Energy and Climate Change Contents

Examination of Witnesses (Questions 1-25)


4 MARCH 2009

  Q1 Chairman: Thank you for joining us, Mr Kennedy. We understand that Lord Turner is delayed at the moment but I thought that, because time is short, it might be useful for the Committee to make a start and perhaps start off with the structure and organisation of the Climate Change Committee, for which as Chief Executive you are responsible, and then we will move on when Lord Turner arrives. I would like to start off by asking you where things are with the Climate Change Committee in relation to your organisation. Are you fully up and running? Are your budgets in place? Are you fully staffed up? Perhaps you could tell the Committee just where you are in organisational terms.

Mr Kennedy: In terms of being up and running, the short answer is yes, we are up and running. Officially we were established on 1 December last year but we had existed in shadow form for about a year before that. When I turned up, there was pretty much a blank sheet of paper in terms of resourcing, but we got a budget secured; we hired about 25 to 30 people and we had those people working for about a year to deliver this report, which I believe you have all seen, Building a Low Carbon Economy. Going forward beyond this report to the next deliverables, the big deliverables for us are the report to Parliament which is due in September this year, and I think that we will talk about that more with Lord Turner; also, a review of UK aviation emissions which we have to deliver to the Departments for Transport and of Energy and Climate Change in December this year. We will have a staff of between 20 and 25 to deliver that and we have those staff in place at the moment. There are some final budget discussions to have with DECC, and DECC is talking about its budget more generally and resourcing there, but we hope to get some clarity in the next week or two on that.

  Q2  Chairman: So is the budget not finalised yet then?

  Mr Kennedy: The budget is not finalised for next financial year. We have put our bid in. As I say, in terms of numbers it is 23 staff that we have put in for. We hope that we will get the 23, but we have to wait and see.

  Q3  Chairman: You do not have the 23 yet, though?

  Mr Kennedy: We have 21 in place, I think; so we will be able to hire an extra two people, which will give us the freedom to cast the net a bit wider. In terms of the report to Parliament, it will allow us to cover in more detail things like agriculture, which we touched upon in our report and which we would like to follow up on, but for which we have limited resource at the moment.

  Q4  Chairman: Do you have much facility for engaging with the public within the committee? How do you go about that?

  Mr Kennedy: It is very important for us to have a high profile externally, we feel, and we have tried to achieve that in a number of ways. We kicked off when Lord Turner joined with a call for evidence first of all. We got about 1,500 responses to that call for evidence. We followed that with a consultation on our work programme. There were about 200 responses on that. Following that, we have had a number of workshops with specialist audiences, whether that is the power sector, agriculture, buildings or transport, and a whole range of bilateral meetings. It is something that we need to build on going forward. We want to reach out further than we have over the last months. Again, it is a question of the resources that we have had available over the last year and the very tight schedules that we have had to deliver this report; but it is a key issue for us, going forward.

  Q5  Chairman: Given the global credit crunch and the decline economically, will you have to revise some of your projections as a result of that?

  Mr Kennedy: The short answer to that is no, we do not think that the credit crunch is a reason that we should take our foot off the pedal. It is imperative that we act across the range of measures we have suggested, whether that is the energy efficiency or the renewables or moving towards a world where we have more electric cars. The macro situation presents, on the one hand, opportunities—there are opportunities for improving energy efficiency as part of a fiscal stimulus—and it presents a lot of challenges as well, and they certainly will feature in our report in September. The main challenge will be finance of renewables projects. What we can do about that is something we are looking into at the moment. Whether there are actions that the Government can and should take to free up liquidity for these kinds of projects is something that we are thinking about and would like to report back on.

  Q6  Chairman: I ask that because it is clear that the economic calculations feature a lot in the Climate Change Committee's assessments and work. The price of oil, for example, in relation to some of the development of low-carbon technologies; the overall cost of getting to a 50 per cent global reduction by 2050; and our own commitment in the UK of 80 per cent you put at between one per cent and two per cent of GDP. That is a long timeframe. Is it just too short a period, in relation to the kinds of fluctuations in the economy, to change your costings up or down on this?

  Mr Kennedy: We would have to differentiate between the short-term situation, which is the next year, two years. Beyond that, we hope that we will be in an upswing rather than the current situation. The longer-term challenge is as you say. We had a cost estimate for 2050; we had a cost estimate also for 2020, and there we have said that we think the cost of meeting the budgets is between 0.3 and 0.8 per cent of GDP. I do not think that estimate will change because of anything that has happened over the months since we published this report.

  Q7  Paddy Tipping: Could I pick up the point made about renewables? What I am not clear about regarding the role of the committee is where analysis stops and where policy formulation starts. Clearly there are a number of ways to bring renewables on, but that is a policy issue for Government rather than for the Climate Change Committee. Could you explain that kind of overlap?

