Appendix—Government response
1. The Treasury's argument that new or higher
green taxes are unnecessary, because the Government is doing enough
to protect the environment through other policies, is hardly convincing
given the Government's lack of progress in reducing UK carbon
emissions over the last decade. Even if it were the case that
policy across Government was successfully delivering its environmental
objectives in full, it would still not be an excuse for the Treasury's
inaction. There is always a case for looking at the scope to increase
green taxation, since the Government is always in need of tax
revenue, and since, as the Treasury accepts, it is better to tax
'bads' than 'goods'. Taxes on high carbon activities such as driving
and flying can be used to reduce their demand without destroying
it, thus helping to achieve environmental objectives while still
generating large and predictable tax streams—which could
potentially be used to reduce other taxes. (Paragraph 8).
2. As for the Treasury's argument that the relative
decline in green taxes is a sign of their success in deterring
the activities on which they are levied, we would reply overall
that it has rather more to do with the Treasury's own decisions
to freeze most environmental taxes in most years from 2000 to
2006 inclusive. This is not the first year we have heard this
argument from a Treasury minister; we are disappointed to hear
it yet again, having repeatedly pointed out its obvious flaws
(Paragraph 9).
3. We understand the Treasury's caution over hypothecating
revenues from taxes to specific ends. However, it seems clear
that an element of hypothecation could play a crucial role in
gaining public acceptance of green taxes. It is perhaps unnecessary
formally to ring-fence certain revenue streams for particular
purposes, which could indeed reduce the flexibility the Treasury
has to manage year-to-year public finances. What is more important
is that the Treasury does a better job of publicly justifying
green taxes by explaining their core environmental purpose, as
well as linking them- however strictly-to increased spending on
the environment and reductions in other taxes. We recommend that
the Treasury consults on, publishes, and follows an explicit strategy
to win public support for environmental taxation (Paragraph 12).
The Government welcomes the Committee's report on
the 2007 Pre-Budget Report and Comprehensive Spending Review.
The Committee continues to provide a useful focus on environmental
issues.
The Government believes that the best measure of
success of environmental policy is its outcome. In the case of
climate change, this would mean looking at emissions reductions
achieved through the Government's Climate Change Strategy, and
performance against its Kyoto commitment. Policy instruments—whether
tax; regulation or spending—are a means to an end. It would
therefore be wrong to focus on a single instrument as a measure
of the success of environment policy—environment taxes are
just one of several possible levers at the Government's disposal.
Stern suggests that each country should use the appropriate mix
of taxes, trading, spending and regulation as befits its national
circumstances.
The Government has a strategy for tackling climate
change and the other environmental challenges we face that is
consistent with Stern. This strategy is set out in Government
publications and reiterated in PBR and Budget documents. As set
out in the Treasury's 2002 publication, Tax and the Environment,
the development of the Government's environment policy takes place
within a principled framework. This framework sets out the criteria
for deciding whether intervention through the tax system is the
right action to take, with one of these criteria being the need
to take account of the impact of action on wider social and economic
objectives—including maintaining sound public finances.
Another of the criteria is that, where tax is the best instrument
to use, the Government will look to shift the burden of tax from
'goods' (e.g. employment) to 'bads' (e.g. pollution). This is
in line with the Government's 1997 Statement of Intent on Environmental
Taxation, where the Government committed publicly to exploring
the scope of using the tax system for environmental purposes.
Within this framework, it is essential that the Government
uses the most effective instrument to achieve its aims. For instance,
regulation or voluntary agreements can be most effective where
there are a limited number of polluters, or where, for example,
market failures make product standards for energy or water efficiency
the most cost-effective instrument of behavioural change. Spending
measures may have a role to play where the polluter cannot afford
to reduce pollution, or where equity or distributional issues
make a tax or similar measure unacceptable. Fiscal measures can
tackle external environmental costs—such as pollution—through
reflecting such costs in prices and encouraging the behavioural
changes needed to move to a more sustainable economy, but it is
important that the bluntness of this instrument does not impact
negatively on wider Government objectives, such as reducing fuel
poverty.
