House of COMMONS









Tuesday 19 February 2008



Evidence heard in Public Questions 1 - 58





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Oral Evidence

Taken before the Environmental Audit Committee

on Tuesday 19 February 2008

Members present

Mr Tim Yeo, in the Chair

Colin Challen

Mr David Chaytor

Mr Nick Hurd

Mark Lazarowicz

Jo Swinson

Dr Desmond Turner

Joan Walley


Memoranda submitted by Greenpeace, Mr Cédric Philibert and Dr Saleemul Huq


Examination of Witnesses

Witnesses: Mr Charlie Kronick, Senior Climate Advisor, Greenpeace UK, Mr Cédric Philibert, Principal Administrator, Energy Efficiency and Environmental, International Energy Agency (IED), and Dr Saleemul Huq, Head, Climate Change Division, International Institute for Environment and Development (IIED), gave evidence.

Q1 Chairman: Good morning and welcome. I have suggested that when our third witness arrives he just joins as soon as he can. We are quite strictly time limited ourselves. Would you just like to introduce yourselves to the Committee and just explain who you are and where you are from?

Mr Kronick: My name is Charlie Kronick. I am the Senior Climate Advisor for Greenpeace UK.

Dr Huq: My name is Saleemul Huq. I head the climate change programme at the International Institute for Environment and Development.

Q2 Chairman: Thank you. The latest IPCC report gives the strongest indication so far about what is needed if we are going to avoid dangerous climate change. Do you think that the international negotiations have enough urgency about them to reflect the conclusions that the scientists are now producing?

Mr Kronick: I was not at the last round, but I have been to a number. I think there is a sense of urgency around the process just by the sheer weight of numbers of interest that have come to bear on it. As for within the actual negotiating process itself, no, I do not. You only have to look at the exclusion of even guiding targets from the main tests about declaration for 2020 to see that not only could they not agree on targets to negotiate towards, they could not even agree to get them in for a very, very short period of time. I would say that urgency is lacking from the core of the process. In terms of the general circus itself, I think it is building a lot of speed. It might be more heat than light.

Dr Huq: I was in Bali and I would agree with Charlie's analysis. However, I would put a slightly better spin on it in that Bali was never going to be a decision-making process. It was to set us a timeline and we did, we have Copenhagen as a timeline. Countries are not going to reveal all their cards until the end of that timeline. To expect them to put all their proposals on the table this early in the process I think was unrealistic. They are keeping their cards close to their chest. They are going to be in very intense negotiations. We now have a two-year timeline up to Copenhagen in December 2009, which was a major outcome of Bali. I agree with Charlie, not getting certain words into the agreement from the IPCC was not a good sign but, nevertheless, it was not fatal to the process.

Mr Kronick: I would agree with that.

Q3 Chairman: And you are happy that the IPCC dates and targets that are in the latest assessment are the right starting point for the negotiations?

Dr Huq: Absolutely. The advantage of them is that they are consensus driven; no country can disagree with them. Some of us might disagree with them being not enough, but at least at the level they are at countries cannot disagree with them.

Mr Kronick: One of the important things to remember about the IPCC is the rear view mirror. It looks at the peer reviewed literature from the period before which it was published, which means inevitably the most current. Climate science moves so fast that the most current data is not included and that sense of urgency even came out from the IPCC meetings, that certain things could just not make it into the papers.

Q4 Chairman: Without wanting to be too gloomy about it, it seems to me that the science is getting stronger and stronger and the threat is more and more urgent and more serious, but even the most forward looking countries are struggling to get anywhere near the current targets, which has almost universally meant not one will be prepared to touch it. That is quite a gloomy background if we say that no one, even the best countries, is going to reach what we thought was needed five years ago. We now know much more is included. You would have to be a pretty optimistic person to think that is the starting point from which a satisfactory conclusion is going to be reached, would you not?

Mr Kronick: You would not do this work if you were not quite an optimistic sort of person! That is a reasonable analysis. I guess what I would add to that or try to unpack a little bit is the way the process has been led since 1997 in the Kyoto Protocol that has been around what seemed at the time almost peripheral mechanisms, which were the flexible mechanisms of the Kyoto Protocol, the CDM and the provisions for emissions trading. They were included for a very particular purpose and that was to get the United States and other big market economies to participate. Unfortunately for the people who took that gamble - and that includes the NGOs who supported it post-1997 - it has not worked in that way and yet the kind of incredible momentum of the market and the idea of carbon markets being able to deliver all the results that we need mean that it is not surprising that we are not anywhere close to achieving a sense of urgency or the level of engagement that is needed. Greenpeace is very happy that carbon markets are a part of this process, but the idea that a market mechanism and a price on carbon was ever going to be enough to completely shift away infrastructure investment across the developing and developed world was very optimistic and I think totally unrealistic.

Dr Huq: I think during Kyoto and just post-Kyoto there was still a prevailing view that we needed to make an incremental change and tinker with the system and we would be able to deliver. That view is now shattered. It just is not going to work that way. We will need quite a severe paradigm shift in terms of legislation, policies, technologies and business involvement. More and more of the public in general, even the business community, are becoming aware that that is what is going to be needed. What we therefore need to do is to get the political will amongst the leadership to come to an agreement that does deliver that. It will not happen on its own; it will require a top-down political agreement at the global level with all countries on board.

Q5 Mark Lazarowicz: The UN process is obviously crucial, but it certainly has been suggested that it is equally important to have progress in negotiations and other fora. Do you agree it is important to take that forward? If you do, what do you think is the objective that we should be taking forward in the Japanese presidency of the G8?

Mr Kronick: I think the G8 has obviously taken climate change as a bit of core business for them. In terms of the Japanese presidency, until the US presidency changes and there is someone different in the White House in 2009 there is going to be very little likelihood of a big resolution on these issues by the end of the Japanese presidency. I guess it depends on which other processes you mean. I think the G8 is powerful because of the power of the economies. Some of the parallel processes that have been put forward by the US administration, for example, or Australia pre their election, like the Asia-Pacific partnerships, are a genuine distraction from the Kyoto and post-Kyoto process. We would encourage any national governments that are positively engaging with the Kyoto process not to be distracted by the things that the Bush administration has put forward. Having said that, there are other processes that are pretty important, eg the Convention on Biological Diversity, which has big impacts on global deforestation, which in turn has a very important role to play in avoiding dangerous climate change, and could be very, very powerful, but it is being marginalized at the moment. There are some processes that are getting no attention that could be much more important and there are some that are getting lots of attention that are, frankly, nothing but a distraction.

Dr Huq: The climate change issue or problem is such an over-arching and all-encompassing one that it is not going to be solved by one particular process alone. It does require engagement by different actors, including the summit meetings of the G8 leaders and the G8 plus five leaders well, as well as processes led by the Secretary General at the UN General Assembly, for example, or even meetings like Davos where the business community come together. They all have a role to play in bringing together, but fundamentally they must support the UNFCC process because without a global deal - and that is the only binding treaty we have - voluntary agreements amongst the big emitters are not going to deliver. The UNFCC is the only place where 100 of the poorest most vulnerable countries, the countries in the Sub-Saharan Africa, the least developed countries, the small island states, who are not big emitters but who will suffer the consequences of climate change and the lack of action by the big emitters, can hold the big emitters to account. They are not invited to the G8 plus five.

Q6 Mark Lazarowicz: Equally, if the G8 plus five were pressing hard in this area then it would obviously, one would assume, lead to a greater possibility of progress, but as you suggest, if we cannot expect much from the Japanese presidency that is not very encouraging, is it?

Dr Huq: We should try and get as much as we can. As Charlie says, I think the general consensus of most people following this is that the Bush White House is not going to change its tune. The post-Bush White House will almost certainly change its tune. The major contenders right now are all on board with climate change and the US is coming back on board. Negotiating with them perhaps around the Bush White House might be the way forward with the US. The others can take action or at least agree on certain things that they need to do. They should all reinforce an agreement under the UNFCC process.

Q7 Mark Lazarowicz: Do you see any possibility of a Japanese government during the G8 process adopting the 25-40 per cent reduction target?

Dr Huq: Not by consensus. The US will not agree to that. The Japanese may do it voluntarily. The Japanese Prime Minister has proposed something similar along those lines himself.

Q8 Dr Turner: It is not only the science that has moved on at a great pace since the start of the Kyoto process, but some of the developing countries have been growing economically very fast and becoming very major CO2 emitters in their own right. How do you feel about the attitude of developing countries in accepting that climate change is an issue that they have to contribute towards the mitigation of?

Dr Huq: I sense a change in attitude. It used to be the case that the G77 in general and particularly countries like India, China and Brazil said, "It's an Annex 1 country problem. You solve it. Don't ask us to do anything about it." I sense that they have changed their attitude for two reasons. Firstly, there is a lot more analysis being done within countries like India, China and Brazil about the potential impacts of climate change on them and it is not good news for them. Their own scientists are telling them that this is a severe problem for their own populations, particularly the more vulnerable populations within those countries and therefore they need to become part of the solution and not just leave it to others. That has not necessarily moved them to changing their negotiating positions, although it has softened it a bit. The Chinese, for example, in Bali are no longer saying they will not do anything; they are saying, "We are willing to do our bit, but we need technology and we need funding and so on." The debate goes into technology transfer and funding for technology transfer and not unwillingness on their part to take action but willingness provided they are given support. In India it is a bit more confused. The Indian government tends to be a bit more intransigent. Even so, within India there is a growing debate amongst civil society, amongst the scientific community and amongst the private sector in India that has been very much involved in the CDM, for example. It is a very small but strong and growing cohort of business people in India that like the carbon market and CDM and want more of it and want India to be part of that post-2012 regime where there are more CDM opportunities available. There is a growing sense within these countries that they need to become part of the solution and the governments ought to take on some form of commitments. What those form of commitments will be remains to be seen. There are a lot of hard negotiations needed to do that.

