UKenergy Future

EWP-Cover 2/21/03 4:06 PM Page 1
ENERGY WHITE PAPER

ENERGY WHITE PAPER
Our energy future -

creating a low
carbon economy
Our energy future - creating a low carbon economy

EWP-Cover 2/21/03 4:06 PM Page 2
The DTI drives our ambition of

‘prosperity for all’ by working to
create the best environment for
business success in the UK.
We help people and companies
become more productive by
promoting enterprise, innovation
and creativity. We champion UK
business at home and abroad.
We invest heavily in world-class
science and technology. We protect
the rights of working people and
consumers. And we stand up for fair
and open markets in the UK, Europe
and the world.
EnergyWhitePaper 2/21/03 4:00 PM Page i
Our energy future -

creating a low
carbon economy
Presented to Parliament by the

Secretary of State for Trade and Industry by
Command of Her Majesty
February 2003
Cm 5761 £18.60
EnergyWhitePaper 2/21/03 4:00 PM Page ii
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EnergyWhitePaper 2/21/03 4:00 PM Page 1
Contents
Foreword .................................................................................................................................................3
Section One
Overview .................................................................................................................................................5
Chapter 1 Cleaner, smarter energy ....................................................................................................6
Section Two
The low carbon economy .......................................................................................................21
Chapter 2 The Environment ...............................................................................................................22
Chapter 3 Energy Efficiency ...............................................................................................................32
Chapter 4 Low carbon generation ....................................................................................................44
Chapter 5 Clean Low Carbon Transport .........................................................................................63
Section Three
Reliable, competitive and affordable supplies .......................................................75
Chapter 6 Energy reliability .................................................................................................................76
Chapter 7 Productivity, competitiveness and innovation..........................................................95
Chapter 8 Energy and the vulnerable ............................................................................................107
Section Four
Delivery through partnership ..............................................................................................111
Chapter 9..................................................................................................................................................112
Annexes......................................................................................................................................121
Annex A Glossary.................................................................................................................................122
Annex B References ...........................................................................................................................134
ENERGY WHITE PAPER Our energy future - creating a low carbon economy 1
2 ENERGY WHITE PAPER Our energy future - creating a low carbon economy
Foreword
Energy is vital to a modern economy. We need energy to heat and light

our homes, to help us travel and to power our businesses. Our economy
has also benefited hugely from our country’s resources of fossil fuels -
coal, oil and gas.
However, our energy system faces new challenges. Energy can no

longer be thought of as a short-term domestic issue. Climate change -
largely caused by burning fossil fuels - threatens major consequences
in the UK and worldwide, most seriously for the poorest countries who
are least able to cope. Our energy supplies will increasingly depend
on imported gas and oil from Europe and beyond. At the same time,
we need competitive markets to keep down costs and keep energy
affordable for our businesses, industries, and households.
This white paper addresses those challenges. It gives a new direction

for energy policy. We need urgent global action to tackle climate change.
We are showing leadership by putting the UK on a path to a 60%
reduction in its carbon dioxide emissions by 2050. And, because this
country cannot solve this problem alone, we will work internationally to
secure the major cuts in emissions that will be needed worldwide.
Our analysis suggests that, by working with others, the costs of action
will be acceptable - and the costs of inaction are potentially much
greater. And as we move to a new, low carbon economy, there are major
opportunities for our businesses to become world leaders in the
technologies we will need for the future - such as fuel cells, offshore
wind and tidal power. Science and technology are vital, and we will be
supporting further research and development in these areas.
In parallel, we need access to a wide range of energy sources and

technologies and a robust infrastructure to bring the energy to where we
want to use it. We will maintain competitive markets in the UK and press
for further liberalisation in Europe. And we renew our commitment that
no household in Britain should be living in fuel poverty by 2016-18.
This white paper is a milestone in energy policy. It is based on the four pillars
of the environment, energy reliability, affordable energy for the poorest,
and competitive markets for our businesses, industries and households.
This white paper sets out a strategy for the long term, to give industry
the confidence to invest to help us deliver our goals - a truly sustainable
energy policy.
Section
One
Overview
Chapter 1 Cleaner, smarter energy
1.1 Our country needs a new energy policy. 1.4 Until the 1990s the energy system in the UK
Despite the improvements we have made over - as in most other countries - was largely
the last five years, today’s policy will not meet owned and controlled by Government. Today
tomorrow’s challenges. We need to address the UK has one of the most open energy
the threat of climate change. We must deal markets in the world. Open and competitive
with the implications of reduced UK oil, gas markets will remain vital to delivering the
and coal production, which will make us a net energy we need. But it is Government’s
energy importer instead of an energy responsibility to set the overall goals for UK
exporter. And over the next twenty years or energy policy and to ensure that our energy
so we will need to replace or update much of markets and other policies deliver those
our energy infrastructure. goals. Energy producers, investors, business
and consumers need a clear, settled, long-
1.2 With these challenges, however, come new term framework within which they can plan
opportunities. The opportunity to shift the UK and make decisions with confidence.
decisively towards becoming a low carbon
economy where higher resource productivity 1.5 The new energy policy that we set out in
- producing more with fewer natural this white paper is designed to provide this.
resources and less pollution - will contribute It reflects, and will reinforce, our wider
to higher living standards and a better quality commitment to sustainable development1
of life. The opportunity to develop, apply and which challenges us to find ways to achieve
export leading-edge technologies, creating economic, social and environmental
new businesses and jobs. And the objectives at the same time.
opportunity to lead the way, in Europe and
internationally, in developing environmentally
The challenges we face...
sustainable, reliable and competitive energy
markets that will support economic growth in
1.6 The first challenge we face is environmental.
every part of the world.
Climate change is real. Levels of carbon
dioxide (CO2) in the atmosphere, one of the
1.3 From heating and lighting to transport,
main causes of climate change, have risen
industry and communications, energy is
by more than a third since the industrial
fundamental to almost everything we do.
revolution and are now rising faster than ever
We expect it to be available whenever we
before. This has led to rising temperatures:
want it, to be affordable, safe and
over the 20th century, the earth warmed
environmentally sustainable. It is only when
up by about 0.6˚C largely due to increased
something goes wrong - for instance, when
greenhouse gas emissions from human
families are left without heating and light
activities. The 1990s were the warmest
after severe storms or when the lights go out
decade since records began.
in California - that we realise how much
modern industrialised countries depend upon
extremely complicated energy systems.
1 Our sustainable development policy is set out in A better quality of life:

a strategy for sustainable development for the UK, May 1999.
Section One
Overview
Chapter 1: Cleaner, smarter energy
Chart 1.1 1.7 The rise in temperatures has been

Variations of the Earth’s Surface accompanied by changes in the world
Temperature: Years 1000 to 2100
around us:
ice caps are retreating from many

mountain peaks like Kilimanjaro;
global mean sea level rose by an average

of 1-2mm a year during the 20th century;
summer and autumn arctic sea ice has

thinned by 40% in recent decades;
global snow cover has decreased by 10%

since the 1960s;
El Nino events3 have become more frequent

and intense during the last 20-30 years;
Variations in the earth’s surface temperature usage of the Thames Barrier has increased
from year 1000 to 2000. Line shows 50-year from once every two years in the 1980s
2
average. “SRES envelope” refers to the to an average six times a year over the past
range of emission scenarios used as a basis 5 years; and
for the climate change projections in the weather-related economic losses to
IPCC Working Group I contribution to the
communities and businesses have
Third Assessment Report.
increased ten-fold over the last 40 years.
Chart 1.2 1.8 In this century, without action to reduce

Carbon Dioxide Levels over emissions, the earth’s temperature is likely to
the last 60,000 Years
rise at a faster rate than any time in the last
10,000 years or more. In the UK, the risks of
droughts and flooding are likely to increase.
Sea levels will rise, so that extreme high
water levels could be 10 to 20 times more
frequent at some parts of the east coast by
the end of the century. Worldwide, the
consequences could be devastating,
especially in the developing world where
many millions more people are likely to be
exposed to the risk of disease, hunger and
Source: University of Berne and National Oceanic flooding. In addition, there is a risk of large
and Atmosphere Administration.
scale changes such as the shut-down of the
3 El Nino events change the weather patterns experienced in the regions

2 Source: IPCC 2001. Climate change 2001: Synthesis Report. A contribution around the tropical Pacific. This can affect rainfall patterns, and people
of Working Groups I, II and III to the Third Assessment Report of the living in the region can find themselves having to deal with unusually wet
Intergovernmental Panel on Climate Change (IPCC). or dry conditions.
Gulf Stream or melting of the West Antarctic 1.10 Our ambition is for the world’s developed
ice sheet, which although they may have a economies to cut emissions of greenhouse
very low probability of occurring, would have gases by 60% by around 2050. We therefore
dramatic consequences. accept the Royal Commission on
Environmental Pollution’s (RCEP’s)
1.9 We cannot escape some climate change. recommendation that the UK should put
But the worst effects can be avoided if itself on a path towards a reduction in
greenhouse gases in the atmosphere are carbon dioxide emissions of some 60%
5
stabilised instead of being allowed to go on from current levels by about 2050 .
increasing. The UNFCCC3 and its Kyoto Until now the UK’s energy policy has not paid
Protocol demonstrate that it is possible to enough attention to environmental problems.
reach global agreement on action, but far Our new energy policy will ensure that
energy, the environment and economic
more needs to be done. The UK will continue
growth are properly and sustainably
to show leadership but it cannot solve this
integrated. In this white paper, we set out
problem alone. UK emissions of carbon
the first steps to achieving this goal.
dioxide currently account for only about 2%
of the global total. Our own actions will have
1.11 We can get to a 60% cut in emissions by 2050
no impact on climate change unless they
in a number of ways. But leaving action until
are part of a concerted international effort.
the last minute is not a serious option. If we
A wider effort is also necessary, for example
do not begin now, more dramatic, more
in bringing forward technological changes,
disruptive and more expensive change will be
to keep down costs to the UK and to avoid
needed later on. We need early, well-planned
compromising our competitiveness. action to provide a framework within which
We will therefore continue to work with businesses and the economy generally,
other countries to establish both a including the jobs and skills base, can adjust
consensus around the need for change and to the need for change. This will for example
firm commitments to take action to reduce allow business to plan to act in the course of
carbon emissions world wide within the normal capital replacement cycles. It will also
framework of the UNFCCC. A key objective encourage new technologies to come forward
of the UK’s foreign policy in future will be to help to meet the challenges we face.
to secure international commitment to this
ambition. We also need to continue to 1.12 We have analysed carefully the likely impacts
develop our understanding of climate on the UK economy of cutting emissions by
change, so that we can forecast with 60% by 2050. A good deal of caution is
greater precision the effects which must needed in looking at economic changes over
be mitigated. We are investing in climate such a long period and given the sensitivity
change research and recognise that this
is a crucial underpinning of the knowledge 5 RCEP’s recommendation of putting the UK on a path to ‘reducing carbon
dioxide emissions by some 60% from current levels by about 2050’ was
base which informs our energy policies. based on a more detailed calculation of 58% reductions from 1997 levels.
This would lead to 2050 emissions of 64 million tonnes of carbon (MtC).
The Kyoto Protocol, and the UK’s current domestic targets, use 1990 as a
baseline. A precise reduction of 60% in emissions from 1990 would result
in emissions of 65.8 MtC in 2050. As the RCEP recommendation implies,
absolute precision five decades before 2050 is not possible. This white
paper uses ‘around 65 million tonnes’ to describe the level of carbon
4 United Nations Framework Convention on Climate Change. emissions which a 60% cut would deliver by 2050.
Section One
Overview
of the analysis to the assumptions made. Chart 1.3

But an extensive review by the Primary Energy Demand in 2002, UK
Intergovernmental Panel on Climate Change
Other
suggests that action aimed at stabilising Nuclear 2% Coal
carbon dioxide atmospheric concentrations 9% 15%
at no more than 550ppm would lead to an

average GDP loss for developed countries
6
of around 1% in 2050 . This figure should,
however, be more than offset by the reduction
in the risks, eg of flooding, associated with
climate change. The outcome of our UK
analysis is consistent with that review,
Gas Oil
assuming that the world’s leading industrial 39% 35%
nations act together. It suggests that the cost
impact of effectively tackling climate change Source: DTI provisional 2002 data based on
Digest of UK Energy Statistics, table 1.1
would be very small - equivalent in 2050 to
just a small fraction (0.5-2%) of the nation’s
wealth, as measured by GDP, which by then
necessarily make it harder to achieve energy
will have tripled as compared to now. 7
reliability . Of the world’s leading industrial
nations only two - Canada and the UK - are
1.13 The second challenge is the decline of the
net energy exporters. The others have all
UK’s indigenous energy supplies - oil, gas,
achieved economic growth as energy
nuclear and coal. Our current demand for
importers. We will be able to do the same -
primary energy (ie before transformation, eg
just as we did before North Sea oil and gas.
into electricity) is shown below. Already we
The best way of maintaining energy reliability
import nearly half the coal we use. Much of
will be through energy diversity. We need
the UK’s economically viable deep mined coal
is likely to be exhausted within ten years. many sources of energy, many suppliers and
By around 2006 we will also be a net many supply routes. Renewables and
importer of gas and by around 2010 of oil. smaller-scale, distributed energy sources - eg
By 2020 we could be dependent on imported micro-CHP8 and fuel cells - will help us avoid
energy for three quarters of our total primary over-dependence on imports and can make
energy needs. us less vulnerable to security threats.
1.14 As we shift from being a net energy exporter 1.15 Norway will be a major source of our gas
to being once again a net energy importer we imports over the next decade. But we will
may become potentially more vulnerable to also need to look for supplies from elsewhere
price fluctuations and interruptions to supply eg from Russia, the Middle East, North Africa
caused by regulatory failures, political and Latin America. This trade in energy will
instability or conflict in other parts of the involve relationships of mutual dependence -
world. But being an energy importer does not
7 The phrase energy reliability is used in this white paper to encompass all
aspects of energy security of supply.
6 Report of Working Group III of Intergovernmental Panel on Climate Change,
Mitigation, 2001. 8 Combined Heat and Power plant.
their energy being as important to us as their Chart 1.4

income from us is to them. Our growing Electricity Generation in 2002, UK
interdependence also means that securing
reliable energy supplies will need to be an Renewables
3%
increasingly important part of our European Nuclear
and foreign policy. We will work 23%
Coal
32%
internationally to promote regional stability,
economic reform, open and competitive
markets and appropriate environmental
policies in the regions that supply most of the
world’s oil and gas - Russia, the Middle East,
Oil and
North Africa and Latin America. We have Other
Gas
already secured a commitment to energy 38%
4%
liberalisation in the European Union for

industrial customers by 2004 and overall by Source: DTI estimates for 2002 on gross supplied basis,
based on Digest of UK Energy Statistics, table 5.6.
2007. This is vital not only to improve our
own access to diverse sources of supply but
also to allow UK companies to compete in 1.17 Over the coming years, substantial
wider markets. investment will also be required in other
parts of our energy infrastructure. The
1.16 Our third challenge is the need to update electricity distribution networks - designed for
much of the UK’s energy infrastructure over one-way transmission from large, centralised
the next two decades. During the 1990s power stations to consumers - will need to
there was significant new investment in adapt to more renewables often in peripheral
generating capacity, especially for gas-fired parts of the country or offshore and to small-
plant. This was a response to the high scale, decentralised power generation in
electricity prices and market structure of the homes and businesses, sometimes drawing
time. Some generating capacity has since from the grid, sometimes contributing to it.
been mothballed and interest in building new
As we adapt to becoming a net gas importer
plant, other than renewables, has declined.
we will need additional connections to
But looking ahead, there are further changes
supplies of both piped and liquefied natural
in prospect. European measures to limit
gas (LNG) from a range of sources. In the
carbon emissions and to improve air quality
longer-term, as we potentially move to
are likely to force the modernisation or
different fuels for vehicles (eg compressed
closure of most older coal-fired plant. In the
natural gas or hydrogen), major investments
absence of new build or life extensions,
will be needed in the fuel delivery
nuclear power’s share of electricity production
infrastructure.
will shrink from its current level: there would
be only one plant still operating by 2025.
And renewables will become a more
significant source of electricity as we seek to
tackle climate change. Our current generation
mix is shown in chart 1.4 below.
Section One
Overview
The goals of our determining the relative ‘weights’ of differing

new energy policy... objectives. But our approach is guided by the
following considerations:
1.18 As we address these three challenges, we significant damaging climate change is an
will have four goals for our energy policy:
environmental limit that should not be
to put ourselves on a path to cut the UK’s breached. We need to keep the UK on a
carbon dioxide emissions - the main path to 60% cuts in carbon dioxide
contributor to global warming - by some emissions by 2050;
60% by about 2050, as recommended reliable energy supplies are fundamental to
by the RCEP, with real progress by 2020;
the economy as a whole and to sustainable
to maintain the reliability of energy development. An adequate level of energy
supplies; security must be satisfied at all times in
both the short and longer term;
to promote competitive markets in the
UK and beyond, helping to raise the rate liberalised and competitive markets will
of sustainable economic growth and to continue to be a cornerstone of energy
improve our productivity; and policy. Where the market alone cannot
create the right signals (for example on
to ensure that every home is adequately
the environment) we will take steps that
and affordably heated.
encourage business to innovate and
develop new opportunities to deliver the
1.19 We believe these four goals can be achieved
outcomes we are seeking; and
together. As far as possible we will ensure
that the market framework and policy our policies should take account of impacts
instruments reinforce each other to achieve on all sectors of society. Specific measures
our goals. Energy efficiency is likely to be will be needed for particular groups of people
the cheapest and safest way of addressing (for example to support those for whom
all four objectives. Renewable energy will energy bills form a disproportionate burden).
also play an important part in reducing carbon
emissions, while also strengthening energy
The fuel mix...
security and improving our industrial
competitiveness as we develop cleaner
1.21 We do not propose to set targets for the
technologies, products and processes.
share of total energy or electricity supply to
be met from different fuels. We do not
1.20 There will inevitably from time to time be
believe Government is equipped to decide
tensions between different objectives.
the composition of the fuel mix. We prefer
For example, extremely high energy prices
to create a market framework, reinforced by
would undoubtedly promote energy efficiency
long-term policy measures, which will give
and thereby help to reduce carbon emissions.
investors, business and consumers the right
But they would also have a negative effect
incentives to find the balance that will most
on people on low incomes and on business.
effectively meet our overall goals.
There is no simple mechanism for
1.22 We recognise, however, that this approach is of nuclear waste to be resolved. These issues
not enough on its own. In particular, specific include our legacy waste and continued waste
measures are needed to stimulate the arising from other sources. This white paper
growth in renewable energy that will allow it does not contain specific proposals for building
to achieve the economies of scale and new nuclear power stations. However we do
maturity that will significantly reduce its not rule out the possibility that at some point
costs. In January 2000 we announced our in the future new nuclear build might be
aim for renewables to supply 10% of UK necessary if we are to meet our carbon
electricity in 2010, subject to the costs being targets. Before any decision to proceed with
acceptable to the consumer. We introduced the building of new nuclear power stations,
the Renewables Obligation (which requires there will need to be the fullest public
suppliers in England and Wales to obtain an consultation and the publication of a further
increasing proportion of electricity from white paper setting out our proposals.
renewables year on year) in April last year.
We also exempted renewable generation 1.25 Coal fired generation will also have an
from the Climate Change Levy. By 2010 important part to play in widening the
these measures will provide the renewables diversity of the energy mix provided ways
industry with support worth around £1 billion can be found materially to reduce its carbon
a year. This is designed to deliver the emissions. We will continue to support
required expansion in renewables by then. relevant research projects, including
In this white paper we set the ambition of internationally, to develop options for cleaner
doubling renewables’ share of electricity coal technologies and for carbon capture and
generation in the decade after that. In order storage. Domestic coal production is likely to
to achieve this and to ensure that renewables continue to decline as existing pits reach the
make a growing contribution to the fuel mix ends of their geological and economic lives.
in the longer term it will be essential to
maintain a healthy research base. 1.26 However, where there is the potential for coal
companies to make worthwhile investments,
1.23 In reducing carbon dioxide emissions, our they have to date been prevented by EU
priority is to strengthen the contribution of rules from seeking government help in doing
energy efficiency and renewable energy so. In 2002 we negotiated the flexibility we
sources. This white paper sets out the require at an EU level to correct this anomaly.
policies we believe are necessary to achieve We now propose to introduce an investment
that. They mean energy efficiency and aid scheme to help existing pits develop new
renewables will have to achieve far more in reserves, where they are economically viable
the next 20 years than they have until now. and help safeguard jobs.
We believe that such ambitious progress is
achievable. But it is uncertain. How we will
achieve our goals...
1.24 Nuclear power is currently an important
source of carbon-free electricity. However, its 1.27 To achieve our goal of reducing carbon
current economics make it an unattractive emissions we need to continue to decouple
option for new, carbon-free generating economic growth from energy use and
capacity and there are also important issues pollution. Since 1970, overall energy
Section One
Overview
consumption in the UK has increased by Chart 1.5

around 15%, while the size of the economy Final Energy Consumption in 2002, UK
has doubled. In future we need to continue
BY SECTOR
and accelerate this trend.
Other Industry
13% 21%
1.28 Discussions under the UNFCCC to tackle
climate change beyond 2008-12 will start soon.
On the basis of existing policies, including
the full effect of our current Climate Change
Programme, we would expect UK carbon
dioxide emissions of some 135 million tonnes
of carbon (MtC) in 2020. To be consistent with
demonstrating leadership in the international Domestic Transport
process, we expect to aim for cuts in carbon 30% 36%
of 15-25 MtC below that by 2020.

BY END USE
1.29 We believe it is possible to achieve this goal
Hot water
by reducing the amount of energy we 8% Lighting and
Transport
consume, together with a substantial 35% appliances
6%
increase in renewable energy. Our current
energy use is illustrated in chart 1.5 below. Process use
By making our intentions clear we aim to 10%
provide the signals needed for firms to invest

- and to help British manufacturers to be
ahead of the game in developing the green Space
technologies that we expect to play a large heating
26%
part in the world’s future prosperity. In this Other
white paper, we set out measures to 15%
implement the objectives for 2010 set out in

Source: DTI, provisional, data for 2000. End use data for 2000.
the existing Climate Change Programme, and
to provide a foundation for the further carbon
cuts we will need by 2020.
at the lowest cost. We will be encouraging
1.30 Central to the future market and policy expanded opportunities for emissions trading
framework will be a carbon emissions trading at all levels. In particular, we will work with
scheme. We have already launched our own our European partners to extend where
voluntary trading scheme in the UK. But from appropriate the coverage of the EU scheme
2005 electricity generators, oil refineries and in due course. We will consider the issues
other industry sectors are expected to be involved in the linkages between tax and
part of a much larger Europe-wide scheme. tradeable permit schemes further as the
By setting caps on emissions the scheme position on the EU emissions trading scheme
will provide clear incentives for investment becomes clearer.
in energy efficiency and cleaner technologies
1.31 On its own emissions trading will not be enough 1.33 In liberalised markets, forward prices will send
to deliver our environmental goals. We will signals about the need for future investment.
need additional measures, for example to Suppliers will act on these signals, and on
stimulate further energy efficiency in business, their own assessments of risk and opportunity,
in the public sector and in households. Policies to innovate and plan to meet those needs.
to raise the energy efficiency of products and For example, in response to current market
buildings will have an important role. We will signals some companies are already planning
develop the present energy efficiency to increase the amount of gas we can import
commitment, which requires electricity and through our existing pipeline to Belgium;
gas suppliers to encourage their domestic others are exploring options for gas storage
customers to invest in energy efficiency and new LNG importing facilities.
measures such as cavity wall insulation. We will
aim to bring forward to 2005 the next revision 1.34 These developments help to provide
of the Building Regulations to raise standards reassurance that the market will invest in the
for energy efficiency in new buildings and capacity we need to provide reliable energy
refurbishments. We will push in Europe for supplies - in particular to meet peak demand
higher energy efficiency standards in tradeable in exceptionally cold weather. Our market is
goods such as fridges and personal computers. not like the market in California in 2000, where
We will encourage improvements in efficiency overregulation undermined the ability of
and lower carbon fuels in transport. We will suppliers to respond effectively to market
provide further encouragement for renewable signals. However, a totally unregulated energy
energy and infrastructure investment through market would be unlikely to deliver sufficient
measures such as capital grants and a more
security. So the Secretary of State and the
supportive approach to planning. To this end, we
regulator - OFGEM9 - both have duties to
are increasing the funding for renewables capital
ensure that reasonable demands for electricity
grants by £60 million, additional to the £38
and gas are met. These duties are in turn
million of extra funding announced in the 2002
carried forward into a number of conditions
Spending Review. And we will set an example
in the licences held by generators, suppliers,
throughout the public sector by improving
electricity transmission and distribution
energy efficiency in buildings and procurement.
operators and gas transporters. We look to
OFGEM to enforce these conditions in a
1.32 Our second goal is to maintain the reliability
manner consistent with their duties. With
of our energy supplies. This requires action on
OFGEM we will continue and expand our
many fronts. We need the right infrastructure
monitoring of energy security. We will also
and regulatory system at home and liberalised
continue to improve our contingency planning
energy markets within the European Union.
and resilience in dealing with major incidents,
We will also pursue closer international
including terrorism, which could affect critical
relationships to promote regional stability and
energy infrastructure.
economic reform in key producing areas, mutual
understanding of the functioning of markets,
and conditions for foreign direct investment
to facilitate further infrastructure investment
in the world’s diverse gas and oil regions.
9 The Office of Gas and Electricity Markets.
Section One
Overview
1.35 Thirdly, we are determined to promote end fuel poverty in vulnerable households in
competitive energy markets, in the UK and England by 2010. We further aim that as far
beyond. This will help to raise the sustainable as reasonably practical nobody in Britain
rate of economic growth and support our should be living in fuel poverty by 2016-18.
industrial and business competitiveness Grant schemes and the energy efficiency
through reliable and affordable energy. commitment are already improving homes
Energy makes a significant contribution to the through better insulation, more efficient
economy, and represents a key input into all heating systems and minimising draughts.
other sectors. A competitive energy sector is Later this year we will review the results of
therefore important to the whole economy’s these policies and decide what more needs to
competitiveness and productivity. We need be done to achieve our fuel poverty objectives.
greater resource productivity in business so
that our firms use energy more efficiently,
Innovation is fundamental...
reduce carbon dioxide emissions and cut
costs at the same time. To do that we will
1.38 Technological innovation will have a key part
encourage firms to innovate and minimise
to play in underpinning all our goals and in
costs and to deliver better quality goods and
delivering a low carbon economy cost-
services. We will continue our commitment
effectively. We will support research,
to competitive energy markets and use
development and innovation both to
market-based instruments to deliver our
encourage the development of new, longer-
wider energy policy goals. And we will work
term options (for example in respect of the
with business to help them prepare for the
hydrogen economy) and where necessary to
low carbon economy of the future and to
enable emerging technologies (such as
seize the opportunities that it provides.
renewables and new energy efficiency
Through our new sector skills network we
technologies) to demonstrate their potential.
will work with the energy industry to develop
A new national energy research centre will
the skills that industry needs.
be established by the Research Councils,
targeted at research and development in the
1.36 Our final goal is to ensure that every home
appropriate physical, environmental and
is adequately and affordably heated.
biological sciences and including social and
In 1996, 51⁄2 million households had to spend
economic studies. Through the EU we are
more than 10% of their income on heating
strongly backing the international
their homes adequately (the normal definition
development of fusion power for electricity
of fuel poverty). Already, falling prices and
generation. We will promote the
higher social security benefits have helped
development of homes and communities that
reduce this number to around 3 million.
combine energy efficient technologies and
renewable energy to reduce radically their
1.37 And alongside our policies to cut poverty we
demand for energy from the grid. More
also need to tackle the problem of old, poorly
widely, we will encourage UK business to
insulated, draughty homes, where much
make the most of the opportunities
spending on energy is simply wasted. In 2001
presented both here and overseas by moves
our fuel poverty strategy set out policies to
towards a low carbon economy.
1.39 In all of this we will work both through our own because a well-designed, transparent and
national programmes and through a range of open energy market is the best way of
international collaborations and multilateral achieving efficient outcomes, we will
programmes which will enable us to wherever possible use market instruments
maximise the return on our participation. We to achieve our goals. In particular,
will work actively with partners in the G8 and emissions trading will be at the centre of
the EU to develop climate change our energy markets from 2005 onwards;
technologies which will be of benefit not only
we will need to continue to use trading as
in helping us meet our own carbon reduction
well as other measures to reduce carbon,
ambitions but also in helping others,
in particular for the millions of domestic
especially in the developing world, to meet
and smaller business consumers not
theirs. Capacity building programmes in
covered by trading, along with measures to
appropriate areas of science, engineering and
drive up energy efficiency in homes,
technology will be increasingly important in
products and transport;
this process.
the nationwide and local electricity grids,
metering systems and regulatory
Looking to the future... arrangements that were created for a
world of large-scale, centralised power
1.40 It will be clear from this white paper that we
stations will need restructuring over the
believe we need to prepare for an energy next 20 years to support the emergence of
system that is likely to be quite different from far more renewables and small-scale,
today. It will be for the market to develop and distributed electricity generation;
invest in this. But we need to set clear goals
the future energy system will require
and a strategy within which the market has
the confidence, ability and sense of long-term greater involvement from English regions
commitment to do so. This white paper sets and from local communities, complemented
the way forward. In particular it is based on by a planning system that is more helpful
the following key principles: to investment in infrastructure and new
electricity generation, particularly
energy investments are generally long- renewables. Strong links with the
term. Energy companies, industry and Devolved Administrations, who are already
business and domestic consumers need us fully engaged on a wide range of energy
to set clear goals and a strategy that issues, will continue to be essential;
supports them in making the long-term
diversity is the best way of protecting
investments they need to make in energy
efficiency and supply; ourselves against interruptions of supply,
sudden price rises, terrorism or other threats
the cheapest, cleanest and safest way of to reliability of supply. As the UK becomes
addressing all our goals is to use less a net importer of energy we will need
energy. We have to improve energy many sources, many suppliers and many
efficiency far more in the next 20 years than routes. International relations in Europe and
in the last 20; worldwide will be increasingly important to
achieving our overall energy aims;
Section One
Overview
we will seek out the best ways to the Devolved Administrations to address the
influence outcomes in line with the energy challenges that we face.
principles of better regulation, maximising
use of market based and/or voluntary 1.44 Many of the challenges are international in
mechanisms, promoting regulations only scope and will need to be addressed through
where they are clearly necessary and well international collaboration. Addressing climate
designed. Where regulation is required we change and securing access to energy requires
will work to make sure it takes account of concerted international effort. The innovation
the impact on key stakeholders to necessary to address the long-term challenge
minimise the burdens particularly on of shifting to a low carbon economy also
smaller and medium sized enterprises; and requires greater international collaboration.
We will ensure that our domestic energy
when designing new energy policies, we
strategy is fully consistent with our
will consider their impact on all of our
international energy strategy and other
energy policy objectives, in line with our
international Government objectives.
overall approach to sustainable development.
1.41 We have applied these principles throughout What sort of energy

this white paper. system might we envisage
in 2020 and beyond?
Working with others...
1.45 A broad vision of the energy system of
2020 is described below. This is a scenario.
1.42 We will need to work with others to deliver
It draws on several sources, including
the ambitious goals we have set in this white
modelling work for the white paper, the DTI’s
paper. We will depend on businesses,
Foresight programme and other scenarios.
supported by the research community, to
It does not in any way close off options
adapt and innovate to deliver a low carbon
for the future. Innovation will give us options
future. We will rely on local authorities and
that we cannot even imagine now. The
regional bodies, working with the private
scenario will need to be updated in the light
sector and voluntary groups, to help to deliver
of experience.
real change on the ground, reflecting the
needs of their different communities.
1.43 Many policies in this white paper cover the

UK as a whole. But significant aspects of
energy policy in Northern Ireland, Scotland
and Wales are the responsibility of the
Devolved Administrations, so that decisions
are made in the light of each country’s
particular circumstances. Where matters are
devolved, the distinctions in responsibilities
are made clear. We will be keen to work with
The energy system in 2020...
We envisage the energy system in 2020 being There will be much more micro-generation, for
much more diverse than today. At its heart will example from CHP plant, fuel cells in buildings,
be a much greater mix of energy, especially or photovoltaics. This will also generate
electricity sources and technologies, affecting excess capacity from time to time, which will
both the means of supply and the control and be sold back into the local distributed network.
management of demand. For example: Energy efficiency improvements will reduce
Much of our energy will be imported, either demand overall, despite new demand for
from or through a single European market electricity, for example as homes move to
embracing more than 25 countries. digital television and as computers further
The backbone of the electricity system will still penetrate the domestic market. Air conditioning
be a market-based grid, balancing the supply of may become more widespread.
large power stations. But some of those large New homes will be designed to need very little
power stations will be offshore marine plants, energy and will perhaps even achieve zero
including wave, tidal and windfarms. carbon emissions. The existing building stock
Generally smaller onshore windfarms will also will increasingly adopt energy efficiency
be generating. The market will need to be able measures. Many buildings will have the
to handle intermittent generation by using capacity at least to reduce their demand on
backup capacity when weather conditions the grid, for example by using solar heating
reduce or cut off these sources. systems to provide some of their water heating
There will be much more local generation, in needs, if not to generate electricity to sell back
part from medium to small local/community into the local network.
power plant, fuelled by locally grown biomass, Gas will form a large part of the energy mix as
from locally generated waste, from local wind the savings from more efficient boiler
sources, or possibly from local wave and tidal technologies are offset by demand for gas for
generators. These will feed local distributed CHP (which in turn displaces electricity demand).
networks, which can sell excess capacity into Coal fired generation will either play a smaller
the grid. Plant will also increasingly generate part than today in the energy mix or be linked
heat for local use. to CO2 capture and storage (if that proves
technically, environmentally and economically
feasible).
A strategy for the long term... overall context. We review what we will need
to have achieved by 2020 if we are to be
1.46 In this white paper we set out a long-term confident we are moving in the right direction,
framework to deliver our environmental, fast enough, to deliver our aims for 2050.
security of supply, competitiveness and social
goals. Because energy requires very long-term
investment we look ahead to 2050 to set the
Section One
Overview
seek to define every detail of the policies we

need to pursue over the next twenty years
The existing fleet of nuclear power stations
and beyond. That would simply not be
will almost all have reached the end of their realistic. We need to be prepared, within a firm
working lives. If new nuclear power plant and clear strategic context, to review the
is needed to help meet the UK’s carbon aims, impact of policy changes and to update and
this will be subject to later decision. amend our detailed policy measures in the
Fuel cells will be playing a greater part in the light of experience. We believe, for example,
economy, initially in static form in industry that technological innovation will have an
or as a means of storing energy, for example important contribution to make in helping to
to back up intermittent renewables, but deliver our long term vision.
increasingly in transport. The hydrogen will be This will bring new opportunities and possibly
generated primarily by non-carbon electricity. new challenges that we cannot imagine now.
In transport, hybrid (internal combustion/electric) We have to be prepared to adapt and evolve
vehicles will be commonplace in the car and our policies in the light of those opportunities
light goods sectors, delivering significant and wider changes in society.
efficiency savings. There will be substantial and
increasing use of low carbon biofuels. 1.48 In recognition of this, we set out at the end
Hydrogen will be increasingly fuelling the public of this white paper arrangements for
service vehicle fleet (for example buses) and strengthening our capabilities in the field
utility vehicles. It could also be breaking into
of energy policy. These new arrangements
the car market.
will include annual public reports both on
Nuclear fusion will be at an advanced stage progress towards the aims we set out in
of research and development. this white paper and the steps we are taking
People generally will be much more aware of to ensure we remain on track. This will not
the challenge of climate change and of the be the last major strategic statement on
part they can play in reducing carbon energy policy. But it sets a new direction,
emissions. Carbon content will increasingly and a new determination, to deliver very
become a commercial differentiator as the
significant changes in both the short and
cost of carbon is reflected in prices and people
longer terms. It is a massive challenge.
choose lower carbon options.
But it is one that has to be met. And one
we believe we can meet.
1.47 This white paper seeks to define a long-term

strategic vision for energy policy. We set out
long-term strategies and, against that
background, shorter-term policies to put us
on the path we need to be on. In particular,
renewables and energy efficiency are and will
remain high priorities. We do not, however,
1.49 This white paper is based on a large amount

