbon Trust announced a major new
£3.5 million initiative in marine renewable energy
called the Marine Energy Accelerator (MEA). The
programme aims to accelerate progress in cost
reduction of marine energy technologies.
In August 2006 DTI offered £4.5 million towards
the cost of an infrastructure project known as the
“Wave Hub”. The proposed “Wave Hub” is an
electrical grid connection point 15 km offshore
into which wave energy devices can be connected.
The “Wave Hub” approach would bring a number
of benefits to developers, including a well defined
and monitored site with electrical connection to the
on-shore electricity grid and a simplified and
shortened consents process, reducing the risk for
developers of the first pre-commercial wave arrays.
In 2006 the European Marine Energy Centre
(EMEC) in Orkney completed a £7.2 million project
to extend the current facilities to include tidal-
stream testing berths.
322

source/technology
A new £6 million 4 year programme of fundamental
research into marine energy involving a number of
UK universities and known as “Supergen Marine”
was approved by the Research Councils. This new
programme builds upon research carried out under
the previous Supergen Marine I research
programme.
In July 2006 a major £400k study on tidal power
in the UK was commissioned by Government.
The study led by the Sustainable Development
Commission will consider the UK tidal resource and
the technologies to harness tidal energy including
tidal barrages. In particular the study looks at the
potential for tidal power developments in the Severn
Estuary and related issues in depth. The study is
planned to report in summer 2007.
Hydro generation The Environment Agency Hydropower Working
Group (EAHWG) consisting of the DTI, the
Environment Agency and the hydropower industry,
continues to work together to find the best solution
for developers to deploy hydropower while best
protecting the environment.
Micro generation The microgeneration strategy was published in
March 2006 with the objective being to create
conditions under which microgeneration becomes
a realistic alternative or supplementary energy
generation source for the householder, the
community and small business.
A steering group has been established to drive
forward implementation of the strategy. Of the 25
actions in the strategy, 6 have been completed in
the period of this report. Progress can be followed
at – www.dti.gov.uk/energy/sources/sustainable/
microgeneration
Geothermal sources The Government published in 2002 “Assessment of
Technological Options to address Climate Change”.
Costs remain a significant barrier to geothermal
energy in the UK. However, its potential globally is
significant and we continue to keep it under
consideration.
323
Science and Engineering
6.2 Section 81 of the Energy Act 2004 also requires us to report on “the
maintenance of scientific and engineering expertise in the UK for the
development of energy sources.”
Action taken in the last 12 months:
6.3 The Sector Skills Councils, Cogent and Energy & Utility Skills have, as part
of their Sector Skills agreements undertaken a full assessment of the current
situation and are developing strategic plans with their client industries and
other interested parties to ensure that the needs of the energy sector are met;
6.4 The Cogent led National Skills Academies for Nuclear and the Process
Industries were approved in October 2006:
• the Nuclear Academy will aim, in its first three years, to deliver 800
apprentices and around 150 Foundation degrees. A further 4,000 existing
employers will be up-skilled and re-trained using short courses; and
• although the Process Industries Academy is primarily aimed at the chemical
process sector, the refinery and power industries will also benefit.
6.5 Research Councils are spending £40 million per annum on energy R&D and
this has a significant feed through to the supply of high-level skills. The Energy
Technology Institute will add up to £100 million per annum of extra funding.
6.6 Training and research in nuclear has been increased by universities.

This includes:
• The Nuclear Technology Education Consortium are offering 20 modules
at Masters level;
• seven universities are participating in the Engineering and Physical
Sciences Research Council (EPSRC)-funded research programme
Keeping the Nuclear Option Open;
• EPSRC is supporting the Nuclear Doctorate Centre, a collaboration
between Manchester’s Dalton Institute and Imperial College London; and
• Lancaster University provides an undergraduate course in nuclear engineering.
6.7 There is a significant oil industry programme under the strategic direction
of PILOT and the management of the Industry Leadership Team to address
the need for craft and technician skills to replace those retiring. Around 150
new recruits each year are starting apprenticeships, with training delivered
under the direction of Cogent and the Engineering Construction Industry
Training Board (ECITB).
6.8 The Energy Research Partnership, a high level energy sector forum
launched in the 2005 Budget and tasked with enabling the UK to become
a world leader in developing innovative energy technologies, has initiated
a workstream to improve the supply of high-level skills.
6.9 Membership of Ofgem’s Innovation Funding Incentive for electricity

distribution companies has been broadened to include electricity and gas
distribution companies. The Incentive aims to re-invigorate R&D within the
sector by bringing industry and universities closer together, helping supply
chain companies to bring in new technology and developing technical skills
324 for the future.