Q9 Colin Challen: Could I just take on this issue of India's alleged reluctance because at the UK-India summit last month the two prime ministers agreed that a future framework might well be the convergence model on a per capita basis. Does that not show that India is engaged but wants to be so on a basis which is fair and equitable?

Dr Huq: Absolutely. The Indians have always pushed for the notion of equity to be fundamental, which it had not been in Kyoto. Kyoto was grandfathering rights to pollution, whereas the Indians have always championed the cause or at least incorporated an element of equity in terms of per capita emissions to be recognised. India's per capita emissions are very, very low. China, on the other hand, will reach the global average fairly soon, but India has a long way to go.

Mr Kronick: You have to drill down a little bit into that. India is around 1.2 billion and growing. 750 million of those people live on less than a dollar a day and then there are about 300 million people, roughly the size of the EU 15, who live roughly at a European level of consumption and sometimes higher level of consumption. Greenpeace India did a very interesting report, which I would happily submit to the Committee, which is called "Hiding behind the poor", which says that at least the 'global gloom' class that is resident in India - and that includes the government - does need to get a grip on infrastructure investments, which is what is really driving emissions in India, not poverty eradication, sadly. It is more complicated than saying India has low per capita emissions just as in China the averages are growing up. It is where there can be a genuine attempt to develop a solution to that problem which has got to be about infrastructure and not about accounting that will begin to address the problem. Greenpeace feels very strongly that that is where the real opportunity for commitments from those big emerging economies in the developing world will come from, which is focusing on particular sectors where not only technology and money can be shared but you can set up a genuine political objective, which is not just about the science, it is an awful lot about the politics.

Chairman: Can I just welcome Mr Philibert to the Committee. It is a very informal session with people just throwing questions out. If there is one that you want to answer, do not wait to be called, just jump in.

Q10 Dr Turner: Phil Woolas, our own Climate Change Minister, recently criticised India for not seeming to wish to address climate change because he thought that India saw the question as a trade-off and a choice between either economic growth or mitigating climate change. Do you think that is a fair analysis of Indian attitudes and, if so, how do you think we can address that one?

Dr Huq: I think it is a fair description of the attitude of some people and perhaps also fair of the attitude of the Indian government in the past. In India now there is a growing sense of debate and different attitudes arising amongst civil society and the scientific community, the business community and even within different parts of the government where they are looking at a much more nuanced view of this issue. The view that it does not necessarily require compromising development and improving quality of life, particularly of the poor, by taking a cleaner pathway to the future energy and infrastructure requirements of the country is something that is becoming a part of that argument as well. I do not think it is a monolithic view any more, if it was at any time. The Indian government and people will take a much more sophisticated view of this in future, particularly in the negotiations.

Q11 Dr Turner: Do you think that developing countries now recognise that in the likes of their different circumstances they need to adopt different responsibilities and to take account of those circumstances in their approach to climate change mitigation?

Dr Huq: Absolutely. That is already happening. If you look at some of the debates that occurred in Bali, they were not all between north and south, there was also quite a lot of internal debate within the G77 with country groups, eg the small island states and the Least Developed Countries Group, challenging India, China and Brazil and saying, "You cannot continue to say you will not do anything. You are big emitters. You have to become part of the solution. You have to offer something on the table." To some extent I think the change in the nuance and tone of these large countries came from pressure from other countries in the south for them to become more amenable to taking action or at least being more open to the possibilities.

Q12 Dr Turner: Presumably this is being driven to a large extent by the realization amongst developing countries that they are going to be first in line for suffering adverse consequences.

Mr Kronick: I think they have known that for quite a while! The realization may be growing. If you look at the initiatives of the small island states, from very early on in this process they have been the ones who have taken the most progressive positions.

Q13 Dr Turner: Do you think we need to evolve different country groupings to take account of these circumstances? What sort of mitigation actions do you think would be appropriate to these new groupings?

Dr Huq: The G77, which is the negotiating group of the developing countries, is a very broad church, it is over 140 countries and with a huge differentiation amongst them and a lot of subgroups within them as well. They are already differentiated internally. Within those subgroups there are several that are of particular significance: the Alliance of Small Island States, about 40 island countries, the least developed countries, about 50 of the poorest countries and the Africa group as a whole, another 50 countries. There are overlaps between them, but these are significant subgroups within the G77. For these countries the problem of climate change is how it is going to impact them and how they are going to deal with the impacts, it is not about their emissions. Their emissions do not amount to much at all. Therefore, the question for them is, "What are the big emitters, including the big developed countries, going to do about this?" They are raising these issues. To the extent that countries like the UK and the EU can recognise these subgroups and deal with them, which they have not done very well in the past --- Prime Minister Blair invited the five big emitters to the meeting in Gleneagles. He could have invited the Chairman of the LDC Group but he did not do that. They say, "When you want to talk to developing countries all you want to talk about is reducing their emissions and you invite the big emitters. What about us 100 countries who are going to suffer? Are we not part of the problem? Are we not eligible to be invited to the table to talk about this issue? It is going to affect us more than it is going to affect you or them."

Mr Kronick: These groups are not mandates, they are selecting and it is a fluid process. For example, there is no question that some of the newly industrialised, high income countries, ie South Korea, Singapore, Saudi Arabia, should be some of the people with obligations to mitigate and reduce emissions, but they are still in there with Malawi and Saudi Arabia is still arguing for compensation for loss of petrol sales down the road. We need to be a bit more robust amongst ourselves in differentiating between the interests of these groups.

Dr Turner: Especially given that some of these developing countries have per capita incomes as high as any of the G8.

Q14 Mr Hurd: Can I just bring you back to this dream of a global deal and probe you a little harder on this because this is the roadmap we are on and we have been on for a very long time. You are painting a vision of some optimism, that now a timeline is established and people are keeping their cards close to their chest there is going to be a mother of all negotiations and everything is going to click into place in Copenhagen. Can I put it to you that the process is tremendously flawed because it is allowed to proceed at the pace of the least ambitious. Let us just pick Saudi Arabia, for example. Saudi Arabia is not going to get us to where we need to get. Is it not time to get a little less visionary and much more pragmatic and recognise the fact that 80 per cent of emissions come from 20 countries? Something like five industrial sectors are responsible for three-quarters of emissions. Is it not time to get very pragmatic and concentrate the conversation around those main players to get a deal done, around the smaller set of people that are actually going to make a difference?

Dr Huq: Let me answer in two ways. Firstly, that small set of countries are the ones that will have to make the major concessions or changes to reduce or solve the emissions problem. If we just leave it to them to make the decision then in my view it is akin to the slave owners getting together and agreeing, "We don't like slavery, we're going to abolish it, but we will do it in a manner that does the least harm to us. We will phase it out, we will take it easy and it does not matter about the slaves, they're not invited to that decision-making process." For a billion people living in the poorest countries it is not about their emissions, it is about the big countries doing what is right to prevent the kind of dangerous climate change that the others will face. The consequences are not going to be borne by these few countries for their inaction. So being pragmatic may be one way to go but it is not going to solve the problems, it is not going to deliver. The only delivery will come under an agreed treaty, which is the only thing we have under the Framework Convention and that has to be done in Copenhagen. It is a window of opportunity. One has to be optimistic that we can get it there, perhaps unrealistically optimistic, but nevertheless I think that is the only place it will happen. Voluntary action by the big emitters is not going to deliver that.

Q15 Chairman: I think the purpose of the question was that the present process is not going to achieve what is necessary. Some of us have just been in Australia and we talked to the head negotiator for the Australians. I came away from the meeting profoundly depressed. It was mired in process discussions and there was absolutely no focus at all on the urgency or the scale of the problem. I think this is a paralysis which allows the more backsliding big countries to hide. They are saying that it is not their fault, that it is all mired in this ridiculous paraphernalia. The only chance of making a substantial action is to narrow it down to a much smaller group.

Dr Huq: I would put it slightly differently, if I may. I would say that what you are describing is the mindset of the negotiator. What we need is not the negotiator making these decisions but the Prime Minister making those decisions ad he has to be visionary.

Mr Kronick: I would agree that if you put all your eggs in the Kyoto basket you would be bound to be disappointed. It is excruciating, it is glacial - actually, it is not as fast as some glaciers. It is not an either/or proposition. There has to be an overarching framework. I think there is a real opportunity for some of those big countries, including the UK, to claim some of the first mover advantage. I do not want to tread off into domestic politics, but as long as the countries that are supposed to be at the forefront of solving the problems of climate change are still contemplating building new tens of gigawatts of unmitigated coal fired power stations and expanding airport capacity in already the busiest airport in the world it is very hard to see how that process is going to move forward in a way that has anything like goodwill or good faith or even due diligence. The process has lots of flaws, but until there is some real leadership shown not just by the UK but by the significant, highly leveraged economies the process is bound to be tied up in this painful negotiating because it will be a race to the bottom, it will be the slowest.

