18 October 1991 - 20 October 1991

Energy and the Environment

Chair: The Rt Hon the Lord Ezra MBE

This conference was the third of a series held in the last ten months at Ditchley, climate change last January and transport policy two weeks earlier being the other two. Indeed one of the things that emerged most clearly from this meeting was the inter-dependence of so many issues, and the difficulty of designing policies in one area which will not have unforeseen, perhaps undesirable, consequences in other areas. We noted too, but did not pursue, the relevance of demography to energy policy, a topic addressed at Ditchley in September 1990.

The conference considered the topic in three broad overlapping areas: technical aspects, environmental factors and governmental action. Under the first heading, while there was general agreement that we were living in a changed world, with the collapse of the Soviet Union, the new situation in Central and East Europe and the aftermath of the Gulf War in the Middle East, nonetheless the prospect was of continued security of supply, with a steady shift to natural gas from coal and oil, subject to difficulties of gas supply and transport for which technical solutions were possible, with slowly rising oil prices setting the pace. With one or two dissenters, oil supply was not seen as a problem. Given the long lead time for any new plant, no decision taken to-day could have effect before the turn of the century.

Nuclear power on technical grounds could make an increasing, and economic, contribution, smaller, safer and cheaper plants being technically feasible, but exploitation would depend on political factors. (Through the extension of life of existing plant, nuclear energy was already making a contribution to over-all energy supply.) Alternative renewable sources (hydro-electric, tides, wind, bio-mass) would also contribute but were not sufficient.

There would be fluctuations in oil prices no doubt in the future, as in the past. While the conference rejected the idea of new international organisations, existing ones duly adapted being adequate, this was one area where governments could play an important part through the establishment of emergency stocks. Only the US and Japan had done so. The International Energy Agency (IEA) was criticised over its handling of the release of stocks after the Iraqi invasion of Kuwait. For confidence to be maintained in the market, an automatic system of release was needed, e.g. by the sale of futures to companies. In general however the conference came down firmly in favour of letting market forces work, and of governments confining themselves to regulating the conditions of the market, with a view to removing distortions as far as possible. Not all participants however saw the market in such benign terms, even if fuels were made to bear their full external costs.

This led into consideration of the environmental factors. Much scepticism was expressed about the risks of climate change. The phenomenon of a build-up of greenhouse gases, primarily CO2, was accepted, but, it was claimed, there was little certainty about the effects. Pollution should be divided into local pollution and global pollution. On the former, the release of noxious gases and effluents, action was largely in hand (though even there some doubted the claimed effects, e.g. of acid rain). That was an area where populations would most readily understand the problem and exert pressure for its remedy. As to global pollution, it was argued that it was clearly prudent to take measures which made sense in their own right and brought no, or few disadvantages, so-called ‘no regrets’ measures. This boiled down to steps to improve energy efficiency and energy conservation. Whether prudence demanded more than that, as an insurance against the more dire risks of global warming, was disputed, though several argued that to adopt merely a ‘no regrets’ policy, was complacent and inadequate.

However the problem is looked at, a major difficulty arises from the fact that energy has driven the industrialised world’s prosperity, consumption broadly matching the rise in GDP; and that the developing world (notably India and China, but including in this case Eastern Europe and the Soviet Union) where energy efficiency is extremely low and is largely dependent on dirty coal, will want to emulate the industrialised countries’ experience and can only do this in the short and medium term through inefficient and polluting systems. Thus the most effective method of tackling the global problem (and perhaps also the local problems) would be for the industrialised world to direct investment to raising energy efficiency in the developing world to the levels of the developed, rather than trying to raise standards in the latter even further. Without such an effort the developing world would not be persuaded that, by preaching cleaner energy production, the developed were not merely trying to hold them back. A point was made that as cleaner technologies were introduced, the industrialised world exported their obsolete technologies to the developing: that should be stopped. Though clean coal-burning processes, including coal gasification, helped by improving efficiency, coal would remain the most polluting fuel in terms of CO2; the long run aim should be to keep coal in the ground. In Central and Eastern Europe where there was a number of lignite-fired combined heat and power installations (an efficient system, given a belter fuel, although capital costs were high), the only practical substitute would be oil, given the difficulties of transporting gas and the cost of conversion. The merits of “Build, own, operate” power generation projects (BOO) were discussed in this context, though some doubt was expressed about their commercial attractiveness. Similarly the possibility of a mini-Marshall Plan for Eastern Europe in the energy field was aired, but not pursued to a conclusion.

