Examination of Witness (Question Numbers
1-19)
MR PETER
LOCKLEY
21 OCTOBER 2008
Q1 Chairman: Good morning and thank you
for coming back to the Committee. We are taking up the subject
of shipping which we have referred to on a number of occasions
but have never investigated in detail; this is our first ever
session, as you know. We have had your memorandum[2],
but would you like to say how significant you think the contribution
of shipping to global climate change actually is and how you see
that changing in the future?
Mr Lockley: Certainly, and actually
now, for the first time, we can make a reasonable estimate of
what shipping emissions are because there has been quite a lot
of uncertainty about them. The updated Greenhouse Gas Study published
at the recent MEPC meeting has come to a consensus estimate of
around 850 million tons of CO2 and that is around four per cent
of global emissions of CO2. As a country, if shipping were a nation,
it would be I think seventh in the world, above the UK but below
Germany, but it is growing. Those emissions have roughly doubled
since 1990. That same update study did some projections up to
2050 and whilst there is obviously a lot of uncertainty surrounding
those it seems that shipping emissions are likely to at least
double again by 2050. So, they are a significant contributor to
climate change and one that is predicted to grow. As we always
say with aviation, at a time when global emissions have to come
down, they are going to become an even more significant contributor
in the future.
Q2 Chairman: Shipping often gets
linked with aviation in discussion about climate change and I
guess there are similarities in terms of international activities.
It is hard to pinpoint exactly where responsibility lies and of
course they are both currently excluded from the Kyoto process.
What do you think the differences are between aviation and shipping?
Mr Lockley: There are differences
in how you would allocate emissions. It is harder to allocate
emissions for shipping; we think it is quite straightforward for
aviation. Ships tend to do multiple leg journeys so, for instance,
they might drop half their cargo in Rotterdam and pick some more
up, travel on to the UK; they also do the same thing with fuel,
it is quite easy for a ship to tanker fuel around the world because
they are very efficient at carrying cargo, so equally they are
very efficient at carrying a large bulk of fuel around the place
and they can pick up wherever it is cheapest. It is harder to
attribute emissions to countries on a bunker fuels basis as you
would do with aviation. As you say, they are treated very similarly
to date in climate change policy both in the UK and in the Kyoto
arrangements. They are roughly of the same magnitude, but the
non-CO2 effects of shipping, unlike for aviation, actually have
a cooling effect; so although shipping's total CO2 is greater
when you look at the overall impact, it is smaller than aviation.
There are differences as well in the technology profile, if you
like, over the last fewdecades. While aviation has become more
and more efficient and jet engines are now extremely efficient
bits of technology, historically shipping fuel has been so cheap
that there has not been the driver to make those technological
improvements. I think it is fair to say there are still a lot
of technology options around in terms of improving the efficiency
of engines as well as some other possibilities which we may come
onto later.
Q3 Colin Challen: In the interim
advice from the Committee on Climate Change a couple of weeks
ago and the eight per cent target, Lord Turner wrote that the
80 per cent target should apply to all sectors in the UK economy
including aviation and shipping, but did not really seem to think
that it was practical to actually measure shipping's contribution,
but still thought that other sectors would have to pick up the
tab if shipping was not reduced by 80 per cent. What do you make
of that? What are the implications? Is this going to lead to confusion
or is it the result of confusion?
Mr Lockley: I think what Lord
Turner said is that our overall target has to take account of
aviation and shipping. He cannot, at the moment, see a way in
which you could include aviation and shipping emissions within
the target in a legally robust way. We can debate that, but what
he has said is that other sectors should come down further in
as much as aviation and shipping do not make an 80 per cent cut
themselves. In order for the others to pick up the tab we will
have to know the size of that tab. I think he has opened a space
where we can define what shipping emissions mean for the UK in
a way that is robust enough to adjust our overall targets accordingly
even in advance of an international agreement which may take some
time to negotiate. I think there is now a bit of work to be done
and we will be pursuing this to work out what a reasonable allocation
of emissions for the UK would be for shipping so that we know
the extra effort that has to be made in the other sectors. That
is why Lord Turner was at pains to say that the overall target
for the UK should be at least 80 per cent and there is scope to
go further if we do not make those reductions in aviation and
shipping.
