Mr.
Woolas: Indeed. To achieve the balance that we discussed,
we require such powers. Let me explain. The first application of the
new powers will be to support the carbon reduction commitment—a
new UK cap-and-trade scheme that will apply to large
non-energy-intensive organisations in the public and private sectors,
including, we anticipate, Government Departments. That is a progressive
step.
The powers
may also be used to introduce a household energy supplier obligation to
succeed the carbon emissions reduction target that ends in 2011. The
principles underlying any additional scheme would be its
interoperability with other schemes, specifically the ETS, its
interoperability through that mechanism with other global or worldwide
schemes, and, just as importantly, whether it would achieve further
reductions in emissions than would existing participation in the ETS or
the other two schemes that I mentioned. Given that we are legislating
for a long period, it is possible that the ETS will not exist, in which
case we would need those powers. We are simply taking powers that
Northern Ireland and Scotland already have to set up such
schemes.
Steve
Webb: Will the Minister clarify whether the provisions
apply only to sectors, broadly defined, that are outside the ETS? If
they applied to people within the ETS, what would happen if they traded
in the sectoral scheme, did well and built up credits? I want to know
about that interaction.
The question
takes us back to the debate about the domestic effort as against the
international effort. Having a national cap or target means that if we
do well domestically, we simply sell our surplus credit to somewhere
else, so the aggregate across the EU will not fall. That seems to run
counter to what we are trying to achieve through the sectoral scheme.
Perhaps sectoral schemes should be non-EU ETS
schemes.
Mr.
Woolas: I see the hon. Gentleman’s point. Sectoral
schemes could be within the ETS, but they probably will not be. One can
envisage circumstances involving international industries that are not
predominantly European-based. I hesitate to offer an example because
trade associations will write to me about it, but let us say that the
international widget manufacturing association wanted to propose a
scheme, and that a lot of widgets were produced in a
place—again, I shall not mention a particular
country—that is east of Berlin.
Suppose a
judgment was made that one could preserve UK competitiveness and
encourage a reduction in emissions across a European geographical area.
One might want to do that within the ETS, so we have not ruled it out.
We are trying to provide flexibility. In practice,
we can identify steel, aluminium and, perhaps, food processing, as well
as other sectors as they grow from the grass roots upwards. My example
of bus operation is not fanciful;. One could envisage such a scheme as
we embed carbon budgets. I hope I have answered the
question. Question
put and agreed
to. Clause
44 ordered to stand part of the
Bill. Clause
45 ordered to stand part of the
Bill.
Schedule
2Trading
schemes
Martin
Horwood: I beg to move amendment No. 74, in
schedule 2, page 51, line 33, leave
out from ‘responsible’ to end of line
34.
The
Chairman: With this it will be convenient to discuss
amendment No. 73, in
schedule 2, page 51, line 34, at
end insert— ‘(5A) (a) Any
method specified for the purposes of paragraph (5) shall have the aim
of ensuring that any amount calculated bears as close a relationship as
possible to the actual emissions of the activities to which the trading
scheme applies; (b) where
biomass is used as an energy source, any such method shall take account
of the carbon absorbed during the lifetime of the
biomass; (c)
“biomass” has the same meaning as in the Renewable
Transport Fuel Obligations Order
2007.’.
Martin
Horwood: The amendments follow on from our previous
debate, with a similar theme of interoperability. They seek to replace
the rather vague wording in paragraph 3(5)(b) with more specific
wording specifying that not only should regulations be introduced to
set out the method by which the amount of reductions are to be measured
and calculated, but they should bear
“as close a
relationship as possible to the actual emissions of the activities to
the which the trading scheme
applies.” One
would hope that that would be an unnecessary measure, but practice
tells us otherwise.
A wonderful
variety of carbon and energy reduction schemes is developing. We have
the ETS, climate change agreements and the carbon reduction commitment,
and in another context there are renewables obligation certificates.
However, the problem with that complexity is that perverse results
start to emerge. The interplay between the last two schemes that I
mentioned—renewables obligation certificates and carbon
reduction commitment —is causing a few problems in the
commercial, private sector.
The carbon
reduction commitment is rather a misnomer, as it incentivises not the
reduction of carbon, but the reduction of energy use. It is valuable as
an energy efficiency measure, but it has one serious flaw as it assumes
that all energy coming into an enterprise is at the grid average, and
that there is an equal need to reduce energy across all of a
company’s activities, no matter what the power source.