The proposed EC tax on fuel use was discussed. This is to be phased in from 1993, rising to a rate equivalent to $10 on a barrel of oil in 2000 A.D., made up, as to 50%, of a tax on energy per se, the balance varying according to carbon emission. Certain major industries would be exempt, in return for voluntary agreements on energy efficiency. The target was to stabilise CO2 emissions at the 1990 level by 2000 A.D. and then to reduce them. Much scepticism was expressed both of the rationale and of the impact: why tax energy if the purpose was to reduce carbon emissions?

Would a tax which fell within the margin of forecasting error have any effect on consumption? Moreover there were already large and distorting taxes on fuel, especially motor fuel: before adding to them, the effects must be studied. For example, any resulting fall in electricity consumption would come from the poorest sections of the community on whom energy costs bore most heavily. The EC would do better to stop subsidising coal and agriculture, a major consumer of hydro-carbons. Finally, if there was surplus “rent”, might not producers feel entitled to collect it (an old bone of contention between OPEC and the consuming countries)? Against this the tax was defended as a necessary signal, to convince the world, including the developing countries, that the EC was serious, and as part of a package including measures to reduce demand, e.g. through more efficient electrical appliances, insulation, etc. (The energy efficiency audit for new housing in Denmark was cited.) The problem was how to give producers a commercial incentive to encourage measures which reduced consumption on which their profit depended? Logically consumers should embrace conservation, but the capital cost was a disincentive. No agreed conclusion emerged.

Transport was discussed, mostly on the lines of the previous Ditchley conference, but, it seemed, with a greater tendency to look at congestion as the final regulator and greater pessimism about the efficiency of rail as a substitute for road, in terms of energy use and pollution, unless there were to be a major shift to clean power generation, e.g. nuclear. Road pricing, not a market distortion but an attempt to exact the price for a scarce resource, was seen as the most attractive option, especially in urban areas.

To sum up, we ended as we began with a division between the one-world idealists and the cautious proponents of the market. The former, to over-simplify and over-state, argued that we could not afford to be complacent, that we faced a new situation in the world, and that in the wider interest of mankind, the developed had to be prepared to accept measures which might upset their own comfortable lives, in order to help others to raise their standard of living without risking the destruction of the planet. The latter maintained that the situation was in any case uncertain and unlikely to prove as dangerous as forecast; that ‘no regrets’ measures designed to improve efficiency, which would justify themselves economically in any case, allied to steps to remove price distortions, would be sufficient; and that more radical measures risked unforeseen and troublesome side effects. There was no resolution of this conflict.

This Note reflects the Director's personal impressions of the conference. No participant is in any way committed to its content or expression.

Chairman: The Rt Hon the Lord Ezra MBE
Life Peer (Liberal Democrat); Chairman of Energy and Technical Services Group pic


Mr Simon Blakey

Associate Director, European Oil and Natural Gas, Cambridge Energy Research Associates, Paris
Mr Richard D Freeman
Corporate Chief Economist, ICI
Mr David Green
Director, Combined Heat and Power Association
Ms Patricia Hewitt
Deputy Director (coordinating project on energy production and environmental objectives), Institute for Public Policy Research (IPPR) London
Mr John Maltby CBE
Chairman: United Kingdom Atomic Energy Authority
Mr John V Mitchell
Special Adviser to the Managing Director, British Petroleum Company pic
Mr Robert J Priddle
Deputy Secretary, Department of Energy
Mr Roger Rainbow
Head of Energy Analysis, Group Planning, Shell International Petroleum Company, London
Mr Silvan Robinson CBE
Chairman, Energy and Environmental Programme, and Member of Council, The Royal Institute of International Affairs
Mr Joe Rogaly
Associate Editor, The Financial Times
Mr Peter Rost MP
Member of Parliament (Conservative), Erewash; Member, House of Commons Select Committee on Energy
Mr Andrew Warren
Director, Association for the Conservation of Energy, London
Mr Colin Webster
Commercial Executive Director, National Power pic.

