Baroness Neville-Rolfe
That the draft Order laid before the House on 30 June be approved.
Relevant document: 5th Report from the Secondary Legislation Scrutiny Committee
The Minister of State, Department for Business, Energy and Industrial Strategy (Baroness Neville-Rolfe) (Con)
My Lords, I am very pleased to address the House as the new Minister for Energy and to open the debate on the Carbon Budget Order 2016. This order fulfils the requirement under the Climate Change Act 2008 for the Government to set five-year carbon budgets on the path to our 2050 target of an 80% reduction in emissions. It sets the level for the fifth carbon budget, covering the period 2028 to 2032. The order is now overdue, after being held up by the extraordinary events of the last few weeks, and I hope noble Lords will be happy to approve it.
As noble Lords know, I am brand new to this area and have not had a chance to look at, let alone review, the policy. However, it is well established and very important, and passed with considerable cross-party support—although that is not of course a reason not to reflect in a practical way on how we can do better, looking at the underlying facts, the economics, issues of security and resilience, and our international commitments on climate change. There is also an interaction between security of supply, price and industrial competitiveness—a key objective of our new Department for Business, Energy and Industrial Strategy.
Before discussing the order, I will reflect briefly on the UK’s Climate Change Act and what it means at the current time. Leaving the EU will bring challenges and opportunities to the UK. However, it does not change the fact that climate change remains one of the most serious long-term risks to our stability. The main direct threat to the UK relates to an increased risk of flooding, and the floods we saw in parts of the north of England last year, which were tragic for those affected, could become more common.
The Act was passed with near-unanimous cross-party support, and this legal framework has inspired countries across the world, including Denmark, Finland and France. At its heart is a system of five-year cycles, mirrored in the historic Paris climate agreement, which the UK helped to achieve. The certainty given by the Act underpins the investment we have seen in the low-carbon economy since 2010. This is an industry of course with extraordinarily long timeframes. The Government remain committed to the Climate Change Act and to meeting its targets for an 80% reduction in greenhouse gas emissions from 1990 levels, and to meeting the subsequent five-year carbon budgets that have been set under the Act.
We are equally clear about the need to keep our energy supply secure and bills as low as possible. The capacity market helps to ensure that we have secure electricity supplies, by bringing forward new investments, including in gas generation. We are laying the ground for new nuclear to play an important role in ensuring our future electricity supplies. The Government have also taken difficult decisions to ensure that costs remain under control and on policies that were not fit for purpose.
I turn to the Carbon Budget Order 2016, which will set the level for the fifth carbon budget at an equivalent 57% emission reduction on 1990 levels. This budget level is in line with the recommendations of our independent advisers, the Committee on Climate Change, and reflects the views of the devolved Administrations. The Government have considered a wide range of factors in proposing this level. We are proposing a carbon budget which balances how to keep on track towards our 2050 goal while cutting emissions at the lowest possible cost. Both the Committee on Climate Change and the Government have agreed that this budget level will put us on a path to our legally binding 2050 target.
The Confederation of British Industry, the Engineering Employers Federation and the Aldersgate Group have all welcomed the certainty that this budget level gives as we move to a lower-carbon economy. Noble Lords opposite will be pleased that the shadow Secretary of State for Energy and Climate Change, Mr Barry Gardiner, the cross-party Energy and Climate Change Committee and the Scottish Nationalist Party have shown their support.
The Paris agreement sent a strong signal to business and investors that the world is committed to long-term decarbonisation. The carbon budget for 2028-32 will ensure that the UK economy is best placed to realise the opportunities that this transition presents. What is important is not just the target but an acceptance that we mean to meet it. Our emission reductions to date give us confidence. The UK met the first carbon budget and is on track to meet the second and third. Provisional figures show that UK emissions in 2015 could be 38% lower than in 1990 and more than 3% below those in 2014. The past two years have seen the greatest annual emission reductions against a backdrop of a growing economy.
The Government have already begun to engage proactively with businesses, consumers and civil society on the development of our policies and proposals, and will continue to do so in the coming months. As noble Lords may know, the Climate Change Act requires the Government to set out our policies and proposals as soon as reasonably practicable after setting a budget level. It is too early to give specifics. However, our new emissions reduction plan will map the transition over the period of the fourth and fifth carbon budgets—from 2022 to 2032.
I move on to the second order, which concerns the third carbon budget credit limit. Although we believe that the Government’s current policies ensure that we are on track for the third carbon budget, it is prudent to allow ourselves flexibility to manage the uncertainty in our emissions projections. This is why the order sets the credit limit for the third carbon budget at 55 million tonnes of carbon dioxide equivalent. That is about 2% of the third carbon budget. It is the same amount of flexibility as was agreed for the second carbon budget credit limit.
I know that we are not in quite the same place as the Committee on Climate Change—it is good to see my noble friend Lord Deben, who chairs the committee, in his seat. It recommended a zero credit limit. However, the Government have concluded that it is best to maintain a small amount of flexibility over the third carbon budget period—of course, we may not need it.
