Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Question Numbers 210-219)

Dr Terry Barker and MS ANNELA ANGER

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 and answers.

  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 lobbying—the 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 general.

  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 parties—you call them stakeholders—were 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 group—for example the bankers—rather 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 allowance—i.e. these emissions trading allowances—and of course the industries, some of which have been captured by their trade unions extraordinarily so you might find socialist groups in Parliament supporting industries—for example the steel industry or the cement industry—so 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 say—well, 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.

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