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Simon Hughes: I do not know the order in which the Minister will proceed and she may come to this later. However, I shall ask my question now and she can tell me that she will answer later if that is more appropriate.
Putting it simply, given that the scheme allows the purchase of extra capacity for emission by trading, do the Government anticipate that, to meet their requirements internationally through the trading scheme and also to justify Heathrow airport’s expansion, they will use that excess capacity by trading, that is, that they will need to use the capacity to buy more credits through the European trading scheme because they have committed themselves in the next decade to the expansion of Heathrow?
Joan Ruddock: No. Importantly, the Government are not purchasing the credits. From 2012, European aviation—that which starts and ends in Europe—will be within the European trading scheme. Domestic aviation is in the scheme that we already have for the UK, and is counted domestically. The international element within the EU is introduced in 2012 and that means that those emissions have to be dealt with within the European cap. I accept that there are good reasons why people believe that we should not have expansion at Heathrow, but the Government are clear that it should happen. We have said such things as, “If we were to deny ourselves expansion at Heathrow, which we think is economically necessary, another European airport could expand.” What matters is the overall European cap and the fact that everything is traded within a European system. That system will hold down emissions from aviation, and other sectors would make greater reductions within that system if aviation were to continue to grow. That is the way it works and, although it is often difficult for people to understand how we are able to expand Heathrow and at the same time make such an absolute commitment to legally binding targets, that is why it is possible.
Simon Hughes: I was slightly loose in my language when I said the UK. It will obviously be an operator—an airline or something else. I apologise for that. The Minister, however, appeared to accept that if there is Heathrow expansion, the way the system will work is that an airline flying internationally will apply for the extra credits—the extra trading—to keep within the limit, which is a European one. We will be buying more for a company based in the UK as an airline, than if we did not have the additional Heathrow operation.
Joan Ruddock: Not necessarily, because the implication is that there is no way other than to buy more credits. But of course there are many other ways. There will be many variations in how emissions in any sector increase or decrease, new technology being one of them. And of course, a cap is a cap. It is not possible to go outside the cap. What matters internationally and in getting a global agreement is that the EU should play its part and take on its fair burden—in fact it is significantly offering to take on more, perhaps, than its fair burden—and that in doing so it should accept that there must be a limit. Everything that happens in the EU emissions trading scheme must accommodate whatever growth there is—or lack of growth—or reductions or increases in energy efficiency.
That is a matter of semantics, rather than necessarily the use of more allowances. If I have not already said, let me make it clear, that there is already a limit on the credits that can be purchased by any operators in the EU ETS. That limit is becoming more constrained.
I was talking about the operation of the carbon reduction commitment and the fact that it includes a safety mechanism that would make it possible to purchase allowances. We think that it is unlikely that that will happen, because there will be a price deterrent, but it is important to acknowledge that that safety valve exists. Furthermore, the exclusion of those potential credits through that safety valve does not mean that any safety valve units must be counted as credits. The Government will aim to meet the budgets without using them, so that even if they arose—and we think they may not—we would not necessarily have to use them, and we would endeavour not to. They would be, as they are said to be, a safety valve and fall-back.
The third and final element of the Climate Change Act order is the definitions of international aviation and international shipping. Hon. Members will recall that emissions from international aviation and shipping are not covered by the targets and budgets in the 2008 Act. That is because there is no globally agreed methodology for allocating those emissions from international travel to individual countries. However, the 2008 Act provides that the Government must either include those emissions in carbon budgets by the end of 2012 or report to Parliament to explain why they have not done so. It also gives the Government the power to define international aviation and international shipping for carbon budget purposes, and that is why we have included those in the draft orders.
The definitions reflect international reporting practice and follow the approach that we use in reporting to the United Nations framework convention on climate change. They put beyond doubt possible ambiguities, such as how to treat flights that have interim stops. It is important to note that their purpose is only to set out which emissions are not covered by the Act. The definitions have no bearing on how international aviation and shipping emissions might be allocated to the UK or any other country.
The last of the three instruments under consideration is the draft Carbon Accounting Regulations 2009. I have already mentioned the concept of the net UK carbon account and the possibility of crediting and debiting carbon units against it.
Peter Bottomley (Worthing, West) (Con): This is probably the least important question that the Minister will face during her parliamentary career. In the definition of the UK assigned amount, the number 3,412,080,630 appears. There is something curious about that. It can be divided by every number under 11 apart from four and eight. That is a real curiosity. Is that a result of the way it was created, or is there some other reason for that chance effect?
