Examination of
Witness (Questions 200-219)
JOHN HEALEY
MP
9 FEBRUARY 2006
Q200 Colin Challen: If the Stern Review
comes out with some serious proposals for increased environmental
taxation, perhaps recognising the very serious nature of this
challenge, would we be prepared to take that on even if it were
unpopular with the public or the CBI?
John Healey: It is not Stern's
remit to start prescribing a set of policies that are appropriate
for the UK. The importance of the review that we have commissioned
from Nick Stern and his team that report to the Chancellor and
the Prime Minister by the autumn of this year, is essentially
to examine the economics of global climate change, to look in
particular at the analysis and the dynamic of precisely what we
discussed a moment ago together in the Committee here between
growth and emissions, growth and the impact of climate change,
including the costs and benefits of potential measures that might
be there and the costs and benefits of not taking some of the
steps that may be required. Stern, when he published an interim
update, at the end of last month, of the work of the review, laid
very heavy stress, quite rightly, on the fact that, as we discussed
a moment ago in the Committee, this is global in nature and must
be, in the end, global in terms of the solutions and agreements
that we are able to forge to meet it.
Q201 Colin Challen: We can wait forever
for global agreements, can we not. It is 1948 since the last aviation
international agreement was signed, and we are struggling, I think,
to convince some to stay on track in terms of Kyoto or even to
get involved in that international level of negotiations. We have
to ask ourselves what Stern actually provides are some indicators
of how seriously we domestically have to reshape our approach
to it. We are slipping on our 20% target for 2010 in carbon reductions.
Surely that may mean having to take bold, radical and possibly
unpopular action. Is that something the Treasury is willing to
do?
John Healey: If I may say so,
I think you are missing the essential point and importance of
Stern. It is not about the UK policy framework, it is not about
the short-term through to 2010 and whether we meet our domestic
target on 2010. It is about the international challenge, it is
about the medium and long-term and, as I said earlier to the Committee,
the UK emissions are around 2% of world emissions. There is no
benefit to the UK in aggressively being able to reduce our own
emissions in the UK (a) if we suffer serious economic disadvantage
or social problems as a result and (b) if the rest of the world,
producing the 98% of the emissions, does not take similar steps.
Because these are global problems with a global impact, we get
none of the environmental gain that we need to see. I am less
pessimistic. I do not underestimate how complex and sometimes
painstaking progress on this sort of international stage can be.
I am less pessimistic for two reasons. First of all, if you look
at the significant shift that there has been in the commitments
and the consensus of view on the importance of debt and development,
particularly in Africa, over the last seven or eight years, and,
I am proud to say, led not entirely but very much led by our Government,
then it does demonstrate that you can change minds. There has
been strong support from church, voluntary groups and others as
well, but you can change minds, you can change government policies
and you can get in place the sort of co-ordinated action that
is required to deal with such problems. The second reason I am
less pessimistic than you, Mr Challen, is that I really do see
some of the outcome of what we have been able to achieve over
the last year, in leading with the Presidency the G8 and then
the EU, as significant steps. At Gleneagles in July we had, for
the first time, a real shift in the acceptance of the United States
that the climate change problem exists and steps need to be taken
to deal with it. We had around that Gleneagles Summit the beginning
of detailed discussions with 20 of the most serious emitting countries
round the world. In the UK we are leading the joint venture on
behalf of the European Union with China in exploring and trying
to develop carbon capture and storage, and in Montreal, just before
Christmas, I think, again, a really important development where
you saw the realignment of countries like China and India, accepting,
for the first time, that they needed to be part of some international
arrangements. You saw at Montreal also an international acceptance
that there must be arrangements beyond the Kyoto period. I think
the climate of concern is getting stronger, the climate of opinion
is beginning to change and really the challenge for us as a government
and as politicians of all parties concerned about this is how
can we help force the pace of that on the one hand and, on the
other, how can we do what we need to do in the UK to make sure
that our performance and commitment to climate change measures
up with the best.
Q202 Ms Barlow: The Pre-Budget Report
made quite a lot of the Gleneagles' decision to have a communique«
and an action plan. Can you tell me if there is going to be any
extra money or new taxes as a result of this action plan?
John Healey: I think we are some
way off getting to the point of being able to, first of all, firm
up how the action plan will be put into practice, and the Bill,
if you like, will be there for governments across the board to
support it. The nature of the discussions in Moscow, in part,
will be about how this energy investment framework that the World
Bank will develop will work, how substantial should be the financial
support that is behind it. It will be decisions for governments
like ours, as a result of that, to decide what sort of commitment
we make to get it off the ground and make sure that it works as
well as it can. In many ways, I think the parallels are quite
similar to the process by which international pressure, then international
understanding and then individual country commitment went with
the right offer of third world debt, the increase in aid to developing
countries and also some of the specific the programmes that would
be necessary to try and tackle HIV and AIDS, particularly in Africa.
In each of those cases, it was, first of all, international argument
and agreement, backed up by decisions from our Government and
others, about the sort of financial commitment that we were prepared
to make. I think the development of the Gleneagles agreement and
the Montreal work will follow a similar pattern. We are not clear
enough yet to be certain about the financial commitments that
we will need and we will want to make, but that will come.
