Climate Change Bill [HL]

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 9. In speaking to this group, I shall also address Amendments Nos. 11, 17, 17A to 17C, 49 and 50. There has been substantial discussion during the passage of the Bill about the importance of driving emissions reductions in the UK. The Government agree with this principle, and we have designed the Bill to provide a clear framework for action. Under the Kyoto protocol, developed countries have each been given a maximum allowance, or target, for greenhouse gas emissions over the period 2008-12. As noble Lords know, the UK is one of the few countries that is on course to substantially beat its target, but we are keen to make reductions beyond those required under Kyoto, and over a longer timescale. That is why we have brought forward the Bill. In trying to achieve deeper cuts, we are also strong supporters of the EU Emissions Trading Scheme, which sets a cap, separate from the Kyoto limit, for emissions from energy-intensive industry. That cap covers about 50 per cent of carbon dioxide emissions in the EU and in the UK. Both Kyoto and the EU ETS allow countries and participating companies, respectively, to buy credits from projects to reduce emissions in developing countries that are not subject to a cap. The use of these credits is itself limited in both cases. The idea is that emissions reductions can be made where it is most economically efficient to do so, but that reductions are still very much driven in participating countries too. By supporting projects in developing countries, we are also helping those countries, so that their growing economies are low-carbon from the start. Project credits are subject to close scrutiny by a UN board to provide maximum certainty that they represent genuine emissions reductions. Our aim is that the Bill should drive emissions reductions in a way that is consistent with our participation in both Kyoto and the EU ETS. The Bill, with amendments made in the Commons, contains specific provisions that enshrine in law our intention to reduce domestic emissions and provide transparency about what actually happens. Clause 34 requires the Committee on Climate Change to advise on the extent to which the carbon budget should be met by action in the UK and by the use of overseas credits. In addition, having set carbon budgets, the Government must develop and publish proposals and policies for meeting them. Amendment No. 9 proposes adding further transparency. It would require that the Government’s report on proposals and policies for meeting budgets, under Clause 14, must set out the implications of those policies for the relative balance between action to reduce UK emissions and the use of overseas credits. In addition, Amendment No. 11 would introduce a new clause requiring that, in considering how to meet the long-term target and the carbon budgets, the Secretary of State must have regard to the need for UK domestic action on climate change. That is a clear legal requirement and statement of intent, which for the first time puts into domestic law the need for action here in the UK to reduce emissions. Clause 25 would set in the Bill a minimum level of domestic effort in meeting budgets; in other words, a flat maximum for the use of carbon credits. Noble Lords will be aware that the Government do not support this approach. That is why we have proposed Amendment No. 17, which would delete Clause 25. Our view is that setting a binding limit in the Bill would send the wrong signal to our international partners about our support for a truly global carbon market. This is particularly important given the ongoing negotiations on a comprehensive, global, long-term framework for action, which we hope to agree at Copenhagen in December next year. The Stern review showed that international emissions trading under binding caps plays a vital role in the global response to climate change. The noble Lord, Lord Stern, reaffirmed this during debates on the Bill earlier this year: "““Carbon trading has a very powerful role not only through cost but in that much broader and deeper context of putting a global deal together””.—[Official Report, 11/3/08; col. 1416.]" We consider that a more appropriate method for tackling this key issue would be the requirement to set a flexible, less rigid limit on the use of credits. Amendments Nos. 17A, 17B and 17C have been proposed to achieve this. Amendment No. 17B would require the Secretary of State to set a binding limit on the use of carbon units for each budgetary period in secondary legislation, taking into account the views of the Committee on Climate Change on the appropriate balance between domestic and overseas effort. This limit would also have to be set in the context of the requirement, which Amendment No. 11 would introduce, to have regard to the need for UK domestic action on climate change. In proposing a limit, the Secretary of State would also have to consider each of the matters in Clause 11 which must be taken into account in coming to, "““any decision … relating to carbon budgets””." With the exception of the first budgetary period, where the limit is to be set at the same time as the level of the budget, the amendment would require that the limit be set 18 months before the start of the budgetary period in question. This would ensure that an appropriate limit could be set once the level of the budget is known and the wider policy context, including the international situation, is clear. If a limit was set in the Bill, as in Clause 25 and Amendment No. 17D, further primary legislation would be required to adjust this if it was considered necessary. This might be in order to comply with or maintain consistency with the requirements of a future international agreement. Clause 25 also creates difficulties with timing. Due to the way the limit is calculated under Clause 25, the limit could be confirmed as an absolute amount of carbon units only once net UK emissions for the previous budgetary period are known. The final level of net UK emissions for the previous budgetary period, and thus the level of the limit on carbon units, would not be known until 17 months into the budgetary period to which the limit applies. This would considerably reduce the transparency about the amount of credits that may be counted towards the net UK carbon account and would undermine the certainty for business, stakeholders and parliamentarians. By contrast, under the process we are proposing, the limit would be known before the relevant budgetary period begins. This will allow policies to be put in place to ensure that the limit is not exceeded. Amendment No. 17B would also provide an important flexibility, which Clause 25 and Amendment No. 17D do not provide, that particular units may be excluded from counting towards the limit. This would allow, for example, the exclusion of carbon units arising as a result of UK companies’ participation in the EU ETS counting towards the limit. A limit on credits which affected the EU ETS sector by including emissions allowances sourced from participants in the scheme elsewhere in the EU would conflict with the UK’s commitment to this key policy measure. This approach would also undermine the economic efficiency of the trading scheme by placing further requirements on UK-based participants which were not imposed elsewhere in the EU. Such a limit would also cause a real likelihood that we would find ourselves with inconsistencies or a lack of transparency, which would go against everything we are trying to do in this legislation. In addition, given the clear links between this issue and carbon budgets more generally, I consider that the devolved Administrations should have a similar clearly defined role regarding setting limits on the use of carbon credits. Amendment No. 17B provides for that. Amendment No. 17C would supplement the new clause proposed by Amendment No. 17B by specifying in Clause 27 that any carbon units in excess of the limit set may not be counted towards the net UK carbon account. This amendment effectively puts in place the binding nature of the limit for the purposes of carbon accounting. The final amendments in this group, Amendments Nos. 49 and 50, are minor and technical and relate to the purchase of carbon units by Her Majesty’s Government. Moved, That the House do agree with the Commons in their Amendment No. 9.—(Lord Hunt of Kings Heath.)