House of Commons - Environmental Audit

Select Committee on Environmental Audit Second Report

The EU ETS and the UK Climate Change Programme

57. The UK currently has three main climate change targets, all for reductions from a baseline of 1990 emissions levels. One of these is an internationally agreed target, under the Kyoto Protocol, for the UK to reduce its greenhouse gas emissions by 12.5% by 2012. The other two are self-imposed targets which the current Government has set for the UK, one (adopted in 1997) to move towards a reduction of carbon dioxide emissions by 20% by 2010, the other (adopted in 2003) to reduce CO₂ emissions by 60% by 2050, with real progress by 2020. In addition, the Government has recently published a "UK Vision for Emissions Trading", which has called for the EU as a whole to formally adopt a target of reducing its greenhouse gas emissions by at least 60% by 2050, with an interim target of reducing them by 30% by 2020.[76]

58. The UK is currently on course comfortably to meet and exceed its Kyoto target for greenhouse gas (GHG) emissions. In 2004, GHG emissions were down by 15.1%, already in excess of the UK's Kyoto target, and latest Government projections are that this will extend to a 23-25% reduction by 2010. Progress on the other of the UK's short term targets, the 20% reduction in CO₂ only by 2010, has proved more difficult. In 2004, CO₂ emissions were approximately 6.3% down on 1990 levels, just over a quarter of the way to the target for 2010.[77] What is more, emissions were at their lowest back in 1999, when they stood some 8.1% lower than 1990 levels.[78] The Government's latest projections are, however, for CO₂ emissions to fall rapidly, so that by 2010 they will be some 16.2% below 1990 levels, short of the 20% target but a dramatic improvement from current levels.

59. The Government is relying heavily on Phase II of the EU ETS to achieve this progress. As the Secretary of State for Environment announced to the House on 29 June, the UK's Phase II NAP will impose a cap equal to a cutback of 8MtC on projected Business As Usual emissions. Furthermore, the latest issue of the DTI's "UK Energy and CO₂ Emissions Projections", published in July 2006, confirms that the Government is treating this stated cutback from BAU levels as though it will indeed reduce actual UK emissions by a full 8MtC by 2010.[79] This makes it by far the largest single carbon saving measure in the entire UK Climate Change Programme, as shown in Figure 2.

Figure 2 - Phase II of the EU ETS is the largest measure in the UK Climate Change Programme

UK CCP measure

(Top 10 in order of size of reductions) Estimated annual reduction

in 2010 (MtC)

Phase II of the EU ETS 8

Climate Change Levy 3.7¹

Climate Change Agreements 2.9

Renewables Obligation 2.5

Voluntary Agreement package (including reform of company car tax and graduated Vehicle Excise Duty) 2.3

Fuel duty escalator 1.9²

EEC 2002-11 (including Decent Homes) 1.6

Renewable Transport Fuel Obligation 1.6³

Carbon Trust 1.1

Wider transport measures 0.8

Notes: ¹DTI incorporates the CCL into its model baseline projection of UK emissions, and does not publish a separate analysis of the effect of this individual policy measure. The estimated savings from the CCL given here (taken from an evaluation by Cambridge Econometrics) are higher than that included in DTI's projections because they include an assumption of an "announcement effect", supplementary to the actual impacts of the policy in practice, which is not replicated in the DTI model.
² The Government has compared the impact that the fuel duty escalator between 1993-99 had on demand to the impact on demand that simple revalorisations (rises in line with inflation) in fuel duty between 1993-99 would have had. Using this as a basis, it found that because of the ongoing higher fuel price due to the fuel duty escalator, demand for fuel in 2010 will be lower, and that this lower demand equates to a carbon saving of around 1.9MTC in 2010.
³Climate Change: The UK Programme 2006: This figure follows the internationally agreed methodology for allocating emissions to individual states, which prevents global double counting of emissions. As such it does not take into account the carbon emitted during the production of biofuels produced abroad but consumed in the UK. When this is taken into consideration the net global reduction in carbon dioxide emissions is 1MtC.
Sources: Climate Change: The UK Programme 2006, Defra, March 2006; "UK Energy and CO₂ Emissions Projections", DTI, July 2006

60. The importance of the UK Phase II NAP to the Government's 2010 target is further underlined by breaking down projected progress towards that target, as follows. According to the DTI's "UK Energy and CO₂ Emissions Projections", published in July 2006:

§ The 1990 baseline figure for UK CO₂ is 161.5MtC.

