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Amendment No. 17B would require the Secretary of State to set a binding limit on the use of carbon units for each budgetary period in secondary legislation, taking into account the views of the Committee on Climate Change on the appropriate balance between domestic and overseas effort. This limit would also have to be set in the context of the requirement, which Amendment No. 11 would introduce, to have regard to the need for UK domestic action on climate change. In proposing a limit, the Secretary of State would also have to consider each of the matters in Clause 11 which must be taken into account in coming to,
With the exception of the first budgetary period, where the limit is to be set at the same time as the level of the budget, the amendment would require that the limit be set 18 months before the start of the budgetary period in question. This would ensure that an appropriate limit could be set once the level of the budget is known and the wider policy context, including the international situation, is clear. If a limit was set in the Bill, as in Clause 25 and Amendment No. 17D, further primary legislation would be required to adjust this if it was considered necessary. This might be in order to comply with or maintain consistency with the requirements of a future international agreement.
Clause 25 also creates difficulties with timing. Due to the way the limit is calculated under Clause 25, the limit could be confirmed as an absolute amount of carbon units only once net UK emissions for the previous budgetary period are known. The final level of net UK emissions for the previous budgetary period, and thus the level of the limit on carbon units, would not be known until 17 months into the budgetary period to which the limit applies. This would considerably reduce the transparency about the amount of credits that may be counted towards the net UK carbon account and would undermine the certainty for business, stakeholders and parliamentarians. By contrast, under the process we are proposing, the limit would be known before the relevant budgetary period begins. This will allow policies to be put in place to ensure that the limit is not exceeded.
Amendment No. 17B would also provide an important flexibility, which Clause 25 and Amendment No. 17D do not provide, that particular units may be excluded from counting towards the limit. This would allow, for example, the exclusion of carbon units arising as a result of UK companies’ participation in the EU ETS counting towards the limit. A limit on credits which
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Amendment No. 17C would supplement the new clause proposed by Amendment No. 17B by specifying in Clause 27 that any carbon units in excess of the limit set may not be counted towards the net UK carbon account. This amendment effectively puts in place the binding nature of the limit for the purposes of carbon accounting. The final amendments in this group, Amendments Nos. 49 and 50, are minor and technical and relate to the purchase of carbon units by Her Majesty’s Government.
Moved, That the House do agree with the Commons in their Amendment No. 9.—(Lord Hunt of Kings Heath.)
Lord Taylor of Holbeach: My Lords, I will speak to my Amendments No. 11A, 17F and 17G. Much has been achieved during the passage of the Bill, not least in this House. It is now a considerably stronger and better Bill than when it first arrived here one year and three days ago today. The time taken to see the Bill through reflects the consideration given to the issues raised by it. In the pre-legislative process, the Joint Committee of both Houses chaired by the noble Lord, Lord Puttnam, provided a great platform for improving the Bill, but the area of domestic effort and the use of carbon units remain its Achilles’ heel. We in this House made a clear and positive decision to quantify the domestic effort but the Government reversed that decision in another place. If we want the Climate Change Bill to be a world-class act, we need clarity on this issue.
We on these Benches have long argued that this Bill represents a crucial opportunity for the United Kingdom to lead the world, not only in legislation but also in the jump to a low-carbon economy and all the benefits that this will bring to the first movers in a new era. The whole point of this Bill is to provide the market with the long-term clarity and certainty it needs to compete and be the best in the world in this new economy. Business is up for the challenge and it is encouraging to see that one of the most enthusiastic advocates of this issue is one of Britain’s largest energy companies, Scottish and Southern Energy. Why does it support it? It knows that the investment decisions it makes today will lock in the carbon footprint of its business for the next 40 years. It needs to know now what the rules of
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Another reason why we consider this to be a vital issue is that relying significantly on emissions reductions overseas is frankly a bad habit for our economy to get into. We cannot allow low-carbon economies to develop elsewhere in the world while we are left behind in an indulgence-buying, carbon-emitting, old style economy. It may be cheap to do so now when the carbon price is still relatively low, but this will become an extremely expensive habit if and when the carbon market does what it should and a tonne of CO2 becomes far more expensive. All the more reason not to lock in a carbon-intensive infrastructure now when we know it will become more expensive in the future. We would literally be asking our children to pay expensively tomorrow for our cheap and gluttonous extravagance today. Such a course would do little to show the rest of the world that the UK is serious about moving to a low-carbon economy with all the benefits for innovation, employment and new business opportunities that this will bring.