Inputs to the white paper... of analysis and modelling. We are publishing
Many of the policies set out in this white paper separately documents which form part of that
take as their starting point the Energy Review work, on estimates of the cost and potential
published by the Cabinet Office’s Performance for various long term low carbon options;
and Innovation Unit (now the Strategy Unit) in on the background outlook for energy demand
February 2002. In publishing the review, the and emissions between 2000 and 2050; an
Prime Minister said that he wanted to launch a initial assessment of the impact of the
thorough debate on the issues it raised. In policies as set out in this white paper; and
February 2002 the Trade and Industry Committee
background calculations to achieving carbon
published a report on Security of Energy Supply
cuts of between 15-25 million tonnes of
and the House of Lords Select Committee on the
European Union published a report on European carbon in 2020.11
energy issues (Energy Supply: how secure are
we?). The Committees’ recommendations have
been taken into account in drawing together our
conclusions in this white paper.
Following the PIU report, we launched a major

stakeholder and public consultation in May 2002.
This:
stimulated a wide range of workshops,
meetings, conferences and seminars, some run
by stakeholders, some run by Government
departments and other public bodies;
prompted over 2500 written submissions to the
team working on the white paper;
launched a wide-reaching and innovative public
consultation process commissioned by the DTI,
involving focus groups, deliberative workshops,
outreach to school students and a web-based
questionnaire; and
provided the basis of a web-based stakeholder
debate.
In total over 6500 individuals and groups have had

input to the consultation. This represents the most
significant consultation on energy policy ever
undertaken in the UK. It has provided an immensely
rich source of views and information to help guide
the development of policy options. We are very
grateful to all those who participated in the
10
consultation. In the future, outreach to stakeholders
and the wider public will continue to be an 10 Most of the material submitted to the white paper team can be found on
the DTI’s website at www.dti.gov.uk/energy/developep, except where
important part of the follow up to the white paper. those submitting information asked for it not to be made publicly available.
The website also includes reports on meetings held during the consultation.
11 This work is available at www.dti.gov.uk/energy/whitepaper/
Section
Two
The Low Carbon Economy
Chapter 2 The Environment
Climate change is happening... low-lying areas, wetlands and small islands

will be especially at risk from sea-level rise.
2.1 There is now strong scientific evidence Globally, an extra 80 million people could
that climate change is happening and that be exposed to flood risk by the 2080s,
it is being accelerated by human activity. 60% of whom are likely to be in the
The world is getting warmer. The earth’s poorest parts of South East Asia. In one
temperature rose by 0.6˚C during the last of the most vulnerable areas, Bangladesh,
century and is forecast to rise by between a 45cm rise in sea level could result in
1.4 and 5.8˚C during this century. Globally the 10% of the total land area being lost and
1990s was the warmest decade and 2002 51⁄2 million people being put at risk;
the second warmest year since records began.
Chart 2.1
2.2 There is increasing evidence that this is the Number of additional people at risk of
result of an increase in atmospheric flooding each year by the 2080s,
assuming no action to cut green house
concentrations of greenhouse gases - notably
gas emissions1
carbon dioxide released by burning fossil
fuels such as coal, oil and gas. By absorbing
heat these gases keep the earth’s
temperature warmer than it otherwise would
be. As greenhouse gas concentrations rise
well above their natural levels, the additional
warming that will occur could threaten
human society.
2.3 Climate change research has looked at how

far changes in temperature over the past
century are due to human activities.
irreversible losses of biodiversity could be
Natural effects, such as variations in the
accelerated. Expected impacts include
sun’s output and volcanoes, are insufficient
bleaching of coral reefs, loss of mangrove
to account for the observed warming, which
swamps and impacts on fish populations.
can only be explained by greenhouse gases
Changes in the polar regions are expected
from human activities.
to be the largest and most rapid, leading to
thawing of permafrost, melting of ice sheets
2.4 The rate at which the climate is changing will
and changes in species distribution; and
affect the world in extreme and unpredictable
ways. Its impacts could include: the UK will also be affected. Rising sea
levels could threaten our coastal communities
many millions more people being exposed
and environment. Storms and extreme
to the risks of hunger, water stress,
events could have the most costly impacts
flooding and diseases like malaria. Poor
- the autumn 2000 floods cost the UK £1bn.
people in developing countries are likely to
be most vulnerable;
1 Source: Defra
Section Two
Chapter 2: The Environment
The costs of climate change
A Government Economic Service working paper2 changes to the Gulf Stream), of social impacts
has suggested £70/tC (within a range of £35 to such as famine or mass migration, or of impacts
£140/tC) as an illustrative estimate for the after 2100. Nor does it include other benefits of
damage cost of carbon emissions. It also reducing emissions, such as improved air quality.
suggested that this figure should be raised in real These could increase the social cost of carbon
terms by £1/tC per year as the costs of climate considerably. Impacts will also vary significantly
change are likely to increase over time. across sectors and regions.
These values are under review in light of These values do not set a limit on the acceptable
developments in the academic literature and in costs of reducing emissions. Wider impacts on
the Government’s economic appraisal guidance. other energy policy objectives are also relevant.
Currently the estimate only represents a subset of Costs which initially look high may also be
damage costs, and the review will also consider reduced by economies of scale and innovation.
issues of coverage. While the suggested range Nevertheless, in looking at measures to reduce
covers impacts such as effects on agriculture, carbon it is important to consider abatement
wildlife and health, sea level rise and some costs. Most of the carbon savings we are looking
extreme weather effects, it does not include the at pre-2020 can, we believe, be delivered at costs
possible impacts of ‘climate catastrophes’ (e.g. lower than, or in line with, the illustrative range
melting of the West Antarctic ice sheet or for damage costs.
Chart 2.2 2.5 We will have to adapt to some degree of

Changes in summer and winter climate change. Greenhouse gases that have
temperatures3
already built up in the atmosphere mean that
some temperature rise is inevitable. In the
UK, we are already taking steps to adapt the
way we manage flood risk, water and other
natural resources, but there is still more to
do, and there will be challenges for the
transport, construction and business sectors
too. For developing countries, climate change
increases the urgency of finding more
sustainable pathways to development.
2 Estimating the Social Cost of Carbon Emissions, Government Economic

Service Working Paper 140, www.hm-treasury.gov.uk
3 Changes in average summer and winter temperatures (with respect to
Hadley Centre model - simulated 1961-1990 baseline climate) for a 30-year
period centred on 2080 for high and low greenhouse gas emissions
scenarios. UK Climate Impacts Programme, 2002.
Action to limit emissions the atmosphere at no more than 550ppm,

is under way... global emissions will need to drop well below
current levels.
2.6 But the worst effects of climate change can
be avoided if concentrations of greenhouse 2.9 Already policy-makers around the world have
gases in the atmosphere are stabilised, rather begun to respond to these challenges.
than increasing as they are now. There is as The UN Framework Convention on Climate
yet no international consensus on the level at Change (UNFCCC) and its Kyoto Protocol are
which concentrations of greenhouse gases the starting point for international efforts to
should be stabilised. But in 1997 the EU cut emissions.
member states agreed that we should be
aiming for a global average temperature
increase of no more than 2˚C above the pre- The UN Framework Convention on
industrial level and therefore a concentration Climate Change and Kyoto Protocol
below 550 parts per million (ppm) of carbon
The UNFCCC aims to prevent dangerous man-
dioxide - about twice the pre-industrial
made climate change and commits developed
concentration - to prevent the most damaging countries to taking the lead in tackling climate
effects of climate change. change. The Kyoto Protocol set legal targets for
them to reduce greenhouse gas emissions by
2.7 Even at this level, there will be negative around 5% of 1990 levels in the period 2008-
impacts4. The majority of the world’s population 2012. The US and Australia have withdrawn from
is likely to experience some consequences. the Protocol, though Australia has said that it still
At the upper end of the possible temperature intends to limit its emissions as if it had decided
rises there would be severe impacts on to ratify. It seems likely that the effect of the
natural systems and on all sectors of society, Protocol in the period 2008-2012 will be a reduction
a significant increase in extreme climatic in projected global emissions of at best 2%. To
help meet targets, countries can use international
events and a high risk of major geographical
emissions trading or receive credits for reductions
changes in ice sheets or in ocean currents.
achieved by supporting projects in other
Higher concentrations would be likely to pose
countries. Discussions on action beyond 2008-12
even greater and more unpredictable risks.
must begin by 2005. In the long term, developing
countries are most at risk from climate change
2.8. Against this background we take the view and need to be helped to become a part of the
that the potential consequences of climate global response to it. Developing countries
change are so severe that, within a policy currently account for around 40% of global CO2
framework that keeps costs to a minimum, emissions from fossil fuels, and their emissions
we should take steps ourselves and work may exceed those of developed countries by
closely with other countries to reduce our 2020, although per capita emissions in most
greenhouse gas emissions. If we are to developing countries are still relatively low.
stabilise carbon dioxide concentrations in
4 Based on conclusions of the Third Assessment Report of the

Intergovernmental Panel on Climate Change, 2001.
Section Two
But more needs to be done... And we set as a key objective of the

UK’s foreign policy securing international
2.10 Climate change is a global problem. It has commitment to this ambition.
to be tackled globally. The UK will continue
to show leadership but it cannot solve this 2.13 We can get to a 60% cut in emissions by
problem alone. The UNFCCC and its Kyoto 2050 in a number of ways. But leaving action
Protocol demonstrate that it is possible until the last minute is not a serious option.
to reach global agreement on action, but far If we do not begin now, more dramatic and
more needs to be done. UK emissions of more disruptive change will be needed later
carbon dioxide currently account for only on. We need early, well-planned action to
about 2% of the global total. Our own actions provide a framework within which
will have no impact on climate change unless businesses and the economy generally can
they are part of a concerted international adjust to the need for change. This will for
effort. A wider effort is also necessary, for example allow business to plan to act in the
example in bringing forward technological course of normal capital replacement cycles.
changes, to keep down costs to the UK and It will also encourage new technologies to
to avoid compromising our competitiveness. come forward to meet the challenges we face.
We will therefore continue to work with
other countries to establish both a 2.14 The UK already has a Kyoto Protocol
commitment to reduce greenhouse gas
consensus around the need for change and
emissions by 12.5% below 1990 levels by
firm commitments to take action to reduce
2008-12 and a national goal to move towards
carbon emissions world-wide within the
a 20% reduction in carbon dioxide emissions
framework of the UNFCCC.
below 1990 levels by 2010. The measures in
this white paper keep us on track for both
2.11 Some countries, including some of our 6
goals , and represent a significant departure
European partners, are already moving in this
from the level that emissions would
direction. We need, with them, to lead others
otherwise be under ‘business as usual’.
internationally. It is clear that substantial cuts
are needed in the longer term. Delay will only
compound the problem. We therefore believe 5 A reduction in carbon dioxide emissions of 60% by 2050 is consistent with
that the time is now right to reinforce our the level of reduction likely to be needed by developed countries in order
to move towards stabilisation of carbon dioxide concentrations in the
commitment to the achievement of significant atmosphere at no more than 550 ppm, taking account of a realistic
assessment of emissions growth in developing countries. This is set out in
long-term cuts in emissions in the UK. more detail in the Defra paper The scientific case for setting a long term
emission reduction target, available at
www.defra.gov.uk/environment/climatechange. RCEP’s recommendation
of putting the UK on a path to ‘reducing carbon dioxide emissions by some
2.12 Our ambition is for the world’s developed 60% from current levels by about 2050’ was based on a more detailed
calculation of 58% reductions from 1997 levels. This would lead to 2050
economies to cut emissions of greenhouse emissions of 64 MtC. The Kyoto Protocol, and the UK’s current domestic
targets, use 1990 as a baseline. A precise reduction of 60% in emissions
gases by 60% by around 2050. We therefore from 1990 would result in emissions of 65.8 MtC in 2050. As the RCEP
recommendation implies, absolute precision five decades before 2050 is
accept the RCEP’s recommendation that the not possible. This white paper uses ‘around 65 million tonnes’ to describe
the level of carbon emissions which a 60% cut would deliver by 2050.
UK should put itself on a path to a 6 The UK’s carbon dioxide emissions increased for the second year running in
2001 and were some 5.2% below the 1990 level, having been 8.1% below
reduction in carbon dioxide emissions of in 1999 and 7.3% below in 2000. This upward trend is expected to have
been reversed in 2002 when emissions are likely to have decreased
some 60% from current levels by about slightly. The measures in this white paper should allow the domestic goal to
20505. In this white paper, we therefore set be achieved. We are also committed to reviewing the Climate Change
Programme in 2004. This will provide an opportunity to review progress and
to strengthen measures if it is thought necessary to keep us on track
out the first steps to achieving this goal. towards the domestic goal.
2.15 Discussions under the UNFCCC to tackle 2.17 In order to achieve our aims we must
climate change beyond 2008-12 will start accelerate this trend. If the UK economy
soon. On the basis of our current policies, were to grow at an average of 2.25% a year
including the full impact of the Climate between now and 2050 it would be three
Change Programme, our carbon dioxide times as large then as it is now. Reducing
emissions might amount to some 135 MtC in carbon emissions to around 65MtC (see
20207. To be consistent with demonstrating footnote 5) in the same period would require
leadership in the international process, we an improvement in the ratio between
will aim for cuts in carbon of 15-25 MtC emissions and economic output of around
below that by 2020. This would also put us seven-fold. We will achieve this by raising the
on course to reduce our carbon dioxide resource productivity of our economy -
emissions by some 60% by about 2050. producing more with less pollution.
2.16 If we are to cut emissions this much we will 2.18 The table below illustrates how cuts of 15-25
need to achieve a fundamental long-term MtC could be achieved by 2020. The exact
shift in the way energy is supplied and used. target figure will be determined in the light of
Already we have decoupled economic growth international negotiations, and the actual
from energy use and carbon emissions. mix of measures needed to reach it will be
Overall energy consumption in the UK has shaped by economic and technological
risen by around 15% since 1970, while the developments. We will put in hand
economy has doubled. measures now to ensure we are well placed
to deliver on our commitments.
Chart 2.1
GDP, primary energy consumption Table 2.1
and emissions How cuts of 15-25MtC could
220
be achieved by 2020
200
Estimated MtC
8
180 reductions
Index (1970=100)
160
Energy efficiency in households 4-6
140
Energy efficiency in industry, commerce 4-6
120 and the public sector
100
Transport: continuing voluntary agreements 2-4
80 on vehicles; use of biofuels for road transport
60 Increasing renewables 3-5

1970 1975 1980 1985 1990 1995 2000
EU carbon trading scheme 2-4
GDP
Primary energy consumption (Mtoe)
Mt Carbon
8 The figures represent reductions below the baseline of 135 MtC

7 See material referred to in paragraph 1.49. discussed in paragraph 2.15.
Section Two
2.19 The Kyoto Protocol’s project mechanisms 2.21 Modelling work shows that higher transition
provide for credits from international costs would occur if there were very tight
emissions trading, including from projects reduction targets in too short a time scale,
under the Clean Development Mechanism if policies such as emissions trading or other
and Joint Implementation, to contribute economic instruments were not used or if
towards emission reduction commitments. energy efficiency was not exploited. In the
They will provide another possible route to medium term, transition costs would also
savings, although it is not yet possible to increase if other countries did not take action
judge the scale of any contribution that they to reduce emissions. But the more other
may make. countries commit to move in the same
direction, the less direct impact there will be
on the UK. These impacts need to be
Maintaining our competitiveness
monitored and managed, both across the
at the same time...
economy and sector by sector. And there will
also be some economic benefits, for example
2.20 We have analysed carefully the likely impacts
through increasing energy efficiency or
on the UK economy of cutting emissions by
through enabling UK firms to benefit from
60% by 2050. A good deal of caution is
new opportunities in manufacturing, servicing
needed in looking at economic changes over
and exporting lower-carbon and renewable
such a long period and given the sensitivity to
energy technologies. We will ensure that we
the assumptions made. But analysis of data
continue to work closely with businesses to
assessed by the Intergovernmental Panel on
develop strategies to enable them to adapt
Climate Change suggests that action aimed
to these changes and exploit them as
at stabilising carbon dioxide atmospheric
appropriate.
concentrations at no more than 550ppm
would lead to a loss of around 1% in
projected GDP9. The outcome of our UK
analysis is consistent with that review,
assuming that the world’s leading nations all
act together. It suggests that the cost impact
of effectively tackling climate change would
be very small - equivalent in 2050 to just a
small fraction (0.5 - 2%) of the nation’s
wealth, as measured by GDP, which by then
will have tripled as compared to now.
And this figure takes no account of the costs
avoided by tackling climate change.
9 Report of Working Group III of Intergovernmental Panel in Climate Change,

Mitigation, 2001.
Analysis and modelling work
A wide range of analytical work has supported the reduction and to assess how costs change if
white paper. This included work by the assumptions are varied. The analyses covered
Government’s interdepartmental analysts group business as usual cases as well as reductions
on long-term reductions in greenhouse gas in CO2 of 45%, 60% and 70% by 2050.
emissions, following which the DTI commissioned
The analysis suggests that for many of the
Future Energy Solutions to use the MARKAL
assumptions tested the cost of reducing CO2
modelling approach to look at the costs and
emissions by 60% by 2050 was in the range
options for a substantial CO2 reduction by 205010.
£200-300 per tonne of carbon. GDP in 2050 was
MARKAL uses a ‘bottom-up’ model of the UK
reduced by 0.5-2.0%, equivalent to an average
energy system, which selects the least cost
annual reduction of between 0.01 and 0.02
technologies to meet specified energy demands,
percentage points from a business as usual GDP
subject to constraints imposed on emissions.
growth rate of 2.25% per annum.
The results depend on the assumptions - on
Higher costs were indicated if innovation in low-
technology availability and costs - that are made in
carbon technologies was limited, if energy
the model. However, the assumptions used
efficiency improved only in line with past trends,
reflected expert opinion, informed by workshops
or if both new nuclear build and carbon capture
with industry experts.
and storage were completely excluded in the
The work was not intended to create a single longer term.
view or forecast. Instead a wide range of
To be on track for the 15-25 MtC reduction
sensitivity analyses was carried out to assess
beyond current baselines that we are aiming at,
which technologies and measures might be
MARKAL indicates costs of reducing carbon in
crucial to minimising the costs of emissions
2020 in the range £10-80 per tonne of carbon.
A clear long-term aim to use the price mechanism as far as we

policy framework... can to give clear signals about these costs.
This will give the market the flexibility to
2.22 To deliver these outcomes, our aim will be determine the best way to reduce carbon
to provide industry and investors with a clear emissions, and drive action on both the
and stable policy framework. In practice, demand and supply sides of the economy.
we need a mix of measures in order to shape It will also give business a dynamic incentive
the market to achieve our goals, including to find new and innovative ways to reduce
economic instruments and regulation. But we emissions. Environmental taxes and tradable
are seeking a framework which, as far as permit schemes can both help to achieve
possible, simplifies the mix of measures and these objectives.
takes account of the cost of environmental
damage from carbon emissions. We will also 2.23 The UK has already made significant progress
through the climate change levy and the
10 Full details of this work are at
voluntary UK emissions trading scheme.
www.dti.gov.uk/energy/greenhousegas/index.shtml
Section Two
The levy is a tax which applies to business tradable allowances equal to its cap. To comply
and public sector use of gas, coal, electricity with the scheme, each participant must hold
and liquefied petroleum gas (LPG). It gives allowances at least equal to its emissions.
those sectors an incentive to improve energy Participants will therefore have three choices:
efficiency and thereby to reduce greenhouse
meet their cap by reducing their own
gas emissions. It also involves 80%
emissions;
discounts for energy-intensive sectors which
enter into climate change agreements to reduce emissions below their cap and sell
improve energy efficiency or meet emissions or bank the excess allowances; or
targets. Following the recommendations
let their emissions remain above their cap
of Lord Marshall, the levy was designed as
11 and buy allowances from other participants.
a ‘downstream’ energy tax, which makes it
possible to avoid impacting on domestic
energy users, and therefore avoid adding to 2.26 The best strategy for each participant will
the problem of fuel poverty. depend on the price of allowances in the
market compared to the costs of reducing
2.24 The first phase of the UK emissions trading their own emissions. In this way, emission
scheme has involved a range of organisations reductions from the participating sectors will
from the private and public sectors agreeing be achieved at minimum cost across the
to meet emissions caps in return for a share European Union.
of a financial incentive. Emissions trading has
expanded recently through the participation 2.27 We will make the new trading scheme a
of firms covered by climate change central plank of our future emissions
agreements, seeking to deliver their targets. reduction policies, through which the traded
carbon market can set a signal for the value
2.25 The development of emissions trading in the of carbon reductions in the economy. It will
next few years will primarily be dependent on be a mechanism for delivering part of the
developments at EU level. On 9 December carbon savings we need to make, helping
2002, the European Union Council of to save around a further 2-4MtC by 2020.
Ministers reached initial agreement on a new We will continue to work proactively with
European carbon emissions trading scheme. the European Commission, European
This is expected to begin in 2005.
12 Parliament and other member states to
Installations which are covered by other secure detailed plans for the implementation
equivalent arrangements may not need to of the scheme to help deliver this aim.
join the scheme until 2008. In the scheme, We will also work with them to extend,
each participant will be set a cap - a target where appropriate, the coverage of the EU
level of emissions. Each will then receive scheme in due course.
2.28 The inclusion of the electricity industry within

11 In report Economic Instruments and the Business Use of Energy, November the scope of the EU emissions trading
1998 http://archive.treasury.gov.uk/pub/html/prebudgetNOV98/marshall.pdf
scheme will further change the incentives on
12 From the outset, it is proposed that it should cover CO2 emissions from
combustion installations exceeding 20MW, oil refineries, coke ovens, and electricity generators and suppliers, as it will
ferrous metal industries, mineral industries and pulp and paper plants (over
certain size thresholds).
begin to give a direct incentive to electricity
generators to reduce emissions. To the

extent that the scheme leads to an increase Emissions trading - potential
in electricity prices, this will add to costs for development
electricity users. The scale of such impacts The political agreement on the proposed EU
is currently uncertain, but will be driven by trading scheme outlines its design, together with
the price of carbon in the European market. procedures for expansion. How the scheme will
develop in the UK will depend on further work on
2.29 We aim to have a coherent approach to proposals to manage the transition from the current
carbon valuation and energy use, so that UK policy mix to the new EU scheme, as well as
environmental costs can be internalised as on decisions by the European Commission and
member states. But a possible scenario might be:
efficiently as possible, irrespective of
whether the instruments are international or January 2005 - First phase of the EU scheme
domestic. The linkages between tax and starts, covering CO2 from electricity generation, oil
tradable permit schemes will be carefully refineries and some other sectors of heavy industry.
considered in the light of the emerging EU Temporary exclusions allowed for heavy industry
emissions trading scheme. As the box below during this first phase, with caps on generator
shows, emissions trading is unlikely to cover emissions adjusted to take account of measures
for renewables and energy efficiency.
all emissions from all sectors of business for
the foreseeable future, and there will January 2007 - Current phase of UK emissions
continue to be a role for a tax if a price signal trading scheme for ‘direct participants’ ends.
is to be given to other areas of business. All of the direct participants in the UK scheme
that are covered by the EU scheme transfer their
2.30 The issues involved in linking the two CO2 emissions to the EU scheme.
mechanisms are not entirely new. The UK January 2008 - Second phase of EU scheme starts.
has already made links between the sectors Scheme covers CO2 emissions from other sectors
covered by the climate change agreements of industry as required by the directive and relevant
and the voluntary emissions trading scheme. changes made as necessary to the arrangements
Some changes might be needed, for for the climate change agreements.
example, to ensure that the sectors of
Coverage could be extended by unilaterally opting
manufacturing industry which are covered by in other activities and greenhouse gases, or by
the EU emissions trading scheme are not harmonised EU-wide expansion. The EU scheme
subject to unnecessary burdens. The views might expand to include other energy intensive
of manufacturers would be welcome. We will sectors of industry or other industrial and
now consider the impact of the proposed EU commercial sectors where the size of installation
emissions trading scheme on the climate makes this cost-effective.
change levy, while bearing in mind that this
will ultimately depend on the precise nature
of the future emissions trading scheme
which has yet to be agreed. Any tax changes
will be a matter for future Budgets.
2.31 The European Union is also close to agreeing also has binding international commitments
a directive on the taxation of energy to meet targets for emissions of air pollution
products. This would require all member and for local and regional air quality, including
states to introduce taxes on the business use cuts of 50% in sulphur dioxide and 20% in
of energy to encourage energy efficiency, oxides of nitrogen from current levels by
such as the climate change levy. Once 2010. Meeting these will require significant
agreement on the emissions trading directive reductions in emissions from electricity
has been reached, the Commission is generation, in particular current coal fired
planning to bring forward proposals to modify generation. Energy infrastructure, including
the rules on taxation of energy products in renewable energy, has effects on the
the light of the agreement on community- environment. Future analysis of energy policy
wide emissions trading, to ensure that the choices will continue to bear all these
two schemes are complementary. We will impacts in mind.
consider these proposals as part of our own
approach to linking the two measures.
2.32 Wherever possible, we will also link the other

measures described in this white paper to
the carbon emissions trading scheme. This
will help enable a common Europe-wide
value to emerge for carbon savings, enabling
business and consumers to choose
themselves how best to achieve their
economic and commercial aims against that
background. We will now be taking forward
work to consider how best to make such
linkages and will come forward with
appropriate proposals when the relevant
policy positions are more firmly established.
Considering other
environmental impacts too...
2.33 There are other important environmental

issues to be borne in mind as well as climate
change. Measures to reduce carbon
emissions can also have other benefits, such
13
as improved air quality. For example, the UK
13 Air quality is set out in The Air Quality Strategy for England, Scotland,
Wales and Northern Ireland, Cm4548, January 2000.
www.defra.gov.uk/environment/airquality
Chapter 3 Energy Efficiency
3.1 Over the last thirty years, our economy has Chart 3.1
doubled in size, while energy use has barely Energy intensity ratio in “top 20”
1 OECD countries, 20004
increased . Nonetheless, we are still using far
more energy than we need, in particular Switzerland
because we are using it inefficiently. Energy Japan
Denmark
is often wasted because of poorly insulated Austria
buildings or where heating, ventilation, air Germany
Ireland
conditioning and lighting are poorly Italy
France
controlled. Products are less energy efficient Luxembourg
than they could be - for example, the average Norway
Netherlands
upright freezer on the market today uses Sweden
nearly three times as much energy as the Spain
2 UK
most efficient one. Energy saving light bulbs Belgium
use less than a quarter of the energy of Portugal
Greece
ordinary light bulbs, and also last ten times Finland
longer. Businesses and householders may Australia
USA
not know how to cut energy use, which is just
0 50 100 150 200 250 300
one of many demands on their time and capital.
Energy consumption (thousand toe) per $US bn output
3.2 The cheapest, cleanest and safest way of

addressing our energy policy objectives is to
3.4 This chapter sets out how we will achieve
use less energy. The financial benefits of
doing so are clear. Better insulated buildings the necessary step change in energy
and more energy efficient workplaces cut efficiency across our economy. Our policies
energy bills for householders and businesses. have to tackle barriers to the uptake of
Reducing demand puts less pressure on energy efficiency across all energy users, and
energy supplies. provide the framework for continuing, and
accelerating, the rate of improvement in the
3.3 Over the last 30 years the economy’s energy UK’s energy intensity. We must also promote
3
intensity - the ratio of energy consumption to innovation to find new ways to save energy
GDP - has improved by around 1.8% each year. in the future.
Without this, home heating, for example,
would use more than twice the energy it
The savings we need...
uses today. But simply continuing previous
rates of change is not enough. We have to
3.5 We expect more than half the emissions
improve energy efficiency far more in the
reductions in our existing Climate Change
next twenty years than in the last twenty if
we are to meet our goals. Many other Programme - around 10 MtC per annum by
industrialised countries already do far better 2010 - to come from energy efficiency.
than the UK.
1 See paragraph 2.16

2 Compact fluorescent lamps (CFLs)
3 Energy intensity for the UK as a whole is total energy consumption divided
by total GDP. It is normally expressed as Mtoe/$USbn, to enable
international comparison. 4 Source: IEA
Section Two
Chapter 3: Energy Efficiency
by 2020, a further 4-6MtC of annual

5
Energy efficiency savings to 2010 savings can come from households.
This will require further uptake and
Households account for around 5MtC of the
development of insulation, including in
expected savings. We have put in place measures
to deliver 1.5 MtC, and this white paper sets out
homes that current technologies cannot
key measures which have the potential to deliver tackle cost effectively, such as the 7
the remaining 3.5 MtC. The following are not million homes with solid walls. Building
targets for individual items, but illustrate where standards, heating systems, lighting and
savings might be achieved: appliances must continue to improve, in

some cases through technologies yet to
progressively raising efficiency standards to 6
reach the market, such as LED lighting.
that of the most efficient boiler type,
condensing boilers, and installing around 5
We will need more innovative
million, saving around 0.6MtC; developments, which combine energy
efficiency with measures such as micro
insulating around 4.5 million cavity walls from
CHP, small-scale renewable heat such as
2005-2010, saving around 1.2 MtC;
solar water heating, or renewable power
installing an extra 100 million energy saving such as solar electricity; and
lights, beyond the 60 million already anticipated
by 2005, saving around 0.5MtC; by 2020, a further 4-6 MtC can be delivered
faster improvements in the standards of new
annually from the business and public
household appliances and significantly sectors. The source of savings, and the
increasing the uptake of A-rated appliances, types of policy to encourage them, would
which could save around 0.4MtC; and build on those to 2010, with progressively
tighter emissions caps under the EU
other insulation measures, improved heating
emissions trading scheme being a key
controls, improved standards of new build and
measure to stimulate further savings.
refurbishment through revisions to the building
regulations, and community heating with CHP,
saving around 1MtC. 3.7 Savings of this magnitude would need roughly
a doubling of the rate of energy efficiency
The Climate Change Programme anticipates improvement seen in the past thirty years.
savings of around 6MtC by 2010 from businesses
and the public sector. The climate change levy,
the associated climate change agreements, and Delivering the savings...
the UK’s own voluntary emissions trading scheme
already put us on track to deliver these savings. 3.8 To deliver these savings, we need a mixture
of measures, addressing key areas of our
economy - including energy used for heating,
lighting and powering buildings and
3.6 Further ahead, we believe that energy appliances in them, which accounts for
efficiency can contribute around half of the around half of the UK’s total energy
additional 15-25 MtC savings we are likely consumption. Different policy instruments -
to need by 2020 (see chapter 2 table 2.1). emissions trading, the energy efficiency
commitment, tax incentives, a greater
5 These savings are already anticipated in the 135 MtC baseline emissions
to 2020 explained in chapter 2. 6 Light emitting diodes
emphasis on energy services, building and introduced in April 2002. Similarly in Scotland,
product regulations, advice and information - higher standards were introduced in March
will be designed to reinforce each other. 2002, including for replacement windows,
and the Building Bill will be enacted in 2003
3.9 As chapter 2 explains, the new EU emissions with the aim of further improving standards.
trading scheme will play a central role from
2005. By setting strict limits on carbon 3.12 But standards elsewhere remain higher,
emissions, it will spur large energy users to particularly in Northern Europe. A detached
find cost-effective ways to reduce emissions. house built to the latest standards in England
We will press for the scheme to develop and Wales consumes nearly 20% more
so that other sectors can be added or linked energy than an equivalent home in Denmark7.
to it wherever possible. The energy efficiency We will raise standards over the next
commitment (see paragraph 3.32) will have decade, learning lessons from the
a major role to play in homes, and we will standards achieved in other comparable
consider whether to extend it beyond the European countries.
household sector. Higher efficiency standards
for products and buildings will be required. 3.13 We will also use the regulations further to
raise the standard required for new and
3.10 Tax measures will also have a role to play. replacement boilers to the level of the most
Lower taxation on lead-free petrol helped to efficient boiler types - A and B rated
shift consumer demand to the point where condensing boilers. Over 1 million boilers,
leaded petrol was phased out. The Chancellor heating and hot water systems are replaced
announced in the 2002 Pre-Budget Report each year, and we believe around 5 million
that we would consult further on specific condensing boilers need to be installed by
measures to promote greater energy 2010. Currently, our performance falls well
efficiency in households. short of what has been done elsewhere, as
the table below illustrates.
Through higher building

standards...
3.11 Compared with the 1990 building regulations,

the latest revisions introduced last year have
reduced the energy needed for heating a
new home by half. Similar improvements
have been achieved in new commercial and
public sector buildings. In the existing stock,
which will continue to account for the vast
majority of energy consumed in buildings for
decades to come, regulations also cover
major changes - for instance, higher
standards for replacement boilers and
7 Putting Climate Change at the Heart of Energy Policy; EST submission
windows in England and Wales were to the energy white paper, 2002 (www.est.org.uk/est/index.html)
Section Two
Condensing boilers - a case study8
The Netherlands UK
1980-1987: Subsidies for condensing boilers and a 1980s: Development and demonstration of
widespread information campaign. technology under the Government’s Energy
Efficiency Demonstration Scheme.
Mid 1980s: Demand outstripped supply so
manufacturers launched intensive installer training 1989-today: Promotion under the Government’s
programmes. Energy Efficiency Best Practice Programme.
1990: Subsidies relaunched: government funding 1993-4: British Gas-funded cashback scheme.
matched by funding from energy companies
1996-9: Government-funded cashback schemes.
through a customer levy. Housing policy promoted
9
condensing boilers. 1997 onwards: ‘Energy Efficiency’ awareness-
raising campaign with labelling of condensing
1995: Building regulations require new build
boilers.
to meet standards of energy efficiency only
10
achievable with condensing boilers. 2000 onwards: EESoP/EEC and Government
fuel poverty programmes installing condensing
1996: Long term awareness campaign started,
boilers; Energy Saving Trust working with
plus energy efficiency labelling.
manufacturing industry.
1996: Energy tax introduced with hypothecated
revenue for energy efficiency.
2002: Condensing boilers account for ~12%
2000: Subsidies (25%) for energy audits
of UK market.
introduced.
To achieve much higher levels is likely to require
2002: Condensing boilers account for ~75%
measures such as:
of Dutch market.
a communications campaign raising awareness
of links between climate change and household
energy use;
training of heating engineers and gas fitters;
voluntary agreement with industry on
condensing boilers; and
higher boiler standards required by building
regulations for existing and new dwellings.
9 www.saveenergy.co.uk
10 EESoP - the Energy Efficiency Standards of Performance;

