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Green Taxes

Volume 450: debated on Monday 16 October 2006

We now come to the debate on the green tax switch. Mr. Speaker has selected the amendment in the name of the Prime Minister.

I beg to move,

That this House notes with alarm the rise in carbon emissions since the Government took office in 1997; believes that this record is in part due to the steady fall in taxation derived from green taxes from 3.6 per cent. of gross domestic product in 1999 down to 2.9 per cent. last year; notes opinion poll support for a green tax switch from people onto pollution; urges the Government to move from rhetorical assent on the need for action on climate change to serious policy proposals which will set annual targets to cut carbon emissions, allowing for natural variations from year to year, and establish an independent monitoring body to report on progress; and therefore calls on the Government to increase green taxes on new high-emission cars and on aviation while using revenue generated to cut direct taxes, particularly on low earners, so that there is no overall rise in the burden of taxation.

The motion is about green tax and a green tax switch, a fundamental principle of which is that we should as a society be taxing pollution rather than people and we should be taxing bad things rather than work, risk and effort. On that basis, if we were to engineer a change in the structure of taxation towards green taxation by raising, as the Liberal Democrats have proposed, £8 billion a year extra in green taxes, we would be able substantially to reduce taxation on incomes, in particular by lifting 2 million people out of income tax altogether; abolishing the 10p first rate of income tax; cutting tuppence from the basic rate of income tax; and, by raising the threshold at which the higher rate applies from £38,000 to £50,000, taking out of the higher rate of taxation more than 1 million people, which is broadly the number who have been brought into the higher rate during the period of Labour Government.

The key reason for the green tax switch is as part of a comprehensive package—not the whole of it, but a part—to tackle British carbon emissions.

Before the hon. Gentleman goes any further, will he confirm that the switch will work only if the green taxes that he proposes fail to work and therefore fail to reduce the tax base on which they are levied?

No, I do not concede that. As the right hon. Gentleman, whose knowledge of economics is extensive, knows well, an ongoing price change is needed to engineer an ongoing change in behaviour. I shall return to that theme later in my speech, and if he wishes to intervene at that point, I shall be happy to give way to him.

The overwhelming reason to implement green taxes is the extreme urgency of tackling climate change and global warming. Nine of the hottest 10 years on record have occurred since 1990. In Britain alone, this summer was the hottest since records began in 1659; in 2002, we suffered two floods that were supposed to occur only every 30 years; we have had the wettest six months since records began in the 18th century; and the incidence of storm surges, flood damage and droughts is increasing.

Globally, the evidence is also compelling. In the past 10 years alone we have suffered the most powerful el Niño effect ever recorded in 1997-98; the most devastating hurricane in 200 years in Hurricane Mitch in 1998; the hottest European summer on record, in which 26,000 more people than usual died in June and July 2003; the first south Atlantic hurricane ever in 2002; the collapse of the Larsen B ice shelf in Antarctica in 2002; and Hurricanes Rita and Katrina in the gulf of Mexico and the destruction of New Orleans.

The science has become more alarming, not less so. It is based on ever more diverse evidence: on land temperature measured by thermometers; on temperature measured by balloons and satellites; on ice cover and ice thickness; on melting permafrost; on sea temperature and sea flow; on the height of waves; and on the incidence of storms, cyclones and typhoons.

At the level of rhetoric and targets, there is now a clear consensus among those on the Front Benches of the three main parties in this House, but there is not a consensus on the level of action or of delivery. We see the reality when we look at the Government’s record on climate change: our carbon emissions have increased by more than 3 per cent. since 1997, and we are meeting the Kyoto targets to which we have signed up only by accident, because of the reduction of emissions from the electricity generating sector thanks to the switch from coal to gas. We need to do much more if we are to sustain our efforts and establish a position from which we can argue for others also to take action.

Economic instruments are clearly crucial and valuable and the EU emissions trading scheme is the best system, because the incentives go deep and accumulate as behaviour changes. Companies can make even more by selling allocations when they save carbon emissions, unlike merely saving a tax. However, the scheme covers less than half of total emissions and it should be tougher, both at EU level, with national plans, and by adding in sectors such as aviation, shipping and freight, and by auctioning more and allocating less.

The reality is that the scheme will not cover the gaping hole in the UK’s climate change efforts, which is the transport sector. As the Select Committee on Environmental Audit reported in July, transport is the only sector where emissions have consistently increased since 1990. It is the key problem in the Government’s emissions plan.

The Select Committee report on reducing carbon emissions from transport pointed out that with the addition of international aviation and shipping, total carbon dioxide emissions from the UK transport sector have increased by 18 per cent. since 1990. That is in contrast with every other sector of the economy, including farming, the public sector, business and the domestic sector, where the reductions in carbon emissions from 1990 to 2004 have been respectively 53 per cent., 28 per cent. 12 per cent. and 2 per cent.

Transport stands out, and there is no mystery as to why that is the case. The truth is that the Chancellor beat a retreat in the face of the fuel duty protests and since then green taxes, largely taxes on fossil fuels, as a share of national income have been falling steadily; down from 3.6 per cent. of national income in 1999 to 2.9 per cent. last year.

The problem is brought into even sharper relief by an analysis of recent trends in the relative costs within the transport sector. The real costs of motoring have declined in the past six years while the average real cost of airline tickets is around the same as it was in 1996.

I accept much of what the hon. Gentleman says, but I noticed that in the Press and Journal on 19 September—after the Liberal Democrats adopted their new policy on aviation—the hon. Member for Orkney and Shetland (Mr. Carmichael), the party’s transport spokesman, said that he promised to ensure that Aberdeen and Inverness would not be disadvantaged by the party’s plans to curb cheap domestic air travel. He went on to say that Inverness airport would not be included because it was on a peripheral area and nor would Aberdeen because it was a long way from the centre. It seems to me that that argument could be made for a lot of airports in the UK. Is the hon. Gentleman going to tackle short-haul business flights, or is he only looking at cheap holiday flights?

As the hon. Gentleman knows, when the air passenger duty was introduced, an exemption was given to lifeline routes which exempted a large number of the smaller airports that are necessary to local communities in the north of Scotland and in peripheral areas. I shall return to that point later. It is important to maintain air routes that are crucial to smaller and sparsely populated communities.

I was heartened to see the Liberal Democrats’ green tax document, which said that Ken Livingstone’s congestion charge was a “successful environmental tax.” However, it goes on to say that the congestion charge had to be increased to maintain the reduction in the level of congestion that it first brought about. When she was chair of the London Assembly Transport Committee, the hon. Member for Hornsey and Wood Green (Lynne Featherstone)—I assume that the hon. Gentleman knows her well, given that she was his campaign manager—said that rise in the congestion charge was “a price hike” that had nothing to do with reducing congestion and everything to do with “raising a bob or two.” Which is it? Was the congestion charge raised in order to be more effective or to raise money? Can I offer the hon. Gentleman a third way—

Order. I can offer the hon. Lady the opportunity to retake her seat. That intervention was far too long, as indeed the first one tended to be too long. There is a limited amount of time available for this debate and I ask hon. Members to be sharp and concise.

The hon. Lady has enormous faith in my powers, but my powers to read the mind of Ken Livingstone do not extend to my being able to tell his precise motivations for raising the congestion charge. Both of the factors she mentioned are relevant.

The aviation industry has created a tax-free zone of which Al Capone would be proud. Will the hon. Gentleman acknowledge, given his experience of labouring in the vineyards of Strasbourg and Brussels, that to implement an aviation fuel tax would be a substantial challenge, not least because it needs to be implemented on a regional level? If not, it could easily be evaded or avoided.

The hon. Gentleman raises a good point and I entirely agree with the principle. I will return to what we can do at a national and at an EU level later.

Given that disposable income has increased appreciably—I was making a point about the real cost of motoring declining substantially—it has made driving and flying considerably more affordable than before. Meanwhile the real costs of bus and rail fares have increased sharply, by 31 per cent. and 16 per cent. respectively.

There are two potential policy instruments that could in time help us to resolve the problem. The first would be road user charging, based both on congestion and on emissions; the second would be personal carbon allowances, recently floated by the Secretary of State for Environment and Rural Affairs. However, both are some way off technologically and the key objective, faced with the urgency of climate change, is to move quickly. We have maybe no more than 10 years to reduce carbon emissions substantially and an honest policy should be based on existing technologies.

The experience of voluntarism in, for example, the car sector has not been a happy one. The voluntary agreement signed up to by the car makers to reduce average carbon emissions to 140g per kilometre by 2008 is, frankly, for the birds. At the current rate of progress, the UK would not achieve that until 2022. We have broken promises in the vehicle sector from manufacturers and the case for going beyond voluntarism is a strong one.

That is why we have added the proposal for changing the rates of vehicle excise duty on new cars, with an eye-catching and mouth-watering £2,000 a year on those gas-guzzlers that are emitting more than 220g of carbon per kilometre. The object of that policy is to change the cars that people buy so that we have a change in behaviour and a change in the effect of the system.

The Select Committee pointed out that, in particular, the new band G introduced by the Chancellor is ineffective and the rate charged needs to be much higher. As things stand, the VED paid by the owners of the highest emitting 4x4s and luxury saloons in band G represents a lower percentage of their sales price and works out at half the cost per gram of CO2 emitted than lower emitting hatchbacks in band C.

I am trying to follow the arguments carefully. If green taxes are introduced and met, it will mean that people are still not changing their lifestyles to influence the climate change challenges. If people do change their lifestyles, that will mean that they do not pay those taxes, in which case will there not be a huge hole in the budget of the Liberal Democrats?

I do not know how many times I will have to reply to this point. I thought that I had dealt with it in relation to a previous intervention. There is a section of my speech where I will attempt to spell things out in even greater detail. The hon. Gentleman might be on sounder ground in criticising the proposals of others if his party were able to bring forward a single specific measure to deal with what it says is the greatest policy challenge of our time.

I am going to make more progress. The hon. Gentleman can come back to me when I reach that section of my speech if he wants to intervene again.

The higher £45 rate of the new band G is so feeble a deterrent to the purchase of the average gas guzzler that it typically represents the cost of half a tank of petrol or, in the case of an upmarket 4x4 such as the Porsche Cayenne, one replacement wiper blade. That is precisely what the reputation of the Chancellor as a green Chancellor hangs on. Our proposal is for a far sharper rise at the top end to deal with what the Department for Transport identified as the trend towards higher emitting cars outweighing the technological improvement in fuel efficiency. Otherwise our proposal is closely modelled on the proposals put forward by the Energy Saving Trust and the Sustainable Development Commission. The Department for Transport itself commissioned some work from MORI, the opinion polling organisation, to check on the likely impact of the different price bands for vehicle excise duty of the sort that we are putting forward. That study suggested that 72 per cent. of new car purchasers would alter their behaviour faced with the sort of rise in VED bands that we propose. That is a clear set of proposals for dealing with one rapidly growing element of carbon emissions in the transport sector.

A hybrid, but nevertheless such a vast hybrid that it emits more than all 10 of the best-selling cars in the United Kingdom. I am afraid that I did not come prepared for the average car buyer inquiring into exactly what the effect on sales of the Porsche Cayenne would be—of enormous interest though that would clearly be to those on the Conservative Benches.

