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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1260-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE ENVIRONMENTAL AUDIT COMMITTEE
THE INTERNATIONAL CHALLENGE OF CLIMATE CHANGE: UK LEADERSHIP IN THE G8 AND EU
Wednesday 17 November 2004 MR JOHN LANCHBERY and DR PAUL JEFFERISS Evidence heard in Public Questions 1 - 61
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Environmental Audit Committee on Wednesday 17 November 2004 Members present Mr Peter Ainsworth, in the Chair Gregory Barker Mr Colin Challen Mr David Chaytor Mrs Helen Clark Mr Mark Francois Mr Simon Thomas ________________ Examination of Witnesses
Witnesses: Mr John Lanchbery, Head of Climate Change Policy, and Dr Paul Jefferiss, Head of Environment Policy, The Royal Society for the Protection of Birds, examined. Q1 Chairman: Good afternoon. Thank you very much for coming and thank you for your memorandum. I am very much afraid that we are going to be interrupted by divisions and there going to be one quite shortly and I believe another one at 4 o'clock. I am sorry about that. If you bear with us we will try and work round it, but it may cause some disruption. Can I begin by asking you about the Kyoto process and your understanding of where things have got to and, in particular, how you feel the Annex 1 countries, the developed countries, are performing in terms of the target of at least a five per cut in emissions? Mr Lanchbery: Not very well generally speaking. The EU, according to the assessment of the European Environment Agency, is going to miss its target if it continues the way it is going at the moment. The Japanese are having an awful amount of trouble hitting their target. They have not put in place many domestic measures. Canada was always going to have a very hard task meeting its target. Australia and the United States have backed out. So the only countries that will hit their targets with absolute assurance, outside those blocs, are the Central and Eastern European countries whose emissions dropped considerably of course post 1989‑90. Having said that, a couple of countries are on track. The UK is on track not with our 20 per cent carbon dioxide emission reduction target but with our general greenhouse gas one. Germany is also on track, well on target, as are a couple of other smaller countries like Luxembourg but, generally speaking, no, we are not doing very well. Q2 Chairman: These statistics that you are quoting are they the result of formal analysis or are they a bit of hearsay? Mr Lanchbery: Fortunately, one of the very, very good things about the Climate Change Convention and Kyoto Protocol is that they require states to report in great detail on their emissions so they are states' figures not ours. Q3 Chairman: Is anyone actually making an official forecast as to what the outcome will be for the Annex 1 countries? Mr Lanchbery: Yes, the most authoritative are probably the International Energy Agency's forecasts. Again, they think we will miss. There is also the European Environment Agency of course for Europe as a whole and they think we will miss, not by a huge margin in the case of the EU, but nevertheless they think we will probably miss our target. Q4 Chairman: Can we just turn to the Annex 2 position and if you could remind us of the scale of Annex 2 emissions relative to the Annex 1 emissions it would be helpful. Mr Lanchbery: Annex 2, do you mean developing countries? Q5 Chairman: Yes. Mr Lanchbery: Developing countries do not have any commitments whatsoever to reduce emissions. Q6 Chairman: Do we know what their emissions are? Mr Lanchbery: Reasonably. They have to report ‑ some have, some have not. Again, the International Energy Agency does good estimates for the large countries like China, India, South Africa and Brazil. Most large developing countries have now reported so we have got a pretty good idea. Some of their reports are not terribly good but from the big countries, again like the Indias and Chinas - actually India has not reported - the figures are quite good. Dr Jefferiss: Do you know roughly what percentage of global emissions are accounted for by Annex 2? Is it around 30 to 40? Mr Lanchbery: I do not know right now. It is going to go up rapidly. Chinese emissions are about the same as the EU's at the moment. India's emissions are about the same as Russia's or heading up that way. Q7 Chairman: What impact would the likely failure of the developed world to hit its targets have on the post‑2012 negotiations? Mr Lanchbery: Having said all that, I should add that we can still hit the target. The EU is not a long way off so if we pull out a few stops we can still do it, but it will have two main effects. The first one is of course that we are not going to get very far in addressing global warming but the big single effect will be on the developing countries who have always said that the developed countries should take the lead. If we do not clearly take the lead they are going to argue, "Why should we bother? You are primarily responsible for the problem historically and you have done nothing. You are telling us it is really quite easy but you have not done anything so why should we do anything?" That is the biggest single effect and it will also help the present US administration who will say, "You said you would do lots of stuff and you have not." Dr Jefferiss: Yes, I think it risks creating the impression that it is difficult to the point of impossibility to create a truly global emissions reduction system, which we firmly believe it is not but should we fail to meet our targets by the amounts projected there is a risk that it will reinforce that perception. Q8 Chairman: To what extent if we do fail will it be the fault of the targets rather than anything else? What was the science behind setting the targets at the level they are? Mr Lanchbery: They are horse-traded. Q9 Chairman: It is horse-trading science rather than analytical? Mr Lanchbery: The European Union went to Kyoto with the position that targets should be minus 15 per cent, the United States went into Kyoto with the position it should be zero, it should just be stabilisation, and they argued their way together to roughly half way between the two, with most developed countries following