Mr George R M Anderson

Assistant Deputy Minister, Economic Development Policy Branch, Department of Finance
Mr André F Delisle
Corporate Planning Vice-President, Hydro-Québec, Montreal

Mr Jan Jicha

Deputy Minister of Energy, Federal Ministry of Economy, Prague

Mr Robert Hull

Adviser to the Director General, Directorate-General XI (Environment, Consumer Protection and Nuclear Safety), Commission of the European Communities, Brussels
Mr Kevin Leydon
Chief Economist, Directorate-General for Energy, Commission of the European Communities, Brussels

M Jean-Marie Bourdaire

Director of Economic Studies, with particular emphasis on third-world development and the environment, TOTAL
M Paul Felten
Deputy Director of International Relations, Atomic Energy Commissariat, Paris
M Jean-Claude Renaud
Retd. July 1991 as Special Adviser, Economic Policy Affairs, NATO, Brussels

Dr Wolf-J Schmidt-Küster

Chairman, Energy Consultancy; previously Assistant Under-Secretary, Ministry of Research and Technology, Bonn
Dr Ulrich F Schneider
Coordinator for environmental affairs, Ministry of Defence, Bonn             

Dr Zoltán Illés

Adviser, Federation of Young Democrats, Hungary

Dr Robert G Skinner

Director, Long-Term Co-operation and Policy Analysis Office, International Energy Agency, Organisation for Economic Co-operation and Development, Paris

Mr Takeo Yamada

General Technology Manager, Energy Development Department, Idemitsu Kosan Co Ltd, Tokyo.

Professor Peter R Odell

Professor Emeritus, Centre for International Energy Studies, Erasmus University, Rotterdam; Visiting Professor, London School of Economics, College of Europe, Bruges

Mr Assadollah Miremadi

Head, Energy Section, Organization of the Petroleum Exporting Countries

Dr Morris A Adelman

Professor Emeritus, Massachusetts Institute of Technology
Mr Ben C Ball Jr
Lecturer and currently Research Director (Integrated Energy Systems Project), Massachusetts Institute of Technology (MIT)
Mr Phillip Bayne
President and Chief Executive Officer, US Council for Energy Awareness (USCEA)
Mr Jack F Bennett
Economist and company director
Mr Thomas G Bums
Economics Manager, Corporate Planning and Analysis Department, Chevron Corporation, San Francisco
Mr William O Doub
Partner, Doub Muntzing and Glasgow, Washington DC
The Hon Arlen I Erdahl
Acting Assistant Secretary, for the Office of International Affairs and Energy Emergencies, US Department of Energy
Mr Fritz Heiman
Associate General Counsel, General Electric Company, Fairfield, Connecticut
Mr J Christopher Judd
Vice President, International Operations and Business Development, Bechtel Corporation (responsible for Bechtel’s participation in CEGB’s Sizewell B PWR Project and business development manager for Europe); Member, American Nuclear Society; Director, American Nuclear Energy Council (ANEC); Nuclear Management and Resources Council.
Mr Stephen E McGregor
Head, Skadden, Arps, Slate, Meagher and Flom
Mr William F O’Keefe
Vice President and Chief Operating Officer, American Petroleum Institute
Mr Justin T Rogers Jr
Chairman of the Board and Chief Executive Officer, Ohio Edison Company

Dr Anthony A Churchill

Director, Industry and Energy Department, World Bank.