Climate Change Bill [Lords]

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Mr. Woolas: The hon. Gentleman’s point is right. How we report our emissions is agreed under Kyoto. That goes back to the point that, from a global perspective, if we measure bunker fuel sales, we get a global total. That does not amount to an agreement between countries that their share of the emissions calculation should be based on bunker fuels. That, in my view, is na├»ve. If one goes to Rotterdam, where approximately 30 per cent. of shipping fuels are sold, of course the Dutch Government are prepared to report that, as a report under the UNFCCC agreement. Were there a request to take on the cap consequential on that in the European Union trading system, the Dutch—who, I would argue, along with the UK, are possibly the most environmentally progressive country in the world—would not agree to that.
The hon. Gentleman is right to say that the reporting method is agreed, but I make the simple point that that is not the same as the allocation between countries being agreed. He is going to push his policy anyway, and I respect him for that, but I want him to accept that point. It is analogous to asking Southampton, Felixstowe or Hillingdon to take on board, within local authority caps, the total emissions generated from trade through Southampton, Felixstowe—I will throw in Liverpool and Merseyside, for the benefit of the Liverpool Echo—or Hillingdon. I hope that hon. Members see my point.
Mr. Chaytor: Just for the sake of clarification, does my hon. Friend accept that nothing in new clause 1 would require the Government to accept irreversibly a particular method for calculating emissions now, and that the purpose of new clause 1 is simply to advance the process of international negotiations? He fully accepts that this is a complex matter and that the current method that the UK uses may not be the one that is finally agreed.
Mr. Woolas: New clause 1 is sensibly drafted. By including both international aviation and shipping emissions in the targets and budgets under the Bill from 1 January 2013, if I have read it correctly, the Secretary of State would have to
“have regard to international carbon reporting practice.”
Later on, clause 86 defines the reporting method that I have mentioned. As I say, the Secretary of State would have to have regard to that carbon reporting practice or any other such EU or international agreements as may be specified. So I take my hon. Friend’s point, which that is why it is a more difficult argument for me to put.
Let me finish my argument, if I may. My hon. Friend’s second question was why have a date five years after Royal Assent that falls in the second budget period? I am very keen to emphasise that the Government amendment requires us to include emissions or to report to Parliament within five years, not at the end of five years—we could take a decision earlier. Why have we chosen that phraseology? The answer is that the Lords suggested that date and that framework and we are seeking to work within their amendment. In other words, I am trying to be consensual and once again I am learning that that is not always the easiest policy to pursue.
The EAC concluded that, due to the significant uncertainties in this area, which are widely accepted by commentators, we should use the internationally agreed methodologies in this area. They do not include any radiative forcing index or multiplier in that regard.
I was specifically asked by the hon. Member for Vale of York about road and rail on the point that was made about the channel tunnel. Of course, there are already clear international rules on how to allocate road and rail emissions to countries, but there is no such international agreement in relation to international air or sea travel.
Let me quote Lord Taylor of Holbeach, the Conservative spokesperson in the other place, who said during the debate on this issue, in this case in relation to shipping:
“If the regulations on shipping are not sophisticated might prove economical to have goods driven across much larger stretches of land and then simply loaded on to ferries to make the Channel crossing, when a large ship could have delivered the goods to England with a fraction of the carbon footprint.”—[Official Report, House of Lords, 4 March 2008; Vol. 699, c. 1015.]
That was the point that the hon. Member for Bexhill and Battle made, and that is exactly the type of risk that I am talking about. In the case of aviation, we would also need to be clear on how a UK system would fit with aviation’s inclusion in the ETS, which we expect to start in 2012.
Gregory Barker: That is the very reason why we should have the broader definition of aviation and transport that we have suggested.
Mr. Woolas: That was not the conclusion that Lord Taylor of Holbeach came to in the other place. I see the argument, but I believe that there would be a perverse incentive for that.
Let me finish my point on aviation; I think that the hon. Member for Bexhill and Battle will accept the logic of my argument. Once the ETS rules are agreed—and I expect they will be—we will ask our Committee on Climate Change for detailed advice on whether there is a methodology that works and that is compatible with both the EU ETS rules and the wider international context. We will also ask what the impact of adopting that methodology would be. We expect to be in a position to take a decision on whether to include international aviation emissions in our targets ahead of the start of the second budget period in 2013.
My argument is that there is strong agreement—the United Kingdom has pushed this point—to include aviation and shipping. We base our whole policy in the international arena on the idea of cap and trade and that means one has to base emissions on science—on actual emissions, not on some political fix. Our policy and the political pain that I acknowledge that we are going through on this point—I am the recipient of many thousands of communications on this matter—is not based on our desire to avoid the inclusion of aviation and shipping simply because we wish to exempt those sectors. We take our position because we wish to ensure that aviation and shipping are included in a practical, pragmatic way that can include those sectors, that leaves open better possibilities for international agreement and that is fair to the other sectors within our economy. In an appeal to my hon. Friend the Member for Stoke-on-Trent, North, I could mention ceramics, but I could equally appeal to Southampton, Felixstowe or elsewhere. We need to act pragmatically, and I urge the Committee to support that policy.
Question put, That the amendment be made:—
The Committee divided: Ayes 11, Noes 8.
Division No. 4]
Banks, Gordon
Brown, Mr. Russell
Chaytor, Mr. David
Gilroy, Linda
Griffith, Nia
McDonagh, Siobhain
Ruddock, Joan
Snelgrove, Anne
Walley, Joan
Whitehead, Dr. Alan
Woolas, Mr. Phil
Baldry, Tony
Barker, Gregory
Gummer, rh Mr. John
Horwood, Martin
Hurd, Mr. Nick
McIntosh, Miss Anne
Webb, Steve
Weir, Mr. Mike
Question accordingly agreed to.
Clause 15, as amended, ordered to stand part of the Bill.

