Examination of Witnesses (Questions 140
- 159)
WEDNESDAY 16 MAY 2007
MR RUPERT
EDWARDS, PROFESSOR
MICHAEL GRUBB
AND MR
JAMES WILDE
Q140 Patrick Hall: I was asking Professor
Grubb because Professor Grubb was the one who was saying that
we do not need to.
Professor Grubb: On the institutional
position or responsibility of the Carbon Trust I was going to
let James answer, but my job anyway is to say what I think irrespective
of whether I am the Carbon Trust or other institutions.
Q141 Patrick Hall: Sorry, can I be
clear then, are you not part of the Carbon Trust?
Professor Grubb: I work half time
for the Carbon Trust as chief economist, I am half time as an
academic. I actually do not wish to draw any distinction, whichever
hat you want me to wear when you ask the question, because you
will get the same answer, which is that there is a lot that we
still do not know in relation to both exactly how severe climate
change is, about what is the capacity of this country and the
willingness of this country to carry out a 50 year programme of
major structural change in ways that are or are not contingent
upon what the whole of the rest of the world may or may not be
doing. Therefore, it is perfectly legitimate to say this is a
really serious problem and we know we need deep reductions, but
I do not think it is wise for us to cast in concrete for the next
50 years exactly where the end point should lie, it is highly
rational to set out that we are confident we need to do at least
this much, even if necessary unilaterally, because our position
will make no sense otherwise because of the issue of leadership
et cetera, but there should also be a recognition that
the majority of scientists think actually we are probably going
to end up needing to do more, it is not obvious yet that people
fully know exactly what they need to do more; exactly the willingness
of the British public, for example, to have the government stop
them flying or other things that would be implied, for example,
by an 80% target. I do not think, therefore, that there is any
inconsistency in saying this is real, this is serious, it requires
immediate action, we are going to need to get to at least 60%,
that is already further than we actually really know how to deliver,
but that is probably the guidance for the next few years because
it might well need to be toughened up.
Q142 Mr Williams: Professor Grubb
said that if we were to have annual targets you would have to
have lots of bells and whistles attached to them; lots of statistics
do have that and it has been suggested we could make adjustments
for GDP, for weather, for energy prices. The real problem with
a five-year budgetary period is that this Bill is addressed to
encourage secretaries of state to make very tough political decisions
to address what most of us believe is the most serious threat
to this planet. The real problem is that the secretary of state
at the beginning of a five-year period is almost certainly not
going to be the secretary of state in place at the end of the
five-year period and so the political pressure is not there if
you have five-year budgetary periods. Would you like to just comment
on that analysis?
Professor Grubb: I imagine either
of us could but I am not sure that I would want to be a government
going into the next election with it being blindingly obvious
that we were trying to hand on to the successor government a failure
to deliver on this budget, because it would generally be blindingly
obvious by the time one approached the next election. I am not
convinced that it is such a problem.
Q143 Lynne Jones: I just wanted to
point out that we do know what needs to be done, but it is whether
that leads to political acceptance of it that is important. Surely
we have to start talking about what needs to be done to actually
even begin to gain that political acceptance.
Professor Grubb: We are very actively
talking about what needs to be done; it is a tremendous amount
whether you are talking about 60 or 80%.
Q144 Mr Drew: Can I move on to the
issue of sanctions, which I did press Rupert Edwards on before
in the informal session. I am just concerned about this issue
in terms of what happens if countries do not meet their obligations,
and I know that this is a matter of European law but we have got
other players in the marketplace and I raised before the issue
of the ROCs and what happened there, where TXL went down the tube
and there were difficulties persuading people to take on their
ROCs. Just give me some clarity of what are the safety nets if—because
there is a great deal of goodwill involved in this—things
start to go wrong. Perhaps Mr Wilde will want to answer that or
Professor Grubb?
Professor Grubb: Just to clarify,
you said the sanctions for countries, are you talking about sanctions
behind international commitments or some specific agreement?
Q145 Mr Drew: We have got international
agreements and we have got, obviously, the fact that this is being
played out by business and indeed other organisations, so there
is something of a construct there anyway. What happens if individual
industries blatantly ignore their corporate responsibilities in
this area?
