Examination of Witnesses (Questions 128
- 139)
WEDNESDAY 16 MAY 2007
MR RUPERT
EDWARDS, PROFESSOR
MICHAEL GRUBB
AND MR
JAMES WILDE
Q128 Chairman: Welcome to our second
evidence session on the Draft Climate Change Bill and for the
record we formally welcome Rupert Edwards, the Managing Director
and Head of Portfolio Management of Carbon Markets for Climate
Change Capital, who has just been trying to initiate the Committee
into an early understanding of how the carbon market works; we
are still in the infants class on understanding it, but you made
a good effort and we are very grateful to you. From the Carbon
Trust we welcome Professor Michael Grubb, their Chief Economist
and Mr James Wilde, their Director of Insights. How good is your
crystal ball, Mr Wilde, because we are all interested to know
whether you think this Bill is going to be effective or not, because
I notice from the evidence that you very kindly sent, when we
are looking at the question of the targets you say in your evidence
to us: "The Bill sets long term targets for a 60% reduction
in carbon dioxide emissions by 2050 and 26-32% reduction by 2020.
These goals are considerably lower targets than those called for
by opposition parties and non-governmental organisations..."[1]
It is a bit of a cop-out really; what do you think about the target,
is 60% the right number or not?
Mr Wilde: The precise debate around
whether the number should be 60 to 80% for 2050 and the precise
trajectory as to how we get there, whether we have a near trajectory
or we have a lot of early action, is a specific question for the
Committee on Climate Change. They can review available evidence
based on the science of climate change and the need to reduce
emissions, and also the impact on our economy and the competitiveness
of our firms.
Q129 Chairman: The reason I asked
that question is that a number of our witnesses and indeed contributors
have been a little bolder; they have put the argument that scientific
evidence exists already—never mind about changes that might
come—to say that 60% is the wrong number and another number
should be substituted, a number bigger than 60%. You are in the
carbon business, what do you think?
Professor Grubb: If you would
like me to add, there is still quite a lot we do not know. We
know enough to be setting targets, we know we need to set targets
right out to mid-century to give a good steer but the exact trade-off
between what is doable economically and politically and in terms
of getting society's buy-in to potentially quite substantial changes
and the exact severity of impacts we are still going to learn
about more as we go forward. I personally think that a target
phrased as "at least 60%" is a perfectly reasonable
position to take at present, it should not be phrased so as to
rule out the possibility of strengthening; I also think from my
earlier background in international affairs it is questionable
whether we would be able to tie the UK down lock, stock and barrel
to something for the next four to five decades when we have got
ongoing global negotiations about how much others were willing
to do as well.
Q130 Chairman: The reason I asked
that question is that we are now running behind the simple linear
extrapolation of the 1994 to 2050 60%, 1% a year, neat sort of
figure, and the suggestion that others who, for example, advocated
80%, they have said that there is more evidence around to suggest
that a higher number like that should be the right number because,
if you like, the global warming effects are worse than we had
anticipated, but you are sort of saying it is all right to start
off with 60 at least and give you a bit of wiggle room and take
into account the economic impact. One might say that is a slightly
wishy-washy position to be in.
Professor Grubb: Actually I would
argue the opposite. The key thing is what actions does this Bill
engender and what actions does it engender now and over the next
few years, and from some many years of observing target-setting
practices in many governments, if one is falling behind on existing
targets calling very shrilly to tighten the far out target is
not a solution, if we are already struggling to meet a credible
trajectory towards 60% and saying it should be 80% is not going
to actually solve that problem—it might possibly create
risks of devaluing the credibility of the actual commitment.
Q131 Chairman: Do we really need
this Bill? In other words, if you had some credible policies,
as you have indicated, that would actually deliver on what we
are supposed to be doing at the moment, do we actually need a
Bill?
Mr Wilde: There is a place for
this Bill because it is going to create certainty over the aggregate
emissions reductions that the UK expects or targets to achieve,
and it also increases accountability for Government. That is important
for two reasons. The first is that the five-year budget cycles
that have been introduced will enable Government to set sensible,
long term policies. If they are not on track within a given five
year budget cycle they do not need to rush in new policies to
get back on track, they can stick with sensible long term policies.
Also, the system that has been introduced creates some level of
certainty for businesses so that they can start planning the types
of investments they need to make over the medium and long term.
The flexibility and accountability that is within this scheme
is also sensible, so it means that the Government are held to
account, which is absolutely right, with the independent Committee
on Climate Change playing an important part in that, but it is
done in a flexible way so that over those five year budget cycles
it takes into account adjustments in weather and in energy prices
and, with the flexibility around borrowing and banking, it all
makes for a sensible way to hold the Government to account. Really
this is all about making sure that the Government set the right
set of long term policies that are going to drive the right types
of actions, both in terms of developing low carbon technologies,
the right types of investment decisions and the right types of
behavioural change so that we make a transition to a low carbon
economy.
Q132 Sir Peter Soulsby: Let me just
follow that up because one of the major criticisms that we have
heard from others of the Bill has been the argument that the five-year
budgetary cycle is too long. Do I take it from what you are saying
that you actually would reject those arguments, you actually think
that the way the Government is approaching it is sensible?
Mr Wilde: We think it is entirely
sensible and we support the five-year budget cycle.