No, the hon. Gentleman has already intervened once. He can intervene later.

On aviation, we have seen extraordinarily rapid growth in carbon emissions. According to the International Civil Aviation Organisation, average annual growth over the past 10 years has been 4 per cent. In the UK, the growth in passenger numbers has been even higher: 6 per cent. a year over the past 10 years. Aviation emissions are growing so rapidly that at current growth rates aviation would use up the entirety of the UK’s carbon allocation by 2050, allowing nothing whatsoever for domestic heating, transport by car or bus, or any other use. That is why it is essential to curb aviation growth—not necessarily to cut it back, but merely to slow its pace of growth. If people want to fly rather than carry out other carbon-emitting activities, it is not, in any Liberal Democrat view, the business of Government to tell them not to do so. However, people need to take those decisions on the basis of a level playing field.

At present, aviation is highly favoured. It is lightly taxed by comparison with other areas of spending and it is not clear, given the undoubted damage caused by carbon emissions, why that should be so. There is no kerosene tax and no VAT on airline tickets, although that would be possible both nationally and at an EU level. Aviation is not included in the emissions trading scheme and we are some way off that happening. The reality is that we need to work a little harder at a national level. I agree that, as has been pointed out, there are substantial constraints if we are not to make ourselves wholly uncompetitive. However, as we have seen before, when the Conservatives were in government and introduced air passenger duty, we can act at a national level.

The existing air passenger duty is an extremely weak reed in the context of this problem. Since 2000, for example, there has been a reduction in the revenue from air passenger duty of 35 per cent., even though there has been an 8 per cent. increase in passengers. The charge of £5 for short haul and £20 for long haul, at the lowest rate, needs to be replaced by an emissions charge based on the emissions of the aircraft over the flight. Although we aim to tax aviation as a whole more heavily—that is what would limit its growth—the extra burden on passenger flights would be mitigated by the extension of the emissions tax to freight. In each individual case, the charge would depend on the fuel efficiency of the aircraft and on its load factor. It is noticeable, for example, that the budget airlines tend to have younger, more fuel efficient aircraft in their fleet and they also fly with substantially higher load factors that the scheduled airlines.

We suggest that those two big changes would bring in about £8 billion of proposed revenue. The idea is to raise the rate at which green taxes are levied in the economy back up to the peak that existed in 1999, within the space of one Parliament.

How much of that £8 billion will be re-funnelled into investment in the infrastructure to provide an attractive alternative to flying or driving?

I am grateful to the hon. Gentleman for his question. Judging from the experience of other countries that have gone down the road of the green tax switch, it is crucial that we make a firm commitment to the electorate that the money that is raised from green taxes is handed back to them and that the green tax switch is not about raising money for the state. There are other means by which one can handle infrastructure spending. I agree that there is a real problem, but the whole idea of the green tax switch is to guarantee that every penny piece raised in extra green taxes goes back into reductions in taxes on income, in particular. That pattern of policies, as I mentioned, has been applied in other countries that firmly believe in tackling carbon emissions to influence climate change—notably in the Nordic countries.

The hon. Gentleman is making points about the taxation of aviation with which I greatly sympathise, but I wonder whether he is clear in his own mind about what he wants to raise the money from his new aviation tax for. The Liberal Democrat tax documents states:

“We will increase the revenue from the new Aircraft Tax to approximately £3 billion above that of the current APD”.

However, the Liberal Democrat website today states:

“The new duty would be set to raise the same amount of money as the old.”

There appears to be a £3 billion hole there somewhere.

I do not know what the hon. Gentleman was quoting from, but the document that we voted on at our conference and the accompanying figures made it clear that there would be a substantial increase. We would be looking at getting roughly four times as much revenue out of the aviation sector as is currently the case. He may be confusing that with the fact that there are particular flights where, because of load factors and fuel efficiency, one would not necessarily expect anything like that increase—if any increase—in taxation. The burden of taxation will be different.

The most thorough report commissioned by the Nordic Council from the Danish National Environmental Research Institute in Copenhagen pointed out that Sweden, most notably, is undertaking an overall tax shift, replacing income taxes with taxes on energy, transport and pollution that amount to several billion Swedish kronor. The report says:

“The Nordic countries pioneered the introduction of carbon and energy taxes and recent studies have addressed their impacts on CO2 emissions. Despite different methodological approaches, the general result which emerges is that such taxes have made an important difference to emission levels. In Finland, CO2 emissions would have been 7 per cent. higher at the end of 1990s had the taxes not been introduced, while in Demark the tax-subsidy scheme on industrial CO2 emissions caused emissions to decline by 23 per cent. in just seven years, to a level 31 per cent. lower than would be the case under a business-as-usual scenario.”

Let me deal with possible adverse side effects. Inevitably, those of us of a progressive disposition worry about the impact of indirect taxes on income distribution. Of course, indirect taxes may prove to be regressive if, as is normally the case, expenditure on necessities represents a higher proportion of the income of the poor than that of the well-off. That is why Liberal Democrats have been careful not to propose the extension of the climate change levy, or a climate tax on households, before we have a far more successful scheme to improve energy efficiency.

The taxes that we propose are not regressive, and one can see that in the case of the vehicle excise duty. Poorer households do not own cars. Some 28 per cent. of British households are without access to any car. Moreover, even among those who have a car, it is rare to find families that buy new cars. However, the VED rates would apply to new cars. On aviation, too, the average income of leisure travellers from UK airports, which was surveyed recently by the Civil Aviation Authority, was nearly £50,000 a year, or more than double the national average. Labour Members might be especially interested to know that nearly 80 per cent. of leisure flights are taken by people in the top half of the income distribution, with only 20 per cent. taken by those in the bottom half. There is also further evidence from the Nordic Council report:

“Another main result is that while energy taxes tend to be distributionally regressive, taxes on transport, fuels and pollution are, respectively, progressive and neutral.”

It is clear, however, as has been suggested, that such a policy might adversely affect those in rural areas if special considerations were not made. That was why we proposed during proceedings on the Finance Bill that there should be a 50 per cent. discount on a household’s first car in sparsely populated rural areas and why we believe that we should consider reducing excise duty rates on fuel to offset some of the disadvantages of remoteness for rural communities that rely on cars.

Overall, the package would aim to raise the yield from green taxes back to the share of national income at the peak of 1999. It thus represents a rise of 0.7 per cent. of gross domestic product. It would be a sensible first step, after which we should assess its effects and other measures that might be necessary to achieve the goals. I reiterate that the key promise of the package is that the revenue raised from green taxes should go back in cuts in taxes on good things, such as effort, risk and work.

I will now address precisely the point raised by the hon. Member for Bournemouth, East (Mr. Ellwood): will the revenue disappear? Certainly not any more than it does in the case of other sin taxes, such as those on alcohol and tobacco, or the congestion charge. There would be behavioural effects, which is what we would want, but we would not be trying to get rid of the behaviour altogether because the appropriate instrument to achieve that would be not a green tax, but a regulation to ban the activity entirely. I hope that Conservative Members will thus be sympathetic to a proposal that is a market-oriented measure designed to ensure that our carbon emissions are sustainable.

The hon. Gentleman is speaking with a lot of passion, which is important. I think that the whole House agrees on the direction in which we are trying to move. However, as other Conservative Members have pointed out, there is a problem. If the taxes were to work in the way in which the hon. Gentleman suggests, we would not have the impact on the environment that we want, so we would still be faced with the same levels of carbon, rising sea levels and the challenges that we are trying to address.

I do not want my response to the hon. Gentleman to become too technical. However, on aviation, for example, a lot of work has been done on the responsiveness of quantities to changes in price. The price elasticity of demand is shown to be about 1.1, which effectively means that a price increase of 1 per cent. leads to a 1.1 per cent. fall in activity, if other things are equal—obviously, one must take account of the growth trend. I am rather surprised that the hon. Gentleman questions this clear point. There is a very small selection of goods and services for which demand increases if the price is raised. If one raises the price of something, demand for it generally goes down. The measure would thus be effective.

I welcome the Conservative promise of raising green taxes as a share of taxes as far as it goes, but it does not go far enough for my taste because if taxes fell overall, green taxes could rise as a share of taxes without any increase whatsoever in pressure on people’s behaviour. That is why countries that use green taxes, which are all those that are pioneering efforts to deal with climate change, think of green taxes as a share of national income.

Green taxes can play a key part in changing our behaviour and ensuring that we can meet this extraordinary challenge. I am not a Private Frazer doomsayer on climate change. We had success before with the Montreal protocol of 1987 that banned chlorofluorocarbons. The hole in the ozone layer has since stopped deteriorating and environmental catastrophe from that source has been averted. I agree that weaning us off fossil fuels is a bigger challenge, but I am convinced that we can do it again. We need to ensure that we are making progress and that we can see that the best is not the enemy of the good.

Overall, the problem that we face is not the failure to recognise the instrument, but the failure of political will. Labour Members were afraid when faced with the fuel duty protests. They ran and they have gone on running. The time has come to change course, to take our courage in our hands and to begin to deal with the problem in the way in which we know that it can be dealt with: through the application of green taxes, especially on the aspects of transport that have formed such an important part of the UK’s increased carbon emissions.

I beg to move, To leave out from “House” to the end of the Question, and to add instead thereof:

“welcomes the UK’s climate change programme which has already put the UK on course to exceed its Kyoto target of a 12.5 per cent. cut in 1990 levels of greenhouse gas emissions by 2008-12 and make further progress towards the Government’s ambitious target to cut carbon dioxide emissions by 20 per cent. by 2010; recognises the vital contribution of the Climate Change Levy, which has already saved 28 million tonnes of carbon emissions and by 2010 will be reducing carbon emissions by over seven million tonnes per year; congratulates the Government on exceeding its recycling target supported by the Landfill Tax and Landfill Allowance Trading Scheme and contributing to reductions in greenhouse gas emissions; commends introduction in the UK of the world’s first international emissions trading scheme capping emissions from power stations and energy-intensive industries; further welcomes the Government’s proposals for the second phase of the scheme in the UK; further welcomes the Government’s energy review, which proposes measures to save up to a further 25 million tonnes of carbon emissions per year by 2020 and to put the UK economy on a path to a 60 per cent. cut in carbon dioxide emissions by 2050; congratulates the Government on its commitment to delivering a strong economy based on high and stable levels of growth and employment as well as high standards of environmental care; and calls upon the Government to continue to put environmental protection, locally, nationally and globally at the heart of its policies.”

There is no bigger challenge in politics today than the way in which we respond to the rapidly growing body of scientific evidence that our climate is warming and that the human race is responsible for this increase in temperature. Climate change is not just an environmental issue; it is an economic issue, a social issue, a security issue and, above all, a moral issue. The way in which we respond as a nation—the Government, business and citizens together—will determine our legacy for future generations. It is a test of character and, overwhelmingly, of political will.

As the world’s first industrial nation, we have a moral responsibility to provide international leadership. Nothing, apart from alleviating starvation and avoidable disease, is more important and urgent in the world today than securing international agreement on a long-term framework and the actions that are necessary to avoid dangerous climate change.

