The
Committee consisted of the following
Members:
Chairman:
Mr.
Martyn Jones
Blizzard,
Mr. Bob
(Waveney)
(Lab)
Blunt,
Mr. Crispin
(Reigate)
(Con)
Cable,
Dr. Vincent
(Twickenham)
(LD)
Eagle,
Angela
(Exchequer Secretary to the
Treasury)
Greening,
Justine
(Putney)
(Con)
Hamilton,
Mr. David
(Midlothian)
(Lab)
Kirkbride,
Miss Julie
(Bromsgrove)
(Con)
Knight,
Mr. Greg
(East Yorkshire)
(Con)
Leigh,
Mr. Edward
(Gainsborough)
(Con)
Mackinlay,
Andrew
(Thurrock)
(Lab)
Mahmood,
Mr. Khalid
(Birmingham, Perry Barr)
(Lab)
Pugh,
Dr. John
(Southport)
(LD)
Robinson,
Mr. Geoffrey
(Coventry, North-West)
(Lab)
Salter,
Martin
(Reading, West)
(Lab)
Smith,
Ms Angela C.
(Sheffield, Hillsborough)
(Lab)
Soulsby,
Sir Peter
(Leicester, South)
(Lab)
Sarah Hartwell-Naguib,
Committee Clerk
attended
the Committee
Sixth
Delegated Legislation
Committee
Tuesday 8
July
2008
[Mr.
Martyn Jones in the
Chair]
Draft Community Emissions Trading Scheme (Allocation of Allowances for Payment) Regulations 2008
4.30
pm
The
Exchequer Secretary to the Treasury (Angela Eagle): I beg
to move,
That the
Committee has considered the draft Community Emissions Trading Scheme
(Allocation of Allowances for Payment) Regulations 2008.
It is a
pleasure, Mr. Jones, to serve under your chairmanship for
the first time on a statutory instrument. I am obviously looking
forward to it.
These
regulations put in place the legislative provisions required for the
Government to allocate European Union emissions trading allowances in
return for payment. Climate change, brought about by the emission of
carbon dioxide and other greenhouse gases, is the most pressing
environmental issue facing the world. The EU emissions trading scheme
was established with a strong lead from the
UK.
Andrew
Mackinlay (Thurrock) (Lab): I cannot hear the
Minister.
Angela
Eagle: I will speak up. It is the worlds
most significant international emissions trading scheme to date.
Indeed, it is an important step towards establishing a price for carbon
with a view to ensuring that negative externalities are reflected in
investment and consumption
decisions.
In
phase I, given the newness of the EU emissions trading scheme,
effectively all allowances were distributed on a free basis. The EU
emissions trading scheme directive permits member states to auction up
to 10 per cent. of allowances in phase II, which runs from 2008 to
2012. The UKs national allocation plan for phase II of the EU
emissions trading scheme, published in 2006, set out the
Governments intention to auction some 7 per cent. of the total
UK emissions
allowances.
As
set out in the UK Governments Vision for Emissions
Trading, published on 30 October 2006, greater use of
auctioning will help to strengthen the long-term integrity and
efficiency of the EU emissions trading scheme. In turn, it is essential
to ensure that the auctions of EU emissions trading scheme allowances
are robust and support the integrity of the scheme and the carbon
market
itself.
The
regulations create a flexible framework for auctioning of emissions
trading allowances. They provide for auctions, the Governments
preferred method of allocating allowances for payment, but also provide
for allocations for value by using other routes to market, such as
allocation by a market exchange. The flexible framework will allow
auction design to evolve in response to feedback from participants and
experience in auctioning emissions trading allowances.
The
regulations create the framework to ensure that, for any method of
sale, payment will be received and allowances will be transferred.
Among other matters, the regulations also set out provision for the
appointment of an independent observer to oversee allocations, and
provide the opportunity for participants to obtain a review of
decisions made under them.
As provided
for by the Finance Act 2007, the Treasury will also publish a scheme,
which will cover the conduct and terms of allocations, including the
detailed terms and conditions for participants. This legislation gives
the Government the power to ensure that the EU emissions trading scheme
allowances are allocated in the most effective and efficient way. I
commend this statutory instrument to the
Committee.
4.33
pm
Justine
Greening (Putney) (Con): Thank you for calling me,
Mr.
Jones.
Sitting
suspended for a Division in the
House.
4.48
pm
On
resuming
Justine
Greening: I, too, was about to say what a pleasure it is
to serve under your chairmanship, Mr. Jones.
Today we are
debating the emissions trading scheme and regulations that will enable
the scheme to use auctions, which the Opposition support. We think that
the emissions trading scheme can help to reduce emissions across Europe
and can be an important part of the toolkit to bear down on emissions
over the coming years and decades. As the Minister said, phase I was
arguably a new experience and perhaps not as effective as we might have
expected with regard to the level of allocations that were made and the
extent to which they bore down on CO2 emissions, but clearly
we are learning from that.
