CORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 88-ii

House of commons

oral EVIDENCE

TAKEN BEFORE THE

Energy and Climate Change Committee

The Road to UNFCCC COP 18 and Beyond

Thursday 17 May 2012

Sir David King

Evidence heard in Public Questions 85 - 122

USE OF THE TRANSCRIPT

1.

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.

2.

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 17 May 2012

Members present:

Mr Tim Yeo (Chair)

Dan Byles

Barry Gardiner

Ian Lavery

Dr Phillip Lee

Albert Owen

Christopher Pincher

John Robertson

Laura Sandys

Sir Robert Smith

Dr Alan Whitehead

________________

Examination of Witnesses

Witness: Sir David King, Director, Smith School of Enterprise and the Environment, gave evidence.

Q85 Chair: Good morning and a warm welcome. I think it is the first time in this Parliament that you have come to this Committee, so very pleased to see you, but obviously old friends of other Committees that many of us have been on. We are expecting one or two more members to arrive shortly. Could I just start with a general question about the UNFCCC? I don’t think I am anticipating. You slightly damned it with faint praise as a process and made the, I think, entirely valid point that it has not had any impact on changing trends in greenhouse gas emissions. From that point of view, you would have to say it has been a failure, hasn’t it, after 15 years?

Sir David King: Good morning, Chairman. Yes, I think that is right and, therefore, I would have to say that if we measure the process in terms of reaching the objective, which was to reduce greenhouse gas emissions, it has been a failure. We are following a business-as-usual trajectory, and the latest scientific analysis would indicate that this means a 5C to 6C temperature rise by the end of this century. So I think in that sense it is a failure. In a different sense I think that it has been and continues to be an essential instrument for bringing all the concerned parties together to have discussions.

There is a problem with the process. It becomes a culture within a culture, and by this I mean that the officials from all the countries who meet each other at least twice a year at different venues around the world become very caught up with process and, it seems to me, lose sight of the overall objective, as strange as that may seem. If we look at moving to where we are now, I was very keen on Copenhagen achieving what it did achieve, which is to go for voluntary commitments from different nations, which is a realistic way forward, rather than adhering to the notion that we could leap straight into a single agreement with 193 nations all signing up: problem solved.

I think that was the problem. We were following the Montreal Protocol, which was a much easier issue, to use the same kind of instrument to achieve a much, much more challenging objective. When I look at the Copenhagen process and its outcomes, and countries like Indonesia committing themselves to a 26% reduction in emissions by 2020, Brazil committing itself to avoiding all deforestation by 2025, you have real progress finally emerging. I see the UNFCCC process as a valid process for bringing the parties together, if nothing else, to put pressure on each other.

My favourite phrase around this, Chairman, is "muscular bilateralism". When the British Government declared that it would reduce its emissions by 60% by 2050, we suddenly, unilaterally, broke the normal negotiating process. I was able to go into President Lula’s office and argue, "This is what we are doing. We are not trying for the minimum impact on Britain, but we are now challenging other countries to produce equivalent plans," and that is now beginning to happen.

If I look at the Durban process, for me the most interesting was Connie Hedegaard representing the European Union very well, in a wonderful, challenging speech, saying, "This is what the European Union is doing and we are doing far more than any other part of the world." The Chinese delegate stood up and was shaking with anger, saying, "China has done far more," and he then listed everything China was doing. That, to me, is the right way forward. Rather than each party going into the negotiations aiming for the least impact on their own country and, therefore, achieving the lowest common denominator, we were suddenly seeing a kind of macho challenge to each to do better than the other.

Q86 Chair: That is pointing to some successes from the process anyway, and I take your point about the danger of the regular delegations getting caught up in process and losing sight of the overall aim. Do you think there is, however, more that might be achieved through some of the other forums, with smaller numbers of very large emitters meeting because, in a sense, since they are a big part of the problem, at least for the time being, and if they can agree on certain measures then everybody benefits from that?

Sir David King: Absolutely. The G8+5 was invented in my time as adviser to the Prime Minister, and it brought together, for the first time, the heads of states of the G8 grouping plus Brazil, China, India, South Africa, Mexico, to discuss the issue of climate change. Heads of states essentially break the problem I have just referred to as the social culture around the negotiating process. They are able to achieve more. I think that that was important, and now we have the basic group, Brazil, South Africa, India, China, and the G77 group. As a result of the formation of the G8+5 developing into the G20, we see these other groupings formed. The small island states are having an impact far beyond their numbers simply by combining forces on a single issue, which is, "What are rising sea levels doing to our countries?" So I think that you are absolutely right. The groupings of countries are critically important moving forward-not least, of course, the European Union. The European Union brings together 27 very important nations and, by creating a common policy around cap-and-trade and the follow-through from cap-and-trade, we have brought all 27 nations together in that process.

Q87 Chair: Yes. We are very interested in your proposal for a global cap-and-trade scheme based on a per capita emissions figure, which conceptually looks very interesting. How do you think the practical implications of trying to establish such a scheme are best addressed?

