UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 696

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

Energy and Climate Change Committee

UN CLIMATE CHANGE NEGOTIATIONS IN CANCUN

Wednesday 15 December 2010

Rt Hon Chris Huhne MP, Gregory Barker, Mr Peter Betts and Harriet Thompson

Evidence heard in Public Questions 1 - 45

USE OF THE TRANSCRIPT

Oral Evidence

Taken before the Energy and Climate Change Committee

on Wednesday 15 December 2010

Members present:

Mr Tim Yeo (Chair)

Dan Byles

Barry Gardiner

Ian Lavery

Dr Phillip Lee

Albert Owen

Christopher Pincher

John Robertson

Laura Sandys

Sir Robert Smith

Dr Alan Whitehead

________________

Examination of Witnesses

Witnesses: Chris Huhne MP, Secretary of State for Energy and Climate Change, Gregory Barker, Minister of State for Climate Change, Mr Pete Betts, Director, International Climate Change, Department of Energy and Climate Change, and Harriet Thompson, Citizen-led Policy Advisor, gave evidence.

Q1 Chair: Welcome to the Committee this afternoon, and I think you’d like to make a few opening remarks?

Chris Huhne: Very happy, Chairman, to make a few opening remarks and very pleased to be here. Overall, I think the result at Cancun was better than certainly I expected, even at the beginning of the final week and substantially better than we were expecting ahead of time. That was not just a question of artificially depressed expectations, although clearly there were a lot of people around trying to alert journalists to the fact that progress was going to be very difficult. If you put the progress that we made in the context of, in particular, the Japanese intervention in the first week, in which they made it clear that they would not be signing up for a second commitment period of the Kyoto Protocol, which was a bit like a red rag to a bull for a lot of the developing world, frankly, the fact that we managed to diffuse that and make, I think, a substantial amount of progress on all of the other issues was quite an achievement. The Mexican Presidency deserves a lot of praise for the way in that they conducted proceedings.

I have not participated before in a UN conference, and I have to say I have never been in any organisation where the rules of procedure were so anarchic as to make it extremely difficult for groups of people to meet or to come up with text. Frankly, any union chapel or women’s institute or village cricket club would have more thorough standing orders than the United Nations conference. Despite that lack of process, we managed to pull together a pretty respectable deal, and I would merely highlight the fact that, for the first time, there is a political commitment from developing countries to reduce their emissions compared with business as usual. There is a clear commitment to a peaking of global emissions as early as possible-I would have liked a 2020 deadline but we got "as early as possible"-and there is a process by which we can review both the pledges that have been made by the Convention track countries and the pledges under Kyoto all together within the UN framework. We can measure that against the science and we can reach assessments about the emissions gap that, it is quite appropriate to say, continues to be there. There was a good report from the United Nations, from UNEP, about the emissions gap, which highlights exactly that point. Nevertheless I think we have a clear commitment to a process that will enable us to make some real progress.

In addition-and we were not expecting this-we did reach a good conclusion on measurement reporting and verification on the Kyoto side or international consultation as an analysis, as the language is on the Convention side; in other words, a means of building up confidence in each other’s pledges and reporting that those pledges are being met. That was a real sticking point for the Chinese last year. The proposal from Minister Ramesh of India was absolutely key in unblocking that area, and we have ended up with a system that involves peer review by experts, which is absolutely appropriate. I hope that it will look very like the Article IV process that the International Monetary Fund applies to economic matters, albeit obviously applied to this area. So that is a real step forward.

We have agreed some general language on finance for the developing world in particular, which is encouraging, and fast-start finance is being disbursed. We have paid over our commitments for this financial year to the CIF and that is in the process of disbursement. That is the case for the overwhelming majority of EU Member States as well. There is a clear commitment to the $100 billion a year for developing countries from 2020 onwards. We have some good progress on forestry and on land use, and land use change, which is very encouraging since that accounts for nearly one fifth of global emissions. I think we can foresee a real agreement on that.

So altogether-and that is by no means a full list, but I can tell that I am testing your patience at this stage of the game-this is quite a meaty step forward and significant observers, who have been around this process much longer than I have, say that this is probably the most significant package overall since Kyoto itself, which of course raises problems for next year, in terms of expectations for Durban and in terms of the fact that we’ve made no progress on the key issue of the legal outcome. All we have managed to do on the legal outcome, in trying to get such an outcome on the Convention track, is to park the issue. That was difficult enough, but we’ve parked it, which allowed us to make progress on all those other areas. We have to make sure next time that that doesn’t come back to haunt us.

Q2 Chair: I respect the fact that you’re trying to put the best possible gloss on it, but I have to say it’s only by reference to the incredibly unambitious goals and expectations that this could possibly be called a success. The truth is if, after a year after Copenhagen, this is the best we can do, there isn’t the remotest hope, proceeding at this speed, that we will keep the rise in temperature at 2 degrees. Unless there is a huge increase in the international response, we’re going to go way over 2 degrees.

Chris Huhne: I disagree with that. I think you have to take account of two things: first of all, the commitments that countries are entering into on the Convention track are clearly increasingly serious, if you look at what they’re doing at national level, in terms of their domestic action and their domestic legislation. The most obvious example of that, in terms of the dichotomy between what the country is prepared to pledge at international level and what it is doing at home, is China where what they’re putting into the latest five-year plan is a very detailed process for agreeing low-carbon areas, which will cover more than one fifth of the population, for measurement and reporting and for verification of what is going on. That is a very substantial investment. We know that the Chinese are now the world market leaders in solar photovoltaics and that they have a very substantial position in offshore wind generation. On the Prime Minister’s visit to China, which I was on as well, two companies expressed their interest to me in coming to invest in the UK. It is a country that is investing so much in this area that, frankly, at some point there is going to be a tipping point where they say, "We need to lock in the growth of international markets to ensure that our investments get the right rate of return".

I think that people are very surprised at how far India has moved. The personal position of Minister Ramesh is very significant, but that country has moved and is playing a far more constructive role in this whole field than was the case a year ago.

There are a number of countries with which we’ve had enormous problems in the past because they’ve been radical outriders of one form or another. They stayed in their box this time and I think that is a measure of the success in changing the mood. I think the mood is quite significant in its change.

So I wouldn’t underestimate this conference. Clearly, it is not a legally binding outcome on the Convention track, and we have also had countries that are signatories of the first commitment period of Kyoto signalling that they will not want to sign up to a second commitment period. This whole legal outcome issue is going to be a serious one and is going to be difficult for next year; I don’t make any bones about that. But the negotiating strategy that we had-and I think was broadly shared by our European partners-was that it was essential at Cancun to inject as much substance into the things that we could agree about, so that we were able to show a whole range of participants, including obviously the developing world, that there was something worth having out of this deal. That will help unblock some of the difficult issues. If we’d wanted to have a flaming row about legal outcome, it would have been very easy to do it. We could have done that at the beginning of the week and continued all the way through, and it would have been a total car crash and we would have got nothing at all. The fact that we didn’t tells me that the mood has changed and we have made real progress.

Q3 Chair: Given what you say-and I’m sure it’s justified-about the flawed nature of the process, do you think there is time to do anything about that before Durban next year or are we going to be plagued by the same chaos?

