Draft Community Emissions Trading Scheme (Allocation of Allowances for Payment) Regulations 2008

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Andrew Mackinlay: I am pleased to catch your eye, Mr. Jones. I consider this to be a major piece of legislation, albeit a delegated piece of legislation. To some extent, I feel inadequate for the task. It was just 24 hours ago that I was told that I was on the Committee. I am not going to acquiesce by my silence in this charade or suggest that either this Committee or many other Committees give adequate scrutiny to delegated legislation. There is no reason on God’s earth why Ministers and the Whips cannot give longer notice and allow people who are better qualified than me, who understand the subject and have majored on such legislation, to volunteer for membership of the Committee.
Faced with the task of being on the Committee and being aware that I was put on the Committee 24 hours ago, I have endeavoured to understand this difficult delegated legislation. I need to follow the example of the hon. Member for Putney, who skilfully and forensically asked some important questions. I listened with great interest. Credit where credit is due, she did very well—I do not see it as a partisan matter. All of the questions that she posed need to be answered if the Committee is to give adequate scrutiny to the legislation.
I would say, cheekily, “Hands up anybody who understands the legislation?” We are not being televised, but nobody put their hand up. This is the kind of nonsense that goes on in Parliament and it is time that it stopped. The Whips could give longer notice and allow people who are qualified adequately to volunteer to scrutinise subjects that they are interested in. Having got that off my chest, I want to ask a question.
I searched the documentation to find out precisely who the consultees were. I cannot find any information and I imagine that it is a long list. I would not expect the Minister to list them in Committee today, but who has been consulted and what the time scale was should be amplified. I am open to correction but the documentation seems to be silent on the views of the European Union and the European institutions that have a legitimate and institutional interest in the matter—the Commission and the European Parliament. I ask that because, in my inadequate, cursory examination of the regulations, I noted that the European Union Commission was concerned about what the United Kingdom was proposing in respect of phase I. I should like some reassurance on that.
The regulations exclude the trading of aviation emissions. If that is correct, we need to ask why. Our own House of Commons Environmental Audit Committee said:
“We are astonished at the lack of essential research to underpin the incorporation of aviation in the EU Emissions Trading System (ETS). In view of the timescales involved in developing and ratifying EU directives, we suspect it may soon be too late to achieve the Government’s professed intention of incorporating aviation in the second phase of the EU ETS from 2008.”
If that is so, it is reasonable for us to ask when such a scheme will be forthcoming. Are we failing in our duties in that regard? I should also like some reassurance from the Minister that the UK is on target to meet our carbon dioxide emission reduction targets. If she reassured us in her opening remarks, then I apologise, but I do not think that there was any reference to that.
The hon. Member for Putney also referred to the windfall which appears to have emerged from the trading scheme. One of the outcomes of how the allowances were allocated in phase I was the windfall profits for the power sector as a result of their increasing prices to consumers in line with the value of the credits allocated to them for free. Is that so? How is it remedied in respect of phase II?
The Carbon Trust has told us that the question of the impact of the European Union emissions trading scheme on the power sector is dominated by the issue of windfall profits. It drew to our attention the fact that in November 2005 the Department of Trade and Industry published a study which estimated that the United Kingdom power sector stood to earn an extra £800 million a year net through phase I as a result of its participation in the scheme.
In 2006, the report of the Carbon Trust gave a figure of €1 billion—£673 million—for 2005. Those figures are contested by the Association of Electricity Producers, but that is hardly a surprise. The profits that have arisen are due in my view to the power companies raising prices to incorporate the market value of all ETS allowances. The majority of those allowances, it would seem, were not purchased on the market but given to them in their original allocations. They were given to them entirely free. It is therefore not unreasonable for hon. Members to seek the Minister’s reassurance that things are different this time.
In my 24-hour search, I noticed that a man called Digby Jones, who, I think, is now a Minister, said when he was director general of the CBI, no doubt in a pleading tone:
“It’s vital the European Commission approves the three per cent increase in allowances proposed by the UK government. Without this extra headroom”—
I take that to mean licence, latitude and do not come at us too hard—
“business would not be able to cope with the more ambitious targets, which result from the increased projections for future emissions announced today...This is vital at a time when companies energy costs”—
poor dears—
“have already increased by 40 per cent this year.”
It would seem that the then Secretary of State for the Environment, Food and Rural Affairs was persuaded by the plea of the then director general of the CBI and gave him some reassurance. Well, that might have reassured him, but it does not reassure me. I think that the power companies, like the big battalions in this country, call all the shots. That is why I feel that this process of parliamentary scrutiny is seriously flawed. It is partly an issue of the time scale and partly because I do not feel adequate for the task—I know, however, that other hon. Members in this place major on this topic and should have had the opportunity to sit on the Committee. Those are the areas that I wanted to raise with regard to reassurance.
The other matter that I want to raise relates to the statutory instrument itself. The hon. Member for Putney touched upon regulation 10, which prompts me to say that I do not understand how that will work in relation to the devolved Administrations. Regulation 10 needs to be read in conjunction with regulation 3, which states:
“The Treasury may...appoint...the Scottish Ministers, the Welsh Ministers or the Department of the Environment in Northern Ireland”.
That is interesting. I am not clear why it does not refer to Northern Ireland Ministers. I would not be so unfair as to suggest that I smell a rat, but I was a little suspicious about why the drafters of the legislation specified Scottish and Welsh Ministers, but not Northern Ireland Ministers, and I would like to be told why they made that distinction between Ministers and the Department of the Environment.
I often find sloppy drafting in provisions relating to Northern Ireland in other delegated legislation Committees in which I have been prevailed upon, or rather persuaded, to make a speech. In one case that I remember the statutory instrument had to be withdrawn because it had been so sloppily drafted. Will the Minster explain why the regulation specifies the Department of the Environment in Northern Ireland, rather than Northern Ireland Ministers?
