The Chairman: Does a member of the European Scrutiny Committee wish to make a brief explanatory statement about the decision to refer the relevant documents to this Committee?

Kelvin Hopkins (Luton, North) (Lab): It is a great pleasure to serve under your chairmanship for the first time, Mrs. Humble. It might help the Committee if I take a couple of minutes to explain the background to the document and say why the European Scrutiny Committee recommended it for debate in the European Committee. Because of the large and increasing contribution that carbon dioxide from vehicles makes to the overall emissions of greenhouse gases, the Community has taken a number of measures to address the issue, including voluntary agreements with manufacturers. In addition, the European Council has endorsed a target of 120 g per km by 2012 and the Commission said that, if necessary, it would ensure in 2007 legislation that that was achieved.

Document 5089/08 would therefore specify that the average emissions of new passenger cars should not exceed 130 g per km as from 2012. In particular, it would set mandatory targets for the emissions of carbon dioxide from new passenger cars, enable manufacturers to apply those targets to the average of the emissions for all new cars that they register, allow different manufacturers to form a pool and require a manufacturer that fails to meet its target to pay an excess emissions premium for each calendar year from 2012 onwards. In addition, there would be provisions governing promotional literature and the collection and publication of data while the other elements identified in an earlier communication, which would contribute to the remaining reduction of 10 g per km, will be the subject of further proposals.

The Government support the Commission’s intention to legislate in such matters and, while they had concerns about particular aspects of the proposal, they generally welcome its aims. An initial analysis has suggested that the benefits to consumers would outweigh the costs to industry. However, the impact assessment now provided suggests that the net benefit from the proposal could range from plus £2.654 billion to minus £11.11 billion, thus reflecting the considerable uncertainties about the assumptions made. The assessment also suggests that it is unlikely that the Commission’s target of 130 g per km will be achieved in 2012, not least in the United Kingdom. It explores the option of deferring a target until 2015, while making it more stringent by reducing the limit.

Given that background and the interest and the importance of the subject, the European Scrutiny Committee believed that the document raised issues that should be debated in the European Committee.

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

The Parliamentary Under-Secretary of State for Transport (Jim Fitzpatrick): It is a pleasure to see you in the Chair today, Mrs. Humble, and to follow the remarks of my hon. Friend the Member for Luton, North. I wish to begin by addressing some of the issues raised in the Scrutiny Committee’s report in its examination of the topic. It is entirely understandable that members of the Committee are interested in the costs and benefits calculated in respect of the proposal and the Government’s view of how it would—and should—work.

On 3 October, we came to the end of a period of public consultation on the proposal, the commission of which underlines our commitment to transparency, and the results will be invaluable for refining our negotiating position. The policy is one of the most important policies in the Government’s climate change programme. Our aim is the adoption by the EU of a challenging, long-term target, which could save a total in the UK of about 11 million tonnes of CO2 annually by 2020. That is one of the most substantial savings offered by any of the policies that the Government are pursuing.

With the European Commission’s proposals subject to continuing negotiation, we now have an opportunity to shape them as we seek to deliver outcomes that are good for the environment and for the motorist. There can be little doubt that a legislative approach is necessary. The European Union has tried a voluntary approach, but while improvements were made, they were not enough to make a serious impact on the important issue of reducing greenhouse gas emissions across all sectors.

It might be tempting to ask, “Why now?”, given that we do not seek to deny the fact that meeting this target will mean costs for manufacturers and, almost certainly, consumers, by implication. However, that would be true whenever such regulation is brought in. The challenge posed by climate change means that we cannot afford to wait for a, probably mythical, better time to address it. However, that is not to say that we are against flexibility that will help to soften the impact. As colleagues will be aware, we support actual, or potential, provisions that acknowledge that some manufacturers’ vehicle emissions reflect companies’ decisions from before the phrase “global warming” even existed. That is why we have always argued in favour of a specific derogation for small-volume manufacturers and are pushing the Commission, and other member states, to include a provision in the regulations to ensure that niche manufacturers—those that produce only a narrow range of vehicles—are not unfairly penalised, while also ensuring that they do their bit.

Although we support 130 g per km and 2012 as the target level and date, we believe that some kind of phasing would be the most sensible way to introduce them. That would help to address the industry’s point, which we believe has some validity, that the targets, as drafted, do not allow sufficient time for it to gear up. The Government’s wish is also that, in 10 years, we can look back on this discussion about the 130 g per km target as a historic detail. By 2020 we want average new car emissions to be nearly 25 per cent. lower, and we have been at the forefront of calling for that level of ambition in Europe.

The question has been raised about why we are worrying now about 2020, when 2012 to 2015 remains to be resolved. The answer is, first, because it is clear that further strong emission reductions will be necessary. We simply cannot afford to rest on the laurels of the short-term target, even though that will achieve a good balance of outcomes in the short term. Secondly, one of the persistent themes in this European dossier has been the difficulty of squaring industry product cycles with the legislative cycle for the proposal. By setting the next round of targets in good time, we hope and expect that they will be more straightforwardly and reliably met.

I shall return to the question of costs and benefits. The focus on the immediate purchase price to be paid for a car is understandable, but a key point is the extent to which more fuel-efficient cars could mean reduced running costs for new car buyers. Our impact assessment suggests that any increase in purchase price would be recouped in fuel savings in fewer than five years. We need an approach that enables the consumer to get the best emissions and fuel savings, for example by easily being able to make objective, clear and reliable comparisons between vehicles, which is why we also support efforts to get this important information across. Those are critical considerations for the consumer. The question has also been raised about the potential increase in driving from increased fuel efficiency. The impact assessment presents the full range of costs and benefits as part of wider Government policy.

In conclusion, we support a range of measures both in sustainable travel and demand management, alongside significant developments in complementary transport to relieve pressure on the most overcrowded routes and to give road users greater choice over the journeys that they take. Given the onus on manufacturers to improve their vehicles, both consumers and our efforts to tackle climate change should be winners.

The Chairman: We have until half-past 5 for questions to the Minister. I remind Members that they should be brief. Subject to my discretion, it is open to a Member to ask a series of related questions, one after the other. However, in doing so, I hope that Members will bear in mind the interests of other Members who might also wish to pursue a sustained line of questioning.

Mr. David Heathcoat-Amory (Wells) (Con): Thank you, Mrs. Humble. The Minister mentioned the impact assessment. The net benefit ranges from £2.6 billion to minus £11.1 billion. What on earth are we doing, in a recession, even considering a measure that could have costs outweighing benefits to the tune of more than £11 billion?