Clause 16

Powers to carry amounts from one budgetary period to another
Gregory Barker: I beg to move amendment No. 52, in clause 16, page 8, line 44, leave out ‘1%’ and insert ‘0.5%’.
This is a probing amendment. We propose to reduce the amount of carbon units that can be carried back from one budgetary period to the preceding budgetary period—the latter period would be reduced so the previous period could be increased. We propose to reduce the amount that we are allowed to borrow from the future from 1 per cent. to 0.5 per cent. Although we appreciate that external factors, such as the weather, might make this so-called banking and borrowing useful to a degree, we want to ensure that the budgets are robust and not pliable, especially under political pressure.
5.45 pm
We are also concerned that too generous a carry-back period might allow any Government of the day to hide their failure to meet the budgets and allow them to pass the buck on to the next Administration. The issue of banking and borrowing is worth probing further, particularly in the light of our earlier discussion about indicative annual ranges. There is a clear link between the width of any indicative annual range and the corresponding width in the banking and borrowing between budgetary periods.
I have already argued that the indicative annual range must not be too broad. I understand that the 1 per cent. banking and borrowing provision under clause 16 only affects the five-year budgetary period. However, we still need further clarity on their relationship. For example, how would banked reductions at the end of a five-year budget affect the next year’s annual range? Would the Government be allowed to count their banked reductions towards meeting the first year’s annual range, or would they have to spread them out over the entire period? Conversely, if a budget period began with 1 per cent. already borrowed from it, would all the annual ranges for that period be adjusted to reflect that?
Spreading out the effect of banked or borrowed reductions across the entirety of the next budget seems to make sense. It might not be possible to recoup the entire borrowed 1 per cent. within the first year of the next budget. Similarly, it would not be appropriate to use banked reductions to make it seem like the annual range for the first year had been achieved when in fact the Government were relying on the success of the previous five-year period—much like the way in which the current Government rely on the success of the previous Administration to achieve their Kyoto target. My right hon. Friend the Member for Suffolk, Coastal played a heroic part in that success.
If the carry-back provision was narrower, that sort of thing would not cause the same problems in the calculations of indicative annual ranges.
Mr. Gummer: Has my hon. Friend heard any argument other than the weather for all this? The British have a tendency to blame the weather for everything. The truth is that if we consider climate change, the weather should have a less adverse effect than previously. Will he ask the Government whether the weather has become the universal explanation for not tightening this up more effectively?
Gregory Barker: Once again, my right hon. Friend has put his finger on it. I have not heard of any meaningful explanation other than the weather of why these indicative ranges would have to be changed so materially. Although there may be more violent weather events, we expect the weather to become milder and less severe in our part of the world. Perhaps the Minister can enlighten us.
It is vital to know what a Secretary of State can count towards a given target or range of targets. I am sure that the Minister can clarify the relationship between banking and borrowing and indicative annual ranges, and I would appreciate a detailed explanation. I do not move this amendment to undermine the evident benefits of having a banking and borrowing system, because I fully accept that that is a sensible thing for any Government to have in reserve. I know that the necessity for such a facility is already reflected in the Kyoto protocol, and for some existing national level cap-and-trade schemes, such as the US acid rain scheme, which is mentioned in the Stern report. I also appreciate the importance of banking and borrowing with regard to the carbon price and the cost of mitigation, and I understand the importance of having a carry-back facility in case of adverse weather or other unforeseen circumstances. Notwithstanding those issues, I wish to probe the Minister for more detail about the relationship between the breadth of the indicative annual ranges and the similar breadth of the carry-back facility.
Steve Webb: I wish to make a brief comment on amendment No. 52 in anticipation of a separate clause stand part debate.
The amendment, which is identical to one tabled in the other place, would replace one arbitrary figure with another arbitrary figure, albeit one that is smaller. It would be interesting to know from the Minister the thinking behind 1 per cent. and whether it is anything more than something along the lines of saying, “It’s not very much, is it?”, which is how I think the figure was derived.
As for the magnitude of the figure, it is a percentage of the five-year aggregate carbon budget. That means that it is bigger than it looks because 1 per cent. of the five-year total is equivalent to 5 per cent. of one year’s total—[Interruption.] It took me years to work that one out. This is important. It sounds innocuous, but in the context of 80 per cent. cuts over 50 years, with 1 or 2 per cent. as a typical annual figure, the amount under this provision could be 5 per cent. of the annual figure, which is large.
As I shall explain in the stand part debate, I object to the principle of borrowing. However, if we have to do that, we need the figure to be justified, and we should certainly err on the side of a much smaller figure, given that, in effect, it is five times as big as it looks. If all we can have is a smaller figure, I would rather have that and I would support the amendment, but I prefer not to have the principle at all.
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