Carbon Budget Order 2011

Tuesday 28th June 2011 Lords Chamber

Motion to Approve

19:29

Moved By

[Lord Marland]

That the draft order laid before the House on 24 May be approved.

Relevant document: 33rd Report from the Merits Committee

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Lord Marland)]

My Lords, I beg to move that the Carbon Budget Order 2011, for the fourth carbon budget level, laid before the House on 24 May, and the Climate Change Act 2008 (Credit Limit) Order 2011, for the second budget period credit limit, laid before the House on 7 June, be approved.

I suggest that the two statutory instruments on the Order Paper in my name be considered together. Both instruments have been laid in accordance with the Climate Change Act which puts the UK at the forefront of the challenge to reduce emissions and the move to a low-carbon economy. The first order relates to the requirement to set the level of the fourth carbon budget. The five-yearly carbon budgets provide an effective framework for monitoring and delivering emissions reductions required to achieve our 2020 and 2050 targets. The second order sets the limit on the net amount of international carbon offset units that may be credited to the net UK carbon account for the second budget covering the period 2013 to 2017. I thank both the Joint Committee on Statutory Instruments and the Merits Committee for carefully considering the two orders before us. The Joint Committee on Statutory Instruments cleared these instruments without comment. The Merits Committee drew the special attention of the House to the draft order setting the fourth carbon budget on the grounds that it gives rise to issues of public policy likely to be of interest to the House.

I begin by introducing the first order, relating to the fourth carbon budget. This is the total permissible level of the net UK carbon account for the period 2023-27. The Act requires that this is set by 30 June 2011. The level in the Carbon Budget Order 2011 is expressed in units of million tonnes of carbon dioxide equivalent, the standard for measuring greenhouse gas quantities. It amounts to a 50 per cent reduction on 1990 emissions in the 2023-27 period. The proposed level of the fourth carbon budget, of 1,950 million tonnes of carbon dioxide equivalent over the period, ensures that the UK is on an optimum pathway to comply with the 2050 target of at least an 80 per cent reduction in greenhouse gas emissions. In proposing the level, the Government have taken into account, and agreed with, the advice of the Committee on Climate Change, published in December 2010. The Government aim to meet the proposed fourth carbon budget figure of 1,950 million through reducing emissions domestically as far as practical and affordable. But given the high number of factors that can affect emissions we also intend to keep open the option of carbon trading to retain flexibility. This is a pragmatic approach when considering the uncertainty involved in looking so far ahead.

I draw your attention to the Government’s policy statement that I announced on the Floor of this House on 17 May, where I referred to a review of this carbon budget in 2014. Let me explain our reasoning behind this. The level of emissions reductions we achieve in the power and heavy industry sectors is dependent on the level of ambition in the EU ETS, which sets a cap on emissions for these sectors. Meeting the proposed fourth carbon budget would require a tightening of the EU ETS cap from its current trajectory. It is therefore right that we come back to this issue in a few years’ time to assess progress at the EU level in moving to more ambitious targets. If at that point our domestic commitments place us on a different emissions trajectory than that of the Emissions Trading System agreed by the EU, we will, as appropriate, revise our budget to align it with the actual EU trajectory, pending advice from the Committee on Climate Change and taking into account the views of the devolved Administrations. In the mean time we will continue to push as strongly as possible for greater ambition at the EU level. This brings me on to the second instrument we are debating today, the Climate Change Act 2008 (Credit Limit) Order 2011.

The Act requires there to be a limit set on the net amount of carbon credits that can be used for each budget period. This order sets the limit for the second budget period, covering the period 2013 to 2017, at 55 million tonnes of carbon dioxide equivalent in total. This must be set by 30 June 2011. Use of these credits would only apply to the non-traded sector; in other words, those sectors not covered by the EU Emissions Trading System. This proposed limit is consistent with the flexibility mechanism under the EU legislation covering the non-traded sector from 2013, which allows for limited use of international credits to help meet annual reduction targets set under the EU Effort Sharing Decision. There are already limits on the use of credits by participants in the EU Emissions Trading System through the EU ETS, which guarantees that at least 50 per cent of the emissions reductions between 2008 and 2020 will take place in Europe. Let me make it clear that we already have a robust policy framework in place to meet the first three legislated carbon budgets, and emissions projections show that we expect to meet these domestically without recourse to the purchasing of credits. In proposing the 55 million tonnes limit, the Government are just choosing not to rule it out at this stage; this is simply a contingency. I commend these orders to the House.

[Lord Reay]

My Lords, these orders are required under what I view as the Climate Change Act 2008. The Carbon Budget Order sets the limit for our permissible CO₂ emissions for the fourth carbon budget as much as 12 to 16 years away, and the credit limit order states the proportion of our second carbon budget, from two to seven years away, that may be met by the use of so-called carbon credits, whereby we pay people in developing countries to do the emission reduction while we carry on doing the emitting.

