Examination of Witnesses (Questions 120
- 127)
TUESDAY 23 JANUARY 2007
MS KATE
HAMPTON AND
MR SIMON
ROBERTS
Q120 Peter Viggers: The Pre-Budget
Report in 2006 states that only 7% of allowances will be allocated
via auctioning in phase 2. Is this enough, or would you prefer
to see more?
Ms Hampton: We believe that you
can have 100% auctioning in the power sector because it can pass
on the costs to customers and is not exposed to international
competition. For other sectors it will depend a good deal on what
other countries do and for those one can use a combination of
auctioning and efficiency benchmarks. But we need to see a lot
more auctioning that is centralised and harmonised across the
EU, and the timing and frequency of auctions is quite important
to the market. If countries are able to decide how much they want
to auction and how they do it that will not be the most efficient
way to do it.
Q121 Peter Viggers: It is a global
problem. Do we have global institutions which can handle it? There
has been reference to the EU. So far in this evidence session
there has been no reference to the OECD which has been very active
in this field.
Ms Hampton: The OECD does not
have the direct regulatory role. I think that it provides very
useful input, for example through the Annex 1 Expert Group, on
the evolution of carbon trading and international negotiations
under the UN Framework Convention. I think that the institution
that is worth focusing on is the CDM Executive Board which basically
acts as a regulator for project-based reductions which flow into
the EU scheme but can also be used by governments in Kyoto compliance.
That particular institution started off as quite politicised;
it is now being professionalised. However, the movement of projects
through that system is still quite slow. That is being sorted
out but the process could be accelerated somewhat.
Q122 Peter Viggers: Given the problems
with the Doha round, how optimistic are you about international
development?
Ms Hampton: Certainly there are
parallels. What we see in the emissions trading world at the moment
are national schemes which will bubble up like the EU scheme and
they will become linked. But one will always need an international
regulator to guarantee that a tonne of carbon in China is the
same as a tonne of carbon in the UK. Schemes can develop around
that and there will be differences between schemes. There is some
flexibility for a range of institutions in the emissions trading
scheme, but there must be one yardstick. I am quite optimistic
that that can continue because Kyoto sets out that framework of
monitoring and verification and the CDM Executive Board and other
institutions do that job quite well. Those institutions are, however,
under-resourced both in terms of staff capacity and finances.
Mr Roberts: I am not quite sure
I share the optimism. The picture of the kind of institutions
that one needs to build is right, but there is now a tendency
to say that we have not quite got the institutional framework
right and we should not really do anything yet. We come back to
the point made earlier by Ms Hampton that some of these emissions
are not moveable; they are not subject to competitive pressures,
and the need to set up some international system for trading and
management is to deny the fact that a lot can be done at country
or regional level which can then be joined together. What is important
is that one starts to map out what the rules would be for an international
system so one build that into it and joins together any more regional
systems. One certainly does not need a global system to kick off,
as the EU ETS shows. I think that that could go a lot further
before we need to worry about it.
Q123 Peter Viggers: There is a risk
that rich countries will lecture poor ones who feel they cannot
afford to participate. How does one sell that story to the poorer
countries?
Ms Hampton: I think that the carbon
pricing story and emissions trading piece fall out of a much broader
discussion about energy and climate security. There are a number
of emerging economies in between the developing and developed
world, for example Mexico and Korea, which have recently become
industrialised. They are starting to look at emissions trading
very seriously and they can take that on. The next group comprises
countries like China and India which will probably engage on a
sectoral basis to start with, and that is very much where the
international negotiations are focused. One may have a one-way
target for a particular sector and it is one of the proposals
on the table: if they over-achieve they can sell that carbon into
the global market; if they under-achieve they do not face the
same kind of compliance and penalties that, say, the EU would.
There is a range of things that developing countries can do on
the road to a fully capped system, but I think it is unrealistic
to expect most developing countries to accept the cap beyond maybe
some sectors that they may want to volunteer, apart from those
countries which are in the OECD or are borderline at this point.
Q124 Mr Breed: If we can take a brief
look at current environmental taxation, Friends of the Earth has
described to us that the climate change levy is the Government's
environmental tax success story. What do you believe are the features
that has made it a success, if you believe it is? To what extent
can that perhaps be replicated in respect of other environmental
taxes?
Mr Roberts: I think I will have
to pass on that. I do not have enough information available to
say whether or not it is a success story. I think that what it
did at the time, even though it is not a huge price signal, was
signal intent and a government position which meant that industry
could see where things were going. The significance of it lies
not so much in the price signal as the fact that it demonstrates
a bias towards low carbon behaviour over high carbon behaviour.
I do not think that it would fit particularly well the criteria
for a logical and transparent system, but it signals to industry
that it wants to see carbon emissions coming down and it is prepared
to release it from the tax burden if it can show what it is prepared
to do. But one would still want to see what came out in the wash
at the end of all these voluntary agreements before one could
conclude that it was a success in that respect.
Ms Hampton: If one uses taxation
in combination with other instruments one could get some quite
useful outcomes. The climate change levy of itself would not have
achieved what the entire policy package around it did. One matter
mooted by colleagues at Climate Change Capital is the idea that
in the absence of a long-term signal from the emissions trading
scheme the Government would institute something like a price floor
through a carbon levy or tax. Basically, if the international
or European price of carbon fell below, say, €15 per tonne
it would levy a tax to continue to penalise business at that level.