Using this principled framework, the EU Emissions
Trading Scheme (EU ETS) is the centrepiece of the UK's climate
change strategy as it ensures that climate change is tackled effectively
and at least cost. This is a key instrument for pricing carbon
into decision-making. Alongside this, the Government has introduced
an innovative range of other measures to tackle the environmental
challenges we face, including fiscal measures such as: reducing
emissions in the business sector through the introduction of the
Climate Change Levy, associated Climate Change Agreements and
enhanced capital allowances for energy-saving technologies; and
incentivising higher energy efficiency in the household sector
through the extension of the reduced VAT rate for professionally-installed
energy-saving materials and microgeneration technologies. Budget
2008 announced further fiscal measures, including: significant
reform of VED and taxation of business travel; the setting of
future rates of fuel duty; increase in climate change levy rates
for 2009; and funding for the Green Homes Service.
Where fiscal measures have been the right instrument
for taking action, the Government has looked to shift the burden
of tax from 'goods' to 'bads'. For instance, the Climate Change
Levy package was introduced alongside a 0.3 percentage point reduction
in employers' national insurance contributions (NICs). The combined
CCL/NICs package has led to a net reduction in tax liability for
business as a whole: The lower NICs rate saves about £950m
per year for businesses in sectors paying CCL, while CCL costs
these businesses about £600m per year. CCL is encouraging
business to reduce energy costs. Cuts in NICs also accompanied
the introduction of the Aggregates Levy and Landfill Tax. And
the additional revenue raised from business by the increase in
the Landfill Tax escalator, announced in Budget 2007, was recycled
to business through the other corporation tax rate cut announced
in the Budget'.
The Government seeks to use environmental taxes to
shift the burden of tax from goods to bads. The Government shares
the Committee's views that hypothecation of tax revenues to particular
spending programmes can reduce flexibility and efficiency in the
allocation of public spending, with spending on that programme
determined by the revenues received rather than by a balanced
assessment of relative priorities across public services. It is
important that spending decisions are taken in the round as part
of the spending review process. Indeed, hypothecation of environmental
tax revenues to particular environmental spending programmes,
rather than using the revenue to fund general spending, can reduce
the scope for using environmental taxes to shift the burden of
tax from goods to bads.
In terms of the effectiveness of the Government's
environment policy, it is therefore important to look at the whole
strategy rather than just environment taxes. The Government has
made significant progress against its environmental objectives,
and is one of the few countries on course to meet its Kyoto commitment
on reducing emissions. Indeed, the Government's use of an innovative
range of measures has meant that the Government has delivered
these environmental benefits whilst supporting wider Government
objectives too, such as strong economic growth and reducing fuel
poverty.
4. In December 2006 the Treasury announced a doubling
of all APD rates from February 2007, which in some parts of the
media was reported as a bold move for the environment. In reality
for the majority of flights it only restored the rate of aviation
tax the Government inherited when it came into office. This represents
a cut in real terms of 29%. (Paragraph 13).
5. We welcome the Treasury's announcement to reform
Air Passenger Duty into a levy per flight rather than per passenger.
We further welcome the Treasury's announcement of consultation
on how this reform should be implemented, and how aviation tax
might be better correlated to distance travelled. We recommend
that airlines be mandated to calculate each passenger's share
of the reformed 'per-flight' tax, and to make this figure highly
visible (on adverts, websites, and tickets). We also recommend
that the Treasury closely examine the merits and practicalities
of better reflecting the emissions arising from longer intercontinental
journeys by adding a third banding to Air Passenger Duty, to cover
'very long-haul' flights. Short-haul charges must reflect the
disproportionate emissions resulting from take off and landing,
and should be aimed to encourage 'modal shift' towards rail alternatives.
Above all, it is vital that all rates of aviation tax are significantly
increased, so as to stabilise demand and resulting emissions.
(Paragraph 15).