§ The 2010 target figure (equating to a 20% reduction) is 129.2MtC.

§ In 2004, UK carbon emissions stood at 152.5MtC, a reduction of 5.6% from 1990.[80]

§ Emissions in 2010—in the absence of the new measures announced in the updated Climate Change Programme published in March 2006 (CCP 2006), and in the absence of the EU ETS—are projected to be 147.4MtC, a reduction of 8.7%.

§ Adding in the new measures in CCP 2006 brings the projection down to 143.4MtC; but that is still only an 11.2% reduction from 1990 levels.

§ Adding in the projected 8MtC saving from the UK's Phase II NAP brings the projection down further to 135.4MtC, a reduction of 16.2% from 1990.

In other words, without the expected contribution of Phase II of the EU ETS, UK carbon emissions in 2010 are projected to be only just over halfway to the 20% target, a very significant shortfall. Treating Phase II as though it will deliver actual savings of 8MtC in full, and then treating this as though all 8 million tonnes of carbon reductions are going to take place within the UK, therefore makes a very significant difference to the credibility of this target.

61. We have three main concerns about the Government's treatment of these projected carbon savings, which we explore in greater detail throughout the rest of this section. In brief, our main concerns are that: (i) the savings in practice might not be as large as announced; (ii) that they might not take place within the UK; and (iii) that the Government might be failing to make these points adequately clear - with risks to public perception of the need for further domestic actions to reduce CO₂ emissions within the UK.

Setting cutbacks from Business As Usual projections

62. The first issue to discuss is the Government's use of Business As Usual projections to generate savings cutbacks, and its treatment of these as though they will translate, in full, into reductions in actual emission levels. Giving evidence to us, WWF and RSPB were very critical of the way in which the Government had constructed the 8MtC figure:

Mr Caton: Can we look at UK emissions targets now. The Government says that Phase II of the EU ETS will save eight million tonnes of carbon a year from the UK, but that is calculated on the basis of business as usual projections if we did not have an emissions trading scheme. What are your views on using those sorts of projections rather than looking for absolute cuts?

Mr Lanchberry: We should not. It is a bizarre way of reaching a target to do a business as usual projection, lop a little bit off it and then say you are trying to meet a target. If you are going to meet an emission reduction target, you need an absolute budget of emissions which decreases over time so that your budget in the end is exactly the same as the target you are trying to get to. It is absolutely bizarre to use a projection, except to inform you of how much you would have to do (what is the difference between what you might do and what you need to do), but you need to set allocations to the EU ETS on the basis of an ever reducing absolute budget for carbon. There is not another way to do it. Projections do not take you to your target.[81]

Similar concerns about the Government's use and public reference to reductions from BAU projections were expressed by the Sustainable Development Commission (SDC), when they gave evidence to us in July on the UK Climate Change Programme.[82]

63. One major concern with this reliance on BAU projections as the basis for the quantification of future carbon reductions is that, as the SDC described it, it means working "on the basis of shifting sands". Given that the UK's national cap in the EU ETS is set as a specific cutback from UK BAU emissions, it means that if the Government revises these BAU projections upwards (taking into account latest trends, not least on the actual effectiveness of its other carbon saving policies), the cap rises with it.

64. This is, indeed, exactly what happened when the UK set its National Allocation Plan for Phase II. When the Government launched its consultation on the size of the Phase II NAP in March 2006, and the extent of the cut it would make from BAU projections, it consulted on a range of cutbacks between 3MtC and 8MtC. When the Secretary of State announced the Phase II NAP in June, the cutback was revealed to be 8MtC, the upper end of this range. However, this still represented a smaller cut, in absolute terms, than the upper limit the Government had consulted on only three months before. This is because, following the consultation, the Government revised its projections of energy demand upwards, and with them its assessment of BAU emissions. Thus even though the cutback was still 8MtC, this was from a moving target; one which had moved upwards. The Secretary of State explained the matter thus, in his statement to the House on 29 June:

In March, in our consultation on the draft National Allocation Plan, we set out a range of UK reductions of emissions during Phase 2, from 3 million tonnes of carbon to 8 million tonnes. At the time of consultation this was equivalent to a cap of 234-252 million allowances a year, representing 234 - 252 million tonnes of CO₂.

