Examination of Witnesses (Questions 20-39)
LORD TURNER
OF ECCHINSWELL
AND MR
DAVID KENNEDY
4 FEBRUARY 2009
Q20 Chairman: The Government accepted
your advice to commit Britain to an 80 per cent cut by 2050, and
of course we warmly welcome that. Within the economy there will
be some sectors that cannot achieve an 80 per cent cut. Have you
done much work yet on seeing which ones can perhaps realistically
be expected to do more than 80 per cent?
Lord Turner of Ecchinswell: Yes,
we have and I think that this is something we will be looking
at in further detail this year, because we will produce a report
by December on aviation, where there is now a target that aviation
must be at least below 2005 by 2050. That is flat at the present
level. Mathematically, of course, the 2005 level is about 35 million
tonnes out of 600 million tonnes or so. It is about six per cent
of the present level. The total has to come down to about 150
or 160 million tonnes. If aviation is flat at 35 million tonnes,
the rest has to come down by 90 per cent or so, not by 80 per
cent. There is nothing necessarily wrong with that in theory.
The basic theory of an optimal response to climate change should
have us cutting emissions where it easier to cut emissions and
where there are alternatives, and cutting them less in those areas
where there are no alternatives. If we have a certain budget for
carbon emissions in 2050, it is logical to use that in those applications
where there are least alternatives or where the alternatives are
most expensive. We will certainly, with this new target, be doing
work which says, "What is the feasibility of other reductions?".
Some of them are possible. For instance, in electricity generation
we do believe it is possible that by 2050 or even by 2030 we could
be cutting grammes per kilowatt hour, not just by 80 per cent
but by 90 per cent or even more. The electricity area is one where
you can have a long-term vision of the almost total de-carbonisation
of electricity. Of course, the challenge at that stage, if we
achieve that, is then to extend electricity to other sectors of
the economy. It is important, therefore. At the moment we would
say that there are probably two sectors where, if we had a vision
that it is probably more difficult to achieve radical cuts, it
would be aviation, and it would probably be agriculture as well.
However, to the extent that you do not achieve 80 per cent in
either of those, you have to achieve more elsewhere. Yes, we will
be looking more and fine-tuning over the years the idea of, if
there are some sectors which do not achieve anything like 80 per
cent cuts, how do we get other sectors to achieve more?
Q21 Chairman: Do you think that it
would be helpful for the Government to set sectoral targets? Agriculture,
as you rightly say, has been a largely neglected area. Whether
we must stop all these cows belching, I am not quite sure what
the answer is! Would it be helpful if agriculture was set a target
which it had to meet?
Lord Turner of Ecchinswell: I
think that it is an interesting debate. From a purist economic
point of view, a pure market economist would say, "No. What
we need to set is a carbon price; a set of adjustments will occur
and, at the end of the day, some sectors will have gone down by
90 per cent, some may have gone down by 20 per cent; and that
is great because that is the optimal result, and you do not need
a target". The reason why that does not quite work, of course,
is that we have some segments of the economy which are not covered
by a carbon price; they are not in the EU ETS, and so we have
to have policies there. I think that it is useful in some sectors
also to have an indicative sense of where we think the reductions
are. We have indicated that, although you do not need to be precise
about the details of it, it is highly likely that electricity
is an area where the reductions will be more than 80 per cent;
where the strategy should plan to achieve that, and should use
both price and non-price instruments to get there. It is also
very useful in relation to aviation that we now have a target
which says that, at the very least, it must not go up from 2005.
We believe that is a useful additional target; because if we had
simply said, "It's all in the carbon price. It doesn't matter
how much aviation grows as long as it is not more than 100 per
cent of the 2050 level", I fear that if we had just relied
on price instruments we would end up not making the hard decisions
we need to make. I think that there is an appropriate role of
public policy, which has an overall cap, which is trying to set
a carbon price, which is not breaking it down to absolutely precise
sectoral and subsectoral targets; but that there is a role for
an indicative vision, where we did try to proceed on where we
think we are likely to get the bigger cuts and the lesser cuts.
I think that we need that as a framework against which to design
non-price elements of policy, because we do need non-price policies
as well as price policies.
