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I want to endorse the comments made by the right hon. Member for Suffolk, Coastal (Mr. Gummer), who pointed out that in environmental policy, above all, we need a Government who are open, outward-looking and prepared to engage with the international community. Of course, my right hon. Friend the Member for Scunthorpe (Mr. Morley) pointed out earlier that aviation’s inclusion in the EU emissions trading scheme was carried out under the UK presidency. Will the Minister say whether she thinks that that would have happened if the Government had had an irrational, obsessive Eurosceptic policy?
As we move towards further negotiations on the precise methodology for including emissions from aviation and shipping, are we more or less likely to reach agreement with other nation states with a Government who are open, outward-looking, prepared to negotiate and positive about their membership of the EU or with a future Government less enthusiastic about the EU and determined to refuse to co-operate with the other member states? It is self-evident that the likelihood of any change of Government in the future is linked to that. The shadow spokesman, who is not in his place, worked himself up into a frenzy of excitement about the prospect of an incoming Conservative Government, but the likelihood of that happening is in inverse proportion to the continuation of the Opposition’s irrational, obsessive hostility towards the EU and international co-operation more generally.
Mr. Lilley: I draw the House’s attention to my declaration in the Register of Members’ Interests.
In the speeches of a number of hon. Members, it has been assumed that the whole House is unanimous on the measures before us, and on the Bill that they amend or add to. Historically, the House has made its worst mistakes not when it is divided, but when it is virtually unanimous; not when it is adversarial, but when MPs switch off their critical faculties in a spasm of moral self-congratulation. My concern is that, in considering these measures, we are displaying that tendency. It is vital that we bring the House back down to earth by considering the hard costs and benefits of, and alternatives to, what is proposed and what we are doing. We have not done that very much so far in the debates in the House. Only once in Committee was mention made of the costs and benefits of what we are proposing.
Mr. Morley: The right hon. Gentleman will find that, apart from the Stern report, which addressed the issue of costs and benefits, the report by Lord Turner specifically identified some of the projected costs for his recommendations, which are now being incorporated in the Bill. They were relatively modest.
Mr. Lilley: I am not in any way disputing what the hon. Gentleman says, but no hon. Members, in either the House or Committee, have addressed the question of costs and benefits. They could have done so, as the Government have produced an impact assessment spelling out their estimate of the costs and benefits involved. Those figures are all we have when it comes to trying to assess the costs and benefits of the specific clauses and amendments before us.
The Government’s impact assessment has three very important implications. The first is that the costs of the Bill as a whole are potentially huge, and they will be even more onerous if these proposals are accepted. The impact assessment puts the transitional costs at between 1.3 and 2 per cent. of gross domestic product up to 2020. In addition, there will be competitive costs to this country as a result of industry being driven overseas, even though that will not reduce the level of carbon emissions. Ignoring both those costs and making the heroic assumption that British industry can instantly and perfectly implement the latest and most cost-effective technology to meet the targets, means that the estimated cost of the Bill as a whole—even before the target for emission reductions is increased from 60 per cent. to 80 per cent.—comes to £205 billion.
That is a lot of money. We have to ask whether we are prepared to increase it by including aviation and shipping, as the measures before us propose. I do not know whether hon. Members have consulted their constituents, but £205 billion would equal over £10,000 from every family in every constituency.
People are used to hearing about the large sums of money being used to rescue the banks, but that has been in the form of loans that one hopes ultimately will be repaid. The costs that we are incurring through the amendments—and by the Bill even if it remains unamended—are real money. Our constituents will cough up that £10,000 in taxes and lost incomes, and never see it again. Before we add even more onerous burdens by including aviation and shipping in the Bill, we must be very sure that we are happy with the costs that we are already incurring.
Secondly, we need to look at the benefits, which the impact assessment also considers. Although it shows that the maximum costs, even excluding all the things proposed in the measures before us, are potentially £205 billion, the striking thing is that it puts the maximum benefits of the actions proposed in the Bill at £110 billion, or just over half that total. Do the authors of the new proposals believe that their costs will eventually exceed their benefits, as is the case with the Bill as a whole, or can they reassure us that the benefits will be greater than the costs?
Mr. Christopher Chope (Christchurch) (Con): Will my right hon. Friend give way?
Colin Challen: Will the right hon. Gentleman give way?
Mr. Lilley: I will give way in a moment, and especially to the hon. Member for Morley and Rothwell (Colin Challen).
I have reservations about the certainty with which some people adopt the scientific case behind global alarmism, but I am equally uncertain that it is necessarily wrong, so I am quite prepared to take out an insurance policy against the possibility that we will face global warming, just as I insure my house against the possibility of fire. However, I ask the House whether it is sensible to buy an insurance policy whose premiums could be twice the value of one’s house—
Mr. Deputy Speaker:
Order. The right hon. Gentleman is an experienced and skilful debater in this House, but I think that he must realise himself that he is building a
broad case on a narrow foundation. The remarks that he is making are, in terms of good order and debate, more strictly applicable to later parts of the Bill, and particularly to Third Reading. Therefore, I really must direct him to the specific matter covered in this group of new clauses and amendments.