the two main blocs. The Canadian position, for example, was always that they should take one point less than the United States. That is why I said the Canadian target is tough for them because they assumed that the United States would take a zero target and in fact they took minus seven which left Canada with minus six which is quite hard for Canada. It was all done by horse-trading. Q10 Chairman: What happened with Australia? Mr Lanchbery: They pulled off a very good deal for themselves! Q11 Chairman: How did they manage that though? How did they do that? Mr Lanchbery: I do not know. You would have to ask Mr Prescott because he was in the bargaining room. I do not know. Dr Jefferiss: I would say that they were not set scientifically, they were set through a combination of politics and economics working together, and I think if we fail to meet even those scientifically inadequate targets that were set, it will not be as a result of the economic challenges being impossible to overcome because, if anything, the evidence produced by organisations such as the Carbon Trust, for example, suggest that the costs of meeting these targets are actually lower than anticipated and in some cases might actually yield net economic benefit, but the failure will have been political and driven by a fear of economic cost and loss of competitiveness. I think it is because the ultimate cause of failure, if we do fail, will have been political that the risk of the future perception that the challenge is insurmountable will be on the one hand that much greater but in fact not a substantive fear because politics can always change. Chairman: We had better break now, I am afraid, and we will get back to you in a minute. The Committee suspended from 3.32 pm to 3.40 pm for a division in the House. Q12 Chairman: Can I refer you to the passage in your memorandum when you talk about the two possible penalty arrangements that were discussed, one was the US proposal and one was the EU one, and you said that neither of them was entirely satisfactory. What happened in the end? Is there any kind of penalty system? Mr Lanchbery: No, not really. Basically you shame people. There is the rump of the European proposal left in there. The European proposal was to have a levy on all transfers of credits essentially and then if you were in compliance you got your tax money back and if you were not they kept it, but the problem with it was that basically finance ministries throughout the world did not really like the idea of some sort of international tax so they got it binned. So it is mainly a question of shaming countries. However, that works very well for some countries. One of the reasons why they did not have penalties was because Russia did not want them and Russia did not want them because it felt it had been humiliated in the Montreal Protocol process where they were called in for non‑compliance and although there was no penalty they felt shamed by it. So it does work. Q13 Chairman: That is good, that is encouraging. What difference do you think in practical terms will the ratification of Kyoto mean? Mr Lanchbery: It means it will come into operation. Until now it has just been a hypothetical agreement but it is now an operational agreement, so all of the commitments in it which are binding about targets now become legally binding in international law. So do all the commitments about reports for example, because they are not optional commitments on reporting, and a lot of other things that say "you shall do this". It means that the whole thing is operationalised. Dr Jefferiss: Practically it is operational; symbolically it gives enormous impetus to developing the next stage of the process, the post‑2012 stage. Q14 Chairman: So you expect to see new national emissions trading schemes sprouting up around the place? Mr Lanchbery: Some, yes. Several countries are discussing it. The Japanese are discussing it, the Canadians are discussing it, indeed the Americans are discussing it, in different for a, so there is a potentially very likely East Coast states' emissions trading scheme in the US. There is talk with the new Schwarzenegger administration in California of having a trading scheme with California, Washington, Oregon and British Columbia. There was recently a Bill before the Congress, the McCain-Lieberman Bill, for having a US national trading scheme completely independent of the administration. McCain, who is one of the senators for Arizona, and Lieberman, who is from one of the New England states, proposed the Bill, which only narrowly failed to go through. It was defeated in Senate by 55 votes to 43, I think it was. They are going to put the Bill forward again so if that goes through then the United States will have a trading scheme even if they are not party to Kyoto. Q15 Mrs Clark: I would like to take us on to the EU Emissions Trading Scheme/trading system, et cetera, which obviously is coming into force on 1 January 2005, so pretty soon actually. To what extent would you regard it as a model for a fully international trading system? Is that relevant? Mr Lanchbery: Under Kyoto there already is one, ironically proposed by the United States of course. The two are different though. The Kyoto one is an inter‑country trading scheme so because Kyoto places obligations on states or governments, it is a trading regime between governments, whereas the EU emissions trading scheme is a trading scheme amongst firms, amongst businesses. So it is different in that respect but I think it is quite a good model. Its framework is pretty good and it has a strong compliance regime, partly because it is governments regulating firms rather than nation states trying to regulate each other. Q16 Mrs Clark: If all the countries were signed up, presumably you would prefer the Kyoto model? Mr Lanchbery: Yes, because it is global, but there is nothing to say you could not have sub‑regional schemes like the EU one within the Kyoto regime. Q17 Mrs Clark: But it is an add‑on, it is a bit of a second best, it is what we will take because that is what we have got? Dr Jefferiss: I would make a distinction purely on the geo‑political scale of the two things. Where it is geographically and politically feasible to regulate trading amongst small entities, namely companies, then that