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Session 2006 - 07
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European Standing Committee Debates

Emissions Trading Scheme

The Committee consisted of the following Members:

Chairman: David Taylor
Blizzard, Mr. Bob (Waveney) (Lab)
Brazier, Mr. Julian (Canterbury) (Con)
Carmichael, Mr. Alistair (Orkney and Shetland) (LD)
Dobbin, Jim (Heywood and Middleton) (Lab/Co-op)
Havard, Mr. Dai (Merthyr Tydfil and Rhymney) (Lab)
Jenkin, Mr. Bernard (North Essex) (Con)
McCabe, Steve (Birmingham, Hall Green) (Lab)
Marshall-Andrews, Mr. Robert (Medway) (Lab)
Merron, Gillian (Parliamentary Under-Secretary of State for Transport)
Neill, Robert (Bromley and Chislehurst) (Con)
Rowen, Paul (Rochdale) (LD)
Simon, Mr. Siôn (Birmingham, Erdington) (Lab)
Watkinson, Angela (Upminster) (Con)
Emily Commander, Committee Clerk
† attended the Committee

The following also attended, pursuant to Standing Order No. 119(5):

Chope, Mr. Christopher (Christchurch) (Con)

European Standing Committee

Tuesday 27 March 2007

[David Taylor in the Chair]

Emissions Trading Scheme

4.30 pm
The Parliamentary Under-Secretary of State for Transport (Gillian Merron): Mr. Taylor, it is a pleasure to serve under your chairmanship as we discuss a very important measure. I am responsible for UK policy on the regulation of aviation, but, as the Committee will be aware, the Department for Transport and the Department for Environment, Food and Rural Affairs have joint ministerial responsibility for our policy on the inclusion of aviation in the European Union emissions trading scheme, and so I am here representing both Departments.
Today’s debate is timely. In the 16 months since we last debated the matter, the science behind climate change has become even more conclusive, and there is enormous political and public pressure for a post-Kyoto global agreement. Earlier this month, the European Union summit resulted in an historic announcement: that the EU would make a firm and independent commitment to cut its emissions by at least 20 per cent. by 2020, even before a global agreement is reached and irrespective of what others do. That target will increase to 30 per cent. if matched by other developed countries.
Domestically, the Government have recently published the Climate Change Bill—the first legislation of its kind in any country—which demonstrates the UK’s leadership as progress continues towards the establishment of a post-2012 global emissions agreement. It forms a fundamental part of the UK’s strategy to address the issues raised by the Stern review and sets challenging and legally binding carbon dioxide reduction targets for 2020 and 2050.
The recent publication of the Stern and Eddington reports confirmed without doubt the need for action. They concluded that the benefits of strong and early action to tackle climate change far outweigh the economic costs of not acting. Stern argued specifically for carbon pricing and other measures to be extended to international aviation.
It is important to put the environmental impact of aviation in context. The air transport progress report published in December last year reiterated the importance of air travel to the UK’s economy and continued prosperity. For example, in 2002, aviation added £10 billion to the UK economy, and an estimated 200,000 jobs in the UK depend directly on the industry. Almost half of the population fly at least once a year, and we expect that trend to continue—it has been estimated that twice as many passengers will pass through UK airports in 2030 as did in 2005.
However, we believe that it is not for the Government to deny people the right to travel or the UK opportunities for prosperity. We need a balanced approach that reflects people’s desire to travel and the opportunities that that brings, but reduces and minimises the impact of aviation growth. For an international industry, an international trading scheme is the best solution, so we are pursuing one with the International Civil Aviation Organisation. However, the Government think that, until a truly global solution can be found, including aviation in the existing EU emissions trading scheme is the best multilateral option available.
Emissions trading is the best way for aviation to contribute to the long-term goal of climate stabilisation. It has several advantages over other measures. First, it guarantees the desired environmental outcome in a way that other instruments, such as charges, do not; secondly, it ensures that the emissions reductions that are required to achieve any environmental outcome are made in as cost-effective a manner as possible; and, thirdly, it therefore allows all sectors to contribute to emissions reductions through a combination of emissions reductions within the sector and the purchase of reductions produced more cheaply by other sectors. Such measures may not provide a total solution, so we will continue to explore and discuss options for the use of other economic instruments for tackling aviation’s greenhouse gas emissions.
For all those reasons, we welcome the punctual publication and ambition of the Commission’s proposal and we are pleased that the German presidency has taken the work forward so quickly. The UK has been at the forefront of making the case and winning the argument for the inclusion of aviation in the European Union emissions trading scheme. The dossier was discussed in broad terms at both the Environment Council in February and the Transport Council last week, and there was strong support for the main lines of the European Commission’s proposals. Here in the UK, we will be launching a joint DEFRA-DFT formal consultation before Easter to seek stakeholder views and analysis on the Commission’s proposal. There are many points of detail contained in the proposal that require further analysis before we can establish a UK negotiating position.
I am sure that hon. Members will wish to cover a number of areas today and I am happy to deal with their questions. As I have said, much of the detail of the UK’s response will be decided following consultation. I am looking forward to the Committee’s deliberations, which will inform the debate and the outcome of the consultation.
The Chairman: We now have until half-past 5 for questions to the Minister. I remind hon. Members that their questions should be brief and asked one at a time. There is likely to be ample opportunity for all hon. Members to ask several questions.
Mr. Julian Brazier (Canterbury) (Con): I, too, am pleased to serve under your chairmanship, Mr. Taylor.
We welcome the inclusion of aviation in the ETS and the approach to funding, which will help the industry to address the important green considerations outlined by the Minister. May I ask her about the projections for aviation demand growth? We have just had two big announcements from Brussels—one on open skies and another one on airport charges yesterday. Jacques Barrot’s office is quoted as saying that that would produce an extra 26 million passengers over the next five years. What percentage growth does the Minister see in ETS up to 2020? Is it still 135 per cent.?
Gillian Merron: I thank the hon. Gentleman for his support and for his commitment to seeking a balanced approach, which is clearly what we want to achieve. I shall deal with the demand for UK air travel first and the forecast that we have. UK air passenger demand continues to show strong growth, even when environmental costs have been factored in: it is expected to grow from 228 million passengers per year in 2005 to 490 million passengers per year in 2030, if it is not held back by airport capacity constraints. That is a considerable challenge.
It is worth mentioning growth forecasts for other European hub airports. At Frankfurt, there is a planning application for a fourth runway that would increase capacity to 660,000 air traffic movements per year by 2010. Similarly, a fifth runway was opened in 2003 at Amsterdam Schiphol airport and there are plans to increase the capacity further to 600,000 air traffic movements a year by 2010. I give those examples to show the scale of the development. That is why the inclusion of aviation in the EU ETS is crucial.
Mr. Brazier: Could the Minister clarify whether the 490 million figure refers to 2020 or 2030, and tell us what the numbers would be with and without the ETS? We get the impression from previous EU projections that the difference is less than one year’s growth.
Gillian Merron: I am happy to clarify that the predicted increase is to 490 million passengers per year in 2030. I hope that that assists the hon. Gentleman. I have done my best to understand the question, but I am happy to take clarification. The emissions trading scheme is not about constraining passenger growth; it is about setting a cap on environmental impact.
Mr. Alistair Carmichael (Orkney and Shetland) (LD): I, too, welcome you to the chair, Mr. Taylor.
