Letter from Committee to the Secretary
of State
Last month the Environmental Audit Committee received the Government
Response to our report, published in February, on The EU Emissions
Trading Scheme: Lessons for the Future (Second Report of Session
2006-07, HC 70).
We welcome this Government Response for its thoroughness, openness
and constructive nature. At the same time, there are one or two
points which we would like to clarify, and which I detail below.
Accordingly, while we have so far reported the Response to Parliament,
and made it publicly available by uploading it to the Committee
website, we have not yet published it. When we do so, we would
like to include your reply to our points within the covers.
Impacts of Phase I
The Response to Recommendation 25 (p 19 of the Government Response)
is, it must be said, very confusing. Notably, it refers to two
different figures (5.2MtCO2 and 4.6MtCO2)
as representing carbon savings from the UK's participation in
Phase I of the EU ETS. The 5.2MtCO2 figure appears to be the actual
difference in recorded emissions of UK installations in 2005 versus
2003. The 4.6MtCO2 figure appears to be a notional reduction
from Business As Usual (BAU) projections.
Perhaps most confusing, in answer to our query as to why the 4.6MtCO2
figure does not feature anywhere in Government calculations of
carbon savings that are contributing to the 2010 target to reduce
UK CO2 by 20%, the Response states: "The Phase I reduction
is not quoted in Government statements relating to the 2010 target
for the good reason that they do not relate to emissions in 2010.
Government is, however, clear that Phase I intends to deliver
emission reductions over the period 2005-2007 of 4.6MtCO2 lower
than they would have been without the contribution of the UK cap
on ETS installations".
We would thus like to ask:
1. What evidence does the Government have to show that
the saving of 5.2MtCO2 is caused by the EU ETS, and
not merely coincidental with it?
2. Why is the 4.6MtCO2 figure not included within calculations
of the contributions made by policy measures under the UK Climate
Change Programme towards the 2010 target? What precisely does
it mean to say that it does not apply to the year 2010; especially
when, for instance, the Fuel Duty Escalator is still included
in these calculations, despite the fact it was abolished in 1999?
EU ETS and transparency of UK carbon reduction targets
We welcome the sentiments in the Government Response to Recommendation
17 (pp 13-14), which express the Government's strong agreement
that "Government publications should be transparent about
the level of emissions reductions taking place in the UK, and
the net inflow (or outflow) of emissions reductions from elsewhere",
leading to the specific assurance, in response to Recommendation
24 (p 18), that:
In the Government's view the most informative combination
of data is to show
i) UK CO2 reductions within the UK
ii) the total of CO2 and CO2e
reductions within the UK and abroad funded by the UK.
However, we are concerned that the Government must make these
differences truly explicit and obvious to any observer. We draw
attention to Defra's press release of 31 January 2007, "Greenhouse
gas statistic show UK on track to double Kyoto target" (Ref
25/01). Rather than clarifying that emissions allowances purchased
through the EU ETS (and thus also, from 2008, the CDM) may translate
to reductions taking place abroad, the press release incorporates
projected EU ETS savings into UK emissions figures with the use
of such rather bland phrases as: "Adjusted for emissions
trading", "when the effect of the EU Emissions Trading
Scheme is taken into account", and "CO2 incl ETS".
We further draw attention to Budget Report 2007, which in one
graphic incorporated these estimated savings arising from the
EU ETS in 2005 into its sole presentation of UK emissions:
[Same graph as in Figure 2, page 11 in the body of
the text]
As the note at the bottom of the chart explains, "figures
take into account the effect of the EU ETS)." This is an
example of something which our Report specifically recommended
should never be done:
24. […] Above
all, [the Government] must ensure that whenever it publishes graphs
depicting historic UK emissions and plotting their projected progress
in future years, this always shows historic and projected emissions
from the UK only, and never incorporates, in the same line, estimated
reductions funded abroad. (Paragraph 74)
The issue of where emissions reductions take place is, of course,
quite aside from that as to whether the purchase of ETS allowances
translates into actual emissions reductions, wherever they may
take place. The aforementioned Defra press release explains that
the stated difference (some 27MtCO2) between actual
UK emissions in 2005 and UK emissions "incl ETS" represents
the net number of ETS allowances (27 million) that UK participants
purchased to cover their emissions in 2005. We would argue, following
the conclusions of our Report, that purchasing ETS allowances
in Phase I, which most observers agree to have been over-allocated
as a whole, does not necessarily mean funding emissions reductions.
