Examination of Witnesses (Questions 180
- 199)
WEDNESDAY 16 MAY 2007
MR RUPERT
EDWARDS, PROFESSOR
MICHAEL GRUBB
AND MR
JAMES WILDE
Q180 Chairman: Just to understand,
you said that a company would be accountable; how would it know
what its share was?
Mr Wilde: It would measure its
emissions each year and there would be an aggregate cap on emissions.
They would need to buy allowances in an auction at the start of
the year, so basically the Government would auction all 15 million
tonnes of carbon—
Q181 Lynne Jones: The proposal in
the Bill is that they should be distributed free; what do you
feel about that?
Mr Wilde: The current proposal
for the energy performance commitment is that they should be auctioned
at the start of each year.
Chairman: That is not what the Bill says.
Q182 Lynne Jones: The current proposal
for what?
Mr Wilde: For the energy performance
commitment specific instrument—
Q183 Lynne Jones: But that does not
apply to Tesco, we are talking about new schemes here.
Mr Wilde: This is a new scheme
that the Government has just consulted on.
Q184 Patrick Hall: That you have
been working on?
Mr Wilde: We worked on it about
18 months ago. It features as one option to incentivise emissions
reduction in this particular sector. We sent a publication through
as part of our evidence that explains the logic for this option.
The Government subsequently put it in the climate change programme
review as something they would like to investigate and in the
energy review they made a commitment that they would introduce
a new measure to reduce emissions from the large non-energy-intensive
sectors by 1.2 million tonnes of carbon by 2020. This trading
scheme is one of the options that they are looking at to get there.
The enabling powers within the Climate Change Bill would enable
the scheme that is being looked at to be put forward. The current
proposal for that is that the allowances would not be distributed
for free at the start of each year.
Q185 Lynne Jones: Do you think it
is important that the Bill should make it clear that they would
be auctioned?
Mr Wilde: You might have a different
system for different schemes.
Q186 Lynne Jones: What sort of schemes
would you envisage where it would be appropriate to give permits
free?
Mr Wilde: I have not given it
any thought. On the scheme that we have just been talking about,
there is consensus for analysis that says you have a greater drive
for change if there is some change of monies.
Professor Grubb: On the question
that is troubling you, we analysed and suggested 18 months ago
unambiguous recommendation for 100% auctioning in this sector
and I have seen nothing that would change that view from ourselves
ultimately.
Patrick Hall: What happens at the end
of the year? You purchase credits at the beginning of the year.
Where do you get something back?
Q187 Lynne Jones: You sell them to
other people if you reduce your energy.
Mr Wilde: The logic would be at
the start of the year I am sitting here as a major company. I
predict what I am going to emit over the course of the year. I
buy that many allowances in the auction at the start of the year.
That gives me an incentive to reduce my emissions through the
year and I will sell any surplus to someone else who does not
manage to reduce. The suggestion that the government is currently
looking at is that this needs to be financially neutral for firms.
It is not necessarily about creating a new financial burden for
them. The suggestion is that at the end of the year companies
surrender allowances for an equivalent to what they have emitted
and then the monies received through the auction will be recycled
back to participants. It is revenue neutral.
Q188 Patrick Hall: Overall?
Professor Grubb: Correct.
Q189 Lynne Jones: Are there any other
characteristics of such a scheme which will maximise the carbon
savings that you would care to comment on?
Professor Grubb: I am not sure
which scheme we are talking about here but some further attention
to creating a bit more confidence about what the future cost of
carbon might be under some of these schemes would help business
investment in carbon technologies.
Q190 Chairman: Mr Edwards told us
informally it is very difficult in quite a volatile market to
make that kind of forward prediction.
Professor Grubb: We have made
some suggestions as to how the government could consider ways
of underpinning a minimum price level. That is not impossible.
Mr Edwards: That was a comment
I made informally about perhaps having a floor price in auctions.
Q191 Chairman: These are more about
the design of the scheme that the government might introduce because
it has powers in the Bill so to do. Perhaps the message I am getting
from you is that it is better to allow the scheme to be designed
in the way the scheme is rather than try and design it in the
Bill.