Jim Fitzpatrick: As I outlined in my opening remarks, the proposals cover the full range of costs and benefits. We expect that car owners will recoup the extra costs of buying a vehicle within five years, by virtue of saved running costs. The £11 billion figure takes into account additional costs—not only those to the consumer—such as the potential impact of congestion and an increase in crashes. However, that figure is at the far end of the scale, and the Government are taking steps to reduce congestion and are doing what they can to reduce crashes. We do not expect to reach £11 billion, but we have put in the public domain evidence that we believe to be as full as possible.

Mr. Greg Knight (East Yorkshire) (Con): For the avoidance of all doubt, will the Minister confirm that nothing in the proposals will affect existing vehicles? Will he confirm that there neither have been nor are any discussions that will affect existing vehicles?

Jim Fitzpatrick: I confirm that the proposals are for new vehicles.

Kelvin Hopkins: My question follows on from that of the right hon. Member for East Yorkshire. Exemptions are being made for niche producers, but will there be specific exemptions for historic vehicles, which are used sparingly, often being driven only a few miles a year, and are few in number?

Jim Fitzpatrick: I shall need to research that. My understanding is that the proposals are for new vehicles.

Mr. Robert Goodwill (Scarborough and Whitby) (Con): May I say how pleased I am that the Minister has survived the reshuffle? We certainly do not want to change jockeys at this important juncture.

When the proposals were drafted, there was growth throughout the European Union and a buoyant new car market. Since then, sales have declined—by more than 21 per cent., last month. That situation will lead to shortages in money for investment in new technology and into adapting existing technologies to existing vehicles. Does the Minister think, therefore, that there are even more reasons to go for the longer time scale? More importantly, how many of his colleagues in the Council are convinced of that argument, and how many friends does he expect to have when he makes those valid points?

Jim Fitzpatrick: I have to advise the hon. Gentleman that I do not expect to be at the Council myself; it will be a colleague from the Department for Transport. The hon. Gentleman will know, from his long experience as a European politician, which is far greater than mine, that the number of friends and the number of those who disagree with one tends to fluctuate on the basis of the issue moving and adjustments being made. We are confident that we have enough support to push the derogations and exemptions that we seek with some success. However, it is extremely difficult to predict the outcome of negotiations, and one must be careful about doing so. I am therefore not in a position to say how successful we might be.

On the hon. Gentleman’s first point about the volume of sales, there are two elements on which I shall respond. First, the negotiations will take place in the light of recent economic developments, but it would be foolish to predict how they will go. Secondly, we are all aware how urgent it is that we deal with climate change as quickly as possible—notwithstanding difficult economic circumstances and changes in the numbers of vehicles being sold. It is clear that Europe must do something now to tackle that important issue.

Mr. Goodwill: Following the European Parliament’s votes on First Reading, the French presidency published a paper that contained both good and bad news. From the point of view of the industry, the good news was that the phase-in that had been removed by the Parliament was reintroduced. That would allow motor companies to carry forward or push back their obligations to match the model introduction phase. It might well be that when the legislation is introduced, a company will have to wait six years for that new model to come in. If the proposal goes to Second Reading, does the Minister think that it will stand the scrutiny of his colleagues and the Parliament?

More importantly, the Minister talked about the small manufacturers that have an exemption. Two particular manufacturers in the European Union have big concerns about that: the first is Porsche. However, that probably does not worry us as much as the second, Jaguar Land Rover, which employs 19,000 staff in the United Kingdom. All the figures in the background papers mix Jaguar Land Rover with Ford. Obviously, within a big product mix, it is reasonably optimistic to believe that the impact on Jaguar Land Rover will be minimised. However, now that Jaguar Land Rover is on its own, does he share my concerns that the special deal negotiated for companies, such as Jaguar and Porsche, has been watered down by the presidency? That may well result in punitive fines being levied on that company and have obvious impacts on employment and possible growth and investment in new products. Of course, it is through investing in new products that it will meet the demands of the proposal.

Jim Fitzpatrick: The hon. Gentleman is clearly right in terms of the development of new technology that is required. In that respect, anything that reduces the ability of companies to make that investment would clearly negate what the initiative is supposed to secure: reductions in climate change. That almost answers the first half of his question too about the French’s attempt to change—or introduce different—flexibilities. I know that the hon. Gentleman is seeking the best possible information in asking me to hazard a guess about how successful the French will be and whether the proposal will be appropriate and/or detrimental to the UK. I do not have a crystal ball with which to determine how successful the proposal will be. Flexibilities—in terms of time or volume—are built into the proposal as it stands at the moment. Clearly, we are in that negotiating phase. The consultation that closed on 3 October is shaping our negotiating posture. We are doing all that we can to protect, for example, Jaguar. Outside Committee—in the corridor—the hon. Gentleman and I have had conversations about that important issue, which is of great concern to him. I hope that I have reassured him that at official, United Kingdom Permanent Representation to the European Union and ministerial level, we are doing everything that we can to protect business against the potential ramifications of the introduction of the proposal.

Mr. Heathcoat-Amory: It is explained in the document that vehicle manufacturers can either meet the new emission standards or pay an excess emissions premium. The document also explains that at the level of the premiums set, it will usually be in the interests of manufacturers to pay the fine, rather than meet the emission standard. Those fines—or premiums—will go from manufacturers into the European Union budget. In the middle of a recession and when the industry is already struggling, does the Minister think it is clever to effectively be fining those in the industry and transferring large sums of money to the European Union budget—into which, of course, we already pay substantial sums—when the standards will not be met, and so the atmosphere will not benefit?

Jim Fitzpatrick: The whole essence of trying to legislate for a reduction in emissions from particular dates is to deal with the lack of progress so far. The suggestion that fines should be introduced as an element of that regime has clearly been made to show vehicle manufacturers that, depending on the volume they produce—obviously, that will be determined by the economic climate and whether people can afford new vehicles—there will be penalties. Penalties may be imposed on them if they are unable to demonstrate that they are successfully complying with the new regulations. It is not unusual to penalise people for lack of compliance in different regimes. I take the hon. Gentleman’s point with respect to the present economic climate, but by the same token, the proposal looks forward to new vehicles, probably from 2015, and introduces a regime that we hope will not result in penalties because manufacturers will be able to comply.

Mr. Knight: I do not know whether the Minister is aware that both the hon. Member for Luton, North and I are officers of the all-party historic vehicles group. We are both owners of historic vehicles, and in so far as I need to declare an interest, I do so. Will the Minister copy me in on any response that he sends to his hon. Friend on the issue of historic vehicles that he raised a few moments ago?

When the provision becomes law, what will be the position of a private individual such as myself, who seeks to import a vehicle manufactured outside the European Union—an American car perhaps—which fails to comply with the measures on emissions? For example, if the proposals become law, would I still be able to import a new Ford Thunderbird from America?

