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On Question, amendment agreed to.

[Amendment No. 105 not moved.]

Lord Teverson moved Amendment No. 106:

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The noble Lord said: My Lords, we come to an important principle in the Bill: the Government’s concept of the UK carbon account. As noble Lords will know, that does not target actual UK emissions but UK net emissions plus or minus the trade in carbon permits from abroad, whether through the European system or some of the other Kyoto mechanisms. The amendment is intended to put a limit on the number of those foreign credits included in the UK carbon account.

I want to make it quite clear, as I did in Committee, that all noble Lords on all sides of the House are absolutely committed to emissions trading systems. In no way does the amendment inhibit the actual trading of permits internationally, particularly within the European Emissions Trading Scheme. All of that continues, company to company, in the current and post-2012 regimes, if the amendment is passed. As proof that this type of amendment does not affect how emissions trading schemes work, I remind your Lordships’ House that the Government already have a carbon dioxide emissions target for 2010 which does not allow any trading to be counted towards it. Yet that that has in no way inhibited the EU ETS and Kyoto mechanisms from working very effectively and efficiently despite that national target already being in place.

An important thing for all of us is that the Bill gives the United Kingdom the chance to show global leadership. That is what we all, on all sides of the House, welcomed when the Bill was announced. We all have our individual criticism of clauses and various bits of the Bill, which we are now considering. On the whole, however, it is right for the Government to bring the Bill before the House, for it to be approved and for us to show the international leadership that the Government wish. However, that can only be the case if the United Kingdom makes part of that effort itself. If, on the other hand, it decides to subcontract all its effort to meet its carbon targets to the rest of the world, that would not show a great deal of leadership and would completely undermine the ethos, motivation and practical importance of the Bill. None of us—and I am sure this is true of the Government—wants that to be the case.

The amendment does not go as far as existing government targets and say that no international credits shall be counted towards the UK carbon account and the targets in the Bill. However, we are saying that they should be reasonably limited. The amendment says in a sober and reasonable way that 70 per cent of the effort to decarbonise our economy and meet those targets must be met within the United Kingdom. That is fundamental to the understanding of the Bill in the country and within the global community, and reflects what the Government and Ministers themselves wish to do.

Because this is such an important principle, it needs to be in the Bill. It has to be clear in the Bill that there is a limit to the amount of decarbonisation of the UK economy that can take place by subcontracting it to the rest of the world while we carry on emitting carbon dioxide and the other greenhouse gases to our heart's content, to any degree that we want, as long as,

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somehow, by the end of the budget period, we fix that by purchasing credits from abroad. That is not what the Bill is about.

We recognise that international effort is important; our contribution towards that is important. That is why there is no prohibition in the amendment. The amendment would not stop the Government purchasing as many international credits as they want to assist developing countries or other parts of the world to decarbonise their economies; it means that after a certain limit, they would not be counted towards the targets. That is all that the amendment does.

When I was preparing for the debate and thinking about the issue, I looked through some government pronouncements. One that was absolutely right was by Phil Woolas, a Minister in the other place, when he spoke to the Renewable Energy Association at the end of last year. What he said encapsulates what we all want. He said:

that relates to the UK. He said that although the reduction,

I could not disagree with that statement at all. In fact, that sums up what the Bill is about. The amendment would help the Government achieve their goals. I beg to move.

Lord Taylor of Holbeach: My Lords, I see this as a fundamental amendment with wide support across the House. I will not further extol the virtues of trading schemes and their importance to the fight against climate change, but only because that has been sufficiently covered by the noble Lord, Lord Teverson, and in previous debates, and because I believe that there is a strong convergence of opinion on the vital role that they can play.

However, how the schemes are to be included in the Bill is still the subject of much controversy. It is to that that I will direct most of my attention. The Government have come a long way since the Bill was first debated. I was pleased to see many of the amendments that the Minister tabled for Report, as they showed that the Government really seemed to have listened to the concerns expressed by noble Lords in the debates. The Government have been particularly good at strengthening the role of the committee and on beefing up some of the reporting mechanisms.

However, that willingness did not seem to extend to capping overseas carbon credits. Simply not enough has been done to send out a sufficiently strong signal that the Government are truly committed to decarbonisation. The noble Lord said in Committee:

I simply do not feel that such a modification has been made. We certainly appreciate the Minister’s averred

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commitment, but assurances in Hansard are, in our eyes, insufficient. We want something in the Bill that shows that the Government are committed to addressing the issues of overseas credits, to ensure that the Bill is truly focused on domestic decarbonisation and will not allow the widespread buying of indulgences that will lock our economy into its dependence on carbon.

A fixed percentage in the Bill may not be the best way of going about that. We understand the difficulties in placing such a precise figure in the Bill, which range from the constraints of the international negotiation tables to the fact that the carbon market will look a lot different in 42 years. However, a 30 per cent limit on the contribution to the reduction commitment is fairly broad and it is the best course of action in the absence of anything from the Government. The Minister said that he envisaged the Committee on Climate Change addressing these issues. That fits into our general approach towards the Bill and the role of the committee. However, we would like the committee to have a specific duty under the Bill to set a figure capping overseas credits. Should the Government bring something to that effect forward at Third Reading, we would be willing to reconsider our position on the amendment.