Professor Grubb: I am probably
best equipped to answer the international one and James perhaps
on the corporate. Let me just say a few words about the international
one. There is a long and complicated essay that people will give
you, international relations scholars, about compliance with international
law and then they will point to a statistic to say that nearly
all countries observe nearly all international law nearly all
the time, and then go into a long explanation of why. The basic
underpinning of international specific commitments is not that
there is a big enforcer that is going to throw presidents or prime
ministers into jail, it is that countries are obliged not to ratify
a treaty unless they fully intend to implement it, and that is
why ratification is such a big and complicated step, that is the
founding principle of international law in general and it is true
that it is nearly always observed. When you then look interestingly
at how things play out in the European context, you have 25 countries
that have Kyoto targets and as part of the process of the European
Commission, approving their plans for allocating emission allowances
to companies, the European Commission has made an evaluation of
whether these countries are on track to deliver their Kyoto targets,
including whether they put enough money aside to purchase international
credits that would help to bring them into compliance and so,
again, compliance with international obligations is, in effect,
a criteria that the Commission has successfully enforced in its
implementation of the European Emissions Trading Directive. The
question then comes on to enforcement on the individual company.
Mr Wilde: In a sense that is a
separate question to this Climate Change Bill because we are going
down to the underlying policies that will drive the change. In
each policy there is a set of enforcement criteria, so within
the EU Emissions Trading Scheme if, at the end of a given year,
a company does not surrender sufficient allowances to cover its
verified emissions it will need to buy those allowances on the
market and pay a penalty of €40 per tonne of CO2
in the first phase, €100 per tonne of CO2 in the
second phase. Looking at other policies, in the UK we have the
Climate Change Agreements, energy efficiency targets where energy-intensive
companies can get 80% rebate on the Climate Change Levy if they
meet those targets; if they fail to meet those targets they have
to pay the full Climate Change Levy so there is a financial incentive
for them doing so. Building regulations is another key area where
enforcement is absolutely key if we are going to get the action
required to get to our 60 to 80% reduction by 2050, and enforcement
of the regulations which are pretty tight at the moment and they
are set to increase further with talk of zero carbon homes by
2016; enforcing those regulations is absolutely key and that is
a big policy question.
Q146 Mr Drew: Can I just be clear
then, what is the safety net if either business does not do what
it is obliged to do or countries do not meet their obligations?
Mr Wilde: Within each policy there
are set aside clear drivers for compliance, and at an international
level within the Climate Change Bill it is quite clear that if
the UK does not meet its five-year carbon budget it will need
to potentially buy international credits exactly as Michael was
saying, and it has a lot of political damage there.
Q147 Mr Drew: What about being tested
in the courts?
Mr Wilde: Under judicial review,
is that your question?
Q148 Mr Drew: Has that got any real
teeth?
Mr Edwards: I will just repeat
what I really said, I think, in the informal session which is
the Commission's trading scheme directive in European law is a
tough piece of hard law with very demanding compliance legislation,
and punitive targets for not meeting it, and I do not believe
that there will be very many companies that fail to meet their
obligations under the Emissions Trading Scheme other than by accident.
International environmental law is a different thing, the Canadians
have already acknowledged that they are not going to meet their
Kyoto obligations but clearly, as Professor Grubb has said, international
environmental law, like all international law, tends to rely on
a reputation rather than some kind of compliance mechanism. There
is a compliance mechanism within the Kyoto treaty that says if
Canada, for example, does not meet its obligations under Kyoto
and wants to participate in international emissions trading after
2012, it will have its assigned amount unit in the next phase
of Kyoto multiplied by 1.3 as a punishment. That is the only mechanism.
Q149 Chairman: Target-setting in
the way that you have both described is relevant, if you like,
for those bits of your energy economy which can be affected by
things like the Emissions Trading Scheme, but there are some bits
which are missed out like the whole of the domestic sector at
the level of the individual. The energy generators, yes, they
are part of the scheme but, for example, the whole question of
heat does not seem to figure, the transport sector does not really
figure and one of the things that is interesting about the targets
is that there is no attempt to assign responsibility, there is
no sectoral breakdown. Do we need to be a bit more sophisticated
with the target-setting and how far down do you go in allocating
your share either at the level of the enterprise or the level
of the individual that you are going to have to take to help the
nation achieve its target?