Q16 Jo Swinson: I want to pick up on the point you raised about the tension in that you have got these much better developed countries now like Singapore and South Korea that are not being treated in that sort of category. In Australia we heard that there seemed to be very little prospect from this negotiating mindset that there could even be a change and that countries that have developed their economies can be moved into different categories for the purposes of this. What scope is there to take account of what development is taking place and re-evaluate what the responsibilities of different countries should be, and how might that impact on us achieving the goal of halving emissions by 2050?

Dr Huq: One of the windows of opportunity that we have now in the post-2012 which we did not have in Kyoto was Kyoto was a one-size-fits-all solution, it was a target minus from 1990 and that was it. I think we can be more nuanced now. Countries, developing countries in particular, can take on problematic targets, other kinds of commitments which are not a minus target from a 1990 level. I think that is a good thing. There are opportunities to do that. There are sectoral opportunities, there are many kinds of technology-led opportunities, renewable commitment opportunities and so on which can lead to a much more nuanced regime of commitments that will deliver what we want in terms of a cleaner pathway and less emissions associated with them than just staking a minus X per cent, which is what they have to do in Kyoto.

Mr Kronick: There are some really specific examples one could point to. Clearly the electricity sector in rapidly developing economies is one which always gets pointed to, China and India, what about China and India? Let us develop mechanisms that allow us to support - when I say "us" I mean the developed economies - to support that transformation. It is clearly in our interest to do so. Stern onwards will say that those costs and those investments will be of huge benefit to developed as well as developing countries. Something that Greenpeace also feels is very important is the potential to develop a mechanism for avoided deforestation that allows countries which at the moment are not rapidly emerging economies but if we can avoid their emissions from deforestation could make a really significant difference and add to the development pathway of those countries. There are mechanisms that I think need to be much more creative than we have been heretofore which genuinely has benefits for those developed countries and an incentive for them to get in as well as the nuanced approach to how you measure the progress.

Q17 Jo Swinson: When we were in China they were powering ahead with energy efficiency, they were very keen to cut their emissions per unit of GDP, but they are obviously a rapidly developing economy. They have still got great strides forward they want to make for the quality of life of their population. They said that they were expecting their per capita emissions to rise and not stabilise until 2030. Do you think that kind of scenario can fit with the IPCC goals?

Dr Huq: The Chinese and the developing countries by and large will have to be allowed a certain period of rising emissions. There is just no way they can turn around their ship that quickly, which means that developed countries may have to take on a bigger responsibility in the overall arena. If there is this major shift towards a cleaner development path globally then I think their ability to turn around will also become quicker because the technology drives for cleaner technologies to replace the old fossil fueling burning and dirtier technologies will be much, much more rapid and the deployment of that will become much more easy for those countries in particular. That is my feeling on that. It may be over-optimistic, I am not sure.

Q18 Jo Swinson: So you think they might be able to revise that down from 2030 with more technology?

Dr Huq: I think so, yes. What we have to get the developing countries, particularly the rapidly industrialising ones, to think about is to rethink their development paths, whether they can de-link quality of life improvements and poverty alleviation for the poor people in their countries without taking a very dirty fossil fuel dependent pathway. There are a variety of technologies that can be deployed to do that and if they can be scaled up they can deliver that within a few decades, yes.

Q19 Jo Swinson: Let us say they are right and they will keep rising to 2030. What does that mean for overall global emissions? Does that throw it off course?

Mr Philibert: It all depends on what is meant by rising. You can start controlling the growth rate. What you will do before stopping and reducing emissions is to have a slower growth rate and this is compatible with the objective of halving global CO2 emissions by 2050. There is still a little room for an increase in these emissions in the developing countries in the next ten to 15 years, but then we ought to enter into an era where global emissions decrease. I have just received the results of our last modeling exercise which will be published in the next few months on what is needed to achieve a halving of global energy related CO2 emissions by 2050 below 2000 levels and basically half of it will be energy efficiency improvements. So it is very important, it needs to start now and there is a lot to do in this arena. The other half is decarbonising the fuel mix. Basically we found that we could achieve that with about half of it being renewables and the other half being shared in almost equal shares between nuclear and carbon dioxide capture and storage. Of course, if you can think up and implement big changes in the way people live and consume energy you will find different results, but we at the IEA are looking more at the technological aspects of it, not at the ways to reduce energy services, but with energy services kept constant at the baseline we have found that we can achieve this half with energy efficiency and the other half with a mix of renewable, nuclear and CCS.

Mr Kronick: Greenpeace has also done lots of energy modelling and scenarios which enables you, not surprisingly, to achieve those goals without nuclear and without carbon capture and storage but with a different model for including decentralised energy distributed generation as well as ambitious targets for energy efficiency. I do not think it is all about technology and Greenpeace does not either. An over-emphasis on technology will lead us into a situation where the power politics of the market will determine. Whether it is a global commodity in carbon or a global commodity in coal, gas or even palm oil or biomass, the powerful players will drive it. There is inevitably a tension between ongoing global economic growth --- Nobody is willing at the moment, in the context of the discussion we are currently having, to challenge their right to economic growth and that includes the rich countries as well as the poor ones. So I think it comes back to what Saleemul referred to, how do you describe a quality of life this is not based solely on GDP? That makes it very difficult to square the circle that you have raised here. Why would the Chinese not want to have a quality of life that they would consider broadly comparable with ours? It would be insane and also unjust to insist that they were not allowed to do so. At the moment there is no equity or global justice mechanism within the current set of negotiations on Kyoto Plus and one will have to emerge. I know certain members of the Committee are enthusiastic about some frameworks. Greenpeace is not endorsing a particular framework, but there is no question that a framework will have to come into place. You only have to look at the most recent modelling to realise the fact that there is not very much room for growth in emissions in developing countries. A smooth - and I use this word advisedly - convergence of emissions pathways is not going to happen in the time available so we have to find another mechanism, whether it is the Greenhouse Development Rights that some people have put forward, there is a climate action Network International has put forward, a combined sort of framework, whether it is contraction and convergence or a combination of all of these things with elements, but until that becomes absolutely central to the way we talk about responding to climate change we are not going to solve the problem and China will not limit their emissions because why would they?

Q20 Jo Swinson: Japan has recently suggested changing the baseline year to 2000 to encourage China, India and others to sign up. Do you think it matters when the baseline year is as long as there are emission reductions from that or do you think that will just lead to a weakening of the targets and not achieve the severity of the cuts that we need?

Mr Kronick: What matters is the carbon concentrations to the atmosphere. It does not matter when you start counting. It is like Weimar Germany with wheelbarrow loads of cash. It does not buy you any more. It does not matter when you start counting as long as we actually achieve the reductions and achieve reductions in concentrations in the atmosphere. I think it is disingenuous and probably not very helpful.

Q21 Colin Challen: Just on that contraction and convergence point, the World Resources Institute also does not support C&C but they do recognise that convergence is an arithmetical certainty. Why not just hop on the bandwagon? I will leave that point. The Government says that the CDM is essentially sound. Do you agree with that?

Dr Huq: I think the CDM in general has been, from the developing country's perspective, a relative success story in that it has brought opportunities for carbon reduction activities, particularly in a number of the large emitting countries like China, India and Brazil. It has brought a new cohort of private sector people in those countries that are involved in these projects that are pro doing more on mitigation based on the incentives that CDM provides. There are a couple of problems that have arisen which are sort of second generation problems or they could have anticipated but they are now arising: one is inequity and distribution. There are only a handful of countries that are getting CDM projects. The vast majority of the poorest countries, particularly in Sub-Saharan Africa are not getting CDM projects. This inequity of access to this particular market is something that is not good for the negotiations because these countries had anticipated they would get some benefits out of CDM. If they are not getting them it may turn them off in a future negotiation if we want to rely on more market-based activities like the CDM. The twin objective of the CDM along with carbon reduction was to promote sustainable development. In practice it has not done very much on that. It has left it to countries to define. Countries have not defined it very well. Most projects are of a scale that they really do not benefit poor communities and poor people, particularly on the land use sector. There may be a need for tinkering with or expanding the CDM regime to allow more access to smaller scale projects. There are some opportunities there, but that might be something that would need to be tweaked. My view is that on the whole it has been relatively successful, but it has had some problems that need to be addressed in the second generation, in the post-2012 agreements.

Mr Philibert: I would be even more severe and say that even with respect to the first objective it fairs relatively poorly. Nuclear is not in, CCS is not in and certainly at the IEA we support the inclusion of carbon dioxide capture and storage. We have analysed that very recently in detail. On energy efficiency improvements, the difficulty is finding their way in the complex additionality procedures for a very good reason, they are almost always profitable and therefore they should be considered part of the baseline even if they do not happen because of different barriers. It is difficult for energy efficiency improvements to be approved as CDM projects. Renewable projects, at the opposite end of the spectrum, are too costly to find their way into the CDM where they have to compete with relatively cheap forestry projects or industrial gas projects. At the end of the day, it takes a very narrow spectrum of what we need and it does not take the big chunks of emission reductions that are needed in the future. It has a very important feature, which is to educate people on both sides, in developing and developed countries, on the virtues of the flexible mechanism, on the fact that there are plenty of relatively cheap options in developing countries that could be undertaken provided there is someone willing to pay for it in the industrialised world and that is a good thing because it will help narrow the viewpoints in future negotiations. At the end of the day, as happened in the past when people and governments have moved from regulation to market mechanisms, they usually tend to start with project-based mechanisms and they usually end up with full market-based mechanisms. I would suggest that we must find ways to incorporate developing countries in broader market-based mechanisms, such as emissions trading. The virtue of the CDM would have to pave the way for this to happen.

