Examination of Witnesses (Question Numbers
360-367)
Mr David Brash, Mr John Scott, Mr Stuart Dymond and
Ms Louise Gault
9 OCTOBER 2008
Q360 Lord Plumb: Is there any development
on the use of methane for heating in some of the rural areas?
Mr Scott: Not terribly much. There is
some capture of methane and turning it into electricity. You never
know; within ETS the price of carbon might change those economics
sufficiently but at the moment there is not a great deal of that.
I should also mention—one of my colleagues has just pointed
it out—that our free allocation under the legislation is
due to be phased out by 2030, so we have a phase-out line where
we have a flat amount of free allocation up to 2018 and then a
phase-out down to 2030, and if the legislation is not reviewed
in that time, and there are some reviews built in, there will
be zero free allocation by 2030.
Q361 Lord Palmer: Although you have touched
several times on my question, could you try to explain why you
intend to award free emission permits to the agricultural sector,
and did I hear you say that the transition period would only last
until 2013? Can you try to explain how in fact emissions permits
will actually work?
Mr Scott: It is 2030 as opposed to 2013,
just to clarify that particular point. The permits will be allocated,
so basically the agricultural sector will face a difference between
what it has been allocated in terms of free emission permits and
the total emissions for that sector when they come into the ETS,
and that might be roughly 15 to 20% of their overall emissions,
that is the estimate, so the permits, when they are in play, will
largely but not entirely shield the agricultural sector from that
cost of carbon. The free allowance will assist in maintaining
the sector's profitability and it is designed to allow a transition
to a lower carbon agricultural sector. As you can imagine, there
is a very significant effort going on in terms of research and
development to try and reduce methane and nitrous oxide outputs
from our farms right now. Quite a long transition period is designed
to allow that research to bear fruit, if it is going to bear fruit;
we do not know yet but we are certainly hopeful, but the reason
we are providing a reasonably generous level of free allocation
is that it is a major export earner and it is genuinely trade
exposed, so it is about that transition period. Given that we
are exposing that part of our economy to the price of carbon,
a relatively generous free allocation is almost certainly the
right thing to do for a period.
Q362 Viscount Ullswater: In your submission
you note that global agreement on emissions reductions can only
be meaningful if it involves at least all of the major emitting
economies. What do you currently regard as the prospects for bringing
those major emitters on board, and I suppose I am talking about
Russia, India and China, and are there any design features of
the EU ETS and its establishment which could help to entice them
to join up?
Mr Dymond: You will be familiar with
the international negotiations as they are at the moment. We have
a negotiating track underneath the Kyoto Protocol which is looking
at further commitments for all developed country parties to that
Protocol and we have another negotiating track underneath the
UN Framework Convention on Climate Change and both of those tracks
are working together towards Copenhagen next year. In response
to the question, we already have some of the major emitting economies
committed to action through the Kyoto Protocol and negotiations
are under way on further commitments for the second commitment
period. The Bali Action Plan, which is the Convention negotiating
track, envisages comparable action by developed countries, which
picks up developed countries that are within the Kyoto Protocol
as well as the United States. It also has nationally appropriate
mitigation action by developing countries, which includes the
major developing country economies, so if you look across both
of the negotiating tracks as we have them in the UN negotiations,
we have the framework there to deliver action by the major emitting
economies once we come to a conclusion around a comprehensive
agreement. There are some key issues that we need to work on further
in the negotiations before we can judge how effective an agreement
might be and the kinds of issues which we will be looking at through
those negotiations will be. For example, what our common shared
vision for the future will be, including a long-term global emissions
reduction goal, to guide the international community in its emission
reduction efforts. What the commitments and actions by developed
and developing countries will look like and how ambitious they
will be. There is quite a lot of water to flow under the bridge
in that part of the negotiations. There is a new concept around
measurable, reportable and verifiable commitments and actions
and how that will translate into practice. And also what technology
and financing will be required and will be provided to support
action in those countries that need support. In essence, we have
the building blocks there in the international negotiations and
we have some way to go in those negotiations before we see how
we can bring that together in a comprehensive agreement. In terms
of your question about the EU ETS, with the shape of the UN negotiations
and what will happen in the future "up in the air",
our comment would be that if the EU ETS can retain some flexibility
in its design to reflect what agreement comes out of the UN process,
that would be helpful. For example, there have been many proposals
made, for example, that developing countries could contribution
to emissions reductions through the carbon market via no-lose
approaches. There are other options that have been put forward
on the table as well. If proposals such as those were to find
agreement in the UN negotiations it would be helpful if the EU
ETS could find a way to accommodate those in the future.
Q363 Earl of Arran: As a member of the
International Carbon Action Partnership, whose remit is to have
sensible, meaningful conversations with other countries who have
already established carbon markets or who wish to have them, how
useful has this Partnership been so far and to what extent do
you think it can help in the future as regards moving towards
a global carbon market?
Mr Brash: It is early days, is the first
thing to say, with the Partnership. However, we are very supportive
of it and we think it is a very valuable forum for engaging with
other countries and regions that are developing emissions trading
schemes. In particular, we see ICAP as a useful forum to share
expertise and practical experience, and that is already happening.
Going forward in the future, ICAP we think could play a very important
role in promoting common understanding around important issues
in the linking of emissions trading schemes, in reducing misunderstandings
about carbon markets and in trying to develop a common language
so that we can share experiences in things like we have talked
about today in terms of New Zealand around, say, forestry, and
with other countries around some of the industrial stuff. This
could both reduce impediments to the growth of the global carbon
market and facilitate a more efficient market which, as you have
heard, is very important to New Zealand. In addition to access
to ICAP via observer status in the Partnership, it may promote
a wider interest in the use of market mechanisms by countries
that are considering introducing schemes, and a number of countries
have shown an interest recently in joining ICAP and we have supported
that.
Q364 Earl of Arran: So it is a talking
shop with some guts to it?
Mr Brash: We have found that so far but
I think it could develop further in the directions that I have
indicated.
Q365 Chairman: Before we sign off, is
there anything that you think we ought to be aware of or that
we have missed and that it would be helpful and useful for us
to know?
Mr Scott: Not really. Can we just confer
for a moment?
Q366 Chairman: Yes.
Mr Brash: We are very satisfied. Thank
you for the opportunity.
Q367 Lord Cameron of Dillington: Can
I ask one more question about your agriculture? We were hearing
yesterday that your allocation of credits or allowances to land
in units has caused a certain amount of friction between various
different sectors of your agricultural community. (a) Is that
correct, and (b) if it is correct, would you have done it differently
if you were starting again?
Mr Scott: In truth we probably have not
got to that point. I am not sure who was talking to you yesterday
but the honest answer I would give to that is no, in that, while
in the legislation we have set out an overall amount of allocation
to provide to the agricultural sector, we have not by any means
determined how we will distribute that allocation. One could imagine
certainly that there will be some friction between different sectors
but we are not at that point. I suppose, looking ahead, in three,
four or five years' time, once we are at that point and have distributed
allowances, almost certainly we will learn from these things and
I think the European experience is that the first time you set
up an ETS these are complex instruments, you do not get it 100%
right, and almost certainly we will make some errors across a
range of areas. Having said this, we are confident we have got
the major design principles right for a New Zealand situation
and we have a very strong review mechanism built into our ETS
for precisely the reasons that you are inferring.
Chairman: Finally, can I thank you very
much for giving up your evening to talk to us. We have very good
relations with your High Commission over here. In a number of
our inquiries we have had very valuable evidence from New Zealand,
particularly on our report on the reform of the EU wine regime.
Again, thank you very much indeed.
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