Examination of Witnesses (Questions 580-598)
MR BILL
RAMMELL MP, MS
VALERIE CATON
AND MR
HENRY DERWENT
8 FEBRUARY 2005
Q580 Chairman: Sticking for a moment
with this competitiveness issue, I do not know whether you have
seen the WWF report called Cry Wolf, which if you have
not I commend to you. It is an analysis of what business said
around the world about some forthcoming pieces of environmental
legislation in terms of the cost and the disaster, that it would
destroy jobs and wipe out their traditional industries and in
fact what happened after the measure was introduced. It really
does reveal the tendency on the part of some elements of the business
community to exaggerate and they do that because they still see
this whole agenda as in some way a threat to them rather than
as an opportunity. I can only suggest this is something that urgently
needs to be tackled. There is also the feeling that whenever push
comes to shove Government tends to topple over in the direction
of the CBI.
Mr Rammell: I am sorry?
Q581 Chairman: There is a sense that
every time there is an issue which might impact on business in
some way the voices that shout loudest are not necessarily representative
but they are ones which say, "This is going to be the end
of our business, thousands of jobs will move abroad, it is a disaster
and hopeless". There is not a great deal of evidence to suggest
that any of this has happened so far in terms of any of the environmental
legislation that has been brought in in this country or indeed
across the UK and I would just ask you, insofar as it does relate
to your responsibilities, to look warily at the arguments that
some elements in business are prone to advance whenever you are
trying to do anything positive.
Mr Rammell: I understand what
you are saying. I think we are right to take account of competitiveness.
If we accepted every proposal for a regulatory change that came
forward, whether it was on the environment, climate change or
whatever, we would fairly quickly mount up a substantial cost.
I made the point earlier that I think the costs of not acting
in the longer run are much more substantial. Just look at what
has happened over the last few years with the floods that took
place in Europe in 2002, $16 billion worth of costs, the heat
wave the following year, $13 billion, or if you look at some of
the insurance costs, Swiss Re are projecting $30 or $40 billion
per year in insurance costs, these are not negligible insignificant
sums, they will hit business, they will hit all of us. I also
think that in convincing business we have to talk up our own experience
and I know there are some caveats to this. From 1990 to 2002 our
economy grew by 36% and we cut emissions by 15%. Of course business
organisations and businesses are going to lobby you. All I can
say to you is that those voices are heard, but there are counter-voices
that are put forward and an active inter-agency debate takes place
about the best way to take those forward.
Chairman: There is an interesting case
study regarding the EU emissions scheme and the National Application
Plan which I think Mr Challen may wish to ask you about.
Q582 Mr Challen: Is it not extraordinary,
given that Tony Blair made public his desire to make climate change
one of the key priorities for the G8 and the EU seven months ago,
we have got to a situation now where we are embroiled in this
legal controversy with the European Commission on whether we should
be increasing our National Allocation Plan cap which appears to
have gone up three times? Does it mean that people in Government
have not really picked up the ball that Tony Blair kicked last
summer in climate change terms and perhaps the message has not
sunk in yet that this really means we have to toughen up our act?
Mr Rammell: No, I do not. I think
this is the practical reality of trying to make the EU Emissions
Trading Scheme work. Let us remember what the trading scheme is
about. In the first phase it is about us defining what we think
we can meet in terms of the cap by 2007 and in terms of a reduction
of emissions compared to today in order to make our contribution
towards over overall Kyoto target. It is a national judgment and
in order for it to work and it to be credible it has got to be
realistic, because I think if you just set targets that you know
are not going to be bought into particularly by industry the scheme
is not going to fly. What has happened is that we had a provisional
estimate that we have changed due to legitimate consultation with
industry, I think that was inevitable and we are now in discussions
with the European Commission about that. I think our position
is clear and justifiable and we are hoping to take that process
forward with the European Commission.
Q583 Mr Challen: The position has changed
two or three times. The first time it was set last April it was
714 Mt. The starting point must have been the subject of considerable
negotiations between government and industry. It has changed at
least twice since then but always in the wrong direction. Does
that not suggest that really we are the ones that blink first
when industry says, "No, this is unachievable", that
they just want `business as usual'?