My second question on that point relates to the extent of the power and discretion that Ministers in the devolved Administrations have to decide not only the conduct of the auction, which is covered by regulation 3, but the allocation of the allowances. Is there a UK strategy, or are the three devolved Administrations being given specific allocations that relate to quantity or apply to some sort of industrial area? That is not clear to me, and I think that it is extremely important that we should be told what the ground rules are for the UK outside England.
I hope that the Minister feels that these are legitimate questions, which she should have been told about this afternoon. Earlier, I referred to the consultees, whom the Minister probably cannot list, and the fact that we need to be told about their findings today if we are expected to approve the regulations. The formulation, “I will write to my hon. Friend”, will not satisfy me, because that is a way of fobbing me off. Ministers try that a great deal and often get away it. In answer to that, I am saying, thus far, no further. I want to be told what the position is with regard to the devolved Administrations, and I would have thought that most of the other issues to which I have referred could be responded to this afternoon.
5.19 pm
Dr. John Pugh (Southport) (LD): It is a privilege to serve under your august and wise chairmanship, Mr. Jones.
I have fewer questions than the hon. Member for Putney. I shall wrap some of her questions into one, which is primarily about auctions. Auctions are referred to throughout the regulations and that is the heading of part 2. However, the regulation of the auction itself, as opposed to the after-effects of it and how payments are to be disposed of when the auction is concluded, is not dealt with extensively in the regulations. Does the Minister anticipate further regulations on the conduct of auctions? If she does not anticipate a statutory instrument such as regulations, does she anticipate a document being published by the Treasury to assist in that matter?
My second question relates to the transfer of excess allowances. Perhaps I am being unduly suspicious, but regulation 9 states that
“when the transfer of excess allowances comes to the account holder’s notice, that account holder must, as soon as reasonably practicable—
(a) give notice to the Environment Agency”.
What will happen if the account holders fail to notice the transfer of excess allowances? That would presumably be an advantage to them. If that is deliberate, it is censurable under regulation 11 on public censure. Could ignorance or feigned ignorance be a defence in those circumstances or will the onus be on the person receiving an excess allowance to own up straight away? Will they be in default if they do not? That question was also put by the hon. Member for Putney.
Thirdly, going over similar territory on disputes, there is a character in the regulations called the independent observer. I think that the Minister will accept that the definition of that role is rather skeletal. He is simply a person not involved in the previous decision-making process. The independent observer has two critical roles: reviewing decisions and overseeing the process of allocations. Like the hon. Lady, I would like more flesh to be put on the bones of that rather skeletal definition. Does the independent observer need to be qualified financially or in environmental audits? Will there be a job description for such people or will they simply need to be independent? We can all claim from time to time to be independent.
I will conclude on a slightly ironic note. The explanatory notes, which as usual do not explain nearly as much as one would want, conclude by saying:
“These regulations provide the framework for allocating Community tradeable emissions allowances in return for payment...The administrative impact of allocations in return for payment will depend on the detailed design of the auction or other allocation method.”
They go on to say that
“no administrative impact in the private sector is foreseen.”
That is a very optimistic view and it may come to sound sadly ironic as the scheme evolves because I suspect that there will be some administrative impact. Even if that is not foreseen by the Treasury, it is probably foreseen in the industrial community.
5.24 pm
Mr. David Hamilton (Midlothian) (Lab): I would like clarification from the Minister. Will the regulations have a detrimental effect on the remainder of the coal industry or on coal-fired power stations? On the administration of the regulations, regulation 10 suggests that this matter will be devolved to the Scottish Parliament, the Welsh Assembly and the Northern Ireland Assembly. There will therefore be a great deal of administration in each of those countries. However, we have heard that there will be a Treasury windfall. If I were in the Scottish Parliament, the Welsh Assembly or the Northern Ireland Assembly and I had to do a substantial amount of increased administration, I would question that money coming in through the Treasury. Will each of those countries get part of the windfall to administer the measure?
I would also like clarification on the independent observer. What role would the independent observer have in respect of the three other devolved Parliaments, which can make their own measures to apply the legislation that we are applying within the UK Parliament? Does he or she have any authority within the devolved Parliaments or do I not understand the position properly?
5.25 pm
Mr. Crispin Blunt (Reigate) (Con): I have a brief question about how the Treasury intends to conduct these auctions. Regulation 3 states:
“The Treasury may—
(a) conduct auctions to allocate allowances, or
(b) appoint the Secretary of State... to conduct auctions to allocate allowances”.
Given the rather unhappy experience of the Treasury exercising direct policy in terms of tax credits, for example, would it be better if that function were carried out by the Departments that can be appointed to do so by the Treasury, rather than by the Treasury itself? What is the Minister’s expectation? Will these auctions be carried out by the Treasury itself or in the normal course of events will it delegate them to the Departments named in the regulations?
5.26 pm
Angela Eagle: I will do my best to answer the questions put by members on both sides of the Committee, but in doing so it is important to remember the observations made by the hon. Member for Southport. This is a mechanism to conduct auctions. It is not about the merits or otherwise of climate change proposals, what we need to be doing to reach our Kyoto targets and beyond, what might be being considered, even as we speak, in the Climate Change Bill Committee, or any of those other areas, fascinating though they are. These regulations merely deal with the mechanics of holding an auction for allowances.
The hon. Member for Putney asked: what is it 7 per cent. of? It is 7 per cent. of all the emission permits that are going to be available. I believe that it is 85 million tonnes for this phase of EU ETS. People need to remember that one unit of emissions-traded carbon is very like another unit of emissions-traded carbon. We are talking about 7 per cent. of the whole.
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