Justine
Greening: I understand the logic for leaving some
percentage for new entrants. Is the Minister saying that, nevertheless,
by the end of that phase she expects that the UK Government will have
auctioned pretty much the full 10 per cent? If new entrants do not want
to come in and take up the additional 3 per cent. will the Government
auction it
anyway?
Angela
Eagle: The hon. Lady asked me questions which I would need
a crystal ball to be able to answer in absolute detail. That question
is another of those. I explained to the Committee that we certainly
agree that it is good in principle to auction as much as possible. In
phase II of EU ETS, we will look to do that. This is a relatively new
process. We have been through phase I, which was essentially a test
phase, and we need a bit of leeway because we simply do not know what
market entrants there may be in future. If the hon. Lady is asking me
to speculate on that, I gracefully decline. However, we can both
imagine instances when new market entrants might come on to the scene
and wish to have access to an allocation of auctioned emissions. We
wish to keep the flexibility to allow that, rather than auctioning
everything at the beginning of what is a five-year phase. I hope that
that answers her question—I suspect that that is the only answer
that I could give her at this
stage. The
hon. Lady went through a series of detailed questions, the answers to
some of which will become clear when we publish the auction scheme.
That can essentially be seen as a contract in which a lot of the
details about the length of the bidding window, the amount of deposits,
time scales and exchange rates will be set out. It is like a detailed
terms and conditions for the auction. We are working on that document,
and hope to have it available as soon as possible. There is no reason
why one would expect to see that level of detail in a statutory
instrument. The auction scheme will be available long before any
auctions of allowances take place, so that all potential market
participants who may be interested in taking part in the auction are
well aware of the
details.
Justine
Greening: That is helpful. I obviously understand that the
Government are working on the details. Will the Minister give us an
idea of timelines? When will the
first auction happen, and when will the more detailed proposals come
out? I understand why every detail would not be in the statutory
instrument.
Angela
Eagle: The Department for Environment, Food and Rural
Affairs is the Department responsible for conducting the auctions and
it has decided to use the Debt Management Office, which sits in the
Treasury and is used to doing auctions. It does a lot of successful
auctions—it is quite good at them—and is au fait with the
technical conditions needed to conduct gilt and other auctions in a
sensible way, as trusted by potential market participants and all the
agents that are responsible for such things.
The Debt
Management Office is working with DEFRA to put most of the flesh on the
bones of the terms and conditions—the auction
scheme—which we hope will be available quite soon. That document
is being worked on and is in reasonable shape, but it is not finished.
Technical discussions are ongoing with the experts to get it absolutely
right. It will certainly be available well before the first auction of
EU ETS allowances of phase II is due. DEFRA says that it
expects the first auction to be conducted by the end of the year. I
suspect that it will be towards the end of the year, rather than
towards the summer. The scheme, with a lot of the answers to the hon.
Lady’s legitimate detailed questions, will be publicly available
well before
then. The
hon. Lady asked about the deposits. They will be set with reference to
the prevailing secondary market price of carbon. There is already
trading in the secondary market and I am told that the price of carbon
there at the moment is €27.5 a tonne, and that 10 million
allowances a day are traded. The Debt Management Office will look at
that as the market deepens and develops, and will take decisions about
the deposits closer to the time of the
auction.
Mr.
Blunt: Is that the price of carbon or carbon dioxide
equivalents?
Angela
Eagle: I understand that they are allowances to
emit—CO 2 allowances. There are other greenhouse gases
that are not traded at the moment.
What is the
purpose of the independent observer? They are there to act as a witness
to reassure participants that auctions are being carried out fairly and
they may be able to produce independent evidence if a participant feels
that it is necessary. They strengthen the auction process and the
integrity of the carbon market and, clearly, they will be independent
of Government. The hon. Member for Southport asked what their
qualifications will be. I would not expect the relevant qualifications
to be put into secondary legislation, but it would not be sensible to
appoint an independent observer who knew nothing about auctions and
expect them to do the job that Her Majesty’s Treasury wishes
them to do. They will be appointed to observe the allocations and
auctions. The
hon. Member for Putney asked about the review. It is there to create an
opportunity for participants to have a review of the decisions made
under the regulations without having to apply for a judicial review. It
is meant to solve disputes, problems or worries without the panoply of
a judicial review, but it does not exclude the possibility of one if
participants are still unhappy. It would not be sensible or beneficial
to try to prevent a judicial review.