In some cases
it is difficult to pin down the source of energy, but in other cases it
is rather easy. I cite a domestic example. I have a solar-powered radio
in my flat in London. [ Hon. Members:
“Hear, hear.”]. Very sound, I know. I
never plug it in and it is powered entirely by the solar panel on top
of the radio. I leave it on all day—discreetly, so as not to
disturb my
neighbours—and it is a useful security measure, especially if our
addresses get published. It quietly plays all day while the sun is
shining. There is no reason for me to practice energy efficiency, turn
it off and reduce the amount of energy that I use, as it is powered
from an entirely renewable source that does not compete with any other
energy source and is completely carbon free. There is an
exact parallel in commercial enterprises where companies have on-site
renewables, which, in some companies, are becoming highly significant.
BT is, I think, the biggest and most impressive example so far,
although an hon. Member quoted Lily Allen’s recording studio as
another, and BT gets 30 per cent. of its energy from its own on-site
renewable energy generation. The carbon reduction commitment treats
that in the same way as energy coming from Drax or Kingsnorth or any
other of those fossil-fuel intensive energy sources.
The Renewable
Energy Association, BT and others would love to claim renewable
obligation certificates for that renewable energy. That produces a
problem of double counting or even double subsidy, whereby the same
carbon reduction gains credit in the ROCs scheme and in the carbon
reduction commitment. I acknowledge that there is a problem, and I
would not entirely endorse the Renewable Energy Association’s
optimistic lobbying on that front. However, it is clearly unfair that
enterprises cannot at least exclude the energy generated entirely from
a renewable source from the carbon reduction commitment scheme, so that
it would effectively be neutralised and at least would not count as
coming from a dirty source.
That is why
it is important that the scheme design is changed or the rules amended
so that in future, as in the clause, schemes are designed to pay close
attention to carbon emissions. They should not be simply plucked out of
a broader agenda such as energy efficiency, as that may not be
appropriate. Various companies have raised that serious point about
what is clearly an anomaly in the current scheme, which the amendment
is designed to
tackle.
Gregory
Barker: The amendments are intended to enhance levels of
transparency and accountability in the calculation of emissions. The
hon. Member for Cheltenham asked some sensible questions of the
Minister, and enlightened us as to his home listening habits.
It is not in
the interests of accountability or transparency on trading schemes for
the method by which emissions are measured to be entirely
self-regulated, or for there to be any doubt about how they are
calculated. There is eminent sense in these Liberal Democrat
proposals.
1.45
pm
Mr.
Woolas: The point that the hon. Member for Cheltenham made
is right: perhaps carbon reduction commitment is a misnomer. It is
intended primarily as an energy efficiency measure because it measures
energy use, rather than direct emissions—it is a proxy for
emissions. Conceptually, the carbon reduction commitment lies
underneath the climate change agreements and brings in the mid-ranging
organisations. Fifty per cent. of emissions in the UK are covered by
the ETS and we are trying to bring in other organisations, such as
large energy users. Increasing energy prices may change the
relationship.
The
difficulty, however, and the answer to the hon. Gentleman’s
question, philosophically, is double counting. One must ensure that the
mother scheme—if I may use that phrase; I think I can—or
the parent scheme that caps emissions is not undermined by the carbon
reduction commitment that lies underneath it. To follow the logic of
the hon. Gentleman’s argument, if there was a way of measuring
direct emissions from the use of energy by mid-ranking organisations,
one could have a subservient direct emissions cap and trading scheme,
but there remains the issue of double counting. I shall give him the
technical explanation in a minute, but bearing in mind his point about
needing to take account of where we get our energy from within the
carbon reduction commitment, we are trying to provide an incentive to
energy efficiency, which I know he
supports.
Martin
Horwood: I am grateful to the Minister and he is making
perfectly valid points. As regards one scheme undermining another, does
he not accept that at the moment, an enterprise taking all its energy
from a dirty source has no incentive under the scheme to develop
on-site renewables, even though that would clearly be a good thing to
do, because that energy would be treated exactly the same as the dirty
energy? Surely, the key is accountability for the energy that is coming
from outside, measurement of it, and the transparency of the process.
As that is something the Government are working on, they should be
happy to accept the amendment.
Mr.
