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Energy: Fourth Carbon Report

Volume 727: debated on Tuesday 17 May 2011


My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Secretary of State for Energy and Climate Change. The Statement is as follows:

“Today, I am announcing that the Government propose to set an ambitious target in law to reduce greenhouse gas emissions in line with advice from the independent Committee on Climate Change. Signing up to an ambitious fourth carbon budget will result in no additional costs to the consumer during this Parliament. We will undertake a review of progress early in 2014 to ensure that our own carbon targets are in line with the EU’s, and we are working up a package of measures to be announced by the end of the year to help energy-intensive industries adjust to the low-carbon industrial transformation while remaining competitive.

By agreeing to the Committee on Climate Change’s proposed level, we are demonstrating our desire to drive the changes needed to turn the UK into a dynamic, low-carbon economy that is attractive to investors in the new and growing low-carbon sectors. We are also sending a clear signal to the international community that the UK is committed to the low-carbon economy. This will help us reach agreement in Europe on moving to a 30 per cent emissions reduction target, and build momentum towards a legally binding global climate change deal.

The Climate Change Act 2008 sets a target to reduce greenhouse gas emissions in the UK by at least 80 per cent from 1990 levels by 2050. The Act also requires the Government to set carbon budgets, which are limits on greenhouse gas emissions in the UK, for consecutive five-year periods. These carbon budgets must be set at least three budget periods in advance. They are designed to put emission reductions on an appropriate and cost-effective pathway to our 2050 target.

The first three carbon budgets were set in 2009, following advice from the independent Committee on Climate Change. The fourth carbon budget—the limit on emissions for the five-year period from 2023 to 2027—has to be set in law by the end of June this year. As advised by the Committee on Climate Change, the level we propose setting in law would mean that net emissions over the fourth carbon budget period should not exceed 1,950 million tonnes of carbon dioxide equivalent—a 50 per cent reduction from 1990 levels. As required by the Climate Change Act, once the fourth carbon budget has been set in law, we will publish a report setting out the policies and proposals required in the medium-long term to meet the budget, building on the strong foundation provided by our existing policies. This will take the form of the revised government carbon plan later this year, following the publication of the interim version in March.

The Committee on Climate Change advised that we should aim to meet the budget through emissions reductions in the UK rather than relying on carbon trading, such as under the EU Emissions Trading System or the purchase of international credits from projects abroad. We will aim to reduce emissions domestically as far as is practical and affordable, but we also intend to keep our trading options open to maintain maximum flexibility and minimise costs in the medium-long term. Given the uncertainty of looking so far ahead, this is a pragmatic approach.

Under the Climate Change Act, emissions reductions by the UK’s industrial and power sectors are determined by the UK’s share of the EU Emissions Trading System cap. This protects UK industrial and power sectors from exceeding EU requirements. However, if the EU ETS cap is insufficiently ambitious, this could mean placing disproportionate strain on other sectors outside the EU ETS, such as transport. To overcome this and to provide clearer signals for businesses and investors, Government will review progress towards the EU emissions goal in early 2014. If at that point our domestic commitments place us on a different emissions trajectory from the emissions trading system trajectory agreed by the EU, we will, as appropriate, revise up our budget to align it with the actual EU trajectory. In line with the coalition agreement, the Government will continue to argue for an EU move to a 30 per cent target for 2020 and ambitious action in the 2020s.

As part of the transition to a low-carbon economy, we need to ensure that energy-intensive industries remain competitive and that we send a clear message that the UK is open for business. Before the end of the year we will be announcing a package of measures for energy-intensive businesses whose international competitiveness is most affected by our energy and climate change policies. Rising electricity costs pose a risk to these sectors which are critical to our growth agenda. We will therefore take steps to reduce the impact of government policy on the cost of electricity for these businesses, allowing them to continue to play their part in delivering our green industrial transformation. In this way, we will ensure that that these sectors remain internationally competitive and that we send a clear message that the UK is open for business.