6.10 The Government's commitment to increasing the supply of Science,
Technology, Engineering and Mathematics (STEM) skills to the workforce was
reinforced by the actions set out in the March 2006 Science and innovation
2004-2014: framework next steps, and the DTI/DFES STEM Programme
Report in October 2006. The new National Curriculum places increased
emphasis on science, technology and mathematics and has changed the
method by which schools are assessed to give greater weight to attainment
in English and Mathematics.
Nuclear Research and Development

6.11 The Government recognises that research plays an important role in
maintaining nuclear competence and knowledge (around 20% of the UK’s
electricity comes from nuclear power).
6.12 The UK invests in fusion research through the Engineering and Physical
Sciences Research Council (EPSRC) and the UKAEA undertakes the vast
majority of the fusion research in the UK.
6.13 As a result of a new grant announced in August last year, EPSRC grant
awards to UKAEA Culham will amount to around £95 million over the four
years to 2007/08. The EPSRC funding covers the UK’s own national
programme of fusion research and the UK’s contributions to the operation of
Joint European Torus (JET). The UK also makes a contribution to the European
fusion programme via its overall contribution to the EU budget.
6.14 Ministers from the seven ITER Parties signed the ITER agreement
to establish the international organization that will implement ITER on 21
November. ITER is a global scientific collaboration on fusion research and
involves the EU, China, India, Japan, Russia, Republic of Korea, and the
United States.
Energy Efficiency
6.15 Section 81 of the Energy Act 2004 requires the Government to report on
progress towards achieving its energy efficiency aims.
6.16 Reducing the amount of energy we use is the best way of achieving all
of our energy goals, with an additional benefit of reducing costs to homes
and businesses.
Commitment
• The 2004 Energy Efficiency Action Plan included a residential energy
efficiency aim, to save 3.5 million tonnes of carbon from homes in
England through energy efficiency measures by 2010. A revised Energy
Efficiency Action Plan, which is to be published this summer in
accordance with the requirements of the End-use Efficiency and
Energy Services Directive, will serve to review the ambition of the aim.
• A second target for household energy efficiency was set in the

Housing Act 2004, requiring the Secretary of State to take reasonable
steps to improve residential energy efficiency by at least 20% by 2010
from a year 2000 baseline.
325
6.17 In 2006, as part of the review of our Climate Change Programme, we
undertook a comprehensive review of the measures in the 2004 Energy
Efficiency Action Plan and announced a strengthened policy package – all told
energy efficiency policies are now expected to deliver over half the carbon
savings in the new Climate Change Programme.
6.18 In the Energy Review Report we looked towards 2020, with a range of
proposals for further polices and measures to help deliver an extra 6-9 MtC
per annum by 2020.
Specific action taken this year includes:
6.19 We have significantly strengthened building standards. New provisions in

the building Regulations in April 2006, mean (with previous revisions in 2002),
a 40% improvement in the energy performance of buildings built to today’s
standards.
6.20 The Government also published a consultation on our aim that all new
homes should be zero-carbon by 2016, an ambitious target. This will be
achieved though further progressive tightening of the building regulations in
2010 and 2013 before the zero-carbon standard comes into effect in 2016.
6.21 To support the Government's ambition for zero carbon development, we

have also published the Code for Sustainable Homes, the draft Planning Policy
Statement: Planning and Climate Change and have committed in the Thames
Gateway Interim Plan to explore the feasibility of making the Gateway
zero/low carbon.
6.22 To kick-start deployment of the technologies that will be needed to

realise this goal, the Chancellor announced in December 2006 that the
Government will introduce a time-limited stamp duty exemption in 2007 for
the vast majority of new zero carbon homes.
6.23 In the Budget 2006, the Chancellor announced the Retailers Initiative
under which we will work with the Energy Saving Trust and retailers to
introduce voluntary schemes to raise the energy efficiency of the goods
they sell.
6.24 In the Energy Review Report we announced a commitment to maintain a

household supplier obligation until at least 2020 following on from the 3rd
phase of the Energy Efficiency Commitment, which comes to an end in 2011.
We are committed to save 3-4 MtC by 2020 through this instrument. The
Review also included proposals for raising awareness of energy use through
better metering and billing and for adopting measures to secure savings of
1.2 MtC per annum from large commercial and public sector organisations.
We also announced that, by 2012, the Government office estate will be
carbon neutral and have set an aspirational target to reduce carbon emissions
from the estate by 30% by 2020.
6.25 The Government has adopted a Sustainable Procurement Action Plan,

a package of actions to deliver the step change needed to ensure that supply
chains and public services will be increasingly low carbon, low waste and
326 water efficient, respect biodiversity and deliver wider sustainable

development goals. Alongside the Action Plan, the Government is also
publishing an updated set of mandatory environmental product standards that
will ensure Departments procure the most sustainable commodities.
6.26 The EU has adopted an Energy Efficiency Action Plan which comprises
a package of policies and measures to realise the potential for saving 20% of
the EU’s primary energy consumption by 2020.
6.27 The UK’s energy tax, the climate change levy (CCL), which was
introduced in 2001 to encourage businesses to reduce energy demand will be
increased in line with inflation from April 2007.
6.28 The Pre-Budget Report in 2006 announced new investment of £7.5

million to improve the coordination between, and effectiveness of, Warm
Front and the Energy Efficiency Commitment. This will fund projects using an
area-based approach to identify households and provide the right coordinated
set of advice and measures for them.
6.29 Subject to any necessary State aids clearance, the Landlords Energy
Saving Allowance will be extended to corporate landlords and will be applied
per property rather than per building, ensuring that even smaller properties
have access to the full allowance. The acquisition and installation of floor
insulation will also be a qualifying investment.
327
ANNEX B
Summary of Updated Energy and

