[Relevant document: European Union document No. 5866/08, Commission Communication, Europe’s climate change opportunity.]

The Chairman: I remind the Committee that we are operating under new procedures with which some of you may not be familiar. Unusually, if I can put it that way, we begin with a member of the European Scrutiny Committee making a brief statement. When it comes to questions to the Minister, Members are now able to ask a series of several questions, or rather supplementary questions on the same topic. If the Minister replies and a Member has a supplementary question, it should be on the related issue. If not, I shall stop you.

Ms Katy Clark (North Ayrshire and Arran) (Lab): Thank you, Mr. Atkinson. I shall speak briefly on why the European Scrutiny Committee has recommended the two documents for debate.

For obvious reasons, the Commission has in recent years produced quite a number of documents on climate change and energy. At the beginning of 2007, it issued a number of communications that identified the crucial need to reduce atmospheric concentration of greenhouse gases. In particular, it suggested that the Community should seek international agreement on a 30 per cent. reduction in such emissions from developed countries by 2020, and that in the meantime it should make an independent commitment to achieve by that date a 20 per cent. reduction through its emissions trading scheme and other policies such as encouraging renewable energy, energy efficiency and the development of new technologies. Those aims were endorsed by the European Council in March 2007, and the Commission has now published the two documents to deal with those matters.

Document No. 5849 would, in line with the European Council’s wishes, set each member state a binding target for the reduction of its greenhouse gas emissions by 2020 in areas that are not covered by the ETS, based on their emissions levels in 2005 and their relative per capita GDP. The ESC felt that the document should be debated because of the important issues involved and the way in which it would address them. Document No. 5862 essentially complements the first document. It relates to those areas that fall within the European ETS and, in effect, proposes a number of significant amendments to that scheme from 2013, which are designed to ensure that it makes the necessary contribution to the Community’s wider emissions reduction targets for 2020. In view of that, the ESC considered that the two documents should be debated, and that it would be sensible for the two documents to be considered together, given their relationship.

Finally, I have been asked to say something about EU document No. 5866, which is another communication produced by the Commission at the same time as the other documents. As the title indicates, it looks in the round at the measures that are necessary to fulfil the Community’s climate change objectives by 2020, including those proposed in the other documents to which I referred. The ESC considers that the further document is relevant to today’s debate, not least because it puts the matter into a more general context. That is all that I have to say on behalf of the ESC.

The Chairman: Thank you. I call the Minister to make an opening statement.

The Minister for the Environment (Mr. Phil Woolas): I thank you, Mr. Atkinson, and I thank my hon. Friend the Member for North Ayrshire and Arran for reporting from the European Scrutiny Committee. It might help this Committee if I point out that the explanatory memorandums to the two documents, which were produced by my Department, are contained in the bundle that Members should have been sent and which are available in the room today.

It might be helpful if, like my hon. Friend, I give a little background to the package that we are debating. The UK Government have welcomed the European Commission’s publication on 23 January of the legislative package of proposals to combat climate change. The proposals are intended to help the European Union to deliver the ambitious 30 per cent. cut in greenhouse gas emissions as part of a global climate change agreement, should such an agreement be reached—I am sure that we in the Committee all hope that it will be. The proposals would also ensure, however, that in the absence of an international agreement, the European Union can meet a unilateral target of a 20 per cent. reduction in greenhouse gas emissions as part of its leadership in, and contribution to, worldwide emissions reduction.

Today, as my hon. Friend said, we are discussing two aspects of the package: the review of the EU emissions trading system, and the Commission’s decision on greenhouse gas effort sharing—how the cake has been distributed around the EU. The EU trading system has been with us for some time; it started in January 2005, and it was the first of its kind in the world. Emissions trading acknowledges that businesses need a price signal for carbon in the market, and it ensures that businesses can take full account of the cost of their carbon emissions, which in turn drives emissions reductions. Trading carbon allowances remains, in our view, the most economically efficient way of achieving greenhouse gas reductions, and as we negotiate a new international climate agreement, which is due in Copenhagen in December 2009, it is important that the EU has in place its internal arrangements for reducing emissions and helps to create a framework for increased action internationally, including, we hope, a global carbon market.

The proposals provide the opportunity to use all that we have learned in the first two phases of the system, and they will make emissions trading a real force in combating dangerous climate change. The problems of phase 1 are well documented, and the European Commission’s intervention and some member states’ national allocation plans in phase 2 have also led us to support the Commission’s proposals to create a central, EU-wide cap on emissions trading allowances, rather than one set by individual member states. It should help to ensure that the overall cap remains tight and represents a level playing field throughout Europe, in the sense that we can compare apples with apples and oranges with oranges, as well as certainty and stability for business.

We also support the greater use of auctioning, which will take place in phase 3 from 2013 onwards. It is consistent with the “polluter pays” principle, and it will heighten incentives to abate emissions and remove the windfall profits that we saw in phase 1. In the Budget, the Chancellor announced that there would be 100 per cent. auctioning for the power generators, and we believe that that is the right level for the UK. We are still assessing auctioning levels for other sectors. The directive proposes bringing into the scheme new industrial gases and sectors, which is sensible, as the more industry that is covered, the more opportunity for abatement there will be. We welcome the Commission’s proposal to link the ETS with other regional, national or sub-national systems as a clear signal that we are serious about building a global carbon market. We welcome also the continued access to project credits from, for example, the clean development mechanism. However, we agree with the Commission that there should be limits on the use of such credits.

There is further work to do, most notably on reassigning auctioning rights, on earmarking funds raised from auctioning and on addressing carbon leakage. On the last issue, the system does not intend to force energy-intensive production outside the EU and into areas where there are no restrictions on emitting gases. Where there is a real risk of carbon leakage, as assessed by sound and robust evidence, the best solution is to provide the industries with an appropriate level of free allowances rather than use a more complicated measure.

I shall briefly outline the effect of greenhouse gas effort sharing and what that means. It concerns the effort levels of individual member states and sets out annual targets for those emissions, as my hon. Friend the Member for North Ayrshire and Arran said, that are not covered by the emissions trading sector. In the greenhouse gas effort sharing proposals, the Commission sets out the framework for meeting a target of 20 per cent. reductions in the absence of an international agreement and provides an automatic mechanism for raising the target to 30 per cent. when we get an international agreement, as I hope we will. We will certainly be aiming for 30 per cent.

The United Kingdom is committed to meeting its fair share of the EU target, but certain issues in the decision need to be considered, which is why I welcome the European Scrutiny Committee’s decision to put the paper before us. The level of project credits available to meet targets will need to be considered closely. We must ensure that the mechanisms are appropriate, benefit the package’s overall aims and are cost-effective, so that we are not cutting off our nose to spite our face.

I look forward to the debate. Outsiders may see it as rather obscure, but I believe that it is perhaps the most important debate on what is recognised by many, including myself, to be the most important issue facing us: dangerous climate change. I am genuinely grateful to our colleagues on the European Scrutiny Committee, with which I correspond at great length and with great frequency because this competency is EU-led. That is the right approach. I look forward to answering hon. Members’ questions. If I cannot, I will write to them with details after the debate. I will move the motion formally at the appropriate point under your direction, Mr. Atkinson.

The Chairman: We now have until half-past 5 for questions. I reiterate that questions should be brief. It is open to Members to ask more than one at my discretion, but they should be related to the original question.

Miss Anne McIntosh (Vale of York) (Con): Welcome to the Chair, Mr. Atkinson. It is a great privilege to serve on this Committee.

In the light of what the Minister and the hon. Member for North Ayrshire and Arran said, what does the Minister anticipate the relationship will be between the UK Climate Change Bill and the European Union emissions trading system? As the Bill will come before this House shortly, it is timely to ask him to clarify how he sees the relationship developing between the two. In the same vein, is he convinced that there will not be two or three separate emissions trading schemes within the United Kingdom for the UK’s constituent parts?

Mr. Woolas: The hon. Lady’s question is pertinent and important. We must be able to explain how the two schemes and sets of targets will intermesh. We will publish a consultation document within the next few weeks on the workings of the ETS. It will be subject to three months’ consultation. If I sound vague on some of the detail, it is not fair to say that that is because we have not taken a view; it is because we genuinely need the consultation. I know that hon. Members will respond positively to that.

We believe that the two frameworks are consistent, and that it is credible to say that although the rules of the European scheme are not yet finalised and the Bill has yet to complete its passage through our Parliament, there is enough flexibility in both for the two schemes to come together on the energy and climate change package. In setting budgets and targets under the UK Bill, the Government will have to take into account the EU-set targets affecting the United Kingdom. It is a cascade down process. The exact nature of those targets will depend, of course, on the outcome of EU-level decisions, as the Commission’s proposals at this stage do not represent a final position. We work with the Commission, other member states and the European Parliament, which is a co-decider in these areas, to ensure an equitable distribution of effort between member states and to identify single economy-wide targets.