Mr. Lilley: Of course I take your remarks to heart, Mr. Deputy Speaker.
We have to remember the normal laws of declining marginal benefit and increasing marginal cost. If we tighten the Bill by adding more rigorous burdens regarding aviation and shipping, we must expect the costs to be higher than the costs of meeting the 60 per cent. target, let alone the 80 per cent. target, and we must expect the benefits to be less than the marginal benefits that were to be accrued.
5.30 pm
David Howarth: The right hon. Gentleman will of course be aware of the work that Professor Barker did with Pan, Köhler, Warren and Winne, published in 2006 in The Energy Journal, which showed that as the targets become stricter, the world growth rate increases because of induced technological change. Economics has moved on slightly since he was at Cambridge.
Mr. Deputy Speaker: Order. Oh, dear. The hon. Gentleman is enticing the right hon. Member for Hitchin and Harpenden (Mr. Lilley) towards the wider aspects of the Bill again. I must remind the House that we want to make progress on to other matters, and we should therefore stick strictly to the terms of the amendments before us.
Mr. Lilley: I will do just that and avoid discussing with the hon. Member for Cambridge (David Howarth) my experience of Cambridge, which was splendid. I instead return to the measure before us, which asks the Committee on Climate Change to assess the cost of including aviation and shipping in the Bill. However, the new clause does not say how those assessments are to be made. We must assume that they are to be made on the basis that Lord Stern used to assess the costs and benefits in the report to which the right hon. Member for Scunthorpe (Mr. Morley) referred, or on the basis used in the impact assessment that the Government put before the House, although that assessment refuses to give us any costings specifically on aviation and shipping.
It is interesting that the impact assessment totally contradicts Lord Stern, who said that the costs of the measure, including aviation, would be far short of the benefits. Of course, he reached that conclusion only by discounting the future at such a low rate that the benefits exceeded the costs. According to Nordhaus, the leading valuator of this sort of methodology, half the benefits that Sir Nicholas Stern takes into account will not accrue until after the year 2800, but so low is his discount rate that they outweigh the costs that we will incur in this century.
More sensibly, the Government rejected that. I asked them what interest rate they think should be used, and presumably want to use, in the assessments that they require in new clause 15. They say that they are using the traditional, conventional discount rate required by the Treasury of 3.5 per cent. in real terms. That is why
their calculations show that the costs are not necessarily much lower than the benefits, and could well be twice as great as the benefits. Presumably, if the Committee follows the Government’s methodology, it could reach the same conclusion for aviation and shipping.
Mr. Lilley: I give way to the hon. Gentleman, who made by far the best speech on Second Reading.
Rob Marris: I am grateful to the right hon. Gentleman. Like other industries, aviation and shipping are, of course, susceptible to technological change. On the £205 billion cost—that is the upper end; the lower end is £30 billion—may I point out that the impact assessment said:
“Upper end of the range assumes no technological change”?
There may well be technological change in aviation and shipping. Conversely, on the benefits, which are between £82 billion and £110 billion, the impact assessment says:
“Benefits are therefore likely to be higher.”
I suggest that the right hon. Gentleman is being a little pessimistic about aviation and shipping, and about the cost-benefit analysis.
Mr. Lilley: I may be wrong, of course, but I am using the Government’s figures. Throughout the debate no one else has bothered even to mention the Government’s figures, and they were mentioned only once in Committee. It is only sensible that we should do so, and if we do, and if in particular we reach the conclusion that they should use the methodology implied in the impact assessment and not the absurd methods used by Sir Nicholas Stern, now Lord Stern—he received his reward—they would reach a conclusion very similar to that advocated by the hon. Gentleman on Second Reading: that we should put far more emphasis on adaptation to helping poor countries cope with climate change, rather than on crippling our industries—aviation, shipping and all the other industries—to little avail.
Mr. Lilley: I give way to my hon. Friend, who made the equal best speech on Second Reading.
Mr. Tyrie: I hope that my right hon. Friend has not devalued the compliment that he threw across the Floor of the House; heaven knows what he will say when another Member seeks to intervene.
The question at issue has been whether technology in aviation and shipping can proceed at a pace to enable the costs to be kept reasonably low and therefore to allow us to pick up the benefits of a low carbon technology without extra cost. Is my right hon. Friend aware that the leading estimates of the improvement needed in carbon productivity are that it needs to increase fourfold over the next 40 years—that is, that the average of the past 15 years, which is 1.5 per cent. per annum, needs to increase to about 6 per cent. per annum if we are to get anywhere near meeting the 80 per cent. target? Will he speculate on whether it is plausible that a fourfold increase can be achieved?