Q22 Dr Turner: Aviation is obviously
a critical sector. I am interested to know to what extent you
have modelled this, and how convinced you are of the technical
and practical feasibility of achieving aviation emissions at 2005
levels by 2050. In practice, you clearly would want them to flatline
at the 2005 level from here on in. Do you believe that this is
technically and practically achievable and, if not at present,
what extra action should governments be taking to force it?
Lord Turner of Ecchinswell: This
is what we will be looking at in detail this year and producing
a report in December. We consider it very useful that we have
this sort of stake in the ground that Government has given us,
on which we can operate. What we will do is this. There are three
categories of ways that we can contain emissions reductions. The
third is by constraining demand. We will start by saying, suppose
you do not constrain demand, what do you think is going to happen
to demand? What is going to happen on the basis of what we know
about income elasticity and the growth of demand? What categories
of demand will tend to increase? Is it more long-haul? Is it more
tourism? Is it more business? Have some idea of, if there were
not strong constraining policies, what will happen to demand and
what will happen to emissions. We will then say, "Okay, there
are two technical things you can do about it". One is a whole
load of technical things which are energy efficiency improvements,
while still flying planes on fossil fuel-based aviation kerosene.
What are the best shots at what we can achieve in terms of improvements
in aircraft design efficiency, air traffic control efficiencies,
efficiencies about the way you tow the aircraft on the ground,
et cetera. What is a believable story about how much you can get
from that, versus the demand growth and the emission growth, and
how much difference does that make? We will then look very carefully
at biofuels. In biofuels, we will first of all address the technical
question, which is "Can you fly an aircraft with biofuels?".
We suspect the answer is yes; that eventually the scientists can
make a hydrocarbon, and you can fiddle around with the chemistry
to get stuff that works. The bigger issue on biofuels will be
this. If you said, "My long-term future for aircraft is biofuels"
and you ran the figures at the global level, where does this put
us in terms of sustainability limits, building on the Gallagher
Review stuff? There we will do some analysis which takes global
figures and says, if you really think a significant proportion
of global aircraft in 2050 will be flying with biofuels, what
does this mean for acreage of the world supplying biofuels, competition
for food, et cetera? Is that really a credible vision? Once you
have moved on those two, we will say, "Now, is it then possible
to hit this 2025-2050 target without constraining demand and is
it possible to do it while agreeing to the second tranche of the
Heathrow new slots?" or do we have to say, "Our best
shot is that, although technology can do this and this, there
is going to have to be demand constraint"? If there has to
be demand constraint, we will then bring in the analysis I mentioned
earlier of where are these flights, and one of the questions we
will ask is, "How many of the flights which occur are of
sufficiently short distances either because they are domestic
or they are London to the south of France, London to the skiing
resorts, et cetera", that there is a believable story that
they do not have to be flights, they can be high-speed rail, or
are quite a lot of them things where, realistically, it is never
going to be competed by high-speed rail and, therefore, you actually
have to say that we have got to constrain demand in an absolute
sense and people just will not be able to make as many journeys
as they would want to in an unconstrained fashion. That is the
analysis that we are going to do. The final point which you mention
is the issue of, "Is it a flat line or is it an increase?"
I think it is highly likely to be an increase, but that is where
we will crucially have to look at what I mentioned earlier, the
difference between the total budget line which has got to come
down and the element which is aviation. If aviation is now 35
million tonnes and in 2050 the total has to be 150/160 million
tonnes, we have got to ask, "Is that doable given what we
believe everything else is?" but we have also got to look
at 2025 and 2030 and say, "If we are arguing that aviation
is going to go up and go down and we have got a line coming down
in total, is the slice which is non-aviation in 2025 doable as
well or do we have to make statements about the fact that there
has to be a limit to how much aviation goes up and then comes
down to make the total story doable?" That returns to this
issue of: what does any aviation trajectory imply for what would
have to be achieved in the rest of the economy? I think what we
will provide by December is probably quite a mathematical report
which sets out all these different parameters in order to inform
the debate.
Chairman: That would be very helpful.