The Chancellor announced at Pre-Budget Report 2007
that air passenger duty will be replaced by per plane duty on
1 November 2009. The new duty is intended to ensure the industry
makes a greater contribution towards its environmental costs and
to ensure that the aviation sector continues to contribute fairly
and equitably towards the funding of public services. The Government
aims to have a fairer duty more in line with the environmental
impacts of flights, including the distance travelled, and which
takes account of any social or economic impacts including market
distortions. The Chancellor further announced at Budget 2008 that
the new duty will raise a further 10% in its second full year
of operation
HM Treasury is currently running a formal consultation
on the new duty, which will finish on April 24th 2008. The consultation
considers all aspects of the operation of the per plane duty including:
1. Basis of the duty—an aircraft measure;
2. Basis of the duty—a distance measure;
3. The treatment of general and business aviation;
4. Possible exemptions to the duty;
5. The administration of the duty; and
6. Impacts on freight and transit/transfer services.
The Government welcomes the points made by the Committee
and will consider them as part of the consultation process.
6. In view of their potential size, we recommend
that the Treasury publish an estimate of the costs to the Exchequer
of reimbursing VAT expenses to aviation companies. This would
be in the public interest, no matter the practical obstacles to
changing aviation's VAT status, and might galvanise interest in
how these obstacles might be overcome. (Paragraph 17).
Air passenger tickets for journeys within the UK
or on a UK leg of an international flight are zero rated for VAT
purposes, consistent with the treatment of other domestic passenger
transport tickets. Airfreight is either outside the scope of VAT
(if international) or standard rated (if domestic or intra-EU)
according to the normal VAT place of supply rules. In all instances
above, the input VAT (the tax payable on costs) incurred by an
airline company in the course of supplying these services can
be reclaimed if the company is registered for VAT in the UK.
Changing the VAT treatment of these services so that
input VAT could not be reclaimed would require unanimous agreement
by all EU member states. In addition there is likely to be a significant
behavioural change as aviation companies seek to purchase their
inputs in countries in which no VAT is payable on their expenses,
reducing their UK tax bill and the effectiveness of such a measure.
In view of these significant obstacles the Treasury
has made no detailed assessment of the revenue which would accrue
from applying VAT on airline tickets. Prime Minister Brown considered
this measure in his Budget 2007 speech as Chancellor. He noted
that because of the legal difficulties, it would apply only to
domestic flights, business would be able to claim back VAT, and
even by 2020 would save just 50,000 tonnes of carbon—less
savings in one year than achieved by the climate change levy in
just one week. The Chancellor rejected this proposal for a package
of more environmentally efficient measures, which will save 6
million tonnes of carbon.
If the Treasury were to impose VAT on airline tickets,
a great proportion would be reclaimed back from business travel
by VAT-registered businesses, according to the normal VAT rules.
There would therefore be no overall net VAT gain on these particular
flights, which account for a large share of air travel. The Treasury
estimates that the removal of the current zero rate of VAT would
bring in around £260 million on domestic flights and £150
million on international flights. This revenue would accrue from
household expenditure on flights, and by those unable to recover
input tax such as charities and those businesses in sectors with
significant VAT-exempt activities.
7. We note that some motoring organisations have
begun calling for the next planned increase in fuel duty to be
scrapped, given the rise in petrol prices due to increases in
the price of crude oil. We also note, however, that demand for
road fuel is still strong in spite of these price rises. The forthcoming
Budget is a test of the Treasury's environmental credibility:
it must not defer its planned rises in fuel duty (Paragraph 19).
The Government remains committed to increasing fuel
duty at least in line with inflation each year, in order to reduce
emissions, focused on achieving our long-term CO2 targets.
To demonstrate long-term commitment to this policy—in the
context of long-term environmental targets—Budget 2008 announced
that fuel duty will increase by 1.84 pence per litre in April
2009, and by 0.5 pence per litre above indexation in April 2010.
To show that the Government is still able to respond
to the short-term economic pressures, however, Budget also announces
that the planned 2 pence per litre increase due on 1 April 2008,
would be deferred to 1 October 2008. Fuel duty increases in October
2008, April 2009 and April 2010 will result in savings of around
0.5 million tonnes of carbon dioxide a year by 2010.
