House of COMMONS










Tuesday 27 February 2007







Evidence heard in Public Questions 330 - 488




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Oral Evidence

Taken before the Treasury Committee

on Tuesday 27 February 2007

Members present

John McFall, in the Chair

Mr Michael Fallon

Mr David Gauke

Ms Sally Keeble

Mr Andrew Love

Kerry McCarthy

John Thurso

Peter Viggers


Memorandum submitted by Friends of the Earth


Examination of Witnesses

Witnesses: Mr Rick Haythornthwaite, Chairman, Better Regulation Commission, and Mr Simon Bullock, Economy Campaigner, Friends of the Earth, gave evidence.

Q330 Chairman: Good morning and welcome to our inquiry into climate change. We have been delighted you could come along at short notice. Can you introduce yourselves for the shorthand writer, please?

Mr Bullock: I am Simon Bullock, Economics Campaigner for Friends of the Earth.

Mr Haythornthwaite: I am Rick Haythornthwaite, the Chair of the Better Regulation Commission.

Q331 Chairman: The Better Regulation Commission recently published a report in response to the Stern Review, discussing the most appropriate way of regulating to mitigate climate change. On the day the report was published, Rick, you wrote in the Financial Times that reports such as Stern might "unleash huge demand for more regulation". Would such demand be an entirely bad thing?

Mr Haythornthwaite: Let me start, Chairman, by saying that I think the Stern Report was fundamentally a very good report. There may be a number of weaknesses levelled at it, various discount rates, or whatever, but, regardless of that, I think it was represented a very positive move in that it drew a line under the debate around the science. There has, as I pointed out in that newspaper column, I think, been a consensus that has bordered on a sort of clamouring consensus that I do not think is bad in the sense that there is now momentum, it is not bad in the sense that there is now energy, ideas and a willingness to do something. Our concerns are twofold: first, that the early moves that one sees raise a number of questions about the cohesion and degree of consideration behind policy and, second, that there was no real framework of tests in the market against which policy-makers should basically judge themselves, and that is why we came out with the report.

Q332 Chairman: Looking at your Financial Times report, is it fair for me to summarise that when you say you are worried about the consensus, you are not really worried about the consensus but you are worried about the crazies who come in after it?

Mr Haythornthwaite: Yes, I am worried about the crazies, but even the more sensible propositions have got to be put within a strategic context. If we are going to capitalise on Stern and a lot of the good stuff that went before, because Stern really, I think, crystallised quite a number of views that were around, then the public has to come with policy-makers and with the Government, and the credibility of change is so important, and so my belief, and the Commission's belief, is that whatever happens should be set within a clear strategic context. Yes, we want to filter out the crazies, but we also want to make sure that even the sensible propositions are clearly fitted within a strategic context.

Q333 Chairman: Simon, you can maybe answer if you are one of the crazies in your answer to the question! An important part of regulating to tackle climate change will be making appropriate use of environmental taxation, but in the evidence from the FoE you state that, since the year 2000, the Government's use of environmental taxes to tackle climate change "has stalled and in many areas gone into reverse", and you argue that the Government is "paralysed" by fear that action would be bad for the economy. If you had been in government since 2000, what steps would you have taken with regard to environmental taxation?

Mr Bullock: I think with environmental taxation it is largely a selling job around having a coherent set of policies that takes into account, not just tax, but spending and regulation and all the tools that government has at its disposal. I think a concern has been, to take the road fuel duty as an example, that it was raised for a number of years but that all the public perceived out of it was taxation rising. It is very difficult to sell a policy whereby you are increasing the prices for people but not putting any effort into improving the alternatives; and we sought, and we continue to seek, a situation where the two most polluting motor transports - road and air - fall in real terms and the costs of the least polluting alternatives, bus and rail, rise in real terms. What we have been advocating is a coherent tax-and-spend policy, in the main, so that the revenues coming from road fuel duty are politically, though not necessarily formally, hypothecated to improvements in public transport so that, for example, people have decent alternatives: they do not have to drive into work, they can use bus or rail to get in cheaply, affordably, and I think if that had been done since 2000, making those alternatives better, then it would have been far easier for the Government to sell environmental taxes as a necessary and worthwhile thing to do for climate change.

Q334 Kerry McCarthy: A question for Rick in the first instance. How clear is it which Government department is actually taking a lead on environmental issues, and how well is the cross departmental work actually being coordinated?

Mr Haythornthwaite: The only thing that we would observe at present is that there is activity in DTI, in Defra, in the Foreign Office, in the Treasury, and activity that is now across a multitude of sectors, and it is not clear to us to date that this sort of cohesion is required. We are encouraged to see talk of the Office of Climate Change, but that Office of Climate Change has got to develop a clear role, and our hope is that the energies from here on in do not go into the politics of organisation but that they spend time working on the recommendations we have put in the report; in other words getting the fundamental building blocks of the policy, which is understanding the pros and cons of different methods of carbon pricing, establishing a clear stabilisation goal so that everyone understands it and a carbon-price pathway - a clear methodology for evaluating policies across government - and to make sure that the seven tests are woven deeply into the policy-making agenda. In answering your question, we do not see cohesion as yet, there needs to be some clear lead, and that lead needs to spend the first months really establishing that framework.

Q335 Kerry McCarthy: So with the publication of the Stern Report, is there scope for the Treasury to take more of a lead rather than, presumably, Defra at the moment?

Mr Haythornthwaite: It is not really for the Commission to say who it should be. We would simply establish the principle that there needs to be clear leadership, there needs to be co-ordination and those building blocks and tests need to be a fundamental part of the policy. I think it is for the Government to decide who takes that lead.

Q336 Kerry McCarthy: Simon?

Mr Bullock: We feel, again, the exact place for leadership is unclear at the moment, but there is certainly a much stronger role from Treasury. I think, in the light of Stern and so many economic signals acting in the wrong direction, it is appropriate for there to be a major overhaul of Treasury policy in regard to energy and climate change; so we would look to see, as a response to Stern, that the Treasury took a much more active leadership role across government on climate change and the tests that the Better Regulation Commission suggest around a strategy for climate change by September, I think it is, I think is a very valuable and useful thing, and we hope that the Government does do that.

Q337 Kerry McCarthy: What sort of mechanisms are in place in terms of public procurement in particular? For example, if you were to look at a situation of somebody who is in charge of buying light bulbs in a state school. Obviously it would be desirable if they bought energy-efficient light bulbs. Is there scope to have regulation down to that sort of miniscule level, or is that something that the Government can just send out signals on?

Mr Haythornthwaite: I think that, if one takes a step back, the first of our tests is where we say that climate change policy has got to be consistent with economic growth. In other words, we cannot change the world, but we can, very clearly, set a clear example by showing what we can do with domestic policy, and part of that is establishing leadership in the public sector, and I think it is for the Government to make it clear what it believes should be achieved in the realm of energy efficiency within public sector bodies, and so, yes, we are very hopeful. What device is used, I think, it is for them to review. The outcome is important to us. There are many different routes of doing it. Whether actually FEAT is the most effective is often questionable, but they need to look at the alternatives.

Q338 Kerry McCarthy: Would you be concerned if there were a plethora of regulations that were brought in to try to ensure that people complied more quickly? Obviously the Government can send out signals and guidance and say, "This is what we would like you to do", but that would be a much slower method of ensuring compliance or encouraging people to go along that path than actually forcing people to do that, but would there be a concern that it would actually result in too much regulation if the Government was to be prescriptive?

Mr Haythornthwaite: Coming back to the point of credibility, any regulation put into the public sector is clearly more regulation in quite a highly regulated area, and so, if you look at the test, if it is clearly couched within a strategy, if one looks at the need to keep administrative burdens to a minimum, and, as we have said, if something is failing, get rid of it, there is the opportunity to create space for those policies. So I think the Government needs to get beyond increments on this, look at it in the round, and, if they do feel that the classic regulation, FEAT, is the best way to push this through, then find ways of reducing the administrative burden elsewhere.

Q339 Kerry McCarthy: Simon?

Mr Bullock: Very briefly on that, because public procurement is not an area I have expertise on, around the leadership issues I think people generally get a lot of exhortation from the Government to do the right thing when often it is quite difficult and expensive for them to do that. The Government's drive to get people to do their bit: if they were seen to be leading themselves, public procurement would clear the way. If the Government were simply to insist that all schools and hospitals were to use energy-efficient light bulbs, it would be a very strong message to go out and also one that would save vast amounts of money. I think the Better Regulation Commission's report and the Stern Report cite energy efficiency as the measure which has the highest net economic benefits, huge economic benefits, and the barrier there is inertia and lack of information - something the Government could do a lot about quite easily.

Q340 Ms Keeble: I wanted to ask a bit more about the regulatory tools that were available to Government, in particular the balance between taxation and regulation. I appreciate your comments on those. Rick, first, really which are the pros and cons? If you take the light bulb case again, is it better to change the taxation on non-energy-efficient light bulbs or simply to ban production of the non-energy-efficient?

Mr Haythornthwaite: I think it would be beyond our competence to say which is best. What we would say is---

Q341 Ms Keeble: What are the pros and cons?

Mr Haythornthwaite: ---what are the pros and cons. Clearly, if one has looked at the opportunities of information, education, self-regulation, co-regulation, whatever, and found them to be lacking in terms of their ability to create any sort of impact (and we have history in these areas - there have been a lot of attempts), then one has to get, as you say, to the area of taxation, trading or regulation. Institutionally, I think one could say that the Commission, in the absence of any evidence of market failure, is always more for the market-based solutions, but we recognise that in certain instances either the market-based solutions are not sufficiently well developed to be credible - Stern talks at length about emissions trading, for example - and that other instruments are required, and so our main plea in all of this comes down to the fact that the behavioural outcomes of any one of these things and the pros and cons are looked at thoroughly, but they are so situation-specific I think it is very difficult to generalise.

Mr Bullock: Generally, we agree with the Stern Report that the combination of taxes, permits, regulations and all we need depends on the circumstances. On light bulbs I think the Government is saying that it cannot do a number of things because EU rules prohibit it. For example, VAT changes or outright bans you cannot do because it requires the consent of all Member States, in which case an alternative may be something like product charges, with the money recycled into making green bulbs cheaper. Again, it will vary on the specifics, but just to come back, one further thing on this is that, in our view, the issue really is not whether taxes are better than regulations; it is that all of them are needed now. It is the urgency of the situation that is so grave. I just go back to something that Stern has said. He was talking about stabilising atmospheric concentrations at between 450 and 550 - that was his range. He described 550 as being a very dangerous place to be, with the substantial risk of very unpleasant outcomes, and he went on to say on this, "It is still possible to adopt a path to stabilise at 550 parts per million. Ten or 20 years ago a similarly smooth and affordable path might have been available for a corridor consistent with stabilising below 450 parts, but it is now too late." I think that is the point here, that we do not want to be in a position ten years from now where we are saying, "It is still possible to stabilise at 650. It was possible ten years ago to stabilise at 550, but we have missed the chance."

Q342 Ms Keeble: Can we go on to the public perception in relation to tackling climate change, in particular taxation. One of the difficulties with green taxation is the very negative public perceptions of it very often and, therefore, the ability for people also to find other ways round it. I wonder how you see that can be tackled and also whether that is one of the reasons perhaps for looking at regulation, where you have uncertainty perhaps about the outcomes albeit you do not always know the economic consequences. Rick, would you like to answer that first, and then I have some other questions for Simon on the public perception?