The Explanatory Memorandum for the fourth carbon budget order has its usual quota of manifestly untrue assertions, including that on page 1:

“there is an overwhelming scientific consensus that it”—

that is, climate change—

“is being caused by human activity”.

There is certainly no consensus. On page 19 there is the statement:

“The scientific evidence for recent global warming continues to strengthen year on year”.

In fact there has been no global warming for the last 10 years, so even with an elastic definition of the word “recent”, that sentence makes no sense.

The order prescribes what the United Kingdom’s CO₂ emissions for the five years from 2013 to 2018 are to be on the way to achieving an 80 per cent reduction by 2050, over 1990 levels. The report of the Merits of Statutory Instruments Committee draws attention to the fact that the chances of the United Kingdom staying within that budget will depend on the degree of take-up of the Green Deal, and on early investment in carbon capture and storage. In fact it is quite likely that the public will find the Green Deal unattractively expensive, and where take-up does occur, it may well result not in CO₂ emissions savings, but in people choosing to live in warmer homes. CCS is a rash punt by the Government on a scientific breakthrough that will enable it to be rolled out to scale economically. Meanwhile, of course, China rolls out a new coal-fired power station every week, quite uninhibited by any need to wait for carbon capture and storage to be oven-ready. The Merits Committee adds that,

“a key development will be the package of measures to help the energy-intensive industries adjust to the low carbon industrial transformation while remaining competitive”.

This refers to the further contortions that the Government have to make in response to protests from the industry concerned in order to try to offset the effects on them of the carbon tax which the Government propose to introduce. So complicated is that process that the Government want to have until the end of the year to try to work out what to do.

The greatest chance of the Government being able to meet their distant carbon emission targets, including the 80 per cent target in 2050, ironically depends on the failure of the economy to revive. The Climate Change Act, and the policies adopted as a consequence, are doing their very best to bring that about. The Government must sometimes wonder, when by themselves, whether this outcome will please the general public when it becomes apparent and whether this pleasure might ever express itself in the ballot box.

The credit limit order relates to the second carbon budget starting in two years’ time. The Government state in the Explanatory Memorandum that they expect the budget to be met comfortably by territorial emission reduction; that is to say, by emissions calculated to have been reduced on United Kingdom soil and that, therefore, there is likely to be no need to purchase ICUs—international carbon units. The provision in the order is therefore, as my noble friend the Minister said, purely a contingency.

The Government seem almost wistful about this, regretting this missed opportunity to give support to another foreign aid scheme. On page 6 of the Explanatory Memorandum, they state: “This option”—referring to one of the policy options, policy option 1, which is not the one in effect adopted—

“could signal an increased commitment by the UK government to purchase emissions reductions from developing countries, which would form part of the overall demand signal to the private sector to help drive investment in new projects overseas”.

In fact, the system just introduces new scams and corruption opportunities to developing countries, as if enough were not provided already by our aid budget.

It is not that the opportunities seem confined to developing countries. It was reported in the press that the legislature in Australia was giving consideration to awarding carbon credits for the funding of the extermination of Australia's 1 million-odd feral camels on the grounds that they were substantial emitters of methane gas and no doubt were a noxious pest in many a constituency in the Outback.

Our Government state, sadly, that they are strongly supportive of the international carbon credit system, notwithstanding the similarity that it seems to bear to the pre-Reformation church, when indulgencies could be bought from Rome to permit sinning at home with a clear conscience. Kyoto is the new Vatican.

The Climate Change Act should be repealed, its panoply of carbon budgets abandoned, all the agencies such as the climate change committee which drips its advice into the Government's ear sent packing, and a chance given to our economy to resurrect itself. Otherwise we have a grim and, very likely, a dim future.

[Baroness Worthington]

My Lords, I should declare my interest in this topic. While I worked at Friends of the Earth, I instigated the campaign that secured cross-party support for a new legal framework to tackle climate change in the UK. That campaign was based on a policy document where I argued in favour of a series of legally binding carbon budgets to deliver a steady trajectory of emissions reductions over time.

While on secondment to the Office of Climate Change, I was made part of the team tasked with drafting the Bill. There, the concept of carbon budgets was further developed and other elements were added, most importantly the creation of the independent Committee on Climate Change, an expert body set up to advise government on crucial aspects of the implementation of the Bill including, most importantly, the levels at which future budgets should be set.

It will come as no surprise, therefore, that I am a passionate defender of this world-leading legislation. I should also state that I am a director of a not-for-profit organisation that is a watchdog on the carbon market.