The central fact about today’s debate is that the Treasury said in 1997—in what would have been a consensus among all the parties in the Chamber if it had stuck to its promise, but which excludes Labour because it has not acted on it—that the Government would move to take taxes off goods and put them on bads, and that they would increase environmental taxation in order to combat climate change. That was the promise in 1997. As the hon. Member for Eastleigh (Chris Huhne) said, you have moved in exactly the wrong direction, and your warm words at the Dispatch Box will do nothing for people out there who can see that emissions are up and that your taxation has gone in the wrong direction. Will you please answer that?

If the hon. Gentleman will be patient, I will answer those questions about the appropriate mix of policy instruments to tackle climate change.

Stabilising the amount of carbon dioxide and other greenhouse gases in the atmosphere will take enormous effort. There is widespread recognition that we will have to move substantially beyond the agreements reached at Kyoto. Our ambitions must be far greater and all key emitting nations must play a full part. Around the world the UK is recognised as a leading voice on climate change. Last year we made climate change and Africa top priorities during our presidency of the G8. We moved the debate forward, and we are still doing so with the Gleneagles dialogue process and in the UN and other forums. But we can credibly provide leadership internationally only if we continue to show by our actions at home that we are fully committed to tackling climate change.

I welcome the opportunity today, therefore, to discuss the Government’s domestic agenda and our judgments on the right balance of policy instruments to meet our climate change objectives. I strongly welcome, too, the fact that climate change is now at the top of the agenda of all three main political parties in the UK. This reflects the mood of the British people, who care so passionately about making poverty history and protecting the world from what we are doing to it through our actions.

I put on record the important fact that we are on course to meet our Kyoto protocol target. Greenhouse gas emissions are projected to fall to around 23 per cent. below 1990 levels by 2010, nearly double our Kyoto commitment. The Government introduced a wide range of measures that helped us to achieve that, and fiscal measures have played a key role. For instance, the climate change levy package, which combines fiscal and non-fiscal measures, has delivered emissions savings of over 28 million tonnes of carbon since they were introduced in 2001.

I fully accept that we need to do more, and I shall explain some of the steps that we are taking to strengthen our domestic programme on climate change and put us on a path to reduce CO2 emissions by at least 60 per cent. by 2050. Before I do so, I shall address the core argument in the Liberal Democrat motion. It is right for the Opposition to question why we have taken some steps and not others. Taxation, public spending, regulation and encouragement of voluntary public action all have the potential to contribute to our objectives in this field. The question is what is the appropriate mix of policy instruments.

I can agree with the general proposition that we should tax environmental bads and encourage environmental goods. The “polluter pays” principle is a long-established Government policy. We have programmes to support the growth of clean technology. However, I fundamentally disagree with the Liberal Democrats’ contention that environmental tax as a proportion of gross domestic product is somehow an accurate indicator of success or failure in tackling climate change. It is not. A decline in environmental tax revenue can be the consequence of policy being effective and delivering behavioural change. Climate change agreements have delivered 10 million tonnes of carbon savings by giving an incentive to companies to pay less tax through a reduced climate change levy.

The fuel differential for biofuels also involves the surrender of tax revenue. It is simplistic and wrong to judge policy by reference to the proportion of green taxes as a percentage of GDP. The link between growth and carbon emissions, strong for most of our industrial history, has been substantially broken. It is equally fallacious to measure the effectiveness of the Government’s commitment to tackling climate change by how much the Government spend in this area. Adding up a few DEFRA budget lines and comparing that with the amount spent on Trident or the Iraq war may produce a news story, but it gives a false picture of what is being done by Government to tackle climate change across a range of different policy instruments. I shall focus on four areas where we are taking action, and then offer some concluding remarks.

Before the Minister moves on to those points, which I am sure are important, will he clarify where the Government stand on the 1997 proportion of green taxes, compared with current levels?

If the hon. Gentleman was listening, he would have heard me explain that green taxes as a proportion of GDP are not an accurate or fair reflection of the Government’s attitude to tackling climate change. He needs to recognise that a range of other policy instruments, such as regulation and public spending, are also important. Let me explain by dealing with the first of the four points that I want to make—the European Union emissions trading scheme.

This summer we submitted our proposals for the second phase of the EU emissions trading scheme in the UK. The scheme is a market mechanism to reduce carbon emissions, not a taxation measure. It will be expanded to cover additional activities at 160 installations in the UK, responsible for 9.5 million tonnes of carbon dioxide that are not covered in the current phase of the scheme. Alongside this we are pressing for reforms to the EU emissions trading scheme to extend its coverage and secure its long-term future, which I am sure we all agree is extremely important.

The Minister is right that in theory it is perfectly possible to construct a climate change policy that does not rely on green taxes, but, in practice, international comparisons show that there is not a single European country that has achieved a good record on climate change without a greater reliance than ours on green taxes as a share of GDP. Will the Minister name one, if he can?

The UK has a good record on climate change. As a Government, though, we want it to be even better. That is why we are introducing measures to strengthen our domestic climate change programme.

One of the areas that the UK is working to have included in the EU emissions trading scheme is emissions from aviation. This would enable the industry to meet the full costs of its environmental impacts through a mixture of emissions reductions within the sector and purchase of reductions that can be produced more cheaply by other sectors. I know the Liberal Democrats also want that, and I believe the Conservative party does too, so we are united in wanting to tackle the issue.

On the Minister’s point that tax is not a particularly relevant instrument in dealing with climate change, is he conscious that in its own publication DFID upbraids developing countries because it says that their

“tax regimes often offer inadequate incentives for environmental stability”?

This is a case of the goose and the gander choosing very different words to preach.

Not at all. I did not say that taxation was not a relevant policy instrument. I said that it was not the only policy instrument. In government one has to reach a judgment about the right mix of policy instruments to achieve one’s objectives. That is what we are doing, and it is why—the second point that I want to make—in July we published the results of our energy policy review, a central theme of which was further action to deliver annual reductions of up to 25 million tonnes of carbon and put us on track to meet our 2050 target.

Measures announced in the energy review include giving people accurate information about their energy use through smart metering, phasing out inefficient consumer goods, moving towards our long-term ambition of carbon-neutral housing development, and a revolutionary change in the basis of energy supply regulation, so that companies have an incentive to conserve energy rather than supply more of it. We also plan to consult on a possible energy performance commitment, which will target emissions from large commercial and public sector organisations that are currently not covered by the EU emissions trading scheme and climate change agreements. This could effectively save 1.2 million tonnes of carbon a year by 2020.

I am interested in the Minister’s remarks about the EU trading scheme. The Trade and Industry Committee has been taking evidence on the energy review. All energy generators have expressed their fear about the long-term price of carbon. Following the recent difficulties with the scheme, the price of carbon fell dramatically. Are the Government’s proposals aimed at stabilising a long-term price for carbon? The German Government have offered some of their generators.

The key point is to ensure the continuation of the EU emissions trading scheme beyond 2012 to provide certainty for businesses that are making long-term investment decisions. I am sure that that is what the hon. Gentleman was referring to, and I would be interested to hear what the Trade and Industry Committee has to say about it.

We aim to increase the level of the renewable transport fuel obligation to above 5 per cent. after 2011 and to develop strong successor arrangements to the current voluntary agreements on new car fuel efficiency. With transport accounting for around 25 per cent. of UK carbon emissions, I agree that we need to take action in that area. The carbon savings from those measures alone will be some 2 to 3 million tonnes. We are also increasing our commitment to renewable energy by strengthening the renewables obligation, with higher levels of support so that the newer technologies receive the support that they need. That is in addition to existing measures to incentivise renewables, including £500 million of funding for a range of support programmes for emerging technologies.

Thirdly, we are doing more to reduce the carbon footprint of Government. We have made a pledge that the Government office estate will go carbon neutral by 2012. That will save approximately 160,000 tonnes of carbon—the equivalent of taking some 150,000 cars off the road. We are offsetting all official air travel, which will mitigate an estimated 300,000 tonnes of carbon dioxide by 2009. New sustainable operation targets have been introduced for each Government Department. We will shortly respond positively to the sustainable procurement task force report.

Fourthly, the Budget presented by my right hon. Friend the Chancellor set out a range of important measures: changes to car taxation; an incentive package for biofuels; and measures to encourage greater energy efficiency in households, including an extra 250,000 homes to be insulated over the next two years. That builds on the £320 million of investment this year through the Warm Front programme, which will help more than 100,000 households, and the energy efficiency commitment, which has delivered net benefits to households of more than £3 billion over the past three years.

Does the Minister recognise that the Chancellor’s Budget package on vehicle excise duty will raise £10 million less in cash terms in the current financial year than in the previous one? How does that make any substantial difference to the pattern of car purchases or to carbon emissions from personal transport?

At least the Chancellor’s Budget figures add up, which is more than can be said for the Liberal Democrats’ plans. I am sure that my right hon. Friend the Chief Secretary will have something to say about that in his closing speech. Additional support will fund 25,000 micro-generation installations in public buildings such as schools and hospitals over the next two years. My right hon. Friend the Secretary of State recently announced a switch of £10 million from energy efficiency into a new partnership for renewables, which will mobilise up to £500 million of investment to catalyse the expansion of the public sector renewables, potentially producing an additional 500 MW of renewable electricity.

In his Budget, the Chancellor introduced a new zero-rate road tax for environmentally friendly cars. How many cars are eligible for that and have signed up for it? I hope that the Minister can answer that question, as he did not answer my previous one.

I do not have the figures to hand, but if we cannot get them before the end of the debate I, or the relevant Treasury Minister, will be happy to write to the hon. Gentleman.

I appreciate that many hon. Members are interested in legislation on climate change, with some 398 having signed early-day motion 178. The Government have said in the UK climate change programme, and more recently in the energy review, that we are carefully considering the merits of introducing a carbon budget as a means of helping to deliver our goals. The only issue for the Government is whether legislation would help in the battle against climate change, support the efforts to join individual activity with business and Government leadership, and link domestic and international action. Legislating for targets is not the same as legislating the means to achieve them, and it is the latter on which we will all be judged. Consensus on goals is important, but without effective policy there is no effective response. The challenge for us as legislators is to ensure that we have the right mix of policy actions to achieve our ambitious goals.

Climate change requires change right across society—from central and local government, from individuals and from business—if we are to move towards one-planet living. I am proud that we were the world’s first Government to set a long-term target for carbon reduction consistent with the science of climate change, the world’s first Government to legislate for a climate change levy, the world’s first Government to introduce an emissions trading scheme, and the world’s first Government to meet and tighten its caps under the European emissions trading scheme. All those changes were met with scepticism, and some with opposition, but they were the right course of action. Now we need to go further. We will do so. We must put the world first, and I look forward to support from right across the House as we do just that.

World scientific opinion no longer seriously debates whether climate change is happening, but merely how fast it is happening. The effects of global warming are all around us on every continent. However, they are as yet but a foretaste of the extreme changes and severe shifts in weather patterns that will be the fate of successive generations unless our generation, in our time, finds the will to act. Our planet is fast approaching what scientists call the tipping point—the point in the next decade at which, if we can limit and begin to substantially reduce the amount of carbon we pump into the atmosphere, we may stand a chance of abating the worst of the climate change scenarios. If we do not, the long-term consequences will be severe indeed. Against that background—and recognising the need, where possible, for concerted cross-party consensus on this issue—there is a lot in the motion with which we can agree.