There have been important changes since we published the draft National Allocation Plan. Our projections for emissions in 2010 have risen by 3 million tonnes of carbon for the UK as a whole, and by 1.1 million tonnes of carbon for the installations covered by the EU Emissions Trading Scheme.

In these circumstances, we believe it is essential to make the maximum effort consistent with the range on which we consulted, in other words reductions of 8 million tonnes of Carbon per year below business as usual, equivalent to a reduction of 29.3 Million tonnes CO₂. This is now, since the change in projections, equivalent to an annual total allocation of 238 million allowances to UK installations covered by the Scheme in Phase 1.[83]

65. WWF and RSPB argued that a better way for the Government to have calculated its National Allocation Plan would have been to do so on the basis of a target budget of carbon emissions for the UK in 2010, and the percentage contribution to it of those sectors covered by the EU ETS. In other words, given that the UK's target emission level for 2010 is 129MtC (a 20% reduction from 1990 levels), and given that the sectors covered by the EU ETS accounted for approximately 46% of UK carbon emissions at the start of the Scheme, a cutback in Phase II allowances in line with the 2010 target would give a cap of around 59.5MtC (roughly 46% of 129MtC). Converting this into carbon dioxide (1 tonne of carbon being equal to 3.67 tonnes of carbon dioxide) gives a total of 218.4 million tonnes of carbon dioxide (MtCO₂), or 218.4 million allowances. This would be a further reduction of over 18 million allowances per annum on top of the UK's announced Phase II NAP of 237 million per year, a lowering of the national cap by around another 8%.

66. Calculating cutbacks in emissions caps with reference to Business As Usual projections lacks certainty and effectiveness. As the Government has implemented it, it means making a specific cutback from a moving target; and if BAU projections are revised upwards, so the cap—and the number of allowances to emit carbon—moves up with it. In other words, if emissions are projected to be worse than expected, then rather than the cap becoming tighter to redress this extra upward pressure on emissions, in effect it is made looser to make it easier for participating firms to accommodate it. Both within the UK and across the EU ETS, allocations ought to be set with reference to a declining budget of absolute carbon emissions.

67. Whether calculated in this precise way or not, tightening the national cap in this direction would have been in keeping with the Government's stated objectives for Phase II. As featured in the 2006 UK Climate Change Programme, the primary objective for the Phase II NAP was that "the total quantity of allowances allocated for the second phase should be consistent with ensuring that the trading sector makes an appropriate contribution to the domestic goal to reduce carbon dioxide emissions by 20 per cent below 1990 levels by 2010".[84] The usages "consistent with" and "appropriate contribution" were, of course, ambiguous, and did not commit the Government to using the Phase II NAP to make up whatever shortfall to the 20% target that was projected. But we might equally ask, given that the projected "carbon gap" in 2010 was bigger than previously expected, whether a tighter Phase II NAP might have been more appropriate.

68. In addition to this lack of certainty, the practice of setting cutbacks from the moving target of BAU projections creates an obvious lack of transparency. When Defra announced last June that the UK's national cap for Phase II "is expected to deliver additional savings of 8 million tonnes of carbon each year, roughly equivalent to the emissions of 4 ½ million households",[85] the likelihood is that most people—including MPs, civil servants, and journalists—would have assumed that this meant it would reduce the UK's actual carbon emissions by 8 million tonnes a year. They would surely not have imagined that this same 8MtC was in practice worth less, in terms of real reductions in emissions, than only three months before! This underlines the need to set reductions from an absolute level of emissions, rather than a baseline of BAU projections which may vary significantly according to the differing assumptions that are fed into them. Many people might equally not have realised that the emissions of some sectors and installations under the EU ETS were expected, and being allowed, to rise: the 8MtC cutback has been made entirely from the power sector's projected BAU emissions, all other sectors being given allocations to match their projected BAU needs. Thus if their BAU emissions are projected to rise over the period 2008-2012, they are being given extra permits to allow them to emit this amount in full.

