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Let me respond to the questions. The hon. Gentleman made an allegation about Germany, but he must be careful—I think that his information came from the BBC website. He said that the German reduction was 0.6 per cent. That is wrong and it is important to correct it. The phase 1 cap in Germany was 499 million tonnes. The proposed second phase cap constitutes a reduction of 17 million tonnes and then a further reduction of 8 million tonnes arising
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from emissions in 2005. The Commission then said that the German Government will have to get down to 462 million tonnes. The Germans have already committed to a 3 per cent. to 5 per cent. cut and the Commission has suggested going further. I caution the hon. Gentleman to be careful about the 0.6 per cent. figure. New industries are included, but that does not invalidate the work being done. None the less, what I said in my statement holds true, and we are encouraging the Commission to take a robust approach with every single member state.

The hon. Gentleman asked about auctioning, but I believe that he was a little confused. As I mentioned in my statement, the auctioning figure is 7 per cent. The hon. Gentleman rather churlishly said that it was some evidence of progress, but given that the maximum was 10 and that the current level is zero, 7 per cent. is a pretty good whack at making the auctioning system work.

The hon. Gentleman also asked where the benefits will go. As I said in my statement, I view the environmental transformation fund as critical for non-nuclear carbon technologies of a range of different kinds. He made a perfectly valid point about ensuring that it is properly integrated with the excellent work of the Carbon Trust and other organisations. As I said, we will set out the details in due course in the spending review and we will certainly ensure that there is proper integration.

The hon. Gentleman then asked about compensation for the most internationally exposed sectors. As I tried to explain, our approach to the whole ETS system is that we allocate to internationally competing sectors on a business as usual basis. It is precisely because of the insulation of the electricity supply sector from international competition and the liberalised nature of the market, which is intended to drive down prices, that we have said that the burden of carbon reduction should be borne by that sector rather than by the internationally competitive sector. The compensation issue does not therefore arise.

Annual reporting is another issue. As the hon. Gentleman knows, my predecessor made a commitment to start it next year and then carry it out annually, so I can confirm that point. He legitimately asked about aviation. I had thought that the issues were complicated enough without getting into that matter, but it is very much on the table and the Government are fully committed to including aviation in the scheme. The Commission has made it clear that it wants to come forward by the end of the year with proposals for how to include the aviation sector in the scheme. It certainly represents a good step forward.

Mr. Barry Sheerman (Huddersfield) (Lab/Co-op): Does my right hon. Friend agree that, although it is a hideously complex area, it must be translated for general public as very good news for the environment? For anyone deeply concerned about global warming, it is indeed good news. Does the Secretary of State agree that seeing evidence of the DTI and DEFRA working together is also good news? Many in the environmental field hope that it means that they will work well together in other difficult areas such as the waste electrical and electronic equipment directive. Will he assure me that all this will
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not mean a lack of competitive equality between countries like ours that are leading and other countries that are lagging behind?

David Miliband: I can reassure my hon. Friend on all three points. It is good news for the environment and also for the economy. The opportunities for business development in renewables and other low carbon technologies are significant. We must not forget the importance of our manufacturing sector, but we also have a growing environmental technology sector. At the last count, I think that it was worth about 400,000 jobs. I certainly concur with my hon. Friend about that. As for co-operation with the DTI, I can assure him that we fully recognise how vital it is and that the whole Government are committed to it. The energy review, as well as my statement, will provide further evidence of that close co-operation.

Chris Huhne (Eastleigh) (LD): I thank the Secretary of State for giving us prior notice of his statement. There is indeed a cross-party consensus on the principle of the emissions trading scheme, but it seems from today’s statement that there is a danger that a good idea will be undermined by poor implementation—not just here, I hasten to add, but in other EU countries, too. Only one EU country, Germany, seems likely to meet the legal deadline for the submission of its national allocation plan. Why is it that here in Britain, where the Government affect to believe that climate change is the greatest issue facing mankind—I certainly believe that it is—we are unable to meet the deadline for our own national allocation plan?

By raising the UK projection of business as usual emissions in 2008 to 1.1 million tonnes of carbon covered by the emissions trading scheme, the Secretary of State is implicitly weakening our commitment to cuts in emissions. Does not that raise the serious question of whether a more objective baseline in the past would have been more sensible than the business-as-usual projections, which have the disadvantage from country to country of being based on far-out projections, which are subject to considerable doubt about the assumptions.

Should not there be a more transparent and open process of peer review for each member state, perhaps with a voting procedure for approval, to ensure that countries make equal sacrifices? Are the reductions that our businesses are being asked to make in line with those elsewhere in the European Union? Are the reductions by business as great or greater than those implied for households and individuals by our Kyoto targets? Fairness, not only between our businesses and other businesses but between our businesses and households, is also important. The Secretary of State said that he had spoken this morning to Commissioner Dimas. Did he receive assurances about those matters?

