Exaamination of Witnesses (Questions 169-179)
DR MARK
AVERY, DR
PAUL JEFFERISS,
DR KEITH
ALLOTT AND
MR PAUL
KING
12 JULY 2006
Q160 Mr Stuart: Do you feel conned
by the Government on climate change?
Dr Allott: "Conned"
is a strong way of putting it, but I would certainly feel there
is a very disappointing mismatch between the rhetoric and the
targets and then the willingness to deliver on those targets.
Q161 Mr Stuart: So you do not feel
conned by the Government, it is just regrettable?
Dr Allott: Short changed is a
very good way of putting it.
Dr Jefferiss: I think their willingness
to take substantive action, as opposed to saying the right things,
is changing too slowly so their actual action always lags behind
their rhetoric and we are in a situation where I think that dynamic
is going to lead us into trouble.
Q162 Mr Stuart: Do you feel your
behaviour will change in the way you deal with Government in the
future in terms of making sure the Government pays the political
price if it fails to deliver its rhetoric on this critical area
which is the most important challenge, apparently, facing mankind?
Do you feel that you have been too gullible? Will you be as credulous
in future? Explore that a little more.
Dr Jefferiss: I will speak for
myself on this. I do not think I have been credulous or gullible.
I think I have been aware of the likelihood of action falling
short of intent for a long time and I have always sought to express
that view to decision-makers, either appointed or political decision-makers,
in the hope that they would accept and recognise and take action
accordingly. I have also recognised the fact that it was not always
as easy to do that as it would appear to be to an outsider, particularly
in a situation where it is right to say there is not sufficient
political pressure from the public to make these decisions relative
to the level of political pressure there is on some other issues.
It is for that reason the RSPB, along with WWF and a number of
other groups have come together to form a coalition called Stop
Climate Chaos, precisely to take the message to the people so
that they can take the message to the Government and hopefully
arrive at a situation where it is not a few voices expressing
rational and logical concern on the inside, but it will be a multitude
of voices expressing concern on the outside as well.
Q163 Mr Stuart: Just to pursue that,
in the light of the previous performance by this Government, Government
ministers and the Prime Minister will be wearing the bands that
you come up with and march ahead before you have got them yourselves.
How do you stop this? Even when you mobilise the people, they
are directed to feel they are simply moving in line with the Government,
which in fact is quietly not delivering on promises which it explicitly
makes at election after election in the garnering of votes. I
wonder, how you would tackle that?
Mr King: I think at the end of
the day we have to judge the Government on its actions and on
the outcomes which flow from that. I think our first thoughts
about the Energy Review published yesterday were that there is
a lot of good sense in the document. There are lots of the right
directions and the right paths being pursued. The biggest issue
we have is the sense of urgency with which they are being pursued.
Speaking on behalf of the WWF, we would always pursue a constructive
approach. We are not in the position of issuing idle threats of
behaving differently, but of course inevitably we are going to
get more and more impatient if things are not done with the sense
of urgency they require and while we absolutely are members of
the Stop Climate Chaos coalition, committed to creating yet more
political space through public participation and action in this
area, I do think we have to look at that in the context, as I
said before, where actually right now we have unprecedented cross-party
support for action in this area and a high degree of awareness
in the public. It is not as high as it will be in the future,
but it is higher than it has ever been before, and that is why
I think it is so disappointing. Obviously we will lose patience
at times. One example of that for WWF was that we participated
very patiently and constructively, we hope, in respect of some
of the work on sustainable homes and we reached a point last year
where we felt we needed to change tack slightly.
Q164 Mr Hurd: A quick question on
Stop Climate Chaos, which I imagine is modelled on Make Poverty
History as a campaign to engage people with a specific issue.
Are you in a position to quantify success to date? How would you
benchmark success in terms of that coalition?
Dr Jefferiss: It has only been
formally in existence for just over a year, so I think it is a
little bit early to tell. We have only had so far a couple of
events, although we have another major event planned for 4 November.
