Memorandum submitted by the CBI (CCB 25)
RE: PRE-LEGISLATIVE
SCRUTINY OF
THE DRAFT
CLIMATE CHANGE
BILL
The CBI has a strong interest in your inquiry
on the draft Climate Change Bill, which identifies the broad areas
of interest of our members, notably:
— reasoning behind of the Government's
targets, in particular the interim target of a reduction in CO2
emissions of 26-32% by 2020;
— five-year carbon budgets, including
the facility to purchase carbon credits to meet domestic targets;
— the appointment, functioning
and independence of the Committee on Climate Change;
— the adequacy and implications
of the proposed enabling powers; and
— the validity of the Government's
view that the Bill will act as an effective example to drive international
climate change policy post-2012.
We are still in the process of canvassing member
views on the draft Bill and will be submitting our full views
to the Joint Committee inquiry later this month. In the interim,
we thought it might be useful to send you our emerging thoughts
on some of the key issues for consideration by the EFRA Committee.
We will send you our position, but if there are any areas on which
you would like further clarification please do not hesitate to
contact us.
The CBI welcomes the overall direction of the
draft Climate Change Bill—in particular, the mix of longer-term
targets and carbon budgets which better reflect business investment
cycles and the requirement for the Committee on Climate Change
to consider, amongst other things, economic circumstances (including
competitiveness impacts), technological potential and international
developments. This gives British business two things it really
needs—long-term clarity on policy direction and flexibility
in its delivery.
TARGETS
Business is particularly interested in the relationship
between the proposed UK target of a 26-32% reduction in CO2
emissions by 2020 and the recently agreed EU target of a reduction
in greenhouse gas emissions by 20% by 2020. With the EU burden
sharing agreement still to be determined, we are concerned that
the UK's target may not be expressed in terms that reflect the
outcome of any EU negotiations. We understand from the Office
of Climate Change that the proposed target of a 26-32% reduction
in CO2 emissions is in line with their expectations
of what the UKs burden sharing target would be if based on historical
emissions. However, discussions on burden-sharing at the EU level
are only just beginning and have not been limited to proposals
to burden-share on the basis of historical emissions. Other options
being considered in the context of the European Climate Change
Programme's Working Group on the future of the EU Emissions Trading
Scheme (ETS) include a proposal to split the EU unilateral target
into two parts:
— Reductions of CO2
and other greenhouse gas emissions by sectors participating in
the EU ETS, whereby the total emission reductions assigned to
these sectors (eg electricity generation, refining, cement, iron
and steel, paper and ceramics) would not be broken down by country.
Instead, emissions reductions to be achieved by each of these
sectors would be implemented on the basis of a sectoral methodology
defined by the European Commission and applied uniformly across
all the companies concerned in a given sector.
— Reductions of CO2
and other greenhouse gases to be made by economic sectors not
covered by the EU ETS, by the public sector and by households,
whereby this total volume of emissions reductions would be shared
between Member States as a function of agreed criteria eg historical
emissions, socio-economic position etc.
If such a proposal were to gain widespread support
and be adopted by the EU, there would be a need to consider how
the proposed UK target is able to reflect this split target, where
only the non-EU ETS targets are the domain of the UK Government.
The consultation on the draft Bill proposes
that targets and budgets are set in CO2 terms on the
grounds that the UK has already made good progress on other greenhouse
gases and that further major effort on greenhouse gases would
be disproportionately expensive. While the majority of future
emissions reductions may be expected to be in CO2, we are concerned
that this will place an artificial constraint on the importation
of credits through the Kyoto mechanisms (eg the Clean Development
Mechanism) and even on the potential to trade in EU ETS allowances
were the scope of the scheme extended to include non-CO2
gases in future phases (as is currently being considered
under the EU ETS review). Business believes that the UK should
seek to ensure the compatibility between UK, EU and international
targets to maximise interoperability and linkage between measures
and to encourage the uptake of emissions reduction measures globally.
CARBON BUDGETING
We welcome the proposal to set five-year carbon
budgets on a rolling basis for 15 years. Business was concerned
about earlier proposals for annual targets, which we see as being
too rigid and unworkable, given investment lead times (on the
one hand) and the natural variations in emissions year-on-year
related to production, fuel prices and weather cycles (on the
other). The proposed five-year budgets better reflect these natural
short-term variations and business investment cycles, and when
set out three budgets in advance helps to create the certainty
required for longer term investment decisions, while putting the
UK on a downward path to reduce emissions.
We welcome the proposals to set the carbon budgets
by taking into account a range of factors, including scientific
knowledge about climate change, technology relevant to climate
change, economic circumstances (and in particular the likely impact
of the decision on the economy and the competitiveness of particular
sectors of the economy), fiscal circumstances, social circumstances,
energy policy and international circumstances.
We welcome the proposal that the Bill allows
emissions reductions achieved overseas but paid for by UK entities
to be counted towards the targets and budgets. While we believe
that the balance of effort needs to take place domestically, within
the limits set by international law, the use of the Kyoto mechanisms
and the EU ETS is an important way of achieving emissions reductions
at lower cost, reducing the competitiveness impacts of UK unilateral
action and encouraging other countries to follow our leadership.
COMMITTEE ON
CLIMATE CHANGE
The value of the Committee on Climate Change
is its independence of the political process in setting and reviewing
progress against carbon budgets on a technocratic basis. However,
it is unclear from our discussions with DEFRA and the OCC as to
the degree of independence of the Committee, which we understand
to be viewed by DEFRA as providing advice to the government in
response to specific questions posed by the department. This raise
questions with regard to relative independence of the Committee
on Climate Change. In particular, business would like clarity
on how the Committee will be resourced to undertake analytical
work to underpin its decisions ie to what degree it will rely
on a secretariat within government and to what extent it draws
on existing government staff.
ENABLING POWERS
With enabling powers specifically in the area
of emissions trading, there is a risk that the Committee will
be more likely to look for emissions reductions in the energy
and industrial sectors to which trading already applies or to
encourage the extension of emissions trading to other sectors
of the economy regardless of whether trading is the right mechanism
for the economic activity being considered. The measures adopted—whether
trading, fiscal incentives, regulation, information or voluntary
initiatives—must be the most cost-effective in achieving
the necessary emissions reductions in each sector of the economy.
CBI
May 2007
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