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20 Mar 2003 : Column 1136—continued

Dr. Alan Whitehead (Southampton, Test): Is it the Government's intention to attach any sanction to the directions that my right hon. Friend mentions, so that the waste supplied by the waste collection authorities is guaranteed to be in a form suitable for the waste disposal authorities?

Mr. Meacher: Of course, if the House accepts the proposal that we introduced in another place, there would have to be an enforceable power of direction. There is no question about that. Obviously, again, we would much prefer disposal and collection authorities to work together. We do not want such things to be done by legal enforcement and penalties. However, as with all systems, there must be an ultimate form of external enforcement, so that will certainly be there.

Dr. Whitehead: For those of us with two-tier authorities this is the nub of the problem. Is it not worth considering treating the waste disposal and waste collection authorities for this purpose as one authority and making that clear to the waste collection authorities? There will be good waste collection authorities working with the waste disposal authority, and also bad ones. The danger is that the bad ones will almost certainly rely on some degree of subsidy, and that is unfair. Can we not just treat them as one authority?

Mr. Meacher: I will not say that that is the nuclear option—it is perhaps not an appropriate phrase at this time. That is a rather extreme way of resolving the problem. There are much wider implications about the division of responsibility between district councils and county councils. Simply to amalgamate them to overcome the problem is to go too far. We are right to find a way of getting them to work together compatibly in terms of the waste management strategy, but not to the extent of amalgamation.

I was going to go into detail about parts 1 and 2 of the Bill, but in view of the length of my speech I will not. In conclusion, I am proud—

Paddy Tipping: My right hon. Friend can be proud about emissions trading which is in part 2 of the Bill. The Government have done extremely well on that. Will he help me in relation to coalmine methane? It is a major

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pollutant that can be converted into energy. The Government acknowledge that in the White Paper, but can they see the way forward to make it happen? Will this Bill help the conversion of coalmine methane to energy?

Mr. Meacher: The Government are keen to see coalmine methane tapped and used as an energy source, and not vented into the atmosphere. That is in everyone's interests. I have met the Association of Coalmine Methane on two occasions. There is no internationally agreed technology for determining the contribution of reducing coalmine methane in terms of our international greenhouse gas reduction targets. That is one remaining problem. In the absence of an internationally agreed technology, we cannot secure benefit in terms of our own target. We have commissioned extra research to provide that methodology and I would expect it to be ready within two years, but I am afraid that will not be immediate. I have examined this in great detail and I am sympathetic to what the operators want to do, but we cannot overcome that problem at this time.

Ms Walley: Many of us are extraordinarily proud of what we are doing to combat global warming. The ceramics industry in Stoke-on-Trent has been efficient in implementing the whole of the carbon levy. In view of the emissions trading schemes outlined in the Bill, can my right hon. Friend give the House some indication of the discussion that he will have with the industry, the Confederation of British Industry and the trade unions in respect of forthcoming and pending European directives?

Mr. Meacher: My hon. Friend must be telepathic because this is the one remaining part of what I was about to say, so I shall answer her with the brief which effectively deals with her point.

We are pleased that we launched the world's first economy-wide greenhouse gas emissions trading scheme in April last year. Absolute emission reductions will be delivered to help us meet our international obligations. In addition, a voluntary participation scheme is giving UK business, Government and the City of London a head start on the practical operation of such schemes prior to the introduction of EU and international trading schemes. The EU scheme becomes operative in 2005.

The Bill does not set up the scheme or determine eligibility; it simply provides a statutory basis for penalties for the current scheme and for any future emissions trading scheme. The statutory penalties are important to secure value in emissions allowances and to underpin the market. The UK emissions trading scheme is complex, so perhaps the House can endure a couple of minutes while I try to explain the place that it has in the Bill.

There are currently three types of participants. The penalties provided for by the Bill will apply to the direct participants. They have taken an absolute five-year emissions reduction target from sources within the scheme in return for a financial incentive. They are responsible for emissions from power generators rather

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than the generators themselves. Some 34 organisations are involved, spanning sizes and sectors including the public sector. The main exclusions are power generators.

