To ask Her Majesty’s Government what assessment they have made of whether the European Union Emissions Trading Scheme will influence carbon dioxide generating industries such as steel, aluminium, glass and cement manufacturers to move to countries outside the scheme in order to remain competitive.
My Lords, the Government consider that a very limited number of sectors are likely to be at significant risk of carbon leakage as a result of the EU Emissions Trading Scheme. The risk of carbon leakage is reviewed regularly in close consultation with UK business, and my department has commissioned further research on this risk, which we hope will be completed in the summer.
I thank the Minister for his considered reply. Does he really think it sensible to pile penalty taxes on to industries that are inherently carbon producing and, under the existing technologies, incapable of making worthwhile carbon savings? Instead of enforcing yet another damaging EU regulation, would it not be more sensible to have our own carbon saving scheme as Australia does, rather than face the possibility of creating massive redundancies over the next two or three years, particularly in the north-east, by implementing a wholly inappropriate EU regulation at this time?
No, my Lords, I do not agree. We are part of the EU and it is entirely appropriate that we should be part of the EU emissions trading system, which is consistent with the targets for carbon reduction that the EU has agreed. On the substantive question, from the research that has been undertaken, there is very little evidence that companies are at risk of competitive disadvantage because of the emissions scheme. In phase 3 of the EU ETS, a number of decisions have been made which could mitigate it if such evidence arose.
My Lords, I remind the Minister that the UK has its own emissions scheme—the carbon reduction commitment, which he is about to introduce, in case he had forgotten. Perhaps one of the ways to solve this problem is to have a more level playing field globally. What are the Commission and the Government doing in terms of working with other Administrations, such as the states on the west coast of America and the Canadian provinces, all of which have their own schemes, to ensure that they tie up globally and co-operate so that there is not the carbon leakage that we could otherwise have?
My Lords, I had not forgotten that; we debated the relevant statutory instruments in this very Chamber three weeks ago, although I do not think the noble Lord was present on that occasion. I think that he is really suggesting the creation of a global carbon market, and he is absolutely right to do so. Not only would that have a positive impact on emission reductions, it would mean a level playing field, and some of the issues of concern that are always being raised would then not arise. We had hoped that we would see the necessary steps at Copenhagen, but there has been a setback. However, I can assure the noble Lord that we will work very hard as a country and as part of the EU in encouraging the development of carbon markets worldwide.
I think that the noble Lord is referring to phase 3 of the EU Emissions Trading Scheme. It has an impact on electricity and other prices, but the Government believe it is much better that we reduce emissions as quickly as possible. The work of the noble Lord, Lord Stern, shows that it is more cost-effective to take action now. There is no long-term future in high-carbon industry, and the fact is that the Emissions Trading Scheme is a market-based approach that incentivises companies to reduce their emissions. I believe that that is the best approach.
My Lords, the Minister refers to the work of the noble Lord, Lord Stern, as having shown something. It has shown nothing of the sort and has been demolished by all reputable economists. Leaving that aside, when is the Minister going to regain some contact with reality in the interests of having a sensible policy? Is he not aware, despite what he assured the House last year, that not only was there no global agreement at Copenhagen, but there is an article in today’s Financial Times, in which its environment correspondent is lamenting, for good reason, why there is not going to be any agreement in Mexico later this year either? How can this damaging policy possibly make sense?
My Lords, the Government’s policy makes sense because climate change is one of the major issues that we face. Unless we take action to reduce emissions, the consequences for the world will be catastrophic. That is why the work of the noble Lord, Lord Stern, has not been undermined. I believe that it is entirely credible in showing that the sooner we take action, the more cost-effective it will be.
My Lords, is it not true that the European Emissions Trading Scheme is the cornerstone of the policy on tackling climate change? If the UK were to withdraw from it, it would greatly undermine that policy and the objectives of trying to secure the planet for the future would fall. Should we not be looking to a more positive approach, exploring areas such as shipping, agriculture and so on, which also need to be brought into the European Emissions Trading Scheme and spread on a global worldwide basis in due course?
My Lords, there is much in what my noble friend says. He will, of course, be aware that the aviation sector is being brought into the EU Emissions Trading Scheme from 2012. As far as shipping is concerned, the Government have been very active in pressing the International Maritime Organisation to address seriously the contribution of the maritime sector to climate change. We will continue to keep up the pressure in other sectors.
My Lords, the House will know that the Government are not in favour of fiscal policy being set by the European Union. The advantage of the EU Emissions Trading Scheme is that it sets a cap on emissions which is consistent with the targets on carbon reduction the EU has agreed to. The trading system is a much better approach because it is a market base, providing incentives to businesses to reduce their emissions.