In conclusion, the proposed fifth carbon budget is in line with our independent advice, it demonstrates the UK’s leadership on climate change and it has support across the political spectrum and the business community. It will provide the certainty needed for future investment in a stronger, lower-carbon economy as part of our industrial strategy. The proposed credit limit in the second order ensures a pragmatic level of flexibility should it be required, given the inherent uncertainty in our emissions projections. I beg to move.
Baroness Featherstone (LD)
My Lords, first, I take this opportunity to welcome the noble Baroness to her new role. It is a big portfolio to learn in a couple of days.
I am pleased and relieved that Her Majesty’s Government have accepted the recommendation of the Committee on Climate Change for the 57% reduction in greenhouse gases by 2030 for the fifth carbon budget, relative to 1990 levels. Since I arrived in your Lordships’ House only at the end of last November, more often than not I have had to criticise and berate the Government for their lack of commitment to tackling climate change and their relentless litany of anti-green actions, from sudden removal of subsidy to renewables industries to the privatisation of the Green Bank, and much between. Therefore, I am encouraged that this commitment will send a message out loud and clear to the world that we remain a country committed to tackling climate change and determined to reduce our emissions right across our energy industry, from power, from buildings, from transport and of course by reducing demand.
It is especially important because, at this moment of uncertainty for the future of the UK in its journey out of the European Union, despite the reassurances we have received from the Dispatch Box both here and in another place that we will both stick to our legally binding EU targets and ratify our signature to the Paris agreement, more is needed. It was a dreadful blow to hear that the Department for Energy and Climate Change is to be no longer. It has gone—collapsed into the Department for Business, Energy and Industrial Strategy. Climate change is no longer named. I fear that that sends out the exact opposite signal: that tackling climate change has been demoted and de-prioritised.
No doubt the noble Baroness will say that that is not at all the case, but I may not believe her. Actions always speak louder than words, and the actions of the Government today and since the end of the coalition have all been in the wrong direction. So I look to the noble Baroness to assure me that climate change will get the attention it needs, particularly given that the National Grid has said that the UK is almost certain to miss our EU 2020 targets for renewables. Will she commit to ratifying the Paris agreement immediately, to send a clear message that climate change will be given priority?
It would also be extremely helpful if the noble Baroness could persuade our new Secretary of State, Greg Clark, urgently to set down in writing his commitment to the future of this planet. With this loud and proud announcement of the fifth carbon budget, we could be in a position to zoom ahead, become world leaders in decarbonisation and tackling climate change and nurture a green economic boom with the innovation we are seeing in low-carbon technologies. I would love to think that that will be the case, but I fear not.
Even on the fifth carbon budget itself and the other order there is a “but”. We on this side of the House are very concerned that Her Majesty’s Government have extended the third carbon budget by 10% when the net account was already 10% below where it needed to be to meet the third carbon budget in 2014. The offset provision should be used only in an emergency and as a last resort against highly unusual and unforeseen circumstances.
To meet the reductions set out in the fifth carbon budget, we urge the Government to prioritise domestic action. Our menu for the Government would be to: support and encourage the renewables industry; quicken and intensify energy efficiency measures; introduce urgently a zero-carbon homes standard—something which we Liberal Democrats championed while in coalition and during the passage of the Housing and Planning Bill, which the new Secretary of State for Energy sadly did not support in his previous role in the Department for Communities and Local Government—support technological innovation; get on with tidal lagoons and give the go-ahead to Swansea Bay. Proof and pudding need to be the order of the day, so I look forward to seeing the plan that the UK Government have committed to set out on how it will meet the fourth and fifth carbon budgets by the end of 2016.
Baroness Neville-Rolfe
I thank noble Lords for their contributions to this my first debate on what is indeed a very complicated subject. Perhaps we could have done with more time to address some of the issues, but I shall try to answer where I can on this my first day.
I start by thanking the noble Baroness, Lady Featherstone, my noble friend Lord Ridley, the noble Lord, Lord Teverson, my noble friend Lord Lawson, my neighbour the right reverend Prelate the Bishop of Salisbury, the noble Baroness, Lady Worthington, my noble friend Lord Howell of Guildford and the noble Lord, Lord Grantchester, because they were united in their kindness to me, even though there is clearly a lively difference on this important area of policy, which I look forward to discussing on a number of occasions. This is actually my first day because, some noble Lords may be glad to know, I was in Slovakia at the Competitiveness Council until last night, engaging, as we should, with the EU while we remain.
Climate change has not been downgraded as a threat; it remains one of the most serious long-term risks. The title of a department matters far less than its DNA and what it does, as I explained this afternoon to the assembled former DECC staff in the building in Whitehall Place—where I originally started my Civil Service career. Energy and climate change will be at the heart of the new department. For example, I can confirm that this Government remain committed to ratifying the Paris agreement, which was agreed last year by 195 countries, as soon as possible. Our policy will also look at affordable and reliable energy, and generally join things up in the way that I described in my opening remarks.
