Examination of Witnesses (Questions 1-19)
Dr Douglas Parr
25 JUNE 2008
Q1 Chairman: Dr Parr, you are very welcome. Thank
you very much indeed for coming to give evidence. We are starting
an inquiry on the Emissions Trading Scheme. You are our first
witness and we look forward to hearing what you have to say about
it. This is a formal evidence session. As you can see, a note
of what is said is being recorded and you will be given a transcript
of what has occurred this morning for you to look at and, if there
are any corrections that you wish to make, please, do so and return
it. In a few minutes when the transmitter is switched on, this
will also be broadcast just to let you know that this is perhaps
reaching a wider audience than the Committee. Would you like to
make an opening statement or would you like to go straight into
the formal questions?
Dr Parr: One matter that
I should say is that although the tone of what I say here may
sound quite critical of the Emissions Trading Scheme, I do not
want anybody to be under any illusion that we think that the Emission
Trading Scheme is a bad idea. It is an important contribution
to the policy framework for delivering emissions reductions. We
are supportive of emissions trading; we think it is a good idea
but we think that it has limitations; we think that the existing
proposition could be improved but I do not want anybody to go
away with the idea that we do not think it is a good idea. The
second matter I would say is that we also need to be mindful of
the limits of emissions trading. We think that it is a good idea
but it is only one of the tools in the box; it is not an all-encompassing
tool and it cannot do everything for us in terms of climate policy.
It is very important that there needs to be flanking and other
measures to deliver a low carbon society in the future.
Q2 Chairman: What is your view of how
the ETS has worked so far, what have been its strengths and weaknesses
and to what extent has it delivered?
Dr Parr: Our view on the ETS so far is
that it has not delivered an awful lot. I think there are various
pieces of analysis that say either it has delivered cuts of up
to 100 million tonnes, which is not to be sniffed at, or it has
delivered virtually nothing and I suspect that it is somewhere
in between. It is a small but useful contribution, but there has
been an awful lot of effort put into it to get those emissions
reductions. Having said that, obviously the first stage is to
some extent about getting it up and running and that has been
done and it has been successful; it has been useful; and I think
there is experience. An underestimated piece of information that
we now have is that we have verified emissions from all the point
sources which helps enormously in working out what should happen
in the second and third phases and of course we are on to the
second phase. So, there have been some institutional gains, there
have been some experience gains and the stage is set for it to
start delivering in a serious way but that has not actually happened
as yet. I think that the jury is still out on whether it is going
to deliver and we hope that it does. In terms of its strengths
and weaknesses, I have mentioned some of the strengths and the
weakness is not so much in the Emissions Trading Scheme as the
way that in particular the UK Government tend to treat it as a
policy answer to all the conundrums that driving towards a low
carbon society actually throws up. It is not, in our view, a way
of tackling decisions about infrastructure that have a very long-term
framework like a lot of the energy and transport system does.
The prices of the Emissions Trading Scheme are currently too low
and they are certainly too uncertain going into the future to
really drive those changes in a way that we would like. The issue
for us is that, as the Stern Review identified, there is a danger
before a carbon trading system is fully global and fully functioning
that you get lock in to high carbon infrastructure and the immediate
challenge for us in the UK is the coal-fired power stations and
expansion of aviation. The Emissions Trading Scheme does not seem
to us to be anywhere close to incentivising changes of that kind
of order of saying whether we want a third runway or not and whether
we want to have coal-fired power stations or not because the institutional
certainty is not there and the long-term price is not there and
that requires other measures. That means that the Emissions Trading
Scheme is good and it can help, but it is not the answer to everything
and I think that the way it is treated as if it somehow is the
answer to everything is part of the problem.
Q3 Lord Plumb: You said that there are
experience gains.
Dr Parr: Yes.
Q4 Lord Plumb: What experience gains
are there? This is a new world, is it not?
Dr Parr: Yes.
Q5 Lord Plumb: Therefore, one is bound
to learn by changes, but are these scientific changes or technical
changes?
Dr Parr: I think that they are partly
attitudinal changes, so that companies are now looking at their
emissions credits and thinking ah, here is something where we
do not just have to comply but we can trade.
Q6 Lord Plumb: In other words, they are
taking it seriously.
Dr Parr: Yes, they are taking it seriously
but it is more than that, it is about a shift in the way that
| For example, I was told by one of the major utilities that they
used to deal with the Emissions Trading Scheme with a compliance
officer; it used to be thought of as compliance; you had to have
enough permits in order to emit this amount of carbon, but they
are shifting towards thinking about it as trading opportunity.
In other words, instead of just getting enough permits, they think,
right, how can we deal with that? How can we best optimise, obviously,
our profits and how can we best optimise our position in the market?
That delivers liquidity and also I think it delivers the potential
for innovation. So, there has been a shift in the way that companies
have been thinking about it and obviously market trading institutions
have developed and so on, then that has the potential for delivering
more and more significant carbon cuts through the Emissions Trading
Scheme. However, it has not delivered them yet but that is the
kind of experience and changes and changes in thinking that will
be helpful in the long term.
Q7 Chairman: So, that is a positive attitude
for change.
Dr Parr: Yes, I think that is positive.
Q8 Lord Brooke of Alverthorpe: Coming
back to the scheme itself rather than other policies which you
believe the Government should be pursuing, can you endeavour to
identify in a little more detail the weaknesses you see in it.
Dr Parr: Yes, certainly. We think that
a major weakness is that we need to have auctioning and maximum
possible auctioning right across the board. That is probably the
biggest and most important thing because that is a potential source
of revenue which could be used to offset other taxes and it could
be used to generate revenue for other low carbon investments or
flanking measures. Secondly, I think that one of the weaknesses
so far which is being addressed is that we need to have cross-Europe
caps instead of national allocation plans. We think that the cross-Europe
cap should be set on the basis of what is needed by the science
and not by the kind of haggling that we have had so far. Some
of these are being addressed but perhaps not as thoroughly as
they should be.