8. If the Government were only going to fund one
Carbon Capture and Storage demonstration project, we believe it
was right to restrict the scope of the competition to a post-combustion
coal plant. We agree with the Government that this type of technology
has the greatest global potential, given the possibility that
it could be retrofitted to existing power plants. If widely adopted,
it could dramatically reduce the emissions of countries such as
China and India, while simultaneously providing significant economic
opportunities to firms with experience of carrying it out (Paragraph
22).
9. Post-combustion technology appears to be further
away than pre-combustion from being introduced by the market on
its own. This means that funding a full-scale demonstration plant
is a particularly appropriate and effective form of subsidy for
post-combustion technology. We hope that this demonstration will
be able to prove to interested companies that post-combustion
plants are physically viable, and teach valuable lessons about
how to build and operate them efficiently (Paragraph 23).
10. While the CCS competition is very welcome,
it is imperative that the Treasury provides considerably more
assistance for CCS projects overall. No matter which type of technology
is adopted, CCS plants will incur extra build, operational, and
infrastructure costs over conventional power stations. Without
clear and long-term financial security for CCS, the risk is power
companies will not invest in CCS plants even once the demonstration
project is operational—let alone bring forward the plans
they have for pre-combustion plants today. In the longer term
the EU ETS may be able to provide sufficient financial incentives.
But in order for CCS to be deployed widely and swiftly in the
UK, we recommend that the Government introduce some form of financial
mechanism for incentivising CCS power plants over conventional
power stations. The Treasury should examine options such as a
feed-in tariff for CCS plants, or contracts, which guarantee funding
for the difference in costs between CCS and conventional plants
(Paragraph 28).
11. Overall, we are concerned that the Government
is not showing sufficient urgency in its assistance to Carbon
Capture and Storage industries. The Government must now be more
decisive in its support for CCS, especially given that a number
of existing power stations are coming to the end of their lives,
and power companies are taking decisions imminently on a new generation
of power plants to replace them. Where these can be built with
pre-combustion CCS, they will immediately lower UK emissions.
Where they are built as conventional gas and coal-fired power
stations, the Government must mandate that they are built 'CCS-ready',
with the expectation and the financial support in place to ensure
they are retrofitted with post combustion technology as soon as
possible (Paragraph 29).
Carbon Capture and storage (CCS) is a key global
technology identified by the Stern Review. The Government is committed
to developing and demonstrating CCS technology.
The competition to design and build the UK's first
full-scale CCS demonstration is underway, and BERR expect to conduct
an initial sift of bidders shortly. The project aims to be operational
by 2014—this makes the UK a world leader in this important
technology.
An important incentive for investment decisions in
CCS is the carbon price. Carbon pricing through the EU Emissions
Trading Scheme (EU ETS) ensures that energy generators face the
cost of their emissions and helps to reduce emissions in the business
and energy supply sectors in an effective and least-cost way.
In the initial phases of the EU ETS, allowances were distributed
for free, however in the longer term free distribution can reduce
incentives for firms to reduce omissions. Auctioning of allowances
is the most efficient way to avoid this. The UK is one of the
Member States going furthest on auctioning in Phase II and the
Budget 2008 announced that in Phase III the UK will auction 100
per cent of allowances to the large electricity producers' sector.
Alongside the UK competition, BERR will shortly announce
a new call for expressions of interest under the Environmental
Transformation Fund to support the development of component parts
of CCS.
The Government is also developing the regulatory
framework for CCS in the UK. The Energy Bill will enable carbon
to be captured in the UK and stored in the North Sea. The Government
will shortly be launching a consultation on CCS regulations as
well as what it would mean for a new coal-fired power station
to be 'capture ready', (i.e. to be in a position to retrofit CCS
technology once it is proven at a commercial scale), and whether
all new fossil fuel power stations should demonstrate that they
are capture ready.