Carbon Emissions Projections
Headline carbon emissions projections to 2020

1 This annex provides a summary of the results of the latest UK energy and
carbon emissions projections1. The following baseline projections reflect low,
central and high assumptions of future fossil fuel prices; and the estimated
impact of the Energy White Paper measures under central fuel prices. In
addition, these projections explore the impact of a carbon price2 for the UK
sectors covered by the EU Emissions Trading Scheme (EU ETS).
Baseline projections
2 Depending on the price of fossil fuels, and without the impact of the EU ETS
and the measures in this White Paper, UK domestic carbon emissions are
projected to be 149 -151 million tonnes of carbon (MtC) in 20203 (Table B1
below). This is 3-5 MtC higher than previous central baseline projections
published in the Energy Review Report in July 2006. Part of the reason for this is
that our projections now include a higher level of coal-fired electricity generation
in 2020 than we projected last July, due to revised assumptions about the future
level of fossil fuel prices4.
TABLE B1. BASELINE PROJECTIONS UNDER LOW CENTRAL AND HIGH

FOSSIL FUEL PRICES
2010 2015 2020
Low fuel prices 146.9 150.7 149.2
Central fuel prices 146.5 149.4 151.2
High fuel prices 145.8 149.1 150.5
1 A more detailed paper on the updated energy and carbon emissions projections is being published
alongside this White Paper DTI: Updated Energy and Carbon Emissions Projections, May 2007.
www.dti.gov.uk/energy/whitepaper
2 Except in the baseline projection, a carbon price of €20/tCO2 in 2010 and €25/tCO2 in 2015-2020 is
assumed for the EU ETS sectors in the UK.
3 This baseline includes savings in 2020 of around 25MtC from existing measures.
4 The revised fossil fuel price assumptions used in these projections were put out to consultation in October
2006. The revisions to our fossil fuel price assumptions show an increase in expected future fuel prices,
consistent with other major organisations (IEA and EIA) and reflecting market tightness and higher costs of
production. The revision has also meant that the assumed relative price of fossil fuels has changed. In the
baseline scenario, and without a carbon price, the price of coal is now more favourable compared with that
in the July 2006 projections. This contributes to an increase in coal capacity in the new baseline of up to
328 8GW by 2020.

Projections of the impact of EU ETS carbon price in the UK and
the impact of the 2007 Energy White Paper measures
3 The projections published in this White Paper (and in contrast to the
projections published with the Energy Review Report) incorporate an EU ETS
carbon price for UK sectors of €20/tCO2 in 2010 and €25/tCO2 in 2015-2020.
4 The exact level of savings from the EU ETS beyond Phase II (2008-2012)
will be decided in line with future national allocation plans. However, in this
White Paper we present an illustrative projection of savings from the EU ETS
in 2020 under central fuel prices of 13.7MtC5. Our projections show that in
order to meet this level of effort, the EU ETS sectors in the UK will be
required to purchase emissions allowances from abroad.
5 Table B2 below details the headline aggregate 2007 Energy White Paper
projections. These are based on central fossil fuel price assumptions6. The
range reflects the low, central and high carbon savings estimated to be
achieved through the White Paper measures7 (as described in Table 10.1 in
chapter 10). These estimates also include the estimated full impact of the EU
ETS carbon price and the additional effort from purchasing emissions
allowances from abroad.
TABLE B2. HEADLINE 2007 ENERGY WHITE PAPER PROJECTIONS

(CENTRAL FUEL PRICES)
Projections (MtC) 1990 2005 2010 2020
Baseline 161.5 151.1 146.5 151.2
Emissions projection including full impact
of EU ETS and assuming low impact of
White Paper measures 161.5 151.1 136.1 128.9
EU ETS and assuming central impact of
of EU ETS and assuming high impact of
6 Table B2 shows that, along with the impact of the EU ETS and depending
on the level of savings from the White Paper measures, UK carbon emissions
are projected to be 119.2-128.9 MtC in 2020; equating to a 20-26% reduction
on 1990 levels (See Figure 10.1 in chapter 10 of this White Paper)8. Table B3
below provides more detail on sectoral projections compared to the baseline
projections, under central fuel prices. The range reflects the low, central and
high estimated carbon savings from the White Paper measures. The table also
separates domestic carbon emissions, and emissions savings achieved
through the purchase of allowances from abroad.
5 This estimate reflects the assumption that the cap for Phase II of the scheme is unchanged in future
phases. On the basis of our latest baseline projections, this would require 13.7MtC of savings in 2020. The
actual level of savings to be achieved through EU ETS beyond Phase II (2008-2012) will be decided in line
with future national allocation plans.
6 Emissions projections under high and low fossil fuel and central policy saving assumptions are reported in
the detailed paper on the projections. www.dti.gov.uk/energy/whitepaper.
7 This range reflects uncertainty about the timing and impact of the measures.
8 In the draft Climate Change Bill, the UK target is a 26-32% reduction in emissions on 1990 levels by 2020. 329
Summary of Updated Energy Projections