  Mr Kennedy: It is a good point to hand over to Lord Turner! He has walked in in the middle of a question. The question is about the tricky interface between analysis and technical potential, and we are talking about renewables in particular. We have said that we should aim for 25 to 30 per cent renewables in 2020 and, in our next report, we will set out how you get to that 25 or 30 per cent. The question, in response to something I have said, is about whether the credit crunch is important; is liquidity restricted for these projects and, if so, would we want to say anything about it? Does that take us into the policy area?

  Lord Turner of Ecchinswell: I think that my perspective is that we have to occupy a bit of an intermediate stance on policy. In order for us to set credible budgets rather than budgets where we are saying, "Well, that's what the science says we'll need to achieve—end of story", we need to identify two things. First of all, identify that they are credible in technical terms, cost terms and cost to the economy, and the legislation requires us to do that; but we also have to say is there a policy framework in place, or capable of being put in place fast enough, that we are likely to get there? Otherwise, we are simply setting a set of budgets which we know will not be met. We have in the report, and intend in future still, to comment in general terms about the categories of policies which are required to make it possible. At the other extreme, however, we have no intention—I do not think it is right and I think it would harm the role of the committee—as it were to be popping up after each budget and saying, "Why haven't you changed this tax lever?" or, commenting specifically on Heathrow runway 3, yes or no—

  Q8  Paddy Tipping: Go on!

  Lord Turner of Ecchinswell: You may want me to. I think that we simply have to exist in this intermediate space: that we are commenting upon the overall framework and what is generally required, without being a commentary on precise month-by-month aspects of public policy. It is an intermediate position but I think that it is the only sensible way to proceed.

  Mr Kennedy: Could we add that, where we have talked about policy in this report—and let us give an example, on the investment in conventional coal plant—we have said that we think there is a need to buttress the carbon price with one or other levers. However, we have given a range of options; we are not prescriptive; we are not black and white; and I think that the Government has found it helpful that we provide options which they can then exercise their political judgment over.

  Q9  Colin Challen: I am just wondering what made you change your mind about keeping this job, Lord Turner, because it was widely reported that you would be finishing at the end of January, and I think that the post was advertised. Is that correct?

  Lord Turner of Ecchinswell: That is really a question for the Secretary of State. I have made it plain that the job of doing the FSA Chairman at the moment is pretty close to—well, it is a more than full-time job. It depends how many hours you think is in a full week. I said to the Treasury Select Committee the other day that it was 80 hours and my chief executive said afterwards, "I think that's a bit of an underestimate, Adair". The answer is that I do have to focus the vast majority of my time at the moment on the FSA. It is then up to the Government to decide what arrangements are required to replace me. I have made it plain that I would be happy to stay as the deputy chair of the organisation and would certainly like to stay on the committee. I think that really is a question—and also in relation to the advertisements and why that did not proceed to an appointment—that you would have to ask the Secretary of State. The current situation is that, at this point where we have produced this report and the committee has debated and has outlined the work programme that is required to take us to the September report and the December report on aviation, we happen to be in a couple of months where, frankly, the relative workload on the chairman is much lower than it otherwise would be. Essentially, we have agreed with David and the secretariat the work programme, and they are getting on with it. The nature of any committee like this has a set of waves of how much involvement you need from the chairman and the committee versus from the secretariat. I think that at the moment the secretariat is simply getting on with the sensible, required preparatory work which will take us towards the September report.

  Q10  Chairman: Can I at this stage formally welcome you, Lord Turner. I am really pleased to see you.

  Lord Turner of Ecchinswell: My apologies for being late.

  Chairman: We understand that you have come here straight from another meeting, but we appreciate your coming. As you know, the Climate Change Committee enjoyed cross-party support when it was set up as part of the Climate Change Bill, which again was widely welcomed. Your role in terms of setting the carbon budgets is certainly crucial in relation to the Government's progress, in terms of meeting what are very ambitious targets, as I think we all recognise. You may be aware that we have just finished a private session with the Hadley Centre, where we had the latest science. What was very clear from that is that there is a real urgency to move forward on these issues if we are to have an impact in relation to stopping the rise in global temperatures. I would like to move on to the issue of science at this point.

  Q11  Dr Whitehead: We have heard from the Hadley Centre this morning and there are also a large number of projections and re-projections that have been going on. Indeed, your committee was instrumental in looking at those changes in terms of the recommendations on UK emission reductions by 2050. What steps are you taking within the committee to ensure that the committee is up to date with those specific recommendations and changes?

