Carbon Budget Order 2026

Lord Whitehead Excerpts

Tuesday 23rd June 2026 Lords Chamber

Moved by

[Lord Whitehead]

That the draft Order laid before the House on 2 June be approved.

Relevant document: 5th Report from the Secondary Legislation Scrutiny Committee (special attention drawn to the instrument)

[The Minister of State, Department for Energy Security and Net Zero (Lord Whitehead) (Lab)]

My Lords, I thank the committee for its consideration. The draft Carbon Budget Order 2026 was laid before the House on 2 June and the draft Climate Change Act 2008 (Credit Limit) Order 2026 on 14 April.

Given that we are sitting here this evening on the second of the four hottest days there ever have been in June, after a similar number of hottest ever days in May, we may think that the question of whether we should debate doing anything about climate change answers itself. We have a far more scientific way to act on climate change at the moment, as this Carbon Budget Order sets a science-led budget to reduce emissions by about 87% for the period 2038 to 2042 compared to 1990 levels. This is in line with the level recommended by the independent Climate Change Committee and endorsed by the Environmental Audit Committee.

The detailed impact assessment published alongside the Carbon Budget Order provides a rigorous assessment of options, all showing significant benefits of continuing towards net zero over abandoning it. The proposed seventh carbon budget sets a pragmatic and achievable path that will enable the UK to continue seizing the benefits of clean energy and climate action, including energy security, lower bills, good jobs and growth, and health and nature benefits. This is also consistent with the action needed globally to meet the goals of the Paris Agreement, building on the UK’s 1.5 degree-aligned nationally determined contribution for 2035. We can fight for our national interest only by pushing for global action built on the power of our domestic example.

A delivery plan setting out how carbon budget seven will be met will be published as soon as reasonably practical after Parliament has approved the budget. I emphasise that what we are debating today is the level at which carbon budget seven should be set. We are not debating—or should not be debating—the policies that will be set by the Government in response, to make sure they can meet that level. Those policies, as I have emphasised, will be published shortly but are not really a question for debate in detail today.

Under the Climate Change Act, the Secretary of State is required to set a limit on the number of international credits that can be used towards a carbon budget at least 18 months before the budget period starts. That is very relevant to the second SI we are discussing tonight, concerning the credit limit order. This order sets a zero credit limit for the carbon budget five period of 2028 to 2032. It does not represent a change in policy but reflects the fact that carbon budget five can be met through domestic action. All other carbon budgets to date have been delivered solely through domestic action. The order takes into account the advice of the independent Committee on Climate Change that carbon budget five can, and should, be achieved without the use of international credits, and this also ensures that the UK economy will profit from the co-benefits of the transition.

The Secondary Legislation Scrutiny Committee has reported on the Carbon Budget Order, and I am grateful to the committee for its report and the careful consideration of this draft instrument. The committee noted the importance of incentivising the shift to clean electricity. The Government recognise that rebalancing the price ratio between electricity and gas is important to long-term fairness so that electricity prices reflect the falling cost of clean power.

We are taking steps to address this from Budget 2025, removing £150 off energy bills due to the success of the contracts for different scheme in bringing forth new renewable assets at fixed competitive prices, which are beginning to decouple electricity and gas markets. Reformed national pricing enables us to further bear down on network constraint costs and improve system efficiency.

I recognise the non-fatal amendments tabled by the noble Lord, Lord Moynihan, for discussion today and I will address the points he has raised in turn. In relation to the Carbon Budget Order, the noble Lord first suggests that this will increase reliance on intermittent renewables. The Government are, in fact, strengthening energy security by reducing dependency on volatile fossil fuel markets and delivering a diverse, secure and clean energy system. This will be backed by unabated gas only when it is essential, and any residual emissions would be offset by removals.

The noble Lord suggests that the order will cause higher energy prices. The main driver of high energy costs has been global gas prices, which have also pushed up electricity prices. Clean power is what will give us control over prices, with the offshore wind secured in a recent auction being 40% cheaper than building and operating new gas plants.

On causing deindustrialisation, this Government are committed to supporting UK industry to decarbonise, while protecting and creating thousands of jobs across the UK. We are taking ambitious steps to lay the groundwork for further industry investment. Last year, the Government set out their modern industrial strategy, which will drive forward ambition for UK business operating in the clean energy space.

With regard to economic growth, setting carbon budget seven at this level builds on the UK’s pioneering Climate Change Act 2008, providing a framework for combining economic growth and climate action. I have a fairly simple and straightforward comparison. The UK has cut its emissions by 54% since 1990, while growing the economy by over 85%. In other words, emissions reduction and growing the economy have been fully and effectively decoupled over that period. Indeed, since July 2024, the UK has seen over £100 billion of private clean energy investment announced and the Government’s clean energy plans are expected to support 400,000 extra jobs by 2030.