Although the proposed EU targets set out the minimum level of effort required of member states, we may go further if we opt to do so. That is the important point. None of the targets should be seen as maximum targets; they are minimum targets. The figures range from 60 to 80 per cent. Sometimes, one gets confused with historical starting points, but if one looks at the figures in the 60 to 80 range and the mid-term targets in the Climate Change Bill, which are 32 to 37 per cent., I think—I see inspiration nod—they are compatible with the targets set out in the proposals on burden sharing in the EU. My hon. Friend the Member for North Ayrshire and Arran mentioned the methodology of calculation, based on emissions and gross domestic product per capita, and if one looks at the burden sharing proposals, one sees that minus-16 per cent., which is the figure for the UK for the non-ETS traded sector, is compatible with the Climate Change Bill.

Another point that I urge the hon. Member for Vale of York to consider—I hope that this reassures her and answers her question—is that, as the Chancellor announced, we will be setting UK carbon budgets from next March, or whenever the Budget is, within the context of that EU package.

Miss McIntosh: I am grateful to the Minister for that reply, as far as it went. Will he also tell us the position regarding the four constituent parts of the UK to put my mind at rest that we are going to have one UK emissions trading scheme? He did not answer that.

The Minister talked about the cost to the UK. President Barroso announced that, in his view, the cost of the EU emissions trading scheme would be €3, or £2.10, a week for every citizen. Can the Minister tell us what the cost per week to the UK taxpayer will be of the initial cost of the UK scheme under the Climate Change Bill?

Mr. Woolas: I apologise to the hon. Lady for failing to answer the second part of her question in my efforts to be helpful on the first part. She referred to my answer “as far as it went”, but I hope that I did not sound evasive. The matter is genuinely open to consultation, and we await the finalisation of the EU package. The one caveat to the second part of her question is that the carbon reduction commitment for medium-sized energy users, which comes into effect in April 2010, will have an internal market and allowance scheme, which will be domestic only. On the question whether the scheme is UK-wide, we are working closely with our colleagues in Edinburgh, Cardiff and Belfast, all of which are signed up to the ETS scheme. The UK is certainly pushing in the same direction on this issue.

I am unable to answer the hon. Lady’s question about cost off the top of my head. If there are any estimates that the Department has done, I shall bring them to her during the Committee, or I shall let her have them in writing. I do not have those figures yet. I suspect that there is early work being done on that, but I do not have a signed-off Government position.

Joan Walley (Stoke-on-Trent, North) (Lab): First, Mr. Atkinson, may I say how pleased I am to be present as a non-member of the Committee? I hope that it is in order for me to ask the Minister questions. I welcome this scrutiny of environmental issues and the work of the European Scrutiny Committee. May I ask how, on the new legislation coming before Parliament, the Minister will be linking in with his right hon. Friend the Secretary of State for Business, Enterprise and Regulatory Reform? One of the issues arising out of the ETS is how we ensure, as far as the economics are concerned, that we are creating a level playing field, as far as possible.

I might rather be asking some detailed questions about the environmental issues, but I have a constituency interest arising from the work of the British Ceramic Confederation, which, with the Department for Environment, Food and Rural Affairs, I believe has meetings in Brussels this Friday. Will the Minister say how he will be liaising with colleagues about the competitiveness issues arising from our acceptance of the European ETS documents in front of us? Further to that—

The Chairman: Order. The hon. Lady can have a second go after the Minister has answered her first question.

Mr. Woolas: I welcome my hon. Friend the Member for Stoke-on-Trent, North for her attendance and her intervention. As ever, she is diligent in working on behalf of her constituents. She has informed me of something that my Department is doing that I did not know about. I suppose that shows the value of scrutiny. Certainly I know now.

The issue of sectors and competitiveness in the carbon cap-and-trade regimes is at the heart of the debate. Phase 3, which we are debating, is due to come into effect at midnight on 31 December 2012. At that time, we all hope, the new post-Kyoto agreement will be in place. Phase 3 will last until 2020, if the document is accepted by the House. As I said, central to that is the issue of sectors and competitiveness and, therefore, of carbon leakage. The debate at the international level about sectors is in its early stages. The major economies meeting that took place in Paris last Thursday and Friday saw a brief discussion, and the previous MEM saw a more in-depth discussion. I would say that we are probably past base camp, but not yet in the foothills of how we will get a global sector agreement as part of the Bali road map. Therefore, the industry to which my hon. Friend referred to—for which her constituency is rightly world famous—will be part of such discussions.

Second is the matter of carbon leakage. It would be folly if, in the name of abating greenhouse gas emissions, we were to create a financial regime that forced our domestic companies to move their operations to countries that do not have emissions caps. That would mean that the environment would not benefit and that our constituents would be made unemployed. As a whole, we have decided that that is not an electorally advantageous strategy, so we have rejected it. That comes to the heart of what the document and the consultation are really about. How does one balance the pure working of a carbon market with access to overseas project credits through the clean development or other yet-to-be-decided mechanisms with ensuring that industry fears—in this case, those of the ceramics industry—are not realised? At what level does one set auctioning, allowances and access to the CDM projects? At what pace does one move? We are conscious of the need to achieve the goals that I have set out and of not cutting off our nose to spite our face.

However, there is another point, which I hope will reassure my hon. Friend. There is an advantage—a challenge, but an advantage—to UK plc in the new regime. How can we ensure that our industries, inventions and sectors can lead the world, accessing and taking advantage of markets that would otherwise not be available to them? As in other sectors, the process in ceramics forms a core part of our discussions. I hope that that reassures my hon. Friend.

Joan Walley: I thank the Minister for that thorough response, which I think will reassure my constituents in Stoke-on-Trent, where, as he rightly says, we have a world-class ceramics industry. A consultation is now in train that will take account of the competitiveness issues that he raised, and I am sure that my industries will be up for taking part in that.

I would like to press the Minister further on the matter of leakage, however, because it is very important that the Government get the balance right. Will he set out how he intends to do that? We could face competition not just from imports from outside the EC, but from different sectors within it. For example, if some sectors get free allowances—I am thinking possibly of concrete or steel—that might be in direct competition with innovative building arrangements being put in place by the ceramics industry, there could be the potential in the EC to distort the market from inside rather than from outside. I would be grateful if he explained a little more about how we can ensure that we address sustainability—how we put the right price on carbon and press forward with innovation, while ensuring that we do not disadvantage existing sectors such as the ceramics industry in Stoke-on-Trent.

Mr. Woolas: My hon. Friend asks a very challenging question that applies to her local sector and others. I can provide some reassurance, but must give a warning as well. The reassurance returns to what I said in my opening remarks about the scheme devised for burden sharing comparing apples with apples. That means that, in the examination of sectors within the EU boundary, if one has a ceramics production plant in, say, Stoke-on-Trent, and another one in, say, Valencia the methods and technologies deployed within those factories must be compared. One must make a fair comparison to ensure that if production moves, it will not create greater emissions. Those issues were looked at when working out the 16 per cent. allocation.

Having said that, my hon. Friend’s point was about competition not within the ceramics industry, but between the ceramics and other sectors. At that stage, one must say that an emissions trading scheme is based fundamentally on science and emissions of CO2 and CO2 equivalents and, therefore, the relative emissions from different sectors are taken into account in the pricing within the ETS system. Those of us who know the sector—not quite as well as my hon. Friend however—know that great advances have been made. We must ensure that those incentives for technological advances are built in, which is why it is crucial to get the balance right from the point of view of UK plc competitive advantage. Furthermore, the baseline dates become all important. Her constituents will want to know what the transferability between phase 2 and phase 3 will mean for them.

Joan Walley: Very briefly, my ongoing concern is that other sectors will get free allowances, but that the ceramics sector will not.

Mr. Woolas: Off the top of my head, I have to say that my hon. Friend’s fears might be borne out in relation to the cement and construction sectors, with which I have had conversations. However, the allocation of free allowances forms part of the balance of the package to encourage reductions. Given that the meeting is on Friday, I undertake to look at the brief—to be perfectly honest, there was something in the box about it—to reassure myself on her point. I cannot see a difficulty, but I might be wrong, particularly in regard to cement.

Steve Webb (Northavon) (LD): I want to pick up on one important area of what the Minister said: the extent to which this is a closed system and the extent to which, within Europe, we can buy in from outside the European Union. He said something that I agreed with, but which seemed at odds with the Department’s policy, when talking about the clean development mechanism and overseas credits. He said that while there was a place for buying in credits and supporting those mechanisms, there had to be a limit. I agree with that, but will he explain the different approach his Department has taken in that case compared with the domestic Climate Change Bill, where the Government fought any limit on the buying in of carbon credits from elsewhere to meet the 60 per cent. target?

