Examination of Witnesses (Question Numbers
160-163)
Mr Murray Birt, Mr Matthew Farrow and Mr Dwight Demorais
9 JULY 2008
Q160 Lord Brooke of Alverthorpe: You
have really raised the issue within the traded scheme of agriculture
and, if I recall correctly, you said that you have not done a
great deal of work in that arena although it is a significant
area. We have evidence that big progress is about to be made in
New Zealand. I was wondering where you see the traded scheme going
and I am now asking you to project possibly to Phase 4, or even
possible changes still within Phase 3 where it could be extended.
Would you care to speculate what might come under the spotlight,
for example shipping?
Mr Farrow: I think that it is an important
debate to have. We are in fact going to do a piece of work, which
I am afraid will not be produced until next year as we are only
just starting it, setting out exactly those issues. I think that
aviation will and should come into the scheme. I think that shipping
is a more complex challenge and there are a number of data problems
with shipping in terms of monitoring emissions. With the UK figures,
the emissions seem to go up and down very dramatically with shipping
in ways that must reflect a statistical problem of natural trend
issue and there are all sorts of, I guess, competitiveness-type
issues about where ships fill up and the bunker fuel and so forth.
I think that shipping should be looked at but whether it will
be able to be brought I think is an open question. The Commission
and the UK Government occasionally raise surface transport. Again,
we have no objection to that being looked at but we find it hard
to see how you would include surface transport in a scheme like
ETS. We feel that probably there is not a lot further to go in
bringing major new sectors into the scheme beyond aviation and
our overall feeling is that ETS covers about half of emissions
in the European economy and it is a scheme probably better set
up for the big static emitters and I think that it has been a
huge achievement to get ETS up and running to the level that it
has been. It might be better for some of the other sectors to
work on other policy measures and, in the UK, we are actually
quite well advanced with the carbon reduction commitment and so
forth. That would be my speculation.
Mr Birt: Potentially some further thoughts
are more linkages between the carbon reduction commitment as that
gets developed and evolved and its relationship with the emissions
trading sector might be of interest. We have a project based system,
the CDM market creates an incentive to create project based emission
reductions. Outside of Europe, there is scope and it is hinted
at within the Commission Draft Directive to allowing some sort
of project based system within Europe to get credits from outside
of the non-ETS sectors into issues of double counting and whether
there is already a policy tool targeting that particular sector
where that project may come from but that is another area. With
regard to one of the previous questions on linkages between other
schemes, that would be a key issue going forward in the years
ahead. How do we build an even more global carbon market?
Q161 Chairman: One of the joys of this
sort of Committee is that we cover such a vast area—agriculture,
fisheries and the environment—and you can see if there are
any crossovers and I was just thinking that one of the concerns,
say, in fisheries is that people hold fish quota but do not have
fishing boats and one of the concerns that there used to be in
agriculture is that people have milk quota but do not have any
cows. There must be the opportunity for people to hold credit
but do not actually do any emitting. In other words, there is
an opportunity for significant speculation in credits.
Mr Farrow: That is something which has
concerned us because, as you say, in theory the potential must
be there and particularly industrial members within ETS often
say to me that they are concerned that cash-rich companies within
the scheme, for example, or potentially I suppose outside, might
look to do that. We have discussed it with Defra and they say
that they are looking at it quite closely, but they think that
the sheer scale of the carbon market in Phase 3 would make it
very difficult for any one player to significantly influence the
price in this and it is not obvious how it would work to their
advantage. We will continue to say to the Commission and to the
Member States as they develop plans for how the auctions are to
be run and so on that they need to be absolutely assured that
that does not happen. Any financial market has an element of that
but, given the importance of this market to Europe as a whole
and to business as a whole, we are alive to those concerns and
are pressing them on.
Q162 Baroness Sharp of Guildford: Has
a futures market developed in this?
Mr Birt: Yes and it is centred in London,
so it is speculation and banks and other financial institutions.
Q163 Chairman: It is a good thing in
other words!
Mr Farrow: Yes, for some of our members!
Chairman: You have been absolutely fantastic.
It was very helpful, very clear and very enjoyable. Thank you
very much, indeed.
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