Jim Fitzpatrick: I will need to check the legal position on the import of a vehicle that does not comply with the regulations that will be in place at that time. The Vehicle Certification Agency would have to carry out due inspection with respect to any individual vehicles. Given that the provisions are for new vehicles, I suspect that there would be derogation. Rather than make an assumption in Committee and give the right hon. Gentleman an assurance, I would prefer to give accurate information as there may be a legal question to be answered. I will certainly copy the whole Committee into any response that I write to my hon. Friend the Member for Luton, North.

Mr. Knight: Following on, the provisions indicate that manufacturers registering fewer than 10,000 new passenger cars a year would be able to opt for a lower target. Does that mean 10,000 new passenger cars a year manufactured in toto, or 10,000 new cars a year that arrive in the European Union? For example, if General Motors, which is clearly a large manufacturer, imported only 9,000 cars a year into the European Union, would it be deemed to be a small niche manufacturer under the provisions because it had a market of fewer than 10,000 cars a year in the EU?

Jim Fitzpatrick: The derogation covering small manufacturers is a small volume derogation and covers manufactures for a small number of specialist vehicles— Morgan in the UK, for example. I cannot imagine that it would be designed to cover General Motors and a specific model. The measures are for manufacturers that produce less than 10,000 vehicles.

Kelvin Hopkins: It would be remiss of me not to declare an interest as the owner of an historic vehicle, but my concerns about my vehicle are neither here nor there. My concern was about the many enthusiastic owners of historic vehicles and our proud historic vehicle heritage, which we should seek to preserve.

Jim Fitzpatrick: I hear what my hon. Friend says. He has clearly expressed an interest along with the right hon. Member for East Yorkshire, to whom I would like to offer a correction at this early stage in proceedings. The 10,000 new cars would be classified as those sold within the EU, so it might well deal with the matter that he raised.

Mr. Goodwill: I would like to return to the issue of the penalties levied going into the European Union’s budget, to which my right hon. Friend the Member for Wells referred. The document recognises that for at least the first three years of the introduction, it might be cheaper for companies to pay the fines than comply. For example, there will be a penalty for every gram above the limit that has been set—125 g, or 130 g in 2014. That means that about €5,040 will be levied on the Jaguar TDVi, which the Prime Minister uses, for the contribution that it makes to the overshoot by that company. Has the Department calculated the net effect of such levies and fines on UK manufacturers? How much money will be flowing into the European Union’s coffers if the predicted levels of non-compliance come into being?

Jim Fitzpatrick: I do not have to hand the figure for the total prospective cost to UK manufacturers under the regulations. I suspect that I will have a better answer for the hon. Gentleman presently. We are directly engaged with UK manufacturers to ensure that we protect their position as best we can, as I said a few moments ago.

Mr. Goodwill: A lot of good work has been done both by the Government and the industry in promoting eco-driving. For example, the driving test will now include questions on economical driving. That being the case, can the Minister tell us about any Commission proposals to revise the test cycle? Obviously the fuel performance of a vehicle depends on the test cycle of that vehicle as driven on the rolling road by the computer program to take it through particular manoeuvres. If driving behaviour and the average speeds on our roads have changed, then surely it makes sense to revise the test cycle that is used to produce the figures that vehicles are measured against?

Jim Fitzpatrick: I am sorry but I do not understand the hon. Gentleman’s question. Will he give me some more details of the test cycle that he describes?

Mr. Goodwill: When vehicles are marketed within the European Union, fuel consumption figures are published—the grams per kilometre that we are using here to levy the fines. Those figures are determined by a computer driving a vehicle on a rolling road through a preset series of manoeuvres and speeds, braking and accelerating and so on. The cycle includes urban and motorway driving and is agreed at Commission level. If driving behaviour has changed and the average speeds on our roads have reduced—as we are led to believe—and if people are adopting eco-driving, which the Minister’s Department is promoting, is there not a case to revise the test cycle to recognise that in the figures that the industry must adhere to?

Jim Fitzpatrick: I am grateful to the hon. Gentleman for elaborating and giving me time to think about his question. He makes a reasonable point about seeking to review the technology and the data collected. He is correct in referring to the consultation on our own driving test, in which we propose to introduce an eco- dimension into driver training and testing. With regard to those who are already qualified, we are investing a lot of money through the Act on CO2 campaign and in promoting cleaner, safer and greener driving. One hopes that that will have an impact on an individual’s ability to drive more environmentally consciously and efficiently and in a greener fashion. If habits change and the figures pan out, I am sure that the hon. Gentleman’s suggestion of a review of the cycle will come under much closer scrutiny.

Mr. Goodwill: Given that the proposals are likely to result in people driving smaller cars, what impact will that have on casualties on our roads?

Jim Fitzpatrick: I am not sure that it is easy to answer the hon. Gentleman’s question about the impact on casualties. On the answer I gave to the right hon. Member for Wells earlier, the potential £11 billion cost includes a potential increase in the number of crashes, and the associated costs to individuals and the UK economy, as a result of there being more vehicles on the road because driving would be cheaper. Whether that will actually play out is a matter for speculation, but it was reasonable to include that prospective assessment. The hon. Gentleman is working hard, along with me and members of other parties, including the Liberal Democrats, to cut the number of crashes, and therefore fatalities and injuries—serious and otherwise—on UK roads. It is possible that the impact of smaller cars would be more vehicles on the road. It is suggested that greater congestion slows down traffic and could lead to a reduction in the number of vehicles, and therefore the number of collisions.

The figures for the first six months of this year, which will be available next year, will be interesting. As we have discussed, due to the hike in oil prices and energy costs, it appears that many more people have been choosing to leave their vehicles at home and use public transport instead, which may mean that there have been fewer vehicles on the road. It will be interesting to see whether that has had an impact on the casualty figures. The hon. Gentleman has asked a legitimate speculative question, but I am not in a position to give him an authoritative answer.

Mr. Knight: Why do these proposals use the phrase “passenger cars”? For example, over the years many manufacturers, certainly Ford and Vauxhall, have produced a range of body styles on the same vehicle floor pan. It appears that the proposals would apply to a passenger car, but that if the very same vehicle with the same engine was bodied as a pick-up or a small van, it would be exempt. What is the rationale behind that very narrow definition?

Jim Fitzpatrick: That is an interesting question. The description of vehicles as passenger cars by manufacturers is contained within the proposal. My assumption would be—I will need to check this—that the definition is restricted to passenger cars. I will come back to him on that. I can tell the hon. Member for Scarborough and Whitby that the details that he was seeking in respect of the costs to manufacturers are contained on page 250 of the bundle.

