Conclusions and recommendations
1. While
Stern has used economic calculations to inform his choice of targets,
we are reassured by the way in which he has very firmly suggested
an upper limit to concentrations of greenhouse gases above which
we should not go, paying close attention to the scientific evidence
of the increasing risks of more serious and irreversible impacts
at higher concentrations. (Paragraph 11)
2. In
publicising the headline cost figure of 1% of global GDP, the
Treasury has implicitly chosen to set its sights at the maximum
limit of greenhouse gases suggested by the Review—the level
which Stern characterises as "a dangerous place to be, with
substantial risks of very unpleasant outcomes"—as the
target to aim for. (Paragraph 12)
3. While
the Stern Review offers a target range of between 450 and 550ppm
greenhouse gas concentrations, and while its costings of the efforts
required to meet these targets focus on the upper limit of this
range, governments should not treat the upper figure of 550ppm
as the target endorsed by the Review and the one which
they should in practice aim for. Sir Nick Stern himself has made
it very clear that the Review did not suggest 550ppm as
the main target to work towards. Rather, he has emphasised strongly
that 550ppm is the maximum stabilisation limit for 2050 we should
possibly consider, and that the further beneath this level at
which we can stabilise greenhouse gases by 2050, the lower the
risk of catastrophic climatic events in the future. We therefore
urge the Government, in promoting the findings of the Stern Review,
to ensure that this is the message that is widely understood.
(Paragraph 18)
4. Our
own view is that 550ppm CO2e would be an excessively
dangerous target, and that a prudent approach would be to aim
for 500ppm or below if this could be achieved. Especially considering
the dangers of slipping from and exceeding initial targets, we
urge the Government to work with international partners towards
selecting a global stabilisation goal at a level very considerably
below 550ppm CO2e. (Paragraph 19)
5. The
Government is right to emphasise Stern's arguments as to the benefits
of an aggressive programme to cut emissions. Aside from decreasing
the risk of the most damaging impacts of global warming in the
future, rapid mitigation can be expected to deliver a number of
benefits in its own right, speeding the deployment of new technology,
and thereby increasing economic efficiency as well as reducing
pollution. (Paragraph 22)
6. At
the same time, the Government should not minimise the challenges
of rapid mitigation. Rather, it should be honest with businesses
and consumers about the price impacts on emissions-intensive processes
and activities which accelerated emission-reduction policies imply.
This may help to develop the social consensus needed to make rapid
progress. (Paragraph 23)
7. We
are not in a position to engage in the full detail of the economic
arguments over the size of the projected costs of unchecked climate
change—estimated by the Stern Review to be between 5% and
20% of global GDP. However, we most certainly endorse the Review's
use of a very low value for its "pure time discount rate",
meaning in effect that Stern treats future generations as being
of equal importance to those alive today. To think otherwise would
be morally reprehensible, condemning future generations to an
uncertain and, in many parts of the world, possibly calamitous
future, out of sheer indifference. (Paragraph 30)
8. Secondly,
we would point out that there are many ways in which Stern's projected
figures for the costs of global warming are likely still to be
underestimates. While the Stern Review offers calculations for
the "non-market impacts" of global warming on human
health and the environment, it does not, as it makes clear, offer
cost estimates for such "socially contingent responses"
to climate change as "conflict, migration and the flight
of capital investment". Indeed, Sir Nick told us: "I
do think it is an important way in which some of what we have
done may have been underestimating, rather than overestimating."
(Paragraph 31)
9. Thirdly,
we would argue strongly that, while economic analysis may have
its place within climate change policy it should be strictly subordinated
to a scientific understanding of the levels of mitigation required
to give us best-estimated probabilities of avoiding important
thresholds in the climate system, which might trigger very serious
and irreversible impacts. In short, global warming should not
be treated like any other economic issue. The effects of global
warming do not easily lend themselves to being quantified and
expressed in terms of economic utility, given that they may radically
alter, not simply purchasing power or productivity, but entire
ways of life. Indeed, in several parts of the world they threaten
to make what are currently densely populated areas literally uninhabitable.
(Paragraph 32)
10. We
are pleased to note that the Stern Review itself acknowledges
the limitations of economic analysis. As the Review states: "These
models should be seen as one contribution […] They should
be treated with great circumspection. There is a danger that,
because they are quantitative, they will be taken too literally.