I mentioned the UK carbon account and the possibility of crediting and debiting carbon units against it. These regulations are required by the 2008 Act to establish a system to define what we mean by carbon units, when and how they can be credited and debited, and how we will keep track of them. I do not propose to go through the regulations in detail because we have already published detailed guidance on them. The regulations make use of the existing UK registry for holding and tracking carbon units, which is used under the Kyoto protocol and the EU emissions trading scheme. That avoids unnecessary costs and complications in setting up a separate registry.
The first thing the regulations do is define what can be counted as carbon units. Only carbon units internationally recognised under UN and European Union rules will be counted. Those have the benefit of significant international scrutiny and allow the system to be compatible with the existing systems under the Kyoto protocol and the EU ETS.
Secondly, the regulations establish a new credit account in the UK registry into which carbon units to be credited voluntarily must be placed. As I said, we are aiming not to use any such credits to meet our carbon budgets. However, we felt it best for continuity to put in place from the start a mechanism for crediting them, which we are likely to need when we move to tighter budgets after a global deal.
Thirdly, the regulations provide a mechanism to account each year for credits and debits from the operation of the EU ETS. That will have the result that the contribution of the EU ETS towards the carbon budget will correspond to the level of the UK’s cap under the system. Fourthly, the regulations define how units will be debited from the net carbon account if Government dispose of any of their existing holding of carbon units, for example by selling them to other countries.
Fifthly, the regulations implement an important provision of the 2008 Act. Because the first carbon budget is significantly more stringent than our Kyoto target—a 22 per cent. reduction rather than a 12.5 per cent. reduction—we could meet our Kyoto target and still have a large number of carbon units left in the national registry. If the UK were to sell or give those to other countries, allowing them to offset their emissions, the environmental benefits of the tighter budget would be lost. To avoid that and to comply with the Act, the regulations set out how any such surplus carbon units will be cancelled in order to put them beyond use. Finally, the regulations establish a register of transactions to record details of the crediting, debiting and cancellation of carbon units. That was included because a number of responses to the public consultation called for transparency on carbon accounting.
I now have an answer, I hope, to the last question put to me, which says as follows: the assigned amount—that is, of carbon allowances—is set with reference to 1990 emissions. It is 87.5 per cent. of these emissions multiplied by five for each year of the Kyoto commitment period. Therefore, any interesting mathematical properties, I am assured, are a coincidence.
4.59 pm
Gregory Barker (Bexhill and Battle) (Con): It is a pleasure to serve under your chairmanship, Miss Begg. I assure the Minister at the outset that, further to the question from my hon. Friend the Member for Worthing, West, none of the points I put to her will require a full working knowledge of the Fibonacci sequence and will require only a passing understanding of differential calculus.
I thank the Minister for introducing the draft orders and regulations. It should come as no surprise to the Committee that they find full support on the Conservative Benches, as they stem from the Climate Change Act 2008. It was the Conservative party, under the leadership of my right hon. Friend the Member for Witney (Mr. Cameron), that first called for a climate change Bill and, as it made its passage through this House and the other place, we worked constructively, we hope, and pushed consistently for a better and more effective Bill. My party consistently called for the opinion of the Committee on Climate Change to be strongly heeded when setting targets in the Bill.
The CCC, under the chairmanship of Lord Turner, made its expert recommendations to the Government last December, and I am happy to see that today’s statutory instruments reflect many of those. There are three statutory instruments before the Committee: the draft Carbon Accounting Regulations 2009, the draft Carbon Budgets Order 2009 and the draft Climate Change Act 2008 (2020 Target, Credit Limit and Definitions) Order 2009. Like the Minister, I shall speak to the substantive points in all three collectively.
My party stated throughout the passage of the 2008 Act that expert scientific and technological advice, not simply the political convenience of the day, should guide public policy to address the climate challenge. We welcome the amendment of the 2020 target in the 2008 Act from a 26 per cent. reduction in CO2 to a 34 per cent. reduction in all greenhouse gases from 1990 levels, in line with the recommendations of the CCC and, as I recall, the concerns raised in Committee.