I have
answered one of the hon. Member for Putney’s crystal ball
questions, if I may call them that, which was about the 7 per cent. On
her questions about auctioning and Treasury funds, I do not know at the
moment how much money will be made by conducting auctions. We can guess
and look at the current price of carbon on the secondary market, but it
may not be the same when the first auction happens. We do not know what
the price will be in that auction. I am flattered that she thinks that
I have that sort of insight into the future, but I am afraid that I do
not. Clearly, the results of auctions will be public knowledge and she
will then be able to come back to some of the questions about how much
money might be raised. We can discuss what we wish to do with it
then.
Justine
Greening: Can the Minister confirm that public finance and
comprehensive spending review projections do not include any
provisional assessment of likely income from the auction process? I
think that that was what she was saying, but it would be helpful if she
confirmed
it.
Angela
Eagle: Yes, I am saying that. I would be extremely worried
if our review of public expenditure and income were based on money from
an auction that may happen in the future for a carbon price that we
will not know until we get to the end of the year.
My hon.
Friend the Member for Thurrock asked his usual range of questions and
made his usual observations, which I respect, about the nature of
delegated legislation. I do not know whether he is on a crusade never
to be allowed to serve on another statutory instrument Committee; if he
is, it is not working. I always welcome his presence at statutory
instrument and other legislative Committees and at debates on public
accounts and such things. He asked who the consultees were. There were
two consultations; the first, between December last year and March this
year was on the auction design; and the second was on draft
regulations, to see whether people had any comments on the regulations
that we have before us. We sent the questions to all market
participants. I think that there were 1,000 EU ETS operators, and the
drafts were sent to all of them. We got five responses, but we cannot
be faulted for not trying. If there had been any serious worries about
that, we would have heard about them. I rather think that that proves
what the hon. Member for Southport was saying about this being a
standard approach to auctioning as a process, rather than an issue
about what we are auctioning. I hope that that reassures my hon. Friend
the Member for Thurrock.
With regard
to the EU Commission’s views, I can tell my hon. Friend that it
has rejected all other phase II national allocation plans except the
UK’s. It is happy with the UK and believes that we have set an
appropriate cap, and it appears to believe that all other countries in
the EU are setting their caps too high. It now has power under the
directive to ensure that member states do not continue to do so and is
busy exercising that power. The UK, however, is the only member state
whose national allocation was accepted without amendment. I hope that
that gives him some confidence in the seriousness with which we take
that process.
Andrew
Mackinlay: I am pleased I
asked.
Angela
Eagle: I am also glad that my hon. Friend asked. I am
happy to be asked about those issues and pleased to be able to tell the
Committee where we are in that important
process. My
hon. Friend also asked why phase II excludes the trading of aviation
emissions, which is an issue that many of us wish we could resolve
faster than is proving to be the case. We now have agreement to include
aviation in phase III of EU ETS, which is a great step forward, given
that we operate within the framework of the Chicago convention, which
does not permit any taxation of aviation fuel whatsoever in the world.
Indeed, it is illegal to tax aviation fuel under that convention. It is
therefore important that we have an agreement for phase III, which will
begin to include the cost of aviation fuel in EU ETS after 2012-13.
That means that we can begin to tax aviation fuel without having a
detrimental effect on individual countries that might be doing the
right thing but whose aviation trafficking costs will move
detrimentally as a result. That is a big step forward, and although it
might be frustratingly slow for my hon. Friend, it is
progress.
Justine
Greening: When aviation starts to be included, will the
level of emissions be based on outgoing flights as well as incoming
flights at airports in Europe and the UK, or will either one or the
other be taken into
account?
Angela
Eagle: These agreements have to be agreed by all EU
countries that participate in the detail of the decision. For emissions
trading and environment changes in general, there is a qualified
majority. One would have to agree with the 26 other members of the EU
on the details of a scheme, which could be any of those things. I am
not now in a position to anticipate the detail of how that scheme will
work, as the hon. Lady has asked me to do. If we were to be able to
renegotiate the Chicago convention, for example, one would imagine that
we would think about emissions from aviation coming in as well as out,
but it is much harder to do that without change at an international
level. I am looking at you carefully Mr. Jones, as the hon.