Q9 Earl of Arran: Is the call by CAN
for a 30 per cent reduction in levels by 2020 compared to 1990
realistic or pie in the sky?
Dr Parr: I think it is realistic and
necessary and, subject to an international agreement, it is what
we have already said we are going to be committed to anyway.
Q10 Earl of Arran: You have put a lot
of caveats so far as to whether it is possible or not.
Dr Parr: Part of the changes to which
I was referring earlier about the shift in thinking means that
there will be more potential unlocked in innovation than we have
thus far seen. I think that some of the other measures which are
driving renewables in the market as part of the EU climate and
energy package will deliver significant reductions including from
within the emissions trading sector. It is challenging for the
UK and it is challenging for other countries as well but I think
that they should be deliverable. I think that it is realistic.
I think we will have to see where the emissions reductions can
be gained but I do not have any doubt that firstly that is what
is necessary and secondly that innovation will be unlocked by
long-term certainty and an increased price, which is what I hope
we will be able to see from phase three.
Q11 Earl of Arran: Necessity is very
different to reality, is it not? What I am really asking is, do
you think that it is achievable?
Dr Parr: As Winston Churchill once said,
"You can't always just do your best, you have to do what
is necessary" and, in the circumstances when the EU is trying
to lead the world, which effectively it is doing at the moment
in the international negotiations, then they also have to lead
by example and it is no good telling China, India and Brazil not
to do this and that if we do not do some pretty impressive delivery
at home.
Q12 Chairman: Are you concerned about
substitution rather than innovation, perhaps moving from coal
to gas, perhaps importing cement—I do not know what it is—in
order to reduce our emissions?
Dr Parr: I think that that comes back
to the importance of long-term pricing. This is a politically
created market; the politics have to be secure and the commitment
from all the institutions involved has to be rock solid because,
if you look at the marginal abatement curves and where it is cheapest
to do reductions, there is no question that some of the substitution,
gas for coal, come in at the low end. We have some efficiency
and then you have fuel switching, so substitution like you say.
If there is long-term certainty that there will be a strong price
signal, then there is the possibility for innovation over the
longer term with investment decisions that have a return of longer
than two or three years. If we get to five to seven years, that
is better and, if we get to ten to 12 years, that is much, much
better. The Emissions Trading Scheme is only going to be as good
as the confidence that people have that the price is going to
remain high and that it is not going to be diluted when there
might be some political issues with somebody-or-other who finds
that the price is starting to hurt. If there is not that certainty,
then actually there is a serious danger that the Emissions Trading
Scheme will not deliver.
Q13 Earl of Dundee: What do you think
about the setting of a cap at the community rather than at Member
State level?
Dr Parr: We would be supportive of that
because it can then be clear what the overall allocation within
the EU is rather than the Commission trying to set an overall
cap by individual bilateral negotiations with individual countries.
I think that it brings a level of clarity to the ambition within
the Emissions Trading Scheme.
Q14 Earl of Dundee: Do you think that
they have pitched it about right with the cap that they propose?
Dr Parr: We believe that the cap should
be set at 30 per cent emissions reductions from the beginning
rather than saying that it is contingent on international negotiations.
The reasons for that I covered to some extent earlier in terms
of international leadership and in terms of what is necessary
from a climate point of view and because actually at the moment
there is uncertainty about the future of the Emissions Trading
Scheme because it all turns on what happens in Copenhagen in 18
months' time. Already, the way in which minds are turning towards
the challenges that will be posed for this long-term infrastructure
can be confused by that.
Q15 Earl of Dundee: But you would like
30 per cent?
Dr Parr: Yes.
Q16 Earl of Dundee: They are not suggesting
30 per cent at the moment and if what they suggest were to be
implemented, do you still think that it would work or will it
not work?
Dr Parr: It should work within its own
terms and potentially will deliver a 20 per cent cut, but we would
prefer that they reversed it and said, "We will go for a
30 per cent cut and maybe we won't do that if the international
negotiations do not deliver". I was talking to Commissioner
Dimas about ten days ago and I raised with him that we are at
the point of developing the framework and potentially starting
to allocate for the phase three over the next couple of years
and there will be considerable difficulty associated with one
set of negotiations to come to one set of conclusions if then
suddenly, at the end of 2009, it is a case of, "We have to
change everything; we have to make a 30 per cent cut". Actually,
it would be much easier to aim for a 30 per cent cut and then
rein back. We do not believe that there should be a reining back
but we accept that that is the next stage in terms of the firmness
of the Emissions Trading Scheme. Does that answer your question?
Earl of Dundee: It does, thank you.
Q17 Viscount Brookeborough: Before we
move on to the question of external dimension, on this memorandum,
is this the total representation of the organisations you represent
or are there others?
Dr Parr: I am here representing Greenpeace
but we are part of CAN Europe.
Q18 Viscount Brookeborough: What is CAN?
Do they have a big office block with lots of scientists?
Dr Parr: No.
Q19 Viscount Brookeborough: Or are they
merely a forum that meets once a year with the heads of Greenpeace
and other people?
Dr Parr: I forget how many staff CAN
Europe have; it is not very many, perhaps two or three. A lot
of the work has to be carried out by the member organisations
but they provide a secretariat and a function that can bring those
organisations together under an umbrella when there are important
issues like the Emissions Trading Scheme where it is helpful to
have a common position and there is quite a lot of aligned thinking.
So, rather than each individual organisation putting their own
thing out, it makes a lot more sense to say, "All the groups
concerned with this think pretty much this".
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