Climate change is a global problem, and especially
technology solutions require multilateral collaboration. The UK
is working with India on research on CCS, with China on the nZEC
CCS demonstration project, with Norway and Denmark on he required
infrastructure for CCS and with the G8 and the EU Commission on
CCS strategy.
12. There appear to be serious flaws in the thinking
behind the new Shadow Price of Carbon. We recommend that it be
reformed, so that instead of assuming that global climate change
goals will be met, it is based on the costs of climate change
on a 'business as usual' trajectory of emissions. Furthermore,
given the inherent difficulties in putting a price on climate
change, the Government's first priority in deciding on the merits
of potential policies and construction projects ought to be deciding
how they affect UK carbon budgets, and only secondly on what the
monetary value of resulting carbon emissions would be. We may
choose to examine the Shadow Price of Carbon in more detail in
a future inquiry, looking in particular at how it is being used
in cost-benefit analyses and impact assessments throughout government.
(Paragraph 38)
Defra released guidance and an explanatory background
paper on the Shadow Price of Carbon (SPC) in December 2007. The
SPC is the approach used by Government for incorporating the cost
imposed by carbon dioxide (and non- CO2 GHGs) into
the appraisal of projects and policies. The current figure of
£26.50 per tonne CO2e is based on modelling from
the Stern Review, reflecting estimates of the global climate change
costs created by a tonne of carbon dioxide (or an equivalent volume
of other GHGs).
The Stern Review shows that the social cost of carbon
depends on the level of atmospheric concentrations (it is higher
for higher levels of GHG concentrations), so the value we should
use today depends upon the expected concentrations in the future.
Clearly, we are taking action nationally, and internationally,
to address climate change and therefore the business as usual
figure is not the appropriate one to use. The new SPC is, rather,
based upon Stern's suggested stabilisation range, and hence, as
argued in the explanatory note, is the appropriate figure to adopt
rather than using the business as usual social cost of carbon.
However, we do agree that there is a case for assessing
other methods of valuing the SPC. That is why Defra made a commitment
when publishing the revised guidance to conducting a review of
the SPC in 2008. The scope of the review, which is currently being
undertaken, is to consider the case for moving towards a shadow
price that is based not, as at present, on damage costs but on
the marginal abatement costs that would need to be incurred in
order to reach the UK's climate change obligations. The potential
benefit of this approach is that of increased 'target-consistency'—i.e.
giving greater assurance that the value attached to greenhouse
gas emissions is fully consistent with the domestic targets (notably
carbon budgets) and international obligations that the UK has
signed up to. Initial findings from the review are expected towards
the end of 2008.
The Government is grateful for the Committee's interest
in this issue. It would welcome any further input from the Committee
into the review of the SPC.
13. We believe that the £170m new money over
three years, announced in the PBR for low carbon investments in
the UK, would have been a significant start several years ago.
But the urgency of the need to cut emissions means that this should
now be a much higher spending priority. In particular, we are
disappointed that this sum appears to be considerably smaller
than the amount of revenue the Government is projected to earn
from auctioning carbon allowances under the EU Emissions Trading
Scheme. We are also concerned that the domestic Environmental
Transformation Fund is being spread too thin, and that a considerable
proportion of the funding, while welcome, is not aimed at developing
step-changes in new technology, which ought to be the focus of
the Fund. We recommend that the Treasury revisit the settlement
for the domestic ETF as soon as possible, especially once revenues
from EU ETS auctions are more certain (Paragraph 43).
The domestic Environmental Transformation Fund (ETF)
allocates over £400 million to ensure that technologies that
are in the later stage of development can be brought to market
and demonstrated. It is the Government's intention that the ETF
is a genuinely transformational fund that works closely with the
Energy Technologies Institute (ETI), research councils and other
funding bodies, as well as internationally, to coordinate support
across the technology chain. In the summer, the Government will
publish a low-carbon technology strategy, which will detail how
the coordination of existing and new schemes can maximise the
UK's efforts in developing the right technologies to tackle global
climate change.
The Carbon Capture and Storage demonstration project
will also make a valuable contribution in the development of carbon
abatement technologies.
