Examination of Witness (Questions 320-337)
MR JAMES
CAMERON
15 DECEMBER 2004
Q320 Joan Walley: Who is doing that?
Mr Cameron: The Commission is
leading it. They need a lot of support from Member States, the
cooperation from people who have expertise in Customs & Excise
and VAT areas and from the accountancy profession, from the Financial
Services regulators. There are lots of market issues that have
not been properly resolved, which are all barriers to people doing
business.
Q321 Joan Walley: So what is the mechanism
by which that joined-up approach to work through all of those
difficulties could come about, and will it be something that could
be taken up through the UK Presidency?
Mr Cameron: Yes.
Q322 Joan Walley: What is in situ at
the moment?
Mr Cameron: I hope a lot of those
things will be resolved before the Presidency begins, but certainly
if they have not been, absolutely the Presidency will be very
helpful; it is enormously helpful to have these twin Presidencies
next year at the G8 and the EU, that really is a boon for us here
in the UK.
Q323 Joan Walley: But the investment
community is taking these barriers seriously?
Mr Cameron: Yes. You want to get
the mainstream involved. I happen to be delighted that the mainstream
is just a little bit behind the pioneers, but really from a policy
point of view you want the mainstream involved, and they have
too many reasons for not getting involved when these things are
not sorted out. For some people there is money to be made in the
incoherence. They will always do well with arbitrage between errors,
glitches in the system once they find out what they are. But to
get the system to work smoothly so that it is relatively easy
to transact, to take large amounts of carbon dioxide out of the
atmosphere, and it just keeps running on so that the dynamism
in the system keeps delivering emission reductions. That is what
you want, you want the market people to do it, get on with it,
and then you, the policy makers, keep fine-tuning the machine.
So they all get up, they trade and trade and trade away and what
we are doing is they are reducing carbon, reducing carbon and
that is what you want. To do that, so that the system is well
oiled and efficient, you have to take away these glitches and
tax glitches and regulatory glitches. If I want to do business
in Spain, to trade with a Spanish utility with them selling me
some of their allowances—or it might be better the other
way around, with a UK power station selling some of their surplus
to a Spanish operator, and if I do that, having met the gentleman
in Spain, and I transact, am I allowed to do that? Does the Financial
Services regulation entitle me to do it or must I be registered
with the Spanish authority to do that transaction? These are little
but important things which are not quite sorted out.
Q324 Joan Walley: Who is charged with
taking the lead on that? Who are the people who can get those
going?
Mr Cameron: The people responsible
for Emissions Trading in government here are Defra, who take the
lead on these things. They are a very good team and are working
extremely hard on all of these issues. They are fully aware of
these questions and they just need a bit of help and support,
with others, and they need for it to be a priority to dedicate
negotiating time too, and they need good expertise to help them
to iron out these things, and they need cooperation from the Financial
Services and the tax authorities and these sorts of things.
Q325 Chairman: Are you engaged in advising
Defra on all this?
Mr Cameron: We have very good
relations with Defra and indeed other parts of government and
we have meetings lined up with Treasury as well, which will be
helpful to conclude swiftly.
Q326 Joan Walley: And with the CBI?
Mr Cameron: No, not this directly.
Q327 Joan Walley: One of the things that
you refer to again is transparency and you refer to the situation
in Japan where they are thinking of introducing a mandatory monitoring
scheme. Do we need that here? Is that something you would like
to see taken forward globally in the UK and in Europe? Or can
we have trading without it?
Mr Cameron: It comes down to trust
in the system; people need to feel comfortable that when they
do business they are transacting in something known and understood.
So high levels of transparency are good for the system. That is
not to say that there will not be people who are very happy to
do very well in the rather darker regions of the market place.
But to make the system function effectively transparency is a
good thing.
Q328 Chairman: If mandatory, yes or no?
Mr Cameron: I think probably yes.