Chris Huhne: To be honest, the UN processes are well above my pay grade. I think this has kept a large number of highly intelligent researchers in stipends for a long period of time and I don’t think they have reached a conclusion yet. Perhaps, Chairman, I could just go back on one issue, which is: you were expressing some scepticism about whether this could still be consistent with a 2 degrees outcome. For example, Nick Stern says that 48 gigatonnes or 49 gigatonnes in 2020 is just about compatible with 2 degrees, although we will need very sharp reductions after 2020. So the key thing is that we are in a window that is closing and I make no bones about the fact that I would have liked to have had clear 2020 for a global peak in emissions. But if we take action and we go on, it is still consistent, potentially, with 2 degrees, but that will not be optimal, because the economic work from Nick Stern and others shows very clearly that the quicker we do this, the cheaper it will be. We are leaving it late. It is still possible to meet the 2 degrees, but it is going to be more costly to do so because we’re leaving it late.

Q4 John Robertson: You give yourself an 8 out of 10 for what you achieved.

Chris Huhne: No, I didn’t give myself an 8 out of 10, I gave the result an 8 out of 10. I can assure you I wasn’t marking my own achievement.

Q5 John Robertson: That makes it even worse, then, if you think 8 out of 10 was the marking for the overall result. Where are we when we’re talking about countries like the US, which has still not signed up to the Kyoto Protocol, Japan, which says they are going to withdraw from the second round of it, and Russia, which said the same thing in the second week? Canada are also reported as probably going to come out as well. This does not sound like good news for the world, does it?

Chris Huhne: The first point that I would make is that for the first time, in any of these conferences, a very significant number of what I would call the "sensible centre" said that they wanted to have a legally binding outcome. Roughly 80 countries expressed the view that they’d be willing to sign up to a legal outcome. The Africa Group, which is another 50 countries, informally indicated as well that they would be willing to see a two-treaty approach of the sort that I’ve outlined, so that is broadly 130 countries out of 194 countries. That is quite a substantial number. This is the first time that many of them have broken ranks and we have had an organised group in the middle-the Cartagena group-of developed and developing countries making the running, coming up in the pre-cop in Mexico City and saying, "Look, the two-treaty approach can work. For heaven’s sake, let’s not make this whole thing break down over the formalities of legally binding if it does have very similar effects".

In the case of the US, we all know that it has exceptional checks and balances on absolutely everything, including the signing of international treaties. For the historians among us, it was Woodrow Wilson who failed to get the Senate to ratify the League of Nations, and there has been one treaty after another for which Administrations have gone back to Washington seeking Senate ratification and have failed to get it. So we understand where the Americans are coming from on this. I think the key for next year in Durban from a US point of view-or from our point of view, looking at the US-is going to be whether they have credible commitments, credible ways of meeting their 17% pledge reduction in Copenhagen, and now in the UN Convention track, which will come down to what they can say about the use of their Environmental Protection Agency powers and about whether, for example, there is a clean energy Bill going through Congress.

Q6 John Robertson: You said that the 130 could be willing to sign on; maybe. I mean-

Chris Huhne: Well, 80 have definitely said that. The Africa Group informally indicated that they would be willing as well, so 130 in total.

Q7 John Robertson: You said that the "consensible centre" was 80 and they would be willing to sign on. "Would be" doesn’t mean that they will, so they must have some reasons why they may not under those circumstances.

Chris Huhne: Take Japan, for example. The Japanese position was stated very clearly by the representative from METI, rather than the Environment Foreign Affairs Ministry, as there being no second commitment period to the Kyoto Protocol unless the other countries are doing it. We know that they are most sensitive about both China and the US. If you imagine a situation where China and the US are able to act, through the Convention track, through a legal outcome on the Convention track, which would fall short of a ratifiable treaty but which might nevertheless be a mixture of domestic legislation plus a memorandum of understanding-whatever it happens to be-you might then get those others countries who are worried about an asymmetrical agreement coming in. So don’t write them off.

Q8 John Robertson: We can’t do "ifs, buts and maybes". We have to know what is going to happen. The world and the CO2 emissions will go up unless we do something about it. Tell me, who are the radical outriders you mentioned who stayed in their box? Who are they?

Chris Huhne: I don’t think it would be necessarily helpful to international diplomacy if I was to identify too many, but clearly you know that Bolivia continued to oppose the outcome right the way through to the end, and President Evo Morales visited Cancun and made very clear his aspirations for, frankly, what I believe to be an unrealistic level of expectations. I think he had initially support from other members of the ALBA Group: Venezuela, Cuba and Ecuador. In fact the indications are that, by the end, they were advising the Bolivians to moderate their opposition. There are also other countries, which we know from past years, the big oil and gas producers-Saudi Arabia would be an obvious one-who are rather hard to persuade of the merits of serious action against climate change for the obvious reasons that it would have quite some impact on their own growth and GDP.

Q9 Christopher Pincher: Dr Pershing, the US chief negotiator, told Roger Harrabin a few months ago that he didn’t expect the US Congress to pass climate change legislation. That was before the Congressional elections, and of course they have a different Congress now. If that is the case, what sort of message do you think that is going to send to the outriders that you have outlined, as well as countries like China and Japan and their backyard in South America?

Chris Huhne: What I think is absolutely clear, because in fact the President made it clear after the mid-term elections, is that the hope that the Administration had for getting climate change legislation through Congress-which would involve a cap-and-trade scheme like the European Emissions Trading Scheme-is dead. There is no way we’re going to get a cap-and-trade scheme through Congress anytime soon. But there is more than one way of skinning a cat and, as I indicated in my previous answer, they do have the ability to use the Environmental Protection Agency powers to deliver quite a lot.

There is a group of moderate Republicans and Democrats who I think might well be persuaded to support clean energy legislation, which would involve support for renewables, for nuclear and for energy saving, for example, on a ticket-among others-not just of climate change but of national independence and energy security. On that basis it may well be that the Administration is able to make commitments internationally. But I’ll ask Greg to say something on this because Greg has been actively involved in both the dialogue with some of the sensible Congressmen on this issue and indeed at Cancun.

Gregory Barker: It is clear that the dynamics of Congress have moved a long way from the situation when President Obama came in, and at that point, had he struck early, it is just possible he might have been able to get something through, but domestic politics in the States meant that health care basically crowded out any other political initiatives.

The Coalition is actively engaged, across the bipartisan divide in Congress, trying to explain the benefits not just of action against climate but the economic benefits of a first- mover transition to the low-carbon economy. In particular, at the direct request of the Prime Minister, I have been engaged for over a year now with Senator Lindsey Graham. We are actively working with Republicans and indeed with wavering Democrats-because there are a number of Democrats in industrial states who also have reservations about this-to try and find a new narrative on this. Cap-and-trade became totally toxic, and we have to find a new way through.

Obviously the primary weapon now in the Administration’s armoury is to regulate emissions through the EPA, and that is their "weapon" of choice. But there is also a great deal of action at state level. In the elections in November, while the dynamics in Congress changed, there were some encouraging signs as well. The most radical climate-change deniers weren’t elected in Alaska. The Republican, Susan Collins, who was one of the prime Republican supporters of climate action, was deselected, effectively, from the Republican ticket but was then re-elected on an almost unprecedented write-in. In California, the climate legislation was on the ballot to be junked and was supported 60:40. So there is still support, you can get a distorted picture about the American situation. But we need to engage much more on the solutions-based agenda and find other ways to talk up the industrial potential of clean energy and energy independence-as the Secretary of State said-and make clear our belief in and our programme for encouraging a pro-business, pro-entrepreneurial free market solutions to climate. Because in the USA, and indeed other parts of the world as well, unfortunately it has become extremely political in a way that I am glad to say it isn’t here.