Sir David King: The first thing to say is that the scheme is based on discussions with the WTO that I have had. In other words, we are looking at a tradable commodity, carbon dioxide. We are showing within Europe that we can make it work through the European cap-and-trade, where the caps are not deep enough but, nevertheless, there is a process in place. Any tradable commodity will develop different prices around the world with different mechanisms emerging.

China is now going to introduce a cap-and-trade process. I am proud of the fact that I have advised the Chinese Government on that. We are going to see cap-and-trade emerging from a group of states in the United States. There are going to be, emerging from these different processes, different prices on carbon dioxide, which Pascal Lamy doesn’t like at all. To have a number of different prices on a single commodity is against the global trading scheme. There is the natural pressure behind a global cap-and-trade, evolving from regional cap-and-trade into a much more natural process towards global trading.

What needs to be established then is what is the principle for the dynamic cap for each country, by which I mean the cap as a function of time moving forward? This is going to be where the discussion brings in issues of equity, where we are going to have to decide what are the principles underlying equity when it comes to a global cap-and-trade mechanism. I also think that, with a global system, we are going to have to introduce compliance measures. If you wish to join the scheme, let’s say you are a developing country, you are going to be given tradable units and your tradable units will exceed your normal emission. So you can trade them for cash on the market, but to join you would have to meet compliance procedures. This would mean a governance process. It would mean the business of managing mitigation of emissions and managing adaptation. All of these compliance measures would need to be built in as each nation or group of nations joins in the global cap-and-trade. But, as I say, this isn’t novel. This is simply picking up on WTO procedures.

Q88 Chair: We have been looking particularly at what is happening in China and, if China goes for a full-scale cap-and-trade domestically, the eventual scope for that to be linked with the EU’s. You would then have two very, very large blocs, and it seems to us that that probably creates unstoppable momentum anyway. Other parts of the world would want to join in, particularly North America. I am very glad that the WTO is engaged in the debate about this, but how likely do you think it is that this proposal could be implemented?

Sir David King: The difficulty with a new proposal of this kind is that the UNFCCC culture has a tendency to reject anything that hasn’t already been discussed. My reason for putting this down is, first of all, procedures of equity and, secondly, putting the objective to reduce greenhouse gas emissions in as the overriding demand. In other words, the global cap on emissions and its trajectory forward is the first thing to be determined, and then each national contribution to that. So it makes sure that we achieve a reduction in greenhouse gas emissions, and we measure success by that.

Q89 Sir Robert Smith: Pursuing the whole problem of getting the right cap, UNEP has said that the current agreements on limits are not going to be enough and we are not going to meet our targets-the trajectory is all wrong. Presumably you agree with that?

Sir David King: Yes, that is correct. There have been a number of analyses made of, if I could just clarify, not agreements but the voluntary commitments from nations under the Copenhagen process and the Cancun process. If you put all of those commitments together we would still be on a 3 to 4C trajectory going forward. So these commitments are insufficient. However, I would argue that these are the voluntary emissions from differing nations and, therefore, rather better than one might have expected. As we move forward and evolve into a globally agreed system-the intention now is, in 2015, to have in place a globally agreed system that will be enacted by 2020-we have a chance to evolve, for example, European Union plus China, then adding other countries to the grouping, to a system that meets the overall objective, but we are certainly not there yet.

Q90 Sir Robert Smith: In trying to close the gap, what do you think the UK’s emission target for 2020 should be?

Sir David King: I think the UK is currently on the right track. In other words, I believe that the Climate Change Committee has set the right targets through the carbon reduction process out to 2025. Whatever target we have has to be deliverable. That is absolutely critical because, otherwise, we are going to be seen to be boasting rather than delivering. I think the Climate Change Committee is getting it roughly right at the moment.

Q91 Sir Robert Smith: You think it is deliverable?

Sir David King: I believe it is deliverable and, as a matter of fact, I produced a paper saying how it could be deliverable.

Q92 Sir Robert Smith: Have we engaged enough with the public on the consequences of making it deliverable?

Sir David King: Not at all, no. Perhaps if I may just say something about delivery. Oil price is the current elephant in the room, in my view. For example, the Italian economy is in deficit by €38 billion per annum at the moment, roughly. Of that, since they were not in deficit, since they were in balance in the year 2000, the increased cost of imported oil to Italy is €34 billion. Most of the current deficit in Italy is due to the cost of imported oil at US$100+. The UK is shielded from this because of our discovery of North Sea oil, but that has already passed its peak. North Sea oil peaked in 1999 at 3.1 million barrels a day. We are down to 1.4 million a day now and we are net importers because we need about 1.6 or 1.7 million barrels a day to meet demand locally.

If we look at 2020, in our model we can achieve a graduated independence from oil imports by transferring the transport sector on to the electricity grid. The saving to the British economy is potentially in the range £30 billion to £50 billion per year. The point I am making, and it is a point that has not been made at all in the political domain, is that de-fossilising our ground transport sector is essential for the British economy as we move away from this bonanza of North Sea oil. We cannot afford, as Italy cannot, to import the oil that we would otherwise need to keep our economy going.