It is important to stress that the UK’s existing policies already put us on track to meet the first three carbon budgets. They also provide a strong foundation for the fourth carbon budget, implying no additional near-term costs. We are reforming the electricity market, making homes and businesses more energy efficient through the green deal, ensuring that new homes are built to a high energy-efficiency standard, encouraging the uptake of ultra-low-carbon cars, and setting up a green investment bank. Meeting the 1,950 million tonnes target we are proposing for the 2023-27 period is ambitious but achievable. By providing long-term clarity for investors, the fourth carbon budget places the UK at the leading edge of the global low-carbon industrial transformation. It will set Britain on the path to green growth. It will establish our competitive advantage in the most rapidly growing sectors of the world economy, generate jobs and export opportunities in these sectors, maintain energy security and protect our economy from oil price volatility. It is a framework not just for action on climate but for growth and prosperity”.

My Lords, that concludes the Statement.

My Lords, I thank the Minister for repeating the Statement and for his customary courtesy and co-operative approach to the issues. I know that he will understand how concerned we were that an issue of this magnitude could have been presented to Parliament as a Written Statement. I am very pleased that there was no hint of reluctance on his part to repeat the Statement to your Lordships’ House today.

Tackling the environmental impact of energy production and use, and energy security, are issues that concern and affect us all, whatever our politics. We broadly share similar objectives and commitments, although we may have differences in how to achieve them. The objective to reduce emissions of greenhouse gases by 80 per cent to 1990 levels with targets along the way to assure energy security for the future are crucial to the well-being and economic prosperity of this country. I welcome the fact that this Government have been prepared to continue the work started by the Labour Government when they set up the Committee on Climate Change, and I thank the Minister for his recognition—indeed his appreciation—of that.

I also thank the Committee on Climate Change for the work that it has done, not just on this fourth budget for the period 2023-27, but on its work to date, which has been of enormous importance. It is not an easy task to balance national and international environmental interests with the needs of the economy, and at the same time recommend environmental changes. As we have found, not everyone will welcome the changes that are recommended. They are challenging and can be difficult to achieve, but the Committee on Climate Change does not act in a vacuum and it makes it clear that it gives advice,

“based on the latest climate science, the evolving international framework, feasible and cost-effective emissions reductions …and plausible paths for 2050 targets”.

As the Minister indicated, this legislation for the current budgets has to be in place by the end of next month. I have three specific points for him, but first I would like some clarification on the review. If I understand him correctly—I am happy to be wrong on this—this report has only been accepted conditional on a review in 2014 that seeks to ensure that our own carbon targets are in line with those of the EU. I know that the Minister understands the need for certainty for business and for investors who will support the Government’s objectives, but is he aware of the sense that the Government lack such certainty? We have seen changes to the feed-in tariffs, the ending of the commitment to zero-carbon homes, delays and bickering about the green investment bank and, even worse, delays and bickering about this very report. I do not for a second doubt the noble Lord’s commitment—he has been very clear with this House—but I am sure that he will privately share some of the despair we feel about the lack of clarity on a number of issues.

If the review that is to take place in 2014 does not show that the EU is coming into line with the UK, does that mean that there is more than just wriggle room for the UK and that the entirety of the Government’s carbon budgets could be thrown out? That is our concern. Could that review completely change the results of the Government’s announcement today? Any enlightenment that the Minister can offer on this issue would be greatly appreciated.

I wish to raise three specific issues. First, we welcome the Minister’s indication of support for the energy-intensive industries. All of us understand their concerns, and they face the greatest potential competitive impact. Action to support those businesses is essential. It is clear that they are willing to and want to reduce their energy use. As well as contributing to our national emissions reduction targets it also reduces their costs. Any further information that the Minister can give on the package that will come forward would be helpful— when it is likely to come forward, and what discussions and consultation with the industry there will be. We would be keen to be kept involved as that matter progresses.

My second point is on transport. This weighty report of more than 400 pages highlights the significant impact that more fuel-efficient cars are having on government income from fuel duty and vehicle excise duty. It estimates a potential loss of up to £10 billion by 2030. The report then highlights the fact that this will create the need for fiscal rebalancing and suggests that because road congestion is likely to increase, road pricing is an option that the report says will have environmental, economic and fiscal benefits. However, the report also adds that this should be in addition to fuel duty, not instead of it. When the report was published back in December, the average price per litre of a gallon of unleaded petrol was 13 or 14 pence less than it is today—partly, but not just, as a result of the Government’s increase in VAT. In their acceptance of the report, are the Government really considering that the motorist should pay to use the roads as well as paying fuel duty and vehicle excise duty?