Q23 Joan Walley: On that point, I
am very reassured by what you have just said and what you just
said in relation to the debate which took place in the Chamber
last week on the third runway, but what I am not clear about is
how what you have just said will be factored into the terms of
reference of the planning agency when actually considering, at
this stage, whether or not a third runway should go ahead. Given
the other guidance which the Treasury has used to make its assumptions
about what is economically viable on the basis of the shadow cost
of carbon, and I am particularly referring to the Treasury Green
Book, the Better Regulation Executive Impact Assessment Guidance
and the Office of Fair Trading Competition Assessment Guidance.
It seems to me that all of these things have to, somehow or another,
be joined up in a cross-cutting way before these decisions are
made which take us down a route that is going to be contrary to
where you are taking us.
Lord Turner of Ecchinswell: I
think it is important to stress, and we have stressed this before,
that there is a danger that the Climate Change Committee can get
drawn into the precise details of a whole load of decisions which
involve lots of other considerations as well, the nature of the
economic case, local pollution, noise pollution, but that is not
our role and, therefore, we have deliberately said, "Well,
it's not for us to, as it were, be precisely saying that Heathrow
runway three is the overall case there", and in some things
we have to say that that is not our role. Our role is to set out
the overall budgets and we now have this specific role, which,
as I say, is very useful, to describe what has to occur in order
for us to meet this 2050 at or below the 2005 level. Within that,
it has been clearly agreed that our report will inform the decision
as to when, and whether, it is ever that the second tranche of
the slots goes ahead, and it is at least possible that we will
come back and say, "Given the technology is possible either
with fossil fuels or biofuels, we think this is doable with the
first slot allocation, but we think the second slot allocation
just makes it undoable", and, if that is what the analysis
takes us to, we will have to say that.
Q24 Martin Horwood: Does that mean
that, in effect, the third runway, if you go along with Sir David
King, could become a complete white elephant if the carbon price
goes up? If the constraints you are talking about apply, this
could—
Lord Turner of Ecchinswell: Not
necessarily, and again I do not want to get into the details of
the third runway, but not necessarily because of course, if you
ended up with an airport which ended up with a runway capacity
which had not been utilised to the absolute limit, so some of
the tranche of the possible slots had been arranged, but not the
maximum that people believed you could get through there, you
would of course have an extremely efficient airport with very
little delays which were actually rather good in terms of the
carbon efficiency of things which did fly because there would
be very little circling and stacking, so actually, in some ways,
a slightly under-utilised airport is a very efficient airport,
both in terms of a passenger service and in terms of carbon efficiency.
Q25 Martin Horwood: I think possibly
those people who are having their homes bulldozed to make way
for the airport might not think that an under-utilised airport
was a terribly good justification for that. The third runway is
quite important though, is it not, because Heathrow's million
tonnes of carbon's carbon dioxide equivalent is something like
7.2 million per annum now, so this is roughly on a par with the
Drax power station or something of that order, and the third runway
is potentially going to add some 6.7 million tonnes of CO2 equivalent
a year, so sort of another Drax every three years. How can that
be consistent with the kind of carbon budgets that you are projecting?
Lord Turner of Ecchinswell: Well,
again I return to the analysis we have done earlier. We will focus
on the total aggregate UK figures. We believe that a reasonable
figure for the UK's share of total carbon emissions from aviation
is sort of in the mid-30 millions. You can use different methodologies,
but think of, say, 35 million as being a reasonable estimate of
our share. The UK currently emits 600 million or so, I cannot
remember the exact figure, so it is sort of 6 per cent or so today.
We have to bring the 600 million down to sort of 150/160 million
by 2050 and, therefore, it is at least possible that 35 million
could grow to 45 million and still be compatible, depending on
what we can do in the rest of the economy. It only becomes incompatible
if there are other things which are irreducible or if that figure
is really very high. Now, that is why we have to look at the issue
of what is achievable in the rest of the economy and whether that
is flat possible, but it is not right to say that any growth in
emissions from aviation is, by definition, incompatible with reduction
overall. It does depend crucially on what you think you can achieve
in the rest of the economy, and it is not a daft idea that in
2050 a much more significant than today's proportion of our total
emissions will be from aviation if it is the case that aviation
is simply the most difficult and most expensive thing to have
a low-carbon alternative for. If you have got a limited amount
of carbon emissions in 2050, we should be using them for those
applications of either business or human enjoyment where there
are the least available alternatives; that is the logic of how
you go.