Q329 Joan Walley: Without going into
the detail of the Company Law Review which took place, is there
scope within that to enable that degree of mandatory monitoring,
or could there be, easily?
Mr Cameron: You have to be careful
in one regard. You cannot disable trading because everybody knows
your position. There is a certain type of transparency that is
totally counterproductive because people will hide their position
in various ways. But you need to be able to trust that what passes
through your account is the real thing, and so it is fairly understood
that although I will answer to your question yes, that I would
want to be very careful with what it is that is mandatory. I would
not want there to be a rule that requires somebody that has a
position in the market place to disclose that to their competitors.
Chairman: I am aware that time is passing
and we have another important witness to listen to, so if we can
move swiftly through the next set of questions.
Q330 Mr Challen: Given that you were
heavily involved in the drafting of the CDM part of the Kyoto
Protocol, how do you view its subsequent development?
Mr Cameron: Yes, I was heavily
involved with my colleagues at FIELD, advising all the Alliance
Of Small Island State countries and my perspective of it comes
from that experience. There was a genuine bargaining between north
and south that offered real opportunity for investment into the
developing world to enable them to have a better technological
input into their particular energy production and consumption,
and I am a fan of using the CDM to add flexibility now to our
European market. However, for various reasons, notably concern
in the non-governmental organisation world that the Clean Development
Mechanism would be used as a sort of excuse for inaction in the
developed world, it has been burdened with a number of ancillary
rules to the original one that I helped draft, which I think are
problematic. In essence I would like to see the CDM operate with
a bias towards volume, lots of projects, with the risk that some
of those projects—every now and again there is a fraudulent
one, every now and again one does not deliver what they said they
would, and the monitoring of those projects is crucial—but
take that risk in order to get lots of capital to flow for lots
of projects. I want the bias that way and I think the CDM is a
waste of everybody's time and effort if you do a handful of Mary
Poppins' projects a year, "practically perfect in every way",
and of no use. So the CDM is potentially a rather beautiful device
for bringing together the north and south and the collective solving
of the Climate Change problem, but only if its mechanisms function
efficiently and a lot of projects can pass through it in a calendar
year. At the moment I am worried that insufficient projects will
pass through, that there is a misguided notion, misinterpretation
of what we meant by the concept of additionality. I do not know
whether you want to go into this level of detail but there is
a real problem with how that works, and in essence that mechanism
was designed only to prevent public money aid being diverted away
from poverty into these projects. At no stage was it designed
to prevent profitable projects being conducted in the developing
world.
Q331 Mr Challen: So additionality was
one of the extra rules introduced, was it?
Mr Cameron: It is not even an
extra rule, it is just an interpretation that seems to have developed,
utterly irrational and, I am afraid, totally counterproductive
from an environmental point of view. It carries no merit from
the environmental point of view. What it means is that it encourages
a kind of doublethink first and a double-speak later on behalf
of the project developers. So somebody who wants to do a big emission
reduction project in Brazil has first of all got to go to their
Ambassadors or their Board and say, "We are going to do this
because it is fundamentally a good idea," and then they have
to pretend that it is actually fundamentally a bad idea from a
commercial point of view in order to ensure that the carbon finance
element is additional, or constitutes additionality, and this
is a really very bad way to proceed. The only point to additionality—I
am sorry, I have gone there and I did not mean to—is to
stop public money being diverted, it is not to prevent profitable
projects being done.
Q332 Mr Challen: Does that mitigate against
trying to capture the low hanging fruits?
Mr Cameron: You want profitable
projects to be done. All you need to focus on is the "but
for" test. If this project did not exist would we get these
reductions? That is what you have to focus on, and you need to
have a robust baseline, a good verification and all sorts of technical
skills apply, and careful monitoring and scrutiny because there
will be people trying to try things on. But after a while practices
will develop that are robust and can be trusted and the Executive
Board will pass projects, methodologies will be improved and then
investors will be able to look at that list and say, "Right,
we will build a fund just to deal with these sorts of projects,"
and you watch the money flow into places that they would not otherwise
go. It will be a lower risk investment to generate a certified
emission reduction, which has currency in the rest of the world,
than to take a risk of investing in some of the countries that
are beneficiaries of these projects.