Will the noble Lord look at this issue again? If the car industry and the motorist play their part, and their actions have a real impact in reducing emissions, and as a consequence that reduces their contributions to the Treasury, it seems grossly unfair that they should be penalised for doing so through widespread road charging in order to raise the money lost to the Treasury through the actions we have demanded of them. That would create a disincentive to the motor industry and to the motorist. I am sure that that is not what the Government intend, but it could well be the consequence. We know that the car industry wants to play its part—there are new hybrid and electric cars for example. The survey by Road Pilot indicated that 46 per cent of motorists claim to have reduced their speed to save petrol and save money. We should not penalise them for doing so.

The third and final issue I wish to raise with the Minister is fuel poverty. The committee recognises that since its 2008 report rising fuel prices have significantly increased the number of people living in fuel poverty. The report predicts that gas and electricity prices are likely to increase even further and that household income growth will be slower than the previous committee report indicated. The current report recommends that this issue can and should be addressed through energy-efficiency improvements and other measures such as social tariffs, and arrangements such as winter fuel payments, which unfortunately were reduced in the Budget—after the committee’s report.

I appreciate that in the Energy Bill the Government are bringing forward the Green Deal and other energy-efficient measures. We have already considered the Bill in this House. As the Minister knows, we welcome the concept, but consider the Bill to be too weak in its ambition and scope, and too light on detail. I assure the Minister, your Lordships’ House and Members of the other place that we will work with all colleagues and with the Government to get the improvements this Bill needs.

I highlight the need to improve the provisions for the private rented sector, where fuel poverty and emissions are very serious matters. Therefore, I ask the Minister and his colleagues to consider the changes to the Bill that we have proposed to bring about energy-efficiency improvements for the private rented sector and to set minimum levels of energy efficiency for those properties in order to reduce emissions.

Written Answers that I received today from the Minister confirm that in the past year 127,930 households have been assisted by the Warm Front scheme, yet over the next two years, due to government cuts, this number will fall dramatically to around 47,000 and 45,000 respectively. Given that fuel poverty was specifically raised in the committee’s report, I ask the Minister to look at this matter again. In the light of the report that the Government have accepted, I seek an assurance that there will be no further reductions in winter fuel payments for pensioners.

My initial enthusiasm when I heard about the Government’s acceptance of the report has been somewhat dampened. I hope that the Minister can address some of the points that I have raised today, and I look forward to welcoming the Government’s response with great enthusiasm.

My Lords, I thank the noble Baroness for her excellent résumé of matters and, as always, for posing some very incisive questions. Of course, much of this builds on work carried out by the former Labour Government, and I applaud that. I also add my thanks to the Committee on Climate Change for its excellent fourth report.

The noble Baroness asked four questions. The first one concerned the review in 2014. As this Government intend to be the greenest Government ever, it is incumbent on them to lead by example. We know that Europe does not always follow our leadership but we will try to lead by example in every possible way and encourage it to adopt a 30 per cent target. For the sake of the prosperity of this country, it would be totally wrong if we ended up not agreeing to a 30 per cent target and having some of Europe marching out of line. The review gives us a fallback position if Europe agrees to, for example, a 25 or 35 per cent target. However, the intent is there in our desire to strive for greater carbon reductions and to show leadership, as indeed the previous Government did. I see in his place the noble Lord, Lord Prescott—one of the leading advocates in that area. The noble Baroness need not fear—I do not despair. I feel that we are marching forward very co-operatively and that things are going well.

The noble Baroness asked about transport. We have an issue with the Committee on Climate Change over moving to electric hybrid targets. The committee’s target is set at roughly 60 per cent by 2030. We think that it will be difficult to achieve that target. It has to be balanced fiscally, which of course is an issue for the Treasury. We are looking at that very closely in our review of the committee’s reports, and we are quantifying its suggestions, as one would expect. We do not necessarily disagree with the committee but we have come up with different figures, which we will look at and bring into law when we have had discussions with the committee. I should add that there are very few differences between us and the Committee on Climate Change, but it would be rare if there were no differences.