Q4 Colin Challen: How long do you
think it will take to actually make that UK assessment of shipping's
contribution?
Mr Lockley: I think it need not
be a very complex exercise. I think you can get quite good estimations
on the basis of imported cargo to the UK. We have data on what
percentage by ton, by value and by bulk the UK imports and we
are ready today to make a first order estimate that around four
per cent of global shipping emissions belong to the UK. The theory
behind this is that the importer who generates the demand; it
is the importer who bears responsibility for the emissions and
therefore for shipping you would allocate on the basis of how
much demand is being generated by consumers in the UK.
Q5 Mr Chaytor: If there is already
very good data on cargo imported to the UK, what is the advantage
of your proposed system, the route-based method of calculating
emissions?
Mr Lockley: A route-based method
would give you quite exact figures on which ships are coming to
the UK. The problem, which we acknowledge with the route-based
system, is if you then try to apply, for instance, a carbon trading
scheme that was on routes only to European ports or only to Annex
1 country ports, then there would be a possibility of evasion.
An individual ship could decide to dock at Casablanca on its way
from Shanghai and will only have to pick up the tab for the emissions
from Casablanca to Europe, whereas taking a percentage of import
data you step back and you look at a ship's annual emissions,
for instance. It has been sailing around the world and say it
has emitted a hundred tons of CO2 you can then ask what proportion
of that work was done in order to bring cargo to the UK or to
Annex 1 countries if you are thinking about the global scheme.
In that case, it would not have benefited that ship to have stopped
at Casablanca because you are simply looking at the final work
done for import.
Q6 Mr Chaytor: In terms of the likely
estimates that would emerge, how different would they be from
the Government's current system of just recording fuel taken from
the international bunkers?
Mr Lockley: They would be considerably
higher so at four per cent of global emissions the UK would be
responsible for around 35 million tons of CO2. I cannot, off the
top of my head, remember what the bunker fuel estimate is but
it is definitely lower than that. In defence of the Government,
that is not because they think that is the best way to tally up
these emissions; it is because it is the UNFCCC recommended method
for reporting, as a memo item, your shipping emissions.
Q7 Mr Chaytor: What are the downsides
of the proposed route-based system?
Mr Lockley: The downsides of a
route-based system would be possible evasion—ships doing
extra docking—which would obviously incur extra CO2. If
it were valuable enough to them to avoid the emissions on the
longer part of the journey they might well do that rather than
incur a CO2 penalty. We are optimistic that a percentage of cargo
based approach could get around that. It is a variation on a theme
which may be able to cut through that problem.
Q8 Jo Swinson: Two weeks ago the
MEPC met; what would you say were the main outcomes of that meeting?
Mr Lockley: Firstly, the market
based instruments that we are interested in discussing here. There
was only one sub-agenda item of a one agenda item on a long list,
so there was progress on things like ballast, water and so forth.
In terms of greenhouse gases things were a little bit more fraught
and more difficult. There was a long exchange in the plenary about
whether it is possible to impose a market based scheme on all
countries or whether you have to do a differentiated approach.
In our view that exchange was not particularly fruitful; it was
just a trading of positions. Developing countries raised their
flag to say that any scheme should apply to Annex 1 parties only,
that we should respect the principles of UNFCCC, common but differentiated
responsibilities, and therefore they would object to any global
scheme. In response, all the Annex 1 parties raised their flags
to say that this was a shipping issue, it fell under the International
Maritime Organisation. The International Maritime Organisation
always develops global policies and therefore any shipping scheme
has to be global. There was no rapprochement between the two sides
in saying, "How can we think creatively about reconciling
these two principles?" That is what we have been trying to
do in finding a scheme that is both global but differentiated.