Q26 Martin Horwood: What you are
effectively saying is that it is technically feasible, but that
the rest of the economy will have to pay a very high price to
tolerate those increases—
Lord Turner of Ecchinswell: Well,
not necessarily.
Q27 Martin Horwood:—so is not
the logic of the market that actually that would self-correct
and that business would stop using the airport quite so much?
Lord Turner of Ecchinswell: Again,
if it is cheaper to reduce emissions by 95 per cent in electricity-generation
and by zero, ie flat line, in aviation than to reduce by 80 per
cent in electricity-generation and 80 per cent in aviation, then
it is a better deal for society to have 95 per cent of zero than
80 per cent in both, and that probably is the case. It is simply
that we have a way of generating electricity in a zero-carbon
fashion, we do not have a way of making aircraft fly in a zero-carbon
fashion, so that is the logic of it.
Q28 Martin Horwood: This touches
on a crucial part of your remit that was in the Climate Change
Act which was to take emissions, not just from aviation, but from
shipping as well, "into account", was the phrase, when
setting UK carbon budgets, but not actually to include them in
UK carbon budgets. How do you do that?
Lord Turner of Ecchinswell: Well,
the answer is that we have clearly said that we will report continually
on the aviation emissions, and we now have a very precise remit
to do this and of course Parliament can debate, or decide, whether
it wants to consider the new thing for aviation to be a limit
as well and then we would have a legal power to monitor that over
time. The reason why we said that it should be excluded from the
budget, and on aviation it is a balance, is due to a very technical
thing to do with the somewhat odd way, in our opinion, that the
EU has decided to include UK aviation emissions within the EU
ETS. It is sufficiently technical, but I would really have to
sit down with a paper in front of us to go through it, but we,
in principle, wanted to have aviation in the budget, and I think
we probably will in the future find a way to put it in, but we
believed that it would create technical difficulties in the tracking
of reconciliation if we had it in the budget on a different basis
than it is in the EU ETS. That is the essence of it. The shipping
situation is a different one. The shipping situation is, I think,
one where we really do have to try and get a global deal because
with aviation there are technical reasons why you might monitor
it separately from the budget figures, but just as tightly and
subject to national and European policies, and in aviation we
do not see problems arising from Europe applying much tighter
policies than other countries; we are not worried about competitiveness
on the aviation side. Shipping is different. The essence of a
ship is that, first of all, it really is genuinely complicated
to work out what our share of emissions is because, when a ship
turns up from Pearl River Delta which has stopped off at Singapore,
stopped off at three other places, breaks bulk in Rotterdam and
then things turn up here, working out how much of that is our
share versus others' is very difficult. Secondly, if Europe applies
very tight limits on shipping, for instance, through a bumper
fuel tax or bringing them in the EU ETS, it is possible for a
ship to just pick up huge amounts of oil in a north African port,
come into Europe and go out again, so shipping is one where there
is such an advantage from getting a global deal that we have really
got to try and get a global deal on shipping, and a purely national
approach or even a purely European approach would be a real second-best
on shipping, in a way that is not true of aviation.
Q29 Martin Horwood: It is clearly
common ground that the global deal on all of these things is critical
because, otherwise, presumably having them in the targets but
not in the budgets becomes inevitable over time. The other area
in which that seems to be true is that you have adopted the EU
methodology of having intended budgets, which are if the global
deal comes in, and these interim sort of pessimistic budgets,
which are much less ambitious and which are before a global deal
is reached. You have projected these to get further and further
apart as time goes forward and presumably at some stage you are
expecting us to have to leap from one to the other, presumably
using largely, or wholly, offsets.
Lord Turner of Ecchinswell: Yes.
Q30 Martin Horwood: At which point
does that leap become too big to be credible in terms of decarbonising
the economy?