The statement is silent on the scope of phase 2 and I welcome the Secretary of State’s reassurance to the hon. Member for East Surrey (Mr. Ainsworth) that the Government intend to continue to press for the inclusion of aviation. I should be grateful to hear the Secretary of State’s view on the inclusion of surface transport, especially freight and fleet transport, in the emissions trading scheme.

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We welcome the commitment to auctioning. However, why did the Secretary of State select 7 per cent. rather than 6 per cent., 8 per cent., 9 per cent. or 9.5 per cent. instead of the maximum 10 per cent., which is a modest figure? It is also notable that the entire auctioning element will fall on the electricity supply sector, as it is sheltered from trade, as the Secretary of State explained.

We all understand that there is uncertainty and I note the presence on the Front Bench of the Financial Secretary, representing the Treasury’s interest. I suspect that the Government have made projections—it would be appropriate for the Secretary of State to share them with us. Where will the revenue from auctioning accrue? What is his view of, for example, the proposal from some quarters for a revenue-neutral scheme? Does he believe that that might make the proposal more palatable and less prone to distort competition?

I would be grateful to know whether the Secretary of State or any of his colleagues who are involved in the process have had discussions with representatives of the nuclear industry on the matter. Will the likely incentives from the projection of the burden of auctioning on the electricity supply industry be enough to persuade nuclear generators to build new nuclear without further douceurs from the public purse or electricity consumers through higher tariffs?

David Miliband: Only someone with three PhDs and a background in journalism could read the statement and believe that it represents a weakening of our environmental commitment, as the hon. Gentleman alleged. Let me try to cut through the rhetoric—or perhaps the latest phase in his leadership election campaign—

Chris Huhne: What about yours?

David Miliband: We have a very good leader and we are happy with the next one, who is on his way. We are in a much stronger position than the hon. Gentleman.

Mr. Deputy Speaker (Sir Michael Lord): Order. It would perhaps help if we could stick to the questions.

David Miliband: I am grateful for your help, Mr. Deputy Speaker, in keeping me on the straight and narrow.

The hon. Gentleman asked about assurances from Commissioner Dimas. I refer him to the commissioner’s public statements in his Financial Times article and his speech to the European Parliament. He repeated those assurances today.

The hon. Gentleman asked about the figure of 7 per cent. and why it was not 8 per cent. or 6 per cent. I am terribly sorry that the hon. Member for Bexhill and Battle (Gregory Barker) finds the subject dull—that was a large yawn. The continuing debate about the extra 20 million tonnes that we wanted as the cap in the first phase weighed with us in making the decision about the figure. The hon. Member for Eastleigh (Chris Huhne) is right to say that, in the end, there is maths and there is judgment. However, the issue that I mentioned was a factor in not going for the full 10 per cent. and opting for 7 per cent.

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The hon. Gentleman asked what proportion of electricity supply industry funds would be allocated. I do not have the precise figure but I shall write to him later today. He asked about projected revenue and suggested that there were secret Government projections. Nothing secret or governmental is necessary—there are plenty of public projections. They depend on the price of carbon. If there is €15 a tonne price of carbon, that is worth £150 million.

Chris Huhne: What are the assumptions?

David Miliband: There are no assumptions built in, but we know that the market assumptions are based on a carbon price of between €15 and €20. A price of €15 a tonne would raise approximately £150 million from a 7 per cent. auction.

The hon. Gentleman asked about the scale and scope of the fund. As I said in the statement, that will be made clear at the time of the spending review. He asked about the nuclear industry—I have not had discussions with it about the matter. His final point about douceurs will have to wait until I consult my dictionary.

Several hon. Members rose—

Mr. Deputy Speaker: Order. I will endeavour to call as many hon. Members as possible, but could we now have brisk questions and answers?

Colin Challen (Morley and Rothwell) (Lab): I welcome my right hon. Friend’s statement. It is a truism that anyone who tries to be a leader or go first will be the first to be criticised. That was the case for the United Kingdom in the first phase of the scheme. All the other nations in the EU that followed us last time escaped criticism. I am pleased that that fact has now been recognised.

Will my right hon. Friend hold discussions with electricity suppliers to mitigate the increases in phase 2 of 0.5 per cent. for domestic customers, given that the suppliers made windfall profits in phase 1? They should use them to mitigate the costs on consumers in the second phase.

David Miliband: I think that I am right in saying that the electricity suppliers took advantage of the fact that the industry is vertically integrated to cushion some of the impact on domestic consumers in phase 1. However, I hear what my hon. Friend says and I am sure that the electricity suppliers do, too.

Mr. Michael Jack (Fylde) (Con): I welcome the statement, but I am sure that the Secretary of State knows that, under the first phase of emissions trading, the clean development mechanism generated many projects that offered credits. That, together with some of the longer-term projections of falling energy prices over the second phase, calls into question the price of carbon and thus companies’ ability to fund the necessary investment to reduce their emissions. What steps can be taken at a European level to try to safeguard the necessary flow of investment to achieve the carbon reductions that are essential if ETS 2 is to be successful?