It is not yet a huge movement, but I think it is successful in
so far as first of all it has attracted more and more member organisations
from a wider and wider spectrum of interests which now include
women's groups, faith groups, development groups, environment
groups, student groups, trades unions groups, and so on. So it
is a very broad church of interest now and each of our events
has attracted progressively more media coverage, attendance, and
so on, and we are hopeful that the one in November will attract
more even than we have attracted so far. So I think we are moving
in the right direction. One specific thing I would say is that
part of Stop Climate Chaos's activities we have asked individual
members of organisations to make personal pledges, which will
be delivered to the Prime Minister to demonstrate that individual
citizens are prepared to do things, and the RSPB alone has collected
over 50,000 such pledges. It is not 50 million, but it is a significant
number of people.
Q165 Mr Hurd: WWF have the same perspective?
Mr King: Absolutely, yes, particularly
the point about the breadth of the membership organisations now
which has really taken this issue to a different level of concern,
I think.
Dr Avery: What has been said is
absolutely true, but we would have to recognise that we face the
same problem the Government does in getting our members and the
public totally engaged with the climate being a big problem and
our two organisations with the Stop Climate Chaos coalition, are
working hard at trying to bring those messages to a wider and
wider range of people. But we cannot say that everybody walking
past here on the street thinks the same as we do about this issue,
and that is clearly one of the things which means that Government
does not actually live up to what it says it is going to do—because
there is not enough understanding or pressure on them from outside.
So, we are trying to work at either end, to nag Government and
help Government, but bring people along as well.
Q166 Dr Turner: As I understand it,
both bodies agree that one of the only ways the Government can
rescue the 20% target by 2010 if it wants to would be in fact
to increase the cap for phase 2 of the ETS by rather more than
8 million tonnes. Your figure is 11.2. Are there any other possible
strategies for quick wins which might be employed to try and revive
the 20% that you can think of?
Dr Allott: I think it is important
to understand the rationale for that position. We came at this
proposed cap, which is essentially a cap of just over 60 million
tonnes, for two complementary reasons, one of them being that
that would fill the gap left in the Climate Change Programme on
its own. Secondly, it would also ensure that the sectors covered
by the Emissions Trading Scheme were actually pulling their weight
in terms of delivery of the 20% target. In 2000 those sectors
accounted for roughly 46% of the UK's emissions. The cap we propose
for 2010 would also mean they were keeping the same share of the
UK's emissions. That seems to us to be a fair assessment, especially
given the abatement potential from those sectors and the fact
that we are talking about a limited number of point sources, so
we can start to achieve some significant reductions quite quickly,
which is harder to achieve in wider, diffuse sectors. That is
not that we should not try with transport and housing, but it
is harder to turn around those sectors very quickly.
Dr Jefferiss: There are three
possible areas where I think some significant difference could
be made in the short-term, although each of them would have ramifications
which would need to be thought through. One would be the introduction
immediately of a more ambitious energy efficiency commitment.
That could be done relatively quickly and ought to have a relatively
fast effect. Another possibility is some form of direct support
or larger direct support for offshore wind power. I think it is
still possible to rescue some of the round two projects, which
are of significant scale, to enable them to operate potentially
within the 2010 timeframe. I think it would be possible to re-invigorate
the Fuel Duty Escalator.
Q167 Dr Turner: If you had the 11.2
million tonnes target, just out of interest have you worked out
what the implications would be for electricity prices?
Dr Allott: A very important point
to realise on electricity prices is that there is no direct correlation,
despite what the CBI may imply in many of its public comments.
There is no direct correlation between the UK cap and the price
rise in electricity, and the impact on electricity prices is determined
by the carbon price. The carbon price is determined by a whole
range of factors, including the overall allocation across the
EU, but also including the availability of credits through the
clean development mechanism and also including just general issues
to do with market perceptions. So there is not a direct linear
relationship between the decision to increase the cap by a certain
amount and a knock-on increase in electricity prices.
Mr King: If I could just add to
that, despite the protestations of the CBI, I think it is worth
reflecting again on the fact that during the first phase what
we have actually seen, as opposed to this having already a punitive
effect on the manufacturing sector, is that actually emissions
have come in at around 12% less than the allocation, and in the
case of the power sector these companies have experienced windfall
profits. So quite apart from the suggestion that we were going
to refuel the pain of this cap, quite the opposite has been seen
to be the case.