is a perfectly efficient and viable option. However, on a global scale I do not think it is politically viable to do that. Mr Lanchbery: The EU scheme should be effective within the EU. It is a well set up scheme. We may not agree with the allocations but it is basically a well set up scheme. Dr Jefferiss: The cap setting process was also quite significantly flawed, certainly for the first phase. It is difficult to know what process other than the political one that has been gone through could replace it, but it has led to a race to the bottom that is clearly not going to yield much in the way of emissions reductions at all since the emissions are relative to business as usual, which can obviously be reprojected upwards as we have just seen in the UK. Q18 Mrs Clark: Okay, we have talked about targets earlier on and in fact the National Allocation Plans have received a bit of a slating in terms of the targets being a bit feeble and not tough enough. What is your view on that? Is that something that we have just got to grin and bear in the first phase of the scheme just to get the scheme going in the first place and hope that at some point there can be add‑ons and it can be improved? Mr Lanchbery: They are feeble and they are deliberately feeble --- Q19 Mrs Clark: --- Deliberately feeble? Mr Lanchbery: --- Partly because all the countries had a fear of losing competitiveness vis-à-vis the other countries in the scheme so they all set slack targets. Q20 Mrs Clark: So what is the point of it? Mr Lanchbery: What Paul just referred to as racing to the bottom. Q21 Mrs Clark: If you start off with low expectations or virtually no expectations surely the whole scheme is going to breed contempt? Dr Jefferiss: I think that is a problem. There are two or three fundamental problems. The first is that there was not a cap set for the EU as a whole. Secondly, it was left up to individual member countries --- Q22 Mrs Clark: Which is what I was going to come on to. Dr Jefferiss: --- To define their own national caps on the basis of consistency with their burden-sharing agreement but not actually congruent with their burden-sharing agreement, and "consistency with" is very hard to define since some of the emissions reductions in each country will come from non‑traded sectors, and the argument will always be made that the balance that is not being achieved under the trading scheme will be achieved outside the trading scheme, which is very hard to prove one way or another. I think you are quite right, it does undermine the credibility of the EU system, which is particularly troubling at a time when the EU and the UK are claiming international leadership on climate change mitigation and when we stand on the threshold of an historic opportunity to show that leadership in the form of the UK's leadership of the EU and G8. Having said all that, we do not think all is lost. On the contrary, if we regard this as a lost opportunity but also an opportunity to learn, a learning experience, we can use the opportunity of the EU Presidency and the G8 Presidency to set the stage for the second phase of the EU trading scheme. Q23 Mrs Clark: I was going to come on to that, that was my next point actually. You are saying "we can use" and "we should do" et cetera but how do we do that? It seems to me that what we have had on a lot of this is good sound bytes, warm words ‑ to use a pun if you like ‑ but nothing really radical in terms of political will. Is there going to be that political will? Mr Lanchbery: It is not for us to judge what the political will will be but there should be. Q24 Mrs Clark: What can the EU do? Mr Lanchbery: Firstly, the Emissions Trading Directive does make allowance for harmonising methodologies. In other words, states should get together and agree targets between them. They already have the agreed so‑called burden sharing targets. It would be far better if the states got together and said, "Right, our targets are going to be this," amongst haggling with each other, otherwise they are again going to set a sloppy set of targets. The other thing is at the moment they do a "business as usual" projection, as Paul said, and then they take a certain amount of carbon off the end of it, when what they should be doing is taking their emissions at an historical date and subtracting carbon from that and not from a projection because you can always re‑do your projections, as Paul mentioned. Now that they have worked out some firm figures for individual installations, the next time they should say, "Okay, your cut from that installation will be this ..." never mind what the projections are, and do it on that basis. Q25 Mrs Clark: And what is Tony Blair's role in this? We have got the Presidency, et cetera, et cetera, coming up. Is it a matter of making a noble sound byte speech beforehand or is it a matter of actually putting this to the top of agenda in the Presidency and saying, as you have just said, "We are going to do this. We are going to do that." Can you see him doing it? Dr Jefferiss: I can see him doing it. Q26 Mrs Clark: You can? Dr Jefferiss: I certainly think he has the opportunity and political space to do it and I can even see him doing it. The space is created by the fact that under Kyoto there is a requirement to review progress towards targets at this point, so the UK, Tony Blair within the context of the EU Presidency, could use 2005 as the opportunity to do that. As John says, the ETS itself has a provision for harmonisation, so I think there really are the mechanics and the politics in place to allow him to undertake a very stringent review of progress in 2005 with a view to setting the 2008‑2012 period of the ETS with a harmonised stricter NAP. Q27 Mrs Clark: I am sure he has indeed got the freedom and ability to do that, everybody can change, but is it a question of the left hand not knowing what the right hand is doing when we regard the fact that the UK actually relaxed allocations in the final NAP. How can you square actions with words, because I am having a problem with it? Dr Jefferiss: I agree, it does give you cause for concern given that emissions projections under this reallocation for the 2005 to 2007 business as usual projections have gone sharply upwards, but from 2007 to 2010 those projections are indicated