Mr Haythornthwaite: What I would say is that we sometimes owe credit to the public for their capacity to absorb complex argument. I think we have seen around pensions and avian flu that, where things are put across in a strategic context, people understand it and are willing to consider a variety of options. I think the same will apply to climate change policy. If it is argued well within a strategic context and is not seeking to actually be put under justification of another policy, they will be accepted. It just needs to be argued well and people need to understand how it fits within the desired outcome of stabilisation at a certain level.

Q343 Ms Keeble: Simon, given your very active campaigning Friends of the Earth has done previously---

Mr Bullock: I think it is an overall package that is needed which will have tax rises but also tax breaks: things like council tax breaks on energy-efficiency measures, stamp duty rebates for energy-efficiency measures and also some evidence that the money that is being raised either comes in the form of tax cuts elsewhere or in spending on things that make it cheaper and easier to take the environmental option.

Q344 Mr Fallon: Mr Haythornthwaite, you set seven tests for policy-makers. How many of those seven tests did the increase in air passenger duty fail?

Mr Haythornthwaite: We have not looked at it in detail, but one would go back and ask questions around the quality of the strategic arguments put forward. I think one could look very clearly at whether or not there was a carbon pricing benchmark used. There was not an enormous consideration of the administrative burdens. In other words, quite a number of those tests, I think, have failed.

Q345 Peter Viggers: In your recent report, Mr Haythornthwaite, you state that one way in which the Government could ensure that all carbon emitters are exposed to an appropriate carbon price is by imposing taxes and regulations. What do you think is the most effective way for the Government to establish a fixed carbon price?

Mr Haythornthwaite: First of all, as Stern says, one needs to acknowledge the fact that it will be 20 years or more before we truly have an emissions trading system that has settled down, has a liquidity and scale to give you a good carbon price, but we do believe it is important to set one early on, and to do that we need to be clear about where we want stabilisation to be and at what level and, whilst that carbon price may not be right, it is better than working within the range of the 35 to 140 dollars that we have at the moment and will, I think, give a far more consistent benchmark for public policy to be looked at. Elsewhere our view is that one should seek to set a carbon price through the market as quickly as possible but recognise there are circumstances where the administrative costs of doing that are too high and areas where actually one can end up with carbon leakage through sectors of the market that one cannot apply trading to and, therefore, there will be a place for taxation and regulation in those areas, but we would like to see market-based solutions used wherever they can be.

Q346 Peter Viggers: You make it clear in your report that you see the need for a system which is both robust and flexible?

Mr Haythornthwaite: Yes.

Q347 Peter Viggers: Also international, I assume. Who would supervise this? Are you satisfied that the European Union Trading Emissions Scheme will evolve to an appropriate arbitrator?

Mr Haythornthwaite: I think that Stern was very clear about the issues that need to be dealt with, truly creating the scarcity of allowances, truly making sure that there is transparency, liquidity, price smoothing mechanisms, that there are no sectors escaping, and so on and so forth. I think that the UK Government has considerable influence in Europe on this. We have got some way to go before that scheme works and, over this second period of the Emissions Trading Scheme, I think every government needs to be pushed very hard to make sure this emerges into Europe as a credible system that can increase liquidity over time and extend to a truly international system.

Q348 Peter Viggers: Mr Bullock, how much confidence do you have that market-based solutions will provide a way ahead, or do you think we need to be more dirigist?

Mr Bullock: I think market solutions are certainly part of the solution. They are not the only thing, which Stern points out: you need all types of measures at governments' disposal. I think that Stern was right again that internationally the Emissions Trading Scheme may well be a very strong front runner for the best instruments to use. However, there are significant problems with the EU ETS at the moment, and they do need ironing out, but the main one, as I think has been mentioned already, is that there is heavy over-allocation of permits in the first phase of the gap; so that does need addressing.

Q349 John Thurso: Mr Bullock, in your written evidence you argued that linking environmental taxes with specific linked spending measures would make them more politically acceptable, the Government having used the Aggregates Levy to reduce National Insurance and so forth. Why should not revenue from environmental taxes be used for greater social good or to reduce income tax, or whatever?

Mr Bullock: I think that they can. The Government has to raise tax from a number of sources, and we strongly advocate the environmental tax reform principle: that you should be aiming to tax pollution rather than tax goods and things that people value. So we do advocate a tax reform agenda. There are instances, I think, where, for political reasons, you might need to link spending with taxes to make them acceptable to people. I am not arguing for formal hypothecation across the entire economy - that is clearly not the way to go - but there are instances where linking it would make it politically acceptable so that the policy can deliver the objectives Government wants.

Q350 John Thurso: Would you agree that the ultimate objective of environmental taxation is actually to change people's behaviour?

Mr Bullock: Taxation generally has a number of objectives. John Healey was laying them out for you when he came to your Committee earlier on, and taxes certainly have more than one purpose. Road fuel duty, for example, to my mind, has two main purposes: one is to raise general revenue for government coffers and the second one is that it acts as a break on demand in road transport and is useful, in that context, from a climate change point of view.

Q351 John Thurso: But, as you have pointed out, motoring in real terms is 96%, 97% of where it was ten years ago and buses are 22% more expensive than rail is, whatever it is, so it has failed miserably on that score?

Mr Bullock: They have not implemented it. The road fuel and ETS data was dropped in 2000 and I think there have been two inflation-based rises since. It has fallen in real terms, so it is just a strategy that the Government has dropped. I think that is the reason why it has failed.

Q352 John Thurso: If you look at the objective of trying to achieve behavioural change, are there not two things that are required? One is that there is a perceived self-interest in those who are taxed that the change in taxation actually is in their interests, they can see a goal, and the other is that they have to have real knowledge of what one is seeking to do? Therefore, if you go back to the fuel duty, at the moment there is no self-interest in changing it and nobody understands why one should, whereas the academics who look at something like, say, road-user charging can make those arguments. Is there a need to make better arguments?

Mr Bullock: I think there is a case for packages. To give you one example, one which might happen very soon around green cars, the Department for Transport, we understand, is about to launch an information campaign for showing people for what cars they can buy their carbon emissions, because they have identified that is an information gap. The Government, the Treasury, could also at this Budget put in place larger differentials for cars according to their carbon emissions. They have all got slight differentials at the moment - twenty quid, I think, between band F and G cars. So, if you had an integrated policy where you have got a financial incentive to change, plus the information that lets you know what cars are available, then that could drive quite a lot of change, and I think that, potentially, in the next couple of months there could be good progress on that.

Q353 John Thurso: The financial secretary told us that plastic bags are less than 1% of the waste stream and that the Government was monitoring but not intending to do anything having looked at the Irish introduction. The Scottish Executive looked at it and rejected it. Do you think that is something that the UK Government should be looking at and implementing, or is it a kind of totem that is really not significant in the real body of environmental work?

Mr Bullock: I think there are more important tax measures the Government should be looking at: for example, the landfill tax escalator, variable charging and an incineration tax considering the externalities of incineration. However, the plastic bag tax does have the advantage that it is a highly symbolic action. I think it goes back to the point I was raising earlier, that for individuals to do their bit they need to see that the Government is doing something as well. The difficulty with things like the landfill tax is that it is not very obvious at all what is going on with it, most people do not even know about it, whereas a plastic bag tax, although the environmental effect would not be that great, would have a large symbolic effect in showing that this is something the Government can do, this is very obviously removing a problem which people see all the time, like littering of plastic bags.

Q354 John Thurso: So the importance is in the symbolism rather that actual result, is it?

Mr Bullock: I think there is some environmental benefit to it, certainly, and for littering as well. The Irish experience is that it has had a positive environmental impact at low cost. So it is worth doing, just not as big as some of the other issues that they could do.

Q355 Chairman: Our final question for both of you. Rick, what will determine whether the forthcoming Climate Change Bill is a successful piece of regulation?

Mr Haythornthwaite: From the stand point of the Commission, I think I would look for four things. The first thing is that it clearly lays out the design outcomes. There is no doubt of the desired outcomes. The second is that it quashes any concept of international heroics that this is really about high quality domestic policy. Thirdly, I would love to see the seven tests incorporated within legislation and, finally, I would like to make sure that it is compatible with other papers, such as the Energy White Paper, that are coming out at the same time, that there are no clear clashes.

Q356 Chairman: You have a broad definition of regulation and this is a narrow piece of legislation. What other options are there than legislation, do you think, in this area?

Mr Haythornthwaite: There is always the possibility for no action, information, education, self-regulation, co-regulation to be considered as light touch, and they should be given due consideration, and then, if it is really felt that that will not deliver the behavioural change and the outcomes desired, then moving slowly to the areas of trading regulation and taxation. As I have said in a previous answer, I would like really market-based solutions to be given prominence and be fully tested before we look to the mix of others. We do acknowledge that under many circumstances it will require a mix, but we would like to give the market-based mechanisms the full run.

Q357 Chairman: Are there fundamental issues you want in the face of the bill?

Mr Haythornthwaite: I think in the reality here, you need to establish those principles: the principles of good strategic consideration, packages and full risk regulatory impact assessment of anything that goes through. The reality is that a lot of the detail will come through secondary legislation, and therefore, just making sure that the context and the rigor of policy-making is established clearly within the Climate Change Bill.

Q358 Chairman: Simon, how much can a single Act of Parliament be expected to do?

Mr Bullock: I think it can do a lot. It would clearly set a framework and a context for all of government. What we would like to see from a bill is a clear goal, annual carbon budgets, a strong independent body to monitor it, strong reporting mechanisms, and that is the sort of thing that can drive policy across government. We face a situation at the moment where political parties of all colours set 20-year targets and, as we know, they are not being met. What we feel we need is some genuine accountability within a term of Parliament, because climate change is a long-term problem and it is one that is very easy for any government to defer to the next administration to deal with. That is why we strongly believe that annual carbon targets are needed and why you need legislation to ensure it happens.

Q359 Chairman: In a best case scenario how far could we expect the Climate Change Bill to go towards addressing the UK's contribution to the climate change problem?

Mr Bullock: The bill does not actually deliver the policies themselves. After you have got the bill for, say, an annual 3%, 5% cut a year, or whatever it will be dependent on the signs, then you would need a climate strategy of the sort that the Better Regulation Commission has outlined is needed by government so that you have a clear strategy which would set out which policies are needed across which sectors to deliver it. It would be very good as well from an international point of view. I think the UK Government says quite a lot that it is an international issue that requires international action, but we should not underestimate the galvanising effect of having a country showing some real leadership on it, and the UK is in a very strong position to do exactly that.

Q360 Chairman: Can I thank you for your evidence this morning and for coming along.

Mr Haythornthwaite: Thank you very much indeed.

Memorandum submitted by Environment Agency

Examination of Witnesses


Witnesses: Mr David King, Director of Water Management, Mr Chris Hewett, Policy Development Manager, Environment Agency, and Ms Farhana Yamin, Institute of Development Studies, University of Sussex, gave evidence.

Q361 Chairman: Good morning and welcome to the second part of our session this morning. Can you introduce yourselves for the shorthand writer, please?

Mr King: David King, Director of Water Management at the Environment Agency.

Mr Hewett: Chris Hewett, Climate Change Policy Manager at the Environment Agency.

Ms Yamin: I am Farhana Yamin from the Institute of Development Studies, I am a research fellow there.

Q362 Chairman: David, I realise that you are here primarily to talk about adaptation at the domestic level and, Ms Yamin, you are here primarily to talk about that at the international level. David, Sir Nicholas Stern told us that the south of England can expect wetter winters, drier summers, pressure on the sewerage system and more severe storm surges on the Thames. Have we got in place adequate funding and plans to cope with that?