The Minister will be aware that one of the interesting and novel features of the scheme is that it allows trading between aviation and other sectors. That provides certain opportunities, but it might also serve to distort the market in aviation and other sectors. How do the Government intend to monitor the impact of inter-sector trading on the sectors involved?
Gillian Merron: I thank the hon. Gentleman for his comments because he gives me the opportunity to make a point about perspective. It is interesting to note that in 2005 the five largest power stations in the country generated more CO2 than UK aviation. That fact, and the hon. Gentleman’s comments, suggest to me that it is proper that aviation should be included in the scheme. Indeed, it is the first form of transport to be so included, and it is to the credit of the UK Government that we have pushed so definitely for that.
It is too early to comment on the risk of distortion. However, I hope that the hon. Gentleman and others will take part in the consultation. We are seeking comments on such matters in order to design the most appropriate system. While it is possible for sectors to trade, my strong suspicion, and that of those who provide guidance, is that it is infinitely more likely that, although it is possible to trade across sectors, trading will take place within the aviation sector—certainly in the first instance.
Mr. Bernard Jenkin (North Essex) (Con): It is a pleasure to serve under your chairmanship, Mr. Taylor.
Will the Minister clarify whether it is intended that existing airlines be allocated an emissions trading allowance free, as happened when the main trading scheme was launched, or will she follow the recommendations of the Select Committee on the European Union, which looked into the matter, and allocate only auctioned amounts of trading credit?
Gillian Merron: The hon. Gentleman asks a very good question about a matter of concern to the UK. The Commission talks about auctioning some 3 per cent. of the units, with the proceeds made available to cover administration and so on. The UK’s initial response was that we are keen not to do that. The use of proceeds is an important matter and it should be up to member states to decide what they do. That is a matter of concern that we are exploring through the consultation. I assure the Committee that in the consultation I shall take into account the recommendations of the Select Committee.
Jim Dobbin (Heywood and Middleton) (Lab/Co-op): Will the Minister tell me what the UK Government are doing at international level with regard to aviation and the environment?
Gillian Merron: I certainly can. Our No. 1 priority is, of course, the EU emissions trading scheme and the inclusion of aviation. I want to put on record that the UK that has really pushed for that since about 2003, when it did not find great favour—we were clearly somewhat ahead of ourselves. That position has changed radically as the years have gone on.
Of course, dealing with environmental challenges is a global matter, so it needs a global solution. Through ICAO, we are proposing new measures. I must be honest with the Committee and say that we are not finding a lot of favour, but we will not be daunted. For example, we are proposing the international taxation of aviation fuel and, of course, extending the trading scheme more widely. However, we feel that the EU is the right place to start; that is where we make headway. We did not start as positively as we are now proceeding. However, I am committed to continuing our work, not only within the EU but beyond.
Mr. Christopher Chope (Christchurch) (Con): May I, too, say what a pleasure it is to serve under your chairmanship, Mr. Taylor?
When we last discussed this issue in Committee, about 18 months ago, the then Minister said that there was a problem in relation to the legality of charging airlines in respect of aircraft leaving, for example, the United States and entering the EU, or aircraft leaving the EU and going to a destination outside the EU. Can the Minister tell us to what extent those legal issues have been resolved?
Gillian Merron: I thank the hon. Gentleman for raising that point, which was raised in the previous Committee. What I can update the Committee on is that a feasibility study was conducted by CE Delft, a Dutch consultancy, for the Commission and that study concluded that there are no legal obstacles to the inclusion of international aviation in the EU ETS.
Mr. Brazier: But even accepting the Minister’s last answer—it is not the view universally taken by lawyers, who are rubbing their hands out there—does she not accept that there are still problems about deciding which country will handle which non-EU airline? The document says that each airline will be handled by one country. Will she also tell us why the EU has decided to focus on airlines rather than airports, where, of course, none of those difficulties would arise?
Gillian Merron: The EU is, of course, seeking the most workable solution; certainly, that is what our consultation within the UK will be about. Again, I invite the hon. Gentleman to make his party’s views known. I look forward to hearing them.
I cannot, of course, comment on whether lawyers are rubbing their hands with glee. However, the present proposal is that the scheme would apply to airlines and would be administered by the country with which each airline does the most business. In including aviation in the ETS, we are seeking the most workable and practical scheme that everyone will understand. I would emphasise, however, that the issue is up for consultation to help to direct our view in the UK.
Mr. Brazier: Still on the point about airports versus airlines, I am delighted to hear the Minister say that the issue is up for consultation. Does she not accept that although airports can, through landing charges and so on, apply pressure on airlines to get the best possible performance out of them, there is very little that airlines can do about the matters that airports control, in particular the huge amount of fuel wasted by poor air traffic control and, in some airports, by movements on the ground?
Gillian Merron: I have to differ with the hon. Gentleman. Of course it is the airlines that have the most direct control. For example, they control the type of aircraft that they use. I am reminded of recent discussions with the chief executive of British Airways and the chief executive of Boeing, both of whom understand the need to work together to produce more environmentally friendly aircraft to the benefit of both businesses. So I would differ with the hon. Gentleman primarily because it is airlines, not airports, that decide which aircraft to use. We are also encouraging work in the aviation industry—this is only one part of the process—regarding operations. Airlines have a view on that subject, of course. It is not only simplicity that is important, but practicality and reducing the impact on the environment. In my view, it is the airlines, not airports, that will make the greater contribution.
Mr. Dai Havard (Merthyr Tydfil and Rhymney) (Lab): I am sure that it will be a great pleasure to serve under your chairmanship, Mr. Taylor.
On fuel saving, will the Minister explain why the emphasis is on emissions rather than on taxation of fuel?
Gillian Merron: First—as I said earlier—the challenge is an international one that requires an international solution. To suggest otherwise would be misguided. It is not possible to tax fuel internationally, because the International Civil Aviation Organisation and the Chicago convention do not allow it. Unilateral action on fuel taxation is allowed only in relation to domestic aviation. The Opposition are proposing such action, but I would not sign up to a proposal of that kind, not least because there would be an adverse impact on the UK and because it would cause what I would describe as perverse incentives. Fuel would be imported from other countries, which would distort the situation in this country. That would threaten the positive contribution that the aviation industry makes.
Mr. Carmichael: Did I understand the Minister to say in answer to the hon. Member for North Essex, that the Government oppose even a very modest 3 per cent. auctioning of slots when the system is set up?
Gillian Merron: What I actually said was that that was an area of concern and that we are consulting.
Jim Dobbin: How does the Minister’s response to my previous question on international action relate to the policies of the Department for Transport on other climate and environmental issues?
Gillian Merron: I thank my hon. Friend for that question, because it allows me to mention a number of other areas that I am committed to working on. Other ways to tackle climate change include supporting and encouraging technological advancement and manufacturing—I mentioned Boeing earlier, but I think also of bus companies such as Alexander Dennis, which is making environmentally friendly buses. Subsidies such as the bus service operators grant can also be targeted with a view to encouraging more environmentally friendly outcomes than is currently the case. We can encourage sustainable travel and ensure that people have alternative travel options. We are investing record amounts of money in public transport, including £88 million per week in rail. Consideration of environmental impacts is also at the heart of local transport plans. I have also just launched the “Act on CO2” campaign, which encourages people to drive more smartly and thereby reduce fuel usage. Those few examples show that, although inclusion of aviation in the EU ETS is crucial, it is not the only consideration.