It is an undeniable truth that carbon emissions have risen since Labour took office in 1997, while at the same time there has been a steady fall in taxation derived from green taxes. There simply is no excuse for that. While environmental taxes as a percentage of total taxes and social contributions stood at 9 per cent. in 1993 and rose successively during every year of the final term of the last Conservative Government to stand at 9.7 per cent. in 1998, they have fallen, with one very minor exception, in every single year since 1999. In 2005, environmental taxes fell to just 7.7 per cent., down from 8.3 per cent. in 2004. We are committed to reversing that trend.

That lack of focus from the Chancellor is all the more extraordinary because, as the amount of tax on environmental bads as a percentage of total taxes has steadily fallen in recent years, our knowledge and understanding of the impact of global warming has greatly increased. Since Margaret Thatcher became the first global leader to warn the world of the dangers of climate change in the late 1980s, our comprehension of the science of man-made global warming and our appreciation of the need to take concerted, urgent action has grown immeasurably.

The Government have not been blind to that science. Many Ministers, including the Department for Environment, Food and Rural Affairs team, have a personal commitment to the climate change agenda. Indeed, on the international stage, the Government have endeavoured to continue to play a leadership role. Abroad, Ministers’ efforts have met with significant success, but at home Labour’s record is far more depressing.

It is all the more surprising to Conservative Members, who have gasped and widened their eyes at the succession of Budgets from the Chancellor in which new and ingenious stealth taxes have been unveiled and taxes have risen year after year, to witness complete indifference to the one matter about which he would have been much more certain of finding consensus on the need to increase taxation—environmental bads. Under Labour, the Treasury has been unimaginative, unambitious and unbelievably complacent.

An explicit example of a well-intentioned but unambitious policy, complacently implemented, is the enhanced capital allowance scheme, which the Chancellor introduced in the 1999 pre-Budget report. The building industry has enjoyed the benefits of the ECA scheme for using emergent, efficient technology, yet that incentive, which is now seven years old, has fallen behind the latest round of building regulations and acts as a barrier to applications of new and emerging technologies such as thermal mass and natural ventilation. Individual elements of plant and machinery capital expenditure are included in the scheme, yet holistic and efficient building design, as encouraged in the new building regulations, is not taken into account. All attempts to include additional sorts of holistic technology outside the narrow definition of plant and machinery have been successfully rebuffed. The Government have no vision and no ambition.

When the industry has contacted DEFRA about the inclusion of new technology in the scheme, including technology that would dramatically reduce a building’s carbon footprint, it has been referred to the Carbon Trust as technical adviser to the scheme. However, when the Carbon Trust has been contacted, the industry is referred back to DEFRA and Revenue and Customs, which is responsible for the scope of the scheme. Perhaps the Chief Secretary could deal with that point in his winding-up speech.

Perhaps the greatest element of underperformance is the Government’s much vaunted climate change levy. It is a good idea and a terrific brand, but its detailed application is profoundly inefficient. It is not focused on CO2. The climate change levy is a tax on the energy that business uses. It should be reformed so that it is based on CO2 emissions from different fuels, and the rates should be increased towards the estimated social costs of greenhouse gas emissions. The increased revenue should be earmarked for “climate change mitigation measures”. Those are not my words but those of Mr. Tony Grayling, the Secretary of State’s special adviser. Let me make it clear: under the next Conservative Government, the climate change levy will be replaced by a more effective method of reducing carbon emissions, as part of an overall framework of carbon pricing throughout the economy.

Another perverse impact of that inefficient environment tax is its application to UK agriculture and horticulture, which have exceeded their climate change levy targets. Despite that good record, the targets have been increased to unattainable levels, while other sectors, such as aviation, remain uncontrolled. The perverse outcome is that there is now a serious prospect of UK-produced horticulture and UK poultry and pig production ending and being replaced by imported produce, which will be sucked into Britain using untaxed aviation fuel. How good can that be for global climate change, let alone British farming? What is the DEFRA team doing to sort out that mess?

However, my main criticism of the Government is that, rather than concern themselves with clear, ambitious, accountable policy-based instruments, predicated on either tax incentives for environmental goods or green taxes on environmental bads, they have a peculiar fascination with short-term initiatives, stop-go grant funding, tiny pots of money here and tiny pots of taxpayers’ money there.

One of the most extraordinary examples of Treasury micro-dabbling in the private sector with taxpayers’ money is its current participation in the 21st century sustainable technology growth fund, which is currently making its debut on the stock market. One fund manager who had received a presentation contacted me, totally unable to understand the Government’s willingness to use taxpayers’ money to put up two thirds of the money for that small, private sector venture capital fund, while agreeing to take only 12 per cent. of the profits. Is that really a prudent use of the taxpayer’s money? What would the Treasury Minister have to say about that?

We wholeheartedly agree with the broad thrust of the motion before us, but there is a problem, in that it gives the impression that if we can clobber the Chelsea tractor, all will be well with the world. The Lib Dems’ myopic obsession with a small number of 4x4 motorists entirely misses the larger point.

I will in a moment.

I do not for a moment deny that we need to take a more responsible approach to transport emissions. However, it is somewhat bizarre to criticise the Government for their whole record since 1997, then just to deduce from that a failure to tax Range Rovers and Porsche Cayennes—particularly, I presume, the turbo variety that was scurrying around the Leicester by-election, full of Lib Dem campaign strategists. There is, however, a clear role for the Government to ensure environmentally friendly transport systems. The Government are intricately involved in the transport infrastructure, and more than a quarter of our carbon emissions come from transport. Without action on transport, action on emissions will be limited. The Conservatives have already announced an ambitious policy to reduce average emissions from cars to under 100 g per kilometre for all new cars by 2022 and for all cars by 2030. We propose to work hand in hand with the most progressive companies to make that vision a reality.

So why are the Lib Dems so preoccupied with 4x4s? Perhaps it is because they have failed to think through their climate change strategy with the same depth and breadth that the official Opposition are employing. Both our parties have elected a new leader in the past 12 months, albeit in rather different circumstances. My party, embracing the need for change and renewal, took a great leap forward and skipped a generation. The Lib Dems, perhaps noticing how effective this had been, also decided to skip a generation. With a novel Lib Dem twist, however, they went in the opposite direction.

I am pleased that the hon. Gentleman is going to be dealing in depth with the Conservatives’ policy, as that approach has been a little lacking in his speech so far. I am a little confused, however. He supported the broad thrust of our motion and our proposal for green taxation, yet he seems to have an obsession with the line about 4x4s. Will he clarify whether he would support an increase in vehicle excise duty for the worst offending vehicles, including 4x4s?

There is a clear case for looking at the whole of transport, and our policy review committee is doing that. As soon as its findings are announced, I will send the hon. Gentleman a minute. I am not going to prejudge those findings now, but transport is clearly going to have to be addressed.

For the sake of the record, I should like to point out to the hon. Gentleman that there are 4x4s that fall below the top vehicle excise duty band involving 220 g per kilometre, including, I think, the one that he drives himself. Many other cars in that top band are not 4x4s. Our proposal is to take the band as it has been set out by the Chancellor and to add some bite and incentives, rather than merely adding a £45 increase, as the Chancellor proposed in the Budget.

I would pay slightly more attention to that if the hon. Gentleman had the foggiest idea of the impact that his proposed policy would have on the sale of 4x4s. Perhaps, when his colleagues wind up the debate later, they could tell us why, during our debate on the Finance Bill, the Liberal Democrats proposed to reduce the rate of vehicle excise duty for the most polluting vehicles registered before 23 March this year for households with a postcode in a rural area. What is the environmental argument for doing that? I shall be happy to give way if someone would like to answer that question.

Perhaps the hon. Gentleman is aware that some 4x4s are important for getting about and doing business in rural areas. It is important to take that into account in our proposals.

I am sure that all the mums who drive to school in their 4x4s in my part of East Sussex will be very glad to hear that. Likewise, the 23 March cut-off date will also intrigue a lot of car salesmen.

I really must make some progress.

It was Disraeli who said of Gladstone that he was an old man in a hurry. I would certainly not presume so to label the new Lib Dem leader, but a budget written for three years hence, whipped out in less than six weeks after taking the reins, does have a slight whiff of the back of a fag packet about it. My party makes no apologies for having commissioned the most extensive policy review process since that undertaken by Margaret Thatcher and Keith Joseph in the 1970s, or for throwing out preconceived notions and looking afresh at the challenges of the new century with the help of today’s experts and tomorrow’s leaders. The policy review process is drawing in not just committed Conservative party members but experts from across the country who are keen to participate in the intellectual renewal of a great political party and a Government in waiting. We will not make the mistake that Labour made of entering its first term of government without having undertaken hard thinking about policy in opposition.

When one considers the failure of Labour to reduce our output of carbon emissions, the Liberal Democrat notion that that would be reversed by slapping more vehicle excise duty on a few gas guzzlers is frivolous. Yes, the true cost of such cars should be more accurately reflected in the price, and I look forward to the considered opinions of our policy review commission. The CO2 from those large cars, however, is dwarfed by that emitted by the UK energy sector or from UK homes. Nothing in the motion provides an answer to that.

The Conservatives, under my right hon. Friend the Member for Witney (Mr. Cameron), are far more ambitious. We want to see far more policy focused on really sustainable green growth, and far greater efforts to promote renewable energy, especially that generated and consumed close to the point of use. We want that ambitious big-picture thinking converted into real measures to create a decentralised energy revolution. That degree of ambition was sadly lacking in the Government’s recent energy review.

We also want far more progress on reducing the CO2 emissions from Britain’s buildings—new and old, residential, commercial and industrial. Again, little in the Government’s record points to a really ambitious programme, and certainly not to a dramatic reduction in CO2 emissions from the built environment. The news last week that DEFRA is slashing funding to the Energy Saving Trust to give Ministers something new to say is disgraceful. Although the Treasury is the worst offender, Labour’s strategy right across Whitehall lacks ambition. Even relatively modest non-fiscal proposals to allow progressive local councils to go further than Whitehall by insisting on renewable energy and eco-building standards in local new developments, which were put forward by Conservatives during the passage of the recent Climate Change and Sustainable Energy Act 2006, were frustrated by the Government.

To return to the motion, we can wholeheartedly agree with the Liberal Democrats’ call for annual targets to cut carbon emissions and an independent monitoring board to report on progress to Parliament. In fact, the Leader of the Opposition, my right hon. Friend the Member for Witney, got there first. He joined Friends of the Earth and a host of other green NGOs in early September to call for a climate change Bill in the Queen’s Speech. He reiterated that call in his speech at the Conservative party conference in Bournemouth, and it was echoed in my speech in the Government debate on climate change last Thursday.

Can the hon. Gentleman therefore explain why the last Conservative manifesto, which was apparently co-authored by the right hon. Member for Witney, included only two lines about climate change?