  Lord Turner of Ecchinswell: I think the way that the committee envisages proceeding on this is not to report every single year on the latest science but on some sort of periodicity, perhaps three years or so, to go into detail again on the science and whether the science has shifted. I think that makes sense. What we did last year with the Hadley Centre, and they did a lot of runs for us, was to take stock of the then consensus of scientific opinion; and of course there are strong outliers, including some people who believe that the problems are moving far faster than the consensus suggests. Broadly speaking, however, we took the consensus of expert scientific opinion and reached the conclusion of what the world needed to achieve in terms of its reduction of emissions by 2050, getting down to something like 20 gigatonnes by then, and what therefore was a reasonable UK share. Out of that came the recommendation of the 80 per cent target and the budgets to which the Government now has to respond. I do not think that it is workable for us to be saying each year, "We are going to suggest that it should now be 84 per cent and not 80 per cent", et cetera. Of course, we do not need to do that in budget-setting terms. We have made our recommendations on the first three budgets; the Government will need to respond; and then they will be put into secondary legislation. Our next look at a budget will be next year, when we have to recommend the fourth budget, which is the 2023-27 budget. At that stage, that would probably be our first re-look at the science, to say, "Has something changed in the science that changes a point of view of where we need to be in 2050, which we should take into account in setting the fourth budget?" Thereafter, every five years, we will be recommending on a subsequent budget—the fifth budget and the sixth budget. That is how it will work. We will always be recommending the budget that is 15 years in advance. Ahead of each of those new budget recommendations, I think that it will make sense for us to have a systematic look at the science. I think that is the sort of way we were intending to proceed on that, rather than an annual report on the science.

  Mr Kennedy: On the specifics of the Hadley Centre, we have agreed a broad scope of work with them for next year, as Adair says, to support the work on the fourth budget period.

  Q12  Dr Whitehead: As an issue relating to the way in which the budget has been set up and, as you have described, Lord Turner, your role in recommending the budget three budgets hence, there could be a suggestion that, if for example there are significant developments in the science, not only would that affect what you might say about the budget three budgets hence but that would have a feedback effect on the budgets previous to that budget. How might you address that in terms of the relationship between policy viability and scientific projections?

  Lord Turner of Ecchinswell: I take that point. Obviously, if, with the input that the Hadley Centre will be giving us next year, there is a belief that the whole world and the UK need to go further and faster than we have recommended in the 80 per cent target, and if that has recommendations for the fourth budget, you are absolutely right that you may then say, "Hang on, that also has recommendations for the third budget as well". I think that this is one where we would have to discuss with Government what the action on that is, because the legislation is clear that we recommend three budgets in advance; the Government then commits and takes through secondary legislation a commitment to those three budgets; and we then recommend the subsequent budget. The legislation as written, therefore, does not envisage that one would, in setting the fourth budget, come back and say, "That has implications for the third budget". Obviously there are simply limitations on how rapidly you can respond to new data and, therefore, even if one did need an intensification, it might imply an intensification beyond the three budgets that are already set. Realistically, we have to consider that issue within the context of how radically the scientific evidence has changed, if it has changed. One possibility would be that, if we believed that it had changed so radically that we should be looking again at the third budget as well as the fourth budget, we would write to the Secretary of State and say, "We think this issue now needs to be debated". Given the need for a clear and defined sense of direction, which is the whole purpose of this legislation, I think that one would only want to do that if one really believed that the scientific evidence had shifted very significantly. These are good points. I must admit that we had not thought before about how that would work, and it would have to work within the context of the legislation as written.

  Mr Kennedy: There may be an opportunity, in the sense that we have recommended two sets of budgets: the interim and the intended. The interim is what we are proposing goes in the legislation; the intended to go into the legislation following a global deal that we hope will happen next year. The intended is indicative and would require some discussion before it goes into the legislation.

  Chairman: Perhaps we can move on to the carbon budgets and targets, which of course flow from the scientific advice. Clearly this is part of the crucial role of the committee in terms of what it recommends to the Government, because the Government then has to make the political decisions as to how it actually achieves those targets.

  Q13  Charles Hendry: Can I ask a couple of questions about the principles of targets? We live in a world where Governments and international institutions like to set targets. How important do you think it is that, when a target is set, there is a road map or a delivery mechanism which is published at the same time, so that one can see how we are going to get there? A lot of these are being set a long way out, when the politicians who have set them are probably no longer in Parliament, let alone necessarily in office. How important is that element within that, therefore? Do you think that it is also necessary to have separate targets for low carbon and renewables, or do you see the objective as low carbon and renewables as a subsection than that rather than an end in itself?

