Select Committee on Treasury Fourth Report


Coordinating climate change policy

37. Climate change is an issue that touches upon many policy areas, spanning several government departments. To name just a few, HM Treasury has responsibility for setting taxation policy, the Department for Transport has responsibility for encouraging the use of green transport, the Department for Business Enterprise and Regulatory Reform (BERR) has responsibility for the energy sector, and the Department for Environment, Food and Rural Affairs (DEFRA) leads on both environmental policy in general and adaptation efforts such as flood defence. The Office of Climate Change (OCC) was established in September 2006 and works across Government supporting analytical work on climate change and the development of climate change policy and strategy.[72] The Minister of State for the Environment, Phil Woolas MP, said that the OCC "is a shared resource for Defra, BERR, DFID, FCO, DfT and CLG. It is jointly funded and governed by these Departments."[73]

38. DEFRA is the lead department for Public Service Agreement 27, to "lead the global effort to avoid dangerous climate change"[74] and the Minister was very clear that the policy responsibility for the environment rested with the Secretary of State for the Environment. However, he added that he did "not think anybody could argue that the Prime Minister and other leading figures in the Government have not also played a very active part". He stated that over the last couple of years, the UK had seen an "unprecedented cross-departmental, cross-government effort behind the climate change challenge".[75] The Minister said it was only right and proper that the Prime Minister, DEFRA, the Department for Trade and Industry (now DBERR), the Department for Transport and the Treasury should all be involved.[76]

39. PricewaterhouseCoopers considered that it was becoming more difficult to establish which Government department was in the lead on climate change issues, in the context of a growing number of initiatives, programmes and associations which have been set up in recent years: "there is now perhaps a perception that the setting of government policy needs to be more focussed".[77] Nor did the Better Regulation Commission (BRC) see sufficient cohesion, telling us that there needed to be a clear lead department.[78] The BRC was encouraged by the concept of the Office of Climate Change, but insisted that it needed to develop a clear role and hoped that its priority would be establishing:

    the fundamental building blocks of the policy, which is understanding the pros and cons of different methods of carbon pricing, establishing a clear stabilisation goal so that everyone understands it and a carbon-price pathway—a clear methodology for evaluating policies across government—and to make sure that the [BRC's] seven tests are woven deeply into the policy-making agenda.[79]

Kate Hampton of Climate Change Capital agreed that there had been a problem with coordination, but she saw some improvement:

    Certainly since the EU and G8 presidencies last year government departments have started to work together a lot more effectively on these issues Therefore, I think there is an improving trend, but I do not think it is right to say at this stage that policy is predictable and provides the kind of long-term visibility that investors need. I think that policymakers are beginning to realise that it is a problem.[80]

40. Climate change requires a wide range of responses from departments across Government. The effective coordination of these efforts, and the presentation of a consistent, clear strategy by all departments will be vital if the UK is to show the way in combating climate change, setting a good example for other countries, as well as to individuals. To this end, we welcome the establishment of the Office of Climate Change (OCC). However, we think it is important that there should be a Government minister directly accountable for the cross-governmental work of the OCC, most likely within the Cabinet Office, in order to create an effective champion for climate change issues across Government.

Seven tests for better regulation

41. The Better Regulation Commission (BRC) published a report[81] in response to the Stern Review in order to address two concerns: first, to ensure cohesion across different departments' policies and, secondly, to ensure that a framework of tests existed against which policymakers should be judged.[82] The BRC suggested seven tests for better climate change regulation, setting "basic but essential standards to policy makers as they meet the complex challenges of climate change":

  • "Ensure climate policy is consistent with a healthy UK economy;
  • Government must develop and act consistently with a climate change strategy; avoiding piecemeal announcements;
  • Test policy against a carbon price benchmark;
  • Carbon policy choices must be efficient; don't do things twice;
  • Keep administrative costs to a minimum;
  • Do not use climate change as a justification for other policy goals; and
  • If it isn't working, change it."[83]

42. The Government accepted the BRC's seven tests in May 2007, commenting that it saw "the better regulation recommendations and tests as essential to combating climate change in a proportionate consistent way". Furthermore, the Government pledged to "keep the overall regulatory burden on climate change under review, looking for ways of streamlining existing regulatory burdens and reducing overlaps".[84]

43. We welcome the suggestions made by the Better Regulation Commission towards ensuring cohesion in climate change regulations, including the proposed 'seven tests'. We are pleased to note that the Government has accepted the recommendations of the Better Regulation Commission and has pledged to monitor the overall regulatory burden imposed under the climate change banner.