Dr Jefferiss: I think it is important
to stress that the overwhelming majority of price rises in electricity
have come from the increase in the underlying price of oil and
gas rather than anything else, and certainly the ETS has not drive
price rises to anything like that extent. The second thing to
say is that the reason the electricity companies have made windfall
profits is that they are able to apply the marginal cost increase
which compliance with the ETS requires across the whole of their
supply base. That is how business works on marginal cost pricing,
and they are all able to do that because electricity is not an
internationally traded commodity, therefore they are all in the
same boat, so they can all raise their prices in that way. They
are able to make much larger profits on the back of marginal cost
increases than they would have been able to do if they had been
internationally traded. In other words, there is no inherent need
for the price to rise, it is just the consequence of the market
system.
Q168 Dr Turner: As you rightly point
out, the CBI do squeal a bit and one of their squeals is that
they think too much of the brunt of the effort falls on industry.
They think the Government should press harder on other sectors
to deliver rather than hitting industry through the ETS. What
is your view of that?
Dr Jefferiss: I think it is absolutely
the case that more effort does need to be put into both the domestic
sector and the transport sector, but it is absolutely wrong, I
think, on the basis of empirical evidence to suggest that British
industry, except in a few isolated cases, is likely to suffer
particularly from the effects of the ETS. The only industry likely
to suffer significantly is aluminium, to a lesser extent steel,
and to a lesser extent concrete, those industries which are electricity-intensive,
which take on the indirect effects of price increases in the electricity
sector, but in no cases (with the exception of aluminium) is it
likely to have a significant effect. One point I would make is
that whatever the allocation a government is going to make, I
think it should be incumbent upon that government to undertake
a proper analysis of what the competitiveness impacts of the allocation
are going to be, and for neither phase one nor phase two of the
ETS did the UK Government itself undertake that analysis. So they
were very susceptible to the volume of lobbying from all sides
and it was only the Carbon Trust in phase one and phase two which
produced a credible analysis of the likely competitiveness impacts,
which in the case of phase one proved to be almost completely
accurate in its prediction that competitiveness would not be an
issue in most cases.
Q169 Dr Turner: Do you think that
the Government's expectation that electricity generation will
continue to bear the burden of ETS is just, and do you think it
is sustainable? Likewise—and this is something I find it
hard to get my head around—the Government claims to insulate
internationally competitive sectors within the ETS from the burden
of carbon reduction. Do you have any comments on that, because
(a) I find it difficult to see how you can be serious about carbon
reduction and yet protect what is said to be any particular sector
of industry, and (b) why should we not be hitting the electricity
generation sector?
Dr Allott: I think the truth is
that all sectors of the economy have to contribute to delivering
what ultimately will be very significant reductions in the nation's
emissions. No sector can afford to be exempt. In terms of the
allocation for the ETS, the policy all along has been for phase
one, and now phase two, to give the manufacturing industry a business
as usual allocation based on the projections. We have already
touched upon the fact that the projections themselves are a moving
target and in both phase one and phase two allocations it has
been always revised in an upwards direction, partly because of
the over-optimism in the projection process and partly as a result
of lobbying by industry, which has a vested interest in increasing
its own business as usual projections. The reality is that when
you look at the numbers the allocation for phase two means that
manufacturing industry under the ETS, which is a very significant
part of the economy and the economy's emissions, is being allowed
to increase its CO2 emissions by about 19% over the
course of this decade because they are being allowed to increase
their emissions according to these business as usual forecasts.
In the context that we are meant to be reducing our national emissions
by at least 60% over the next 45 years and that we are badly off
track for our carbon targets, it seems very hard to match that
up. Having said that, I think it is right that in setting a tight
cap into the ETS most of the effort should fall on the power sector.
The power sector has the greatest abatement potential and it is
the most insulated from international competition, but I think
it is culturally very bad for the manufacturing industry to receive
a business as usual allocation. This creates the sense that it
is a compliance culture. All they have to do is make sure their
emissions come in below the allocation and that is all they have
to worry about, whereas the Trading Scheme is meant to be triggering
changes in behaviour and factoring the carbon price into decisions.