Mr Rammell: The EU Emissions Trading
Scheme is our vehicle for us to work out through that mechanism
what contribution it can make to our overall Kyoto target under
Phase 1. We are exceeding our target on Kyoto Phase 1. We want
to go further than that. I think the notion that this suggests
that we are backtracking on our commitments is not borne out by
the evidence. If we come up with a projection that simply does
not work I think that will harm the momentum we need to move forward
to the second stage and actually to see the EU Emissions Trading
Scheme broadened out internationally, which is what we want to
happen as well.
Mr Derwent: We adopted a methodology
which we made clear in the first consultation exercise and which
depended very much on getting `business as usual', but in fact
it is business with additional measures, planned numbers correct
for each sector of industry. Unsurprisingly, that led to a number
of rounds of discussion with industry during which a number of
sectors claimed that we had got their numbers wrong and after
some extremely long and detailed series of discussions with them
we had to agree that they were right and we were wrong. It was
consistent with the prospectus they had been given as to how their
methodology would work and consistent with the account that we
had given to the Commission of what we were doing and we therefore
changed it up until the point where we and industry were content
that we could agree figures. That has an impact on the total number
of tonnes to be emitted, but as Mr Rammell has said, the total
that we are now proposing is much further below the `business
as usual' position than the numbers which we started off with
when we first put out the NAP numbers. We are therefore still
way in the lead as far as Europe is concerned and for all the
points that I made previously about competitiveness, this is a
new issue, a new set of worries for industry and if they can see
something happening today where they are being treated differently
to their rivals and competitors in other countries they are, quite
understandably, going to be asking for us to make sure that we
have got it right.
Q584 Mr Challen: The experience of the
UK ETS from the evidence we have—and the Public Accounts
Committee did an inquiry on that—is that UK industry has
pocketed about £200 million and this was taxpayers' money.
This was justified on the grounds it is a new scheme, there is
going to be teething problems and it was a fair way of trying
to address how a scheme might work to put some public money into
it. We have been told in this Committee that certain sectors,
as a result of the free allocation of carbon units under the European
schemes, are going to make massive windfall profits out of that
and yet when they come along to say they say, "We can't do
it quite as fast as you say we should do it," and all the
rest of it. Going back to the evidence that the Chairman was citing
from the Cry Wolf report, we are going down the same route.
My fear is that we are using Kyoto as a rather weak bench mark
to judge our slightly tougher target by and Kyoto was negotiated
and it was great that it was, but nearly everybody accepts that
Kyoto does not address the basic problem.
Mr Rammell: I think there are
two issues there, one in terms of the European scheme. There is
a potential issue of profit for the power generators. I think
whether that comes to fruition depends on the way that the market
goes and it is fairly difficult to make those judgments at the
moment. It is certainly something that we are watching very carefully
and if we need to then for Phase 2 of the scheme we will take
account of that and seek to rectify it. This is new, it is important.
If we get the baseline wrong from which the target is projected
then I think we potentially fundamentally undermine the credibility
of the scheme and the support that we need for it. This is not
something that has been around for an awful long time. If we get
it wrong at this stage, given that not only do we want to move
to Phase 2 but we want to broaden out beyond the EU scheme to
see if we can try and get a more international scheme, I think
we would live to regret that, which is why I think we have been
right to say the calculation was originally wrong and we are seeking
an amendment to the calculation.
Q585 Mr Challen: Does that lead you to
anticipate that Phase 2 will be more strenuous and tougher? If
the Germans do not like the idea of including aviation, as has
been muted, would we stick it out and insist on a much tougher
Phase 2?
Mr Rammell: Certainly we are a
strong advocate of aviation emissions coming in at Phase 2. As
I said earlier, we would hope for a Commission decision that we
would push for and seek to influence during our EU Presidency
during the second part of this year. We are working with all our
partners, particularly on this issue of the Germans and the French
to some extent, to try and get a consensus on that issue.
Q586 Mr Challen: Is there a huge gulf
between the various countries or do you anticipate realistically
a consensus developing?