Lady is tempting me down a path that I do not think it is advisable for
me to follow any further, as much of that concerns future negotiation.
It is possible to think of a scheme that could do that in either or
both ways, but we are not at the stage where that detail is
available.
Justine
Greening: I should be clear about why I asked. When the
Government conducted their consultation on Heathrow airport and worked
out the CO 2 impact of expanding the airport, they only
included the emissions from outgoing flights. Technically, therefore,
only half of the emissions from the airport were calculated. It is
important to understand how the Government will approach such policy
decisions within the context of the ETS, but I accept that that is a
debate for another
time.
Angela
Eagle: The best thing that we could do on aviation
taxation would be to effect change at a higher level than the EU
agreements because aviation emissions are a worldwide problem and need
to be tackled at the appropriate level. However, we have made progress
in agreeing to include it in phase III of EU ETS.
My hon. Friend
the Member for Thurrock asked about the devolved Administrations. He
asked what the ground rules are for auctioning in the devolved
Administrations. Although environment issues are devolved, the
auctioning of emissions trading allowances is a significant fiscal and
economic measure. Hence, it is a reserved measure. The auctioning
policy in the legislation was prepared in consultation with the
devolved Administrations and officials are working closely together,
but it is not a devolved
issue. My
hon. Friend asked why regulation 10 refers to the Department of the
Environment in Northern Ireland and not Northern Ireland Ministers. The
devolution agreement set down the relevant terminology and this is the
standard method of reference for the Executive in Northern Ireland for
all environmental functions. That is a technical answer and there is
nothing that he should be worried about regarding excluding
access. I
have ranged quite widely to deal with the questions, but we must
remember that these are quite technical regulations that set out the
bones of a structure for auctioning in quite a flexible way as we
develop our plans via DEFRA and the Debt Management Office to hold
auctions for EU ETS. That will happen by the end of the year. I hope
that with those reassurances, Committee members will accept the
regulations.
The
Chairman: The question
is—
Mr.
Hamilton: My hon. Friend the Minister did not answer the
question on how the regulations will affect coal. May I make one
further important point? I know that this is an administrative
exercise, but there are three Administrations outside the UK Parliament
and there will be an unwanted conflict. All I am trying to do is to
avoid that conflict arising. If this agreement is to be administered in
Scotland, Wales and Northern Ireland and that involves a cost, as sure
as night follows day, the Treasury will have to pay that cost to the
Administrations of those countries.
The
Chairman: I apologise to the hon. Gentleman for not seeing
him rise to his
feet.
Angela
Eagle: I also apologise to my hon. Friend. His important
questions got stuck behind one of the many pieces of paper before me.
He asked about the independent observer and I hope that he feels that I
have covered that point. He also asked whether there would be an
adverse effect on coal-fired power stations. The dirtier such power
stations are, the more expensive it will be for them to operate. That
is the point of EU ETS. It will make it economical to use cleaner coal
technology by retrofitting or by new build. Coal-fired power stations
that damage the environment more than other forms of power generation
will pay the polluting costs. It is important to have a properly
diversified energy policy. The idea of EU ETS, as it applies to
coal-fired power stations, is to incentivise the retrofitting and
development of cleaner coal technology to reduce emissions. Emissions
will be priced into decisions about energy
generation. I
also forgot the questions from the hon. Member for Reigate. I apologise
to him. He made a point about direct policy and how awful the Treasury
was at dealing with tax credits. I will not argue on that, although you
know that I would if it were in order, Mr. Jones. As I
explained earlier, the Debt Management Office, which is part of the
Treasury, does auctions regularly and is extremely good at them. It has
been appointed as the agent for doing the auctions by DEFRA. I hope
that the hon. Gentleman will recognise
that. With
those responses, I hope that the Committee will decide to accept the
regulations. Question
put and agreed
to. Resolved, That
the Committee has considered the draft Community Emissions Trading
Scheme (Allocation of Allowances for Payment) Regulations
2008. Committee
rose at ten minutes to Six
o’clock.
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