Examination of Witnesses (Question Number
120-129)
Mr Niall Mackenzie, Mr David Capper and Mr Martin
Bond
2 JULY 2008
Q120 Lord Cameron of Dillington: Is there
a main industry involved?
Mr Mackenzie: No, that is the assumption
across. We have a range of projections and analyses for different
industries, which say technology X costs Y and would be expected
to deliver over this period. And these assumptions are the best
that we can do on this fairly rigorous commissioning of consultants
and others to give us industry data. We do not see the industry
data in full because obviously there are commercial sensitivities.
But we have a fairly robust analysis to get to these costs and
if it helps the Committee I can send you a more detailed note
as to how we get to these costs.
Q121 Lord Cameron of Dillington: It might
be useful. Is the energy industry particularly susceptible?
Mr Mackenzie: Yes, obviously fuel switching
is seen as a big area for reducing emissions; moving from oil
or coal to gas is a cheap form of abatement. Whether industry
fix that will be up to industry and, to a degree, that is the
beauty of the Emissions Trading System. We want to give them the
incentive and if they want to stick with whatever and have to
buy additional allowances that is legitimate because those allowances
will finance someone else's abatement in Europe, and because there
is a strict cap you are guaranteed a reduction somewhere in Europe,
and the economics will find the abatement at the cheapest cost
rather than us trying to pick winners.
Q122 Lord Cameron of Dillington: It would
be helpful if you could send us the detailed breakdown, thank
you.
Mr Mackenzie: Yes.
Q123 Chairman: Are "net benefit"
the right words?
Mr Mackenzie: I am sorry, I have only
covered costs. The benefits are broken down into three areas:
the benefits of CO2 reduced in terms of meeting our greenhouse
gas targets and Kyoto commitments; the benefits to air quality
in terms of reduced nitrous oxide, particulates and so on, which
have benefits for human health as well; and there are also benefits
in terms of—
Q124 Chairman: You are putting a money
figure on increased life expectancy, the same as you do with particulates.
Mr Mackenzie: Yes.
Q125 Viscount Ullswater: This is over
the whole eight-year period, is it, the 6.49?
Mr Mackenzie: Yes, 2013 to 2020.
Q126 Lord Brooke of Alverthorpe: That
brings us to enforcement. No real requirement under phase 1 to
worry too much about enforcement but looking forward to the new
scheme it may become more of a factor and I am wondering how enforceable
you do believe the new scheme will be?
Mr Mackenzie: The scheme is enforceable
and I would say that phase 1 was a real success. The Environment
Agency handed down multi-million pound fines to companies that
did not comply in the first year, and we had 100 per cent compliance
the following year. So that tends to suggest that is quite enforceable.
I think some of the difficulties of enforcement in the first phase
stem from a vast number of small companies involved and that is
partly a de-regulation issue, that having the right message for
small emitters will make life easier. Having a harmonised system
throughout Europe will be easier to enforce because it will be
easier for companies to tell on their competitors because everyone
will be operating by the same rules and that will help transparency
of the process, whereas for phase 1 and to a less extent phase
2 there is a slight risk of different regulators across Europe
having a slightly different approach. Again, the Environment Agency
is one of the leading regulators in building up contacts across
Europe and discussing implementation issues to make sure that
the enforcement is done consistently. I think the phase 1 fines
and the fact that we got such good compliance in the UK shows
that it is enforceable and we would expect continuing levels of
high enforcement.
Q127 Lord Brooke of Alverthorpe: I think
we would probably share the view that it will occur to the extent
to which in fact it is practised elsewhere in other parts of Europe,
but are you confident that we are going to be able to ensure that
there is a level playing field?
Mr Mackenzie: I am confident because,
again, a harmonised system is easier to see and there will be
plenty of people out there watching very closely every Member
State. I have already referred to CDM and there are various other
industries and analysts who look at this. The whole faith of the
system in the market is based on the enforcement integrity. You
have only to see the Press criticisms from time to time of CDM.
If someone is not enforcing this it will be discovered quite quickly.
Q128 Chairman: It is going to be better
than the enforcement in the Common Fisheries Policy!
Mr Mackenzie: It is outside my area!
Lord Brooke of Alverthorpe: And several
other industries as well!
Q129 Chairman: We have been talking quite
rightly about the ETS but we are going to have an economy where
there is going to be an ETS sector and non-ETS sector. There is
the danger that the ETS guys are going to say, "You have
taken a big stick to us but you are letting these others off scot
free." What are you doing about the non-ETS sector?
Mr Mackenzie: Firstly, as I said, this
is a package so it has been negotiated as a package, which is
very important, and so there are issues about if you were to take
a sector—and we were talking about agriculture earlier—and
take it out of one and put it in the other then you will have
to make changes to both as it goes forward. The Commission's proposal
is based on 21 per cent reduction from 2005 levels in the traded
sector and ten per cent in the non-traded sector. That has been
determined by the Commission's modelling on the basis of what
is the most economic efficient split between what you can abate
in each sector, and our analysis suggests that the Commission
have got it right and we are content with the way they have split
it. So as of now the effort required of traded and non-traded
we think is fair and is right. Obviously we have one mechanism
for the whole of the traded sector and there will have to be a
range of measures for the non-traded sector, some of which we
are already looking at and have been discussed in the context
of the Climate Change Bill; others which we may well have to bring
forward as further proposals as we go forward. I think it is an
issue that we will have to keep under review in terms of the split
between traded and non-traded, but from the period from now to
2020 the framework that we have seems to be a good one.
Chairman: Thank you very much indeed for the clearness
of your evidence and the help you have been to us.
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