Government's spending priorities are not, in general,
determined by the way in which the money is raised. Hypothecating revenues
to particular-spending programmes imparts inflexibility in spending
decisions and can lead to a misallocation of resources, with reduced
value for money for taxpayers. The Spending Review process ensures
that resources are allocated efficiently to deliver Government
objectives and ensures priorities receive the increased levels
of funding, as set out in the CSR (Comprehensive Spending Review).
The CSR increases Defra's budget by 1.4 per cent
in real terms, from £3,508m in 2007/08 to £3,960m. This
increase allows the Government to allocate substantial resources
to tackle climate change including the Environmental Transformation
Fund, and increased resources for flood defences to help the UK
adapt.
14. We welcome the announcement of £800 million
new money over three years for environmental investments in the
developing world. This was probably the most significant and impressive
announcement in the PBR (Paragraph 45).
15. The Government should work with the World
Bank to ensure appropriate governance standards are in place for
their international ETF to deliver a suitable disbursement mechanism
that places rigorous sustainability criteria at the heart of what
the fund delivers. Furthermore, the Government should look again
at whether these funds should be dedicated solely to low carbon
energy investments, with forestry protection and climate change
adaptation being funded by separate instruments, less focused
on profit-making opportunities (Paragraph 46).
The Government agrees with the Committee that sustainability
will be a key factor in ensuring the success of the funds. The
new funds/programmes that the international ETF will help capitalise,
will adhere to the principles that multilateral development banks
should provide financing for adaptation and mitigation programs
that are country-driven and designed to support sustainable development.
Decision-making on how the funding is spent will be primarily
at country level, led by recipient countries governments and including
the private sector, as well as civil society.
Good governance standards are a key priority as we
take forward the design of the funds with the World Bank, other
donors and recipient countries. The international window of the
ETF will go into the Strategic Climate Fund, which will work alongside
the Clean Technology Fund. Under the current design, the Strategic
Climate Fund will disperse funds, to clean technology, climate
resilience and preventing deforestation. How funding is spent
on each area will then be based upon different criteria, reflecting
the different nature of the three areas.
The Government agrees with the Committee that concessional
funding is appropriate for energy investments. Concessional funding
can also catalyze innovations in risk management mechanisms and
instruments, including insurance and other modes of risk transfer.
Therefore, UK funding for the program on adaptation, (Pilot Programme
on Climate Resilience (PPCR)) will be part concessional loans,
with a small grant element. The PPCR will provide grant assistance
to help pilot countries to develop climate resistant plans and
budgets, and significant resources (potentially a mix of grants
and highly concessional loans) to help fund investments identified
in the climate resilient development plans. During the design
process we are talking to other donors about the possibility of
grant financing for the funds/programmes. For example, we understand
that grants would be the US preferred approach. We envisage co-mingled
'pots' of money for all of the funds/programmes, which would encompass
a mixture of both loans and grants.
16. In his Pre-Budget address on 9 October 2007,
the Chancellor told the House that, 'we are the only country to
have met our Kyoto obligations. We have reduced our greenhouse
gas emissions by almost a fifth since 1990', without making it
clear that this incorporated the net purchase by the UK of some
33.8 million-carbon allowances in 2006. We recommend that it is
always made clear, in Government statements and documents, where
UK reported emissions figures incorporate the purchase of carbon
credits; the risk otherwise is that politicians and the public
will receive a falsely reassuring picture of progress in decarbonising
the UK itself (Paragraph 50).
The impact on the global climate of greenhouse gas
emissions does not depend on their geographical location. Following
the conclusions of the Stern Review of the Economics of Climate
Change, the Government sees emissions trading as one of the most
powerful tools available to tackle climate change in a cost effective
manner, and the development of a global carbon market as keeping
emissions within limits whilst allowing reductions at least costs,
harnessing private sector investment, and delivering the finance
flows needed to support low carbon development elsewhere in the
world.