Mr. Woolas: I congratulate the hon. Gentleman on his question because it shows that he is following the debate properly and closely. I will try to explain the answer and he may wish to come back to me.

First, we are in the early days. The idea of additionality is very important. How do we ensure that projects outside the regime are genuine reductions in emissions, rather than the production of plants or equipment that have lower emissions than would otherwise have been the case, but which are not contributing to net reductions? In other words, if one were to pay to build wind turbines in Malaysia that replace existing coal-fired power stations in Malaysia, that would clearly be a reduction. However, if they were simply additional wind turbines, would that genuinely be a reduction in greenhouse gas emissions? My Department has published a very interesting paper on the clean development mechanism for international colleagues that is available in the Library, which suggests how we can improve that. The first answer is that we are in the early days.

The second answer is that although the CDM has been criticised quite heavily, we believe that it is basically sound. I will come back to the other points in a moment, but I will just explain this. As I have already mentioned, there is controversy about the assessment of additionality, but we get that from both sides: businesses say that it is too strict and non-governmental organisations say it is too lax.

There has been substantial investment in cheap and large projects. To an extent, that is to be expected as the market seeks out the least-cost abatement opportunities. Some of those have of course been controversial. Hydroelectric dam projects might be a good example. Having said that, we have acted to limit any potential for perverse incentives in the markets. The UK’s view is to support continued improvement in the procedures at international level. We are working on more substantial and concrete improvements in that regard.

We mentioned the Climate Change Bill and the deliberations over it in the other place. The Lords passed an amendment that requires 70 per cent. of the effort required to meet the Bill’s overall targets to come from domestic action. Setting that level is the balancing act that I have been talking about. At the moment, we are considering the implications of that position alongside the other issues that peers voted to include. We are looking at the costs and benefits of setting a limit on the use of international credits in primary legislation. The first point is whether that gives enough flexibility from all our points of view.

The implications of the ability for UK companies to participate freely in the ETS and of the UK’s ability to display leadership in international agreements—a point that my right hon. Friend the Secretary of State is very keen on—are that whatever we do must satisfy the workings of a proper carbon market to the best advantage of the environment and also show that our claim to international leadership is backed up by our actions. In short, the answer to the hon. Gentleman’s question is, “Well spotted and we are thinking about it”, but he does raise an important point.

Mr. Mike Weir (Angus) (SNP): I should like to take the Minister back briefly to carbon leakage. In the papers it says that the Commission will consider in—I think—June 2010 which industries will benefit from that. It is also stated that a recent Commission study found that certain industries would be in line for help. There is mention of cement and lime production, primary steel and aluminium production, and the production of primary container glass and some basic chemicals. However, it has been reported elsewhere that Chancellor Merkel, for example, has been pushing for exemptions for the German automotive industry. Does the Minister have any idea which sectors are likely to be exempt, and, if we are to exempt such sectors as the automobile industry, does the measure have any point?

Mr. Woolas: Again, the question genuinely displays the advantage of debating the issues. The point that the hon. Gentleman makes is extremely important to our industries and to our constituents’ well-being. I read the report in the newspapers of what the German Chancellor, and the French President also, had said. I had a good chortle to myself because as the UK negotiator at the United Nations framework convention on climate change, holier than thou is sometimes an appropriate phrase. More seriously, we then scratched the surface to see what had come about. All member states, within the context of the overall framework, push vested interests on behalf of their own industries.

The answer to the question is aluminium, in the first instance. The aluminium sector is outside at the moment because of how the price of aluminium is set. With carbon leakage, one has to make a judgment as to whether the industry is generally transferable. There are some that are not. The No. 68 bus from Walworth to Westminster is not transferable through carbon leakage; you cannot send the 68 bus to India. The route that is, you can send the bus. Some industries clearly could be transferred. Ceramics has already been mentioned. The German Chancellor was talking about the measurement—I think I am right in saying from memory—of the gram-per-kilometre-travelled emissions of motor cars, and it was perceived that she was arguing a sectoral point, on behalf of the German motor car industry. The issue has not yet been determined for all sectors. I think that aluminium is the only sector that has been put outside for the moment, and part of the rationale for that is that aluminium is perceived as one of the sectors most amenable to a global agreement, given the relatively small number of producers in the world. However, the point that the hon. Gentleman makes is valid and is part of the negotiations.

Mr. Weir: Obviously under the new scheme there will be a global EU cap rather than the 27 individual caps that exist under the present scheme. Will an industry be exempt throughout the EU, or get help throughout the EU, or will individual Governments be able to help individual industries? For example, could the ceramics industry in the UK be given help by the UK Government and a different industry in Germany be given help by the German Government, or would it have to be ceramics throughout the EU?

Mr. Woolas: First, that is subject to the consultation, which should give the hon. Gentleman the reassurance that he is looking for. Secondly, the other change in moving from member state-set national caps to EU-wide centrally set caps is that the cap is calculated by looking at the different sectors, and that is why comparing like with like is so important. Which sectors get special treatment because of the carbon leakage point is a matter for the consultation that I have referred to, and the Commission is also consulting on that. The Commission has proposed criteria for determining which sectors get the special treatment, and we are looking at them as part of our consultation procedures. I hope that that answers the hon. Gentleman’s questions.

Mr. Weir: With respect, I am not sure that it does. Will the Minister say for certain that it will be a sector throughout the EU and that it cannot be divided into individual nations?

Mr. Woolas: Yes, I am sorry. Perhaps I was not clear. That is the method of the calculation. The sector is an EU-wide one and not a national one.

Mr. Nick Hurd (Ruislip-Northwood) (Con): I have two brief questions on the proposed reform of the emissions trading scheme. They follow on from that line of questioning about the proposed European cap and the issue of who decides. The Minister recognises the importance of the scheme because it has, to some degree, been undermined by the element of political risk and the national allocation of caps to date. He appears to welcome the idea of European caps, but beneath the easy words, he knows full well the controversy that is likely to underline it, such as the loss of sovereignty and the loss of national competitiveness. Who will decide the basis of allocation in this brave new world? What will be the basis of the methodology and how public and transparent will it be and to what degree will the Government press for maximum transparency? My second question—

The Chairman: Order. Let the Minister answer the first question.

Mr. Woolas: Mr. Atkinson, I was hoping that you would allow a second question to give me a chance to think of an answer to the first one. A carbon market will not work unless it is based on science and it is transparent. It has to be independently verifiable and independently audited. One cannot play politics with a carbon market. If one does, it will not work, business will lose confidence and the whole thing will be a failure. It is important to recognise that we are talking about two separate issues here. I know that the hon. Gentleman has followed the debate very closely. The burden sharing outside the trading sector, to which our contribution is a minus 16 per cent. reduction, reflects our GDP per capita. I am not making a partisan point here— although I would be more than happy to if you would permit me, Mr. Atkinson—but the reason why our target is tough is because we are comparatively well off. Only Denmark, Ireland and Luxembourg are ahead of us in the allocation of the burden sharing of the non-trading sector. The transparency that the hon. Gentleman is looking for is there because a clear methodology has been determined. All member states are treated equally in that respect.

We recognise the importance of confidence in the market. When one looks at the sectors in the traded section of the ETS itself, one has to form a judgment. Let me use the example of a steel plant, with which hon. Members might be familiar. If one were to compare a high-quality stainless steel plant, such as one that would be found in Sheffield or in the constituency of my hon. Friend the Member for Tyne Bridge, with a traditional rolled steel joint plant in Poland, one would be looking at different technologies and different methodologies of production. Therefore, we could not say that we could make a simple comparison of CO2 equivalent emissions for tons of steel produced. So, one has to have a fair comparison—one that takes into account the output of the product because not all steel is the same. The bartering over the sectors comes about in that calculation. It is there—precisely because in this example we are at the quality end—where this transparency and this debate is very important. The hon. Gentleman is absolutely right that British business needs that assurance, not just because of the competitiveness point that he rightly made, and which my hon. Friend the Member for Stoke-on-Trent, North made on behalf of the ceramics industry, but also because of the credibility of the working of the carbon market. In other words, unless the scheme is based on actual emissions and on an understanding of what the emissions from different productive technologies are, it will not work because people will not buy credits in those sectors. I hope that the hon. Gentleman can be reassured by our policy and our intent. If he is not reassured by just that, I hope that the need for the workings of the market will give him that satisfaction.