As we move forward I would say there is little choice before us but to remove our dependence on oil and to push the agenda of the Department of Energy and Climate Change to de-fossilise the electricity grid and to move the ground transport system on to that grid. Defossilising the electricity grid, in my view, will only be achieved if we do more than just give a green light to nuclear new build. We need a clear statement from the Cabinet that this is the right way forward. To be honest, I think that is seen to be absent at the moment and the reason why we have several utilities stepping away from nuclear is because they are not getting those clear signals.

Q93 Sir Robert Smith: Does that target make sense if the rest of the world isn’t joining in on the same agenda? Do we gain by being leaders or do we take a risk in being an outlier?

Sir David King: As I hope I have just indicated, we benefit because our economy will come back into balance. So there is a purely selfish motive for going down this route. If we can generate all the energy we need within our country-and I believe we can as we have enough uranium and plutonium stockpiled up in Cumbria to deliver the electricity we need for a very long time into the future-if we deliver all of that within country, we are replacing the North Sea oil bonanza as we begin to lose it.

The second reason why this is essential is that it gives muscle to our negotiating position. If I take negotiating fishing rights in the oceans around the European Union, what happens in those negotiations is clear scientific advice on setting up fishing protection areas and reducing fishing and, in the negotiations, every country goes in to keep their fishermen fishing. Now, if we follow that policy we are not going to solve this problem. Going into the negotiations saying, "This is what we’re doing; what are you going to do?" completely changes the negotiations.

Q94 Ian Lavery: Looking at the Kyoto Protocol, the first commitment period under the protocol ends in 2012, and there has been a lot of criticism with regard to a number of things. Do you think the second period of the Kyoto Protocol will be effective without some of the major players being part of the protocol?

Sir David King: There are two parallel streams of activity happening through the United Nations Framework Convention on Climate Change at the moment, the first is the continuation of the Kyoto process and the second is emergence of the Durban platform resulting from the Copenhagen voluntary agreements and the Cancun agreement where all 196 nations signed up to it-an amazing achievement by the Mexican chair-followed by the creation of the Durban platform.

So we have these two parallel processes occurring. My own belief is that it is the second of these two that is going to deliver results because it is based on voluntary commitments. The first of these two was always going to be blocked by the United States. Their Senate and Congress have not voted to sign up to Kyoto ever. The follow-through from the United States not signing up is that China was never going to sign up and then those two nations take another set of nations with them. The procedure is capable of being blocked unless we break it by going into this voluntary arrangement and then we even had all of those nations signing up to the voluntary agreements.

That is a rather long way of meeting your question. The Kyoto process will go through. The European Union’s cap-and-trade is part of the Kyoto process, but the European Union has already decided to continue their part of the process without the full Kyoto mechanism.

Q95 Ian Lavery: What further should the UK diplomacy be on the road to COP, to try and prioritise getting the likes of Australia and New Zealand to sign up to the protocol?

Sir David King: Mr Lavery, that is a very good question, because I think the changed position of the Australian Government is quite critical. The European Union needs as many allies in their negotiating position as possible, and quite clearly for the European Union there is now an important new ally in Australia, important because Australia also takes a group of other nations with it. So I think that as we approach Doha, COP 18, those negotiations are critically important to see that we create alliances but, at the same time as creating alliances with those nations, it is critically important to get alliances going with the basic group of nations, Brazil, China, India and South Africa.

That group of nations is obviously growing into the important powerhouse, and those nations are looking for equity. The basic story from those nations and the developing nations generally is, "You guys emitted all this carbon dioxide through your industrial revolution and your enrichment and you need to deal with the problem. So go away and deal with it and come back when you’ve done that." Now, the answer to that is, "No, we’re all in this together. Even if we stopped emitting in the developed world, the problem would not be solved." So we need to go to them and seek an equitable solution.

I am suggesting in this paper that I have submitted that an equitable solution would be an objective to reach the same emissions per capita by mid-century. The British position, 80% reduction in emissions by mid-century, was computed from exactly that. I was involved in that computation. If you take 80% reduction in emission, you get down to a 2.1 to 2.6 tonnes per person target by mid-century and that is where Britain would be with an 80% reduction.

We would go into negotiations saying to India, which is at 1.5 tonnes per person, "You would be allowed to go up to 2.1 to 2.6 tonnes per person," but I am also suggesting that in the interim, as their economy grows, India would have a trajectory that allowed them to increase up to 4 or 5 tonnes per person in the shorter term and then to come back down to the agreed objective by mid-century. The reason I am saying all of this is simply the issue of equity. We need to understand, what will bring the other partner to the negotiating table has to be behind all of our thinking.

Q96 Ian Lavery: I’m not sure about, "We’re all in this together." I am a bit sick of hearing that statement, but that is a different issue. There are a number of countries, particularly eastern European countries and some central European countries, who still hold surplus a certain amount of units. Do you think that the UK should be able to prevent these units from being carried forward? Do you think it is in their best interests and, if so, how can we prevent these countries from transferring over to the next protocol?

Sir David King: That is a very good question. If I could give a written answer to it I would prefer to. That is a tough one.

