Examination of Witnesses (Questions 200
- 209)
TUESDAY 1 MAY 2007
MS KATE
HAMPTON AND
DR TONY
WHITE
Q200 Colin Challen: The Bill contains
a section at the end which deals with the potential to introduce
new emissions trading mechanisms, which you have described as
a revolutionary new approach, even though it is only enabling
the revolution at this stage. What do you see as the great features
of that in the Bill? Why do you welcome it so much?
Dr White: Things can happen a
little bit faster and it is only possible because there is cross-party
support for the climate change issue; the fact that it could be
faster. It is not completely wide-ranging, it is only trading
mechanisms and that is a good way to start to see how much more
discretion can be given in this area to accelerate the way in
which we reduce emissions.
Q201 Colin Challen: Perhaps the reason
why we do not have the fully-fledged version in the Bill is because
you do not think the political realities as they are at the moment
will support anything more radical.
Dr White: I am not sure we know
enough at the moment to do it more radically at this stage. We
do not know enough now. Could we have a domestic cap and trade
scheme put in now? Could we do it? We do not know enough.
Q202 Colin Challen: How do you think
these enabling measures will survive the scrutiny process?
Dr White: Well all I will say
is that I am not an MP and I would ask you that. How do you think
it will get through? There would have to be a certain number of
safeguards that would have to be offered about the kind of timing,
the ability to discuss, but, to be honest, I was just interested
in the fact that this is something that can make new legislation
come through maybe a bit faster, where there is consensus on the
agreement that actually something needs to be done in this area.
Q203 Colin Challen: Which you do
not really see as being there at the moment in society, not necessarily
just between the political parties.
Dr White: In the last six months
we have seen a big change in society actually in terms of what
society is willing to do. I just heard the other day that when
B&Q put its wind turbines up for sale, they had nine million
hits on their website. Centrica sent a survey to all of its customers
and got a 15% return; people had to answer 17 questions and they
sent it back. This would not have happened two years ago. There
is definitely a sea change.
Ms Hampton: The point about leadership
is key. Experiment and leadership have to occur in the places
where there is a societal willingness to do that and if not the
UK, then who is going to test out these mechanisms. Frankly, there
is the broad political support, there is support from business
and if the UK does not do it, then I cannot see many other countries
stepping into the fray. There are other countries that will move
quickly, if it is a success in the UK, places like Germany and
others, but the UK is really where the leadership challenge lies.
It is no longer about saying we will reduce X% in 2050: it is
about actually planning a route to get there. We are only just
off the starting blocks really in terms of leadership and this
is a real opportunity to show that.
Q204 Colin Challen: Do you think
we should do more to streamline the system? We have so many different
schemes in operation and the enabling powers anticipate perhaps
more schemes being introduced. Would it not be far better for
the investment community if they could just have a very much more
streamlined system that does not add all these bureaucratic complications
and confusion in the market?
Dr White: In the heart you obviously
say yes, but the problem with that is that certain mechanisms
will work in some markets but not in other markets. Some places
are expected to regulate non-compliance and the like and in other
places a trading scheme could work. What would be interesting
is that the Committee establishes what kind of price of carbon
is embedded in the various measures that are adopted. If you look
at the renewable obligation, in carbon terms it is really quite
expensive. If you look at bio-fuels, it would be the same as well.
Okay, there are other reasons why we would want to do it, security
of supply reasons, but for the carbon element, we should try and
go to some embedded price that goes across the whole economy,
building standards, that kind of thing.
Q205 Colin Challen: The potential
for introducing personal carbon allowances, which this Bill certainly
paves the way for, does raise the question of whether the burden
should be dealt with downstream with the consumer or upstream,
as much of it is at the moment, with power generators and cement
manufacturers and other major industrials. Do you think there
is going to be a danger there of duplication? How is that going
to be sorted out if we start asking the consumer to trade carbon?
When you buy electricity for example, who pays?
Dr White: There is a real case
there that just the administrative costs of doing something like
that would be really quite high in my view. What I am hoping is
that we are going to move to a different model of energy supply.
What I have always thought should be happening is that instead
of the people just generating electricity and selling gas and
customers just using it, we change that business model. The kind
of way I see it changing is instead of selling energy, et cetera,
you would be selling lighting and comfort and warmth. In which
case, if you could do that, then the energy companies would have
an incentive to invest in their customers' facilities such that
they could still make more profit despite selling fewer units
of energy. To me that is absolutely key. The way that works—and
you do not have to look that far back—is that when Edison
started in the nineteenth century, he did not sell electricity,
he sold lighting. He gave light bulbs to his customers and charged
them according to the number of light bulbs. When that was happening
it was in his interests to generate his electricity as efficiently
as possible and make his light bulbs as efficient as possible.
Once it changed so he was then selling units of electricity, the
whole business model changed and he wanted to sell as many light
bulbs which were as inefficient as possible and the model falls
down. If we can move to a position where the energy companies,
instead of building their next power station or developing their
next gas field or getting another cargo in of LNG, actually invest
in giving someone a new boiler before it needs replacing and it
is a much more efficient one, maybe installing solar panels, maybe
doing solar/thermal or wind turbines or what have you such that
they can make a return on the investment in their customer's location,
rather than a return on the bit of kit they built somewhere else,
that, to my mind, is probably a more effective way. The companies
themselves would still be penalised according to the amount of
carbon that they emit at their manufacturing place.
