Draft Greenhouse Gas Emissions Trading Scheme Order 2020

(Limited Text - Ministerial Extracts only)

Tuesday 8th September 2020 General Committees

[The Minister for Business, Energy and Clean Growth (Kwasi Kwarteng)]

I beg to move,

That the Committee has considered the draft Greenhouse Gas Emissions Trading Scheme Order 2020.

It is a real pleasure to open this short debate, I hope, with you in the Chair, Mr Paisley. The Order in Council, which was laid before the House on 13 July 2020 in draft under the Climate Change Act 2008, establishes a UK-wide greenhouse gas emissions trading system—a UK ETS—as a policy replacement for our participation in the EU emissions trading system. The UK will cease to participate in the EU ETS at the end of the transition period at the end of the year as a consequence, obviously, of our withdrawal from the EU.

This stand-alone UK ETS, as some people refer to it, has been agreed by the four Governments of the UK nations, and those positions are set out in the Government’s response to the future of carbon pricing consultation, published on 1 June this year. Further secondary legislation will be introduced later this year that will introduce additional elements to the UK ETS. We have drawn on the best of the current system, which the UK, as everyone knows, was instrumental in developing, and we have made a number of improvements where possible to ensure greater flexibility to work in the interests of the UK and the global fight against climate change.

Given the importance of our net zero commitments, we will consult next year on what an appropriate development for the UK ETS cap is for the remainder of the first phase, once the Committee on Climate Change’s advice on the sixth carbon budget is published. We expect that to be published later this year. Reducing emissions while supporting UK business is central to my Department’s mission. We think that this is exactly the right way to go, and we always like to remind people that over the past 30 years our emissions have gone down by 45% while the UK economy has grown by 75%. It is absolutely the case that reducing carbon emissions is not really the enemy of economic development but can work very well with it.

The draft Order in Council establishes a UK ETS, as I have said, that will be operational from 1 January 2021. It establishes the scope of the UK ETS, which includes energy-intensive industries, the electricity generation sector and aviation, and it establishes a cap on allowances created under the UK ETS each year. That is a crucial point. The initial level of the cap will be 5% below what would have been the case had we stayed in the EU ETS. That means that the standard that we are establishing is more stringent in terms of carbon emissions than would have been the case had we stayed in the EU ETS.

The Order in Council also establishes a scheme for monitoring, reporting and verification requirements. The UK ETS clearly offers participants a robust and proportionate enforcement system, and it will establish and define the roles of national regulators in monitoring and enforcing the scheme. Finally, the order will establish a post-transition period carbon pricing policy for the UK. We want to encourage the best means of reducing carbon emissions and we feel that that is obviously central to the net zero target that we enshrined in law last year. On that basis, I commend the order to the Committee.

--- Later in debate ---

[Kwasi Kwarteng]

In response to the hon. Gentleman’s questions, he will know that in the past the Government consistently said that our primary objective was to get a UK ETS linked, as he described, with the EU ETS. However, he also knows, as he mentioned, that that is a subject of ongoing negotiation and discussion between our negotiators and the EU. Should there fail to be an agreement, this is our fall-back position.

In terms of a carbon tax and a UK ETS stand-alone scheme, we are talking to the devolved Governments all the time and it would be premature for me to say here what the outcome of those discussions will be. The hon. Gentleman is aware that the Treasury is also involved in the discussions. I can shed no further light on that.

With respect to the hon. Gentleman’s technical questions, yes, he can say that the proposed target, even though it is 5% more stringent than if we had stayed in the EU ETS, is not going far enough, but we have said specifically that once the cap is established we will consult on tightening it. We have also said, very specifically, that we will wait for what the Committee on Climate Change says about the sixth carbon budget. When that happens, we can have a further discussion and look at the cap again. As I have said, this is bridging legislation, trying to smooth our ETS and carbon emissions policy as we exit the EU. Clearly, once we have more information, particularly from the CCC about the sixth carbon budget, we can look at the cap again and, I am sure, make it even more stringent.

Alongside the UK ETS, the Government have a range of ambitious policies that will help industry reduce costs and decarbonise. Of course, in the midst of the covid-19 crisis, we are very focused, as many hon. Members know, on the green recovery. These schemes, along with this Order in Council, will maintain that we have an effective carbon pricing policy. With the EU ETS having covered about a third of UK emissions between 2013 and 2020, carbon pricing is, as the hon. Gentleman suggested a key tool. It is not the only way in which we will deal with carbon emissions, but it is a key tool in the fight against climate change. I commend the order to the Committee.

Question put and agreed to.