Mr King: That is certainly a big question. I think we have got the right policy frameworks in place and the areas of principal vulnerability are around flood risk and, indeed, on water resources. If I take flood risk firstly, the policy frameworks set up by Government in making space for water is a good one and the basket of activities that the agency deploy to reduce risk about raising awareness, about warning, about building and retaining is the right basket, but there is a question about the level of investment. Likewise with water resources, the principal strategy is a twin-track approach of new resources, where new resources are necessary, but also demand, management, getting on top of water efficiency and leakage, et cetera. So the strategic frameworks are right but there is a question about investment and pace.

Q363 Chairman: Are we investing enough in improving the information we have about climate change risks and our forecasting capability?

Mr King: In terms of flood defence, our budget for next year will be in the order of 440 million, and our starting point would be that any reduction or erosion of that would lead to increased flood risk and we would expect to see an upward trajectory in funding in line with the Foresight Study in the next Spending Review. So, there is certainly a need to continue with the level of investment and, indeed, to grow the level of investment.

Q364 Chairman: Good. Miss Yamin, is it fair to say that the potential threat to the UK regarding climate change pales into insignificance when you consider the threat to the developing world?

Ms Yamin: Yes, very much so. We have a huge amount of infrastructure, human resources, financial resources and knowledge, climate knowledge and other knowledge, to be able to deal with these eventualities and, in general, developing countries, especially the poorest countries, are far more vulnerable to the actual threats of climate change itself and have the least ability to respond. For example, the budget that has just been mentioned in terms of 440 million, for Africa there is a very vast need to improve the weather forecasting systems on the ground, and I think there was a plan put in place to raise 200 million for the whole of Africa to allow for better forecasting, which is a key part of getting information to people so that they are prepared for adaptation activities, and I think less than a third of that has been met. So, even in terms of very basic knowledge, that is very much lacking at the moment in the developing countries.

Q365 Chairman: If I can summarise your answer, we are not underestimating the risk domestically, but we really have not got a handle on it at an international level and for developing countries. Is that right?

Ms Yamin: That is right.

Q366 Chairman: What responsibility does the UK have to assist developing countries in coping with the consequences of global warming?

Ms Yamin: Under the Climate Change Convention, which is now signed by 189 parties, we have an obligation to provide financial assistance to the most vulnerable countries under Article 4.4 of that Convention. We also have obligations to help them prepare for planning for adaptation activities, as well as to provide technology, and technology not just to reduce greenhouse gases, but technology that may be necessary for adaptation purposes. So, it is a legal obligation under many different articles under the Convention, but the clearest one is 4.4.

Q367 Mr Gauke: Mr King, do you think that the approach of the Government as far as adaptation to climate change is adequate or sufficient?

Mr King: I think the approach is right. If we take where the greatest vulnerability is, which is around flood risk, I think it is a question of investment. The Foresight Study had two principal points: one that risk will increase and, secondly, there is a need for increasing investment up to the level of about one billion pounds per year if you are to keep annual damage at the order of two billion pounds. So, I think it is really a question about increasing levels of investment for flood risk management, and certainly we would like to see that in the next Spending Review. If you look at capital rationing, if you look at construction price inflation and if you look at need, we would estimate that we should be able to see 150-200 million a year more going in in the next Spending Review. Likewise, on water resources, it is not really a question about investment, although there is a question for water companies, but it is about pace. If you look, the south-east of England is water-stressed. That is where most development will come in, that is where you are going to see the impacts of climate change and 10% less resource. Therefore, it is very important that the current consultation on water metering moves at pace and that we have a better handle on how we drive down or improve water efficiency.

Mr Hewett: I think it is also worth pointing out that current investment in flood defence is also extremely cost-effective to the economy as a whole. At the moment the cut off is a benefit of six to one for the economy. That means that a lot of projects which only have a benefit of four to one or five to one do not get built at the moment because we are capital constrained. Also the internal rate of return on that investment is 27%, compared to smaller numbers for road and rail investment, so it very cost-effective for the economy. If that investment was not made, then the economy would pick up those costs through higher insurance costs in the long run; so it is not money that is wasted, it is money that will be cost-effective in any case, and the risks will increase over the next 20 to 30 years.

Q368 Mr Gauke: On the flooding point, which parts of the UK coastline do you see as being particularly at risk and most likely to be affected by rising sea levels? Also, I suppose we are talking mostly about coastline, but also river flooding. I know places like Newby have flooded on many occasions.

Mr King: Certainly the greatest risk is on the coast, and most of the east coast of England is at risk and we might see risk increasing by anything up to 20%. It is the combination of flooding and, of course, coastal erosion and, if you like, the east coast is really in the front-line.

Q369 Mr Gauke: So the east coast?

Mr King: The east coast, particularly East Anglia, from Lincolnshire right down and, indeed, part of the south coast would be the area of highest risk and the front line in terms of climate change impacts.

Q370 Mr Gauke: Can I ask for clarification on the level of funding that you need to protect this particular area? What precisely are you looking for from the Comprehensive Spending Review as to your budget in this area?

Mr King: The current level of spending, as I said, is about 440 million in different grant-in-aid from Government, and if you are to see a real increase over that level, then in the Comprehensive Spending Review we would be looking for an increase of somewhere between 150-200 million over the three years.

Q371 Mr Gauke: That was your bid, was it?

Mr King: We do not actually bid. The bid will go in through our sponsoring department, Defra. I do not think that has been totally submitted yet.

Q372 Mr Gauke: Can I then turn to the other issue which you mentioned of water resources. I represent a constituency in Hertfordshire and there is enormous concern about plans to increase building there and yet we are short of water. To what extent do you think the Government is recognising concerns about water shortages in its planning policies?

Mr King: I think they have recognised that in a number of ways. Firstly, as I have mentioned, they are out to consultation at the moment on the possibility of putting in universal metering in the south-east of England, and that really comes on the back of the recognition that the South East is water stressed, but, secondly, we are seeing a package of measures coming through with the Sustainable Building Code, which looks for much greater water efficiency in new houses, firstly, in public supportive buildings, but the expectation through building regulations will go into the wider building programmes; so there is certainly a recognition.

Q373 Mr Gauke: Do you have any concerns about proposals to build (and it is always a changing number) 80-90,000 new homes in Hertfordshire, given the water shortages that currently exist and also the concerns about climate change - that adaptation should be not building where we do not have the resources?

Mr King: Certainly we have concerns, but we have been actively involved on the new growth points in looking at what the impact would be on all aspects of the water cycle. Provided that you see a real step-change in water efficiency, both in terms of new houses and, indeed, the existing stock, and provided there is new resource both on time, then it will be possible to meet the demand of housing in the South East, but there is quite a work programme in order to do that.

Mr Hewett: On the consultation on planning policy on climate change there are opportunities through that statement for local authorities to highlight where they are in more water stressed areas than other parts of the country and stipulate that they might want higher standards than the regulatory floor. That is an opportunity, I think, for local authorities to adapt to climate change in their area.

Q374 Mr Gauke: Returning to flooding and flood defence insurance, looking at your written evidence, you say, "Responsibility for provision of affordable insurance cover for the most vulnerable areas currently sits with the insurance industry for voluntary agreement." How is this voluntary agreement managed?

Mr King: The UK is pretty unique in that the insurance industry underwrites the cost of flood damage; and the voluntary agreement that they have with government is enshrined in a statement of principle, and the key component part of that is that the insurance industry is prepared to continue with insurance provided that the Government put in adequate investment. So that is the key point.

Q375 Mr Gauke: Can you say it is as sustainable, given the rising sea levels?

Mr King: I think it is sustainable, provided the investment is put in, but I think there is a real risk. If you have inadequate investment and you get more frequent storm events, more damage, then obviously the insurance industry will make business decisions. In the insurance industry at the moment there is a fair degree of cohesion through the Association of British Insurers, but as risk increases there is more risk of individual companies ploughing their own furrow.

Q376 Mr Gauke: I also notice in your written evidence you state that the UK will face a sea level rise in excess of one meter in the next 100 years. My understanding is that the IPCC report, which has come out in the last month, has actually reduced its projections for sea level rises and we are talking more about seven to 17 inches by the end of the century. Have you revised any of your projections or figures as a consequence of the IPCC report?

Mr King: The current allowances that we have (that is built in for sea level rise or, indeed, for increased flow in rivers) have not been reviewed, but they will be reviewed up with the next iteration of the UK six scenarios, and those scenarios will be better than the previous ones in that they will have greater regularity, but also they will be based on a number of different climate models rather than just on one. So it will be 2008 before we see a revision of that.

Mr Hewett: The other point to make on the sea level rises is that part of that one metre is the south-east of England sinking over that period as well; so it is not just the rise in sea levels.

Q377 Mr Gauke: Okay. One final question. Do you feel that adaptation, which is clearly where your role is, perhaps does not receive the attention that mitigation has done, whether it be in the Stern Report or generally?

Mr King: I think that is true. Certainly, if we look at the last 18 months, there is no doubt that there has been increased public and political profile on climate change, but it tends to be on the mitigating part of the agenda. No one disputes that we need to get to grips both domestically and internationally with emissions, but adaptation is also important because, irrespective of what we do, because of the inertia in the system, we are going to see the impacts of climate change over the next 25 years.

Q378 Ms Keeble: Can I ask how active your discussions are with British insurers on the insurance issues? There are some real concerns to the public about having to pay higher premiums for people who are in flood-risk areas.

Mr King: We have an active dialogue with the insurance industry through the Association of British Insurers, but most of that dialogue factors in on provision of information, which is through our flood map, which they then use as part of their determination of insurance policies, but also supplying information in terms of what our medium-term plan would be: because the general principle they have in place is that, provided a scheme is in the offing, then they will continue to provide insurance.

Q379 Ms Keeble: One of the issues about your map is that it lets insurers know, and it also lets the householders know, whether their properties are in flood-risk areas and, therefore, it opens up the way much more for differential insurance premiums, does it not? Do you detect more active concerns about the pooling of risk?

Mr King: That is true, because our map indicates if a house is in low, medium or high risk, and undoubtedly that would be factored into the pricing strategy of an insurance company, but, as you rightfully point out, that information is also available to the householder, so there are choices.

Q380 Ms Keeble: Do you think the voluntary agreement is breaking down in terms of the pooling of risk?

Mr King: No, I do not think so. The voluntary agreement is still certainly very much alive and was renewed back in November.

Q381 Ms Keeble: I wanted to ask a bit about the planning process in high flood risk areas. As you probably know, my constituency is in one, at least Northampton is one, and after the floods there, when 1,500 houses were flooded, there was investment in the flood defences and changes in planning policy. However, since then we have become a growth area and there has been a lot of building in what looks like the flood plain because we have soft engineering. How actively do you police the planning policies?

Mr King: Development control is the key component part of how we manage our flood risk. I think since Easter 1998, autumn 2000 we have seen a huge improvement in the way that local authorities consider flooding in planning applications. Three or four years ago we had PPG25 (the planning guidance) and we reported annually on the performance of local authorities, and that certainly helped focus minds. I would have to say we still saw major developments going ahead irrespective of our advice, but we have now just seen the introduction of PPS25, which strengthen the planning guidance and also gives the power for us to recommend call-in should a local authority go against our advice.