Q203 Ms Barlow: It also talks about getting
together with the Norwegian Government, particularly on carbon
capture and storage and also, I think, an additional 10 million
demonstration projects. How useful how do you think this will
be and how much do you expect these measures to achieve?
John Healey: They are small but
they are a start. An important part of the Energy Review that
the Government is conducting now will be to assess the long-term
potential and, therefore, the long-term commitment that as a government
we need to make to carbon capture and storage as part of the ability
to deal effectively with the challenge of climate change. What
you saw in the Chancellor's announcements at the Pre-Budget Report
was very much the start of that process. What you see, as I suggested
earlier, in terms of our work leading the EU's joint project with
China on this new technology, again, is very much in the early
stages but it is promising and potentially it could be very significant
for the long-term.
Q204 Ms Barlow: What particular areas
of change would you like to see from the Norwegian project, for
example?
John Healey: The Norwegian project
potentially creates the conditions where we may look to foster
perhaps the trial of, and investment in, these sorts of technologies
within the North Sea. Clearly it is the UK and Norway that have
the principal shared interest in the off-shore Continental Shelf
and the oil and the gas reserves and the wells that are there
already. In the private sector, also some of our leading companies,
like BP, also potentially have a very important role to play here.
Q205 Dr Turner: There is a lot of speculation
about when we reach peak oil production in the world, and, of
course, we have done already in the North Sea. What analysis have
the Treasury done about the situation and the implications, both
in terms of revenue and the costs of energy? Does the Treasury
have a view on the timescale?
John Healey: Yes. I think if you
study the Pre-Budget Report and the succession of Budget documents,
what you will see is that our economic forecasts all incorporate
the forecast for production on the UK Continental Shelf, and the
forecasts take out of what are the DTI's figures about declining
production. In many ways this is a territory where we have very
good information, good analysis and some quite long-term forward
projections. It means, I think, that we can make sure that we
plan for and set up a framework to see the sorts of adjustment
in energy supply that we are going to need as a country as that
trend over the next 20, 30 years take place.
Q206 Dr Turner: Would you agree that
we have actually got to start weaning the UK economy off its addiction
to oil in advance of the time when available reserves start to
deplete and the market price gets so high that it is unaffordable?
Do you think we need to start taking action now, in advance?
John Healey: You are right, and
we are. If you look at the encouragement that we have given to
the development of renewables—tide, wind, solar, but particularly
wind because obviously our hydro sources are fairly limited in
the UK—if you look at the support we have given, not just
in regulatory terms with the renewables obligation but in funding
terms and in research and development to the support of renewables,
that is precisely the principle or the ambition that underpins
that part of the policy, and this will be taken further as part
of the Energy Review that is currently underway.
Q207 Dr Turner: Do you have any intentions
to respond to the changing situation in terms of oil and gas supplies
in terms of the fiscal measures?
John Healey: I would need to be
convinced that that was necessary. Let us not lose sight of the
fact that the majority of the developed countries (the G7) have
been net importers of oil and gas for ages. We will move into
that position. In many ways the UK is one of the most liberalised
energy markets, certainly in Europe, and we would expect, at first,
to see a response from the private sector in terms of investment
in, and development of, new technologies and also in terms of
resources, and that is happening. There is 10 billion pounds of
investment going into gas facilities and storage in the UK between
now and 2010, and the majority of it will be in place by 2007.
That is private investment based on the fact that they see the
projections about UK oil and gas production, and it is investment
there that is built to precisely manage that sort of transition
in the economy that we know is coming, and have known for some
time is coming, but is reasonably a response from private investment
in the private sector and not simply a requirement or a responsibility
of the Government.
Q208 Dr Turner: The climate change levy
is one of the key planks of Treasury fiscal instruments.
John Healey: The climate change
levy is not just one of the key planks of the Treasury's fiscal
instruments. the climate change levy for this country is one of
the principal ways in which we are cutting our own carbon emissions,
putting ourselves on track to achieve the Kyoto target and the
other targets that we have got, and, without the climate change
levy, which by 2010 is going to bring three and a half million
tons of carbon saving, we really knock a big hole in our ability
to deal with the challenges of climate change.
Q209 Dr Turner: Perhaps I expressed it
rather badly. That is not what I meant at all.
John Healey: I apologise, Mr Turner.
Q210 Dr Turner: The point is that it
needs to bite to be effective, as, indeed, do all environmental
taxes, and the need to have some pain for bad behaviours and reward
for good behaviours. Do you think that we need to increase the
level of the climate change levy, increase the pain level, to
accelerate the changes?
John Healey: That will be one
of the arguments in the representations that we get from some
interest groups on the climate change levy that the Chancellor
will be taking into account as he makes his annual decision about
rates at the Budget.
Q211 Joan Walley: I think the concern
is whether or not there is a sense that it is business as usual
and that the extent of the climate change levy is perhaps not
hurting enough.