Q333 Mr Challen: As it stands though
would you say that the CDM is not the most effective way of channelling
money into the least developed countries?
Mr Cameron: At the moment the
least developed countries will not be big beneficiaries in the
CDM, no, I am afraid to say. They ought to be but they will not
be initially. We are going to have to do a lot more work to make
that system easier to use, more efficient and we may have to alter
the rules to advantage the least developed countries.
Q334 Mr Challen: You have been very sceptical
of the entire concept of Business-As-Usual, largely I think because
of its variability. How can you be so supportive of the CDM in
that case, given the fact that it is essentially built on this
baseline and credits approach which is at the heart of the Business-As-Usual
concept?
Mr Cameron: Baseline credit has
its real value when it is connected to the cap and trade system,
so the great beauty about the linking directive in the EU, connecting
the EU scheme and the Kyoto credits, is that you create demand
for these credits in the developing world. So what might start
as a baseline and credit type system is given value by an absolute
constraint. I am afraid I do believe that it is useful for the
developing world as you bit by bit try to involve them in the
taking of obligations under the Kyoto Protocol, the next phase.
Baseline and credit is actually quite a good technique for bringing
people on who do not have obligations today.
Chairman: We have to move on, I fear,
very quickly to Mark Francois.
Q335 Mr Francois: The framework for post-2012,
do you think that a post-2012 agreement needs to be based on the
current Kyoto approach, ie national targets for states decided
on the basis of political negotiations, supplemented by Emission
Trading regimes, and what some people call Kyoto-plus?
Mr Cameron: Yes.
Q336 Mr Francois: If so, what aspect
of the present treaty do you think needs to be developed or changed
for a post-2012 agreement?
Mr Cameron: In the written memorandum
we go through a number of the options, which are currently being
debated. I need to be careful that I am not being precious about
this—you get very proprietorial about things you have negotiated,
and I hope that that is not what drives my answer—but I
do believe that Kyoto-plus is the only realistic way—and
I cannot believe I am saying realistic, I am such an idealist
by nature—of proceeding, yes, I do. It is not that the treaty
system is anywhere close to perfect, nor that it would be impossible
to create a complete alternative, but I do believe that there
is sufficient momentum now in Kyoto to warrant concentrating effort
in a post-Kyoto regime that is based upon what we have already
agreed. That does not meant that it has to replicate; it is not
just a question of going through the same allocation process and
saying, "We are going to give you less next time and the
following countries are going to have to carry the same burden
as the first." I do not believe that we need to replicate
Kyoto, but the next regime needs to have absolute targets that
are meaningful and connected to the original obligation in Article
2 of the Framework Convention, the one that governs the whole
system. They have to be able to accommodate the very rapidly industrialising
developing world and will need to get over the developed versus
developing world dichotomy, which it is of no value or relevance
to the Climate Change debate—it just needs to go. So we
need new categories of people under the original principle of
common but differential responsibility, which is in the Framework
Convention, and we need to get another category of countries to
begin to reduce their emissions even on a relative basis, and
I have a very optimistic view about that. I know what is going
on in China and India and Brazil; I am not in the doom and gloom
camp with those countries, they are already doing more in terms
of policy put in place than many of the OECD countries.
Mr Francois: You described yourself as
an idealist and perhaps being an idealist tempered with realism
is no bad combination, so thank you very much.
Q337 Chairman: Thank you very much indeed.
Unfortunately we have run out of time. It may be that the Committee
has a few more questions and if so could we put them in writing?
Mr Cameron: I would be delighted,
and if other colleagues can assist on aspects of your questioning
we would be happy to have our officers collect them together and
present them to you.
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