Examination of Witnesses (Questions 1-19)
MR JOHN
LANCHBERY AND
DR PAUL
JEFFERISS
17 NOVEMBER 2004
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 is 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 5% 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%
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%,
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 fora, 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-a"-vis
the other countries in the scheme so they all set slack targets.
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