The second target holders are climate change agreement participants. These agreements between the Government and sector associations and operators in 44 energy intensive sectors set energy or emission reduction targets. Should they meet their target, they receive an 80 per cent. discount from the climate change levy. Holders can use the scheme to buy allowances to help meet their target or they may make greater reductions and sell their surplus.

Thirdly, there are the trading participants who do not hold targets but simply buy and sell—in other words they speculate—in the allowance market and provide additional liquidity. This Bill, then, delivers on the promise explicit in the contracts and other scheme documentation to provide for statutory penalties for direct participants who fail to meet their annual emission targets. They will be welcomed by all participants in the scheme because it is in their interests to have a robust, secure market. The Bill does not change compliance for climate change agreement participants because their penalty is to lose their 80 per cent. levy discount. That is a powerful driver.

The Bill also takes the opportunity to prepare for future emissions trading schemes and to ensure that they can have a robust compliance base. The Bill gives a power to provide for penalties in future emissions trading schemes and such potential schemes may cover other pollutants regulated under the Pollution Prevention and Control Act 1999 and the regulation, such as acid rain gases, sulphur dioxide and nitrogen oxide.

The Bill puts the tools in place to help us tackle some of the biggest environmental challenges that we face as a nation and internationally. It does that through innovative instruments, which will enable burdens to be spread more effectively. It uses market-based tools, which should deliver more economically optimal solutions. On that basis and with apologies for the length of my speech, I strongly commend the Bill to the House.

3.28 pm

Mr. David Lidington (Aylesbury): After one or two of the press reports last weekend, I suppose that I should start by saying that I am genuinely glad to see the Minister in his place on the Government Front Bench today. We have a number of questions to ask and a number of criticisms to make of the Bill and of the Government's policy. However, in general, I welcome the Bill as a constructive measure that is designed to secure good environmental outcomes.

I am glad, too, that my hon. Friend the Member for Mid-Bedfordshire (Mr. Sayeed) is in his place. I am sorry, however, that he is not on the Front Bench. I take this opportunity to pay tribute to the tremendous work that he has done as a member of the Opposition Front Bench team, shadowing the Department for Environment, Food and Rural Affairs in the eight or nine months that he has been under my leadership.

A system of allowances or permits is an imaginative way in which to harness the power of the market and the price mechanism to deliver good environmental

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outcomes. We have already seen—especially with the experience in the United States with sulphur dioxide emissions—that this type of instrument can work, as the Minister said, with flexibility and cost-effectiveness to deliver results in the general interest. I welcome the suggestions made by the hon. Members for Bury, North (Mr. Chaytor) and for Stoke-on-Trent, North (Ms Walley) that the model in the Bill might be applied in future to other types of emission. Although no panacea will deliver all the environmental improvements that we want, I believe that permit or allowance trading schemes should form an important part of this country's environmental policy.

I want to talk about part 2 of the Bill. For understandable reasons, part 2 has tended to be overlooked in debates in the House of Lords, where attention has concentrated on waste policy provisions. I agree with the Minister that the penalties that are incorporated in the Bill were always seen as part of the Government's emissions trading scheme. Their incorporation should not be controversial. However, we should reflect on our experience of the first year of trading in carbon dioxide emission permits. When the Minister responds to the debate, I hope that he will tell us about the Government's assessment of how much difference the emissions trading scheme has made in practice. He will know that, in the past couple of weeks, Enviros Consulting has published its assessment of the ETS. It concluded that most of the direct participants in emissions trading—the companies that are the subject of the penalties in the Bill—entered the scheme when the level of emissions from their firms was falling and predicted to fall further. In effect, they were getting a financial incentive from the Government for delivering what they were on course to deliver anyway. I accept the Minister's statement that there have been benefits to this country in having an emissions trading scheme and in getting there ahead of many of our competitors—we have expertise and skills and the ability to sell them elsewhere in the world. However, it would be useful if the Minister could give us the Government's account of whether the ETS has delivered reductions in emissions in its first year, or whether it has simply provided a framework within which trends that were already apparent have continued.

One million tonnes of carbon dioxide were traded in that first year. From the consultants' report, it looks as if direct participants were overall sellers of surplus permits and their buyers were already the big energy users in climate change agreements. An interesting question arises over the relationship between the climate change agreement participants and the direct participants in the ETS. Do the Government believe that that buyer-seller balance is likely to continue or do they expect to see greater equilibrium in the market?