Mr Rammell: Famous last words!
I think there is a possibility of a consensus.
Mr Derwent: I do as well. I think
that this is genuinely a subject where everybody realises that
something needs to be done about aviation. There is a big public
groundswell of concern about the speed with which aviation emissions
are rising, the size that they could reach in only a couple of
decades and now it is a question of debate or methodologies rather
than whether or if. We have been very strong advocates of trading
since well before the EU ETS. You mentioned our UK scheme already.
We think that the EU ETS provides the best solution for dealing
with aviation, which is naturally going to grow and where the
notion of simply stopping it growing is going to be very, very
difficult to accept. Making it pay for the growth through buying
the emissions credits seems a very sensible way forward. There
are a lot of people in Europe who feel likewise. There are others
who are more interested in taxation at the moment. On the basis
of what I have seen and the discussions reported back from Mr
Rammell's Department, it looks as though there is a really good
debate and dialogue going on about this.
Q587 Mr Challen: I went, on behalf of
this Committee, to a conference in the Berlin Embassy last year
which was extremely fruitful and produced some excellent work.
They were all fairly young. The embassy itself is young and also
energy efficient. Let us move on to the linkage between the agenda
of climate change and the poverty of Africa specifically. Do you
think there is sufficient linkage in the Government's mind between
these two things? Yes, they are both classed as our twin priorities.
I have read some speeches recently and I will not mention the
names of the people who have made them, but they do not mention
climate change once. They either focus on one thing or they focus
on the other. Late last year a number of NGOs produced a report
called "Up in Smoke" which showed that it is going to
be very difficult to hit the Millennium Development Goals if climate
change does take this big turn for the worst that we all anticipate.
Do you think that linkage is there or are people working in separate
compartments?
Mr Rammell: I think the linkage
is there and in a sense it is obvious that if the environment
develops due to climate change in the way that we fear it is actually
going to be the poorest people in the poorest countries who will
suffer most, but in terms of protection and adaptation, we in
the West have a lot of the mechanisms in place to be able to do
that. There is a key linkage. Practically, if you look again at
this year under the G8 Presidency, we have got the environment
and energy ministers' meeting on 15 and 16 March and on the 17
and 18 March it is going to be environment and international development
ministers because we very clearly see those linkages. I also think
in the Millennium Development Goals summit in September, which
will not only deal with that but will also deal with the high
level panel report on the future modernisation of the United Nations,
is another motor which can add to the momentum of building up
on this issue and again the Millennium Development Goals clearly
brings in the poverty aspect as well. I do think it is something
that is on our agenda and we are working cooperatively at between
environment and development.
Q588 Mr Challen: Given the Make Poverty
History campaign and indeed the global response to the tsunami
disaster, clearly the phrase environmental equity should be used
more. Is the Government going to do as much in this regard as
it has in terms of the science? Are we going to be really launching
that agenda very positively, more than just a meeting of ministers
but actually doing big communications efforts on this?
Mr Rammell: I think if you look
at the track record and what we have done to our international
aid budget, which has virtually doubled, you will see we are increasing
it significantly as a proportion of our GDP. We are at the leading
edge of the debate within the WTO because fairer trading rules,
however much you increase your aid budget by, can dwarf what you
can give in aid contributions in terms of the benefits to the
developing world and if you look at the efforts as well that we
have made to write off debt from the poorest countries, it is
actually central to our agenda. Whether it is sufficiently central
to the overall international agenda is a different question and
that is again where we are trying to give leadership. The two
priorities we have chosen for the G8 Presidency this year are
climate change and Africa. Africa has been chosen because of its
poverty focus which demonstrates we are trying to give a lead
on it.
Q589 Mr Challen: On the Clean Development
Mechanism, are you getting much feedback about that? We have had
evidence that it is not working as well as it should and that
is probably an understatement. Are you getting feedback on that?
If you are, where is that leading Government thinking in terms
of Kyoto?