8 Ibid EEC - the Energy Efficiency Commitment.
3.14 A new EU directive on the energy performance buildings and those buildings that are sold or
of buildings is now in place11. This covers tenanted each year can be certified within
homes alongside business and the public the timescale required.
sector. It requires EU member states to set
minimum standards for building work on new 3.18 There is also a huge opportunity to deliver
and existing buildings, to review building improvements through our public investment
standards at least every five years, to in schools, hospitals and other public
introduce energy certificates for all buildings services. In February 2003, we launched
to show how efficient they are, and to test Sustainable Communities: Building for the
the efficiency of boilers and air conditioning Future12, a long-term programme to increase
systems in commercial and business premises. housing supply in high demand areas such
as the Thames Gateway. This includes a
3.15 We already have minimum standards for commitment that, from April this year, the
building work and a building certification system Housing Corporation will require that the new
for dwellings and welcome the impetus the homes they fund achieve the Building Research
directive will give to these. We also welcome Establishment’s EcoHomes13 standard for
the challenge the directive presents to extend sustainable residential development.
certification to all buildings and to introduce
boiler and air conditioning inspection 3.19 Achieving these bigger and faster changes
systems, or similar, that mean these can will require the concerted effort of all parts
be operating more efficiently. The Office of of the industry - customers (particularly in
the Deputy Prime Minister will take the lead industry, business and the public sector),
in responding to the directive, as it has architects and designers, the construction
responsibility for most of the legislation that industry, manufacturers and other suppliers,
can be used to transpose it into law; however, the professional bodies, energy companies
DTI and Defra will also play a full part. and government itself. The shift to far greater
energy efficiency is also an ideal opportunity
3.16 We will start work immediately on the next to intensify the efforts already being made to
major revision of the building regulations, improve the productivity of the construction
which we will aim to bring into effect in 2005. industry. Our sustainable communities action
Tighter building regulations will also encourage plan is a major opportunity to encourage
developers to use low carbon solutions such sustainable construction and maximise the
as solar water heating and photovoltaics. potential that energy efficient technologies
can play in the planned new housing
3.17 We will also make a start on developing the developments and refurbishment of existing
new provisions that will be needed to developments. We will therefore bring
implement the directive’s certification and together representatives of housebuilders,
inspection requirements, so that public the Housing Corporation, the construction
industry and others in a new working group
to consider how best to improve the
11 The EC directive on the energy performance of buildings came into force on
4 January 2003. Member states have three years to implement the directive
with an additional three years if needed to implement requirements on
building certification and inspection of boilers and air conditioning systems. 12 www.communities.gov.uk
See www.europa.eu.int/eur-
lex/en/dat/2003/1_001/1_00120030104en00650071.pdf 13 www.products.bre.co.uk/breeam/ecohomes.html
Section Two
sustainability of all aspects of construction the standards of the products themselves

and design, including off-site construction to give us the best technological answers for
and low carbon technologies (such as cutting energy consumption. Overall, faster
photovoltaics or CHP). We will also bring improvements in the standards of new
together representatives of all the key household appliances and greater uptake of
players in a Better Buildings Summit, which A- rated appliances can bring about significant
will be jointly convened and chaired by carbon savings and could save around
Ministers from ODPM, Defra and DTI. 0.4MtC by 2010, relative to the business as
usual baseline.
3.20 We will also work with local authorities and
their building inspectors to see whether 3.23 Similar issues arise in industry and
and how enforcement of the regulations can commerce, where the speed of information
be cost-effectively improved to achieve and communications technology leads to
better correlation between design and built new demands. At the same time, smart
performance. control systems can significantly cut usage
and waste. Again, we need the best possible
standards to ensure that equipment is as
And higher product standards...
energy efficient as possible.
3.21 Today’s homes contain more household

3.24 Overall, we need to remove the least
appliances than our grandparents ever dreamt
efficient products from the market,
of - cookers, microwaves, washing machines,
encourage competition to bring forward
fridges and freezers, TVs and videos (with
improved products, and make it easier for
multiple sets in many homes), computers and
people and businesses to choose the best.
game machines. UK households spend
Ways to do so include minimum standards,
around £5 billion each year on electricity to
voluntary agreements with industry, fiscal
power lights and appliances, which account for
measures, procurement policy, and better
around a quarter of UK electricity consumption.
information on product performance.
And as these basic products achieve near
universal take-up, new, energy-hungry
3.25 Provided manufacturers are given adequate
services such as digital TV and broadband
time to change their product specifications,
communications pose a new challenge.
higher standards should not damage our
industrial competitiveness. Indeed, properly
3.22 Not only are these new gadgets energy-hungry,
designed, they can help British and other
but as users most of us are also energy-lazy.
European manufacturers to anticipate and
Each year, video recorders and televisions in
meet rising consumer expectations in other
the UK consume around £150m worth of
parts of the world. We will continue to
electricity while on standby, and our homes
consult closely with UK industry, including
have increasing numbers of power supplies
manufacturers, dealers and service providers,
and chargers permanently plugged in.
and with the European Commission and
Consumer education can only have a limited
other member states, on how best to deliver
effect in this area. Instead, we need to raise
low-cost improvements in product standards.
Our Market Transformation Programme14 It has estimated that such measures could
already works at national and EU level with save around 10% of total EU energy
17
Governments, industry, retailers and others. consumption by 2020 . We support these
proposals and will work proactively
3.26 We are already encouraged by industry’s to influence and speed their delivery.
response to this agenda, especially in its self-
commitments to improve efficiency 3.29 In particular, our analysis and consultations
standards and targets for such things as suggest that we should press for urgent action
electric motors, televisions, video recorders, in the EU to raise standards in air conditioning,
digital TV services, power supplies, water boilers and water heaters, power chargers,
heaters and washing machines. The European consumer electronics, office equipment, motors,
code of conduct on digital TV services has fans and pumps, washing machines, fridges
enabled the UK to avoid additional energy and other white goods and lighting, including
consumption equivalent to around 0.4MtC a significant reductions in standby power.
year. We will encourage and support such
industry self-commitments when these will 3.30 We will also reinforce other measures to
deliver earlier or higher standards than promote the sale of products above current
mandatory measures alone. EU minimum standards, including fiscal
instruments, information tools such as the
EU energy label, the Energy Saving Trust’s
3.27 The UK’s membership of the single European
Energy Efficiency Recommended logo and
market means that product standards on
the Energy Star label for IT equipment.
tradable goods and equivalent industry
voluntary agreements usually have to be set
or agreed at the EU level. Mandatory In the home...
standards to remove inefficient boilers,
15
fridges and fluorescent lamp ballasts from 3.31 Tougher building regulations will have an
the market are already in force and are very impact on new homes, alterations to the
effective. For example, even the least existing stock and all replacement windows
efficient new fridge freezer in the EU now and boilers. But they will not deal with long-
consumes only half as much energy compared standing problems like the 15 million homes
to products that were still on the market 5 with inadequate wall insulation - either solid
years ago. The standard for lamp ballasts alone walls or unfilled cavities.
will save nearly 0.25MtC a year in the UK.
3.32 We have already introduced - in April last year
3.28 The Commission is now proposing a new - an energy efficiency commitment (EEC) for
framework directive16, to set standards domestic energy suppliers, which runs until
for a wider range of products, and to revise 2005. Each supplier18 has an energy saving
the energy labelling regime which currently target, which they can meet by encouraging
deals only with household appliances.
17 European Commission background and discussion paper on a draft proposal
for a framework directive on energy efficieny requirements for end-use
14 www.mtprog.com equipment, April 2002. (This proposal is now integrated with the proposal in
footnote 16).
15 A ‘lamp ballast’ controls the current passing through fluorescent lighting tubes
18 Applies to licensed energy suppliers with at least 15,000 electricity and/or
16 Proposal for a framework directive on the eco-design of end use equipment gas customers.
Section Two
householders to install energy saving 3.34 While energy suppliers are selling energy
measures, for example by subsidising the saving measures under EEC, few have
cost of installing a condensing boiler, wall or sought to develop new markets in energy
loft insulation, energy efficient lights and services. Rather than simply selling electricity
appliances either directly or through retailers. and gas, energy services focus on the
At least half the target must be met in outcome the customer wants - such as warm
households whose occupants are either on a rooms and hot water - and offer the most
low income or disabled. It is already cost-efficient way of achieving it. Under an
accelerating the uptake of energy efficiency energy services contract a supplier might, for
measures, reducing the cost of measures to example, install insulation or a more efficient
the consumer, and encouraging the heating boiler in a customer’s home, and recoup the
and insulation industries to build up their investment through the quarterly bill over,
capacity to meet the increased demand. But say, 3 to 5 years. The householder uses less
by 2005, when the current EEC ends, there energy as a result, and the savings on the
will still be around 6-7 million homes where energy bill are used to repay the cost of the
cavity wall insulation would be relatively easy measures. So, worthwhile home
to install. Filling 4.5 million of these by 2010 improvements are installed with no upfront
would save around a further 1.2 MtC. cost to the householder, who benefits from a
warmer, more comfortable home and lower
3.33 Energy suppliers have responded positively, energy bills for years to come once the initial
and are working hard to meet their targets. investment has been repaid. Some have
We want their good work to continue, and called this approach selling ‘negawatts’
for it to become an integral part of their long- instead of ‘megawatts’.
term business strategies. So, we will consult
on an expansion of the EEC to run from 3.35 Energy services could help to overcome
2005 to at least 2008, at possibly twice its consumers’ reluctance to invest in energy
current level of activity. This will allow efficiency improvements. However, since the
energy suppliers and the energy efficiency energy markets were opened up to
industries to plan the level of EEC activity competition in the late 1990s, householders
over the medium and longer term. It will can switch supplier by simply giving 28 days’
require energy suppliers to take up a notice. Energy suppliers have little incentive
substantial proportion of the potential for to offer energy service contracts if customers
higher energy efficiency in homes, and can switch at short notice. We will therefore
deliver carbon savings of around 1 MtC by establish a working party with OFGEM,
2010, primarily by encouraging better home energy suppliers and others to explore how
insulation. As we introduce the new EU to create an effective market in energy
emissions trading scheme, we will consider services. This will address, among other
how the EEC can be best dovetailed with it. issues, the barriers caused by the current
Looking to the future, a continuation and 28-day notice period while maintaining
further expansion of EEC, or some successor adequate freedom of choice and consumer
mechanism, could deliver a further 3 MtC of protection for customers. It will report initial
savings by 2020. conclusions later this year.
3.36 We will also continue to tackle poorly return for agreeing to meet challenging
insulated and inefficiently heated homes energy efficiency targets over a 10-year
through our fuel poverty and social housing period. The CCAs alone are expected to
programmes (see chapter 8). Because these achieve savings of around 2.5MtC by 2010.
focus on helping people heat their homes
adequately, in the short term their 3.39 We launched the world’s first economy-wide
contribution to carbon savings is relatively greenhouse gas emissions trading scheme in
small. But they will help to ensure that we April 200219. By December 2002, 34 companies
have a much more energy efficient housing had become members, while a further 6000
stock in coming decades. companies with CCAs can use the trading
scheme either to help meet their target or to
sell any over-achievement. The targets set for
At work...
participants in the scheme should deliver
20
1.1MtC of carbon equivalent savings by 2006.
3.37 In businesses and the public sector, there are
many ways to reduce energy use. Improving
3.40 Taken together, the savings generated by
insulation, heating, lighting and equipment
these schemes account for most of the
are important, particularly in the commercial
6MtC of savings identified under the Climate
and public sectors. There are also many other
Change Programme. Beyond that, three other
opportunities in day-to-day operations and
mechanisms help business improve efficiency:
production processes. Many savings can
occur at the time of investment in new or building regulations;
replacement plant. Technologies include
the Carbon Trust (see box below); and
more efficient motors, variable speed drives,
heating and cooling plant and proper pipe the Enhanced Capital Allowances Scheme21
insulation. Savings can also come through which enables businesses to claim 100%
making productive use of otherwise ‘waste’ first year capital allowances on
heat and cooling, and avoiding unnecessary investments in energy saving technologies.
heating and cooling through better design
and control. 3.41 Chapter 2 noted that policies will in future
need to be reviewed in the light of the
3.38 As chapter 2 explained, we have already put emerging EU emissions trading scheme.22
in place a range of actions to promote energy We will also consider whether to extend
efficiency in business. The climate change the EEC beyond the domestic sector,
levy (CCL) is a levy on business and public perhaps to businesses that do not pay the
sector energy use. Receipts (around £1 billion
a year) are recycled back to business, mainly
through reduced National Insurance but also
through £50 million for tackling business 19 www.defra.gov.uk/environment/climatechange/trading/
energy efficiency. Within the CCL, climate 20 The UK emissions trading scheme includes all 6 greenhouse gases. All
savings are expressed in terms of the estimated global warming potential
change agreements (CCAs) have been on an equivalent basis to those from carbon dioxide.
negotiated with energy intensive industries. 21 www.eca.gov.uk/
22 In addition, the linkage with the integrated pollution prevention and control
Participants pay only 20% of the CCL in (IPPC) directive will need to be clarified.
Section Two
CCL, as a means of improving their energy NHS Trusts are already targeted to reduce
efficiency. We would consult fully on such the level of primary energy consumption
a proposal if we concluded that it was the by 15% or by 0.15 MtC equivalent from
23
right approach. March 2000 to March 2010 ; and
since 2002/3 local authorities have been

In the public sector... required to benchmark their energy use
in operational property and street lighting
3.42 The public sector accounts directly for only and will set local improvement targets
5% of UK carbon dioxide emissions. But this from 2003/04. Along with Registered
sector - in particular the Government itself - Social Landlords, they are also required to
has a vital role to play in leading by example. bring their own housing stock up to decent
standards by 2010.
3.43 Government, along with other public sector
organisations, is taking action to improve
energy efficiency. For example:
Preparing the market and
helping people make choices...
we will be showing leadership in our own
performance. The central Government 3.44 With the Devolved Administrations we
estate has an interim target to reduce carbon will continue to support the work of the
emissions by 1% a year from 1999-2000, Energy Saving Trust and the Carbon Trust
with new targets to be set in 2003, which provide free advice to households,
including on CHP (see chapter 4). Our businesses and public sector bodies on how
review of government procurement has to save energy. Raising awareness and
identified a number of areas where providing targeted advice and information is a
government purchasing could more cost-effective way of overcoming barriers to
strongly support sustainable development energy efficiency. Advice also supports EEC
goals. The review has been considering by encouraging customers to take up the
how to build energy efficiency into energy suppliers’ offers. The UK-wide
government procurement and contract network of Energy Efficiency Advice Centres
strategies, and identified some specific might, over time, evolve to become Local
categories where products are already Sustainable Energy Advice Centres, covering
available which meet high energy energy efficiency, renewables and transport
efficiency standards. As a result we have energy use.
made central arrangements for departments
to purchase goods with high energy
efficiency standards and which provide value
for money in areas such as IT equipment,
boilers, lights and lighting systems,
refrigeration equipment, televisions and
washing machines. We will be implementing
our conclusions later this year;
23 www.nhsestates.gov.uk/sustainable_development/index.asp
Encouraging innovation...
Encouraging energy efficiency in
homes, business and the public sector
3.47 We need to develop even smarter ways to
Government and the Devolved Administrations satisfy our energy needs, through better
provide funding for the Energy Saving Trust and building techniques and products. Industry
the Carbon Trust to stimulate the uptake of needs to continue to develop more efficient
energy efficiency in homes, business and the manufacturing processes that improve resource
public sector. productivity. New types of meters will be
The Energy Saving Trust24 (EST) works in needed to enable homes and businesses to
partnership with manufacturers, retailers, installers, make the best use of on-site electricity
energy suppliers, local authorities, advice providers generation through renewables or CHP.
and others. EST seeks to ensure the most And once products have been developed we
effective delivery of energy efficiency to homes need to get them deployed into the market.
and small businesses for consumers, the ‘Energy We agree with the recommendation of the
Efficiency’ branding and marketing programme Chief Scientific Adviser’s Energy Research
aims to transform attitudes to energy efficiency. Review Group that energy efficiency should
25
The Carbon Trust , launched in April 2001, is be treated as a priority area in which increased
developing and implementing programmes to investment in research and development is
accelerate the take-up of energy efficiency in the particularly likely to yield major breakthroughs.
non-domestic sector. These include the ‘Action The research and development to enable
Energy’ information and advice service; an these technologies to make a contribution
interest-free loan scheme for small businesses; in the years to come needs to start now.
and stimulating innovation in new low-carbon The Carbon Trust’s Low Carbon Innovation
technologies. Programme26, launched in 2002, provides
funding to enable that to happen.
3.48 The new generation of buildings could have

3.45 Our forthcoming Housing Bill will propose
both minimum energy requirements and
a requirement for home sellers to produce
produce their own electricity through new
a sellers pack. This will be necessary for us
to comply with the requirements of the EU and emerging technologies such as micro
buildings directive. The pack will promote CHP27, photovoltaics and fuel cells. Some
energy efficiency by ensuring all homebuyers homes that use little or no energy for heating
have access to information on energy already exist in the UK. In 2002-03 we
performance of the homes they are introduced two new programmes - Community
considering buying. Energy and Clear Skies (a community and
household renewables scheme) - worth
3.46 We also need to ensure that industry is £60m over three years to support CHP and
suitably qualified to deliver the measures we renewable energy technologies.
have set out. Our policies to improve training
and skills are outlined in chapter 7.
26 www.thecarbontrust.co.uk/foundation/
27 Micro-CHP enables the simultaneous production of heating and electricity in

the home and in small businesses.
24 www.est.org.uk
It is likely to operate in place of a domestic central heating boiler. CHP
25 www.thecarbontrust.co.uk/thecarbontrust/default.htm policies are further discussed in chapter 4.
Section Two
Reporting progress...
3.49 These strands of policy in different sectors

add up to an ambitious strategy for change.
Further work is needed to consult on and put
in place some of the detailed policies that will
deliver it, for example as the scope and
operation of the EU emissions trading
scheme becomes clearer. But we do not
want to lose momentum. So, within a year,
we will publish an implementation plan
that sets out in further detail how we will
deliver the strategy that we have set out
here. This will update and expand on the
measures set out in the Climate Change
Programme. From then on we will report
annually, as part of the follow up to this
white paper, on progress towards achieving
the savings we have set out.
Chapter 4 Low carbon generation
4.1 A new energy policy demands new thinking 4.4 This chapter looks at the role that we can
about energy supply. We need a shift towards expect renewables and CHP to play; examines
energy sources and generation technologies the obstacles to their greater take-up;
that produce much less or no carbon. We can reviews the short and longer-term technological
expect to see far more small-scale, opportunities and the role we can play in
distributed heat and electricity generation. promoting them; and sets out our
conclusions on the role of nuclear power.
4.2 In particular:
renewable energy will play a vital part. The role of renewables...

To date, renewable energy has expanded
far less in the UK than in some other
European countries. Yet the potential is What is renewable energy?
huge. For example, the UK has over one Renewable electricity can be generated from wind
third1 of Europe’s entire potential for power, wave, tidal, solar photovoltaics (PV), hydro
offshore wind energy. And there is great generation, geothermal and biomass (energy from
scope for innovative, local developments, forestry or crops). These forms of generation
bringing together low carbon technologies offer an enormous potential resource, particularly
such as renewable energy and energy in the UK where our coastline provides extensive
efficient buildings2; and; opportunities to use wind, wave and tidal power.
They all produce no carbon at all or, in the case of
combined heat and power (CHP), which is biomass, produce only the carbon they have
an efficient form of providing heating and already absorbed from the atmosphere when
electricity at the same time, also fits into growing. Some forms of waste are also classed
this wider picture. The UK already has as renewable under the Renewables Obligation.
around 5GW of CHP installed, mainly on an
Solar energy can heat water directly, either for hot
industrial scale. In the future, we can also
water or for space heating in buildings. And heat
expect to see far more ‘micro-CHP’ -
from the ground, river water, sewage and even
efficient, small-scale heating and electricity
the air can be put through a heat exchanger for
generation systems in homes as well as
both water and space heating.
businesses.
4.3 Although nuclear power produces no carbon

dioxide, its current economics make new 4.5 If we are to achieve a 60% reduction in
nuclear build an unattractive option and there carbon emissions by 2050, we are likely to
need renewables by then to be contributing
are important issues of nuclear waste to be
at least 30% to 40% of our electricity
resolved. Against this background, we conclude 3
generation and possibly more. We therefore
it is right to concentrate our efforts on energy
need to develop a framework which
efficiency and renewables. We do not,
encourages the development of a wide range
therefore, propose to support new nuclear
of renewable options and to make significant
build now. But we will keep the option open.
changes to our institutions and systems.
1 BWEA, 2002 www.offshorewindfarms.co.uk/info.html
2 Renewable fuels will also be important in transport. This is discussed in 3 Options for a low carbon future (Future Energy Solutions, 2003)
chapter 5. www.dti.gov.uk/energy/whitepaper
Section Two
Chapter 4: Low carbon generation
We have made a start... 4.8 We are pushing forward these programmes in

consultation with industry. A new Renewables
4.6 In January 2000 we announced our aim for Advisory Board - comprising representatives
renewables to supply 10% of UK electricity in of the relevant industries, the Government and
2010, subject to the costs being acceptable the Devolved Administrations - has been set up
4
to the consumer . It is clear that achieving with a remit to provide expert independent
the 10% target over the next seven years will advice to DTI on renewables issues.
be very challenging.
But we need to do still more...
4.7 We have recently put in place a range of new
measures to deliver this. We have: 4.9 We produce less electricity from renewables
introduced a Renewables Obligation for than a number of our European partners.
England and Wales in April 20025. This will In 2000, renewables (excluding large hydro
incentivise generators to supply progressively plant and mixed waste incineration) supplied
6
higher levels of renewable energy over only 1.3% of our electricity, compared with
time. The cost is met through higher prices 16.7% in Denmark, 4% in the Netherlands,
to consumers. By 2010, it is estimated that 3.2% in Germany and 3.4% in Spain. To hit the
this support and Climate Change Levy (CCL) 10% target we will need to install approximately
exemption will be worth around £1 billion 10,000MW of renewables capacity by 2010,
an annual build rate of over 1250MW. Only
a year to the UK renewables industry;
1200MW of renewables capacity has been
exempted renewable electricity from installed in total so far (excluding large hydro).
the CCL; The measures we have already put in place

will make a major difference to the rate at
created a renewables support programme
which capacity is installed. But they were
worth £250m from 2002-2005;
only introduced last year and it will take a few
drawn up a strategic framework for a major years before these measures impact fully.
expansion of offshore wind; and
4.10 Our analysis and consultation has shown that
created a new organisation within
we need to strengthen our policy if we are
Government - Renewables UK - to help our
to ensure that the measures we have put in
renewables industry grow and compete
place have the maximum impact. We describe
internationally.
below a number of steps that we will take
to accelerate the take-up of renewables.
In addition, from 2005 onwards, the EU
emissions trading system will provide a
4.11 As we have set out, our aim for renewables
further incentive for renewables.
is that they should supply 10% of UK
electricity in 2010, as long as the cost to
customers is acceptable. We believe that
4 Conclusions in response to the public consultation - New and Renewable
Energy: Prospects for the 21st century (DTI, 2000) renewable sources of energy will increasingly
www.dti.gov.uk/renew/condoc/policy.pdf
5 The Scottish Executive launched the Renewables Obligation Scotland on 1
April 2002. We make proposals in paragraph 4.64 on integrating the
Renewables Obligation Certificate trading schemes for Great Britain and 6 Renewables Information 2002 (IEA, 2002)
Northern Ireland. www.iea.org/stats/files/ren2002.pdf
demonstrate that they can meet our energy 4.14 As well as making progress towards our
needs both economically and in a carbon free 2010 target, and paving the way for our 2020
way. Technologies such as onshore and strategy, we need to make sure that we are
offshore wind and biomass are potentially - planning for the longer-term up to 2050.
after energy efficiency and alongside CHP - We are already reviewing innovation
the most cost-effective ways of limiting spending, including that for renewable
carbon emissions in the longer-term. We energy, across government. With respect to
expect industry to respond to the framework renewable energy, we will review the barriers
established by the Government and to successful innovation across the range
demonstrate they can achieve our goals at of renewables technologies and will set out
an acceptable cost. On that basis, our a programme for developing, with industry,
aspiration is by 2020 to double renewables’ strategies for the successful application of
share of electricity from our 2010 target and those technologies in the liberalised energy
we will pursue policies to achieve this. market. We expect this work to cover
advanced conversion technologies for
4.12 We remain firmly committed to the current biomass, wave and tidal, building-integrated
Renewables Obligation and will maintain the renewables, and hydrogen and fuel cells.
level of support it provides as planned until
2027. In 2005/06, we will review progress
and will elaborate a strategy for the decade Innovation, research and
to 2020. This will take account of the development are crucial...
experience of carbon prices arising from the
emissions trading scheme and of the costs 4.15 Key to realising the full potential of
of renewable technologies. renewables over time is the generation of
innovative ideas which will bring on new
4.13 We have already put in place a substantial technologies as well as improving existing
renewables support programme worth in total ones. The Chief Scientific Adviser’s Energy
£250m between 2002/03 to 2005/06. But we Research Review Group8 recommended that
recognise that further funding is needed to more needed to be spent on energy research
give us the best chance of reaching the 2010 and development and singled out two
target. We will therefore increase funding renewables technologies (solar PV and wave/
for renewables capital grants by a further tidal power) as areas in which increased
£60m within this period. This is additional investment was particularly likely to lead to
to the extra funding announced in the step-change breakthroughs. We accept these
2002 Spending Review, which allocated recommendations and have already
an additional £38m for energy policy increased funding for basic research into
7
objectives in 2005/06 . This funding will renewables (see paragraphs 4.60 and 4.61).
enable us to increase momentum and to take
forward a broad strategy for renewables
including ramping-up medium-term funding
for offshore wind.
8 Report of the Chief Scientific Adviser’s Energy Research Review Group,
Office of Science and Technology, 2001.
7 Compared with 2002/03 www.ost.gov.uk/policy/issues/csa_errg/main_rep.pdf
Section Two
Combined heat and power we will undertake a review of the existing

also has significant potential... guidance on information required to
accompany power station consent
4.16 CHP is an efficient form of providing heating applications. Applicants will need to provide
and electricity at the same time. CHP’s overall significant evidence clearly demonstrating
fuel efficiency is around 70-90% of the input they have considered all economically viable
fuel - much better than most power stations options for CHP and community heating;
which are only up to around 40-50% efficient. we will continue to emphasise the
It enables a very wide range of energy users, benefits of CHP and community heating
from heavy industry down to individual homes, whenever Planning Policy Guidance,
to save money and help the environment by Regional Planning Guidance or
reducing overall carbon emissions. It is also Sustainable Development Guidance is
the cornerstone of many community energy introduced or reviewed;
schemes, providing heating, electricity and in
it is vital that NETA does not discriminate
some cases cooling to a wide range of users.
But the low prices in the wholesale electricity against smaller generators, including CHP.
market and the increases in wholesale gas Some changes have already been made.
prices over recent years are adversely We expect OFGEM to continue to work
with smaller generators and ELEXON to
affecting new CHP developments. A number
ensure that the administrative procedures
of proposed new power stations, which
for the Balancing and Settlement Code
already have planning approval, are awaiting
under NETA are fully accessible to smaller
electricity price rises and/or gas price
generators. We will work with OFGEM to
reductions before they go ahead.
keep these developments under review
since the existence of a level playing-field
4.17 We have set a target of achieving 10GWe
for smaller generators, including CHP and
of Good Quality CHP9 by 2010. Good progress
renewables, is essential if our ambitious
has been made over the last decade and
targets are to be met;
4.8GWe is currently installed. Achieving the
Government’s target could save a further in the draft CHP Strategy we announced
1.25MtC per year. We remain committed that we would consider setting targets for
to a target of 10GWe of Good Quality CHP Government Departments to use CHP
capacity being installed by 2010. generated electricity. We will now proceed
with this. Over the coming months we
4.18 In addition to the measures we have will consider the nature and extent of
already put in place to support CHP, we will such a target or targets and announce
introduce a number of further measures to our conclusions in the energy section
help address the current market difficulties of the Framework for Sustainable
and support the achievement of our target: Development on the Government Estate
that we hope to publish later this year.
We will also encourage other parts of the
public sector to consider whether setting
9 Good Quality CHP is CHP generation that meets efficiency standards
CHP targets would be appropriate;
prescribed in the Government’s CHP Quality Assurance programme.
as we consider and consult on the 4.19 These measures will be elaborated in the
expansion of the energy efficiency final version of our CHP Strategy to be
commitment (EEC) for households from published in the course of this year, on which
2005 onwards and on whether to we look forward to a continuing and
extend the EEC beyond the household constructive dialogue with industry.
sector (see chapter 3), we will explore
the opportunities for incentivising CHP 4.20 We will also monitor and reporrt on
technologies; developments on CHP as part of the
arrangements described in chapter 9.
we will support field trials designed to
evaluate the benefits of micro-CHP;
Structural barriers to
we recognise that the CHP target will
renewables and CHP...
require sustained effort from both the
private and public sectors, and can
4.21 Many renewable and CHP generators,
therefore only be achieved with the active
because of their small size and/or location,
collaboration of all the partner
need to be connected to local distribution
organisations which have a contribution to
networks rather than the national
make. We have invited the Energy Saving
transmission network. To achieve our targets
Trust and the Carbon Trust to review for higher levels of renewable generation and
their current and future programmes CHP plant, distribution networks will have to
to ensure that they reinforce the delivery be capable of accommodating many more
of the Government’s CHP target; and directly connected generators. Very
over time the measures outlined in this substantial changes will be needed in the
white paper - in particular emissions way in which our distribution networks are
trading - will encourage lower-carbon forms designed, organised and financed - greater
of generation and more efficient use of than anything we have seen in the last 50
fuels. Under the UK Emissions Trading years. Distribution Network Operators
Scheme, carbon savings from CHP can (DNOs) will also need to take a more
already be traded, and we will work on proactive approach to distributed generation.
a framework for pilot projects within
the Scheme for which CHP projects may 4.22 During the white paper consultation,
be eligible. This work would take into distributed generators expressed concern
account the forthcoming EU Directive on that their projects were being unduly delayed
emission reduction projects. Furthermore, because they could not obtain quick and easy
the EU emissions trading scheme will connections to the distribution network.
Under the present price control rules there is
encourage low-carbon technologies,
no financial incentive for the DNOs to
including CHP. And we expect to see a
connect distributed generation to their
new approach to electricity generation
networks. We therefore believe that the
developing that recognises and encourages
regulatory framework needs to be amended
local generation opportunities.
so that the DNOs connect and use higher
levels of distributed generation.
Section Two
4.23 OFGEM has started working with the DNOs strengthen the network to enable the UK to
to address these issues10. OFGEM is increase substantially its deployment of
committed to publishing the detail of an renewables. The regulatory arrangements
incentive framework for connecting and are crucial to our ability to deliver
utilising distributed generation later this infrastructure which will, in turn, permit the
year, for implementation in April 2005. development of renewable generation
This will help distributed generators to obtain throughout the country - not least in those
quicker and easier connections to the peripheral areas where natural resources
distribution network in the interim period to are often greatest. Discussions are currently
the next price control and beyond. DNOs taking place between OFGEM and the
need to work closely with the industry to transmission operators on plans to upgrade
exploit the existing infrastructure by using the transmission network across the whole
innovative engineering solutions when country. We are also consulting on network
connecting higher levels of distributed issues across Great Britain (GB) in the
generation. context of the forthcoming British Electricity
Trading and Transmission Arrangements
4.24 We are also working with OFGEM to (BETTA) legislation (as discussed in
address the administrative burdens placed paragraphs 4.28 and 4.29). It is essential to
on smaller generators and to ensure that create a network infrastructure capable of
they are not unfairly disadvantaged in their supporting our environmental objectives.
relations with local suppliers11. Through the
Distributed Generation Co-ordinating 4.26 We are establishing with OFGEM a joint
Group12, we are also following up a range working group on environmental issues13
of wider changes designed to facilitate modelled on the successful joint working
group on security. One of the key priorities
distributed generation. We will report
for the group will be to monitor network
progress on this in the follow-up to the
operators’ progress in modernising the
white paper (see chapter 9).
transmission and distribution networks to
meet our carbon aims.
4.25 We need to develop the existing transmission
network to exploit our massive onshore and
offshore wind resources. Transmission The New Electricity Trading
companies must start preparing now to Arrangements (NETA) are
evolving to respond to industry
concerns...
10 In January 2003 OFGEM published its initial thoughts on both the principles
for developing the regulatory framework for the next distribution price control 4.27 During the first few months of NETA some
and on interim arrangements for the period to April 2005 when the next
price control is implemented. www.ofgem.gov.uk/docs2003/dnoletter_jan.pdf generators, in particular renewables and CHP,
11 OFGEM has recently launched a help facility for smaller generators under were exposed to very high costs as a result
NETA www.ofgem.gov.uk
of the mechanism used to balance the
12 The DTI and OFGEM created and jointly chair the Distributed Generation
Co-ordinating Group. The Group is concerned with a wide range of issues
related to the connection and operation of distributed electricity generation
in Great Britain. The Group is also considering recommendations made by
an earlier group (Embedded Generation Working Group) on how to
encourage DNOs to connect higher levels of distributed generation
www.distributed-generation.org.uk 13 As discussed in chapter 9.
electricity system. NETA is evolving to deal

with these problems. It is important that the What is NETA?
balancing mechanism reflects costs and that The New Electricity Trading Arrangements (NETA)
the system as a whole provides a realistic were introduced in England and Wales on 27
route to market for all generators. We have March 2001. NETA replaced the Electricity Pool
worked with OFGEM to make the balancing whose centralised, inflexible arrangements for
mechanism more genuinely reflect costs. setting wholesale electricity prices meant that
A number of amendments have been made prices failed to reflect falling costs and increased
since NETA was introduced14. This has helped competition.
all players but especially smaller generators
NETA put in place market-based trading
such as renewables and CHP to operate more arrangements, more like those in other
effectively in the market. OFGEM has also commodity markets. The majority of electricity is
approved a proposal to introduce in February traded through bilateral contracts where prices are
2003 a further amendment that should more agreed between parties and on power exchanges,
accurately reflect the costs of being out of the remainder, around 2%, is traded through the
balance15. OFGEM is also committed to NETA balancing mechanism.
continuing to work with smaller generators to
The Balancing Mechanism has two functions.
ensure that the Balancing and Settlement As electricity cannot be stored, the transmission
Code is fully accessible to smaller generators16. system has to be balanced on a second by
We will continue to keep the operation of second basis to ensure system security. The
these aspects of NETA under close review. National Grid Company (NGC) operates a
We discuss the impact of NETA on the balancing mechanism to do this. The 2% of
electricity industry as a whole in chapter 7. electricity traded through the balancing
mechanism is due to generators and suppliers
being out of balance with their contracted
position; either a generator not producing enough
or too much electricity or suppliers not consuming
enough or too much electricity. NGC then has to
accept offers for more electricity, or bids to
produce less. These additional costs to NGC are
passed on through imbalance charges.
14 Modification P12 to the Balancing and Settlement Code (BSC) was

implemented on 2 July 2002. This has the effect of reducing gate closure
to one hour and has helped all participants (and especially less predictable
generators) better manage the risk of being out of balance.
15 Modification P78 to the Balancing and Settlement Code (BSC).
16 The Balancing and Settlement Code covers the trading, balancing and
subsequent settlement of electricity.
Section Two
BETTA... 17
for England . A separate guide containing
advice on best practice will also be
4.28 We have announced that we intend to bring published. These documents will provide
forward legislation to create a wholesale guidance to local planning authorities and
electricity market for GB as soon as developers about the best way to promote
Parliamentary time allows. The development renewables through the planning system as
of these new arrangements, is being well as encouraging a strategic approach to
undertaken with OFGEM and with the the deployment of renewable projects
involvement of industry. For planning through regional planning guidance and
purposes, we are working towards the development plans. We will also be
implementation of BETTA in October 2004. consulting on a new regional-level strategic
We intend to implement BETTA by April 2005 approach to energy issues, including
at the very latest. renewables, which we expect will incorporate
regional targets, as discussed further in
4.29 BETTA will mean that Scottish domestic and chapter 9. This approach will help to
business customers will benefit from the encourage regional bodies as well as local
same levels of competition that are now authorities to examine strategically the
established in England and Wales. The single resources and opportunities for renewable
set of trading rules, connection policies and projects within their areas and what they can
transmission charging arrangements under do to develop them in their region.
BETTA will reduce barriers for independent
generators across GB to getting their power 4.31 ODPM, in partnership with other
to market. BETTA will help to create a diverse government departments, will be examining
generating base in GB and encourage new how to bring consideration of the use of
transmission capacity, helping to support renewables and energy efficiency in
renewables development. developments more within the scope of the
planning system, in the context of the
review of PPG22 and the Government’s wider
Planning needs to be
planning reforms, and in a way that does
streamlined and simplified ...
not impose undue burdens on developers.
4.30 Many of those who responded to the white