Mr. Knight: In the light of events in Europe over the past few days, particularly European Union-wide concern about what is happening to the global economy, have any of our partners in Europe proposed looking again at the implementation dates for the proposals and perhaps deferring them in order to help to save jobs, particularly in the motor industry, at companies such as Vauxhall?

Jim Fitzpatrick: I am not aware of any such approaches being made to defer the proposal. I can advise the right hon. Gentleman, in respect of his previous question, that a separate proposal for vans will be produced in due course—these regulations cover passenger cars only.

Mr. Knight: It came to my attention just a few minutes ago that there have been representations from German businesses calling for a moratorium on any European Union legislation that would impose higher costs on companies at a time when they are grappling with the fall-out from the financial crisis. That was in a report today in the Financial Times. In the light of that, would it not be a good idea for the Minister to abandon the proposals today and go back to his European counterparts with a view to perhaps coming forward in a few weeks with some amended dates for implementation?

Jim Fitzpatrick: I am interested to read that German businesses are lobbying the German Government to change their position. UK business lobbies the UK Government to ask us to change our position on a whole number of things and sometimes we do, sometimes we do not. At this point, we will stick with our position. The matter will go forward, given that we have just finished the consultation.

Given the right hon. Gentleman’s long experience in the House, he knows as well as I do, if not better, that one can never say “never”. Considering what is happening with the international economic climate, I would be loth to say with concrete certainty that nothing will change in respect of economics, policy or European proposals simply because we are discussing this document today. What I can say is that in respect of the document before us and the request of the European Scrutiny Committee, we are committed to this course of action. We believe that it is appropriate, and that is the position that we are adopting in Committee today.

Mr. Goodwill: I hesitate to ask this question, but, sadly, experience in the European Parliament means that I have to ask it. Can we have assurance from the Minister that the British Labour delegation to the European Socialist Group will support his position in the European Parliament?

Jim Fitzpatrick: We will be lobbying as hard as we possibly can to get support for the UK position in the European Parliament and Commission, and among member states, and we hope to be successful in that.

Kelvin Hopkins: Further to the question asked by the right hon. Member for East Yorkshire, with whom I normally agree on most things, I am a bit worried by the idea of delaying the proposal. Does my hon. Friend the Minister agree that the reason Germany is so concerned is that it is heavily committed to larger cars, unlike France and Italy, for example, which produce many smaller cars? It has an understandable national interest in delaying the proposal because it will be more affected by it. Would it not be more sensible to press Germany to start investing heavily in smaller cars now?

Jim Fitzpatrick: My hon. Friend makes a good point. As I said in response to the question from the right hon. Member for East Yorkshire, German business lobbies the German Government and may very well be successful. UK business lobbies the UK Government every day on one issue or another. Sometimes it wins the argument, sometimes it does not. This is the proposal of the UK Government. It is what we are taking to Europe, and it is the position upon which we stand. We have just finished the consultation, which may refine our negotiating posture, but we see no reason at this time to move away from our position.

Mr. Knight: The Minister is being frank with the Committee. Will he be frank in answering this question? Does he not worry, as I do, that the proposal could put people out of jobs?

Jim Fitzpatrick: Every elected politician in this House is worried at present about the future of their constituents and those of colleagues. It is very much in the interests of the UK and the world that we tackle climate change and emissions. As far as we are concerned, that is one of our big priorities. I said in my opening remarks that transport is the key element in reducing emissions. The proposal is fundamental and will produce great savings, but we are not blind to the matters that the right hon. Gentleman raises.

Mr. Knight: If the Minister does not succeed in getting derogations that he thinks are just and reasonable, what will he do? Will he promise today that one thing that he will do will be to report to the House?

Jim Fitzpatrick: As I said in response to the hon. Member for Scarborough and Whitby a short time ago, I will not be leading the delegation in the negotiations. If the right hon. Member for East Yorkshire will forgive me, that would be, without wanting to sound in any way, shape or form immodest, above my pay grade. The decisions will be made on the basis of movement in the negotiations, which will be complex because of the variety of issues that are up for discussion and agreement. In that regard, all European matters will come back to the House at some point.

Motion made, and Question proposed,

Mr. Goodwill: I thank the Minister for his openness in keeping me in the picture about what is going on, and for returning my text messages when I was informed of the breakdown of the agreement—what we thought was an agreement—that would have helped Jaguar Land Rover.

I would also like to tell the Minister that Martin Callanan, who is the rapporteur on this piece of legislation in the European Parliament, is certainly very supportive of British industry and I think that there is very little space between the Minister’s position and that of Martin Callanan, who represents the largest group in the Parliament.

I know that when these pieces of legislation go to negotiation, there are always instructions given to officials about areas where there is flexibility and areas where they need to stand firm. I ask the Minister please to stand firm behind the people who work for Jaguar Land Rover. The Tata group has shown great confidence in British manufacturing by buying into Jaguar Land Rover and we should repay that confidence by ensuring that this piece of legislation does not impinge on the group in a way that would undermine the employment and investment prospects within it.

I would also like to pay tribute to the people who deliver on these proposals time and time again—the engineers and scientists, not the politicians. The politicians set ambitious targets but on every occasion that I can think of it has been the engineers and scientists who rise to the particular challenge of meeting those targets. Over the years, we have certainly seen reductions in lead from car engines, because of the adaptation of technology to run cars on unleaded fuel, and regarding emissions of pollutants from cars we are getting to a situation where we are close to zero emissions.

In the case of CO2 emissions, however, we are in a situation that one can never have a vehicle that can move down the road that can get close to zero CO2 emissions, and we will get to a point when we are squeezing the sponge dry. I hope that, as these negotiations proceed, the amendments that are made and the positions that are taken will recognise the fact that there is a limit to progress in this particular area.

Kelvin Hopkins: I thank the hon. Gentleman for giving way. General Motors, among others, is promoting research into the hydrogen cycle, which would lead to the production of H2O when hydrogen is burned. That research has still not been successful in terms of creating fuel to drive cars. However, would he accept that our concern here should be to promote, as quickly as possible, the development of other forms of motive power, for example those that might use hydrogen?

Mr. Goodwill: The hon. Gentleman makes a very valid point. However, all those alternative technologies, be they battery technologies or hydrogen-powered cars, rely on the generation of electricity or hydrogen. For example, although a hydrogen-powered car produces pure water as its only emissions in the middle of London, or wherever it is being driven, the whole process depends on how that hydrogen is produced. If it is produced by electrolysing water using electricity produced at Drax, Eggborough or Ferrybridge coal-fired power stations, I would suggest that that vehicle is not particularly environmentally friendly. If, however, the hydrogen is produced at night by a nuclear power station, it could certainly be argued that the CO2 aspects of that process are good. A similar situation applies with batteries. Battery cars certainly have a lot to offer, but one needs to look at the overall picture regarding particular battery cars.