to move sharply downwards again. The Government is on record both in the Energy White Paper and in the press release associated with the announcement for the projections that the Emissions Trading Scheme is the central plank of their climate strategy, and I think they in a sense have backed themselves into a corner where we would all like to see them, which is that there will be no alternative but to ensure that the second phase Emission Trading Scheme is much more stringent than the first - because there is no alternative at present that we are aware of. Q28 Mrs Clark: Finally, what about competition, do you think competitiveness has anything to do with the relaxation of the allocations? Mr Lanchbery: No I do not. Q29 Mrs Clark: You do not? Mr Lanchbery: The Carbon Trust did an excellent study of the effects of competitiveness and it came to the conclusion that at the sort of price carbon is likely to be traded for the competitiveness effects are trivial and anyway they only took the emission reductions from the power sector and the power sector is not subject to international competition, it is purely domestic. Our power system does not compete with the French, the German, the Italian or other power systems. The only effect it would have would be a very small rise in electricity prices which would have some impact, a few per cent, on some very energy intensive sectors, so the competitiveness argument does not really wash. Just to touch on your previous question, there is an excellent little graph, if you have a suspicious mind about the latest allocations against the revised energy projections, from the DTI on its web site, and it is interesting that projections ‑‑‑ Q30 Mrs Clark: Have we got copies of that? Mr Lanchbery: Yes, I can give you some later. Q31 Mrs Clark: Thank you. Mr Lanchbery: The projections for the traded sector for 2005 are all up and for all other sectors outside the traded sector they are all down compared to what they were before, which if you have a suspicious mind is interesting! Dr Jefferiss: But I think that there is a difference in saying that analysis would suggest that competitiveness considerations should not be material to these decisions because, as the Carbon Trust has shown, they are not likely to have adverse effects on many sectors at all. Whether or not competitiveness considerations have had an effect these sectors, I am sure you would reach a different conclusion. Q32 Mr Chaytor: Are there any compliance mechanisms for failure to reach the targets? Mr Lanchbery: In the ETS, yes, and they are quite stringent. Q33 Mr Chaytor: What are they? I do not understand how they work. Mr Lanchbery: The penalty is laid down in the Directive and the penalty in the first phase is 40 euros a tonne and in the second phase 100 euros a tonne. Given that trade is happening at about six to eight euros a tonne at the moment that is a fairly big penalty. Q34 Mr Chaytor: So you think that is heavy enough to have the right incentives? Mr Lanchbery: I think so, certainly in the second phase. It is a huge penalty. It is more than ten times what the going rate for carbon is, so it should work. Q35 Mr Chaytor: In the second phase there is this debate about whether aviation should be included from 2008. This Committee has recommended this and the Government is considering that. What is your view on that? Do you think the system can generate sufficient credits to accommodate the introduction of aviation into phase two? Mr Lanchbery: Yes, we favour it, but there are a number of technical questions about opting aviation in. It is to do with how you allocate emissions. So in theory, yes, you could opt them in but you have to work out who is responsible for the emissions from an aircraft going from, say, London to Berlin. Logically you could say that perhaps you should allocate emissions to the point of sale of the fuel but you have to work all that nitty‑gritty stuff out which may take a little while, but we agree. Dr Jefferiss: In principle, we support it. In practice we think the obstacles can be overcome. Q36 Mr Chaytor: Right, but as the years go by and if the European aviation industry develops, particularly with its short-haul programmes in Europe, will there be sufficient emission credits in the system still to enable aviation to be part of that? Dr Jefferiss: I suppose it would depend on the level at which you set the allocations. At present I would have thought there would be more than enough. If the reduction target were much more strict then obviously credits would be at a much higher premium. So I think it really all depends on what level the target is set. Q37 Mr Chaytor: Can I step back a bit to phase one. When the cap was set for phase one there was no relationship between the Kyoto targets and ETS allocations? Mr Lanchbery: There was a relationship. You were obliged under the Directive to set your allocation in a way that was consistent, as Paul said, with your burden-sharing target in the EU. Q38 Mr Chaytor: But this concept was not defined, was it? Mr Lanchbery: No because what it meant and the way the Commission interpreted it is that if you chose to take all your reductions in, say, the transport sector or the residential sector then you did not have to do anything whatsoever on power stations or other heavy industry, so you had a choice, and if you could prove to the Commission that you were in fact making all your emissions reductions elsewhere then you did not have to do anything in the traded sector. Dr Jefferiss: Can I add, one of the most serious problems, I think, of the weak first phase of the ETS, apart from undermining credibility and so on and making the second phase more difficult, is that it results in a very low credit price which means that the market for credit trading does not develop as aggressively or as fast as it could and we do not gain the market efficiencies that we could have gained and we do not learn in the ways we could have learned about how market trading and credits work. Q39 Mr Chaytor: Some countries have said that they want to achieve almost half their emissions reduction targets through the CDM. Is that realistic and what is your general view of the role of the Clean Development Mechanism? Mr Lanchbery: You are probably referring specifically to the