  Lord Turner of Ecchinswell: On your first question, I do think it is very important that as far as possible we are setting out the road map for delivery. I do not know whether Mr Kennedy explained this beforehand, but one thing we are intending to do in our September report this year is to set out some road maps of what has to happen by when, if we are to be on a credible path to the things which we have implicitly put in the budget. For instance, if renewable energy—and it has a significant weight of wind energy—is to play the role which is anticipated in these budgets by 2020, then certain things have to have happened by 2012 and 2015. You can define what these things are, in that a certain number of projects have to have gone through planning; a certain number of projects have to have started construction; and, unless you are on that road map, you know that you enter a situation where it is physically impossible to meet the end of that. We are therefore intending, for each of the main items and areas of the budget, to set out a set of intermediate targets or measures which will enable us, when we report on progress against the budget, not simply to do what is frankly the rather uninteresting end result, which is to say, "By this year we were meant to be at this level of C02 emissions. You are above it, for this reason", but also to say, "We're meant to be here in five years' time, but it's beginning to look like that is difficult to achieve, given that construction hasn't started, things haven't begun to occur", et cetera. To give you another example on the car and transport side, one of the crucial measures is average grammes per kilometre of the whole fleet. Average grammes per kilometre of the whole fleet are determined by a stock flow model of the total stock of all cars and the flow of new cars which have lower grammes per kilometre. Therefore, if by 2015 you are not already seeing that the new cars then being bought are already down to a certain grammes per kilometre, you can be pretty certain that by 2020 we will not be where we want to be in terms of the total fleet grammes per kilometre. We would be setting all that out, therefore, and I think it will be very important that, in parallel with that—which we need in order to do our monitoring exercise—Government is continually setting out a road map of the policies required to get there. On your second one of whether there should be intermediate, subsidiary targets, we took the point of view that the renewables energy target has played a very useful forcing device in British energy policy. Of course it is possible that some people pursue a very purist economic market approach to carbon emissions. They say, "We've got the European Emission Trading scheme. That sets a price for carbon. As long as that price is high enough, something will happen which drives down carbon emissions and we don't need to specify whether that is carbon capture and storage, whether it is renewables, et cetera". The fact is, however, that it is very difficult to see us meeting those targets without a very significant element of renewables in the mix. Until the UK Government came up with the commitment to the renewable energy target at European level and then brought out the White Paper on renewable energy last year, it really was not addressing aggressively enough some of the non-price barriers to deployment. Issues to do with the deployment of renewable energy are not just, "Is the ROC regime right?" or "Is the carbon price right?" but "Is the planning regime right? Are we attacking the issues of the grid connect rules?"—which play a crucial role in renewable energy. Therefore, I think that there are areas where a set of targets which are specific play a very powerful role. That is true in renewable energy; it is also true, for instance, on the issue of cars. Here, we set out a very strong vision that electric cars, either plug-in hybrids or full electric, are highly likely to have to play a significant role in achieving the reduction in grammes per kilometre which is required for transport to play its role. You could say why did we need to be that specific? Why not simply say, "This is what you have to achieve. You have to achieve it by any route"? The value of identifying that it is highly likely that that is required is to force people to think about what is required to make that possible. The fact is that electric cars cannot simply be driven by, say, price levers in vehicle excise duty for people to buy the cars; they also have to be driven by decisions about street furniture for recharging. Because all the way across these things there are a whole load of non-price levers as well as price levers, I think that is a key reason why we need subsidiary, and sometimes technology-specific, targets as well as overall market price-based approaches.

  Q14  Colin Challen: I heard what you said to Dr Whitehead about the budget, and I just wanted to delve into that a little further. I am quite concerned that there could be a divergence between what the scientific community is saying and Government policy, which your committee, which of course is bound by legislation, does not seem terribly able to help us out with very much. The problem with politics is that, once you get the budget, no matter how wrong it is, as long as you meet it you can say, "Oohla! We've achieved our objectives"—even though you guys will be saying, "Actually, just wait until next year, because we're going to tell you that you're way off course". Do you not see that there is perhaps a function here for the committee, over and above its pure statutory requirements? You may have a statutory remit but that does not mean to say that you cannot provide information. We have to be kept on track; we have to be held to the reality, not simply to the budgets.

  Lord Turner of Ecchinswell: I accept that point and, in relation to Dr Whitehead's question, I think that we have not fully thought that through and we need to think that through. You are quite right that, if it became apparent to us in next year's analysis of the science, with the help of the Hadley Centre, that the consensus point of view on the risks had shifted not just marginally but very significantly, we would have to think of some process of flagging to Government and flagging to Parliament that this shift was sufficiently large that, together, we had to think about whether even the third budget was adequate, rather than simply saying, "We're going to take this into account into the fourth budget". I think I am accepting that we have to look flexibly at how significant the shifts in scientific understanding are. You are quite right that we have a broad enough remit that we can play a role in simply highlighting that something has occurred which may raise questions about whether Parliament and Government should consider shifts in the pre-set legislative approach. We can do that in parallel, while still saying that our core function is to monitor progress against the three budgets which have already been set and to set about recommending what the fourth budget should be.

  Q15  Colin Challen: We can see what is going to happen, and this will be true of any Government, not just this one. They will say, "We have this committee to guide us". There are other people who are obviously very active in this field. Let us take one example, Lord Stern, who gave his name to a report that went to Davos in January, saying that global emissions should be reduced by 80 per cent by 2050, not 50 per cent by 2050. That report was backed up by other scientists and renowned experts in the field. That will have a significant impact on what you are able to recommend; but any Government could say, "That's fine. That's what they are saying, but we will just listen to the committee". This responsibility is therefore very significant, is it not?