We would thus like to ask:
3. What is the Government's response to our specific recommendation
that it should never, when publishing graphs that depict historic
and projected annual emissions within the UK, include in the
same line the effects of estimated emissions reductions funded
by the UK but taking place abroad?
4. Does the Government have—or will it develop—a
code of practice governing the transparency with which it reports
UK carbon and GHG emissions, especially covering how it reports
the contributions of the EU ETS and other uses of international
emissions trading?
5. Will the proposed Committee on Climate Change have the
role of auditing Government emission figures for robustness and
transparency?
Aviation
On aviation, the Response contains the following interesting information
(Recommendation 42, p 31) regarding the sectoral cap to be set
for aviation within the EU ETS:
The Government would like to see a provision added
to the Directive enabling the cap to be revised. This review would
provide a mechanism to ensure that the environmental effectiveness
of the scheme is maintained, particularly as more challenging
targets are achieved through international negotiations. The date
of revision would depend on the actual start date of the scheme
and should be reviewed in context of the general review of the
EU ETS.
6. Could the Government supply us with some more information
on this proposal?
Streamlining of climate change regulations
We welcome the Government's detailed and informative response
to our concerns as to the potential for certain UK firms to become
subject to multiple trading regimes and other climate change instruments
(Recommendation 35, pp 25-7). As we suggested, we may investigate
these issues in further detail in a forthcoming inquiry into the
Climate Change Levy, and may also decide to look further at the
proposed Energy Performance Commitment. However, one point in
the Government Response was new to us:
7. The Response refers to the "Climate Change Simplification
Project". Could the Government provide us with some more
details of this project?
Impacts on competitiveness
On managing the economic impacts of mitigation, we recommended
that the Government should consult on whether and how the economy
requires greater support and guidance in terms of R&D investment,
skills training, and potentially trade agreements. The Government
Response stops short of agreeing to such an overarching approach,
but does say that the Government will carry out further research
on the competitiveness implications of the EU ETS (Recommendation
15, pp 11-12).
8. Can the Government supply more details on the further
research it has stated it will carry out on the competitiveness
implications of the EU ETS, including any details on the nature
and deadlines of any studies that are commissioned?
We may also follow up other these and other issues touched on
in the Government Response in future inquiries.
We appreciate your appearing before the Committee at our session
on June 4, and look forward to receiving your written reply in
due course.
Tim Yeo MP
Chairman, Environmental Audit Committee
June 2007
Response from the Secretary
of State to the Committee
Supplementary Memorandum from the Department
for Environment, Food and Rural Affairs
Thank you for your letter to David Miliband of 13th
June regarding the Government response to the Environmental Audit
Committee's report on The EU Emissions Trading Scheme: Lessons
for the Future. I have set out below the answers to your further
questions.
1. What evidence does the Government have to show
that the saving of 5.2MtC02 is caused by the EU
ETS, and not merely coincidental with it?
The Government's response did not state that the
5.2MtC02 saving was caused by the EU; ETS; it simply
explained that in 2005 the emissions from the UK installations
covered by the EU ETS were 5.2MtC02 lower than the
estimate for 2003. We have used the comparison between 2003 and
2005 emissions because this was the most straightforward overall
comparison of data available at the time. Since Government submitted
its response to the EAC report, 2006 EU ETS emissions data has
been checked and published. The comparison between 2003, 2005
and 2006 shows the following picture for emissions (figures in
MtC02), and in terms of the allowances issued by the
UK. Where emissions are greater than the quantity of allowances
issued, operators will have been obliged to buy additional allowances
from other Member States in order to cover their shortfall. The
impact of the UK's EU ETS allocation decisions on carbon concentrations
in the atmosphere is therefore the comparison between our estimate
of what would have happened under a business as usual scenario,
and the allocations.
