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Colin Challen (Morley and Rothwell) (Lab): I start by apologising to the Minister and her shadow, the hon. Member for Bexhill and Battle (Gregory Barker), as I will have to leave early because of a long-standing speaking engagement in Birmingham. I still have to find the venue on the map and get there.
I thank the Committees illustrious Chairman, the hon. Member for South Suffolk (Mr. Yeo), for leaving some things for junior members of the Committee to dwell on. There was a fear that he would cover everything so expertly that we would have nothing left to say, but I wish to cover one or two additional matters.
I support the principle of carbon emissions trading as one of a number of approaches to tackle climate change. I do not share the outright opposition to it of organisations, such as the Corner House, that gave the Committee good, powerful evidence. We must address the concerns that they raised, particularly on assessing the robustness of some so-called abatement projects. The robustness of the ETS is something that I wish to dwell on, as is what may be described as its perverse consequences, which can be serious, as we see in the latest leaked Government document on renewable energy targets.
We cannot examine the EU ETS and assess its effectiveness in isolation from other efforts to reduce greenhouse gas emissions. It is still in its infancy and, as our report demonstrates, it has suffered an abundance of teething problems, many of which stemmed from the over-allocation of permits and inflated projections of business-as-usual forecasts. Now, in the second phase, we can see that some of the problems are being addressed, with tighter caps and with the Commission having reduced many countries national allocation plans. That shows that the Commission is learning how to act firmly and responsibly.
But are we truly in a position to justify all the faith that we invest in the single mechanism of the ETS? One reads about it as though it will be the saviour of all our souls and solve all our climate change problems. The Government are forthright in their ambitions for it. In Global Europe: Meeting the Economic and Security Challenges, they state:
Emissions trading is central to the delivery of EU objectives and the EU Emissions Trading Scheme...must become a more effective mechanism for driving change. This will require a more predictable, top-down approach to setting the overall caps for
emissions, in line with the EUs ambitious overall GHG targets, higher levels of auctioning of allowances, and clear long-term signals about future requirements to drive low-carbon investment and innovation. The EU should also seek links with schemes in other economies to develop a truly global carbon market, capable of turning international agreement on targets into rapid, cost-effective action.
That sounds laudable, and I support that approach so long as the policies to match it are in place. That vision is expanded upon in the document, Moving to a global low carbon economy: implementing the Stern Review, published as part of the pre-Budget report bundle. It said that the EU ETS has
the potential to become the centre of an international emissions trading system encompassing many developed countries and projects from developing economies.
the focus of the Governments carbon pricing policy.
the need for more costly measures at Member State level.
Carbon pricing alone will not be sufficient to reduce emissions on the scale and pace required.
So far, if the ETS has workedit has not really worked all that wellit must be measured against that assessment from Nick Stern. As our report makes it clear, there also remain considerable concerns about the credibility of Government claims about the impact that it will have on reducing carbon emissions, not least claims about the 8 megatons of CO2 that it will allegedly save in phase 2. The section of our report headed
Phase II will not reduce UK CO2 emissions by the amount stated
That section prompts another question: where are the savings to be made if they are to be classed as real and substantive? One answer is through the clean development mechanismanother fledgling mechanism that has been heavily criticised for not doing what it says on the can. Billions of dollars have been invested in schemes that do not bear scrutiny. Many of the Chinese HFC-23 avoidance schemes that have soaked up those billions of dollars have been complete scams and there has been little evidence of greenhouse gas avoidance additionality. A WWF report published in June said:
Until credits from these projects run out they will continue to divert funds away from tackling the real challengethe drive towards a low carbon energy system. Indeed a recent article in Nature indicated that it would cost around €100 million to install scrubbers onto the existing factories producing HFC-23 in the developing world. Yet the same factories look set to make €4.7 billion from the sale of credits into the carbon marketfunds which could have been much better spent in assisting the rapidly industrialising countries develop along a lower carbon pathway, and giving access to energy to some of the worlds poorest people.
I suspect that there is a long way to go before we get those inter-linked mechanisms to work properly. Indeed, non-governmental organisations such as the
Corner House believe that they are inherently incapable of being improved to the point of delivering what they are supposed to.