Q10 Christopher Pincher: If I could be very quick, Chairman, so that I am clear, you believe that in order for the US to meet its obligations based upon CO2 reductions to 1990 levels, which is something like just 4%, they can do it without legislation?

Gregory Barker: I think they could meet their initial targets, the 2020 targets possibly. But it will require policy. It won’t necessarily require a cap-and-trade system, which is basically what the debate has revolved around, but it will require the White House to give a very clear policy lead and to enter into the-

Chris Huhne: It will probably require energy legislation. Providing it pushes hard enough on low-carbon electricity sources, the energy legislation could do a large part of the heavy lifting.

Q11 Barry Gardiner: With regard to America-and I think your analysis of what has been going on there is absolutely right-I think the chances of political initiatives, without business pressure, though, are non-existent in the next seven years. You are not going to get the political initiative unless you have the business and financial pressure. In respect of that, do you not think that we as part of the EU should be pushing much further and faster on establishing global standards, on establishing co-operation in ETO-style schemes for carbon credit, to make the business end of America sit up and say, "Hey, we don’t want this, we don’t want to be having to run two tracks on our production lines: one for domestic and one for export"?

Chris Huhne: I think that is absolutely right. This is now such a big market globally. We’re talking about £3.2 trillion a year and growing at 4% a year, so it will be £4 trillion by the end of this Parliament. This is such a big global market that the biggest areas that begin setting serious standards in that market are effectively going to be setting global standards. For example, that is what the European Union did in the mobile telephony area when I can remember-and probably other Members can remember-a period when we in Europe had global roaming for the first time because we had set a standard. You could go anywhere in Europe and your mobile would work. If you travelled to the US, there were 16 separate systems, none of them worked together. You travelled from city to city and you needed to change your mobile. What happened is that by setting the GSM standard, we effectively set a global standard. I think we can do that with green goods and services. That is a very important track for us to push with the Commission, which would obviously have to take the lead on that, and I think it would be very interesting if we were to open up to countries that were clearly pioneers on the green agenda, and the countries that had signed up to Kyoto that might be participating in that.

The other thing is, don’t underestimate the pretty hard-nosed American appreciation of competitive threats from China. All that I said about China, in terms of their lead in particular sectors of the low-carbon economy, begins to ring alarm bells in US business and that is good. From the point of view of waking up the US and getting them to participate in this agenda, I think that is good.

Q12 Chair: Given what you’ve said about China, isn’t it now becoming clear that if the EU was to work closely with China, there is an opportunity: we have 30% of world GDP. They have 20% of the world population. These two groups together could become the standard setters and the Americans would then respond financially, as they do, to this competitive pressure and we could perhaps move faster by working with China than anyone else.

Chris Huhne: I think you’re absolutely right. There is an increasing agenda with China, because I think they were taking a much more positive view this year than was the case last year. Frankly, you could see that, in the fact that some of the countries in Africa that had traditionally been most closely associated with China did not jump up and down and make unhelpful interventions. So I think you’re absolutely right about that. That is something that we should definitely look to in the period ahead.

Gregory Barker: Could I just say that applies not just to China but to India as well. Their population is going to exceed China’s in this century, and we have put a lot of effort into that bilateral relationship. Building on the Prime Minister’s visit in the summer, we launched the UK-India Business Leaders Climate Group and there is now a lot closer relationship accentuating the potential of the clean low-carbon economy opportunities.

Q13 Laura Sandys: To follow on from that, we’re talking about the UN process, which you have said is pretty extraordinary and has a Byzantine feel to it. There are other processes, as Barry and the Chairman were saying, but are you also engaging with, let’s say, the Doha Round: looking at carbon labelling; looking at different forms of in many ways delivering the message, mainly through the economic mechanisms? When one is starting to look at trade liberalisation is there not an issue in some ways about protectionism, if you’re not contributing and not participating in climate change mitigation?

Chris Huhne: My instinct is there would be problems with making the Doha Round, or indeed the whole WTO process, the vehicle for the sort of thing we’re talking about, precisely because much of this is about standard setting rather than tariff levels or even specifically non-tariff barriers. I think that is something that we’ve traditionally done in the European Union to try and get that big market together, and I think that the European Union, plus pioneer countries that are willing to participate, probably represents a better format for that than Doha or the trade process. That would be my first instinct.

Gregory Barker: There was specific text in the Cancun agreement that climate action shouldn’t be used as a mechanism for border controls or other sorts of trade distortions.

Q14 Albert Owen: Can I just follow on from what the Chairman was saying about ourselves and the EU working with China, but also you mentioned, quite rightly, nations like India that are growing fast. But closer to America there is Brazil and the South American economy, and I believe that yourselves and the Brazilian Environment Minister had a text. Is that Britain’s angle to get South America specifically on board or was it to get everybody on board?

Chris Huhne: No, it was to get everyone on board. The Mexicans-I think very sensibly-decided that the best way of trying to get some order into this rather anarchic lack of process was to select five pairs of Ministers, one from a developed country and one from a developing country. So I was paired with Izabella Teixeira, the Brazilian Minister, the Australian Minister was paired with the Indonesian-

Albert Owen: So it wasn’t your idea?

Chris Huhne: No, this was the Mexican Presidency and Patricia Espinosa, the Foreign Minister of Mexico, deserves a lot of-

Albert Owen: I was going to compliment you. That would be a good way forward.

Chris Huhne: I did my bit, but I was a foot soldier in this process of trying to make it happen. There were 10 of us who were trying to drive this on. I think it is fair to say that the Brazilians and ourselves had the toughest nut to crack, because we had the Japanese problem landed absolutely in our lap in the first week of the conference and it would have been a problem if we hadn’t resolved that. There was a lot of pressure on Japan to make sure that they were flexible enough to do that, including from our own Prime Minister ringing Prime Minister Kan. But I also know that the Secretary-General Ban Ki-moon rang Prime Minister Kan, and a number of other world leaders did so. So there was quite a lot going on outside the process in Cancun as well, to try and make sure that the negotiators in Cancun were showing the flexibility, which we needed to make sure that the centre held and we didn’t go off into the sort of fissiparous result that would have been a disaster. That was the key thing. For the Brazilians and ourselves it was trying to get a result that was going to allow everything else to happen but that had a "sliding doors" moment.

Gregory Barker: Could I just say, I think the Secretary of State is being unduly modest and I think the Committee ought to know that he played an absolutely critical role in a vital part of the week. That Wednesday, when he began the work, we were at a loss to see how the process could move forward to a successful closure, and right at the middle of this Gordian knot was legal form and the Brazilians were a key part of that problem. The role that he played on that group shouldn’t be underestimated. I think it is a tribute to him and also to the support team he had in HMG.

Q15 Albert Owen: That is what I had read and I’m being very kind to him, but I want to know now-we’ve heard about America, we’ve heard about China, Russia, Japan pulling away-what is Britain’s position with regard to the Protocol? How do we now move forward?

Chris Huhne: Our position on all of this-which is one of the reasons why I think the Mexican Presidency wanted to get us involved-is that, like the other Europeans, we are very much in the centre of this process. We want to see a successful outcome. We are not going to be striking unrealistic and impossible postures in order to please particular domestic constituencies, which I’m afraid is the case with some other countries. I very much hope that the European Union will go on in that position.

Q16 Albert Owen: Sorry to cut across, but in the interim, Secretary of State, do we put things on hold for people to catch up and come back on board?

