1. STRUCTURE OF PRESENTATION 1. Energy Policy goals and Review remit 2. Key challenges 3. Conclusions and Impact 4. Next Steps/Issues 1

2. ENERGY REVIEW REMIT  Review progress against 2003 Energy White Paper goals:  To put UK on path to cut emissions by 60% by 2050, with real progress by 2020  To maintain reliable energy supplies  To promote competitive markets in the UK and beyond, helping to raise the rate of sustainable economic growth and improve productivity  To ensure that every home is adequately and affordably heated 2

3. KEY CHALLENGES I Climate Change and Greenhouse Gas Emissions Strengthening scientific evidence of nature of problem  70% of emissions from energy production and use  Needs international response 3

4. World Primary Energy Demand 4 Source: IEA World Energy Outlook, 2005

5. Global Carbon Emissions to 2030 5 Source: IEA

6. UK Carbon Emissions 6 Source: DTI (UEP 26)

7. KEY CHALLENGES II Security of Supply  UK as net importer of oil and gas  Replacement of electricity generating plant and networks 7

8. Risks From Increased Reliance on Gas As Domestic Production Declines Risks: Long supply chains Untimely infrastructure Ineffective markets Politicisation of supply and demand 8

9. KEY CHALLENGES III Energy Prices  Oil prices doubled between 2003 EWP and July 2006  Implications for UK business of faster rise in electricity and gas prices than among competitors  Implications for fuel poverty 9

10. CONCLUSIONS I Valuing carbon  HMG committed to there being a continuing carbon price signal  EU ETS the key mechanism to provide this signal  But Scheme needs strengthening  Will reinforce it if necessary to provide greater certainty 10

11. CONCLUSIONS II Saving energy  Raise standards for new homes, cars, products  Incentivise emissions reductions from commercial and public sectors  Billing and metering  Change incentives on suppliers to household sector  Government procurement 11

12. CONCLUSIONS III Distributed Energy  Potential to cut emissions, increase reliability of supply, lower costs, engage public on climate change  Some policies to encourage DE already in place  But need more analysis  So reviews:  Long term potential (Office of Science & Innovation)  Barriers and incentives (DTI – OFGEM) 12

13. CONCLUSIONS IV Transport  Need transport innovation strategy  Increase use of biofuels in road transport (RTFO)  Consider mandatory cuts in new car fuel emissions to replace current EU voluntary agreement  Confirm positions on Aviation and Surface Transport in EU ETS 13

14. CONCLUSIONS V Electricity generation:  Continuing carbon price/strengthen EU ETS  New nuclear would make significant contribution to meeting energy policy goals: work programme to facilitate new build  Renewables: restructuring of Obligation and increase to 20%  Planning reform  Improved market information/monitoring of investment outlook 14

15. CONCLUSIONS VI Nuclear: route-map  Consultation on Policy Framework (underway)  Planning inquiries to focus on local issues  NII guidance on Pre-licensing, and EA on discharges, by start of 2007  Risk management frameworks for waste and decommissioning costs  Justification process and Strategic Site Assessment to start in 2007 15

16. CONCLUSIONS VII Energy Security  International Action  Promote open and competitive markets  Strengthen key supplier relationships  Develop EU energy policy  National Action  Maximise economic recovery from UKCS  Energy saving  Right conditions for energy investment  Improve gas market flexibility 16

17. ENERGY REVIEW: IMPACT (1) Annual carbon savings of 19-25 mtc in 2020 (up to 17% on baseline) Gas consumption down by 11-17% by 2020 (1) Includes effect of proposals announced since publication of the new Climate Change Programme in March 2006. 17

18. NEXT STEPS  Further develop international strategy (Stern, EU, etc)  Consultations (Nuclear, Renewables, Gas, EPC, etc)  Coal Forum  New technologies (Energy Technologies Institute)  Carbon Capture and Storage (PBR)  Fuel Poverty  Planning reforms  Role of Distributed Energy  Further public engagement  ENERGY WHITE PAPER 18

19. Coal Forum 1 coal continues to be an essential source of electricity generation – up to 50% at times last winter. Competitive and flexible. and UK mined coal continue to be a key part of electricity generation – roughly 40% of all coal burnt. BUT......... 19

20. Coal Forum 2 But... coal is a dirty fuel. We have to clean it up or phase it out. UK coal mining industry is not strong. Issues around quality, cost and geological issues. imports of coal are growing – and there is wide availability of competitive supply Government is committed to market solutions – not Government role to tell generators where to buy their coal from. 20

21. Coal Forum 3 Its role to facilitate improved dialogue and understanding between those with an interest in coal production and use. to encourage the participants to find commercial solutions which promote the best use of UK mined coal. to see whether there are things which Government can do to help – e.g. planning, supporting cleaner coal developments. 21

22. Coal Forum 4 Style already had preliminary meeting, chaired by Malcolm Wicks. First full meeting planned for 14 November. Then every two months. clear preference for limited membership – the industry has told us it wants to discuss commercial and technology issues and not be a political talking shop. but early days. 22