19:45

The UK was the first country in the world to commit to a long-term, legal framework to deliver a low-carbon economy by 2050. This was a bold but necessary action to which we must remain committed. There are many reasons for pursuing legislation in the UK. On the one hand, there is the moral imperative. The UK is the home of the industrial revolution. This generated great wealth, no doubt, but the burning of fossil fuels also unleashed an unforeseen environmental risk of the gravest proportion. The countries and people who will suffer most from the effects of global climate change are those who have done least to cause it. We therefore have a duty to lead the way in delivering the next great energy revolution. The Climate Change Act is designed to do just that.

Then there is the economic imperative. The UK no longer enjoys large reserves of low-cost fossil fuel-based energy. We will become increasingly reliant on imported fuels if we do not act to increase our efficiency and exploit alternative forms of power. These will be predominantly renewable and nuclear power, but with the application of carbon capture and storage—all the elements of which have been proven; it is simply a case of joining them together to make it work commercially—making the continued use of fossil fuels possible into the future. If handled correctly, the shift to low-carbon sources of energy will deliver huge investment into the UK, creating jobs and boosting GDP.

Finally, there is the political imperative. At the time of drafting the Climate Change Act, we were hopeful that a new legally binding international treaty would be agreed in Copenhagen. Sadly, this did not come to pass and, even now, negotiations are proceeding at something akin to a snail's pace. There is now no certainty that a new framework will be agreed in time to extend existing commitments which run out at the end of next year. However, the rationale for legislating in the UK was to demonstrate political leadership and to inspire others to follow. I am pleased to say that, even in the absence of a UN-agreed framework, other countries are acting, and many cite the UK’s Climate Change Act as a source of inspiration. A recent report by Globe International documented legislation in 16 countries, including some of the world's largest emitters. This does not include legislation at a sub-federal level, which is most notable in the US, where, sadly, lack of progress at a federal level remains disappointing.

Perhaps the most significant sign that the world is waking up to the threat of climate change and taking action to avert it is what is happening in China. While China’s economy continues to be heavily dependent on fossil fuels, its latest five-year strategy set out clear commitments to invest in low-carbon technologies. It clearly sees that it is in its own interest to develop on a low-carbon pathway.

I should like to say a few words about the orders before us this evening. The first sets our fourth carbon budget for the period 2023-27. I am very pleased that the Government, after some apparent internal debate among Cabinet colleagues, finally accepted the proposals put forward by the Committee on Climate Change and have agreed to set a limit of 1.95 billion tonnes of carbon dioxide equivalent for this five-year period. This provides the clarity of intention that those companies seeking to invest in low-carbon infrastructure need.

On the second of the orders, the carbon credit limit order, however, the Government have ignored the advice of the committee, which recommended that no carbon offsets should be allowed as part of the second budget; that is, no emissions credits from projects overseas beyond those that are permitted in the EU Emissions Trading Scheme. Instead the Government are proposing that 55 million tonnes of emissions could be offset, with the UK’s carbon budget effectively increased by that amount over the period. This is an unnecessary provision which undermines the security of investment that the budget framework is intended to create. It is unnecessarily timid.

Latest estimates published in June 2011 show that emissions for this period are already predicted to be 114 million tonnes below the level of the cap set in legislation. So we already have plenty of wriggle-room. My fear is that adding a further 55 million tonnes of potential emissions serves simply to undermine certainty. It could mean that weak policies are implemented. If we do not introduce policies now, we will have a very hard time ratcheting down later. In scientific terms, it makes much more sense to act earlier to avoid increasing the risk of climate change. This is an unnecessary provision, and it disappoints me that the Government felt it necessary to make it.

We must think of this in the long term. Each future budget requires us to take more action. If we simply take a strategy of offsetting we are just storing up more liabilities for ourselves in the future. Can the Minister please give us an assurance that this is a provision of the last resort and that the knowledge that such provision exists will not weaken the policy framework that will be put in place to deliver our long-term carbon budgets?

[Lord Teverson]

My Lords, I sometimes wish that I agreed with my noble friend Lord Reay on a number of issues because he speaks so eloquently and so certainly, although what he says is usually the direct opposite of what I think. However, there is one area on which we agree on this debate, which I will come on to later.

One of the great things about the Committee on Climate Change report on which the Government’s decision was based—and I absolutely welcome the Government’s decision to adopt the fourth carbon budget—was that the report did not just say what the committee thought should happen but actually went through from the basics: it looked at the 80 per cent target for 2050 and said that was still right; it looked at areas such as the 34 per cent reduction by 2020; and it then looked to see whether the evidence was still there that global warming is happening. Where I deviate very strongly from the speech of the noble Lord, Lord Reay, is that I accept that the report showed very clearly: that ocean levels are rising and have been rising consistently over the past decade; that temperatures at sea level and in the atmosphere are rising; and that the number of square kilometres of ice cover in September—I do not know whether it is a particular conspiracy that September of each year has been chosen—has gone down. There are various other indicators but those are the key ones, which show that this is really happening. That is the reality on our planet.

