Energy and Climate Change Committee - The road to UNFCCC COP 18 and beyond - Minutes of EvidenceHC 88

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House of COMMONS



Energy and Climate Change Committee

The Road to UNFCCC COP 18 and Beyond

Thursday 10 May 2012

Dr Katherine Watts, Jazmin Burgess and Mohamed Adow

DR Tim Fox and Gareth Stace

Evidence heard in Public Questions 1 - 84



This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.


The transcript is an approved formal record of these proceedings. It will be printed in due course.

Oral Evidence

Taken before the Energy and Climate Change Committee

on Thursday 10 May 2012

Members present:

Sir Robert Smith (Chair)

Dan Byles

Barry Gardiner

Christopher Pincher

Dr Alan Whitehead


Examination of Witnesses

Witnesses: Dr Katherine Watts, International Climate Change Policy Adviser, WWF-UK, Jazmin Burgess, International Policy and Research Officer, UNICEF UK, and Mohamed Adow, Senior Committee Adviser, Global Advocacy and Alliances, Christian Aid, gave evidence.

Q1 Chair: Welcome to our first evidence session on the road to UNFCCC COP 18 and beyond. For the record, if you could introduce your names and organisation briefly.

Mohamed Adow: Mohamed Adow, with Christian Aid.

Jazmin Burgess: Jazmin Burgess, UNICEF UK.

Dr Watts: Kat Watts, WWF-UK.

Q2 Chair: Thank you very much for agreeing to give evidence and help us with our inquiry. First of all, if we could look at the priorities for Doha, what do you think the main priorities for the UK should be at COP 18?

Dr Watts: Just to pull back slightly from Doha. I think we are in a situation where we have a very limited amount of time left for action, and action is needed at the international level to work to build on that international agreement that we secured in Durban, which we said we would aim to achieve by 2015. It is also clear that we need to reduce emissions in the shorter term, and one of the things that Doha will need to help deliver are some ideas on how we can reduce those emissions in the shorter term.

In terms of what the UK specifically needs to offer, there is a real case for a strong outreach using the UK’s strong diplomatic corps and abilities, working with partners, such as the Durban alliance partners, the Alliance of Small Island States, and the least developed countries, and with other EU countries. I think there is a very strong role for the UK within the EU to help increase EU ambition.

Mohamed Adow: On the Kyoto Protocol side, we have an agreement coming out of Durban that parties will be able to agree and adopt at a viable second commitment period. What we would expect, at least from the UK and the EU, is help to ensure that we have the broadest participation by the Kyoto parties in the second commitment period, and that the second commitment period has a high ambition, one that matches what science says is required-in line with what Kat is saying-to close the gap. The pledges that are currently on the table are nowhere near where climate scientists advise we should be, so getting that done is going to be a key priority.

Just building on that part of the outreach, we need to get to those countries and put pressure on the Kyoto parties who have indicated that they may not join the second commitment period, particularly Japan, a country that still continues to sit on the fence and says that it will not be joining the second commitment period. Russia is the second country: we are not sure yet whether they will join the second commitment period. Australia and New Zealand have indicated that they will be there but there is no certainty yet. We must reaching out to those countries, with the UK in the driver’s seat, exerting as much pressure as possible, so that we have the widest participation in the second commitment period and we use that to build trust and build momentum for the future.

Jazmin Burgess: Can I just chip in on top of what Kat and Mohamed have said? From a UNICEF UK perspective, one thing that we are really aware of is the need for high ambition, in order to make sure that we have Doha as an opportunity to push for the most ambitious deal possible so that we can safeguard a future for children, particularly in developing countries. The agreement at UNFCCC is about making sure that we have a legacy for future generations for children now so that they grow up in a climate-safe world. In addition to what they have outlined, the other thing that is really important, in the run-up to Doha, is the issue of financing and the need to secure new additional funds for climate adaptation and mitigation. One of the things that we were particularly happy with in the outcome from Durban was the ratification of the Green Climate Fund. What we would like to see this year is full operationalisation of the fund, ahead of Doha, and the UK to play a full leadership role, as it has done in the transitional committee over the past year but also in making sure that the Green Climate Fund is up and ready to go by 2013.

Q3 Chair: What do you think the main threats are to achieving any of those ambitions you have outlined?

Mohamed Adow: I think there are certain political challenges. On ambition, there is that aspect of countries not having a common understanding of how they are going to share the effort, particularly in terms of ambition. So, what is a fair share and will every country do its fair share? There doesn’t seem to be a common understanding among countries on how to share the effort. The second thing, of course, is if there is no understanding of what a fair share is then whatever you do others will free-ride on your efforts. There isn’t much confidence that all countries will contribute to the global effort adequately to be able to resolve climate change.

In terms of finance, I think there was a pledge in Copenhagen for first-start finance and then there was a pledge for the $100 billion by 2020. But we haven’t seen the commitment at least that will help deliver that necessary finance to support adaptation, to support mitigation, particularly in vulnerable countries. It is a case of ensuring that we have a climate diplomacy that can help achieve that, and to bring parties to the realisation that it is in our common interest to work together collectively towards this goal.

Dr Watts: There are two points I would like to raise: one is, building on what Mohamed says, there is a need to build trust between countries because what we have seen in the negotiations is a lot of finger pointing. Also, what we are asking for in decarbonisation of economies-if you look at the global budget that we have to 2050-is going to require quite substantial changes in the way we run our economies and how we use resources. Whenever there is any question of change, there are always the entrenched interests that do not want to make that change. So one of the questions that we have to be able to address is: how do you facilitate that? How do you make a fair transition from the high-carbon world that we are in, moving towards a low-carbon world, and how do you address the concerns of those who will be affected by the change?

Jazmin Burgess: On the finance question, just to elaborate on one of Mohamed’s points, we are all very aware we are living in an economic crisis. One of the things that UNICEF UK congratulates the Government on is the fact that it has stuck to its 0.7% commitment to ODA. On top of that, we need more money for climate change and this is the very difficult political context in the UK and in other developed countries. Trying to find progress through that framing is something that is definitely a challenge, both in the run-up to Doha and at the conference itself, particularly as finance is such a key issue for developing countries in terms of building the trust that both Kat and Mohamed have outlined.

Q4 Chair: I should also remind the Committee and the witnesses of my entries in the Register of Members’ Interests related to the oil and gas industry. In particular, a shareholding in Shell, who have actually given us evidence where they are more talking on the technical side of things, about the need for CCS. Do you see any technologies that should be prioritised in trying to achieve the objectives, or do you think the technologies flow from the commitments?

Dr Watts: I think there is a case for a strong top-down as well as bottom-up approach. The top-down is where we have the space to talk about the science and the needed levels of action overall, and also the space to talk about who does what and how much. But obviously, as you say, there is a need to deploy technology across the board and I would say it wouldn’t tend to be a question of choosing particular technologies as being most important. It is pretty clear that with the levels of emissions that we have at the moment, and where we need to be, we need to deploy rapidly across the board, particularly on things like energy efficiency and renewables.

It does seem pretty clear too that, particularly for some of the industrial sectors, CCS may be needed to be an important part of the mix going forward, but there doesn’t seem to have been the investment or the pace in improvements on CCS and really getting it to a full-scale deployment, so that you can actually prove that this technology is part of the mix and can actually be brought forward. At the moment, it is still quite nascent and I think putting all our eggs in the CCS basket is very dangerous. What we need to be doing-at least in the short term-is focusing very strongly on energy efficiency, which is win-win across the board. Also, looking at the renewables deployment, I was reading the IEA statement recently that found that in some countries the costs, for instance, of solar PV have come down by as much as 75% in as little as three years because of the rapid deployment. Bringing down these technology cost curves does facilitate more rapid deployment in many other countries.

Q5 Chair: Do you have any views on that?

Mohamed Adow: Not on CCS, but on the other side of the spectrum, particularly those without energy access. The 1.4 billion people without energy access are going to be extremely costly and, given the considerable potential for renewable energy, helping them with the technology that can help them leapfrog that energy so that they can get us on the path to decarbonisation, to be able to give the two degrees achievable, is something that, as a development agency, we are extremely interested in.

Q6 Dan Byles: WWF have described the UK and EU emission reduction targets as "embarrassingly weak". Would you like to elaborate a little bit on that? Does the rest of the panel agree with that assessment?

Dr Watts: I believe the EU is currently on about minus 17.4% for the period 1990-2009-roughly of that order of magnitude-as of around 2011-2012. It has a target for minus 20% by 2020, so it does feel, given those three or so extra percentage points of emissions reductions over an eight-year time span, that it rather lacks leadership and ambition. We feel that there is a lot of scope for much more rapid decarbonisation in the European economy, and we are calling for a 30% reduction in European domestic emissions as part of an overall 40% emissions reduction to be in line with the 25% to 40%.

Mohamed Adow: What is on the table is not going to get the job done. If the UK and the EU are going to step forward and provide leadership, it is particularly at the domestic level with ambition but also at the European level. Looking at IEA and the latest analysis that they produced, that indicates that we are on course to a six-degree warming, which is going to have catastrophic impacts. In the parts of the world that Christian Aid works in, we are seeing the consequences of climate change. It is a reality and people are grappling with that on a daily basis. Given that we have had 20 years of negotiations and not much in terms of ambition-and all the indications show, that with the current pledges we risk altering the maintenance and balance of life on this planet-we should be talking about how to increase ambition. Increasing ambition will require stepping forward and providing that high ambition, but also providing the leadership so that you can work towards a collective outcome.

Jazmin Burgess: Just to add to what Mohamed said, from a UNICEF UK perspective one of the things that we are very aware of is the lack of ambition in emissions reduction targets, which means that we are moving towards higher global temperature rises, which in turn will have knock-on effects for developing countries, and particularly vulnerable communities. In the past we have congratulated the UK Government on the work it has done to push the EU towards a 30% emissions reduction target, but while this progress is slow there is also a need to continue the focus on the adaptation side of things and not just the emissions reductions because they go together.

Q7 Dan Byles: What do you think are the main obstacles affecting the emissions targets? Because if it is that obvious, it should be obvious to the planners and policy makers as well.

Dr Watts: One of the problems that we have is the amount of political oxygen the current economic situation, particularly in Europe, is taking up. While we would see opportunities in the current situation-and I understand that Greece sees renewables as part of its readjustment of its economy in trying to grow its way out of its current situation-there is also a lot of room for improving energy efficiency standards, because of the billions that are flowing out of Europe to pay for oil and gas and other fossil fuels and there is a very good argument for much more indigenous energy. I don’t think that linkage is being made, because of the panic around the future of the euro and the whole political fallout from the current situation.

Q8 Dan Byles: The emissions debate is being squeezed out basically at the moment, is it?

Dr Watts: It is not getting the political oxygen it deserves.

Q9 Dan Byles: You have all alluded to this already, but the report for the United Nations Environment Programme has itself said there is a gap between the emission reductions committed to by the parties and the emissions reductions required to limit temperature rise to two degrees. Do you think anything can realistically be done to close that gap?

Mohamed Adow: Yes. I don’t think we have an option not to close the gap. If we are going to make this planet habitable, and be able to maintain the standards of living we have had, and be able to afford the poor, who have those rights and haven’t attained them, we have to find all ways to be able to do that. Some of the ways we could do that is getting the developed country parties and the developing country parties that have put ranges in terms of their emissions reductions targets to move at least to the higher target by Doha, so that the second commitment period can have the highest legally enforceable targets for those parties. Also, we should get those parties that haven’t actually put forward any targets to come forward with their emissions reductions target.