TABLE B3. BASELINE EMISSIONS AND LOW, CENTRAL AND HIGH EMISSIONS
BY SECTOR (CENTRAL FUEL PRICES)
Low Central High
Baseline carbon saving carbon saving carbon saving
2005 2010 2020 2010 2020 2010 2020 2010 2020

Power stations 47.0 45.3 49.0 44.2 38.8 43.5 36.4 42.8 32.9
Refineries 5.0 5.8 6.1 5.8 6.1 5.8 6.1 5.8 6.1
Residential 23.1 19.7 18.3 19.7 15.6 19.7 15.0 19.6 14.4
Services 6.5 6.2 6.6 6.1 6.0 6.1 5.8 6.1 5.6
Industry 30.8 30.8 29.9 30.8 29.7 30.8 29.6 30.8 29.6
Road
transport1 32.7 32.5 33.9 32.4 32.2 32.4 32.2 32.1 27.2
Off-road 3.5 3.3 3.2 3.3 3.2 3.3 3.2 3.3 3.2
Other transport 3.1 3.4 3.7 3.4 3.5 3.4 3.4 3.4 3.3
LUC -0.6 -0.5 0.5 -0.5 0.5 -0.5 0.5 -0.5 0.5
Total2 151.1 146.5 151.2 145.2 135.6 144.4 132.2 143.4 122.9
Emissions
allowances
purchased from
abroad3 – – – 9.1 6.8 8.7 5.7 8.3 3.7
Total including
full impact
of EU ETS 151.1 146.5 151.2 136.1 128.9 135.7 126.5 135.2 119.2
1 DTI forecasts of road transport emissions are consistent with, but at the top end of DfT emissions
forecasts because of the different modelling approaches used.
2 Estimated carbon emissions inclusive of the impact of the 2007 White Paper measures and a carbon price
– but excluding emissions savings achieved through the purchase of allowances from abroad.
3 Estimated allowances purchased by EU ETS sectors in the UK from abroad (either EU allowances from
other Member States in the EU ETS; or through Kyoto flexible mechanisms such as the Clean Development
Mechanism).
Greenhouse gas emissions projections

7 Under the Kyoto Protocol, the UK has a target to reduce greenhouse gas
(GHG) emissions by 12.5% on 1990 levels by 2008-2012. The Kyoto target is
based on a basket of greenhouse gases, of which carbon dioxide (CO2)
represents the largest share. The latest projections show that the UK remains
on track to exceed its Kyoto commitment9. The EU has committed to cut total
greenhouse gas emissions by 20% on 1990 levels by 2020, or by 30% if in
conjunction with other countries.
8 Based on the carbon emissions projections shown in this annex, together

with an estimate of non-CO2 GHG emissions projections10 suggest that total
UK GHG emissions will be between 147-159 million tonnes of carbon
equivalent (MtCe) in 2020, i.e. 25-31% lower than 1990 levels. (Figure B1,
below). This projection of UK GHG emissions is inclusive of savings of carbon
9 Defra, Provisional 2006 UK Climate Change Sustainable Development Indicator.

http://www.defra.gov.uk/news/2007/070329a.htm
10 Provisional central estimates of non-CO2 greenhouse gas emissions provided by Defra to the EU in March
2007. These estimates are under review to take account of the CO2 projections provided in this White
Paper, and other information that has become available since the 2006 Climate Change Programme was
330 published. Fully updated estimates should be available in the second half of 2007.

achieved domestically through a carbon price of €20/t CO2 in 2010 and €25/t
CO2 in 2015-202011, and is based on central fossil fuel prices.
FIGURE B1. PROJECTED GREENHOUSE GAS EMISSIONS (1990-2020)
220
200
180
160
140
120
100
Source: DTI Updated Energy and Carbon Emissions Projections May 2007
11 These GHG projections do not take into account the estimated additional allowances purchased by EU
ETS sectors in the UK from abroad. 331