I sometimes think that the noble Lord, Lord Reay, sees the whole climate change strategy as a car accident in slow motion or waiting to happen, whereas I look at him as aiming for it and putting his foot on the accelerator, and I am sad that is the case. It seems to me that the science is there. I agree that there is perhaps less scientific evidence on whether global warming is created by the human race and all the industrialisation that has taken place, but there too I believe the evidence is very strong indeed. Whether we do something about climate change now or wait another couple of decades to see whether it really has happened is not an option we should consider. I agree that there is a difficult global consequence even though, as the noble Baroness has said, we sometimes underestimate the amount of work that other countries—whether developing or having intermediate income levels—have done and are doing in this area.

There will be a number of challenges in meeting these targets. I still treat with some scepticism the argument made by the Committee on Climate Change that the effects on GDP of implementing these measures will be less than 1 per cent. I always think that is a fantastic bit of statistical evidence. Over that time period, the margin of error is probably something like 5 per cent either way. However, it is good to read that and there is evidence on that.

There are big challenges. The climate change report notes that we need something like £10 billion a year of energy investment—something that I recognise from Ofgem reports. I know the Government are very aware of this as well, even though over the past decade and more investment in the power sector has been under £2 billion per annum. That is a fivefold increase that we are looking for in our energy investment. Therefore, anything that we can do through smart grids, demand management and especially schemes such as the Green Deal to bring down energy usage will improve that figure quite considerably.

For this fourth carbon budget, which is 12 years ahead when it starts and 17 years ahead when it finishes, it has to be a good decision by the Government that we are nailing our flag to the mast and that, as with the first three budgets, we are at one with the recommendations of the Committee on Climate Change. That will be difficult, given the need for electric cars. By 2050, more or less all transport will have to be non-fossil-fuel based. That will require a major change, both technically and culturally—which in many ways may be far more difficult.

I disagree with my noble friend the Minister, very unusually, on carbon credits. I argued very strongly during the passage of the Climate Change Bill that we should not be able to borrow from and lend to other periods and budgets; we should not be able to trade credits if we do not meet domestic demand. I am sad in a way to see that proposal. Another issue on which there is perhaps some change from what the Committee on Climate Change would have liked is reassessing the budget in the future, when we look to see what Europe is doing. I think that that is completely sensible, as we cannot ignore the rest of the world and I am sure that, by the time we get to the budget period circumstances will change—they are entirely unpredictable now and we will need to look at the viability of the budget then. However, at the moment the policy is in that way.

I agree with my noble friend Lord Reay that carbon credits are wrong—but probably for completely different reasons—because they allow an out that we should not be able to have. I think that it is wrong that, with the agreement of the Committee on Climate Change, we should allow credits forwards and backwards under the EU Emissions Trading Scheme in terms of our accounting—even though that clearly happens in terms of a commercial reality, which I welcome. What that means is that, for about 40 to 50 per cent of our emissions, which are under the EU Emissions Trading Scheme, even if our greenhouse-gas intensive industries perform better than budgeted the UK does not get any benefit because we count that as exported credits and we still end up with the same amount, which means that all the pressure comes back on the rest of the sector. That is the only area where there is a real problem with carbon budgets as currently proposed.

My final point is that, although it is not mentioned in the Committee on Climate Change report, the committee has some sympathy with measuring our carbon footprint in terms of consumption as well as carbon production and the standard way that the Kyoto protocol looks at the carbon footprint for each nation. I would like to think that we would start to have carbon budgets, or at least carbon measurement, in terms of carbon consumption, where embedded carbon is taken into consideration, as well as the traditional way.

I congratulate the Government on their courage and good sense in agreeing to the fourth carbon budget. There is a very big task to be undertaken, on which we are providing leadership. We can have pride in that, but we desperately need to bring the rest of the world along with us and that, I agree, is not an easy proposition.

[Lord Turnbull]

My Lords, there is a strong danger of shooting the messenger here. One cannot criticise the Minister for bringing forward these orders at this time. They are mandated by the Climate Change Act 2008. Equally, one cannot expect the Government to do other than accept the bulk of the advice from the Committee on Climate Change since, otherwise, what would be the point of having it? However, we should not simply wade through these orders—I certainly do not want to—without registering the increasing concern in this House and outside about people becoming profoundly disillusioned by the whole framework created by the Climate Change Act.

20:00

One can divide the climate change argument into three levels which broadly correspond to the three working groups of the Intergovernmental Panel on Climate Change. First, the science—what is the relationship between manmade emissions of CO₂ and temperature? Secondly, on the impacts, for any given rise in temperature, what is the impact on rainfall, crops, glaciers, and sea levels et cetera? Thirdly, for any given view on temperature and impacts, are we choosing the best combination of policy measures to achieve the desired level of mitigation at least cost?