Professor Grubb: Beyond a certain
point that has to be the case. There is presumably a limit to
the level of detail which a Bill has.
Q192 Chairman: For example, there
is nothing in the Bill at the moment that says any scheme that
is produced shall have in it a mechanism to put a floor price
for carbon in.
Professor Grubb: It is an option.
Q193 Chairman: One of the questions
that we asked was what was missing from this Bill. Some witnesses
have chosen to give ideas and suggestions; some have ducked the
issue. Is there a missing element in scheme design that ought
to be there? Do not feel compelled to say yes; you might say no,
just leave it to the scheme.
Professor Grubb: I do not feel
compelled to say yes because in our own evidence we said yes,
there are things potentially missing. The issue we just touched
on is one that at some point should be considered, whether or
not in this Bill or other issues. In our evidence we raised the
point that it is very hard for business to translate from a national
aggregate target to say, "What will that mean for my investment?"
because price tends to be what a business can deal with in deciding
whether it is worth investing in low carbon technology. It is
very hard for a business to translate from a national target 15
years ahead to say, "What is that going to mean in terms
of my investment?" Hence my reference to some kind of stronger
confidence around carbon price in the sectors where that is the
thing that matters.
Q194 Lynne Jones: Do we have the
necessary mechanisms to ensure accounting for carbon emissions
in these schemes and even in the totality in terms of the carbon
offsetting process?
Professor Grubb: Certainly for
fossil fuel carbon, yes. For some of the other gases, it may be
more difficult. I am not sure about the exact status of monitorability
in some of the sectors which are not core or fossil fuel related.
Q195 Lynne Jones: In terms of the
enabling powers, is it appropriate that there is so much emphasis
on emissions trading and market mechanisms rather than other policy
instruments to reduce carbon?
Professor Grubb: For at least
half of the economy things to do with emissions trading and carbon
pricing are very important. There are other parts of the economy
where they are missing the point. If you think you are going to
solve buildings related emissions, or even personal transport,
through a carbon price, I think you are making a big mistake.
Q196 Lynne Jones: Are there any other
inclusions in the Bill? You have mentioned the idea of giving
the Carbon Committee further terms of reference. Would that cover
those concerns?
Mr Wilde: There is a portfolio
of policy instruments required to overcome the barriers and neutralise
the drivers for improved energy efficiency and adoption of low
carbon technologies. Things like regulation, product standards,
better information, support for innovation can happen outside
the Bill. It says explicitly within the Bill that the UK has the
power to set building regulations through EU product regulation
standards. The Climate Change Bill is trying to accelerate their
ability to put in—
Q197 Lynne Jones: For example on
the code for sustainable homes, there is a view that the building
industry has had a disproportionate influence on the government
in terms of the standards, the rate at which higher standards
are being brought in. Would it be appropriate for the Carbon Committee
to take an independent viewpoint of some of these other developments?
Professor Grubb: I do not think
so.
Q198 Lynne Jones: Earlier, Professor
Grubb, you said that national total emissions is the right point
to start. We are setting the 60% target on national emissions
and excluding our share of international aviation and shipping.
How do you feel about that? Should aviation and shipping be included
in the Bill and what mechanisms could just include the emissions
anyway, because we already understand about the amount of fuel
that is consumed? There is already reporting on that. As a point
of principle, should aviation be included? What mechanisms could
be introduced to encourage a reduction in aviation emissions?
Professor Grubb: It is not really
my area. Everyone talks about aviation but our own work at the
Carbon Trust suggests that international marine transport is just
as big an issue. Aviation needs to be included in the European
Emissions Trading Scheme so it will fall under some kind of cap
by 2011, when it is due to come in. It is unlikely to provide
a whole solution to aviation. On the rest I would be reluctant
to take a judgment because I do not know exactly how much is domestic
versus international and the jurisdictional development, if you
like, around international bunker fuels, to use the general term.
We have to be absolutely sure it is not left out of the equation
so if it is not in the national budget total I would want to know
where it was accounted for.
Q199 Lynne Jones: If you do not include
it we are set to increase our emissions for a number of years
hence until at least 2011/12.
Professor Grubb: Absolutely.
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