Mr. Jenkin: If 97 per cent. of the carbon credits for the aviation sector are to be allocated rather than auctioned, how is the allocation to be done in a way that will avoid the mistakes made in the existing emissions trading scheme that are costing the country so dearly? A substantial number of countries have been allocated permits in excess of their carbon emissions. The United Kingdom is the country that is having to buy most carbon credits from other member states, to the extent that we are some £470 million in deficit, whereas countries such as Germany, Finland, Denmark, Belgium, Lithuania and the Netherlands are substantially in surplus because their allocation was too great. Why should we trust the Government to negotiate the allocation of aviation credits when they have made such a hash of allocating the carbon credits for the existing scheme?
Gillian Merron: It will be up to the hon. Gentleman to decide whether to trust the EU or the Government. The question is whether we support the inclusion of aviation in the EU ETS. Perhaps the hon. Gentleman will wish to comment on that in the main debate. What matters is the level of the cap—we want it to be both realistic and challenging. I emphasise again that input to the consultation will determine the UK’s negotiating position.
Mr. Brazier: The other announcement that we have had recently was about the EU’s initiative on airport charges. Will the Minister tell the Committee how she sees that fitting in with the ETS? In particular, will the emphasis rightly be on penalising CO2 and NOx emissions, or will we see the development of blunt instruments such as air passenger duty, which reward half-empty aircraft and which do not touch freight flights at all?
Gillian Merron: I shall have to ask the hon. Gentleman to clarify his reference to airport charges.
Mr. Brazier: The Department’s website refers to an EU document relating to an initiative on airport charging. I discovered it this morning. I will have to come back to the Minister on the detail in correspondence because I am having trouble finding it among my papers.
The Chairman: I remind the Committee that we are dealing with emissions trading and that that is a tangential area. It would be appreciated if the Minister replied to that point briefly.
Gillian Merron: Perhaps, to be helpful, I can deal with the matter outside the Committee. I believe that the hon. Gentleman referred to the EU initiative on airport charging, which is designed to address local environmental impacts. Of course, that is not related to the EU ETS.
It is worth discussing the blunt instruments proposed by the Conservatives because they are worrying. For example, VAT on domestic air tickets would, I believe, hit ordinary families disproportionately—
The Chairman: Order. I advise the Committee that the topic of the debate is emissions trading. Perhaps the Minister will return to it.
Gillian Merron: I am happy to do so. Indeed, VAT on air tickets is not to do with emissions trading, but it was proposed by the Opposition as a means of dealing with environmental matters. No doubt they will make their views known in the main debate.
Mr. Carmichael: May I take the Minister back to the question of allocating rather than auctioning allowances? The House of Lords European Union Committee’s 21st report of the 2005-06 Session, “Including the Aviation Sector in the European Union Emissions Trading Scheme”, observed that there was substantial opportunity for the generation of windfall profits even under an allowance system based on allocation and that that strengthened the argument for auctioning. What is the Government’s policy?
Gillian Merron: Perhaps I can reassure the hon. Gentleman that the Government are considering a full range of allocation options, including auctioning and benchmarking. My main concern is that we treat all participants fairly and that we provide incentives for reduction. That is the primary purpose of inclusion in the EU ETS. The views that we are seeking through the consultation will help us to decide how to take the matter forward for the UK within the EU.
Mr. Chope: Will the Minister explain the interaction between the proposals that we are discussing and air passenger duty? Do the Government have it in mind to withdraw air passenger duty when the ETS is fully operative in 2012?
Gillian Merron: That proposal is not currently on the table.
Mr. Brazier : I should like to take the Minister back to the interaction, which is clear in the light of her comments a moment ago, between the provision and the open skies announcement. She said that she will try to be fair in the allocation of permits, but she must realise that the open skies announcement allows a three-year period in which foreign airlines will have much greater access to our airports, in exchange for which we will get almost nothing on the basis that the policy will be reviewed in three years’ time to see whether the Americans are opening up their market. If the fair allocation of permits is taking place against that background, which involves considerable changes at Heathrow, for example, on what basis will it be fair? Will it be fair pre or post-review if, as most people think will be the case, the EU concludes after the review that the Americans have done nothing to liberalise and we have to revert to something closer to the status quo?
The Chairman: Order. There will be a section of the Committee’s deliberations during which speeches can be made. Questions should be short.
Gillian Merron: It might help the hon. Gentleman if I clarify the position. The matter under discussion is the strategic environmental approach. It is not dependent on negotiations in respect of individual bilateral air service agreements.
Mr. Carmichael: The Minister said that she wants to be fair to all parties in framing the allocation policy. If it is to be a predominantly, or even 100 per cent., allocated system, how can she be fair to those who do not have the benefit of the grandfather rights that are proposed? Would not the system that she outlines reward the recent nonsense of British Midland running flights from Heathrow to Cardiff with no passengers on board simply to preserve the slot?
Gillian Merron: We should return to what the emissions trading scheme is all about: it is about a cap on carbon emissions from aviation, which we do not have at present. It will also benefit innovators and ensure that those who do not innovate fund reductions elsewhere. That will guide the practicalities of our actions. The situation that the hon. Gentleman describes was not envisaged in the operation of the emissions trading scheme. Inclusion of aviation in the ETS is an exciting opportunity for the EU and the UK to lead the world in capping aviation emissions.
Mr. Jenkin: May I press the Minister further about the type of scheme that she envisages? I appreciate that the issue goes beyond the question of principle. Assuming that she wants to cap aviation emissions effectively and fairly, will she at least acknowledge that the system that was adopted under the existing trading scheme has been desperately unfair on British business? It relies on a top-down state planning approach, which, by its nature, must ultimately be dictated by bureaucrats rather than the fairness of the market system. As the Minister for Climate Change and the Environment said,
“the results across the EU do raise questions about the stringency of the caps in some Member States.”
Would not a system of auctions obviate the need for any arbitrary allocations, which would inevitably be determined by—
The Chairman: Order. Questions should be brief.
Gillian Merron: I can assure the hon. Gentleman that the cap will be EU-wide and ensure consistency. I do not intend to see a scheme set up with built-in inconsistencies. If the hon. Gentleman feels as strongly as he appears to, he can make a speech in the debate and make his views known in the consultation. It would be helpful if he also made it clear whether he supports the inclusion of aviation in the EU ETS. To answer his question about the UK allegedly doing more than other member states, I say that we support the Commission in its efforts to improve the scheme. I hope that, if the scheme has any shortcomings, we can learn from them and ensure that the difficulties, where we find them, are not repeated.
Mr. Brazier: Is nitrogen dioxide to play any role in the scheme, even in the long term? Obviously, there are considerable concerns about that gas, which is the most serious emission from a local point of view.
Gillian Merron: I welcome that question. One thing that the UK will put forward to the EU—I hope that the hon. Gentleman will support us—is that we will want a clear timetable for dealing with non-CO2 emissions. I support the hon. Gentleman’s point about the impact on the environment, particularly in respect of aviation.
Mr. Carmichael: The Commission’s proposal envisages exemptions for state aircraft, which are defined as including
“military aircraft, customs and police flights”.
That is fair enough, but the definition goes on to include
“flights exclusively for official missions, Heads of State and Government and Ministers.”
Various Ministers have had quite a lot to say recently about those whom they might wish one day to be Head of State or Government. Does the Minister think that it is consistent to support a policy that seems to encourage preferential treatment for the elite?