Professor Grubb: The Bill starts
in the right place, which is national total emissions, and from
that certain consequences flow about the need to address the whole
range of sectors and the fact that the Government is going to
be held accountable if it does not do enough across all the various
sectors. Again there is a question about how much should be pre-judged
and pre-specified in the Bill, as opposed to the Bill setting
out the goal and in a pretty heavyweight form, such that one is
confident the government will deliver it and leave it up to subsequent
individual policy processes around the energy sector, renewables,
housing, heating, transport et cetera to make sure that
the Government uses those levers in those sectors to best effect.
These are big questions, a lot of sectors and an awful lot of
policy instruments and I am not sure one could actually encapsulate
that level of detail in a single Climate Change Bill and I do
not know if we know exactly the right balance between the different
sectors either at this precise stage.
Q150 Mr Cox: The question, Professor
Grubb, that I thought you were being asked about—I may be
wrong—was whether it is appropriate, as the Government contends
in its consultation document, to make the courts in a judicial
review application the whipping boy for failures in Government
policy and whether the process of judicial review is an adequate
mechanism for imposing upon Government accountability for failure
to meet its legal duty under the Act.
Professor Grubb: I am not sure
I am fully qualified to answer the best way for a Government to
bind itself, it is actually quite a complicated question, but
one approach is proposed in the Bill. In some areas there are
other possible questions, the Government could, for example, at
least based around price rather than quantity, enter into a contract
in which it promises to pay certain investors certain amounts
for low carbon investments. That is another way that one could
use contractual law to try and address some of these longer term
questions. I do not feel qualified to answer the specific question.
Q151 Mr Cox: What about Mr Edwards?
Mr Edwards: On that specific question
I do not feel qualified legally enough to answer it, but on the
question that the Chairman posed, is it not going to be up to
the Climate Committee to suggest to ministers with enabling powers
that certain sectors should be covered by emissions trading and
certain sectors in transport or domestically should be covered
by regulation, and that it will then be up to the secretary of
state to either propose a Bill or even use enabling powers to
more speedily impose the goals of the Climate Committee.
Q152 Mr Cox: The defect in the judicial
review that has been pointed out to us by Friends of the Earth
is that judicial review is a very weak remedy in this area. You
have a series of polycentric decisions, not ideally fitted for
a judge to make a good judgment on, he is looking ahead over a
period of years. Courts are notoriously reluctant in areas of
policy to get involved, so Friends of the Earth suggest a pre-emptive
approach where policies are announced and then subjected to a
review and challenged at the stage where the policies, so to speak,
are set out for the next five years, in advance of the policy's
implementation. Ministers then could be required to amend the
policies if the view was taken that it probably would not meet
the budget. What do you think about that?
Mr Edwards: Is it worth making
the comparison to the Monetary Policy Committee which produces
an inflation forecast, has to write a letter if the inflation
target is breached, as it has been recently, and actually holds
a lever on monetary policy? I do not think there is any suggestion
that the Climate Committee is going to hold a lever, but there
is a great deal of transparency in the approach of the inflation
reporting of the Monetary Policy Committee and perhaps the Climate
Committee looks a bit more like Kenneth Clarke's seven wise men
that was a precursor to it. Just by having a transparent process—the
Bill talks about forecasting -the Committee doing forecasting
and having a transparent process that is open to public scrutiny
will then put pressure on the secretary of state a priori
instead of waiting until the judicial review to worry about it
afterwards.
Q153 Mr Williams: Professor Grubb
said that the Bill is about total carbon emissions; in fact of
course although there are five-year budgetary periods the main
purpose is the 60% reduction in annual emissions by 2050. It has
been argued to us that actually the most important thing is the
total amount of carbon that is produced between now and 2050 and
so it is important to get the steepest reductions earlier in that
period if we are going to minimise the total carbon emissions
and therefore mitigate climate change. Is there anything that
could go in the Bill to encourage early large reductions?
Professor Grubb: I presume the
interim target, the 2020 target, and presumably the setting of
three budget periods ahead.
Q154 Mr Williams: Have you got any
view on what sort of increased targets could be put in the Bill?
It is argued to us that actually this will not keep temperature
increases down to 2oC.