  Lord Turner of Ecchinswell: I take that point. Obviously it would not be sensible for us to observe that scientific evidence had very significantly shifted and then to proceed on autopilot, as if nothing had occurred. Therefore, what I am agreeing with is that, if that is the case, we will need flexibly to decide what is our responsible role that should be played there. As indeed the role of committees like this could well be alerting, to Parliament in general and the Government, that they wished the committee to be able at that stage to come back and re-look at even the trajectory which is in the first three budgets, and so on.

  Q16  Colin Challen: Lastly, I think that your pragmatic support for contraction and convergence is very welcome, certainly on my part anyway, and it is on the record at a meeting of the EAC that you do see this as being roughly the way we are headed. Would you accept that, as the speed of contraction accelerates as it seems likely that we will have to go down that route, the speed of acceleration of convergence will also have to pick up? It has always been a presumption of the international climate change negotiations that developing countries will be allowed temporarily to increase their emissions, to help development. However, that will be a concertinaed process, will it? Is that really how you would see that process?

  Lord Turner of Ecchinswell: Yes, I think that you are right, and it does raise a very complex issue of international negotiations, in particular in relation to China. The broad figures are that, if you take our figures—not Nick Stern's more aggressive figures but our figures—then the whole world has to be at something like an average of 2.2-2.3 tonnes per capita by 2050. At the moment, we are somewhere at the 9-10 level; America is at the 20 level; but China is already at the 5-6 level and rising fast. It means that the issue of at what stage China stops rising and actually starts falling towards the level where the whole world will need to be by 2050 is very important. You are quite right to identify that the more that one is concerned to get down the global average by 2050 the more that has to include engaging China in particular. I focus on China because India is still below that level of 2, and Africa is way below that level of 2; so it is China more than any others. Obviously, within that, we have to engage in a fashion which sensitively understands their desires to achieve rapid economic growth and also recognises the complexities of the debate between a production and a consumption focus, where they legitimately point out that quite a lot of their emissions are coming from factories producing goods that we import. In general, however, you must be right, yes.

  Q17  Chairman: Can I move on to one or two other issues? I know that other members are interested in aviation on this. It is a very controversial issue at the present time, as you know, with runway 3 and the expansion of a number of airports in the country. Can I take it from the comments in your report that what is more important to the committee is a cap on emissions rather than a cap on flights?

  Lord Turner of Ecchinswell: Yes, and I think the crucial issue that we will address by the report we will produce in December is whether a cap on emissions requires a cap on flights or whether there are other ways to achieve it. We welcome and we will find very useful the commitment which the Government made about a month ago, that it intends to have a subsidiary target that total emissions from aviation should be no higher in 2050 than they are in 2005. This gives us a clear rule against which to do some analysis, which I hope will throw light on the choices that we have to make here. Essentially what our report in December will do is first of all set out an analysis of demand growth and look at how demand for air traffic is growing, divided by business and consumer, short haul and long haul, domestic, Europe, et cetera; divided, for instance, by distance of flight. An important thing to work out is how much of it could possibly ever shift to high-speed rail and how much is distances which really make that not credible. That will then give us a base load of emissions growth. We will refine the analysis which we did in this report. We will look at the potential to improve the efficiency of aircraft without biofuels and without hydrogen, by changes in the design of aircraft, new and more efficient air traffic control systems. That analysis will, as it were, take the unconstrained demand growth minus the efficiency. We will then add an analysis of the biofuels and hydrogen options; and, in particular on biofuels, ask the question, "If biofuels are to provide a significant part not just of UK but of total global aviation, what consequences would that have for land use, competition with food, et cetera?"—building on the work of the Gallagher review. Once we have taken those two wedges out, as it were, we will then say, "Can you meet the target which we have now set—that it must be no higher in 2050 than it is now—relying simply on the technological solutions, or is it clear that in some way we also have to constrain demand and, if so, by how much?" That will be providing us with the first inkling of the approach which the present Government has suggested we should provide in 2016 or 2017, which is whether the allocation of the second round of the Heathrow slots is compatible with meeting this target. We do not need to provide a definitive answer to that but the analysis that we present in December will begin to place some mathematical frame round that. Although our focus is essentially on emissions and not traffic, therefore, I think that our analysis will help illustrate whether we are likely to be able to meet the emissions limits that we want without also limiting traffic below its otherwise likely pace of growth.

  Q18  John Robertson: Lord Turner, you are on record as saying that "growth in emissions from aviation is by definition incompatible with reduction overall". It is in your report that you expect new technologies and other sectors to take some of the strain in this. How do you weigh up the job of looking at climate change, when you have already stated that in the case of aviation it is believed that the growth in emissions is by definition incompatible? Also, allowing for new technologies and sectors, et cetera, where do you see these come in?