Q97 Dr Lee: If we can just backtrack. Your argument vis-à-vis oil and Italy and us going nuclear and electrification is all very persuasive. I am certainly persuaded, but in order to do all of those things we need to borrow money as a country. If The Guardian is to be believed, the front page today, there is not going to be a lot of money knocking around. Our ability to borrow money is probably going to diminish, certainly at competitive rates. So in order to put in the infrastructure that you think we should put in, in order to become less dependent upon fossil fuels and hit our targets, it is going to be a pretty difficult sell to a country that is struggling economically. I wonder, however strong your argument is, whether in the reality, certainly in the political reality, of the next decade, certainly on this continent, that we are not going to be able to do it because the numbers just will not add up for us.

The second additional question is, to date, certainly up until the last couple of years, we have somewhat led, in Europe, the negotiations on all of this. Certainly Europe has taken a lead. You talk about equity, and I wonder whether the equity aspect is going to diminish in the next 10 years as Europe’s position, relative to the rest of the world, becomes more equal-I know there is some way to go but certainly it is going in that direction-and whether, instead of pushing cap-and-trade on them, we are going to be going cap-in-hand to them. I wonder what your opinion is about that.

Sir David King: What we are discussing today, Dr Lee, as I’m sure you are aware, is central to the future of our economy. I don’t see this as a peripheral issue at all, and so I am going to answer in the big terms in which you are asking the question. How do we regrow our economy in the face of the current crisis? In my view we ought to be investing in creating jobs, and by "we" I mean the public sector. I am taking the same route that we came out of the 1920-30s crisis with. It requires public spending to put people to work on projects that are going to transform our economy in the right direction. So every large-scale infrastructure project that is leading towards a de-fossilising of our economy needs to be right at the top of the agenda.

As we move forward-and I will come to the point of "Where is the money coming from?"-in my view, we need to be investing in projects. Let me take one that is a favourite of mine but doesn’t yet have a lot of currency in the media, and this would be the Severn barrage. The Severn barrage will provide 3 GW of energy-two nuclear power stations’ worth of energy-for that area of England, not for the next 40 years, for the next 200+ years. Once this barrage is in place you will have a very cheap source of electricity long-term that has no fossil fuel implications, no alternative fuel implications at all, and very low maintenance cost per kilojoule of energy produced. That would cost, however, over a five to six-year building period, £22 billion. So there is an upfront capital cost. It will put a lot of British people to work. It creates jobs. It boosts the economy.

I can give you many examples. High Speed Rail 2 is another one; building new nuclear power stations yet another. Each of these large-scale infrastructure projects leads us into a future that is good for our economy and perfectly sustainable. Where does all this money come from? "Quantitative easing" is the phrase that is often used at the moment, meaning printing money. Of course, this is happening but, in my view, the result is a public potential for re-growing the economy, which is then simply given to the Bank of England and it just follows some other process. The Government does not control the outcome. Whereas, if the quantitative easing was directed into these projects, which I know is a very different sort of process, what we would do is generate jobs. We would have Government directing the process, in the short-term, and I believe this would be a process for pulling us into economic growth, but it pulls us in the direction that we want to go in.

Chair: It is tempting to pursue that line of discussion, but for another inquiry, I think. But you have certainly said some very interesting things indeed. Perhaps we might just return to the-

Sir David King: I did say this was not a peripheral issue.

Q98 John Robertson: Moving on from that, is the Kyoto Protocol architecture a good base for a global legally binding agreement?

Sir David King: I believe, if I can reinterpret your question, the Durban platform is an excellent basis for a global agreement. In other words, it is a process that allows the evolution I have been referring to-different trading process, different procedures-to evolve into a single global process.

Q99 John Robertson: A previous Secretary of State described a global legally binding deal as an absolute necessity. Is there an alternative?

Sir David King: Yes, the alternative is in place at the moment. The alternative is voluntary commitment nation by nation, region by region, and I believe that procedure is proving far more effective than the previous Kyoto process. However, as we move forward in time, I do think that we will need to move towards an agreement.

Q100 John Robertson: You did say that Copenhagen had been good and that was the way forward at the moment. Would it be fair to say then that we do need, at some stage, a legally binding agreement that pulls all the voluntary stuff together?

Sir David King: Mr Robertson, I can tell you that I was in Durban and I was extremely surprised at the outcome there for the simple reason that I was convinced the American President could not ask his representative to sign up to a globally binding agreement without Senate and Congress taking it through. So I was rather surprised about that. What has happened is at 4 o’clock in the morning on an extra day in Durban everyone signed up and went home. Now, that is actually how it worked and exhaustion eventually leads to agreement. My point here is that there is a problem with that Durban platform, which is will the United States, by 2015, come to the table and say, "Yes, this is an agreement we can bind ourselves to." At the moment it would be very, very difficult to put all of your eggs in that basket.

Q101 John Robertson: In 2015 there are lots of presidential elections happening. Is it likely that the US could go down that road at that point in time? Any candidate who is putting his name forward, because we know there will be a new president, will be sucked into trying to make an agreement, or an agreement that has been done.