Electricity generation mix
9 Table B4 sets out the fuel mix in electricity generation under central fuel
prices in the baseline projection, and in the scenarios including the impact of a
carbon price and the White Paper measures. The impact of the carbon price
on the generation fuel mix is more significant by 2020, through its impact on
the relative costs of generation and demand, favouring gas and nuclear
generation at the expense of coal. The Government is consulting on the
proposal of allowing the private sector the option of investing in new nuclear
power stations. Because this issue is subject to consultation, we have only
allowed the model to build new nuclear power stations in the high case, to
show the potential impact of the proposal, for purely illustrative purposes.
TABLE B4. ELECTRICITY GENERATION MIX BY FUEL (CENTRAL FOSSIL FUEL PRICES)
TWh Baseline Low Central High

projections policy policy policy
estimates estimates estimates
2005 2010 2020 2010 2020 2010 2020 2010 2020
Coal1 125 121 119 113 67 113 71 113 77
Oil 2 2 1 2 1 2 1 2 1
Gas 135 129 202 136 223 129 195 123 156
Nuclear 75 68 25 68 25 68 25 68 33
Renewables2 17 31 48 29 46 33 57 36 67
Imports 11 11 16 11 16 11 16 11 16
Storage 3 3 3 3 3 3 3 3 3
Total 368 365 415 362 381 359 367 357 352
1 In the three policy cases, in line with our measures, some of the coal generation in 2020 is from CCS
demonstration power stations – ranging between 3TWh in the low policy case to 13TWh in the high policy case.
2 Including renewables and waste.
Fossil-fuel price assumptions

10 Our emissions projections are based on a range of fossil fuel price
assumptions. Fuel price assumptions are intended to be illustrative scenarios
to reflect uncertainty over the outturn of future prices in the modelling – they
are not detailed forecasts or predictions of future prices.
11 Table B5 compares the assumptions in the central fuel price scenario for
the 2007 Energy White Paper projections, to those used in the projections in
the Energy Review Report in July 2006.
TABLE B5. CENTRAL FOSSIL FUEL PRICE ASSUMPTIONS

2006 real Crude oil Natural gas NBP ARA coal
prices $/bbl p/therm £/tonne
Energy Energy Energy Energy Energy Energy
White Review White Review White Review
Paper Report Paper Report Paper Report
2010 57 41 42 34 30 28
2015 50 43 38 36 31 27
2020 53 46 40 37 32 26
332

12 In the central fossil fuel price scenario, the oil price assumptions are higher
than those for the Energy Review Report. The upward revisions are
consistent with changes made by the International Energy Agency (IEA) and
the US Energy Information Administration (EIA), and reflect the continuing
market tightness and higher costs of production. It is assumed that oil prices
ease post 2006 as new production capacity comes on-stream and demand
growth moderates, leading to an increase in spare production capacity.
However, as oil production will be increasingly produced from more expensive
sources, and spare capacity remains relatively limited, prices are assumed to
remain higher than their historic average. Under our new projections, oil prices
are assumed to be 57$/bbl in 2010 and 53$/bbl in 2020 (2006 prices).
13 The gas price in Europe is assumed to remain linked to oil prices, and UK
gas prices are assumed to be similar to continental prices plus the transport
cost differential. Gas prices are assumed to be 42p/therm in 2010, and
40p/therm in 2020.
14 Coal prices are assumed to fall in the short-term due to additional

investment in coal production and transport capacity, as a result of recent high
prices. However, post 2010 coal prices are assumed to grow in line with oil
and gas prices due to the opportunities for substituting between the different
fossil fuels. Coal prices are assumed to be £30/tonne in 2010 and £32/tonne
in 2020.
333

ANNEX C
UK Position on the EU Emissions

Trading Scheme
1 The Stern Review of the economics of climate change confirms that climate
change is a global problem needing a multilateral solution, and that
we must act now in response. The Review points to the need for a carbon
price signal across countries and sectors to ensure that emission reductions
are delivered in the most cost-effective way. The UK Government set out
its own priorities in the EU ETS Vision statement in October 2006,1 which
followed the Stern Review, and this annex builds on that initial statement.
2 Emissions trading is the UK’s carbon price instrument of choice and a key
component in a comprehensive UK policy framework to effectively mitigate
climate change. Emissions trading ensures that the emissions from the
sectors regulated are capped, but it allows emissions reductions to occur
where they cost the least, thereby minimising economic impacts and
maximising flexibility for industry.
3 The EU, with a strong lead from the UK, has built on the Kyoto Protocol to take
the world’s most significant step in establishing a carbon price by establishing the
EU Emissions Trading Scheme. The scheme already covers approximately half of
the UK and EU’s carbon dioxide emissions, including emissions from electricity
production and major industrial sectors. EU Heads of Government recently re-
affirmed their commitment to the scheme, with the Spring Council “…
[underlining] the central role that emissions trading must play in the EU's long-
term goals to reduce GHG emissions, and [stressing] the importance of the
review by the Commission of the EU Emissions Trading Scheme in delivering an
improved EU ETS that provides a market-based, cost-effective means to deliver
emissions reductions at minimum cost – including as regards energy-intensive
industries – and to make a major contribution to the EU's overall targets”.2
4 But emissions trading will not achieve its full potential to reduce emissions
at least cost unless we get the design of the scheme right. It is crucial that
we learn the lessons from the first Phase, which was always intended as a
learning by doing phase. In particular, it is clear from the price of allowances
in Phase I of ETS that there was a generous allocation of allowances in that
Phase. Indications are that the market believes that the allocation for Phase II
is much tighter, as shown by the higher price for Phase II allowances, and
that it will lead to significant reductions from business as usual emissions.
For the future, the UK believes that the EU ETS should:
• set safe, predictable and affordable limits on emissions, which tighten over
time. The European Council meeting of Heads of Government in Spring
2007 committed to a 30% reduction in emissions below 1990 levels, in
conjunction with other countries (and by 20% in any event). This was a
1 Available on HMT website at http://www.hm-treasury.gov.uk/media/7E3/FC/foi_gore_2.pdf