Q22 Colin Challen: You mentioned at the very beginning nuclear and CCS. Is it the IEA's view that nuclear should be included in some kind of flexibility mechanism? I had understood the nuclear industry to be saying that it is going to be building 400 new nuclear power stations around the world anyway. Where is the additionality that the CDM should bring to carbon reduction if that is the case?

Mr Philibert: The view is that we need a big diversity of emission reduction technologies and arenas and they have to be accounted for in a mechanism that needs to be global and not necessarily project based. I am not necessarily expressing the views of all IEA governments here. Secondly, the IEA is not having views on the CDM, it is having views on the bunch of things that will be needed in the future and we must find ways to have them deployed in all countries when it is safe, when it is reasonable and when it is necessary. I am not necessarily talking about all countries of the world going nuclear or all countries in the world going CCS or whichever, it depends on the local and national circumstances, but we must find ways to have a mechanism that is powerful enough to bring in all types of emission reductions. Halting deforestation is not in the CDM either, reforestation is limited, nuclear is not in, CCS is not yet in but it may be in in the future, energy efficiency is difficult and renewable energy is too costly. What does that leave us? HFCs and basically that is it. It is very narrow.

Mr Kronick: Which is the big problem with the CDM. The bit that is sound is the name, Clean Development Mechanism. Unfortunately, the incineration of HFCs is not contributing to development nor is it particularly clean. The real issue is not whether or not the CDM should include this technology or that technology but actually to look to development and the development pathway and trajectory and then develop that mechanism to support those objectives. Under those circumstances it would be unlikely to include CCS. It almost inevitably would not include nuclear. It would include bottom-up changes in particular communities that were suited to those communities to aid development and to take them off a development pathway that is going to be carbon intensive which will then have to be decarbonised later. One of the biggest problems has been referred to, which is that at the moment there is a financial mechanism that implies there is a functioning global carbon market when there is not. So the reality is that the EU ETS, for example, which has a very relaxed cap on its emissions and lots of jiggery-pokery on allocations, has the potential to buy in enormous amounts of avoided emissions from the developing world in the future, which could actually discourage countries within the EU ETS from making emissions reductions at home. There is a real confusion in that the illusion that there is a functional global carbon market combined with the poor targeting of the way the CDM has worked is not leading to particularly good outcomes either for us as contributors to it or for the countries that are getting money. I accept Saleemul's provisos for that, but I think the problem is not just the mechanism, it is what we are expecting it to do.

Q23 Colin Challen: What needs to be done to prevent in future the kind of scams that we have seen operated under the CDM? I am particularly thinking of HFCs. There seems to be a whole number of other scams where people are not producing the goods. How should it be tightened up?

Dr Huq: Obviously it needs tighter regulation and scrutiny. CDM is actually well regulated compared to the voluntary market which has no regulation whatsoever. The HFCs in China are low hanging fruit which have been plucked so we do not need to worry too much about more of them coming on-stream. Obviously as we learn in the process for different kinds of technologies and we get better at understanding them and monitoring them the regulations will follow. I am not as pessimistic about some of the flaws in the system that have been identified so far overturning the benefits that have come out of it so far, accepting that it is a narrow band of activities that are allowed at the moment.

Q24 Colin Challen: You do not think the system is simply prone to some of these flaws? There are people who take that view. Cornerhouse, for example, whose analysis you might be familiar with, seem to suggest that you cannot improve these things because they will always be prone to failure.

Mr Kronick: I would never criticise my colleagues at Cornerhouse, but I think they are in danger of throwing out the Kyoto baby with the trading bath water. I would agree almost entirely with their analysis that global carbon markets are not delivering what they were supposed to deliver, which is emission reductions. What is important about the CDM is the recognition within the Kyoto framework that there is an opportunity for climate change being the vehicle for investing in a genuinely sustainable development pathway in itself. I just do not think that the CDM is currently doing it. One of the things that would change the nature of how we in the north or developed countries look at the CDM would be if we had to meet our emission obligations domestically first and this has been the Greenpeace position consistently for a long time. If the agreed minimum target to stay under two degrees is 30 per cent reductions by 2020 from developed countries, that we deliver 30 per cent reductions from developed countries at home and then invest on top, I think it would change fundamentally the nature of the kind of investments you would make in terms of getting those benefits there in the developing countries and not actually trying to bank them here.

Mr Philibert: I tend to disagree. If you do everything at home you will just not put a cent in the CDM and in emission reductions in developing countries. You need to think of mechanisms when you set targets. If you build a flexible mechanism after you have set targets you will almost always find that your target is too weak, it is too easy because you start with a target that seems very difficult and then you build a number of mechanisms that bring you in a lot of cheap emission reductions and so you end up thinking you could have done better. So you have to set targets in the light of the overarching sector you have been building. If we want to go to deep cuts in emissions we will have to find the mechanisms that embrace what is possible in both developing and developed countries. My guess about CDM is that it would have to move from a product-based mechanism to a market-based mechanism that is some form of country target for developing countries. Of course, not all, not the first time, not bidding for all in the next period, but moving from project base to broader mechanisms is probably a key to success.

Q25 Colin Challen: Could we have your two views on this issue of how it could be broadened? I guess nuclear has already been ruled out, but CCS and deforestation projects, should they be included in a CDM?

Mr Kronick: Greenpeace has put forward a possibly over-complicated but fairly complete proposal for how avoided deforestation could be tackled. We feel very strongly that 20 per cent of the global climate problem should not be bolted on to another mechanism. There needs to be both global governance and a global fund specifically for avoided deforestation. There has been a consistent view that project-based deforestation and reforestation projects are not robust enough in climate accounting terms, they should not be part of it at all. We have got a very clear view on that. I do not, and we do not, have a view about carbon capture and storage in principle, but there seems to be a very strong consensus, certainly from the power generating sector and from the industry, that as a viable proposition, never mind globally but in the developed world, it is not going to be contributing significantly to our power sector emission reductions before 2020, maybe 2025 or maybe 2030. That is the wrong horse to be backing. If the sector itself and the industry wants to put money into carbon capture and storage because they believe it is going to deliver sooner, by all means, but this mechanism is intended to facilitate economically efficient action now in the short term in the developing world. We would not favour including carbon capture and storage for those reasons, not because it could never work or for any other kind of in principle proposition, but, like nuclear, it is largely too little and it is largely going to be too late.

Q26 Chairman: You were talking earlier on about the fact it is deplorable, everyone is burning their coal and building more coal fired power stations. That is what is happening and it is going to happen. It is no good pretending China is not going to burn its coal; it is going to burn its coal. Is not the priority that should be attached to CCS much higher than it actually is? If we are not going to have CCS, an awful lot of other things we do are not material, they are not big enough.

Mr Kronick: I would make a counterproposition and I think it goes back to what Cédric said earlier about the way we look at energy. If we want to maintain globally and expand globally more or less the same energy system we have got now, which was devised in the 1920s, which was to build enormous power stations which waste two-thirds of their energy as wasted heat, yes, I would agree with you, if that is the model we are going to propose for the global development of the energy sector. I would say it would be mad to do that. It is unbelievably wasteful in resource terms, it locks us into a development pathway that is unbelievably resource intensive and does not make use of current technologies that are available in terms of combined heat and power never mind future technologies.

Q27 Chairman: Which are the countries with abundant coal reserves that are not setting an example by not developing more coal ---

Mr Kronick: It is not surprising that they are not. The US is not setting an example. Their projected rate of increase in coal fired power stations is even faster than that of China proportionally as is the UK. If we are going to challenge that paradigm we need to do it here first.

Q28 Mr Chaytor: I want to come back to the question of avoided deforestation. Why does Greenpeace feel so strongly that this issue cannot be dealt with within the CDM? Could you just say a bit more about the mechanisms that you have devised separately?

Mr Kronick: I did not write this paper. Although I am a very keen supporter of it, I do not know every detail of it. What we tried to do with our avoided deforestation mechanism - and again it is an example of a model that could work, it is not a prescription - is to say that the only way that it can significantly contribute to reducing emissions globally is for it to take national baselines. It is not a project-based system, it is one that looks at countries which are already engaged in deforestation as well as ones that are not because you have to be able to include the ones that have large intact forests, like the Congo Basin and the countries within the Congo Basin. There has got to be an incentive for them not to cut their forests down. That immediately takes it out of the range of the CDM and has to put it into an external mechanism. I think it is also largely a question of scale. It is a big, big part of the problem and potentially a big part of the solution and we think that it merits a robust mechanism that stands alone. We are pretty clear that, whatever else you think of global carbon markets and I know there is a wide range of views, avoided deforestation credits should not be part of that system for the simple reason that the sheer bulk of that can overwhelm the system, bring the unit costs of emission reductions way down and have absolutely the wrong effect, which would be not to encourage reducing emissions at home as well as deforestation emissions. At the risk of inventing yet another global bureaucracy, we think this is one that is worth taking a chance on.

Q29 Mr Chaytor: Is not the issue about flooding the market with cheap credits best dealt with by making the emission reduction targets more stringent? If you have tough targets then that deals with the question of cheap credits.