4.32 We need better information on what is
paper consultation saw planning as one of
happening on the ground. We will therefore
the big obstacles to new renewables. We
work with local planning authorities and
recognise that this is a serious problem for
others to obtain better statistics on the
renewables. The Office of the Deputy Prime
number of renewable projects that are
Minister (ODPM) will shortly publish new
achieving planning approval and why
planning guidance on renewables (PPS22)
others are being rejected.
17 The Welsh Assembly Government is currently revising its national planning

guidance on renewables (TAN8) and has commenced the process of
developing a Wales spatial plan. The Scottish Executive updated its national
planning guidance (NPPG6) in 2000.
4.33 We have published legislative proposals18 to distributed generation, in gaining acceptance

streamline the public inquiry process for of new infrastructure and in developing
Major Infrastructure Projects in the planning opportunities for local energy delivery.
process in England by allowing lead Developers need to continue to engage local
inspectors to appoint further inspectors to planning authorities and work directly with
share the work and allowing issues to be communities. We have recently launched
considered concurrently in inquiries rather Clear Skies, a three-year capital grant
than sequentially. We will also apply these programme worth £10m, for schemes such
principles to decision-making for major as solar water heating and biomass heat
energy projects in England and Wales, where which have a strong community or household
focus. The Scottish Executive has also a
consents are awarded by the Secretary of
similar community and household capital
State for Trade and Industry.19 This should
grants scheme in Scotland worth £3.7m over
help streamline planning processes for large
3 years. Defra’s Community Energy scheme,
renewable energy developments and other
which has a two-year budget of £50m, helps
large generation plant and help major
install and refurbish community heating
upgrades of the transmission network.
systems. The Countryside Agency launched
the Community Renewables Initiative in 2002
4.34 There is currently no guidance on the
to help people to influence and benefit from
implications for land use planning at local
renewable energy. All of these schemes have
level for projects related to energy reliability.
a key role to play in helping to breakdown the
We will prepare a separate guidance
barriers to public acceptability of renewables
note focusing on this for local planning
by providing local residents with a direct
authorities. benefit from the renewables development.
People make the difference ...

Community action in practice
4.35 Increasing the deployment of renewables will
National Wind Power’s practice is to establish
depend on people supporting local projects20.
community funds at each operating wind farm in
The public consultation suggests people are
consultation with local communities and
keen on renewables, particularly for their
councillors. These funds benefit the community
contribution to tackling climate change.
and typically include student sponsorships,
But they feel that they do not know enough equipment for schools and village halls repairs.
about the impact of renewables in practice.
One such example is the provision of IT and other
equipment worth up to £60,000 to support 19
4.36 The white paper consultation has shown the
schools near the Bears Down Wind Farm in
value of community engagement. This will be
Cornwall. Local schools also received two days
crucial for the development of new forms of
energy efficiency training as part of a £30,000
energy efficiency scheme funded by the wind
18 Planning and Compulsory Purchase Bill farm and carried out by the Cornwall Energy
www.publications.parliament.uk/pa/cm200203/cmbills/012/2003012.htm
Advice Centre.
19 These powers are devolved in Scotland.
20 Renewable Energy in the UK (PIU, 2001)

www.piu.gov.uk/2001/energy/Renewener.shtml
Section Two
4.37 We see a clear benefit in local communities will provide advice to developers on any
becoming producers, as well as consumers, adjustments that could be made to the
of energy, establishing and benefiting from location of a wind farm in order to make it
the local ownership of some forms of acceptable to MoD. If this is not possible,
generation. To help promote ideas and good MoD will explain to developers the problem
practice we will collate and publish examples of siting a wind farm in the locality; and
of projects in which developers have gained
is supporting research to model the effect
added value by taking innovative
of turbines on radar and to identify ways
approaches to engaging and working with
in which adverse impacts could be
communities, in partnership with local
reduced, including technical adaptations
government and the renewables industry.
to turbine design.
We will simplify the procedures 4.40 MoD is also ready to engage with local
for accommodating our national authorities and regional bodies as they move
security needs... towards considering the best sites for wind
farms in the longer-term when they begin to
4.38 The Ministry of Defence (MoD) needs develop their regional strategies for energy,
to make sure that windfarm developments as discussed in chapter 9.
do not impair operational needs including
training and radar monitoring. MoD has
Learning to handle
objected to a third of all recent on and
intermittency...
offshore wind energy proposals21. We need
to work with the industry to reduce this.
4.41 Renewables contribute to certain aspects of
security of supply. Supplies will not be
4.39 To address these issues, MoD:
disrupted by international crises. But some
has contributed to the issue recently of will create additional system complications,
new guidelines for windfarm developers depending on the extent to which they are
through the Wind Energy, Defence and intermittent (wind energy, wave energy, tidal
Civil Aviation Working Group22, designed to and solar) and on the types of generation
increase the transparency of the process they displace. Intermittency causes additional
for assessing wind proposals; system costs. And as the proportion of
intermittent generation increases, the cost of
will provide more central guidance to those
maintaining stable supplies also increases23.
reviewing applications, develop a help line
for the industry and shorten proposal turn-
around times from the current 6-8 weeks;
23 The additional system costs - attached to transmission, the distribution

network and balancing generation and demand - of 20% and 30% of
electricity supplied by intermittent generation is equivalent to a maximum
of £0.9/MWh and £2.20/MWh respectively. It is quite possible that technical
21 Ministry of Defence (2002).
developments in storage, fuel cells and load management may by 2020
22 Comprising DTI, MoD, the Civil Aviation Authority, the British Wind Energy reduce such costs. Quantifying the system costs of additional renewables in
Association, the Devolved Administrations and others with an interest. 2020 (Ilex, 2002). www.dti.gov.uk/energy/developep/080scar_report_v2_0.pdf
4.42 These costs need to be managed and new Offshore wind -

ways found to minimise them. We are about to take off...
already funding research into this through the
DTI’s Renewable Energy and the Engineering 4.44 We have more wind off our coasts than
26
and Physical Sciences Research Council’s anywhere else in Europe . Given our
(EPSRC)24 SUPERGEN25 programmes. As part experience in offshore engineering, we should
of our current capital grant programme we be able to expect offshore windfarms to
allocated in 2002 an additional £4m to make a strong contribution to our carbon aims.
facilitate the demonstration of new control,
storage and metering technologies. 4.45 Developers have entered into agreements for
leases for windfarm sites around the UK
coast with a total capacity of at least
Renewable technologies 1400MW of renewable energy, sufficient to
are at different power a city the size of Greater Manchester.
stages of development... The offshore wind industry considers a
27
further 3000-4000MW can be built by 2010.
4.43 We need to scale up substantially our
deployment of renewables in order to secure 4.46 Only 250MW28 of offshore wind capacity has so
economies of scale and reduce costs far been installed world-wide. 4MW of this is
significantly. Some renewable technologies in UK waters. Although the long-term potential
are close to commercial deployment and looks promising, the economics of offshore
should be pulled through to market by the wind are very uncertain. In the short-term
range of measures that we have in place. significant fixed costs have to be borne
With support from the Renewables before installation can begin. Our programme
Obligation and the Renewables Obligation of capital grants has started to address this.
Scotland, onshore wind is already economic.
But we are also strongly committed to 4.47 Delivering our carbon aims will require the rapid
supporting the innovation that will be expansion of offshore wind not only within
fundamental to bringing forward new and territorial waters but beyond. We published in
29
emerging technologies. The remainder of this November 2002 a consultation document ,
chapter looks at what more needs to be done Future Offshore, which proposes a strategic
for us to fully establish a wide range of planning framework to harness the significant
renewable options to deliver our carbon aims. potential of offshore wind. The Future Offshore
consultation document includes proposals for
the provision and regulation of offshore
infrastructure for transmitting electricity.
We will work with OFGEM, developers and
the transmission companies, over the
26 BWEA, 2002 www.offshorewindfarms.co.uk/info.html

27 BWEA, 2002
28 BWEA, 2002
24 Government’s leading funding agency for research and training in
engineering and the physical sciences www.epsrc.ac.uk 29 Future Offshore: A consultation of the future framework for developing
offshore wind farms (DTI, 2002)
25 Sustainable Power Generation and Supply initiative www.epsrc.ac.uk www.dti.gov.uk/energy/leg_and_reg/consents/future_offshore/index.shtml
Section Two
A Renewables Timeline
The timeline below shows the key dates on the

critical path to help us to achieve our 2010 10%
target and to double the renewable’s share of
electricity generation in the decade after.
2000 2005 2010 2015 2020
2001/06: Biomass may be

Bio-energy capital grants and Energy Crops economically viable
scheme to develop biomass generating capacity. in mid-2010’s
2002 – 2012:
Implementation of solar PV demonstration PV may be
programme, in line with our competitors, as set economically viable
out in the “Opportunities for All” white paper. post-2020.
2002 - 2027: Operation of the Renewables Obligation
2003: 2005:
2005 onwards:
Second round Installation of offshore
Installation of further offshore wind farms
of allocation of wind farms from first
following the second and subsequent rounds
offshore wind sites round of allocation of
of allocating offshore wind sites.
offshore wind sites
2010 - 2015+
2005/06: Wave and tidal
2003:
We review the technologies
OFGEM sets the
Renewables Obligation may become
incentive
framework for commercially viable
distributed
generation, for 2005:
implementation in Next distribution price
April 2005 control implemented
2000 2005 2010 2015 2020
2002: 2010 target: 2020:

Renewables supply 1.5% Renewables supply 10% of Renewables supply around
of UK electricity (excluding UK electricity. 20% of UK electricity.
large hydro and mixed Onshore and offshore wind Onshore and offshore wind
waste incineration). Onshore may be the largest and biomass may be the
wind (500MW) and Landfill contributors to the largest contributors to the
Gas (400MW) largest renewables generation mix renewables generation mix
contributors. in 2010. in 2020.
coming months, to take this issue forward. 4.50 To develop a stronger stimulus to provide a
A second round of windfarm site allocations biomass supply chain, we will undertake a
is planned for spring 2003, focusing on three statutory consultation in 2003 of the
strategic areas of the sea within territorial current requirement under the Renewables
waters, informed by a strategic Obligation that by 1 April 2006 75% of
environmental assessment. the biomass in co-fired stations should be
energy crops31.
4.48 To enable further rounds to extend the
opportunity for developers to exploit areas
beyond the UK 12-mile zone we will also
Elean Power Station -
bring forward legislation as soon as the UK’s first straw-fired power plant
possible to enable the granting of licences
Elean Power Station at Sutton near Ely,
for offshore windfarm developments
Cambridgeshire, is the UK’s first straw-fired
beyond territorial waters. We will identify
power plant. With an electricity output of 36MW,
and assess the difficulties that might be
it is the world’s largest such facility. The power
posed for aviation and other military and
station will generate enough power to heat and
civil interests before we offer areas of the light 80,000 homes.
sea to the wind industry for development.
The 200,000 tonnes/per year of straw needed to
fuel the facility is being procured through long-
Biomass and waste technologies term contracts with farmers and contractors
need to gain momentum... located within a 50-mile radius. Running currently
on 100% straw, Elean Power Station also has the
4.49 Biomass30 and waste can be used for capability of using a range of biofuels and up to
electricity, heat and liquid fuels. Unlike wind, 10% natural gas. Whatever the exact make-up of
biomass and waste generation is flexible - it its fuel in the course of its life, the plant
can be generated at any time. A strong represents an important first in the development
of renewables in the UK and a significant step
biomass supply chain can also revitalise rural
forward towards the Government’s objectives for
communities, offering diversification
renewables deployment over the coming years.
opportunities for farmers and foresters as
well as job opportunities in growing, supply
and electricity plant building. We are
supporting biomass projects through our
3-year £66m Bioenergy Capital Grants
Scheme and through our £29m Energy Crops
Scheme, to help farmers and foresters
establish energy crops.
31 Stations that are powered by co-firing may have an important role to help
deliver biomass and energy crops and in delivering renewable energy
capacity quickly at relatively low cost. Under the current Renewables
Obligation arrangements, electricity generated from biomass by co-firing in
30 Biomass is anything derived from plant or animal matter and includes existing generating stations are eligible for Renewable Obligation Certificates
agricultural, forestry or wood wastes/residues and energy crops. Energy (ROCs) subject to two restrictions. Only electricity generated before 1 April
crops are crops grown for the purpose of energy generation, such as short 2011 will be eligible and from 1 April 2006 at least 75% of the biomass
rotation coppice willow and miscanthus. must consist of energy crops.
Section Two
4.51 The Government’s Strategy Unit published a expansion of generation from renewables.
report in November 200232 on its review into This in turn can create another significant
the delivery of our Waste Strategy 200033. opportunity, with world-wide application, for
The report includes the recommendation that our manufacturing sector.
we should ensure that there are financial
incentives to develop new waste technologies,
such as pyrolysis, gasification and anaerobic
Energy from the Oceans -
digestion. We are now considering the The Stingray Project
recommendations of the report.
Funded under the DTI’s Renewable Energy
Programme, a Northumberland-based company
Wave and tidal are further off The Engineering Business has successfully
but potentially very important ... developed its ideas for a tidal stream generator
system ‘Stingray’ from concept through to
4.52 Wave and tidal technologies are rather further demonstration stage. In September 2002,
from commercialisation, with a number of following early design work carried out under
competing designs. The UK is at the forefront Phase 1 of its project, a 150kW full-scale
of these technologies. On the island of Islay, prototype weighing 180 tonnes was built, installed
and successfully operated on the seabed in Yell
we have the only commercially operational
Sound, Shetland.
wave-power station in the world. Yet progress
from research and development to more general With early results encouraging, the technology
commercial application has been slow. But, as will continue to be developed with further
recognised in the Chief Scientific Adviser’s offshore testing planned this year. The company
review, the UK has an opportunity here to has plans to commence installation of a 5MW
develop world-leading expertise. ‘Stingray’ power station with connection to the
local distribution network in summer 2004.
4.53 Recognising this, we are supporting industry
to develop prototype wave and tidal
technologies in projects off the Western
4.54 Large-scale tidal barrages have the potential
Isles and Devon coasts. We are also
to make a significant contribution to carbon
supporting, along with the Scottish
Executive and others34, the establishment reductions in 2020 or beyond. But such
of a marine test centre off the coast of the schemes have a very substantial impact on
Orkney Islands. This centre, a first in the local and regional environment and are
Europe, is expected to open later this year. very expensive, though some of the costs
We are determined that wave and tidal could be offset by other benefits. It is clear
technologies should be given the opportunity that plans for a Severn Barrage would raise
to play the fullest part they can in the strong environmental concerns and we doubt
if it would be fruitful to pursue it at this
stage. Tidal barrages may be capable of
32 Waste Not, Want Not (Strategy Unit, November 2002)
www.piu.gov.uk/2002/waste/report/index.html
offering major renewable projects which will
33 Waste Strategy 2000 for England and Wales (Defra, 2000). help us reach our goals and we will continue
www.defra.gov.uk/environment/waste/strategy/cm4693/pdf/wastvol1.pdf
to explore opportunities.
34 The Carbon Trust, Scottish Enterprise, Highlands and Islands Enterprise,
Orkney Islands Council.
Solar PV is a potentially Fuel cells offer a

very large market... longer-term advantage...
4.55 The costs of solar PV technology have fallen 4.58 Fuel cells produce electricity from hydrogen
substantially over the last 25 years and are and air, with water as the only emission.
widely expected to fall further as global Potential applications include stationary
markets expand. We committed in the power generation, transport (replacing the
35
Opportunities for All white paper to internal combustion engine - as described
embarking on a major initiative with industry more fully in chapter 5) and portable power
and others to achieve a UK solar PV (replacing batteries in mobile phones, laptop
demonstration programme in line with those computers etc). Fuel cells also have the
of our main competitors. The current potential to help renewables produce more
programme, worth £20m over 3 years, is the stable supplies. Hydrogen can be generated
first stage of this process.
when electricity demand is less than that
being generated by the renewable energy
4.56 At present solar PV qualifies for the
source. This can then be converted to
Renewables Obligation. In practice almost all
electricity via the fuel cell when electricity
schemes are too small to generate the
demand exceeds that being generated by the
minimum 0.5MWh a month to qualify for a
36 renewable energy source.
ROC . We will explore whether there is
scope through the European renewables
4.59 To ensure that the UK is at the cutting-edge
Directive to help bring smaller sources of
of fuel cells technology, we will:
generation within the Renewables
Obligation. Through the Distributed following the Fuel Cells Market Study37
Generation Co-ordinating Group, we are funded jointly by DTI and the Carbon
also exploring the scope for developing Trust, work with industry to produce a
simpler metering arrangements to help Fuel Cells Vision for the UK;
micro generators (including solar PV)
launch a new industry network, Fuel
obtain a fair value for the surplus electricity
they export to the grid. Cells UK, in May through which the
industry can collaborate and work with
4.57 The Chief Scientific Adviser’s Energy Research us in implementing the vision (see Fuel
Review Group also identified solar PV as a key Cells UK box);
research area and specifically recommended develop a web-based fuel cells exchange
that work on novel emerging systems, such
so that global information can be
as organics and polymers, could offer major
accessed quickly and easily by UK industry;
decreases in the costs of production.
35 Opportunities for all in a World of Change (DTI, 2001)

www.dti.gov.uk/opportunityforall/pages/contents.html
36 Eligible renewable generators receive ROCs for each MWh of electricity

generated. These certificates can then be sold to suppliers. In order to fulfil
their obligation, suppliers can either present enough certificates to cover
the required percentage of their output, or they can pay a “buyout” price of
£30/MWh for any shortfall. All proceeds from buyout payments are recycled 37 Review of Fuel Cells Commercial Potential for DTI and the Carbon Trust
to suppliers in proportion to the number of ROCs they present. (E4Tech, 2003) www.dti.gov.uk/energy
Section Two
develop a research programme dedicated

to fuel cells to be funded jointly by Fuel Cells UK
EPSRC, DTI and the Carbon Trust; Interest in fuel cells across the world has never
review the objectives of the DTI research been higher as commercialisation draws closer.
and development programme; The UK has a significant number of fuel cell
players but there is no established forum to
encourage UK organisations to work enable the industry to come together and to raise
with the DTI’s International Technology its profile. Fuel Cells UK is being established to
Service to identify potential partners and foster the development of a UK industry, to raise
to participate in European collaborative the profile of fuel cell activity in the UK, and to act
research and development (R&D) projects as central liaison point for national and
including the EUREKA programme and to international activity.
complement work by National Contact Fuel Cells UK will become the first point of
38
Points to support participation in the contact for information on UK fuel cell activities.
EU’s 6th Framework Programme; It will develop and distribute relevant promotional
material (including a UK capabilities guide) and
in collaboration with the EPSRC, review
will foster partnering by linking potential partners
the supply of doctorates and MScs with
together. Its activities will be guided by a high-
the requisite skills; and level steering group which will ensure that its
working with the Carbon Trust, DTI’s activities have maximum relevance for industry.
Small Business Service and Regional Fuel Cells UK will work closely with existing and
Development Agencies, support new new initiatives across the UK to build synergies
start-ups in this sector. and optimise the outcomes for both the industry
and other stakeholders (including Government).
One such DTI initiative will be Fuel Cells Forum, a
network for industry, academia, venture capitalists
and Government stakeholders in fuel cells to
exchange and disseminate information.
Fuel Cells Forum will enable organisations to

highlight their activities, and for industry to pose
challenges to the research community. The DTI’s
International Technology Service offers the
possibility for stakeholders to identify and engage
overseas partners and keep abreast of
developments overseas.
38 National Contact Points provide an information and assistance service for

UK organisations seeking R&D support from the EU’s Framework
Programme for Research and Development.
Research is needed to 4.63 If the UK is to compete globally, projects

give us new options for need to move out of the R&D stage into
the longer term... commercialisation. We have a role to play in
facilitating this. Through Renewables UK
4.60 Technology will almost certainly surprise us we will develop by April 2004 programmes
in the field of renewables as elsewhere. and tools to assist the UK renewables
To expand the knowledge base we have supply chain.
already provided an extra £8 million to the
Research Councils specifically for
Widening the renewables
renewables research over the next three
obligation certificate market...
years. This is part of a new £28m
investment in support of sustainable
4.64 The Northern Ireland Executive has recently
energy research. The money will be spent
brought forward an Energy Bill containing
on fundamental research into a range of
provisions to introduce a Northern Ireland
technologies, consistent with the
Renewables Obligation. We are considering
recommendations of the Chief Scientific
with the Scottish Executive how we
Adviser’s Energy Research Review Group.
might devise a system allowing mutual
recognition of Renewable Energy
4.61 We also need to support industry in taking the
Certificates under the Renewables
new ideas generated in the laboratory to
Obligation and those in Northern Ireland
the point where they can enter the market.
We have increased the amount available to under their future Obligation.
support industrially-led research and
development through the DTI (£19m per year) The international community
and the Carbon Trust (£5m per year). has a role to play...
Renewables offer big 4.65 The World Summit on Sustainable

opportunities for UK business... Development (WSSD) took place in
Johannesburg in August/September 2002.
4.62 The growth in the global renewables market The Summit brought together 180 countries
offers considerable opportunities for UK who reaffirmed the international community’s
companies to create jobs in manufacturing, commitment to sustainable development
services and supplies and to improve their through action to provide access to clean
export capabilities. The development of water, sanitation and sustainable energy, and
windfarms is already producing new jobs in to protect biodiversity, the oceans, fish
manufacturing39. Renewables UK will help stocks and natural resources. The Summit
to secure benefit for UK industry in the agreed joint actions urgently and substantially
renewables market. to increase the global share of renewable
energy sources.40 At the Summit the Prime
Minister announced that the UK’s Export
39 The world’s leading wind turbine manufacturer, Vestas, established a
turbine manufacturing base at Campbeltown in the Kintyre peninsular
creating 130 jobs. Cambrian Engineering is establishing a wind turbine
tower and offshore pile manufacturing and assembly operation at Arnish
in the Isle of Lewis, expected to create 65 jobs. 40 www.johannesburgsummit.org/
Section Two
Credit Guarantee Department will make 4.66 We will integrate the WSSD agreements
available £50m per year to renewable energy and relevant follow-up into UK policy and
exports to developing countries. The action with a clear focus on the use of
Sustainable Energy Exports Committee will technological innovation to deliver
work to deliver this commitment. At WSSD, sustainable development. We will work
the UK also launched and is taking forward an with like-minded states to promote the
international partnership to promote the deployment of renewable sources of energy
growth of renewable energy and energy in developing countries, building on the
efficiency systems (REEEP). initiatives launched at WSSD as well
as encouraging investment in appropriate
energy infrastructure.
A Renewable Energy and Energy

Efficiency Partnership (REEEP)
We do not propose
REEEP aims to deliver our WSSD commitments new nuclear build...
on energy and take forward the recommendations
of the G8 Renewable Energy Task Force for 4.67 As chapter 1 makes clear, our priority is to
removing the policy, technical, market and regulatory strengthen the contribution that energy
barriers to renewable energy and energy efficiency. efficiency and renewable energy sources
Interested partners include governments from make to meeting our carbon commitment.
OECD and non-OECD countries, businesses, We believe that such ambitious progress is
non-Governmental organisations and international achievable, but uncertainties remain.
agencies committed to accelerating the market
development of renewable energy and energy 4.68 While nuclear power is currently an important
efficiency technologies. source of carbon free electricity, the current
The partnership will focus on: economics of nuclear power make it an
unattractive option for new generating
state-of-the-art policies for power sector reform
capacity and there are also important issues
and building on best regulatory practice to
promote distributed energy systems;
for nuclear waste to be resolved. This white
paper does not contain proposals for building
innovative financing and tradable certificates
new nuclear power stations. However, we
for renewable energy and energy efficiency
do not rule out the possibility that at some
projects; and
point in the future new nuclear build might be
evaluation and awareness raising of the non-
necessary if we are to meet our carbon
carbon reduction benefits of renewable energy
targets. Before any decision to proceed
such as energy security, rural development and
with the building of new nuclear power
export opportunities
stations, there would need to be the fullest
public consultation and the publication
of a white paper setting out the
Government’s proposals.
But we are not seeking to shut

existing stations prematurely... Managing the Nuclear Legacy
Irrespective of decisions on future nuclear build,

4.69 The financial problems of the private sector the legacy of nuclear waste has to be dealt with
nuclear electricity generator, British Energy, safely, securely and cost effectively in ways that
are well known. These problems are about a protect the environment for current and future
company, not about the future of nuclear generations. We have announced our intention to
power. Our main objectives with regard to make radical changes to arrangements for nuclear
British Energy continue to be the safety of its clean-up funded by the taxpayer. The white paper
nuclear power stations and the security of Managing the Nuclear Legacy41 set out proposals
electricity supplies to the grid and for a new authority, the Nuclear Decommisioning
Authority (NDA), to deal initially with the historic
consumers. British Energy’s nuclear power
liabilities already funded by the taxpayer, which
stations will continue to generate electricity.
represent 85% of total UK nuclear liabilities.
And since the revenue from continuing to run
The NDA will set a framework for a clean up
those stations more than covers the
programme over the long-term, securing best
avoidable costs of their operations, this value for money consistent with high safety,
revenue can be put towards paying for the security and environmental standards, and using
nuclear liabilities that are already incurred and the best available skills through competitive
cannot now be avoided. markets for clean-up contracts. Preparation for the
necessary legislation is underway.
4.70 Under the company’s restructuring proposal,
For nuclear sites outside the NDA remit, we
announced on 28 November 2002, which is
will seek to ensure there are adequate
subject to the approval of the European
resources set aside to provide for clean-up.
Commission, we are taking on financial
responsibility for the company’s historic spent In 2001, the Government and the Devolved
nuclear fuel liabilities. We are also, to ensure Administrations for Scotland, Wales and Northern
Ireland published Managing Radioactive Waste
safety and environmental protection,
Safely,42 a proposed programme of action for
underwriting new and enhanced
deciding how best to manage the UK’s solid
arrangements by the company to meet
radioactive waste in the long-term. Having
decommissioning and other liabilities.
considered responses to the proposals, we
On 14 February 2003, British Energy secured announced in July 2002 that we would set up a
the agreement in principle of its financial new independent body to oversee a review of
creditors to its restructuring proposal. different ways of managing the waste, and to
recommend a national strategy to Ministers.
We hope to receive recommendations and
announce the strategy by 2006.
41 July 2002, CM5552
42 Managing Radioactive Waste Safely, 2001

www.defra.gov.uk/environment/consult/radwaste/pdf/radwaste.pdf
Chapter 5 Clean Low Carbon Transport
Transport will contribute

to carbon reductions... The Powering Future Vehicles
(PFV) strategy
5.1 The transport sector, including aviation, The PFV strategy provides a framework for
produces about one quarter of the UK’s total decisions and action, aimed at promoting the
carbon emissions. Road transport contributes development, introduction and take-up of low-
85% of this, with passenger cars accounting carbon vehicles and fuels; and at ensuring the full
for around half of all carbon emitted by the involvement of the UK automotive industries in
transport sector. the new technologies.
The key components of the strategy are :

5.2 The movement of people and goods will
to promote research, development and
remain essential for economic success.
demonstration of new vehicles, fuels and
Rising demand for transport reflects the
fuelling infrastructure;
priority which people attach to mobility.
to ensure that environmental, health and safety
Transport is and will continue to be a highly-
issues are dealt with;
valued, high demand commodity.
to ensure that new technical standards and
5.3 But we can reduce the impact of transport on testing procedures are promptly developed and
the environment through better, cleaner put in place;
vehicles and fuels and by our action to to work proactively with EU and other partners
reduce the negative impacts of traffic growth. on international issues and standards;
to facilitate the quick and smooth development
5.4 Measures for promoting a shift to low-carbon of new fuel distribution infrastructures;
vehicles and fuels are brought together in our to ensure the continued development of
1
Powering Future Vehicles strategy, published appropriate taxation of low-carbon transport;
in July 2002. That strategy is in this and other ways, to encourage
complementary to this white paper. In the
consumers’ take-up of low-carbon vehicles
foreword to the strategy, the Prime Minister and fuels, including financial measures and
spelled out his objective that the UK should consumer information and awareness;
lead the global shift to the low-carbon
to make maximum use of new vehicles and
economy, building competitive advantage for
fuels in the Government and other public
the UK’s automotive industries as well as
sector fleets;
providing cleaner and better transport. We have
to work closely with all stakeholders in
set targets that within the next decade one in
establishing the Low Carbon Vehicle
ten new cars sold in the UK will be low-carbon
Partnership; and
vehicles with emissions of 100 grammes per
to set challenging targets for making the
kilometre (g/km) CO2 or less, and that one in
five new buses will also be low-carbon. UK a world leader in the move to low-carbon
We have made the UK the first country to set transport.
itself targets for shifting its mainstream
transport fleet to low-carbon technologies.
1 Powering Future Vehicles: The Government Strategy. DfT, DTI, Defra and
HMT, July 2002
5.5 Action at both UK and European level has Innovation will continue to
already promoted significant technical improve vehicle efficiencies...
progress and innovation in the automotive
industries. We expect this progress to 5.8 The EU voluntary agreements on new car
continue. Since 1990, the average carbon fuel efficiency with the European, Japanese
efficiency of new cars entering the fleet - the and Korean manufacturers have proved a
distance travelled for a given amount of highly effective mechanism for improving
carbon emitted - has improved by 10%. Cars cars’ fuel efficiency and reducing carbon
have also become safer and cleaner, with air emissions. They have provided manufacturers
quality emissions down to one twentieth of with a stable long term framework within
what they were 20 years ago. These are which to plan, research and introduce fuel-
important achievements. At the same time, saving innovations. This approach, which
strong economic growth and the high priority focuses on the levels of carbon emitted
which people attach to mobility has led to rather than on dictating particular technologies,
increasing car mileage. The net effect is that gives manufacturers the flexibility to develop
total carbon emissions from car transport the best and most cost-effective solutions.
have been roughly flat. The agreements are on course to reduce
emissions from the average new car from
5.6 The Transport Ten Year Plan2 sets out a 190g/km in 1995, the base year for the
comprehensive programme of investment agreements, to 140 g/km by 2008 - a
and innovation. The strategy focuses on reduction of around 25%3.
addressing the negative impacts of congestion.
It promotes increased use of public transport 5.9 We strongly support this approach. We will
and a shift of goods traffic from road to rail, work with the Commission in developing
as well as sustainable patterns of land use. further voluntary agreements to continue
All help to reduce the need to travel and the reduction in average new car emissions
consequent environmental impacts. By 2005, or other arrangements with the same
we expect to see progress as a result of objective. We will draw on the expertise of
schemes to tackle traffic bottlenecks; a the Low Carbon Vehicle Partnership in doing so.
growing programme of new bypasses and
other major road improvement schemes; 5.10 In the UK we have backed the voluntary
better traffic management, helping to limit agreements with a supportive fiscal
congestion on both motorways and in towns framework. We have moved to graduated
and cities; and increased use of public transport. Vehicle Excise Duty and Company Car Tax,
both now linked to the car’s CO2 performance.
5.7 The Plan will be reviewed in 2004. The review This is encouraging car buyers to consider
will roll forward the Plan, setting out proposals buying the lower-carbon vehicles coming
for transport up to 2015 and will continue to into car showrooms. We will keep transport
take full account of our objective to reduce taxes under review to ensure that they
the environmental impact of transport.
2 Transport 2010 - the Ten Year Plan, Department of the Environment, 3 All figures relating to the voluntary agreements are for ‘tank to wheel’
Transport and the Regions, July 2000. emissions.
Section Two
Chapter 5: Clean Low Carbon Transport
continue to provide incentives to encourage it has attracted international attention.