With regard to claims that retaining the carbon tax negatively impacts households and industry, the biggest threat to energy security is the UK’s dependency on volatile fossil fuel markets, not the carbon price applied under the emissions trading scheme. The UK has had an emissions trading scheme in place for over 20 years. It provides stability to UK businesses and industries, supporting them to take long-term investment and planning decisions, while “free allowances” protect sectors at risk of carbon leakage, ensuring we decarbonise over time without undermining UK competitiveness, and limits many sectors’ exposure to the carbon price. It has already played a key role in ending the burning of coal for electricity, setting us on our way to being a clean energy superpower.

On behaviour change, the noble Lord suggests that the Carbon Budget Order relates to a reduction in livestock numbers and meat and dairy consumption. This Government have been clear that we will meet our targets in a way that does not tell people how to live and behave. The transition will be led by consumer choice. Accepting the CCC’s recommended target does not mean we replicate its pathway.

I am sure a number of other issues will be raised in the debate, including offshoring UK emissions. Clear actions are being undertaken—CBAM and various other things—to make sure that does not happen and we are taking precautionary action to prevent carbon leakage.

In conclusion, these orders set a clear, credible pathway to net zero and ensure that these emissions reductions are delivered at home. I urge noble Lords to act together in the interest of current and future generations by agreeing these statutory instruments, which will give us energy security, lower bills, good jobs, cleaner air and protect our homes for our children and grandchildren. I beg to move.

--- Later in debate ---

[Lord Whitehead (Lab)]

My Lords, first, let me thank noble Lords for their valuable—that is what it says here in my brief—contributions to this debate. I cannot say that I endorse that entirely. I also cannot quite get my mind around the parallel universe that some noble Lords seem to have been inhabiting while making their points this evening.

On that parallel universe, I draw noble Lords’ attention to a very significant speech that was made today just a few hundred yards from this building. It was given by the Secretary-General of the United Nations, who, as part of London Climate Action Week, made an impassioned speech on climate change, including what we need to do about it, how quickly we need to do something about it, and what we need to do on electrification and low-carbon economies in particular.

I hope that noble Lords will go away and look up that speech, because among other things it completely gives the lie to the idea that no one else in the world is terribly interested in this climate change business, that no one else is doing anything about it, that the activities we are undertaking on climate change are just blowing in the wind, and that we are giving away our industries to other people who will take advantage of them. A number of the industries that they are talking about are sunset industries that are being replaced by low-carbon industries which, if we are not careful, the rest of the world will run away with. They would then overtake the advantages that we have at the moment in green industry, which we are doing very well in. The green economy has grown three times as fast as the general economy in the last few years.

The people who live in this fantasy parallel world appear to be saying that none of that counts. We are making tremendous changes to how energy is distributed in the low-carbon economy. This is a good thing for climate change purposes and will bring people’s bills down in the long term. The energy we will be using will inevitably be cheaper, more affordable, less volatile and more stable than the energy we are using now. It will produce a very large number of jobs: £100 billion in green investment has come into this country over the last two or three years.

However, none of this appears to have any effect whatever on the parallel facts that are put forward. The noble Lord, Lord Frost, appeared to be saying that the rest of the world was moving away from action on climate. I was at an international meeting this morning where people from around the world were standing up and saying what they were doing about this, how committed they are to a low-carbon future and how important it is for their own countries and for the world that we continue down this path.

This climate budget has to be set in the context of the real world of facts and information about where our world is going and what we need to do to make sure that it does not continue in the direction that it appears to be going at the moment, rather than in the context of quite a lot of what we have heard this evening about why all of this is a waste of time. I am afraid that I must single out the noble Lord, Lord Redwood, in this respect. One really cannot make a serious case that, because we cannot completely know the future, we should do nothing whatever about it and just hope that the market somehow sorts it out. We have got to take action.

As the noble Lord, Lord Deben, mentioned, we took action with the Climate Change Act, which was carried by everybody in the Commons except five people. I can name them.

[Lord Lilley (Con)]

Me.

[Lord Whitehead (Lab)]

Indeed, the noble Lord, Lord Lilley, is with us this evening. At least I can say that the noble Lord is consistent. He did not sign it in the first place and I do not think he would sign it now if he had the opportunity.

That Climate Change Act, which requires us legally to carry out these carbon budget examinations, set up the Climate Change Committee to advise us on the science behind the proceedings and tell us what we need to be doing, not just now but in the future, so that we have time to make policy for what we will be doing to match what is required in those carbon budgets. We have that legal obligation, because we passed the Climate Change Act together in that year.