Gillian Merron: I am flattered to be called the elite, but I remind the hon. Gentleman that the Government were the first to agree to offset ministerial and official air travel. Indeed, the Prime Minister took a lead in that. The exemptions are one area on which we are consulting, because we want a scheme that encourages confidence.
Mr. Chope: To return to the question about legality, does the United States accept that its flights from the US to Europe will be legally subject to the emissions trading scheme? What effect does the Minister think that that will have on the balance of competition between flights emanating from the US and those from elsewhere outside the EU?
Gillian Merron: Clearly, a requirement of trading with the EU will be to stick by EU requirements. The US is well aware of developments in the EU, and I reassure the hon. Gentleman that the Commission is confident of its legal ground. Of course, any scheme will need to comply with the legal framework for international aviation and be able to stand up to challenge. There can be no other way.
Mr. Brazier: May I ask where safety comes into all of this? As the proposals stand, not all necessary testing of aircraft is excluded from the trading system, and many in the aviation sector believe that there is a need for amendments to tackle that point. Testing, as I understand it, is exempted for air traffic management purposes only. Does the Minister agree that it is essential that the eventual package exempts all essential safety testing?
Gillian Merron: The discussion is about the EU emissions trading scheme, a cap on emissions of CO2 and improving the environment; it is not about safety. I assure the hon. Gentleman that safety is paramount, as he knows, in all our dealings with the aviation industry, which works closely with us to ensure that safety is the No. 1 priority, but it is not directly relevant to today’s discussion.
Mr. Carmichael: One of the excluded categories concerns aircraft with a maximum take-off weight of less than 5,700 kg. That sort of common-sense approach is welcome, but 5,700 kg is still a low threshold. Do the Government support that threshold and can she explain to the Committee the basis for choosing it?
Gillian Merron: I regret that I am not able to explain it. It is a Commission proposal and the UK will respond once we have the results of our consultation. I shall take the hon. Gentleman’s comments on that question and his previous question into account.
Mr. Jenkin: May I assure the Minister that I am in favour of a rationing system that would help to reduce carbon emissions throughout the EU? However, will she explain why we are introducing a scheme to raise costs for airline passengers in the hope of reducing carbon emissions, when there is no evidence as yet that the marginal raising of costs for tickets will reduce airline emissions at all? The House of Lords Select Committee on the European Union says that that will have no impact on more efficient aircraft. The EU is still subsidising the production of £5.6 billion-worth of coal. Where does that fit into this rational scheme to reduce carbon emissions in the EU?
Gillian Merron: Unless we have coal-fired aircraft, I am afraid that I do not feel suitably qualified to comment on that, but the inclusion of aviation in the EU’s emissions trading scheme is key to the UK’s agenda on tackling climate change. That is why we have been at the forefront and why we will continue to push for its early inclusion in an effective scheme. While the provision is a major contributor and, in my view, the best way to deal with an international problem, there are other means, including economic instruments.
I have already mentioned one such instrument, which involves a change to the Chicago convention, which is some 60 years-plus old and needs to be revised, particularly in respect of our environmental objectives. We need to achieve the international taxation of fuel, rather than the Opposition’s proposals on the taxation of domestic fuel. It is important to consider air passenger duty as a way to influence not only behaviour but awareness. Government policy has a role to play in helping people to make choices about how they travel.
Mr. Carmichael: May I draw the Minister’s attention to page 13 of the bundle of papers provided for the Committee? The paragraph immediately above the bold heading “Legal Basis” states:
“Special consideration to the treatment of air services to remote or isolated regions, which are particularly dependent on air transport services, can best be given within the framework of existing measures such as public service obligations and aid having a social character under Article 87(2) of the Treaty.”
Presumably, the Scottish Executive’s air discount scheme would come under the latter provision. What discussions has the Minister had with the Scottish Executive in relation to that paragraph?
Gillian Merron: I can confirm that the Scottish Executive have raised the issue of including lifeline service flights in the scheme. We are considering the impact of including or excluding such flights. That links with my earlier reference to what should be in and what should be out of the provision.
Mr. Chope: Does the Minister accept the report by Environmental Data Services in 2007 entitled
“Aviation to come under EUETS from 2011”?
Does she accept the conclusion that the scheme will knock off just 0.1 per cent. of the projected growth in air travel, and does she think that it is worth the candle?
Gillian Merron: I take it that the hon. Gentleman does not think that it is worth the candle; I believe that it is. The scheme is about putting a cap on aviation emissions in the most effective, cost-effective and practical way that we can as the European Union. It is not an instrument to tell people whether or not to fly. If the hon. Gentleman feels that we should do that, I am sure that he will put that forward.
Mr. Carmichael: Further to my earlier question, may I suggest to the Minister that provision could be made by the simple raising of the exclusion from 5,700 kg maximum take-off weight to something in the region of 13,000 or 14,000 kg? That would not have a massive effect on the amount of carbon caught by the cap, but it would have a significant impact on those communities for whom lifeline air services are very important.
Gillian Merron: Perhaps I can reassure the hon. Gentleman by saying that I very much take his point. We have not reached a conclusion on the merits of specified weight or any other exclusion, but we are aware of the circumstances that he described. We shall take those into account, but I again invite him to make clear representations through the consultation.
Mr. Chope: I welcome the Minister’s statement that it is not Government policy to try to constrain demand for air travel, but how is that consistent with the use of air passenger duty, which purports to be designed to achieve just that?
Gillian Merron: I believe that I was clear in my opening remarks that it is not the role of this Government to tell people whether or not to fly, although perhaps the hon. Gentleman disagrees. However, it is the role of this Government to inform, raise awareness and encourage thought about how people operate. Despite the suggestion that people can be told what to do by the Government, that is certainly not this Government’s policy.
The Chairman: If no more hon. Members wish to ask questions, we shall proceed to the debate on the motion.
Motion made, and Question proposed,
That the Committee takes note of European Union Document No. 5154/07, Draft Directive amending Directive 2003/87/EC so as to include aviation activities in the scheme for greenhouse gas emission allowance trading within the Community; welcomes the work of the European Commission in developing proposals to address the climate change impacts of aviation; and supports the Government’s approach of pressing for the early inclusion of aviation into the Emissions Trading Scheme.—[Gillian Merron.]
The Chairman: I have allowed a fair amount of latitude during questions, but I hope that the debate will not refer to coal-fired aircraft or air passenger duty to any great extent.
5.16 pm
Mr. Brazier: I shall, of course, be guided by you, Mr. Taylor. There are some quite complicated interactions between the document and a number of other recent EU initiatives, particularly the recently announced open skies proposal, but I shall try not to test your patience in covering some of that ground.
Aviation is an important sector of the economy. It is the fifth largest sector, directly employing 200,000 people, with a further 600,000 UK jobs indirectly dependent on it. The opportunity for people to travel and broaden their horizons that aviation offers is beyond the dreams of earlier generations. What we are discussing is a measure designed to address a real international concern. The Stern report reminded us of the importance of tackling climate change and came as no surprise to my party.
Passenger kilometres increased by 150 per cent. worldwide between 1986 and 2005, but increased by 230 per cent. for UK airlines. Passenger numbers increased from 51 million in 1982 to 189 million in 2002, increasing by 7 million in one year alone. More than 2 million tonnes of freight went by air in 2002. The Government estimate that there will be nearly 500 million air passengers by 2030—indeed, the Minister has repeated that estimate today—and the industry is widely predicted to grow at about 5 per cent. a year. The industry contributes only slightly more than 2 per cent. of emissions now. However, given that the best that can be achieved in emissions is a saving per passenger mile of only 1.5 per cent. a year, it is predicted that by 2012 aviation could offset more than a quarter of the environmental benefits of the reductions agreed in the Community’s target under Kyoto, as the explanatory memorandum makes clear.