However, the Government continues to recognise the
importance of transparency in reporting on emissions reductions,
showing both emissions reductions in the UK and emissions reductions
abroad funded by the UK. The latter is important in providing
a measure of the UK's overall contribution to reducing global
emissions. Chart 6.2 of Budget 2008 follows the Committee's earlier
recommendations on this subject.
17. The Government cannot afford simply to assume
that purchasing carbon credits is leading to genuine emissions
reductions elsewhere in the world. We recommend that the Government
demonstrate a systematic approach to verifying, as rigorously
as possible, that the net purchase of carbon credits by the UK
is funding genuine emissions reductions. We further recommend
that the new Committee on Climate Change evaluate each year the
quality of the emissions credits set against the UK's carbon budget
for that year: we believe it should state whether, in its opinion,
these credits have genuinely reduced global emissions by an equivalent
amount (Paragraph 52).
The Government agrees with the Committee that environmental
integrity of emissions reductions is crucial. In Europe, the Government
has supported action by the Commission to ensure a robust cap
for Phase II of the EU ETS, and welcomed the proposals for Phase
III, which introduce a central cap that will deliver real scarcity
and a well functioning carbon market that drives real GHG reductions.
The latter is in line with the EAC's previous recommendations
on cap setting.
Internationally, the main source of carbon credits
within the context of the Kyoto Protocol is the Clean Development
Mechanism (CDM). It is important that the project mechanisms including
the CDM, delivers real emission reductions. In this context the
UK supports the continued improvement in the procedures for the
setting of baselines, and for the establishment of additionally.
The UK is a strong supporter of the Clean Development Mechanism
and, whilst it relies on the international processes to ensure
the integrity of emission reductions achieved, has worked consistently
for and seen improvement in processes over the past couple of
years of operation. The UK believes the mechanism is essentially
transparent and robust, though it will continue to press for robust
processes through the EU and the UN to ensure the environmental
integrity of projects.
In order to secure appropriate advice and scrutiny,
the Climate Change Bill makes provision for the Committee on Climate
Change to advise on the extent to which carbon budgets should
be met through the use of carbon units such as credits from other
schemes, and for parliamentary scrutiny of regulations under the
Bill's provisions on carbon units. The Government does not therefore
consider it necessary to give the Committee the specific task
of considering the quality of carbon units credited to the net
UK carbon account. However, the Government will seek to ensure
that international processes and systems including emissions trading
continue to provide genuine emissions reductions.
18. In bringing the previous Public Service Agreement
on climate change to an end, the Treasury did not publish an assessment
of Departments' performance against it, along with any actions
for improvement. This is despite the fact that the previous target
to reduce UK CO2 by 20% by 2010 looks set to be
missed by a wide margin. This suggests either that there is a
weakness in the design and operation of the PSA system, or that
the Treasury is less interested in driving progress on reducing
carbon emissions than other objectives (Paragraph 54).
As part of its transparent new PSA framework, the
Government has set a new PSA to "Lead the global effort to
avoid dangerous climate change", and the goals in SR04 PSA
2 are now subsumed into that. The PSA includes indicators intended
to track progress on UK emissions and the greenhouse gas intensity
of the UK economy. The Government will continue to provide regular
public reporting on progress against the new PSAs. In addition
to the public reporting on PSA progress, the Prime Minister's
Delivery Unit is working closely with each PSA Delivery Board
and department officials to regularly monitor and support progress
of the PSAs. Throughout this process ministers will be held to
account in stocktakes with the Prime Minister or Chancellor and
in their regular PSA cabinet committees.
The first part of SR04 PSA 2 refers to the UK's international
commitment under Kyoto, to reduce greenhouse gas emissions by
12.5% compared with 1990 levels for 2008-12, taking emissions
trading into account. On this basis, UK greenhouse gas emissions
were down by almost 21% in 2006, well in excess of 12.5%. The
second part of the PSA refers to the domestic goal of moving towards
a 20% reduction in CO2 levels by 2010. In this case
the task is proving more difficult. However, the latest verified
figures indicate that the UK has made progress towards the goal
and that considerable progress in cutting net CO2 emissions
has been made (CO2 down by 12% between 1990 and 2006,
and latest projections show reductions of around 16% expected
by 2010). The projected fall would not be enough to achieve a
reduction in carbon dioxide emissions of 20% by 2010, a goal which
was always designed to be stretching but now looks increasingly
difficult to achieve. The Government will continue to report progress
on its climate change goals, including the domestic 20% goal,
for example in Defra's Statistical Releases on the subject.