Netherlands. That is certainly one of their aims and it has always has been, to be fair to them. We are very concerned about the effect of CER (certified emissions reductions) because of the Clean Development Mechanism coming into the Trading Scheme. They were always a peculiar thing in the Kyoto Protocol. They were good in the sense they enabled money flows and technology flows to go to developing countries but they were bad in that they formed what was known as a "leak" from the cap and the same was even more true of the EU scheme, so what you are doing by allowing an infinite flow of those credits in is that you are not achieving emission reductions in the European Union, you may be achieving them in South Africa but you are not achieving them in the European Union. Q40 Mr Chaytor: You argue that you are achieving less in the European Union? Mr Lanchbery: Yes. We argued as the UK for a cap on the amount of about one per cent or so. Dr Jefferiss: We argued that the CDM should be a mechanism within Kyoto trading and that it should not be linked at all to the Emissions Trading System in Europe or that if it was then the percentage that should be allowable should be capped. In the event neither of our recommendations was accepted. Chairman: I fear that we need to break again. The Committee suspended from 4.02 pm to 4.09 pm for a division in the House.
Chairman: Colin Challen? Q41 Mr Challen: I was just thinking of Winston Churchill's comment that democracy is a bad way of organising society but all the other alternatives are worse. Picking up from your submission, is that your view about emissions trading systems? Mr Lanchbery: Yes, it probably is. A lot of claims are made for emissions trading, for example that it provides certainty. No, it does not provide certainty unless you have got an absolutely rock‑crushing compliance regime, and there are always bound to be a few things that do not work very well depending on the players, so we have highlighted the EU scheme deficiency which is setting the cap. That is also a deficiency in the Kyoto Protocol one. I do not know of an example of an ideal trading scheme and you can almost never have one. I think the only one I can think of was the old BP one and that was within the company and it had the God‑like figure of the chief executive in charge of it and he could say whatever he liked to make it a perfect scheme, but apart from that I cannot think of a "perfect" scheme. So I think we have to live with imperfections. Assuming you have got penalties and stringent targets it is more certain of delivering than a typical tax where there is a considerable amount of uncertainty as to what it delivers. I think you are right, it is the best thing we have got at the moment. Q42 Mr Challen: Your submission does say that no pre‑conditions regarding organising principles such as contraction and convergence or delivery mechanisms such as emissions trading should be at the start of these negotiations. That does beg question what should be at the start of negotiations post‑2012? Dr Jefferiss: Agreement generally on the way forward but, specifically, targets. Mr Lanchbery: I think that remark was made in the context of just getting the negotiations started. One of the difficulties there is, quite apart from the United States which we have talked about, is getting the developing countries to commit to anything at all and getting them involved, so initially the focus should really be on just getting the people around the table which at the moment has not proved possible. Q43 Mr Challen: You mean the key players around the table, the absent friends? Mr Lanchbery: Yes, like China. They have not participated at all, they have refused to discuss it. Q44 Mr Challen: If we were to take that tack would we not be back at square one? Why can we not build on the albeit very modest success of Kyoto and say, look, we started with ten per cent down the road or two per cent down the road and there are more and more people? Mr Lanchbery: I think we can with countries like India and China. They are already party to the Kyoto Protocol so they do not fundamentally disagree with it; they just do not want big commitments for them. They agree with the principles in it. The point we were trying to make was the first thing we want to do is get everybody around the table which we have not got at the moment on discussions on what happens post‑2012. I suppose the second point is that it would better if the United Kingdom or Germany or the EU as a whole or any developed country did not come up with a solution. It would be better if one of the big developing countries proposed a solution. If they come up with contraction and convergence or whatever it is, then fine, but it would be nice and much more diplomatic if the solution came from them. Q45 Mr Challen: I am taken by this notion that Australia did very well at Kyoto and had permission to emit more and yet they have not signed up to it. I guess you have got Australia and the United States and one or two other countries (no longer Russia) in a coalition of the unwilling and perhaps if that coalition was reduced and especially with a major Western economy saying, "We have seen how Kyoto is working. We have not done badly by it," if they had been a fully participating member then perhaps we can peel off and build on Kyoto in that away and isolate the United States, and by their isolation perhaps then seek to bring them in. It seems to me we are being driven by the United States in so many ways. Going back to an almost square one position is dangerous. Mr Lanchbery: It was not meant to imply a condemnation of Kyoto at all. I am sorry, if it was read that way that was not what was intended. We are very pro‑Kyoto. We were just saying for the next round we should have no pre‑conditions. One of the pre‑conditions is that you should use the Kyoto process. Dr Jefferiss: I think we took that as read and made that assumption. It is no criticism of Kyoto, no criticism of trading, and no criticism of contraction and convergence. It is just that given the extreme political sensitivities at both ends of the spectrum, from the US on the one side and developing countries on the other, negotiations with as few preconceptions as possible seemed the most likely to happen to possibly make some