Phase II will not reduce UK CO₂ emissions by the amount stated

69. A further concern about the Government's announcement of the Phase II NAP is the way in which it is incorporating the projected 8MtC savings into projections of progress against the target of a 20% reduction in the UK's carbon emissions by 2010. Because this is an emissions trading scheme, it is impossible to be sure that reducing the allocation of allowances given to UK installations will translate into emissions reductions within the UK. If all those UK installations which exceed their allocations in Phase II buy surplus ETS allowances on the market in order to make up their shortfall in allowances, it is theoretically possible the EU ETS might not be responsible for any emissions reductions within the UK at all. The Government freely admits this point (while still not giving it great prominence; it did not feature in the Secretary of State's statement on the Phase II NAP, for instance, nor Defra's accompanying press release). The UK Climate Change Programme 2006, for example, stated:

For the purpose of assessing the contribution of the EU emissions trading scheme to the Government's 2010 domestic carbon dioxide goal, the key issue is the total quantity of allowances to be allocated to UK installations. Installations in the EU emissions trading scheme can meet their obligations by purchasing allowances, which might come from installations in other EU countries, and credits from the Kyoto Protocol project mechanisms, which will come from outside the UK and might come from reducing emissions of greenhouse gases other than carbon dioxide. This means that the emissions reductions expected from the second phase of the scheme and included in this Programme (see below), will not necessarily take place in the UK, nor will they necessarily be of carbon dioxide. Nevertheless, […] the Government will include allowances or project credits surrendered by installations in its assessment of the UK's progress towards the 2010 domestic carbon dioxide goal.[86]

At this point, we would simply observe on this that while we support the EU ETS, and look forward to its becoming more stringent and effective in Phase II and beyond, it is vital that this is not used as an excuse to reduce downward pressure on emissions within the UK, nor to forestall the introduction of new or tightening of increased domestic carbon reduction measures.

70. A natural concern which arises from this relates to the transparency of Government reporting of progress against its 2010 target. The Government is, of course, perfectly free to treat such international greenhouse gas reductions as counting towards its 2010 target: it is, after all, a domestic target which the Government has set itself, along with the rules applying to it. (In addition, when it comes to Kyoto targets, exactly this same use of international emissions reductions is allowed for under the Kyoto Protocol.) However, by automatically ascribing all the savings projected to be generated by the UK's Phase II NAP as though they were being made within the UK, it is quite possible the Government might help to give a falsely reassuring picture of progress against its domestic CO₂ target within the UK.

71. Yet another concern here is that it is not just that the Government is prepared to count CO₂ reductions that take place in other countries against its domestic target for CO₂ reductions in the UK, but that it is prepared to count reductions of other greenhouse gases (so-called "exotic gases"), the global warming potential of which can be converted by mathematical formula into CO₂-equivalent, against its target for reducing emissions of carbon dioxide. Our concern here is not just regarding transparency, but that many of the projects to reduce exotic gases may be more dubious in terms of their transparency and impact on Business As Usual investment decisions and industrial processes. (To clarify, we are certainly not questioning the contribution to global warming made by exotic gases, nor the principle of expressing them in terms of carbon dioxide-equivalent, but merely the credibility of some of the reduction projects which involve these gases.) Again, the Government is acting in line with the Kyoto Protocol, given that this is aimed at reducing GHG emissions in the round, not just CO₂; and given that it specifically allows for countries in the developed world to make up any shortfalls in their emissions targets by paying for emissions reduction projects in other countries. There are two such mechanisms under Kyoto—the Clean Development Mechanism (CDM), involving projects in the developing world, and the Joint Implementation (JI) mechanism, involving projects in the developed world—and Phase II of the EU ETS will allow installations to purchase a certain number of credits through them, to be redeemed in place of a proportion of their ETS allowances. Despite this being allowed both under Kyoto and under the ETS Directive, we have for some time heard compelling evidence to suggest that the worth of some of the projects financed under these Kyoto mechanisms should be subject to serious doubt.