There are other innovative ways. In Christian Aid, one of the things we are looking at is how we can help a continent like Africa, where you have in excess of 600 million people without basic energy access, to be able to meet that need, but meet it from the huge renewable energy potential that exists within the continent. I have a copy of that report, which is about helping Africa to leapfrog that energy to be low-carbon leaders. We looked at the potential of Africa and then looked at its need. If you square that, you could easily facilitate these countries that currently don’t have any targets, that have low emissions, and this is building such a country where you don’t have a lock-in of dirty technology or fossil fuels.

Those opportunities exist, so we must bring these things together, and address them in the context of the post-MDGs world that is going to happen, but also within the UNFCCC negotiations, particularly for the 2015 deadline, so that these things can be tackled together. There is an energy poverty problem, true, and these countries have a right to energy, but they can meet that without actually joining the league of big polluters. This is the opportunity we see, and helping to incentivise that transition is something we would like to get support for.

Dr Watts: I would like to add that the UNEP report from last year, Bridging the Emissions Gap, found that moving to the high end of the conditional pledges could give you two to three gigatonnes of CO2 equivalent. Addressing the AAU carry-over, the Assigned Amount Units, the credits that carry over between commitment periods and the land use change emissions could also give two to three gigatonnes of CO2 equivalent and avoid double counting by creating the right structures within the accountancy methods. Again, this is probably worth around two gigatonnes of CO2.

There are also pieces that we would see as being important within the UN context, but I think there are a lot of opportunities outside the UN context moving forward on energy efficiency renewables. We would be quite interested in exploring moving the HFC gases, the fluorinated gases, into the Montreal Protocol, because that has been a very effective piece of international legislation, and addressing sectors like aviation and shipping, which are responsible for about 5.5% of global emissions currently and rising rapidly. There are many other ways, and WWF has a submission, which we did for the UNFCCC, on ideas for closing the gap that I would be more than happy to share with you if that would be of interest.

Q10 Christopher Pincher: It was interesting listening to the tone of your thoughts on the priorities for Doha. Mr Adow, you said that there are political challenges ahead. There is currently no common understanding of the effort to deliver on a fair share of reducing emissions between countries. Dr Watts, you said that we need to build trust and stop the finger pointing. I just wonder, as we now come to the end of the first commitment period under Kyoto, whether you think that period has been a success or if there are serious and significant omissions about dealing with emissions?

Dr Watts: I would say the first commitment to the Kyoto Protocol has been a success, largely in its own terms. To understand, the Kyoto Protocol was set up with binding commitments for a number of countries, the OECD countries I believe in 1992, so the range of developed countries. Also, there were obligations under the Convention that developing countries would work towards clean, sustainable development but without particular binding targets. Many of the countries look like they will be in compliance with their first commitment targets, including the EU. We won’t know that until about 2015 through the truing-up period where you have the emissions inventories, you buy any CDM credits that you would need to buy to be in compliance or not.

One of the important things to recall about the Kyoto Protocol is the architecture that it has built. What I see in the negotiations is a real ideological divide between countries-and this is a little bit of a caricature but I think there is more than a kernel of truth to it-countries that want this top-down science-based approach are generally the most vulnerable countries, definitely the EU, and countries that want very much more of a pledging review, so it is a question of not what must we do but what do we want to do. The architecture that Kyoto has built is one that is very much based on looking at the top-down target. There is a particular article in there that creates space for that discussion, and I believe we wouldn’t have had the discussions on the 25% to 40% range from the IPCC unless that particular provision was in the protocol. We have common accounting standards. We have common reporting. We have a compliance system. We have a fairly transparent system that is renewable, revisable. There are triggers within the protocol that allow it to be revised, and that is something that we are looking towards in the second commitment period. The EU has put forward a package of amendments that it does want to see brought forward into the second commitment period.

In terms of that ideological divide, keeping that architecture alive has been an incredibly important part of the process moving forward. One of the key things that were won at Durban was that political commitment, through a number of parties, to that architecture and keeping that on the table as part of the negotiations looking forward to the future.

Mohamed Adow: The hard nut to crack in this process is equity. So long as parties have the confidence that there is a fair and equitable approach to sharing the mitigation and adaptation costs, then it is likely that countries will be able to step up and increase their ambition. That is the thing that if there is going to be a dialogue that works towards creating a common understanding, so that they can then arrive at some metrics that helps to share it, then we will be able to arrive at a better outcome. This is particularly so because of the disproportionate impact of climate change on poor people, and ensuring that these countries can contribute but contribute to the extent possible and every country doing their bit so that they can work towards that common goal.

Q11 Christopher Pincher: Do you think that there is a realistic opportunity of agreeing that common goal through process? What I mean by that is you have a group of countries like Japan and China that would like to see, it would appear, a new agreement because they are not keen on making cuts under Kyoto in the second commitment period. You have another group of countries, which includes China, a major emitter, which would like to see progress within the current Kyoto arrangements, and another group of countries that would like to see both things happen, probably at the same time. Do you think that we are going to get wrapped up in process but not really go anywhere?

Dr Watts: There are a number of questions within that. One of the key things in the state of negotiations at the moment is to recognise-as Mohamed has emphasised-the equity issue. You talk about China and Japan-

Chair: I will be coming to equity a bit later.

Dr Watts: Okay. But you mention China and Japan in the same breath, and if you look at the status of economic development of those two countries they are in very, very different places. Going forward, the challenge will be to find a framework that is broad enough to cover all countries but also to have enough space for different countries’ specific stages of capability and responsibility to be taken into account.

Q12 Christopher Pincher: Do you think that-we mentioned China-we need some of those major emitters to agree to the process, and to binding cuts, for the second commitment period to really bite and work?

Mohamed Adow: Coming out of Durban some of that has been achieved with the Durban Platform for Enhanced Action, which is going to negotiate the new agreement that has to be finalised by 2015. One of the things that is a small achievement of Durban is the workshop on equitable access to sustainable development that is going to happen in Bonn in a week’s time.

These are important opportunities for parties to come out and exchange their views and their differences, to try and understand what fears exist and how they can work around those issues. Of course, it is going to take a while but there is a commitment to agree to an outcome that is going to be applicable to all countries. So the question is: how do we avoid a low ambition outcome and ensure that we have a high ambition outcome? This is now the question that they have to address to ensure that that outcome is going to be a high ambition outcome. The process in Bonn, but also going into Qatar, is going to lay the foundation. I don’t expect all this to be concluded in Doha, but you will have a transitional period where parties will be talking and trying to understand. The confidence and trust has to be built with what is achieved in Doha, particularly on what was said at the beginning on Kyoto but also on finance, so that you can create momentum.

One of the things we are looking to do is to encourage the UK to play the leading role it has played in the past. This is quite important, particularly the diplomatic FCO work in terms of reaching out to other countries. In Durban, one of the reasons we actually had the outcome we had is because of the alliance between the EU, the least developed countries and the small island states. That has translated into achievements. We need to start thinking of how we can strengthen and expand that alliance to include the medium and marginal economies, so that the middle income countries coming on board will bring the issue of equity into the discussion. So that you can now have LDCs bringing in urgency and saying, "We need it now" and then this one is bringing in the issue of equity so that you have an attitude that helps you move forward.

Dr Watts: If I may just add, I think what is on the table at the moment is two phases. There is this transition period, which Mohamed was talking about, where we will have domestic action being undertaken by developing countries. Frankly, the levels of emissions reductions being undertaken by China, and the other developing countries, far outstrip that being achieved by the developed world in this transition phase while they don’t have international binding commitments. What was agreed in Durban was looking forward to a much broader framework, and we are just at the beginning stages-starting in Bonn next week-of what that framework could look like. So there are two separate things on the table; there is the transition period and looking forward to the new agreement.

Q13 Christopher Pincher: As part of the framework you need a timeline.

Dr Watts: Yes.

Q14 Christopher Pincher: The second commitment period, as proposed by the EU and the UK, you have asked the UK to take a leading role in this, I think, for eight years. Do you think that is the right amount of time?

Dr Watts: I think the key question for us is urgency. The EU has suggestions for provisions for increasing ambition, having a review clause in the Kyoto Protocol. As part of the 2013 to 2015 review on whether the temperature goal should be two degrees or 1.5 degrees, coinciding with the publication of the Fifth Assessment Report of the Intergovernmental Panel on Climate Change, we will have this nexus around 2013 to 2015 of discussion on ambition. If we do get that review clause within the Kyoto Protocol track, that timeline kind of fits together where we do have a real discussion. Personally, I am terrified by the idea of not having that urgency, but in terms of the political timelines the eight-year one does have a certain logic to it.

Q15 Christopher Pincher: Do you get a sense that there is a sense of urgency?

Dr Watts: Not enough. We talked about barriers to achieving what we need to achieve and I think one of the key things is lack of political will.

Mohamed Adow: The UNFCCC has negotiated an outcome that is only going to come into force in 2020. If you look at what scientists advise us, it is for emissions to peak by 2015. Is that going to happen? It doesn’t look likely, of course, but you have an opportunity with the Durban Platform to negotiate an ambitious outcome. That is going to mean that mitigation in the post-2020 period is going to be more costly than it is now, because the more you delay mitigation the more adaptation is going to be extremely costly. By choosing to delay that important outcome, in effect, you are accepting that you will pay more for what you would have been able to do for less in the pre-2020 period.

There is another important hook in the decisions at Durban, which is to increase ambitions between 2015 and 2020. Even though they don’t have a target for the second commitment period-and it is likely to be for an eight-year period-if we can have that provisional measure for parties to be able to revisit their targets and increase it, based on that review and also on the Fifth Assessment of the IPCC, we have a chance. So, we should not lock in the low ambition but allow parties, given the realities that they are working with, to be able to prescribe their current target but also revisit it, based on the latest science, so that they are able to increase it.

Jazmin Burgess: As Mohamed and Kat have outlined, there is this issue of urgency in terms of emission reductions and working towards a binding deal. While that urgency is not as forthcoming as perhaps some of us would like to see, at the same time there isn’t a parallel urgency in finance and movement towards adaptation. We are not seeing sufficient funds come forward, in terms of ensuring that developing countries and those that are the most vulnerable are prepared for the impacts of climate change they are facing. It is a kind of two-tier thing. There is urgency in terms of delivering an agreement, delivering emissions reductions, but in terms of making sure there are enough resources available, whether financial or for technology transfer, for countries to prepare for the impacts of climate change, the timelines are eight years long.

Q16 Christopher Pincher: Just one last question. Mr Adow, you have said that as part of the binding global framework there must be strong restrictions against the carryover of emissions rights. There are some countries in Central and Eastern Europe that have surpluses in their AAUs, and that is on the first commitment period. What do you think that we can do to ensure that they are not carried over into the second commitment period?

Mohamed Adow: One of the things that is currently happening is you have developed country parties who have made pledges, but these have been compromised by a series of accounting loopholes and the AAUs are one of them. These things taken together mean that any pledges on targets will be negated by those AAUs. To safeguard the environmental integrity of the outcome, AAUs-those assigned amount units from the first commitment period-have either to be eliminated or reduced so that the integrity of the outcome is safeguarded.