My second point on the emissions trading scheme is to do with how long it will remain in operation. As the right hon. Gentleman said, the European Union scheme will come into effect as early as 2005. Commissioner Wallström seems set against permitting variations between emissions trading arrangements in different EU countries once a pan-Community scheme has come into being. Does the Minister envisage a transitional period to allow participants in a UK scheme to move over to the rules of the EU scheme? How will permits that companies have bought in the market under the British

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trading scheme be carried over to the EU scheme; or are buyers of British emissions permits taking a financial risk because the permits will cease to have value when the European scheme comes into existence?

My third point is that, as I understand it, the EU directive will make emissions trading permits mandatory for designated large industrial installations, but will also allow member states a certain amount of freedom to extend permit trading arrangements to other categories of enterprise. Do the Government want to take advantage of the freedoms currently allowed under the draft directive? Given the point made by the hon. Member for Sherwood (Paddy Tipping), a relevant example would be for us to look into some sort of methane trading system. That might cover the coal works problems to which he referred, as well as dealing with landfill methane emissions, and could give landfill operators a further incentive to reduce the amount of material that they put underground.

That leads me to the provisions in the first part of the Bill for allowance trading arrangements for biodegradable municipal waste. My problem with the Bill has—to be fair—been acknowledged by the Minister. I am not concerned about the content of the Bill as such, but about the fact that it is difficult to judge its overall impact on waste policy more generally, especially in the absence of the Government's response to the strategy unit's report. We do not have an overall statement as to how the Government propose to respond not only to the landfill directive but to the plethora of European directives that will influence how the UK deals with different waste streams over the next five to 20 years.

As the Minister said, household waste in Britain is increasing at about 3 per cent. a year. It is rising even faster than the Chancellor of the Exchequer's predictions for economic growth, let alone the actual rate. Eighty per cent. of our household waste goes into landfill. I have to acknowledge that successive Governments have found that situation hard going; they found it easier to set recycling targets than to deliver them in practice. Furthermore, the performance of local authorities varies hugely: some are taking great strides and recycling greater proportions of their waste, while others are failing to do so. The strategy unit concluded that there is a major and growing gap between waste produced, the amount of waste sent to landfill and the amount allowed under the landfill directive.

A reduction in the amount that we send to landfill is a worthwhile objective. After carbon dioxide, methane is the second most important greenhouse gas. A quarter of Britain's methane emissions come from landfill and I understand that the UK accounts for no less than 15 per cent. of all methane emissions in the European Union. As all Members know from their constituents, landfill is an unpleasant solution for people who live either near the tip or along the routes—road or rail—by which the waste reaches the landfill site.

The puritan in me—and, no doubt, in other Members—is offended by the wastefulness of chucking away large amounts of raw material that could be reused. The European landfill directive will certainly prompt swifter change than would have occurred if we

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had been left to our own devices. Nevertheless, I am concerned at the prospect that both national and local government policy may be driven more by the need to avoid fines for breach of the directive than by finding the best way forward, and at the right pace, for reducing and properly managing waste in the UK context. I also regret that the Bill is not accompanied by a comprehensive waste management strategy that considers landfill in the broader context. There may be an opportunity on another occasion to debate the many different illustrations of the complexity of waste policy, such as the rules that are being introduced on tyres, the end of life vehicles directive, the new proposals on packaging waste and a possible directive on batteries that is being considered by the Commission. I want to give two such illustrations.

The first, incineration, was mentioned by several Labour Members. We need a rational debate about incineration. It is certainly hugely unpopular with people who are told that an incinerator is planned for their neighbourhood, but there will always be some materials that require incineration. Countries such as Sweden and Denmark, which have a reputation for being extremely committed to green environmental policies, incinerate very large quantities of their waste. In Denmark, more than half of all waste is incinerated. That said, there is an extremely strong case for arguing that no new incinerator should be allowed unless it also allows the recovery of energy. There is also a strong case for arguing that we should be wary of large-scale incinerators that end up relying on vast quantities of waste being transported over huge distances for 24 hours a day, seven days a week, to keep the furnaces going. Incineration is a complex policy issue to resolve.

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