Q382 Ms Keeble: You say it has not worked particularly well, and Northampton is a failing local authority, the planning functioning is particularly failing. Given this crucial area, which will be particularly important if flood risk increases (as everybody expects it will) because of global warming, how are you going to make sure that you are not just a toothless watchdog and that there really is thought going into the planning controls that are going to be needed?

Mr King: We have a presumption against development in the flood plain, and also the policies are set up in such a way as to move development way from the flood plain. However, recognising that in many areas you already have development there and development has taken place over hundreds of years, what is important is that, where there is infill development, that development goes forward in a way that minimises risk, and you can do that through flood resilience and, indeed, in making space for water.

Q383 Ms Keeble: Can I come back on that? You might have a presumption against development, but the local authorities do not, and it is not infill, it is wholesale housing developments in flood plain areas which have gone up since the controls were tightened. If the Government is to get the policies right and they are to be effective, there has to be some way of enforcing them. The question is who is going to do it and how are you going to be given the powers that are going to be needed to tackle what is going to be a major problem for an awful lot of people?

Mr King: A number of points. Firstly, I would dispute that there is wholesale development in the flood plain. I do not have the figures to hand, but certainly in 2004/2005, I think about ten developments went ahead, what we would claim to be significant developments, that is in excess of ten houses, contrary to our advice. PPS25 is a significant tightening of planning regulations. There is a requirement for both strategic and, indeed, localised flood assessments, and if a development is going through, then the local authority has to inform us and we have the power to recommend call-in.

Q384 Ms Keeble: How about with the Urban Development Corporations, which involve both the Northampton growth area and I think also a special delivery vehicle for the Thames Gateway area which must also be in flood plain, in an area that is at risk of flooding?

Mr King: Again, if you look at the Thames Gateway---

Q385 Ms Keeble: Do you have the same powers?

Mr King: We have exactly the same powers. We have been very closely involved with the Thames Gateway, and certainly, in terms of development, the development can only take place against the principles of making space for the water which is setting back flood defences. It is creating enough space in time of event but also building in flood resilience, et cetera.

Q386 John Thurso: May I ask what the main issues faced by developing countries are with regard to climate change and what assistance they are receiving?

Ms Yamin: As I said, the main issues are understanding, first of all, what the impacts of climate change are likely to be on developing countries and then preparing for those impacts in the key sectors. Most developing countries are far more reliant on natural resources and major parts of their economies are more exposed to climate risk sectors such as agriculture, fisheries, tourism, for example; so understanding what will happen in these sectors is very critical for them. A lot of work has been done to try and get this information out there, but the degree to which the climate change models can provide detailed information to countries, in particular, so that they can understand their situation in detail has been missing just because the climate models are too coarse and do not provide that level of information in that depth, but that has changed and they have improved. The assistance part of it has been lagging behind the need expressed from their side to start this understanding and start the planning process. I think some of it is to do with the higher attention given in policy terms to the mitigation side of the story over the last ten years. We were building the climate regime on the basis of precaution, and now we understand that the precautionary time is finished and we are actually facing the impacts of climate change here and now, and also realising now very much that, whatever we do in terms of mitigation, the climate for the first half of this century is already fixed, and so really we need to deal with the impacts that are going to occur. That does not mean that we neglect the mitigation side, but that focus has now very much come through in terms of the agencies who would now be able to provide assistance to developing countries, such as the regular development in agencies, the international financial institutions, the World Bank, and so forth. Over the last 18 months, two years, there has been significant understanding within these agencies that it is part of their mandate to work with these countries to also take climate change considerations into account. Increasingly their work is starting to shift slowly, but towards providing more assistance on the climate change front to these countries. In terms of the amount of resources, there is always never enough, but on adaptation it is very significantly disproportionate to the amount that is actually needed. The World Bank calculated last year in the Gleneagles Process something like nine to $41 billion needed on an annual basis, and it is very difficult to track the amount of funding going in from the diversity of funds, but in terms of the dedicated climate change funds that we have at the moment, we have about 230 million pledged to date to devote to adaptation activities. Amongst roughly 140 countries this is not very much even to take them forward on the process of the planning side. The actual implementation side is, as I said, very much delayed because of a lack of human capacity both on the donor side as well as the developing country side, but there are slightly more positive things happening in the international arena. Over the last few years we have established two dedicated funds to help least developed countries, that is about 50 countries, which will have a dedicated fund. That currently has about 120 million pledged in there, and that allows them to prepare national programmes of planning for adaptation and also to ask for funding but, as I say, the funding is quite small. The bulk of the funding is really in the development assistance funding which is yet fully to take into account climate considerations.

Q387 John Thurso: It seems to me that there is a problem which is that we lump together every country that is not a developed country whereas in actual fact there are certain countries, such as China, India and so forth, which are developing very quickly and are rapidly moving into being high consumers of energy and therefore producers of emissions whereas at the other end of the scale there are countries like many of the African countries which are light years away from being in that position. The problem with the poorest countries is that we are all creating the problem and they are suffering it. Do you think that the international community has to take a much more realistic and scientific view of how it assists the different countries, in other words we should be assisting countries like India and China by helping to create technologies that are energy efficient but we help countries like African countries with adaptation because there is not much to mitigate?

Ms Yamin: That is right. As I mentioned, the climate change regime has moved towards a more differentiated approach by setting up dedicated funds for the least developed countries which covers the most vulnerable countries and that excludes India and China, for example.

Q388 John Thurso: Do you think, for example, we should invest in carbon sequestration in China?

Ms Yamin: We are already doing some exploratory work as part of the UK and the EU to do that, but you also have to remember that in terms of populations the largest numbers of people who are vulnerable are actually in those top five countries too, so they are not only contributors but they are also carrying a very large degree of the vulnerabilities. They are also increasingly part of the global economy, so shocks to their economies and their peoples are also likely to have more complex effects than in some of those other countries which have already very many dedicated channels of assistance and the African countries are among those where a lot of mainstream development flows are already going. Those are an important part of trying to raise the general capacity to be able to respond to all manner of threats, including climate change, so I think there are differentiated approaches going on there.

Q389 John Thurso: How concerned would you be if one of the results was that there was a widespread introduction of protectionist policies in global trade as a result of this?

Ms Yamin: The issue of climate change and global trade and the intersection between them has been examined a lot in the literature. The focus at the moment is on trying to see how trade can be used in a positive sense so that we maybe give preference to greener technologies, as it were, and have more active schemes to allow for greater trade in doing good, as it were, and that is why it has not really been looked at. My own view is very much that if you do not have a universal view, if you have major economies who are not taking part, then at some stage there will be competitive distorting effects and trade will need to take that into account and countries have a right under the Convention and they can under the protocol at some stage decide whether to deal with those effects in a manner which restricts trade, as it were, from those countries, but there is no country which is willing to go out there and start doing that. The bulk of the effort has gone on trying to integrate those economies back in.

Q390 John Thurso: Sir Nicholas Stern claimed that one of the factors in the Darfur crisis was the problem of migration due to agricultural changes. How much do we know about potential migration flows as a result of climate change and its potential impact?

Ms Yamin: There are some studies that were assessed as part of the IPCC process in the last report and this report. Some of them have very large figures of potential refugees, the Norman Myers work of 20 million people and so forth, but I think climate change is part of a much broader set of stresses that lead to these sorts of crisis situations and also to migration. I think though that this is an area where much more additional work will need to be done to find out how people will respond to varying degrees and the repetition of crises upon them and will they choose to relocate and will they choose to diversify their livelihoods or how will they deal with that. I think it is a particular concern for Europe given our proximity to some major flash points and our connectedness with Asia and Africa.

Q391 Peter Viggers: Initially to Mr King and Mr Hewett, carbon emission trading schemes have many supporters. What part do you see them playing in the fight against carbon pollution?

Mr Hewett: The European Emissions Trading Scheme will be central to the way that Europe deals with this problem and we agree with the Government that ultimately we would like to see that trading scheme extended to link up with other ones around the world. It is early days. It is clear that particularly the cap setting process, the allocation process, the first phase, was flawed in giving every country the right to set its own cap but at EU level it has been demonstrated to be flawed by the fact that the price of carbons has gone through the floor. We would advocate that we should be exploring ways of looking at a more centralised cap setting process across Europe. Obviously, that has to be signed across; all the governments have to sign up to that. We are just starting some research with the Government looking at whether you can start to look at individual sectors across Europe and allocate a cap for each individual sector.

Q392 Peter Viggers: And that is the issue, that the cap is the main problem that you are encountering, or are there other technical problems?

Mr Hewett: No. I think the trading scheme itself, the liquidity in the trading, works and it has been demonstrated to work by the fact that it has driven the price down so low. Clearly the market is finding the most cost effective ways of delivering under the cap that it has, which is a very generous one. Phase two has a tougher cap so we will see how that plays out and we would hope that phase three would have a tougher cap still. That is the only way the trading schemes will work, for the cap to keep coming down.

Q393 Peter Viggers: But are you satisfied that the control mechanism will be both robust and flexible?

Mr Hewett: Yes. The main issue for us is how you set the cap, not the actual trading scheme itself. That works.

Q394 Peter Viggers: Moving to Ms Yamin, if you look at emissions trading schemes, within Europe one can understand that it is perfectly possible to set a structured mechanism but, looking around the world, do you envisage difficulties in other countries accepting that?

Ms Yamin: Carbon trading requires a very robust infrastructure in terms of the regulatory oversight and the reporting mechanism in terms of the compliance culture generally. In many developing countries you have very weak environment agencies who have very few staff, no administrative records and much greater difficulty in enforcing any kind of environmental legislation because it may exist on paper but it never gets enforced. These factors tend to make imposing a cap-and-trade type scheme very difficult in those circumstances. It is also very difficult in circumstances where you have very large economies that are growing very rapidly and that have no real control of the economic activities that are going on on a day-to-day level and do not have that degree of ability to regulate. That is why on the international side in terms of developing countries we have had a more project-by-project based approach. It also helps learning by doing and that is the way in which that approach, called the clean development mechanism, is functioning. It is also increasing the capacity of those countries to maybe later on at some stage move up to a more sophisticated system that requires less bureaucracy, as it were, in terms of the individual projects. Internationally there are emerging cap-and-trade systems coming in. In the United States there are eight states which have this initiative called the REGI, the Regional Greenhouse Gas Initiative, in the north-eastern states, and I think California will shortly also have a system that is emerging. There is a system in New South Wales already, and so you can see an emerging patchwork of schemes that could be connected up. The issue really will be about the degree of environmental integrity of each of these schemes. As was just pointed out and you are aware, the environmental integrity, especially at the beginning of these types of schemes, has been lax basically because industry has had to be bought in with sweeteners of excess allowances. That is what has happened. Cap-and-trade and emissions trading is great and we are all happy about it now but they come in because other more effective instruments such as taxes were deemed totally unacceptable over the last ten years of climate policy in many jurisdictions, including ours in Europe, so they have come about as a result of being more acceptable politically but the price has been that they are at the moment generating fewer real emission reductions and exerting fewer powerful behavioural changes than we would like.

Q395 Peter Viggers: So the EU is working on its own mechanisms. What thought is it giving to expanding these mechanisms throughout the rest of the world by way of example?

Mr Hewett: Phase three of the trading scheme is being reviewed at the moment by the Commission and one of the issues that that review is looking at is just how it starts to build robust mechanisms to link to such schemes as the one in California or the north-eastern states in America. It is not an area which we have spent a lot of time on. We have run the scheme in the UK as part of the European scheme but we have not focused our work on extending it worldwide, so it is not something we have competence to answer on in much detail.