Mr Kronick: I think it is both. As well as tough targets at home we need to protect not just the biomes where these forests are but also the livelihoods of people who live in them. So "yes and" would be my answer.

Mr Philibert: If you can shape country-wide targets for a number of developing countries presumably everything will count exactly as is the case for industrialised countries today. If you deforest the UK this will count in your emissions and you will have to reduce other emissions, so if it is cheaper not to deforest you will not deforest and that will be the same for other developing countries. Of course, the north (?) will have country-wide targets very soon and therefore any specialised mechanism --- I have nothing against specialised mechanisms, but the ultimate purpose should be to account for every emission and put a cap on all of these emissions. This way what you do with nuclear or CCS or renewables or energy efficiency will be counted the same because it will impact on your emissions and therefore if you have a cap on emissions everything is included at the outset.

Mr Kronick: That is true. What is important to remember is that this mechanism is likely to fine countries to a large extent which are not likely to have emission reduction targets any time very soon. It is more than just about emissions. It also includes issues around biodiversity and it includes issues around the livelihoods of people who depend on forests for those livelihoods and who actually live there. I think it is important to remember that just as climate change is not only about emissions and it is about some of the tensions between what our aspirations are nationally and internationally in terms of development, avoiding deforestation is not just about keeping the carbon locked up. For the people who live in those countries it includes that but quite a lot more as well.

Mr Philibert: Before considering incentives to halt deforestation we should halt our incentives to deforestation. The ten per cent objective for biofuels at the EU level is a real incentive to deforestation. Maybe we should start with that.

Q30 Chairman: You are preaching to the converted here about that!

Mr Kronick: This had better be noted down because we could not agree more!

Q31 Mr Chaytor: I want to ask Dr Huq about the negotiations over deforestation. Dr Huq, do you feel that progress is being made over the practicalities of it, the questions of verification and ownership rights and the distribution of benefits?

Dr Huq: The progress that has been made in Bali is on the principle that it needs to be incorporated, but the devil is always going to be in the details and we have not dealt with them yet. Perhaps I could also answer your previous question in terms of whether or not it should be part of the CDM. My own view is that it complicates the CDM too much and the CDM cannot bear avoided deforestation as a project-based mechanism, it is not compatible. I would agree with Charlie that it needs to be dealt with as a separate entity and it is big enough to warrant being dealt with and coming up with rules and regulations that deal with it and recognise the importance of it, finding ways of providing incentives to countries to avoid deforestation, but doing it in a manner that is sensible for that particular problem and not lumping it into a project-based CDM. It is one of the reasons why the land use restrictions on CDM were there in the first place. It was very difficult to include these other issues like deforestation and conservation.

Q32 Joan Walley: How are we going to get the technology transfer to do everything that is needed in developing countries? Given the amount of money that Stern said would be needed per year by 2015 and given where we are at, which is way short of that, how are we going to close that gap between the amounts of money that are needed for adaptations?

Dr Huq: One of the building blocks of the Copenhagen Agreement that has been agreed in the Bali roadmap to Copenhagen is, on the one hand, mitigation and, on the other hand, adaptation and then crosscutting themes, including innovative financing and technology transfer. I think there is a lot of new thinking going on about the need for innovative financing both for mitigation technologies as well as for adaptation in that the amounts of funding that are going to be needed are still not exactly known, but the ballparks are in the many tens of billions of pounds a year, which are simply not going to be available out of development assistance-types of funds so we are going to have to find new and innovative ways of raising them. One interesting and, I would say, fairly innovative mechanism is something called the Adaptation Fund under the Kyoto Protocol, which is not based on contributions from rich countries but is based on a two per cent levy on all CDM transactions. The reason I say this is innovative is that it is a transaction between an entity in a developed country that has a Kyoto target and an entity in a developing country that enter into an agreement for the purchase of CERs, Certified Emission Reductions. They go to the CDM Board, which is an international body sitting in Bonn, to get the certification. Once the CDM Board certifies them, for every 100 CDMs they certify they keep two CERs and they put them in the Adaptation Fund. This money has not gone through any national Exchequer, it does not belong to any particular country. It is an international transaction and an international tax on an international transaction. In my view that is a very innovative mechanism that could be emulated and expanded. There are already arguments being made by a number of countries that the two per cent adaptation levy which is now imposed only on the CDM should also be imposed on other flexible mechanisms, including joint implementation and the European Trading Scheme, which would increase the levels of funds that would flow on a regular basis into this Adaptation Fund by probably an order of magnitude. With the two per cent levy on CDM alone it is estimated it will generate a few hundred million pounds over the next few years. If it were applied to the other flexible mechanisms that would go up by an order of magnitude to several billion. One could think of going beyond applying this kind of an adaptation levy on simply mitigation activities alone. Why not apply them to polluting activities? One example of such a proposal that has been put forward is by Benito Mueller in Oxford and it is called the International Air Travel Adaptation Levy, which is essentially putting a two per cent levy on all international passenger flights, which would then put in the order of £10 billion a year into such an Adaptation Fund.

Q33 Joan Walley: Has Stern not said that we need $69 billion a year up to 2015?

Dr Huq: That is the order of magnitude that is being estimated, yes. I am building up from where we are rather than where we ought to be and finding ways of getting to where we ought to be. Where we are right now is at a few hundred million put into the LDC fund and the special climate change fund by rich countries. It is nowhere near the order of magnitude that Stern suggests. I am arguing that rich countries will not put in development assistance by many orders of magnitude bigger than they have done already. They have had a 30-year old target of reaching 0.7 per cent and most of them have not met it. It is simply not going to come out of development assistance. It is going to have to out of innovative ways of taxing the pollution itself. These are what I am arguing are some ways of thinking of doing that.

Q34 Joan Walley: Do you see any indication of money coming in from auction permits?

Dr Huq: Absolutely. I think that is a very good way. The Norwegian government has already allocated a percentage of their next allocation of permits which are going to go into avoided deforestation. I think that is certainly worth pre-allocating from the governments when they do their allocations.

Mr Kronick: Let me go back to our proposal for avoided deforestation. If such a percentage was agreed for developed countries to apply to their emission reduction commitments we are talking of the order of €10-14 billion a year in terms of payments for avoided deforestation. I think the point that Saleemul has made so well is that it is not going to come from one big pot. There is going to have to be a variety of mechanisms that deliver funds in particular ways. One of the things that colleagues of mine are now pursuing, in relation to these ideas of sectoral targets from developing countries in terms of emission reductions from their electricity sector, is the possibility to develop the equivalent of feed-in tariffs for premium prices paid for the development of renewable infrastructure in those countries, particularly in places like China and India where there is going to be infrastructure development with a lot of money spent on it in the short term. It targets the money specifically to partially where your question came from because it is not just for adaptation, but how do we make sure that in the very limited timeframe available the investment in infrastructure for energy goes the right way and not the wrong way? Those kinds of mechanisms, such as a feed-in tariff, which have been very powerful in driving the development of renewables where they are applied, could work in those developing countries as well. It is going to take quite a lot of creativity and a willingness not to depend solely on a single mechanism. I am going to start to sound boring here, but it cannot just be about the carbon price, it is going to have to be more directed than that.

Mr Philibert: I agreed with everything you said before, but now I have to disagree on your very last point! Carbon pricing and flexible mechanisms will probably be the most powerful technology and finance transfer mechanism we can build and for one good reason, it is because it is public money, which is getting scarcer and scarcer. It is using the money of the rich societies, putting targets on all activities and allowing all sources to buy emission reductions wherever they are cheapest. I think these will be the largest providers of funds in developing countries due to climate change. This does not mean that other mechanisms will not be useful and a specific mechanism for halting deforestation, specific funding for capacity building, things that carbon mechanisms cannot easily support will be needed from government support. The bulk of the money would probably have to come from a big framework for emission reduction with targets in almost all countries, as many countries as we can.

Q35 Joan Walley: Looking at the other side of the coin in terms of the developing countries in receipt of the adaptation funds, what do you think the prospect is of getting very tight sustainability standards so that they are only going to be going forward with projects which have tight sustainability objectives embedded in them?

Dr Huq: On that particular front, I would say it is perhaps not a great worry because from most of the developing countries' perspectives they see both mitigation and adapatation activities, or any general activities to deal with the climate change problem, as part of their development problem as well. They are the ones who want adaptation and mitigation to be compatible with sustainable development, so it does not have to come as a conditionality from the north; it is something they have always argued for in any case. I do not see that as a problem where they are going to spend on things that are not going to be promoting sustainable development. Almost by definition, climate change activities in developing countries have to be done in a manner that does promote sustainable development as opposed to short-term development.

Chairman: Thank you very much indeed. This has been a very interesting and useful session. We are grateful to all three of you for coming in. Thank you.

Witnesses: Mr Craig Bennett, Facilitator, Corporate Leaders Group on Climate Change, University of Cambridge, and Mr David Hone, Group Climate Change Adviser, Shell International, gave evidence.

Q36 Chairman: Good morning. Welcome to the Committee. We are very grateful to you both for coming in. Would you just like to briefly introduce yourselves and explain what your roles are even though some of us probably k now that, but it is helpful to the Committee generally.