2 See page 23 Brussels European Council Presidency Conclusions, 2 May 2007
334 http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/93135.pdf

major step forward, and gives a clear signal about the direction of travel,
and the firm commitment that the future will be carbon-constrained;
• be improved such that it is more efficient with fewer distortions. We need

to move towards more auctioning of allowances, and to increase
transparency. This may be easier to achieve with a more centralised cap
setting process;
• cover the right emitters. We welcome the progress on the inclusion

of aviation, and urge the EU to consider whether sectors that are not
currently in the EU ETS should be brought in, including surface transport.
The inclusion of other greenhouse gases should also be considered.
We need to look carefully at whether small emitters can be excluded
where they face a disproportionate regulatory burden, but where a
sector is not suitable for inclusion in the EU ETS, it should face a carbon
price through some other route; and
• form the hub of a global carbon market. Stern makes it clear that a global
market is essential. Designed correctly, the EU ETS can become the basis
of a global carbon market, delivering the emissions reductions necessary
to stabilise the concentration of greenhouse gases at a level to avoid the
most serious impacts of climate change. Properly constructed links
between the EU ETS, the Joint Implementation (JI) and Clean
Development Mechanisms (CDM), and other markets where possible, will
make the carbon market deeper and more liquid. We welcome the fact
that the ETS Directive provides for continued recognition of JI and CDM
credits in the EU ETS post 2012, though we must ensure that such
mechanisms deliver real emissions reductions. The UK is working with
other countries and states to promote emissions trading, to share the
lessons of existing schemes and to develop compatibility for possible
future links. This year's review of the ETS Directive will provide an
opportunity to remove some of the legal obstacles to linking with regional
and non-Kyoto schemes.
5 We are working, using robust evidence and analysis, to build a widely

shared UK and EU consensus on emissions trading and the actions necessary
to strengthen the EU ETS (set out above). This will build on the strong
commitment to emissions trading from all EU Heads of Government at the
2007 Spring Council. A key tool in building this consensus is the UK Manifesto
on the EU ETS3, which was launched in March 2007. This showed that
Government, business and NGOs agree on the basic principles for emissions
trading as an effective way to deliver emissions reductions. The priorities
identified in the manifesto are:
• a predictable trajectory for the level of emissions reduction required;
• exposing all of business, eventually, to a carbon price. We will look to

deliver this taking into account concerns about competitiveness of EU
industry, where industry in other countries does not face a carbon price;
3 Available on the DEFRA website at

http://www.defra.gov.uk/environment/climatechange/trading/eu/pdf/manifesto-uk.pdf 335
UK Position on the EU Emissions Trading Scheme

• use of JI/CDM and a global market;
• harmonisation. Business wants a level playing field in Europe, to avoid

distortions in the Internal Market. The UK will work within Europe to
deliver this, which will help to make the market more transparent and
efficient; and
• carefully managed expansion. Eventually the whole economy must face

a cost for carbon.
6 We will also consider how best to give the necessary confidence in the
long-term direction of the scheme; we will look to make early decisions on
emissions caps, and at how to signal the direction of EU emissions reductions
much further into the future. We will also continue to press the Commission
to produce a legislative proposal as soon as possible. To ensure that we have
the detailed views of UK industry to feed into the Commission’s thinking, we
launched an issues paper4 in March 2007, asking for views on a range of
questions about the future structure of the scheme.
7 This long-term confidence will be helped by the welcome commitment at

Spring Council to a 2020 emissions target. This shows that Governments are
aware of and responding to the need for long-term signals about emissions.
In the UK, the draft Climate Change Bill has proposed to set in statute emission
budgets for the UK three carbon budget periods (each of five years) ahead. We
need to consider how the UK’s EU ETS cap will be made consistent with both
the EU’s overall commitment, and the UK’s domestic policy goals.
336 4 http://www.defra.gov.uk/environment/climatechange/trading/eu/future/review/index.htm#5