progress. Having said all that, we would hope that Kyoto would form the basis of the way forward. It is likely that trading would be the mechanism. Contraction and convergence is less clear but I hope that clarifies what we were saying. Q46 Mr Challen: I think it does to a certain extent. Perhaps I will come back to contraction and convergence. Just remaining on emissions trading per se, do you think it is a possible strength of them that they could allow or even encourage many different policy mechanisms to appear (a market-driven approach) or is it a weakness that we are maybe putting too many eggs in one basket and that is what is obscuring all the other possible routes? Mr Lanchbery: It is a possibility. Before Kyoto the European Union as a whole were very keen on emissions trading. It has caused problem in some countries, notably Germany, where they have had very good deals with their business people which they are reluctant to give up, hence the number of conditions in the EU Emissions Trading Scheme so again that is another one of the reasons for not having too many preconditions on it. China and India really do not want it. India has some very basic problems with trading because they consider it as issuing permits to pollute. We would not think of it that way but that is the way their representatives had thought of it. It may a complete non‑starter with India. Again, we should not try to force it on people if that is not what they want. Dr Jefferiss: I think while you may be right that it has the effect of marginalising other options which may actually be more effective, our judgment would be that experience suggests that for all its flaws it is the most politically acceptable of the various options and that it is important particularly to bring the US in because although the US is not essential in a global context without the US, a trading scheme would be weaker, and obviously our global efforts to reduce emissions would be significantly impaired. I think it also seems to be the most politically acceptable option to business and again that must be a material consideration because even if there are technically better options if they are anathema and unacceptable to US and to business, then however good they are they are not going to yield results either. Finally, emissions trading schemes have been shown to work. The SO2 trading scheme in the United States has worked and it has revealed all sorts of interesting bits of information such as the fact that early projections of costs are likely to be gross over‑estimates. So I think there are various reasons why trading is beneficial. Q47 Mr Challen: Given what you have just said, the Kyoto Protocol is largely about the national targets and countries joining. How about large businesses, multi‑nationals, or whoever, becoming direct participants in their own right? Is that an idea that you consider worthy? Dr Jefferiss: As we indicated earlier, while it might technically be possible we think politically it would be unacceptable because it is unlikely, particularly in the case of the United States, that they would accept a situation in which some supra‑national body, an international body, were to regulate trading amongst companies that included US‑based companies whereas national allocations which they can control are obviously more politically acceptable. Mr Lanchbery: I think it would probably go down badly with most countries but the Kyoto Protocol and the Climate Change Convention are United Nations conventions so they automatically run on participation only by governments, so it would require quite a major revision to the way the UN operates to allow companies in. Q48 Mr Challen: As we know, climate change is not a concept, it is a proven fact, but it is still very difficult to communicate, and recent surveys have demonstrated that the general public all think that perhaps it is important but in their own lives it does not really have much impact and talking about contraction and convergence is quite difficult. Other things like carbon taxation are quite easy to communicate, although usually without any positive advantage to elected politicians. Do you see any sort of role for national systems that we could introduce within the UK? I am thinking specifically of domestic tradeable quotas, which I imagine you will be aware of. Do you think there is a way there in which we could get the wider public on board and actually address one of the objection or concerns we have in the submissions that you cannot apply Kyoto to motor vehicles, for example? Each government, would you agree, should look at how they can get their public on board directly rather than simply saying this is an objective for our policy makers in Whitehall? Mr Lanchbery: It is an appealing concept. It was mooted some time ago. I remember having a meeting with the European Commissioner at which it was mooted. I think it is a matter of practicality really though. Although most well‑educated people again would be okay with it and you could see them using their carbon credit, it might be difficult for an elderly person to take any advantage of it. I can see the appeal of it, I just wonder about the practicality of it. Dr Jefferiss: It is an interesting question. Getting the public on board and using fiscal instruments to do that are not necessarily the same thing and your natural response is to think fiscal instruments doing anything is likely to alienate the public, but I think probably of all the mechanisms available the notion of per capita allowances that can be traded electronically through a credit card system - and I know the Tyndall Centre for Climate Change Research has done some investigation of this ‑ is quite appealing if it is technically feasible because as well as being economically efficient it is also socially progressive in that a person who does not have many means and does not travel very much at least has an asset that they can sell to an affluent person who does wish to travel more. It has some social progressivity about it, too. It is quite an appealing way. There are obviously other fiscal measures, taxation in particular, and we would all be in favour of a variety of fiscal measures for achieving different purposes, so we argue, for example, for a well-to-wheel carbon tax on