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My sympathy is based on the fact that it is essential that the UK achieves cuts in its own emissions and does not rely on what the noble Lord, Lord Puttnam, has called the delusion of a get-out-of-jail-free card. That is important because it is vital that developing countries in total illustrate to the world what a low carbon economy is and what changes in behaviour, energy efficiency and the lower carbon sources of

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energy will be required for the whole world to achieve a low carbon economy and thus emission reductions.

Indeed, the fact that we need to demonstrate that supports the argument of the noble Lord, Lord Puttnam, that it is not absolutely the case that a tonne of carbon saved in every country of the world is precisely the same. There is a value in hard emission reductions targets in developed countries because they will drive the changes in behaviour, energy efficiency and technology which will then be required across the whole world.

It is important to realise that in the long term, when we look at the 2050 target, we probably have to work on the assumption that all of the emission reductions we will aim to achieve by 2050 will have to be achieved through domestic effort—not 90 per cent, not 95 per cent, but all. That is because by that time, all countries in the world, including those that are currently still at a low-income developing stage, will have to be on a strong downward emissions path.

Although it will make perfect sense to allow trading between ourselves and other countries if the whole world is in cap and trade systems, we have no basis for assuming that we will necessarily be a logical net buyer of emissions credits at that time rather than emissions seller. We therefore have to design our long-term climate change programme on the assumption that we must drive changes in behaviour, energy efficiency and the source of our energy such that it will be possible by 2050 to achieve the reduction target—be it 60 per cent or 80 per cent—entirely through domestic effort. That may not be how we do it, but we have to design our policy on the assumption that that may be what occurs.

While it is the long-term reality that that is what we have to achieve, there is a potentially significant role to be played through emissions trading in the shorter term. Where there are opportunities to reduce emissions at much lower costs elsewhere than in the developed countries, it makes sense for us to take advantage of those opportunities. There is a vital need to help spur the development of low-carbon economies in developing countries. That needs resources; and a flow of finance from trading is one of the potential ways that those financial resources will be achieved. There is therefore a role for trading, and the appropriate extent to which the UK relies on the buy-in of credits is therefore a subject that requires detailed attention.

It is also an issue which becomes more complex the more one thinks about it. For example, there are several different categories of buy-in of credits to which it would be possible to have a different attitude. Under the EU ETS, there are buy-ins of credits entirely between private players within Europe. We cannot set that as a policy variable because it is the product of a set of private decisions. One could argue—although I am not necessarily doing so—that we should be more relaxed about that sort of buy-in because it is entirely within Europe and is therefore part of an overall developed economy which is achieving reductions somewhere and which is therefore driving the technologies that we need.

There is also the possibility of purchases of clean development mechanism emission credits on a direct Government-to-Government basis. However, those are not “get out of jail free” cards because they have a

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cost attached to them. Given that they would cost the Treasury real money, we have to believe that there would be some Government unwillingness to sanction a large number of them.

Finally, there is the complexity that the EU ETS will probably allow some purchase of credits from outside the European Union in phase 3. This suggests that one of the most important things we have to influence is not necessarily our own targets for buy-in from outside, but the buy-in rules which exist from the EU ETS.

All of that indicates that this is an appropriate issue to be handed to the Committee on Climate Change for detailed consideration and the provision of a robustly independent recommendation on the issue. However, I realise that my own confidence in the robust independence of the committee is based on insider information and that other noble Lords cannot, by nature, be so confident. I also recognise that even if the committee recommends a certain approach, government could choose not to accept that recommendation. I therefore recognise that noble Lords may wish to ensure that there is something in the Bill which makes sure that the level of domestic effort is significant.

However, I am concerned that, as written, the specific form of the amendment is not the best. It could have some unintended consequences, because it does not set a minimum level of UK domestic effort—it sets a minimum percentage. That could mean the following. Imagine two recommendations that the climate change committee might choose to make. In one, we recommend that there should be a 19 per cent domestic cut in emissions and in addition a 7 per cent buy-in of credits from the rest of the world. In another, we recommend a 20 per cent cut in domestic emissions and a 10 per cent buy-in from the rest of the world, for an overall reduction of 30 per cent. Under the rules of the Bill if amended by Amendment No. 106, the first, 19 per cent plus 7 per cent, would be legal. It meets the 26 per cent total amount and the 70 per cent constraint. The second recommendation, 30 per cent—that is, 20 plus 10 per cent—would be illegal, because although it meets the 20 per cent minimum constraint, it does not meet the 70 per cent minimum from domestic effort. But anybody who is concerned about the success of the Bill for the climate would have to prefer, in percentage terms, 20 plus 10 as a reduction to 19 plus 7. The problem has arisen from writing the amendment by reference to Clause 4(1) rather than to Clause 5(1). If it defined an absolute minimum reduction in the domestic amount, rather than a percentage of the total reduction, it would be more effective.