As I was saying, the industry has been very good in rising to the challenges that we politicians set and it is important that we, as politicians, set the bar or target for the industry at an achievable level, so that it will adapt and produce these new vehicles.

We also need to bear in mind that different groups in society have different needs for vehicles. For example, this proposal will push the mix of vehicles on our roads towards smaller vehicles, but of course there will always be people who need larger vehicles; people with families, including those with large families, and those people who need 4x4 vehicles because they live in rural areas. Therefore, I hope that the Minister will always bear in mind that, whatever policies we introduce, those policies should be family-friendly and also rural-proofed, because we will always have people who will need, for example, to tow a caravan. Furthermore, encouraging people to use a caravan for their holidays, rather than perhaps flying abroad on an aeroplane, contributes to reductions in CO2, despite the fact that those people may need a slightly larger car to pull that caravan.

Of course, we also need to bear in mind that there is a possibility that, because of some of these measures, a family may decide that it is cheaper to have two smaller cars than one larger car. Because of the way that VED and this proposal are structured, there are certain perverse incentives for a family to opt for two small cars rather than one larger car. I am confident that, if we can agree to the revised target of 125 g by 2015, with the allowances for the small manufacturers and with the particular special case of companies like Porsche and Jaguar Land Rover accommodated within it, the measure can be introduced in such a way that the industry will rise to the challenge and deliver the cleaner cars that we need.

The Minister will, by and large, be represented by officials in the negotiations. However, if we do not reach a First Reading agreement and it goes to conciliation—I have had many experiences of late-night conciliations, usually only with one Minister, representing the presidency, in the room—I wonder whether, in cases of extreme economic importance to industry in the UK, we could break with convention and send a Minister into the negotiations. I am sure that a Minister would carry a lot more clout among a lot of civil servants. I have suggested to my party that we should send more Ministers to the Council of Ministers to negotiate on behalf of their people, because I suspect that, all too often, the next morning, in the cold light of day, a Minister in the UK, or in whichever EU country, gets a message from his negotiating team saying, “We had to agree this.” Surely, the buck stops with the Minister. I hope that the Minister here today will consider taking a much more hands-on approach.

It is vital that we get an agreement that the industry can cope with. Some 194,000 people work in the motor industry in this country. People are already concerned about their jobs and they have been watching retail motor figures, which have been particularly difficult for the past two months, with great concern. I hope that the Minister will bear these points in mind, as will other Ministers from other member states, when looking at the impact that the proposals will have, because we are in a different situation now, post-credit crunch, than we were in January when they were first introduced.

I wish the Minister God speed and good luck in his negotiations. I am confident that he will bring us back a good deal.

Kelvin Hopkins: My opening statement offered a consensual view on behalf of the European Scrutiny Committee. I hope that I can be indulged with a personal view as well.

I agree with the Opposition spokesman that hydrogen has to be produced using electricity. I do not have the figures to hand, but I understand that hydrogen produced centrally and efficiently using electricity would still mean a saving in CO2 and that different forms of traction, despite having some CO2 production, can be more efficient than the internal combustion engine. However, I want to talk about other things.

Mr. Knight: I was hoping that the hon. Gentleman would clarify what was said earlier, because General Motors needs to be praised for pursuing the hydrogen cell vehicle, which is closer to being viable than he implied; in fact, it actually works, and I have driven one—I do not know whether the hon. Gentleman has done so. The problems with it are cost and the area necessary for hydrogen storage. However, in terms of performing on the road it works well.

Kelvin Hopkins: I thank the right hon. Gentleman for his helpful intervention. I have seen one, but I have not driven one. I agree that General Motors is well ahead in this regard. One hopes that, in time, when vehicles are produced for longer use, the cost will be spread over a longer driving period and they might be seen to be efficient and acceptable.

On optimum speeds, this weekend there has been a competition between cars to see how far they can drive on a gallon of fuel. The more we can promote the driving of cars at optimum speeds for fuel-efficiency, the better. In my vehicle, a computer tells me instantly how much petrol is being used, which is useful, and when it is switched on the car can almost be adjusted while driving. If we can get cars driving at optimum speeds, we can save the drivers money and save CO2 in respect of the environment.

Hon. Members talked about congestion, which causes horrendous CO2 emissions. I think that congestion around London alone costs £5 billion a year. The figure is staggering. London is a massive conurbation, but the costs of congestion are enormous, and it produces vast quantities of CO2.

There are ways of overcoming congestion. The Government could promote the use of autorail services so that cars can be put on trains for longer distances. I do that when I go to France, as I did recently when I put my car on a train at Calais and got off the next day in the south of France. If that could be done between the north and south of Britain at reasonable cost, it might appeal to people. Rail travel is much more efficient in terms of CO2 production than driving by road, and much more restful. One hopes that that is at least a possibility, because travelling in that way from the north of France to Italy and the south of France certainly works for me.

Road haulage vehicles cause congestion, not just directly because of their size, but because their heavy axles cause road damage. Cars cause little road damage because they are so light. Road haulage causes a vast amount of damage, and the fourth power law of road damage says that the damage caused to roads is proportionate to the fourth power of the axle weight, so if the axle weight is doubled, the damage rises 16 times, if it is trebled, it rises 81 times, and so on. Clearly, we need road haulage vehicles, but for the same tonne mileage they produce 12 times the amount of CO2 as the same amount of freight taken on rail.

If we could provide autorail systems for lorries to go on trains from depots throughout Britain and between Britain and the continent of Europe, we would save vast amounts of CO2, and reduce the congestion that causes car traffic jams. Road damage causes lanes to be coned off, and that causes congestion. Lanes are coned off because of the road damage caused by heavy goods vehicles. If we could get as many heavy goods vehicles as possible on to rail, we would overcome that problem.

I have a particular interest in the subject because I am promoting a scheme about which I recently wrote to the former Secretary of State for Transport. Sadly, she departed from her job just as she received it so I shall have to write again to my right hon. Friend the new the Secretary of State for Transport. It is a scheme for a dedicated rail freight route from Glasgow to the channel tunnel, linking major population centres of Britain, which would take not just lorries on trains, but double-stacked, full-sized containers. We cannot do that on the existing rail network because the gauges are too small, and it would be impossibly expensive to modernise the existing systems. A dedicated rail freight route would not be expensive and would solve that problem. Indirectly, it would reduce the amount of CO2 from motor cars because it would reduce the congestion caused by coned-off lanes resulting from damage to motorways by road haulage vehicles. The issues are all linked.