For many years, perhaps reflecting my Treasury training, I was a level-three critic. I took the science and impacts as given but had serious misgivings about the suite of policy responses: for example, the balance between renewables, especially wind versus nuclear power. These orders are not the place to debate those concerns—that is for another occasion—yet one feature of the policy response is relevant to them. That is the dogged and increasing unilateralism that they embody.

No other country has gone as far in building its climate change ambitions into a legal duty. No other country has set CO₂ reduction targets that far into the future. For the coalition, and I suspect in particular its Liberal wing, this is a source of national pride but for many it is a cause of growing concern. For a country whose emissions account for 2 to 3 per cent of the world total, and falling, this unconditional unilateralism makes no sense. We could face double jeopardy by incurring the costs of a mandatory switch from low-cost to high-cost energy, as the policy requires, and still be left facing a bill for adaptation. There is an attempted justification in terms of green jobs but that argument is largely wishful thinking. You need to take account of the jobs that are lost before you can count any that are built up.

It is particularly worrying that the Secretary of State for Energy and Climate Change is championing the view that the EU should move from its target of a 20 per cent reduction by 2020 to a 30 per cent reduction, as envisaged in the event of an international agreement. However, that is being done at precisely the time when those international negotiations look like crumbling.

The more I studied the matter, the less confident I became in taking levels one and two for granted. At level two, there have been too many examples in the IPCC caucus of work of selective quoting from the so-called grey literature and even some outright errors. We are presented again and again with doomsday scenarios while the offsetting, positive benefits of warming are overlooked. For example, in a world which is warmer, wetter and more CO₂-rich, crops and trees will grow faster. The most disgraceful example of scaremongering was by the previous Government in their notorious bedtime story video, the final scene of which showed the family dog drowning in a flood. That public money was used for such propaganda was a disgrace and I wonder which accounting officer signed that off.

Having lost faith in the impacts story, my agnosticism extended into the science itself. This was triggered, first, by the flaws in governance and impropriety revealed at the climate research unit and the IPCC, and even more so by the failure of the senior figures in the science world to do anything about it. The noble Lord, Lord Reay, referred to the sentence in the order that there is an overwhelming scientific consensus that it—climate change—is being caused by human activity but, as he remarked, there is no such consensus. There is probably agreement that manmade CO₂ is one of the contributory factors. Beyond that, there is huge and often violent disagreement. There is no agreement even on the most fundamental relationship in the whole system, that between CO₂ and temperature—the so-called climate sensitivity.

There is also disagreement about the contribution of all the other factors at work. Everywhere now, you are reading stuff about the sun and what is going on there so, clearly, to focus on manmade CO₂ is only looking at part of the story. In my view, it is folly to believe that by controlling one element in the equation—manmade CO₂—we can stabilise the whole climate. On these uncertain sands, a whole edifice of certainty has been constructed but the outcry in this country is growing—not just from the CBI and the energy-intensive industries but from those such as Age UK, with its concern about fuel poverty, and from those who are concerned about the waste of public money on ill-conceived subsidies, most of which are captured by the better off.

I predict that before too long, possibly when the Secretary of State for Energy and Climate Change is reshuffled, more sensible minds will start looking at the whole climate change framework of which these orders are a part. The noble Baroness, Lady Rendell, wrote a book called A Fatal Inversion. I believe that an inversion is taking place which could be fatal for the reputation of some people in this debate. Those who criticised the AGW consensus were portrayed as the zealots and the cranks. That is now being turned on its head and those who question the consensus are increasingly being seen as the rational moderates. It is the defenders of the consensus who are dogmatically driving the UK into ever more unilateralist positions.

[The Duke of Montrose]

My Lords, I am very interested to follow the noble Lord, Lord Turnbull. He talked about agnosticism and it seems that we are in the area of faith. The Americans believe “In God we trust”, as they say on their dollar, while here we are saying, “In certain elements of science, we either trust or we do not trust”.

I am grateful for the explanations offered in the notes and I was interested to see the estimate given of the cost that might be incurred by this fourth budget. It is stated as a least-cost path of £1.9 billion with a top figure of £7 billion, if we attempt to reach it purely through cutting emissions within the UK. I do not know whether this is of any comfort to the noble Baroness, Lady Worthington, but the 55 million tonnes that are mentioned in the Explanatory Note on the credit limit order—in a sort of back-of-the-envelope calculation, as far as I can see—are about 5 per cent of the total non-EU carbon credits that will be required. That is a pretty marginal effort.

However, that raises a question about the statement in the Explanatory Memorandum, which states that we are,

“currently working with EU partners to try to secure an EU 2020 reduction target of 30%”.