Mr. Lilley: That would be extremely demanding, but the implications of the Government’s impact assessment both for aviation and shipping and for industries more generally is that we must find more effective ways of reducing costs and carbon utilisation than they themselves think are available or would result from the measures in the Bill.
Either that, or we must adopt the route proposed by the hon. Member for Wolverhampton, South-West (Rob Marris) and devote more effort to adaptation to climate change rather than mitigation, which would remove the burden—the almost impossible task—of bringing aviation and shipping into the scheme. It would also mean that, if global warming continues but turns out not to be predominantly the result of human activity, we would still be able to help the people in poor countries who would suffer from it, whereas we would not help them if we relied only on mitigation efforts.
The implications of the clauses before us are extremely serious. We are potentially asking our constituents to bear a burden of £10,000 for every household, should we increase it. We are potentially producing benefits that may be only half the costs that we are incurring. We have been using a method to assess future costs and benefits that has been surreptitiously abandoned by the Government, but they have told us nothing about it. These issues ought to be discussed more fully before the Bill becomes law, and it is a sad day when Parliament refuses to face up to these hard facts.
Alan Simpson (Nottingham, South) (Lab): There is a real danger of the House misleading itself into debates which, although important, are not the debates that should be taking place on the amendments. There are issues to be addressed concerning the methodology of impact assessments, but at this stage the House is being asked to address the principle of the inclusion of the Government’s assessment of carbon impacts in the way in which we set our carbon budgets. It is important to bring the debate back to that.
It is also important not to allow ourselves to conduct a caricature debate about the choices that we face. The choices are not between unilateralism or multilateralism, or between mitigation or adaptation. We will have to do both. When the ship is sinking, the last thing we want to hear is someone running round the decks saying, “No action until there is a global refit.” If the ship is sinking, we want action taken on the threat that we face at that time.
What we need to recognise from the scientific reports, which have been coming to us in their own tsunamis, is that the climate and the planet are the part of the equation that is in the process of taking the most enormous unilateral action. We will have to address huge upheavals in the whole framework of how we consider societies and economies capable of working viably throughout the whole of this century.
I had hoped that the hon. Member for Birmingham, Yardley (John Hemming) would be here for his customary intervention on this issue. The answer to the question about oil is that by the time we come out of the current global financial crisis, two things will be queuing up. The first will be the climate crises already in the pipeline. Secondly, by that time we will probably have passed the peak oil level anyway, and we will have to move to a post-oil economy if we want a viable economy of any sort.
The question before the House is whether it is right in principle to include aviation and shipping in how we assess carbon impact. The answer is that it has to be right. It would be absurd for the House to pretend that we can ignore the impact that aviation in particular, and shipping, have on our carbon emissions and the climate damage that we do. The right hon. Member for Suffolk, Coastal (Mr. Gummer) is right to say that there are domestic implications that need to feed back into our policy on airport expansion. It would be enormously sensible to draw airport expansion to a halt; that would give a hugely important signal to people in this country and internationally about the importance that we place on the environment being the centrepiece of any sustainable economy in the 21st century.
Mr. Graham Stuart: I agree with the hon. Gentleman; it makes no logical sense for shipping and aviation to be excluded. They should be included. Amendment No. 72 says that consideration should be given to
“the emissions...that the Secretary of State expects to arise during the budget period.”
However, the Minister seemed earlier to suggest—perhaps I misunderstood her—that the Government would refuse to produce any numbers on the emissions that they expected to arise from aviation and shipping.
Alan Simpson: I understood that the Minister said that she would produce the assessments for the period of the Parliament, but that there was no point in coming back with annual statements when those would be set out in the overall assessment. In so far as we can predict across the period of a whole Parliament, that is the sensible way for the issue to be incorporated.
I want the Liberal Democrats to think carefully about whether we need to divide on new clause 14. When I consider amendment No. 72, the Government’s comments about its incorporation into the framework of the Bill and what the Bill says, I think that there is a real danger that we would be dividing about how many angels there are on the head of a pin. I find comfort not in clause 10, but in clause 9, which sets out a duty for the Secretary of State to
“publish a statement setting out whether and how the order”,
which has to be brought before Parliament,
“takes account of any representations made by the other national authorities.”
In so far as there is a direct transfer from aviation and shipping to other sectors of the economy, I cannot conceive of a situation in which those sectors do not make their own representations about the distorting effects of their being asked to carry the carbon consequences of existing policies on aviation and shipping.
The cross-party agreement that seems to have emerged gives everything that the Liberal Democrat new clause seeks to deliver. There are issues on which it is important for the House to divide, but we owe ourselves the discipline of not pretending, for narrow advantage, that there is a real division among the different parties, and that a real gain can be made from a Division when it cannot. I hope that the Liberal Democrats will have another look at the amendments and the clauses that were initially in the Bill, because I doubt whether they could find any way in which new clause 14 would change anything.
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