They should not be. They are only one part of an argument. […]
Nevertheless, we think that they illustrate a very important point:
the risks involved in a 'business as usual' approach to climate
change are very large". (Paragraph 33)
11. The
Stern Review is, indeed, explicit about being "based on a
multi-dimensional view of economic and social goals, rather than
a narrowly monetary one". Taken altogether, the range of
evidence on the natural and human impacts of climate change presented
in the Review supplements and intensifies its headline conclusions
on the quantifiable economic costs and benefits of taking action.
Whatever the detail of the economic analysis, and whatever one's
views of the estimated costs, the dangers of reaching important
thresholds in the climate system are surely so great that the
need for urgent and aggressive mitigation is overwhelming. (Paragraph
34)
12. The
Government should do more to publicise the size of the challenge
as summarised in the Stern Review. As Stern makes clear, the stabilisation
of greenhouse gases—whether at 450 or 550ppm CO2e—will
require ongoing reductions in emissions beyond 2050, ultimately
necessitating possibly the complete decarbonisation of every other
human activity beyond agriculture; and that further into the future,
net emissions must be cut even more deeply, possibly to just a
fifth of the present day emissions from agriculture alone. The
Review is clear that quantifying these limits is very difficult
and still uncertain. It is also clear that the first of these
limits would probably only need to be met in the second half of
the next century, while the second will probably not need to be
met for several centuries. Nevertheless it might still be valuable
to raise awareness of these long term limits; or at least to the
conclusion that emissions must continue to decline, even if we
meet Stern's targets for 2050. If nothing else, this might help
to increase popular consciousness of the ultimate inevitability
of radical changes to familiar technologies and habits of living
if climate change is to be tackled, which might help to stimulate
innovatory thinking and support for more radical measures in the
short term. (Paragraph 37)
13. The
Government should do more to highlight another key conclusion
from the Stern Review: stabilising greenhouse gas concentrations
at a chosen level does not simply depend on how much we
cut annual emissions by, but how quickly we do so. Stern
repeatedly emphasises the dangers of overshooting a target stock
level of greenhouse gases in the atmosphere: once we go above
a certain level, it will be very difficult and could take a prolonged
time to reduce it again. (Paragraph 39)
14. The
Treasury can indeed point to already having developed a number
of policies which fall under Stern's three main recommendations
for government action. Indeed, in commissioning and promoting
the findings of the Stern Review around the world, the Government
is clearly playing a very important role in helping to influence
international opinion and rally support for concerted and urgent
action. But it must respond to Stern's conclusions in its own
domestic policies; the profound issue which remains is the scale
and urgency of its programme. The true test of its policies is
very simple: how fast the reduction in UK emissions accelerates.
(Paragraph 46)
15. In
this respect, we are very disappointed by this Pre-Budget Report.
This was the Treasury's first opportunity to incorporate the findings
of the Stern Review in a major policy statement. It did not take
it; we did not see any escalation of the Treasury's climate change
policies in this PBR. (Paragraph 47)
16. The
Government currently uses a figure of £70 per tonne of carbon
as its Social Cost of Carbon. The Stern Review suggests that the
current SCC might be around £238 per tonne of carbon, or
over three times the Government's SCC value. In discussing this
point with us, the Financial Secretary told us that the Government
does not accept that Stern's figure is applicable for Government
decisions within the UK. We find this argument hard to follow.