The noble Lord, Lord Turnbull, brought that up. I would be interested to know whether my noble friend the Minister could tell the House what stage that has reached. I hope he might accept that the marginal abatement cost goes up with each increase in the reduction target. Are there any figures of what they estimate this beefed-up target might incur? There is a question as to whether this credit limit on non-EU certified emission reductions includes any allowance to accommodate the revision in the EU target. As we said before, it is such a small element of the thing overall but it might have to be part of the review that has been mentioned.

[Lord Prescott]

My Lords, I shall make a brief intervention in view of the time. The noble Lord, Lord Turnbull, was in fact my Permanent Secretary at one stage and was the Cabinet Secretary when we established the lead on Kyoto and a legal framework. Clearly, he has done some rethinking on this matter since he joined this House and I look forward to further debates. Let us be clear, however: the previous Government established a lead, and we were proud of it. To be honest, this Government are continuing it. My main worry is: what if you do not achieve the legal framework that you are after? There is not a chance in hell of getting a legal framework. I am one of those who have advocated it, but China will not have it and the Americans cannot deliver it. Quite honestly, you might think that the Europeans are going to go to 30 per cent from 20, but I predict that is highly unlikely.

What worries me about that is that it will feed all the pessimism of people who feel that this will be a failure and run costly to our industry, but we must maintain the momentum of the Kyoto principles. That is important, but we should recall that 2012 is the end of the Kyoto period. Is it going to continue with a legal framework? No, it cannot do that by 2012, or you will find that the Kyoto framework will fall—as the Americans would want—and there would be renegotiation. I hope that the Minister has a plan B here. If we are having plan As and plan Bs, one of them should be to recognise that we will not get a legal framework by 2012, yet the Kyoto principles should not fall.

There will be great division between the developed and the developing countries. It is already on the cards that way so if that is not going to be achieved, what will happen then in Europe? Many of those in the central European belt and coal areas will say that they are not going to go to 30 per cent. There is a great possibility that we will not now be able to deliver on the Europe promise, which with courage the Government have said they will do. They are now going for an 80 per cent project, which has little chance, frankly, of being achieved, but then most of us will not be around by then to say whether we were right or wrong. There is a certain amount of posturing going on around this, which can undermine the momentum we have with the Kyoto principles.

I think I said this when there were Questions in the House: I fear we will then step back and say that we were the ones who led the way, but if we cannot get the others to follow, then blame them not us. There should be a plan B. We should already be thinking about how we carry on beyond that period. It is not unusual for Europe to stop the clock: it did it all through negotiations and continues to do it. It sets a timetable. Let me suggest that in plan B we go beyond 2012, perhaps to 2015. The voluntary framework agreed in Cancun and now being discussed in Durban is difficult enough to implement in all its many manifestations and we have to make sure that we have another plan in mind or it will collapse.

My fear is that we will get up and say that we were the ones who were leading, but we have got no army and nobody is following us. Then everybody will say that Kyoto 2 has failed; that you cannot get an agreement and that will damage the momentum to deal with the problem of climate change. In conclusion, I ask the Minister whether we have got a plan B. The Minister has already said that if we do not get Europe with us on 30 per cent we will reconsider the position. Is that right? We could still continue the legislative framework, if that is what we choose, while most of the world stays on a voluntary one. Have we alternatives so that we do not damage the possibility of a Kyoto 2?

[Lord Grantchester]

I thank the Minister for his introduction today to these two orders. It builds on the fourth carbon budget statement on 17 May. It is important that the objective to reduce emissions of greenhouse gases by 80 per cent of 1990 levels by 2050 has been enshrined in legislation. It underlines the commitment shared across the political divide—excepting the noble Lord, Lord Reay, and others I admit—over the long-term approach required to combat the effects of climate change. It sends a clear signal to the international community that the UK is committed to the low-carbon economy.

The noble Lord, Lord Teverson, has put forward a strong case that climate change is happening and I know many are frustrated at the low level of action by other governments. It is important that we also recognise the work of the Committee on Climate Change, that it is a crucial part of the assessment of the latest climate science, the evolving international framework and the critical pathways required. I pay tribute to it for its expert advice to Government.

That is not to say that these orders are not controversial. Indeed, the Minister may recognise that the importance of the imperative to make early progress across Government required the intervention of the Prime Minister. It has also not gone unnoticed that for the first time the CCC’s recommendations have not been accepted in full. While it is recognised that the first three carbon budgets were set after the EU had already agreed the 2020 target, the fourth carbon budget is being set in advance of any EU decisions and without any overarching EU framework being in place. In the light of this, will the Minister outline the reasons behind the justification to reject the tightening of emission targets in the second and third carbon budgets covering the years 2013 to 2022?

I enjoyed and look forward to the contributions in your Lordships’ House from my noble friend Lady Worthington. She brings great knowledge on these issues. She has asked the Minister about the size of the carbon offsets under the second order that were are debating today and the signal it may give. While it is understood that the Minister would like to have these credits as a fallback position, is he able to say why he fears these may be necessary, bearing in mind that the CCC recommended that they should not be relied upon and the budget should be met through reduced emissions?