The way it looks now-and going back to what Kat said at the beginning-you have developed countries and you have developing countries. We have to abate emissions by up to 12 gigatonne CO2 equivalent. You have pledges of up to 3.8 gigatonne by developing countries and you have about 3.9 by developed countries. A huge part of the developed country pledges are going to be negated by these loopholes. One of the proposals on the table comes from the Africa group, I think, supported by the LDCs, and it is to reduce that so that parties don’t carry that over into the second commitment period. What we expect is support from the UK and the EU, to be able to say, quite strongly, that if we are going to agree to a second commitment period then it has to have the emissions reductions levels that are going to make the two degrees possible. The probability we are now looking at is indicating, quite clearly, that if that isn’t addressed we will have a second commitment period but not the emissions reductions it has to include. Ambition is important in terms of increasing the target, but it is also important to deal with this quite difficult issue.

Dr Watts: It is also useful to look at how it works on two levels. You have the international level, and one of the big countries is Russia, which has said it won’t sign up to the second commitment period; therefore, that effectively removes its hot air, however hard it will huff and puff to try and keep it. You have countries like New Zealand that have concerns about the trajectory of their emissions, bearing in mind that their forest estate is due to be harvested in the 2020s, so they want to build some flexibility for themselves into the future to be able to do that. My sense is that they see AAU banking as one opportunity to smooth the perception of their emissions.

Within Europe, we have an interesting nexus of legislation and things interacting. We have the Energy Efficiency Directive, a number of provisions in there, but that links to the EU emissions trading system. It also links to the overall level of ambition in Europe and the real emissions reductions. One of the opportunities that we have in negotiating greater ambition is looking more closely at the EU Commission’s proposal of greening the cohesion funds. I believe there is a proposal for 20% greening of cohesion funds from the Commission on the table. If there was support from the UK and other member states for that kind of measure, that would be quite an interesting way to be able to support energy efficiency in the countries that are quite concerned about not being able to evolve away from their coal economies. Poland, for instance, with over 90% electricity based on coal, has quite strong concerns about that transition away from that particular source of energy and what that looks like.

There are opportunities to look at how we can facilitate that transition in those countries. I don’t think it is a question of buying Poland; I think it is a question of how do you facilitate that transition? Where are the opportunities? How do you create the incentive structures? There are opportunities in using, as I said, the EU budget to get some extra wins that we need on energy efficiency and the Energy Efficiency Directive, being able to actually achieve those on the ground, getting a set-aside of some of the ETS credits that are being discussed in the Energy Efficiency Directive at the moment but would need to be legislated through the ETS Directive in future.

Chair: We might come on to some more of that.

Q17 Barry Gardiner: Dr Watts, why should we heed your advice when you guys got it so spectacularly wrong about the negotiating stance going into Durban?

Dr Watts: Would you be able to give a little bit more detail on the-

Barry Gardiner: Before Durban, you were saying that the UK and the EU had to sign up and absolutely say that we were going to go into the second commitment period without any preconditions attached. It was only because we maintained the EU negotiating position that we eventually got the other countries signed up to agree to commit by 2015 and 2020. Do you recognise that you got the call wrong there or do you not accept that?

Dr Watts: I would say that there is a very particular role for NGOs and our particular role is to drive ambition.

Barry Gardiner: Absolutely. No, that is fine, that is a good answer.

Dr Watts: In terms of pre-Durban, certainly the EU and the UK took a lot of persuading from the NGOs, among others, to see the importance of the second commitment period. But I think the strongest thing that was important-as Mohamed has alluded to-is the Durban Alliance, about building the alliance, not-

Q18 Barry Gardiner: Absolutely. You hit the nail on the head. The NGOs’ role is to drive ambition, but that means that sometimes on the detail of the politics and of the negotiations you may not be right. I think a very good example of that was given by Mr Adow when he said earlier about the two degree target, "We have to. There is no alternative". I doubt that any of you three actually believe that. I doubt any of you believe that we will meet the two degree target. I don’t know many people who do much research into this area who think that that is achievable. If you look at the International Energy Agency report, and see the way in which they say that the existing infrastructure already closes that gap by 2015, the idea that we could peak in 2015 or peak by 2020 is really politically a nonsense. It may be right that people keep on saying, "There is no alternative" but we do have to have a level of realism about what is going on in the world, don’t we?

Mohamed Adow: How I would like to look at this is-

Barry Gardiner: Do you really think there is no alternative?

Mohamed Adow: How I would like to look at this is-

Q19 Barry Gardiner: No. That is not what I asked you. I didn’t ask you how you liked to look at it. I asked you: what is a realistic way of looking at it?

Mohamed Adow: This is what I am giving you. People have a right to life, and have a right to very safe and secure habitation and have a right to a safe and secure future. Climate change is a man-induced phenomenon and man has to take responsibility and help create a safe and sustainable future. Even two degrees for parts of Africa is unsafe, because that part of the world, from the IPCC report, will actually be warming 1.5 times the global average. We are seeing some of the impacts. We are seeing this with extreme weather events. We are seeing this with water stress. We are seeing this with productivity.

Barry Gardiner: Mr Adow, let me get to the point.

Mohamed Adow: We need to create a shared vision that the world has to face together and tackle this challenge. What we are seeing with the pledges made since Copenhagen is that those pledges don’t add up to get the job done. Parties have to acknowledge that fact and then bridge that gap. In terms of bridging the gap-and I repeat what I said at the beginning-for us to be able to bridge this ambition gap we have to bridge the equity gap. There is a fear that people will be asked to do more than their fair share, and they hide behind that fact. Others will fear to be free-riding on others’ efforts.

Q20 Barry Gardiner: Okay. Mr Adow, stop a second. You haven’t answered the question. You have gone off on a tangent, which is a very good tangent and I want to come on to that. I want to talk about equity. I want to talk about the structure of the agreement, of the global agreement, and as to whether that can deliver equity, and we will move on to that in a second. Look, I love the enthusiasm. I love the vision and the idealism. But you work for Christian Aid, don’t you?

Mohamed Adow: Yes.

Q21 Barry Gardiner: You know how many people are dying in Africa every day, don’t you? What you are saying is, "There is no alternative but for us to meet the two degree target because the alternative is unthinkable to me". But you see the unthinkable happening every day in Africa, so don’t come and tell us that there is no alternative. The alternative may be wrong, the alternative may be unjust, but there is an alternative and it is called failure. We have to be realistic about what is going on, because if we simply keep on in a world that says, "Oh there is no alternative" then we are not actually playing in the real world. That is the problem with organisations like yourselves coming here and saying things like that.

Jazmin Burgess: You make a very fair point. I think there is an issue in terms of balancing what we want to see. That is, a two degree world that will ensure a safe future for all and making sure that we reiterate this because, hopefully, that encourages more movement by other Governments. But we must also be aware that there is a possibility that we won’t meet this two degree world, that there is a need to invest in adaptation and there is a need to be aware of the fact that this is the ideal world we want, but we also have to be aware that there are, as you mentioned, communities in Africa already suffering the impacts of climate change. UNICEF know that there are children suffering in small island states from the impacts of climate change. While the process of the negotiations may be slow, there is a need to recognise that we have to prepare for what might be more than a two degree world. For us, that is investing in adaptation. It is pushing Governments to do more in terms of mobilising climate finance to make sure those resources are available.

Q22 Barry Gardiner: Let’s come on to the practicalities of the architecture, the structure of the global agreement, and let’s specifically get your views on how the architecture of that global agreement relates to the issue of equity. Does it at the moment? Is it satisfactory or do you think it needs change?

Dr Watts: Of course the architecture needs to be expanded. That just goes without question.

Q23 Barry Gardiner: Dr Watts, please elaborate in what ways.

Dr Watts: This is still very early stages in the discussions, so there is a lot of thinking to be done, but I think it is obvious that there are capacity issues in a number of countries coming forward with economy-wide targets. There are practical levels of creating the inventories to be able to do that level of monitoring. Frankly, for some of the poorer countries, which have levels of emissions that are so low, because they are not industrialised they are not emitting at that level, that is work that can be developed over a longer timescale. There are groups of countries in the middle where we need to be building that capacity much more urgently, to be able to do the monitoring and evaluation and to put in place the structures, and I think there is space for that. However, from the experience of the developed world, it is clear that it does take time to really bed down and have the information available to be able to do that.

Having said that, for economy-wide targets there is a lot of scope to look at particular sectors, at different ways of approaching it. It is really interesting watching the evolution of a number of emissions trading systems around the world. South Korea has just made an announcement; I believe China is in the process of building its own systems in different parts of the country. What they are finding, as the EU found in building its emissions trading system, is the importance of information. The reason the EU first period collapsed was-

Q24 Barry Gardiner: With respect, I wasn’t really talking about the information necessary to get the architecture to work, to get the legally binding agreement. What I was really talking about was whether the architecture of the Kyoto Protocol was an appropriate architecture to get that legally binding agreement.

Dr Watts: One of the things that I really like about the Kyoto Protocol is the review provisions and the potential for adding new provisions to it. What we would support is a protocol coming out of the process. If you take that as your presumption, there are three basic options on the table. You come up with a new protocol; you come up with two protocols, the Kyoto Protocol and the new protocol; or you crack open the Kyoto Protocol, add any kind of new annexes, any kinds of new articles that you want to, to express the political agreement on what different countries will be contributing.

Q25 Barry Gardiner: Can I give you a suggestion and see how you respond to it? The way in which we are moving towards a legally binding agreement at the moment is to identify what dangerous climate change looks like and then to try and divvy up the burden of getting there. Very crudely, would you accept that as a characterisation of what we are doing?

Dr Watts: In a thumbnail.

Q26 Barry Gardiner: If we looked at it in a different way, if you looked at it from the perspective of the equity issues, which all three of you have focused on, and started to talk about to avoid dangerous climate change by 2050 we need to be emitting on an annual basis no more than 20 gigatonne per year, reducing thereafter, but in 2050, 20 gigatonne a year, and you have a global population of-let’s call it-10 billion, 9.5 billion, what it means is that each person gets two tonnes per year by 2050?

Dr Watts: That is roughly the calculations I have seen, yes.

Q27 Barry Gardiner: That is a different way of tackling this problem. Why should we favour an architecture that is looking at it as an objective with a burden to be shared out rather than as an equitable apportioning per capita, which has to be ratified and verified and adhered to?

Dr Watts: I would say that there are other elements and other factors. While the per capita is obviously an incredibly important part of any-

Q28 Barry Gardiner: None of them work in the developed world’s favour, though, do they?

Dr Watts: Of course not, no. We have eaten more than our fair share of the pie.

Q29 Barry Gardiner: One of the great virtues of Kyoto is common but differentiated. That would imply that, in order to reach that, we have to take an even greater share of the historical burden of which we in the developed world have accumulated the benefits. I am trying to minimise the pain here. I am just suggesting that it is an alternative way of constructing the architecture. It is an alternative way of constructing the approach.

Dr Watts: The equity debate is one that is just opening up this year. There will be a workshop in Bonn next week or the week after at the UN negotiations, and the position that you are talking about is one that India has put some of its energy behind and it will be one of the things on the table being discussed.