We also recognise that it is not necessarily possible to find an ideal or correct balancing percentage between domestic and non-domestic effort. The noble Lord, Lord Teverson, has tabled an amendment suggesting that the division between the two should be 50:50, whereas the original Clause 25, as agreed in this House, was for 70 per cent domestic and 30 per cent non-domestic effort. For this reason we have considered it important for the Committee on Climate Change to be consulted on this issue, as detailed in Commons Amendment No. 11. We all know that the committee as defined in the Bill will have expertise in far more than climate science. According to Schedule 1, the committee will also have expertise in, among other areas, business competitiveness, economic analysis and forecasting, and emissions trading. It would then seem only sensible that we consult this esteemed group on this vital question, just as we considered and will continue to consider its advice on the 2050 target and the setting of carbon budgets.
I am pleased to see that the Government have now decided to put a requirement on the Secretary of State to take the views of the independent committee into account, as clarified in the government amendments, and I thank the Minister for the way in which he explained that in moving the amendment. We greatly welcome the Government’s amendment to Amendment No.17, which shows that they have reconsidered their actions in the Public Bill Committee in the other place in removing what was then Clause 25. The Government’s new additions after Clause 11 will clearly go a long way to address our concerns over the limit set on the use of carbon units, but we think it is worth while to press the Minister on his definition of “carbon credits”. The Government’s amendment would allow limits to be set on the use of all carbon units, meaning the clean development mechanism (CDM), the joint implementation (JI) credits, and the EU allowances (EUAs). The subject matter is awash with acronyms but we shall try to keep our heads above water. To be effective in ensuring that the UK moves to a low-carbon economy, any limit needs to apply to all carbon units.
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The Minister will know that if that were to happen, the UK could simply buy more EU allowances from other EU countries. Those countries would simply import more CDM to compensate. It would be a form of carbon unit laundering, purchasing EUA credits from other EU states which replace the EUA credits that we have bought with more CDM credits, which they can then purchase from outside the European Union Emissions Trading Scheme. Can noble Lords be assured that the amendments which the Government propose will drive the de-carbonisation of our economy, particularly our power sector, which the noble Lord, Lord Turner, who unfortunately is not in his place, recently recommended was so vital?
Finally, I should be grateful if the Minister could clarify how the Government intend to account for the emissions from sectors under the EU ETS, which is a complex but critical issue. A recent consultation on carbon accounting from the Department of Energy and Climate Change—we on this side of the House welcome the creation of the new department—makes it clear that the Government intend to use the UK’s Emissions Trading Scheme cap for the first carbon budget period, which runs from 2008 to 2012. However, beyond 2012, the whole structure of the EU ETS will be radically transformed. Quite simply, Europe is moving away from an ETS cap, set at national level, and is moving towards setting a single, Europe-wide cap. While that has many merits it creates a very significant problem for accounting for the ETS traded sectors under the Climate Change Bill, as there will no longer be such a thing as a UK cap. DECC’s consultation acknowledges that there is an issue, but offers no solution to the problem. Can the Minister explain how emissions from the EU ETS sectors will be accounted for in carbon budgets after 2012?
There is also a risk that under the Bill sectors outside the ETS—for example, transport, building stock, and non-energy intensive industry—may be expected to take on more ambitious measures to compensate for a weak EU-wide cap on the ETS sectors. Can the Minister clarify what options the Government are considering which would allow the UK to set a tighter carbon budget for the ETS sectors, particularly in the power sector, than would be implied by the cap set at EU level? I look forward to hearing the Minister’s assurances on these critical issues.
6.30 pm
Lord Teverson: My Lords, I wish to speak to Amendment No. 17D as an amendment to Amendment No. 17A. It says here that I have spoken to this with Amendment No. 9, but I am not sure about that. Clearly, this is a core area of belief and it is what the Bill is about. Should there be domestic targets or should this be written in the context of the wider world?