20:15

Under the Climate Change Act, emission reductions by the UK’s industrial and power sectors are determined by the UK’s share of the emissions trading system cap. This system has been the subject of attack and fraud and has been suspended at unfortunate regularity. Bearing in mind the reliance that the Government are now putting on it, is the Minister confident that its operation will be secure and that it will be fit for purpose?

What bearing will this have on the review he is reserving for Government in 2014? Should domestic commitments place the UK on a different emissions trajectory than that agreed by the EU? What level of divergence will lead to the Government revising their aims and what are the implications this may bring to policy commitments? The Government’s clear prior view in the criteria for this review will be needed to ease uncertainty in industry and non-governmental organisations. Could the role and scope of the 2014 review be clarified in the policy decisions that the Government will announce following this Motion today, due to be brought forward in October?

The Minister will not need to be reminded again how important it is for the market that there is certainty and consistency of measures if industry is to have the confidence to invest. There are two aspects to this. First, there is the necessity to encourage the renewables sector through the system of ROCs, RHI and feed-in tariffs to provide the long-term development of technologies. Does the Minister recognise the damage that has been done to this sector’s confidence following the announcement of the review of that regime?

Furthermore, the Government have cut funding in green R&D, including funding of the Carbon Trust research into biofuels and funding for marine technology development. Secondly, in the interests of energy-intensive users, will the Minister give assurances that he will work with them exhaustively to ensure that UK jobs are protected and that continuous efforts towards energy efficiency and demand management in these industries are fully acknowledged? It is apparent that mechanisms to mitigate effects in this sector were not properly considered by the department before the carbon floor price was set in the recent budget.

It is important to get the balance right, the speed of change right, ensuring the UK maintains an industrial sector, greening that through new technologies and creating new green growth into the future. Consistency of policies and their implementation is vital to create the confidence required for the long-term investment needed—some £16 billion annually throughout the 2020s—that the UK is open for business.

With regard to setting the carbon floor price in the budget, and recognising that the budget is an annual event, will the Minister confirm whether this will be subject to annual review and restatement or the price announced will be adhered to?

In a Statement in May, the Minister said that the,

“fourth carbon budget will result in no additional costs to the consumer during this Parliament”.—[Official Report, 17/5/11; cols. 1289-90.]

Is the Minister confident of this? I understand that Ofgem predicts a possible doubling of energy bills to £2,000 per household. It is understood that, with an expert body such as the CCC, the department does not need to consult consumers on today’s Motion. However, is the Minister satisfied that the voice of the consumer is adequately heard in the CCC? Would he welcome some strengthening of that voice, especially through consumers’ local representatives in local government? I say this fully appreciating that it will be some time before the Green Deal brings benefits to the housing sector and that the issue of local carbon budgets has yet to be resolved.

There is much that we can debate and there are many issues behind the setting of a fourth carbon budget. The noble Lord, Lord Teverson, has spoken about the importance of demand reduction. While the budget sets the objectives to be attained on the way to the ultimate goal of reducing CO₂ emissions, the policies that will underpin attainment of these goals have still to be clarified and their detail examined. We shall look forward to the announcements in October and meanwhile support these orders tonight.

[Lord Marland]

My Lords, I offer my appreciation for the contributions of those who have spoken on these orders, even though I do not necessarily agree with all of them. At one point my noble friend Lord Reay was a soothsayer but at another point a prophet of doom. He was very emphatic that there is no global warming, that the Green Deal is unattractive to the consumer and that the CCS is a rash punt. We shall see what happens. I do not agree with him and I am very happy that in the cities I have visited recently there is serious intent to take up the Green Deal. It will be of great value. I do not agree that it is unattractive to the consumer.

I pick up on a very good point made by the noble Lord, Lord Teverson. He always makes good points on these matters, although I was disappointed that he did not agree with everything I said, which does not go down too well. He said that it is all about demand management. The Green Deal will produce more effective demand management and will, we hope, be a way of reducing the amount of energy we use.

I congratulate the noble Baroness, Lady Worthington, on her first contribution on this subject. I am extremely wary of engaging with someone of such great knowledge but I welcome her to the debate. She made the point that we are the world leaders in this legislation due to her efforts and those of the noble Lord, Lord Prescott. I was about to call him my noble friend, given some of the nice things that he said. The noble Baroness made the point that at times we have ignored the advice of the Committee on Climate Change. Believe it or not, the Government do not always do what everyone tells them. We get advice and then determine whether it is applicable to the world that we live in. We must be seen as a pragmatic Government, and pragmatic is what we fully intend to be. That does not mean that we will not show leadership on this subject. Putting down the marker of a 30 per cent reduction in carbon to Europe shows genuine leadership and that we are moving forward while other countries in Europe are moving backwards. However, as the noble Lord, Lord Turnbull, said, we cannot walk out of tune with Europe. We have to exist within Europe and we are bound by European legislation, as the noble Lord, Lord Prescott, knows because he was very much part of it at the time.