Q30 Barry Gardiner: Indeed, yes. Let’s look at the equity business from entirely the other end, from an end that you and I would both not like to go down but let’s try and put ourselves in the shoes of somebody in Russia. In 1990 they were set targets, as everybody else was under the Kyoto Protocol, and we all know what happened. Just after 1990, or just around then, the whole of the Soviet Union economy collapsed and it became a lot easier for them not only to meet but way exceed those targets. Why should they be penalised for that? Have they not paid for that? Did their economy not go into free fall? Did they not have all the cataclysm of the transition from the Soviet Union to the Russian Federation and live with the pain of that? Why are you now wanting to penalise them twice over by saying that their hot air should not be credited to them? That was the deal. Some people did a little bit better by the deal; some people did a little bit worse by the deal. But they would say, "We have paid for that. It was very difficult for our economy to go through that transition. All the jobs that we lost, all the standard of living that went" so why are you now trying to penalise them twice over? What is the equity in that?

Dr Watts: Maybe you heard the phrase I used earlier. The phrase was "just transition", and I am certainly no Russia expert but my perception is that it wasn’t so much a transition as a collapse of the economy.

Barry Gardiner: Absolutely. It was a collapse.

Dr Watts: While there is a lot of work being done, I am not sure that they have necessarily restructured-

Q31 Barry Gardiner: You mean because they did not mean to do it they should not get the credit for it, even though it cost them quite dearly? That is not fair. It is not equitable. Equity, it seems to me, is running in one direction here. If we cannot put ourselves in the other person’s shoes in an international negotiation, we are never going to get that binding agreement because we don’t understand the perspective that the other person is coming from.

Mohamed Adow: I will agree, and that is why national circumstances will have a part to play. But what is lacking-to use your language earlier-and perhaps is the failure of the process, is the fact that we don’t have a principled best-effort sharing framework that will adequately consider responsibility, capacity and the national circumstances. How we like to approach this is, if we really mean business, and understand the fact that we have to have an emergency stabilisation goal and take the science behind climate change seriously, we have to adequately consider those elements within an approach. How those elements will play out will have to be negotiated. There are countries that will say, "Because of the path of industrialisation the world has taken, let’s look at it from 1850". Others will say, "From the time we have acknowledged that there was a problem called climate change, let’s look at it from 1990". If you were just to look at historical responsibility and look at the problem as a global commons problem, you have a pie where about 20% of the global population have emitted three quarters of the emissions. That is just looking at historical responsibility.

There is a fair argument that when we emitted we didn’t know there was a problem. That is why if you bring in capacity and say, "We will also have to consider the financial and technology wherewithal to deal with it", then that index shifts. But then you have this side of the argument that there are other national circumstances. There is an opportunity with the workshop, of course, but we need to have a political strategy to deal with that issue so that you can work out how the effort will be shared.

Q32 Barry Gardiner: I am with you a lot of the way, but now let me ask you this. You say it is a global problem of the commons. I am the President of Russia and I look at what is going to happen, given all the prognostications, all the scientific evidence, and I go into the negotiations in the UN and I say, "I am here to represent the people of the Russian Federation and their best interests", and that is what we are all there for. Is it in the people of the Russian Federation’s best interests to see this as a common problem, which I as a moral contributor am going to play my part in resolving for the global benefit, or actually am I going to say, "Well, actually climate change could be extremely good for us because it would open up the reserves in the Arctic. It is going to create much more fertile land in Siberia". Why should the President of the Russian Federation, or their representative, come into the United Nations negotiating arena and do anything that is going to be against the best interests of the people in Russia?

Dr Watts: That was an argument that was very much in Russia’s mind until a few years ago, when I think the fires that occurred suddenly opened up Russia’s mind somewhat to its own vulnerabilities to the impacts of climate change and climate-impacted results. There were quite a few deaths in Russia. The smog over Moscow was quite a potent reminder to Russia of its own vulnerability.

Q33 Barry Gardiner: What you mean is actually it is in its own best interest? Dr Watts, you are conceding the principle, which is that each of those countries should be acting in their own best interest. What you have said is, "Well, actually, there were some things that made them change their mind about what was in their best interest" and we may disagree about whether actually that is going to be preponderant enough to swing them one way or another. Canada would be another example of somebody who was once seemingly with us and now seems to be against us? Why? They have tar sands and they have seen the economic opportunities of that. Their best interest now seems to be swinging in the other direction. You seem to be conceding the principle that the countries in the UN negotiating framework should act in what is in their best interests.

Dr Watts: No. The point I am conceding is that they do act in their best interests, not that they should act in their best interests.

Q34 Barry Gardiner: Let me ask you a very specific question, then, really about going forward to COP 18. If COP 18 is going to make a difference in getting the countries that have committed to committing by 2015, how is it going to do that, or is it just going to be another one of those COPs where there is a sort of standstill and then we wait, until 2014 or 2015, and we suddenly get a jerky movement forward?

Dr Watts: There are some opportunities. I don’t think we are going to see the big bang that we would ideally like to see with the urgency that we have been talking about, but I think there are real opportunities that countries may come forward with new pledges. The discussion around the hot air, the AAU surpluses, is very much on the table for the Kyoto Protocol track of negotiations. There may be some opportunities for countries to increase their ranges to the top end of the ranges. That is still work that we need to do and work in progress, and we will have a much better sense of the political temperature going into and working through Bonn. I think there are opportunities on some of these loophole issues. I don’t see a massive up-swelling, but I see things like the Mexican climate change law really concretising its own pledge into a framework that is going to help it implement it on the ground. I do see more countries coming forward more and more with things.

There are some quite large countries that haven’t put forward any mitigation actions into the international process, and I think there is some opportunity for that. We can get some greater clarity on what the pledges actually mean, in terms of some of the accounting and technical assumptions behind the headline figures.

Q35 Barry Gardiner: One of the things that we have been focusing on, to the exclusion of all else, is mitigation, but what about adaptation? Christian Aid has talked about putting that back at the centre of the agenda. What progress on adaptation is going to be made at Doha, if any?

Jazmin Burgess: From UNICEF’s perspective, we were very heartened by some of the progress that we saw on adaptation at Durban. It was one of the few areas that we thought that this is actually an-

Q36 Barry Gardiner: If it wasn’t going to be made in Africa, where was it going to be made?

Jazmin Burgess: Yes exactly, and also on the issue of loss and damage as well, which is very much linked to this concept of adaptation. What we would hope is more progress is made on-

Q37 Barry Gardiner: Be specific, though. Let’s try and nail this down. What progress on adaptation would count as progress?

Jazmin Burgess: I can speak from a UNICEF perspective: we would like to see further reference in the text to issues around specific vulnerabilities of children, specific vulnerabilities of women, and instigating work that can support that because that starts the starting block to then build further. But what I was going to say is-and I sound a bit like a broken record-it is great having the text, and it is great being able to have this as a starting point, but unless there is money and political momentum behind this it is just text. We need to be able to see resources being mobilised. We need to see political will from developed countries to be able to say, "This is actually where we need to put our money where our mouths are".

Q38 Barry Gardiner: So we need money. Now let’s get into the specifics. How much? From whom? Through what mechanism?

Jazmin Burgess: Can I kick off? One of the things that we have been very heartened by is the fact that the UK Government continues to reiterate the $100 billion pledge made at Copenhagen, $100 billion of new and additional funds by 2020 for adaptation and mitigation in developing countries. Continuing to work towards this target, that is what we would want to see.

In terms of specifically how much, in 2013 the fast-start finance commitment period ends and we would like to see a move towards a trajectory of moving to this $100 billion. There have been figures released by the UN, in terms of developed countries’ GDP, that it could be something like 0.5% of GDP. That isn’t necessarily something that is set in stone but that is the kind of amounts that we are looking at. In terms of where from, the best option is innovative finance mechanisms. It isn’t about taking money from existing areas. It isn’t about refocusing the whole ODA budget towards climate change. It is about finding new sources that won’t divert money from other places.

Dr Watts: I would also say that there are some timeline issues here. We have the fast-start finance period. Any new mechanisms that we need to come up with, to find innovative sources, will take a number of years to develop and to actually put in place. So in this intervening period, there will still be a strong need for Government money, public money, for its own right. It is very important, particularly for adaptation in small communities, where there isn’t an economic or a business case that can be made for adaptation, to have that kind of source, but it is also using Government money to help leverage in the private sector, particularly where there are opportunities for the private sector.

Then it is about building, looking towards the slightly longer term, and finding mechanisms for new and innovative sources. We would certainly see trying to get an agreement around international aviation and shipping as extremely important, not just because it is an important mitigation sector in its own right and rapidly increasing but because some of the calculations we have done with Oxfam suggest we could get up to $25 billion per year from that sector. This is one of the ways, too, that you can address some of the equity issues within a globally traded system, like shipping in particular, by having the global mitigation but having a mechanism to use some of the finance generated towards climate finance. We do see that as one of the great opportunities and there is some work going forward in the IMO on this.

Q39 Barry Gardiner: Finally, at Doha do we need to have a transition mechanism to bring countries into Annex I status? How would you envisage that transition mechanism being established?

Mohamed Adow: We are looking at these bigger than Annex I. We are looking at these as a common responsibility that has to be shared. Annex I, for the purposes of Kyoto, bringing together OECD countries at that time was useful and has brought us this far, but the scale of the problem we are dealing with requires countries to contribute to that effort. That is why post-

Q40 Barry Gardiner: But they always did through NAMAs.

Mohamed Adow: Yes. They have done. That is why developing countries, who are not Annex I countries, in mitigation terms have contributed more emissions reductions than those Annex I countries in the Kyoto Protocol. The way to look at this is to assess again what ought to be done. That is where we are falling short. That is why rather than looking into the short term and looking at annexes-

Q41 Barry Gardiner: But you are giving me a sermon rather than a process.

Mohamed Adow: The process is the equity process. You will have Kyoto Protocol with Annex I targets, so those parties that inscribe go into the Kyoto Protocol. Out of Doha, you will have developing countries parties who have targets inscribed in the long-term co-operative action, which is LCA. That is the pre-2020 period, but that is still not adequate. That is why annexes will be a thing of the past and countries have to be at least where they share responsibilities among themselves.

Q42 Barry Gardiner: I understand what you are saying. As far as you are concerned, actually transitioning countries to Annex I status really doesn’t matter?

Mohamed Adow: What matters is that all countries contribute their fair share, and not transitioning from an Annex that is not going to be able to get the work done.

Q43 Barry Gardiner: Is there any leverage that a country being part of Annex I gives the international community on that country that you think is worth having?

Mohamed Adow: We have had opportunities that we have missed.

Barry Gardiner: That is not what I asked.

Mohamed Adow: We have had opportunities. The only leverage has been the flexible mechanisms, and those are currently covered under the Convention.

Q44 Barry Gardiner: As far as you and Christian Aid are concerned, you don’t think that Annex I status, and countries taking on the responsibilities of Annex I, is actually worth anything?

Mohamed Adow: Yes.

Dr Watts: I would pull away a little bit from that and put this in its historical context. Annex I was a creation under the Convention negotiated in 1992. Then in 1997 we got the Kyoto Protocol. What I am seeing very much out of the Durban Platform is an opportunity to open that debate again. There was an evolution from 1992 to 1997. I think we are in a stage of new negotiation. You obviously have a very clear interest in Russia because I am sure you are aware the Russians have put forward a proposal.

Barry Gardiner: I think we all do.