Chris Huhne: I think we need to sit down and we will have a discussion with our European partners about how best to get a further successful outcome at Durban. That will involve a number of things. I suspect it will involve trying to strengthen the legal possibilities on the Convention side as much as possible, because the more legally binding the Convention outcome is the easier it is to get people, who are already in the first commitment period, to stay in Kyoto and extend to the second, and the better the parallelism, the better the symmetry of the result that we finally get at Durban.

But there are a whole range of other potential outcomes including, at one extreme, virtually everybody except the European Union being in the Kyoto Protocol. At that point you would have to ask yourself, "Well, it may not look as if there is much point in being in the Kyoto Protocol but, on the other hand, there is also not much point in pulling out", since as a European Union we have most of these commitments in our own legislation and a lot of the developing world thinks that the Kyoto Protocol is totemic. So a French position at that point would be to argue we should very much say we were going to have the second commitment period of the Kyoto Protocol. So you can see a whole range of potential outcomes at Durban, but the outcome that we should be working for is one that strengthens as much as possible the legally binding nature of the Convention track, because that will get the parallelism and the symmetry that will get us to a good, successful overall conclusion.

Q17 Albert Owen: Okay. So we’re not getting flaky on this? You’re not going to abandon the framework? You’re going to get other people to understand our position?

Chris Huhne: "Flaky" is not part of my vocabulary or in my nature.

Albert Owen: Neither is modest, from what we’ve understood earlier on. So, okay, that is very clear, thank you.

Q18 Barry Gardiner: Part of the difficulties that there have been between the two tracks have revolved around the phrase "common but differentiated", and have revolved around MRV. To a certain extent it would seem that there has been some progress on MRV, and I wonder if you would like to say something about any role that you see for legislators, at a national level, in facilitating that. Also, whether you could say-and I think this is where there has been a lack of clarity internationally-what your understanding of the things that should be common is and what your understanding of the things that should be differentiated are? Because often it is just thrown out there as, "Oh, no, we’ve got to stick with Kyoto because it’s common but differentiated and it’s sacrosanct". But I think it is teasing that out that is going to enable us to get a way forward here and it would be helpful for the Committee if you could set out what you believe the correct or your own understanding is of "common but differentiated"?

Chris Huhne: Sometimes I think in these fora-as you very well know I’m sure-trying to be as clear as possible about a form of words can be unhelpful. I think if we were to try to be as clear as possible about this particular form of words it would be unhelpful. One of my favourite quotes was from Alan Greenspan who, at one stage when he was running the Federal Reserve, said, "If you have understood what I have said I have not made myself clear". There is an element of climate change diplomacy that requires some Greenspanisms and the common but differentiated language is one of those. I think what we need to do is to try and get as specific as possible about the mechanisms that deliver real cuts in emissions right the way across the globe, and I think we’re getting there with this language; we’re getting there with the developing world committing themselves for the first time to reducing emissions compared with a "business as usual". For them it is a big step forward.

Pete, did you want to add to that.

Mr Pete Betts: We are very clear that all countries have obligations under the Convention. Under Article IV all countries have obligations but ours are quantified through the Kyoto Protocol. We sometimes have very bitter arguments in the process about whether there are obligations in developing countries, and we are clear that there are. I think the language in this package does help quite a bit, for example for the first time paragraph 48 talks about developing countries taking action-as the Secretary of State said-aimed at achieving a deviation in emissions relative to business as usual emissions. That is quite a step forward in a COP decision.

Chris Huhne: Also the 2 degrees, clearly states it as well.

Q19 Barry Gardiner: Sorry, could you just answer the point about the role of legislators at a national level in the MRV process?

Chris Huhne: I think the role of legislators at a national level can be really important. I was delighted to see that you, Barry, were involved in the GLOBE exercise and I think that exercise has been a useful way of spreading the word and providing another track into national opinion formers that would not otherwise have been there. I think the more we can get national legislatures holding their Executives to account-and in some countries that works more easily than in others-the better. This is an important part of the agenda and we have very good examples now of where these indirect means of getting the word out have proved to be rather successful. I think a very good example was the role that the British climate diplomacy played in encouraging the South Koreans to move further and faster on this agenda, and they are now absolutely at the forefront. They really are working. Frankly, they have things to teach us. So I think that these indirect channels, the power of ideas communicated any which way is absolutely essential.

Q20 Dr Whitehead: You could say, as far as Copenhagen to Cancun is concerned, we have the mitigation cake ingredients out of the shop; we have the ingredients now on the table upon which a cake may be baked, not yet baked and not large enough. Taking the first issue, what do you think the institutionalisation, the anchoring of the mitigation pledges from Copenhagen into the Cancun agreement will mean in terms of those pledges being delivered, the ones that are already there?

Chris Huhne: It makes them more formal and it puts them in a context where we can reach an overall assessment and, according to the commitments that are already in agreement, we can bring to bear the science, the process and the review. There is meant to be a formal process of review beyond initial agreement-of course that is the 2013 to 2015 review-so that we have a process to understand the pledges, to put them on a common basis, to add them up, to compare them with what the science tells us is necessary and, therefore, to alert member countries if the totality falls short of what we need. I think that is a pretty good outcome.

Q21 Dr Whitehead: As you mentioned, in terms of the UNEC report on the 5 gigatonnes to 9 gigatonnes gap, as it were, what science says and what the pledges amount to, if we’re talking about the larger cake, the apparent very large gap on the outer limits of what appear to be doable pledges and what science now says, looks, at first sight, to be pretty unbridgeable by mechanisms around at the moment. How likely do you therefore think that, in the not-too-distant future, particularly obviously in the run-up to Durban, there will be mechanisms that will go beyond urging?

Chris Huhne: I have already said one of the themes of what I’ve said is about the national action that is going on in a number of key participants, and obviously one of the bits of action that we hope very much is going to happen in the European Union is that we move towards the adoption of a 30% reduction in emissions by 2020, rather than a 20% reduction. A number of our partner countries have now come on board with that aspiration: Spain most recently, Denmark and Sweden, subject to burden sharing. So I think there is a critical mass building up. That will help to tighten up the carbon price, send out clearer market signals and encourage the technological development that we need if we are to make real progress.

I remain an optimist on this. It would be starry-eyed to say that we’re definitely going to get there but I remain an optimist because I can see a pathway whereby with this process, with the national action, with the amount of investment that is going into low-carbon goods and services, with the dynamics of the fall in price of solar photovoltaics, for example-roughly 6% a year-we could get to a point where things begin to lock into place. I think that we need to move very quickly. We have a very limited amount of time to see the peaking of global emissions and the longer we leave that, the more costly it gets, as I said before. But I am optimistic. There is continued big investment in the private sector around the world in technological solutions, which are improving low-carbon goods and services all the time. That is what we have to hurry up, speed up even more.

Q22 Chair: I don’t think you need to persuade this Committee about that. But when some of us were in Brussels last month, we called on the Climate Change Commissioner who made it clear that she approved the ambition of 30%. We then moved across the corridor to the Energy Commissioner who made it clear that he was completely opposed to it.

Chris Huhne: It was adopted formally by the College, so I know that the definitions of collective responsibility in some Continental governance institutions are not quite as strong as they are in the UK.

Chair: Even less than the Coalition’s.

Chris Huhne: I think we’re pretty disciplined, even as a Coalition, frankly, compared with some of our Continental partners. You are right, Chairman, to draw that necessary distinction but, in the case of the Commission, it was adopted as a formal position of the College and that paper was communicated as a communication of the College.