Mr Rammell: We are getting feedback
of some concerns that projects historically were not being approved
quickly enough. We have taken up those concerns and tried to beef
up the executive board which is overseeing the assessment and
approval of proposals that come forward. One has now been approved
and we are certainly pushing and hope that many more will go through
because I do think that initiative of getting the developed world
to invest in energy efficiency and other similar projects within
the developing world and getting a credit in return is a very
practical mechanism that can help us take this forward.
Q590 Chairman: Do you have any concerns
about the type of projects which are being invested in under the
Clean Development Mechanism? We have had some evidence that some
of the projects would struggle to be aligned to any sort of normal
definition of sustainable development.
Mr Rammell: I have not seen any
evidence of that.
Mr Derwent: There have been a
number of arguments about the first schemes that have been put
forward, certainly some of the ones that produce savings other
than carbon dioxide, particularly nitrous oxide and some of the
hydrofluoric carbons, in other words some of the more unusual
gases. I think those reflect to a degree the fact that it is probably
easiest to make money out of those schemes on the basis that the
number of global warming units that a major reduction in emissions
that such gases score is really very high and that is part of
the deal. I think we have to accept that, not least as a result
of the very slow progress through the CDM bureaucracy that Mr
Challon was referring to, CDM projects are not for the faint hearted
and it has to be, at least in its early stages, pretty attractive
schemes with some pretty interesting additional revenue potential
from selling the emissions credits which will come to the fore
first. I think that life has been made a little bit more difficult
than it might otherwise have been by the decisions in the making
up of the rule book at CDM. That happened at the Marrakech conference
of the parties. A large number of rules about base lines were
left to be decided on the basis of the first relevant schemes
that came through, which has meant that it has been a slow process.
So I think we are seeing something which is intensely frustrating
but which is one almost unavoidable set of teething problems and
it is not surprising that it is the most financially rewarding
schemes which are being pushed hardest first. I think the degree
of scrutiny that the CDM board and its methodology panel and all
the observing NGOs and countries are applying to these first schemes
should be sufficient to make sure that nothing that is really
inconsistent with the sustainable development principles that
you mentioned does eventually get through.
Q591 Chairman: So you are satisfied that
this is not a case of large companies taking advantage of the
system to make some extra profit?
Mr Derwent: I think they may be
testing the limits of the system in pursuit of maximising their
profit. So far I think the system has grasped those projects which
look as though they need a greater degree of scrutiny and has
shown that it does not mind how much time it takes, which causes
another set of problems, but it is not consistent with the notion
that things are rushing through and that people are making windfall
profits unwatched.
Q592 Chairman: So you are pretty satisfied
with the way it is going?
Mr Derwent: I would not say that
I was satisfied with the CDM processes. I do not think they are
fast enough. I think they are learning on the job with insufficient
resources. We are trying to increase those resources and we are
trying to facilitate the development of base lines which will
see classes of projects being identified and dealt with more speedily
and more effectively in the future.
Q593 Chairman: So you do not think that
there is a structural flaw in the way that the whole thing has
been set up?
Mr Derwent: No.
Q594 Chairman: It can be made to work?
Mr Derwent: Yes, I think so.
Q595 Chairman: Let us just go back quickly
to the National Allocation Plan. Is the situation currently that
you are still threatening legal action against the European Commission?
Mr Rammell: No, I do not think
we have threatened legal action. We are in discussions with the
European Commission. We have received a communication in response
to the amendment to our plan and we are now looking at this and
we are hoping to go back to the Commission to be able to resolve
this.
Q596 Chairman: So reports in the press
that you were threatening legal action were wrong?
Mr Rammell: There are all sorts
of reports I read in the press all the time, as I am sure you
do, that are not necessarily based on fact.
Q597 Chairman: But these were wrong,
were they?
Mr Rammell: As I say, we are in
discussions with the Commission at the moment. There is certainly
no threat at this stage of legal action.
Q598 Chairman: I am afraid we have not
given Valerie Caton a chance to shine this afternoon, but we are
nonetheless grateful to all of you for being here, particularly
you, Minister. We may have some follow-up questions which we may
put into writing about precisely how you deal with these things
internally within the Department. Thank you very much.
Mr Rammell: Thank you very much.
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