Mr Bennett: My name is Craig Bennett. I am Development Director at the University of Cambridge for Programme for Industry. That is a department within Cambridge University that specialises in working with senior executives to help educate them more on sustainability issues and then to work with them on helping to put those lessons into action. Within that department, my role is principally about facilitating the Prince of Wales' Corporate Leaders Group on Climate Change, which is a group of 20 companies that are advocating bold and urgent action from governments on climate change. Crucially, companies are calling for regulatory frameworks to give that long-term certainty for companies so that they can invest in their own carbon technologies, and also really calling for a whole range of policy interventions to drive that low carbon economy. I facilitate the UK Corporate Leaders Group and also the EU Corporate Leaders Group, which is a group of 17 companies across Europe that have a similar agenda but more on a European basis.

Mr Hone: My name is David Hone. I am the Group Climate Change Adviser at Shell. I work for Shell International BV in the Netherlands but also I work here in London. My role in Shell as Climate Change Adviser principally is around development of Shell's policy positions on climate change, in particular around emissions trading, the international mechanisms and broad policy change across the economy.

Q37 Chairman: Thank you very much. The Corporate Leaders Group made a strong call before Bali for a legally binding framework on climate change. Would you just like to explain why that call was issued?

Mr Bennett: Yes. I think in both the UK Group and the EU Group, as Bali was approaching, in the months running up to it, we felt we had to do something to really engage with the international agenda and do what we could as business groupings to really ensure that there was a strong business voice going to the Bali negotiations, calling for an international legally binding framework. So we took it upon ourselves to put together the rather boldly called Bali Communiqué and I understand you have had copies of this distributed in advance of this meeting. It was really just one page of text making the business case for why a bold international legally binding framework is necessary. We realised, of course, that for this to really have an impact we would have to get support from the international business community and not just the companies that were members of the UK and EU Groups. We were delighted with the results of that. Maybe I should just talk through some of the key messages that were in that Communiqué. The first was to say very clearly that the scientific evidence of climate change is now overwhelming. We thought it was important to do that although certainly within the European Union that argument has been put to bed for quite a while now, but that is not necessarily the case in every part of the world so we thought it was important to say that. The second was really to emphasise that as business leaders it is the belief of these Groups that the benefits of strong, early action on climate change outweigh the costs of not acting. What you see then is the Communiqué really emphasising some of the key messages of the Stern Report. We did not mention the Stern Report by name here but the messages in the Communiqué are exactly those that were in the Stern Report, highlighting there are all sorts of reasons why acting sooner rather than later will be better for business in terms of reducing the long-term costs and the negative consequences of climate change, but also highlighting that for many companies there are significant business opportunities to be gained through the creation of markets for low carbon technologies and products. In summary, we summarised that tackling climate change is a pro-growth strategy while ignoring it will ultimately undermine economic growth, and we are familiar with Sir Nicholas Stern's projections that it could be around 20 per cent of global GDP that could be at risk if we do not act. Then the companies go on to say it is their view that a sufficiently ambitious international comprehensively binding UN agreement is needed to reduce greenhouse gas emissions and crucially, also, that it will be the developed countries that will have to put in the biggest effort to reduce emissions. There is also a statement in the Communiqué which I think is very significant, which is that the overall targets for emission reduction must be guided primarily by science. Let me explain here that in some of the discussions around this there are lots of different targets bandied around, whether it is 60 per cent, 50 per cent or 70 per cent, but within the discussions we had amongst the Group there was a recognition that the job to be done is very big and it has to be guided primarily by science in setting those emission reductions and, of course, when we talk about whether it is 50 per cent or 60 per cent there is always a little bit of politics coming in about rounding up to a figure. What we wanted to do here was really emphasise the key principle of this is that an agreement has to do the job that the climate scientists say will be necessary to avoid dangerous climate change. Those are really the key points in the Bali Communiqué and I have to say I think we were absolutely overwhelmed with how successful it was in attracting business support. We really only started a month or so before Bali but over the course of four or five weeks we ended up gaining the support of over 170 global companies in support of this document. That included many from the United States, a whole surge of companies from Australia in the last week or so and, indeed, five Chinese companies signed this Communiqué as well, so we were thrilled with the strong global consensus that there seemed to be within a large part of the international business community in support of a strong international framework.

Q38 Chairman: It is clear from all of that that the business community in many parts of the world is probably ahead of the politicians and public opinion, and I very warmly welcome that. Clearly the emphasis you put on the policy is that should be based on the scientific evidence, do you think there is anything like the sense of urgency in the negotiations now, both at Bali and what is going to happen over the last 18 months or so, that there needs to be to reflect what science is now telling us?

Mr Bennett: I will say something and then I am sure David will want to comment. I think some of the previous witnesses put this very well in suggesting that around the negotiations there is an emerging sense of urgency and the way in which the negotiations went into the night on the last day and many blocs like the European Union did hold firm indicates that there is that sense of urgency growing amongst the countries negotiating this. Of course, crucially we need to see that sense of urgency really being driven by political leaders. What the Corporate Leaders Group has time and again emphasised is to call on that leadership from political leaders to really drive that sense of ambition to make sure there are the appropriate mechanisms in place to move the world towards a low carbon economy, and there is clearly a lot more to be done there yet.

Mr Hone: Let me just reflect a bit on that. First of all, from a business perspective the Bali Communiqué puts forward an important point. This issue can unfold in two different ways. One is that we can build the structures and frameworks necessary to start making reductions and business can respond to that, or the second is we can let this issue just roll on and roll on and at some point in the future somebody will have to take really what will amount to a knee-jerk and quite severe response to events as they unfold. The former is in the interests of business to see a framework there, to see what the rules are and to start operating within those rules and delivering the products and services necessary for society as it moves forward. In business where we are making multi-billion dollar investments, to have the rules suddenly change at some point ten, 15, 20 years down the future, is not in our interests at all. That is one of the key reasons that underpins our desire to see policy move forward and these various frameworks established. In terms of urgency, the people around the table certainly had a sense of urgency. I do not think the outcome fully reflects the urgency of the people participating and I presume that is down to the negotiating process. Although the Bali Communiqué sets out a pathway for the next two years, it does not go nearly far enough in setting out some of the specifics that are required and setting out timelines within which they have to be delivered. Those specifics, that tight frame of reference within which the negotiating process should operate and deliver, were absent from the final Communiqué.

Q39 Dr Turner: I think this Committee would totally concur with the sentiments you have expressed in your Communiqué. The IPCC scenarios, which are themselves quite cautious, indicate that global emissions have to peak within the next ten years, that developed country emissions have to reduce by 25-40 per cent by 2020, and that overall global emissions have to reduce by at least half by 2050. Does the Corporate Group accept that emission progress framework?

Mr Bennett: I think the first thing to say is that in the Bali Communiqué although we did not want to, if you like, choose a specific target ourselves, where we have then put that principle that emission reductions must be guided by science we do note the IPCC's findings there, so we say: "Even an immediate peak in global emissions would require a subsequent reduction of at least 50 per cent by 2050 and a later peaking would require a much greater reduction". In the Communiqué we have clearly recognised the work that the IPCC have done in their fourth assessment report and made it clear that we are aware of that when saying that the overall targets for emission reductions need to be guided by science.

Q40 Dr Turner: In your view, does the big business community now work under the assumption that that emission reduction framework is going to be adopted and does the business community, the corporate community, see it as a practical proposition?

Mr Hone: Certainly from this corporate's perspective we take the view that the world is moving on to a footing to reduce emissions. That is our underlying assumption going forward and it is increasingly becoming the working procedure within developing a strategy within Shell and so on. From my observation of other corporate organisations that we have contact with, that is becoming much more mainstream than even a year or two years ago. As to the magnitude of the task at hand, I think that is a very separate issue. Having emissions peak by 2015 one might argue is perhaps on the scale of almost impossible, in part because there is a built-in lag now in the system that even if everything we imagine came out of the Copenhagen Process and the Bali Process it would not really start kicking into action until 2013, which is the end of the Kyoto Process, so there is a natural built-in lag in the system anyway. How far we move ahead and how quickly we can reduce emissions is going to depend on the policy, but the challenge is certainly there and at Shell we take the view that this is coming, this is happening, the question is how fast it can actually be done without severe disruption to society.

Q41 Dr Turner: Do the Kyoto negotiations as they have been proceeding in Bali give business reassurance that Kyoto and its international carbon markets will continue beyond 2012?

Mr Hone: Yes. There is certainly no doubt in our minds that the carbon markets will continue to evolve and will expand. That is led by two things. One is that there are national policy structures starting to appear in a number of countries around the world who support it, all of which indicates they are prepared to link with other systems. That is so in the US, it is certainly so in Australia, it is true in New Zealand and it is abundantly true in the EU. That in itself sees the carbon market evolving further than it is today. Whether or not the Kyoto and Bali Processes can pull that together more tightly and more rigorously remains to be seen. I think one of the issues is that there is a lot of focus initially on reduction targets at an international level whereas I think the focus from an international level needs to be on the totality of the target, in other words where is the world going, and, secondly, providing the necessary instruments and frameworks to facilitate all of the linkage that countries are clearly willing to engage in, that is beginning to develop the equivalent of the global currency markets but in terms of carbon.

Q42 Dr Turner: What confidence does the corporate community have in carbon markets as a means of actually delivering the kind of emission reductions we need?

Mr Hone: Very high. I think it is the only mechanism we can see that fits clearly within the mandate that business has in society, in other words to respond to markets. That is principally the mandate that business is given by society. We do not believe that voluntary initiatives are going to solve this issue. The better thing is to put in place the necessary constraints but let the market deal with those constraints in the way that the market deals with many other constraints in existing society that are put there for equally good reason. We have a high confidence that this will work. You have got to realise that these carbon markets will not evolve in one or two years. This is a 20-30 year solution and the markets will evolve over that period as currency markets have taken many years to evolve. On the flipside of that, of course, you will recognise that the time we have for these markets to evolve is very limited.