Q23 Barry Gardiner: Given that we’re talking about a gigatonne gap, in 1990, in the base year, the developed world was responsible for 15 of the 21 gigatonnes in 1990. Even an 80% cut in the developed world’s emissions-and as we’ve already heard America is bumping along at a possible 3% against the base year-would mean that the developed world ended up with no more than 3 gigatonnes, 30% of the 10 gigatonnes that we need to be having as our maximum by 2050. Yet at that stage the developed world would only represent one eighth of the global population-at the moment it’s only one fifth-which would mean that per capita, even on the most optimistic projections that we have of what we can do, 80% cut by 2050, per capita we would be emitting three times as much as somebody in the developing world. Given that clear injustice, given that unfairness which is at the heart of this, how are we going to work with developing countries, with India, with China, to say, "Yes we have to understand your perspective on this, that is: why is somebody in Seattle worth more than somebody in Tianjin?"

Chris Huhne: I think the case is completely morally unanswerable. I think you’re absolutely right, and I’m on the record as being entirely sympathetic to that particular way of looking at the problem. I think the issue is a matter of timing, phasing, transition, and what is negotiable. To come back to the Chairman’s point, it is something about the nature of technological change, which can happen quite rapidly, and the cost of which can be substantially lower than people expect. So, because you have changes in the vintage of technological investment anyway, businesses need to reinvest to replace ageing machinery and processes. Therefore the incorporation of much lower carbon outcomes will probably end up being much cheaper than you would otherwise think if you were merely comparing a continuation with an entirely new set of investments. So I remain pretty optimistic.

The market economy globally has gone through massive changes in the past in changing its power sources. If you think, they’ve moved from steam and coal and iron to steel. That was an enormous change, and I think the low-carbon change is simply the next one on and we need to drive the technology behind that as fast as we can, but it is happening and, for example, from our own study, we’re seeing onshore wind.

Q24 Barry Gardiner: Secretary of State, I don’t think any of us disagree with you on that. The issue is why are we not talking in the international context with our interlocutors about per capita emissions? Because all of this is right, all that you are saying about development and change in technology, and so on, is a way of getting there. But there is a fear among developing countries’ politicians of telling the truth to their own people, as well as negotiating on the basis that you and I have just agreed is the correct way.

Chris Huhne: The one thing I would say about this-and to expand on the technology point-I have been very struck in the developing world about the potential for leapfrogging old carbon-intensive technologies that we have gone through. The obvious example of that is what has happened in many developing countries already, where you don’t need to lay a load of telephone landlines any longer, you can just go straight to a mobile telephony network. In exactly the same way I suspect a lot of developing countries will not go through the arduous process of village electrification that we and the French and the Germans went through connecting up every village through the grid, but will go to solar PV, micro-hydro and solutions that will be much more decentralised and will allow them to leapfrog those old carbon-intensive technologies. So there are solutions. Minister Ramesh has been very good, again domestically, in using solutions on solar PV to power lighting in remote Indian villages, so that they don’t have to be tied into the grid. So I think that you are going to see that and we just have to push it as hard as possible.

Is it sensible to have a stand-up row, particularly with the Americans, who, as you know, are in a league of their own on emissions per capita, rather than attempt to make progress globally? I’m not sure. But I am a believer that we can get to those technological solutions and we have to push it as hard as possible and I think the moral case that you make is totally unanswerable.

Chair: Next time you’re talking to the Indians you might ask them about their domestic transport plans, which seem to rely very heavily on an explosion of internal flights.

Chris Huhne: Right.

Q25 Sir Robert Smith: Yes. We’ve touched quite a lot already on processes that might get China or the US to deliver, even if it isn’t through the formal processes. Realistically, what are we looking for China and the US to deliver physically to achieve the outcome for the world?

Chris Huhne: I’m not sure what you mean. You mean in terms of their overall emissions target?

Sir Robert Smith: Yes.

Chris Huhne: Obviously, we need the US to be committed to very substantial cuts in emissions. There is no two ways about that. In the long term deal that is going to be absolutely key. We need China to be committed to a process whereby we can look at reconciling the fact that China’s GDP is doubling every seven and a bit years and, unless there is a fairly dramatic change in the carbon intensity and energy intensity of GDP, that is going to lead to a very rapid rise in emissions. There is no two ways about it, despite everything that I’ve said on what the Chinese are doing on low-carbon goods and services, in the latest available world figures China’s increase in emissions in one year is the same as our total emissions. So this is massive. China is so big, so important in this whole calculus now that one of the reasons why I’m optimistic that the Chinese leadership are taking all of this on board is that they simply cannot ignore the numbers, and their own scientists are telling them that very clearly-China is simply too big to be able to ignore the numbers. So I think that we’re going to see a recognition that China has to move further and faster and the US obviously, for all sorts of reasons, has to move substantially further and faster.

Q26 Sir Robert Smith: In earlier exchanges you were saying that China and the US are moving in an informal way, or not through the formal processes, to reach these goals. How easy will it be to maintain buy-in by the populations of those countries that are going through the due process?

Chris Huhne: I think that is an absolutely key point and that is why it is so essential for us to flesh out the possibilities of a legal outcome on the Convention track. A legal outcome may mean a mixture of things: it may mean domestic legislation, which the Chinese are doing and will do in the context of the five-year plan, and we can make available some translations of the sections of the drafts of the five-year plan that are currently under consideration. That makes very interesting reading, frankly, because they are quite heart-warming when it comes to what the Chinese are attempting to do.

You take the domestic legislation that obviously has a power. You take what the country is committed to in terms of the political process, and for example if it were possible for the US to make a commitment, in terms of a memorandum of understanding, or some such framework, about its domestic framework then you might get other countries prepared to do the same sort of thing. We’re still exploring this, and I make no bones about the fact that in an ideal world it would be much better if everybody was signed up to Kyoto, we had a straightforward legally binding treaty. That would obviously be preferable and in the long run I hope that is where we get to.

I would also make the point that this is an area where there are massive economic interests, massive vested interests, and if you look at similar negotiations internationally, which have had those sorts of economic and vested interests, like the trade negotiations for example, they took ages. The General Agreement on Tariffs and Trade began after the Second World War, and the World Trade Organisation didn’t emerge for decades. You had round after round: Tokyo, Uruguay, the Doha currently, and a long time before you achieved a legally binding framework. But throughout this process there was a steady reduction in tariffs; there was a steady increase in interpenetration of global trade. It was a successful process. Clearly, we don’t have that extent of time but, what I’ve described as an "instant coffee solution"-add hot water and you’ve got an international treaty-clearly is not going to work in climate change. Copenhagen fell victim to excessively high expectations about how quickly we could, in a very complex area with big vested interests, get to a solution.

So we’re getting there, there is progress, it will be a mixture of informal, formal, legally binding. Every year is going to be a difficult balancing act because the interests have to be balanced, but we need to keep the progress up.

Q27 Sir Robert Smith: China has accepted monitoring and verification of their internationally supported mitigation processes. Presumably that is a small fraction of the processes that need to be monitored and verified?

Chris Huhne: They have domestic monitoring and obviously the reality is that the pledges that they’re making have now been brought into UNFCCC, and will be assessed as part of that process. So we will be in a position to know exactly what the commitments are. By the way, on the Convention track, which is probably the one that would be practically applied to China’s commitment, it would apply to both. Do you want to add something, Pete?

Mr Pete Betts: So international consultation analysis, which was this concept agreed by President Obama with Premier Wen in Copenhagen, has now been carried through and will apply to both supported and unsupported actions.

Chair: I fear that the Division bell means that there are a few rebels who intend to vote against the Second Reading of the Bill, so I think we will have to have a short break to allow Members to vote. I will try and get back here as fast as I can.