After all, the Government frequently makes the point that the
global warming impacts of a tonne of carbon do not differ depending
on where those emissions are made. The corollary of this should
surely be that the Social Cost of Carbon should be the same for
any emissions, no matter where they are made. We accept that Defra
are currently reviewing the UK's SCC, but we can see no convincing
reason why the UK should not adopt Stern's suggested SCC value
for the current global emissions trajectory. If the Government
accepts the findings of the Stern Review, it should surely accept
its conclusions on the Social Cost of Carbon. (Paragraphs 49-51)
17. The
Government's 2050 target for reducing UK CO2 emissions
is out of step with the global targets recommended by the Stern
Review. Indeed, the global target limit for atmospheric concentrations
of CO2 which underlies the UK's domestic target for
2050 is some 50-60ppm CO2, or 10-12%, higher (that
is, more lax) than Stern's upper limit, the level of emissions
which Stern makes clear would itself be dangerous. (Paragraph
52)
18. The
Government has explained that even if its current domestic carbon
reduction target, included in the Climate Change Bill, becomes
law, it may still be altered and made tougher, should the science
develop and suggest the need for a lower limit to emissions. This
is indeed welcome. However, the science has already moved on since
the UK's domestic target for 2050 was first framed. The Government
ought to adopt a domestic target in line with Stern's target for
global greenhouse gases. (Paragraph 55)
19. It
is useful to go back to the original RCEP report from which the
Government's 2050 target was drawn. For a global 2050 target of
450ppm CO2 (roughly in the middle of Stern's 400-490ppm
CO2 target range), RCEP recommended that UK annual
emissions ought to be cut by 79% from 1997 levels by 2050. Putting
this in the form in which the Government adopted RCEP's 550ppm
target, this equates to around an 80% cut in UK annual CO2
emissions from 1990 levels: a reduction from annual emissions
of 592.13Mt CO2 in 1990 down to around 118.43Mt CO2
in 2050. To illustrate what a difference this would make to the
Government's current domestic target, a 60% cut from 1990
levels would result in annual emissions in 2050 of around 236.85Mt
CO2. In other words, a new target for the UK, based
on roughly the mid-range of Stern's global targets, would mean
that UK CO2 emissions in 2050 would have to be just
half what they would be under the Government's current
target, the one that is currently included in the Climate Change
Bill . We need hardly point out that the choice between such target
values must have the profoundest implications for the entire array
of public policy decisions, starting today. (Paragraph 56)
20. This
highlights the need for greater public debate on what the UK's
longer term emissions targets should be. Even more, it highlights
the need for much greater international focus on a global target.
The Stern Review makes a powerful argument for an urgent new international
agreement on climate change, and for it to be framed in terms
of a target for the global stock of greenhouse gases in the atmosphere
in 2050. The Government should work urgently to influence international
negotiations in this direction. (Paragraph 57)
Pre-Budget 2006: Shifting the burden of taxation
21. The
picture is of an ongoing retreat from the Treasury's announcement
in 1997 of a policy to shift the burden of taxation towards taxing
environmentally damaging activities. As the latest figures show,
the proportion of all taxation made up by green taxes is markedly
less than in 1997, and is indeed at a lower proportion than as
far back as 1994. This Pre-Budget does contain some limited announcements
of rises in green taxes, but these are still very modest when
set in the context of several Budgets and Pre-Budgets in recent
years in which many environmental taxes have not even been raised
in line with inflation. (Paragraph 61)
Aviation
22. While
we welcome the Treasury's decision to double Air Passenger Duty
rates, we do not feel this goes nearly far enough. Notably, the
doubling of APD rates announced in this PBR is, for the majority
of flights, only a restoration of the tax rates of five years
ago—and in real terms, of course, it still represents a
cut. This rise will do nothing to stabilise aviation emissions,
merely slow their growth slightly. Moreover, it does nothing to
impose an environmental charge on air freight, which lies outside
the APD regime. (Paragraph 68)
23. The
Treasury should once more look at reforming Air Passenger Duty,
possibly levying it per flight rather than per passenger, a reform
which would capture air freight (and empty flights), and might
also incentivise airlines to increase the efficiency of their
passenger loading further. Equally, the Treasury should look at
varying APD rates according to the emissions of each flight;
if this is not to be adopted, the Treasury should give a clear
reason why not. Above all, however, the Treasury should increase
APD so that it becomes more effective in curbing the demand for
flights. To inform and embed this approach, the Treasury should
look very seriously at proposals outlined by the Oxford University
Centre for Environmental Change for introducing an annual APD
escalator. (Paragraph 69)
24. We
are also concerned by the manner of the Pre-Budget's raising of
Air Passenger Duty rates. The travel industry has argued strenuously
against the timing of this rise, coming into effect less than
two months after its announcement. This contrasts with the previous
reform of APD, for example, which was announced in Budget 2000
but not implemented until April 2001. Our main concern here is
that in its handling of this rise, the Treasury may have caused
unnecessary antagonism, with the potential consequence of provoking
more opposition to environmental tax rises. (Paragraph 70)
25. We
cannot understand why the entire aviation industry is zero-rated
for VAT, meaning that airlines and other aviation companies are
able to reclaim the VAT they pay on a whole range of goods and
services. As a first step towards greater public consideration
of this issue, and to aid Parliamentary scrutiny, the Treasury
should publish figures of the full costs to the Exchequer of reimbursing