It might seem counter-intuitive to want to curtail a growing and thriving industry, but what we are seeking to do through the proposal, which the Opposition support in principle, is constrain the growth of the industry’s CO2 emissions, without strangling the golden goose. As I made clear at the beginning of the debate, I welcome the principle of the ETS, but the detail leaves me fairly unenthused. The scheme has become the Government’s main instrument for reducing the impact of aviation on the environment. The Minister suggested that it would play an important role, although that is mostly because there is not a great deal else. We are talking about a measure that will, according to the Commission’s projections, reduce the level of emissions by about only one year’s worth of growth over that long period, yet it will raise the price of airline tickets significantly and involve the industry in significant bureaucracy.
We heard references during questions to the considerable problems of grandfather rights that are allocated in the first instance. We must be clear that there is a real problem; we have seen it already, as a number of my hon. Friends pointed out, in the existing carbon trading scheme. Some countries take such a generous view with their own industries that they have simply handed them a money-spinning option, rather than a real incentive to reduce their CO2 emissions.
The interaction with the recently announced open skies agreement—that, too, is a measure that we favour in principle—is complicated. I do not want to test your patience, Mr. Taylor, by saying what a bad deal that agreement is for Europe, but its interaction with the ETS measure is complicated because, as the Minister knows and as she stressed in her answer, the decision on who to allocate permits to will have to be fair, and the only obvious basis for fairness is to look at airports’ existing use and access.
Mr. Bernard Jenkin (North Essex) (Con): I hope that my hon. Friend will forgive me for interrupting the flow of his comments, but does not that raise another question? Is the EU trying to make aviation more expensive for civil airlines so that they try to reduce supply, or is it trying to make it cheaper so that more people fly backwards and forwards across the Atlantic? There seems to be a disconnect between the two policies.
Mr. Brazier: I understand my hon. Friend’s point, and Jacques Barrot’s announcement about the huge increase in the number of passengers sits ill with the ETS instrument, but in principle there is no clash between wanting to have a cap on carbon emissions on the one hand, and wanting to maximise value for money on the other hand. The problem that the Committee must deal with is that the effect of this frankly lousy deal is that over the next three years, the pattern of who uses our airports and particularly who uses the crown jewel, Heathrow, will change rapidly. That is the background against which the allegedly fair allocation of permits will take place. It may be a temporary background, because it will be reviewed in three years to see whether the Americans have shown a corresponding willingness to open up their markets, but frankly no one should hold their breath waiting for that.
I want to explore whether the main vehicle should be airports or airlines. The Minister said that the obvious reason for focusing on airlines—it is clear in the Commission documents—is that airlines are the users of fuel. They decide which aircraft to buy and which routes to run. However, surely it is obvious that if they are coming in to or out of the EU, all airlines—using any aircraft on any route—must land or take off from an airport, so we would be catching exactly the same group if we chose airports as the vehicle for the policy.
If airports had to trade, they would have the incentive through their charging levels to try to minimise emissions from the airliners landing and taking off. Such a policy would have three huge advantages. Airports would have an incentive, first, to sort out the 10 or even 15 per cent. of fuel that is wasted through incompetent air traffic management, and secondly, to sort out the shambles on the ground in some airports. Indeed exploring the long-term scope for interacting with other sectors—transport to and from airports—might be a longer-term aspiration. The most important reason for looking at that as a serious option—I urge the Minister to do so—is that it sets completely on one side the legal and administrative problems of what to do with foreign airlines.
I have two final points to make. First, the environment sector’s overwhelming view is that the directive is a disappointment. I took the trouble to ask the Tyndall Centre for Climate Change Research—arguably the leading experts in the field—for its thoughts. The stand-out sentence in its response is:
“In short, the proposed Directive does not reflect the urgency and time-critical nature of the climate problem”.
The directive will make relatively little difference, despite its creating a great deal of burdensome bureaucracy.
Secondly, it is time that the Government gave us their thoughts on the subject in the round. There are considerations regarding airport expansion, the open skies agreement and the Civil Aviation Act 2006, which did almost nothing at all. It hinted at differential charging regimes, which airports can undertake anyway, but it did not seek to monitor or encourage them. There are also considerations regarding the scheme before us. Each issue will be debated separately, but we need the Government’s overall view on the point at which they envisage our striking the balance between the needs of an important industry and the requirement to constrain the growth of CO2 emissions, and indeed of NOx emissions. We will have to have that debate in another forum, but it is overdue.
5.28 pm
Mr. Carmichael: The Minister said that this is a timely debate, and she is absolutely right. It is not the first time that the Committee has been around the course, and I suspect that in years to come, we shall look back on today’s debate as an important but intermediate stage in the whole debate.
Like others, my party and I are very supportive of emissions trading. When I took over as my party’s transport spokesman almost a year ago, I was pleasantly surprised by the number of airlines in particular which were enthusiastic about the inclusion of aviation in the emissions trading scheme. Looking back, I might have been more forensic in my scrutiny of the motivation in those early days, because it is clear that a number of airlines regard it as a substantial earning opportunity. That in itself is not a barrier to the scheme, but in the minds of the people who are responsible for its constitution, it should set a few alarm bells ringing about whether the scheme will achieve the reduction in carbon emissions that we hope it will.
I have two principal concerns. First, there is the question about interoperability with other sectors in the scheme. Once Governments start to interfere in the market at any level, there is a danger of a market distortion that may end up being unhelpful in some other area. I see the law of unintended consequences coming down the track.
My other substantial concern is about where we should draw the line between the allocations given under a simple grandfather rights system, based on emissions in 2004 to 2006, and the allocations that will be auctioned off. One thing that struck me was the Minister’s insistence that we have to be fair to everyone. I am concerned that a system without a significant proportion of auctioned-off credits would not be robust or fair to everyone; in effect, the aviation market would be frozen at the point when the scheme was introduced. In recent years, the economic and social benefits of increased access to aviation have generally been the product of new entrants to the marketplace. If, by favouring existing operators—especially the significant ones, such as the big flag carriers—we make life much more difficult for subsequent new entrants, I am concerned that there will be a market distortion in years to come.
I share some of the concerns articulated by the hon. Member for Canterbury on the legality of a system that includes flights destined for or originating from points forth of the European Union. Clearly, the European Union can claim legitimate jurisdiction within EU airspace. However, I am interested to know the extent—or what is intended to be the extent—of the carbon emissions on which the EU scheme will charge. For example, does the Minister envisage a scheme in which 25 per cent. of the carbon produced by a flight that is roughly 25 per cent. in EU airspace is taken into account when determining the allowance, or is there to be a rather more sophisticated system?
The Minister enjoined us on a number of occasions to consider the purpose of emissions trading schemes, and she was right to do so. However, the points that I raised about remote or isolated regions have particular carbon implications. Aviation is very often the most carbon-efficient way of taking a small number of people a long distance—certainly much more carbon-efficient than a three-quarters-empty train or a series of cars. In what is obviously a bit of special pleading for my constituency, I encourage the Minister to take the position of communities in such regions particularly seriously. The planes used are generally much smaller and fly much lower, so they emit much less carbon than the larger planes predominant in the industry. I hope that the Minister will seriously consider making a proper assessment of the impact of raising the exemption level for a maximum take-off weight to the sort of figures that I have suggested—about 14,000 or 15,000 tonnes.