Lord Turner of Ecchinswell: Well,
what we have deliberately designed is that the interim budget
includes pretty much all of what you actually have to do within
the domestic UK economy outside the EU ETS sectors, so there is
not a significant difference between the interim budget and the
intended budget in things like what you have to do in surface
transport, what you have to do in residential homes, what you
have to do in the segments of business which are outside the EU
ETS. That is deliberately designed because, if there were differences
there, there would be a real danger, as you are suggesting, that
we set down one path and three years later we will be saying that
we want to be on a bigger path, but we simply have not done the
policies in relation to the supply, obligation or the developments
of the electric car which are needed to be on it. We deliberately
designed it so that in those segments there is no real difference
between the budgets. The difference between the budgets will be,
first of all, how tight is the EU ETS cap, and, in a sense, we
have to do that because the EU ETS cap is set at European level,
so we have to work with that, and the use of offsets which means
that the primary impact of going from the interim to the intended
budget is actually things like how much the Government spends
on government-to-government offset purchases, it is a financial
decision, and then it is a negotiating offer at Copenhagen, saying,
"We are willing to make that contribution to the world to
move to a higher target", so they have been designed in a
way, I think, or we have tried to do it in a way, which does not
make it incredible to go from one to the other once we have a
negotiated result.
Q31 Martin Horwood: But the tightness
of the EU cap is something which helps to determine ultimately
the price of carbon and the price of carbon calculation makes
a difference to decisions in the interim, does it not, on things
like Heathrow?
Lord Turner of Ecchinswell: That
is true.
Q32 Martin Horwood: So is there not
a real danger that, the longer this goes on, the more we keep
taking the wrong decisions in the meantime?
Lord Turner of Ecchinswell: Well,
we agree with that, though the reality is that, for very good
reasons, the carbon price is set within a system which is European-wide
and which neither the UK Government, nor the Climate Change Committee
advising them, has the ability simply to say what the cap would
be; we have to go in and negotiate and argue for the cap. We would
very much like the cap to be set at the level which is compatible
with the EU's offer to reduce by 30 per cent, if there is a success
at Copenhagen, and we would like that, we want there to be a success
at Copenhagen and we want the tighter EU ETS cap which will follow
from that.
Q33 Mark Lazarowicz: One of the ways
in which we can meet the cap of course is through the purchase
of international credits, and I wonder if you could, first of
all, clarify briefly for the Committee what restrictions you want
to see placed on the use of international credits in meeting our
own emissions reduction targets.
Lord Turner of Ecchinswell: Well,
in the report we drew a clear distinction between the purchase
of credits from outside Europe, whether they be joint implementation
or CDM credits, and purchase within Europe within the European
Emission Trading Scheme. The purchase within the European Emission
Trading Scheme is not actually something which the UK Government
can directly regulate. You have a trading system with a set of
private sector players who are deciding to buy or sell permits,
and that is not something that we can regulate and control, and
also it is not something which we are concerned about. If, at
the end of the day, the UK private sector is a net buyer of EU
ETS permits from other countries, it is still the case that in,
as it were, the rich, developed, high-technology economy of Europe,
there is a pressure of a carbon price for the changes in technology
which are occurring which are required to build a low-carbon economy,
and that is why we see purchase within the EU ETS as being different
from purchase of CDM. It is different both because we are confident
that the reductions are occurring in a rich economy and, therefore,
are driving new technologies and, secondly, they are, by definition,
more robust. Any system which depends on an absolute cap is a
much more robust system than a system like CDM which requires
you to work out, "I've created a credit because this project
has made a reduction versus business as usual", which is
a useful part of the policies of the world, but it is, by definition,
more difficult, so what we defined was limits on the use of CDM
and we basically said that the interim budget should not require
any purchase of CDM. David, do you want to comment on the exact
figures there?
Mr Kennedy: As you said, no planned
purchase. It might be that you want it as insurance year to year,
so, if emissions are not as low as you need, you might buy some
credits, but you should not plan, you should plan to do stuff
domestically.
Lord Turner of Ecchinswell: But,
when you move to the intended budget, it is legitimate then to
buy those credits, though we illustrated, and I do not have the
figures to hand, what percentage of our total reduction would
be achieved by the purchase of credit, and that percentage was
still lower than the sorts of percentages which were suggested
by some of the amendments which were proposed in both the Commons
and the Lords.