Mr. Hurd: I am grateful to the Minister for that. Just to be clear, I am talking specifically about the new rules within, not outside, the emissions trading scheme. I am simply trying to get at the fact that we are moving from a situation that involved a haggle—a negotiation—in which every country was for itself and, ultimately, decided what it was prepared to propose and accept, to a new game in which the new language is about harmony, transparency and a European scheme in which it seems that we will concede some sovereignty and control over the process. That may be right or it may be wrong, but I would like the Minister to be more explicit about who will actually decide. Will it be the Commission, and what will change in terms of the ability of national Governments to determine the final outcome, which will have enormous economic consequences for each country?

Mr. Woolas: To be explicit, the hon. Gentleman is right: the Commission will decide. In that regard, there is an element of bartering sovereignty. The qui pro quo, of course, is access to other people’s markets, and, of course, an ability to ensure that we can move forward as part of the European Union.

The other factor that the hon. Gentleman and I will want to take into account is the relationship between UK plc and the wider world, as well as UK plc and the EU. I am confident that delegating some of the decision making—we are not excluding ourselves from it—and having an EU central cap complements our wider policy as a member of the EU.

Of course, such matters are not unrelated to trade agreements. Our goal is that no tariffs or tariff barriers, positive or negative, should be put in the way of reducing greenhouse gas emissions. I think that it is a good package.

Mr. Hurd: My final question relates to auctions. There is growing consensus about the need for auctions and the need to phase out free allowances, consistent with the principle that the polluter should pay. However, implicit in the documentation supporting this debate is the clear assertion that it is proposed that the UK will receive back less than we pay under the process. The document is explicit about projections that the UK will end up paying more than it receives back. Given that we are talking about an increased cost on business, can the Minister assure me that the British Government do not support that situation?

Finally, can the Minister confirm whether the Government support the assumption in the documentation that a proportion of the proceeds from auctions will be ring-fenced for environmental considerations? That would go counter to the policy of every British Treasury that I have known. What is the UK Government’s position on that?

Mr. Woolas: The hon. Gentleman is adroit at sneaking in a bombshell in the final sentence. As he knows, that matter is way outside my competency. Perhaps he is glad that it is.

As we have stated, the UK’s policy is to have 100 per cent. auctioning for the ETS in the long term. We believe that full auctioning should be the goal for the EU ETS, as it is the most efficient allocation method and reinforces the incentives. However, before a time scale can be attached, the effect of such a move on carbon leakage, which we discussed previously, must be taken into account.

As the hon. Gentleman would expect, we are opposing the proposal that we should pay more, or that 10 per cent. should go away from us. The answer to the last question is that it is outside my competency.

Mr. Christopher Chope (Christchurch) (Con): May I ask the Minister about the legally binding targets for member states in relation to the share of renewables in the final energy demand for 2020? My understanding is that the French managed to secure a definition of renewables for those purposes that included nuclear-generated electricity, which was the basis on which they signed up to the mandatory targets. Will the Minister say how much of the 23 per cent. share in relation to France, which is set out on page 56 of the bundle, and the 15 per cent. share in relation to the UK represents nuclear energy?

Mr. Woolas: On the first point, nuclear is not included in renewables, and that is not the basis of the French agreement.

On the second point, I am afraid that the hon. Gentleman has me at a disadvantage. Is he talking about the burden-sharing allocation outside the emissions trading scheme, or have I misunderstood his question?

Mr. Chope: Far be it from me to say that the Minister has got it wrong, but the document—I did not bring it with me because I assumed that he would have it—which goes back to spring last year, makes it clear, as a note from the Library confirms, that the French were prepared to sign up to the mandatory targets for renewables only if they were allowed to include nuclear energy in that target. The Minister says that I am wrong, and I must defer to what he says in the context of this Committee. The UK’s target is 15 per cent., and the Minister says that that excludes any contribution from nuclear, so how does he believe that that will ever be achieved by 2020?

Mr. Woolas: I thank the hon. Gentleman for clarification of his second question. On the first point, my understanding is as I said, and perhaps we could enter correspondence about that. I am sure that the French pressed for that, and I am sure that presentational matters in French policy-making pressed that point.

I do not want to duck the second question, and I take collective responsibility, but renewables energy policy is a lead matter for the Department for Business, Enterprise and Regulatory Reform, not for my Department, so I cannot answer the question in detail. I point the hon. Gentleman to the document that will be published in the summer on renewables strategy. Clearly, the United Kingdom has some catching up to do in relation to other European countries. The baselines are taken into account, and the cap for phase 3 is based on 2005, moving forward to 2020, but the overall reductions are based on 1990. The hon. Gentleman asked a fair question, but I am afraid that he will have to wait for me and my colleagues to provide the detailed answer that he is looking for.

Miss McIntosh: On the basis of clarity and transparency, and giving UK companies time to decide, the Government in the other place were keen not to express a limit on international credits, but that leaves an open door for UK companies to buy their way out of pollution by having limitless—80 per cent. or 90 per cent.— international credits. We are not doing what we were hoping to do through the Climate Change Bill and the European emissions trading scheme by reducing pollution in this country. Is the Minister saying that he will consider that, and present his findings to this House during our proceedings on the Bill? It would be helpful to know that.

Mr. Woolas: That is exactly what I am saying.

To clarify the matter for the Committee, I shall make two points. First, there is a difference between what is in primary legislation and what is Government policy. One needs to have some flexibility on these things—any Government needs that, which was part of our argument in the other place. The following is the second more principled point for us to debate as we go forward. If the prime objective is to reduce greenhouse gas emissions, because by definition emissions affect the global climate, from the point of view of the planet it does not matter where emission reductions take place. Therefore from a purist point of view, one would have 100 per cent. access to overseas credit. I take the personal view that the development goals could benefit from such an approach and that developing countries can achieve increased prosperity from a liquid working of the carbon markets. There is tremendous opportunity in such an approach, which is a view powerfully shared by many in the G77 countries.

Having said that, we also need to recognise our historic responsibility as an industrialised country and within that address the point made by my hon. Friend the Member for Stoke-on-Trent, North about the ceramics industry. A further point is that we should recognise that part of our goal is to incentivise advanced clean technologies in the different sectors that are most likely to have developed in industrialised countries, although not exclusively in those countries—indeed, far from it in the modern world. Through the carbon market, the clean development mechanism, and public sector arrangements those technologies can then be used for a technology transfer to other countries. That would ensure both the reduction in emissions that the hon. Member for Vale of York and I are seeking and the transfer of technology that we are all seeking. It would also ensure the prosperity of our country and other countries.

The answer to the hon. Lady’s question is yes we are, of course, looking at that. What is in primary legislation and what is available for flexibility to move forward is a separate matter. We accept—and the Secretary of State has made this point—that there needs to be a limit and elsewhere in the Bill we made a similar proposal. That is a matter for consideration and I am grateful to her for asking the question. I am sure that we will debate the matter—perhaps in this room with you in the Chair, Mr. Atkinson.

Miss McIntosh rose—

The Chairman: Order. Before the hon. Lady asks another question, I have something up my sleeve called Standing Order No. 119, which allows questions to continue a little after the half-past 5 deadline.

Miss McIntosh: Rather than delay things, I have just one final question. In document 5862 there is a reference to subsidiarity. It is on page 402 of the bundle—perhaps another throw away question is whether it is a sustainable way of conducting environmental business to have a document of 683 pages and numerous copies made. However, we will not go there because I cannot work off a computer and I do not wish to bring my computer in with me. While the Minister is searching for his place, page 402 of the bundle, which is a good two thirds of the way through, seems to indicate that there are sectoral differences. Following on from the question of my hon. Friend the Member for Ruislip-Northwood, there would be concern if this was a harmonisation of the process—that was not my initial understanding and I am slightly alarmed by the Minister’s response. Harmonisation seems to be the path down which the Government and the EU are going, rather than having our own scheme, as I alluded to in my original question. Can the Minister clarify that matter?

Mr. Woolas: Mr. Atkinson, I am grateful to you for pointing out Standing Order No.117.

The Chairman: No, 119.

Mr. Woolas: As a former member of the Whips office, it is a new one to me.

Tony Cunningham (Workington) (Lab): It has always been there.

Mr. Woolas: Has it? I am grateful to the hon. Lady for pointing out the page number. At DEFRA we use double-sided printing and recyclable paper. That is why when I have to sign all my letters to the hon. Lady it always takes me longer than I allocate time for, because there are always more letters in the bundle than one would imagine as they are on two sides. I have got that off my chest and on the record.

Within the ETS, the cap of 1,720 million tonnes of CO2 equivalent by 2020, which we will reach incrementally by reducing at 1.74 per cent. each year from 2012 onward, is based on an analysis of sectors. That sector is an EU sector, not a UK one, but in the calculations, which I hope reassures the hon. Lady, the comparisons that have been made within those sectors have been done on as fair a basis as is possible in the real world, recognising the differences in technologies that exist. To confirm, it is an EU system and I am not trying to hide that.

