The Parliamentary Under-Secretary of State for Energy and Climate Change (Joan Ruddock): I beg to move,

The Chairman: With this it will be convenient to consider the draft Carbon Budgets Order 2009 and the draft Climate Change Act 2008 (2020 Target, Credit Limit and Definitions) Order 2009.

Joan Ruddock: It is a pleasure to serve under your chairmanship, Miss Begg. The three instruments have been laid in accordance with the Climate Change Act 2008 and implement elements of the system of carbon budgets that it established. I usually speak briefly in such Committees, but today I shall speak for some time because we have three rather complex instruments.

The challenge presented to us by climate change is enormous in both scale and urgency, as hon. Members are only too well aware. The scientific consensus is unequivocal: the global climate is warming, primarily as a result of human activity. Without concerted worldwide action to reduce emissions, we face a best-estimate increase in average temperatures of 4° C by the end of the century, with severe economic, social and environmental consequences. As Lord Stern set out clearly in his review on the economics of climate change,

That is why the House passed the Climate Change Act last year, providing a clear and credible framework for the UK’s transition to a low-carbon economy and showing our commitment to play our part in the global effort to tackle climate change.

It is the core provisions in part 1 of the 2008 Act that are most relevant to today’s debate: first, the requirement to reduce greenhouse gas emissions by at least 80 per cent. by 2050, and CO2 emissions by 26 per cent by 2020; and secondly, the establishment of a system of five-year carbon budgets, set up to 15 years in advance. Carbon budgets are one of the most radical and distinctive features of the 2008 Act and provide a strong framework for delivering and monitoring the emissions reductions required to achieve both the 2020 and 2050 targets. That framework includes a legal requirement on the Government to put in place policies that ensure that we live within the carbon budgets. That means the effects of any new policies that could increase emissions must be carefully considered and corresponding reductions found elsewhere if necessary to meet the budget.

Processes are already in place to help to ensure that that is done systematically, particularly the requirement for an assessment of the carbon impact of all new policies within the overall impact assessment. To ensure that the overall impact keeps us within the budgets, we are developing strong internal mechanisms to ensure that every Department has a clear responsibility to play its part. We expect to set out more detail on how that will work when we publish our climate and energy strategy later this summer. That strategy will set out the details of both existing and proposed policies to meet the first three carbon budgets, as required by the 2008 Act.

The draft Climate Change Act (2020 Target, Credit Limit and Definitions) Order 2009 dictates the minimum level of a third carbon budget. Although informally referred to as the 2020 target, the target actually sets the minimum percentage reduction on 1990 emission levels that the carbon budget, including that for the year 2020, must deliver. The relevant period is the third budget, covering the period 2018 to 2022. As hon. Members will recall, the 2050 target was amended from 60 to 80 per cent. during the final stages of the passage of the 2008 Act. That followed advice from the independent “shadow” Committee on Climate Change. At the same time, the Bill was changed to include all six Kyoto greenhouse gases, rather than just carbon dioxide.

However, the 2020 target was not amended and remained at a 26 per cent. reduction in CO2 emissions on 1990 levels. We made it clear at the time that once we received the advice from the Committee on Climate Change, we would consider amending the gas coverage and the level of the 2020 target.

That advice was included in the CCC’s first report, which was published on 1 December 2008. The committee’s view was that the 2020 target, and our first three carbon budgets, should reflect the outcome of negotiations for a global deal to reduce emissions. Those negotiations culminate in the United Nations framework convention on climate change conference in Copenhagen in December this year.

The committee felt that the UK should follow the EU’s approach of setting targets at an appropriate level for the current international situation, with provision to amend them following a global deal. On that basis, it recommended that an appropriate level for the target before a global deal is reached would be a 34 per cent. reduction in greenhouse gas emissions. That level is consistent with the UK’s share of the overall EU targets under the climate and energy package agreed on 12 December 2008, which sets the EU policy framework for the period 2013-20.

Simon Hughes (North Southwark and Bermondsey) (LD): Because the issue is interrelated and complex I will to try to intervene occasionally, if I may, and I hope that the Minister will be good enough to respond to other things at the end as well.

I support the idea that we go from CO2-only emission measurements to all greenhouse gases, which is the Minister’s proposition for targets. However, what is the Government’s estimate of the CO2 percentage by 2020, given that the total of greenhouse gas emissions is supposed to be 34 per cent., the Government’s new proposed target for all greenhouse gases? What is the ambition for the percentage of CO2 by the same date under the revised plans?

Joan Ruddock: I have not got a calculation on what the actual CO2 level will be within the overall level of greenhouse gas.

Bill Wiggin (Leominster) (Con): It may be coming to you.

Joan Ruddock: Be patient. What we do know is that when we had a 26 per cent. target, it was thought that around 32 per cent., or just more than that, might be the appropriate conversion. However, different gases have been reduced at different rates and there is no absolute certainty. What I am told is that currently—bearing in mind that this can all change—a straight read-across would be 29 per cent. CO2.