337
UK Position on the EU Emissions Trading Scheme

ANNEX D
Consultations announced in, or related to, the
Energy White Paper: Meeting the Energy Challenge
Subject
Planning
The Future of Nuclear Power – The Role of Nuclear Power in a Low Carbon UK
Economy
Reform of the Renewables Obligation
Guidance on the 1965 Gas Act
Carbon Emission Reduction Target (formerly Energy Efficiency Commitment)
Products Policy Brief on Consumer Electronics
Offshore Decommissioning
Supplier Obligation – call for evidence
Carbon Reduction Commitment (formerly Energy Performance Commitment)
Electricity: Emergency Planning
CoRWM Implementation
Energy Services Directive 2006/32/EC Article 6
Billing and Metering
Distributed Generation (licensing)
UK Regulation of Carbon Capture and Storage
Carbon dioxide from cars
338 Code for Sustainable Homes

Purpose Expected launch date
To set out the Government's detailed proposals for reform in 21 May 2007, alongside
response to the recommendations made by Kate Barker and by Rod the Planning White
Eddington on planning, and consult on certain aspects of proposed Paper: Planning for a
planning reforms, including for major energy infrastructure projects. Sustainable Future
To seek comments on the Government’s preliminary view that private 23 May 2007,
sector companies should be allowed the option of investing in new alongside the
nuclear power stations in the UK because of their potential contribution Energy White Paper
to the UK’s goals on climate change and security of supply.
To set out the arrangements we propose for strengthening and 23 May 2007,
modifying the Renewables Obligation, including the implementation alongside the
of banding. Energy White Paper
This consultation is part of our comprehensive package of short-term 23 May 2007,
and long-term measures to improve energy planning for Major alongside the
Infrastructure Projects. Energy White Paper
To consult on key issues such as the size of the commitment under 23 May 2007,
this obligation on suppliers between 2008 and 2011. alongside the
Energy White Paper
To consult on our evidence and analysis of how markets for domestic 23 May 2007,
consumer electronics could develop, together with proposed sales alongside the Energy
targets and performance standards for the next 10-20 years. White Paper
To consult on strengthening the statutory decommissioning regimes June 2007
for oil and gas and renewable energy installations, to minimise the risk
of liabilities falling on the public purse in the event of operator default.
To help consider possible alternative designs for the post 2011 phase Summer 2007
of the continuing obligation on energy suppliers.
To consult on the detailed design of the Carbon Performance Summer 2007
Commitment on large non-energy intensive organisations.
To update the electricity priority user arrangements in the extremely Summer 2007
unlikely event of a widespread electricity disruption.
To consult on the Government’s proposals for implementing Summer 2007
CoRWM‘s recommendations.
To consult on possible additional measures needed to comply with Summer 2007
the Energy Services Directive 2006/32/EC Article 6 in relation to the
promotion of energy efficiency by energy suppliers.
To consult, as appropriate, on the billing and metering proposals set Summer 2007
out in this White Paper.
DTI / Ofgem to consult jointly on more flexible market and licensing Autumn 2007
arrangements for distributed, low carbon electricity supply.
To consult on regulation for the full chain of CCS technologies. Later in 2007
To consult on options for mandatory new car fuel efficiency targets, Later in 2007
along with other details of the European Commission’s communication
on carbon dioxide from passenger cars and light commercial vehicles.
To consult on whether all new homes should be required to be rated By the end of 2007 339
against the Code.
Consultations
Consultations announced in, or related to, the
2006 Energy Review Report: The Energy Challenge
Title Purpose
New nuclear policy To set out how the Government intended to create a policy
framework framework under which developers could make proposals
for new nuclear build, and seek views on the proposals for
the framework.
The Energy Efficiency To gain early views on the shape of the EEC3 (2008-2011)
Commitment April 2008 to in advance of the statutory consultation in 2007.
March 2011: initial consultation
Reform of the Renewables To seek views on the proposals for changes to the Renewables
Obligation and statutory Obligation set out in the 2006 Energy Review Report.
consultation on the In addition the consultation document contained proposals
Renewables Obligation for a small number of more limited and detailed changes
Order 2007 to the Renewables Obligation legislation.
The effectiveness of current To seek the views of industry and consumers on the
gas security of supply effectiveness of current gas security of supply
arrangements arrangements.
Measures to reduce carbon To gain views on a range of options for achieving emissions
emissions in large non-energy savings in large non-energy intensive organisations of 1.2
intensive business and public million tonnes of carbon per year by 2020.
sector organisations
Updating the electricity To consult on the proposed new inquiry rules for
generating stations and applications under the Electricity Act, including the partial
overhead lines inquiry regulatory impact assessment, and the accompanying
procedure rules in draft guidance for participants.
England and Wales
Energy billing and metering To consider proposals made in the Energy Review on how
metering and billing might help reduce energy consumption.
Offshore Natural Gas Storage To gain views on proposals to establish a clear regulatory
and Liquefied Natural Gas framework for the offshore storage of natural gas in non-
(LNG) Import Facilities hydrocarbon features such as salt caverns, as well as in
partially depleted oil and gas fields, and for the offshore
unloading of LNG .
Resilience of overhead power The Energy Review Report underlined that an important
line networks factor in the reliability of our energy supplies is the resilience
of the electricity networks. As a consequence Government
reviewed the overhead lines regime and concluded a better
balance could be struck between changes for which the full
consent process is required, and changes where a more
flexible approach could be adopted.
Guidance on the consenting To consult on consents guidance for onshore generating

process for onshore stations above 50 MW.
generating stations above
50 MW in England and Wales
340