the early development and take-up of low A further call for projects is in progress, to
carbon vehicles and fuels. deal with identified Roadmap priorities.
Vehicle taxation - supporting

low-carbon choices
Before 1999, Vehicle Excise Duty (VED) was

the same flat rate for all cars. VED for new cars
is now graduated, linked to a car’s CO2 emissions.
VED now ranges from £60 to £160, with zero
duty for electric vehicles.
Company Car Taxation (the personal tax on

private use of company cars) also shifted to a
graduated, CO2-linked basis last year. Tax is
payable on a proportion of car list price, ranging
from 15% to 35% for higher emission cars.
We are monitoring the impact of the shift to CO2-

related taxation on car buyers’ choices. Diesel car
registrations in 2002 - with their lower CO2
emissions - were 38% up on the previous year,
taking diesel’s share of total new car registrations
to 23.5%, compared with less than 5% in 19904.
5.11 We are also supporting strategic automotive

research and development through the
Foresight Vehicle programme. Over 400
companies and organisations are involved in
projects valued at £100m. Around one third
of these projects relate to low-carbon vehicle
technologies, including new powertrains,
advanced electronics and advanced materials
and structures. The Foresight Vehicle
Technology Roadmap5 was developed in
collaboration with industry, and identifies
priority issues. Published in November 2002,
4 Society of Motor Manufacturers and Traders Analysis of 2002 car sales.
5 www.foresightvehicle.org.uk/initiatives/init01.asp
Foresight Vehicle Programme -

Project Examples
HEART4EV LAMTRAK will assist Torotrak in meeting its target

of 80% penetration of the world’s automatic
This project seeks to increase the efficiency of
transmission market. The project will improve
the gas turbines used to power hybrid vehicles.
understanding of the elastohydrodynamics of
The current limitation of this technology is a
friction reduction in thin lubricating films. This in
reliable, low cost, highly effective air-to-air heat
turn will lead to increased application in vehicles,
exchanger (known as a “recuperator”), used to
leading to greater fuel efficiency.
recover energy from the turbine’s high
temperature exhaust gases and pre-heat the RHOLAB
incoming air.
The RHOLAB project aims to develop a novel lead
The project will result in the UK having a world acid battery incorporating thermal management,
leading, low-cost, durable and highly effective fault tolerance and safety features as a traction
recuperator, for marketing worldwide. It will also battery for hybrid vehicles. A battery pack must
open the way for future drivetrain programmes meet a specification that includes sensing,
aimed at establishing the recuperated switching and thermal and electrical control
microturbine as an alternative to reciprocating devices in a way that does not jeopardise its
internal combustion engines, with significantly manufacturability. As part of the project, the
lower fuel consumption and carbon emissions. consortium will build a prototype pack that will
allow the operation to be assessed while
HERO
powering a hybrid vehicle.
This project is investigating the application of
CHOICE
parallel hybrid drivetrain technology in an off-road
4x4 vehicle. HERO demonstrates that the This project will design, build and evaluate a
application of hybrid technology in the form of a diesel series hybrid city bus incorporating vehicle
“mild hybrid” can enhance both the performance and passenger information systems.
and functionality of an off-road vehicle and
The vehicle performance will be optimised in
reduce its environmental impact. This could
terms of exhaust emissions and fuel efficiency
significantly reduce exhaust emissions and allow
based upon a wide range of input information
the use of regenerative braking to make
including current and predicted operational duty,
significant gains in efficiency.
actual measured performance and current and
LAMTRAK immediate route location. The platform for the
project is the Dennis Dart SLF single deck 50-
This project is supporting another innovation - an
passenger bus, with latest access features for
infinitely variable ratio transmission device for
disabled passengers. The series hybrid powertrain
use in vehicles - known as the Torotrak rolling
will employ an engine from the passenger car
traction variator - to increase fuel efficiency and
sector, giving lower cost, better emissions
reduce pollution.
performance and fuel economy, compared to
conventional bus powertrain systems.
Section Two
5.12 The creation of the Low Carbon Vehicle 5.13 Work6 commissioned by the Department for
Partnership is an important component in the Transport and the DTI indicates the scope for
Powering Future Vehicles Strategy. further reducing average new vehicle carbon
emissions. It suggests that full-specification
family cars with carbon emissions of
The Low Carbon Vehicle 100g/km (equivalent to about 75 miles per
Partnership - (LowCVP) gallon of diesel) or less may be achievable
within the next two decades, in particular
LowCVP - an action and advisory group - will
through hybrid and related vehicle technologies.
promote the UK’s shift to low-carbon transport,
help industry, consumers, environmental and
As the Foresight Vehicle Programme projects
other stakeholders to participate in the shift, and show,(see box, page 66) this is an area of
maximise the competitive advantage for UK technology where the UK has a strong
businesses. research, development and design presence.
Launched in January 2003, the Partnership Board

is made up of top-level executives of UK auto
manufacturers, transport operators, consumer and
environmental groups and the research and
technology sectors.
Early projects will include:

a collaborative programme involving bus
manufacturers, operators and users in shifting
the UK to low-carbon buses;
a programme to build the UK component
industry’s capability in the design and
manufacture of key components for new
technology vehicles;
advice to Government on the role and remit
of the Centre of Excellence for Low Carbon and
Fuel Cell Technologies, an initiative proposed
by the Automotive Innovation and Growth
Team (AIGT) now being taken forward by the
Government;
advice to Government on the setting of 2020
targets for ultra-low-carbon vehicles, including
zero-emission vehicles, and on the priorities for
government R&D programmes; and
helping Government co-ordinate its low-carbon
research development and demonstration
activities and providing a ‘single portal’ for
potential participants.
6 Carbon to Hydrogen Roadmap for Passenger Cars : A Study for DfT and
DTI, Ricardo Consulting Engineering Ltd, November 2002.
Hybrid vehicles
Hybrid vehicles use internal combustion engines performance with a 1.2 litre diesel engine.
in conjunction with electric battery power, to give A number of global vehicle manufacturers and
increased efficiency, lower fuel consumption and component suppliers are now applying i-MoGen
lower CO2 emissions. Hybrids usually incorporate technology in their future programmes.
energy recovery from braking systems, and
We are supporting development and road
eliminate engine idling in static traffic. This also
demonstration trials of hybrid and other
reduces noise and urban pollution. Hybrid vehicles
innovations through the Government’s New
will increasingly have the capability to switch to
Vehicle Technology Fund. Projects include a
electric-only driving for extended distances, giving
micro-turbine-engined bus developed by the
zero tailpipe emissions for example when driving
Wright Group of Northern Ireland; two other
through Low Emission Zones.
hybrid bus projects being carried through by EA
We support take-up of hybrid cars with £1,000 Technology and Environmental Transportation
purchase grants under the TransportEnergy Systems; and an LPG-fuelled hybrid urban delivery
programme, administered by the Energy Saving van being developed by ENECO Ltd. Projects in
Trust. Hybrids also benefit from lower Vehicle the pipeline include several demonstration pilot
Excise Duty and Company Car Tax. diesel hybrid taxis.
Two hybrid cars are currently available in the UK - Hybrid technologies provide direct and immediate
the Toyota Prius, a family saloon with CO2 emissions benefits in reducing cars’ fuel consumption,
of 120g/km7 and the Honda Insight, a two-seater driving costs and carbon emissions. They also
car at 80g/km. A four-door Honda Civic hybrid will provide a stepping stone to the development of
become available in early 2003, at 116g/km. mass-market hydrogen powered fuel cell vehicles,
since the electric traction and control systems
UK-based Ricardo Engineering Consultants have
used in hybrid vehicles will also be key
produced the i-MoGen - a demonstration hybrid
components in fuel cell vehicles.
diesel car, delivering full 1.8 litre diesel
We can also reduce emissions

through lower-carbon fuels...
5.14 Better cars will significantly reduce fuel use

and carbon emissions. But we can also reduce
the carbon intensity of transport by adopting
fossil fuels that have a lower-carbon content.
We already support the increased use of the
well-established road fuel gases - LPG
(Liquefied Petroleum Gas) and natural gas.
7 A car which has a fuel economy of 55mpg will emit 120g/km of CO2
Section Two
5.15 And we are promoting the wider use of other

LPG and Natural Gas alternative fuels - in particular biofuels -
We promote the wider use of these gases
which have significantly lower lifetime carbon
through lower rates of fuel duty, and through our emissions. With the low duty rates being
TransportEnergy Programme, run by the Energy introduced, we estimate that biodiesel and
Saving Trust. This provides grants for the bioethanol could account for up to 5% of
purchase and conversion of gas vehicles, and total fuel use by 2020.
works together with the fuel industry on the fuels’
availability on the road, and with vehicle
manufacturers.
Biofuels for transport
Starting from scratch in the late 1990s, LPG is
Alongside renewably-produced hydrogen, fuels
now available nationwide from over 1,100 filling
made from biomass represent an important
stations. The positive experience of LPG shows
potential route for achieving the goal of zero-
that, with industry and Government working
carbon transport, creating new opportunities for
together, major innovations in fuel technologies
agriculture in the UK as well as globally.
and distribution can be quickly and successfully
carried through. We have reduced the duty on biodiesel to 20
pence/litre below the standard (ultra low sulphur)
There are currently (February 2003) around
diesel rate, and this fuel is now coming on to the
75,000 LPG cars in the UK. We have particularly
retail market in increasing volumes in a 5% blend
encouraged manufacturers to develop off-the-
with conventional diesel. Some lorry fleets are
shelf LPG car models, to make this fuel a
also converting to 100% biodiesel fuelling.
mainstream showroom option for car buyers.
Models are now available from eight As announced in the Pre-Budget Report in
manufacturers. November 2002, we propose to introduce the
same 20 pence/litre incentive for bioethanol,
Natural gas is mainly used in heavy vehicles.
subject to EU agreement. This can also be used in
Apart from lower emissions, the noise from gas
blends for existing cars, potentially also as an
fuelled engines is up to two-thirds lower than
85% pure biofuel in adapted cars.
diesel engines, a useful environmental benefit in
busy urban areas. TransportEnergy grants support Biofuels are currently made from food crops.
the conversion or purchase of lorries, buses and We are also interested in supporting the
utility vehicles. A major supermarket chain is in development of bioethanol and biodiesel
the process of converting its delivery fleet. Work production from biomass such as farm wastes,
with industry - vehicle manufacturers, users and forestry residues, coppice crops and possibly also
fuel suppliers - continues with a view to domestic waste.These can potentially deliver
encouraging wider take-up. bigger carbon savings and wider environmental,
farming and rural employment benefits.
Our objectives for natural gas reflects the EU
Commission’s analysis of the future pattern of
transport energy use, which identified natural gas
- alongside biofuels and hydrogen - as an
important component in widening fuel diversity
and energy security in the transport sector.
A significant contribution the large-scale use of hydrogen-fuelled

to carbon reductions... vehicles will come at the point when surplus
low-carbon energy becomes available.
5.16 Taken together, the proposed continuation of
voluntary agreements on vehicle carbon dioxide 5.19 But on a longer-term time scale, hydrogen
performance, increased use of biofuels and use in transport has major potential for
other initiatives could improve the carbon decoupling transport and carbon, if current
efficiency of transport by up to 10% by 2020. technological and cost barriers can be
The carbon savings will increase further overcome. We are is therefore supporting
beyond 2020 as more fuel-efficient cars research, development and demonstration
spread progressively into the fleet. programmes (including vehicles and
fuelling infrastructure) to overcome the
initial market barriers to the development
Ultimately taking us beyond of this technology. The Chief Scientific
fossil fuels, to a very low-carbon Adviser’s Energy Research Review Group
transport economy... recognised that hydrogen production and
storage was a key research area.
5.17 Although vehicle technologies seem capable
of becoming twice as fuel-efficient as today’s
vehicles, deeper carbon reductions will need
low-carbon fuels - either hydrogen (generated
from non-fossil sources) or biomass-based
liquid fuels.
5.18 The auto industry generally expects hydrogen

powered fuel cell cars to move towards
mass-marketing around 2020. This timetable
ties in with the findings of a recent
investigation8 carried out for us by environment
and energy experts from three leading UK
environmental organisations, the Energy
Saving Trust, the Institute for European
Environmental Policy and the National Society
for Clean Air. This study indicates that the
greatest carbon savings from early non-
carbon electricity will come from its use to
displace more carbon intensive electricity
generation rather than from its use for
transport energy. This suggests that the
major environmental benefits from a shift to
8 Fuelling Road Transport - Implications for Energy Policy, by Nick Eyre,

Malcolm Fergusson and Richard Mills, November 2002.
Section Two
Hydrogen, transport
and future energy systems
Hydrogen looks likely to play a key role in future Hydrogen seems likely to play a key role in future
low-carbon energy systems, as an ‘energy carrier’ transport technologies. We are supporting the
through which non-fossil energy can replace fossil shift by:
fuels in stationary power units such as domestic exempting hydrogen from road fuel duty for
fuel cell based CHP units and in vehicles. Hence the a period to encourage its early development
very wide interest in the prospective shift to a and take-up;
future ‘hydrogen energy economy’.
granting Enhanced Capital Allowances with
Hydrogen fuelled vehicles have zero tailpipe a 100% first-year write-down for investment
emissions - they emit only water vapour at the in hydrogen fuel infrastructure;
point of use, improving local air quality. They will supporting fuel cell research (see paragraphs
also be low-noise. Industry experts agree that 4.59-4.60);
buses, utility vehicles and similar depot-based
giving hydrogen projects a high priority in the
fleets are likely to be candidates for the early
Carbon Trust’s Low Carbon Innovation
trialling and introduction of hydrogen fuel cell
Programme;
technology, since larger vehicles can handle
funding the trialling of fuel cell buses by
hydrogen fuel tanks more easily and need only
depot supply of the fuel. Transport for London in 2003 and the
supporting hydrogen fuelling station being
There is considerable international interest in installed by BP;
developing hydrogen for transport. In the USA,
supporting the trialling of fuel cell cars as
increased funding for research and development
these come out of car-makers’ design
into hydrogen-powered vehicles was announced
laboratories; and
in the 2003 State of the Union address. The aim is
working with London and other local and
to take hydrogen powered vehicles from the
laboratory to the showroom within a generation, regional organisations on a wider network of
and to develop hydrogen production, storage and demonstration trials, including linkages with
distribution technology. This is expected to create existing local hydrogen distribution networks
further opportunities for US-UK collaboration. such as that on Teesside. We will encourage
projects that can demonstrate hydrogen
Hydrogen can be produced from a wide range of production in combination with other carbon
sources, including hydrocarbons, biomass and abatement technologies.
wastes, or the electrolysis of water. But these
sources must themselves be non-fossil for hydrogen
vehicles to deliver their full lifecycle carbon benefits.
A low-carbon economy We need to reduce the

needs to be planned for... emissions from aviation...
5.20 We expect both hydrogen and biomass fuels 5.22 Demand is rising in the aviation sector
to play major roles in a very low-carbon internationally at about 4% a year. We all
transport economy, with benefits also in benefit from the growth in business, services
terms of improved energy diversity and and our ability to travel. International aviation
security. But significant use of hydrogen for emissions currently do not count in the
transport has profound implications for the national inventories of greenhouse gas
long-term demand for non-fossil electricity as emissions. There is no international
well as for future energy infrastructures, agreement yet on ways of allocating such
including electricity and gas. Equally, emissions. The UK’s international emissions
significant use of biofuels for transport has currently amount9 to some 8MtC (9MtC
major implications for biomass production, including domestic). They are expected to
fuel production, and fuel distribution - as well rise to some 14-16MtC by 2020.
as for the rural economy and agriculture.
5.23 We are committed to ensuring that the
5.21 We need to adopt a strategic approach to long-term development of aviation is
both these important new technologies, sustainable and that it meets its external
bringing together the prospective uses of environmental costs. We are discussing
hydrogen and biofuels in transport with other with stakeholders the most economic
aspects of the energy system. We need to instruments for ensuring that the industry
understand more about the options and is encouraged to take account of, and
technologies for hydrogen and biofuel where appropriate reduce, its contribution
production. And we need a clear vision of the to global warming. We will set out our
way in which infrastructures can evolve in plans in an Air Transport white paper.
good time. With industry, we also need to Potential instruments to address CO2
reach a common understanding of the likely emissions from international aviation being
trajectory to the availability of affordable considered internationally include an en route
hydrogen vehicles. Drawing on the Low emissions charge and participation in an
Carbon Vehicle Partnership and other open emission permit trading system.
expert knowledge, we will over the next For domestic flights British Airways has
year produce an assessment of the overall joined the UK emissions trading scheme.
energy implications of both a hydrogen These may be opportunities for future
economy, and of large-scale use of participation in this scheme for other carriers
biomass-based fuels, and develop who operate UK-based routes.
roadmaps of the possible transition to
these new fuels and vehicles.
9 UK aircraft CO2 forecasts for 2030 are reported in Annex E of : The Future
Development of Air Transport in the United Kingdom: South East.
Department for Transport, July 2002 and February 2003.
Section Two
Reduced emissions from And rail...

the other transport
modes, such as shipping... 5.26 Rail transport carbon emissions, accounting
for less than 1% of total UK emissions, are
5.24 Other transport modes account for much typically about half those for road-based
smaller amounts of energy and carbon but modes per passenger or tonne per kilometre.
can contribute useful reductions. Like Investment in rail infrastructure will help to
aviation, shipping is international in nature reduce overall carbon emissions by
and in its oversight. The UK supports the supporting the shift in passenger and freight
work of the International Maritime transport from roads and domestic aviation.
Organisation (IMO) to put in place a global New rolling stock on the network is also
strategy for reducing greenhouse gas more energy efficient, further helping to
emissions from ships. An IMO Working improve carbon performance.
Group is working on both technical
improvements to engines, onboard
machinery, hull and propeller design, and also
working on operational and market-based
measures such as environmental indexing of
ships, voluntary agreements, emission
standards and emission trading. The Working
Group will put forward a draft resolution on
the strategy at the IMO Assembly this year.
5.25 On the domestic shipping front the we are

working to reduce carbon emissions from
domestic freight transport by encouraging a
switch from road to other modes. Freight
Facility Grants support freight owners and
carriers in switching traffic from road to
inland waterways and this programme has
now been extended to coastal freight and
short sea shipping.
Section
Three
Reliable, competitive
and affordable supplies
Section Two of this white paper

outlined our proposals to move to a
low carbon economy and explained
how energy and environmental
policy will in future be better
integrated. As we outlined in the
first chapter, we also have three
other goals that we believe can be
achieved simultaneously alongside
action to reduce carbon emissions -
reliability of supply, competitiveness
and affordable heating and lighting
in every home. These are dealt with
in turn in the next three chapters.
Chapter 6 Energy reliability
6.1 Our goal is that people and businesses can than exporter. And we need to rise to even
rely on secure supplies of energy - gas, longer-term challenges in reconciling the use
fuel and electricity - at predictable prices of energy with long-term environmental
delivered through the market. Reliable objectives, both domestically and overseas.
energy supplies are an essential element of
sustainable development. 6.5 In preparing this white paper, we have
considered these issues carefully. The energy
6.2 To achieve this we need a resilient energy supply risks that we face are important. But
system, without significant weaknesses, we believe they are manageable. Our new
which works well and which recovers quickly arrangements for monitoring energy security
if problems occur. This means a diverse have given us better information on risks and
system based on a mix of fuel types, a opportunities and on the markets’ response
variety of supply routes, efficient international
to them. Energy markets are already
markets, back-up facilities such as storage,
responding2. Our role is continually to monitor
and a robust infrastructure. Developing low
developments, and to create a competitive
carbon options will also create opportunities
market place, including through good
further to increase energy reliability1.
international relations, within which liberalised
markets will deliver energy reliability.
6.3 Reducing demand also helps energy reliability.
Demand can be reduced through better
6.6 Our strategy is based on the following
energy efficiency (as described in chapter 3).
Technologies and pricing structures that enable principles:
and encourage users to manage their electricity the regulatory framework must give high
and gas demands away from peak periods priority to reliability. OFGEM and the
also help. Reliability can also be enhanced by Government both have duties to secure
decreasing our dependency on imported fossil that all reasonable demands for electricity
fuels, eg by investing in technologies which
and gas are met. OFGEM has agreed that
will enable us to diversify our fuel options.
in future it will report on how its
regulatory activities impact on energy
6.4 Energy reliability raises issues on a number of
security;
time horizons. We need short-term contingency
plans against the possibility of geopolitical diverse sources, fuel types and trading
instability, terrorism, major technical routes should be promoted to avoid the UK
problems and extreme weather conditions. being reliant on too few international
The UK energy system has proved robust. sources of oil and gas. We will work with
But we cannot at anything like a reasonable producer nations and the private sector
cost completely eliminate all risks of supply to promote the conditions needed for
disruption, for example during extreme investment in energy infrastructure;
weather conditions. We also need long-term
strategies to secure sufficiently diverse fossil
fuel sources as the UK becomes, over the 2 For example, in the past year contracts have been signed, or definite
next two decades, a net energy importer rather interest expressed, for additional gas supplies and new infrastructure
projects. These are diverse and include Centrica contracting with Statoil and
Gasunie to import natural gas, Exxon -Mobil with Qatar for LNG, increased
1 The term energy reliability is taken to encompass all aspects of energy security; compression on the interconnector at Zeebrugge, and proposals for new
the words reliability and security are used interchangeably in this chapter. LNG terminals at Isle of Grain and Milford Haven.
Section Three
Reliable, competitive and affordable supplies
Chapter 6: Energy reliability
liberalised energy markets are a cornerstone Short-term reliability issues...

of our energy policy. Competitive markets
incentivise suppliers to achieve reliability. 6.9 Energy security is a shared responsibility.
For example, suppliers will diversify their OFGEM and the Government have duties,
own sources to reduce their commercial in carrying out their primary function of
risks, thus contributing to wider diversity. protecting the interests of consumers, to
We will continue to work to create an secure that all reasonable demands for
effective policy and regulatory framework 3
electricity are met and to secure a diverse
for the market, both nationally and at and viable long-term energy supply. OFGEM
European and international levels; and does so through for example setting licence
conditions on industry participants and the
we need robust information on supply
price reviews of the monopoly infrastructure
and demand and market responses to it.
providers. The aim is that, should energy
We will therefore give high priority to our
supplies be disrupted or energy demand
new monitoring arrangements to track
exceed expectations in the short-term, the
all aspects of energy reliability.
problem could be swiftly resolved.
6.7 For the markets to work, firms need to be
confident that the Government will allow
them to work. Energy supply problems in Meeting peak gas demand
other countries have demonstrated the risks
On 7 January 2003 GB gas demand reached a
of not doing so. We will not intervene in the
new record high of around 5 million MWh (450
market except in extreme circumstances, million cubic meters). This level of demand is 5%
such as to avert, as a last resort, a potentially higher than the previous maximum in 2002 but
serious risk to safety. still only represents 85% of the potential peak day
demand (a demand that is expected in 1 year in
6.8 Our perception and understanding of terrorist 20) that Transco has to ensure that the gas
threats changed on 11 September 2001. network can cope with.
Since then we have improved and will
continue to improve our contingency planning
and resilience in dealing with major incidents.
This applies especially to the energy sector, 6.10 Energy consumers, the market and
which along with other areas of our critical Government need reassurance that the
infrastructure is vital to the every day needs regulator is giving sufficient weight to energy
of industry and the public alike. Measures security in proposing or making new
outlined elsewhere in the white paper to regulations. OFGEM has agreed that in future
promote distributed generation and its consultation documents will explain how
renewables will add to the diversity and its proposals will affect energy security as
robustness of the energy system. well as their impact on the environment and
our social objectives.
3 For gas: the need to secure that, so far as it is economical to meet them, all
reasonable demands in Great Britain for gas conveyed through pipes are met.
6.11 Where short-term problems arise we will Long-term challenges...

continue, where appropriate with OFGEM, to
evaluate what has happened and act 6.12 We have analysed closely the issues relating
accordingly. For example: to future energy reliability. This analysis broadly
supports that of the PIU which led to the
the storms of 27 October 2002 were
conclusion that increased dependence on
severe in some parts of the country and
gas was not of itself a pressing problem.
many households were without electricity
But safe and reliable supplies of electricity
for over a week. We considered the
and gas are fundamental to our economy and
response of some of the electricity
way of life. We must therefore constantly
companies inadequate and immediately
monitor developments.
launched an investigation by engineering
consultants into the resilience of the
6.13 As a country we have been a net exporter of
networks themselves and the response by
energy, with significant imports and exports,
the companies to the emergency. The
for the past two decades following the
report4, published in December 2002,
successful development of North Sea oil and
confirmed that those companies which had
gas. But this will change. Forecasts vary but
carried out effective network maintenance
it is commonly agreed that UK oil and gas
and which had anticipated the storms well
production will decline significantly over coming
suffered fewer incidents and reconnected
years. We are currently working with the
customers more quickly. We are 5
industry to maximise the economic potential
considering along with OFGEM and the
of our North Sea supplies (see paragraph
industry the best means of ensuring that
6.37). But it is still likely that the UK will
the recommendations made in the report
become a net importer of gas on an annual
are implemented; and
basis by around 2006 and of oil by around
following the fuel protests in September 2010. By 2020 we are likely to be importing
2000 we signed a Memorandum of around three-quarters of our primary energy
Understanding with oil industry companies, needs. And by that time half the world’s gas
the police, the Trades Union Congress, the and oil will be coming from countries that are
Cabinet of the National Assembly for currently perceived as relatively unstable,
Wales and the Scottish Executive which either in political or economic terms.
sets a framework to improve co-operation
and co-ordination between the key 6.14 Relying on imports need not be a problem
organisations in the event of a threat to oil in itself. Oil and - currently to a lesser extent -
supplies. We are now reviewing with the gas are internationally traded commodities.
industry and other stakeholders the And all countries, whether import-dependent
detailed plans for tackling oil emergencies or not, have a common interest in promoting
and updating them in the light of open markets and predictable prices.
developments in the economy. Most other advanced industrial economies
4 Power system emergency post-event investigation -

www.dti.gov.uk/energy/domestic_markets/security_of_supply/index.shtml 5 The PILOT initiative.
Section Three
already import significant proportions of their insufficiently diverse sources of fossil fuels.
energy needs without noticeable disruption. We should avoid becoming reliant on too
Import dependency has long been a fact of few international sources of oil and gas; and
life for all the G7 countries apart from the UK
global anti-competitive practices and
and Canada.
illiquid markets. Competitive and liquid
global markets, with oil and gas traded
6.15 World wide fossil fuel resources are very
freely are the most effective way to help
large. Oil is the world’s most important fuel,
deliver more stable energy prices and for
accounting for 40% of global primary energy
us to purchase what we need at any time.
consumption.6 Its share in 2020 is likely to be
at a similar level. Globally, conventional oil
We explain in the following paragraphs how
reserves are sufficient to meet projected
demand for around 30 years7, although new we will mitigate these risks.
discoveries will be needed to renew
reserves. Together with non-conventional8 Diversity in gas markets...
reserves such as oil shales and
improvements in technology, there is the 6.17 Norway has been and is likely to remain a key
potential for oil reserves to last twice as long. provider of gas to the UK, and the Netherlands
Proven gas reserves would meet at least may become a more important supplier of
45 years of demand and there remains vast gas to Western Europe. The world’s largest
potential beyond this. That there is no gas reserves are to be found in Russia, the
shortage of oil and gas resources globally Middle East and Africa. Russia has the largest
means that supplies are unlikely to be gas reserves, with around a third of the
disrupted for long. But just as today, there 9
world’s total and has been exporting gas
will be risks of price shocks resulting from
to Western Europe for over 30 years without
geopolitical disruption or damage to
interruption. Many other countries offer
infrastructure in the short-term. These risks
potential supplies of gas including Algeria,
need to be monitored and managed.
with a long track record dating back to
the late 1960s of providing gas to Europe,
International risks... and countries in the Caspian region, North
and West Africa and the Middle East (in
6.16 Moving from being largely self-sufficient to particular Iran and Qatar).
being a net importer of gas and oil requires
us to take a longer term strategic international 6.18 We are putting in place a new treaty with
approach to energy reliability. We need Norway to facilitate continued supplies of gas
continually to monitor and to manage the - as a primary fuel and as a source of feedstock
following international risks, while at the same for the UK chemical industry - and to simplify
time deepening international co-operation: cross-border developments, which will enhance
the UK’s production from the North Sea.
6 IEA World Energy Outlook 2002
7 IEA World Energy Outlook 2002
8 Oil not produced from underground reservoirs, for example oil shales, oil
sands, extra heavy crude, etc. 9 BP Statistical Review of World Energy
6.19 Our priority has to be to bring diverse 6.21 Liquefied Natural Gas (LNG) offers a flexible
supplies on-stream and into the EU market. alternative to piped gas. International trade in
Substantial long-term investment is needed LNG is growing at about twice the rate of
to build the necessary infrastructure. For pipeline gas. This may over time lead to
10
example some estimates suggest that greater price convergence between regional
investments of US$170 billion may be markets given the increasing scope for
required to develop gas production in Russia arbitrage. The development of LNG import
alone to 2020. While the total sums are large facilities in the UK will need additional
there is already evidence of the market onshore pipelines in some locations. This is
expanding export routes, for example through being actively considered by Transco. It is
the development of the North European possible that gas imports from some
Pipeline which would provide a much more sources, particularly LNG, will vary in energy
direct route for Russian gas to the UK.
content and may require blending with other
The private sector has an incentive to
gases in the system, special processing on
undertake the necessary investment but
import, or the modification of certain gas
given the scale of the infrastructure
appliances. We will keep developments here
investments required and the long investment
closely under review. In particular we
lead times we will continue to monitor
will monitor the likely effects on gas quality.
infrastructure development and international
In general we welcome the expansion
gas markets closely and support efforts to
of the LNG market as a contribution to
encourage investment (e.g. by promoting
diversity and security and as a source of
stable financial regimes and working with
11
IFI’s to support project financing). competition to piped gas.
6.20 Companies importing gas into the UK have 6.22 The development of a gas cartel amongst
a strong commercial interest in diversifying pipeline gas and LNG producers could
their own risks by having supply contracts undermine long-term price security. We will
with a number of different suppliers and by work with the European Commission and
encouraging the development of appropriate other member states in monitoring the
infrastructure. The number and diversity situation closely, maintaining and developing
of participants in the UK gas market is also a dialogue with exporting countries,
making a valuable contribution towards encouraging diversification of gas supplies to
expanding arrangements for future supply Europe and addressing any emerging risks.
of gas into the UK. To support the creation
of an economic environment conducive to
Diversity in oil markets...
investment we will continue to engage
with Russia, Iran, the Caspian, Middle East
6.23 The bulk of world oil reserves are found in
and African countries and the potential
the Middle East, with Saudi Arabia alone
transit countries, focusing on good
governance and the development of stable holding around a quarter.12 The other major
investment and transit regimes. Gulf producers hold as much again. Other
significant reserves are found in South and
10 IEA, 2002
11 International Financial Institutions 12 BP Statistical Review of World Energy
Section Three
Central America, Africa, Russia and the