The Government accept the committee’s recommendations on the point raised by the hon. Member for North Southwark and Bermondsey. The order therefore uses powers under section 6 of the 2008 Act to amend the 2020 target to 34 per cent. and extend its coverage to all greenhouse gases.

The draft Carbon Budgets Order 2009 sets the first three carbon budgets—that is, the total permissible level of the net UK carbon account for the periods 2008-12, 2013-17 and 2018-22. The net UK carbon account means the total amount of greenhouse gases emitted in the UK, adjusted for any credits or debits. I will say more about crediting and debiting later. The levels in the draft order are units of a million tonnes of CO2 equivalent—the standard for measuring greenhouse gas quantities. They amount to just over a 22 per cent. reduction on 1990 emissions in the first period, just over 28 per cent. in the second period and just over 34 per cent. in the third period. The third budget complies with both the current 2020 target of a 26 per cent. reduction in CO2 and the amendment to a 34 per cent. greenhouse gas reduction being considered today.

Those levels, as I have said, follow the advice of the Committee on Climate Change. In line with its approach to the 2020 target, the committee proposed two sets of carbon budgets—the so-called interim budgets—to apply now before a global deal is reached, and the more challenging intended budgets, to apply once a global deal has been reached. The draft order’s levels are broadly at the CCC’s interim level, with a small adjustment to reflect the final outcome of the EU climate and energy package, which came after the CCC reported and which results in budgets that are slightly more challenging than those that were recommended by the CCC.

Many hon. Members have signed an early-day motion tabled by my hon. Friend the Member for Edinburgh, South (Nigel Griffiths) calling on the Government to set the budgets and the 2020 target at the intended level now. I understand and appreciate their desire for even greater progress on the issue, but we need to remember that we are responsible for only 2 per cent. of global emissions, and that the greater good is represented by a global deal.

The CCC proposed a 2020 target of 42 per cent. under its intended scenario, but the precise figure will depend on the details of a global agreement. So, after a global deal, and once proposals for sharing out the EU target have been agreed, the Government will ask the CCC to review its recommendation. We will then amend the budgets, taking the committee’s advice into account.

I hope that all hon. Members will be pleased with our announcement that we aim to meet the proposed interim budgets by domestic reductions alone, without using international offset credits outside the EU emissions trading system. That commitment shows how serious the Government are about de-carbonising the UK economy. The commitment also puts the UK in a good position to make the transition to tighter budgets after a global deal because, given that we expect international credit purchase to form part of the additional effort to meet tighter carbon budgets, we are likely to be well placed to deliver any extra domestic reductions that are also needed. The CCC recommended that approach, and also advised that it was consistent with the path to meeting the long-term 2050 target of an 80 per cent. reduction on 1990 levels.

That brings me to the second element of the draft Climate Change Act order, the credit limit, which refers to the use of carbon units representing emissions reductions—often reductions that have taken place abroad—as credits against carbon budgets, thereby offsetting UK emissions. In line with the commitment to reduce domestic emissions, the draft Climate Change Act order sets the limit for the first budget period at zero. There are two exceptions where credits may be used, although in both cases they would be bought not by Government, but by participants in emissions trading schemes.

Companies participating in the EU ETS may either purchase carbon units called EU allowances from within the scheme, or carbon units from the international system, such as credits from projects under the clean development mechanism, if such companies do not have enough carbon units to cover their emissions. If they have a surplus of carbon units, they may sell them to other EU ETS participants in the UK or elsewhere in the EU. If UK participants are net purchasers of credits over a carbon budget period—in other words, if their collective emissions exceed the level of the UK’s overall cap under the scheme—we propose to count that as a credit against the budget, whereas a net sale would be a debit.

However, there are already limits on the use of international credits by participants in the EU ETS that guarantee that at least 50 per cent. of the emissions reductions between 2008 and 2020 will take place in Europe. The CCC’s report advised that those limits were appropriate and that further restrictions for carbon budget purposes were unnecessary. For that reason, we intend that any credits resulting from the EU ETS should not be counted against the proposed zero limit.

The second exemption relates to EU allowances acquired through a trading scheme under part 3 of the Climate Change Act 2008. In practice, it would apply to the proposed carbon reduction commitment trading scheme, which will include a safety valve mechanism allowing participants to use EU allowances to offset emissions in excess of the scheme’s cap. Because the mechanism will lead to a reduction in the number of EU allowances available to the EU ETS participants, the Government consider that it is also appropriate to exclude these units from the zero limit. However, we believe that few safety valve allowances are likely to be purchased, at least within the first carbon budget period, as they will be an option of last resort, and we expect that the price of allowances purchased through the safety valve will be higher than the prevailing carbon reduction commitment allowance price and that, therefore, participants will be deterred from using them.