Before this debate, I would not have thought that the noble Lord, Lord Lawson, would be my major
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That report highlighted the fact that currently we consume something like 37 per cent more carbon than we produce and that gap is getting broader. Why? It has everything to do with the global economics of trade, in that many of our carbon-intensive industries are going to the developing world, while we concentrate on and expand our economy in terms of services and low-carbon technologies. That is not good news. It says that as a country we are responsible for far more carbon emissions than we report, but we are able to offshore them. Ironically, we tut-tut at China for its increasing emissions, but a large proportion of those emissions are ones which we have exported.
I have tried to get to the bottom of this and to put in more normal language what we mean by trying to look at the domestic production of carbon in this Bill rather than the broader carbon budget. One could illustrate that by saying that perhaps, later this evening, I will invite the Minister to the pub next door and in there we will see two fat guys discussing how to lose weight. We might listen in to their conversation and they might challenge each other to lose weight. They might say, “We are both overweight, which is bad for us and it is not government policy either, so let's commit to losing five stone each within a year with the prize of a bottle of champagne”. Having listened to that, we think we will go back, in a year’s time, to see whether the task has been achieved. In a year’s time, we go to the pub again and one of the guys is substantially thinner but the other one is exactly the same. The thin one says, “I have achieved my target; I have lost five stone so I can have my bottle of champagne”, but the other guy says, “I have won as well and I claim my bottle of champagne because I have lost five stone”. The thin guy will say, “I am sorry; you look exactly the same weight as before”, to which the fat guy will say, “No, it is quite all right, I paid my brother to lose five stone and I have a certificate from his doctor to tell you that he lost five stone, so I win a prize as well”.
The Minister would say that that is absolutely all right because in terms of the nation's health, one person losing five stone is as good as anyone else losing five stone, but everyone in the pub will know that that individual is a fraud and I believe he would be treated with derision for having delegated his healthcare. That is exactly the same as how we look at the UK economy in regard to carbon. It is no good saying that we will delegate this task. Not only have we delegated
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That is why we on these Benches are still unhappy that there is no commitment in the Bill to domestic carbon reduction in the economy. I accept that the methodology used to move forward and the Conservative amendments are much better than the Bill was when it left the Commons, but there is an important issue about leadership here. Whatever we say as a nation, whatever the Government say and whatever is said about leadership, the gaping hole on the face of the Bill regarding finding someone else to do our cleaning up potentially wrecks that leadership and that moral authority.
I tabled an amendment which suggests that we move from 70:30, as the ratio was, to 50:50. I will not move that amendment because 50:50 is still derisory. I am glad, however, that the Government have understood that there is a big issue here and it is one that they have tackled to a degree. I have faith in the climate change committee and I hope it will come forward with good logic and tight targets. This is one area of the Bill, however, where I believe the Government have a major problem in their authority and global leadership.
Lord Puttnam: My Lords, I, too, wish to speak on the subject. This evening marks the final phase of a legislative journey that for me started 18 months ago when I was asked to chair the joint parliamentary committee scrutinising this Bill. In another sense, it also represents the starting point in the far longer and more difficult slog of implementing the Bill’s best intentions.
This Bill will only be the first piece in the legislative puzzle that is likely to be required if we are to achieve our aim of a sustainable society and a sustainable planet. I have little doubt that by 2020 this House will be debating the pros and cons of what for the present I will describe as personal carbon allowances. After a great deal of argument, the House will pass some tentative legislation to this effect. I hope that it will not be so tentative that it will fail to achieve the result that by then will be badly needed.
If today I am able to give this Bill eight and a half out of 10, it is more to do with the ambitions it sets for itself than the rather limited means it has chosen to achieve them. On more than one occasion, I have warned of the possibility of this Bill morphing into a carbon trading Act. I am sorry to say that, despite the best possible intentions, this is largely what has happened.