72. Most of all, these concerns relate to those projects which are not aimed at reducing CO₂, but other "exotic gases" such as hydrofluorocarbons (HFCs). As RSPB and WWF argued in this inquiry, investing in measures to abate HFCs is currently the most popular form of CDM project, for the simple reason that it is cheap—given that not only is simple technology required, but the global warming potential of, for example, HFC-23 is 12,000 times that of CO₂, thus a small amount of money generates a very large payoff in terms of CO₂-equivalent credits. But not only does such investment not do anything to forestall the growth of carbon-intensive energy infrastructure in the developing world, there are suspicions that many of these HFC reduction projects are essentially bogus:

Dr Allott: The economics of this are such that if you were to build a new HCFC refrigerant facility in a developing country and then fit a very cheap one million dollar abatement incinerator to destroy the HFC by-products from the HCFC production, the revenue from destroying the greenhouse gas pollution would be far greater than what you get from selling the product from the factory. In other words, you are building a carbon credit factory rather than a refrigerant factory, and you can just pour the refrigerant down the drain, which is, to our way of thinking, slightly perverse, to put it mildly.[87]

73. In giving evidence to us, the Minister was keen to point out that the Government was limiting the use of CDM and JI credits within the UK NAP.[88]Indeed, their use will be limited, to 8% of the UK's total cap. However, this is still a significant amount, representing some 5.3MtC; and this figure has been worked out by the Government specifically because it corresponds to two-thirds of what it describes as "the effort in Phase II", or in other words the cutback of 8MtC from BAU projections.[89] To be clear, then, the Government is allowing for, and expecting, two-thirds of the headline carbon savings it has announced as resulting from Phase II to take place, not just outside the UK, but outside the EU—and probably in the form, not of carbon dioxide, but of carbon-equivalent greenhouse gases.[90] In fact, the effects of such credits on UK installations will—indirectly—be even higher than this, because other Member States have set higher limits on the use of such credits within their National Allocation Plans. As the use of such credits within the EU ETS effectively works as a supplement to the number of allowances allocated within the Scheme, so the wider use of CDM and JI credits in other Member States will increase the availability, and decrease the price, of the ETS allowances which UK installations may buy to make up any shortfall in their allocations.

74. It is essential, for transparency's sake, that in all its communications the Government from now on differentiates between reductions in emissions taking place within the UK, and reductions in emissions funded by the UK. Moreover, where it is referring specifically to reductions in carbon dioxide, it must differentiate between reductions in CO₂ and reductions in CO₂-equivalent. Where it refers to progress towards UK carbon reduction targets, it ought to give two separate figures: one referring to reductions solely of carbon dioxide and solely within the UK, and one including also the estimated reductions of GHG emissions financed abroad. Above all, it 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.

75. A final major concern must be that the cutback in emissions made by the UK's Phase II NAP will simply be less in reality than the 8MtC figure which the Government has widely publicised, never mind however many countries this is spread across or which greenhouse gases are taken to make it up. If UK-based firms, faced with a shortfall of allowances against their actual emissions, decide to cover these emissions by buying surplus ETS allowances from the market, then this is only likely to drive actual savings of carbon if there is an overall shortage of allowances across the EU ETS as a whole. (Such a shortage would be required to drive up the price of allowances high enough to incentivise fuel switching, increased energy efficiency, or a simple cutback in output.) While the Commission's decisions on the first 10 NAPs give grounds for optimism that there will be a genuine scarcity of allowances within Phase II, much will also depend on other factors, such as changes to gas prices; for instance, if gas prices drop, the market is likely spontaneously to shift from coal to gas, reducing emissions and with them the scarcity of allowances needed to cover them. (To reiterate, while this would be good in itself, in terms of reducing emissions in the short term, it would neither have much to do with the EU ETS, nor would it be stimulating long term investment in low carbon infrastructure to reduce emissions on a permanent basis—the ultimate aim of the Scheme.) Similarly, where UK installations meet a shortfall by buying CDM or JI credits (or ETS allowances which have become cheaper by the wide use of such credits within the Scheme), the extent to which this actually reduces the growth of global greenhouse gases depends very much on the quality of those individual CDM or JI projects.