The Duke of Montrose: My Lords, I realise that the noble Lord has to produce figures to support his argument, but would he not agree that if the target was instead a 21 per cent domestic reduction and 9 per cent from overseas, it would fit the criteria?

Lord Turner of Ecchinswell: It would, my Lords, but I would not want the Committee on Climate Change to be constrained from arguing that, while it believed that the maximum feasible UK reduction was 20 or 21 per cent, the UK’s international effort ought to be 30 or 35 per cent, given what we believe is

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essential for the 2050 target. It would be odd if we were constrained from advocating that upper figure by the Bill. My concern is that the amendment could constrain the amount of credit buy-in, when the real objective of its proposers is to set a minimum domestic reduction target. I am quite happy with the Government’s proposal that this matter is handed to the Committee on Climate Change, which I am confident will make a well argued and robustly independent proposal. If noble Lords wish to proceed with the amendment, it should be expressed in terms of a minimum domestic reduction rather than a minimum percentage of the total reduction.

Baroness Miller of Chilthorne Domer: My Lords, it is understandable that the noble Lord, Lord Turner, given his position as chairman of the committee, would like a completely free hand. I am sure that he will do a very good job of chairing the committee. However, if the amendment is passed, I think that the Government and noble Lords on all sides of the House would welcome his advice on how to reword the Bill between now and Third Reading to meet the objectives that he stated. We heard the noble Lord, Lord Puttnam, say most eloquently why this is a planetary imperative, and my noble friend said in moving the amendment that we cannot leave the Bill with nothing in it.

I have two amendments grouped with Amendment No. 106, the second of which, Amendment No. 137, suggests, as the noble Lord, Lord Crickhowell, will appreciate, that the climate change committee be able to alter the level of the cap if it seems appropriate—perhaps it should not be fixed for all time until 2050. The amendment proposes that the climate change committee has a duty to advise the Secretary of State on whether the level of the cap is sufficient. I hope that, in the event of Amendment No. 106 being passed, we might consider also the necessity of my amendment.

There has been much discussion today about whether the amendment is necessary from an overseas point of view. I remind the House of what the Minister actually said:

I ask him again this afternoon why he has that doubt that it “probably” should. We heard so much evidence in the Joint Committee on climate change and subsequently about how this Bill should set us on the right trajectory. It should set us on the trajectory that Sir Nicholas Stern talked about—fast to a low carbon economy. I believe that that low carbon economy will also deliver all sorts of energy security gains, which I am not going to go into now. Those energy security gains, driving us to a point where we are importing far less of our fuel, is something that we should all be aiming at towards 2050.

4 pm

I also had Amendment No. 110 grouped with the amendment, but I believe that my noble friend’s amendment is far more effective than mine in addressing this issue, so I am very pleased to support it. We have

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discovered from various speeches this afternoon how hard it is to express this issue in term of percentages. I think that I, along with many Members of the House, get slightly lost. Indeed, I tried in Committee to express it all numerically, and I think I did a good job of losing myself. The fact is that we understand the extremely important principles behind the amendment. Although there is a small argument as to what exactly the percentage should be, as laid out by the noble Lord, Lord Turner, I believe that there is a chance to amend that by the Government bringing forward an amendment at Third Reading to deal with which part of the Bill it should be in. We feel very strongly about the principle, and I believe that the amendment should be supported from all sides of the House.

Lord Desai: My Lords, I have not spoken previously in the debate, so I apologise to the House for speaking. First, I consider that if we have a global target, as in Kyoto, we start with the assumption that one tonne of carbon emitted here or elsewhere has the same price. For various reasons, with which I agree, the noble Lords want to fix a different price so that a tonne of carbon not emitted here can be a tonne of carbon not emitted there. From what the noble Lord, Lord Turner, has told us, given what the EEC arrangements are, there is a further consideration—that price within the EEC may be different from the price outside the EEC.