Q396 Chairman: A final question to both of you. We have been looking at the economics of adaptation, David, and it has been mentioned by one witness to us that the Government are not collecting information on adaptation centrally. Is there a need for that to assist public understanding of the issues of climate change and tell people exactly what we are doing now so that they can engage in that debate?

Mr King: First, the Government are collecting information because in 2005 they got the adaptation strategy and they have gathered information from both a local and a national level of what adaptation measures are taking place and the intention is to make that information available through the web, and I think later in this year to again put out an adaptation framework. I do not think it is just a matter of awareness. I think there is quite a high level of public awareness about climate change but it is translating the awareness into behavioural change, whatever a behaviour may be. We say with flood risk, for example, that we have put a lot of effort into raising awareness. Awareness is high of people who live in the flood plain but that does not always translate into taking action to be prepared for a flood.

Q397 Chairman: How do we study behavioural change because some of our witnesses have said to us that adaptation is the way forward, that is the only strategy, keep doing that and we are fine, but what about mitigation?

Mr King: The debate should not be about mitigation or adaptation; it should be very much about a dual approach. We need to get emissions under control but we also need to move ahead with adaptation measures and that is dependent on the amount of investment we put in.

Q398 Chairman: One thing the Government should be doing on international issues: leave us with that message before you go.

Ms Yamin: I think it should be stepping up donor collaboration amongst the agencies which have by far much larger funds and the international financial institutions to look at adaptation in much more depth. Currently most of the agencies would not be able to tell you what percentage of their portfolio in terms of investment is exposed to climate risks, nor would they be able to tell you what are the adaptation activities that are potentially affected or that they can support because they do not have the tracking systems in place, they have not been through the portfolios in depth. DFID is one of the leading agencies and they are ahead of the game on that, but I certainly think that if the Government can continue to push for greater donor collaboration and greater ways of maximising the effectiveness of aid through various channels that would be a great push in the right direction.

Chairman: Can I thank you all very much for coming to this evidence session with us. It has been very helpful.

Memoranda submitted by International Maritime Organisation

and the Chamber of Shipping


Examination of Witnesses

Witnesses: Captain Eivind S Vagslid, Technical Officer, Sub-Division for Pollution Prevention, Marine Environment Division, International Maritime Organisation, Mr Mark Brownrigg, Director General, Dr Mel Davies, Director of Development, BMT Ltd, and Mr Stuart Greenfield, Head of Marine & Safety, Carnival UK, Chairman of the Chamber of Shipping Environment Committee, Chamber of Shipping, gave evidence.

Q399 Chairman: Good morning and welcome to this evidence session. Can you introduce yourselves for the shorthand writer please?

Mr Greenfield: Stuart Greenfield, Head of Marine & Safety at Carnival UK, and I am Chairman of the Chamber of Shipping Environmental Committee.

Mr Davies: Mel Davies, Director of Development, BMT Ltd, an international maritime consultancy based in the UK.

Mr Brownrigg: Mark Brownrigg, Director General of the Chamber of Shipping.

Captain Vagslid: Eivind Vagslid, Marine Environment Division, IMO.

Q400 Chairman: Captain Vagslid, you have written to us saying, "Shipping is a clean, green, environmentally-friendly and last but not least an energy efficient mode of transport", so there is nothing for us to worry about. We just pack up and go home. Why are we having this inquiry, for God's sake? Everything is great in your back yard.

Captain Vagslid: Well, regarding shipping, yes. Shipping is emitting about 1.8% of the total CO2 emissions in the world and on the other hand transporting 90% of the world's cargo. Ships are getting more and more energy efficient, both due to improved hull design and propulsion systems and due to better utilisation of individual ships, but, of course, as long as they are burning fossil fuel you cannot really solve the question or the problem.

Q401 Chairman: Could you give us some examples for the public record of initiatives that you have undertaken to address the issue of climate change?

Captain Vagslid: IMO has been discussing climate change since 1997 but, as I said, no green solutions have been found. We have recognised that CO2 emissions from ships are the largest greenhouse gas source and we have put in place a voluntary indexing scheme to better understand the relationship between the transport work undertaken and CO2 emissions and a working plan where we are step by step looking into baselines and possibly emissions trading and other ways to solve CO2 emissions from ships.

Q402 Chairman: Mark, in your written evidence to us you state that "the UK shipping industry is not complacent and we commit to further reducing our carbon emissions in the shortest possible timeframe". What are the biggest obstacles to further reducing your emissions?

Mr Brownrigg: I think the starting point is, as has just been said, that the level of emissions is relatively low to begin with so the return on changes is correspondingly low, but that, as we have said, is not in any way a reason not to look further at what one can do and there are a number of areas of potential improvement in operational terms that we are looking at. Some of these are not dependent on us; they are dependent on interfacing customer needs, but we can look at things like slower speed sailing, we can look at trying to reduce waiting time in ports waiting for berths. There may be other handling methods that can be improved, for example, alternative weather routing arrangements which could lead to the use of less fuel.

Q403 John Thurso: Can I ask you, Mr Brownrigg, as the industry representative, whether the industry accepts that the "polluter pays" principle should apply to the shipping industry and is the fairest way to mitigate emissions?

Mr Brownrigg: In general that is a principle which we would endorse, but equally we consider that we are a low level polluter on this and you have to set that against the benefit in that, as has been said, we carry 90% of world trade; that balance has to be kept in mind all the time.

Q404 John Thurso: On the basis that the polluter pays it means that those who are polluting more will be paying more, so you become more economically effective.

Mr Brownrigg: Potentially, but it equally depends on at what point that principle is applied, whether it is applied nationally, regionally or internationally. We are extremely exposed internationally as an industry and so any measures that are taken need to be promulgated at international level.

Q405 John Thurso: In one of the papers to us, I think it was yours, there was an argument that reducing emissions even by 10% would be so costly as to oblige people to use other forms of transport. Presumably from that you would mean air transport.

Mr Brownrigg: No, because we are talking here essentially about the movement of goods and cargoes and the aviation industry could not carry the goods and cargoes that the shipping industry carries.

Q406 John Thurso: So what would they shift to?

Mr Brownrigg: It depends again on the route. If it is a near sea route it can be ship to road, it can be ship to rail and the like. I do not think we were saying definitively that that would happen. We were saying that you must take into account when considering what legislation to look at the potential for modal shift because in some areas it is considerable.

Q407 John Thurso: One would have thought that the import of goods from China or India or wherever was going to be by sea or nothing. Is there a serious possibility that an overland truck route would develop?

Mr Brownrigg: It has been known, but clearly from China that is pretty unlikely unless the Trans-Siberian rail route becomes -----

Mr Davies: I think it might depend on the severity of the penalty as far as the shipping lane was concerned if it was not uniformly applied with other forms of transport. For example, from Asia through the Suez Canal would you stop at the Mediterranean and then ship across Europe? Would you only go to one US coast and have more trans-continental transport? Those would be the distortions that could be met if the issue could not be tackled on an international basis.

Q408 John Thurso: Presumably it is the CO2 per tonne of freight carried. Would that be the equivalent of the passenger mile?

Mr Davies: That is the equivalent. That is the basis of the IMO index.

Q409 John Thurso: So in the best of all worlds, if the emissions per tonne were that you arrived on the west coast of America and then went by train, for example, across to the east coast, is that better than trucking all the way round through the Panama Canal and would that be a good solution?

Mr Davies: That would be a good environmental solution if there were the capacity to do that.

Q410 John Thurso: Can I turn to the question of technologies? I think perhaps Mr Greenfield will answer this; I am not sure. What could be done in ship technology to make them more efficient? I ask this question as a fan of shipping and one who recognises the role of shipping in transporting freight, so I am not asking this in a threatening way. What are the avenues down which we can go or have we really got to the point where there is not much left to do?

Mr Greenfield: I think you possibly summed it up in the last part: there is not a great deal left to do. Certainly in all the companies, if we could reduce our emissions by 10%, that would cut our fuel costs by 10% so we would be doing it now. The efficiency starts at the design stage of the ships and the size of the ships, the quantities of containers that ships carry now. I think Mark has some figures on the size of container ships now compared to previous years. After that there is keeping the bottom of the ship clean, hull scraping, the new paints that we put on the ships that keep them clean all the time, which are again very expensive but keep the costs of fuel down.

Q411 John Thurso: Presumably the alternative is to get away from fossil fuels, one of which would be a hydrogen propulsion unit and that must offer probably the best hope.

Mr Greenfield: Yes.

Mr Brownrigg: But we are a long way from it.

Q412 John Thurso: Sure, although it is interesting to note that there are very large vessels punting around the world that have a nuclear driver to them. Has anybody ever thought about that?

Mr Brownrigg: I have been on a nuclear ship many years ago, but they never made it work in terms of cargo carrying.

Q413 John Thurso: The US Navy uses aircraft carriers.

Mr Brownrigg: But with the numbers of ships that are out there it would raise other issues, I would have thought.

Mr Greenfield: There are very few ports that would allow us to call. The ports themselves would stop us.

Q414 John Thurso: What research is going on into technology development and who is doing that?

Mr Davies: Engine manufacturers particularly have been doing that, and engine manufacturers over the last three decades have been responsible for quite significant fuel efficiency improvement. As Stuart mentioned, it has been ship designers in terms of the detail, and this is really shaving off the odd percentage here and there in terms of ship design and propulsion efficiency and so on, so that is being done fairly widely by the international community in this area, and, as was also mentioned, rather more tactical decision advice on routing and weather issues, again to squeeze small amounts of performance improvements out of it.

Q415 John Thurso: You have talked about ship design. I once was very slightly involved because I used to be a director of a cruise line company and we ordered a new cruise ship so I know a little bit about it. Clearly a modern ship goes through the water with far less friction than some of the older ships, but equally there are an awful lot of very old ships dotted round the world. Is there something that can be done to promote investment in a new, energy efficient fleet or is that so aspirational as to be unrealistic?

Mr Brownrigg: Again, you have to get the balance with the net benefit that is going to arise from that. Of course, modern ships should be invested in and the objective is to reduce the average age of one's national fleet all the time, but that is the objective of individual companies too, to operate with efficient modern ships. In our judgment the scope for operational improvements is probably modest, but nonetheless we are pursuing that.

Q416 John Thurso: Is there a role for government? Do you think the Government should be doing more to assist the industry?

Mr Brownrigg: I think there is a role for government in acknowledging that in the context of transport shipping is part of the solution and therefore that has a knock-on impact into the way in which shipping is treated in general taxation terms as well as in specific taxation terms. As I say, I think that is the starting point. If one can encourage responsible shipping through the tax regime that to our mind is a useful objective. If you can encourage the use of shipping in short sea routes which compete directly with land-based modes of transport that helps.

Q417 John Thurso: I know one of my colleagues is going to ask you about taxation so I will stay off that, but you mentioned coastal shipping. It always struck me that part of Britain's freight problems could be solved by much more effective coastal shipping, going back to the old dirty coastal steamer. For that how important is it to get a very deep container port somewhere in the UK as a staging post? That is teeing up a ball for you, is it not?

Mr Brownrigg: That is okay. We think that the difficulty in encouraging short sea is that you may also distort at the same time. That is not the question you were asking but part of the future in our judgment is to maintain direct calls by container shipping in this country, which is a serious issue at the moment and raises questions of port capacity and port capability. At the moment we have very few berths which can take the largest container ships.