19. The new PSA on climate change is too diffuse,
with no clear departmental targets for reducing emissions, and
less emphasis overall on reducing emissions from the UK. We recommend
that, in consultation with the Committee on Climate Change, the
Government considers setting emissions reduction targets for specific
sectors of the economy, with relevant Departments being made accountable
for achieving them (Paragraph 55).
The Government does not consider it appropriate to
set fixed targets for individual sectors. The Government's aim
is to reduce emissions where it is most cost-effective to do so
and setting targets for specific sectors would reduce flexibility
as to where action should be taken. In addition, there may be
some policies, such as trading schemes, which cover multiple sectors,
making sector-specific targets difficult to define. In order to
provide transparency the Climate Change Bill requires the Committee
on Climate Change to provide advice on the respective contributions
towards meeting the carbon budget by the sectors of the economy
covered by trading schemes and those not covered, and the sectors
of the economy in which there are particular opportunities for
contributions to be made towards meeting the carbon budget for
the period. In addition, the Government's report on proposals
and policies for meeting each carbon budget will have to explain
how the policies and proposals affect different sectors of the
economy, thereby making clear how individual sectors may be expected
to help deliver the targets and budgets in the Bill.
20. We recommend that, in preparing now for the
next Spending Review, the Treasury work to develop PSAs that will
mainstream environmental objectives throughout the entire range
of departmental activity. Environmental objectives must not be
confined simply to a couple of explicitly environmental PSAs.
In particular, we recommend that, rather than focusing purely
on labour productivity, work starts now on developing ways of
incorporating targets for improving the efficiency with which
natural resources are used in the UK economy. (Paragraph 58)
In keeping with the UK Government's sustainable development
strategy, Securing the future, the Government agrees with the
Committee that environmental objectives should be considered across
the full range of activity. It is for this reason that, in the
2007 Comprehensive Spending Review, PSA 20 on housing supply includes
an indicator on the efficiency rating of new homes, and PSA 22
on the Olympic and Paralympic Games will measure delivery of the
Olympic Delivery Authority's sustainability strategy. Through
their departmental strategic objectives (DSOs), HM Treasury, the
Department for Transport, the Foreign and Commonwealth Office,
the Department for International Development and the Department
for Business, Enterprise and Regulatory Reform are all recognising
the centrality of environmental protection and enhancement to
their activity.
In the CSR 07 period, Defra's departmental strategic
objectives include "sustainable patterns of consumption and
production". Under this objective, the Department will monitor
carbon emissions, water use and waste disposed of to landfill
compared to value added in various sectors of the economy. The
Government remains committed to decoupling economic growth from
environmental impacts. However, it is not clear that a measure
of resource productivity is more appropriate than the current
approach of focusing on environmental outcomes, since different
resources will have very different impacts for a given unit of
volume or weight at the various stages of their life-cycle.
21. The next Pre-Budget Report will be published
within a new policy landscape, following the scheduled passing
of Bills on climate change, energy, and planning, as well as the
EU carbon reduction and renewable energy targets for 2020. Pre-Budget
Report 2008 must establish a coherent set of measures to help
deliver the UK's 2020 domestic and European targets on emissions
and renewable energy, and show explicitly what their planned contribution
to this delivery will be. (Paragraph 62)
The next budget cycle will take place within a new
policy landscape. The Climate Change Bill will commit the Government
to living within fixed and binding carbon budgets, providing a
strong clear focus to government decision-making and setting out
for industry and individuals a pathway for the next fifteen years.
Recognising the important economic and fiscal implications of
the decisions that will be required, Budget 2008 announced the
Government's intention to set the levels of the carbon budgets
and plans to meet them alongside Budget 2009.
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