  Lord Turner of Ecchinswell: The overall approach has to have the following elements. First, I think we have to recognise that it is not necessarily the case that, if you want to cut overall emissions by 80 per cent, you have to cut aviation emissions by 80 per cent. It is rational for society to believe that within our, say, 2.2 tonnes per capita in 2050 we should use that 2.2 tonnes per capita for those applications where there are least easily available alternatives. We think that is likely to include aviation, whereas we think in relation to surface transport, particularly for cars and vans, it is quite possible by that stage we will have an almost entirely electrified transport network, working almost entirely with fully de-carbonised electricity production. We therefore have a vision for cars which, by 2050, could produce not just an 80 per cent but a 95 or 98 per cent cut in emissions from cars. We think it extremely unlikely that it is at all possible to do that with planes. The optimal balance can therefore include very different rates of growth and rates of decline in these different areas. Having said that, we did do an analysis in this report which said that if you do not have biofuels, if you do not have quite radical improvements in efficiency of aircraft, if you simply allow demand to grow across the world, and work out what by mid-century will be the total aviation emissions which are likely to occur, they are then getting to a percentage of all allowable emissions that begins to look incredible. You end up saying that, by then, you are using 30 or 40 per cent of all your global allowable emissions just to do aviation—and another 20 per cent, say, for shipping. At that point, that begins to look incredible, because there are probably some other things which we will also find more difficult to reduce. For instance, we flagged agriculture as a very important segment, but I think it is highly likely that agriculture will be another of these segments where we can reduce, but not by as much as we can for instance in electricity. The reason why we welcome the need to report in December on aviation is that this is precisely the issue we will look at. We will have an overall decline of the total required level of emissions and then we will be producing a set of scenarios for aviation and asking both are they are internally credible and are they compatible with what we need to achieve overall. When we do that, by the way, we need to look not just at the 2005 point and the 2050 point, but the pace in between. If you can imagine that we have a line coming down like that, if we have an aviation going up and then down, we have to investigate whether in 2030 the available wedge between a falling total emissions and a rising-before-it-falls aviation emissions—whether that remaining wedge for the rest of the economy is credible, and that is another point that we will be highlighting.

  Q19  John Robertson: You have mentioned a timescale there, and I think that is quite important. You have put a lot of emphasis on electric cars, which are really expensive. Nobody will buy one at the moment because they cannot afford them. Do you see a subsidy there to allow people to afford these kinds of cars? We have mentioned Heathrow and the expansion there with a third runway. Infrastructure to airports, getting people to railway stations, et cetera—do you see some kind of network involved in these things? More importantly, what kind of timescale are we talking about?

  Lord Turner of Ecchinswell: On the infrastructure, we will, within the aviation report, look in particular at the pattern of how people get to airports; for instance, the extent to which there is domestic air travel flying into Heathrow and on to an international hub, which obviously raises the question whether that could be done with a faster, better train system. One of the analyses we will do is to try to put this kind of trains versus planes debate in context, by doing a piece of analysis to which I do not know the answer, and it is this. If you define the maximum number of hours or distance where you think high-speed rail will compete with an airline—suppose you say that we can persuade people, as long as things are efficient, to go on high-speed rail for four hours rather than a one-hour plane ride but not eight hours—and therefore it is "yes" to going on skiing holidays but "no" to going to the southern Spanish coast, we will compare that with the pattern of air traffic and try to be specific and say, if you had a real vision of high-speed rail, does it address five per cent, ten per cent, 15 per cent or 20 per cent of the air traffic? We will do that in the UK as well. That therefore gets us some way to this point about how people get to, say, Heathrow in order to go on intercontinental flights, where clearly there is not an alternative to planes. On electric cars, you are quite right that at the moment they are more expensive. One of the things that we are anticipating is a very large set of new product launches over the next two or three years and further reductions in the prices of batteries, et cetera. Should there be a subsidy? Of course, there will automatically be a subsidy to start with—and the issue is should this be the only subsidy—in the sense that electricity is not subject to high taxation, whereas petrol and diesel are. That does provide quite a strong subsidy because, although the cost of the initial car is sufficiently higher, the actual cost of running an electric car will, at current petrol and electricity prices, be dramatically lower than the cost of running a petrol car. This will of course raise a very complicated issue for the Treasury in 15 years' time, which is, if we are right about our revision for electric cars, a large chunk of present Treasury revenue will disappear. I am sure that, at least originally, there will be an all-party support for the idea that this very strong incentive should exist, but that is where the incentive will come from. It does however imply that one of the challenges with electric cars will be a high upfront cost compared with a low running cost, and some people have suggested that there should be creative ways around this, like making the battery something which is leased rather than bought. This is also an idea that people have because it may well be the case that the battery technologies change so fast that you will want people to lease a certain battery, which then somebody will be changing over in a few years' time. I think that in this area, as in all areas where we have high upfront costs for savings, there would be value in creative thinking about whether some of the ways that you finance this can make it easier for people rapidly to take up the new technology.