Mr Kennedy: Less than 20 per cent.
Q34 Mark Lazarowicz: Although what
you are saying about the EU ETS is obviously right in theory,
emission reductions have to come from somewhere even within the
EU, and, as I understand it, the UK's Climate Change Programme
2008 Annual Report suggests that, by 2020, 26 per cent of the
UK effort in cutting emissions will come from net purchase of
EU ETS credits. Now, that is a pretty high figure, is it not?
We must assume that somewhere in the EU there are some countries
which are incredibly efficient or perhaps that the levels are
much more relaxed than they need to be. Just as you said there
should be limits on CDM, is there not a case for saying that there
should be some limits on net EU ETS credits at least in the calculations,
though I accept you cannot place a limit on them because it is
an EU-wide scheme?
Lord Turner of Ecchinswell: Well,
we concluded against that. I take the point that what you do need
to have is the confidence that you are happy that the EU ETS cap
in total is adequately tight and we, therefore, believe it incredibly
important that the commitment within the total cap, which takes
it down, I think, to 1,720 billion tonnes by 2020, is stuck to
and is not whittled away by negotiation and special exemptions,
et cetera. Provided it is at that level and sticks at that level,
which is the present Phase 3 plan, we believe that we then have
an overall cap for the EU ETS which is reasonably compatible,
that within the EU ETS, with the trajectory which we have described.
If there were a serious watering down of the EU ETS through some
process of negotiation, I think we would have to look at that
again, but, given that we are happy with the EU ETS target as
presently proposed as Phase 3 as being compatible with the overall
architecture of what we think Europe needs to achieve and the
UK needs to achieve, on that basis, we are happy with the principle
that within that we can say it is simply a private sector result
as to whether the UK is a net seller or a net buyer.
Mr Kennedy: We can turn your point
around actually and say that it is not that other countries would
be really efficient because we are buying from them, but it is
that the UK has made a lot of progress in power sector decarbonisation,
and we had the Dash for Gas in the 1990s. What we will be doing
is paying other countries who have a lot of coal-fired generation,
Germany, for example, to burn gas rather than coal, so they are
actually less efficient than us in the power sector and we will
pay them to become as efficient as we currently are.
Q35 Mark Lazarowicz: But does it
not still come back to this point that having a high reliance
on ETS credits or indeed allowing CDM to be taken into account
for the intended budget, is that not also a danger in locking
us, to some extent, into a more carbon-intensive economy than
we ought to be and then in 20 or 30 years' time really hitting
a wall, having made the effort at an earlier stage?
Lord Turner of Ecchinswell: The
crucial policy variable here from the EU ETS is the price, and
of course the price is not affected by whether the UK is a net
buyer or seller, but it is rather whether the UK, as a net buyer
or seller, is affected by the price, so the causation is that
way round. The price mechanism, I think, has to work at a pan-European
level and the logic for that is very good. I think what we have
set out in the report is that we are not happy to rely entirely
on the price mechanism on the electricity-generation side. Again,
a complete purist would say, "Why do you have a renewable
energy strategy for electricity as produced last year? It should
just be the EU ETS price. Why do you want to set out a principle
about CCS and coal-fired power stations when the price and the
free market alone will do it?" so we have proposed something
which is a sort of belt-and-braces approach there. There is a
price within the EU ETS, and we have also said, "But it does
make sense to have an overlay of subsidy and support to drive
renewable energy", and we have also said in relation to coal-fired
power stations, and we overtly discuss it in the report, that
we do not simply want to leave those decisions entirely to the
price, but we also think we need a principle that any coal-fired
power station which is consented should only be done so in the
clear expectation that it will be retrofitted with carbon capture
and storage by the early 2020s and, if this requires that it is
written into the legal consent and it is clear to the person who
is investing that the Government has the right to demand that
in the early 2020s and to remove the licence to operate if it
is not fitted, then that is one of the ways to achieve it.
Q36 Mark Lazarowicz: On that point,
we held an inquiry into carbon capture and storage and in the
Government's response, the Government said, "Any new coal
plant will have no impact on the overall emissions effort by the
EU as it will need to operate within the EU ETS cap", so
coal is okay because it will be within the overall EU ETS cap,
aviation is okay because it is within the overall EU ETS cap,
so what is left is going to have to make a massive reduction.
