Diolch, Dirprwy Lywydd. As global leaders meet in Egypt for COP27, I am pleased to be able to update Members on how we will continue to lead the transition from fossil fuels to an energy system based on renewables.

While messages from the UK Government have been confusing and contradictory, we have been clear and consistent. We will keep fossil fuels in the ground, and we will continue to apply all the levers at our disposable to phase out the extraction of fossil fuels in Wales. We will build a flexible, smart, renewables-based energy system. And we will ensure our households, businesses and communities benefit from the transition with increased energy security and less exposure for customers to the global price of fossil fuels. I've recently published our update on implementing recommendations from the renewable energy deep dive and announced the creation of a publicly owned energy developer. Today, I want to update Members on our policy on fossil fuel use in power generation and industrial installations. I will also set out our position on hydrogen and carbon capture, utilisation and storage.

Wales hosts a disproportionately large amount of gas-fired power plants supplying the electricity grid. The Climate Change Committee has been clear in their advice that we need to decarbonise this sector by 2035. Our approach will be two pronged. As set out in 'Net Zero Wales', we see no role for new fossil-fuelled power plant in Wales and, following publication of a position statement, this policy can take effect through the planning regime. Secondly, we must address the emissions from combusting fossil fuels at existing power stations, including energy-from-waste plants and plants within industrial sites. Collectively, these accounted for a third of all Wales's greenhouse gas emissions in 2020.

We issued a joint call for evidence on decarbonisation readiness with the UK Government last year. While we have been co-operating with the UK Government on policy development, we do not think their planned approach will go far enough to bring forward the action we need in Wales. The regulation of power stations and other industrial installations through the existing environmental permitting regime does not explicitly drive the transition to net zero. This is an issue recognised by the European Union, which is also looking into reform of its regime to align to the European Union's net-zero agenda. Therefore, we will be working with Natural Resources Wales on options development to explicitly ensure the environmental permitting regime supports net-zero objectives, alongside other strategic environmental priorities. This will complement other measures, such as carbon pricing implemented through the UK emissions trading scheme. I will be publishing a position statement on combustion of fossil fuels for power and our Government response to the call for evidence on decarbonisation readiness before the end of the year.

We recognise the need for a just transition and know that, for some sectors, a move from fossil fuels poses significant challenges. For some, hydrogen may provide one of the few ways to decarbonise heavy industry through fuel switching, and to reduce emissions in hard-to-abate modes of transportation, notably in heavy goods vehicles, aviation and shipping. There is also considerable potential to use hydrogen as a storage medium for renewable energy, in particular if it were possible to capture excess energy production. It may also have a role as a replacement for natural gas in heating solutions.

Uncertainties remain over the economic sectors in which hydrogen will play the greatest role, and the overall scale and cost of its application in the longer term. We continue to engage with industry on the available evidence and are assessing opportunities for Wales to use hydrogen in its decarbonisation pathway and to support economic development. Hydrogen production methods vary, as do the emissions associated with them. Green hydrogen produced from renewable electricity via electrolysis has a very low impact on greenhouse gas emissions during its operation, and is potentially economically attractive if it can make use of the excess electricity generated from wind generation.

This is our preferred production method, and we do need to set the ambition for all hydrogen to be produced from renewable sources in the longer term. However, in order to support the decarbonisation of industry in Wales, we understand we may need to move through a phase of using blue hydrogen produced by fossil fuels. But this needs to be a manged transition and we will need to put steps in place, including through our permitting regime, to encourage as rapid a transition as technology and cost will allow.

Deputy Llywydd, the final area I want to outline our plans on relates to carbon capture, utilisation and storage. This is a technology that has long been in development globally, largely funded by governments with the aim of bringing forward the technology for emission reduction purposes and developing exportable expertise. Nevertheless, deployment is limited, regulatory mechanisms are yet to be fully developed, and significant risks remain, which will need to be addressed if the technology is to be successfully deployed at any scale and with the confidence of the public.

Despite this, international studies undertaken by organisations including the Climate Change Committee, the Intergovernmental Panel on Climate Change and the International Energy Agency have consistently concluded that CCUS, as it is known, is likely to be a key part of the pathway to reducing emissions at lowest cost, with a key area for CCUS deployment in heavy industry. The Climate Change Committee considers all currently credible pathways through which the UK could reach net-zero emissions domestically and involve a significant role for CCUS, especially for industry and greenhouse gas recovery. They are also clear that CCUS is not a silver bullet and that every attempt must be made to prevent the greenhouse gases being generated in the first instance.

Deputy Llywydd, we must avoid passing on environmental risk and liability to future generations. We have been working for some time with industry in Wales to understand their options and challenges. We are also working to understand the potential role of Ministers by developing a regulatory route map for CCUS in Wales. Around 25 per cent of industrial emissions in Wales are non-combustion process emissions, either from chemical or physical reactions, and these can't be avoided by switching to alternative fuels. Currently, carbon capture, utilisation and storage offers a potential decarbonisation pathway for these industries.

We need to ensure that CCUS is deployed only where other options for decarbonisation have been explored and justifiably discounted. We will do so through the introduction of an energy and carbon hierarchy. We will also explore limits to deployment as a way of managing environmental and financial risks, and supporting the well-being of people living in Wales now and in the future. Crucially, we will support industry across Wales that, after exhausting the other options in the hierarchy, have only CCUS as a possible solution to decarbonise. We will stand with them in their attempts to secure business models and funding from the UK Government, in order to ensure a just transition to net zero.

We will be consulting publicly on policy position statements and next steps on hydrogen and CCUS in the spring. In the meantime, we will work with Net Zero Industry Wales to support transition for Welsh businesses and secure good quality jobs for the future within a thriving, low-carbon industrial base. Diolch.