Examination of Witnesses (Question Numbers
Dr Terry Barker and MS
8 OCTOBER 2008
Q210Chairman: Hello, and welcome; thank you very
much for agreeing to come and enlighten us as it is an area where
we are in need of some enlightenment. I should first of all say
this is a formal evidence session so there will be a transcript
and you will get a copy of it to go through; if there have been
any little slips, please correct them. We are also technically
being broadcast, although as I say to everybody who comes here
we do not have a great deal of evidence that anyone has ever listened
to the broadcasts. As I say, I quite often say provocative things
about them and if they had been listening they would have written
in. I think the best way of proceeding is if you would like to
make any opening remarks of a general nature, please do, that
would be helpful to us, and then we can proceed with the questions
Dr Barker: Very good. If I may start,
My Lord Chairman, my name is Terry Barker of course and I have
many hats. I am founder of the Cambridge Trust for New Thinking
in Economics, which was formed a few years ago, I am Chairman
of Cambridge Econometrics, I have been a co-ordinating lead author
on the IPCC book of the third assessment report and the fourth
assessment report, working with governments at the highest level;
for example, I was asked to provide the scientific review on costs
and mitigation to the world community at some of these meetings
and I was in charge of several of the paragraphs for some of the
policy-makers, both for the third assessment report and the fourth
assessment report. My main job is as Director of the Cambridge
Centre on Climate Change Mitigation Research which I set up in
2004. Previously I worked in the University of Cambridge since
1965 and I joined a Cambridge project working with the Nobel Laureate,
Professor Richard Stone. Therefore, I have got a very long form
on this; particularly on emissions trading schemes; I have been
working on emission trading schemes and publishing many papers
on the European scheme since the DG Environment first thought
of it. Indeed, the history goes back and you have to understand
the scheme in terms of the carbon energy tax which was instituted
by the European Commission or proposed by the European Commission
in 1993/94 but was in fact defeated by lobby groups. One senior
Commission official told me at the time that they had never experienced
such lobbying in their whole institutional life; so it was very
serious lobbyingthe sort of thing which is going on now
with the emission trading scheme rules up to 2012. The result
of that was that the carbon energy tax was defeated by member
governments basically and then the Commission thought of an alternative
which allowed large quantities of money to go to industry, and
we have seen the results of that.
Q211 Chairman: Indeed.
Dr Barker: May I introduce my colleague,
Annela Anger. She is my PhD student and she specialises in the
European emissions trading scheme, particularly with regard to
aviation, but she is also working on international transport in
Q212 Chairman: Including shipping.
Ms Anger: Including shipping.
Q213 Chairman: That is interesting. I
wonder if I could start the discussion and say, to have a successful
emissions trading scheme what sort of circumstances and conditions
have to be in place theoretically to make a scheme work?
Dr Barker: Basically a scheme would work
best if all the partiesyou call them stakeholderswere
following ethical principles and wanting to do a good job, and
of course I am contrasting that with the bankers. There needs
to be that ethical behaviour underlying people's behaviour and
institutional behaviour, so if people want to do a good job the
scheme is more likely to be successful than if they do not. You
asked for basics so that is where I will start. Of course, those
conditions do not prevail so we are in a situation where people
are competing and not looking at the whole system outcomes of
what they are doing. I am not sure that that is the answer that
you were expecting or wanting.
Q214 Chairman: If you are dealing with
individual states it is quite clear from just reading the newspapers
that there is a lot of special pleading going on.
Dr Barker: Indeed.
Q215 Chairman: And if there is a lot
of special pleading one would expect that when a scheme is finally
in place there will be attempts to cheat.
Dr Barker: Indeed, this is a very, very
major problem. It is called regulatory capture by economists and
there is a lot of literature on it, and we are seeing governments
essentially captured, for example, by Wall Street bankers so that
what they do reflects the interests of a particular groupfor
example the bankersrather than the taxpayers or the country
as a whole or indeed the world economy. The same thing happens
with the emissions trading scheme and that is why we are seeing
all these lobbyists working very intensively in Brussels, and
with the MEPs. I have had many contacts from MEPs saying they
have never experienced such lobbying and that is because very
large amounts of money are at stake. These are at stake partly
because of the rules of the scheme allowing free allocation of
a very valuable allowancei.e. these emissions trading allowancesand
of course the industries, some of which have been captured by
their trade unions extraordinarily so you might find socialist
groups in Parliament supporting industriesfor example the
steel industry or the cement industryso that they would
get large quantities of free emissions which would then support
their profits. Presumably, the trade unions are hoping that they
will follow the trickle-down theory in which the profits somehow
trickle down to the poor; I am not sure they are right, but if
they are very strong unions maybe they will be able to get some
of this profit.
Q216 Lord Brooke of Alverthorpe:
Do the unions not have an interest in jobs though?
Dr Barker: They have, but they have a
very narrow interest in jobs: their jobs, their unions, not in
jobs across the European Union. I am sorry to be so harsh but
I fear that is the case.
Q217 Chairman: What are the big dangers
so that if concessions are made in a number of areas then the
whole thing is weakened?
Dr Barker: Each concession weakens it,
and the interesting thing about these concessions is that they
can easily be turned into a transparent concession rather than
a hidden one, by turning the hidden subsidy, which is the free
allowance, into an explicit subsidy, i.e. you charge them but
then you give them the money back as a subsidy, and then it becomes
very clear as to the scale of the money and whether it is going
down or not. That is of course fiercely opposed because many of
the stakeholders do not want that kind of transparency. I must
say as an economist that transparency in information is very important
for markets to work well and for people to know what is going
on. The interest groups and the lobby groups et cetera seek to
hide what is going on, I am sorry to saywell, it is obvious
and I am not sorry to say it, it is true.
Q218 Viscount Brookeborough: Are
you really saying that the lobbying and the policy that is being
fought over in Europe, in the Parliament, is not responsible government
policy but is being led by trade unionists and individual interests?
Dr Barker: How would I know whether it
is led or not, I am observing this as an outside observer.
Q219 Viscount Brookeborough: You
did say that governments were not being responsible in their direction.
Dr Barker: I am not sure I was as broad
as that. Each government is following its own ethical principles
and its own responsibilities to its taxpayers and to running the
system et cetera, so there are all sorts of things going on. The
whole process is extremely complicated, partly because a lot of
it is hidden, but without doing a great study you cannot say who
is doing what and what is going on. You can just observe how the
system works and what comes out of it, and I must say that a lot
of the lobbying is not in the best interests of those doing the
lobbying or those on whose behalf the lobbying is taking place.