I cannot explain that, but I can explain about the future. This Conservative party is changing radically and significantly under my right hon. Friend the Member for Witney, as everyone is witnessing. Now that he is in charge, and not just editing the manifesto, we will see his commitment to the environment, of which a climate change Bill is a key part.

I have listened carefully to what the hon. Gentleman has said about the Conservatives’ ambitious proposals for the environment, which, in many ways, everyone in the Chamber shares. But will he explain how one can have ambitions if one does not know what those ambitions are about?

I am sorry, but I do not quite follow that tautology. We are ambitious and have set about an ambitious policy review process. At the end of that process, in June, we shall announce the findings. I know that the Labour party is in turmoil, so if the hon. Gentleman is expecting a general election sooner than next June, perhaps he can tell me afterwards. I can then have a word with my right hon. Friend the Member for Witney and we might be able to fast-forward our policy review process. Unless that is the case, I think that we are safe in anticipating that we can allow the experts to do some serious thinking, not the back-of-a-fag-packet stuff in which the Liberal Democrats engage, and come up with some credible, long-term, well-thought- out proposals How can we tell the British public with conviction that we have changed if we just have a knee-jerk response and our policies appear the next day? I think that they will give us credit for having thought the issues through seriously and consulted widely.

Not yet.

I often think that policy development is a bit like maths O-level: you get two points for the answer, but three points for showing the working. I am afraid that the Liberal Democrats will get only two points, but we will get five out of five, because we will show the working.

Is it not a shame that the Government have refused to join a coalition with the other parties to build a consensus on climate change, in order to depoliticise the issue and allow the necessary tough decisions to be made? Perhaps my hon. Friend will comment on why, under their current leadership, the Liberal Democrats also chose to withdraw from a united front on the subject.

I do think it is a shame, but I am not so concerned about the Government, because it would be rather more unprecedented for the governing party to join such a coalition. I think it particularly sad that, as well as announcing a knee-jerk budget for 2009, the first thing the Liberal Democrats did after their new leader took over was jettison all the good work done by the hon. Member for Lewes (Norman Baker) in bringing together the Conservative party, the Liberal Democrats and the other minority parties, and throw away the emerging consensus.

Order. I hesitate to interrupt the hon. Gentleman, but may I remind him of the importance of addressing the Chair during debates?

Absolutely, Madam Deputy Speaker. I apologise.

As I was saying, I regret the fact that the Liberal Democrats threw away all the work done by the hon. Member for Lewes in consultation with my Conservative colleagues. We were informed in a most abrupt way, through a press release. There was no real effort to keep the consensus alive. This had very little to do with the Liberal Democrats’ belief in consensus, and much more to do with their frustration at the fact that their environmental message was not getting through and they were being put in the shade by my right hon. Friend the Member for Witney. If we consider the calibre of the respective spokesmen, we see why that is.

First, let me cite a third-party assessment of the relative positions of the hon. Gentleman’s party and the Liberal Democrats. The director of Greenpeace said that the Liberal Democrats had set the gold standard with their policy on green taxes. Despite the somewhat ribald terms in which the hon. Gentleman is describing our policy, I think it worth considering the words of an impartial judge with no partisan axes to grind.

Secondly, I would point out—[Hon. Members: “This is a speech.”] I have made three attempts to intervene. Now I am catching up with my second point.

The reality is that the agreement called for specific policies—

Order. I think the hon. Gentleman has had ample opportunity to make his point in what is supposed to have been a short intervention.

I am sure that that was the hon. Gentleman’s point, although I did not quite follow all of it. I would describe the policy as more Marlboro Light than gold standard, but given that the hon. Gentleman’s is the only Opposition party to come forward with a full array, he certainly has first-mover advantage.

For too long the Government have talked a good game on climate change, raised expectations and failed to deliver. A climate change Bill alone will not deliver solutions to the United Kingdom, but it will establish a transparent long-term framework and a clear and demanding criterion against which this Government and successive Governments of whatever party can be held to account here in Parliament.

If one strong message emerges from this debate, I hope it will not be the carping about large cars driven by a tiny minority of the population, although that problem will need to be addressed. I hope it will be the altogether more serious message that this Prime Minister, so desperately in search of a legacy, still has a chance to make his mark in a profoundly positive way that will command support across the House: he has the chance to include a climate change Bill in the forthcoming Queen’s Speech. I very much hope that the Minister will acknowledge the support for such a Bill this evening, not just on the Conservative Benches but throughout the House, and convey it to No. 10 in no uncertain terms.

We have had an interesting debate on a serious issue. I welcome the fact that the Liberal Democrats chose the subject for an Opposition day debate, but am disappointed about their preoccupation with gross domestic product, which provides a weak assessment of the performance of green taxes.

Apart from the examples provided by the Minister for Climate Change and the Environment, the Government have introduced a range of measures that will not feature in the calculation at all—tradeable landfill allowances, for example, which have a tremendous effect in boosting recycling. In turn, that provides more efficient energy use, which reduces CO2 .

My hon. Friend the Minister will correct me if I am wrong, but another big change that would not necessarily be calculated in green tax schemes is the Treasury’s policy on company car taxation. Companies buy the most new cars—they account for the bulk of new car sales—and the changes that the Chancellor introduced to company car taxation have made a real difference to marketing and emissions in respect of manufacturers. I am inclined to agree that green taxes represent a low proportion of physical activity and there is a case for expanding a whole range of green fiscal measures. I know that the Treasury has not been afraid to look into them. There have been some shifts on that issue and the climate change levy provides one example.

I listened carefully to what the hon. Member for Bexhill and Battle (Gregory Barker) said, but as my hon. Friend the Member for Southampton, Test (Dr. Whitehead) said, we heard no indication of any kind of policy. I understand that a policy review is taking place, but that argument can be run only for so long. It is time-limited. The Conservatives cannot go on saying that the answer to everything is to have a policy review. It is already damaging the right hon. Member for Witney (Mr. Cameron), because people are beginning to get tired of the fact that the Conservatives have no policies, as everything is subject to a review.

There may well be a case for having a carbon tax as opposed to a climate change levy. We should be open-minded about that and any proposals should be examined, but we have to see what the proposals are, how they are going to work, how they will be applied and whether they will prove more effective than the climate change levy. If the hon. Member for Bexhill and Battle looked at independent analysis of the climate change levy, he would find that it has been very effective in reducing emissions.

Does the hon. Gentleman believe that a carbon tax would be a better idea in principle than the current levy?

I repeat that I am perfectly willing to consider the case for a carbon tax as opposed to the climate change levy, but the key issue is outcomes and what range of measures will have the best outcomes. I emphasise the term “range of measures”, as taxation is but one, albeit an important one. The need to implement a range of measures is the main point that I want to focus on—briefly, as I know that others wish to speak and time is limited.

On carbon markets, it is right to note that this country pioneered national carbon trading. We were the first country in the world to do so and we greatly influenced the shape of the European emissions trading scheme, which I greatly welcome. It must, however, be built on: it is a developing market.

Of all environmental issues, I certainly put climate change at the top and it is right to highlight growing evidence of the urgency of the problem and the need for a major culture shift within societies in respect of both developed and developing economies, on tackling this issue. Carbon markets and carbon accounting provide a highly efficient way of proceeding, so I greatly welcome the fact that the Treasury has confirmed that it is interested in the whole concept of carbon accounting. It shows the way forward.

Carbon markets and the caps that go with them are among the most powerful drivers and they deal with some of the more difficult issues—aviation, for example, on which I shall touch. We need to extend our existing carbon markets and once again I welcome the Treasury’s willingness to consider the extension of the UK scheme, over which we have control, to include domestic buildings and the retail sector, for example.

I also ask Ministers to consider a more radical approach to carbon markets. I particularly welcome the speech made recently by my right hon. Friend the Secretary of State for Environment, Food and Rural Affairs in which he raised the concept of personal tradeable carbon allowances. That moves us into a completely new area. I accept that a network of administration would be needed in this country, and that they would pose an awful lot of challenges, but it is the kind of major cultural shift that we need. We could make a start on the idea in the area of transport.

There is the technology now. Loyalty cards at filling stations and credit card technology are well established and could be adapted for carbon allowances. People could have an allowance on a credit card and when they bought fuel, the allowance could be deducted. If they needed more, they could buy the carbon allowance at the garage. If they did not use much carbon, they could sell that into a central pool and people with gas guzzlers would have to buy the additional carbon to cover that. That approach may be more efficient than simply applying tax, although I am not arguing that tax does not have a role. I strongly urge Ministers to think about it. We have to do the analysis, and sooner rather than later. I strongly encourage them to do that.

I particularly like the idea of carbon allowances when it comes to aviation. Aviation is a problem—there are no two ways about it. It is not paying its fair share nationally or internationally, and, of course, it is an international activity. One could apply the same concept to the issue of tickets.

This Government led the argument under our presidency to include aviation in the European Union emissions trading scheme. That was achieved. It was a great success to get political agreement. There is going to be an argument about the detail, but I hope that the UK sticks to the principle of applying carbon trading to all take-offs and landings in the EU, not simply intra-EU take-offs and landings. I do not think that that is enough; it has to apply to every plane that takes off and lands in the UK. I know that the Commission has got nervous because of international pressure over the issue. I hope that the Government will take steps to support the Commission and not back down on those points.

People can be priced off planes. I am not sure it is the most socially equitable way of doing it. It allows people who can pay to pollute. That is why I would much rather have a cap on the emissions of the aviation sector, and the activity could then be based on buying and selling the allowances.

I accept that that may take some time. Because of the urgency of the situation, there may be an argument for various interim fiscal measures. Again, I would like any fiscal measure that is applied to aviation to have an outcome. For example, some form of carbon offset levy on tickets or on the airline companies is worth considering. I do not believe that carbon offsets are an answer to the issue of climate change, or that offsets should be a substitute for reducing emissions. That has to be the priority, but there is a role for carbon offsets because we need to take action and it is one way of raising funds internationally to invest in clean energy in developing countries. I welcome what the Government have done to make all their flights carbon-neutral by offsetting. It is something to commend.

Some of these measures could be included in a climate change Bill. There is an argument for such a Bill. I support the concept. I accept that such a Bill is not simply about legislating for targets. Targets have their place, but there is a debate about how to apply targets and structures. The important thing is to have a framework for action and a climate change Bill could be an important part of that framework. It is worth considering.

I accept some of the arguments made about road pricing, which has a role to play, but it needs to be structured to achieve environmental as well as fiscal outcomes. However, the overriding issue is climate change. We must take an integrated approach across Government, because there are issues with the pricing of water and of waste collection. There is an argument for moving towards pricing waste by weight, and removing that charge from the council tax. Housing regulations and transport policy, too, are considerations. We must look at the way in which we can provide incentives, so that, as well as trying to tax bad practice, we encourage good practice.

It is a pity that my hon. Friend the Financial Secretary has left the Chamber, because on a number of occasions he and I have discussed how we could use reductions in stamp duty on new build to encourage the building of low-carbon houses. He used an eloquent argument to explain why the Treasury did not favour that general approach, but there is a strong argument for an incentive to encourage zero emissions homes, of which only a few thousand are being built. The Treasury might like to consider an exemption from stamp duty, or a lower rate of stamp duty, for houses that meet the highest standards as part of the incentives needed in an integrated approach across Government.