Q133 Sir Peter Soulsby: What about
the argument that five years is a long time, more than the lifetime
of a Parliament, and governments can escape the responsibility
for their own actions?
Mr Wilde: Within the scheme there
is an annual review process, so every year in effect the Government
is held to account, and so on an annual basis the Government will
have to say this is how we are performing versus the report that
the Committee on Climate Change have put in place. That creates
a political driver for the Government to make sure that they are
putting the right long term policies in place to drive actions.
Q134 Sir Peter Soulsby: One of the
suggestions we had put to us was from the Energy Saving Trust
which was for a rolling five-year average target. How do you respond
to that as a suggestion?
Mr Wilde: Can you explain how
that would work?
Sir Peter Soulsby: I am not sure I can.
Chairman: Like any rolling target.
Mr Drew: A moving average.
Chairman: A moving average figure.
Lynne Jones: Where you cannot borrow
from years ahead.
Q135 Sir Peter Soulsby: It seemed
like a good idea when they put it to us.
Mr Edwards: That is a nice mathematical
idea and it might smooth out the bumps, but I do not think it
is practical. One thing it might affect, for example, is the five-year
periods that are likely to occur for budgeting for allowances
in the Emissions Trading Scheme, and I am not sure how you could
relate a five-year moving average target in the Climate Bill to
that. I do not think it will work.
Q136 Chairman: None of you favour
an annual target?
Mr Edwards: Industry in the past
has been crying out for some long term clarity and three five-year
budgetary periods is a pretty good deal.
Professor Grubb: Can I add a couple
of points? On the single year versus other periods I personally
find it very, very hard to see how a binding single year approach
would work, given the extent of fluctuations arising from weather
and other things. Therefore, to make it credible you start adding
lots of bells and whistles to what you really mean by a single
year which ends up averaging it out over a few years anyway, so
I just do not quite see the huge advantage of it. Most actors
are capable of thinking a few years ahead and seeing if they are,
in these years, on the path for a certain average over the next
five years of the budget. I would see an interesting idea in the
moving average, but I am not sure I see the advantage, and actually
does it not just mean that you have to define the average every
year for the next 20 years as to what it would be and so forth.
Coming back to your earlier question about do we need this Bill,
I joined the Carbon Trust coming from a policy research background;
what struck me was the scepticism that much of business has about
general government policy announcements or declarations, or even
decisions laid out in principle in a White Paper, and I think
generally the somewhat sceptical business mind tends to need to
see something a bit harder that has got either teeth, legal clarity
or constitutional independence, a mandate to do things, which
cannot really be lobbied away. It seems to me that the institutional
security and clarity is one of the things that this Bill would
bring which would actually add quite a lot to the credibility
of what the Government has already said it wants to do.
Q137 Chairman: Three colleagues have
caught my eye so far and I am going to ask them—but I am
just going to ask you to restrain yourselves, colleagues for a
second—in this order: Lynne Jones, Patrick Hall and Roger
Williams, but I would like, Mr Edwards, if you could just respond
perhaps to give your own view about the 60% target. Do you think
the 32% intermediate target by 2020 is sensible and do you think
we need the Bill?
Mr Edwards: It would be unfair
to call it a cop-out, it is a pragmatic first step but could be
reviewed by the Committee. There is a very strong argument to
be made to say that the science is arguing for a tougher target,
but it is a pragmatic first step. On the issue of should the UK
be sticking its neck out when it is opening its hand in its international
negotiating position, as I said to you earlier it is important
that somebody shows some leadership and says "We will"
rather than "We will only if you will."
Chairman: That is clear, thank you. Lynne.
Q138 Lynne Jones: It is really on
that point, do you accept that if we are going to avoid dangerous
climate change we are looking at trying to ensure that we do not
increase global temperatures more than the 2o, and the scientific
evidence is that the measures in this Bill are going to move us
towards a 4o increase in temperature; therefore, can we afford
to wait, to say let us leave the Carbon Committee to look at it
for a couple of years? Why should we not be using the best possible
science now to actually set targets that can actually achieve
that aim, otherwise is it not dishonest to say that this Bill
is going to avoid dangerous climate change?
Mr Edwards: The probability projections
would suggest that for 2oC you might want to have 450 parts per
million CO2 equivalent, and that suggests that you
need tougher targets, both by 2020 or 2030 and by 2050. Whilst
it is a good thing that the UK is showing leadership on this,
it is pragmatic to suggest that the UK is not going to solve the
climate problem on its own.
Q139 Patrick Hall: I want to pursue
the 60% a bit more, because what is on the face of the Bill is
absolutely crucial and the signal that is given, and certainly
Professor Grubb's position was, as others have said, this is a
pragmatic first step to get the whole thing off the ground and
start with something that is seen as credible by the public and
particularly the industry, in other words do not frighten the
horses and let us get going and then maybe adjust further down
the track, but is that not really a political judgment, and that
is what government is for? You are an independent trust, funded
by government but not necessarily to do government's bidding;
surely it is the duty of an independent trust such as yourselves
to be guided by the science first, not making the political judgments
for government. Let government do that—should you not be
saying that the science now looks as if what we are plugging into
the system requires a more ambitious target than 60%? Should you
not be saying that and why are you not?
Mr Wilde: My initial reaction—
1 Ev 45. para 3. Back
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