  Q20  Dr Turner: Keeping aviation emissions down to current levels by 2050 is challenging enough, but I think you could reasonably expect that there would actually be a considerable increase in aviation emissions between 2020 and 2030—which obviously has implications for what we need to do with emissions in every other sector. Will you be attempting to model this in your report on aviation, so that you can set out the options for legislators? If we are to control aviation, it may be that there will have to be actual government interventions, for instance to accelerate the scrapping of older planes, et cetera.

  Lord Turner of Ecchinswell: To your first point, yes—and I tried to draw it with my hands earlier. Essentially we will be trying to develop something which says, if that is what is going to happen to the total and if it looks like aviation, flat to 2050, will go up before it is down, is this wedge in the middle credible? Can we actually achieve the pace of reduction of everything else that makes it credible? You are also right that, when we then look at what is attainable in terms of energy efficiency of aircraft, we will have to think about what I referred to as the stock flow model; even more important on aircraft than it is on cars, simply because of the very long time period that an airframe and an air engine last. It would be quite possible for one to have a very optimistic point of view as to how much we can reduce the emissions per passenger kilometre of a new aircraft entering service in 2030 but, when you run that through a stock flow model of how rapidly the stock of aircraft turn over, to realise that that will only make a small difference by 2030 though a big difference by 2050. We will therefore have to be quite overt about that turnover model. That might then raise issues about what public policies could speed that, as it were, scrapping of the existing fleet and investment in new technology.

  Chairman: I would like to move on to carbon credits, and Mike Weir has a question to ask.

  Q21  Mr Weir: Obviously the EU ETS is one of the cornerstones of bringing down emissions within the EU, but the price of carbon has fallen considerably. Do you think that it is at a level that it will achieve what it was set out to do?

  Lord Turner of Ecchinswell: I think we have concerns that if the carbon price continued at its present level it would not send the signals which are required. We will look again in our September report at the whole issue of the carbon price, as part of the report that looks at the implications of the current economic recession. As a side point, one of the things that we have to do will be to work out, as a modelling exercise, what a recession automatically does to emissions—because people travel less, less steel is produced, et cetera—in order that, when we then do the report on the 2009 emission levels, we are not patting ourselves on the back for reductions when these reductions are entirely driven by the fact that the economy is in recession. We therefore need to do that; but within that exercise we will also be looking again at our fossil fuel price forecast—fossil fuel prices have clearly come down a lot—and at the issue of the carbon price. One of the interesting things about the carbon price is that it has come down a lot this year; it has come down a lot because emissions are coming down automatically and therefore logically the price of buying emission permits comes down. An interesting issue is whether it has come down more than market economists would predict; because, of course, market economists would say that there is a fungibility of the supply and demand for carbon permits across the whole of Phase 2 and Phase 3, and so the price today ought to be reflecting not just how many emissions there are today but a foresightful market's point of view as to the balance between supply and demand in 2019 and 2020. I think it is highly likely that the fall in the market price has been significantly larger than you might think is logical if you really believed in that efficient market theory. I say as an aside that, wearing another hat, the issue of the extent to which markets are efficient and foresightful is something on which one can raise several questions. If that is the case, however, it does raise questions about a worry as to whether an oscillating price of carbon—oscillating even more than efficient market theory might suggest—will send powerful enough signals to make sure that people are doing the investments that are required for the future. That does relate to one of the issues which we raised in relation to the coal-fired power station debate, where we suggested a range of tools which could be thought about to increase the likelihood that we head in the right direction, one of which would be to combine the EU ETS with a floor price for carbon. There is a significant debate among economists as to whether the best approach is a fluctuating price of carbon within a trading system or a straight tax on carbon. However, it is completely possible to combine that with a hybrid system which has a fluctuating price of carbon above a certain floor, but which has a floor price within it so that participants know that at that point it becomes a tax, as it were, and that it will not be allowed to fall below that level. I do think, given the fall in the carbon price that has occurred this year, that is something which should be considered. It would of course need to be considered at European level.

  Q22  Mr Weir: There is the frightening prospect of the next bubble being a carbon bubble. I want to ask about the report on the impact of the recession. There seems to be an increasing number of industries looking for exemptions from the ETS by claiming carbon leakage problems. Has that been taken into account?