Professor Grubb: Some of these
things are a matter of trade-offs between what seems possible
and doable. Let us be honest, we are in a situation where the
Government for several years has officially acknowledged, accepted,
the severity of this problem et cetera, et cetera and still CO2
emissions are not going down. From that position a reduction of
at least 26% by 2020 is already a very demanding, strong change
from the current apparent ability or not to get these emissions
under control, and 26 to 32% is a pretty steep change from what
we seemed to have been able to do so far. If you are implying
is that number not strong enough; that is probably a range that
I would not find unreasonable.
Q155 Chairman: That is quite interesting.
In a sense you are telling us that it is pragmatism that should
rule in the first instance.
Professor Grubb: No, what I am
telling you is I have seen a long history of governments setting
targets and then going extremely quiet when they have not been
met.
Q156 Chairman: Yes, but on this occasion
they cannot, can they?
Professor Grubb: No, that is right,
but in that case you had better make sure that the targets have
implications that you have some idea how you are going to implement
and understand.
Q157 Chairman: I want to briefly
move back to Mr Edwards and I would be grateful if you would put
on the record now some remarks you made when you were telling
us about how Carbon Markets work, about the opportunities for
the United Kingdom purchasing carbon credits from abroad, how
robust those systems were and you were indicating to us that there
were, within certain agreements, limits on how much you could
purchase. One of the areas of sanction is that if you miss the
target you have to buy your deficit from somewhere; would you
like to say a little bit about how robust the purchasing systems
are and is it something which, if you like, the Government should
simply regard as a fallback position, or in your judgment is it
something that is going to have to be used come what may?
Mr Edwards: First of all on the
question of robustness and as far as we can see between now and
2012 the system for generating emission reduction credits from
the Clean Development Mechanism and Joint Implementation is extremely
robust and policed very effectively by the United Nations. Between
now and 2012 the UK is going to be one of the few European Member
States that does not need to rely on these mechanisms. Quite what
international law will do to scale up the effectiveness of those
mechanisms after 2012 is not clear and so it is hard to say with
certainty whether they will continue to be as robust if they are
scaled up to cover entire sectors in developing countries, but
I am pretty confident that they will be. In terms of the limits
on the use of importing, effectively, offsets or credits from
other countries it is an extremely useful way of transferring
technology from north to south, of showing developing countries
and economies in transition that we are serious about leadership.
In terms of the supply of emission reduction credits it creates
for the embryonic carbon market a safety valve in that there are
lower costs generally for taking a tonne of CO2 out
of the atmosphere in developing countries than there are in the
industrialised world, but the principle of supplementarity that
is currently enshrined in Kyoto and the Marrakesh Accords, whereby
the use of such credits should only be supplemental to domestic
emission reductions, must be carefully followed, and I know the
Bill mentions this, but it would not be right for the UK's 60%
target to be 30% the UK and 30% somewhere else. I hesitate to
use the word "additional" because that really does create
some very demanding targets for the UK, but one of the things
that the Climate Committee will want to scrutinise very carefully
is the extent to which we are successfully creating a carbon price
in Europe or the UK that encourages investment in low carbon technology
and infrastructure and excessive importing of those credits could
keep the carbon price down. It is important at the level of nation
states that nation states do not rely totally on such credits,
in so far as it is possible to do that in any case when demanding
emission reductions are needed in the industrialised world.
Q158 Chairman: You would not define
in the Bill any limits, you would leave it to a matter of judgment
for the countries.
Mr Edwards: The Bill should certainly
retain the principle of supplementarity at a minimum, in other
words that the use of imported credits should only be supplemental
to the successful achievement of domestic emission reductions.
Q159 Sir Peter Soulsby: Has anybody
tried to define what supplemental means in that context?
Mr Edwards: Professor Grubb will
tell you. I think that it is not defined; it has come to be defined
as 50%. It has come to be understood across Europe as "let
us treat it as 50%" because we are not going to meet our
Kyoto obligations unless it is, and I think for now that is a
perfectly reasonable definition. As I say, I do not think the
60% target by 2050 should be achieved mostly or even largely by
purchasing credits from elsewhere, but it is a very useful mechanism
as a safety valve for technology transfer and for economic efficiency
because it is, after all, generally cheaper to reduce emissions
in developing countries.
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