Fuel poverty is a fundamental issue, as we have discussed before. If the noble Baroness will forgive me, I will not get into a debate on the Energy Bill and go over the marvellous things that we discussed for hours on end, although we can doubtless look at them again at another point. The first, second and third carbon budgets had no effect on fuel poverty, although the fourth budget should have an effect with all the new measures that we are bringing in. The noble Baroness shakes her head. I know that she has read the document. I cannot remember the exact page but there is a paragraph on fuel poverty which I am happy to point out to her.

Finally, as the noble Baroness quite rightly says, we have to take into consideration the effect on the energy-intensive industries. They are very substantial employers. They fulfil great needs and are a requirement for this country. I listened to the views of a group of energy-intensive industries when they came to visit us in the House, which quite rightly they enunciated extremely well. I agreed that we would look at the matter as appropriate and report back on our commitment to them in October.

My Lords, I welcome the Statement. As someone who was a negotiator at Kyoto, I fully recognise the legal framework and commitment to targets. I recognise that the Government are accepting the Committee on Climate Change’s recommendation of 50 per cent to 80 per cent change by 2050. That is clearly a very ambitious target. It concerns me that the Government were committed to a legal framework that collapsed at Copenhagen. I worry that they are setting themselves a target for which they might be cheered at the moment but, when they do not achieve it, they will face derision from the NGOs and others. Is the Minister aware that the committee pointed out in its report that it had made such a recommendation to avoid the ups and downs in the global negotiations concerning climate change? It is more than an up and down. What took place at Copenhagen—and was confirmed at Cancun—is a complete reversal. There is no longer a legal framework that will be agreed to for at least a decade; it is now a voluntary one with voluntary targets. What worries me—and I see that the Minister has left the back door open—is that if Europe does not confirm its 30 per cent target, and I do not believe for a moment that it will, we will be faced with changing our position and face derision rather than cheers, which tends to undermine confidence in global negotiations.

There is no one more experienced on this issue than the noble Lord, Lord Prescott. He adds great value on the subject in this House. Describing the past is extremely interesting because I was at neither Copenhagen nor Cancun. The reality is, as he knows, that we have to set an example—as he did himself—and an aspirational target. We have been accused of not leading the way in Europe; now we will lead the way. We cannot have it both ways. We will put our aspirations down on the table as we did in Cancun. I pay great tribute to the Secretary of State, the right honourable Chris Huhne, for the way in which he brought the climate change issues back on to the agenda at Cancun, which, as the noble Lord rightly said, fell apart. Clearly, our fallback position is 20 per cent. We are comfortably going towards that 20 per cent. We feel that we can up the ante and show Europe how to do so, and 2014 gives us the fallback if we cannot achieve it. Those are our aspirations. I think that he would, broadly speaking, applaud them given the position that he tried to lead us to.

My Lords, this is certainly the announcement that we wanted to hear. I congratulate the Government on agreeing this target, which is important in terms of our leadership, as the Minister has so rightly said, but also in terms of keeping faith with the Committee on Climate Change, which is such a central part of the architecture. Having said that—and as a parliamentarian—it should not be taken for granted that the Government would accept every recommendation within the Committee on Climate Change’s report. This is the headline; this is the one that is important. However, all recommendations of such reports should be applied to the democratic process and decided on by Parliament rather than by the committee itself. However, I very much welcome the broad thrust of the Government’s agreement.

One of the ways to possibly change how things work that has been discussed and is in the Statement is carbon trading. Although the noble Baroness, Lady Smith of Basildon, seemed somewhat equivocal about it, I remind her that the way that this accounting should work was written in specifically by the last Government and was strongly resisted by certain parts of this House. However, I accept that under certain circumstances it can be the right way to go, and maybe it provides the flexibility.

I also welcome the fact that the Government are still angling after a 30 per cent reduction by 2020, although even I admit that this should not be just blind adherence to that target. I would be interested to hear from the Minister how those negotiations with Europe are proceeding, certainly within the international context that the noble Lord, Lord Prescott, mentioned.

I want to return to the point about energy-intensive industries. We clearly value those industries in this country and do not want to see them be offshored because all that will do is mean that carbon emissions worldwide stay the same while ours perhaps decrease, hence some of the problems over carbon production accounting. Will the Government ensure that the trade-offs for those extra costs still leave the incentives for those industries to reduce their energy and their carbon emissions while helping them in other areas of their profit and loss account?