Caspian Basin. In addition to conventional oil International Energy Agency (IEA)
reserves there are also massive unconventional The IEA - an OECD forum - plays an important
oil reserves13 in Canada and Venezuela. role helping to ensure stable energy markets.
The costs of production have fallen rapidly for Originally formed to oversee its members’ oil
these reserves but they remain higher than emergency arrangements (described above), it
those of conventional oil. They also tend to is now also a policy forum for analysis, sharing
be of poorer quality but can be upgraded. best practice and technical collaboration in energy.
To monitor trends in international oil markets Its committees review the energy policy of both
and prepare for risks and uncertainties we member and non-member countries and long-
will enhance our existing arrangements to term issues such as regulation, security of supply
monitor oil security issues. This work will and the environment as well as R&D, technology,
be led jointly by the DTI and the FCO. oil markets and emergency preparedness.
6.24 Oil stocks can contribute to resilience in the

event of actual or potential supply
6.25 Like other importers, our dependence on
disruptions. But they are unlikely ever to be 14
OPEC for our oil supplies is likely to increase
large enough to act as a lever on oil prices.
in the long-term. Supplies from other sources
The International Energy Agency (IEA) is the such as Russia, the Caspian Basin and West
key organisation for managing oil supply Africa will remain important and will add to
disruptions and the release of stocks by its diversity in the short and medium term.
members, including countries such as the We will continue to promote good relations
USA and Japan in addition to EU members. with key existing and new suppliers in the
As the proportion of world oil consumed by Middle East, Russia, the Caspian and
non-IEA members increases, it will be Africa. In particular we will continue to
important for the IEA to establish a dialogue work to increase the transparency, diversity
with key consumer countries, such as China and liquidity of the world oil market and
and India, on the importance of oil security to improve the investment climate in key
arrangements, the role of the IEA and how producing countries.
these countries could develop a closer
relationship with the IEA. The intention would
Ensuring an effective
be that this process would lead to these
EU market...
countries developing an oil security
framework that worked alongside, and 6.26 Oil is an internationally traded commodity.
complemented, that of the IEA. We will This is not yet true to the same extent for
continue to support the work of the IEA in gas. We therefore need to work to ensure
encouraging members and non-members to the development of liquid international gas
maintain and develop oil security markets. Our first priority is to work for fully
arrangements for use in the event of oil competitive gas (and electricity) markets
supply disruptions.
14 Members are: UAE, Venezuela, Saudi Arabia, Kuwait, Iran, Libya, Nigeria,
Algeria, Indonesia, and Qatar. Iraq is also a member but remains outside the
group’s quota agreements, as the country is still under sanctions resulting
13 See footnote 9 from the aftermath of the 1990-1991 Gulf War.
within the EU. The energy liberalisation Around 70%15 of global gas reserves are
package we instigated, which was agreed by within economic distance of the EU market.
EU energy ministers on 25 November 2002 Accessing these resources will increase the
(subject to co-decision procedure and diversity and resilience of our own gas supplies.
approval by the European Parliament), is
a major step towards this. It includes a
commitment to allow industrial and
Encouraging international
commercial electricity and gas consumers co-operation...
a choice of supplier by 1 July 2004 and all
consumers this choice by 1 July 2007. 6.31 Producers and consumers have a common
interest in ensuring effective trade in energy
6.27 The new liberalisation directives require the products. Both benefit from stable markets
legal separation of transmission and that help ensure that supply is sufficient
distribution from production and supply and to meet demand and thus contribute to
access to grids and downstream pipelines on relatively stable global prices.
published non-discriminatory terms. These
structural measures are essential to achieving 6.32 For over a decade oil and gas producing and
properly functioning internal EU markets. This consuming countries have been engaged in
will benefit consumers in terms of prices, dialogue on both a bilateral and - through the
efficiency, choice and service levels. International Energy Forum - on a multilateral
basis. The UK has been an active supporter
6.28 The directives also require member states to and participant. The dialogue has helped
establish independent economic regulators - improve mutual understanding, confidence
such as OFGEM in Great Britain - with and awareness of long-term common
specific duties in relation for example to interests as well as promoting the development
transmission and distribution access tariffs of specific initiatives such as the Oil Data
and the allocation of interconnector capacity Transparency exercise. As trade in energy
to third parties on a transparent and non- increases and the interdependence between
discriminatory basis. These steps will make new and existing oil and gas producer and
a major contribution to the reliability of our consumer countries deepens, such dialogue
energy supplies in the long term. will become more and more important.
6.29 We have been pressing for these changes for 6.33 Sustainable energy solutions also have the
a number of years. We will now work with potential to strengthen energy reliability
the Commission and with other member worldwide. We will work to promote the
states to make sure the agreement is deployment of renewable sources of energy
effectively implemented. We will also in developing countries (as covered in
continue to press the Commission to tackle chapter 4) as well as encouraging investment
competition issues vigorously. in appropriate energy infrastructure.
6.30 In the longer term we will work within the EU

to encourage greater links between the
EU market and supplies beyond its borders. 15 BP Statistical Review of World Energy. Based on proven reserves in
countries currently exporting gas to the EU.
Section Three
6.34 Across departmental boundaries we need to work with IFIs to support financing for
give greater prominence to strategic energy energy infrastructure investment;
issues in foreign policy. Both in the UK and
work with OECD partners and the
through its network of overseas posts the
international oil companies to promote
FCO will work more closely with other
sound economic development, particularly
government departments to achieve
among the emerging oil and gas producers in
common objectives in international energy
Africa and Central Asia, for example through
security. Our aims are to maintain strong
the Extractive Industries Transparency
relations with exporting countries and to
Initiative multi-stakeholder coalition; and
promote the benefits - to both producers and
consumers - of transparent, liquid, and through the FCO develop an Environment
liberalised world energy markets and diverse Attachés network to follow up on the
supplies of energy. In promoting diversity we Kyoto Protocol and other sustainable
will also work to minimise the risk of policies, extend the Science and
disruption to supplies from regional disputes Technology Attaché network, and engage
or local instability and to promote sustainable key posts in promoting UK policies and
approaches to energy reliability issues. reporting developments relevant to the
international oil and gas markets.
6.35 To this end, we will continue to work with
consumers and producers and with the
Domestic issues...
international community to:
promote regional stability and economic 6.36 In addition to the international risks there are
reform in key producing areas; potential risks to energy reliability within the
structure of our own market. These are that:
improve mutual understanding and the
functioning of world energy markets, for the economic potential of our oil and gas
example through continued improvements reserves is not maximised;
to international data transparency;
electricity generation companies will not
promote conditions for Foreign Direct invest in new capacity in sufficient time to
Investment through stable financial meet future needs;
regimes, transparent legal frameworks,
our sources of electricity generation may
predictable domestic energy policies and
become insufficiently diverse;
predictable foreign investment terms;
supplies, particularly in gas markets, may
promote liberalisation of energy markets
not be sufficiently diverse and flexible; and
including through the World Trade
Organisation (WTO), the IEA and the potential short term disruption may arise
Energy Charter Treaty; from financial difficulties among network
operators.
work with other large consumers such as
China and India to encourage more
We examine each of these risks in turn below.
effective management of energy demand
through energy efficiency improvements;
The UK energy industry PILOT
The UK is home to a number of world class Now in its third year, the PILOT initiative is
energy companies and companies specialising in promoting industry co-operation with Government
all aspects of the energy sector. The UK has to enhance recovery of the UK’s oil and gas
expertise ranging from niche extraction resources and so prolong indigenous supplies.
techniques and offshore engineering, to cutting
PILOT’s specific vision targets for 2010 are to:
edge renewable energy and environmental
prolong self-sufficiency in oil and gas for the UK;
protection technologies.
maintain production levels of 3 million barrels
We greatly value the contribution that these
of oil equivalent per day;
companies make to the UK economy and to
sustain investment levels of £3 billion per year;
our wider international goals. We will work with
our companies to ensure that their international deliver a 50% increase in the value of industry-
investments continue to make important related exports by 2005 (from 1999 level);
contributions to economic development, good bring additional revenue of £1 billion from new
governance and political stability in key producer businesses;
states.
sustain 100,000 more jobs than there would
We will also continue to work with the industry have been; and
(for example within PILOT - see below) to maintain ensure that the UK is the safest place to work
the UK’s energy networks and to manage the in the worldwide oil and gas industry.
UK’s domestic resources to maximise economic
and security of supply benefits. Specific activities to maximise recovery include
stimulation of activity through the review of fallow
acreage and fallow developments, promoting
trading assets between operators, co-operative
work to enhance brownfield developments and
Maximising our the promotion and sharing of best practice.
oil and gas reserves...
6.37 We are committed to maintaining an active

and successful oil and gas industry in the UK, 6.38 The 2002 Finance Act introduced important
and to promoting future development of the changes to the UKCS fiscal regime. It put in
nation’s oil and gas reserves. The sector is place a stable regime for the future which
and will remain important to the wider UK will raise a fair share of revenue on North Sea
economy in terms of jobs, investment and its producers’ profits while promoting long-term
contribution to national income. We are keen investment. The balanced package - the
to continue to encourage investment in both introduction of 100% investment allowances
existing and new fields. The PILOT initiative and a 10% supplementary charge on oil
is central to this aim. production profits on 17 April 2002 and the
abolition of royalty on older fields from 1
January 2003 - puts the fiscal regime on a
sustainable, long-term basis. New fields now
enjoy one of the most favourable tax regimes
Section Three
amongst major oil producing countries, It enables the system to respond reliably
along with all the other advantages of political and quickly to unexpected peaks in demand
stability, open and competitive markets, or unexpected interruptions in generation.
access to a skilled workforce and an In 2001/2 the installed plant margin in
17
extensive oil and gas infrastructure. England and Wales was around 27% falling
to around 20% in 2002/318. Chart 6.1 below
shows the plant margin over the past
Ensuring incentives to invest
decade. The decline has been partly due to
in electricity generation...
plant being mothballed. Recently mothballed
plant could be returned to service at relatively
6.39 Electricity cannot yet be stored economically
short notice and low cost if required. In future,
in large quantities. We therefore need to have
measures to make demand more flexible, for
sufficient spare capacity to deal with variations
example through new metering technology,
in supply or demand, especially at times of
may mean that a smaller margin could provide
peak demand. This is the plant margin16.
the same level of security.
Chart 6.1
Installed Capacity and Electricity
Demand, England and Wales
80
70
60 Plant margin
50
GW
40
30
20 Average Demand
Peak Demand
Installed Capacity
10
0
1990/91 1991/2 1992/3 1993/4 1994/5 1995/6 1996/7 1997/8 1998/9 1999/00 2000/01 2001/02 2002/03
Source: NGC. 2002/3 data are provisional to date, average for 2002/3 is DTI estimate
17 NGC Seven Year Statement Update January 2002. Since 1990/91 the
installed capacity margin has varied between 18% and 32%.
16 Installed Plant Margin is defined as (Installed Capacity - Peak Demand)/Peak 18 NGC Seven Year Statement Update January 2003. The margin in Scotland
Demand and is expressed as a percentage. is currently 28%.
6.40 Wholesale electricity prices have been low 6.43 We have concluded that the case has not
recently. This is a result of the considerable been made for such an instrument in the UK
increase in investment in generating capacity market. The UK market already provides
following higher prices in the 1990s. Recent strong financial incentives for suppliers to
prices are lower than many companies contract for sufficient power. We also note
anticipated and some of them have found that experience with CMIs in other countries
themselves in financial difficulty. Given current has been mixed. Some have been subject to
prices and the amount of existing capacity material alterations within short time periods
available there is currently no need or the very sort of regulatory risk that the
incentive for significant investment in new instrument is supposed to offset. NERA also
generation plant apart from renewables. estimated that a CMI could increase costs to
These are not market failures. They are consumers by some £150 million per year.
proper market responses. But some people
have expressed concern about the longer 6.44 Licence conditions on NGC20 and electricity
term prospects for investment. 21
suppliers also play an important role in
maintaining security. OFGEM enforces
6.41 Over the next 20 years almost all our existing licence conditions, a breach of which can
nuclear power stations will close as they end lead to financial penalties of up to 10% of
their operating lives. Most existing coal-fired turnover. OFGEM can also modify licence
power stations will also close as they age conditions, or put new ones in place, with the
and as environmental controls become more agreement of electricity industry participants
stringent. There is inevitably a good deal of or after reference to the Competition
uncertainty as to the type and location of Commission. We will look to OFGEM to use
stations that will replace existing capacity as its powers vigorously to apply and enforce
market participants respond to evolving price appropriate licence conditions.
signals. But given current levels of capacity,
including mothballed plant, and our 6.45 OFGEM has confirmed that it considers that
expectations of growing renewables the current statutory framework, including
generation and energy efficiency the duties and functions set out within the
improvements over the coming years, we are
relevant Acts and contained within related
unlikely to need significant new investment in
documents such as the Grid Code, is
non-renewable power stations over the next
sufficient to help ensure the security of the
five years or possibly longer.
balancing of the electricity transmission
22
system. Through JESS we will keep this
6.42 A number of electricity markets elsewhere
under review.
employ a form of capacity margin instrument
(CMI) to seek to secure a fixed level of
capacity margin, often to counteract the
effect of price caps imposed elsewhere in
their electricity markets. We have reviewed 20 For example National Grid Company has a licence condition to promote
19
the security and efficiency of the electricity generation, transmission and
the case for such a measure here . distribution systems in England and Wales.
21 Electricity suppliers are required to take all requisite steps, so far as is

reasonably practical, to secure the necessary supply of electricity.
19 NERA study: Security in Gas and Electricity Markets, October 2002. NERA
study: Electricity Markets and Capacity Obligations, December 2002. 22 The DTI/OFGEM Joint Energy Security of Supply Working Group.
Section Three
6.46 In addition, OFGEM has agreed to publish a 6.50 Diversity goes beyond a simple choice of
report every six months on the performance fuels. It relates to how the fuel or energy is
of the electricity and gas industries in delivering moved and used and to the range of sources
security, detailing any issues which have given for any particular type of fuel. Additional
rise to energy reliability concerns and saying electricity interconnectors, like the existing
what, if any, actions had been taken or might one to France, would increase resilience.
be needed to address those issues in future. Projects are being developed for new direct
These reports will be in addition to the forward current electricity interconnectors to Norway
looking security monitoring role of JESS. and the Netherlands and discussion is
underway on a possible link to the Republic
A diverse mix of of Ireland. These are essentially market
electricity generation... decisions, driven by the commercial
assessments of electricity suppliers.
6.47 Some people argue that the UK Government We will continue to keep the diversity
should specify the mix of fuel sources in of the electricity mix under review.
electricity generation, allocating a proportion
to gas, a proportion to coal and so on. We
Gas supply flexibility...
have considered this proposition carefully and
have dismissed it. In our view Government is
6.51 Demand for gas in the UK is highly seasonal.
not equipped to decide the composition of
We have a relatively low level of strategic gas
the fuel mix used to generate electricity.
storage compared with France, Germany and
Our preference is for a market framework
Italy. This is not of itself a problem, provided
with the right regulatory framework.
that the market can continue to deliver
6.48 But neither should we allow ourselves to sufficient flexibility to meet demand,
become overly dependent on any one fuel especially as UK gas output falls and with it
source across the whole economy or in a the capability of UK gas fields to meet short-
specific sector, such as electricity generation. term periods of high demand. Alternative
It is our view that the policies we put forward ways of providing supply flexibility such as
in this paper will encourage the long-term new storage projects and flexible import
development of new, more diverse and cleaner contracts appear to be being delivered by the
energy technologies that will promote both market. The diversity that these projects can
energy reliability and our low-carbon objectives. bring to the market in term of flexibility of
entry points and means of delivery will be
6.49 Coal (UK produced or imported) and nuclear welcome. The provision of timely new
power have traditionally offered sources of infrastructure will be important in backing up
electricity relatively secure from sudden these commitments and, along with progress
changes in other international energy on EU liberalisation, provides confidence that
markets. The future of coal generation and access to flexibility can be maintained.
new measures to encourage the We will closely monitor and assess the
development of carbon capture and storage adequacy of provision of sufficient supply
are discussed below. The future of nuclear flexibility to the UK gas market.
generation is discussed in chapter 4.
Availability of Networks... the market or regulatory system or

elsewhere (for example planning) that may
6.52 Gas and electricity networks, and their be preventing an adequate market
uninterrupted operation, are essential to response.
security of supply. In other utility sectors,
there are provisions for the appointment of 6.55 Where the issues fall outside OFGEM’s
an administrator in the event that the remit, close joint work between the FCO
operator of a network becomes insolvent. and DTI will be put in hand to monitor
During the passage of the Enterprise Bill last wider issues of energy security.
summer, we undertook to consider further
the case for special provisions for gas and
Handling the carbon
electricity. We now propose to undertake
consequences of coal-fired
a public consultation on the need for an
generation...
administration regime for gas and
electricity networks, including the scope
6.56 For most of the time since the industrial
of the provision, its potential effectiveness,
revolution, coal has been the main source
and other details.
of primary energy in the UK. Even now coal
generation provides around a third of the
Monitoring the situation... UK’s power output. But in a low-carbon
economy the future for coal must lie in
6.53 We have set out above our response to the cleaner coal technologies - which can
security of supply risks we face. All are increase the efficiency of coal-fired power
important but none appears to pose an stations and thereby reduce the amount of
immediate or unmanageable threat. There are carbon they produce - or carbon capture and
many triggers within a liberalised market to storage. Electricity generation from coal will
incentivise energy reliability. And markets are become more expensive when measures
likely to deliver energy reliability most cost- already agreed in the EU’s large combustion
effectively. The experience of California, though, plant directive (to control emissions of
shows that it is important for governments sulphur dioxide, nitrogen oxides and dust)
to monitor reliability, including how their own comes into effect. Plant that does not meet
actions may influence market behaviours. demanding emissions standards is likely to
be retired over the period to 2015. EU-wide
6.54 We will continue actively to monitor energy carbon emissions trading will also make coal
security through JESS and to make the less attractive as a source of power. By 2020
conclusions of that group publicly available. coal generation’s contribution to the UK’s
The group will continue to provide the market power output is likely to be significantly
with assessments of supply and demand lower than today.
information and will periodically review the
dependence of the networks on particular
facilities. We will use the information
gathered by JESS as a guide to issues in
Section Three
6.57 If ways could be found cost-effectively to Carbon capture and storage may
handle the carbon, keeping coal-fired offer a promising way forward...
generation in the fuel mix would offer
significant energy security and diversity 6.59 Carbon capture and storage (CCS) - and the
benefits. Coal is easy to store and transport potential value of carbon dioxide injection for
and can be sourced from diverse of stable enhanced oil recovery (EOR) as a means of
suppliers both domestically and worldwide. extending the life of the North Sea oil
Loads in coal-fired stations can also be varied reserves - is described in detail in the box
relatively easily, so coal fired generation is below. The recent review of cleaner coal
particularly useful in meeting peak demand or technologies23, shows that CCS is currently
covering for supply intermittencies in other constrained by a number of significant legal
fuels. This may encourage generators to keep and technical issues. Measures to address
some coal-fired plant so as to give these are the subject of a number of current
themselves the capacity to meet demand follow-up projects.
under a variety of circumstances. But by
itself this would be unlikely materially to
increase UK energy security more generally.
6.58 If coal is to play more than a marginal role in

the mix beyond around 2015, generators will
need to find economic ways of dealing with
the consequential carbon dioxide emissions.
One option is to capture and then store the
carbon dioxide. The most promising approach
at present would be to lock the gas away in
geological structures such as depleted oil and
gas fields. There is significant international
interest and effort going in to carbon dioxide
capture and storage, especially in the USA
and Canada, where many of the technical
obstacles to economic implementation are
being researched. The UK North Sea offers a
potentially very valuable resource in this
respect, as do other offshore reservoirs.
23 Cleaner coal review: www.dti.gov.uk/energy/coal/cct
Carbon dioxide capture

and storage (CCS)
CCS offers the potential to deal with the carbon Geological formations are capable of containing
emissions from using fossil fuels in electricity gas. They have done for thousands of years.
generation or from other large CO2 sources (such Geological sequestration should be capable of
as chemical plants and refineries). In coal plant retaining CO2 for a very long time, perhaps
it could be achieved either by capturing the CO2 indefinitely. But accessing reservoirs would
from flue gases or technically more easily by necessarily disturb them and leakage might occur,
gasifying the coal prior to electricity generation for example through geological faults, seismic
(in an integrated gasification combined cycle - activity, failure of pipelines or other engineering
IGCC - plant). components and groundwater movement.
The political and public acceptability of CCS is
Once it is captured the CO2 needs to be placed
likely to depend at least in part on a convincing
in some form of long-term storage. The Chief
risk analysis and on the ability to detect slow
Scientific Adviser’s Energy Research Review
leaks if they occur.
Group identified CCS as an area in which increased
research effort could yield major breakthroughs. A pilot project in the Norwegian sector of the
In particular, it suggested that effort be concentrated North Sea is the only example of offshore carbon
on fundamental research into storage which was dioxide injection currently in process. This takes
less well understood than capture. The theoretical CO2 that is co-produced with the gas in the
storage capacity of suitable geological formations Sleipner West field and injects it into an aquifer.
(depleted oil and gas fields and deep saline In North America a number of projects are
reservoirs) is massive, subject to cost and the injecting CO2 into oilfields to help increase oil
environmental and public acceptability. recovery (known as enhanced oil recovery or
EOR). During this process most of the CO2 used
European capacity for storing CO2 in geological
ultimately remains in the oilfield, so is effectively
formations could be around 200GtC, mostly under
sequestered.
the North Sea and mainly in the Norwegian sector
and the UKCS. About 95% of this potential is in EOR would allow additional oil recovery from
deep saline aquifers and only about 5% in the UKCS - 200Mt (1.5 billion barrels) may be
depleted oil and gas fields. The North Sea oil and achievable over 20 years. This compares to
gas well capacity in the UKCS is sufficient to current annual oil production of about 130Mt.
absorb all UK CO2 emissions at current levels for But the current rates of field depletion mean that
up to 15 years, potentially hundreds of years if this opportunity only exists in the short term and
saline aquifers are included. Theoretically there CO2 injection needs to start by 2006/8 if it is to
could be further capacity in unmineable coal have an impact on the largest fields before the
seams but further investigation is required. existing infrastructure is dismantled.
Section Three
Enhanced oil recovery... carbon savings an EOR scheme would offer,

this would also deliver a basic infrastructure
6.60 Although enhanced oil recovery (EOR) has to enable the delivery of carbon dioxide for
benefits both in terms of extending our later CCS as and when the technological,
existing oil reserves and reducing carbon legal and gas security issues are resolved.
emissions, studies by Future Energy The infrastructure would be significantly
24
Solutions and others suggest that EOR is easier to fund from the anticipated EOR
unlikely to be cost effective in a time scale revenue streams than if it were to be funded
that will fit the existing UKCS needs. A single for CCS alone from expected carbon
carbon dioxide pipeline from a medium sized emissions trading benefits. And since the
coal power station together with onshore technologies need to be demonstrated and
compression and wellhead injection and tested in an offshore environment before firm
handling facilities could cost around £1-1.5 commitments could be made to a CCS
billion. The additional oil recovered could scheme, an EOR project would also provide
justify this investment but would not cover significant help to the research and analysis
the costs of capturing and storing the carbon of the options. There is also considerable
dioxide at source. international interest, and potentially access
to international funding, provided the UK can
6.61 Coal-fired power stations offer the most likely offer leadership to demonstrate some
source of the volumes of carbon dioxide that technically distinctive options.
are likely to be needed for EOR. Integrated
gasification combined cycle power plants 6.63 Given the potentially significant strategic role
(IGCCs) gasify coal to produce power, that might be played by CCS in longer-term
hydrogen and carbon dioxide. These offer a energy security, we believe there is a strong
particularly promising source of carbon case to examine more closely what might be
dioxide. Two schemes at Onllwyn in Wales done to help stimulate the take-up of EOR in
and at Hatfield near Doncaster are actively the North Sea. We will therefore set up an
being developed at present and have applied urgent detailed implementation plan with
for Section 36 planning consent to build the developers, generators and the oil
power generation capacity. This plant would companies to establish what needs to be
also be able to generate large quantities of done to get a demonstration project off the
hydrogen, potentially of interest in enabling ground. This study will reach conclusions
the development of production scale within six months to enable firm decisions
hydrogen projects. to be taken on applications for funding from
international sources as soon as possible
6.62 If EOR is to be of value to the UK it needs to thereafter. This will follow on from the initial
25
start within 5 years. Large fields (Forties, work already sponsored by the DTI .
Brent, Ninian, Fulmar) would offer the best
prospects. In addition to the short-term
24 The papers from this work are being published on 25 The papers from this work are being published on
www.dti.gov.uk/energy/coal/cct/co2capture.shtml www.dti.gov.uk/energy/coal/cct/co2capture.shtml
There may be opportunities Coal mine methane

for cleaner coal technologies... is a legacy to be managed...
6.64 Coal will remain the dominant generating fuel 6.65 Disused coal mines continue to produce
in large parts of the developing world such as methane even after they are closed, although
China and India for many years to come. UK the amount of methane reduces over time.
industry is potentially well placed to promote Methane is significantly more damaging to
cleaner coal technologies, technology transfer the environment in terms of its global
and capacity building into developing countries. warming potential than carbon dioxide.
In the longer run it should be possible for UK Where it can be captured this gas can be
project developers to benefit from carbon used to generate electricity and heat, thus
credits through international trading under the contributing to the energy mix and reducing
Kyoto Protocol clean development mechanism. the greenhouse gas emissions from
With this in mind, we have already put in abandoned mines significantly. To help
place a programme of support for advanced stimulate the industry we indicated in the
26
traditional cleaner coal technologies which 2002 budget that we would, subject to
is intended to bring forward demonstrator Commission approval, grant coal mine
projects that may help to showcase the methane (CMM) plant an exemption from
relevant technology more widely. the climate change levy.
The current Cleaner Coal Technology Programme a Memorandum of Understanding with China
(worth £25m over 3 years) has two components: for collaborative R&D and the promotion of
cleaner coal technology;
Support for research and development into new
the production of a range of publications and
cleaner coal technologies. These include:
seminars, in collaboration with the International
support for 40 R&D projects covering new
Energy Authority, to promote cleaner coal
technologies for coal gasification, higher boiler
technology and help reduce the non-technical
efficiencies, co-firing with biomass and computer
market barriers to their development;
simulation of cleaner coal-fired generation;
help with initiating and establishing a major
a collaborative agreement with the British Coal
R&D collaboration on advanced supercritical
Utilisation Research Association (BCURA) to
technology under the auspices of the European
provide support for joint projects designed to
Commission’s Framework Programme; and
contribute to university R&D; and
liaison with the US Department of Energy to
investigation into the feasibility of underground
determine areas for future collaboration under
coal gasification and coal bed methane in the UK.
the US/UK Memorandum of Understanding on
Facilitating the transfer UK cleaner coal Energy R&D.
technology to other countries and promoting the
Other work outside the CCT programme includes
exports of UK expertise and products abroad.
the possibility of Government support for
Activities have included:
retrofitting a supercritical boiler to an existing
support for outward missions to promote UK power plant in the UK.
technology;
26 Details available at www.dti.gov.uk/energy/coal/cct
Section Three
6.66 The longer-term decline of methane similar level of support (via a separate
emissions mean that CMM electricity obligation or equivalent) to the whole chain
generation will not offer significant long-term from methane extraction to generation would
help to the reliability/diversity of UK energy be difficult to justify, since it is not clear how
supplies. But in the short term CMM much methane would leak naturally and how
presents a material environmental problem. much is extracted by the process of recovery.
We accept, however, the need to move to
6.67 Even with existing levels of support a control CMM emissions and will work with
number of potential CMM electricity the industry and relevant environmental
generation projects will remain uneconomic. agencies to find ways of doing so more
The carbon valuation in the EU Emissions effectively.
Trading Scheme is likely to provide a
significant incentive to CMM mitigation
The UK coal mining industry...
projects that would otherwise not justify
themselves. The route by which CMM may
6.69 The level of coal-fired generation is not of
be able to claim credits under the EU
itself a limiting factor on UK mines. Coal
Emissions Trading Scheme is expected to be
production in the UK will decrease over
project (as opposed to direct activity) based.
coming years predominantly as a result of the
We will work to negotiate such an entry
increasingly difficult geological and mining
route and in the meantime we will work on
conditions in UK pits. Within 10 years most
a framework for pilot projects within the
of our existing deep mines are likely to have
UK emission trading scheme for which
exhausted their economic reserves.
CMM projects may be eligible. The timetable
for pilot projects is currently under review.
6.70 Coal, like oil and increasingly gas, is an
internationally traded commodity. Supplies
6.68 Even this, however, is unlikely to be sufficient
are available from a wide variety of reliable
to stimulate the industry in the short term,
sources. The relevant infrastructure notably in
given the costs of generation from CMM as
ports and the rail network is likely to be
compared with the market price for
sufficient to meet expected demand in a very
electricity. We will continue to work with the
wide range of scenarios, subject to market-
industry to explore ways, including through
led investment. Given this relatively mature
the licensing system, in which we can help
and flexible market, there do not appear to be
recognise the environmental benefits it
strong economic grounds for supporting UK
secures. The industry has argued for the
coal production as a hedge against import
introduction of an obligation equivalent to the
prices or security of electricity supply
renewables obligation. But the renewables
grounds for supporting production as a
obligation has a specific aim - to develop long
means of increasing diversity.
term carbon free generation technologies to
the point where they become economically
6.71 We recognise that coal producers can make
viable in their own right, and offering the
positive contributions to areas that are often
obligation more widely risks undermining our
economically and socially disadvantaged, by
longer term renewables aims. To offer a
providing well-paid and skilled jobs. The UK’s
coal industry is the most efficient in Europe.

It has made great strides in improving
productivity and has shown itself able, except
in unfavourable market conditions, to
compete successfully both with other fuels
and with imports.
6.72 Where there is the potential for coal

companies to make worthwhile investments
they have to date been prevented by EU
rules from seeking government help in doing
so. In 2002 we negotiated the flexibility
we receive at an EU level to correct this
27
anomaly so that we now propose to
introduce an investment aid scheme to help
existing pits develop new reserves, where
they are economically viable and help
safeguard jobs.
27 The new Council Resolution on State aid to the coal industry

(EC No 1407/2002)
Chapter 7 Productivity,
competitiveness and innovation
7.1 Raising the sustainable rate of economic to promote enterprise to help new and
growth and maintaining industrial and business established businesses to start up, develop
competitiveness are central to our economic and grow;
strategy. Energy has an important role to play
to improve skills through better education
as a key input - without reliable supplies the
for young people and greater training
economy and our national infrastructure
would not function. But we must also ensure opportunities for those already in the
that the price of energy allows us to maintain workforce;
our competitiveness. Our recent white paper to support science, research and innovation
on ‘Productivity and Enterprise’ 1 set out the to utilise the potential of new technologies
benefits of liberalised markets. As in other and to develop new ways of working; and
markets, vigorous competition in energy
stimulates innovation and ensures the to encourage investment to improve the
efficient allocation of resources, improving stock of physical capital.
service quality and driving down prices.
We need to maintain
7.2 To boost productivity and competitiveness
competitive energy prices...
we need to:
ensure efficient markets which deliver 7.4 The energy sector represents around 4% of
competitive prices for business and UK GDP but is a required input to the other
domestic consumers; 96%. To maintain competitiveness and

encourage inward investment, energy for
promote resource productivity - this will
businesses and consumers must be
benefit the economy and individual
businesses as well as increasing energy competitively priced, including in comparison
security and reducing carbon dioxide with other EU and G8 countries.
emissions;
7.5 Vigorous competition improves efficiency and
pursue our energy policy objectives through drives down prices. This has already been
market mechanisms which promote seen in energy markets. For domestic
competition, flexibility and efficiency; and consumers, average prices in real terms fell
help business by setting a clear and by 10% for gas and 19% for electricity
consistent long-term policy framework. between 1997 and 2002. For industrial users,
between 1997 and 2001, electricity prices fell
7.3 To deliver these goals in the energy system by 22% in real terms, even when the climate
we need to address what the Government change levy is included. This can be attributed
has identified as the key drivers of to measures like the introduction of NETA,
productivity. These are: increasing competition in the supply market
and the reduction in the fossil fuel levy
to strengthen the competition regime to
feeding through to contracts. Our industrial
encourage firms to innovate and minimise
gas and electricity prices were the second
costs and to deliver better quality goods
and third lowest respectively in the EU in
and services to customers;
2001. Our domestic gas and electricity prices
were the second and fourth lowest.
1 Productivity and Enterprise: A World Class Competition Regime: July 2001
7.6 The impact of the measures to promote energy this would still be below the level during
efficiency proposed in this white paper should nearly all the 1970s and 1980s. Industrial gas
mean that, for many households and users, prices have already increased from a
energy bills should fall as the amount of historically low level in the mid 1990s. The
energy needed and consumed is reduced, high case scenario is that they might return
although the unit price for energy charged to to the level of the late 1980s. To the extent
consumers and users is likely to rise. Over the that such an increase in gas prices reflects a
17 years to 2020, the policy measures rising wholesale price, this will also affect the
suggested here - on emissions trading, UK’s competitors in Western Europe in a fully
renewables and energy efficiency - might add liberalised gas market.
approximately: 5-15% (per unit) to household
electricity prices and less than 5% to 7.8 NETA was introduced in 2001 to replace the
household gas prices; and 10-25% to industrial electricity Pool and was designed to bring
electricity prices and 15-30% to industrial gas greater efficiency to wholesale electricity
2
prices . Such price increases would not trading while maintaining the operation of a
translate into similar increases in energy costs. secure and reliable electricity system. Under
A part of the price impact reflects energy NETA the bulk of electricity is traded forward
efficiency measures which should lead to through bilateral contracts and power
reductions in energy use. exchanges. It also includes a short term
balancing mechanism to ensure supply
7.7 Assessments like these are very uncertain meets demand at all times. NETA provides
and it will be important to keep price impacts for more direct competition in wholesale
under review. Much of the impact is due to electricity than occurred under the Pool.
the EU emissions trading scheme (which, Traded wholesale electricity prices are around
being EU-wide, will impact widely on 40% lower than in 1998. The market has
European prices) and is dependent on how now seen a significant increase in liquidity
the scheme develops as well as on the price and trades.
of carbon in the trading market. It is
important to put these potential rises in 7.9 Our market is also - unlike California in 2000 -
context. Electricity prices have fallen
dynamic. Under NETA, generators and
significantly in real terms over the last 20
suppliers are encouraged to use hedging
years to their current historically low level.
arrangements and contracts to avoid
Even under a high case scenario the price of
exposure to volatile prices in the balancing
electricity to domestic consumers should
mechanism. In California, regulators
remain below that for, for example, the 20
prevented suppliers buying power on long-
years to 1995. For industrial consumers,
term contacts. As a result, forward signals
prices might return to the levels of the early
were too weak to trigger new generating
1990s but remain below those for the whole
plant. California also faced the reluctance on
of the 1970s and 1980s. For domestic
the part of regulators to adjust price controls
consumers, a high case scenario could see
on consumer prices (price controls in GB
prices rising to late 1990s levels, although
were abolished in 2002), transmission
2 All price assumptions in real terms.
Section Three
Chapter 7: Productivity, competitiveness and innovation
constraints, and very fast demand growth.