We should pause for a moment and recall the task that we are supposed to be addressing: achieving a safe and sustainable stabilisation of greenhouse gas concentrations in the atmosphere. The EU ETS and every other mechanism should be designed to address that objective, but we are in danger of forgetting it because we are determined to make the ETS and every other global trading system work. The objective is not to create trading systems as an end in themselves.
Every day, every individual, Government Department and carbon market trader should remember what this issue is all about. Sadly, far too many people are too busy, either burying themselves in the detail or working out how much money they can make, to realise that the climate change reality unfolding before our eyes and on our screens is rapidly overtaking us. That message was brought home even more powerfully in the global environment outlook of the United Nations environment programme report that was published today. The report might make us wonder, when we talk about finding the cheapest solutions to climate change, exactly how the people who are suffering from climate change will react. I bet that they will not all be dancing in the streets if they have followed our progress to date.
That brings me to my second area of concern: the possibility of the EU ETS having perverse impacts on other efforts that are designed to meet the challenge of climate change. My hon. Friend the Minister might not have seen the front-page headline in Tuesdays The Guardian, Labours plan to abandon renewable energy targets. Indeed, I am sure that she has not. What defamation! I hope that the Government sue The Guardian for libel. Are any Government more committed to renewable energy than the UK Government? I wonder what a judge would make of the case for the prosecution if it went to court. Not much.
The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Joan Ruddock): I must draw my hon. Friends attention to what the Prime Minister said only yesterday, which is that the UK remains absolutely committed to the EU energy target of 20 per cent. by 2020.
Martin Horwood (Cheltenham) (LD): I do not want to distract hon. Members into a debate purely on this one issue, but is it true that the Government have been negotiating for a reduction of their target in that respect?
Joan Ruddock: May I help my hon. Friend to address that intervention? We are committed to an EU-wide energy target. The contribution of individual member states has not yet been decided, so the UK level of contribution could be set at any point.
One of the main objections of government to meeting the renewables target set by Mr Blair is that it will undermine the role of the European emission trading scheme.
crucially undermines the schemes credibility...and reduces the incentives to invest in other carbon technologies like nuclear power.
I saw an earlier options paper about what stance we should take in dealing with our European partners in meeting the targets of the EU spring council, and the language is the same. Sheltering behind a flimsy reference to the EU ETS, the Government want to reduce their commitment to renewables. Sadly, it seems that far from striking out to meet the EU 20 per cent. average renewables input by 2020, our objective, which was confirmed on Tuesdays Newsnight programme is
somewhere between 10 per cent. and 15 per cent.
If only the retreat stopped there. It turns out that the Government have caught the trading bug in all its glory and have been working behind the scenes to create a market in some form of renewable allowances so that we can buy our way out of doing things, just as the ETS allows us to continue to emit greenhouse gases in the UK. So, that bottom-of-the-range figure for renewables could be even lower. It seems that the Germans have not taken that proposal lightly, as trading in renewable allowances could harm their successful feed-in tariff system that encourages investment in renewables.
Gregory Barker (Bexhill and Battle) (Con): The hon. Gentleman makes some powerful points. I know that he does not agree with the Governments assertion that they need a low renewables target to make the emissions trading scheme work, but does he even understand the logic of that argument? It leaves me perplexed.
Colin Challen: There are some issues about how one would price carbon if one spent a lot of taxpayers money on renewables, because that might reduce the price of carbon and could take the bottom out of the market. In a letter in todays TheGuardiana newspaper that I occasionally readDr. Jim Watson of the university of Sussex said:
The government is being disingenuous when it claims the renewable energy target agreed by Tony Blair will undermine the European emissions trading scheme. This will only happen if the caps on carbon emissions already agreed are not adjusted to take a more rapid renewables expansion into account...Future caps on carbon emissions should also be tightened so carbon prices do not continue at their present low levels.
Jo Swinson (East Dunbartonshire) (LD): On the point about the Government seeking to reduce our renewables target, does the hon. Gentleman find it strange that within an overall EU target of 20 per cent., we, on the basis of the argument about the ETS, might be seeking a contribution of less than 20 per cent.? Given the UKs fabulous renewable resources potential, with our coastline and windas a Scot, I well know the weather resources at our disposalsurely we should aim higher than 20 per cent.?