Duration Weblink
11 July – 31 October 2006 http://www.dti.gov.uk/energy/review/

implementation/nuclear-framework/
page31831.html
31 July – 23 October 2006 http://www.defra.gov.uk/corporate/consult/

eec3/index.htm
9 October – 15 December 2006 http://www.dti.gov.uk/energy/review/

(part 2) and 5 January 2007 (part 1) implementation/renewables-obligation/
page34483.html
16 October 2006 – 12 January 2007 http://www.dti.gov.uk/energy/review/

implementation/gas-supply/page34654.html
8 November 2006 – 31 January 2007 http://www.defra.gov.uk/corporate/consult/

carbon-emissions/index.htm
9 November 2006 – 1 February 2007 http://www.dti.gov.uk/energy/review/

implementation/electricity-act-inquiry/
page35205.html

implementation/billing-metering/page35269.html
implementation/gas-storage/page35616.html
18 December 2006 – 14 March 2007 http://www.dti.gov.uk/energy/review/

implementation/overhead-resilience/
page36117.html
11 May 2007 – 3 August 2007 http://www.dti.gov.uk/energy/review/

implementation/consenting-process/
page39394.html
341
Consultations
Printed in the UK for The Stationery Office Limited
on behalf of the Controller of Her Majesty’s Stationery Office
ID5539714 05/07
342 Printed on Paper containing 75% fibre content minimum.

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Meeting The Energy Challenge A WHITE PAPER ON ENERGY

A White Paper on Energy

Presented to Parliament by the Secretary of State for Trade and Industry

The text in this document (excluding the Royal Arms

The evidence supporting urgent action on climate

Meanwhile, world energy demand continues to grow and is likely to be met

Energy companies are also going to be making large investments in the

Department of Trade and Industry MEETING THE ENERGY CHALLENGE

We also want to mobilise the enthusiasm and potential of individuals and

Alongside this White Paper, we are publishing a consultation document on

The Government’s measures, including those in this White Paper, put us on

We are determined to become a low carbon economy. But further measures

Foreword by the Rt Hon. Alistair Darling MP

As we set out in The Energy Challenge published in 2006, the context in

1 Our four energy policy goals are:

Department of Trade and Industry MEETING THE ENERGY CHALLENGE

At the same time energy demand worldwide continues to increase, particularly

Increased competition for resources will see international trade in fossil

Our strategy continues to be based on the principle that independently

The Energy Review Report identified a number of areas where the

• Establish an international framework to tackle climate change

Department of Trade and Industry MEETING THE ENERGY CHALLENGE

Many of these elements have an important international dimension.

Our improved framework will help businesses, individuals and the

At home, we will take action to build on the growing interest among

Saving energy: business

To ensure all businesses have the necessary information on the energy

We shall also consult on a requirement for energy suppliers to extend, to all

Saving energy: households

We will also continue to improve the energy efficiency of existing homes.

We will continue to ensure that energy suppliers work with householders

We will empower consumers to make more informed energy choices by

Department of Trade and Industry MEETING THE ENERGY CHALLENGE

Saving energy: transport

The achievement of these new standards is likely to be challenging.

We have also been pushing in Europe for inclusion of aviation in the

Transport is an area where choices and the behaviour of individuals could

Clean energy supplies

Heat and distributed energy

In the short and medium-term, a combination of new and existing

Department of Trade and Industry MEETING THE ENERGY CHALLENGE

Cleaner large scale electricity generation

A key part of this framework is the EU ETS which, by establishing a carbon

We shall introduce banding of the RO to offer differentiated levels of support

In addition to creating the right financial framework, we need to lower

Department of Trade and Industry MEETING THE ENERGY CHALLENGE

Fossil fuel electricity generation and carbon capture and storage

In considering whether it is in the public interest to allow private sector

Given the long timeframes involved, this uncertainty is inevitable. We

We have modelled a number of different future scenarios as part of the

Department of Trade and Industry MEETING THE ENERGY CHALLENGE

There would also be a risk of higher costs to the UK economy: by excluding

We recognise that, as with all generation technologies, there are advantages

On this basis, the Government’s preliminary view is that it is in the public

The consultation document sets out evidence and information on a range of

Alongside the nuclear consultation, the Government is proceeding, on a

Low carbon transport

Renewable energy: bringing the elements together

Research, development and demonstration of new low carbon