aviation companies in this manner. (Paragraph 73)
26. The
Treasury should end the anomaly by which airport vehicles are
allowed to use "red diesel", taxed at 7.69 pence per
litre, rather than ordinary road fuel, carrying the normal duty
rate of 48.35ppl. While airport vehicles may not indeed be running
on public roads, it seems utterly perverse to offer them such
a large tax reduction, considering the large impacts of airports,
not just on global warming, but on local air quality. (Paragraph
74)
Motoring
27. We
are disappointed with the Treasury's arguments surrounding its
fuel duty policies. What was widely reported as a rise in fuel
duty in this year's Pre-Budget Report was only a rise in line
with inflation, and this was only the second time it had been
revalorised since 2000. As the PBR confirmed, what this means
is that fuel duty is 15% lower in real terms than in 1999; and,
that moreover, this real terms cut has offset the rise in oil
prices over this period. Finally, there is surely a strong case
for building on what instruments are already available and which
could achieve rapid results—ongoing, real terms rises in
fuel duty being one of the prime examples. (Paragraph 77)
28. We
recognise the environmental benefits of a properly sustainable
and well-regulated expansion in the use of high-blend biofuels
such as E85. Under the current fiscal regime, however, it is unlikely
that the market for high-blend biofuels will take off, due to
its increased costs. The Treasury should therefore increase the
duty differential available to high-blend biofuels in order to
make them cost-competitive. (Paragraph 80)
29. Our
over-riding concern regarding biofuels is that in increasing the
volume of biofuels imported into the UK, the Government must ensure
that these come from sustainable sources, do not encourage deforestation
of tropical rainforests to be replaced with biofuel crops, and
minimise the carbon inputs which go into growing the crops and
transporting and refining the resulting fuel. On this point, given
that a coalition of major environmental organisations has such
reservations that it is refusing to support the Government's Renewable
Transport Fuels Obligation - in stark contrast, for instance,
to their support for the Renewables Obligation in energy generation—we
cannot but be disquieted. The Government must do more to implement
a truly effective and convincing international sustainability
assurance scheme for biofuels. (Paragraph 80)
30. Vehicle
Excise Duty ought to be reformed to widen the differentials between
each band. Band G in particular ought to be raised substantially
in cost. The Treasury should at least publish its rationale for
the VED differentials it adopts, in terms of the overall impact
on the new car market and on average CO2 emissions
per kilometre of new cars it seeks to achieve, and also in terms
of the VED charge as a proportion of an average car's sales price
and g/km for each VED band. The Treasury should also examine whether
differential rates of VAT can be charged on new cars to benefit
lower carbon models. (Paragraph 82)
Waste
31. While
we welcome the ongoing decreases in amounts of waste going to
landfill, we remain unsure as to the direct impact of the Landfill
Tax at current levels in terms of disincentivising landfill use.
To aid Parliamentary scrutiny of the workings of this tax, the
Treasury should publish analysis which clearly isolates and accounts
for the direct disincentivising impacts of Landfill Tax to date.
The rate of Landfill Tax should then be increased, steeply, to
the level at which it imposes an effective driver against landfill
use in its own right. (Paragraph 85)
32. We
are sympathetic to the idea of a broader use of Landfill Tax,
or other financial instruments, to guide the development of waste
disposal, in particular to incentivise the organisation of waste
so as to maximise the material which is recycled, and maximise
the energy that can be gained from the rest while minimising the
resulting emissions. As a first step, the Treasury should consult
on the introduction of an Incineration Tax. (Paragraph 87)
33. We
are not especially convinced by the Treasury's reasons for failing
to introduce any taxes on environmentally inefficient products,
such as plastic bags, non-recyclable batteries, and incandescent
lightbulbs. There would be a double purpose to such taxes: not
only would they disincentivise the use of such products in themselves
in favour of more efficient alternatives, but they would help
to raise awareness generally as to the desirability to shift whole
arrays of purchasing decisions and other daily habits in an environmentally
friendly direction. Such taxes would surely not harm the economy
or provoke great popular opposition. In cases such as this, the
onus should be on the Treasury to provide a convincing reason
why not to introduce such taxes. (Paragraph 90)
Energy
34. Our
main verdict on the PBR's new announcements on energy policy is
that these were welcome but only small steps in the right direction,
and that much swifter and bolder action is required. The new measures
in this PBR tended to be either well-defined but rather modest
in aim, or ambitious but rather vague or lacking in teeth. On
Carbon Capture and Storage, for instance, the main announcement
is of an intention to issue a tender for consultants to help the
Government assess whether to fund one demonstration project. As
for the headline announcement on household energy efficiency,
that all new homes are to become "zero carbon" by 2016,
we note that the PBR refers to this as an "ambition",
and that the building regulations which are to make it happen
will only be "progressively strengthened". Overall,
these measures do not represent the kind of radical acceleration
of policies and funding we would expect to see following the Stern
Review. (Paragraph 91)
35. Where
grant monies are distributed to subsidise heating bills or to
subsidise the installation of central heating, this must be complemented
in all cases by programmes to make energy efficiency improvements
to the same properties. This year's PBR contains a welcome announcement
of "£7.5 million to improve the coordination between,
and effectiveness of, Warm Front and the Energy Efficiency Commitment".