Woolas: I will come to why I should not be happy to accept
the amendment in a moment, but the hon. Gentleman’s policy point
is right. Indeed, I hear the echo of many meetings with my colleagues
in the Department for Business, Enterprise and Regulatory Reform. The
carbon reduction commitment will take into account the source of the
energy and will incentivise use away from dirty energy by the
renewables obligation and, indirectly, through the
ETS.
Martin
Horwood indicated
dissent.
Mr.
Woolas: Let me explain, and then the hon. Gentleman will
stop shaking his head and start nodding it, I hope. We want to
encourage the uptake of renewable energy. However, where the carbon
savings from renewables are already counted by supplier schemes, such
as renewable obligation certificates, it would result in double
counting if the same units of renewable electricity could count towards
the carbon reduction commitment. The proposed approach for the carbon
reduction commitment is, therefore, simply to ensure that there is no
double counting. However, we propose that participants may count
renewable electricity generated on site if it is not counted against
targets in the renewables obligation. That approach demonstrates the
commitment to ensuring that the carbon reduction commitment delivers
additional carbon savings over and above those that suppliers are
required to deliver through the renewables obligation certificates
scheme, and will help to encourage it further.
Amendments
Nos. 73 and 74 would alter a provision of the trading scheme powers
with regard to how the greenhouse emissions from activities covered by
trading schemes may be calculated. The amendments make specific
provision on how energy from biomass should be treated under future
trading schemes. As currently
drafted, under paragraph 3 of schedule 2, trading
scheme regulations must identify the activities covered by the trading
scheme, and “specify the
units of measurement of the activities for the purposes of the
scheme”.
Further, paragraph
(5)(a) ensures that the activities covered by a scheme can be
calculated with
“reference to
the amount (in tonnes of carbon dioxide
equivalent)” for
which they are responsible, and paragraph (5)(b), which amendment No.
73 would remove, ensures that the regulations may specify how that
amount is calculated. In philosophical terms, that exactly meets the
point that the hon. Gentleman is rightly making.
To explain
further the whole debate about alternative sources, if one looks at
electric cars, they do not in and of themselves reduce emissions; it
depends on where the electricity comes from. That is what counts. The
hon. Gentleman is absolutely right that the CRC must incentivise not
just energy efficiency but emissions
reductions. There
are two likely situations. First, let us take it as read that it is
often difficult, expensive and sometimes frankly impossible, to measure
the volume of greenhouse gases emitted at a site, so it is common that
emissions in a trading scheme are derived by taking the volume of fuel
consumed and applying co-efficients to calculate the volume of
greenhouse gases that result. It is the calculation of that
co-efficient that a scheme must do—to meet the hon.
Gentleman’s
point. Secondly,
these powers apply equally to direct and indirect emissions, as set out
in clause 43. Indirect emissions are sometimes measured by taking
electricity use at, say, the office building in question, and then
applying the same co-efficients to work out the volume of greenhouse
gases when the electricity was produced back at the power
station—to meet the point that the hon. Gentleman makes.
Alternatively, by taking the volume of fuel sold for combustion and
applying co-efficients, it could be possible to calculate the volume of
emissions that result.
Under the
CRC, for example, it is proposed that emissions from
participants’ energy use will be calculated using a grid
electricity emissions factor. That will be based on the five-year
rolling average emissions factor, which is currently 0.523 kg of
CO2 per kWh. That shows how the provisions in paragraph
(5)(b) may be
applied.
Mr.
Woolas: I have confused the hon. Gentleman. Let me
reassure him, and then he will not need to intervene. Paragraph (5)(b)
ensures greater flexibility in the calculation of emissions from a
trading scheme. My figure is the co-efficient around which that is
calculated; it is the baseline, which is taken up or down depending on
the individual participant. One should remember that my officials and
others will be discussing with each participant in the CRC their
particular circumstances. That is necessary. It is not intended that
paragraph (5) will allow the Government or a national authority to
fudge the figures. I must cover things from the other point of view as
well, or the hon. Gentleman will press me as to whether the provision
is too flexible, and he would be right to do so.
Paragraph
(5)(b) ensures that the methodology for measuring emissions may be set
out in the regulations, which gives the hon. Gentleman the guarantee he
is looking for. Removing that sub-paragraph would therefore have the
effect of reducing the transparency of the trading scheme. The hon.
Gentleman is right, and I have added powers to make regulations to meet
the points he makes. I agree with him that CRC is a
misnomer.
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