That could provide a long-term signal to drive long-term investment
decisions in the absence of a longer-term agreement. There are
things that national governments can do through their taxation
systems that cannot be done internationally. Looking at the complementarity
of those different instruments is definitely something worth exploring.
Q125 Mr Breed: In respect of climate
change, what do you think is needed now? If one were to recommend
just one thing to bring about wholesale behavioural change what
would it be?
Mr Roberts: I think that we need
to see far more money going into education both within schools
and more broadly. If one looks at the Energy Saving Trust budget,
it has been static for five years. That is the main vehicle used
by the Government for communicating with individuals about these
issues and providing support and advice. One could envisage a
huge expansion of that and build on it. As to immediate matters,
I think that the Government must get their story straight on the
message. We all want to get individuals, businesses and national
bodies working together. So show what it means in practice and
be clear about what different parties are bringing to that, and
also why it is important for the UK to lead, not because it massages
some political ego on the international stage but because it shows
we can lead the dancing in the international process of getting
negotiation together and take responsibility in relation to that.
I do not think we have yet got that. We saw that with Stern. "There
is no point in acting unless China does it". We saw it with
the launch of the Climate Change Programme review. "It would
be nice if individuals acted too" (as though somehow they
did not need to before). I think we need to find a way to go beyond
this confusion so we have a clear framework of communication and
a lot more resources going into education and awareness-raising,
backed up in the medium term with something that really brings
individuals into the carbon trading system, raises their carbon-consciousness
and makes it part of their major decision-making in terms of both
individual behaviour and purchasing decisions.
Ms Hampton: In terms of imminent
action, I think that the Spring Summit in early March where EU
heads of government will get together and talk about the EU energy
package is potentially a very important political moment. The
Commission has put forward an ambitious and coherent package which
should be welcomed, but it could be unpicked by individual Member
States as they try to undermine the mandatory nature of some of
the targets or take an a la carte approach to the instruments
on the table. It would be very dangerous if particularly the UK
Government on the basis of subsidiarity started to say that there
should not be mandatory renewable standards or for carbon capture
and storage at EU level. There is now such a level of urgency
and scale required to address the problem that some of these issues
have to be dealt with at a point beyond national level. The UK
Government could make that moment important by working very carefully
with other heads of government so there was less in-fighting between
industry ministries and environment ministries, which have plagued
the implementation of most climate legislation so far, and there
was a firm commitment to provide long-term carbon signals up to
2025 which have a real impact, and do something about the demonstration
of carbon capture and storage and the commitment to build 12 plants
across the EU by 2015. If we do not take the carbon out of coal
we do not solve the climate change problem. In addition to the
stuff that needs to be done locally, at national level and by
individuals some of the big picture stuff is absolutely essential.
Q126 Chairman: The Stern Review says
that there will be costs from climate change and preventive measures
alone will not make up for that, so there needs to be adaptation.
Is adaptation featured strongly enough in the debate, and could
more be done in that area?
Ms Hampton: In the history of
the negotiations adaptation has tended to be used as a card played
by countries like the US and Saudi Arabia as a way to divert attention
away from mitigation. I believe that that has slowed down an intelligent
debate on adaptation. That is one reason why it has not played
a big part. Another matter is that it is quite difficult to differentiate
between sensible adaptation and just sensible sustainable development.
If one looks at water or forestry policy, to do things that are
sensible from the point of view of sustainable development also
improves one's resilience. There has not been enough attention
paid to adaptation. As for a lot of the climate impacts, people
do not necessarily have the local resolution they need in climate
modelling.
Q127 Chairman: What could the Treasury
do to highlight the required expenditure on adaptation as a way
of raising public awareness of the current cost of climate change?
Ms Hampton: The UK is doing better
than other countries through its Climate Impact Programme, but
I think that adaptation really needs to be factored into business
decisions and local government decisions to an extent that is
just not happening at the moment. The water sector has started
to think about it but possibly that is the only sector that has.
One needs a much broader approach. On the international side,
we are not doing anything to tackle the problem that is increasingly
being faced by developing countries. Look at the Horn of Africa
and other places. We have not even started with that.
Mr Roberts: I agree that there
has been to some extent a morally odious use of the idea of adaptation,
and in some of the impacts discussion there has almost been a
sense that it could be positive. We have heard some discussion
in the South West to the effect, "Where are we going to grow
the wine?" One can already get some very good wine from Cornwall.
In a way, it comes back to communication. The problem is that
one already has adaptation costs; one already has to deal with
flood defences. Stop building housing in flood plains which planning
systems still do not manage to prevent. We also need to communicate
those as costs that are already sunk. Some of the environmental
groups tend to say that unless we change our behaviour we will
have all these costs. That kind of equivalence is not there any
more; we have the costs anyway and we need to change our behaviour
to stop them rising even further. I still think that we have not
managed to get across that point.
Chairman: Thank you very much for your
evidence which has been very revealing. It has been a worthwhile
morning for us.
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