Q43 Chairman: Just on the question of the EU offering to go further than 20 per cent in emission cuts by 2020 if other countries do that, what is the way to stop leakage of very energy intensive industries simply moving to the countries which have got much less demanding regimes?

Mr Hone: I think the best way for that to happen is for regulatory frameworks to develop in other countries. It is unlikely that there will be wholesale shutdown of European operations and rebuilding them in other countries. I think that is a story which we should put to one side, largely because of the huge capital investments required and the capital already sunk. I think the worry is over time as decisions are made about new facilities there could be a tendency to put them in other places and really the only way to do that is to see that carbon markets evolve as fast as possible. That means not only developed countries using carbon markets but developing countries using them as well. The key there is to encourage developing countries to see this as an emissions management task. We are too quick to throw in the words "emission reduction" when we know developing countries are going to have a rising emission profile for some time, but a rising emission profile that is managed and certainly ends up less than what the unmanaged case would be is really how we should be pitching this for them so there is an incentive to move into more managed carbon economies.

Mr Bennett: There is a point to put here which also relates to the previous question, which is the Corporate Leaders Groups have been quite consistent in saying that although a strong international carbon market is crucial as the foundation for delivering change there will, of course, be a number of other policy interventions needed as well, particularly around stimulating new markets for new technologies. We could talk about a whole number of issues, and government procurement would be one, where if we saw much stronger forward procurement commitments, say from European Union Member States, that in itself would really drive some of the markets that are needed to enable and support new low carbon technologies to come on to the market and in turn that would provide some of that stimulation that is needed for companies here in the EU. It really is the point that we need to see a package of policy measures, and a strong carbon market would be the absolute foundation to it, but a package nonetheless.

Q44 Chairman: Looking at the banking crisis at the moment some people are saying the private sector is taking the profits and the taxpayer is taking the losses. Is there a danger that carbon markets might develop in a similar way?

Mr Hone: I think markets will develop according to the regulations and rules under which they are governed. Yes, if it is poorly governed and poorly managed there is always the possibility that will happen but we are learning rapidly from things like the EU ETS, from the Clean Development Mechanism, to ensure that will not happen. Certainly over time there will be examples and we will learn from them as well and take corrective action, as has been the case in currency markets and all the other markets that have developed over time. There will be a learning process and there will be almost certainly upsets along the way but we will correct for them.

Q45 Colin Challen: I get the sense perhaps from the Bali Communiqué and, indeed, previous communications from the Corporate Leaders Group, the letter to Tony Blair before Gleneagles and so on, that these very large businesses feel a bit constrained and held back, that they would like to do more but feel that the political framework has to be in place so there is a level playing field. I wonder whether or not some companies actually could do a hell of a lot more, and perhaps are doing more, and whether it is your view that they should be doing more themselves. The reason I ask is because some developed countries clearly are going to have great difficulty meeting some of these very severe targets. The 80 per cent target in the United States does look to be quite a test. Could companies not stiffen the backbone of politicians by actually demonstrating in a practical, active way that it can be done and that the business community is not always kicking and screaming against extra measures but are prepared to leapfrog where it can and say, "Look, we did it, you can easily manage to achieve these targets or exceed them"?

Mr Bennett: I will make a very broad comment on that. If you look at the 170 global companies that have signed the Bali Communiqué, many of those companies will have a number of initiatives in place that are demonstrating in quite a bold way what can be achieved by individual companies in reducing their own emissions. In many cases I do think those provide examples that give a very clear indication to policymakers about the level of ambition that could be achieved. We could look at a whole number of examples of that but one on my mind at the moment is one of the construction companies, Skanska, has achieved some very strong reductions and has strong targets in place in terms of the grams per kilometre that it seeks to achieve from its car fleet, which at the moment go way beyond the European Union's proposals on this. There is an extent to which looking at what individual companies might achieve in particular areas can help guide what might be achievable from the policy frameworks. Of course, if you are talking about a list of 170 companies it would also be easy to find examples of where those companies might be able to do more in particular areas. The common message that comes from the Bali Communiqué is that it will be so much easier for business to make bold steps forward in their own operations if there is that common framework in place and if there is that leadership from government both in terms of the politics but, crucially, also the policy frameworks to enable that to happen. What business wants more than anything is certainty about the future, about what policy frameworks will be in place and broadly what strategic direction we are going in. If it sees politicians and policy frameworks providing that certainty it will be far more confident to invest the money necessary in improving its own operations and, indeed, developing the new technologies needed to move us to a low carbon risk economy.

Mr Hone: Can I just say something on that? You need to look really at the bigger picture here, and the bigger picture, and I said this earlier, is the mandate that business is given by society is to respond to society's needs through markets. That is broadly what we do. If the market circumstances allow for a certain activity to happen you can be absolutely certain it will happen and by somebody somewhere the activity will take place. We may not like this activity for other reasons, in which case the way forward to address this issue is to put in place the constraints so that these activities stop. That is the only way this is ultimately going to steer on a different course. We have seen plenty of examples of this in the past. For years there was concern about clean air in the US and it was all too hard, it was difficult, "We can't really do that, it will put the price of the car up too much, the coal-fired power stations will all shut down". Every reason that you could possibly imagine was given until the Clean Air Act came in, the emissions from vehicles were managed, the sulphur reduction programme was put in, the constraints were put in and the market was allowed to function and the results show for themselves. The businesses are all still there and they are all still doing very well, they have responded to the market. This is about changing the fundamental rules within the marketplace and then allowing business to respond to that.

Q46 Colin Challen: Is it possible since the Corporate Leaders Group was formed to put a figure on how much the core group of 20 companies have reduced their carbon emissions over the last four years since you were formed? Is that an activity which the Corporate Leaders Group engages in?

Mr Bennett: No. There are many initiatives out there that focus on best practice and aspects of corporate performance. The role of the Corporate Leaders Group is to focus specifically on looking at policy interventions that are needed from government and from regulators to drive the change forward and that is the focus of the Group. Many of our companies will be involved in other initiatives that look more at best practice but we have not done that, no.

Q47 Colin Challen: I was just thinking that it might help if you could say, "This is what we have done, please give us more help", but anyway. Moving on, whilst we were in Australia the Committee was made aware that there is a growing controversy about a report being prepared by Professor Ross Garnaut who is advising Kevin Rudd, the Prime Minister, on climate change, and he perhaps started this controversy by talking about cumulative emissions by a certain period and everybody was leaping up and down saying he is now ignoring short-term targets and we must have these short-term targets if we are going to make a dent on cumulative emissions. I just wonder what your view might be on that kind of approach, looking at cumulative emissions, and whether or not within that period of time when we are trying to reduce it different countries in the developed world might have different pathways to achieving that ultimate objective. Clearly if we are saying we are going to have a real tough target in the EU and Australia goes for something else, that could have competitive issues and a whole range of things emerging from it.

Mr Hone: Broadly speaking, there is a job to do which is relatively clear. At some point in the next decade we have to see global emissions peak one way or the other and start to decline. At best, we can allow that to stretch maybe a few more years into the future but we know the risks involved if we do. The process that is now going on is finding an equitable way to slice up that task internationally. Whether you look at current emissions, cumulative emissions, whatever, all it does is shift that burden slightly one way or the other but it does not change the nature of the task. What concerns me is that we could spend another ten years arguing about the ways of slicing up the pie and meanwhile it rots on the shelf. I understand the principle but really we need to focus on how to move ahead with this job. There are some major takeaways that we can start to put in place that will deliver the outcome and the big ones are around what is the goal that we are heading for collectively, how do we implement the carbon markets to start changing investing flows, how do we implement and expand the project mechanisms so that they assist in clean development pathways for developing countries. These are things that we could be getting on with and doing rather than arguing about the pathway. The US is going to pick its pathway, the US Congress will decide what that pathway is irrespective of what the US cumulative emissions are or have been, might be or will be, similarly in the EU, and that will be replicated around the world.

Q48 Colin Challen: If we assume that these different countries will have all these different pathways and perhaps different ideas about what the ultimate objective is, it is going to make getting global agreement quite difficult, is it not, because people will say, "They are trying to freeload on our efforts" and you will see a whole range of suspicions creeping in that some countries are just not pulling their weight.

Mr Hone: I think it depends on what we think of as a global agreement. If we think of a global agreement where we have decided that emissions have to peak by year X and every individual country has a particular percentage then I am pretty pessimistic. If we think about a global agreement as putting the tools in place such that the markets that I have talked about can start to be created, I think that is something we can do in the next two years. Given the society that we have and the way in which money moves around the world, that is probably the best way of starting this and recognising that countries are going to pick this up at different rates. That may not be the ideal solution but it is probably the one that more rapidly gets us to some sort of outcome.

Q49 Jo Swinson: Turning to the Clean Development Mechanism, which we discussed with the previous set of witnesses, we visited one of the CDM projects in China, which was a very interesting visit, but what was particularly noticeable was that there was not necessarily in place robust accountability standards to prove that this would be genuinely additional and investment might not have been made otherwise and there could be a potential in some projects that it might just be abused. What do you think about the CDM and its future and do you think it would be better to be replaced with an alternative mechanism?