Sir David King: One of the saddest things about the development of the political situation around climate change in the United States is that it has been politicised, and one of the great advantages of the British system is that we have all three major parties fully in agreement on managing the issue of climate change. In the United States this does depend on which party elects a president and whether or not-and this is important-that party has a sufficient majority in both Houses. You are asking for quite a lot.

Q102 John Robertson: This is obviously a $64,000 question. Will there be enough progress made at Doha for an agreement to happen?

Sir David King: I am working with the Qatari Government on this. The progress that is required by Doha is relatively modest, and I would not want expectations to be too high because then the media jumps in and says, "Another failure," but I think the requirements are to understand that the principles around equity need to be fully aired. We are not going to make any progress until we are all agreed, the developing nations and the developed nations, on what we mean by equity, and what is going to be fair to all. Once we have decided we agree on the principles, then we can get down to content. I think Doha is an opportunity to do that. The 2015 target is a good time period, but we just need to remember that the legal writing of the documents will itself take at least six months-so it is not to the 2015 COP meeting; it all has to be done well in advance of that. So you are really talking about an agreement that is virtually in place at the COP in 2014. It is going to keep some of us very busy.

Q103 Ian Lavery: Looking at the funding for finance and adaptation, is there sufficient funding for the green climate fund?

Sir David King: This is a fund that is intended to grow from US$12 billion per annum to US$100 billion per annum by 2020. The short answer to your question is that, with the severe fiscal constraints and trade deficits faced by most developed countries that Dr Lee referred to, budgetary contributions from those developed countries amounting to US$100 billion a year are, in my view, politically and economically probably not viable unless we can find a clever mechanism to deliver this.

Now, you will know that Secretary General Ban Kimoon set up a very high-level commission to deliver a mechanism for creating the US$100 billion a year fund and when I say "very high-level", it was a very good group of people who were asked to do this. The names include prime ministers, Christine Lagarde and Trevor Manuel, Africa’s most renowned economist; so I think a very good group of people. What they suggested was that for every dollar from the international development banks we could anticipate raising three to four dollars from the private sector and with a mechanism operating like that, if you can count-and this is a matter for discussion-all of the private sector plus the public funds in that way, then it is quite possible to reach the target figure.

But I say this is a matter for discussion because it is complicated. If you created a US$100 billion fund of public money you could expect to attract another US$400 billion, let us say, of private money to go with that. It is all a question of what the global sum is that is required. I am hesitating a little bit to say the next line, which is I think this multiple-instrument process is bureaucratically clumsy, and that is why I am trying to argue for a single cap-and-trade instrument. If you have a single cap-and-trade instrument you can create the cashflows you need from the developed world to the developing world through the tradable commodity, that is carbon dioxide permits. Through a single instrument you can cut out a vast bureaucracy set up in the World Bank simply to deliver on this new fund that is being set up. I see the need for the fund in the shorter term, but I would like to see it evolve into a single instrument and that instrument is the cap-and-trade.

Just to explain, I have a paper with some figures in it and, if I could refer to figure 2, what I have indicated there is trajectories for one developed nation and one developing nation. The trajectory for the developed nation, in solid red in my coloured version, is a downward trajectory all the way through to 2050, corresponding to 2.5 tonnes per person. But for a country like India the trajectory goes up and meets the trajectory of the developed country and then comes down to that figure. So while their economy is developing they get a very large cap. This enables them to trade the excess units that they have been given under the cap with those countries that are trying to diminish their emissions. This creates, through a single instrument, the necessary flow of money from the developed to the developing world, and you create it through a tradable commodity, and the point I am making is that we know how trade works globally.

Q104 Ian Lavery: Do you think there is going to be more use of the EU emission trading system revenues?

Sir David King: We should never give permits without an auction process. It makes an awful lot of sense if the auctioning of permits yields finances that are put back into the finance funds that we are now talking about. In the shorter term it would create good will with the nations we are trying to bring into the fold if the funds generated from the auctioning within the European Union formed part of the fund that we have just been discussing. In essence I’m agreeing with your statement.

Q105 Ian Lavery: What do you think the barriers are to introducing more mechanisms that could possibly raise revenue from shipping and aviation?

Sir David King: As you probably know, the proposed rules on aviation in the European Union are causing quite a few difficulties with our colleagues in the rest of the world. Shipping and aviation has to be introduced, in my view, into the carbon pricing process and, if that is done on a global basis, that is operable. The problem is when it is only done within a smaller part of the world. So we are now talking about shipping that doesn’t stay within the European Union and air flights that don’t stay within the European Union. It is as soon as we have a process that impinges on our neighbouring countries outside the EU that we’re creating difficulties, but the revenues from that process, again, could be used as you have indicated. By the way, setting up border carbon prices is the other way of dealing with what I consider to be the big problem that hasn’t been handled, which is embedded carbon being traded.

Q106 Chair: We will come back to that in a moment, because it is a very interesting subject. Just on your figure 2, even for the developing nations the cap reaches a level point, from what I can judge, at 2016 roughly. So they have a bit of headroom for the next three or four years, but after that the continuous blue line looks as though it is level and then starts dropping in about 2030.