Colin Challen: Germany anticipates achieving about 30,000 MW of wind capacity by 2011, and the wind energy industry sees that as realistic. By that time, we, too, will have made big strides forward, but we will have got to only about 7,000 MW of wind capacity. Although we will overtake Portugal in the process, we will still be behind Spain. If Germany and particularly Spain support the EU ETS and good systems for encouraging investment in renewables, I do not see why we cannot join the club. However, the original proposal to introduce legislative designs on renewables by December has been postponed, which raises the question of why. That postponement takes us beyond Bali, and the EUs position will be weakened at the United Nations framework convention talks in December by the apparent shilly-shallying on the various targets.
The Minister is right that the Government are committed to the 20 per cent. average in Europe, but while that target allows some to progress well, their progress allows us to lag well behind. We should not put all our eggs in one basket. We should have a strong renewables industry that can export and create wealth and many jobs in this country, as it has in Germany. That should also help us to improve the ETS. I am sure that many such synergies could be created, and we should not have documents floating around suggesting that people in certain Departmentsnot represented herethink otherwise. That is the connection that I have tried to highlight between the two issues that I have discussed this afternoon.
Mr. Nick Hurd (Ruislip-Northwood) (Con): Thank you, Lady Winterton, not least for indulging me when I was temporarily absent from the proceedings. That allowed me to fulfil my democratic duty in Committee and bank the rare experience of enjoying the chairmanship of both Sir Nicholas and Lady Winterton on the same day.
the greatest long-term challenge facing the human race,
we are discussing the main policy tool for responding to that challenge in the UK and Europe. It is the main policy tool because it covers 46 per cent. of emissions in this country and, broadly, across Europe. It is also our main policy tool in responding to the challenge set down in the Stern report of correcting the core market failure to take this thing called carbon, put a price on it and stitch it into the economics of daily life. Finally, the EU ETS is also important, as the Chairman of the Committee noted, because it is seen as something of a guinea pig and as a cornerstone for the long-term vision and ambition of creating a global carbon
market. That may have profound implications for the City of London and its opportunity to profit and enhance the prosperity of this country.
The Committee, under the distinguished and experienced chairmanship of my hon. Friend the Member for South Suffolk (Mr. Yeo), has done the House a service in throwing a spotlight on the EU ETS at a pivotal time. On the one hand, the Government are articulating a vision of emissions trading and a desire to move further and faster. In a speech to the Green Alliance earlier this year, the current Prime Minister said:
My ambition is to build a global carbon market, founded on the EU Emissions Trading Scheme and centred in London.
On the domestic scene, the Government intend to extend emissions trading through the carbon reduction commitment to companies not covered by the current scheme. As has been said, there is also the important initiative to include aviation in the next phase of the ETS. That is the language that the Government are using.
On the other hand, however, some legitimate and valid voices are sowing seeds of doubt about how effective emissions trading has proved in achieving its core function of significantly reducing emissions. I gather from my contacts with European colleagues, not least through the parliamentary network run by the Global Legislators Organisation for a Balanced Environment, with which the Minister is very familiar, that there are different levels of commitment across Europe to emissions trading. We in this country are pioneers and we tend to be evangelical about the opportunities before us, but Germany, which has a much more ambitious and effective domestic climate change policy on renewables and energy efficiency, attaches less weight to emissions trading. Given that the ETS has no guaranteed life beyond 2012, I fear that we in this country may be too sanguine and complacent about the fragility of this important market mechanism.
The main message from the report is that the scheme needs profound reform, as the Chairman has explained more articulately than I could. As a Conservative, I firmly believe that market mechanisms will find the most cost-effective solutions, but we should be under no illusion that the market that we are discussing is artificiala cap is set on it and it is set by politicians. The core message from the report and from all the evidence about phase 1 and, to a lesser degree, phase 2there has been progressis that the reduction and preferably removal of political risk from the process must be at the heart of reform. At the core of reform should be a steady process of reducing free allowances, because the decision to give away permits to pollute looks increasingly questionable, not least in the light of evidence that UK companies have passed the costs to consumers. UBS, for example, calculates that the first phase of the ETS added 1p to the cost of each kilowatt-hour of electricity, while the Government estimate that it generated windfall profits of £800 million in 2005. As we in this countryat least on the Opposition Benchesbegin to articulate the need to reinforce the polluter pays principle through the tax system, the decision to give away permits under the scheme looks increasingly untenable.
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