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David Miliband: The first and most urgent priority is to ensure that the signal is given to business that the ETS is here to stay and that it will be stable and long term. That is one of the reasons why I stressed the 2050 goal. Business wants a long-term path. When the corporate leaders group met the Prime Minister and me, it emphasised, perhaps above everything, that it wants to know about the long-term commitment from the Government and the rest of Europe. In the next few months, under the Finnish presidency, we shall work to ensure the commitment to the ETS and therefore to business.

Joan Ruddock (Lewisham, Deptford) (Lab): I congratulate my right hon. Friend on the key elements of the statement—the 8 million tonnes, the auction and the environmental transformation fund. They are essential to our climate change programme.

My right hon. Friend referred to the corporate leaders group on climate change, which will be delighted with the announcement. He has united keen environmentalists such as me and leading members of industry. Will he meet the group again to discuss its proposals for hydrogen storage and wave and tidal electricity generation technologies, which could make us a world leader? I believe—and I think that the group does—that they are essential for dealing with the problems that the electricity generating industry faces.

David Miliband: My hon. Friend has an incredibly distinguished record in this field and I am grateful for her kind comments. I can certainly confirm that we are working with the corporate leaders group to establish a work programme to further our discussions. Her point about non-mature industries, such as tidal, was important; when we talk about a level playing field for different forms of renewable energy we must recognise that some forms of renewable energy are more developed than others, and make sure that they all have every chance to develop to the full.

Sir Nicholas Winterton (Macclesfield) (Con): The Secretary of State talked about the corporate leaders group. Could he indicate more accurately how much input there was from industry and commerce in the decisions that the Government have taken? As he may know, I am deeply concerned about the position of the UK manufacturing industry, because we are competing with countries that are not in the least interested in carbon emissions—China and India, for instance, which are our major competitors. How much input was there from industry and how concern is there about the impact of the changes on manufacturing industry and its competitiveness?

David Miliband: I can strongly assure the hon. Gentleman that the consultation in which the Government have been engaged since March has had wide and deep industry involvement. I shall write to him with the exact number of responses that we have received. The hon. Gentleman made some important points about manufacturing; I certainly understand his point about the tough nature of the global competitive market in which manufacturers are working, but I hope that he is reassured by two things in my statement. First, I confirmed that the Government will continue to insulate internationally competitive sectors within the ETS from the burden of carbon reduction—although I emphasise that the extent to which they can reduce
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their energy use will save them a lot of money, especially at a time of high energy prices. The second aspect of my statement that is relevant to the hon. Gentleman’s legitimate concern about the role of manufacturing industry is that our calculations show a 1 per cent. base case impact on electricity prices of the decision, over the existing cap. One can live on 1 per cent. so one must not dismiss it as being the same as nothing, but given that it is 1 per cent. over the five-year period and not an annual increase, I think that we have struck the right balance both to grow the economy and protect the environment.

Mr. Michael Clapham (Barnsley, West and Penistone) (Lab): In my right hon. Friend’s statement, he said that as we build on the emissions trading scheme we shall create opportunities in the UK for investment in low-carbon technologies. Is he aware that Mitsui Babcock is producing supercritical boilers that are being fitted in China but not in this country? Will he discuss with his hon. Friend the Minister for Energy, who is sitting beside him, what we might do to encourage British generators to invest in that new technology?

David Miliband: My hon. Friend makes a profoundly important point. I think that I am right in saying that there has been an 85 per cent. shift in the UK boiler market towards condensing boilers, which is obviously good for the environment, but I realise that his point was about their production. I shall certainly talk to my hon. Friend the Minister for Energy about that and one or both of us will write to him about what the Government are doing in that regard.

Peter Luff (Mid-Worcestershire) (Con): In the Sellar and Yeatman “1066 and All That” sense there is no doubt that the ETS is definitely “a Good Thing”, but it operates over quite short time scales, so can the Secretary of State reassure me that he is talking to his colleagues in the Department of Trade and Industry about how Britain can provide longer time frames for the mechanisms whereby carbon allocations should be set, to enable investors in low-carbon generating techniques the confidence to take informed investment decisions?

David Miliband: Yes, I can, and the work of the Finnish presidency in finalising the European Council’s long-term view about the role of the ETS will be vital.

David Taylor (North-West Leicestershire) (Lab/Co-op): I congratulate my right hon. Friend on his statement and welcome the announcement of the environmental transformation fund. I am optimistic that it will indeed catalyse greater investment in non-nuclear, low-carbon technologies, energy efficiency and renewable energy. On the basis of the Select Committee inquiry into biofuels, which looked at related areas in terms of investment incentives for business, it seems clear that my right hon. Friend may need to ensure that the Chancellor of the Exchequer in 2008—who may be a different person from now—opens his cheque book wider than he did for other incentive schemes. Does my right hon. Friend the Secretary of State recognise that generous incentives will be needed to get business to invest, for the reasons given by the hon. Member for Mid-Worcestershire (Peter Luff)?

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