76. Phase I ought to be a cautionary example in this respect.[91] Here, too, the Government announced that the UK's National Allocation Plan was imposing a reduction on Business As Usual levels; for Phase I this was stated to be a cut of 8% or 4.6MtC. However, as we have seen, there is little or no evidence that Phase I is leading to any cutbacks in actual emissions at all, whether in the UK or elsewhere in the EU. Rather, it would seem that where UK-based firms have exceeded their allocations and bought allowances on the market, this has largely come from the general excess of allowances in Phase I; or in other words, they are simply buying "hot air". Certainly, as the Environment Agency told us, there is little evidence so far of any reductions in actual emissions from UK installations covered by the Scheme, and if anything the indications are of a retrograde movement.[92] Indeed, they said it was "pretty much the case" that the earliest we could really hope to see any actual reduction in emissions being driven by the scheme was Phase II.[93]

77. Despite this, the Government continues to make high profile, quantified announcements as to the UK carbon savings that are coming from Phase I. The recent Pre-Budget Report, for instance, published on 6 December 2006, stated:

7.17 EU ETS sets a limit on carbon emissions for 12,000 installations in major industrial sectors across the 25 EU Member States, including over 1,000 sites in the UK. Phase One began in January 2005 and will reduce carbon dioxide emissions in the UK by around 4.6 MtC (around 8 per cent) below the projected emissions of the installations covered by the Scheme by 2007.[94]

Indeed, the Minister explicitly endorsed these figures in his session with us:

Chairman: So that I can be clear about the contribution that the first phase of the ETS has made, are you saying that has cut emissions by 4.6 million tonnes?

Ian Pearson: Yes, we are.[95]

78. These 4.6MtC "savings" do not, however, appear anywhere in Government publications which calculate the UK's performance against the 2010 CO₂ target. The 2006 UK Climate Change Programme, published in March 2006, contains an eight paragraph section on the EU ETS, but completely omits any estimate of the contribution of Phase I to the 2010 target. Defra's "Synthesis of Climate Change Policy Evaluations", published a month later, merely states: "The EU Emissions Trading Scheme (EU ETS) is not covered because the effects in 2010 of Phase 1 are closely linked with current consideration of Phase 2."[96] By the time the DTI published its "UK Energy and CO₂ Emissions Projections", in July 2006, the Phase II NAP and projected cutback were known, but this document simply states the 8MtC projected savings from Phase II, and does not list any savings from Phase I at all. This would seem to suggest that the Government itself recognises that, while it did indeed impose a cap on UK installations at a level roughly 4.6MtC below BAU projections in Phase I, this shortfall is essentially being made up by buying hot air—i.e., the overall surplus of allowances allocated to industries in excess of need—and is not actually reducing CO₂ emissions at all.

79. Another reason to treat the Government's statements as to the carbon savings to come from Phase II with caution is its record on reporting the savings to come from Phase I. Despite the lack of evidence that Phase I is driving any actual reductions in carbon emissions, the Government continues to make high profile statements that it is reducing emissions in the UK by some 4.6MtC a year. Given his personal and explicit endorsement of this figure before the Committee, the Minister must urgently tell us why, if this is the case, these "savings" of 4.6MtC do not feature anywhere in Government calculations of contributions to the 20% reduction target by 2010. If it is indeed the case that these "savings" are entirely notional—in other words, that they simply reflect a cutback from Business As Usual projections, and have not actually made any impact on UK emissions in reality—the Minister must explain why he failed to make this clear in his evidence to us; and the Government should immediately stop using this figure, and issue corrections to all official uses of it.

Implications for the UK's CO₂ targets

80. As the updated CCP 2006 and other documents have shown, progress against the 2010 target has drifted since the original Climate Change Programme was published in 2000 (CCP 2000), with many of the projected savings from individual measures being revised downwards. Latest projections for carbon savings in 2010 depend for their respectability on the addition of extra measures not previously included; and even with these additional measures, reductions are projected to be 16.2%, just over three-quarters of the way to the target. As an illustration of just how much projected progress has drifted, both CCP 2000 and the 2003 Energy White Paper projected that the UK was on track to meet its domestic target for 2010 in full,[97] yet neither lists any projected reductions to come from the EU ETS by that date, despite this now being overwhelmingly the largest source of projected savings by 2010. As a further sign of this slippage, the Government originally phrased its 2010 target as being to reduce CO₂ by 20%, whereas more recently the official wording of this target, as reflected in the joint Public Service Agreement held by Defra, DTI, and DfT, has become to "move towards" a 20% reduction by 2010.