At the heart of our commitment is the Climate Change Act. While the vote to leave the European Union is hugely significant, the Government will continue to play their part in tackling the energy and environmental challenges our country faces. My noble friend Lord Ridley—well-known for his views in this area and, as always, the source of some very telling questions—suggested that the referendum result might invalidate the budget, as there was no mention of Brexit. I remind my noble friend that carbon budgets are UK-specific targets, based on UK legislation. The referendum result does not change the validity of the budgets or, by extension, the impact assessment.
I hear what has been said about the impact assessments, which, as some noble Lords will know, is an area I always take a great interest in in any of my policy areas. I look forward to discussing them with our economists—including the points about price assumptions and the points made by my noble friend Lord Howell of Guildford—to learn from this exchange.
In other areas, we will also engage in the opportunities and challenges of the seismic change that Brexit represents. I am always keen to emphasise the opportunities, being a glass-half-full person.
The noble Lord, Lord Grantchester, asked about the delay in the laying of this order. I am sorry we missed the due date. There were some rather disruptive events in the last few weeks, but I understand there is no question of the legality of the order being put into doubt by the process.
The proposed fifth carbon budget is in line with the advice of the independent Committee on Climate Change and has been widely welcomed by the business community. I am from business, as the right reverend Prelate the Bishop of Salisbury reminded us. Indeed, I used to run a carbon reduction programme across the world when I was at the Tesco supermarket chain. It actually saved us money. I also know from being in business that we need a certain amount of consistency and ambition on climate change if we are to support investment. The carbon budgets provide this.
My noble friend Lord Ridley said that UK action went further and was faster than in the EU. The UK’s domestic target is to reduce emissions by 80% on the 1990 level by 2050. The EU has a comparable target of 80% to 95% by 2050. As I understand it, other countries are taking comparable action.
Businesses have of course been calling for consistent ambition on climate change, which is what the proposed fifth carbon budget, far ahead though it is, now achieves. The Government have listened to the concerns of energy-intensive industries, such as steel, and are providing relief to mitigate policy costs on their electricity bills.
The noble Lord, Lord Teverson, said that carbon budgets account for only 50% of emissions. He is right that the budgets do not bite on the power sector, but the EU ETS does. So does the overall 2050 target. There are, of course, pros and cons to different accounting methods. We will keep this under review—a point raised by others. Our commitment to decarbonisation is clear. We have also set out funding to be provided through future auctions in this Parliament to support up to 4 gigawatts of new offshore wind and other renewable technologies.
The right reverend Prelate asked about shipping and aviation. There is currently no internationally agreed solution to allocating emissions to specific countries in shipping. How do you deal with a British ship going from Rio to Naples? We are working, through the International Maritime Organization, to provide a way forward. We believe that unilateral action could undermine our ability to get the right agreement. The Committee on Climate Change did not recommend that we include aviation emissions in our budget at this stage, but that is not to say that we will not do so in due course when the International Civil Aviation Organization has agreed how they should be accounted for. So I can see some very interesting accounting issues in my new job.
What else are we doing to head off an energy gap and decarbonise? First, we are making real progress to deliver new nuclear power in the UK for the first time in two decades. As the noble Baroness, Lady Worthington, mentioned, with her great knowledge of the area, we have announced record investments in new heat networks in our towns and cities to enable lower-carbon ways of heating our homes and businesses while keeping energy bills low, and we have committed over £600 million up to 2020 to support early market uptake of ultra-low and zero-emission vehicles in the UK.
Electric cars are, in my view, a vital aspect of our future industrial strategy, drawing on our strength in the British car industry and on digital, which is a well-known passion of mine.
I was interested in the various ideas set out by the noble Baroness, Lady Featherstone, and others, which are all food for thought. I particularly appreciate the point made by my noble friend Lord Howell of Guildford about the impact of engaging with major emitters overseas. I very much agree with that. I have spent a lot of time thinking about international matters, and I think this is very important.
Emissions are coming down. Provisional statistics indicate that UK emissions in 2015 were 38% lower than in 1990 and more than 3% below those in 2014. This was one of the greatest annual emissions reductions against a backdrop of a growing economy.
To respond to the noble Baroness, Lady Worthington, we continue to make good progress, but we recognise that the 2020 target is challenging. However, the Government have achieved the interim renewable energy target for the last two years. Our new plan will be informed by analysis and economics to ensure that we are on our way to meeting our 2050 target while keeping costs low for consumers and businesses, a point of concern also to my noble friend Lord Ridley.
We have been working with other government departments to identify potential policy proposals from across homes, businesses, transport, land use, waste, agriculture and industry, all mentioned by the right reverend Prelate the Bishop of Salisbury. As I have already said, the machinery of government changes give us a new opportunity to be joined up. To respond to the noble Lord, Lord Grantchester, Defra is, indeed, an important participant on climate change and industrial policy, and I will certainly be engaging with it.
With regard to the third carbon budget, the Government’s projections suggest that we are on track to meet our target. It is prudent to retain the flexibility of a 2% credit limit to account for uncertainty. I am glad that the noble Lord, Lord Teverson, does not feel that that is a fundamental point.
In conclusion, these orders have been welcomed on both sides of the House. There are always differences but I believe that they provide the right level of certainty for the future while allowing the flexibility to manage any uncertainties that we may face.