We fully accept the contentions of Annex 1 countries; that it
is impossible or impractical to do a scheme based only on which
country a ship is registered to because it is very easy to change
your flag, you can do it in about 12 hours, and if it became more
expensive to operate a ship out of an Annex 1 country then there
would just be an exodus to non-Annex 1 countries. Everyone acknowledges
that, everyone at IMO understands that, and yet they are not prepared
to go beyond that in looking at other ways in which you could
differentiate a scheme. I think that exchange rather sets the
tone for the rest of the work on greenhouse gases and although
there was progress on the technological and operational measures,
there was certainly no progress on designing a global scheme.
The thinking behind this—the UK was very clear on this in
its submissions—is that despite the good work that IMO is
doing to improve the fuel efficiency of ships, to come up with
a design index for how you would rate the efficiency of ships,
to come up with ship management plans, practical suggestions for
improving their efficiency, we expect the overall CO2 from ships
to go up. Therefore, if we are going to have a comprehensive global
climate change agreement it is going to need to cover all sectors
and it is going to have to take control of shipping emissions.
That, in our view, means capping emissions.
Q9 Jo Swinson: That would suggest
that in the meeting the UK was sort of standing up there and saying,
"Well, let's find an innovative solution". Was that
the case? What was the UK voice at the meeting?
Mr Lockley: The UK is in a bit
of a difficult position because the suggestion from the UK and
from Annex 1 countries is that you do a global scheme but you
would respect the principle of common but differentiated responsibilities
in the way that you spend the revenue that you raise from that
scheme. The revenue would be collected around two-thirds from
Annex 1 countries (by that I mean the revenue would be collected
from the ship operators but the costs would be passed on to importers
and therefore consumers in Annex 1 countries), so about two-thirds
of that cost would be borne by developed countries but you would
spend all of that revenue on adaptation, for instance, or reducing
de-forestation or technology transfer, all of these vital blocks
of a global climate change agreement. You would spend that money
in developing countries in such a way that they receive more than
they pay. That is the theory behind a totally uniform scheme for
all ships but whilst keeping developing countries on board by
spending the revenue that you raise in those countries.
Q10 Jo Swinson: Where would the BRIC
countries come into that? They are not quite at the stage of the
UK, but equally they are not in such dire straights as many developing
countries. Clearly, getting them on board with any solution would
be important.
Mr Lockley: You have hit the nail
on the head and the problem with making progress at IMO is that
the BRIC countries are reserving their position on this question
of common but differentiated responsibilities and they see it
as two important principles to concede in the IMO because they
would see they had then conceded something in the wider UNFCCC
negotiation. At the simplest level you have a stand off between
the US and China about whether China is going to come onboard,
is the US going to come onboard; and everyone is waiting to see
how that resolves itself. They are not prepared to make the first
move in their shipping forum. The problem with the UK position
is that they do not have a credible story to tell about how we
would spend that money if we were to raise it, because they are
opposed to any international form of taxation. Shipping is a global
industry. We would advocate a global body to collect that revenue
and then to feed it into a fund managed by the UNFCCC to do the
climate work, the adaptation and mitigation. The UK explicitly
stated they would be opposed to that because international taxation
harms our national sovereignty, therefore they cannot really sell
the proposal to the developing countries because the developing
countries do not believe they will ever see the money because
it has to come through our national Treasury, our Treasury objects
to hypothecating revenues and so on and so forth. There is a real
structural difficulty there in how we could deliver on the proposal
that we are advocating in this country.
Q11 Martin Horwood: You have answered
some of my question actually, but it was on the same sort of theme
of how you resolve the BRIC countries pretty legitimate attachment
to common but differentiated responsibilities. It is all very
well for you to say that the revenue from this scheme would be
spent in developing countries, but not according to the way they
would have done it originally. The moral justification for common
but differentiated responsibilities is that they are not as responsible
for the situation we are in as the rest of us. WWF, as I understood
it, had always supported that principle of common but differentiated
responsibilities, so surely any kind of universal capped scheme
that you are advocating conflicts with that and are the BRIC countries
not justified in objecting to it?