I am a member of the European Scrutiny Committee, and I see many of these documents, but hardly any mention is ever made about getting road freight on to rail. There is a lot of talk about cars, but not of road freight on rail, perhaps because the problem is less prevalent on the continent of Europe. When my noble Friend Lord Kinnock was Transport Commissioner, he promoted the idea of a network of dedicated rail freight routes across Europe. I hope that my scheme will be part of that network in time.

That is the direction we must go in. We must accept that the issues relate to one another and that the debate is not just about cars, engine sizes, how we drive, and so on. We must make car travel freer-flowing and make it possible to take cars by rail over longer distances so that people have the convenience of using their own cars at the places to which they are travelling. That would mean reducing the cost, and would require Government involvement and some subsidy, but that subsidy would be paid for indirectly by savings on congestion, road damage and so on.

I hope that the subject will be discussed more in such Committees and that the Government will take it forward in all its aspects, not just in the rather narrow aspect of these documents.

Mark Hunter (Cheadle) (LD): It is a pleasure, Mrs. Humble, to have the opportunity to contribute to this important debate under your chairmanship.

I am sure that it will not come as a surprise to hon. Members to learn that my colleagues and I broadly welcome the measures. We need to work together with the rest of the European Union towards reducing carbon emissions by setting targets for new passenger vehicles. That is what the proposals seek to do.

According to the Department for Transport, passenger cars alone were responsible for nearly 13 per cent. of the UK’s total carbon emissions in 2005, while all road vehicles together were responsible for nearly 22 per cent. We are all aware—hon. Members have referred to this—that public transport alternatives are not practical in some areas. For example, we cannot ask a mother of four living in another part of the country to use unreliable and intermittent rural bus services to deliver her kids to ballet lessons or football practice, let alone to school; it is not practical and often it is impossible. Until our public transport system improves dramatically, those in remote and rural areas in particular will continue to rely on their cars to ferry themselves and others to and from work and school.

That is why it is vital that we invest in car manufacturing and encourage manufacturers to improve and produce cars that emit less carbon. The Conservatives questioned whether, with the economy in difficulties, now is the right time to press for such measures. My view is simple: there will never be a right time for some people. There is a serious danger—this goes beyond today’s debate—that the environmental agenda, which all parties in this House have signed up to and have agreed is so important, will start to slip down the league of issues important to the public at large unless people such as ourselves are seen to take a lead.

Although the measures before us are worth supporting, they do not go far enough. For example, we would have liked more ambitious targets—95 g per km by 2020, and a zero carbon target for all new vehicles by 2040; other road vehicles included in the regulations; and the regulations to encourage freight vehicle manufacturers to produce vehicles that use electricity, biofuels and other renewable fuels by 2050. The Minister might allude to that in his response.

We are also concerned that the regulations might be seen as a relatively easy way of showing a commitment to the environmental agenda, which of course is not altogether the case. They will motivate manufacturers to ensure that there are low carbon emission vehicles on the market, but they do not—and cannot—ensure that they are bought and used by consumers. The Government therefore need to back up the regulations with other incentives and actions to ensure that customers are encouraged to buy vehicles that are better for the environment. Without that action, the regulations will not be successful. Are the Government reconsidering the possibility of more steeply graduating the vehicle excise duty on new vehicles only, and not retrospectively—I say that for the avoidance of doubt—and of showroom taxes, to ensure that people are encouraged as much as possible to buy more eco-friendly vehicles?

Like the Government, we are concerned that the penalties laid out in the regulations might not be substantial enough to encourage behavioural change by car manufacturers. Again, I would be interested if the Minister could comment on that and tell us whether the Government can do anything more to raise those concerns, and whether there has been any movement on increasing those penalties. Do we have the carrot-and-stick relationship right or might some car manufacturers think that the penalty is worth paying in order not to achieve the target? We are also worried that the ability to average emissions from a pool of manufacturers might seem to be a cop-out and would get certain manufacturers off the hook. Will the Minister reassure us about that and say whether he has drawn that matter or similar concerns to the attention of the Commission?

The Government said in their response that they want a provision for capping the maximum level of abatement that a manufacturer has to make. There ought to be anxiety about such a measure because there is a danger that it might weaken the proposals and allow some manufacturers—almost inevitably those that produce the most polluting cars—not to make the efforts that are needed to develop more eco-friendly vehicles.

Mr. Goodwill: The proposal is precisely the one that was used to help out Jaguar Land Rover. When it was first suggested, Jaguar Land Rover was part of the Ford Motor group and could average its responsibilities across the company. Under the original proposal, it would have had to make a 38 per cent. reduction. The compromises that were hammered out limited that to 25 per cent. It was still an ambitious target and, by introducing new smaller models, Jaguar Land Rover could meet it. I am concerned that the hon. Gentleman is undermining the position of Jaguar Land Rover, which is an important company in our country.

Mark Hunter: The hon. Gentleman made his point earlier in the debate, and I hope that it goes without saying that I do not need to be reminded of the importance of the car industry, particularly Jaguar Land Rover, to the United Kingdom. However, in the context of today’s debate, it is important that the different perspectives are stated clearly.

My question was to the Minister. Does he feel that a balance needs to be struck which supports an independent British industry while at the same time ensuring that the proposals are not rendered meaningless because of concessions? Perhaps he will turn to that matter in his closing remarks.

The regulations allow for manufacturers making fewer than 10,000 new cars per year to be exempted from the proposals, a matter touched on by the hon. Member for Scarborough and Whitby. We have heard about historic vehicles and niche markets for which there clearly needs to be exemption, but I am interested to know the Government’s view on the 10,000 limit. Do they think that nothing can be done in those markets that are exempt from the proposals, or do they believe that there are still ways in which the small, niche market manufacturers can be encouraged to join the general direction of travel that we all want to achieve? I accept that there are specific exemptions such as historic vehicles and that there will be others, but are we really saying that anything under 10,000 is automatically exempt, or are the Government pursuing other ways in which to encourage the small, niche market manufacturers to do their bit, too?

I hope that I have made it clear that we are broadly sympathetic to the proposals. Hon. Members alluded to general concerns about the support from the car industry in the UK, but there will never be a right time for some people to deal with such issues. It is hugely important that we do not let the current economic difficulties take us off course from addressing the long-term environmental considerations that are so important to the future of this country and to the rest of the world.