One key
aspect of the scheme on which we are yet to progress is the issue of
allocating allowances via auctions, and that is what the regulations
set up. We are all aware of the problems that we had when, because
allowances were essentially given away, there was arguably a danger
that there would be windfall profits for certain companies and
organisations that received them and had something to trade but did not
reduce their emissions in return for that allocation. Therefore, we
think that introducing that auctioneering process is a good way to
proceed. It will give accountability and clarity. Above all, it will
perhaps means that we do not just bear down on emissions but have a
better ability across the board to set a fair price for carbon across
the
economy.
The
statutory instrument proposes a welcome approach. I have a lot of
questions on the detail. I want to ensure that we fully understand
exactly how the process, which I think will be so important, will work.
I hope that the Minister will allow me to run through the questions. I
appreciate that she might not be able to give an instant answer to all
of them, and I would be perfectly happy, if it were easier, for her to
write to me on some of them. I thoroughly understand that not all my
questions may
be answerable. Let us ensure that the statutory instrument is fit for
purpose. If she will indulge me, I will run through my questions in
regulation
order.
On
regulation 4, will the Minster run through how the deposit levels will
be calculated? I know that that was raised in the consultation that she
talked about. Will she say what methodology will be used to calculate
the levels, and what levels she expects? She raises the issue in the
explanatory memorandum but it would be good to get more clarity.
Staying on regulation 4, who will decide for how long the bidding
window will operate? Will it be a consistent period, or will it be set
on an ad hoc basis, depending on the nature of the auction? How will
the Government approach understanding how long that window needs to be
open?
Will
the Minister say whether the nominated holding account can be changed
during the process? I appreciate that that is a technical point, but
given that the process will be new for organisations, there may be
times when, for whatever reason, they want to change the account
details provided. Will she confirm whether such changes will be
possible, and whether they will be possible only within the bidding
window or also when payments are
clearing?
On
regulation 5, will the Minister briefly talk about what exchange rate
between sterling and euros will be used? Will it be the rate on the
date of the transaction, a rate that is set at the beginning of every
Treasury financial period, or a rate that is set at the beginning of
each auction? Will she clarify whether that rate would be agreed in
advance, or set after the auctioneering
process?
It
would be helpful to understand more about what information is required
to effect a transfer of allowances, under regulation 6. Specifically,
will the Minister be absolutely clear about who will be expected to
provide that information? I think that the regulation mentions that the
Environment Agency will provide it, but can she confirm that the extent
of the information required is agreed? If the information will come
from the account holder, perhaps via the Environment Agency, is the
agency fully signed up to that and happy with how that part of the
process will work? Regulation 6 also talks about information being
provided
As
soon as reasonably practicable.
Does she expect that to
mean days after the auctioneering process has finished, or are we
talking about weeks or months? It would be helpful to get a better
understanding of the time
frame.
Regulation
7 talks about information being necessary. Will the Minister outline
what information will be necessary and how exhaustive it will be? The
transfer of excess allowances in regulation 9 is important. Can she
give us some examples of the situations where she expects that to
arise? It looks as though it is the account holder who has to give
notice to the Environment Agency that it has had a transfer of excess
allowances. Are they the only people who can do that? I accept that
often, presumably, it will be the account holder who spots it first.
Are they under an obligation to let the Environment Agency know? If
other agencies are aware that something has not worked and that excess
allowances have been transferred, are they also able to give formal
notice to the Environment
Agency?
Regulation
10 relates to persons who may conduct other allocations. The Minister
said that other allocations could include a market exchange approach.
Are there
any other approaches that she sees falling under the other allocations
approach? If so, can she give us a few more details about them? If we
have a range of other allocation methodologies we should know how they
will be worked out. Will it be done by negotiation or will it be
something that the Treasury sets out as a fait accompli to participants
in the auction? Will it be discussed or will people simply be given an
outcome? Will any fees be charged for the process of other allocations?
Clearly it will have a cost when it is set up. Will that be recouped by
fees or will it simply be seen as a burden to be borne in order to get
the revenue from having auctioned off these
allocations?
Moving on to
part 4 and regulation 11, can the Minister tell us what information
could end up in a statement published by the Treasury in relation to
public censure? That is quite important. Will it simply be the name of
the account holder and the nature of the breach or will there be much
more than that? How exhaustive will that statement be? How much detail
will it go into? Will it simply be a statement of fact or will it go
into more detail about why a breach has occurred and perhaps whether
there is fault in a particular area?
How long
would the account holder receiving the statement have to respond to it?