So until you get out of that compliance, business as usual mentality,
you are never going to change any behaviour in big business.
Q170 Dr Turner: Yes, in fact if you
extrapolate that trend indefinitely, if you are going to protect
manufacturing industry like that, everyone else is going to have
to save 120% and it just will not work.
Dr Allott: One final point on
that also is that experience shows us from 2005, as Paul mentioned,
the manufacturing industry's emissions in the UK were actually
12% below the supposed business as usual allocation in that year.
In other words, that is the first bit of empirical evidence showing
that the emissions forecasts were vastly over-inflated in the
UK, as in the rest of Europe.
Dr Jefferiss: I think it is sensible
in the short-term to place the emphasis on the power sector for
the reasons Keith has stated, but given that eventually all sectors
are going to have to bear some of the burden for the reasons you
suggested, I think it is regrettable that signals are not being
given now to the other sectors that eventually they will have
to bear part of this burden, because I think they must or the
scheme will not deliver.
Q171 Mr Hurd: Let us look a little
longer term on the European Emissions Trading Scheme. First of
all, are you persuaded that this is the most important policy
instrument to help us counter the threat? Should this be the central
focus of policy?
Dr Allott: It is a central focus,
but it should not be the only focus at all. For instance, in the
electricity sector it will have a vital role in influencing the
carbon intensity of electricity, but in terms of influencing the
total amount of electricity, the total demand for electricity,
it is a very blunt instrument. We need a whole suite of complementary
policies, including the Renewables Obligation, the power sector
and other things as well, but the ETS must be a the heart of all
that.
Q172 Mr Hurd: What is the single
most important thing the European partners could do together to
change the culture from what you call the compliance culture to
one which we might call an incentive culture?
Dr Allott: We need to move towards
firstly a more rigorous and harmonised approach to allocation,
preferably at an EU-wide level, which would get us away from this
race to the bottom mentality, between Member States and between
sectors within Member States, and also allied with that we would
like to see it moving towards 100% auctioning of allowances, which
we think would maximise both the economic and the environmental
efficiency of the scheme and would really mean that business internalises
the cost of carbon and factors it into everything which it does.
Dr Jefferiss: We would agree with
all of that.
Q173 Mr Hurd: In terms of sectors
to be included and the phasing in of that, do you have a strong
view on what is really important there?
Dr Allott: Our view is that the
ETS at the moment is going through quite a few teething troubles
and it is very important that it beds down, and it is a scheme
which in its fundamental design is frankly a scheme for the big
boys. We are slightly concerned about a rush to lump in lots of
other sectors outside heavy industry. Aviation is clearly progressing.
We think that that is okay as far as it goes, although we are
concerned that it is being supported by the aviation industry
on the grounds that it is a licence to them to carry on business
as usual and absorbing what for them is quite a small increase
in terms of the carbon price and the impact on ticket fares. They
are viewing it as a "Get out of jail free" card and
we do not think it should be seen in that light. In terms of extending
the ETS to surface transport, which the UK Government is proposing,
we are rather nervous of that. We do not really see the rationale
for it. Our understanding is that the idea would be to apply a
cap to the fuel suppliers, but given that the fuel suppliers have
no direct influence over the choice of vehicle or how those vehicles
are driven, it would essentially just be an indirect and frankly
rather small tax and would crowd out the political space for much
more effective targeted measures to influence transport policy
and promote more efficient vehicles.
Dr Jefferiss: I think we would
broadly agree with that, although I think for more or less pragmatic
reasons we would be a bit more supportive of the inclusion of
other sectors, particularly aviation, and possibly with some careful
thought surface transport as well. I say for pragmatic reasons
because while we do not necessarily think that would be the best
option either for the welfare of the ETS or for those sectors,
if the better options are not going to be pursued for those sectors
for political reasons, then we would rather see them included
in the ETS than have nothing done to them at all.
Q174 Mr Hurd: The better options
would be focused on fiscal measures?
Dr Jefferiss: For example, in
transport you could have a well to tank carbon tax, something
like that. For aviation, there are various sorts of emission charges
which you could think of. So there is a number of fiscal instruments
you could work through, which would not necessarily be associated
with the ETS. But the problem with conceding that we should not
let the best be the enemy of the good is that as soon as you concede
that, then that is what happens, rather than the best.