The UK market is different. Nonetheless we Energywatch
recognise we must remain vigilant. Energywatch was established under the Utilities
Act 2000 as an independent advocate for
7.10 The UK market is also increasingly consumers in the gas and electricity markets.
competitive. The number of companies It works closely with OFGEM, the gas and
generating electricity has risen considerably electricity regulator, which carries enforcement
from 6 at the time of privatisation to over powers. Energywatch’s aim is to provide
30 by October 2002. Competition is also consumers with a ‘one stop shop’ service that:
forcing companies to work harder to attract investigates and resolves consumer complaints
and retain customers. By June 2002, 8.3m about energy companies;
domestic electricity customers - 34% helps the energy companies improve their
of total domestic customers - had switched complaint and enquiry handling;
from their incumbent electricity supplier. deals with enquiries from members of the
So had 7.1m domestic gas consumers - 36% public; and
of the total. Although switching continues to
produces consumer information and advice.
take place at a high rate - 115,000 electricity
customers change their supplier every week - Energywatch recently published its Forward Work
the market is not yet mature. We are working Programme for 2003/4 outlining its key priorities.
with OFGEM, Energywatch and the industry The document is available on Energywatch’s
website:
to ensure that the market works better and
(www.energywatch.org.uk/about_energywatch/for
that consumers have confidence in it. In
ward_work_plan/index.asp)
particular we are supporting efforts to stamp
out mis-selling of electricity contracts,
improve the customer transfer process and
ensure that mistaken transfers are corrected
...there is a clearly defined role
quickly.
for Government...
7.11 Energywatch will also be seeking to ensure
7.12 The role for Government in the market is to
that both the industry as a whole and
set the right competition and regulatory
individual companies improve their
framework. We recognise that competitive
performance in a range of other areas of
markets cannot deliver some wider policy
customer contact, including the
objectives. We have a role in correcting
administration of complaints and the
market failures, including countering socially
management of accounts. This is designed
or environmentally undesirable outcomes.
to reduce complaints by addressing them
For example the market may not properly
at source. We will also consider, with
value externalities created by energy
Energywatch, OFGEM and the industry,
efficiency or innovation. But government
whether the funding arrangements that
intervention is justified only where it is well
support Energywatch can more accurately
targeted, cost-effective, affordable and
reflect the performance of suppliers in
efficient, promoting appropriate signals within
relation to their customers.
a credible long-term framework.
7.13 As stated in chapter 1, this white paper them by fewer, streamlined schemes. All this
demonstrates our commitment to the will help businesses to seek funds for the
principles of better regulation. In particular: purposes of energy innovation. Local Energy
Efficiency Advice Centres will also be able
to engage with stakeholders to find out
to advise on national sources of funding.
what they need from policy;
We will complement this by developing a
to examine what instruments are available single web-based portal for businesses
to achieve those outcomes, with a wanting access to energy support schemes,
preference for market measures; as part of a single knowledge bank for
business support schemes. The Energy
to treat regulation as the last option if
Saving Trust and the Carbon Trust are also
nothing else will work;
piloting a project for Small and Medium-sized
to use existing regulations where possible; Enterprise Energy Advice Centres (SMEEACs).
and
7.16 The PIU called for a fundamental review
to impose new regulation, exceptionally
of low carbon support programmes aimed
and then only when it is fit for purpose.
at business, particularly the Carbon Trust
and the Energy Saving Trust. Although
We must seize opportunities we consider that some of these bodies
to promote enterprise... and programmes are too new to review now,
we will review low carbon delivery
7.14 Moving to a low carbon economy also programmes and associated support bodies
presents opportunities for businesses to before the end of 2004 in the context of
seize competitive advantage. We have a review of low carbon instruments more
established a number of Innovation and generally in advance of the introduction
Growth Teams (IGT) and some of these have of the EU emissions trading scheme.
looked specifically at energy issues. For
example the Automotive IGT considered the
future contribution of low carbon transport
within its overall remit of safeguarding the
competitiveness of the UK’s automotive
sector. Manufacturing standards - be they
quality, environmental, health, safety or
security - also have a vital role to play.
7.15 Businesses will need to adjust their own

operating practices to reduce their carbon
intensity and will need advice and incentives
to help them. This means simplifying access
to funding, particularly for smaller
businesses, alongside DTI’s reform of its
general business support schemes, replacing
Section Three
Addressing skills...
Resource Productivity and Sustainable
Consumption and Production (SCP)
7.17 We need to address skills development,
The Strategy Unit’s (formerly PIU) report, training and an ageing workforce in the energy
Resource Productivity: making more with less industries. The problems are widespread:
(November 2001) was one of three linked reports
nearly a third of staff in offshore oil
which also included its Energy Report and its
recently published waste report, Waste not, want companies are over 45 and only 6% under
not (November 2002). The outcome of the World 25. 20% of companies provided no regular
Summit for Sustainable Development last year, staff training - nearly 40% for smaller
3
particularly a commitment to a ten-year drive on companies ;
SCP, has recently re-focused our follow-up work
even without new build the nuclear fuel
on resource productivity. In coming months we
will develop a strategic overview of resource
cycle, power generation and environmental
productivity and SCP more widely. This will: restoration sectors are likely to need

around 19,000 graduates and skilled trades
set out the economic, social and environmental
people over the next 15 years to replace
rationale for long-term policy planning to
decouple economic growth from environmental retirements and satisfy demand in
4
degradation and resource use; environmental restoration ;
draw on the two major policy blocks of energy the Gas and Water Industry National Training
and waste as core elements of an SCP future; Organisation (GWINTO) has predicted that
consider the case for and identify further there could be a major shortage of skilled
indicators for resource use as a means to gas installers in the coming years; and
stimulate and track long-term improvements;
key skills in companies building major
set out our approach to sustainable
infrastructure such as power stations and
consumption, with specific proposals to help
refineries are currently concentrated in the
empower consumers and improve
over-50s.
environmental impacts of goods and services
(eg with better information right through the
supply chain); and 7.18 Many employers invest in training but finding

time and resources can be difficult, particularly
identify the key policy levers for encouraging
for smaller companies. Our Manufacturing
SCP, and set out how a co-ordinated use 5
of tools and instruments could drive such Strategy emphasised the importance of a
a programme - eg economic pricing skilled workforce to a productive and
instruments, support for innovation, competitive economy - not only technical
procurement, signalling of future targets skills but also leadership and management
and minimum standards.
3 Skills Foresight, The Industry Survey, OPITO 1999
4 The Report of the Nuclear Skills Group, DTI, December 2002

(www.dti.gov.uk/energy/nuclear/skills/nsg.shtml). The figure of 19,000 is
based upon the age profile that currently exists in the sector and the
assumptions that the fuel cycle will remain stable, the planned closure
programme of Magnox and AGR power stations will proceed and that the
numbers engaged in environmental restoration will double over the next 15
years. No allowance has been made for potential new build.
5 The Government’s Manufacturing Strategy, DTI, May 2002

(www.dti.gov.uk/manufacturing/strategy.htm)
skills. It also highlighted the need for a It will cover both demand (from employers
demand-led approach, combining government and their investment in skills and training)
investment, access to best practice support and the supply of skilled people.
and increased support for the science base. Government, business, the new Sector
This implies close co-ordination across the Skills Councils (SSCs), the Sector Skills
industry, in particular between employers Development Agency, the Learning and
and education and training providers and also Skills Council, Regional Development
through supply chains (especially where Agencies, other public and private bodies
seasonal shifts in workloads are a factor). and employers will need to work together
to identify skills needs and measures to
deliver them. Resources for SSCs will
We are addressing similar skills
increase to £42m in 2003/04, to £45m in
needs across the economy...
2004/05 and to £48m in 2005/067;
7.19 Such problems are not energy-specific. raising the profile and attractiveness of
We are already addressing common problems apprenticeships with a major marketing
across the economy6 which are also relevant campaign to promote Modern
to the energy sector. In particular we are: Apprenticeships. A new National Modern
Apprenticeship Task Force has been set up
investing an extra £100m per year by
as a high level, employer-led body, driving
2005/06 through the Office of Science
the expansion and development of Modern
and Technology (OST) to improve
Apprenticeships, so helping to meet the
the development of the UK’s science
nation’s skills needs and the aspirations of
and technology skills base;
young people; and
targeting science and mathematics
extending training for lower-skilled
teaching in schools to ensure that we have
workers, helping highly skilled individuals
the right mix of teaching skills at primary
to enter the UK and encouraging take
and secondary level and also providing
up of Investors in People in small firms.
resources (including £60m between 2000
and 2002) to modernise and upgrade
science laboratories; The energy sector

also has specific needs...
commissioning an independent review into
how business can draw more effectively
7.20 We will ensure that these cross-cutting
on university expertise, to report in
initiatives take proper account of energy
summer 2003;
issues, such as the move to a low carbon
publishing a new skills strategy for England economy, which will affect businesses across
in June 2003 aimed at reducing our the economy. For example:
productivity gap with major competitors.
6 Links to more detailed information about the measures set out in this
paragraph and others can be found on the DFES and HM Treasury websites
(www.dfes.gov.uk/learning&skills/index.shtml) (www.hm-
treasury.gov.uk/Documents/Enterprise_and _Productivity/Research_and
Enterprise/ent_res_roberts.cfm) 7 www.ssda.org.uk
Section Three
our Fuel Poverty Advisory Group is

considering ways to encourage small firms COGENT
to take on apprentices and possible links
COGENT works with employers, Government
to government and local authority funded
and education and training providers. It aims to
programes; and stimulate action at all levels of industry and
we are working closely with the industry emphasises that skills and training have to be a
and training providers to review the skills Board-level concern. It has already launched:
and research capabilities required to an offshore technician training scheme to bring
manage more distributed generation in in 150 new trainees each year;
the future. And we are looking into a programme aimed at engineering
supporting the creation of a ‘centre of undergraduates, promoting careers in the oil
excellence’ in distributed generation which and gas sector; and
will bring together universities that have interactive web-based material for schools,
power systems expertise to enhance UK featuring young people talking about their jobs
R&D capability. in the industry.
7.21 We recognise the interrelationship between

skills, research and innovation: skills tend to
drive innovation; in turn innovation creates It also includes the developing SSCs for the
more demand for new and established skills. Process and Manufacturing sector and the
A healthy research base is crucial to nurturing Science, Technology and Engineering Training
the skills needed to manage the effective Alliance (SEMTA), which will address some
application of emerging new energy energy-related areas.
technologies. Not all research training in our
universities will produce radical new 7.23 Upgrading skills will be vital for effective
technologies but the skills and expertise
delivery of the step change in energy
developed will equip people for the vital task
efficiency, particularly in the household
of implementing and maintaining new energy
sector, which is our goal. We therefore
infrastructure.
welcome the proposed creation of an Energy
Utility SSC and look forward to working
7.22 We are committed to working with
through such an SSC, provided it achieves
employers in the energy sector, both through
licensed status, to develop new ways to
the evolving SSCs and the SSDA, involving
enhance the skills and training of employees
Government and other bodies at central,
8 in the energy efficiency industries.
devolved , regional and local level as well as
education and training providers.
This includes the SSC for the oil and gas 7.24 It would be premature for Government to
extraction and chemical manufacturing sector attempt to prescribe in detail what action
9
(COGENT ), which was set up in April 2002. should be taken to address skills in the
various sectors of the energy industry at a
time when a network of employer-led SSCs
8 Training and education are devolved issues and both the Scottish Executive
and the Welsh Assembly Government will have their own skills strategies
is emerging. Through the SSDA we are
and policy measures working closely with employers to ensure
9 www.cogent-ssc.com
that, as soon as possible, all parts of the We need to support

energy industry are included within the action by others...
emerging SSC network which has recently
received a substantial increase in 7.26 We aim to achieve a better and more
Government funding (see paragraph 7.19). appropriately skilled workforce to meet our
This will enable energy employers to energy objectives - which means adopting a
articulate their needs, influence training common approach that connects supply and
providers and improve productivity and demand for skills development. This must be
service delivery - at the same time building driven by employers, in collaboration with
on existing work in the energy industry (in others - with education and training providers
many cases undertaken by the former and with related and supply chain partners.
National Training Organisations) and new Innovative thinking will be needed, for
ideas and proposals. For example: example to make the most of transferable
skills. Offshore construction and engineering
the Electricity Training Association is skills can be adapted to the development
commissioning a Skills Foresight Project of offshore windfarms, and engineers leaving
to identify the skills requirements of the the armed forces can be retrained to work in
renewables industry to 2010; and a variety of energy sectors. Employers could

encourage older workers to stay on to help
GWINTO has made proposals to address
meet skills shortages and to assist with
shortages of gas installers including a pilot
succession planning or training. Such a
project with EAGA to deliver around 400
collaborative approach will enable industries
qualified central heating installers.
to build on the skills that already exist rather
than pulling against each other.
7.25 In December 2002 we published the results
of a nuclear and radiological skills study10.
Although there is no immediate, general skills We also need to become
shortage, some shortages do exist, particularly more innovative...
in safety case production and radiological
protection; there are problems associated 7.27 To achieve our objectives we need to exploit
with an ageing workforce; competition for existing and develop new technologies.
engineering and science skills; and Industry will need to innovate to maximise
uncertainty about the future of nuclear the opportunities offered by a low carbon
power. In response, a task group is being economy and by global markets in
formed across the sector to develop and environmental goods and services.
implement a workforce development strategy.
7.28 Government needs to play a role in developing
innovation, because the benefits, in terms
of the environment and security of supply,
do not always deliver short-term profits for
the private sector. This is particularly true for
low carbon technologies where innovation is
needed to support major changes over a
10 www.dti.gov.uk/energy/nuclear/skills/index.shtml
significant period of time. We should be wary
Section Three
of picking technology winners, but we are Adviser and a group of experts. This Energy
ready to fund innovation where this can achieve Research Review Group (ERRG) was asked
the best results in terms of its policy objectives. to look particularly at whether the overall
We will also work to create a policy level of expenditure on research,
environment that encourages the private development and demonstration was
sector to bring the key technologies forward, sufficient and whether it was being targeted
and play a key role in the delivery of major at the right areas.
new infrastructure. Of particular importance
will be the move towards internalisation of 7.30 The group concluded that the UK’s spending
the cost of carbon, through emissions trading should be raised. We are increasing public
(discussed in chapter 2). This should also spending on energy research, development
help to incentivise low carbon innovation. and innovation. DTI spent around £40m
supporting sustainable energy-related
research and technological development in
We are keeping innovation 2001/02. We have already put in place a
policy under review... substantial renewables support programme
worth in total £250m between 2002/03 and
In November 2002 we began a broad review -
including energy - that will by July 2003:
2005/06. We will also, as described in
chapter 4, increase the funding by a further
assess the UK’s relative innovation performance;
£60m in this period. This is additional to the
identify strengths and weaknesses and where
extra funding announced in the 2002
market or institutional problems inhibit innovation;
Spending Review, which allocated an
identify how Government policies can help; and additional £38m for energy policy objectives
set out a new strategy, involving key stakeholders, in 2005/06 compared with 2002/03.
to improve the UK’s innovation performance.
We have also set up an independent review, led 7.31 We set up the Carbon Trust in April 2001
by Richard Lambert, on strengthening links to lead on low carbon technology and
between business and universities. The review innovation. It is spending £75m over the next
team will consult widely with business, universities three years. Funding for energy-related
and national and regional administrations in the technology has also been available via the
UK and overseas. The review will complement DTI’s Innovation and Business Support
and contribute to the Innovation Review and will programmes and through various European
report to Ministers in late summer 2003. programmes. The Research Councils will
spend over £11m on energy-related research
in 2002/03. They have been allocated an
additional £28m under spending review 2002
We will invest more for further research in support of a
in energy innovation... sustainable energy economy.
7.29 For the PIU Energy Review, a report on the

Government’s support for energy research,
development and demonstration was
prepared by the Government’s Chief Scientific
Prioritise and properly and possibly European focus to integrate

co-ordinate our resources... and accelerate research in this priority area.
It will play a key role in co-ordinating
7.32 We endorse the ERRG’s research priorities: research, facilitating collaboration with
industry and UK participation in international
carbon dioxide sequestration;
projects, as well as being a centre of
energy efficiency; excellence in its own right. The centre will
also signal the importance the UK attaches to
hydrogen production and storage;
energy research, helping to attract high-
nuclear (particularly waste); calibre scientists and graduates to the sector.
solar PV; and

Work with others
wave and tidal power.
internationally...
All these have been identified as areas in
7.35 A number of countries are developing low-
which increased support for research and
carbon technologies. We need to focus on
development is particularly likely to result in
areas where UK industries can deliver
step-change breakthroughs which will
innovations before or better than others.
contribute significantly to carbon reductions.
But international collaboration is important
where pooling resources can encourage
7.33 ERRG also recognised the need for further
innovation at lowest cost.
research into social, economic and
environmental factors as well as the crucial
7.36 We are promoting an international initiative
role of cross-cutting research, for example, in
to strengthen efforts to bring science,
advanced materials, super-conductors,
engineering and technology to bear on
nanotechnology and biotechnology. It noted
efforts to slow climate change, initially
the importance of targeting support at basic
through the G8. We will also continue to
research, as this is the point at which the
collaborate in IEA work in areas such as
maximum number of options can be generated
renewables, end use and fossil fuel
for development and commercial application.
technologies, fusion and the exchange of
We agree that basic research is critical to
scientific and technical information on energy
sustaining innovation over the longer-term.
technology. In our relations with the United
States we will build on the Memorandum
7.34 A new Energy Research Network is being
of Understanding on energy R&D between
developed by the Research Councils to
the DTI and the US Department of Energy
establish interdisciplinary teams with
to develop a more strategic collaboration on
expertise in the scientific, technological,
energy technologies. We have recently
social, economic and health impacts of
published a report that shows that it should
energy, providing much needed co-ordination
be technologically and economically feasible
and cohesion. A new UK Energy Research
to achieve a virtually zero carbon energy
Centre will act as the hub, providing a national
Section Three
system in the long-term, if we use energy Thermonuclear Experimental Reactor (ITER)

more efficiently and develop low carbon and the International Fusion Materials
technologies11. Irradiation Facility (IFMIF). The US and China
have both signalled their intention to join
ITER, an ambitious international research
project to harness the potential of fusion
The European Framework Programme
energy. The project will involve the UK, US,
The European Framework Programme supports China, Russia, Japan, Canada and other
R&D projects across a range of science and European nations. We expect ITER to lead,
technologies.
by the middle of this century, to the
The new programme, beginning in 2003, gives commercially viable production of clean, safe
more emphasis to renewables. We will continue and renewable energy without the emission
to assist UK applications for its support. The DTI of greenhouse gases. The UK has
has also commissioned a study on how Germany, considerable expertise in fusion and a
Spain and the Netherlands promote the programme complementary national fusion programme
and organise energy research, especially in will also be needed to maximise the benefit
relation to small and medium sized companies. from this expertise.
The ENERGIE programme supports R&D in the
three broad categories of renewables, rational use
There will be significant new
of energy and fossil fuels. UK participants have
received nearly B180m from this programme,
opportunities for investment...
around 20% of its budget.
7.38 The UK has a world-leading manufacturing,
The UK also participates in nuclear research service and research capability in the energy
under the EURATOM Programme, primarily on field and a world-class science base.
fusion research.
The power generation, transmission and
distribution equipment and service supply
industry alone makes a very substantial
7.37 In the long term, nuclear fusion could provide contribution to the UK’s economy by way
power generation from an abundant fuel of goods, services and jobs. In 2001 21% of
source with zero carbon emissions and all industrial investment was made by the
without the problems associated with long- energy industries, compared to 20% in
term highly radioactive waste. We are a long 198012. There will be considerable
way from a commercial power plant, but opportunities for the UK energy industry to
the technical feasibility of fusion power invest to meet the challenges of delivering
generation could be demonstrated within the infrastructure, new technologies and
25 years given adequate resources, possibly solutions we will need in the future. With its
leading to full-scale power generation within long-standing knowledge and experience of
30 years. The next step towards this is the the UK energy scene, the UK equipment and
construction of the International service supply industry has a central role
11 Assessment of Technological Options to Address Climate Change,

A Report for the Prime Minister’s Strategy Unit: December 2002 12 UK Energy Sector Indicators, DTI, December 2002
(www.strategy.gov.uk/whatsnew/whatsnew.shtml) (www.dti.gov.uk/energy/index.shtml)
to play in helping us to achieve our objectives.

The white paper sets a clear, consistent and
settled framework against which business
can plan to that end. We will continue to
work with industry to help business move up
the value chain and reap the commercial
benefits this will bring, both in the UK and
abroad through export opportunities.
Chapter 8 Energy and the vulnerable
Energy policy raises We aim that as far as reasonably

a range of social issues... practicable no household in Britain should
be living in fuel poverty by 2016-183.
8.1 Most of us take for granted being able to turn
the lights on and keep our homes warm. 8.3 Encouraging progress is being made. In 1996
But for some people, basic energy needs there were 51⁄2 million UK households in fuel
account for a disproportionate amount of their poverty. Today there are around 3 million. Of
income. We must ensure that as we address these about 2 million are vulnerable households.
the security, environmental and competitiveness The 21⁄2 million overall reduction is due mainly
aspects of energy policy we also take account to energy price reductions and increased
of social impacts, especially on the poorest. benefits. On current forecasts we might expect
economic growth to take about 1 million
more households out of fuel poverty by 20104.
We are making good progress
We will publish our first annual progress
in tackling fuel poverty...
report on the UK Fuel Poverty Strategy shortly5.
This will provide more detail on the progress
8.2 Some households need to spend more than
being made and the programmes in place.
10% of their income to heat their homes
adequately and affordably - the ‘fuel poor’1.
8.4 Eradicating fuel poverty sustainably, particularly
Fuel poverty is caused by a combination of
for the most vulnerable households, requires
factors, including the energy efficiency of the
action in the home - better insulation, more
home, fuel costs and household income.
efficient heating systems and minimising
So we need better energy efficiency,
competitive energy prices and increased draughts. Together with the Devolved
incomes. We are committed to eradicating Administrations we fund a number of grant
fuel poverty and have a legal obligation under schemes to support this - Warm Front in
the Warm Homes and Energy Conservation England, Warm Deal and the Central Heating
Act 2000 in England and Wales and the Programme in Scotland, the New Home Energy
Housing (Scotland) Act 2001 in Scotland to Efficiency Scheme (HEES) in Wales, and Warm
specify a target date by which, as far as Homes in Northern Ireland6. These schemes
reasonably practicable, this will be achieved. provide help for people on income or disability
The UK Fuel Poverty Strategy2, published in benefit. The energy efficiency commitment
November 2001, sets out policies for ending (EEC) requires half the target energy savings
fuel poverty in vulnerable households in to be achieved in this priority group.
England - older households, families with
children and householders who are disabled
or have a long-term illness - by 2010.
We reaffirm these commitments and policies.
3 In England and Scotland the target date is November 2016. Scotland has an
interim target of achieving by 2006 a 30% reduction of people in fuel
poverty as shown in the 2002 Scottish House Condition Survey. The Welsh
1 Different definitions of fuel poverty apply in each country, though we are Assembly Government has proposed in their consultation document a
working to bring them closer into line. There are also two methods of target date of 2018. There is no date yet for Northern Ireland.
assessing income - either to include or exclude Housing Benefit and
4 assumes that incomes grow by 2.5% in real terms each year to 2010
Income Support for Mortgage Interest. The figures quoted include this
income. The numbers in fuel poverty are greater if this income is excluded. 5 www.dti.gov.uk/energy/consumers/fuel_poverty/strategy2.pdf
2 www.dti.gov.uk/energy/consumers/fuel_poverty/strategy.shtml 6 www.eaga.co.uk and www.txuwarmfront.co.uk/content/general/default.asp
Our recently published policy on sustainable

communities7 has an important role to play. Tackling fuel poverty through partnership
Our target of bringing all social housing up The Dundee Community Energy Partnership brings
to a decent standard will also contribute. together Dundee City Council, Transco, the Scottish
Executive, and Scottish and Southern Energy, to
8.5 Continuing these initiatives in their current identify areas of good practice and establish a
form and at their current levels would working model. Partnership workers go door-to-
remove up to another 1 million vulnerable door throughout the city to determine if there is
households from fuel poverty by 2010, fuel poverty, what measures are needed, and
what the best use of funding programmes would
though some of these will already have been
be to help the household out of fuel poverty.
removed through economic growth.8
But we need to do more... 8.8 To advise on progress and suggest

improvements in delivering the fuel poverty
8.6 Evaluations of Warm Front in England and strategy, we established the Fuel Poverty
a progress report on the first year of the EEC Advisory Group in England. A similar group
will be completed this year. These will help works with the Scottish Executive on
us assess the impact of the schemes and progress in tackling fuel poverty in Scotland.
their contribution to our Fuel Poverty Strategy. We welcome the English Advisory Group’s
10
The Warm Front review also provides an first annual report as a valuable contribution
opportunity for changes to the scheme, to the challenge of meeting our fuel poverty
looking ahead and ensuring the best use of targets. We will work with the Group as
our resources in fulfilling the Strategy. we consider how its recommendations
will be taken forward. In particular we will
8.7 We are also exploring new ways of tackling continue to:
fuel poverty. Five pilot Warm Zones were report annually on progress against the
established in 2001 - in Stockton, Sandwell, fuel poverty targets;
Hull, the London Borough of Newham, and
keep under review the resources needed
Northumberland - bringing together the
deliverers of Warm Front, energy suppliers, to achieve our targets;
local authorities, health officials and others to find ways to achieve greater efficiency
provide a co-ordinated approach in a local area9. in delivery, through closer co-ordination
between the various initiatives which
deliver energy efficiency improvements
to the fuel poor;
work across Government to ensure that
policies on benefits, health and housing
7 Sustainable Communities: Building For The Future www.communities.gov.uk help to alleviate fuel poverty; and
- see chapter 3
8 As with the estimated impact of economic growth, there is considerable address the need to overcome skills
uncertainty about the full impact on the numbers in fuel poverty.
shortages - see Chapter 7.
9 www.warmzones.co.uk. A summary report evaluating the first year
performance of Warm Zones is at
www.est.org.uk/est/documents/warm_zones_evaluation_l_summary.pdf 10 www.dti.gov.uk/energy/consumers/fuel_poverty/fuel_adv_grp/report1.pdf
Section Three
Chapter 8: Energy and the vulnerable
There is a need to services as a necessary requirement for

tackle rural issues... addressing international development and
poverty reduction objectives. The recent
8.9 Most people in fuel poverty live in urban areas. DFID issues paper Energy for the Poor12
But it can be more acute in the countryside, explains the importance of access to
where houses tend to be older, less energy affordable, safe and reliable energy services
efficient and harder to heat. Also many in the achievement of the international UN
people in rural areas do not have mains gas. Millennium Development Goals.
Oil fuel, solid fuel, electric heating or liquefied
petroleum gas (LPG) can be more expensive 8.12 We shall strengthen international dialogue
and less convenient. The DTI is therefore on energy and development. We will
working with Transco to identify areas support and promote two international
where extensions of the gas network and WSSD follow-up activities aimed at
connection to energy efficient gas central improving access to energy services - the
heating systems might be justified. We will Global Village Energy Partnership (GVEP),
explore options for pilot projects whose leading partners include the United
on gas extension. Nations Development Programme (UNDP)
and the World Bank, and the EU Energy
8.10 People living in rural areas are particularly Initiative for Poverty Eradication and
dependent on cars and can be affected by Sustainable Development.
higher fuel prices and the closure of filling
stations. We have set up a taskforce with
industry on services for rural motorists to look
at issues such as the costs of environmental
measures for small filling stations and
schemes to support rural filling stations.
And internationally...
8.11 International development also has an

important part to play in improving energy
security in the medium to long term. We will
promote economic growth, especially pro-
poor growth, stability and good governance in
energy-producing countries as part of our
11
international development efforts. At WSSD
in Johannesburg last year it was agreed that
concerted international action is needed for
increasing access to sustainable energy
11 World Summit on Sustainable Development - see chapter 4 12 www.dfid.gov.uk Issues and Briefing Notes
Section
Four
Delivery through
partnership
Chapter 9
We need to work with others... We need new ways of doing

things in Government...
9.1 People gave us a very clear message in the
public consultation leading up to this white 9.5 We have set out a challenging, long-term,
paper. They told us that they care about the agenda for change. We need to make sure
environment and that they want to play their we have the institutions in Government to
part in tackling climate change. But they need deliver it.
practical leadership and help to understand
what they can do. 9.6 We do not believe we need a new
organisation for this. We want to concentrate
9.2 We have set a lead in this white paper. We our energies on following through the
have set out new objectives for energy policy, commitments we have made, not on creating
including a clear commitment to move towards new machinery. We have shown, during the
a low-carbon economy. And we have set preparation of this white paper, that with
out new measures to deliver our objectives. commitment and effective leadership we can
achieve extremely effective
9.3 We will need to work with others to achieve interdepartmental working. We intend to
these goals. The products and services build on this. The white paper itself will give
needed in future will depend on business us a new focus for our future efforts in this
enterprise and innovation. Local authorities respect.
and regional bodies are pivotal in delivering
change in their communities. We will 9.7 This work cuts across traditional
continue to work closely with the Devolved departmental boundaries. To deliver the
Administrations. We will continue to need a programme successfully, we need to provide
sound basis of academic research and a clear locus for:
information. Independent organisations and
advising the Government on energy
voluntary bodies can communicate messages
security (including longer-term international
to the public and help them to get involved in
trends) and on carbon emission targets;
decision-making.
monitoring the introduction and impact of
9.4 And Government itself must change so that policies to deliver those security and
energy policy is looked at as a whole. carbon goals;
Our challenge is to achieve all our objectives
monitoring performance;
together rather than pursuing them as
separate streams. And this approach needs reporting to Ministers on performance
to be reflected in the way energy markets are and on any policy adjustments needed;
regulated.
reporting publicly on performance; and
coordinating across Government on

international sustainable energy issues.
Section Four
Delivery through partnership
Chapter 9
9.8 To this end, we will strengthen departmental 9.10 To ensure the transparency of the follow-up
analytical and strategic capabilities in the to this white paper, the Sustainable Energy
field of energy policy. The DTI’s Energy Policy Network will publish annually a report
Strategy Unit will provide the focal point of on the progress being made towards the
a network - a Sustainable Energy Policy aims we have set out here. This will report
Network - of departmental policy units that on how the Government, regulators and
will be involved in delivering the white industry are delivering security of short-term
paper’s commitments. We expect the DTI, and long-term energy supply, moving towards
Defra, the FCO, the Treasury, the ODPM, DfT, our intermediate and longer-term carbon
the Scotland Office, the Wales Office, and reduction goals (including those already set
the Devolved Administrations all to play out in the Climate Change Programme),
a full part in this network. The regulators, delivering our fuel poverty targets and
particularly OFGEM and the Environment maintaining the competitiveness of our
Agency, will also play an important part. energy markets more generally.
The primary task of the network will be to
ensure that the aims we have set out in this 9.11 We will need appropriate indicators to monitor
white paper are delivered. This will require progress. Government already publishes an
the network, acting as a virtual unit, to extensive range of energy indicators, and
ensure that the Government as a whole these will continue to be published annually.1
pursues effectively the policies and But we need to focus on a smaller set of
programmes that we need to deliver all our indicators to give a broad overview of whether
objectives, including a significant stepping-up overall energy policy objectives are being
of our international capability. delivered. Therefore, as a supplement to the
white paper, we will be seeking views on the
most appropriate indicators to focus upon.
9.9 To provide a clear line of accountability for
the network, we will also put in place a new,
9.12 We also need to ensure that our future
ad hoc, Ministerial group which will oversee
policies and measures take full account of
the delivery of the commitments in this
their carbon impacts, that they are
white paper. This group will be chaired
transparent and that information about them
jointly by the Secretary of State for Trade and
and about energy policy choices is available
Industry and the Secretary of State for the
to business and the public in a format that
Environment, Food and Rural Affairs. To
they will find accessible. The recently
support the Ministerial group, the governance
updated guidance for regulatory impact
of the Sustainable Energy Policy Network
assessments includes a provision to consider
will be strengthened with the creation of a
environmental impacts as part of delivering
Sustainable Energy Policy Advisory Board,
the Government’s commitment to
made up of senior, independent experts and
sustainable development. A carbon impact
stakeholders. The role of the Advisory Board
assessment will in future be an integral
will be to provide the Ministerial group with a
part of assessing environmental impacts.
source of well-informed, independent advice
on the approach and the work of the Network
as a whole. 1 UK Energy Sector Indicators , DTI, December 2002
(www.dti.gov.uk/energy/index.shtml)
Linking to the work of OFGEM... assessments through primary legislation,

bringing OFGEM into line with the
9.13 Government sets the regulatory environment position in other areas, notably the
in partnership with OFGEM, the independent Financial Services Authority and Ofcom;
economic regulator for the gas and electricity OFGEM is committed to publishing
markets. OFGEM has a key influence on the
regular statements on security of supply;
energy markets for which it is responsible.
The way in which OFGEM and Government DTI, Defra and OFGEM will establish
discharge their responsibilities will play a a joint working group on relevant
central part in determining whether the environmental issues, and publish
environmental transformation and the statements of progress though the
security of the energy industry we envisage Sustainable Energy Policy Network.
in this white paper are delivered in practice. This group will build on the successful joint
OFGEM and the DTI share common statutory group which has been established for
duties under the gas and electricity security of supply; and
legislation, but have separate responsibilities: we shall revise the statutory guidance
the roles are complementary. Our proposals
on social and environmental issues
will facilitate dialogue, and provide for a clear,
in the light of this white paper making
shared, understanding of objectives.
the guidance more specific.
9.14 To help minimise inconsistencies between