However, when we asked the Treasury whether this means that all
households which receive warm front grants will have energy efficiency
measures fitted as well, the answer did not suggest such universal
coverage. It seems clear to us that the Treasury, for reasons
not just of reducing carbon emissions but of social equity and
simple value for money, should do more to ensure that grants to
subsidise central heating are always paired with energy efficiency
improvements. Otherwise, public money will be leaking through
doors and rooftops as surely as warm air. (Paragraph 92)
Company reporting
36. We
welcome the Government's amendments to the environmental reporting
requirements of listed companies, following consultation during
the passage of the Companies Bill last year. However, these requirements
still fail in certain important respects. Most of all there is
no mandatory guidance on the form they must take, nor are there
any requirements to have the information that is published independently
audited. The former is particularly bad: not only does this undermine
transparency and comparability (and thus the main purpose of the
requirement), but it also poses a problem to companies themselves.
The Government must implement mandatory reporting standards when
it reaches its two-year point at which it is to review the workings
of the Act. (Paragraph 100)
Conclusion
37. The
Stern Review highlights what is perhaps the central problem of
tackling climate change: the need to take profound action before
the more serious effects of global warming have begun to be felt.
Because of the time-lag between emitting greenhouse gases—especially
CO2—and experiencing their ultimate effects,
it means that today's generation will be asked to make sacrifices,
change habits, and face higher costs of carbon-intensive activities,
in order principally to benefit future generations. To a considerable
extent, given the unequal nature both of current per capita emissions
and long-term vulnerability to climate change, it also means those
in the UK and other Western countries taking bigger actions in
the interests of people in poorer countries. All this means that
reducing emissions according to the trajectories suggested by
Stern will not just be practically but—perhaps an
even bigger problem— politically very challenging.
(Paragraph 102)
38. On
the practical challenge, the Government can rightly point to a
variety of activities which fall within the main policy areas
recommended by Stern. But what is required now is for the Government
seriously to accelerate its policies, to begin to achieve the
kind of steep cuts in emissions Stern demonstrates are necessary.
For this reason, we were very disappointed in this year's Pre-Budget
Report. The PBR was a grossly inadequate response to the hardening
evidence as to the increasing risks of major and irreversible
impacts of climate change. Coming in the wake of the Stern Review,
the PBR's lack of boldness raises major doubts as to the Treasury's
seriousness about implementing Stern's recommendations in domestic
policy. However, Pre-Budget 2006 was simply the first major opportunity
for the Government to implement the conclusions of the Stern Review.
There are many others to come, beginning with Budget 2007, the
Climate Change Bill and the forthcoming Comprehensive Spending
Review. We look forward to seeing an appropriate response to Stern
from the Government in its forthcoming fiscal policy, legislation,
and, potentially, machinery of government changes. (Paragraph
103)
39. Beyond
this, there is still the political challenge. Most importantly,
there needs to be more and better informed discussion of the science
of climate change. The Government needs to do more with the Stern
Review in this respect, using it as a springboard to raise levels
of public discussion about the risks and impacts of global warming
and what needs to be done to mitigate them. (Paragraph 104)
40. If
there is one key conclusion to draw from the Stern Review it is
that we today are living at an important moment: we still have
a limited window of opportunity to prevent greenhouse gases growing
to dangerous levels. As Stern underlines, once we overshoot a
target stock of greenhouse gases it will be very difficult and
may be a very slow process to reduce it again. Thus if we fail
to act swiftly enough, it may be impossible to reduce greenhouse
gases to safer levels for decades or centuries to come—during
which time the risks of major irreversible impacts will grow ever
larger. But Stern's accompanying argument is that the sooner the
world begins to cut its emissions, the easier and less costly
mitigation will become. Both conclusions need to be widely discussed.
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