Mr. Heathcoat-Amory: During the sitting, I have become truly alarmed at the position taken by the Government on the proposed regulations. We are in a recession, in particular a manufacturing one, and I had hoped that the Labour party would have been more sensitive and sympathetic to the job losses that are taking place. With the honourable exception of the hon. Member for Luton, North, with whom I am familiar because we both serve on the European Scrutiny Committee, I have not heard an echo from the Labour Benches of the concern that should be felt about what is happening. The lay-offs have started. Vehicle registrations have dropped sharply and people are losing their jobs. I know that from my constituency. I have a component manufacturer that is extremely worried, and is having to choose between laying people off and complying with more regulations.

Kelvin Hopkins: I agree entirely with the right hon. Gentleman about the importance of manufacturing and the dangers it faces. In Luton, many of my constituents are affected by the down days that are being inflicted on IBC Vehicles, which is a part of General Motors that makes vans, and is the last remaining vehicle manufacturer in Luton. People are worried about the situation, but it is part of an overall picture. Does he agree that one problem has been the overvaluation of sterling? At least we have the advantage of being outside the eurozone, so that we can use the necessary weapon of devaluation when we need to.

Mr. Heathcoat-Amory: The hon. Gentleman, as usual, is right on that point. At least we control our own currency, and the Bank of England can make appropriate adjustments. What I am suggesting today is that we should also take charge of our regulatory costs, because this is not the moment at which to drive yet more manufacturing industry abroad. We will meet our lower CO2 targets if we drive all our manufacturing away, but that is not the way in which to comply with climate change obligations. The world has changed in the past few weeks, as what has become a banking crisis is now a recession, and we have to respond to that. Instead, we are scrutinising these documents as though nothing has changed, but it has.

Even putting the recession to one side, the Government have to explain, rather better than they have, why we are proceeding with regulations for which the cost greatly outweighs the benefit. I asked that earlier, but I did not get a very good answer from the Minister, so perhaps he could have another go. The European Scrutiny Committee is insistent that impact assessments should be not only made, but adhered to, and that we should not proceed with proposals that cost more than the benefits they bring. That is a fairly modest proposal. In this case, the cost-benefit range is quite startling, ranging from a net benefit of £2.6 billion to a cost of more than £11 billion. The Minister’s response to my earlier question was that the £11 billion cost was on the outside of the estimate, but it is still a possibility, otherwise it would not be in the estimate.

If one accepts the Minister’s point and takes a mean or average point, the estimate is still very much on the cost side, so we are proceeding with something for which the recognised cost greatly outweighs the benefit. CO2 reduction is already factored into the benefit, so it is not as though we are bearing a cost to help the environment. We are proceeding with something with an enormous net cost. Will the Minister come back to that point? On how many other regulations do we proceed on that basis? When I have raised similar issues on the Floor of the House and in Committee, I have always received assurances from Ministers that an impact assessment is a genuine undertaking to weigh benefits against costs, and that we would not do something for which costs outweigh benefits. That is fairly obvious. So, even if there were not a recession, why would we do something with such a large cost attached?

I would also like to raise a smaller point. My eye was caught by the word “biofuels” because it is stated that the Commission hopes to reach these targets mainly by the use of improvements in vehicle technology, but also by the increased use of biofuels. I have an agricultural constituency so I am quite interested in biofuels, but I have been disillusioned by the fashion for biofuels. Considered globally, there is much evidence that the rush to biofuels is not only displacing other crops and doing damage to land elsewhere, but possibly even increasing global poverty. In addition to that, biofuels need the growing, planting, fertilising, harvesting and processing of crops, which is energy intensive. Some evidence suggests that more CO2 is created through that route than is saved by switching to biofuels. Again, why are we proceeding with a regulation that at least partly relies on biofuels?

Kelvin Hopkins: Just to reinforce the right hon. Gentleman’s point, I think that in Indonesia the tropical rainforest—a wonderful way of absorbing carbon dioxide—is being cut down and replaced with biofuels, which are perhaps less efficient at absorbing carbon dioxide.

Mr. Heathcoat-Amory: I have heard that too, which is why I alluded to the global situation. Maybe we are not only doing something bad for the global atmosphere, but for the people of foreign countries, who are a great deal poorer than we are.

Mr. Goodwill: I agree with my right hon. Friend’s point about the way in which biofuels have been built up and the realisation that in many cases they do not deliver environmental benefits. However, the proposal and the target set in it do not include the benefits from biofuels. The 10g per km below the level set by the proposal is to be achieved by a number of factors, including biofuels, the monitoring of tyre pressures and better rolling resistance on tyres, and a number of other issues. The reference to biofuels is not within the target set in the agreement; it is something that the Commission factored in over and above. I agree with him: it might well be that the additional 10g will not be delivered by technology such as biofuels.

Mr. Heathcoat-Amory: I am grateful to my hon. Friend for that. Although, coming back to my point, I am a little surprised to hear him defend regulations that represent a large net cost to the very industries that certainly our party should be defending.

My last point is about the alternative between a fine or complying with the new emission limits. That is the alternative offered to manufacturers. Again, it is clear from the documents that the Government think it unlikely that the Commission target of 130g per km by 2012 will be delivered. That is the Government’s view. It is also stated that manufacturers are likely to choose the least cost option, and are therefore likely to pay the fine at the limit suggested because that would be cheaper than the more expensive conversion of factories and so on. The suggestion has been made that the fine would have to be higher—something like £70—to persuade manufacturers to switch, and therefore they would go for the fine. That fine—or, in Eurospeak, excess emissions premium—is paid, of course, straight to the EU budget.

From the present perspective, we are probably paying enough to the EU budget. The figure rises to a net £6 billion a year from this country, so we are paying quite a hefty tribute anyway. According to the document—this view is not mine, but the Government’s—we are now considering adding to that by making a compulsory transfer from the manufacturing industry to the EU budget during a recession. Those are the economics of the madhouse. Certainly, I want Conservative Members on the Committee to do something about that, to stand up for industry and to say, “No.” During the recession we are in, there has to be a moratorium on such things. We should not proceed with a regulation that includes an acknowledged net cost and a hefty additional fine that our vulnerable manufacturing automotive industry will have to pay to the European Commission.

Mr. Knight: I have been reflecting on something that the Minister said earlier. As a former Government Whip, I tend to view most new initiatives with suspicion, even when there is no need to do so. I am a little concerned that we have two regimes here, but that may well be the way things have always been done. We are dealing with passenger cars today and commercial vehicles will be dealt with at a later stage. I want to place on record that I hope that the proposal is not a precursor to yet more taxes, restrictions and costs on the private motorist.

Professor David Newbury of Cambridge university has recently considered the environmental impact of motoring. He concluded that if private motorists were required to pay the true cost of the effect that the use of their vehicles has on the environment, they would pay tax at the rate of 20p a litre of fuel. Tax is currently nearly 60p a litre of fuel. On those environmental grounds alone, there is no need for any further imposition of costs and taxes—the proposals refer to taxes—on the private motorist.