Sir David King: Chairman, I realise this is a little complicated. The dotted blue line for country 1 is the business as usual. So the cap is much higher-very generous, this cap.

Chair: I see what you mean, yes.

Sir David King: In fact it is only after 2038 that they go below their business as usual.

Q107 Barry Gardiner: Fairness and equity: can you explain to us how the HDI should be used to determine the specific part that each country’s trajectory should take?

Sir David King: The reason I mentioned the Human Development Index is simply that what would be needed is an objective number that can be used in negotiations so that the negotiations aren’t just subjective and based on who is the strongest negotiator. Using the Human Development Index means that essentially countries with an average earning above US$15,000 a year are all treated the same and so they would come in the group of developed nations. They would, therefore, be on a similar trajectory going forward. Then the Human Development Index becomes the margin that your country is allowed above the business as usual for that country.

If you were at the zero point on the Human Development Index your trajectory forward would be business as usual initially, and then back down to the globally agreed figure by 2050. If we simply feed into the curves that we have produced here for two nominal countries one index, the HDI index, we can then create figures for every country. That is not suggesting that would not be subject to disagreement and negotiation. But, of course, the other factor that makes it complicated is that the HDI will be time-dependant. These countries are developing their economies and so we have to introduce a time-dependant HDI and, for me, that is the biggest challenge. The advantage of an HDI over a GDP figure is that it approaches an asymptote at which every country has then joined the same HDI; that is the 15,000 figure in terms of GDP. I think HDI has very real advantages over something like GDP, which will continue to change well into the future.

Q108 Barry Gardiner: If I were a gaming strategist how would I get round this? Is it not a perverse incentive to expand my country’s population but maintain income differentials within that country, which meant that a large element of the population were kept very poor? I mean, is it not a perverse incentive for injustice in-country?

Sir David King: Yes, I am aware of this, and in one of our papers we have said that it is quite feasible, therefore, to introduce within the agreement various population-level maximums per country. In other words, if your population rises above X then you no longer benefit from the per capita arrangement. It simply stops at X. Now, that is something that I think is quite feasible to include in the more complicated negotiating process. What I am keen to deliver first of all is discussions about principles, and then get down to the detail-and of course I know the devil is in the detail, but we can give quite a few different models with different assumptions fed into them. I certainly am aware of potential perverse incentives. I think that it is would be a very cynical Government that pursued that particular perverse incentive, though. You are saying there are some?

Q109 Barry Gardiner: There are a few around.

Sir David King: I think if I could then take that point on. Governance procedures would have to be at a certain level before a country could join the trading process. There are countries at the moment that we could all think of that would not qualify for a global trading process of this kind simply because the governance procedures are not in place. So a Government that benefited its own members and their bank accounts somewhere simply by the tradable commodity would not be brought into the fold.

Q110 Barry Gardiner: Sorry, you are leading me off in directions that are taking us away from the questions I originally wanted to ask. I am sure you and I could think of a number of countries that are critical to the climate change challenge, particularly in relation to forestry, where, under what you have just said, they would not be admitted into the scheme. I will take an example, a place like DRC, with the enormous capacity there for deforestation and contribution to the problem. If the scheme can’t cope with a country like that is that not a serious downside?

Sir David King: Yes. Of course, DRC has to be in everybody’s minds. I think the Government in Kinshasa might even agree that it controls the area around Kinshasa but the vast central part of the country is not under its control and so the deforestation can continue. Particularly, the deforestation around mining that does continue is completely ungovernable and, worse than that, we know that the revenues from that process go into the pockets of rebel armies. So there are major difficulties there whether we are talking about this issue or not. If we are looking at forested areas, this is an argument for continuing the REDDPlus instrument as we go forward. I am uncomfortable with all of these instruments, but I do think that we are going to continue with REDD-Plus. We’ll continue with the World Bank Fund until we have evolved into a single instrument.

Q111 Barry Gardiner: Just to say I have been attacking your reputation but only really to test it. In fact three years ago I wrote something saying that we should be moving to a per capita basis and very much along the Indian lines in thinking on this that have been developed. Sorry, again going off on a slight tangent. In terms of global cap-and-trade, you mentioned the Australians earlier and, of course, they have gone for a different system. They have gone for a tax system. How are we going to get those countries who have thought that a tax is a better way forward here brought into this cap-and-trade structure? They clearly thought very long and hard about it. There were huge political battles in Australia and, of course, there are advantages and disadvantages with both. You either have price certainty or you have emission certainty, but then you have uncertainty in relation to the other. How do we persuade countries who have taken that route to then switch horses?

Sir David King: I think that the carbon tax and the cap-and-trade go hand-in-hand very comfortably. The British Government, for example, putting a floor on the carbon price is a way of combining the two.

Barry Gardiner: I think that has been a disaster.

Q112 Chair: I am not sure it is.

