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The pre-feasibility study is a concern for some noble Lords. This study aims to answer some key questions surrounding personal carbon trading and is expected by Ministers in the spring. Decisions will be taken then on the next steps. At any time, if this became a question to be seriously addressed, the Government would not envisage the introduction of such a scheme without a comprehensive period of public engagement, debate and consultation. As we have heard in the debate, in the examples given by noble Lords, this goes beyond anything that is actually in this Bill. That is why we do not want to exclude it, particularly in the way it this drafted. I am not nit-picking about the technicalities of the amendment. If you are going to do anything about personal carbon trading in the context of this Bill, it may have consequential side effects that would be unfortunate and that we do not envisage. I have given a clear commitment that personal carbon trading, in the sense understood by my noble friend, will not be introduced as a result of this Bill.
Lord Woolmer of Leeds: My Lords, some helpful remarks have been made in this brief discussion and debate. The issues are substantial and real, whether one is for or against them in the end. They are issues that go to the heart of politics, issues of public and personal concernand of course of media concern. I would be amazed if MPs in the House of Commons did not think very carefully about the wording of the Bill and its implications. I hope that our discussions are taken careful note of there.
I do not wish to go into the points that were raised about pros and cons, although I do have a great deal of sympathy with many of them, not least that of the noble Lord, Lord Turnbull, about double counting and double costs. People who were asked to pay a carbon price on top of the price of their petrol and the current tax on it would be pretty fed up with the Government of the day. These are real issues. I was delighted to hear the Liberal Democrat Front Bench saying very firmly that, regardless of the pros and cons of carbon trading allowances, the Liberal Democrats would not use the powers of the Bill, when it is enacted, for that purpose. The Minister was equally forthright from the Government Front Bench. It is a pity for the future, however distant, that the Conservative Front Bench did not seem able to give the same assurance today. I hope that that can be put right elsewhere.
The Minister said, in effect, that there is a drafting problem with the amendment. He was concerned that it might be drafted in a way that excluded things not of this nature that one might ultimately want to exclude. I will look carefully at that argument and see whether it might nevertheless be possible to draft something that deals with that problem. I think it is fair to say that there is overwhelming concern on all
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The noble Lord said: My Lords, I move government Amendment No. 184 in the name of my noble friend Lord Rooker, and shall speak to government Amendments Nos. 185, 186 and 188 to 190. The amendments simply improve the drafting of Schedule 2 to make it clear whether references to This Part are references to the relevant part of the schedule or to Part 3 of the Bill. This is a straightforward tidying-up exercise, on which I hope I need not detain the House. I beg to move.
(1) The regulations must identify the process to which persons undertaking activities to which the trading scheme may apply (the participants) may submit to become authorised to carry out an approved activity.
The noble Duke said: My Lords, in moving Amendment No. 186A, I shall also speak to Amendments Nos. 186B to 186D, which are grouped with it. A member of my family is involved in carbon trading, but I have no financial interest in that.
Just a week ago today, on the previous day on Report, we heard differing views from all sides of the House on what would produce the most effective and rapid increase in carbon emission savings, and on what was likely to be the best approach to show the way in our own economy. In the course of that argument, I listened with great fascination to the approach of the Minister, who emphasised:
I think we all recognise that the Government have had huge ambitions to be seen as pacesetters in making the world a less carbon-dependent place. In its paper, Consultation on the Recommendations of the Climate Change Simplification Project, Defra talks of the need,
I was interested to hear the Chancellor of the Exchequer in his Budget speech in another place being full of how Britain is already the leading financial centre for carbon markets. Private initiative has meant that London is now the biggest global hub for the international trading of emissions. I am told that the UK is the leading country in the world on the approval of projects under the clean development mechanism, which is one of the Kyoto Protocol mechanisms to which the Minister referred on a previous occasion. The UK is also a global leader in the burgeoning industry for service providers in this arena. However, unlike at least 11 of our European neighbours, when faced with the challenge of the process for project-based mechanisms under joint implementation it has flatly refused to take on board what is likely to be one of the most innovative processes promoted under Kyoto and will still be under its successor agreement.
We all know that cap and trade is still the prime mechanism being used to achieve carbon savings, but it is the ultimate in a top-down regulation mechanism. Under the Kyoto Protocol, an important role was given to bottom-up initiatives, where the market would be one of the forces providing a process of identifying and delivering cost-effective emission reduction opportunities.