5.36 pm
Mr. Jenkin: If there is a rational and fair way of increasing the cost of emitting carbon dioxide to the extent that it will begin to curb the growth of such emissions and then reduce them, that must be a good thing. That is true whether or not one believes in global warming. I tend to accept the consensus of scientific opinion about the man-made contribution to global warming. We want to reduce the dependence on fossil fuels of the economy as whole and of particular industries. However, I am determined to remain sceptical unless we have a rational system.
Today’s debate is about aviation joining the existing ETS, so it is fair to consider how the existing ETS is operating and whether it provides a model that we want to pursue in other sectors. I pointed out in an earlier question that because the number of permits allocated has been negotiated between the member states, the system does not require member states to make equal sacrifices. The United Kingdom makes a far greater sacrifice than any other member state. The Minister has pleaded departmental demarcation as a perfectly legitimate reason for failing to explain the situation, but it is worth examining the figures. In the first year of the scheme, UK firms had to buy £470 million worth of carbon emission permits from other member states that have been allocated a surplus. It is legitimate to ask the Minister how we are to prevent such a scenario from occurring should allocations be made on the same basis under an aviation scheme.
My second point about the current system is that because loose targets have been set in a large number of member states, permits were allocated for 1.829 billion tonnes of CO2 in the first year when in fact only 1.785 billion tonnes of it were emitted. The ETS is not biting to reduce carbon emissions, except in very few member states. In our case it is biting, but it is doing so in an arbitrary way.
The hon. Member for Orkney and Shetland used the term “grandfather rights”. I thought that he made a good point about how increased aviation costs could disadvantage further flung parts of the United Kingdom that are already lagging far behind London and the south-east economically. If we stick with the system of grandfather rights, we will be carrying out a 1960s-style national allocation plan, rather like the way in which the National Enterprise Board used to try to plan the British economy in the bad old days of Britain’s economic decline.
Such an approach will inevitably lead to a lot of arbitrary decisions about who gets the permits and whether they are tasked fairly. For example, the Queen Elizabeth medical centre in Birmingham had to buy £93,000 worth of permits. I am not sure whether that is what we pay taxes to the national health service for, but it seems a rather arbitrary outcome. St. James’s university hospital in Leeds bought £62,000 worth of permits and the university of Manchester had to buy £92,500 worth, but, because of the grandfather rights system, BP Oil sold 1.4 million tonnes of carbon permits, thus amassing a profit of nearly £18 million from its grandfather rights. Is that what we are going to do in the aviation system? Esso sold 120,000 tonnes worth of permits, amassing a profit of £10.2 million, and Shell made a profit of £20.7 million. All that came just in the first year of the trading scheme. I am therefore very sceptical about the rationale of the grandfather rights system. The sincerity of my commitment to reducing CO2 should not be questioned because I make that point.
There are other problems with the existing scheme. The price in the secondary market has been extremely volatile. If we ask businesses such as airlines to make long-term investments based on the available economic information, we will be introducing a new economic variable for them to deal with in addition to others such as currency and fuel prices. In about May 2006, in the secondary market for EU trading scheme permits, the price crashed from £30.50 to £9.25 almost overnight. I do not know why that happened—perhaps the Minister can explain it—but I suspect that it was because there was a sudden realisation that there are far more permits in the market than are required to generate the EU’s total emissions.
The scheme’s inflexibility is another problem. It does not allow emitting companies to offset their emissions in the way that the Government claim to do, so a coal-fired power station cannot buy and protect rainforest in Brazil or invest in a renewable energy project to offset. That seems rather arbitrary. If we are trying to get better economic and less polluting behaviour from the scheme’s participants, why is it so inflexible?
There is an incredible lack of rigour in the existing scheme, which is inevitable given that is bureaucratically driven and is run by all the different member states. In its first year of operation, data were available from only 21 of the 25 participating member states. Poland, Cyprus, Luxembourg and Malta could not measure what was happening with their carbon allocations because they did not have registries that followed the allocation of permits in the secondary market. Technical problems in the national registries of other countries also caused problems in the Czech Republic, Slovakia and, inevitably, France, which, of all the member states, complies least with European directives. Therefore, accurate data are available from only 18 of the 25 participating member states.
How are we to prevent similar problems from emerging if we include aviation in the scheme? All of those problems were known about before the scheme was launched. When she was the Secretary of State for Trade and Industry, the right hon. Member for Leicester, West (Ms Hewitt) wrote to the then President of the European Commission, Romano Prodi, to complain about the lack of rigour among other member states. She pointed out:
“Allocations beyond need are in effect gifting companies a free asset, which their competitors in other countries will not receive. Any over-allocation will also mean there is little or no incentive for industry to change behaviour and reduce emissions.... We also believe there is also a very real risk that over-allocation will mean that little or no trading occurs (who needs to buy?). Trading will be limited and there will be little emission reductions.”
She also threatened that the credibility of the scheme would be in doubt. I put it to the Minister that the credibility of the existing scheme is certainly in doubt.
Finally, the Minister has said persistently that aviation will join the emissions trading scheme, but because there will be no trading between the two schemes, we are in fact setting up a separate scheme. It is possible that the price of carbon in one scheme will be radically different from the price in the other. Philosophically, that is very damaging and suggests an element of economic interference in the allocation of resources in a market economy. That is likely to lead to great inefficiencies.
We all know that the visibility of aviation, concern about aviation emissions, and the green lobby’s preoccupation with it is very strong. The green lobby wants aviation to be targeted in particular. I think that it has picked on aviation because it is an easy target. It is a growing sector and tends to be confined to the better-off, rather than the poorest in society. That happens to be a fact. It is like 4x4 vehicles: the green lobby picks on them even though an old Morris Minor produces far more pollution than a modern 4x4 vehicle. But that is beside the point. One sees stickers on the back of Morris Minors reading: “Nuclear Power, No Thanks!”
The crunch is this: we want a scheme that will encourage a more rational allocation of resources and to bear down on the overall emission of carbon dioxide in the European Union. That means that we should have a cap on nation states’ overall emissions, such as that set by the Kyoto treaty, and not bear down on individual sectors. That means also that we must allow trading between sectors. It might be that the only way in which the aviation industry can grow will be to increase carbon dioxide emissions. For example, we know that we can expand power generation in this country and at the same time reduce carbon dioxide emissions by switching from coal-fired power stations to ones that use carbon capture or alternative renewable fuels and resources, or by placing greater emphasis on nuclear power.
We want a system that allocates carbon emissions to the parts of the economy where they are most needed—where demand is highest. I come back to the same point: if we remain on our present course, we will end up with a system of differential carbon pricing between the sectors so that even if prices in the aviation sector are five times what they are in the other scheme, there will be no way that that demand could be reflected. What is the point of pricing carbon from a power station at a fifth of the price of that coming out the back of an aircraft? That is not a rational way in which to reduce carbon dioxide emissions.
The grandfather rights, however, will be given to the existing fat cats of the European airline industry, which typically include Air France and Alitalia—the state-subsidised dinosaurs of the 1960s. They will continue to chunter around Europe with fleets of old aircraft, belching out far more carbon dioxide than is justified, and with half-empty aircraft, because they provide a lousy service, are not competitive and charge too much for their tickets. As they decline, they will sell off their permits and make a profit at the expense of the new, efficient, clean airlines that have to buy them. The system is crazy.