3.30 pm

Lord Woolmer of Leeds: My Lords, would the limit apply to the purchase of emissions from elsewhere in the European Union? If so, how would it be imposed within our legal obligations under the EU Emissions Trading Scheme?

Lord Taylor of Holbeach: My Lords, I will be asking questions about how the Minister sees the particular cap on limits working. As the debate is furthered, I hope that we will be able to elucidate this matter.

Lord Clinton-Davis: My Lords, when the noble Lord replied to my noble friend, he said, “That will be apparent”, or words to that effect. I do not think that it is apparent. The duty is on the noble Lord to determine the issue now, not later.

Lord Taylor of Holbeach: My Lords, I do not intend to be shot down by the noble Lord, but I do intend to continue my speech.

Should the Government bring something to this effect forward at Third Reading, we would be willing to reconsider our position on the amendment. That is the important point that I wanted to get across to the Minister. Simply put, we want something in the Bill. Current thinking is that, following Kyoto, overseas credits can be supplemental to a country’s reduction effort. However, the strength of the supplementarity doctrine depends on how the reduction is calculated.

I hope that the Minister will be able to clarify the concept. What is supplemental to what? Is it supplemental to the reduction effort in terms of how far we have to go to meet the reduction in relation to the baseline year or is it supplemental to the reduction of the projected increase if we continued with business as usual? Those create very different figures. For example,

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let us say that we are currently emitting 100 million tonnes, which must be reduced by 10 per cent in the coming five-year budget. Is the reduction effort 10 million tonnes, of which a supplemental portion would be about 5 million tonnes, or is the reduction calculated based on what we might be emitting in five years if we carried on with business as usual—say 125 million tonnes—which would make the reduction effort 35 million tonnes? This would mean that a supplemental percentage would be, say, 17.5 million tonnes, which would allow us to buy more than the entirety of our 10 per cent reduction. The way in which this is calculated has a substantial bearing on what caps mean. Can the Minister explain the calculation method that he envisages being used?

We understand that carbon markets need a certain amount of freedom. Indeed, we understand that many of the credits purchased in the European Union could come from overseas or be the result of joint implementation initiatives and the like. The amendment would restrict not how many credits can be purchased but simply how many of the credits purchased could be counted towards the Government’s emissions targets. In essence, we support the amendment, which would fill what we believe is a serious hole in the Bill. The issues of offsetting need to be addressed and, as adequate provision has been not made, placing a cap might go some way towards addressing the problem.

Lord Puttnam: My Lords, to sponsor an amendment against one’s own Government is a very serious business. In more than 10 years in this House, I have done so only once before, when I moved an amendment adding a public interest test to the Communications Act 2003. For that reason, I shall speak at a little greater length than has been my practice.

This is, as noble Lords have heard, a very important debate. For me, it happens to be the most important debate, because it goes to the heart of the overall rationale for the Bill. The noble Lord, Lord Crickhowell, put his finger on this in one of our committee deliberations when he observed that this is not a carbon trading Bill; it is the Climate Change Bill, which happens to include a provision on carbon trading. The Joint Committee probably spent more time discussing the trading of carbon credits than any other single issue.

On domestic versus purchased credits, we were reassured by the wording and what we assumed to be the intent of the Kyoto protocols, which have the very clear requirement that purchased carbon credits are supplemental to domestic carbon reductions—paragraphs 92 to 94 on page 34 of our report set it all out. There is no ambiguity in this unless you actively look for it. This resulted in my original concept, which was supported by an observation by the noble Lord, Lord Turner, on the radio the other day. He made the point that the 2020 target was the real challenge, which reinforced the suggestion that I have been making for a while of a 50 per cent cap, with a taper every five years from 2020 onwards, falling to around 15 per cent in 2050, by which time one would hope that the whole thing will have become academic. I am afraid that I find myself sponsoring the amendment because I had no response whatever from the Government.

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Leaving the whole thing to the climate change committee is an attractive option but, as the Minister has reminded us on any number of occasions, these essentially political decisions should remain with Parliament. This is a defensibly consistent and principled position, but it results in the need to clarify to the greatest degree possible an appropriate cap and to put it into the Bill. Surely there can be no decision more political in effect than constraining the way in which people live their lives. In essence, given the Bill’s present form, the Government are seeking to persuade us simply to trust them to do the right thing. That indicates that those who drafted the Bill do not get out too much.

The present clause amounts to not much more than a “get out of jail free” card. I am sure that that is not what was intended, but it is certainly how any objective observer will inevitably see it. Why should we suffer this lack of faith in politicians to be trusted to work things out on our behalf? Why will the committee of the noble Lord, Lord Turner, despite our best intentions, inevitably struggle for legitimacy, working off the back of years and years of governmental compromise, inactivity and dithering in this area? How, as the Environmental Audit Committee reported last week, can green taxes, as a proportion of all taxes, have declined from a peak of 9.7 per cent in 1999 to 7.6 per cent in 2006? Why is this lack of trust so complete that the requirement to have a specific figure in the Bill becomes absolutely compelling?