Sir David King: Let me rephrase it in this way then. We are coming to the problem of embedded carbon, but as we negotiate with countries that are exporting from their country to us and with high carbon content goods one negotiation is to say, "If you have a carbon tax then we don’t charge a border tax for those goods on the carbon content." That is simply another way of saying I think the two are interchangeable. In other words, the pricing of carbon can be achieved through a tax or it can be achieved through a cap-and-trade, and they are interchangeable at borders. We can have another argument about the floor.

Q113 Barry Gardiner: Just briefly on Annex 1 countries, in which China, India and Mexico are not currently included. Going forward, how do we deal with that? Do we need to bring those countries into Annex 1? Under the new structure will there be an Annex 1? How would you see that developing?

Sir David King: I believe the Annex 1/non-Annex 1 terminology is now completely out of date. We have the rapidly emerging powers that are now the basic group of countries plus a number of others. There has to be a time-dependent process. In other words, with all of these economies rapidly developing and joining the sort of level of economy that we have-and I say "joining" because ours are not growing at the moment-there has to be a redefinition. Now, I think that the redefinition can be done using the HDI, for example. I think the Annex 1/non-Annex 1 should be consigned to history.

Q114 Sir Robert Smith: The Institute of Mechanical Engineers last week were very keen on the idea of cap-and-trade and setting a price for carbon and they saw that incentivising machines being developed that would sequester carbon from the atmosphere-not CCS, but just from the atmosphere-as part of the trading process and sequester and store. They saw that as a technical balancing act to all those industries that don’t lend themselves to direct capture. Do you see that as a technical evolution that is likely to develop?

Sir David King: The technology will not develop. If I may put it this way, if we cannot financially find a way of making carbon capture and storage off the top end of a coalfired power station work, how on earth are we going to make it work with the much more dilute carbon dioxide in the general atmosphere? A power station at least has electricity to sell to pay for the process. There is nothing to pay for the process in the normal conceived process.

Q115 Sir Robert Smith: Apart from the fact that obviously they would then be able to sell the negative emissions.

Sir David King: Yes. The only finance that they can achieve is through the carbon dioxide commodity pricing. What I am saying is, if we are able to develop the technology around carbon capture and storage from a high concentration of carbon dioxide in the output of a coal-fired power station, that would be a major step forward. Let’s focus on that. At 500 parts per million in the atmosphere, I don’t see this as a feasible technology. By the way, trees do it rather better than-

Q116 Sir Robert Smith: They did argue trees don’t store because they then die, fall down and rot.

Sir David King: Yes, we have to be very careful with trees. Managed forests are very good and we need to pursue managed forests in Africa. Where people are burning wood we need to see that there is regrowth rather than denuding of the land. So managed forests is close to a zero carbon. At the same time there is no question the forests of the Amazon and of the Congo are big carbon sinks, continuous big carbon sinks.

Q117 Chair: Just going back to the cap-and-trade, this Committee has done some work on consumption-based emissions reporting and, of course, that shows a rather alarmingly different picture as far as the UK is concerned from the figures on which DECC base most of their policies. One of our more hilarious sessions was with a DECC and DEFRA Minister sitting side by side because DEFRA use different figures from DECC. But it is a complication and you placed, I think very rightly, a lot of emphasis on equity and that is to get everyone to do something that has to be seen to be fair. Is this going to be an additional complication in trying to work out the basis for the global cap-and-trade that you have outlined?

Sir David King: I think the consumption-based approach is an alternative way of dealing with embedded carbon. In other words, if we deal with it at the point of consumption then we don’t have a problem with embedded carbon. Embedded carbon, Chairman, has been left out of all of the Kyoto discussion to date and yet the reason why emissions have not dropped below business as usual, despite the successes of the European Union, is because we simply made up for it by importing goods largely from China.

Q118 Chair: Yes. In the period before a global cap-and-trade system could be established could we achieve significant progress simply through border tax adjustments?

Sir David King: Yes. I do think there are a number of advantages in border tax adjustments on embedded carbon. It becomes a negotiating tool. We can incentivise countries to introduce their own schemes. If we charge the border tax we benefit from that tax. It stays in Britain. The Chinese Government would not like that and would rather impose a similar tax within China so that the tax is kept in China. So it incentivises countries to join in the carbon pricing process. I think that it is a practical instrument, but it is also a very good instrument to incentivise other countries to come on board.

Q119 Chair: I can see that argument absolutely, but earlier on you made reference, in relation to aviation, to the reaction of other countries outside the EU. I very strongly admire the European Union’s determination to stick with this and I hope that they don’t weaken in the face of continued opposition. I know that the aviation industry is a famously successful lobbying group anyway. The hostile reaction does not necessarily bode all that well to the reaction if we say, "Okay, we’re going to have a border tax adjustment." You say, of course, that is an incentive, which is it, to other countries to deal with it more domestically, but there might be at least as great, or possibly even greater, hostile reaction in the early stages of trying to achieve this.

Sir David King: President Barroso has raised this with the Chinese Government, and it was seen to be a hostile act by the European Union simply to raise it in discussion. However, we do know that the Politburo has looked at this and its response is to move faster into its cap-and-trade carbon pricing process. I think we do see that the outcome is beneficial.