Today’s vote is irrelevant, because we are still consulting. However, the Minister should give us an assurance that we are seeking a rational system that will allocate carbon emissions according to where there is economic demand. The objective of an overall carbon trading scheme is to bear down on the emissions produced by the European Union as a whole. We should get rid of the outdated, state planning pork-barrel type allocation of carbon trading permits, which will only become the latest version of the common agricultural policy or the allocation of steel or fishing quotas. The European Union pretends to be very good at such things, but it is actually corrupt, inefficient and bad for the economic well-being of its people.
5.51 pm
Mr. Chope: It is a pleasure to follow my hon. Friend the Member for North Essex who has, as usual, brought intellectual rigour to the debate. The inevitable conclusion to be drawn from what he has said is that he should join the sceptics on this subject. As he says, the proposed scheme smacks of the problems that we have experienced in the European Union in relation to quotas for fishing, milk and set-aside. Now we have the problem of a carbon quota which—surprise, surprise—will affect one of the United Kingdom’s most successful industries. Our aviation and aerospace industry will bear the brunt of the scheme, which will discriminate heavily against existing efficient airlines and even more against new entrants that bring in new, clean, efficient aircraft and manage their affairs more efficiently.
I welcome the Minister’s statement that UK aviation is to grow from 228 million to 490 million passengers by 2030. The quality of life of all those people will be enhanced as a result. I am delighted that the Minister has confirmed that the Government are not attempting to use the emissions trading scheme to constrain that demand. The view of some of the people who participate in debates about aviation is coloured by the fact that they do not want their local airport to expand, or because they will still be able to afford to fly and they do not mind if the cost goes up even if it means that fewer people will be able to fly or the predicted increase will not come about.
“aviation accounts for approximately 3 per cent. of the EU's carbon dioxide emissions.”
If all flights with a high allowance price of €30 were to pay that carbon price, it would have only a minimal effect on overall demand growth. That is reflected in those figures, but as I said earlier—and I shall not go any further—it is totally inconsistent with the line that the Government have been using to justify the doubling of air passenger duty.
I also wish to take issue with what the Minister said about the legal situation. When we last debated this matter in November 2005, the hon. Member for Lewes asked the then Minister for Climate Change and the Environment, the right hon. Member for Scunthorpe (Mr. Morley):
“Have the Americans accepted that and does it raise a legal issue in relation to international agreements?”
The Minister replied:
“There is certainly a legal issue for aircraft departing from their nation of origin. We could not apply the carbon trading scheme in that case.”
That seems to be a pretty unequivocal assertion by a Minister that as far as UK legal advice was concerned, we would not be able to apply the carbon trading scheme to flights emanating from, for example, north America. The Minister went on to say:
“With regard to aircraft departing from the EU, our legal advice is that the Commission would be within its legal rights to apply carbon trading to all departures from the EU. The principles of carbon trading were discussed in ICAO... The Americans are well aware that we are in the process of drawing up such ideas and are keen to advance them in the European Union.”—[Official Report, European Standing Committee , 24 November 2005; c. 22.]
I hope that the Minister will explain why the legal advice that she quoted earlier is different from the unequivocal legal advice articulated only 18 months ago by the then Minister for Climate Change and the Environment.
Is this another example of the great European Union engaging in wishful thinking by believing that it can browbeat the Americans and other countries? We should not forget that we are talking about people in Europe putting on a hair shirt, despite the fact that most CO2 emissions emanate from outside the continent. Aviation emissions within Europe represent only 3 per cent. of EU CO2 emissions, which in turn are significantly less than a quarter of total global emissions, so tackling such emissions is small fry in terms of having an impact on the overall amount of CO2 emitted into the atmosphere. I suspect that the measures are motivated by people who would like to create a new bureaucracy centred on what sounds like an attractive trading scheme. On the face of it, anyone who believes in a free market would say that it must be a good idea to create a trading scheme. Unfortunately, the way in which this particular scheme is being set up suggests that it will not be an open market, but the reverse.
Mr. Chope: I know that you do not want us to discuss the new, so-called open skies agreement, Mr. Taylor, but the Conservatives believe that it was a really bad deal for the UK. We support my hon. Friend when he says that we are engaging in double jeopardy for UK airlines and aviation interests as a result of the agreement and the proposals that we are debating.
I remain of the view that the ETS proposal is based on two false premises: first, that it will achieve any significant reductions in CO2 emissions and, secondly, that those CO2 emissions are the cause of global warming. That is a dubious premise on which to base policies such as the ETS. I hope that the Minister will be able to stand back from the hype that surrounds the issue and look at some of hard evidence. I hope that having done so, she will conclude that we are dealing with a dubious area of science. There are different hypotheses, each of which is plausible. As with all matters scientific, a hypothesis stands until it can be disproved. There are lots of competing hypotheses about the causes of global warming and the involvement of CO2 emissions. Given that, why are we engaging in a ludicrously bureaucratic and ineffective scheme such as the ETS?
6 pm
Gillian Merron: I should like to reflect on some of the points raised in the debate and following on from the question-and-answer session. However, I emphasise that we are launching a consultation shortly, and the views that have been expressed today will certainly feed into it. I had hoped, in truth, that Opposition Members would show a greater appreciation of the Government’s openness on this matter and of the fact that a consultation document will be available in but a few days. I am surprised that they did not welcome that warmly.
Including aviation in the EU emissions trading scheme is a long-standing ambition of the UK Government. We welcome the ambition of the Commission’s proposals, and we will work hard in the negotiations to ensure that the ETS produces the environmental outcomes that we are aiming for. Perhaps it would be helpful and of benefit to some—
Mr. Jenkin rose—
Mr. Brazier: Will the Minister give way?
Gillian Merron: If the hon. Gentlemen would care to wait a moment, I should just like to remind Opposition Members that, not long ago, the right hon. Member for Witney (Mr. Cameron) said:
“We’ve also got to look at all the things we can do in terms of air travel. Let’s make air travel a part of the emissions trading scheme.”
That is a rather more interesting, supportive comment than some of those declared today by Conservative Members.
Mr. Brazier: The Minister just said that she was in favour of including aviation in the EU emissions trading scheme. The documents do not propose that; they propose setting up a separate scheme. That is what my right hon. Friend the Leader of the Opposition called for and that is what we as a party support. Is that what she is saying, or not?
Gillian Merron: I am happy to clarify that the Leader of the Opposition said:
“Let’s make air travel a part of the emissions trading scheme.”
I would not concur with the views that have just been expressed, but I am happy to refer to them just to clarify the position for the hon. Member for Canterbury. However, perhaps I can deal with some of the other matters that he mentioned.
I was surprised to hear the hon. Gentleman say that we have no overarching strategy or debate on aviation. I refer him to the air transport White Paper, which outlines the Government’s strategy for aviation. I remind the Committee that the Government published the air transport White Paper progress update in December 2006, which clearly deals with a number of more general issues that we are not attending to today.
The question of support for this move has been raised. It is supported by all our stakeholders within the aviation industry and by most—I stress “most”—environmental lobby groups. In the industry, there is support from stakeholders such as BA, BAA Virgin, easyJet and the CBI. However, people have various views on the detailed proposals, which is why we are conducting the consultation.