It has stood us in very good stead. It has directed what this country tries to do, without telling us what we do in detailed policy. Some of the discussions this evening have set up what the Government are apparently going to do and then said, “We don’t like it very much”. No, the Government are not going to go around shooting cows and rounding up livestock for slaughter. The Government will be doing what it is doing now and investing £5 billion over two years in farming. This is perhaps the largest investment in sustainable food production and nature recovery in this country’s history.

Alongside that, the Government are actively exploring ways to reduce livestock-related greenhouse gas emissions, including through scientific research on mitigation strategies and management, feed, such as the increasing adoption of methane-suppressing food products, and breeding. There are many alternative ways of making sure that agriculture and land use plays its part in climate change emission reductions without the straw man that some of the opponents of climate change action seem to have set up in this Chamber—that the Government are somehow going to chase livestock out of the country in order to meet climate change restrictions. To produce alternative theories, I am afraid you need alternative facts.

The impact assessment has, among other things, a fairly exact examination of the costs of doing nothing, as opposed to the costs of doing something. This has been a long-standing theme. The University of Cambridge, for example, estimates that climate damage will reduce global GDP by up to 24% under a high emissions scenario by 2100. There are pages of other information about the costs of doing nothing, as opposed to the cost of doing something, and I always advise noble Lords to go to impact assessments if they want to know the truth about what is happening on any piece of legislation.

My noble friend Lord Hunt underlined that the regret amendments that we have in front of us are big on things that are not liked very much and tiny to insignificant on what, if anything, to do about it. Indeed, one has a responsibility, if one does not like what is being done now, to say what should be done alternatively. Alternatively, if one does not like, say, the climate change legislation, stand up and say that, and say what else you will do instead, or, as some Members have said, just deny that the whole thing is an issue and have an alternative universe of facts to try to underpin that.

I am conscious that I will have to write to a number of noble Lords on specific issues, but I thought it necessary to put what we are doing tonight in the right context. What we are doing is making sure that our futures are secure in this world.

[Lord Roborough (Con)]

I asked two specific questions relating to these orders. One was about the timing of the update and the valuations for carbon, and the second was whether the Minister would reconsider the faulty basis on which I think they are calculated. If he does not have answers today, would he commit to write?

[Lord Whitehead (Lab)]

Yes, indeed. The noble Lord makes those points, which I have taken well on board. The question of carbon pricing, of course, is a long-standing issue as far as carbon valuation is concerned, but I certainly will write to him about the particular points he raises as soon as possible.

[Lord Moynihan (Con)]

My Lords, I disagree with the Minister on one thing: I think this was a valuable debate. I thought that contributions from every Member of your Lordships’ House have been helpful and constructive. I do not think it has been, to quote him, “a waste of time”. I do not think anybody who spoke this evening wasted anybody’s time. There is cross-party recognition of the importance of addressing these issues, addressing the carbon order and addressing climate change. The question before us this evening is about the Carbon Budget Order 2026.

The Minister is completely right to say that we should address this in the context of the impact assessment, which he considers to show us the truth. He is completely right to have identified that importance. Everything in my speech related to that—everything. I say to my noble friend Lord Deben that the public and our grandchildren will never forgive us if we destroy our economy with high energy prices. That is a real concern across this Chamber. We currently have electricity prices that are four times higher than the United States. That is the issue that we need to address. The impact assessment shows us that prices will go even higher if we follow these measures.

I say to the noble Lord, Lord Hunt, that we share this factor: neither of us is obsessed with anything. There is no obsession on this side of the House, but there is real concern. There is cross-party concern with what is being proposed. Tony Blair has said that the net-zero policies that are being pushed forward are viewed as

“unaffordable, ineffective, or politically toxic”.

Gary Smith of the GMB, who is absolutely all over these issues, has recently said that the policies being pursued by the Government are “economic madness”. Even the Unite the Union says “No ban without a plan”.

These points are worthy of consideration, because the North Sea issue is very important. I know everybody may have been distracted by Makerfield, but an important referendum was in effect being undertaken in the constituency of Aberdeen South, which was overwhelmingly won by the Conservative candidate. It was an overwhelming rejection of both the measures that are in this climate change Carbon Budget Order and the current Government’s policy on the North Sea, which is referred to.

In closing, it is important for all of us to recognise that there is a universal position across this House that we have to get policy right. I do not think this order does. We cannot afford to damage our economy irreparably through a zealotry on net zero that goes too fast, too far, too early, and jeopardises our economic recovery and the key underlying policy of the Government, with which we agree—economic growth. The impact assessment is fundamentally flawed, not least on the important point about CCS, which, interestingly enough, is one point that was criticised by my noble friend Lord Deben. It is one of the three fundamental pillars on which the whole of this is based.

With those concluding comments, and with my gratitude to everybody who has contributed to this valuable debate, I seek to test the will of the House.