  Lord Turner of Ecchinswell: I think the issue of carbon leakage is really a separate one from the recession. I do think it is important in this recession for the fact of the recession and the economic downturn not to be used for lobbying purposes to argue for long-term changes in the structure of the EU ETS. I have been in the lobbying business in the past and you use an argument from one side to justify what you wanted in the first place in ways which are not always fully justified. I think some of the linkage made between the recession and the need for even more defence against carbon leakage is overstated. The crucial thing we have got to do on the carbon leakage arguments is really identify those sectors where energy inputs and carbon imports as a percentage of the cost of production are sufficiently high and where they are sufficiently subject to international rather than domestic competition that they have a legitimate concern about carbon leakage, and that list of sectors is considerably less than the list of sectors who make that argument. We have set out clearly in the report the somewhat limited set of sectors where we think there is a legitimate argument.

  Q23  Sir Robert Smith: I should declare an interest as Honorary Vice-President of Energy Action Scotland, a fuel poverty campaigning charity. The Government has taken the benefits of cheap energy to achieve their fuel poverty targets and we are now seeing the result of that as the price is going up, and you are predicting another £600,000 million going into fuel poverty by 2020. Clearly measures to try and improve the quality of housing stock achieve more for the environment if you target the people who are better off. What measures do you think should be taking place to tackle the fuel poverty impact of trying to deal with climate change?

  Lord Turner of Ecchinswell: We flagged in the report that you can achieve a significant offset against fuel poverty with energy efficiency and we identified that that is possible and I think we should do that, though you are quite right to identify that some of the biggest opportunities in energy efficiency are those relating to quite high income people who have large houses because the use of energy is very strongly correlated with household income. We do need to use energy efficiency measures as much as possible to offset the fuel poverty effect. What we identified in the report is that even if you do the maximum that we think is possible on that you may still have a problem. We flagged the issue of what are sometimes called social tariffs or block tariffs which we do feel need to be thought out seriously. They could be a mechanism of doing things which both helps offset the problem of fuel poverty and, if they were revenue neutral to the companies overall, actually send some useful price signals. If essentially we move to an environment where the initial so many kilowatt-hours of a household bill was at a lower price but the marginal price of electricity above that was actually higher than it is at the moment then we would be both sending a price stimulus to higher income, higher energy using households to do something about their energy efficiency while fully protecting the lower income households against that and I think this is something which should be thought about very seriously.

  Q24  Judy Mallaber: You have talked quite a bit about electric vehicles and about renewable markets and you are just commissioning reports from consultants on those areas. Is that because they are the two most important areas, the two where you need most of the work done, or are there other areas which are of equal importance where you are about to be commissioning reports?

  Lord Turner of Ecchinswell: We will produce two committee reports this year. One will be the first of our standard annual reports and it will come out in September. Those annual reports are meant essentially to focus on progress against target. Progress against target this year is not a terribly interesting issue because you are only one year in. So this year we have decided to focus the September report on a set of things which will create for us building blocks to do better our progress against target analysis in future. Those include the analysis I mentioned about understanding how emissions vary with the economic cycle in recessions. So we will be able in future to do an economic cycle adjusted report against progress. They include for each of the areas of policy this sort of roadmap analysis, ie what do we need to do on the road to renewables by 2020 and what do we need to do on transport by 2020? Within that there are some issues which we can address with the work of the secretariat. There are some where we have decided to use external consultants and it just so happens that the ones you mentioned are the ones where we felt we needed external consulting work, but they are not the totality of what we will be producing in the September report. The September report will go through each of the main blocks of the budgets, whether it is electricity decarbonisation, energy efficiency, et cetera, et cetera, and we will take that block and say, "Okay, that's what we said we want to achieve. Here is a bit more on the roadmap to there."

  Mr Kennedy: We are contracting work on energy efficiency, renewable heat, renewable electricity, electric cars and possibly on agriculture as well. We need to have a roadmap for all of the sectors we have talked about there.

  Q25  Judy Mallaber: What proportion of your future work programme is going to be carried out by external consultants, and what safeguards have you put in place to ensure that use of those consultants does not compromise your independence?

  Lord Turner of Ecchinswell: It is probably best expressed in terms of the balance of the budgets.

  Mr Kennedy: Our overall budget is between £3.5 and £4 million, of which up to £750,000 is spent on external help, we spend £1.5-£2 million on the staff of the secretariat and the balance is towards the internal work. In terms of safeguards, I think we have got different layers of quality control, whether they are within the secretariat or within the committee, which has the range of expertise we need to feel confident about what the consultants are providing to us.

  Lord Turner of Ecchinswell: We very tightly specify what the consulting project is. We receive reports not just at the end but on a continual intermediate basis. Through the secretariat and through the committee we will challenge the findings and ask questions about the findings. The interpretation of those who say "So what?" will reside with the secretariat and ultimately with the committee, rather than simply taking the report of the consultants. The consultants are there to provide us with an in-depth ability to address particularly detailed issues, but we have to pull together what it means overall in terms of targets and policies.

  Chairman: Thank you very much, Mr Kennedy and Lord Turner. We wish you well with your work. We look forward to your report when it comes out in the autumn.

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