I think that I found at least part of the answer recently in a book entitled Blessed Unrest by the American environmental architect Paul Hawken. He wrote:

Later today, we are likely to hear arguments from those who feel strongly that in purchasing carbon offsets you are in effect helping to kick-start the benign development of what we used to call “the third world”. Anticipating these arguments from Peers for whom I have the greatest respect, perhaps I may offer a few counter-arguments. The first is eloquently expressed by Kevin Smith in this month’s issue of Resurgence. He states:

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any number of,

The difference in argumentation between myself and those who will speak after me may simply reflect a difference in background and personal experience. The cost-effectiveness case, with its attractive development underpinning, is advanced in the main by economists, whereas my arguments stem from my background as a film producer and, for the past six years, as president of UNICEF. My raw material is people—people at their best and people at their worst. Commodify them and they tend to behave badly. Explain what needs to be done, the reasons that lie behind it and what can be done to improve things and, as often as not, they will surprise and perhaps even amaze you. We need this amendment or something very like it to force the hand of the Government, whichever Government that might be, to allow the people of this country to be good instead of simply being given the opportunity to look good. As Paul Hawken put it, to,

The Prime Minister continually reminds us that we have to face some tough choices. Unfortunately, these are seldom spelt out. This amendment would help unambiguously to set out the implications of where we have got to and what will be required of all of us if we are to start putting things right. I can only urge my colleagues on the Labour Benches to support what I believe to be a very important amendment.

Lord Crickhowell: My Lords, I agree with one thing that the noble Lord, Lord Puttnam, who so admirably chaired the Joint Committee, had to say, which is that this is an extremely important issue. I also agree with him that the Bill is not adequate, but I cannot go the whole way with the argument that he advanced. In earlier stages of the Bill, I spoke about the importance of getting cost-effective action, including effective action in other countries, and about relating properly and effectively to the international trading mechanisms.

Under the Kyoto rules, the practice effectively has been to place a 50 per cent limit, which has happened in the past. I do not have any difficulty about the proposal that that limit is too high and should be lowered. However, I have a good deal of sympathy with some of the arguments advanced by the Minister in papers that he circulated to those who have taken part in our debates in which he expressed doubts about setting a binding limit, which risks being seen internationally as undermining our continued commitment to maintaining low-carbon investment flows to developing countries.

I did not have the faintest idea what my noble friend would say from the Front Bench before I heard him speak. I will confess to him now that I had some anxieties about the wording of the amendment that we are debating, as moved by the spokesman for the Liberal Democrats. There are difficulties in having a

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fixed, once-and-for-all limit, but half way through his speech my noble friend came to my rescue and said that a fixed percentage in the Bill may not be the best way of dealing with this. He suggested that perhaps we needed in the Bill a specific obligation on the Committee on Climate Change to advise on this matter. If I had not heard those remarks, I would have said something like, “I can go along with 30 per cent—it may be about right at the start—but this is going to be a continually changing situation as international trading schemes and the whole climate in which we are dealing develop”. I would have then said, “Okay, if we accept a 30 per cent amendment, I hope that at a later stage in the passage of the Bill we can have a provision that that figure could be amended after advice from the Committee on Climate Change”. So we are not very far apart. My noble friend made a powerful case that we should put a specific obligation on the climate change committee to address this important issue.

I should say to the noble Lord, Lord Puttnam, for whom I have the utmost respect and under whose chairmanship I have now served on two Joint Committees of the House, that to fix a very low percentage and then to say that it has to go lower still in later years is anticipating the future in a way that I am not happy to do. I hope that the Minister will say, “I understand exactly what is being said here”. If the Government feel that they cannot accept this fixed 30 per cent but will come along with proposals that will give a strong role—indeed, an inevitable and necessary role—to the Committee on Climate Change so that the figure can be altered as events change, we would have a mechanism that we in all parts of the House could support.

We heard evidence—I have to declare an interest in some of this—from those involved in emissions trading that something like 30 per cent might emerge as a very sensible figure. Indeed, for a period it may be a sensible figure, but, for goodness’ sake, as we are dealing with events up to 2050, let us not lock ourselves into a position that could prove extremely damaging. I support the general thrust of the Bill as long as we have some kind of mechanism of the type proposed by my noble friend on the Front Bench.

Lord Puttnam: My Lords, I was not suggesting a lower cap; I was suggesting a higher cap. The effect of the amendment is a 30 per cent cap; I was suggesting a 50 per cent cap, reducing after 2020.

3.45 pm

Lord Turner of Ecchinswell: My Lords, I have a great deal of sympathy with the aims of the amendment but I will nevertheless argue that it would not be appropriate to include it on the face of the Bill.

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