Q418 John Thurso: For example, Orkney has a plan to do a deep berth and container port and Hunterston, I think, is another candidate and so on.

Mr Brownrigg: Again, I think this raises wider issues as to whether there is sufficient market justification or volume demand to require that in A or B location. That is a bigger question, I think.

Q419 Peter Viggers: The difference between shipping and even more efficient shipping is as nothing compared with the impact in environmental terms between shipping as it currently is and aviation. If one visits Brentford market, which is the outsource for Heathrow, one finds Brentford humming, buzzing, bursting with fruit from South Africa and flowers from Israel and even fruit from Korea. What thoughts have you given to working your way into the market currently enjoyed by aviation? Can we expect technological breakthroughs to enable fruit and flowers to be carried longer distances without deterioration, as bananas are, for instance, or would you hope in expectation of exhortation and even government action?

Mr Brownrigg: I think one has to come back to an understanding that most fruit by far is imported by ship. There are jet-fresh strawberries, there is jet-fresh this and that but most fruit comes in containers or in specialist refrigerated cargo vessels. I would have thought that the proportions overall, certainly in volume terms, are minute by comparison to what is brought in by shipping. Imports and exports into this country are around 95% by sea by volume, and so there may be a quirk in Brentford market but I think in most of the supermarkets around the world and across the Med the fruit and most produce comes by sea.

Q420 Mr Gauke: Can I return to the issue of taxation? Do you consider the tonnage tax to be an environmental tax?

Mr Brownrigg: No, to put it in brief. An environmental tax is normally imposed specifically for environmental reasons. Tonnage tax is a particular tax designed to encourage investment and operation from this country for international competitiveness reasons in fiscal terms. I do, however, believe that a positive fiscal environment for shipping in this country, given our track record of high quality shipping, has an impact which is positive in environmental terms because it encourages the growth of a responsible fleet in a sector which is a low emitter. There are dangers, not just in the tonnage tax context if there are changes proposed to that, but also in the wider capital allowances system which we shall face over the next three or four years where I think people should take the indirect or maybe direct impact on the environment into account, but those are dealing primarily with fiscal and industry matters as opposed to environmental matters.

Q421 Mr Gauke: Are there any incentives within the UK tax system for you to cut your emissions?

Mr Brownrigg: Again, we start from a low base.

Q422 Mr Gauke: Accepting that, but, if not, is there anything that you think could be done or do you think that you have a low base and that is enough?

Mr Brownrigg: I think most of the solutions there, apart from the general acknowledgement that shipping is at the right end of the spectrum, lie in achieving operational improvements such as those we have discussed. We favour, as opposed to regulation and tax arrangements, what is becoming increasingly called a goal-based approach so that one sets objectives and then allows market-based and technological solutions to emerge to meet those.

Q423 Mr Gauke: You have talked about using shipping more in your written submission. You have talked about a sea change in the use of the coast and what-have-you. What evidence do you have that this would be beneficial to the environment?

Mr Brownrigg: To the degree that it takes lorries off roads that is pretty direct. The difference with rail is probably undefined, so we do not know that. To the degree that it reduces anything from air I do not know but I do not think there is so much competition in a cargo sense, as I said earlier.

Q424 Mr Gauke: Have you produced any figures? Are you able to quantify it?

Mr Brownrigg: There are figures. I think there were figures in the IMO presentation. They are fairly long in the tooth, those figures. I think they were talking about an 8,000-tonne deadweight ship. Now you are talking, in container terms anyway, of 70,000-plus, maybe getting on towards 100,000 deadweight. I think we need some help in separating out in data terms the modes that are lumped together - rail and sea and waterway - to see precisely where we stand, but that is an area where we could use help. Also, data is not always as it seems in the shipping side. You can get sister voyages almost which are up to 45% different in their assessment of emissions but that changes because of different factors.

Q425 Mr Gauke: Can I ask about the potential inland waterways as someone with a canal running through most of my constituency? How much potential is there to start using our inland waterways?

Mr Brownrigg: This is always very subjective. In my own mind, as nowhere is very far away from the coast in this country I think coastal shipping offers a greater opportunity but there are many who believe that the rather limited use of waterways could increase substantially. At the moment it tends to be just the waterways immediately behind areas.

Q426 Chairman: What we are interested in here is finding out how much international co-operation has taken place because we had the aviation industry in to give evidence and in an answer to my colleague, Peter Viggers, I think the representative from Virgin said, when Peter asked him about a global emissions trading scheme, "Clearly there is some opposition from foreign governments to the introduction of such a scheme. We have certainly done our best to persuade our fellow airlines around the world that this is the best approach, but there is no secret that in particular the United States is opposed to the application". In further questioning we elucidated that there is not really much happening at international level. One of the responses to a question by myself elicited the following response: "One matter that may have inhibited the industry in the past is its competitive nature, and this is the first time that we have appeared together on a platform", namely, at our invitation, "and we take that responsibility seriously". In a sense I get the feeling it is ground zero at airline level. Is it the same for the shipping industry?

Mr Brownrigg: I will start and then I will pass to others on emissions because they are more expert. From my viewpoint not at all. We have had a very longstanding tradition of co-operation and co-working both at industry level and among governments. You have heard and seen what the record at IMO has been in recent years, and in general policy terms, including on the environment, the shipping industry pulls together quite substantially at international level and at European level, but in specific terms on emissions trading I will pass that over to my colleagues.

Mr Davies: There is certainly the international dimension that shipping almost always seeks to refer things to a common international standard because its competitive situation is so dictated by that; hence the International Maritime Organisation is the focus for that. I think the attitude of the different Member States at IMO will reflect some of their different incentives and imperatives in relation to emissions activity, but on the whole the momentum behind the body is driven by the more responsible Member States and is seeking to move in the right direction. Where that movement is not fast enough what we see, particularly from the European Union, is the friction of trying to move that bit faster. For shipping as a whole, unless the challenge is met in an international way, there are severe complications when you have mobile transport and borders to the regulated or prescribed area, which is not the same for stationary sources which mostly are the contributors to CO2.

Captain Vagslid: That is absolutely true, and of course, there is the same division as you see in the debate under the UNFCCC and also in the world discussion, of course, that you can see within IMO, and most ships are registered in the third world so the Kyoto mechanism is not a useful tool for a common but differentiated approach. As you have seen from the information submitted, we are trying to get in place mechanisms and instruments needed to reduce greenhouse gases from ships but, of course, no mandatory instrument is in place yet. It will certainly take at least three or four years before our current work plan and any new instruments or new schemes.

Q427 Chairman: How successfully are you working with the ICAO on the issue of carbon emissions?

Captain Vagslid: We have co-operation between the two separate areas but, of course, some of the matters are similar and both civil aviation and merchant shipping are international transport industries, but there are a lot more ships and many more ports in the world than there are airports, so it is not easy to take -----

Q428 Chairman: Okay, but we are looking for hard evidence and facts here. Could you write to us an answer to that question, in other words, how successfully you are working with the ICAO on the issue of carbon emissions? In other words, what has been done?

Mr Brownrigg: From the shipping industry, I do not think we are working very closely with the aviation industry at all on this because we so far have considered ourselves separate.

Q429 Chairman: Yes, but we have here a protocol saying that the Marine Environment Protection Committee at its 55th session in October 2006 agreed that co-operation between the secretariats of the International Civil Aviation Organisation and the IMO should be strengthened and the developments related to GHG emissions and both organisations should be communicated to each other.

Captain Vagslid: We are doing that. We are reporting the outcome of the different meetings.

Q430 Chairman: Yes, but I am looking for hard evidence on what you are doing in terms of carbon emissions for our inquiry, so could we get some written evidence from you following this meeting and this line of questioning?

Captain Vagslid: Sure, but I can tell that the wording there is from our latest debate at the MEPC55 in October and at our next meeting we will discuss greenhouse gases from ships at MEPC56 in July, and there we will exchange reports with ICAO and they have now put in place a voluntary emissions trading scheme which we will use as far as we can.

Q431 Chairman: Send us some written evidence if you can. What is shipping doing that aviation is not doing, because I have noticed the exchange of correspondence in a number of the national papers?

Mr Brownrigg: I think there was an instinctive reaction to the suggestion of fuel taxes which said, "Not just us, please, but others too", so I am not really answering your question there either, but that is what I think led to that exchange of correspondence that you are referring to.

Q432 Chairman: I have challenged the aviation industry to come back to our Committee within six months in terms of what they are doing on this issue together because, as I mentioned, it was the first time they had ever come together when they were sitting before our Committee, but they are a wee bit reluctant and shy to come forward with anything, so what are you doing?

Mr Brownrigg: I cannot speak for aviation at all. We work together across the different shipping sectors in this country. The Chamber of Shipping brings together six or more different sectors with their different issues and we work very closely at international level with our counterparts. We work on all policy issues, including the environment and including within that climate change.

Q433 Chairman: Again, some written evidence from you on that would be helpful.

Mr Brownrigg: As to the nature of the co-operation?

Q434 Chairman: That would be very helpful to us. Currently under the Kyoto agreement there is no incentive for national governments to discourage shipping industry emissions. How could international shipping be included in domestic targets?

Mr Davies: Excuse me?

Q435 Chairman: Do you want me to repeat it to give you more time to think?

Mr Brownrigg: Domestic targets, I think.

Mr Davies: The possible mechanisms have been analysed quite thoroughly in various European Commission studies and one recently in January went through a whole range of possible allocation possibilities to include them in the national emissions ceilings. They are many and varied and complicated, but those particular allocation mechanisms are not generally recommended in the studies as necessarily being the best way of either creating an incentive or a cap-and-trade type of system.

Chairman: Thank you very much for your time this morning and your evidence. It has been very helpful to us.

Witnesses: Mr Philippe Rochat, Director, Aviation Environment, International Air Transport Association, and Mr Brian Pearce, Chief Economist, International Air Transport Association, gave evidence.

Q436 Chairman: Good morning and welcome to our last session of the morning. Can you introduce yourselves please for the shorthand writer?

Mr Pearce: My name is Brian Pearce. I am the Chief Economist at the International Air Transport Association.

Mr Rochat: My name is Philippe Rochat, Head of the Environmental Department of IATA based in Geneva.

Q437 Chairman: Thank you. Do you believe that the Stern Review makes a strong enough case for the UK Government to adopt a system of taxation and incentives to combat climate change caused by aircraft emissions?

Mr Pearce: I think it certainly makes the case for having incentives for combating climate change emissions. One of the things we would like to make the case for here is that as an industry we take climate change extremely seriously, and have done for some time, and much is being done.

Q438 Chairman: We certainly did not get that impression from the representatives from the airline industry before us a few weeks ago.

Mr Pearce: We have a number of measures that we would like to describe that we as an organisation are taking and we see our member airlines internationally taking. Do you want me to run through those?

Q439 Chairman: Very quickly.