With these amendments we are trying to fill in that other part of the picture to which the Minister referred, but, in this case, where a lack of powers that are offered under the Bill could tend to snuff out innovation and ideas. The amendments are put forward in such a way as to give the Government scope to draw up a project-based mechanism which would operate solely within the United Kingdom. I have some detailed suggestions as to what application this could have, but I do not think that I shall bore the House with them now. These amendments would leave the choice entirely in the Governments hands.
The Minister is probably aware that just two weeks ago the German Government launched a pilot project under the Kyoto joint implementation scheme within the state of North Rhine-Westphalia. This will encourage small and medium industrial sites and public buildings, many of which will be much smaller than those targeted under the carbon reduction commitment, to replace obsolete heating and steam producing boilers. The Government will issue the carbon credits that can be verified and sell them. They will then pay the money received to each facility in proportion to the savings that they have generated. Having seen the enthusiasm with which the present London administration embraces carbon-saving policies, one can imagine that whoever finally wins the mayoral election could be eager for such an opportunity to embrace this kind of innovation for London.
Will the Minister explain the Governments thinking on joint implementation? Under the Kyoto Protocol joint implementation, any sale of achieved carbon credits requires a surrender of the assigned amount units for what constituted the host countrys initial allocation. Is the Governments reluctance driven by the fact that, in their initial calculations under the
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Perhaps I am in some ways producing the same approach as the noble Lord, Lord Woolmer, did on his scheme. But, as I mentioned earlier, the wording of these amendments should give the Government, under advice from the climate change committee, scope to design and implement a UK limited project-based mechanism, which is similar to joint implementation. Verification would be exactly the same as is likely to be required under the carbon reduction commitment and some rule would be required to ensure that it complied with the regulations on supplementarity.
This could have three advantages. First, it would give scope for the innovative talents of British business to assess what they could do with the type of financial incentive that this would offer and thereby make up an area of the ground that the UK Government have lost in leading the international community in domestic climate policy and measures. Secondly, it would drive greater activity in cost-effective greenhouse gas saving within the UK economy, without involving the loss of credits to overseas. Thirdly, it would give the Government some idea of what the appetite and ability of British industry would be if it decided that participation in the fully fledged joint implementation process, or its successor, was desirable.
Amendments Nos. 186A to 186C would amend paragraph 15 of Part 2 for the schemes encouraging activities to allow the Government to regulate both possible kinds of participants that are in mind. Amendment No. 186D would add a similar paragraph to Part 2, defining what will constitute a carbon credit to parallel paragraph 7, which exists under Part 1, for schemes limiting activities. I beg to move.
Lord Rooker: My Lords, I accept that this is a complicated part of the Bill. I shall stick to my notes and will deal with it in two parts. Amendments Nos. 186A to 186D would amend the powers to make trading schemes under Part 2 of Schedule 2. This part is defined broadly in paragraph 12. Schemes can encourage any activities which reduce greenhouse gas emissions or which lead to the removal of greenhouse gases from the atmosphere. If the noble Dukes concern is that a particular type of beneficial activity could inadvertently be excluded from a trading scheme, I hope that I can offer him that reassurance. An example of such a scheme is the renewables obligation, and this scheme places obligations on electricity suppliers to supply a certain amount of their powercurrently 6.7 per cent of total supply, rising to 7.9 per cent from 1 Aprilfrom renewable sources, such as wind or hydro-electricity generation.
Part 2 of Schedule 2 is designed to allow schemes like the renewables obligation to be made in secondary legislation. These schemes encourage an activity by setting an overall target and enabling it to be met at least cost by allowing participants to trade with one another to meet their obligations. Paragraph 15(1) requires that the regulations directly or indirectly identify the scheme participants. It is, of course, vital that the participants are identified in the scheme rules to ensure that all those to whom it applies are aware of the requirements it places upon them; they may be included in the consultation process required by Clause 40. Amendment No. 186A would remove this basic but important element of the powers, and for that reason, the Government cannot accept it.
Together, the effect of Amendments Nos. 186A to 186C would be that a scheme would have to contain details of a procedure by which participants would be authorised to carry out approved activities. Given that schemes under Part 2 of Schedule 2 are meant to encourage certain activities, we are not sure why separate authorisation and approval processes are required. I have listened carefully to what the noble Duke is seeking to achieve with these amendments, but Schedule 2 as drafted already provides the flexibility for the provisions that he is looking for.