There has been a suggestion that the ETS will do little to reduce aviation emissions. That is not a view that I could share. However, for clarity, emissions trading does not fix arbitrary limits on the aviation industry: the focus is on emissions reduction in the economy as a whole. That will be the reason why it succeeds.
There was considerable talk about the disconnect between cost reductions due to the EU-US discussions and about the allegedly increasing costs due to EU ETS. The EU-US agreement is the best deal for the consumer. I am sure that consumers throughout the country will be interested in that. I re-stress that the EU ETS will ensure that the environmental costs of flying are covered to a greater extent—something that is not available to us now. There is some confusion about the situation, as hon. Members have mentioned.
Mr. Chope: On the consultation with the aviation industry, is not it fair to say that industry welcomed the emissions trading scheme as an alternative to air passenger duty, not as an addition?
Gillian Merron: As I stated earlier, we believe that inclusion in the EU ETS is our strongest hand in putting a cap on emissions. It is but one possibility, and APD is another. I spoke about other economic measures, and I know that Opposition Members have a range of economic instruments that I would consider to be somewhat blunt and not in the interests of the UK economy. The Government seek to deal with the environmental challenge, which is global and international, by international agreement.
Mr. Jenkin: I emphasise that the Minister is contemplating setting up a separate scheme, not joining the existing scheme, because the two schemes will not be able to trade with each other. Would not the rational answer be a simple aviation fuel tax applied on the whole transatlantic area? After all, the United States already taxes aviation fuel for its domestic flights. In the EU, we could agree to tax aviation fuel for our domestic flights, and we could then agree to tax aviation fuel for all transatlantic flights. That would deal with a significant proportion of the global aviation sector.
Gillian Merron: That is an interesting exposÃ(c) of Conservative thought. I have explained that it would require a change in the Chicago convention to tax fuel internationally. If we were to tax domestic flight fuel, as the Conservatives propose, it would encourage the purchase of fuel from other countries, thereby making us less competitive and driving down our economy. It is not a suggestion that I am prepared to accept.
The Chairman: Order. I have allowed considerable references to the taxation of aviation fuel, and I should now like the Minister to focus on the early inclusion of aviation in the emissions trading scheme and for other members of the Committee not to deviate from that core, too.
Gillian Merron: Thank you for your guidance, Mr. Taylor. I am happy to agree with it.
On airports, perhaps I can reassure the hon. Member for Canterbury that BAA is already part of an emissions trading scheme, because it is one of the UK’s top 20 industrial consumers of energy. The BAA airports are among a number of airports that have also set themselves targets for energy efficiency. Far from being excluded, BAA is included.
Mr. Brazier: The Minister knows that that is not the point. BAA is included for the purpose of its ground arrangements, as others are, but not for the purposes of air traffic control. The legal and other administrative arrangements remain, with airlines rather than airports as the main vehicle for this separate trading scheme.
Gillian Merron: Probably the best thing that I can do is to take that as a response to the consultation. I am sure that it will produce interesting results.
On constraining demand, I am not sure whether Opposition Members propose that the Government should tell people whether or not to fly. Perhaps some clarity would have been welcome. Let me make it clear. I refer hon. Members back to the air transport White Paper, where we rejected a predict-and-provide approach and promoted better use of airport capacity. That seems to be the right, balanced approach.
The hon. Member for Canterbury referred to the Tyndall report. In my view, it paints an over-pessimistic picture. The report’s forecasts differ greatly from the air transport White Paper in that the Tyndall projections for aviation are produced on the centre’s own forecasts for demand and emissions and are well in excess of those in the White Paper. The Tyndall centre also had a more conservative assumption about fuel efficiency. Therefore, in my view, the conclusions were not made on the right basis for looking ahead.
I shall now turn to the points that were made by the hon. Member for Orkney and Shetland about his constituency and similar constituencies. I am sure that hon. Members will accept that, when we consider regional aspects and special situations, we must do so with the proviso that we have to ensure that exemptions do not undermine the scheme’s environmental and market efficiency. We have not come to a conclusion on exemptions, so I look forward to the hon. Gentleman reinforcing his points in that debate.
There have been a lot of references to grandfathering rights. For the benefit of the Committee, I confirm that allowances will be allocated through benchmarking and auctioning, not through grandfathering. I hope that that provides reassurance. The hon. Member for Orkney and Shetland referred to the contribution of alternative forms of transport, as did other hon. Members. It is worth noting that rail travel, for example, is not always a more environmentally sustainable option than short-haul flights. The benefits of rail travel accrue from high occupancy. Research shows that at a conventional speed, a train emits one third less CO2 than a short-haul flight, but as train speeds increase, so do carbon emissions. In some parts of the country, such as the constituency of the hon. Member for Orkney and Shetland, train travel is not an option. The alternatives to air travel should be considered, but it is important that we understand what they produce.
The hon. Member for Orkney and Shetland raised the issue of new entrants. The scheme will be designed so that new entrants will not be prevented from entering the market. They will be able to buy allowances, either by auctioning off the initial allocation if it occurs or on the market from airlines or other sectors. I hope that that provides some clarity.
The hon. Member for North Essex focused his contribution on how to avoid the difficulties of the current system and included a clear criticism of the ETS. In making those comments, I hope that he did not lose sight of where we need to get to. I shall deal with some of his points. Phase 1 involves learning by doing; as we continue, we are learning ways to improve. We support that, as there are lessons to be learned. We must ensure that there is sufficient scarcity in the market, for example, when we make decisions on the phase 2 national allocation plans. It is important to note that the aviation cap will be set not at member state level, but at EU level, and I hope that that will overcome some of the difficulties to which the hon. Gentleman referred.
The hon. Member for North Essex talked about ensuring that member states have the ability to collect required data, which is important. Airlines are already obliged to collect many of the data that will be required, and European airline representatives have also agreed to support smaller airlines in implementing any extra procedures that might be required in advance. I hope that, in dealing with those points, I have covered most of the issues raised.
Mr. Chope: I am not sure whether the Minister has covered the legal advice given by her former ministerial colleague and the position today.
Gillian Merron: I am grateful to the hon. Gentleman for reminding me. I apologise for not making additional reference to that issue, but we covered it earlier during questions. The Commission would clearly not go ahead if it was not confident of its legal base; nor would we want it to do so. The hon. Gentleman asked what had changed. Time has changed things. It has been more than a year since the last such debate in Committee. I have talked about the feasibility study that has been conducted, which gives an assurance. I remember a discussion earlier in the debate about lawyers rubbing their hands. I suspect that lawyers have been rubbing their hands for some months and have come to conclusions that can lead us in a certain direction.
We are not cavalier about the proposal, which is about ensuring that we do the right thing. The right thing to do—I wish to close on this point—is to deal with the environmental performance of the whole economy and to have an incentive to reduce emissions, so that we do not cause more damage than we need to. It is estimated that the proposal will nearly halve the CO2 emissions by 2020. That seems to me a prize worth having. I hope that the Committee is prepared to support the motion and our way forward.
Question put and agreed to.
That the Committee takes note of European Union Document No. 5154/07, Draft Directive amending Directive 2003/87/EC so as to include aviation activities in the scheme for greenhouse gas emission allowance trading within the Community; welcomes the work of the European Commission in developing proposals to address the climate change impacts of aviation; and supports the Government’s approach of pressing for the early inclusion of aviation into the Emissions Trading Scheme.
Committee rose at seventeen minutes past Six o’clock.

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