Dr Watts: Exactly. I personally don’t necessarily see a great value in opening up the Convention for renegotiation. I see real political risks in doing so, because if you open that you potentially open up a lot of other issues and create a very large can of worms. Where I do see the political opportunity is in the negotiations going forward, the discussions that are just beginning to happen around equity and how that will fit into the new framework which-I am not an international lawyer-will become the new framework that will be most closely looked at. There are obligations for Annex I countries under the Convention but they are not legally binding, they are not particularly target driven. When we get the new framework it will have its own logic, its own body, and I think that is the space where it would make a lot more sense to discuss those issues.

Q45 Dan Byles: I am conscious we are short of time, but if I can briefly come back to the Green Climate Fund that you welcomed; the pledge for $100 billion. Do we have the slightest chance of hitting $100 billion a year by 2020? How are we doing?

Dr Watts: As far as I am aware, the structures of the Green Climate Fund were agreed in Durban, but there are still some technical things around the bodies, who is going to be represented, and so on, so it is still in a formation stage.

Q46 Dan Byles: They are certainly committing money to it?

Dr Watts: In terms of committing money my-

Dan Byles: It seems that there has been a lot of talk but no one is really opening their wallet, are they?

Dr Watts: The rhetoric that we get from the UK is that they will quite happily open their wallet once they know what the whole thing looks like. I think there will be countries that will come forward. I recall there were some pledges put forward to facilitate the fund getting up and running. It is a question, too, of how you set up these new and innovative sources, so that if you do get an agreement on international maritime that creates money it goes directly into the fund and so forth. It is new. It is a new structure that is still in play but-

Q47 Dan Byles: So you are waiting and seeing?

Dr Watts: We shall wait and see.

Jazmin Burgess: I would say there are two issues. We were heartened by the progress in terms of establishing the Green Climate Fund, particularly the leadership role that the UK and DFID have played in shaping the fund and we hope that they will continue to do so over the coming year, and that is the architecture and the governance of the fund.

In terms of mobilising the money, from a UNICEF perspective there has been insufficient progress since the release of the UN high-level report on innovative finance at the end of 2010. There has been a lot of rhetoric and there have been a lot of statements around it, but there are no processes in operation to move towards this mobilisation of innovative sources. There is more that needs to be done. We saw last year that the G20 Finance Ministers commissioned a report by the World Bank to look into how to mobilise this money. That had some very positive statements in it, in terms of what could actually be done in the short to medium term, but nothing has been moved on. There are a lot of good documents out there and there are a lot of statements, but there is not enough that is being done. One thing that UNICEF UK is urging is for the UK to take a leadership role in encouraging other countries to come forward to move this process along, both at a UNFCCC level but also at a G20 level.

Q48 Dan Byles: Do you think the UK Government should commit more money or is it more about the leadership role it plays?

Jazmin Burgess: I think the UK Government should be applauded for how they have committed money so far. They are showing a leadership role, and we are very supportive of the way they have allocated 50% for adaptation and 50% for mitigation and beyond the fast-start period, so they should capitalise on that and use it to encourage other donors to do the same thing and to play that leadership role that we have had in the past. As for the longer-term trajectory towards 2020, that debate is still open, in terms of what the UK could do, and that could be the one that could start to have momentum this year.

Mohamed Adow: The UK has played an important leadership role. The fact that it is money up to 2015 is something we should applaud and celebrate, but we should use that to get other donors to come on board. Just the same way we have talked about equity and mitigation, there is also going to be the question of who is going to contribute and who is going to receive. Who is going to contribute will fall within that matrix that I discussed earlier about mitigation ambition, but who is going to receive has to be based on vulnerability, and that understanding has to be built so that those countries that require most are actually supported to be able to adapt to the inevitable impacts.

The question you have raised links up with this in some way. We are at a point where, with the level of warming that has been locked in, we need to support some of the poorest countries to transform their livelihoods and to make them better suited to the changing conditions, to have forward-looking plans that help them understand what is going to come. We must prepare communities so that the wrong response to an emergency, or to an extreme event, is avoided, so that you are able to build resilience and even deliver development, making sure that that it is climate resilient and able to withstand the changes that are predicted. This is the direction we are moving in. I think the UK, with its diplomacy, particularly given that it is out there and in the driving seat, particularly up to 2015, must be-

Q49 Dan Byles: Do you think it has the balance right between mitigation and adaptation? Given the pessimism about the fact that we have locked in such a large increase in temperatures, do you think they should perhaps be moving more towards adaptation rather than-

Mohamed Adow: The more you avoid mitigation the more costly adaptation will be. So, in terms of risk management, if you are able to mitigate more now, in the end you will need to adapt less. It is a difficult thing. The 50/50 works well at this stage, but if we fail to mitigate and transition to a low-carbon pathway or decarbonise our economies at the scale that is required, adaptation is going to be extremely costly. We will then have to revisit, but revisiting will put us in a difficult place because the choices will be between people either incinerated or people inundated because of the sea level rise. That will mean there will be a lot of territorial security issues that you have to deal with.

Q50 Dan Byles: Very briefly before we move on, you mentioned maritime and some of the innovative approaches. WWF has specifically said that the Treasury is blocking market-based mechanisms that could raise revenue from shipping and aviation. Would you like to expand on that a little bit because it seems at odds with the UK’s leadership role?

Dr Watts: The key concern that I understand the Treasury has around this is the issue of hypothecation. I think research is being done. This is not my specialist area, and so if you would like more detail I can refer you to a colleague. My understanding is that there are ways of setting up a mechanism such that it doesn’t have to be hypothecated. I understand the Treasury was actually quite comfortable with the Norwegian proposal on finance that was set up in such a way, but I think that is a question that needs to be addressed specifically. Again, it is the devil in the detail and we need to find ways through that. Hopefully, if the right mechanism is found, the Treasury would be able to see that as part of its contribution and not impacting on other parts of the equation.

Chair: Alan, briefly.

Q51 Dr Whitehead: Yes. Extremely briefly, even briefer than the last extremely brief one, could you just share some thoughts on the "near negotiations"? Particularly, Dr Watts, you mentioned in the written evidence to us that "near negotiations" such as the UN General Assembly, G8, G20, Major Economies Forum, Cartagena, have advanced part of the process but they concentrate on a small number of wealthy, powerful countries and lack legitimacy. However, one could say that the UNFCCC process has actually been going since 1992, emissions have gone up. Maybe concentrating on those smaller negotiations, and specific negotiations, might be more productive than continuing to try and get all 195 signatories on board all the time. Is that a view you share?

Dr Watts: No. I believe there is a good role for using some of the parallel processes to develop thinking and to talk and to build trust. Certainly, my understanding from comments from people who have participated in the Cartagena group, or the Cartagena process, has been that that is really a good space where they have been able to put down national flags, brainstorm in a safe space, see if they have ideas in common, see where there are opportunities for political movement sharing. That is something that we have seen in the UNFCCC; new alliances, new strengths of countries.

Two points: one, you have commented that emissions have gone up in the UNFCCC. It is important to recall that the Kyoto Protocol, which was the key instrument for implementing the convention, only had specific targets for a small number of countries. I don’t think at the time anyone foresaw quite how rapidly economies of countries like China, Brazil and India would increase. That was one area and one explanation for why the emissions increases have happened.

Within the UN process there is some opportunity for streamlining. There is a proposal from Mexico and Papua New Guinea to make it less of a consensus process and potentially more of a majority process, or to have greater opportunities for majority voting. I think there are ways in which we could look at the process within the UNFCCC and see whether there are ways to avoid having a one-country block.

On the other hand, I think a real great advantage of the UNFCCC, compared to "near negotiations", is the fact that it does give the space for the vulnerable countries to really have a say and to be visible. While the voting idea is an interesting one, I do think it is important to recall that in Copenhagen, for instance, it was Tuvalu-potentially one of the most vulnerable countries, if not the most vulnerable country in the world-that was one of the ones standing up at the end saying, "This is unacceptable. This will kill us. Our territory is going to suffer greatly from this level of ambition".

To have those voices out there is absolutely crucial, so where they have the space to have their voices legitimately heard is crucial. After all, we wouldn’t have the Kyoto Protocol if it had not been for the small island states putting forward a protocol proposal. They are the ones that have really been driving ambition through the process. If you leave it to the Major Economies Forum it has been a talking shop. I think there is some technology programme going forward, but that isn’t where the action seems to be. As for the G20 and the G8, there was some movement on the global ambition under the G8 some years ago. The G20 is talking about climate finance. Again, I think there are opportunities for advancing that in that discussion but bringing it back to the UNFCCC.

Mohamed Adow: What is actually happening in the UNFCCC is that the countries that are most vulnerable, and that are least responsible, are the ones that are driving high ambition. They seem to have a voice there, a voice that is able to push for greater ambition. There is no denying that the UNFCCC isn’t moving quickly enough to the goal. But if you think about the other processes-and moving away perhaps from UNFCCC, and whether that will take us closer to the goal-look, for example, at the Major Economies Forum and G20, that is where you have the biggest polluters and they haven’t been able to resolve their differences.

Those are very important processes and I look at them as tributaries that will actually bring momentum to the UNFCCC process. Every time you have had outside meetings, particularly including some of the most vulnerable countries, that has actually been reflected at the UNFCCC. That is what happened in Durban. You have EU going into alliance with two vulnerable groups, LDCs and small island states, and that actually drove the outcome we had in Durban. Those outside processes are very important, so long as those processes are geared towards helping to build trust, to create it, and bring momentum so that you have a bigger push within the UNFCCC negotiations.

Jazmin Burgess: I want to jump in quickly, just to echo what both Kat and Mohamed have said. Sometimes these other processes get the right people in the room. For example, on the issue of finance, you need the involvement of the finance ministries. It is not necessarily the case in the UNFCCC process, but the G20, for example, can provide the forum for that discussion to happen. It is about how we can get others to feed momentum into the UNFCCC process.

Mohamed Adow: This process is actually mitigation rather than adaptation, so it is not at the heart of the bargain when you have a G20 Major Economies Forum meeting. Given the importance of adaptation, particularly in terms of minimising the vast effects of climate change, this is the space where the most vulnerable are able to articulate their issues and be able to get support for that.

Chair: Thank you very much for that extensive evidence to get our inquiry off to a good start. If there is anything you think you should have said, which you haven’t said, you can always get in touch with us in writing after the meeting. Thank you again for your evidence.

Examination of Witnesses

Witnesses: Dr Tim Fox, Head of Energy and Environment, Institution of Mechanical Engineers, IMechE, and Gareth Stace, Head of Climate Change and Environment Policy, EEF, The Manufacturers’ Organisation, gave evidence.

Q52 Chair: Thank you very much for agreeing to come today to take part in our inquiry and give us evidence. You sat through the first session and have an idea of where the Committee is going. For the record, will you introduce yourselves and your organisations?

Dr Fox: Yes, my name is Dr Tim Fox. I am Head of Energy and Environment at the Institution of Mechanical Engineers.

Gareth Stace: I am Gareth Stace. I am Head of Climate and Environment Policy at EEF, The Manufacturers’ Organisation, and I am also representing UK Steel, the trade association for the steel sector.

Q53 Chair: Thank you very much. If we could start again on what you both think are the main priorities the UK should adopt for COP 18.