Q120 Dr Whitehead: Just briefly, you mentioned in your written evidence, "One clear opportunity is to remove subsidies on fossil fuels." That is a bit of a Jonathan Swift modest proposal, is it not?

Sir David King: Sorry?

Dr Whitehead: A Jonathan Swift modest proposal. As you said, there are $409 billion of subsidies worldwide, largely in various countries relating, so it is claimed, to keep people out of fuel poverty or provide fuel at a reasonable cost. How would that work in terms of making a distinction between the carbon cost and avoiding civil unrest and keeping the population of those countries in reasonable fuel-cost comfort? Do you consider it doable, feasible, or would there be problems of civil unrest such as we have seen with the removal of food subsidies across the world?

Sir David King: The first point is to emphasise $409 billion a year is the current level of carbon subsidies around the world, largely for coal. $66 billion is the current estimate of global energy renewable subsidies. I am just putting in context the perverse subsidies, perverse in terms of dealing with climate change. Those subsidies are in place partly to meet fuel poverty but I would suggest that there is another reason, which is that they are simply there for historical reasons and they have become embedded in the process and then it is very difficult to lift. We have had a very brave and knowledgeable Minister in Nigeria trying to lift these subsidies in Nigeria and finding it very difficult to do so.

By the way, I said "subsidies largely for coal" but there are enormous indirect subsidies for oil. The countries in the Middle East subsidise oil in their own consumption, national consumption, very heavily. In other words, where the oil price is now $112 per barrel, in those countries they are charging perhaps $5 a barrel if you consume in-country. Now, given the cost of selling it abroad or selling it in-country, that is a very big subsidy and it is a perverse subsidy because it creates all sorts of dependencies in-country and there is no sense of changing behaviour. So while I think I do understand the fuel poverty issue, I always think fuel poverty has to be dealt with by different instruments than the blunt instrument of carbon subsidies.

Q121 Dr Whitehead: You mentioned Nigeria, and the big subsidisers are Iran, Russia, as you mentioned, Saudi Arabia, China. Could you envisage any sort of protocols where the fossil fuel subsidy is replaced by a renewables subsidy, for example, so the one scales up against the other by some kind of protocol means? I am finding this difficult to gasp in terms of what sort of instruments might be possible either on an international basis or a wider-than-national basis to enable this to happen in the context of how national Governments are dealing with, as you say, the embedded nature of those subsidies.

Sir David King: I think in a way this comes back to Dr Lee’s question. How do we nationally incentivise our economies down this low-carbon route? We suffer terribly from inertia and the inertia comes not only in terms of human behaviour, that we don’t want to change what we are so comfortable with. It also comes in infrastructure terms. We build a coal-fired power station. We expect to get a return on our capital for the next 40 years. So we have a major inertia problem. How do we break that trend? Governments can introduce subsidies.

So I think there is the justification for subsidies on all low-carbon energy sources, to just pump-prime the change required and incentivise the companies to finance that process. But we also have to be aware of these perverse subsidies arising when subsidies are introduced "never to be removed". The private sector wants to see long-term guarantees. They want to see that the subsidy remains in place forever and Governments need to just be aware of the fact that it is meant to be a pump-priming process. The economy of the countries you have just listed is improving all the time and to leave a subsidy in place forever is, therefore, unnecessary.

I know you are raising a very, very difficult question. It is a national question but the G20 countries have now taken on board the whole issue of subsidies within their own countries. So the discussion among Heads of States about the importance of removing subsidies is itself an important way of going forward, but these are all national rather than international issues. It is national implementation of energy policy that we are talking about.

Q122 Sir Robert Smith: Yesterday we met with some financial institutions who were looking at Phillip Lee’s point in a way and taking the example of France where they made the decision that they would try and decarbonise by going down the nuclear route with subsidies to avoid being exposed to the global oil market. The consequence was that when oil was cheap they were missing out and when oil was expensive it was the same. Because the rest of the world hadn’t taken the same path, their export markets were all depressed. So they had gone down a different route but hadn’t managed to decouple themselves from that.

Sir David King: We are now going back a long time. The French Government took a decision on nuclear new build. I don’t think it is a coincidence that de Gaulle reached that decision at the time that Algeria was reaching independence. The question, therefore, of maintaining energy security for the country was very much at the top of the mind of the President, I think. 80% of their electricity is quite extreme coming from nuclear. I would not argue for that, but going down this massive programme of nuclear energy generation, I think, was very much in the mind of the President to create energy security rather than financial security, but it also delivers financial security in the sense of balance of payments. It is very, very important to understand that generating energy through internal processes doesn’t impinge severely on balance of payments. In Britain we wouldn’t have to import any uranium because we have stockpiled enough. We simply have to build the power stations.

Sir Robert Smith: Simply.

Sir David King: Yes.

Chair: Thank you very much for coming in; a very interesting session that has provoked some other possible lines of inquiry. We might want to talk to you again later in the year, but we are very grateful to you, as ever.

Prepared 28th May 2012