vehicle fuels. Q49 Mr Challen: Do you think that without such measures as that ‑ and that is music to my ears on DTQs by the way ‑ we could achieve any more stringent or radical post‑Kyoto targets because, after all, the domestic sector in this country contributes about 40 per cent of our emissions. Dr Jefferiss: I think that there are other policy mechanisms for driving reductions in the non‑industrial sector. It is really a question of whether the Government will have the political will to implement them. Certainly, as you indicated, energy efficiency measures in the domestic sector in particular could achieve significant cuts but the fear, naturally, is a political one and the fuel poor in particular will be adversely affected. Our response to that would be that it would be much more politically expedient and effective to tackle fuel poverty head on and remove that as an obstacle to introducing a rational taxation system for energy or for carbon use. I think it is really a question of not whether there are other policy influences but whether there is the political will to deploy them. The same with fuel duty on transport fuel. Q50 Mr Francois: Realistically, are only the larger countries likely to be able to take advantage of emissions trading? To what extent will the less developed countries be able to take advantage? They do not have the mechanisms to allow them to take advantage of the Clean Development Mechanism let alone the opportunities that are offered by wider international emissions trading as a whole. What is your view? Mr Lanchbery: I do not think you would really be asking poorer countries to join in. You are right, it is a complicated mechanism, and it would be grossly unfair to ask a country like Bali or somewhere like that to join in such a regime. They presently do not have the resources and they do not have many emissions either. So we are only really thinking about the very biggest, rapidly industrialising developing countries that have large emissions and whose emissions are growing rapidly and bringing in those who know precisely what they are doing. China knows they have a huge air pollution problem already. They are very concerned about cutting acid rain emissions and have already been doing stuff on that. India, again, knows precisely what it is doing. The last time I went to Delhi I was very impressed because Delhi used to be hugely polluted and they decided they were going to cut all the pollution in Delhi. So they converted everything including the auto rickshaws, the tuk‑tuks, to liquid petroleum gas, and they can do that quite well by themselves, they know what they are doing. It is those sorts of countries you are looking at, not poor developing countries. Q51 Mr Francois: Turning from countries to organisations, some organisations have argued that they should not be taxed twice effectively for the same emissions. If you take the example of the aviation industry, they argue that if they were to be included in an EU Emissions Trading Scheme that the surrogate Air Passenger Duty should be scrapped. What do you say to that? Mr Lanchbery: If it was placed on them primarily for climate change purposes then, yes. It is not at all clear with some of these things what the duty was imposed for, but certainly, yes, if it was imposed for that purpose it should be removed. Dr Jefferiss: It is ironic to get the aviation industry accusing the Government of charging it once let alone twice! Q52 Mr Francois: The Government has announced that sites participating in the EU ETS might be able to opt out from their climate change agreements. Do you think that an approach such as that would be justified? Mr Lanchbery: Yes, they are allowed to do that under the Directive as long as they achieve the equivalent effort somewhere else, so if under their Climate Change Agreement they over-achieve what they would have done under the trading scheme then they can be exempted under the Directive. That seems fair enough. It seems a rather round about way of doing it but if that is what they are doing, it is fair enough if they are achieving the same result. Mr Francois: That is helpful, thank you. Q53 Mr Thomas: I think we already know how difficult the USA finds any idea of a national target for themselves that they must be bound into at an international level. Looking ahead past Kyoto to the future, are there any initiatives coming out of the US at the moment that could be pointing the way to the future. On emissions trading you mentioned California earlier on and the seaboard there coming together. Could you say a little bit more about those sort of initiatives and also what the NGOs are asking for in America? Where are they pressing for now? Mr Lanchbery: The big national one in America, the federal one is the McCabe-Lieberman Bill, which I mentioned earlier, which they will resubmit. It is interesting in the United States because climate change is not actually a party political issue at all. People tend to think because Mr Bush is a Republican that all Republicans are anti‑climate change, and that is clearly not the case. Schwarzenegger is very keen on doing something in California, Petaki is very keen on doing something in New York and Senator McCabe from Arizona who is not a particularly left‑wing "Pinko", is also a Republican and thinking of doing something nationally. It is not a Republican party issue in that sense. The McCabe‑Lieberman Bill is the big initiative and they only lost by 43‑55, so that is eight votes in the Senate. Q54 Mr Thomas: That is an achieving bill not a national allocation bill. Mr Lanchbery: No, that covers all installations in the United States, more than 10,000 mega tonnes of carbon dioxide. It also includes transport fuels with equivalent emissions. So it is quite all‑encompassing but it would be a trading scheme, you are right, and you would have credits and you would trade. The cap is a bit weak. The cap proposed nationwide was to stay at 2000 levels by 2010, so it is lower than the one in the EU Emissions Trading Scheme or elsewhere but nevertheless it is quite ambitious. It is quite a complicated scheme. Dr Jefferiss: The other thing I would mention is that in the 1990s I was the Energy Programme Director of the Union of Concerned Scientists in the United States and I was always