We are not getting the policies which will put real pressure along
the line for changes in flexibility in the cap—
Lord Turner of Ecchinswell: That
is why, in our discussion of electricity-generation, we overtly
said, "We think price instruments are very important, but
we are not in the purist camp. It is in the EU ETS, therefore,
game over, we do not need to say anything else". We have
deliberately and overtly said that in the area of electricity-generation
there are legitimate and appropriate non-EU ETS policy levers
as well, deliberately to make sure that we do not lock ourselves
in. To that extent, we are not as confident as some people in
the all-seeing, all-wise market which will make a set of decisions
in a precise understanding of the likely price of carbon in 20
years' time. We talk about the fact that the volatility of the
price of carbon and the uncertainty is that we cannot rely entirely
on that. Then, that is why also in aviation we welcome the fact
that we now have an additional quantitative target to force decisions
on aviation, which again is a diversion from the purist market
instrument cap which would say, "Well, if it is in the EU
ETS, so be it, the price will determine what happens", so
in both of those we are supporting a diversion from a purely market
price mechanism whilst still believing that the market price is
one among the instruments we should be using.
Q37 Chairman: Well, I dare say, over-dependence
on markets is an issue which is exercising you for some of your
time in your day job as well.
Lord Turner of Ecchinswell: It
is, yes.
Q38 Chairman: Just for clarification,
we have not actually published the Government's response to our
Report on CCS, which Mark referred to, and it is being reconsidered
by the Secretary of State at the moment. Just for absolute clarity,
there is a difference, I think, between saying that you could
authorise the construction of a new coal-fired power station,
in the expectation that CCS will be retrofitted, with the requirement.
Now, we would be very much encouraged if you said that you thought
that should be a requirement before any new coal-fired power stations
were approved.
Lord Turner of Ecchinswell: Well,
what we said, and we were very careful because we did use the
word "expectation", we left it open to the Government
as to the policy levers with which you achieve that, and we described
three possible policy levers, one of which is a floor level within
the EU ETS which I think is a wider issue, but one which could
be thought of, you can redesign the EU ETS so that, if the free
market price ever falls below a certain level, it essentially
becomes a tax, and there are pretty good economic arguments. If
you go back to the debates between a carbon tax and an EU ETS,
there are some pretty good arguments for doing a hybrid where
it is a fluctuating market price with a floor. You could do it
through a price thing which would make it simply and clearly not
sensible for somebody to continue to operate on coal beyond that.
You can do it by a clear licence condition, and we would certainly
see significant merits in that, or we could do it by the ideas
which are now being developed in some US states of requiring a
company in relation to its total fleet of operations to have a
grammes-per-kilowatt-hour charge. We have left that open, and
again there is a delicate line within the Committee's remit as
to whether we are meant to talk very precisely about specific
elements of policy and that is why we have just stuck short of
that, but I think it is clear that we would not be happy with
an approach to this which did not, through one policy or another,
make sure that we end up by the mid-2020s, if we have coal-fired
power stations, with them having CCS.
Q39 Chairman: I appreciate the need
for delicacy in this, but the optimistic scenario you have painted,
which I fully support myself, that decarbonising electricity is
possible to a greater extent than decarbonising some other sectors
of the economy, and obviously aviation is a prime example, if
we are to get to the sort of 90 per cent figure, which you mentioned
a little while ago, it is difficult to see how that could be done
if there were coal-fired power stations being built after today's
date and operating without CCS in 2030.
Lord Turner of Ecchinswell: Absolutely,
and we said that clearly. We can see no way to meet what, we believe,
we need to require by 2030 in the decarbonisation of electricity
with coal-fired power stations running without CCS; it is just
not compatible. This is very important, given that the decarbonisation
of electricity is important not only in order to reduce the emissions
from the present level of electricity that we produce, but also
to create low-carbon electricity which we will then be applying
to applications beyond those where we presently apply it and,
in particular, to surface transport in a car and van sense and
probably to domestic heat as well. That is why the decarbonisation
of electricity has an importance beyond the level of its current
share of emissions.
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