Memorandum submitted by the Carbon Trust
(CCB 36)
PRE-LEGISLATIVE
SCRUTINY OF
THE DRAFT
CLIMATE CHANGE
BILL
Thank you for this opportunity to contribute
to the Committee's examination of the Government's Draft Climate
Change Bill. The submission below addresses the Carbon Trust's
views on a number of aspects of the Bill that the Committee is
considering in particular.
As you will be aware, the Carbon Trust is an
independent company funded by Government and tasked with helping
the UK move to a low carbon economy. We do this by working with
business and the public sector to reduce carbon emissions, and
by capturing the commercial opportunities associated with developing
low carbon technologies.
TARGETS
The Bill sets long term targets for a 60% reduction
in carbon dioxide emissions by 2050 and a 26-32% reduction by
2020. These goals are considerably lower targets than those called
for by opposition parties and non-governmental organisations (NGOs)
and the emerging science is indicating that more rapid and greater
progress may be required. However the Committee on Climate Change
will be able to review these targets in the light of available
evidence and the latest science, and the Government should be
open to act on its advice.
The Bill is designed to deliver certainty of
required emissions reductions and increase the accountability
of Government. We support the Bill's proposal for five year carbon
budgets. When combined with an independent annual review of performance
and long-term targets, we believe that five year budgets will
achieve these goals in a more flexible way than annual targets,
and in addition this approach will also assist business delivery
of these goals, for two reasons:
(a) Stability of policy and investment decisions:
Five year budgets give firms a clear signal to inform investment
decisions over the short and medium term. However, since the Government
has time to react if it starts to under-perform over a five year
budget cycle, it is more likely to make the right kind of long-term
policy decisions to stimulate business investment to address these
goals, than in an annual cycle where there could be an incentive
to make more short-term sub-optimal policy decisions. Clear targets
and stable policy will increase business confidence and allow
them to make the required low carbon investment decisions.
(b) Flexibility and accountability: Five
year cycles mean that fluctuating circumstances (such as weather
and energy prices) will have less effect on Government's performance
versus these targets. The Bill also proposes other flexible features
in the five year budget process, including banking, which allows
in any given budgetary period the facility to "borrow"
emissions rights from a subsequent period, or to "bank"
any "surplus" emissions reductions for use in the next
budgetary period. Banking will allow Government to develop stable
policy responses and creates an incentive for it to go beyond
a given budget target. In addition, the independent review process
will still ensure that Government is held to account on an annual
basis for its performance.
CARBON BUDGETING
The concept of banking ensures that there is
always an incentive for the Government to over achieve against
a current carbon budget, instead of waiting to take further action
in a subsequent period. From an emissions perspective, it implies
that there will still be certainty over the aggregate absolute
amount of CO2 that will be emitted over a series of
cycles, so we are supportive of this feature.
The appropriate level of domestic action versus
international purchase of carbon credits to meet domestic targets
is another feature on which the Government will be given independent
advice from the proposed Committee on Climate Change. The Committee
will take due account of both the need for action based on climate
change science as well as the potential impacts on the UK economy
and the competitiveness of UK firms. We believe that stimulation
of international abatement through Joint Implementation and Clean
Development Mechanism has a role but needs to be balanced by true
domestic action.
I have enclosed a copy of our recent report,
Allocation and competitiveness in the EU Emissions Trading: Options
for Phase II and beyond for your information. This outlines key
issues and specific decisions required to ensure that the EU ETS
provides an effective, efficient framework that protects the competitiveness
of business in the UK and Europe, while providing clear and stable
incentives to support low carbon investment, and generally addresses
number 7 of the issues the Committee's inquiry is exploring.
COMMITTEE ON
CLIMATE CHANGE
AND ENABLING
POWERS
The introduction of a Committee on Climate Change
to advise on targets and budgets while taking due account of a
wide range of factors including environmental goals, competitiveness
and impacts on the economy, creates a new level of independent
objectivity in the process. The new enabling powers will also
increase the Government's ability to introduce new policy instruments
such as cap and trade and traded-obligation schemes and as such
we see this as a very positive inclusion in the Bill. I have also
enclosed a copy of our publication, The UK Climate Change Programme:
Potential evolution for business and the public sector, which
makes the case for a new mandatory trading scheme for large, less
energy intensive organisations that fall outside the EU ETS. The
Government have taken this option forward in the form of the proposed
commitment on energy performance, which we would support as an
example of an instrument that could be pushed forward using the
new enabling powers.
GENERAL
One potential omission from the Bill is the
exclusion of other greenhouse gases (GHGs) in the target and budget
setting process. Because CO2 comprises 85% of the UK's
total GHGs it makes sense for the Government to first focus efforts
and discussion in this area. There has been a significant reduction
in other GHGs since 1990 with no consensus on further achievable
cuts; this should be reviewed in due course.
We also caution against assuming that the establishment
of carbon budgets and the requirement to set these three cycles
ahead solves the problem of investment security for companies,
for two reasons. First is that for some investments, even 15 years
may be insufficient to support strategic investments. More seriously,
it is unrealistic to expect most investors to be able to translate
goals expressed in terms of national quantity targets, covering
all sectors, into financially relevant indicators (notably, carbon
prices) for their particular product. The Draft Climate Change
Bill, as it stands, thus does not in itself solve the business
problem of investor confidence.
The Carbon Trust
May 2007
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