Motion made, and question proposed,

Miss McIntosh: May I welcome this debate and take this opportunity to thank the hon. Member for North Ayrshire and Arran for clarifying the documents and the purpose of the debate? I also thank the Minister for constantly replying so forcefully to the correspondence that I enjoy with him. I hate to tell him that this will continue.

The Conservative party welcomes the European Union aim—aspiration? target?—of the 20 per cent. reduction in greenhouse emissions by 2020 and we welcome the further enhancement of the EU emissions trading scheme. The drafts before us today serve as a timely reminder of what a mountain we have to climb in order to meet our targets. The Government have talked a great deal about climate change, but to be fair we have not seen a lot of action. There is the Climate Change Bill, which started in the House of Lords, and we welcome it. Perhaps the Minister will take this opportunity to tell us when our anticipation will be satisfied and the Bill will reach the floor of the House. I will allow him to intervene if he has some good news for us. Perhaps he can inform us at the end of this debate.

I pledged our support for the targets and the Government obviously support the targets of 20 per cent. or 30 per cent. if an international agreement is reached, but I ask the Minister to be realistic. UK CO2 emissions have actually risen since 1997, from 548 million tonnes per annum in 1997, to 554.5 million tonnes in 2006, which is probably the last year for which the figures are available. In five of the past 10 years, CO2 emissions have risen. The UK will only meet our Kyoto reduction targets of 12.5 per cent. below the 1990 levels by 2012 because the move forward was such under the Conservative Government of the 1990s—the dash for gas.

The dash for gas resulted in a reduction of the UK’s CO2 emissions from over 590 million tonnes in 1991 to a low of 540 million tonnes in 1999. The Minister may wish to commend the Conservative policy in the 1990s, which meant that the UK emitted 50 million tonnes less CO2 in 1999 than in 1990. How does he square the circle that his Government are signing up to the EU targets and introducing a Climate Change Bill—we do not know when—but are simultaneously sitting over a system that is approving the construction of a new, unabated coal power plant at Kingsnorth? How can the Government ask the British people to make the effort to recycle more, which they appear willing to do, or to use low-energy light bulbs, when the Government are happy to allow a new coal power station to be built that will emit millions of tonnes of CO2 into the atmosphere a year? What example does that set to the nations in the developing world, to which the Minister alluded in responding to one of my questions? We are asking them to develop cleanly, using new clean technologies. Should we not say “Do as we do,” rather than “Do as we say, not as we do,” as he seems to be suggesting? That is the message that the Government want to put out, but I humbly submit that it is not good enough.

When my right hon. Friend the Leader of the Opposition was in China in December, he declared that a Conservative Government would not allow any new coal power stations to be built unless carbon capture and storage technology could be applied from the outset. We look to that kind of leadership, and we believe that that is what is needed alongside the Climate Change Bill targets and the EU emissions reduction targets that we are discussing.

Steve Webb: Will the hon. Lady clarify what her party leader said in the promise that she just mentioned? Is she saying that Kingsnorth would never be allowed to operate unless the carbon was captured, or simply that there would have to be some date in the future at which he could be confident that it would be captured, which is obviously a very different proposition? Which is it?

Miss McIntosh: I do not have his speech in front of me, but I have done a placement with BP under the Industry and Parliament Trust fellowship scheme, and I know that BP is committed to carbon capture and storage technology. We are saying that that should be available from the outset, and we are disappointed by the Government. I shall give the hon. Gentleman a written response, as it is an important point.

To revert to the point made by my hon. Friend the Member for Christchurch, it is our understanding that France is pursuing the line of inquiry on nuclear power. Do the Government view that as wrong in principle, or are they minded to support it? I did not quite catch his sotto voce comment in English, but most of the energy provided by EDF in this country comes from nuclear renewables, and that raises the issue.

The Conservative party fully supports efforts to enhance the emissions trading scheme and make it what it was designed to be at the outset: a mechanism for emissions abatement. A move towards 100 per cent. auctioning to third parties, to which the Minister alluded, and the inclusion of aviation, which we support, are positive developments, and we support them both. However, it is of some concern to us that the Government seem to consider the emissions trading scheme in itself to be the be-all and end-all of climate change policy. In an earlier question, I asked what the relationship between the Government’s Climate Change Bill and the emissions trading scheme was meant to be. It is considered the be-all and end-all almost to the point that there is unwillingness to move on other emissions reduction policies out of a fear of undermining the ETS. Perhaps he could clarify our understanding of that.

The Minister mentioned the role that his colleagues in the Department for Business, Enterprise and Regulatory Reform will play. When the Secretary of State for Business, Enterprise and Regulatory Reform moved to water down the UK’s commitment to the EU’s target of 20 per cent. renewables by 2020, he used the sanctity of the ETS as an excuse. We urge the Government to remember that the emissions trading scheme is a means to an end. That end is to reduce pollution. In particular, I urge him to aim to reduce pollution primarily in this country. I heard what he said about developing countries, and I do not entirely disagree, but surely we must put the issue to our electors, who will pick up the cost as consumers, and to our industry, which will have to meet the costs and perhaps lose a competitive edge, so that the emissions trading scheme is a means to an end and not an end in itself.

The measures contained in the draft directive being debated today go a significant way towards achieving that emissions reduction, so I pledge our support for it. Perhaps, however, it would be opportune to raise some further matters with the Minister. What are his Government doing to ensure that the profits—he referred to them as windfall profits—that the UK energy companies are making through the free allocation of the carbon credits in phase 2 of the ETS, which are estimated to be in the region of nearly £9 billion, are used to reinvest in low-carbon technologies and to relieve energy poverty? It would be useful if he collaborated on that and show us what is being done not only in the Department for Environment, Food and Rural Affairs, in so far as his Department deals with that, but in the Department that deals with other aspects of energy poverty.

Also, how much money do the Government expect to raise from the auction of carbon credits in the third phase of the ETS? How much of that money will be spent on climate change adaptation in Britain and the developing world, particularly on research and development for low-carbon technologies? How does the Minister intend to protect British businesses that have legitimate concerns about carbon leakage from beyond the EU—that was alluded to in some of the questions. Industries such as aluminium and cement will face competition from producers outside the ETS, although that is not intended to detract from what the hon. Member for Stoke-on-Trent, North said about the ceramic industries, but there are other industries as well.

Finally, 70 per cent. of the effort in reducing the UK emissions in the ETS is to meet emission reduction target criteria for climate change. However, if that happens in the UK, either up to 20 per cent. by 2020 or 30 per cent. if we have a global scheme, could the Minister tell us at what stage will he define that as Government policy and come forward with an amendment to the Climate Change Bill? Will we be able to have some guidance on that so that we can go out and discuss it with businesses ourselves? We must ensure that we lock in the high-carbon infrastructure in the economy and be realistic that if the carbon price goes up it will be a very expensive exercise.

With regard to renewable sources in Europe, particularly wind, wave and tidal power, this country should be on a par with a Saudi Arabia of renewables. Instead, we are wallowing second from the last in the EU renewables league table, ahead only of Malta, so perhaps I could throw down that challenge to the Minister. This has been a good opportunity to discuss these Commission communications, and I hope that I have been able to do them justice. I look forward to the Minister’s reply.

Steve Webb: Thank you, Mr. Atkinson. I am taking medication at the moment, and before I came to the Committee I took a pill that said, “May cause drowsiness.” However, it did not say that scrutiny of greenhouse gas emissions legislation was affected. In fact, I have found the debate surprisingly stimulating, so I am still just about following the proceedings.

With regard to the big picture and what the regulations are about, the Liberal Democrats very much support the move to an overall EU-wide cap. That has to be the point of the exercise, and the cap must then gradually be brought down. Within the trading sector, marking mechanisms should allocate that within the EU. I understand the case that has been made that particular sectors require particular treatment—I am always slightly nervous about going too far down that route, because as the Minster implied, every country has its own favoured industries. If the sum of the parts does not solve the problem, the entire exercise is redundant. For example, we will not have a German car industry if half of the continent is under water. We must not lose sight of the big picture, while recognising some of the special local factors for particular industries in particular countries. Some of our concerns about the Government’s approach to the EU ETS, reflected in these documents, are that while the Government talk about total auctioning of permits as a long-term goal, we are taking a long time to get there. I cannot see why we should not have gone to full auctioning much sooner, and I am not convinced about the argument for the phasing in of full auctioning in some of the sectors where that process is going on. It would be interesting to hear why the Minister thinks that handing out permissions to pollute for years to come is an effective climate change strategy—it seems to me that we should just get on with it. Of course, the great bonus is that revenue comes from those permits. With no disrespect to the Minister, it is above his pay grade—and mine—to say what will happen to the money post-2012, but there is a key issue about the 2008-2012 windfall, which the hon. Member for Vale of York referred to. We have heard that Ofgem puts the value at £9 billion; unsurprisingly, the industry puts it rather lower but there is a golden opportunity to use it to alleviate fuel poverty, improve energy efficiency and make progress on things such as carbon capture, which we have not talked about much this afternoon but which is central.