surprised at the lack of knowledge in Europe of the degree to which at state level there was a hive of activity on sustainable energy policies, so there are a number of states with what we call the renewable obligation and what over there is called the renewable portfolio standard. There are states that have what they call a system benefits charge which is like the Non‑Fossil Fuel Levy to support various types of system benefits. There are various state tax and subsidies schemes for renewables and sustainable energy. As I say, they are quite extensive and some of them seem to have been quite effective, including in Mr Bush's home state of Texas where wind power is doing reasonably well. If you are interested, the Union of Concerned Scientists has a full tabulated analysis of activity at a state level as well as inter‑state activities such as the North East Trading Scheme and activities in California and the West Coast. So we can provide details of where to access that if you would be interested. Q55 Chairman: That would be helpful. Mr Lanchbery: Just a little additional bit. One of the problems with the present administration is the word Kyoto and that comes from a previous Senate Bill which was passed just before Kyoto, which the Senate passed by a complete majority of 95‑0, the Byrd-Hagel Resolution, and that said there should be meaningful participation by developing countries and the Clinton administration did not negotiate such a treaty so the Senate was almost bound to not like it when it came through. Again, it is not a straightforward Bush does not like it, Clinton did like it, sort of thing with the treaty. The Senate always did not like the treaty which did not bring in at least some rapidly developing countries, so the two issues are linked. Q56 Mr Thomas: They are indeed and I wanted to ask about that because the two major countries are India and China, who have also had difficulties with national targets and, as you correctly pointed out, it was Clinton who first failed to get this through the Senate not George Bush. Do you have any information about what is happening in India and China in an analogous way to what is happening in the USA, something that is moving there that at least if they had not been bound into something like Kyoto when we come to review and when we come to look at the future they will be able to be part of that process? Mr Lanchbery: Various senior Chinese officials ‑ not their head of government but senior officials ‑ have said that climate change is a big problem for them and that they ought to do something about it. They have not been terribly specific but they are increasingly looking to solutions at home, especially ones that solve their acid rain problem, which is huge. They would be particularly keen to look for alternatives to coal or at least carbon sequestration because they have massive pollution problems, particularly in Beijing. India is probably thinking of doing less although India has a number of programmes. They have a big wind power programme, for example, so it is not as if they are doing nothing domestically. They, too, have big pollution problems. One hit the papers fairly recently around Agra which they had to clean up. So it is not as though they are doing absolutely nothing; they are just not participating internationally as much as they might. Having said that, the UK keeps visiting China, and Defra officials are always going there. Mrs Beckett is just back from China. Q57 Mr Thomas: Finally then, the Government's attitude. We have heard an awful lot from the Prime Minister down on the opportunities of the G8 and climate change because climate change and Africa are the two main foci for the Presidency of the G8. Has the Government worked with you and the NGO community? In advance, for example, of Johannesburg there was a great deal of stakeholder involvement and building a consensus around these issues. Has that happened at all in this context? Are you engaged in the Government's thinking? You seem to be quite well informed about it. Dr Jefferiss: Not on the scale of the run up to Johannesburg but in a quieter and less public way they have engaged, I think, with key voluntary sector stakeholders, for example inviting us to meetings with key officials to discuss both the G8 Presidency and the EU Presidency. Defra ran a workshop that was run by the Institute for European Environmental Policy and the Green Alliance to look at specifically what the voluntary sector community thought of the EU Presidency as an opportunity for climate and other environmental issues. There have been a number of meetings with officials on G8 opportunities, so I would say a number of key stakeholders have been invited to comment. Mr Lanchbery: Upwards to Number 10 and Mr Blair has talked to our chief executives. Q58 Mr Thomas: So you would be quietly confident about the way that is going in terms of your engagement? Dr Jefferiss: In terms of our opportunity to comment; whether our comments have been taken on board or ‑‑‑ Q59 Mr Thomas: --- We will find out next year. Mr Lanchbery: We have been given the opportunity. Q60 Mr Thomas: We will see whether our comments have been taken on board as well. Dr Jefferiss: I hope so. Mr Lanchbery: One brief comment on climate change and Africa. We have been working with the development groups on that and the development groups are increasingly worried about the effect of climate change on the poorest countries. We have got a brochure which we might leave behind which was produced with people like Christian Aid, et cetera, on the effect of climate change on the Millennium Development Goals. They are quite closely linked. Dr Jefferiss: That is an important message that we would want to send, particularly to the Treasury and DFID, both of whom have concentrated primarily on poverty elimination globally, which is obviously crucially important as a priority, but just to take careful note that unless climate change is addressed as an equally pressing international priority it will be difficult to the point of impossible to eliminate poverty globally and poverty will be exacerbated by climate change. Q61 Chairman: I think that exhausts our questions. You have given very helpful answers. Thank you once again for coming. Mr Lanchbery: Thank you very much. |