Sitting suspended for a Division in the House.

On resuming-

Q28 Chair: I gather we have about 20 minutes or so. We would like to ask a couple more questions.

Chris Huhne: Well, Chairman, if you need more time, I’m very happy to continue, because obviously the vote has interrupted the sitting.

Chair: If we can run until 5pm, say as a bit of injury time, that would be very helpful. We have a couple more questions on Cancun and then we’d like to go on to one or two other topics.

Q29 Dr Whitehead: I heard a very interesting radio programme about the very latter stages of Copenhagen, when Obama was in a hotel room with members of the BASIC group and then went down the corridor and saw the Chinese negotiator. Conspicuously absent from all of that were any EU negotiators, who were totally sidelined at Copenhagen. What about Cancun?

Chris Huhne: Definitely not. I think there was a very real sense that the European Union was the centre of gravity of the conference, and obviously the process that the Mexicans chose initially was these five pairs of Ministers dealing with the different areas. That was largely a process of the Ministers having sessions individually with countries to learn more about their positions and what potentially might be something that they could live with. Certainly in our area-and I think that it may have been the case in others as well-in the very latter stages, we went to a small room in which we had the key players from right the way across the globe, including not just the European Union as the European Union, but obviously ourselves and other Member States: Germany, the Commission, obviously representing the EU, and that was it in the small room. So we were certainly very clearly represented at all of the key stages of the negotiation.

Q30 Dr Whitehead: As a matter of interest, what was the European composition-present company excepted-of the 10 pairs?

Chris Huhne: We had the Swedish Minister, Andreas Carlgren , also the Spanish Minister , or the Deputy Minister , and Teresa Ribera were involved. S o there were three Europeans participating in the good offices process.

Q31 Dr Whitehead: Some of the criticism, in terms of the EU position in the past, has been, "Well, nobody else knows with whom they are negotiating", and suggestions that the general European diplomatic strategy could do with a lot of brushing up. Do you know if those things were an issue or are there other factors at work?

Chris Huhne: In any complex system, where you have a lot of checks and balances and a lot of different ways of interests making themselves known, you are going to have a number of people to speak to; frankly, the European Union is no exception to that. Famously, I think it was Henry Kissinger who said he didn’t know when he picked up the phone who to speak to, to represent Europe, but it’s quite hard if you’re a European Minister to work out-if you’re trying to get clear commitments from the United States-who to pick up the phone to as well, because it could be moderate Senators; it could be Congressmen; it could be the Administration; it could be different bits of the Administration; it could be the State Department; it could be whoever is in the White House. So frankly, any complex system, like the United States or like the European Union, is going to have a number of bases that have to be touched if you’re going to get to an overall agreement.

By the way, I should point out, in case there was any ambiguity in what I said earlier about the Commission’s view on the 30%, their paper of course advocated 30% overall, but not a unilateral 30%. I think it was the Chairman who was describing the difference of view between Günther Oettinger and Connie Hedegaard , whether the difference of view was about whether it should be unilateral or put as part of a bargain, but the College did adopt a communication about the benefits of moving to 30% with the conditionality or not being left open, but it was clearly that the Commission did not adopt a unilateral position of going to 30%.

Chair: F or clarification, I think the Climate Change Commissioner would have been quite happy to adopt a unilateral 30%, but it was clear that the -

Chris Huhne: I think that, yes.

Q32 Dr Whitehead: But presumably, since you were inside the door rather than sitting in the corridor on this occasion, there were opportunities to rehearse with other participants conditionality, or otherwise, on 30% and to gauge the extent to which that move forward might have a bearing on future negotiations. Did you find that possible to do?

Chris Huhne: To be honest, Alan, we knew very well that this was a car crash waiting to happen. This was flammable material for an absolutely great stand-up row, so all of our efforts-the Brazilians and ours-were to try and find ways of parking it rather than trying to find ways of resolving it in the long run, because frankly the political conditions for resolving it this year are simply not there. As I said, the strategy was to get as much substance into the deal as possible, so that when the parties come to Durban, they will be able to say, "Well, hang on a minute, I’m going to be a bit more flexible on legal outcome because there is quite a lot here that I like". I think that is a better approach. If it doesn’t look as if you’re going to make serious progress on something, then it makes sense to go further up.

In terms of the Europeans, we have to discuss that in the early part of next year and hopefully come to an agreement on 30% and whether it’s unilateral. There are many ways in which different countries’ positions may end up being flexible. One is obviously over the burden sharing, namely, which country does what. For Germany, France and ourselves 20% means over 30% and 30% will probably mean over 40%. There are clear problems for Poland over lignite and hard coal. I think they are real problems having talked to the Polish Minister, not in Cancun but at the pre-COP in Mexico City. But I think the direction of travel is clear; the critical mass is moving in the direction of a unilateral 30%. If you look at the Spanish position and our own, I think there are doubts with the change of Minister in France. I think the new Minister is in favour, as was Jean-Louis Borloo; I think Nathalie Kosciusko-Morizet is in favour, but I think that there is more of a question mark about whether all the rest of the French Administration have signed up.

To come back to the different understandings of collective responsibility, I think Germany is quite happy as long as it means 40%. If it gets much beyond 40%, in terms of burden sharing, then there is a footnote about burden sharing, and that is similarly the case for Sweden. So this is still to play for.

Q33 Barry Gardiner: Can I just switch us to the fast-start funding and the words "New", "additional" and "balanced"; balanced between mitigation and adaptation? I want clear assurances from you, please, Secretary of State, that what you are doing is new; that it is additional and that it is balanced.

On the new, earlier this week I received from your Energy Minister a response to a question that I put to him in the Westminster Hall debate that we had on Cancun prior to the conference itself, in which he agreed that elements of the funding were coming from the Environmental Transformation Fund. You will recall that this was a fund that I think Gordon Brown announced in 2007 and then re-announced in 2008. I think it was then re-re-announced in 2009 and it seems to me that it’s being re-re-re-re-announced, as part of the fast-start funding. I don’t consider that to be new, and I wonder why you consider it to be new? I think, given that elements of this are coming out of the aid budget, which is rising through to 2013 to the 0.7% that both the previous and this Government have agreed upon, it is tenuous to say that it is additional. Because of course, as I say, some of it is not new and therefore it can’t be considered to be additional. But I understand that that element that comes out of the growth in that budget could be considered to be additional.

In respect of balanced, my understanding from the IIED briefing just before Cancun, is that the UK had pledged fast-start funds of US$2,375.1 million, of which US$319.8 million was pledged for adaptation; that is 13.5% of our fast-start commitment. I don’t see how anybody calls that balanced. So can you answer those three tranches: new, additional and balanced, as between mitigation and adaptation?

Chris Huhne: We have taken a very clear view, which is exactly in line with the last Government’s view, which may or may not reassure you.

Barry Gardiner: That doesn’t satisfy me in the slightest, as I am sure you well know.

Chris Huhne: And we have taken the view that tackling climate change shouldn’t be funded by raiding the aid budget. £2.9 billion will be drawn from the UK’s aid budget but, as you know, this is due to rise to 0.7% of GNI by 2013, so it will be additional to existing spending. If you define it-as I think you were trying to do, Barry-as additional to the pathway upwards, which would otherwise be taking place, then you can say that that is not additional. But I think it would be fair, and I think most people would understand, that if you have a rising trajectory, this is new money.

Barry Gardiner: I think you’re on a less sticky wicket with additional, so for the sake of your timescale, let’s go to the new and the balanced.