Of course, we should not forget the international dimension. The hon. Member for Bexhill and Battle discussed the Prime Minister’s legacy, but if he travels around Europe and internationally, he will find that the Prime Minister is held in the highest regard for what he has done on climate change, and for the way in which he has pushed it to the top of the political agenda internationally; for example, it was on the G8 agenda. He has made it a big issue, and he stood with Governor Schwarzenegger in California to argue for the type of changes that are taking place in the US, despite the stance of the present Administration, because there is bottom-up pressure for them. The hon. Gentleman should accept the lead that the Prime Minister has given, and the respect in which he is held.

Nevertheless, there are big international challenges for us. For example, should there be a measure drawing a distinction between food produced in this country and distributed locally, and food that is flown many thousands of miles across the world to reach the UK? Should there be a mechanism or levy that reflects that? Those are difficult subjects, and we are straying into World Trade Organisation territory, but climate change is such an urgent and important issue that we as an industrial country—indeed, the first industrial country—have a responsibility to lead by example. We must think the unthinkable and not hold back from the more radical approaches that we need to take if we are to achieve our aim of stabilising global emissions. There is much that our country can be proud of having achieved, but there is a lot more that can be done on green fiscal measures. I know that my hon. Friends in the Treasury are thinking about that, and I urge them to be bold in the policies that they apply.

I am grateful to the hon. Member for Scunthorpe (Mr. Morley) for his comments. When he was a Minister, I briefly shadowed him, and I was immediately impressed by the way in which he tried to take the Government down many of the right roads. He should take credit for many of the policy initiatives that the Government have taken, but he will be the first to admit that there is still a long way to go. He rightly emphasised the urgency of the issue for the UK because climate change science is becoming increasingly scary. More and more of the statistics and data from scientists suggest that the changes are beginning to happen even faster than was predicted. Scientists studying the rate of thaw of the Arctic perennial ice have found that it is 30 times faster than it was only a few years ago, so clearly there is a risk that we are approaching a tipping point, or at least that the rate of climate change is much faster than first thought.

Does my hon. Friend accept that, although the UK and the developed world are vulnerable, as he has begun to describe, the developing world and the world’s poorest people are most vulnerable to climate change? For example, in Zimbabwe, more than 55 per cent. of people are dependent on environmental resources. The crisis that they face is far more extreme than that in the UK.

My hon. Friend is right. There are many other examples from the developing world of the seriousness of this issue. In Bangladesh, millions face dispossession and homelessness through rising sea levels, while desertification in Africa may also displace millions of people and add to the economic chaos and disruption worldwide. Even in the UK, we face the prospect of more flooding, more extreme weather, more droughts, and even rising sea levels threatening major cities and coastal towns. If the north Atlantic currents that drive the gulf stream are disrupted, we may end up in the short term with a much colder climate, comparable to that of Canada, which is on the same latitude.

The issues are very urgent and the Conservatives’ approach displays some complacency. They seem to think that we can sit back for a year or two and gather more information, but there is a wealth of information and policy advice available for them to read and consider.

I remind the hon. Gentleman that the Conservatives are not in government yet. It is the responsibility of this Government to make decisions. We will make our announcements shortly, but it would be unwise, three years before a general election, to roll out policies today.

At least the Government have a policy. We may quibble with the detail and the pace, as I am about to do, but the hon. Member for Bexhill and Battle (Gregory Barker) mentioned Margaret Thatcher, who first said that the Conservatives were the real friends of the earth some 20 years ago. It has taken them some time to get their green act together.

I referred to the wealth of policy advice available and some reports were produced in the summer, notably the Tyndall Centre for Climate Change Research report, which mapped out a path to a low-carbon economy with reductions of 90 per cent. by 2050. I was pleased that the Minister mentioned the need to go well beyond the Kyoto targets. A consensus is emerging that those targets will not be sufficient to deliver the kind of change that is needed. That is a positive step. The Tyndall centre has also made it clear that a drastic change in the policy framework and much more deliberate actions than we have had so far from the Government are needed.

Another report was from the New Economics Foundation, which published something called the happy planet index. That sounds like something that the right hon. Member for Witney (Mr. Cameron) might have dreamed up in one of his sunshine moments, but it is a quality of life index that balances indicators of quality of life and life expectancy against the ecological footprint of the country. The UK comes 108th in that index, just behind Libya, although we are ahead of Laos. The reason is our heavy ecological footprint, which is the 18th largest in the world, despite our relatively small population.

The Chancellor put a few measures in the budget and my hon. Friend the Member for Eastleigh (Chris Huhne) elaborated on the weakness of some of them. We need to find measures that will change behaviour. Some of the measures on vehicle excise duty, and the freezing of aircraft passenger duty in recent years, have not been enough to shift behaviour substantially. Other opportunities have also been missed. We have talked about energy efficiency, but why is not the code for sustainable buildings compulsory? Why does it not include an element of microgeneration in every new build house or at least, at community level, for every new development? Those are missed opportunities that we need to seize. Action is needed at individual level, by companies and by Government.

We need to consider what will work to change behaviour. Government regulation, bans on the worst offending products and Government guidelines will play their part, but they can be clumsy tools. Despite my background in the voluntary sector—I worked with Oxfam for many years—I am well aware that many of the grant-based initiatives and projects can seem a drop in the ocean compared with the changes effected by changing markets and the way in which economies work. That is the beauty of using fiscal measures as one of the tools in the policy armoury. My hon. Friend the Member for Eastleigh noted that the initial carbon dioxide targets had been met almost by accident, due to a structural change in the energy market—the dash for gas. With gas prices rising, we may not find that that price advantage works to the benefit of carbon emissions in future, so more methods will have to be used.

A smaller example relates to the washing machine market, which may seem mundane, but there has been an astonishing change in recent years, as the Energy Saving Trust pointed out: 90 per cent. of the washing machines bought in the UK are now energy rating A. The introduction of the labelling scheme itself has helped not only to shift consumer behaviour—obviously when price was equal consumers looked for the most energy-efficient machine—but has also changed the behaviour of the manufacturers, because there was no market advantage in producing anything other than the most energy-efficient model possible.

We have many surprising allies in the arguments about climate change. The Association of British Insurers has become a strong advocate of more urgent action to tackle climate change because it can see the commercial realities. That in turn influences manufacturers and the economic landscape. We need to change the economic landscape of this country and move much more towards a low-carbon economy, whereas we have a Chancellor who, far from changing the landscape, is merely pottering around in the flower beds in many respects.

The Minister mentioned the energy review as a contributor to change. He may be interested in the comments of the Tyndall Centre about the review. It said:

“The absence of specific policy measures, as well as detailed quantitative analysis, does not permit a comprehensive evaluation of the likelihood of achieving the UK’s carbon dioxide targets. There is a significant risk that the good intentions outlined in the White Paper will not be translated into action that shifts a growing UK economy onto a sustainable energy path within the short to medium term.”

Because the Government are not doing as much as they should, the message is not getting through to some parts of industry, notably the boss of Ryanair. On 22 June, he dismissed other air carriers, who were trying to form a sustainable aviation group, as lemmings. He said:

“The sustainable aviation group, God help us, is another bunch of lemmings shuffling towards a cliff edge.”

I know which cliff edge we are shuffling towards and it is not the one that Michael O’Leary was describing.

There has been progress on the labelling of low-carbon cars, on which the Low Carbon Vehicle Partnership has been doing some work. It found that:

“40% of people who have recently bought—or are about to buy—a new car are aware of the new colour-coded fuel economy label.”

Labelling obviously provides some incentive, but only to 40 per cent; 60 per cent. of people ignore it. The partnership also found that

“in showrooms for ‘value’, low-margin brands—which also tend to be smaller and more fuel efficient—only 29% of cars were correctly labelled”.

Labelling has its limitations. As the hon. Member for Scunthorpe said, we need to tackle climate change on a range of policy levels; we need to look at education, labelling, regulation, grants and cap and trade mechanisms, but tax must play its part.

I thoroughly commend what the hon. Gentleman says about the need to work across a range of areas of activity to tackle climate change. So does he think the statement that the

“Lib Dems will cut income tax and switch to green taxes on pollution instead. Then the more you choose to switch to greener living the more money you will save”

is somewhat over-simplistic?

I know well the hon. Gentleman’s credentials on green issues, but I am surprised by his comment. It may be simplistic, but it is true that if people change their behaviour—for instance, by choosing one of the most fuel-efficient models of car—they will have more money at their disposal. The beauty of the fiscal approach to green issues is that sometimes we can deliver a win-win situation. The same is true of microgeneration in the long term: the more we invest in it, by providing it for low-income households, for example, the more we shall tackle fuel poverty and save people money. Although in respect of this debate there are lots of hair shirts, sometimes it is possible to deliver a win-win situation, and that is exactly what our green tax switch proposals are designed to do.

We should not apologise for concentrating on transport as one of the main areas. As has been pointed out, 25 per cent. of carbon emissions still derive from transport. The Tyndall centre report graphically points out that, while both industrial and domestic carbon emissions have in general been in decline since the 1970s, transport is the only major sector that has been increasing its emissions since those years. As part of its policy framework, the Tyndall centre report suggests how we might approach aviation. The hon. Member for Bexhill and Battle accused us of knee-jerk reactions and fag-packet calculations, but he might be interested in the conclusions that the Tyndall centre came to, with the wealth of policy reviews, commissions and experts that it has at its disposal. It stated:

“The research demonstrates that aviation is a problem sector that we must get to grips with. It is the fastest-growing source of emissions and there are fewer technological options for cutting carbon dioxide than in other sectors.”

It adds that its report

“does say current rates of growth are unsustainable, and that Government intervention—such as increased taxes and a cap on airport expansion—is required to curb that growth.”

I do not know whether the hon. Gentleman cares to intervene. Does he disagree with either of those points?

The hon. Gentleman might be aware of the comment of our transport spokesman today, in which we said that the Government’s expected growth in aviation does not appear very sustainable. We have to look carefully at this matter, and we note what the Tyndall centre says.

I am grateful to the hon. Gentleman for that, and we still wait with bated breath for any actual policy proposals.

I am interested in the hon. Gentleman’s remarks and agree with much of what he says, but can he tell me about aviation? One of the greatest contributions to the problem is short-haul business flights between United Kingdom airports. Will his proposal tackle that, as opposed to holiday flights? I got the impression from the hon. Member for Eastleigh (Chris Huhne) that the Liberal Democrats were talking about holiday flights, rather than short-haul business flights, which are, perhaps, a bigger problem.

I am grateful to the hon. Gentleman for giving me the opportunity to clarify that. Our proposal is simply to shift the burden of taxation away from individual passengers and on to aircraft, thereby providing a direct incentive to the airlines to make their aircraft more efficient and to make their flights more economical by making them full, so that we see an end to half-empty aircraft flying with only a few people that pay little in aircraft passenger duty. That would shift the burden on to fuel efficiency and energy efficiency.