We also welcome the introduction of the first three carbon budgets and recognise the real challenge that they pose for the UK. A 22 per cent. reduction in all greenhouse gases by 2012 and a 34 per cent. reduction by 2020 are no small tasks. However, I can assure the Committee that, whoever is in Government throughout that period, the Conservative party is absolutely committed to achieving those reductions. It is not simply a response to a planetary crisis, we also see the challenge as an opportunity for Britain to re-engineer our economy to create new well-paid and long-lasting jobs, to improve our national energy security, to reduce our balance of payments deficit as our country’s oil and gas supplies run low, and to show global leadership in building a world-beating low-carbon economy. That is why we welcome the Government’s announcement that there will be zero non-EU ETS credits used in meeting the first carbon budget in 2008-12. However, while we welcome the developments, concerns remain.
We are at a crossroads in British economic history. At this moment, we have the opportunity to get on the path to a low-carbon future. If we do not seize the opportunity now, it will become increasingly expensive and difficult to recreate that chance in the future. The one thing that collectively, as political parties as well as a Government, we can do is give long-term signals to the private sector to aid the investment decisions that it will have to make.
In our green paper, “The Low Carbon Economy”, published in January, the Conservatives made clear our intentions. We intend to de-carbonise Britain’s energy supplies by investing in carbon capture and storage technologies, providing market incentives for biogas, community energy and offshore wind and other large scale renewable projects; to de-carbonise the transport network by laying incentives for the roll-out of a national electric vehicle re-charging network; and to drive a revolution in energy proficiency by providing every home in the country with £6,500 worth of efficiency improvements.
There are many more steps that we need to take. I do not doubt the Government’s ambition to fight climate change, but I am concerned about the absence of any comprehensive low-carbon strategy beyond the setting of these specific targets. I was delighted to see the Government adopt the Conservative’s policy on carbon capture and storage, or at least 80 or 90 per cent. of it, but I wish that they had done it in full and adopted our emissions performance standard, rather than leaving the door open to the large polluter coal, which would call into question our ability to meet those exacting targets.
I was also glad to see the Government follow the Conservatives in calling for a universal roll-out of smart meters, but why must it take until 2020? I see in The Times today that according to work done by Ernst and Young, the Government may have underestimated the cost of a national roll-out of smart meters by more than £6 billion. We should not forget that despite the targets, the Government still intend massively to expand air capacity at Heathrow. We are seeing too many tactics and not enough strategy. We need to see how we are going to drive a dynamic low-carbon economy at home in the UK, and today’s statutory instruments do not provide sufficient signals to the market to maximise that change at home between now and 2022.
We are also concerned about the Government’s decision, as detailed in the Treasury’s document “Building a low-carbon economy: implementing the Climate Change Act 2008”, to reserve the right to purchase international offsets as
“an insurance option in the event that emissions are higher than anticipated”.
Surely, if emissions are higher than anticipated the Government response should be better, bolder, more rigorous policies, not bigger loopholes. Otherwise, they could continue to lock in increasingly high-carbon infrastructure, such as an expanded Heathrow airport, and still meet their carbon budgets by calling on the get-out clause and purchasing CDM reductions from overseas. Under what circumstances would the Government consider taking such action? Does the Minister agree that if that loophole is left, it will allow for a high-carbon infrastructure lock-in that will be increasingly expensive and difficult to get out of in future?
I want to query the ambition of the Government’s 2020 target in the event of the Copenhagen talks failing to secure a new global deal and the EU agreeing to a weaker than anticipated target. Clearly, we all hope that that will not be the case, and I know that the Minister and her team are working hard to ensure that Britain does its bit to make sure that Copenhagen is a success. We wish them well with that, of course, but it would be prudent to have a plan B.
The Committee on Climate Change proposed an interim 2020 target of 34 per cent. and an intended target of 42 per cent. in the event of a global deal being secured at Copenhagen. Do the Government plan to raise the 2020 target from the interim to the intended budget in light of a global deal? If so, what percentage of the difference between a 34 per cent. and a 42 per cent. reduction does the Minister envisage being made in the UK, or does she see all the difference being met on the international carbon markets? Might that explain why the Government have been so reluctant to rule out non-EU ETS reductions beyond 2020 as per my previous point? Moreover, how would our ambitious national targets square with a weaker than expected EU climate deal?
The Treasury document on implementing the 2008 Act states:
“As the UK negotiates internationally on climate change as part of the EU, the Government expects to agree the UK’s emissions reduction target under any future international agreement at European level.”
Does this policy mean that future decisions on carbon budgets will be ceded to the EU and that our national ambitions for a low-carbon economy could be undermined or watered down by a weak EU climate deal? Surely, if the UK is to seek maximum economic advantage, as well as playing our part in the solutions to the planetary crisis in ensuring that we lead the transfer to a low-carbon world, we should not allow our ambitions to be hamstrung by a Brussels deal that could be vulnerable to fierce lobbying by countries that wish to water down any robust agreement or go at a slightly slower pace.