Mr Pearce: First of all we are very aggressively tackling waste. Last year we worked with air transport providers to shorten 300 routes. There were over six million tonnes of CO2 saved from that. For instance, Europe to China I believe we saved 30 minutes from those routes and there were a number of other measures like that. We have on our target list 75 more routes this year, such as between Johannesburg and London. At the moment ten wasted minutes in those flights because of zig-zagging routes and inefficient infrastructure provision are wasting 28,000 tonnes of CO2. There are similar examples around the world. We are pressing the European Union to simplify the navigation system. Again, there is a tremendous amount of wastage of emissions. Delays within the European air space totalled last year 15 million minutes, that is 33 years. My colleague Philippe is more up to date with the technical aspects but there are 12 million tonnes of CO2 that could be saved through having a unified air traffic management system and eliminating those delays, so there is wastage that we are actively tackling. The second way in which I believe the industry is very actively reducing its climate change impact is through fleet replacement. In the last two years we have seen almost 4,000 new aircraft ordered for the UK. For 21% of its existing fleet over the next four years to 2011 they are taking deliveries of new aircraft. That is an extra 6% of the fleet each year, and traffic is only expected to grow by 4% or 5% over that period. A lot of those aircraft that are being ordered now are specifically to replace older, less fuel efficient aircraft and that surge of aircraft orders in the last two years is going to make a big improvement to the fuel efficiency of the existing fleet.

Q440 Chairman: I asked the previous representatives if they would provide us with written evidence of things that are happening, so the same applies to yourselves. What initiative is the industry itself taking to tackle climate change independent of domestic or international regulations?

Mr Rochat: We have in IATA a four-pillar strategy which is based on technological progress and fleet renewal. Technological progress as such makes no difference but if airlines renew their fleets and use more modern aircraft it makes a lot of difference. We are addressing all infrastructure deficiencies and inefficiencies around the world. We are implementing all over the world operational best practices through which airlines reduce, for instance, the weight on board their aircraft, clean their aircraft, taxi with a single engine rather than two or three or four engines. Altogether technological progress and operational and infrastructure improvements have permitted the aviation sector to absorb roughly half of its growth in CO2 terms. When traffic grows 5% emissions grow between 2.5% and 3%, so these achievements are extremely important and we are determined to continue. As you know, a carrier in Europe has approved very ambitious target for the year 2020. We have the same approach in North America through the NASA with similar goals and the manufacturing industry, Boeing, Airbus and the engine manufacturers, all together invest on average around $5 billion a year in research and development. I have not mentioned here what are -----

Q441 Chairman: You tell me you are encouraging the airlines. What are the best airlines in terms doing in terms of climate change? What are the worst airlines?

Mr Rochat: I would say it depends on the age of the aircraft they use.

Q442 Chairman: Yes, but I am asking what are the best airlines. You tell us. You leave us with names here, the best airlines and the worst airlines, in other words those that need encouragement.

Mr Rochat: No, it is impossible to provide you with this figure because it depends on so many characteristics.

Q443 Chairman: No, no, it cannot be impossible.

Mr Rochat: I can refer to the best aircraft in environmental terms.

Q444 Chairman: We ask simple questions and we want simple answers. Give us the best airlines and give us the worst airlines, and if you cannot give us that your evidence is not really worth a toss.

Mr Rochat: I would say the major European airlines and the low-cost airlines in Europe are among the best, and the fleets in the developing world are probably the worst because again airlines in the developing world are using old aircraft sold by major carriers in the developed world and that makes a difference.

Q445 Chairman: So you are telling us that all the domestic airlines are fine but the problem lies with the developing countries?

Mr Rochat: No. It depends on the volume of traffic of airlines. I am referring to the aircraft characteristics. We cannot compare British Airways and Zimbabwe airlines.

Chairman: I give up. Let me hand over to my colleague Michael Fallon.

Q446 Mr Fallon: Mr Rochat, Mr O'Leary, who runs Ryanair, said that aviation was neither the cause of global warming nor the solution. Does IATA agree with that?

Mr Rochat: I would not formulate this in the same terms. We represent today according to IPCC 2% of CO2 emissions worldwide, and according to the same IPCC projections we should represent 3% of the same CO2 emissions in 2050. The Stern report is not very different. It refers to 1.6% today and 2.5% in 50 years from now, so we are not a big polluter. However, our main problem, and we are addressing this, is the fact that our emissions are growing in absolute terms, so we have to do something. We have covered the efforts which are being made today through technology, infrastructure improvements and operational gains, and I guess we have also to address economic measures such as emissions trading.

Q447 Mr Fallon: So you do not agree with Mr O'Leary?

Mr Rochat: Not entirely, no.

Q448 Mr Fallon: The Stern report says that the impact of aviation is two to four times higher than the impact of CO2 emissions alone. Do you accept that?

Mr Rochat: We do not entirely accept because it is not exactly in line with the most recent views of the International Panel on Climate Change. The IPCC has downgraded the multiplier effect or the radiative forcing effect of aviation and today, according to what we know from the IPCC report which is coming out next month, it seems that the radiative forcing effect of aviation is comparable to the radiative forcing effective of ground-based emissions sources with one nuance, but it is a question mark, which is the effect of aviation contrails on cirrus clouds. Here there is a potential problem which the scientific community is unable to assess today. That is my answer to you.

Q449 Mr Fallon: But you do accept Stern's warning on the extent to which you are a growth industry?

Mr Pearce: Perhaps I can pick up on that. Even though all the evidence suggests that we are as an industry a small part of the problem at the moment, that is not to say that the industry does not take this as a very serious problem.

Q450 Mr Fallon: That is what is confusing me, Mr Pearce, because you keep saying the impact is very small but you are doing everything possible to reduce it. Which is it?

Mr Pearce: Because of the Stern report there is increased perception that this is a very serious policy issue and as such the airlines internationally are taking this as a very serious issue. It is also, if I might say, a very serious issue because the CO2 emissions come directly from our fuel consumption. If you look at the table at the back of the Stern Review, which lists different sectors, airlines are the third most energy intensive industry. Almost 26% or 27% of our costs are made up of fuel.

Q451 Mr Fallon: So you are a major polluter then?

Mr Pearce: No, we are not a major polluter because we are just 2% of total emissions, but amongst our costs what I am saying is that fuel is a very important driver of efficiency and emissions reductions in the industry.

Q452 Mr Fallon: Let me ask Mr Rochat why is IATA not encouraging more consumer information? When the Chairman asked you to define the best and the worst airlines you kept talking about aircraft. Why are you not on the front foot here encouraging consumers by eco-labelling the various aircraft so that we can distinguish between the worst performing aircraft and indeed the worst performing airlines? Why are you not promoting such a scheme?

Mr Rochat: As a trade association we represent most international airlines around the world. We have to treat our members equally in this regard. We cannot impose our views on them. We lobby with them, we encourage them to be proactive in this regard but we cannot really as a trade association impose our views on or obtain from our members a weighting according to environmental performance because it is not supported by them, and I have to confess here that as a trade association we act on behalf of our members but we are pushing them to have again a proactive approach. We are providing them with a lot of support in improving their fuel performance but again it depends on fleet renewal processes and, as we know, IATA does not lead in this regard.

Q453 Mr Fallon: I understand that, but why are you not promoting more eco-competition amongst the airlines? Are you not in favour of competition?

Mr Rochat: Yes, we are in favour of competition. We are making competition possible. It is, I think, up to the individual airlines to promote their environmental performance as such.

Q454 Mr Fallon: But they may all then come up with a different type of eco-labelling. Why does not IATA, before governments around the world impose it on you, come up with its own scheme so that consumers can work out for themselves which the greener aircraft are and which the greener airlines are? Why do you not get on with it?

Mr Rochat: We are in the process of developing at an industry-wide level a way to calculate CO2 emissions for passengers. Some airlines have developed such a scheme according to their own commercial policies. We consider that it would be important for consumers to be able to have, let us say, a reliable source of information covering the average fleet, not only which airline. This is a tool we are planning to develop.

Q455 Mr Fallon: You are planning to develop it, you think it is important but you are not promoting it.

Mr Pearce: A number of airlines are already developing these tools.

Q456 Mr Fallon: I know that. I am asking why IATA are not promoting an eco-labelling scheme.

Mr Pearce: Our board of governors -----

Q457 Mr Fallon: I want to hear from Mr Rochat. He is the Director General.

Mr Rochat: We are promoting this idea among IATA members but only a limited number of them are today receptive to this idea. We are making progress but we cannot impose it on our 250 members overnight. It is a long process. It requires a lot of effort and I can assure you that we are doing our best in this regard but we are dealing with airlines from all over the world and, as you know, the environmental agenda is not the same for all of them.

Q458 Mr Fallon: Do you accept the implications of an eco-labelling scheme, that those airlines that can demonstrate to passengers that they are reducing the environmental impact of air travel would enjoy competitive advantage over other airlines?

Mr Rochat: Absolutely, yes.

Q459 Chairman: Maybe I can ask a quick question on the back of eco-labelling. You said, and I quote, that you have had a limited number of airlines who have been receptive. You said that in answer to Mr Fallon.

Mr Rochat: So far, yes.

Q460 Chairman: Who are they? What airlines have been receptive and what airlines have been truculent?

Mr Rochat: I would say it is very closely related to the views of their governments, if I may use this expression. In other words, European carriers are far more receptive to climate change issues and this is very much in line with the views of their governments, while carriers in other parts of the world are not having the same interest or the same pressure.

Q461 Chairman: That is just on the UN report, which most governments have been involved in and have signed up to, so the answer to my question, Philippe, does not make sense to me.

Mr Pearce: But, as you know, if I might address that, governments in the US and in Asia Pacific are very much pursuing a technology path, and indeed that is what our members are doing. You will see tremendous new fuel-efficient aircraft -----

Chairman: No, no, I am asking a simple question here in response to Philippe's statement that there are a limited number who have been receptive, so I am looking for an answer to that in terms of the different types of airlines. Who are these, Michael said?

Mr Love: Name and shame.

Chairman: Maybe I will give you time to think on that and we will ask David to come in.

Q462 Mr Gauke: Following up on that, when you say it is related to the views of their governments, to what extent do you think it is the views of public opinion in those countries? Is it related to the views of their customers?

Mr Rochat: It is difficult to be very specific in this regard. We do not clearly know what are the views of the public in certain parts of the world. We get the views of governments through ICAO in many discussions that they have at ICAO level. The views of the public transpire from the press, from similar comments. We detect clear changes in public opinion in North America, in the Asia Pacific region also, but it is again a process which is taking time and ICAO has made tremendous progress in addressing climate change issues. This means that governments also are progressively changing progressively so I think it is a reality. We are a global industry. We have to reconcile the views of different regions, of different levels of development, and it is not always easy to find the most ambitious compromise between our members and between states, but progress is being made. I do not want to refer to the views of the maritime sector but the fact is that the aviation sector is, I think, far more proactive in addressing climate change than the maritime sector and this is reflected in ICAO debates. The ICAO has developed guidance for states that plan to apply emissions trading to aviation. This is already a very substantive result and will help states a lot, especially in Europe, which are planning to implement emissions trading for aviation.

Q463 Mr Gauke: I am sure our representatives from the maritime industry, who are sitting quietly in the back of the room, would point out that, given the amount of freight that they transport, the amount of carbon they emit is tiny compared to what the aviation industry emits.

Mr Rochat: We roughly meet the same amount of CO2 emissions, 1.8% or 2% in the case of aviation. I think we are exactly in the same situation. Governments do not treat the aviation and maritime sectors equally. Why is the European Union not considering the inclusion of the maritime sector in its emissions trading system? Personally, I see no reason to treat differently these two sectors that contribute in a comparative way to the economic and social development of the world.

Q464 Mr Gauke: Could we make a comparison with another form of transport, road transport? According to Stern, in global terms the level of taxation in the aviation sector is currently low relative to road transport fuel taxes. How do you justify that?

Mr Rochat: I think my colleague will address the question of taxation because he has very interesting figures.