This takes me back to the glorious days of multiple exchange rates that we used to have in developing countries, which were I am afraid not a very good way of allocating resources. My mind is open on this. All I want to say is that the best way to set multiple shadow prices is not in a Bill. Secondly, even if you set them, they will have to be flexible, as the noble Lord, Lord Crickhowell, said. We have to find a mechanism whereby we have a wording that allows us to achieve what the noble Lords want to achieve, which I quite agree with—that we have to change our behaviour, but at the same time not put in such a rigid framework that it will lead to misallocation, rather than a correct allocation, of resources.

Lord Dearing: My Lords, I had not intended to speak on the amendment, but will do so briefly. The noble Lord, Lord Puttnam, argued that the UK should aim to be good rather than simply appear to be good. That brought a resonance to my mind of the sale of indulgences 500 years ago by which the rich could escape the wrath to come—not do their duty—by using the purse. If we are going to have a moral influence in the world, we must be seen working hard to reduce our own emissions.

Moreover, I am very much persuaded by the arguments of the noble Lords, Lord Crickhowell, Lord Turner and Lord Desai, of the dangers of trying to state a figure in this Bill without a research base for it. However, it goes too far to leave it entirely to the committee. It needs a framework within which to develop its thinking. The Government need to give a clear steer on how they see us having a duty to reduce our emissions rather than indulgences.

Lord Stern of Brentford: My Lords, I should declare an interest in that I advise HSBC and the IDEAglobal Group on emissions reductions and carbon markets. I

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should also apologise to the House because I have not been able to intervene on this subject before. It is difficult to find moments when one can give a maiden speech. My noble friend Lady Afshar and I found such a moment about three weeks ago with a debate on inequality, on an interesting Motion tabled by the noble and right reverend Lord, Lord Harries, but it was promptly bumped by the Northern Rock legislation and we were part of the collateral damage.

I see the role of all the arrangements we are discussing as a crucial part of a global deal. We have to ask about our relationships with other countries and how we will promote a decent global deal as a result of our own actions. In that context, I fully respect the motivation for this amendment. We have to show that strong low-carbon growth is possible. Without that demonstration, we and other rich countries will not bring India, China, Indonesia, Brazil and other countries with us, and you can understand why we would not. I have been very involved in policy discussions in a number of countries, particularly in India, and my friends in India tell me, “Look, Nick, just as soon as that carbon capture and storage for coal plant is working on a commercial scale in the UK, you’ve got my cell phone number—give me a call. I’ll come over and have a look and we can discuss its role in India”. We have to demonstrate, clearly and here, what is possible.

We also have to recognise that there are very powerful arguments on trading—not only on lowering cost, although that is important, but on creating a flow of carbon finance and greenhouse gas finance that can help other countries in making their own roads towards a low-carbon economy, and I think here particularly of India, Indonesia, Brazil, China and so on. It is not simply a cost-cutting mechanism; it is also a crucial element—a crucial bit of the glue, if you will—in a global deal. Carbon trading has a very powerful role not only through cost but in that much broader and deeper context of putting a global deal together. As we think about trading, the verification and regulation side of carbon markets is—just as in financial markets more generally—crucial. We have to think hard about how to improve that.

My concern is that the amendment as expressed is, for the reasons which my noble friend Lord Turner described, likely to constrain ambition, when ambition is of the essence here. As he argued, it could result in the setting of overall targets that are too low. In the context of a global deal and the negotiations towards the end of a global deal, it could constrain us in upping the kind of percentage reduction we are looking for because we would understand that a particular reduction domestically would be just too difficult for to us make over the next five or 10 years. So we might not be able to go, say, to 40 per cent reductions by 2020 in the negotiation, aware of the constraint that this percentage would put on us and the amount we could actually do ourselves. It could—not necessarily would—constrain us in our ambition and in putting together what is crucial, the big prize: the global deal.

This issue requires careful technical analysis of the kind that, as I understand it, the climate change committee has been established to do. I recommend

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that instead of imposing a particular form of constraint now, we ask the Government to refer this to the climate change committee, as is indeed included in Clause 27. I do so in the confidence that the climate change committee under my noble friend Lord Turner will give clear and strong answers on the role of trading. I trust that the committee will give those answers in the context of making 2020 recommendations that are consistent with a minimum of 80 per cent reductions by 2050. I hope that the House can follow the advice of my noble friend Lord Turner, but do it in the context of looking for strong ambition—80 per cent reductions by 2050—and in the context of enabling what is fundamental: a good, strong, equitable global deal.