In wrapping up my comments I would like to take the Minister back to the short question that I asked him about caps on international trade—something subsequently followed up by the hon. Lady. Can we take it that when the Government drafted the Climate Change Bill, they envisaged the potential for 100 per cent. import—that was a theoretical possibility? In his response, the Minister said that the balance is about where one draws the cap for imports, it is a nuanced balanced decision that implies something other than 100 per cent. There is an acceptance in principle of a cap and the Minister explicitly said that within the EU ETS context he accepts the principle of a cap. I hope that the inspiration he is getting is not as it appears; my worry is that the Government will try to remove from the Climate Change Bill the cap that their lordships imposed on the domestic carbon account and that would be mistaken.

The Minister said that, “A carbon reduction is a carbon reduction as far as the planet goes; it does not matter”. There is a sense in which that is true, but a lot of senses in which it is not. The Minster talked about showing national leadership and righting some of the historic wrongs. From all the CO2 that went up there 20 years ago and is about to do damage that we cannot do any more about, a good proportion comes from the developed world—the United States, ourselves and others. That puts a particular onus on us to take our fair share of the difficult choices and lock into a low-carbon economy. We should be doing that anyway and, as the Minister said, it has the advantage of giving us a whole export market for our low-carbon way of doing things. For all those reasons, I do not think that where the carbon sale comes from is a neutral matter, and I hope that the Minister will accept that.

Mr. Weir: I would like to make a few brief points. I see that generally we are in favour of the EU emissions trading scheme. Although there have been obvious and well-documented problems for stages one and two, stage three seems to take it to a level where it may have a beneficial impact. Earlier, I asked the Minister questions about carbon leakage and it is still an area about which I am concerned. I listened to what the Minister had to say about the sectoral way in which it was being dealt with, and it seems to me that there must be a tight definition of which sectors are exempt from emissions trading. If we get to the stage where major industries, such as the automobile industry, would become exempt, it is frankly not worth having the scheme as that would punch huge holes in it. As I understand from the papers, a final decision on such things will be made in June 2010 before coming in in 2012. The Minister must be aware of that and fight the corner for which industries are to be exempt, and to ensure that the scheme is not so full of holes that it becomes meaningless. That must be done across borders, Europe and the world.

The Carbon Trust produced a report on EU ETS impacts on profitability and trade. It made the point that it will have negligible impact on international competitors in more than 90 per cent. of UK manufacturing activities, although, of course, that means that there will be an impact of 10 per cent, and how we deal with that will be important. None the less, I am sure that we all agree that we have to cut emissions and that competition is important in that respect.

I wish to draw attention briefly to two other aspects. The European document refers to biofuels, which have become extremely controversial. It states on page 48:

Since that was passed, the whole issue of biofuels has blown up and become enmeshed with food price rises in various parts of the world. I say in passing that I well remember that, when the Government were considering their renewable transport fuel obligation, I was inundated with postcards and letters demanding that I support it. Now I am being inundated with postcards and letters—basically from the same people and organisations—demanding that I get rid of it. That illustrates the serious point that we must be careful what we are doing.

I urge the Minister not to have a knee-jerk reaction and abandon the idea of biofuels. Although they are not the answer, they could be part of it particularly with regard to second-generation biofuels that come from wood and suchlike, rather than food crops. I find the argument that, if American farmers were not growing crops for biofuels, we would suddenly feed the starving of the third world rather simplistic.

Aviation is a matter on which there is great movement, particularly given the Climate Change Bill and the need for a cap on aviation. As I understand the proposal under the ETS scheme, aviation will come in from 2013 and, at that point, 83 per cent. of free allocation will go down to 0 per cent. by 2020. There will be a seven-year run-in. However, I am not clear how it will work within an EU context. We have recently entered into an open skies agreement with the United States, which will lead presumably to a large increase in transatlantic aviation to all parts of the world. Many planes will be taking off from the EU and going to United States and elsewhere, and many will be flying within the EU. Will my point about aviation apply to international flights taking off from the EU or only to flights within the EU? It is important to make such a distinction because even in areas of Scotland, lifeline aviation services are vital for island communities. We must take that on board in the general picture of things.

I should like to receive a reassurance from the Minister that there will be an exemption for lifeline services to our island communities. I wish also to know whether flying within the EU will be subject to such matters, but flying from the EU to international destinations or from international destinations to the EU will not be affected. Will European airlines only be affected, but not American airlines? I appreciate that such issues are detailed, but it is important to get them right.

Miss McIntosh: Will the hon. Gentleman explain his party’s position? Surely all flights into and out of European airports will be affected. While I have some sympathy because not far from the Vale of York, Teesside airport is struggling to maintain the flying service to Heathrow, it does pollute and there are train services. I would be interested to hear the Minister’s reply.

Mr. Weir: I am sorry to tell the hon. Lady that there is no train service from Stornoway to Glasgow, for example—[ Interruption. ] There is a large bit of water in between.

Miss McIntosh: Inverness?

Mr. Weir: When I talk about lifeline services, I am talking about communities—I do not think that York to Heathrow is necessarily a lifeline service. Perhaps a service to Inverness is, but it depends on the service. There are different airports. I am really talking about services such as Stornoway to Glasgow or Kirkwall to Inverness. There is no alternative means of transport for such services. I appreciate that there is a train journey—the train journey from Wick to London is somewhat lengthy, much more than York to London, but we are not talking about that.

I appreciate and understand what the hon. Lady is saying and I accept that they are polluting and internal flights should be subject to the measure, but certain lifeline flights must be excepted: I am really talking exclusively about highlands and islands flights. I do not believe that internal flights within the UK should necessarily be exempt from the measure, but my point is that some should. I am also trying to get the Minister to say what the implication is for international flights. What is the position regarding international flights? There is a difference between EU airlines and those coming into the EU.

Finally, I noted the point that was made about the position of nuclear and renewables. When the Minister for Energy was before the Business, Enterprise and Regulatory Reform Committee, he specifically said that nuclear was not renewable in the measure. That is important. He was asked that question specifically when we were discussing the UK’s energy needs.

Mr. Chope: In the short time that I was out of the Committee, I was able to check up on the notes that I received from the Library. The note states:

Mr. Weir: I was not aware that that is the case—I am very surprised, because it contradicts what the Minister for Energy told the BERR Committee and what the Minister said earlier. That must be clarified, because the inclusion of nuclear makes a huge difference to the efficacy of renewables target. It might be accepted that nuclear is low carbon, but there is no way that it could be classed as renewable.

Mr. Chope: The origin of this, which might seem to be an anomaly, is the fact that the French, who generate an enormous amount of electricity from nuclear, insisted that if there was going to be a mandatory target, nuclear-generated electricity must be deemed to count against a renewable target.

Mr. Weir: I do not know that that is the case—it was not my understanding of the definition of low carbon, which is different from the definition of renewables. If the hon. Gentleman is correct, it would totally change my view of the UK’s renewable obligation and, indeed, that of other countries, which is a serious matter.

I mentioned carbon capture and storage, on which I believe there is to be a debate within the next few weeks. It is potentially a hugely important technology, particularly in the North sea and in old coal mines in the firth of Forth. Both ScottishPower and BP are very interested in the technology, even though it is probably finite. It is possibly an intermediate, if important, technology to take us forward to a renewable future.

In closing, we are generally supportive of what is being done here. As I have mentioned, there are caveats to that and we have some concerns about how it will work in practice. I appreciate that we are some years away and that things still have to be ironed out. What the Minister said about the UK doing so well in having 16 per cent. reductions was interesting. The only countries with greater reductions were Denmark, Ireland and Luxemburg, which just happen to be small, independent European countries. I think that there is a lesson for Scotland in that.

Mr. Chope: I apologise for having been away from the Committee for a short time, but it was in order to ascertain whether my recollection of the note that I received from the Library was correct. With some help from the Library and my hard-working secretary, I have been able to get a copy of the original document. I was not able to get the supplementary report that cited the agreement at the behest of the French in the spring of 2007, which ensured that French nuclear electricity could count against their renewable target. As the Library note makes clear, UK generated nuclear electricity can also count against our renewable target.