Chris Huhne: Yes. To finish off on that: that will account for less than 10% of ODA in every year of the spending period. Again, this is in line with the previous Government’s commitment; so it is new. As for balanced, we are continuing to look at the mitigation/adaptation split. I’ve been in conversations with Andrew Mitchell at DFID on this. It does depend on the plausibility and the rates of return to different projects, and what is available in the pipeline. But I have to say-I’ll probably have to consult with Andrew before coming back to you in detail, but I’m very happy to do that-I think the mitigation/adaptation split is a lot more equal than the figures that you’ve cited would suggest. But I don’t know the figure offhand, so I’m very happy to go away and write to you on that issue.

Remember, that in Cancun we did reach an agreement on the adaptation framework, and indeed, I’m afraid we established another committee-the Adaptation Committee-and that establishes a process that allows us to look at these issues and identify clear need. But I know from talking to Andrew that, in terms of our aid commitment, it is driven overwhelmingly by what we can disburse plausibly with adequate rates of return. That’s the balance between mitigation and adaptation.

Q34 Barry Gardiner: What about the ETF funding?

Chris Huhne: Pass. I’ll have to come back to you on that.

Barry Gardiner: Okay. So I think we’re giving you additional; you’re going to come back to us on balance.

Chris Huhne: On mitigation.

Barry Gardiner: Mitigation/adaptation split, and you’re going to come back to us on new as well.

Chris Huhne: Yes.

Barry Gardiner: Thank you for that.

Chris Huhne: Well, new as in-

Barry Gardiner: Well, ETF is old money, and yet it has been included in your counting.

Chris Huhne: Okay, we will come back.

Barry Gardiner: ETF was 2007 money announced.

Chris Huhne: Yes. We will come back to you on that.

Chair: I think what we’d like to do is write with one or two further questions that we would have covered today.

Chris Huhne: Yes, sure.

Q35 Chair: We have two or three other topics, very quickly. On the Green Investment Bank, I read your interview in the Guardian obviously with interest this morning, but it will give rise to some concern. I am sure that your good intentions about this are not in doubt at all. The malign hand of the Treasury is, however, in evidence.

Chris Huhne: I couldn’t possibly comment, Chairman.

Chair: I think there will be some dismay among some of us-obviously, I should declare an interest and draw attention to my entry in the Register-that in the short term this is not going to add up to a great deal.

Chris Huhne: These were quotations from a very extensive interview, and I think other quotations would have reassured you had they appeared in the Guardian. I think I was very firmly saying, first of all, that this is-let us not forget-George Osborne’s idea; George Osborne was the first person to use the phrase "Green Investment Bank" and he certainly knows the difference between a bank and a fund, and the idea that the Chancellor of the Exchequer doesn’t, given the liabilities of the Royal Bank of Scotland and so forth, is frankly nonsensical. In that context, a bank borrows and lends; ducks quack and banks borrow and lend, and I’m absolutely clear that the commitment of the Coalition Agreement is to a bank, and that is what we are going to deliver.

Q36 Chair: Will it have any capital?

Chris Huhne: We have already identified £1 billion of capital in the Comprehensive Spending Review for 2013-2014. We are working on finding capital from asset sales. In our own department, we’re working on URENCO. It is too early to say how much that would potentially raise, but that is a serious runner and there are other asset sales as well that we can bring in from elsewhere in Government to help provide the capital endowment for the bank. But, frankly, if the bank is able to borrow and lend, as a bank should be, then a modest amount of capital-given the nature of the institution-can go a very long way in supporting lending.

So I go back to what I said. I completely understand Treasury concerns about fiscal credibility. I think we have had a very narrow escape this year, given the problems that other countries in Europe have had, given the fact that we have a much larger budget deficit than they do. In some cases where countries have had problems, we have a higher debt as well; for example, we have a higher debt than Spain relative to GDP. So we have an issue of fiscal credibility and therefore it will be legitimate to talk about timing. But I think the fundamental vision that a bank is a bank is a bank and banks borrow and lend is crucial. That is important in making sure that we tackle the market failures that I think do exist in the area of energy financing in particular.

But that is a process that we’re currently going through between departments to identify, quite specifically, what the potential market failures are. The way I think of the role of a Green Investment Bank is balancing out what is best for British consumers and for British taxpayers. Is it to rely entirely on mechanisms to bring forward low-carbon investment, such as the sort that we’ll be consulting on in the Electricity Market Review Reform tomorrow, or is it that we think that there is a market failure problem in the provision of finance? In which case, it might be rather expensive providing extra incentives through low carbon support, and it might be substantially cheaper for the taxpayer and the consumer if we fixed the financing problems, as well as providing a lesser level of support. That is the way I think of it and I think that is the way we need to make sure that we are getting the best possible deal for the consumer and the taxpayer.

Gregory Barker: Chairman, if I might add, as you raised George Osborne, I think the Secretary of State mentioned that he was the first politician to put the Green Investment Bank on the agenda. I think it’s worth saying that when it was conceived and the Chancellor-or shadow Chancellor, as he was then-announced it, it was always the intention that this should be an institution that should grow organically. It shouldn’t be unveiled as a stand-alone behemoth; that this would be something that would grow in competency, size and capital base, on the basis of a successful track record; that it would be launched but its ambitions wouldn’t be fulfilled on day one, its ambitions would grow on the back of proven success.

Chris Huhne: By the way, that very much fits with what we’re in for, which is a long-term transition to the low-carbon economy-the process right the way through to 2050.

Chair: We’re aware of the pace and progress. We might come back to that in a moment.

Dr Whitehead: Presumably, it has to quack from day one rather than squeaking, doesn’t it?

Chris Huhne: The exact amount of squeaking and quacking, at any particular symphonic moment, would probably be a matter of potential debate but I think it has to quack.

Q37 Chair: On a specific, there is a reference in the Guardian article, which may not accurately reflect what you said, about concerns that the liabilities of a Green Investment Bank would somehow go on to the Government’s liabilities. As I understand it, although we have a controlling interest in RBS and Lloyds, their liabilities are not considered to be quite in the same way, are they?

Chris Huhne: No, you’re absolutely right. What the Office for National Statistics do in how they assess what are public sector liabilities is entirely up to them. They are fiercely independent and indeed are part of the fiercely independent European Network of Statisticians. Arguably, they could have been a little more independent in some of our fellow Member States but anyway they’re certainly independent here.

What is a different matter is the control total that the Treasury decides to target. You are absolutely right, Chairman, that basically, the Treasury has excluded from the control total of debt that it looks at so-called temporary interventions in the financial sector, into which category fall Royal Bank of Scotland and Northern Rock, and so on. Indeed, if they were included in the control total, which would not be the practice in any of our counterpart Member States, it would give us an enormously bigger total than other countries. But it is not normal practice anywhere to include financial liabilities of financial corporations, even if they are wholly owned by the public sector, in a control total of that type. They are always treated separately and indeed the markets’ focus has traditionally been on internationally comparable measures, such as the general Government borrowing requirement and the general Government debt to GDP ratio. So, understandably, the markets, if they’re buying and selling gilts versus German Bunds or US Treasuries, they want to use numbers that can be compared, and they have not yet decided to adopt as an international standard-although we may live in hope-HM Treasury’s view of what their control total should be.

