Climate Change Bill [HL]

My Lords, I will speak to my Amendments No. 11A, 17F and 17G. Much has been achieved during the passage of the Bill, not least in this House. It is now a considerably stronger and better Bill than when it first arrived here one year and three days ago today. The time taken to see the Bill through reflects the consideration given to the issues raised by it. In the pre-legislative process, the Joint Committee of both Houses chaired by the noble Lord, Lord Puttnam, provided a great platform for improving the Bill, but the area of domestic effort and the use of carbon units remain its Achilles’ heel. We in this House made a clear and positive decision to quantify the domestic effort but the Government reversed that decision in another place. If we want the Climate Change Bill to be a world-class act, we need clarity on this issue. We on these Benches have long argued that this Bill represents a crucial opportunity for the United Kingdom to lead the world, not only in legislation but also in the jump to a low-carbon economy and all the benefits that this will bring to the first movers in a new era. The whole point of this Bill is to provide the market with the long-term clarity and certainty it needs to compete and be the best in the world in this new economy. Business is up for the challenge and it is encouraging to see that one of the most enthusiastic advocates of this issue is one of Britain’s largest energy companies, Scottish and Southern Energy. Why does it support it? It knows that the investment decisions it makes today will lock in the carbon footprint of its business for the next 40 years. It needs to know now what the rules of the game are before it spends billions investing in new infrastructure that will bring heat and power to millions of people in Britain. Another reason why we consider this to be a vital issue is that relying significantly on emissions reductions overseas is frankly a bad habit for our economy to get into. We cannot allow low-carbon economies to develop elsewhere in the world while we are left behind in an indulgence-buying, carbon-emitting, old style economy. It may be cheap to do so now when the carbon price is still relatively low, but this will become an extremely expensive habit if and when the carbon market does what it should and a tonne of CO2 becomes far more expensive. All the more reason not to lock in a carbon-intensive infrastructure now when we know it will become more expensive in the future. We would literally be asking our children to pay expensively tomorrow for our cheap and gluttonous extravagance today. Such a course would do little to show the rest of the world that the UK is serious about moving to a low-carbon economy with all the benefits for innovation, employment and new business opportunities that this will bring. We also recognise that it is not necessarily possible to find an ideal or correct balancing percentage between domestic and non-domestic effort. The noble Lord, Lord Teverson, has tabled an amendment suggesting that the division between the two should be 50:50, whereas the original Clause 25, as agreed in this House, was for 70 per cent domestic and 30 per cent non-domestic effort. For this reason we have considered it important for the Committee on Climate Change to be consulted on this issue, as detailed in Commons Amendment No. 11. We all know that the committee as defined in the Bill will have expertise in far more than climate science. According to Schedule 1, the committee will also have expertise in, among other areas, business competitiveness, economic analysis and forecasting, and emissions trading. It would then seem only sensible that we consult this esteemed group on this vital question, just as we considered and will continue to consider its advice on the 2050 target and the setting of carbon budgets. I am pleased to see that the Government have now decided to put a requirement on the Secretary of State to take the views of the independent committee into account, as clarified in the government amendments, and I thank the Minister for the way in which he explained that in moving the amendment. We greatly welcome the Government’s amendment to Amendment No.17, which shows that they have reconsidered their actions in the Public Bill Committee in the other place in removing what was then Clause 25. The Government’s new additions after Clause 11 will clearly go a long way to address our concerns over the limit set on the use of carbon units, but we think it is worth while to press the Minister on his definition of ““carbon credits””. The Government’s amendment would allow limits to be set on the use of all carbon units, meaning the clean development mechanism (CDM), the joint implementation (JI) credits, and the EU allowances (EUAs). The subject matter is awash with acronyms but we shall try to keep our heads above water. To be effective in ensuring that the UK moves to a low-carbon economy, any limit needs to apply to all carbon units. However, the latest signals from the Government suggest that EU allowances are going to be exempt from this list, which will be limited to CDM and JI credits. Can the Minister tell the House whether that is the case, and if so, why? The Minister will know that if that were to happen, the UK could simply buy more EU allowances from other EU countries. Those countries would simply import more CDM to compensate. It would be a form of carbon unit laundering, purchasing EUA credits from other EU states which replace the EUA credits that we have bought with more CDM credits, which they can then purchase from outside the European Union Emissions Trading Scheme. Can noble Lords be assured that the amendments which the Government propose will drive the de-carbonisation of our economy, particularly our power sector, which the noble Lord, Lord Turner, who unfortunately is not in his place, recently recommended was so vital? Finally, I should be grateful if the Minister could clarify how the Government intend to account for the emissions from sectors under the EU ETS, which is a complex but critical issue. A recent consultation on carbon accounting from the Department of Energy and Climate Change—we on this side of the House welcome the creation of the new department—makes it clear that the Government intend to use the UK’s Emissions Trading Scheme cap for the first carbon budget period, which runs from 2008 to 2012. However, beyond 2012, the whole structure of the EU ETS will be radically transformed. Quite simply, Europe is moving away from an ETS cap, set at national level, and is moving towards setting a single, Europe-wide cap. While that has many merits it creates a very significant problem for accounting for the ETS traded sectors under the Climate Change Bill, as there will no longer be such a thing as a UK cap. DECC’s consultation acknowledges that there is an issue, but offers no solution to the problem. Can the Minister explain how emissions from the EU ETS sectors will be accounted for in carbon budgets after 2012? There is also a risk that under the Bill sectors outside the ETS—for example, transport, building stock, and non-energy intensive industry—may be expected to take on more ambitious measures to compensate for a weak EU-wide cap on the ETS sectors. Can the Minister clarify what options the Government are considering which would allow the UK to set a tighter carbon budget for the ETS sectors, particularly in the power sector, than would be implied by the cap set at EU level? I look forward to hearing the Minister’s assurances on these critical issues.