Lord Redesdale: My Lords, this is the first opportunity I have had to congratulate the noble Lord, Lord Stern, on his report. Its findings on this important issue affect many in this House and around the country and may be one of the reasons that the Bill is before your Lordships’ House. However, I suggest to him that the amendment does not constitute a restriction on trading. It would not affect trading one way or the other. Trading could still take place. The amendment looks at ways of reducing our carbon dioxide emissions.

I am speaking to this amendment because I was lobbied from a most unusual source, the CEO of a large energy company in this country, who said that it is vital if we are to tackle climate change. He is behind the amendment because this matter constitutes a circular argument. If we are not prepared to invest in very expensive kit to reduce the carbon dioxide emitted from our power stations, and to have a let-out clause to enable us to buy in from other countries, we will never tackle this matter. If we never do that, with our technical expertise, it is absolutely certain that no other country will do it. We have to take the lead on this, but if we do not we should be able to offset by buying credits from overseas. The necessary money will simply not be spent on this issue. I take noble Lords back to the whole argument about carbon storage and capture which many of us fought for over a long period. We are talking about the Government putting money into one pilot project. We could have had a pilot project up and running if the money had been available. What we are actually saying here is, “It’s too expensive for us to do it in this country. Therefore, we shall just wait until it becomes cheaper or we’ll buy the relevant carbon dioxide from somewhere else”.

Perhaps I am the only trading-scheme sceptic in the House this evening. However, if we are looking at financial models, it is always interesting to read the small print which states, “Past performance may not be a good indicator of future performance”. I hope that is the case with trading because, if you look at the European trading scheme up until this point, you would not hold it as a great model for reducing carbon dioxide. I have the same concern as regards percentages.

The noble Lord, Lord Turner, mentioned being constrained about buying credits from overseas. I have a real issue with that. The amendment does not talk about trading schemes at all. It talks about reducing

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emissions of carbon dioxide and the development of carbon sinks. Carbon sinks are a particularly worrying matter if you listen to the National Trust’s view of what will happen to our peat carbon sinks over the next 20 years, which may become emitters as they dry out. If we are buying carbon credits, we should be very wary of them. The Government have already had their fingers burnt over offsets and have had to introduce measures on that. A tonne of carbon dioxide in this country and a tonne of carbon dioxide in any other country in the world is the same. However, I am concerned that buying a tonne of carbon dioxide in another country may be used as a financial tool and that that does not really equate to the reduction of a tonne of carbon dioxide.

On that basis, I very much hope that noble Lords will look at the terms of the amendment. I agree that the noble Lord, Lord Turner, and the carbon committee can deal with this issue but we should not fall into the traps we have fallen into before. If we are to deal with climate change, as everybody in this House is concerned to do, we should be talking about genuine reductions. Fossil fuels that have been underground for millions of years should not be released into the atmosphere. We should not introduce financial mechanisms that make us feel good about this. Therefore, I very much hope that the Minister will confirm that this measure will not affect trading and could have a real effect on our ability to reduce our own emissions, which we have a moral obligation to do.

4.15 pm

Baroness Young of Old Scone: My Lords, I support the spirit of the amendment, but perhaps not its exact words. I declare an interest as the administrator of the UK part of the European emissions trading system and, I hope, the future administrator of the carbon reduction commitment, should your Lordships deign to pass it. It seems clear that the mood of the House is that there needs to be something more powerful in the Bill than currently, in terms of the domestic commitment to decarbonise the UK economy. I do not want to wax lyrical, as the noble Lord, Lord Puttnam, did, about our global obligations and moral commitment; I want to be fairly practical, domestic and dirty about this.

I have two points. First, let us clarify whether it gets in the way of trading if you have a bigger proportion of the carbon reduction coming from the UK economy. The reality is that it does not. At the moment, as an economy we are still grossly inefficient in energy use, hardly off the starting blocks on renewable energy and well behind in the development of a domestic set of industries in the new, decarbonised global economy, and eventually that will turn around and bite us.

The reality is that there is bags of scope here in the UK for our energy to be decarbonised and for there to be in fact very little need to resort to the mechanism of the trading system, which is really a mechanism put in place to allow people to choose to buy credits for emissions rather than reducing their own emissions. What we want is people buckling down and tackling the job of reducing their own emissions, not simply because it will be important for

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climate change but because, frankly, it will get embarrassing, globally, if many countries across the world are beginning to develop a head of steam in the new carbon reduction technologies and we are failing to do so. In the interests of our domestic industry in opening up innovative products and creating new global markets that we are there in front of, not straggling along behind, it is pretty important that we get the initiative to decarbonise the UK economy moving far faster than it has done so far.


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