Dr Fox: From the institution’s point of view, the main priority at Doha should be to take the unique opportunity that presents itself to start thinking about a completely different way to drive emissions reduction globally. We see a unique opportunity through the establishment in Durban of the Durban Platform for Enhanced Action, which expressed a grave concern in the recognition of the emissions gap between the pledges that are on the table with regard to emissions, from both industrial and developing nations, relative to the emissions that are required to make the two degree target. Analysis of the gap shows that emissions pledges on the table are something like 60% of the pledges that are really needed to close the gap. The Durban Platform recognises that there needs to be a strengthening of the rules-based regime, and that there needs to be an outcome that is some form of agreement or other legally binding outcome. We very much see this as an opportunity to instigate a paradigm shift in thinking, in terms of how we go about encouraging reduced emissions globally.

Gareth Stace: I would say the main priority for Doha is to ensure that we capture what happened in Durban, in terms of finally agreeing an international agreement and to ensure that we are on that path towards 2015 and COP 21, where we need to agree the international agreement and what the targets are, to take effect in 2020. That is the main priority. From our point of view, the specific priority would be that we need progress on discussions and agreement on sectoral agreements for certain global sectors.

Q54 Chair: We will be coming to the sectoral issue. What do you think are the main threats to achieving these priorities out of Doha?

Dr Fox: From the institution’s point of view, we really see the main threat as a lack of knowledge, essentially, of what the alternatives could possibly be, and an entrenched and incumbent thinking that is completely focused on negotiating a legally binding global agreement that is based on-as we heard earlier today-divvying up the potential emissions reduction requirements and trying to find a way forward with that. From our point of view, the issue, the barrier, is really about an openness to think about things in a different way and to look and gather knowledge on alternative approaches.

Gareth Stace: In terms of the barriers, we heard a lot about the failings of the UNFCCC process today. There are issues there, but I think the UNFCCC process is the process to take the international agreement forward. The barriers are bringing all 190-odd countries together to agree something. But it is a global problem; it suits a global solution. In terms of the barriers for sector agreements, that would be just bringing the significant players to the table and they are not there at the moment.

Q55 Barry Gardiner: Dr Fox, your institute has said that trying to mitigate climate change through a global agreement is an approach that was at worst failing. Do you just want to jettison it? I go with a lot of what you are saying about the fact that there is an opportunity to source funds in a different way, but surely we have to work within the overall architecture of the UNFCCC because it is all we have, isn’t it?

Dr Fox: Yes. We have a number of alternatives, which I will come on to in just a moment, but focusing on the UNFCCC. Our institution believes that the UNFCCC has been a very useful architecture within the time and space in which it was created and has existed. Essentially, it has raised the issue of climate change, both mitigation and adaptation, very high up on international and Government agendas. This meeting is just a small piece of evidence to that effect. Through its links and relationship with the IPCC, it has shown what we need to do to move forward.

Essentially, in its existing philosophical dimension of focusing on a mechanism that really has-as the evidence shows-passed its point in history, we have an opportunity to move away from that and the UNFCCC is very useful as a mechanism to enable us to do that. We are not saying that it has completely reached the end of its life. It has reached a point where it can facilitate and broker a move in a different direction. We also see that it would have some continuing role to play, in terms of the work that it has begun on adaptation, on the work that it encourages in terms of development funds, and in terms of providing a measurement verification and monitoring activity to support some other activity. With regard to other organisations that would be well placed to take the issue on board-and I am probably going to discuss this in more detail as the questioning moves forward-we very much see the G20 as an appropriate vehicle for moving forward with reducing emissions. The reason we see that is that, effectively, the G20 accounts for 80% of global emissions and it ties up the significant players.

Q56 Barry Gardiner: I understand what you are saying. But aren’t you confusing the vehicle with the mechanisms used? In a sense, the UNFCCC is the vehicle that the international community has. It is the way to get agreement about what is done. You have a specific proposal about changing the "what is done" element here, which I want to explore with you, but it seems to me to talk in terms of the last days of the UNFCCC is to confuse these two. It may be that there are new things that need to be done-I am sure there are new things that need to be done-but nonetheless you still need that buy-in by the global, international community in the only, desperately poor, inadequate, incompetent framework that it has, which happens to be this.

Tim Fox: My starting point for answering that question is to pose to you the thesis that the problem is an economics problem, it is a finance problem. The reason we are not making any progress is essentially economics, and the UNFCCC isn’t essentially an economics and finance forum. For example, the representation on the G20 is finance ministers and governors of national banks and is an appropriate forum to discuss an economics problem.

Q57 Barry Gardiner: The nub of our disagreement is that you regard this as simply an economic problem that can be resolved by market mechanisms, which you have proposed very elegantly and which on the whole I would agree are a useful tool. However, you are ignoring what some of our earlier witnesses were talking about, which is the problem of equity, and you are ignoring the fact that it has become and is a political problem. The reason we are where we are is that there has been a market failure-in fact, climate change, some would say, is the biggest market failure the world has ever seen-and to simply think that you can only address it by another market mechanism, or by a tweaking of that market, is false.

I do want to explore the mechanism that you are putting forward. You said that you want the framework to ensure the emission of greenhouse gases incurred an appropriate cost or penalty that was of a sufficient magnitude to discourage further emissions and that, of course, the Government could choose to ban emissions, which would simply be a regulatory mechanism, or to use economic instruments that apply a financial penalty, and you think that that is the only viable political and economically acceptable way forward. Is that right?

Tim Fox: Yes. There are two dimensions to the problem, as we see it. The first dimension is that you are trying to get agreement between 195 nations who have very different agendas. We have already heard a lot about that this morning so I won’t rehearse those topics. The second issue is that there isn’t a globally justifiable and transparent price that has logic and credibility for the cost of emitting CO2 into the atmosphere. I am focusing on CO2 now. There is clearly a wider greenhouse gas emissions issue, but let’s focus on CO2 for the moment. There isn’t a justifiable and politically tenable price for that pollution being put into the atmosphere, and there is technology available today that would enable us to set that price. Our thesis is that by setting that price, using the technology, you have an unequivocal and unarguable price for CO2 pollution.

Q58 Barry Gardiner: Let me give you a political counter or a political feed-in to that, because I don’t disagree with you that having a global price would be an extremely helpful way to go here. Of course, the problem is that rich countries can afford the technology to emit more cheaply, or to reduce their emissions accordingly, but on the whole poor countries can’t. That goes right to the heart of what the gentleman from Christian Aid-although I berated him generously-was saying about equity. It is inequitable within the global community, and therefore politically unacceptable within the global community, just to say, "Well, fine, let the rich get the benefit of this new market mechanism because they can afford the technological solutions that will enable them to produce more cleanly" without having a transfer mechanism for the wealth that is created to enable in many cases what we would like to see, which is poor and developing countries leapfrog our dirty technologies into cleaner technologies themselves, so I am absolutely with you on a global price for carbon. My political overlay on that is how do you then get justice into that system and how do you recycle to ensure that others can get the benefit of that clean technology as well?

Tim Fox: I am going to be very brief. There are three points that you raise there that I see. The first is that the G20 contains the nations that emit 80% of the global emissions of greenhouse gases and-as you quite rightly point out-they can fundamentally afford to put this technology in place. One of the key points of our submission is that, by putting this technology in place and harnessing market forces in a competitive environment, not only will the price of CO2 emissions come down, as fleet operators of these machines or these technologies compete with each other for market share, but they will also drive down the cost of all other abatement technologies because, without question, this type of technology will be the most expensive form of cleaning up CO2 emissions. It will drive the cost of everything else downwards. As we heard this morning, ultimately that has a benefit for newly emerging countries. The institution fully agrees with you, we have laboured this point many times, that we need to find a way of enabling newly developing and newly emerging countries to leapfrog over the dirty, industrialised, unsustainable phase that we went through. We are very clear on that in a number of our reports.

The mechanism for that is the market-driven force of driving down the cost of green technologies, as we have seen with solar in Africa. We know that solar is below the cost of grid electricity in Kenyan villages, for example. We heard about that this morning. It is one small example. We could discuss why that is for a long time, but it is basically being driven by the cost being driven out by innovation in China. We see this technology as driving all the costs down.

I come back to your earlier point to wrap up that final third point, and that is that moving forward, very clearly, we still see a role for the UNFCCC in enabling the requirements and the interests of these newly emerging nations to be taken care of. There are a number of ways that that can be done. One is through the Adaptation Fund, through the Green Development Fund, through Least Developed Country Funds, and there are mechanisms in place that should be built on to enable that to happen. We see that as a very appropriate role for the UNFCCC. As for how you make that happen, I think there is a role for the G20 to take leadership on cleaning up the emissions using this kind of technology. There is a role for the UNFCCC in ensuring that the equity issues associated with poorer nations are taken care of, and also undertaking the monitoring, measurement and verification of the work of the G20.

Q59 Dan Byles: I would like to come back to the sectoral approach that you have mentioned. In the EEF’s submission, you said that that should be a UK priority at COP 18. Would you like to outline very briefly why you think that is a better mechanism than the geographical approach?

Gareth Stace: I think it is a better mechanism for certain sectors. We talked just now about developed and developing countries and the different approaches that you might have between both of them. The problem that we have is that sometimes you find developed sectors in developing economies. That is why we would wish to see a global sectoral approach for certain carbon intensive, internationally tradable sectors such as steel in the short and medium term. That would be the best approach and the approach that we will get to the quickest, in terms of waiting for a truly global, international agreement that puts us all on a level playing field. A sectoral agreement will put us on that level playing field.

Q60 Dan Byles: There is steel and one or two other documented examples. How wide would you see this? How many different types of sectors? Would you see this being quite widespread or limited to a fairly narrow field of high energy-intensive sectors?

Gareth Stace: In the first instance it is fairly limited. We talk about industrial sectors, steel, cement, aluminium and perhaps certain chemicals. Then we also look at aviation and shipping, and there may be some agricultural potential as well, but it is really those ones that I was talking about. That is where it is most suited and we shouldn’t think that it goes much wider than that. The other process within the truly international agreement, it caters for those other sectors that are not exposed to international competition and perhaps are not as carbon intensive.

Q61 Dan Byles: This isn’t new. It has been on the agenda since the Bali Action Plan of 2007. But how firmly would you say it is on the table? Is it a realistic priority for the UK?

Gareth Stace: Yes, and I think that is where our problem lies. At Government level, I don’t think it is on the table nearly enough in the UK. I don’t think it is, but I don’t think the UK is unique. Industries are working together to achieve this, to make progress on collecting data, benchmarking sectors before setting targets, but industries cannot and, in terms of the WTO, wouldn’t be allowed to perform that agreement on their own. They need to work with Governments.

There are two stages. We would like to see it firmly on the UK Government’s agenda, that, "Yes, we are going to make significant progress". When I say "significant progress", we are talking about sectors that have particular technologies that the carbon price won’t enable to move forward and reduce those significant carbon emissions at all. It takes something very different to make that step change. We need the UK Government on board, but then, in terms of diplomacy, it is much more about encouraging other nations, particularly those that have really significant players in the steel industry in those countries that are not working with this process at all that the industry is working with under the World Steel Association framework.

Tim Fox: Could I offer a comment about the sectoral approach? One option that we are proposing is to use technologies such as air capture technology to fix a carbon price. One of the other key advantages of that technology is that it can deal with difficult-to-get-at and difficult-to-tackle emissions. There are a number of sectors where the emissions from that industry are very difficult to tackle using either conventional abatement technologies or something like CCS, for example, so you can think about large, complex operations where CO2 is emitted at several different points in the process. You can think about aviation, shipping and other forms of transportation that isn’t amenable to electrification, for example, such as heavy freight.