Without being too hard on the Minister, because this is not his direct responsibility, this point shows that a lack of intellectual rigour is being applied to this subject by the Government. The Minister is not the first person to have been surprised at this. I can understand why some people would say that nuclear energy is not renewable. However, if there is to be a renewable target and the EU decides that that target can be met with nuclear energy, what is the purpose of this country burdening itself with an enormous number of windmills, both on land and at sea, in order to meet a target that could easily be met by increasing our nuclear generation?

Miss McIntosh: May I take my right hon. Friend—

Mr. Chope: No, not yet.

Miss McIntosh: My hon. Friend. Well, it is only a matter of time. He is a very eminent Committee Chairman in his own right. May I take him down this path a little further? It always tends to be the beautiful hilly areas, such as parts of the Vale of York and north Yorkshire, that attract these wind farms or, in the case of Scotland, the hydrodams or whatever we call them.

The Chairman: Order. Will the hon. Lady address her remarks to the Chair? That is not for my purposes, but it helps Hansard and the broadcasters.

Miss McIntosh: Mr. Atkinson, if the Minister was tempted down this path and looks at carbon as the main polluter, there is some attraction to what my hon. Friend is saying. I wonder if he will take that on board and press the Minister further.

Mr. Chope: I am grateful for the intervention. I will not press the Minister any further because the information before him is not the full picture. What is important is that the issue of meeting targets should be left as much as possible to the discretion of individual countries. The UK has a very prescriptive target for the amount of biofuel that we must use. A few years ago people would not have said this, but in retrospect they will see that it was a big mistake to sign up to the EU requirements on having a particular percentage of transport fuel coming from biofuels. That is because of the damage that that can do to other aspects of the environment and the perverse incentives that have developed as a result.

The same thing is happening in relation to renewables. People say, “Why do we have to have all these windmills in order to meet our renewables obligations?” However, we do not need them to meet our renewables obligations under EU law, for the reasons that I have indicated. This country could easily legislate that nuclear generation can satisfy the renewables obligation. The Government have so far resisted that because they think that it might encourage more nuclear generation. I thought that it was the Government’s policy to have clean nuclear generation and I congratulate them for having come off the fence on that issue. This little episode shows that the subject matter is much more complicated than meets the eye. I must put on record my concern that we are talking about allocations before we get into a full open market auctioning system for credits of one sort or another, under the ETS.

The hon. Member for Stoke-on-Trent, North expressed quietly but effectively the concerns of the ceramics industry in Stoke-on-Trent. We do not have a clear picture as to the full implications for British industry. Many people, including myself, believe that we are effectively going to be exporting manufacturing jobs to other countries. The fact that it is described not as exporting jobs, but as carbon leakage, confirms the desire of some people in this debate to try to distort the reality by using such language, which is not comprehensible to people outside. If we say to people in Stoke-on-Trent, “Your job will be lost as a result of this”, they understand that. If we say, “We are worried about carbon leakage”, I do not think that they will immediately understand it and take to the streets, as the hon. Lady is encouraging her constituents to do if the Minister fails in his negotiations at some EU committee on Friday.

I am not a member of this Committee, but I am interested in the whole debate and I am worried about the way in which it has become trendy to argue in favour of CO2 reductions in the name of reducing global warming without really thinking through the consequences and the alternatives. Mitigation and adaptation measures may often be more cost effective. The bundle of documents in front of us is inadequate because they do not apply intellectual rigour to the issue of whether, instead of spending a lot of money on tying ourselves down with these targets, we might not be better off adapting to any changes in the climate.

I read with delight, as I am sure that you will have done, Mr. Atkinson, the book by Lord Lawson of Blaby. I do not think that there is a better example of intellectual rigour exemplified in the printed word. Lord Lawson and others are putting the argument, albeit somewhat late in the day, because up until now people have not been listening. But the mood out there is changing, partly because of the economic climate. People can see that the debate is not about climate change, but whether their taxes will go up, whether the costs of the energy that they need to heat to their homes will go up, and whether they will be able to get money to pay for flood prevention, which is necessary not because of climate change but simply because of climate.

We have always had storms and changes in the climate in this country. People are obsessed by the weather in the United Kingdom because it is so unpredictable and changeable. People like myself also enjoy looking at our barometers regularly because they always seems to be on “change”. We should be very nervous about signing up to the package that we are considering.

I do not think that the Minister has addressed the first question that my hon. Friend the Member for Vale of York put to him about how the targets we are talking about fit in with those set out in the Government’s Climate Change Bill. I expected him to be able to give a succinct and clear answer to that, but I fear that we got a bit of fudge and confusion. This is in a sense a precursor to what I anticipate will be an equally vigorous and obviously longer debate on the Climate Change Bill when it comes before this House for its Second Reading and Committee stage.

I think that I am not alone among an increasing number of people who would regard themselves as sceptical about whether we as a country are doing ourselves justice in loading our economy with additional burdens that will affect our global competitiveness. If these emission trading schemes took root together with the bizarre clean development mechanisms for overseas investment, it could open up a whole opportunity for scams and fraud and the ripping off of the taxpayer. I am certainly not happy about that. I am grateful to have the opportunity to put some of my preliminary views on record.

Mr. Woolas: Thank you for chairing these deliberations, Mr. Atkinson. I am conscious of the possibility of a Division and so I will try to be brief and answer the points that have been made. First, I am grateful to the hon. Members for Vale of York, for Northavon and for Angus for confirming their support for the proposals that the European Scrutiny Committee has put before us. That is very important. It is particularly important to me in the international arena that I can carry the support of the United Kingdom, the constituent parts and the political parties.

I want to turn briefly to the remarks of the hon. Member for Christchurch in his coming-out speech on climate change. First, let me address the nuclear point. I am happy to confirm that his recollection is accurate. Nuclear energy is not included in renewables within either UK Government or European Union and Commission definitions of renewables. What happened is that the French argued that it should be. Secondly, France and other countries argued that the proportion of non-fossil fuel energy generation should be taken into account in the allocation of the burdens because it is the starting point. France has around 70 to 80 per cent. nuclear. If it had the same target for the reduction of carbon emissions as Poland, which is 90 per cent. coal, it would clearly argue that it was unfair. Nuclear energy was taken into account in that regard, but it is not counted as a renewable. Of course, it is a contribution to the other targets. There are three 20 per cent. targets: 20 per cent. renewables is just one of them.

The hon. Gentleman accused me of not answering succinctly the question of how I match UK policy and targets and EU targets. The answer, succinctly, is that 32 per cent. is more than 20 per cent. In the UK Climate Change Bill we set ourselves a 2020 target in the range of 32 to 37 per cent. That is more than 20 per cent. and therefore the policies are not contradictory.

Mr. Chope: I am grateful to the Minister for giving way. I am delighted that he has answered that point so succinctly because it enables me to put on record that I think that it is an unnecessarily hair-shirt approach. We are going twice as far as we need to go to meet our EU obligations.

Mr. Woolas: That brings us to the nub of the point. The hon. Gentleman is failing to read and understand the Stern report. If he sees this as a hair shirt and that this is a cost that we have to undertake in order to reduce carbon, he is missing the point. The cost is not mitigated. That is where the cost lies. Of course, he then says that he is worried that it is just a scheme that will export British jobs. The green industrial revolution will create jobs in this country and will provide, through our technologies, the opportunity to sell our goods and products overseas to our benefit and that of the developing world. That is the point, but it is a debate way outside the remit of the two documents.

The hon. Gentleman said that he feared that the matter was trendy and that we have not applied intellectual rigour, but I shall not rise to that bait. If he wishes to join the group of people who are sceptical—some would say cynical—about the reality of man-made climate change, he would go against the advice of the scientists who have provided reports through the intergovernmental panel on climate change and domestically.

Miss McIntosh: Before the Minister leaves my hon. Friend’s questions, will he take this opportunity to provide clarification? The Government’s outgoing chief scientist, David King, said that the greatest threat facing the world is climate change. The incoming chief scientist said that the greatest threat facing the world is food security. Which chief scientist does the Minister support? Of all the greenhouse gas emissions, does he place a higher priority on reducing carbon than on reducing the others, and will he consider including nuclear?

Mr. Woolas: On including nuclear in renewables, it is not a renewable, as the hon. Lady accepts, but it is carbon free or produces low carbon energy. As such, it is a contributor to the wider targets outside the renewables target. We are discussing not a one-club policy, but a many-club policy, and it was Lord Lawson of Blaby who coined the one-club phrase in that regard.

The debate about the most important issue facing humanity’s future is clear. It is tomorrow night’s semi-final, as we all know. On a more serious note, my view is that one cannot separate climate change issues from those of food security, political security and military security. I shall not delay the Committee with examples, but the hon. Member for Angus made an important point about biofuels, which I agree with. The evidence suggests that the primary cause of the increase in food prices is not biofuels, but climate change—the two are inseparable—and the rise in prosperity in the far east where people are eating more meat than cereal.