Earlier, Liberal Democrat Front-Benchers could not give me an answer as to how the Liberal Democrat tax on 4x4 vehicles would impact on sales—

Thank you, Madam Deputy Speaker. Can the hon. Member for Cheltenham (Martin Horwood) tell me how many fewer short-haul flights he expects will be made as a result of the implementation of the policy? The hon. Member for Eastleigh (Chris Huhne) failed to answer that question last Thursday, when it was put in a very straightforward way. Perhaps the hon. Member for Cheltenham could have a go now.

The wonder of market and fiscal mechanisms is that it is not for Governments—or even Oppositions—to plan exactly how many flights there will be and how the prices will be changed, but it is for them to set the fiscal framework, and to watch the market respond. We have got an economic projection.

It might assist my hon. Friend and the House to know that the Department for Transport says that the price elasticity of demand for aviation is 1, and the Canadian Government’s estimated price elasticity of demand for aviation is 1.15. The hon. Member for Bexhill and Battle (Gregory Barker) could work out the figures for himself from those statistics.

As ever, I am grateful for my hon. Friend’s intervention; he is extremely learned in matters of price elasticity of demand, and I am sure that he will communicate them at length to the hon. Member for Bexhill and Battle, should he wish to have more detail. The hon. Gentleman said that we were behaving frivolously and that we were in a hurry. I plead guilty to the latter—we are certainly in more of a hurry than the Conservatives are to elucidate our policies. He said that he supports the broad thrust of our motion, yet he opposed all the specifics. I am beginning to have some sympathy with the Government. In their debates on the NHS, the official Opposition proclaim support for the NHS—[Interruption.] The relevance of my point is shown by the Conservatives’ reluctance to give us any policy detail on anything whatsoever. They have promised depth and delivered green fluff—presumably inspired by their new logo.

The truth is that, for 30 years, the Liberals and then the Liberal Democrats have been the greenest party in Parliament. For many years, we were berated by members of the Conservative party and described as sandal-wearing bearded loonies for saying such things, but the truth is that we were simply—[Interruption.] I wear no sandals and I have no beard. The truth is that we were simply ahead of our time, and we remain so today.

I want to congratulate the Liberal Democrats on at least putting a raft of policy proposals on the table—even if half of them are wrong and misguided, and others are unworkable. However, others are extremely useful. That is in sad contrast with the Conservatives, who have called for a policy review committee to redesign a bus, but would not know how to find a bus stop to save their lives.

Let me turn to the most important starting-point that the Liberal Democrats have provided. Scientists are telling us that we have very little time—a 10-year window of opportunity in which not only to come up with nice ideas, but to make fundamental changes to the way that our economy is structured, in order to meet the three major challenges of climate change. For us and for everyone else on the planet, those challenges will be in the areas of food security, energy management and water management. In examining policies, we need to shift our whole thinking about the nature of markets, so that we can address those challenges.

It is right to say that taxation is only one of the mechanisms that should be used. We have to be very careful because, as was pointed out earlier, there is a paradox in green taxation. We cannot use the size of the green taxation slice as a percentage of gross domestic product as a measure of our green policies because, in order to be effective, that proportion needs to be as low as possible. We want to change behaviour; we do not want existing behaviour to continue.

No, I will not, because I want to let the winding-up speeches begin in eight minutes time. People have been round the houses and the 4x4s to the point of doing them to death. I am happy to expand on this issue on another occasion, but I should point out that in my view, we need to focus much more on changing behaviour than on the ability to raise taxation.

Carbon emissions are also used as a proxy for climate change policies, but the reality is that, like most people in this country, most Members of this House would not know a tonne of carbon if we fell over it. It is extremely helpful that people have translated the concept into accessible terms. Roughly speaking, a hot air balloon 10 metres in diameter is the equivalent of 1 tonne of carbon. Let us transpose that into aviation terms. Aviation in the UK is currently responsible for 35 million tonnes of carbon per annum, so let us picture 35 million hot air balloons cluttering the skies. On the most conservative assumption, the figure of 35 million tonnes will rise to 60 million tonnes by 2030. Sixty million hot air balloons in the skies would obliterate daylight from large sections of the UK. That is the scale of the issue that we have to tackle.

I doubt whether including aviation fuel in the emissions trading scheme makes a ha’p’orth of sense, and it is important that someone puts down a marker in this debate that such schemes are a complete scam. If one begins from the premise that in order to tackle pollution, one has to create a fictional good, against which one then unleashes speculation, only in doing so to deter long-term investment because it is impossible to predict the price of that good, one should not be surprised to end up in the mess that the European emissions trading scheme ended up in at the end of its first year of operation. People cheat. They make even more crass mistakes by giving away quotas to the most polluting, rather than to the least polluting.

I would like to believe that things would be better if we gave quotas to individuals, but I know that that is not true. As my hon. Friend the Member for Scunthorpe (Mr. Morley) knows, it is not the fishermen who own fishing quotas now; it is the banks. The outcome is a trading circle between the wealthy that does not address issues of sustainability.

I urge hon. Members to look at the work of one of the foremost authorities on this subject: William Nordhaus of Yale university. He urges us to move from quotas to taxes and tariffs. If we make that transition, we should not presume that the taxes come to us as a Government. Let us look at the German model, where the authorities have used, with incredible creativity, two pieces of legislation in combination: the 1991 electricity feed Act, which dealt with people’s right to sell energy back into the system, and the 2000 renewable energy sources Act.

The German authorities told their energy industry, “Right, we’re going to set different tariffs—you sort out the payments yourselves. ” They required the industry to pay people a much higher rate for energy that they supplied to the system than the industry charged for energy that it supplied to people. The rate paid in Germany for renewable energies is currently about 35p per KWh. I have just completed the construction of my own eco-house, which generates more energy than it consumes, but what do I discover but that in this country those who generate energy are paid next to nothing for it. Many companies pay nothing; others pay up to about 3.5p per KWh. Ten times as much is paid to those who supply energy in Germany as is paid in the UK. Furthermore, the authorities in Germany have told the industry to pay for all this—there is no Government subsidy. Everything must be internally financed by the industry. As a result, Germany is pulling away from the rest of us in terms of investment and trade in renewable energies, as well as in terms of the skills and training that deliver a different type of sustainable economy. We lag behind because, instead, we are obsessed with the idea of a market in mythical goods.

We should apply the notion of duties to a series of measures that are within our own remit. Of course, we could do that by regulation, but we seem to have turned our back on the process of regulation. We could have created a requirement that all new housing should meet the minimum standard of a SAP—standard assessment of performance—65 energy efficient rating. That requirement is already in place in large parts of Europe. Did we do it? No—we turned our back on that in the Housing Act 2004, which we passed in the last Parliament. We could have said to owners of houses in multiple occupation—the most inefficient properties in the UK’s property portfolio—that, as a condition of their obtaining an HMO licence, those properties, too, would have to meet the minimum standard of SAP 65. We could have given a stamp duty rebate on properties that had been turned into energy generating properties, but we declined to do that in the Budget.

We could have introduced building and planning regulations to empower local authorities to require that all new buildings generate a proportion of their own energy and recycle water resources. I visited a school just outside Nottingham that recycles 50 per cent. of the water that falls on its roof and has thereby halved its water bill. I was impressed, but I was told that doing that was an obligation in some German states. The Germans understood that they had problems of flash flooding that needed to be tackled, so they told local authorities that such recycling had to be a duty. We retreat from such action. In the name of light-touch regulation, we abrogate our responsibilities to the future and to the planet.

If we are serious about transforming our economy into one in which we can live sustainably, within a single footprint of our ecological entitlements, we have to have the courage to transform markets radically. We must not be anti-market; we must become pro-ethical markets and pro-sustainable markets. In the process of doing that, we will discover that there will be markets that we own collectively. That would be a wonderful legacy for this Prime Minister; to be remembered for restoring clause IV and the principles of common ownership in the interests of a sustainable planet.

We have had a short but valuable debate. This is the second parliamentary day in succession that we have debated climate change and related issues, which is a sign of the importance that we now all attach to it.

I would like to acknowledge the speeches of the hon. Member for Scunthorpe (Mr. Morley), who we all recognise was a knowledgeable Minister who did his best to advance climate change policy when in office, the hon. Member for Nottingham, South (Alan Simpson) who, like us, was well ahead of his time in pressing for a radical environmental agenda and my hon. Friend the Member for Cheltenham (Martin Horwood), who has spoken eloquently and effectively on environmental issues. My hon. Friend emphasised the point that several others made, which is that environmental taxation is part of the solution, but only a part; we must consider a mixture of measures.

Labour and Conservative Front Benchers endeavoured to introduce an element of Punch and Judy into the debate, but there is a fairly substantial degree of consensus on the subject. That was well summarised in the Treasury paper issued in 2002 under the Chancellor’s name, which said:

“For both consumers and businesses alike, economic instruments such as tax can enable environmental goals to be achieved at the lowest cost and in the most efficient way.”

The paper went on to make an important point that both Conservative and Labour Members misunderstand; it said that the revenue raised by environmental taxes could also be used to reduce the level of other taxes. Some Members appear not to appreciate that it is possible to raise revenue and to change behaviour at the same time within a wide range of elasticities. Several hon. Members struggled to get their heads around this point. The hon. Member for Islington, South and Finsbury (Emily Thornberry) raised this issue several times before disappearing. Perhaps the Treasury can arrange a private seminar to clear up some of the misunderstandings.

The one element of controversy that the Minister for Climate Change and the Environment, the hon. Member for Dudley, South (Ian Pearson), tried to introduce related to whether it was a sensible objective to try to increase the share of taxation or of the national economy raised by environmental taxes. He described this as simplistic and wrong. Perhaps I can encourage him to read an excellent speech written by the Financial Secretary to the Treasury, the hon. Member for Wentworth (John Healey), two years ago in which he said precisely the opposite. He said that the Government’s aim

“in the broadest sense, was to move the burden of tax over time from good to bad.”

In practice, the opposite has happened. We have had an increasing share of taxation on good activities such as work and a declining share of taxation raised from environmental pollution. I thought it might be a bit imprudent for departmental Ministers to talk about Treasury language as simplistic and wrong, but no doubt the Minister has his reasons for doing so.

The Minister, however, was a model of constructive argument compared with the Conservative spokesman, who I calculated spoke for 25 minutes and did not tell us a word about the Conservatives’ rebalancing of the tax system, which they have been promising.

The hon. Gentleman complains that the Conservatives have not given information. I have requested on three occasions information on the Liberal Democrat position on green taxes. Will the hon. Gentleman put a note in the Library to say, were the Liberal Democrats to win the next election and were such taxes to have an impact and change lifestyles, by how much carbon emissions would change year by year and how much taxation would be raised in each year?

We have set out these figures in considerable detail in a report that is available on our website. I have a copy here. It is a question of basic economics.

Perhaps the hon. Member for Bexhill and Battle (Gregory Barker) should have shown a little more humility in his speech. If the leader of the Democratic Unionist party were here, I am sure that he would furnish us with a biblical reference about the benefits of sinners who repenteth, but we did not get much repentance. I do not think that the hon. Member for Bexhill and Battle was in the House at the time, but I remember when the Conservatives supported civil disobedience against increased petrol duties. I have sat on the Committee that considers the Finance Bill for many years, ever since the climate change levy was introduced. Conservatives opposed the levy in principle, and not on the grounds of the current, rather subtle arguments about the balance of carbon taxation—that is, of course, a perfectly sensible comment, but it is not what they said for many years.