We are on target for our credits. Having those credits is only a contingency. The noble Duke, the Duke of Montrose, was close; it is a 3 per cent, rather than a 5 per cent, contingency. There are great brains behind me, calculating every word I say. It is only a 3 per cent contingency, so it is not very large. We are committed to reviewing it in 2014. It is right that we should review these things. It is not right for us to commit this country to long-term things when we live in a fast-changing world.

The noble Lord, Lord Turnbull, was, I suggest, slightly sceptical about what we are embarking on. He looks at these things wearing a Treasury hat. My goodness, in government we quake at the thought of the Treasury hat. It is based on pragmatic and often cynical views on some of our inspirational plans. However, we recognise that the noble Lord comes from a pragmatic position and welcome his views. However, he would not deny that in government one has to show leadership. That is the way the previous Government and the current Government have determined the course and we intend to show leadership. I would take issue with him on the subject of green jobs or investment. We have to invest, as the noble Lord, Lord Teverson said, £10 billion in the infrastructure of this economy—not just low-carbon economy, but the economy. With investment—and even the Treasury and great officials from the Treasury would admit this—generally comes jobs.

I was surprised that the noble Lord, Lord Prescott, who has more experience in this field than I have in my little finger, asked about consideration. As he well knows, the Climate Change Act allows us to reconsider our position. It was actually set in stone by the previous Government. We are saying only what was laid down in the Act—that we do intend to reconsider our position.

The noble Lord, Lord Grantchester, quite rightly invited us to comment on whether the EU ETS trading platform is fit for purpose. We know that in certain parts of Europe the platforms were not right. We have shown leadership in this area because we have a robust platform—that does not mean we are being complacent—which must be tightened up but can show leadership to Europe of how this platform should operate. The noble Lord asked me a number of questions about ROCs and other things which, with all due respect, I will not debate now because I do not think them relevant to these orders. I also know that noble Lords are looking forward to a drink and something to eat so we will get on. However, the fundamental point he makes and wants me to answer is on the energy-intensive industries. We cannot just ignore them. As he rightly says, we have to work in co-operation with them and show them the pathway to improving their business. However, in the mean time, we must not destroy them because we are looking at very substantial employers who, for many years, have been the backbone of the country. We need to work with them. We must also recognise the role of the consumer and that everything we do is for the consumer’s benefit. With that, my Lords, I commend these orders to the House.

[Lord Moynihan]

Before the Minister sits down, I wish to pursue the point made by the noble Lord, Lord Prescott, in recognition of the Climate Change Act. In the Explanatory Memorandum, it states that Government must, in making decisions on carbon budgets, take into account the estimated reportable emissions from international aviation and shipping emissions. It further states that international aviation and shipping are not currently included in the scope of carbon budgets but they may be included in the future. I wonder whether my noble friend the Minister could give the House his wisdom and say when the Government intend that to happen, if at all.

[Lord Marland]

I have just been told by my noble friend that if I pan this answer out for another two minutes, we will not have to adjourn during pleasure for another two minutes. I will try my best but the noble Lord has asked such a very straightforward question. The straight answer is 2012. I am sorry but I cannot carry this answer forward.

[Lord Turnbull]

Perhaps I may help out the noble Lord by responding to a comment from the noble Lord, Lord Prescott, my Secretary of State for a year in 1998. It was a wonderful experience working for him. He asked “What has changed?”. I think it was Keynes who said, “When the facts change, I change my mind. What do you do?” The temperature in 1998 was probably the peak. Since then, contrary to what the noble Lord, Lord Teverson, said, there has been no rise in the temperature. If you go into the HadCRUT 3 series and go into that little bit called global, you will get the deviation from the baseline month by month, and the yearly average. In fact, 2011 was probably, in the 13 years since 1998, the second or third coldest and the first four months have been just as cold. That is the principal evidence that has caused me to change my mind.

[Lord Marland]

It is wonderful to hear such harmony and I am very grateful for this scientific question. I think we are now down to half a minute. What was the question that the noble Lord, Lord Moynihan, asked?

[Lord Moynihan]

My noble friend the Minister gave an extraordinarily perceptive and astute answer to my question. In the context of that answer, it is important that it enables the Minister to state clearly whether that decision will enable us to be consistent with a pathway to the 2050 target set out in the Act.

[Lord Marland]

The short answer is that we will be reviewing this in 2012. I want to thank noble Lords for this very entertaining and engaging debate. It has been a real pleasure and privilege being present tonight. Shall we go to the other place?

Motion agreed.