The noble Lord, Lord Teverson, gives me reason not to despair, because him agreeing with so much of what we are doing shows that the coalition is alive and well.

Thank you very much indeed. I make no comment on that.

The point on energy-intensive industries is well made. We must not let them off the hook, but we must recognise the industry they are in. Between now and October, we will be working very hard to work through the implications. As the noble Lord alluded to it, I should just say that we are going to have the opportunity to debate this. We have a statutory instrument coming up on this. We are doing an impact assessment, and then there will be a debate on these issues in the two Houses. I am looking forward to that debate and to hearing more information, and I value comments. That just shows that the democratic process is working. It also gives us the opportunity to discuss openly the committee’s recommendations and those things we agree with and do not agree with.

I speak as the president of BALPA. What specific discussions have taken place with the aviation industry? It is important that the Government should speak to all sections of the industry, the trade unions and, not least, consumers. If the Government have not yet taken steps, what do they propose in that regard?

The aviation industry is clearly a very high-carbon-using industry. I think I am right in saying that at the moment it is outside the EU ETS and that there is a programme to get it into that scheme. Of course, we will recognise that aviation is part of our everyday life. It is not something you can turn off overnight. There are big technological advances going on in the aviation world. We applaud that. We applaud the fact that the industry is making every effort to recognise the need for carbon reduction globally, and we would be completely mad not to listen to what it has to say.

My Lords, I am one of the growing group of people inside and outside Parliament who think that this whole policy is completely misconceived. Even if you believe and accept the link that the Climate Change Act makes between carbon emissions and world temperatures, surely the way that this policy is operating at present is curious economic masochism. At a time of falling real incomes for families and a desperate need for economic growth, it is imposing additional costs in terms of fuel bills.

The Minister said that the Government are looking at the problems of energy-intensive industries to make sure that they remain competitive. I do not know whether there will be any left here in 2025. The Minister may be aware that a large German cement manufacturer recently moved its plant to Asia and financed the whole of the new factory by selling its carbon credits in Germany. That is the perversity of the way this policy operates. How can we make energy-intensive industries remain competitive while at the same time achieving these targets to which their contribution is so important?

The noble Lord’s views on climate change are well known. As I said, the energy-intensive industries are fundamental to this country. Obviously, it is incredibly disappointing that, at this particular economic time, they are leaving and moving to China. The whole reason why we will be spending a lot of time looking at it is that we can address some of the fears that the noble Lord puts forward. I would say, though, that we must be very careful about criticising some of the endeavours here. We are accessing, arguably, a £31-trillion marketplace, which will be good for British business. We already see signs of Siemens starting factories, of GE wanting to start a factory, of new investment coming into the country, which we want to encourage. We also have to realise that this Government—and indeed the previous Government—inherited an electricity market dependent on oil and gas, which was diminishing in supply. No Government had put in place a replacement for it that allowed us to have the energy security that we desperately need to stand alone. Energy security is very high on this Government’s priority list. I would hope that the noble Lord would recognise that, and support us in that endeavour.

My Lords, I naturally sympathise with the predicament of the Minister having to ventriloquise the zeal of the Minister in another place—not for the first time this afternoon. However, will he personally reflect on whether the robustness of climate science justifies the UK, uniquely in the world, setting statutory carbon reduction targets way out into the middle of this century? Secondly, will he reflect on whether the Intergovernmental Panel on Climate Change is still credible as the principal source of advice to Governments in this field?

I am not sure whether the answers are yes, no, no, yes. Broadly speaking, I do not stand here trotting out cant or zeal that has been put to me by my colleagues. We work very closely as a team in coming up with what we think are the right policies. There is no difference between us in that. The Committee on Climate Change does an excellent job. It gives us a guiding principle on where we need to go as a responsible society. We must remember that we have a responsibility not just for our lifetime, but our children’s lifetime, and—the noble Lord is too young to have grandchildren —our grandchildren’s lifetime.

That is why we must commit to reducing our carbon footprint. We must put energy security high on our list. We must make use of the wonderful natural resources that we have in this country to fulfil that security.

My Lords, I congratulate the noble Lord not just on the Statement but on the work that he and his colleagues must have done in the department to enable them to present it to the House. I doubt that it was an easily won text.