81. Given how instrumental the Government's projections of savings from the EU ETS are to its target for reducing CO₂ emissions by 2010, and given the profound lack of certainty surrounding these projections, the Government's record in meeting—or even getting close to—its 2010 target must surely be in severe doubt. The Government must provide an updated assessment of progress towards the 2010 target at the earliest opportunity, and look to revise its climate change policies in this light. This experience also highlights the need for the forthcoming Climate Change Bill to set out statutory arrangements for the Government to report to Parliament at least annually on national progress in reducing UK CO₂ emissions.

82. Furthermore, considering the political capital that the Government has made out of its 2010 target, and the fact that it has featured as a repeated manifesto commitment, the Government has a democratic duty to be more transparent in its reporting of progress against this and future targets. As it stands, presentation of the UK's progress towards its carbon reduction targets is apt to mislead. Aside from the need to differentiate between savings made within the UK and those financed abroad, the Government should also look at differentiating between the estimated impacts of the individual savings measures in the UK Climate Change Programme in themselves, and their contribution to the net change in reduction in emissions from the UK. There is every chance that repeated references to carbon savings of x million tonnes will lead to the impression that the UK's net emissions are currently going down by such amounts each year; when, in fact, in some recent years net CO₂ emissions have risen (for instance, 2000-2001 and 2002-2003).[98] It might heighten awareness of the imperative to take greater action if the Government were to make this clearer.

83. In answering a question on progress towards the 2010 target, the Minister vigorously denied that the Government's Climate Change Programme was failing, arguing that, although CO₂ emissions had risen slightly since 1997, "the situation would be significantly worse if it was not for the range of measures that we have introduced". More specifically, he argued that the UK has "substantially broken the link between growth and CO₂ emissions", given that while the economy has grown by 26% since 1997, carbon emissions have only risen by 2.3%.[99]

84. While it is undoubtedly true that the carbon-intensity of economic growth in the UK has declined markedly in recent years, this is not on its own a guarantee of the success of the Government's Climate Change Programme, nor should it be a cause for complacency. It does not matter to atmospheric concentrations of carbon dioxide whether there has been a reduction in the carbon-intensity of economic production, but only whether absolute levels of carbon emissions are continuing to grow. The fact is that carbon emissions in the UK are higher now than they were in 1997, and while they are projected to be reduced by 2010, this reduction is set to fall some way short of the UK target. The Government must acknowledge that the UK Climate Change Programme is in some important respects failing to cut emissions in the UK as originally planned, implement the lessons as soon as possible, and share them widely with other governments.

85. The difficulties experienced in meeting the 2010 target, and the complications caused by allowing equivalent reductions in other greenhouse gases in other parts of the world to count against a domestic target for reducing CO₂, raise further concerns about the Government's target for reducing UK CO₂ by 60% by 2050. In his evidence to us, the Minister explicitly stated that the 2050 target might be partly met through financing projects in other countries:

Chairman: […] For the sake of clarity, in the longer term looking at the 60 per cent target for 2050, do you envisage that a substantial proportion of that 60 per cent target could be met by buying reductions outside the UK? Would a third, for example, be acceptable?

Ian Pearson: Some of that 60 per cent target will be achieved through the EU ETS and the EU ETS rules at the moment allow for trading. The 60 per cent target is not based on 60 per cent all taking place in the United Kingdom at the moment. This is something we will want to return to as part of the wider debate.[100]

What concerns us about this is that, as the Government has clearly outlined,[101] the 2050 target is based on an assumption that emissions from all countries in the developed world reduce their CO₂ emissions by 60%, with emissions from the developing world being allowed to grow but being strictly constrained. If these targets are to be met, it will mean developed economies making steep cuts in actual emissions, with developing economies making challenging cuts from BAU levels; in both cases, as soon as these targets begin to bite, it is unlikely that many countries will perform so much better than their targets that they will have large surpluses of carbon credits to sell. In other words, it is vital that the Government does not rely on buying emissions reductions abroad to make up anything more than an insignificant amount of its 2050 target. In putting this target into statute as part of the Climate Change Bill, the Government must specify the minimum proportion of reductions that are to come in the form of CO₂ and take place within the UK.