HM Treasury's role and the regulatory mix

44. The Stern Review highlighted three key areas for action by the Government:

45. Of the three elements suggested by the Stern Review for action by Government, we believe that the pricing of carbon and the application of economic tools is clearly the area where the Treasury is best placed to take the lead, and the use of such tools by the Treasury was therefore the focus of our inquiry. Our inquiry did not consider Government policy in support of technological innovation, or its action to remove barriers to energy efficiency and influence individuals' responses to climate change (except via economic tools).

46. One of the key findings of the Stern Review was that establishing a carbon price, through tax, trading or regulation, was an essential foundation for climate-change policy.[86] Environmental taxation is a tax on 'bads'—that is, some undesirable behaviour, such as emission of carbon dioxide—and works by forcing emitters to pay the environmental costs of their actions. Environmental trading schemes also involve the pricing of economic 'bads'—this time by setting the maximum level of, in this case, emissions that is tolerable and creating a market through which emitters can buy and sell permits. Regulation covers a broad class of measures that prohibit, limit or enforce a particular behaviour, and carry the threat of punishment for non-compliance. There are disadvantages and advantages to all three approaches. Professor Ekins argued that use of the price mechanism was appropriate in many, but not all, cases:

    I think that a complex society such as ours needs both [taxation and regulation]. Regulation sets standards, and there are some areas of life where standards are important. For example, I am very glad that drinking water is subject to regulation and not taxed on the amount of pollution that can be put into it. On the other hand, there are many environmental issues that respond well to price signals where those physical effects are not absolutely critical and perhaps the cost of abatement is relatively high … Once a tax is levied one pays the tax on the full environmental effect, not only on the bit that is above the regulated amount. There has now been a very interesting swing of perceptions against environmental taxes, and certainly governments have found them very difficult to introduce. That means that on the whole we do not have enough of them and in general I would favour the introduction of environmental taxes much more commonly, and in particular for their introduction on an escalating basis. In this country we have had some experiences of tax escalators. The fuel duty escalator and landfill tax escalator are currently in place. In my view they have shown themselves to be remarkably effective.[87]

47. A variety of policies and tools will be necessary to counter climate change emissions and public policy cannot afford to rely solely on emissions trading schemes, or environmental tax, or regulation. In general, however, we are persuaded that use of a price mechanism, rather than regulation, is an extremely effective way to change people's behaviour and, as much as is possible, the Government should give primary consideration to the use of economic tools in combating climate change.

72   Office of Climate Change website  Back

73   HC Deb, 26 July 2007, col 463 Back

74   2007 Pre-Budget Report and Comprehensive Spending Review, HM Treasury, p 195 Back

75   Q 265 Back

76   Q 266 Back

77   Ev 110 Back

78   Q 334 Back

79   Ibid. Back

80   Q 109 Back

81   Regulating to mitigate climate change-a response to the Stern Review, Better Regulation Commission  Back

82   Q 331 Back

83   Regulating to mitigate climate change-a response to the Stern Review, Better Regulation Commission, p 5 Back

84   The Government's response to the Better Regulation Commission's report: Regulating to mitigate climate change-a response to the Stern Review, DEFRA, May 2007, p 4, para 9 Back

85   "Publication of the Stern Review on the Economics of Climate change", HM Treasury press release, 30 October 2006 Back

86   Stern Review, p xviii Back

87   Q 15 Back

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