The use of air capture machines to take the CO2 out of the atmosphere, and then to make it available for sequestration and storage, means that you can tackle those emissions and also, geographically, it doesn’t matter where your fleet of air capture machines are located. For example, you could imagine a fleet of machines located in the Australian desert or other desert areas with ideal geology for sequestration accounting for emissions from aviation and shipping, or a chemical process or other process that emits at several points, that doesn’t have access to a CCS-type infrastructure or any other way of tackling the process.

Q62 Dan Byles: So you don’t stop the emissions? You still make them; potentially, you just clean them up somewhere else?

Tim Fox: Yes. Essentially, it is a logical extension of carbon capture and storage, in that with carbon capture and storage you are taking the CO2 out of the flue gas at its point of emission. In this case you are allowing the CO2 to transition through the atmosphere and be picked up elsewhere. As long as each tonne of CO2 you emit at one location is collected at another location the atmosphere doesn’t know any different and the climate won’t know any different. You don’t have to take out those exact CO2 molecules. As long as your net balance is zero then you have accounted for those emissions somewhere else.

Gareth Stace: Can I say that in terms of creating a global sectoral agreement, say for the steel sector, we would like to reduce our emissions significantly. The reason why we are calling for a sector agreement isn’t just to get together and agree a target. It is because it would be the only way that we could significantly reduce those emissions. For example, in the steel sector, 90% of our emissions are unavoidable process emissions-using current technology, we have reached the end of that technology and we cannot reduce those emissions any further, so we don’t have a lot to play with in terms of reducing emissions from that sector.

The only way we can do that, to make that significant change is to make steel in a very different way from how we have made it historically, and that is going to take an awful lot of money. That is why I said that the price signal alone won’t do that at all. The UK on its own could not fund that. It is tens of billions. The EU could not fund that on its own. We need to bring all of the research programmes together, operating in the US, Korea, Japan and the EU, and pool those resources, technology and understanding in order to make steel in a very different way and emit significantly much less than we emit at the moment.

Q63 Chair: With the technology of emitting in one place and capturing somewhere else, is there any loss of effectiveness in the sense of the level that the CO2 rises to in the atmosphere or does it make a difference where, if you are allowing the emission to go up there?

Tim Fox: No. Please take into account I am not a climate scientist or a climate modeller-I am an engineer-but essentially the atmosphere is a well mixed fluid, and CO2 will mix very quickly in the atmosphere and move through global circulation patterns to move around the globe very quickly. In overall terms, as long as you are balancing the CO2 that is emitted at one point by taking CO2 out at another point the effect is more or less the same as taking it out at the point. There are some interesting thoughts that you might pursue in this respect, which would need the deeper engagement of the climate modelling community in exploring these opportunities. There are points on the planet where my understanding is that CO2 does have a higher level of concentration than other points, and you might like to think about how you would use these machines to explore that, but I think that is a completely different option. It is starting to move the technology away from the proposal that we are making, which is that it is really to be used as a carbon price setter, a driver of innovation, harnessing market forces to solve the problem, and as a way of providing a route to tackling difficult-to-get-at emission sources.

Q64 Chair: Given the progress or lack of progress being made on carbon capture and storage, where on the timeline would you see this process? Presumably gathering the CO2 is a slightly tougher process when it is just being pulled out of the atmosphere rather than a concentrated source?

Tim Fox: I can offer quite a detailed comment on that, and I will keep it brief. There are several entrepreneurial organisations across the world that are very busy at the moment developing this technology, with investment from sources that include venture capitalists and funds that look to support innovative technologies. The key driver for them is to take CO2 out of the atmosphere and provide it to industries that use CO2 as a source of chemicals for whatever process it is undertaking. At the moment that is driving the development of these machines forward quite rapidly. There is one in Canada; there are two in the US; there is one here in the UK up on Teesside; there is one in Switzerland and one in Holland at the moment. They are the key players. They are doing a lot of work associated with overcoming the increased difficulty of removing CO2 out of the atmosphere relative to taking it out of a flue gas. It isn’t an intangible problem but you do pay a little bit more of an energy penalty. Capturing CO2 from flue gases isn’t a new departure. We have been doing it for decades on chemical plants and other industrial plants globally, and using it for enhanced oil recovery, for example, in the US. We know how to do it and the technologies are there. There are some issues, because of the reduced concentration in the atmosphere, but they are not insurmountable. Then it is a question of developing a storage capability, which we are busy doing with CCS at the moment anyway.

Q65 Barry Gardiner: These machines to take CO2 out of the atmosphere, the ones that I like have been around for a millennium; they are called trees. Your submission said nothing about REDD+. Isn’t the most obvious way of doing this to actually fund REDD+ so that you get the trees doing that? You don’t just get the carbon sequestration as a benefit. You get all the other ecosystem services such as climate regulation, water regulation, provisioning services alongside. It seems to me that you have a rather driven fixation to have a technological solution when a green solution would be a lot better.

Tim Fox: The short answer to that is, no, we are not fixated on a technical solution. On numerous occasions we have put forward our thinking on having a mix of approaches, including afforestation and land management. There is a whole range of ways of dealing with the provision of carbon sinks. One of the key points, though, is that these types of machines can take CO2 out of the atmosphere thousands of times more quickly and effectively than natural trees, and of course they can plug into or they can be provisioned with an infrastructure that enables you to store that carbon away and lock it away for centuries in saline aquifers or depleted oil and gas reserves. The difficulty with surface biomass is that essentially as it rots it returns the CO2 to the atmosphere. In terms of the scale of the challenge that we have heard about this morning, the deployment of technology is part of a mix of approaches, but the deployment of technology to accelerate the removal of CO2 and sequestration of CO2 seems perfectly logical to us.

Gareth Stace: Can I add something very briefly on technology being the solution to climate change? I think at the moment, particularly in the EU and the UK, we have a fixation on targets. We set a target and we think it is a done deal, and, okay, a target is good where you set the target and you are not being proscriptive about how you get there, you just want to see the outcome. However, what I think the UK Government is failing to do-and this applies globally as well-is that governements don’t believe that technology is the solution, so the Government isn’t backing the development of technology going forward.

A good example of this occurred at our recent conference. We had invited Siemens and somebody asked them, "Why do you invest more in manufacturing in Germany than you would in the UK?" and they said, "Because in the last 15 years, the German Government has invested heavily in our supply chains. The UK Government has not done that". I think if the UK Government was really looking to make big strides, and be a leader in this-the UK keeps talking about leadership-it should actually be a leader and show the rest of the world that we can have green and growth at the same time, and we can be a leader in developing low-carbon technologies in the UK at least cost.

Q66 Chair: Rather than using market mechanisms to send a signal to the market for them to come up with an optimal solution, the Government should actually target technologies?

Gareth Stace: I am not saying that we should get rid of our targets. I have said before that market mechanisms don’t solve all the problems. There are technologies and sectors, the market mechanism and the pricing alone won’t change that. I am saying more that we need a greater focus on how we are going to meet those targets within the Climate Change Act here in the UK, and I think we don’t have that at the moment. We don’t have that vision in terms of the industrial strategy, or the industrial policy of how we are going to make our supply chains really robust to be able to deliver the low-carbon solutions that manufacturers will provide to meet the challenge that we face in terms of mitigation.

Tim Fox: It is interesting that we are sitting in the Thatcher Room. From our perspective, it is really about harnessing market forces to do what markets do best. They will drive forward innovation, and they will innovate costs out once you get them to work properly. They are an ideal tool for doing that, particularly in technology. The best innovation in technology comes from market forces and market-driven innovation, but there is also a role for Government beyond creating a framework that enables the market to work as freely and as optimally as possible. There is a role for Government in providing catalytic activity in areas where it believes strategically there needs to be a start-up of a new activity.

I don’t want to appear to be fixated on these machines but we are going down that track and it is a good example of a different way of thinking, which is our key tenet. We are not saying that this is the only solution; we are saying this is a different way of thinking, which comes back to the UNFCCC. In terms of those machines, for example, there is a very real need for an open, public domain-a publicly accessible version of these machines that you can walk up to and kick the tyres on, essentially. At the moment, all these machines are being developed in entrepreneurial companies to solve a feedstock to chemical customers’ issues. We would call on the Government to invest a small amount of our research budget in demonstrating these machines at small scale, in a similar way to the way in which it is funding, through £1 billion, the demonstration of CCS. They are very allied technologies, in that you need to bridge the gap between the university laboratory and the public laboratory, across that chasm into the commercial world, and there is a role for Government in doing that.

Q67 Barry Gardiner: But you do accept that there is an ironic asymmetry to what you are saying? You start off by saying, "Look, when it comes to the global issue, politicians need to get out of the way and we need a market-based solution, and we need a price for carbon that is going to drive that market-based solution", despite the fact that politicians in Mexico or China or somewhere might say, "We would rather have our cheap, low, dirty technology that is producing the goods at the moment, and you are wanting us to disadvantage our industry by coming into that global agreement about a market price". So you ignore the political in that sphere, yet when it comes to what you call "investment", but which others might call "subsidy", into particular technological development, you want the politicians to come in the back door and make sure that our industry in this country is being advantaged over others. Come on, guys. You can play on this playing field or you can play on that playing field, but you want to switch the playing field, depending on whether you are talking about technology or whether you are talking about market forces. Is that not a fair criticism?

Tim Fox: No, not all.

Q68 Barry Gardiner: I didn’t think you would agree with me, but it seems pretty fair to me.

Tim Fox: No. In a nutshell, what we are saying is that we need recognition that there is an economic problem and an economic driver that needs to be put in place, and that is to solve the CO2 price issue. We have agreed that earlier in the conversation. We understand that that is a major issue.

Q69 Barry Gardiner: We have agreed it, but where you and I differ is on the fact that I recognise that there is a politician somewhere else in the world who says, "Yes, but if I sign up to that it is going to disadvantage my industry, and I am going to get my institute of mechanical engineers and my manufacturers federation on to me telling me that this is a bloody stupid thing to do and I’m going to be out of office". That is the political dimension that in this sphere, when you say, "Let’s get a market price for carbon", you are just ignoring.

Tim Fox: No. What I am saying is that by using this approach to drive the carbon price, create competition for that carbon price and driving that carbon price down, you will also drive down globally the cost of all abatement technologies.

Q70 Barry Gardiner: Eventually you will. What are you going to say to the Chinese or the Mexican or the Indian politician in the meantime, who are sitting on large stocks of coal that they can then use to produce your steel, or whatever else they are going to produce in a dirty fashion, that is at the moment much cheaper to supply to the world market than if they go into the fancy, clean technology that you want us all to adopt because you have put in the market mechanism? They are not going to accept it. You are just ignoring the politics here. You are speaking as an economist not as a politician, or you are not taking on board the politics of the situation.

Tim Fox: Yes, I am. Fundamentally, I am taking on board the politics of the situation in that I am recognising that politically where we are with the UNFCCC process, trying to get an agreement between 195 nations with very different political objectives, isn’t working. What I am coming to the table to propose here is that we need to look at alternatives, and this is one possible alternative that is worth exploring.

Q71 Barry Gardiner: But you are saying that politicians need to get out of the way but we want a group of politicians-namely, the G20 leaders-to sign up to this market proposal. In and of itself, from an economist’s point of view, I am totally with you. All I am saying is I don’t think that certain guys who are around the G20 table are politically going to be able to sign up to it, because of the short and medium-term problems it is going to create for their equivalent of you two sitting in their Committee in their Parliament.