Ms Hampton: Energy efficiency
and energy demand are the issues that we really have not dealt
with effectively, not just in the UK but everywhere and yet everybody
says it is the most important wedge, it is the easiest thing to
do for climate. However, without trading mechanisms in some of
the consuming sectors, it is quite difficult to see how you would
incentivise the companies that can provide the services that do
that for people to make a buck. Without those incentives it is
quite difficult to see how we will get that energy efficiency
because even if economically it makes sense, commercially there
is nobody interested in it.
Dr White: You could move to personal
carbon allowances, but that would be a very, very difficult thing
to do. In the meantime there are lots of other things we could
do as I have just described which would get us an awful long way
down the road.
Q206 Mr Caton: Could we move on to
the economic impacts of mitigation? Stern said that even limiting
the total cost of mitigation to 1% of GDP by 2050 will mean price
rises and economic upheavals in the meantime. That message has
not been perhaps as widely disseminated as some of the other messages
that came out of Stern. Are we being honest enough about the fact
that there will be economic losers as well as winners in carbon
mitigation?
Ms Hampton: We are not necessarily
being honest enough, but the important thing is, coming back to
the point that Tony was making about services, that it is not
about having energy at the lowest cost, it is about having energy
at the right price and the services that come from paying the
right price for energy. If you have a rounded debate, traditionally
because the green movement has been under attack from all sides,
particularly when it comes to the economic cost of doing things,
it has tended to be too defensive and now we are entering into
a phase where we can have a much more informed debate about what
the right price for energy is and how that encourages people to
think about services rather than just energy. Then of course there
will be some sectors of society that will suffer as a consequence,
but that should be dealt with through social policy not through
climate change policy.
Dr White: I remember the quotation,
but Stern's major point was that we do not really have a choice.
If we do not do anything, it is more expensive than doing something
and yes, there will be those upheavals. My view has always been
that, first of all, we have had a massive carbon tax in the last
few years where the price of oil went from $20 up to $70 dollars
a barrel, but we have managed to keep going. What Government can
do though is effectively give long enough price signals or frameworks
so that people can invest to mitigate the costs of mitigating
carbon dioxide as best as possible. Given that we would not choose
to have a world that suffers from excess carbon dioxide, we are
getting that way, therefore what is the most effective way of
tackling it, so that life can go on?
Q207 Mr Caton: The Regulatory Impact
Assessment with the draft bill says that the carbon intensive
sectors of the economy are likely to contract. Does that mean
we are going to lose manufacturing jobs?
Ms Hampton: This has been looked
at a lot in the context of the EU high level group on competitiveness,
energy and environment that I have been involved in and a lot
of that industrial restructuring is occurring for reasons other
than climate policy. There are a few sectors which are particularly
vulnerable to carbon pricing: aluminium is one; cement plants,
but only on the edges of Europe. So in the south of Spain, where
they could move to North Africa for instance, they are vulnerable
but not cement as a whole. It is a very complex picture. In addition
to that, a lot of our efforts will benefit from the scale associated
with clean technologies being deployed in China for instance:
very large market; can deploy at scale; could do PV cells probably
cheaper than we could. It goes both ways: there are benefits and
costs and, again, it is an issue of making sure that any adjustment
process that is necessary or is likely to happen anyway is mitigated
within the context of the appropriate policy. If you have a global
system where the energy intensive sectors, for instance, will
be the target of sectoral mechanisms—this is the discussion
that is happening in the business community around competitiveness
at the moment—if there are sectoral benchmarks which apply
globally and you only benefit from carbon finance, if you overachieve
that is going to start mitigating some of those impacts. So again,
if you design the international regime to take account of those
things, then those risks will be somewhat smaller. It is very
easy to lay industrial restructuring at the door of climate policy
when actually it is the effects of exchange rates and labour costs
and raw materials and transportation which are actually much more
significant except for some particular sectors.
Q208 Mr Caton: Is there anything
we should be doing in those sectors, to try to protect those industries,
or is there anything we can do?
Ms Hampton: The key thing is to
make sure that action on climate change is occurring with as much
of a level playing field globally as possible. That is probably
the best protection that companies get to compete in a fair international
environment and by engaging major developing economies such as
China and India, through carbon finance and assisting them in
transforming their energy-intensive sectors, we will be levelling
the playing fields. Understanding the international negotiation
dynamics associated with carbon finance will support our industry
not just the international climate change effort. So far, because
the EU has been alone in what it has been doing, it has been very
easy to challenge it on competitiveness grounds; as the efforts
become more widespread, then there will be more room for levelling
the playing fields.
Q209 Chairman: Is there anything
else that we have not talked about which you think is relevant
to what we are trying to do?
Ms Hampton: Transparency is key.
In how this Committee operates, what advice it provides and how
the decision-making process occurs, transparency is absolutely
essential and that will give confidence to the market.
Chairman: Several of us are serving on
the pre-legislation scrutiny committee as well, so there is an
overlap between the EAC and that and I hope we shall be exploring
exactly that point in due course. Thank you very much for coming
in again; it is much appreciated on our part.
| 