Although a great deal could be said on this subject, I will restrict myself to addressing the broad thrust of this group of amendments. Why do I remain intransigent on the subject of a cap on the purchase of overseas carbon credits in compensation for domestic emissions? There are two principal reasons. First, I reject the simplistic economics that insist that a unit of carbon saved is the same wherever in the world that saving comes from. On a purely like-for-like basis, that may be true but the situation is far more complicated and
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I was interested to hear the noble Lord, Lord Lawson, because in one respect, and only one respect, he is absolutely right. The notion of this Bill as a carbon trading Act is a real danger. The same fertile imaginations that brought us our present credit crunch are without doubt sharpening their swords to take a slice of the secondary trade in carbon emissions. It will only be a matter of time before one of our national newspapers blazons a headline, “Carbon trade scam revealed”. I urge the Government to look carefully at what they are setting in train. The conditions exist for something frightening to occur.
The noble Earl, Lord Onslow, who is not in his place, said he believes people will look back on this Act—as it will be then—and think we were a bunch of “arses”; I think that was his word. I have made a promise to myself that I intend to bind all contributions to this Bill in a leather book, give it to my great-grandchildren and ask them to read it, say every five years, and decide for themselves who were the greater arses during the passage of this Bill.
The second reason for my intransigence is well rehearsed. The Kyoto Protocol, of which we were an early signatory, is absolutely clear that purchased carbon credits will be supplemental to domestic savings. No amount of ministerial tautology—
Lord Puttnam: I apologise, my Lords; that was me trying to contact the airport to say I would be late for my plane.
6.45 pm
As I was saying, no amount of ministerial tautology can convince me that “supplemental” means anything other than less than the principal sum, which this amendment generously concedes might be up to 50 per cent.
The full implications of this Bill will over time ask a great deal of every citizen in this country. For that reason alone, it must start its legislative life by being unblinkingly honest. Despite the many problems this amendment causes—over the past few months, officials have tortuously tutored me in all of them—it will be a great mistake to allow this piece of legislation to pass, leaning as it does on what to the man or woman in the street would appear to be a rather convenient piece of legal juggling, no matter how justified.
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The Library of the House checked the Law Reports on the use of the word “supplemental”. I am satisfied that my understanding of the word is the one the courts use.
To that same person in the street “supplemental” will continue to mean “supplemental”. Until the forthcoming Copenhagen summit decides to remove that injunction, or at least find another way of describing it, no honeyed words from my noble friend on the Front Bench are likely to change my view that this is a disproportionately important matter. It is disproportionately important because this is all about trust. If Governments have learned nothing else in these past few months, it should have been that trust is not just one factor in their relationship to the electorate; it is the whole ball of wax.
The Government sit on a knife edge. If trusted, they might achieve a great deal. If they allow that trust to slip, however, the abyss beckons.
Lord Hunt of Kings Heath: My Lords, it is a pleasure to respond to this debate. May I say to my noble friend Lord Puttnam, who is agonizingly close to missing his aeroplane, that it was a privilege to hear him speak. It is interesting to hear what he will say to his grandchildren about this Bill. I was trying to decide with the excellent team of officials who have formed the Bill team over a long time what comparative piece of legislation one could compare this Bill to. The best I can come up with is the 1948 NHS Act—a Bill of immense importance which, 60 years later, is still relevant.
I accept that the Bill has been improved enormously during the passage through your Lordships’ House and another place. I agree with my noble friend that this is a question of trust because this is partly about legislative requirements and partly about leadership. It is about leadership in this country—Government and Parliament showing how important it is to deal with climate change—but also about giving the UK a solid basis from which to negotiate internationally.
I disagree with the general sentiments of my noble friend and the noble Lords, Lord Taylor and Lord Teverson, on this matter. Before I come to the amendment, it is important to reflect that the critical requirement is on the UK Government that net emissions must be reduced by at least 80 per cent by 2050. The Government must set and meet five-year carbon budgets starting from this year. It also requires that the Secretary of State, in carrying out his duties, must have regard to the need for UK domestic emissions reductions. Government Amendment No. 17B would require a limit to be set for each budgetary period on the number of overseas credits that can be purchased to meet the budget, and the Committee on Climate Change will be advising on the appropriate balance between domestic effort and the use of overseas credit.
We think that we have listened carefully to the principal points made in the debate, but as I have explained, the government amendments will provide the flexibility to exclude credits of a certain description that we believe to be essential to preserve the integrity of the EU ETS.
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