It is very important that the House remembers that the Climate Change Bill went through a long scrutiny process during which we managed to maintain an all-party consensus on all the significant issues. Both Houses signed up to it. No one worked harder than the noble Lord, Lord Taylor of Holbeach, to make this possible. It is very important that we maintain that all-party approach to this issue. Frankly, it is very important that the department is robust in resisting the cries not only from inside this House but from outside it, and in not allowing itself to be deflected from these targets. They are important. That Bill, now an Act, is one of which this House and the nation should be enormously proud.

I get around the world quite a bit and I know that other countries think that we have done a remarkable thing here. For us to start to back off and become in any way apologetic for our achievement would be tragic. I enthusiastically welcome this Statement and I am absolutely delighted about the battle we have won.

I am very grateful to the noble Lord, Lord Puttnam, who is a friend of the department, irrespective whether there is a Labour or, as at present, a coalition Government. We are very grateful for his positive remarks. I, too, pay tribute to my noble friend Lord Taylor of Holbeach, who has been at my side during many debates on this subject. In fact, he very kindly answered for me on a statutory instrument earlier today when I was called elsewhere. On both counts, I am marching shoulder to shoulder with the noble Lord.

There are a number of costs floating around the place. The gross cost of the carbon budget over the five-year period is estimated at £7 billion. However, because we have the benefit of, and are keeping our options open on, utilising carbon trading, and because we have consistently established a surplus which we can trade into the market, and given a number of the domestic improvements that we are making through the Green Deal et cetera, we feel that figure can come down to £1.7 billion over five years. I think that noble Lords will agree that that is a very containable figure, given the opportunity of accessing an enormous market that will bring prosperity and jobs into the country. I hope that the benefit of that will far outweigh that figure.

My Lords, briefly, what assumptions are being made by the Government in their plans for the building of new nuclear power stations or the introduction of carbon capture and storage, and the cost thereof? They are subjects which seem to be absent from the Statement.

The right reverend Prelate hits on a very topical issue. I am very happy to say that tomorrow we will present the findings of Mike Weightman, who was commissioned by the Secretary of State, Chris Huhne, to report on Fukushima, and look at them in terms of the future of the nuclear industry in this country. It would be wrong of me to intercept that report in this House, as it will be announced tomorrow. However, I can say that I met Mike Weightman earlier this week when we went through the implications of his report. We must not be complacent about our own position, but I think that we will feel quite positive by the end of tomorrow. That will, I hope, bring new nuclear back on to the agenda. I think that it has the broad approval of the House and it of course goes to the heart of carbon reduction and energy security.

On carbon capture and storage, as the right reverend Prelate knows, I am leading negotiations on the first demonstrator. I had meetings last night with the chairmen of each of the consortium companies to try to get us to the timetable that I have mentioned to the House. Broadly speaking, we are on track with that timetable and we are now looking at a cost which should be achievable. I hope that we will have that fully on the agenda towards the autumn—as I hope, for my part, we will have with new nuclear.

My Lords, I am one of those who have been involved in the programme in one way or another since Rio in 1992. Some of the fiscal questions now being raised are timely. I should like to ask about the relationship between the Government’s Statement and the Committee on Climate Change, and which is which. Page 2 of the executive summary indicates that there is an assumption that the price of carbon will rise to £70 a tonne in real terms, on present values, by 2030. You can see that this is necessary to make the arithmetic work. I am rather reminded of doing the national plan in 1965, where we played around with investment numbers and price numbers till everything fitted. We are doing an exercise in looking at numbers that will fit fiscally, but without saying to people what carbon tax they will have to pay in real terms. We must of course be transparent and honest with people. However, a carbon tax—albeit a European one—which I advocated in my maiden speech 11 years ago and I am not against, is a regressive tax. Now is the time to be much more transparent in how all the fiscal arithmetic fits together. There is a growing demand for that, however it is managed. The document is very short on financial figures; it is all tonnages of carbon dioxide. On the financial side, there is scope for a bit more transparency.

The noble Lord is absolutely right. We must be very committed to the fiscal aspect of this and we must be transparent. We will be transparent, and we will put the British taxpayer first in terms of the fiscal implications.