Mr Hone: The CDM has evolved over many years now. It was talked about as much as ten years ago. It has evolved rapidly in the last two years. Of all the various financial mechanisms that are in place around the world, whether they be environmental or not, it is certainly one of the more robust in terms of scrutiny, checking procedures and accountability. I do not think almost anything has had more written about it than the CDM and more people looking at it trying to see if it is working or not. Again, like the EU ETS, it is still in its infancy and certainly needs to develop further. It needs to broaden its scope or have other mechanisms attached to it perhaps that account for things like carbon capture and storage, deforestation and so on, whether they are part of it or separate. The foundation on which it is built, which is project-based with a clearly auditable system of scrutiny and oversight, is a good one and I do not think we should be too quick to criticise it, which is not to say that there have not been issues along the way.

Q50 Mark Lazarowicz: I think you were both here in the earlier evidence session when there was discussion about other mechanisms. I think mention was made about mechanisms to avoid deforestation, proposals for aviation tax to fund adaptation and so on. Have you got any comments on those two specific proposals? If you cannot today, you can send them in writing if you want to. What are your views on other mechanisms that could be brought into play here?

Mr Hone: I do not have any specific comments on deforestation. What we started with was the Clean Development Mechanism as it applies to individual projects under certain circumstances and there is no doubt that has to evolve and expand. It has to encompass newer technologies, for instance carbon capture and storage. Somewhere along the line we have to be able to introduce that carbon price into countries like China before they have their own domestic cap and trade type programmes, which they will at some point in the future, those days will come in countries like China. Long before that you want that carbon price to be seen there and you want it to be seen by the types of technologies that are going to be needed there to mitigate emissions. The other direction that you could go in is to be broader in terms of its application to programmes. For example, some industries, like the cement industry for instance is running with programmes where a number of cement companies are co-operating across the board in terms of emission reduction, setting benchmarks and so on, so there are talks about programmatic CDM where you could apply it to an industry sector in a country, for example. These are all areas that need to be explored. The idea of the project mechanism and defining an envelope of activities within which you can see a change relative to some business as usual projection is something that we should keep and explore as to how it can grow further.

Q51 Chairman: Just on the question of sustainability and business as usual and all that, companies like Shell, which have got substantial fossil fuel reserves, if we now accept the urgency of the challenge to cut emissions, are you starting to factor into your business plans the likelihood that you will never exploit a significant proportion of those reserves?

Mr Hone: What we factor into our business plans is a future carbon market and future constraints in society related to CO2 emissions and that helps us see how these various reserves might be developed. One of Shell's clear goals at the moment is to develop a capacity in carbon capture and storage so that we can utilise these reserves in the future. This is really built going back on what we call three hard truths, in that the three hard truths are that energy demand is accelerating, the easy fossil fuel reserves that we have had in the past are starting to come to an end and, therefore, there is a movement into these sorts of more difficult future reserves, and the third one being that CO2 is problematic. Nevertheless, meeting the energy demands of the future is going to force us to continue to look at fossil fuels, but we have to look at them with new technologies in mind, and carbon capture and storage is one of those. These are not necessarily incompatible goals.

Q52 Chairman: Well, what is incompatible is rising energy consumption and for fossil fuels to remain at their present proportion of the total if we are also going to get anywhere near the emission targets that science now says are absolutely essential over quite a short space of time. Again, in the previous session the Greenpeace representative was making the point that CCS might be workable in 2020, 2030 but by that time we will have used up the whole of the available carbon budget. Whatever we do after that, if we have not tackled it before 2030 we are done for. So there is a degree of incompatibility there unless CCS is available far more quickly than anyone currently envisages.

Mr Hone: I agree with that. CCS has to be available relatively soon. In terms of major roll-out, you really want to see it as an off-the-shelf technology by 2020. In other words, if I am building a coal-fired power station in 2020 onwards it is a no-brainer, that is what I am doing, the technology is there and off I go. Even that is challenging in two respects: one, is it early enough, and that is a vexing question; second, can we even deliver CCS in that timeframe of 12 years. What you see today in the EU and the US is a very broad range of companies pressing government to help commercialise this technology. CCS is a technology that is broadly made up of a variety of other technologies, all of which are used somewhere for some purpose or other, it does not exist in an end-to-end format. There is an anxiety that we need to demonstrate this and that should be the priority in government and industry together today. Shell, amongst many other companies, has put forward a variety of approaches by which that can happen, but it is slow.

Chairman: Indeed.

Q53 Joan Walley: I would like some help in trying to square a circle. In this session and in the previous one we have talked about technology transfer and what I am not clear about is in the submission that you made to our Committee, Mr Bennett, you talked about the costs of action, but I cannot quite see where the whole issue of intellectual property rights fits in. It seems to me that the innovation and the design of the new technologies that are going to be needed are absolutely critical in addressing the whole issue of climate change, but I am not quite sure where in all the international negotiations and in all the work that our own Government is doing with industry we are dealing with this whole issue of intellectual property rights. It seems to me that is something that has got to be resolved somehow or another if we are going to be able to get the technology transfer that we need. In terms of the contacts that you have with your businesses, how do you see that being addressed?

Mr Bennett: I am sure David will say more on this in a moment. The first thing to say is this is not necessarily about new technologies, it is not about having to invent new widgets tomorrow that we have not yet got. A lot of the key to this will be about scaling up the deployment and speeding up the deployment within developed countries, industrialised countries anyway.

Q54 Joan Walley: Is not a lot of it about patents that already apply to existing companies and those companies needing to be able to fund the research and development that produces the patents that now they do not want to lose the benefit from?

Mr Bennett: David might have a point to make on that specific issue. Broadly, the point I would put forward, which I am told a lot in my role as Facilitator of the group, is that many of the top technologies already exist, so it is not necessarily about a big emphasis on research and development, it is as much as anything an emphasis on deployment. Take, for example, the one that is very easy to think about, the shift to low energy light bulbs. It is not as if it is a tremendous level of patents that are involved in that. The technology has existed for a long period of time and yet here within Europe my guess would be that there are a lot more inefficient light bulbs than new ones.

Q55 Joan Walley: Putting the easy, low-hanging fruits to one side, there will be issues, will there not, about intellectual property rights. How does that fit into this whole equation of how we deal with the technology transfer?

Mr Hone: I think it is a red herring and I do not think there will be issues about technology transfer and intellectual property rights. This is a process that already exists and already works quite satisfactorily. IT technology, which is guarded by many companies because of the extremely competitive nature of the industry is spread throughout the world. The Internet is available all over the world, mobile phone technology is available all over the world, PCs sell all over the world. Companies take their technology, find partners in their developing countries, invest with them and build factories to produce the goods and services that those countries need and all the while intellectual property rights are protected by a system that is already functioning and I do not see that should be any different for the energy technology industries. We already license technologies in China for advanced chemical process technologies and so on, coal gasification technologies, and we find partners in China, we do technology deals with them or invest with them, the facilities get built and we meet our business needs. I am not entirely sure that it is the issue that many people make it out to be.

Q56 Joan Walley: What would you say to China's suggestion that technology transfer should be mandatory for developed countries?

Mr Hone: I cannot think what the technology is that they are looking to be transferred. There is no shortage of high efficiency vehicles in China. Toyota is building a Prius factory there quite successfully under existing circumstances. I really struggle with the issue, not with your question, I think it is a good question because it is worth having a debate about it, but personally I have struggled with this issue as to exactly what is it that people are looking for. I know in Bali, which I think was of great concern, some people likened it to the technology behind AIDS drugs, for instance. It is not an example that is mirrored in the energy sector.

Q57 Joan Walley: Finally, again when we were in China it was suggested that it was not so much about the actual technology transfer but it was really about skills. From the links that you have which bring together business and the university, what scope do you think there should be or what scope is there for getting skills up to speed and readily available wherever they are needed?

Mr Bennett: There are actually a number of things we do within my department on that. We run a programme specifically for Chinese leaders around climate change and work closely with the Foreign and Commonwealth Office in that regard. As the Corporate Leaders Group we were obviously delighted that there were five Chinese companies that signed up to the Bali Communiqué, including some very significant ones like Shanghai Electric. We have not just let that sit there, we have now gone back to them and had discussions with those companies and we are now in the early stages of thinking about how we can move together in partnership on this issue. The kind of possibility we are thinking about is maybe having a conference in China in a year's time with many of the companies that signed the Communiqué and, of course, as many Chinese companies as possible to really build that common agenda about what needs to be done to move forward on climate change and to have a particular focus around skills as well. We are looking to see how we can really work together to take that agenda forward.

Q58 Joan Walley: Following on from the Stern Report, what was DTI, which is now BERR, set up a commission to look at how to make the next steps in terms of implementing the Stern recommendations. Separately, for example, in the West Midlands region there is now a university which is looking at the whole issue of environmental technologies. Is your work in Cambridge just focused on the work that you do in Cambridge or is it linked to other initiatives elsewhere regionally across the country, because clearly this kind of leadership and bringing the skills agenda together in terms of the business agenda and the environmental technology transfer agenda all needs to be somehow or other connected, does it not? How is that being connected up?

Mr Bennett: The short answer is to say we try to be as linked in as we possibly can, but often there are so many links that are open to us that sometimes it is hard to exploit all of them. I would obviously accept the premise of the point that it is important to be as networked as we can on this agenda.

Chairman: Thank you very much indeed both of you.