The hon. Gentleman endeavoured to rubbish our policies by referring to Friends of the Earth, which he now claims has endorsed Conservative environmental policy. A few weeks ago, Friends of the Earth said:

“The Liberal Democrats have thrown down a green gauntlet to Labour and the Conservatives with their new green taxation plans. They are very progressive measures to make doing the right thing for the environment also the right thing for your pocket…The Conservatives and Labour need to follow through with equally progressive tax plans”.

Perhaps he should check his support in Friends of the Earth.

Many of the things that we are advancing from these Benches are not specifically Liberal Democrat ideas. The Conservative spokesman, in particular, seemed to overlook the work of the Environmental Audit Committee, which has a Conservative Chair and a majority of Labour Members. What he called the obsession with gas guzzling Chelsea tractors is almost identical to the policy that that all-party group put forward. The numbers were checked out with the Department of Trade and Industry. We did not manufacture the calculations.

The same Committee described the current taxation policy in relation to aviation as “scandalous”, because of the Government’s failure to adopt higher aviation taxes. That did not come specifically from Members on the Liberal Democrat Benches; it was an all-party consensus. For a variety of reasons, it is right to say that the Government’s policy on aviation, in particular, is scandalous. Aviation is the sector in which the growth of emissions is most rapid and the damage is disproportionate. A typical flight from London to Glasgow or Edinburgh produces 10 times as much carbon dioxide per passenger as a rail journey or, for that matter, a coach journey—it is roughly equivalent. There have been repeated studies—some of them are very good—from the Department for Transport about the environmental externalities generated by the aviation sector that are not currently captured. For many years, the aviation sector has been grossly undertaxed. The landing charges are hopelessly below what would be a realistic economic rate. Landing rights are not auctioned. There is no taxation of fuel and the current system of taxing tickets is exceedingly inefficient.

One of the main significances of our policy is that it is designed to make taxation of the aviation sector much more environmentally friendly, encouraging airlines—particularly low-cost airlines—to use their capacity much more effectively. That is why we have placed such emphasis on aviation taxation. I find the Conservatives’ comments on this matter incomprehensible because the approach has been endorsed by so many people on their side.

In conclusion—I want to give the Minister a chance to respond—it may be useful to go back to the basic areas of consensus and the 2002 paper that establishes the framework within which we should be debating the subject. The Green Alliance commented positively on that paper, describing it as a

“significant driver of policy over the years to come”.

It also restates the argument that environmental taxes can be offset against other taxes, as the Liberal Democrats are now demonstrating, in quantitative and specific ways. It describes the paper in positive terms as

“the way for significant steps forward in the use of economic instruments—if the Treasury is brave enough”.

The problem is that the Treasury has not been brave enough, which is why we are having this debate.

We have had a useful debate in which we have heard interesting ideas from hon. Members on both sides of the House. I applaud the Liberal Democrats’ commitment to tackling carbon emissions, but I warn them of the danger of becoming a one-club golfer. Over the past nine years, we have successfully tackled emissions in a range of ways: certainly through taxation, but also through emissions trading—I do not agree with my hon. Friend the Member for Nottingham, South (Alan Simpson) about its potential—obligation regimes and regulation.

It is certainly the case that tax measures can tackle environmental externalities. Taxes on broad aspects of economic activity, such as energy use, waste and transport, can deliver real behavioural change. My hon. Friend the Member for Scunthorpe (Mr. Morley) reminded us in his characteristically thoughtful speech of the huge savings delivered by the climate change levy. Like others, I pay tribute to his contribution to policy in this area over a long period.

The hon. Member for Twickenham (Dr. Cable) was right that the levy was introduced in the teeth of virulent opposition from the Tory party, which I recall vividly because I was the Minister with responsibility for the matter for two years from 1999. I welcome the Tories’ change of heart and tone, and it will be good to see exactly what they are proposing. The levy has saved more than 16 million tonnes of carbon so far and will save 4 million tonnes this year. However, it would be a mistake to focus only on tax.

I am glad that the Minister has noticed the change among Conservatives—there will be more to come. Does he agree with Tony Grayling, the special adviser of the Secretary of State for Environment, Food and Rural Affairs, that the climate change levy is a tax on energy that should be reformed?

It is a tax on the business use of energy, and it is entirely appropriate because it creates a big incentive for better energy efficiency in the business sector—that is why it has been so effective.

The Liberal Democrat motion is wrong to fasten on the take from environmental taxation as the measure of environmental commitment because, as others have pointed out, if revenues from environmental tax go down, it probably shows that the tax is working, which is a good thing, rather than a bad thing. Of course, the take from environmental tax could be increased if environmental pollution were increased, which would be a bad thing. No one should be surprised that the Liberal Democrat metric is measuring the wrong thing.

The yield from air passenger duty has certainly gone down. Does the Minister regard that as a sign of success?

I draw the hon. Gentleman’s attention to the climate change levy. It is a good example of switching the focus of taxation from goods to bads—from labour to pollution in this case. There are several examples of how we have done such a good thing successfully. However, we need a range of measures, so it is misleading and wrong to consider simply the take from environmental taxation.

The Liberal Democrat proposals have left a huge gap. I understand that the package of changes in income tax spelled out by the hon. Member for Eastleigh (Chris Huhne) will cost £20 billion—I think that the hon. Member for Twickenham is nodding in assent—but although £8 billion will come from the package that we are talking about, we do not know where the other £12 billion will come from. At this stage, I am afraid that the numbers simply do not add up. As we have heard about gaps in policy, it is right to draw attention to that gap.

We need the right mix of tax measures, trading, obligations and regulations, so that is what we have been developing. We especially need to deliver the promise of emissions trading. In June, we announced a national allocation plan that will reduce UK emissions by 8 million tonnes of carbon, over business as usual, between 2008 and 2012. That amount is far in excess of our Kyoto obligations and demonstrates our commitment to the scheme. The scheme will be a way of tackling carbon emissions Europe wide that will be much more effective than a UK-only tax. We will be working with the Commission and our European partners to ensure that we have an effective scheme in place. We want aircraft fuel to be included in the scheme as soon as possible so that we can have the pan-European solution on aircraft fuel that we need.

My hon. Friend the Member for Scunthorpe drew attention to the fact that my right hon. Friend the Prime Minister met the governor of California over the summer to discuss US interest in participating in emissions trading. Since that visit, and to some extent encouraged by that visit, California has legislated for state-wide carbon reductions, which the governor has said will require a carbon emissions trading scheme. At the governor’s request, UK Government officials are soon to advise the Californians on how to set that up. That is the right way to go, aiming for a worldwide approach that can deliver a change in worldwide behaviour. Such is the scale of ambition that we need, by contrast with the rather parochial tone of what we heard from the Liberal Democrats this evening.

The Government need to use the most effective range of instruments to achieve our environmental aims. We have introduced a series of good tax examples, such as the climate change levy. We have reformed vehicle excise duty, company car tax, introduced differentials in fuel duties, reduced VAT rates for professionally installed energy-saving materials and for microgeneration—another point that was raised in the debate—and have introduced the landlords energy saving allowance. We have introduced a host of effective non-tax measures too—emissions trading, climate change agreements, the renewables obligation, the forthcoming renewable fuel transport obligation, the energy efficiency commitment, new building regulations, and support for the work of the Carbon Trust and the Energy Saving Trust. That is the rich mix that the challenge of climate change demands.

The Minister mentioned the renewables obligation. Does he intend to carry out the threat contained in the energy review to remove onshore wind from the renewables obligation?

We are continually reviewing the renewables obligation to make sure that it continues to be effective. Opening the debate, my hon. Friend the Minister for Climate Change and the Environment spoke about one of the changes that we are making.

We need to maintain our ambition for environmental protection, alongside our aims for high and sustainable levels of growth and employment, macro-economic stability, business competitiveness and social inclusion. We reject the arguments of those who claim that we need to choose between them. We must achieve them all. The sustainable way to protect the environment is with a strong platform for long-term economic growth. We need to continue to deliver progress towards our environmental aims, alongside strong growth in the economy.

Since 1997 we have demonstrated in the UK, as my hon. Friend the Member for Scunthorpe said, consistent leadership in tackling climate change, starting with the Kyoto protocol in December 1997. We are on course to deliver nearly double our Kyoto target for greenhouse gas reductions. Last year, through our presidency of the G8 and the EU, we achieved the Gleneagles communiqué in which all the member countries of the G8 recognised that climate change is happening and that human activity is contributing to it, and the plan of action securing agreement on a range of key issues. We are working to extend that discussion—for example, through the G20. UK Ministers made further progress in the Gleneagles dialogue in Mexico a fortnight ago, and it will be on the agenda when I attend the meeting of G20 Finance Ministers next month.

With publication of the Stern review on the economics of climate change, we will provide significant new substance to the evidence base on the matter, helping to build the international consensus on how best to act. We are making good progress with our proposal for an energy investment framework led by the World Bank to promote energy efficiency and low carbon energy sources in developing and emerging economies. Today the Prime Minister met the Prime Minister of Norway to open the new Langeled gas pipeline, whose construction I negotiated as Energy Minister in 2003, to bring gas to the UK from Norway. That has capacity for 20 per cent. of our gas needs and will ensure a more reliable gas supply and more predictable prices. That supports the aims of the energy review last July, setting out our intention to secure more reliable energy supplies while also protecting the environment.

rose in his place and claimed to move, That the Question be now put.

Question, That the Question be now put, put and agreed to.

Question put accordingly, That the original words stand part of the Question:—

Question, That the proposed words be there added, put forthwith, pursuant to Standing Order No. 31 (Questions on amendments):

Mr. Speaker forthwith declared the main Question, as amended, to be agreed to.


That this House welcomes the UK’s climate change programme which has already put the UK on course to exceed its Kyoto target of a 12.5 per cent. cut in 1990 levels of greenhouse gas emissions by 2008-12 and make further progress towards the Government’s ambitious target to cut carbon dioxide emissions by 20 per cent. by 2010; recognises the vital contribution of the Climate Change Levy, which has already saved 28 million tonnes of carbon emissions and by 2010 will be reducing carbon emissions by over seven million tonnes per year; congratulates the Government on exceeding its recycling target supported by the Landfill Tax and Landfill Allowance Trading Scheme and contributing to reductions in greenhouse gas emissions; commends introduction in the UK of the world’s first international emissions trading scheme capping emissions from power stations and energy-intensive industries; further welcomes the Government’s proposals for the second phase of the scheme in the UK; further welcomes the Government’s energy review, which proposes measures to save up to a further 25 million tonnes of carbon emissions per year by 2020 and to put the UK economy on a path to a 60 per cent. cut in carbon dioxide emissions by 2050; congratulates the Government on its commitment to delivering a strong economy based on high and stable levels of growth and employment as well as high standards of environmental care; and calls upon the Government to continue to put environmental protection, locally, nationally and globally at the heart of its policies.