The hon. Gentleman made some important points, and I agree with him on carbon capture and storage. We are arguing robustly at European level that CCS should be included as an accountable credit within the ETS. I also agree with him on biofuels, but two points must be made about what is becoming an hysterical debate. First, part of most crops can be used for energy. It is not a question of food or vegetation, and it can be both, but not in all cases. Secondly, what matters is the comparison with oil. Sustainability is taken as read in our policy, and of course it must be sustainable—consumers demand that—but to dismiss the contribution that biofuels can make now and in future would be folly. The only people to benefit would be the departments for public relations and spin doctoring in OPEC countries. That is the truth of the matter, but I am straying beyond my brief.

The hon. Gentleman expressed his concern about carbon leakage, and I understand his point. The hon. Member for Christchurch does not like the phrase, “carbon leakage” and believes that it should be “exporting jobs”, but whatever the phrase, it is important that we do not rush headlong, as a result of this policy, into decisions that will damage industry, especially the very industries that can provide the technological solutions to climate change mitigation.

I was going to say that the speeches of the hon. Member for Northavon, not his medicine, induced drowsiness, but that would be unkind because he speaks knowledgeably and intelligently. Our policy is for full auctioning, and we are in the process of debating phase III in the EU. My argument is that some of the windfall has gone to alleviating fuel prices. We have a number of schemes through the renewable obligations certificate—that answers the hon. Member for Vale of York’s point as well—and through the carbon emissions reduction scheme, which my hon. Friends will be familiar with, what with a £1.5 billion obligation on the energy companies to provide for energy efficiency, particularly for vulnerable groups.

The hon. Member for Northavon asked about the 100 per cent. in the overseas. He detected a change in Government policy. We are considering our reaction to the Lords’ debate, but my noble Friend Lord Rooker, in responding to the debate, did not oppose the amendment, and the hon. Gentleman may read into that that the Government are developing their thinking, and getting the balance right. He is right—100 per cent. is not right. However, I suspect that we will be debating such issues in the Climate Change Bill—for which I have not yet got a date, but we made a commitment to bring it forward as soon as possible. The hon. Member for Northavon talked about leadership and historic responsibilities being reasons for the 100 per cent. He is right. I think he agrees with me on the new technology point as well. We need to set that balance right, to encourage new technologies in the developed world. I thank him for his support on that.

The hon. Member for Vale of York, for the Conservative party, made a number of points on the documents. I am grateful to her for welcoming them, the ETS and the aims of the EU and of the Climate Change Bill. She then made the astonishing claim that the Conservative Government were responsible for the reduction of greenhouse gases. It is true that there was a reduction in greenhouse gases during the period of the Conservative Government, but the cause and effect can be found in the fallout—

Mr. Richard Benyon (Newbury) (Con): The dash for gas.

Mr. Woolas: The hon. Gentleman from a sedentary position is trying to say the Conservative party line, that it was a deliberate result of the deliberate policy of the dash for gas. I hate to disappoint the listening public, but it was the result of an economic downturn. We can reduce greenhouse gas emissions by having a recession. That is not our policy, although it was theirs.

Secondly, I repeat that the United Kingdom is on course to meet its Kyoto commitment. One should not confuse that with the levels of CO2 emissions—it is too early to say whether the latest figures confirm a trend. Kyoto is about greenhouse gas emissions. Greenhouse gas emissions are on course. Under the Government, the United Kingdom is on course to meet its Kyoto targets. I am happy to give way while I find the figures to back up my assertion.

Miss McIntosh: If I followed the Minister’s arguments carefully, we are currently in the midst of an economic downturn. His argument would say that our emissions are currently reducing, but under the Government emissions have gone up. He is talking rubbish.

Mr. Woolas: The hon. Lady is in danger of believing her own propaganda. We are not in the middle of an economic recession. We are far from that.

Miss McIntosh: Downturn.

Mr. Woolas: The hon. Lady needs to choose her words carefully.

The Chairman: Order. I do not wish to interrupt an interesting bit of political knockabout, but we are going rather wide of what we are meant to be debating.

Mr. Woolas: My hon. Friend from the Whips Office concurs, so I move quickly on.

The hon. Lady made some important points about Kingsnorth. Now is perhaps not the time to go into detail, but let me say that, first of all, the Government have not given the go-ahead for Kingsnorth. There is no secret about that. It is subject to the planning proposals. However, carbon capture is important. The hon. Member for Northavon was right in asking about the statement of the Leader of the Opposition—to say that we will only go ahead with technology that does not yet exist, but by a certain date, is meaningless waffle. It is misleading—if I am allowed to say that. If I am not, I retract.

The Government have not yet taken a decision. My serious point would be that, if we are to have carbon capture and clean coal technology, someone has to develop it. Those who oppose the consideration of developing new coal-fired power stations have to answer where in the world they think that it should take place. Or are we to wait until the scientists and engineers say that we have the technology? Can they do that without a demonstration platform? Of course they cannot. The policy needs more careful scrutiny—but I can see you frowning, Mr. Atkinson.

Miss McIntosh: The hon. Member for Angus has a deeper knowledge of the oil industry, but my understanding is that the Government led the oil industry to believe that they were in favour of, and would support, the oil capture and storage mechanism, but then took no further action.

Mr. Woolas: No, that is a misunderstanding of the position. As part of the European Union, we are committed to one of the 12 planned post-carbon capture demonstration projects. Carbon capture exists already—it has been going on for 30 years in the oil industry where they put in CO2 to get out 5 to 10 per cent extra oil. BP has one of the only two up-to-date carbon capture mechanisms in the world—in Algeria. The hon. Lady was referring to the competition that considered pre-combustion carbon capture, as opposed to post-combustion carbon capture. Some in the industry want to do that, and of course we have not ruled it out. Just because we have chosen one as part of the EU project does not mean that we cannot have the other. Of course, there are other methods of carbon capture as well. All that demonstrates the point that if one rules out a coal-fired power station at this stage, on would rule out the development of carbon capture.

Mr. Weir: I hear what the Minister is saying. He is admitting that the whole point about Peterhead was that it was pre-combustion. It was fairly well advanced and the Government had given indications that they supported it, up until the last minute when the rug was pulled from under it. The Government decided to go for post-combustion carbon capture instead, so the whole idea of pre-combustion in the UK has fallen flat on its face. BP pulled out of the Peterhead scheme, despite having spent a great deal of money trying to advance it.

Mr. Woolas: That is outside my portfolio. The hon. Gentleman has one interpretation of events, but I have another. As part of the wider agreement at European level, only one project was available, so we had to choose one technology—we are damned if we do and damned if we don’t. It is certainly wrong for those who say that that decision ruled out forever and a day free combustion carbon capture in this country. That is not the policy at all. If he listens to what I said about the inclusion of CCS within the ETS—I know that he does listen, because he takes these matters seriously—he will see that our policy supports his objectives. I hope that reassures him.

I was asked about aviation—I am grateful to the hon. Member for Angus and the hon. Member for Vale of York on that. We argued at the Council for aviation to be included and we got that. My right hon. Friend the Secretary of State led that debate. On essential flights—I think that the hon. Gentleman described them as lifeline flights—we are talking to the Scottish Executive, who have rightly and understandably taken this issue up, about such flights. That is something that we are putting into the pot for the future. The way in which we envisage the system working is that it will involve flights that are internal to the EU or that touch it when stopping off. As he has acknowledged, the details are to be arranged. The current campaign about aviation and the Climate Change Bill is misleading in that clause 26 is about aviation and the policy of how we include it rather than whether we should include it, which has already been decided.

I am sorry if the hon. Member for Vale of York thinks that the Government’s policy is to say that carbon trading and the ETS are the be-all and end-all of our policy on climate change, as that simply is not the case. We do, however, place significant importance on them, particularly when one talks about technology transfer in the private sector. I have yet to see a mechanism other than carbon trading that provides for transferring across the world the sorts of sums of money that we need to be transferred to meet the points that have been made.

I shall not list the Government’s many achievements on addressing climate change. I could talk about the retrofitting of millions of homes, the carbon emissions reduction target scheme, the carbon reduction commitment, the climate change agreement, the climate change levy and the fact that we have introduced the first Climate Change Bill of its sort in the world. I could also talk about the fact that the UK is on target to meet its Kyoto commitments, but you, Mr. Atkinson, would probably frown, and my Whip would probably pull on the back of my jacket. I hope that I have answered questions to the satisfaction of hon. Members; I know that I have answered them as best I can. I thank my hon. Friends for supporting me in this debate.

Question put and agreed to.

Resolved,

Committee rose at half-past Six o’clock.