Chair: I’m still not quite clear: does that mean the Green Investment Bank will be required to have its liabilities included as part of the Government’s-

Chris Huhne: First of all, you need to ask ONS whether they are going to classify that. I would think almost certainly, probably, the answer is, yes. But secondly, you need to know what the Treasury decides it should include in its control total. That is obviously something that it would have to assess in terms of the work that is ongoing with the Green Investment Bank. The first and most important work is to assess what the market failures are, if there are market failures; the second point is to look at as I say, in my view, whether or not it is cheaper to address those market failures in terms of setting up a Green Investment Bank, which will deal with those specific financing problems, or whether it’s cheaper to pay higher levels of general support to low-carbon investment through the electricity market reform mechanisms, and that is the trade-off that we also have to assess. But the other consideration, which I drew attention to in the interview, is of course that quite rightly the Treasury is concerned about our fiscal credibility.

Chair: Robert, did you want to touch on heating?

Q38 Sir Robert Smith: Yes, I just wondered, given this long period of cold weather and the disruption to distribution, people who are not on the gas main are facing a very challenging time: first, getting supplies of heating oil or LPG; but secondly, the price spike, where it has gone from around about 51 pence a litre up to 64 pence a litre. The long-term prognosis is about getting people on to heat pumps and getting people the green deal.

Chris Huhne: But it’s winter.

Q39 Sir Robert Smith: But it is winter and some people are being told they will get delivery on 13 January if they try and order now. Is there something that needs to be looked at in the way that market works?

Chris Huhne: I am very worried about reports, for example, that people who have contracted for deliveries of heating oil when the price was, say, 40 pence plus, seem to be taking-oddly-a position behind in the queue, behind those who have contracted more recently at a higher price. There may well be competition issues in that because that doesn’t seem to me to be fair. But I have been discussing this with Charles Hendry, with the Energy Minister, and we are on the case. We are looking at it. We want to make sure that there is adequate physical supply; that people don’t have problems. That is the first point, and obviously if we have an extended cold period-and particularly if there are disruptions to deliveries-that puts that supply into question, and we need to deal with that. Then we also need to deal with the competition issue and assess whether, indeed, we need to go further into it and make sure that there is an independent inquiry from the Office of Fair Trading, or whoever, into that particular issue. But we are actively considering both the evidence and the options.

Q40 Sir Robert Smith: One of the things that some people are being told is that they can’t get a price when they phone up to order. They are told, "Your price will be set on the day of delivery", which strikes me as-

Chris Huhne: That is certainly entirely at odds with what we’ve been trying to do, for example, in the gas market and the electricity market, where we think it’s only fair that utilities provide people with adequate notice of what price they intend to charge before they contract for it. I had not heard that but I will certainly look into it. If you have specific evidence on this, please do let us know and we will investigate thoroughly.

Q41 Dr Whitehead: Can I briefly take us back to our ambition, the UK’s ambition, to persuade the EU to go for a 30% emissions reduction in 2020, unilaterally? If we are to do that, as you have mentioned, that implies something like probably 40% to 45% of our electricity supply to be low carbon or renewable by that-

Chris Huhne: I was saying that 30% would imply that our target for reductions in emissions would be 40% plus. So it’s not just the electricity market, it would be overall, simply because of the burden-sharing mechanism whereby we’ve effectively agreed that the burden on the East and Central European countries will be-

Dr Whitehead: Yes, indeed. But that implies, bearing in mind the sharing across the sectors that are likely to contribute to the basket of reduction of emissions, that the electricity supply would probably be between 45% and 60% renewables at that stage in order to balance the fact, for example, that heating is likely to be a lower contributor in terms of total emissions reductions. As things stand at the moment-

Chris Huhne: We have hopes for the renewable heat incentives.

Q42 Dr Whitehead: Yes. So do I, but we shall see. As things stand at the moment, it does appear that the achievement of those sort of targets within the electricity supply market look a very long way away, particularly in terms of the development within the process already of a number of gas power stations, which clearly, if that sort of level of renewable electricity supply is to be sustained, simply wouldn’t be a tenable mix in the market.

Chris Huhne: It would have to be low-carbon sources, and I wouldn’t want to be bound by the particular numbers that you have given. I would have to look carefully at the logic of that particular argument, but we obviously have the pathway study, which does provide us with a pathway for different energy sources. But you’re absolutely right on one fundamental point, which is that it is challenging to meet the renewables target, which we already have legally, of 15% for renewable energy by 2020. As you know, I asked the Climate Change Committee to look at whether we should be more ambitious and they basically turned around and said, "We think you’ve got your hands full, even with the existing target. So get on with that and come back if there is any more that you want". So we will try and deliver that.

Q43 Dr Whitehead: I think my central point is that if we are to take a lead, in terms of saying we should go for 30% unilaterally, and let’s say our wishes come true and the EU says, "That’s great. We’ll do that", at that point our even higher commitments than that need to look credible. If they don’t look credible then presumably, even in the run up to that process, our legitimacy in making that claim will itself be undermined.

Chris Huhne: Nobody is any doubt that in setting a more ambitious target one of the things you’re doing is obviously raising the carbon price, which is sending out a clearer market signal, which is hopefully having the effect both of causing people to economise on any processes that cause emissions and bring on technological change. So we were thinking about it less in the mechanistic way of how do you get the numbers to add up, although I agree that that is also important in terms of the credibility. Then, going back to the very basic point, when we set the 20% target, we assumed that there would be a level of tightness in the market, which has simply not materialised because of the depth of the recession. Therefore, the carbon price is substantially lower; the signals that it is sending out are weaker; the transition process is also less strong as a result of that, and the move to 30% is a way of strengthening that commitment to the growth of these sectors through strengthening the carbon price.

Q44 Dr Whitehead: I recognise this is perhaps asking you to predict, but if you did, for example, have a capacity payment mechanism in an energy market reform package, certainly making our targets credible would imply that such a mechanism in that particular sector would have to be very directive, in terms of what kind of investment in what plant would suffice in order to get us to that mix.

Chris Huhne: We are slightly trespassing ahead of what is likely to be in the electricity market reform, but I am happy to talk in general terms about this. The Coalition Agreement talks about four mechanisms for making sure investors have the certainty necessary to invest in low-carbon electricity: one is a feed-in tariff to provide effectively a price assurance to investors that they will get a more assured price for low-carbon investment than they would otherwise have. Another is-as you rightly say-the capacity mechanism and capacity payment that could support, in the way that you suggest, a whole range of low- carbon generation, but could also be directed more at the problem of peaking demand and back up. So that you’re effectively providing a guarantee that we keep the lights on, because we’re going to make sure that the market has reserve generating capacity for those moments like the famous advertising break in Coronation Street when everybody goes and puts their kettles on.

Q45 Dr Whitehead: Do you accept that if that reserve capacity, which we built with capacity payments, is gas and it’s not abated, then if it is required at half-time in the Cup Final on a very intensive carbon basis, that is rather overturning our purpose?

Chris Huhne: You are absolutely right. An absolutely key objective of this electricity market reform is to hasten the decarbonisation of the grid. Our modelling work does suggest that that will happen. You will see, when we publish it, that that is a very key objective, which we meet. Apart from the capacity mechanism and the feed-in tariff, we are also talking about the Emissions Performance Standard and the carbon price support, and when you add those four things together and see how they interlock, we believe that we’re going to get a very clear route map towards decarbonisation combined with a lower cost to consumers than would be the case if we continued with the present arrangements. So that is the top line on this, but I’m sure you’ll want to explore the detail with us.

Chair: We certainly will. I think we have probably used up the injury time. Thank you very much indeed for your evidence this afternoon, and we look forward to seeing you again soon.