Q175 Mr Hurd: Finally, in the Energy
Review the Government spoke vaguely about the need to set a predictable
long-term price for carbon and encourage us to look beyond the
second phase of the emissions structure. Do you have any sense
of what they are thinking about there?
Dr Jefferiss: What that actually
means?
Q176 Mr Hurd: Is it a smokescreen
for a substitute for nuclear?
Dr Jefferiss: It might be. That
is certainly one possible interpretation. One possibility is that
it means the UK Government will aggressively champion within the
EU a proper harmonised allocation of a stringent cap of such a
kind that drives a proper carbon price that is reasonably stable
and reasonably significant. That would be, on balance, a good
thing, but if the UK does not do that, or if the UK does do that
and a stable carbon price does not emerge anyway, then it could
mean that the Government is planning at some point in the future
to consider somehow underwriting the price of carbon, effectively
a subsidy, which I think would be regrettable.
Q177 Mr Hurd: Finally, just in terms
of the attitude of other European countries, the first phase was
obviously disappointing. There is a sense that the second phase
may be more stringent across the EU. Is that a view you share,
or are other countries really lagging behind?
Dr Allott: Our initial information
on the allocations which have been discussed is not terribly encouraging,
but I think there is an awful lot to play for over the next few
months. This is one reason actually why we were very keen that
the UK Government should go as far as it possibly could in its
own allocation plan, because frankly the Commission has got a
crucial role as the gatekeeper in terms of holding other Member
States to account against their Kyoto targets through this allocation
plan assessment process. The Commission may be technically strong
and its arguments may be technically robust, but politically it
may be very weak and it needs as much support as it can get politically
from key Member States, and the more the UK goes out of its way
to show that it is serious to meet its domestic target through
setting a tough cap, the stronger its position will be in supporting
the Commission. We certainly think the UK is in quite a good place
to do that, but we think it could have really helped the process
more.
Mr Hurd: Thank you.
Q178 Chairman: You mentioned options
and I think it is perhaps a better and more desirable way of allocation.
Why do you think the Government has been so timid in only moving
a small proportion through the option process?
Dr Allott: The Directive means
that the maximum amount of auctioning for phase two is 10%. The
Government has gone for 7% out of a consultation range of 2-10%,
so on the first take it is a classic Whitehall something in the
middle. We also understand the reason why the Government did not
go for the full 10% was actually as a sop to the power generators
for dropping the court case over the phase one allocation, over
the disputed 20 million tonnes of CO2. When the Government
decided to drop any further legal action against the Commission,
it issued a statement which included something along the lines
of "This decision will be taken into account in the consideration
of the phase two allocation process." My understanding is
that the way that has been taken into account is to auction only
7% rather than 10%. That is actually quite a lot of money in terms
of how much carbon apparently has been saved in terms of having
to buy their 3% of allowances.
Q179 Chairman: Given that 10% itself
is a pretty small proportion, only to go for less than three-quarters
of what you could go for looks timid, does it not?
Dr Jefferiss: It does, and I think
it is probably true to say that the Government is beginning to
recognise that while there are going to be costs to incumbents
if we introduce auctioning to a higher degree, or to the highest
degree possible, actually over the longer term from the point
of view of the system it is actually the most economically efficient
way of doing things. Besides being economically efficient in allocating
resources appropriately, it also provides a pot of money which
you can then use to do all sorts of reinforcing measures to support
further carbon abatement. So I think there is a recognition there,
but I think it gets back to the question of stringent analysis
versus volume of lobbying. Obviously incumbents, for whom there
would have been a cost from auctioning, lobbied heavily generally
speaking against auctioning on the basis that it would cost them
money and therefore have competitiveness impacts, but I think
that is part of the calculus which needs to be done before making
decisions about what level of auctioning actually to go for.
Dr Allott: In terms of the level
of auctioning we are talking about, the auctioning in phase two
will come from the power industry. The likely cost of the auction
is considerably less than the windfall profits which the power
industry is making a the moment out of the scheme.
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