Mr Pearce: The major difference is that aviation pays fully for its infrastructure. In the UK that is 1.5 billion a year. Road users do not. Yes, they do pay a fuel tax, but if you look at it per ------

Q465 Mr Gauke: But they pay well beyond their infrastructure?

Mr Pearce: They do, but if you look at the infrastructure costs, the amounts paid for infrastructure to the airports and also to the air navigation providers are in excess of the costs. There is a positive contribution.

Q466 Mr Gauke: Even if you deduct the infrastructure costs for roads you are still left with a much more heavily taxed means of transport, are you not, compared to aviation, or do you disagree?

Mr Pearce: I would not necessarily disagree, no.

Q467 Mr Gauke: Are there any particular economic or social reasons why aviation should be treated favourably, if you like, by government or through the taxation system and otherwise?

Mr Pearce: Although aviation carries perhaps less than 1% in tonnage of world cargo carriers they carry between 35% and 40% by value. I think there is also the impression that air transport is all about cheap holidays. Actually, 35% of people travelling from the UK are on business. It is less than 30% who are travelling on holiday according to the CAA surveys. Air transport plays a critical role in linking British businesses with global markets. It provides a lot of benefits to the economy that go beyond the price that passengers pay. That in my mind is the principal reason.

Q468 Mr Gauke: Mr Rochat, are the steps that the aviation industry is taking at the moment because of fear of regulation or taxation or are they in response to the demands of its customers?

Mr Rochat: I think both elementals play a role. I think initially pressure based on regulation and taxation was an important factor. Today public opinion is also influencing the process and this is a helpful element, if I may use this expression, in promoting good practice and proactive attitudes among airlines, especially outside the European region. To come back to the point of taxation, I would like to underline the fact that if fuel taxation does not apply to international aviation it is not at the request of the industry. It is simply because governments in ratifying the Geneva Convention in 1944 accepted this basic principle of international law that for reciprocal reasons they would not charge fuel tax for international traffic. The question is really in the hands of governments. It is up to them to decide if they want to change the regime they approved 60 years ago, so it is up to governments to consider those issues. I do not think there is any privilege behind this because again aviation covers all its infrastructure costs and part of its environmental costs through user charges. We have charges on noise, we have charges in the UK, Switzerland and Sweden on NOx, so I think that the system which is in place in this regard is a fair one for the aviation sector.

Chairman: We accept the benefits that the aviation industry provides to individuals in the country, there is not any doubt about that, but you talk about the system that exists. There is a new system now, Philippe, because of the issue of climate change and I do not think it does service to minimise the contribution that the airline industry is making to emissions. If I quote Stern, which you quoted at the beginning, Stern says that the UK aviation sector currently accounts for about 5.5% of the UK's total CO2 output and it could rise to 15% by 2030, so there is a big issue and a big problem here. What Stern also says is that the effect of all aviation emissions is at least two to four times greater than the effect of CO2 emissions alone because of nitrous oxides and water vapour and other things, so it is a big and growing issue and you are here to tell us what you are doing as a result of the new environment and the new situation, and it is with that positive line of questioning that we want to examine you.

Q469 Peter Viggers: You were talking about routing. What is the necessary flying time from Brussels to London Heathrow, to take one example, and what is the scheduled time?

Mr Pearce: That is a good question to which I do not know the answer.

Q470 Peter Viggers: It is about 35 minutes and one hour, and nobody quite knows why. Mr Rochat seems to know.

Mr Rochat: Yes. There is a difference between the scheduled time and the real time of flying and this depends on the conditions which are related to ATM, route availability, weather conditions and other factors, and we are not entirely satisfied with the way the infrastructure structure for the air transport sector is developed in Europe. We do not have an efficient system.

Q471 Peter Viggers: There is a problem there. What is the official attitude of IATA to the Carbon Emissions Trading Scheme?

Mr Rochat: We consider that emissions trading among economic measures is a far better tool than taxes and charges. It is clear opinion which is supported, I think, by the whole industry, but we insist on the proper design of an emissions trading scheme for aviation. We do not believe that for a global industry like ours regional or national schemes are the solution. We have always supported a global scheme through IACO according to what the Kyoto Protocol suggests for aviation and we regret to say that at the last IACO assembly IATA insisted on the development of a global scheme for aviation and not one state supported that idea. We are continuing to develop this concept. We consider that aviation emissions are global; they take place all over the world. More than half of aviation emissions take place over the high seas where no state is entitled to impose emissions trading, so we think that only a global solution through IACO will work. IACO has the mandate to regulate air transport over the high seas in the international air space. We think it is the only solution. Of course, it takes more time than an EU emissions trading scheme. We realise this because to get the support of 25 or 27 states is one thing; to get the support of 190 states is a different story, but again progress is being made. IATA is extremely active in this regard. I can tell you that the guidance on emissions trading that was developed by IACO and adopted two weeks ago in Montreal was developed under the chairmanship of one of our IATA colleagues, so we are very active in this regard and we believe that this is part of the solution, not a big solution but it is part of the solution with technological, infrastructure and infrastructure improvements.

Mr Pearce: Like Stern, I am quite optimistic that we are seeing the development of a patchwork of trading schemes; you heard that from an earlier witness. We have seen a number of schemes set up in the north east of the US and in California, New South Wales and others, and, like Stern, I am quite optimistic that we could see the development of a linked scheme which has more global characteristics and the IACA guidance that Philippe was talking about has been developed now which will help ensure some consistency across those.

Q472 Peter Viggers: Stern suggests that it is difficult to translate the effect of aviation CO2 emissions into carbon dioxide equivalents. Are the airlines undertaking work to try to settle this figure?

Mr Pearce: There are a number of projects that the aviation industry is engaged in. There is one in Europe that certainly British Airways and Airbus are involved in to look at these other emissions, which we understand is still very uncertain.

Q473 Peter Viggers: How quickly do you forecast global airline emissions will increase on the current basis?

Mr Rochat: Again, referring to IPCC and the Stern report, we believe that CO2 emissions are expected to increase from 2% today to 3% in 45 or 50 years from now. I have to state one thing which is quite surprising, I would say. Over the past 15 years this figure of 2% CO2 emissions has not changed. In other words, the aviation sector contribution to climate change has not increased more than the average of other sectors, so for the past years we have remained stable at 2%. It does not mean that aviation emissions have not increased. It means that they have not increased more than the emissions of other sectors, and this is more or less the result of that progress we have just mentioned.

Q474 Peter Viggers: Apart from conversion of aviation CO2 emissions what are the technical problems you foresee in an emissions trading scheme?

Mr Rochat: One of the more difficult problems regarding the EU Emissions Trading Scheme today, and that is why I was referring to a global scheme, is the geographical coverage. Are states entitled to impose emissions trading for the emissions of foreign aircraft without the blessing of the state of registry or are states entitled to impose emissions trading for emissions that take place outside their air space? These are two very serious legal questions and, as you probably know, governments outside Europe have in this regard an opinion which is quite different from the opinion in the European states, so this is one of the problems. The second problem is the level of auctioning or benchmarking. We are very much insisting on a benchmarking system that would not penalise the best in class, Chairman, coming back to your concern regarding the fuel efficient or the environmentally efficient airlines or aircraft, so if we can modulate the Emissions Trading Scheme and introduce in the calculation of the scheme a way not to penalise the best in class but to penalise the worst in class we would be very much in favour of this solution. These are the critical points as far as emissions trading is concerned.

Q475 Chairman: Just to tie up a few things, as we know, aviation is to be incorporated into the EU Emissions Trading Scheme from 2011/2012 but I note that Anthony Concil, the Communications Director of IATA, was quoted in November 2006 as saying, "Air travel is responsible for 2% of emissions and for Europe to act before a global agreement is putting the cart before the horse". Does IATA not accept that aviation should be part of the ETS?

Mr Pearce: The point that was being made was that there was an expert group working on the technical difficulties.

Q476 Chairman: No, it is a very simple question. Does IATA not accept that aviation should be part of the ETS?

Mr Rochat: In general we are considering emissions trading as part of the solution as preferable to taxes and charges but provided the Emissions Trading Scheme applicable to aviation is designed in a way which does not penalise air transport.

Q477 Chairman: So you are still fighting on it? In other words, you have not come to a mature view on the issue. You are still lobbying Brussels?

Mr Rochat: We are still lobbying Brussels to improve -----

Q478 Chairman: To be exempt from the ETS?

Mr Rochat: No, to improve the scheme as it is proposed today. It is a natural process. We have been part of this, so we are not fighting the scheme as such. We are lobbying for the scheme to fit with aviation requirements.

Q479 Chairman: So you disown your Communications Director's comments that it is putting the cart before the horse?

Mr Rochat: This reflects, and we have not changed, that again a global scheme is for aviation a better solution than the original scheme.

Q480 Chairman: My mind is tired this morning and I just wanted to make it simple from me. Do you accept that you have to be part of the ETS or do you say, "There has to be a global agreement before Brussels does anything"? Is it the former or is it the latter?

Mr Rochat: In a more recent press release we have expressed a cautious welcome.

Q481 Chairman: So you have not accepted it fully yet?

Mr Rochat: We have accepted -----

Q482 Chairman: You have not accepted it fully yet? Brian?

Mr Pearce: No, because of the issue of foreign airlines having to cover their emissions -----

Q483 Chairman: That is an important part of our evidence. I asked the individual airlines when they came before us what they are going to do to reduce emissions prior to aviation's inclusion in the EU ETS scheme in 2011/2012. I did not get much of an answer from them but we are holding them to that. What is the aviation industry going to do there?

Mr Pearce: I think they sold themselves short because, as I started off this session, it seems to me that there is a lot being done attacking waste.

Q484 Chairman: They never told us anything that they were going to do. Has the aviation industry itself set any targets for reducing emissions?

Mr Rochat: Yes. We have a fuel efficiency goal. IATA measures fuel per passenger kilometre. We have improved -----

Q485 Chairman: There is nothing published, as my colleague is saying.

Mr Rochat: Yes, it is published.

Q486 Chairman: This is the issue for us because we get the feeling from taking evidence from the shipping industry this morning and yourselves that the shipping industry is ahead of yourselves, but we want to be fair to both of you. Your written submissions to us are crucial in our determining our report, so we are looking for that and if you say your colleagues sold themselves short could you go back to them, Brian, and say, "Next time don't be so coy", but send us that written information so that we have that and we are fair to everybody? It is very important they do that; otherwise we could be critical when there is not any need to be critical if there is evidence there for us to assess. Okay? Back to my colleague's point, which I think is very important in terms of doing something. He came from the angle of increasing competitiveness in the industry. Why is eco-labelling not being taken up and why can IATA not recommend and promote that? After all, in one of our written submissions we had FlyBe, which is a small airline, announcing that they will shortly be introducing an eco-labelling scheme, so why is that not going to be an initiative?

Mr Pearce: I think that is an interesting idea but we have been instructed by our board of governors to pursue the tackling waste initiative first. There are measurable, demonstrable carbon savings which could be made there by having a single European sky.

Q487 Chairman: So this is an industry that does not really want competition?

Mr Pearce: Oh, it does, of course it does.

Q488 Chairman: So why do they not introduce eco-labelling?

Mr Rochat: We are promoting this idea, but the problem is that we have to persuade our members in this regard, and it is a process which cannot be implemented overnight.

Chairman: Maybe we did not do justice to the whole area this morning in 40 minutes, but let me tell you that your written evidence is going to be read by us very carefully. We will look to both yourselves and the shipping industry coming forward with further information. Thank you very much.