Gareth Stace: Then we are absolutely going to achieve nothing. China makes 49% of the world’s steel. If we cannot get China on board then we are not achieving anything. There is going to be an 80% increase in demand for steel by 2030. That is going to happen and the Chinese will meet that demand, and if they are not tackling the emissions from that sector then anything we do here-they make 600 million tonnes, we make 11 million tonnes of steel-means nothing.

Q72 Barry Gardiner: Of course, I absolutely understand that and agree with you. All I am trying to say is that, in the same way as I think our first witnesses presented us with a visionary, rosy and idealistic picture, I think you are presenting us with an economist’s rosy, idealistic picture. It doesn’t wash, because you have to accept that those political barriers, the two of you sitting in Beijing are going to be saying, against what you are saying to their Select Committee and their Ministers, "This would be crazy. You would disadvantage our industry at a stroke. China has to grow at its own level. We can’t have this restriction". You could make the arguments for them; you know what they would be saying.

Tim Fox: But we have seen already significant shifts in thinking and in investment in China and other countries. They lead the world in the production of wind turbines. If there is an industrial strategy to be had then there is an interest.

Q73 Barry Gardiner: What they are not doing is disadvantaging their own industry in getting those advances. You have to accept that, because that is the fact. They have made huge strides. They are doing much more than America and everybody else would like to credit them with. That is absolutely for damn sure. The point is they are doing it according to their own lights, in a way that is establishing their own growth trajectory, and you are going to interfere with that.

Gareth Stace: They are doing more in absolute terms, but if you look at per unit of GDP they are not. We are probably doing better and Germany certainly is doing much better in terms of investing in low-carbon technologies. I am not coming to this Committee with rose-tinted glasses about a sectoral agreement for the steel sector. If I was I would just be sitting here saying, "It’s going to happen and it’s going to happen by then". At the moment, I don’t think it is going to happen because we have 70% of the world’s steel companies on board in what the World Steel Association are doing but only 30% of production, so we just cannot proceed until we get buy-in.

Tim Fox: We have essentially come to the table to offer alternative ways of thinking, and we call for the politicians here to solve the political problems and find a way forward. That is a leadership role for the UK. In the last decade, the UK has been incredibly innovative in finding frameworks and diplomatic ways forward. The Climate Change Act 2008 is a major example, a piece of evidence of what the UK political community can do if it puts its mind to it. I am coming here as an engineer and I am asking you as a politician to find a way forward.

Chair: On finding ways forward, a bit on markets, Alan.

Q74 Dr Whitehead: I have always thought that the idea of capturing carbon in order to inject it into oil seams to get more intensive carbon out is a rather intuitively counterproductive process, but in terms of-as you have said previously-machines to take carbon out of the air and inject it, as one does with CCS, that is a different process. However it is one that requires, presumably, a substantial price floor in order to proceed and invest in. The market mechanisms to produce that are already in place but they don’t work very well, do they?

Tim Fox: That is coming at the problem from back to front, if you will excuse my way of putting that. First, what we are proposing is the use of these machines to lock up the carbon in disused-

Dr Whitehead: Yes, I understand that.

Tim Fox: So that is clear. Secondly, we are calling on the use of these machines to set the price for carbon, not to be driven by the price for carbon. Current estimates for these machines, based on the work of these entrepreneurial companies-this isn’t yet through vigorous, mature, commercially pressurised development of second or third generation technology-is putting the carbon price that these machines will produce in a range that at the moment seems quite expensive, but these machines are currently being developed to very immature levels. What we are saying is that, by bringing those machines forward and creating a competitive environment, the carbon price set by that machine will reduce over time through innovating the costs down.

Q75 Dr Whitehead: The point I was making is that presumably someone has to finance putting these machines up and making them run and putting the stuff in the ground. Presumably that is driven to some considerable extent by the fact that there would be a pre-existing carbon price floor of some description in order to make that finance possible.

Tim Fox: Right, yes, I understand your question.

Dr Whitehead: The credits presumably coming from the sequestration of that carbon would then effectively fund those machines and their maintenance and their operation.

Tim Fox: There are two points there. First, like any emerging technology, there is going to be a need to fund the initial development and get them moving. At the moment that is being done by the attraction to those entrepreneurs of potential markets for their CO2, which isn’t dealing with the global warming issue. It is a commercial relationship that is driving it forward at the moment.

Q76 Dr Whitehead: Yes, but presumably the machines eventually, in order to have any effect on carbon levels in the atmosphere, would need simply to sequester it. That wouldn’t be in itself a commercial operation and would presumably come into being and would continue to operate as a result of credits arising from the fact that you put X tonnes of CO2 into the ground and had got credits from other polluters. Is that how you see it?

Tim Fox: We would see them operating commercially in that companies would take an opportunity to buy a fleet of these machines and-

Q77 Dr Whitehead: Commercial operation is carbon circular, inasmuch as the reason for doing it from a commercial point of view is to undertake other processes that use that carbon and put it back into the air or extract oil and burn that.

Tim Fox: Let me answer that question very clearly. We would see these machines operating in a purely commercial environment when they take the CO2 out of the atmosphere and sequester it. You can imagine companies setting themselves up as operators of fleets of these machines. They are taking the CO2 out of the atmosphere and they are charging to do that and they are making a profit out of that.

Q78 Dr Whitehead: Who are they charging? Presumably they are charging people.

Tim Fox: Yes. They would be charging organisations that have no other way of abating their CO2 emissions. Let’s say I am an industrialist and I operate an industrial plant and I have renewable energy. I have all my processes as tight as possible but there is a point at which I inevitably have to emit some CO2 because I have no other way of abating it at that point. Then I have to pay you as an operator of a fleet of these machines to take that CO2 and sequester it on my behalf, and I pay you to do that.

Q79 Dr Whitehead: In order to have an abatement mechanism, presumably if we are still going on market mechanisms, we need some sort of carbon price floor in order to make the abatement necessary?

Tim Fox: Or you would need to have an international agreement at some level-and it could be at the sector level, it could be at the global level, it depends at what level you want to solve this problem-that says if you have no other way of abating emissions from that plant you have to pay a CO2 sequester to take that CO2 away.

Q80 Dr Whitehead: Yes, but doesn’t that sound rather similar to EU-ETS, that is you have allocations, national allocations and sub-national allocations, and you buy permits? Other people, who are doing the business, then get the money from the fact that permits have been created and there is a trading process and the market mechanism in theory creates those circumstances under which those obligations can be discharged.

Tim Fox: There would be some type of mechanism that looked something like that, yes. There would have to be.

Q81 Dr Whitehead: But EU-ETS doesn’t work very well, does it?

Tim Fox: It has enabled us to learn a lot about how carbon markets work and where the failings are in the mechanisms of carbon trading markets and it has not accounted for-

Q82 Dr Whitehead: Where do you think the failings are?

Tim Fox: As we see it, the failing with EU-ETS is around the over-allocation of credits and the fact that there has been quite a lot of apparent leakage within the system. We see room for tightening that system and we are proposing that if you take a look at setting the initial carbon price, using this technology, you could create a mechanism that would enable you to trade in some sort of permits. This might look quite different from EU-ETS, but there would need to be some sort of tradeable credit-type mechanism and we believe that you could learn from the existing systems to create this new mechanism.

Of course, you could stand back and take a complete paradigm shift in thinking and say, "Well, what we are going to do at the global level across all sectors and across all industries and across all jurisdictions is we are going to say, ‘We now have a technology that can remove CO2 from the atmosphere. That is your last resort. If you have no other way of abating your technologies, that is what you must use and you must pay a fleet operator to remove those emissions and sequester them’" and there would be some sort of trading mechanism in place. That is in the limit of what you could do to drive CO2 emissions down, but undoubtedly there are a number of sectoral or trading scheme approaches that would enable you to do different things, once you recognised the value of that technology, to set that price for CO2.

Q83 Dr Whitehead: Do you think a Government-introduced carbon floor price militates against those processes working, assists it, or undermines it?

Tim Fox: I think it would initially help, because if was set on a target price that was of the order of magnitude of the price that you could remove the CO2 emissions from the atmosphere it would begin to get the market moving. Over time, it would act as a brake and a barrier to further progress, because what one would want to do is harness the market forces to drive that price down so the floor price would have to be removed and enable market forces to drive that price down.

Gareth Stace: Could I come in terms of whether EU-ETS is working or not and whether the carbon floor price is helping it or not? The purpose or aim of EU-ETS is to deliver a predetermined cap at least cost, and I think it is doing that very well. If we do have failings in it, the failings are-and there are many-that one size fits all, very different sectors in the same scheme, and the same rules for energy generators and industrial sectors and others, exposed to carbon leakage, not exposed to carbon leakage. It doesn’t work for all. It works for generators perhaps, but I think certain sectors should come out of EU-ETS because EU-ETS does nothing to reduce global emissions from, say, the steel sector at all. If we accept that, we are doing something wrong with the EU-ETS.

Another failing of EU-ETS is that we seem to want to keep tinkering with it rather than let it run its course, and there is one fundamental flaw in it. It is the biggest thing in EU climate change policy and it didn’t have a mechanism for dealing with a recession. That is where it went wrong. We told the Commission and the UK Government, "Ex-ante allocation is the wrong way. You need ex-post allocation" and that would have dealt with the problem that we have at the moment. Is the carbon floor price going to fix that? Absolutely not. It is a unilateral measure. It is the UK Government implementing domestic policy to tackle global problems. It is going to increase our costs unilaterally against our European competitors and actually sets the price years ahead of when it is needed. It is there to give confidence to new nuclear investors. New nuclear investors won’t come on stream until 2020 but the cost is there from 2013, so we are paying for something that we don’t need to pay for until at least 2020. We don’t need the carbon price floor at all and it should be scrapped at the next Comprehensive Spending Review.

Q84 Barry Gardiner: Did you-"you" generically-not have something to do with the failure of the first period, in that you argued with Government to make sure that the cap was set so loose that it wasn’t effective? I grant you, the recession came in in the second period, but the idea that you are going to be happy with Government saying, after the event, "Now we are going to charge you so much on your emissions" rather than giving you a clear warning upfront what you can emit and what you are likely to pay for them; surely you are going to turn round and say at that stage, "Well, this isn’t giving us the certainty that we need to plan our business properly"? It seems to me that you ignored the first argument and Government can’t win either way with you on the second.

Gareth Stace: I think the first phase, learning by doing. We can almost park the first phase. The allocation was supposed to be business as usual. It was supposed to do what it did. The second phase, nobody could predict the recession; we were giving our predictions of where our production was going to be. Even in the July, from the September when the recession hit we had no idea.

Barry Gardiner: I accept that.

Gareth Stace: But I think it depends on the question of certainty. What certainty do we want? If we had the certainty of the cap, then great and we have to live with the fluctuating price. But if we want more certainty of a price, then EU-ETS isn’t going to deliver that unless we cannibalise it so much that it almost doesn’t do both of those issues. Either we have a carbon tax or we have EU-ETS. To try to have both clearly isn’t going to work.

Chair: Thank you very much for the interesting evidence session. If you have any more written evidence to expand on these points it would be most welcome, especially maybe more details of the machine and when it is going to be implemented or in terms of the technical side of things. That would be helpful. Any more thoughts on your submissions, anything in writing would be gratefully received. Thank you again for your evidence.

Prepared 24th July 2012