John Healey: The climate change
levy does add to the energy costs that businesses face. It was
designed to do that. It adds much less of a cost than the increase
in world oil and gas prices in the last year or two, which have
been a very significant driver of increased business energy cost,
electricity and gas, but with the climate change levy—I
mentioned what it will yield in terms of the reduction in carbon:
3.5 million tons a year by 2010—when we first set out to
introduce it we had a projected gain of only two million tons
of carbon. Therefore, the way we have introduced it and the decisions
that we have taken still combine to have a policy measure at present
which, if we look forward to 2010, will deliver that scale of
savings. The climate change agreements that I know this Committee
is familiar with as an important part of the design of the regime
again have led to much greater carbon savings than originally
assessed and expected at the time of its introduction. It is working,
but the arguments that people want to put to us about the potential
impact of either freezing, revalorizing or increasing in real
terms the rate of the levy will all be questions that we will
consider in the context of the budget for this year, and then
we will do so again for the future.
Q212 Dr Turner: The climate change levy
is not the only fiscal instrument involved. One of the messages
which I constantly hear from industry is that they would make
investment decisions, whether it was increased investment in renewable
energy generation or in energy conservation, if they had sufficiently
clear long-term signals to give them the confidence to do that.
This applies to both the business community and domestically.
Do you have any plans to review this—and presumably Stern
will to an extent do this—or do you have thoughts about
raising the profile of environmental taxation to achieve changes
in investment patterns?
John Healey: The basic contention,
that the greater the clarity and certainty for the long-term the
greater the reduction in the risk of investment from the private
sector, is broadly right, and the framework of long-term Government
policy and commitment is a part of those sort of risk investments
in any sort of business assessment. I have heard that same argument
made by those interested in investing in increasing nuclear capacity,
and I am not sure if that is what you are arguing for.
Q213 Dr Turner: No!
John Healey: Clearly as part of
the Energy Review, there will be recognition that Government priorities,
commitments, for the long-term—which is exactly what the
Energy Review is designed to try and assess—will form part
of the investment climate in all sorts of potential energy-generating
and climate change-saving technologies. So to the degree that
Government can, it is important we do give that sort of commitment.
It is one of the reasons we accepted the argument for extending
the renewables obligation, for instance, through to 2014-15. It
is one of the reasons with bio-fuels that we introduced a couple
of years ago a three-year framework where we make decisions on
the duty discount for bio-fuels and there was a guarantee for
at least three years. It helps, sometimes around the margins,
but it certainly helps with the ability of business to make those
sort of long-term investment decisions.
Q214 Dr Turner: So we can look forward
to some changes as a result of this year's review?
John Healey: I think you can look
forward to certainly the Energy Review and some of the other work
going on in Government as having quite an important part in setting
the future direction, and then we will see how the private investors
respond to that.
Q215 Dr Turner: Does it worry you that
there will be possibly a lack of connectivity with the three reviews
going on at once, with the Stern Review, which could possibly
have the most co-ordinated effect through whatever pattern of
fiscal instruments arise, not emerging until the end of the process?
John Healey: No, it does not worry
me at all. The three reviews you are probably referring to are
very different in their purpose and focus. The Climate Change
Programme Review is there to assess the measures in the UK that
as a government we have taken to date and to look at our performance
in relation to the domestic 20% cut in carbon dioxide emissions
by 2010, so it is UK-focused, relatively short-term. The Stern
Review, as I explained earlier, is an academic exercise, it is
potentially analysing the economics of climate change. The Energy
Review is a systematic look at the long-term future of UK energy
policy and a look, in doing so, at the progress we have made against
the four goals we set out in February 2003 in the Energy White
Paper. So they have different purposes and different, if you like,
time perspectives. I think all will contribute in different ways
to the decisions we need to take.
Q216 Joan Walley: Just to cut in there,
presumably there has to be some degree of synchronisation and
some continuity and constancy about the environmental input into
all three of those, otherwise there will be clashes or tensions
between them, will there not?
John Healey: Do you mean by that
that the economic analysis, some of the methods of producing the
social costs of carbon, for instance—that sort of methodology—is
consistent?
Q217 Joan Walley: Yes, but the economic
analysis must take account of the environmental analysis on which
it is based.
John Healey: Quite. It does and
it will.
Q218 Joan Walley: That is the same for
the Stern Review?
John Healey: We are developing
our ability to improve our methods of doing so as we go along.
I would expect the Stern Review to make a significant contribution
to our ability to do that well in the future.
Joan Walley: Okay. I think we have to
move on to aviation.
Q219 Mr Hurd: Aviation emissions grew
by 12% in 2004. Do you still think it is possible to include aviation
within the European trading system at the start of Phase 2?
John Healey: Yes, it is possible.
I think it is more likely we will be able to get it into the second
phase of the EU ETS, and if we cannot get it in by 2008 then we
want to see it included as soon as possible after that date. The
work we did under the UK Presidency in the last six months of
last year formed an important part of moving that on. So the fact
we have seen from the Commission the confirmation they will put
forward a draft legislative proposal on this by the end of this
year is an important step forward. The working party which is
set up under the auspices of the Commission to pursue this is
again an important sign that other countries are taking it seriously
and that we have got a good chance of getting it included during
the second phase.
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