These are comprehensive and detailed statutory instruments. We have made a number of clear points on them and look forward to hearing the Minister’s response.
5.9 pm
Nigel Griffiths (Edinburgh, South) (Lab): I welcome you to the Chair, Miss Begg, and I am grateful to you for giving me the opportunity to participate in the proceedings of this Committee. It is considering the UK’s carbon budgets and the short-term emissions target, which I believe are now the most important part of the Climate Change Act 2008.
We only have one chance to get it right on climate change. It is the action that we and the rest of the world take in the next five or so years that will determine whether or not we can avert catastrophic runaway climate change.
I am particularly grateful to Parliament for passing the 2008 Act. I tabled two key amendments to the original Bill and I commend the Minister on her support for those amendments within Whitehall. They were to increase the 2050 target, to realise an 80 per cent. reduction in emissions, and to include marine and aircraft emissions in this groundbreaking Act, which I am pleased to see reflected in the 2020 target order before us today.
We know that capping emissions at the right level and rolling out the policies to transform the UK into a low-carbon economy would not only demonstrate our serious intention to play our part in the reduction of emissions but would show the leadership that is desperately needed in the run-up to Copenhagen.
Last month I was in the German Bundestag, talking to those who see us as climate change leaders and who want a similar Act to our own Climate Change Act 2008. Next month, with Tony Juniper, I will be meeting Irish parliamentarians from the Dail, who are seeking to overcome opposition to a climate change Bill in their own country.
I believe that the next stage, which involves capping emissions at the right level, will allow us to grasp the economic and social advantages of efficiency, jobs and slashing fuel poverty, which, given that I am a former Minister with responsibility for fuel poverty, is another issue close to my heart. Therefore, although I congratulate the Government on setting the carbon budgets, I have grave concerns about the content of these draft orders.
Sadly, I think that this has been a missed opportunity, in three respects. First, there is the scale of ambition. The Committee on Climate Change advised that there should be an intended target of 42 per cent. The Government do not appear to have followed the Committee’s independent advice. However, the science is clear and the empirical evidence has become even starker since the Committee published its report. A cut of 42 per cent. is the absolute minimum needed for us to play our part, both in bearing our share in the cut in emissions and in continuing to set the example, as we have done in our Climate Change Act 2008, to the rest of the world.
The Committee on Climate Change says that a 42 per cent. target presents a 50 per cent. chance of a 2 temperature rise. A rise of more than 2 would mean a billion people without water. That is just one reason why having the lower 34 per cent. target is simply taking an unacceptably large chance of dangerous climate change happening.
That is recognised by more than half the members of this Committee today, who signed the early-day motion that I tabled, which was referred to my hon. Friend the Minister. It called for the 42 per cent. target to be implemented without delay.
My second area of concern relates to the carbon loopholes in the budgets. The Climate Change Act 2008 involves us in taking responsibility for the UK’s grossly disproportionate historic and current emissions, and in setting the framework for cuts at home. As the inventors and leaders of the industrial revolution, and as the major beneficiaries of it for more than two centuries, we have a duty to give a lead now and to desist from supporting policies that allow pollution.
Offsetting in the non-traded sector has been kept as:
“an insurance option in the event that emissions are higher than anticipated.”
I fear that that is a catch-all option that would allow us to carry on with polluting policies and still meet the carbon budgets by buying in credit from abroad. The response to higher than anticipated emissions should be stronger policies, not bigger carbon loopholes. We must not forget that the Committee on Climate Change advised that emissions in the non-traded sector should be achieved at home for all interim budgets. The draft order restricts offsetting for only the next two and a half years of the next carbon budget.
Thirdly, there is a problem with how emissions are accounted for. Under the draft orders, the emissions we count in the traded sector will be based on the amount of carbon credits that are allocated, not on the actual amount of emissions. That is extraordinary and unacceptable. We can do so much better. The stretch scenario of the Committee on Climate Change, which indicates how we could reach various targets, makes it clear that a 34 per cent. target will mean business as usual. Reaching it will require only policies that the Government are committed to already. To avert this catastrophe, we need radical action and an Apollo mission level of ambition and urgency. Although they are a huge step forward, these carbon budgets sadly do not equal the scale of ambition that is needed.
5.16 pm
 
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