9.16 Many of the detailed rules for the electricity
our energy policy objectives and the
and gas markets are set in codes rather than
regulatory regime for the gas and electricity
in legislation or licence conditions. Industry
markets we need to:
code panels advise the regulator on proposals
raise the profile of environmental for modifications. OFGEM then makes
considerations in OFGEM’s regulatory decisions on code modifications. In making
decision-making; its decisions OFGEM is not bound by the
panels’ advice. We will:
improve co-ordination and understanding
between Government and the regulator on seek to strengthen the code panels which
environmental objectives; and advise on code revisions by ensuring
they include people with expertise in
strengthen OFGEM’s transparency.
renewables and the environment;
9.15 To this end we propose a wide-ranging work with OFGEM to strengthen the
programme of action: transparency and accountability of the
code modification process. OFGEM already
OFGEM has committed to producing
publish reasons where they do not accept
regulatory impact assessments, including
the advice of the industry code panel; and
environmental impact assessments, for all
significant new policies. This will enhance also consult on a range of further
transparency until there is opportunity to measures, including whether it would be
provide statutory backing for these appropriate to provide for appeals against
Section Four
Chapter 9
OFGEM decisions on certain code

modifications. This consultation will take Scotland and Wales -
place within the wider context of a House Approaches to Energy Strategy
of Lords inquiry into the accountability of In Scotland, the Scottish Executive is committed
regulators. to raising the overall proportion of electricity
generated from renewable sources to 18% by
9.17 It has been argued that we should introduce 2010 (including existing large hydro). The Executive
a power of direction over OFGEM. We has recently consulted on the potential to
believe that independent economic regulation generate as much as 40% of Scotland’s electricity
delivers very significant benefits. Although a from renewable sources by 2020. Scottish
Ministers are currently considering the views
power of direction would allow the
expressed and intend to make an announcement
Government to have a direct impact on
shortly about a 2020 target and the measures
regulatory decisions, we consider it would
required to achieve it.
undermine the independence of the
regulator, and politicise the regulatory The Scottish Executive is also strongly supportive
process so as to cause unacceptable levels of a single GB market in electricity through BETTA.
of uncertainty in the markets. Wales has a climate, geography and industrial
structure which present tremendous opportunities
for clean generation technologies which can be
We must also work closely with
developed very much in accord with sustainable
the Devolved Administrations...
development principles, including creating wealth
for communities from energy generation and
9.18 We will continue to work closely with the supply chain growth. Renewable energy, CHP and
Devolved Administrations on energy policy energy efficiency opportunities have already been
objectives, in particular through the new examined in depth by the Welsh Assembly’s
Sustainable Energy Policy Network. We are economic development committee and are being
encouraged that the Devolved Administrations supported within the EU Structural Funds
are developing strategies and targets on programmes. Against this background the Welsh
devolved aspects of energy policy. Assembly Government and relevant agencies are
strongly pursuing an increasingly active clean
energy/energy-conservation strategy which will be
further boosted in the light of the developments
described in this white paper.
Regional and local leaders... this strategic approach will be integrated

as appropriate into existing strategies.
9.19 Local authorities and other local bodies, We expect that it will:
regional chambers and Regional Development set out a strategic vision of the interaction
Agencies (RDAs) make decisions that are between national energy policy and
vital for energy policy - for example on specific local and regional concerns;
planning, regeneration and development,
include regional targets (such as for
procurement, housing, transport and
renewables and energy efficiency)
sustainable development. Specific examples
negotiated between the region and
are set out throughout this white paper.
national Government;
In future there will be greater emphasis on
local and regional approaches in delivering set out an action plan showing how
our energy objectives. Local authorities regional bodies and local authorities
have a growing role as community leaders. intend to help to deliver objectives on
Elected regional assemblies will provide energy through their various roles and
2
additional political leadership . functions; and
act as a contribution by the region to the
9.20 We already work with local and regional
development of national policy.
bodies in England on energy issues - for
example, on energy efficiency. We will build 9.22 We expect this strategic approach to be
on this to develop a new package of developed by a partnership of regional
measures to promote national objectives chambers, RDAs, Government Offices in the
through local and regional decision-making. Regions (GOs), local authorities and other
This will enable local and regional priorities stakeholders, such as businesses, unions and
to be better reflected in national policy. voluntary groups. Its objectives will need to
Over time a more proactive role will be be delivered by all these bodies working
developed for local and regional bodies in closely together. In the longer term elected
energy policy.3 Local policy is devolved and regional assemblies will take responsibility for
the Devolved Administrations will wish to leading the work where they are established.
consider whether to take action in their We will consult shortly on detailed proposals.
respective areas.
9.21 Several regions already have energy or

renewables strategies. We propose to build Arrangements in London
on these by taking steps to ensure that a In London, the Greater London Authority (GLA)
strategic approach to energy is developed was created in 2000, with responsibility for
and implemented in each region. Ideally preparing statutory strategies in a number of
areas. We believe it is too early to change current
institutional arrangements in London, given that
the GLA has only been in existence for two years.
2 In regions that choose to establish them. But we welcome the Mayor’s decision to prepare
3 The approach builds on policy set out in the recent white paper on regional a non-statutory energy strategy.
governance Your Region, Your Choice: Revitalising the English Regions.
Cm 5511 HMSO May 2002.
Section Four
Chapter 9
9.23 RDAs’ role as the drivers of regional encourage local authorities to take the
economic development means that they can lead, acting as catalysts for change,
make a significant contribution to meeting developing and facilitating cross-sectoral
the energy policy objectives set out in this partnerships and providing advice and
white paper. In particular they will have a key encouragement;
role in implementing a strategic approach at
review existing guidance to Energy
regional level, and the Regional Economic
Conservation Authorities on complying
Strategy will be a key driver in its
with the requirements of the Home
development. We will therefore strongly
Energy Conservation Act;
encourage RDAs to play a key role in the
delivery of energy policy objectives at consider with the Local Government
regional level. We will also support them in Association (LGA) whether at the next
helping to develop their understanding of review to include energy as a shared
the implications of the white paper for their central-local priority; and
region and in identifying specific actions
consult on arrangements to collect and
they can take to meet its aims.
make available data on the pattern of
energy usage in local areas, to enable
9.24 Many local authorities and regional bodies
local authorities and regional bodies to
are already developing innovative initiatives
target activity more effectively.
and strategies that go beyond their statutory
functions. In the longer term we want to
see more taking such a pro-active role.
The Sustainable Energy Policy Network
will have a remit further to develop the
partnership with local and regional bodies
on energy issues. In addition we will:
establish a new beacon councils theme

on sustainable energy to promote
innovative local approaches on
generation and demand-side measures;
promote energy efficiency and the roll-

out of new technologies as areas in
which local authorities can consider Local
Public Service Agreements;
urge local authorities to give energy

issues priority at a strategic level, for
example, through their Community Plans
and Housing Strategies, consistent with
the new strategic approach to be
developed at regional level;
Examples of Successful
Local and Regional Initiatives
The Northern Energy Initiative, an independent The Council is in partnership with Yorkshire Forward,
organisation undertaking work for the regional the RDA in a scheme to increase the take-up of
GO, the RDA, academic institutions and business, solar PV technology throughout West Yorkshire.
has developed an energy strategy for the North A recent report by the Audit Commision into the
East of England. This sets regional targets for work of the Calderdale Housing Energy Team said,
business energy efficiency, job creation in the “the work carried out by the Council on energy
energy sector, renewables and CHP. It has set up efficiency measures and advice is impressive”.
support for smaller businesses, a renewable
Woking Borough Council is the only UK local
energy agency and a ‘clean coal’ project.4
authority to supply customers with electricity,
The South West RDA and GO have, with local heat and cooling on private wire district energy
Government and business, drawn up a Strategic networks, using fuel cells, CHP and solar power.
Framework for the Development of Renewable It also supplies energy services to homes and
Energy in the South West. The framework businesses, financed through a public/private joint
addresses issues such as skills and awareness, venture energy services company, for which the
markets for renewable energy and planning. Council gained a Queen’s Award for Enterprise.6
The partners have subsequently set up a not-for-
Leicester City Council has a major energy
profit company ‘Regen SW’ to guide the
efficiency housing programme which incorporates
development of renewables in the region and to
expanding the district heating system, introducing
help deliver action under the strategic frameworks5.
CHP, renewable energy systems and energy
Calderdale Council has utilised funding from the efficient independent boilers, and a policy for
local Primary Care Trust to insulate the homes of installation of new, PVCu double-glazed windows
people over 60. In 2001, 711 householders had to all council housing in Leicester.7
their homes improved under this scheme.
4 www.umitek.com 6 www.lgib.gov.uk/policy/Woking_intro.htm
5 www.oursouthwest.com - “Regional Sustainability”page. 7 www.leicester.gov.uk
Section Four
Chapter 9
Business can help... Developing a consistent

and coherent message...
9.25 Many of the measures set out elsewhere in
this paper are designed to encourage action 9.26 Our consultations featured a strong message
by business in general, as well as by that there should be wider and more
companies in the energy generation, sustained public debate about energy policy.
distribution and supply industries. Companies We can facilitate that at both national and
can also encourage action themselves - by local level. This means consulting about key
reporting publicly on their own performance decisions and reaching key stakeholders on a
for instance, and by encouraging their regular basis. It also requires an effective and
customers and stakeholders to act consistent joining up of the messages on
themselves. For example: energy across Government.
we have already called on businesses to

9.27 The new Sustainable Energy Policy Network
report on their environmental performance,
will accordingly bring together a cross-
including greenhouse gas emissions, and
8 sectoral group of interests to agree on
have produced guidance to help them.
consistent and coherent messages on the
We have put forward proposals in the
vision set out in this white paper.
Modernising Company Law white paper
It will include the Small Business Service,
that would require leading companies to
the Energy Saving Trust, Energywatch, the
report on environmental issues where they
Carbon Trust, the Low Carbon Vehicles
are relevant to an understanding of the
Partnership, non-Governmental organisations
business. We have appointed an
and business groups, the Environment
independent group of experts to provide
Agency and others.
guidance on how directors can assess
whether an item is material and would have
9
to be included in the annual report; and
businesses can encourage their customers

to be energy efficient. Energy suppliers for
example are required to offer their customers
incentives to encourage energy efficiency
and should provide information about practical
steps to reduce energy consumption.
Retailers are working within the Energy
Efficiency Partnership on how to promote
more efficient products to consumers.
8 The greenhouse gas emissions guidance and other reporting guidelines

are available at www.defra.gov.uk/environment/envrp/index.htm
9 The Modernising Company Law white paper is available at

www.dti.gov.uk/companiesbill/index.htm
Annexes
Annex A Glossary
Term Definition
Balancing mechanism The mechanism used by the National Grid Company to balance
the supply and demand of electricity.
Biomass Biomass is anything derived from plant or animal matter and

includes agricultural, forestry wastes/residues and energy crops.
It can be used for fuel directly by burning or extraction of
combustible oils.
British Electricity Trading Arrangements to create a single wholesale electricity market

& Transmission for Great Britain.
Arrangements (BETTA)
Capacity Margin A mechanism such as a capacity obligation that requires electricity

Instruments (CMI) industry participants to provide a defined level of generating capacity.
Carbon capture Removal of CO2 from fossil fuels either before or after
combustion. In the latter the CO2 is extracted from the fluegas.
Carbon credits A credit or permit arising from a greenhouse gas emissions

reduction scheme, such as emissions trading
Carbon emissions trading A scheme in which greenhouse gas emissions are controlled by
scheme/carbon trading setting a cap on total emissions and allowing the market sector(s)
to reach an economically balanced response via trading of
emissions allowances. Allowances are allocated initially, perhaps
through a free distribution or through an auction, and the total
allocation is adjusted (capped) periodically.
Carbon storage The long-term storage of carbon or CO2 in the forests,

soils, ocean, or underground in depleted oil and gas reservoirs,
coal seams, and saline aquifers. Also referred to as engineered
carbon sequestration. Carbon Capture and Storage can be
referred to as CCS.
Carbon Trust An independent not for profit company set up by the Government
with support from business to encourage and promote the
development of low carbon technologies. Key to this aim is its
support for UK businesses in reducing carbon emissions through
funding, supporting technological innovation and by encouraging
more efficient working practices.
Annexes
Annex A: Glossary
Term Definition
CCGT Combined cycle gas turbine - a gas fired electricity generation plant.
Climate Change Agreement An agreement between the Government and a business user,
whereby a reduced rate of Climate Change Levy is payable in
return for a commitment by the user to achieve certain
pre-determined targets for energy usage or carbon emissions.
Climate Change Levy (CCL) A levy applied to the energy use of all non-domestic sectors.
Subject to certain exemptions and reductions to encourage
energy efficiency.
Climate Change Programme Published in 2000, sets out the Government and Devolved
Administration strategic approach to tackling Climate Change and
meeting the UK’s Kyoto target of a 12.5% reduction in
greenhouse gas emissions from 1990 levels by 2008-2012 and
the domestic goal of reducing CO2 emissions by 20% by 2010.
CMM plant Coal Mine Methane plants generate electricity and heat from
methane that is emitted from disused coal mines.
CO2 Carbon dioxide (a greenhouse gas).
COGENT Sector Skills Council for the oil and gas extraction and chemical
manufacturing sector.
Combined Heat and CHP is the simultaneous generation of usable heat and power
Power (CHP) (usually electricity) in a single process, thereby discarding less
wasted heat.
Community Energy A £50m, 2 year capital grants programme (2002-04) offering funding,
Programme information and support to Local Authorities, Registered Social
Landlords, Universities, Hospitals and other public service
organisations for the refurbishment of existing and installation of
new community heating schemes. Operates across UK and is
jointly managed by the Energy Saving Trust and the Carbon Trust
on behalf of Defra.
Term Definition
‘Decent standards’ Set by ODPM, the decent home standard is a minimum standard
that all social housing in England should achieve by 2010.
A decent home is one that is wind and weather tight, warm and
has modern facilities. Similar standards apply in the DAs.
Defra Department for Environment, Food and Rural Affairs.
DETR Former Department of the Environment, Transport and the Regions.
DFES Department for Education and Skills.
DFID Department for International Development.
DfT Department for Transport.
Distributed generation Electricity generation usually on a relatively small scale that is

connected to the distribution networks rather than directly to the
national transmission systems.
Distribution Network Companies that are responsible for operating the networks that
Operators (DNOs) connect electricity consumers to the national transmission system
and provide interconnection with embedded generation.
EAGA The Eaga Partnership manages fuel poverty programmes on

behalf of the Government and Devolved Administrations.
Embedded generation See distributed generation.
ENERGIE Programme An EU programme supporting research, development and

demonstration aimed at delivering cost effective solutions to key
energy related problems on a European scale. In particular the
aims are to minimise the environmental impact of the production
and use of energy and to increase the share of new and
renewable energy sources in EU’s energy balance.
See www.dti.gov.uk/ent/energie/index.htm
Energy Charter Treaty (ECT) A multilateral treaty to promote trade, investment and transit of
energy products between Contracting Parties and sets a standard
for non-discriminatory access to energy supplies.
Annexes
Annex A: Glossary
Term Definition
Energy Efficiency Network of centres across the UK providing free, impartial

Advice Centres and locally relevant energy efficiency advice to householders and
small businesses. Call free on 0800 512012.
Energy Efficiency The Energy Efficiency Commitment (formerly known as Energy

Commitment (EEC) Efficiency Standards of Performance, EESoP) is an obligation
placed on all domestic energy suppliers to achieve a specified
energy saving target through the installation of energy efficiency
measures in homes across Great Britain. At least 50% of the
benefits are focused on disadvantaged households. A similar
scheme (Energy Efficiency Levy) operates in Northern Ireland.
Energy for the Poor Initiative An EU initiative focusing on poverty eradication in developing
countries by improving people’s access to adequate, affordable
and sustainable energy services.
Energy intensity Energy consumed per unit contribution to Gross Domestic

Product, ie for business sectors it is the energy per unit Gross
Value Added. The equivalent for the domestic sector is energy
consumed per household.
Energy Research Network A new network being developed by the Research Councils
to establish interdisciplinary teams addressing all aspect
of energy research (scientific, technological, social, economic
and health impacts).
Energy Research Review A group of experts set up under the chairmanship of the Government’s
Group (ERRG) Chief Scientific Adviser. The Group was assembled to review
Government support for energy research, development and
demonstration as an input to the PIU’s Energy Review. The report
of the Group was published on 14 February 2002.
Energy Saving Trust (EST) The Energy Saving Trust is an independent not-for-profit organisation,
set up and largely funded by the Government to manage a number
of programmes to improve energy efficiency, particularly in the
domestic sector.
Engineering & Physical The UK Government’s leading funding agency for research and
Sciences Research Council training in engineering and the physical sciences.
(EPSRC)
Term Definition
Enhanced Oil Recovery (EOR) Increased production of oil from an oil field, brought about
by injecting gas (eg CO2) or water to raise the oil pressure
and force more oil out.
Environment Attache Network Network of Environment Attachés at British Missions Overseas.
EU 6th Framework The European Framework programme supports R&D projects

Programme for R&D across a range of science and technologies. The 6th Framework
Programme will start during 2003 with a large emphasis on
renewables.
EU Data Transparency This was announced by the Prime Minister at WSSD to increase
Initiative the transparency over payments by companies to Governments
and Government-linked entities, as well as transparency over
revenues by these host country Governments.
EURATOM Programme European Atomic Energy Community.
EUREKA programme Established in 1985 by 17 countries and the European Union to

encourage a bottom-up approach to technological development
and to strengthen the competitive position of European
companies on the world market.
European Emissions The EU emissions trading scheme, to be introduced in April 2005.

Trading Scheme See the section on ‘Carbon emissions trading scheme’, above.
Extractive Industries The Extractive Industries Transparency Initiative was announced

Transparency Initiative by the Prime Minister at WSSD, Johannesburg in September 2002.
Its aim is to increase transparency over payments by companies to
Governments and Government-linked entities, as well as
transparency over revenues by host country Governments.
FCO Foreign and Commonwealth Office.
FGD Fuel gas desulphurisation.
Freight Facility grants Government grants that are given to assist taking freight
movements from road to rail or ship.
Annexes
Annex A: Glossary
Term Definition
Fuel cells Fuel cells produce electricity from hydrogen and air, with water
as the only emission. Potential applications include stationary
power generation, transport (replacing the internal combustion
engine) and portable power (replacing batteries in mobile phones).
Fuel poverty The common definition of a fuel poor household is one needing
to spend in excess of 10% of household income to achieve
a satisfactory heating regime (21˚C in the living room and 18˚C
in the other occupied rooms).
GLA Greater London Authority.
Global Village Energy Launched at the WSSD, this is a 10 year programme to

Partnership (GVEP) reduce poverty and enhance sustainable development through
the accelerated provision of modern energy services to those
un-served or under-served.
Government Offices (GOs) There is one Government Office in each of the 9 English regions.
Their role is to act as the Government’s eyes and ears in the regions,
communicating the Government’s messages and ensuring a regional
input to the policy making process at the centre.
Greenhouse gases Gases which contribute to global warming.
Grid Codes The industry codes that govern the technical interface between
the users of the electricity transmission systems and the
transmission licence holders. Under a GB market the codes will
be amalgamated into a single code.
Hybrid vehicles Vehicles which use batteries or fuel cells as part of their power
source in combination with a traditional internal combustion
engine (ICE). Allows the ICE to be used with less energy loss
and has overall greater efficiency.
Hydrogeneration Electricity generation involving the use of water to turn a turbine.
Hypothecated revenue Tax revenue that is raised for a specific expenditure purpose.
IAG Interdepartmental analysts group.
Term Definition
IFI International Financial Institutions.
IMO International Maritime Organisation.
Integrated Gasification IGCC plants initially gasify the raw fuel input, before passing the
Combined Cycle (IGCC) so-called synthesis gas through a conventional combined cycle
set up. IGCCs can be designed to use a range of raw fuel inputs,
including coal, oil products and wastes.
International Energy An autonomous body, established in 1974 within the framework

Agency (IEA) of the OECD, to implement an international energy programme.
IPCC Intergovernmental Panel on Climate Change.
Joint Energy Security of The JESS Working Group, set up in July 2001, has brought
Supply (JESS) together DTI and OFGEM to monitor the security of energy
supplies as part of an initiative to keep the reliability of energy
supplies under ongoing review.
Kyoto Protocol A Protocol to the UN Framework Convention on Climate Change

(UNFCCC) agreed in 1997. Developed nations are required to cut
overall greenhouse gas emissions by an average of 5.2 per cent
below 1990 levels over the period 2008-2012.
Learning & Skills The Learning and Skills Council is responsible for funding and
Council (LSC) planning education and training for over 16-year-olds in England.
LGA Local Government Association.
Liabilities The costs involved in: decommissioning; the processing, long

term management, storage and final disposal of waste materials
and spent fuel; and the environmental remediation of nuclear sites.
Liquefied Natural Gas (LNG) When natural gas is cooled to a temperature of approximately
-160°C at atmospheric pressure it condenses to a liquid called
liquefied natural gas (LNG). Natural gas is composed primarily of
methane (typically, at least 90%), but may also contain ethane,
propane and heavier hydrocarbons.
Annexes
Annex A: Glossary
Term Definition
Liquefied Petroleum Gas (LPG) Gas usually propane or butane, derived from oil and put under
pressure so that it is in liquid form. Often used to power portable
cooking stoves or heaters and to fuel some types of vehicle,
eg some specially adapted road vehicles and forklift trucks.
Low Carbon Vehicle Partnership An action and advisory group, set up early in 2003, to bring
together all stakeholders in the UK’s shift to clean low carbon
vehicles and fuel.
Major Infrastructure Projects Projects such as interconnectors, which typically involve a

substantial investment over a number of years to construct and
bring into operation.
MARKAL energy model A model whose main characteristic is the processing of detailed
bottom-up data in order to meet pre-determined energy demand
at the lowest cost. Its emphasis is on analysis of the longer term
potential for new technology uptake.
Micro-CHP CHP (as above), but in very small scale, typically below 5kW
electrical output, applications (eg in the residential and
commercial sectors). It is likely to operate in place of a domestic
central heating boiler.
MtC Million tonnes of Carbon.
Mtoe Million tonnes of oil equivalent.
Market Transformation A Government programme that aims to bring forward products,

Programme (MTP) systems and services which do less harm to the environment,
using less energy, water and other resources. The MTP provides
strategic support to a growing set of ‘product’ policies that aim
to encourage resource efficiency through supply-chain measures
such as reliable product information, raising minimum standards
and encouraging best practice.
MW Mega Watt - a measure of power, one million watts.
MWh Mega Watt hour, one thousand kWh. A 1 MW power-generating

unit running for 1 hour produces 1 MWh of electrical energy.
Term Definition
NEPAD The New Partnership for Africa’s Development.
New Electricity Trading New Electricity Trading Arrangements - in England and Wales these
Arrangements (NETA) arrangements replaced ‘the pool’ from 27 March 2001. The
arrangements are based on bi-lateral trading between generators,
suppliers, traders and customers and are designed to be more
efficient, and to provide greater choice for market participants.
New HEES (Wales) A scheme for the provision of energy efficiency improvements,
in Wales. The ‘Basic’ scheme offers a range of insulation and
basic heating improvements. ‘HEES +’ offers gas or electric
central heating and is available to households containing lone
parents, sick or disabled persons and those over the age of 60 in
receipt of Income Support, Housing Benefit, Council Tax Benefit
and income based Job Seekers Allowance.
ODPM Office of the Deputy Prime Minister.
OECD Organisation for Economic Cooperation and Development.
OFGEM Office of Gas and Electricity Markets.
OPEC Organisation of Petroleum Exporting Countries.
Photovoltaics (PV) The direct conversion of solar radiation into electricity by the
interaction of light with the electrons in a semiconductor
device or cell.
PIU Performance and Innovation Unit (now the Strategy Unit).
PPG A Planning Policy Guidance note for England. PPG22 covers

renewable energy and the planning system. The guidance notes
are in the process of being replaced by Public Planning
Statements (PPS).
RCEP Royal Commission on Environmental Pollution.
Regional chambers In each English region outside London there is a voluntary multi-
party body with members drawn from local government and the
social, economic and environmental sectors in the region.
Annexes
Annex A: Glossary
Term Definition
Regional Development The agencies aim to co-ordinate regional economic development

Agencies (RDA) and regeneration, enable the English regions to improve their
relative competitiveness and reduce the imbalances that exist
within and between regions.
Regional Selective RSA is a discretionary grant which provides assistance towards

Assistance (RSA) projects with fixed capital expenditure over £500,000 and which
will create or safeguard employment in assisted areas.
Registered Social Landlords RSLs are non-profit making bodies run by voluntary committees
(RSLs) who provide rented accommodation at an affordable cost. Some
also provide homes for sale through special schemes to help
people on lower incomes become homeowners.
Renewable energy Renewable energy includes solar power, wind, wave and tide,
and hydroelectricity. Solid renewable energy sources consist of
energy crops, other biomass, wood, straw and waste, whereas
gaseous renewables consist of landfill gas and sewage waste.
Renewable Energy and An international partnership to promote the growth of renewable

Energy Efficiency energy and energy efficiency systems, launched by the UK
Partnership (REEEP) at the WSSD.
Renewables Obligation The obligation placed on licensed electricity suppliers to deliver a

specified amount of their electricity from eligible renewable sources.
Renewables Obligation Eligible renewable generators receive Renewable Obligation

Certificate (ROC) Certificates (ROCs) for each MWh of electricity generated.
These certificates can then be sold to suppliers. In order to fulfil
their obligation, suppliers can either present enough certificates
to cover the required percentage of their output, or they can pay
a ‘buyout’ price of £30 per MWh for any shortfall. All proceeds
from buyout payments are recycled to suppliers in proportion to
the number of ROCs they present.
Regional Economic Produced by RDAs with partners and stakeholders in their region.
Strategies (RES) These documents set out the framework of regional economic
priorities which guide the activities of organisations promoting
regional economic development, and are revised at least every
three years.
Term Definition
Science & Technology Network of Science & Technology Attachés at British Missions
Attaché Network Overseas.
Sector Skills Councils (SSCs) SSCs are independent, UK wide organisations developed by
groups of influential employers in industry or business sectors
of economic or strategic significance, to tackle the skills and
productivity needs of their sector throughout the UK.
Sector Skills Development The SSDA funds, supports and champions the new UK-wide
Agency (SSDA) network of influential employer-led SSCs to promote effective
working between sectors.
Small and Medium-Sized The Energy Savings Trust together with the Carbon Trust has
Enterprise Energy Advice launched a new service called Action Energy to give advice to
Centre Small and Medium-Sized Enterprises.
SMEs Small and Medium-Sized Enterprises.
Sustainable Development The Commission’s main role is to advocate sustainable

Commission development across all sectors in the UK, review progress
towards it and build consensus on the actions needed if
further progress is to be achieved.
UK Emissions Trading A scheme which started in April 2002, under which 34

Scheme organisations have voluntarily taken on legally binding obligations
to reduce their greenhouse gas emissions against 1998-2000
levels, delivering over 4 million tonnes of additional CO2
equivalent emission reductions in 2006.
UKCS United Kingdom Continental Shelf - areas of seabed and subsoil

over which UK exercises sovereign rights of exploration and
exploitation of natural resources (popularly known as ‘North Sea’
but geographically wider than that).
UN Framework Convention on The international framework established in 1992 to tackle the

Climate Change (UNFCCC) issue of climate change and greenhouse gas emissions.
The UNFCCC aims to prevent dangerous man-made climate
change and commits developed countries to taking the lead in
tackling climate change.
Annexes
Annex A: Glossary
Term Definition
UNDP United Nations Development Programme.
USDOE United States Department of Energy.
Warm Deal (Scotland) A scheme for the provision of energy efficiency improvements,
in Scotland, administered by Eaga Partnership for all housing
stock and Local Authorities for their own stock.
Warm Front (England) A scheme for the provision of energy efficiency improvements,
in England, providing grants to households with
children, who are on income related benefits. Larger grants are
available for households whose occupants are 60 and over and
receive an income related benefit.
Warm Homes A scheme for the provision of energy efficiency improvements,

(Northern Ireland) in Northern Ireland, designed to increase access to energy
efficiency advice, including grant availability, among families with
young children from low income families, particularly those from
single parent families. It also aims to reduce the incidence of fuel
debt within the target group, improve comfort levels and prevent
cold related illnesses.
World Summit on An international summit, held in Johannesburg in August/

Sustainable Development September 2002, to reaffirm the international community’s
(WSSD) commitment to sustainable development.
WTO World Trade Organisation.
Annex B References
Author/lead
department Date Description Web link
BP 2002 BP Statistical Review of World Energy www.bp.com/centres/

energy2002
Defra 2002 Framework for Sustainable www.sustainable-

Development on the Government development.gov.uk/
Estate sdig/improving/index.htm
Defra 2000 Warm homes and Energy www.hmso.gov.uk/

Conservation Act acts/acts2000/
20000031.htm
Defra Ongoing Market Transformation Programme www.mtprog.com
DETR 2000 Transport 2010 - the Ten Year Plan www.dft.gov.uk/

trans2010/
DETR 1999 A better quality of life: a strategy for www.sustainable-

sustainable development for the UK. development.gov.uk/
UK_strategy/index.htm
DETR 2000 Climate Change Programme www.defra.gov.uk/

environment/climate
change/cm4913/
index.htm
DETR, Scottish 2000 Ther Air Quality strategy for England, www.defra.gov.uk/
Executive, Scotland, Wales and Northern Ireland environment/airquality/
National Assembly Working Together for Clean Air strategy/pdf/forward.pdf
for Wales and the
Department of the
Environment in
Northern Ireland
DFID 2002 Energy for the Poor www.dfid.gov.uk
DfT 2002 Airport capacity in the South East: www.aviation.dft.gov.uk/

Consultation Document consult/airconsult/se/
mainconsult/15.htm
Annexes
Annex B: References
Author/lead
DfT, DTI, Defra 2002 Powering Future Vehicles: www.roads.dft.gov.uk/

and HMT The Government Strategy cv/power/html/index.htm
DTI 2000 Conclusions in response to the public www.dti.gov.uk/renew/

consultation - New and Renewable condoc/policy.pdf
Energy: Prospects for the 21st century
DTI 2003 UK Energy Sector Indicators www.dti.gov.uk/energy/

inform/energy_indicators/
index.shtml
DTI 2002 Digest of UK Energy Statistics www.dti.gov.uk/energy/

inform/dukes/index.shtml
DTI 2001 Productivity and Enterprise:

A World Class Competition Regime www.dti.gov.uk/cp/white
paper/cm5233.pdf
DTI 2002 The Report of the Nuclear Skills Group www.dti.gov.uk/energy/

nuclear/skills/nsg.shtml
DTI 2002 The Government’s Manufacturing

Strategy www.dti.gov.uk/
manufacturing/
strategy.htm
DTI 2002 The Modernising Company Law www.dti.gov.uk/

white paper companiesbill/index.htm
DTI 2000 Utilities Act www.hmso.gov.uk/acts/

acts2000/20000027.htm
DTI and Defra 2003 Fuel Poverty Advisory Group First www.dti.gov.uk/energy/
Annual Report (for England) consumers/fuel_poverty/
fuel_adv_grp/reports.pdf
DTI and Defra 2003 The UK Fuel Poverty Strategy 1st www.dti.gov.uk/energy/
and the Devolved Annual Progress Report consumers/fuel_poverty/
Administrations index.shtml
Author/lead
DTI and Defra 2001 UK Fuel Poverty Strategy www.dti.gov.uk/energy/

and the Devolved consumers/fuel_poverty/
Administrations strategy.shtml
DTI and OFGEM 2003 Joint Energy Security of Supply Working www.dti.gov.uk/energy/
Group reports domestic_markets/
security_of_supply/
jessreport2.pdf
Eyre, Fergusson 2002 Fuelling Road Transport - Implications www.roads.dft.gov.uk/

and Mills for Energy Policy - study for DFT cv/fuelling/index.htm
Future Energy 2003 Options for a low carbon future - www.dti.gov.uk/energy/

Solutions phase 2 whitepaper/index.shtml
Government Estimating the Social Costs of www.hm-treasury.gov.uk/

Economic Emissions, Working paper 140 documents/taxation_work
Service _and_welfare/taxation_
and_the_environment/tax
_env_geswp140.cfm
House of 2002 Energy Supply: how secure are we? www.parliament.the-

Lords Select stationery-office.co.uk/
Committee pa/ld200102/ldselect/
on the ldeucom/82/8201.htm
European Union
IEA 2002 World Energy Outlook 2002 www.worldenergy

outlook.org/
IEA 2002 Renewables Information 2002 www.iea.org/stats/

files/ren2002.pdf
Ilex 2002 Quantifying the system costs of www.dti.gov.uk/energy/

additional renewables in 2020 developep/080scar_
report_v2_0.pdf
Annexes
Annex B: References
Author/lead
Intergovernmental 2001 Third Assessment Report www.ipcc.ch

Panel on Climate
Change
National Grid 2002 NGC Seven Year Statement and www.nationalgrid.

Company Updates 2002 com/uk/
NERA 2002 Security in Gas and Electricity Markets www.dti.gov.uk/energy/

whitepaper/index.shtml
NERA 2002 Electricity Markets and Capacity www.dti.gov.uk/energy/

Obligations whitepaper/index.shtml
ODPM 2002 Your Region, Your Choice: Revitalising www.regions.odpm.

the English Regions gov.uk/governance/
whitepaper
ODPM 2002 Planning and Compulsory Purchase Bill www.publications.

parliament.uk/pa/
cm200203/cmbills/
012/2003012.htm
Office of Science 2001 Report of the Chief Scientific Adviser’s www.ost.gov.uk/

and Technology Energy Research Review Group policy/issues/csa_errg/
main_rep.pdf
OFGEM 2003 Initial thoughts on both the principles www.ofgem.gov.uk/

for developing the regulatory... when temp/ofgem/cache/cms
the next price control is implemented attach/1259_dnoletter_
(open letter). jan.pdf
Opito 1999 Skills Foresight, The Industry Survey no web link
Performance and 2002 Energy Review www.cabinet-office.

Innovation Unit gov.uk/innovation/2002/
energy/report/index.htm
Author/lead
Performance and 2001 Renewable Energy in the UK www.piu.gov.uk/2001/

Innovation Unit energy/Renewener.shtml
Ricardo Consulting 2002 “Carbon to Hydrogen” Roadmap for www.roads.dft.gov.uk/

Engineering Ltd Passenger Cars: A Study for DfT and DTI cv/power/carbon/
index.htm
Royal Commission 2000 22nd Report: Energy - www.rcep.org.uk/

on Environmental The Changing Climate newenergy.html
Pollution
Scottish 2001 Housing (Scotland) Act www.hmso.gov.uk/

Executive si/si2002/20022264.htm
Strategy Unit 2002 Waste Not, Want Not www.piu.gov.uk/

2002/waste/report/
index.html
Trade and 2002 Security of Energy Supply www.parliament.the-

Industry stationery-office.co.uk/pa/
Committee cm200102/cmselect/
cmtrdind/364/36402.htm
Printed in the UK for the Stationery Office limited

on behalf of the Controller of Her Majesty’s Stationery Office
126648 02/03 RYE 7861

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EWP-Cover 2/21/03 4:06 PM Page 1

ENERGY WHITE PAPER

Our energy future -

Our energy future - creating a low carbon economy

The DTI drives our ambition of

Our energy future -

Presented to Parliament by the

© Crown Copyright 2003

Chapter 3 Energy Efficiency ...............................................................................................................32

Chapter 4 Low carbon generation ....................................................................................................44

Chapter 5 Clean Low Carbon Transport .........................................................................................63

Chapter 7 Productivity, competitiveness and innovation..........................................................95

Chapter 8 Energy and the vulnerable ............................................................................................107

Annex B References ...........................................................................................................................134

Energy is vital to a modern economy. We need energy to heat and light

However, our energy system faces new challenges. Energy can no

This white paper addresses those challenges. It gives a new direction

In parallel, we need access to a wide range of energy sources and

Chapter 1 Cleaner, smarter energy

1 Our sustainable development policy is set out in A better quality of life:

Chart 1.1 1.7 The rise in temperatures has been

ice caps are retreating from many

global mean sea level rose by an average

summer and autumn arctic sea ice has

global snow cover has decreased by 10%

El Nino events3 have become more frequent

Chart 1.2 1.8 In this century, without action to reduce

3 El Nino events change the weather patterns experienced in the regions

of the analysis to the assumptions made. Chart 1.3

at no more than 550ppm would lead to an

their energy being as important to us as their Chart 1.4

liberalisation in the European Union for

The goals of our determining the relative ‘weights’ of differing

consumption in the UK has increased by Chart 1.5

of 15-25 MtC below that by 2020.

provide the signals needed for firms to invest

implement the objectives for 2010 set out in

1.41 We have applied these principles throughout What sort of energy

1.43 Many policies in this white paper cover the

The energy system in 2020...

seek to define every detail of the policies we

1.47 This white paper seeks to define a long-term

1.49 This white paper is based on a large amount

Following the PIU report, we launched a major

In total over 6500 individuals and groups have had

11 This work is available at www.dti.gov.uk/energy/whitepaper/

Chapter 2 The Environment

Climate change is happening... low-lying areas, wetlands and small islands

2.3 Climate change research has looked at how

The costs of climate change

Chart 2.2 2.5 We will have to adapt to some degree of

2 Estimating the Social Cost of Carbon Emissions, Government Economic

Action to limit emissions the atmosphere at no more than 550ppm,

4 Based on conclusions of the Third Assessment Report of the

But more needs to be done... And we set as a key objective of the

60 Increasing renewables 3-5

8 The figures represent reductions below the baseline of 135 MtC

9 Report of Working Group III of Intergovernmental Panel in Climate Change,

Analysis and modelling work