Mr Lockley: There is a question
of how you would interpret that principle. We think that potentially,
with the right governance structures in place, you can be distributing
more money to those countries than they have paid out themselves.
In the case of the least developed countries or the small island
states, quite substantially, and the ones most vulnerable to the
effects of climate change could get five or ten times the revenue
that they were subject to pay. We are also looking at possibilities
for exempting the least developed countries. You could do that,
for instance, on ship size because smaller ships tend to trade
with developing countries. There are ways in which you could design
a scheme to exempt the smallest and most vulnerable countries.
Do I think Brazil, India and China can afford quite a modest charge
on shipping? Yes, I think they can. However, nonetheless we would
like to see the scheme go through to meet mitigation objectives
as well and therefore would be prepared to consider compromise
schemes whereby you would not charge the shipping that was going
through non-Annex 1 countries. This is what I was mentioning,
the idea of a route-based scheme or a scheme based on imports;
those would be imports only to Annex 1 countries so the consumer
in the developing countries would then not bear the costs because
ships carrying goods to Annex 1 countries would be charged under
the scheme.
Q12 Martin Horwood: So that would
be a levy rather than a cap and trade scheme.
Mr Lockley: We are agnostic on
whether we do a levy or a trading scheme, but what we are talking
about is the scope of any scheme that you choose to do.
Q13 Martin Horwood: This would be
insanely difficult to administer. You would have levies on some
bits of ships' cargo but not another bit.
Mr Lockley: If you did a scheme
that looked at each individual bits of cargo and where it was
going, yes, I think that would be administratively quite difficult.
Otherwise, from a design point of view, that is probably the ideal
way of doing it but the data requirements are quite heavy, whereas
simply taking a percentage would be quite simple because we know
the overall percentage of imports to the UK from Annex 1 countries
and we know the overall bubble of shipping emissions. Therefore
it should be possible to differentiate in that way.
Q14 Martin Horwood: Let me just get
this straight, so you would apply the levy or the cap at almost
a national level, a governmental level, not on the ship itself
as it docked.
Mr Lockley: No, these would be
operator based schemes so the levy would be on the ship operators
and owners, but only for trade that they were doing to Annex 1
countries. It is not coming in at a government level.
Q15 Martin Horwood: Can you tell
me what your impression is of the UK Government's position on
these different mechanisms?
Mr Lockley: They have pegged themselves
to a global scheme. They said they were interested in exploring
the sorts of thresholds I was talking about where you say that
this scheme only applies to ships over a certain size as a way
of exempting the most vulnerable countries, particularly the small
island states who are most reliant on shipping for food imports.
They are prepared to consider differentiation at the margin but
essentially their position is to have a global scheme. However,
as I said they are not able to deliver on how they would spend
the revenue because it is based on hypothecation or international
taxation. This is quite a difficult position for them to reconcile
because domestically they are saying that shipping is an international
industry and perhaps best dealt with internationally. We do not
want to take those emissions within our own targets, but as soon
as there is any money going then the Treasury would like to have
a portion of that.
Q16 Martin Horwood: So you are saying
basically that the British Government position is inconsistent
with itself.
Mr Lockley: Yes.
Q17 Chairman: Indeed, is VAT not
an international tax as far as the 27 EU countries are concerned?
Mr Lockley: If you wanted to change
the VAT structure on shipping, yes.
Q18 Chairman: I meant in terms of
the Government's position about international taxes. We accept
that we do not have complete freedom to set VAT rates in this
country and the proceeds are now essentially an international
tax.
Mr Lockley: The proceeds go into
the UK coffers.
Q19 Chairman: Not quite all of them;
some of them go to pay for the running of the EU.
Mr Lockley: My understanding is
that that is a portion that the Treasury chooses then to give
to the EU. It has been routed through the UK coffers and that
is the important thing so far as they are concerned. We would
be concerned that if the money were coming into the Treasury,
as with the ETS auction revenues, it might not then come out again
in the proportions that we would want it to.
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