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Emissions Trading

Volume 460: debated on Thursday 17 May 2007

10. What assessment he has made of the likely effect of the UK’s membership of the EU emissions trading scheme on future greenhouse gas emissions. (137595)

Our compliance with the EU emissions trading scheme has been excellent and is worth some 65 million tonnes of carbon dioxide in 2005 to2007. Phase 2 is set to deliver an additional 29 million tonnes of carbon reduction every year. The scheme is a key part of our strategy for tackling CO2 emissions to meet our long-term goal of at least a 60 per cent. reduction on 1990 levels by 2050. We are also working with other countries that want to develop similar approaches.

Will my right hon. Friend redouble his efforts to encourage more countries to join the EU emissions trading scheme?

I certainly will. This morning, I had meetings with the premiers of two Australian states—South Australia and Victoria. They are pushing hard for the development of Australian schemes that are based on the cap and trade system that we have used in Europe. It was interesting to hear from them that they want an Australian scheme, or a state-by-state scheme in Australia, to follow the European model. They want not necessarily to join the EU scheme but to create the possibility of enabling the schemes to be linked. That is a positive development. In the United States, as well as Australia and elsewhere, an urgent debate is taking place about how those countries develop their own schemes and expand the range of industries that are involved. I know that my hon. Friend is interested in that.

My constituents tell me that they are a little cynical about the trading schemes. They are anxious that people might be able to use them in order to make a few bob or get rich quick. What assurances can the Secretary of State give my constituents on this matter and can he assure me that people who abuse the system will be dealt with severely?

My hon. Friend raises two important points. The first guarantee is by making sure that there is a proper carbon price. She will know that at the moment the carbon price for phase 1 of the emissions trading scheme is €1 or below, which is not the sort of price that we need. However, it is very significant that for the period 2008 to 2012 carbon is trading at €19.5 to €20 a tonne—a much steadier and more significant price.

Secondly, my hon. Friend refers to the importance of offsetting schemes genuinely reducing the amount of carbon dioxide. She will agree that Government standards are important in that area, although the Government obviously do not run all the schemes. When we in DEFRA produced a standard earlier this year, on which we are currently consulting, we found that 56 of the 60 available schemes did not currently meet the standards that we wanted. Only four did; all the details are on the DEFRA website. We certainly want to move to a situation in which anyone offsetting their emissions knows with confidence that it will lead to genuine emissions reduction around the world.

May I suggest to the Secretary of State that any carbon trading scheme will and should benefit indirectly those who efficiently manufacture methods and systems that enable us to deliver renewable energy very cheaply? May I therefore thank through him the Minister for Climate Change and the Environment for yesterday meeting me and representatives of Converteam, a renewables manufacturer in my constituency? Will the Secretary of State undertake to do all he can with the Government to ensure that those who are able to produce renewables technologies efficiently are encouraged by the standards that the Government set and by any other support that can be given?

I am always delighted to congratulate my ministerial team on the excellence of their meetings and their performance. I also like to congratulate British companies that are developing in new markets. It is striking that environmental industries are now one of the fastest growing sectors in the UK economy, with 500,000 people currently working in environmental industries as compared with just 175,000 five years ago. I will not pre-empt next week’s discussions on energy, which I am sure will be heated—not too heated, I hope—and robust. However, the point about incentives for new technologies is being discussed in the context of the renewables obligation, and I very much hope that we can ensure that this country is at the forefront of renewables technology.

Given that the range of estimates for the social and environmental cost of carbon is anything from a minimum in the Stern review of €25 up to €70 or so, and even though we have seen a welcome tightening of the price, as the Secretary of State says, at €18 in the second phase, the reality is that as we came into the Chamber this morning the current price for the current phase was 31 cents per tonne, which sends out a pretty appalling signal. Does the Secretary of State accept that the Council needs to try to tighten the price in the current phase as well as deal with the next phase? Is, indeed, the tightness of the next phase adequate, and what measures is he urging on his colleagues in the Council to improve the scheme?

The tightness of the next phase will be clear only when all allocations have been agreed with all countries. As the hon. Gentleman will know, that has not yet been done, so it would be ridiculous for me to reach a conclusion now. What I can say is that the European Commission’s determination to ensure that, for every country, the allocation is, first, below the current level of emissions and, secondly, in line with the Kyoto commitments is exactly the sort of tough negotiation and decision making that we wanted from the Commission and that has been urged on it on a cross-party basis over the past few years. I think that it is a good example. The Commission, which oversaw the first phase of the scheme where there were genuine problems, deserves credit for delivering what is now the world’s most effective carbon market—the second phase of the EU emissions trading scheme. Given that it covers half of all emissions in this country, the fact that we have a tighter scheme with the price going only in one direction should be applauded.

Will the Secretary of State continue to resist the attempts of some European countries to oppose the tighter national allocation plans on carbon levels in phase 2? Will he also examine the potential for a sector-by-sector scheme to recognise the different basic carbon potential for different sectors of industry, so that one does not suffer in relation to another?

My hon. Friend makes an important point. The short answer to the first part of his question is yes. We need to keep urging the European Commission to take a tough line with any country that is trying to have slack allocations. He will be aware that this Government have decided that any sector exposed to international competition should be protected from any burdens that are imposed. However, his point about sectoral agreements is important, particularly in the light of the international negotiations that will reach a peak in June at the G8 plus 5 meeting and in December at the United Nations meeting in Indonesia. One of the items that the Government have put on the agenda is to consider, if developing countries are not yet ready to take on binding emissions reduction targets, sectoral schemes that can take a global role in ensuring that all sectors are playing their appropriate part in emissions reduction.

In the light of the United States’ failure to sanction a federal emissions trading scheme, and of Angela Merkel’s frank admission yesterday that pre-negotiations with the United States on the G8 summit are going very badly, with the United States not even accepting the 2°C target for global warming, has the Minister asked the Prime Minister to use his farewell love-in with George W. Bush to pressure him to accept the 2°C target? Will he also back the German Government in insisting on that target?

The Prime Minister does not need my instructions, because he has his own determination to work with the United States and seek to persuade its Administration that a central role by America in the global drive to reduce emissions is essential, and that America has not only a lot to contribute but a lot to gain from being part of the emissions reduction drive. We have two or three weeks before the G8 plus 5 summit. The fact that American states and cities are moving as fast as they are, and that American business is now demanding a federal response, makes it right to say that it is a matter of when, not if, the United States becomes part of the global deal, and the sooner the better.

My right hon. Friend is right to say that the scheme must be credible and tied to the Kyoto targets. What consideration has been given in Europe to using auctions for the allowances in the next phase, and to having a back-stop price related to the cost of carbon abatement?

My hon. Friend speaks with some expertise on these matters. Significant consideration has been given to auctioning, although it is for each national Government to decide the level of auctioning that will take place. In this country, it will be 7 per cent. There is a widespread view that the use of auctioning is an important part of the future of the scheme, and it is significant that the European Commission should now be encouraging nation states to take that forward. Phase 3 of the scheme will be under discussion soon and, given the united UK position across business, non-governmental organisations and Government on the EU ETS manifesto, I believe that we shall see further discussion of the issue that my hon. Friend has raised.