I thought that the hon. Member for Cheadle made a very interesting point. He rightly said that private motoring accounts for 13 per cent. of all CO2 emissions and yet deforestation accounts for up to 25 per cent. of all CO2 emissions. If we are considering the environment, we should look at it in the round and put together a list of priorities in which we tackle the biggest problem areas first. It seems bizarre to many of us to be seeking to clamp down on the emissions of private cars—accounting for 13 per cent. of CO2 emissions——ahead of the Prime Minister’s initiative to address the issue of deforestation announced 48 hours ago. He is right to address that issue. I make no criticism of the Prime Minister for referring to deforestation. We should be dealing with deforestation today and this issue should be somewhere further down the line, particularly in a recession when the effect on jobs and on British industry is, at the very least, unknown and more likely to be negative and lead to job losses. Therefore, it seems a perverse list of priorities. I hope that Ministers will pay more attention to the areas in which we can make a big difference, such as deforestation, ahead of clobbering the British motorist with yet more taxes.

In future discussions, I hope that the Minister will hold firm on his demand for derogations, that he will resist any attempt to introduce retrospection into this issue and that he will defend niche manufacturers that play a small but nevertheless important role in the motor industry. I have much sympathy with the comments made by my right hon. Friend the Member for Wells, but may I just say that we are being asked to take note of a draft regulation. The motion that we are being asked to support ends with a reference to

When economic circumstances change and there is a downturn, we have to change our position otherwise we will lose our balance.

I hope that the downturn in the European and British economies will stiffen the resolve of the Minister not to sign up or agree to anything that may damage British industry and cause more job losses than would otherwise be the case. I have no doubt at all that somewhere in the European Union there is a regulation-ridden, form-filling, pen-pushing Eurocrat who would like to see us all driving small, compact jelly-mould cars with an engine of less than 1,000 cc. However, I say to the Minister that diversity has always been the strength of the United Kingdom and that is something that we should be proud of.

Jim Fitzpatrick: May I begin by expressing my appreciation to the hon. Member for Scarborough and Whitby for the kind words at the beginning of his remarks? I am glad that he made them after the reshuffle, rather than before; had he made them before, there might have been a different outcome for me.

The hon. Gentleman made the point that the new outcomes and the new arrangements need to be achievable and that is exactly the starting point for the Government. The range and depth of the questions that have been raised by hon. and right hon. Members is indicative of the various facets that must be taken into account in reaching a final regulation. That spread of factors reinforces the importance of getting the balance right. We need to take into account consumer and industry interests, and also the environmental imperative, because tackling climate change is not an optional extra and all parties are signed up to that idea.

In respect of jobs, we will certainly do everything that we can to protect British industry and British jobs. In addition, however, we have been making the case that innovation in low-carbon technologies can also create jobs, as highlighted in the King review of low-carbon cars.

We also need to take into account that this measure is substantially an EU measure. It will be crucial to get a final regulation that all member states can sign up to. That is because intervention is more effective if it is done at a European level than if each country goes it alone. It is essential that every sector makes a contribution to reducing its greenhouse gas emissions. We cannot rely on just making reductions where it is currently cheapest to do so. It is essential to create a provision that will see continued reductions being made, particularly given road transport’s share of emissions.

I am sure that the hon. Member for Scarborough and Whitby meant to mention the figure of 130 g per km; I think that he said 125 g per km instead. He might want to check Hansard on that, because I think that that was the figure to which he was referring in the rest of his comments. He also asked whether there would be some kind of phasing in of the measure, and indeed that is what is proposed.

The hon. Gentleman also asked about ministerial attendance. I can reassure him that Ministers will be attending the Environment Council, where this measure will be debated, and they will also be in discussions in the Transport and Competition Councils; again, the appropriate Ministers will attend.

My hon. Friend the Member for Luton, North raised the issue of transferring freight to other modes of transport. We have discussed and debated that issue in other Committees and outside those Committees, and he is aware that only last month we announced an additional £61 million for freight facilities grants between 2011 and 2014, to give greater certainty to companies that are looking to transfer their loads from road to rail and/or water, for which he has been campaigning for some time.

The hon. Member for Cheadle raised the question of commercial vehicles. I think that I reassured him on that issue by saying to other hon. Members that the regulations are for M1 passenger cars but separate regulations for vans are coming forward. I heard what he said about graduated VED and I am sure that the Treasury also heard his comments.

The hon. Gentleman asked whether the penalties are adequate to stimulate the appropriate response from manufacturers. I assure him that the impact assessment shows that a penalty of €60 is sufficient to meet the target. There would be no additional benefits from a higher penalty.

The hon. Gentleman asked about pooling. Pooling is not in any way, shape or form a cop-out. It is an additional flexibility that will reduce costs but not change the environmental outcome, which is so important to him and, indeed, to us. The UK’s proposal for the niche manufacturers amendment does not reduce the environmental effectiveness of the regulation, which was a concern that he raised. The target is still within 1 g per kilometre.

The hon. Gentleman asked whether the small-volume manufacturers derogation is an exemption. It is not an exemption: they will still have to meet their own CO2 targets, which are to be approved by the Commission. Everything will be relative.

The right hon. Member for Wells returned to the first point raised, which was about the impact assessment. I say to him again that the direct costs—that is, the technology costs—are outweighed by the direct benefits of CO2 and fuel savings. It is only the secondary impacts which are uncertain and which depend on how motorists respond to the lower costs of motoring. Because a package of measures will be in place to limit the effects, we do not expect the secondary impacts to occur. I know that that response, which I gave earlier, will not satisfy him, but I have tried to explain our conclusion.

The right hon. Gentleman asked about penalties going to the European Commission and whether they could be retained by the UK. Obviously, we hope that there will not be penalties, but, were there to be penalties, the Commission has suggested that receipts go to the central EU budget. We would expect them to translate in due course into lower EU budget contributions from member states.

The right hon. Gentleman raised concerns about biofuels. He will be aware that the Government asked Professor Gallagher to review the biofuel strategy and the renewable transport fuel obligation that we passed. The report, which deals with the direct and indirect impacts of biofuels, has been submitted, and the Government are due to respond. The pronouncement will be made shortly.

The right hon. Member for East Yorkshire asked about our commitment to derogations and protections for British industry. I hope that I have given him and other right hon. and hon. Members assurances about our commitment to that.

We will continue to negotiate in Europe for a successful outcome for the UK and its manufacturers that also deals with the important issue of climate change.

Question put and agreed to.

Resolved,

Committee rose at four minutes to Six o’clock .