If the statement is to be issued and if public censure is to happen, it
sounds like the Treasury has to give the account holder 28 days
notice. Does the Treasury see a situation where realistically the
account holder receiving the statement would have 28 days to respond,
or will there be a shorter or longer period? Again, will they be able
to respond formally or is that response a private response between the
account holder and the Treasury? How visible will that process be? That
is important given that the process on the Treasury side will be very
visible. If it is putting out public statementsperhaps the
Minister can confirm that they will be public statementsthey
will obviously be of importance to the account holders concerned. The
key questions here concern the extent of the statement and time
scale.
Regulation
12 deals with the appointment of the independent observer, but I know
that the respondents to the Treasurys consultation had concerns
about how the appointment would be made and how independent the
observer would be. Presumably, the observer will be put in place by the
Treasury, so can the Minister confirm that? The regulations refer to
the observer as independent, but independent of who exactly? Will they
be independent of the Treasury or account holders, or are those
mutually exclusive? Can we be absolutely clear about what the Treasury
is seeking to achieve by that role? I think that I have a pretty good
idea in that regard, but it will clearly be an important role in
ensuring that the scheme operates fairly.
It would be
helpful to have further details on the role of the independent
observer, such as the length of term for the post. Will an independent
observer be allocated to each auction process, will a team of
independent observers be allocated almost at random to auctions, or
will they have a term that corresponds to an entire phase in the
emissions trading scheme, such as phase III? How will that
role work in practice, what kinds of people do we expect them to be and
from where do we expect to recruit
them?
Regulation
13 deals with the review of decisions, which is clearly another
important part of the process. It refers to the appointment of another
independent
person to carry out the decision. I am pretty sure that that person will
be different from the independent observer whom I have just mentioned,
but will the Minister describe the process by which the independent
person carrying out any review would be identified and put in place?
Would the person be identified for a specific review on an auction or
would they be in place permanently to carry out reviews when necessary?
Any further information on that would be helpful, as would some
response from the Minister on how detailed she expects any review of a
decision to be. Will it simply be an audit-style statement on whether
the auction process was fair and robustly run, or does she expect the
reviews to be more detailed and perhaps take the form of a report? Will
those receiving a review have an opportunity to respond to it formally
or will they simply have to receive whatever they are given by the
independent reviewer?
Will the
Minister outline the purpose of a review? The statutory instrument does
not indicate what will happen if the independent reviewer comes up with
some serious issues that indicate that the auction process has not
worked effectively. The statutory instrument seems to assume that any
review will conclude that things worked fine, so it is important for
the Minister to outline what will happen and what process will be
expected if the review concludes that the auction process did not work
effectively.
With regard
to regulation 14 notices, I do not want to be overly nit-picking on
this, but paragraph (2) mentions that the Environment Agency will only
take e-mails. I wondered whether that was some sort of talking the talk
initiative from the Environment Agency, whereby it wants to move to a
paperless environment. I wanted to check that, because it is important
that we do not let that get away from what needs to be a robust
process. For example, I cannot believe that the Minister and the
Environment Agency would be averse to having someone walk over a notice
if that were similarly carbon friendly.
The next
point that I want to flag up is that the language used in paragraph
(4)(a) of regulation 14, which deals with notices being given in
writing and perhaps left at a persons address, seems a little
weak. It suggests that one could simply throw a notice over the
wallit would be left at the address but it would not
necessarily have got to the person one was hoping that it would get to.
I notice that the wording is completely different earlier in regulation
14. Paragraph (1)(c)(ii) talks about personal delivery
to such an address. That is a perfectly accurate way of talking about
how we expect something to be delivered. I do not know whether there is
a reason for having much looser language in paragraph (4)(a), but I
wanted to flag it up.
I want to
talk about the percentage of our allocation that will be auctioned. The
Minister talked about 10 per cent. We support the auction process and
think that it can introduce accountability and clarity into the
emissions trading scheme, but why have the Government decided that 7
per cent. of our allocation will be auctioned? The approach can work,
but why have we not used the 10 per cent.? How will we work
out which 7 per cent. will be auctioned? Will it be particular areas?
Will it be a Government decision taken in a backroom or will there be a
rationale behind how the 7 per cent. is arrived at? Can she clarify
those points?
The
regulations will bring in money because organisations will be buying
their allocations. What level of funding does the Minister think that
the auction process will generate for the Treasury? Does she expect
that funding flow to be hypothecated to environmental matters, for
example, or to tackling climate change? Perhaps, as I suspect, the
money will go into the general Treasury coffers never to see daylight
again. It will be helpful to get some clarity on those matters, too. I
realise that I have asked a lot of questions but this is an important
process. It is important to ensure that we thrash out all the issues
now rather than
later.
5.7
pm