Paragraph 15(2) provides that participants may be identified by reference to any, or any combination of, criteria, so again this leaves it open for particular activities to be included in trading schemes, if that is desired. Paragraphs 17 and 19 of Schedule 2 already allow the relevant national authority to control what activities qualify for certificates and set out the circumstances in which trading is permitted. For example, this could be a process like that in place to determine the types of renewables that are eligible under the renewables obligation. We believe that these paragraphs will enable suitable safeguards to be put in place to ensure that participants and activities are controlled appropriately, while maintaining the flexible approach in these powers overall. If it is felt to be beneficial to include particular types of activity in a trading scheme, the Bill as drafted provides sufficient scope to allow this. On that basis, we cannot support the amendments.
The noble Duke made a point about the Government being opposed to bottom-up schemes similar to joint implementation. The UK Emissions Trading Scheme, which ran from 2002 to 2006, was a voluntary domestic emissions trading scheme. Thirty-two direct participants opted into the scheme, representing a variety of organisations from energy intensive industries to the service sector, and encompassing both public and private sector companies, including the likes of BP, British Airways, Lafarge, Marks & Spencer and the Natural History Museum. By committing to reduce emissions, organisations were able to bid at auction for a proportion of the £215 million available as an incentive payment over the lifetime of the scheme. Together, direct participants agreed to reduce emissions by £3.96 million tonnes of carbon dioxide equivalent by 2006.
However, the results in 2006 show that direct participants achieved emission reductions of more than 7 million tonnes of carbon dioxide against the
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Amendment No. 186D would add a new paragraph to Schedule 2 to allow the regulations to make provision for participants who undertake activities which reduce emissions or remove greenhouse gases from the atmosphere to receive credits that they can count towards their trading scheme obligations. I can assure the noble Duke that Part 2 of Schedule 2 will already allow that kind of provision to be made. In addition, paragraph 19 allows a suitable level of control over trading, while paragraph 20 allows interchange with other schemes where that is appropriate.
The Duke of Montrose: My Lords, I thank the Minister for that detailed and complicated answer, which will take a little studying to see how it all fits together. I was rather worried when I thought I understood the Minister to say that the regulations would not require participants to be approved, which might open the door to all sorts of things. It is certainly true that the UK Emissions Trading Scheme was a bottom-up scheme simply financed by the Government, and had nothing to do with the generation of carbon credits and allowing people to participate in a carbon credit scheme. If I am not mistaken, it was taken up by some very large interests. The joint implementation scheme I am talking about could encompass a lot of small programmes and small participants.
I am reassured to learn that Part 2 allows for the generation of carbon credits if one of the schemes were to come in. I shall take this amendment away and see whether I need to bring it back at a later stage. In the mean time, I beg leave to withdraw the amendment.
The noble Lord said: My Lords, Amendments Nos. 191 and 192 provide for a further rebalancing of the relationship between the Government, Parliament
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Lord Taylor of Holbeach: My Lords, these amendments give new order-making powers which sound like they should be welcomed. However, I feel that we need further clarification before the full support of this side of the House can be offered. The amendments allow the Secretary of State to make regulations that would impose new financial penalties or increase the existing penalties under trading schemes. In the first instance, this seems an improvement. Indeed, fees and penalties may be necessary tools in ensuring that trading schemes are taken seriously and not simply ignored. We do not want to be in a situation where businesses think it worth while to pollute as normal because the penalties are not robust enough to make them change their ways. However, I think that such a scenario is unlikely, as cost savings and competitor and consumer pressures are all drivers for responsible businesses to take carbon emissions seriously.
Notwithstanding that, I welcome the fact that these regulatory orders will be subject to the affirmative procedure. Any time the Government start discussing charging individuals or businesses, there needs to be a mechanism for thorough scrutiny. We need to ensure that any order that might create through regulation new fees for business is examined as closely as possible.
Can the Minister clarify his position towards imposing penalties? In what circumstances does he see these powers being exercised? Does he feel that there will be a need initially to increase the penalties on businesses for missing targets? Essentially, what is the purpose of inserting this new power? It would be helpful for everyone to understand more clearly how the imposition of fines will work in relation to the trading schemes. Does he foresee a substantial shift in the amount of fines that will be levied? What measures will have been taken to inform the business community about the Governments position on the future of fees and emissions?
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