Carbon Budget Order 2016

Baroness Featherstone Excerpts

Tuesday 19th July 2016 Lords Chamber

[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.

[Viscount Ridley (Con)]

My Lords, I, too, congratulate my noble friend on her new position and look forward to working with and encouraging her in this area. I declare my interests as listed in the register, including an interest in coal mining in Northumberland.

I beg my noble friend to pause and reconsider on the Motion. The fact that the Liberal Democrats are enthusiastically in support encourages me to beg even harder. This order is a piece of economic self-harm. It is against government policy, it will do precisely no good for the climate of the planet, it will hurt the poorest people in the country and cost jobs, and it will cripple our ability to grow the economy.

Let me take those four points in turn. First, it is against government policy to take unilateral action on carbon dioxide emissions that goes further and faster than any other country. This was explicitly stated by George Osborne in 2011, when he told the Conservative party conference:

“Let’s at the very least resolve that we’re going to cut our carbon emissions no slower but also no faster than our fellow countries in Europe”.

Amber Rudd repeated that promise and went even further last year when she said:

“We have to travel in step with what is happening in the rest of the world”.

The EU in Paris last year promised cuts of 40% by 2030. Here we are promising 57%. That is a unilateral offer to go almost one and half times as fast. Furthermore, why is there no mention of Brexit in the impact assessment, which runs to 97 pages? This is a serious omission and should be put right.

The policy is against government policy in another way. The National Audit Office study last week confirmed the finding of the Office for Budget Responsibility that there is likely to be a large overspend on the levy control framework—about £1 billion over the £7.6 billion permitted in 2020—and the Government’s own planning data show that there are sufficient planning permissions for renewable generators to overshoot the electricity component of the target by approximately 35%, for which there is no budget.

Secondly, how much would this extra 17% cut in the fifth carbon budget reduce global temperatures, if it could be achieved? The UK produces 1.1% of world CO₂ emissions. Reducing those by an extra 17% would reduce global emissions by 0.15%. The total warming expected by 2090 is between 0.8 and 2 degrees centigrade, depending on whether you choose the RCP 4.5 or the RCP 6 emission scenario and whether you choose the Lewis or the CMIP model sensitivity. So our unilateral action would reduce global warming by 2090 by between 0.001 and 0.003 degree centigrade.

Thirdly, for that infinitesimal achievement we are being asked to pay with the jobs of British workers, the lives of British pensioners, and the standard of living of every person in this country. In the Government’s low fossil fuel price scenario for 2030, domestic households would see prices 60% higher than they would otherwise be in 2030, while medium-sized businesses would see increases of 114%. Those latter increases will necessarily be passed through to domestic households in the costs of goods and services, giving a much greater total cost of living effect than that found in household energy bills alone. To these must be added electricity system costs for grid expansion and management. My noble friend says that we are meeting the targets in the carbon budget, but we are doing so at the cost of jobs in energy-intensive industries.

Meanwhile, fuel poverty currently kills several thousand people a year. Renewables subsidies will hit those with electric heating particularly hard, and they are already among the most vulnerable households in the country. The impact assessment claims that there is net benefit from these measures, but that claim depends entirely on energy prices, as it freely admits, and the unlamented Department of Energy and Climate Change has been systematically and catastrophically wrong about energy prices again and again. So I am afraid that the claim of net benefit is not worth the paper on which it is written.

Fourthly, the effect of this fifth carbon budget will be to slow the British economy. Even if we stop awarding new subsidy contracts in 2020, the total cost of this programme between 2002 and 2035 or so, when the last contracts expire, will be in the region of £150 billion to £200 billion. That is not counting the cost of subsidies to the French Government to build the Hinkley white elephant. A very large proportion of those subsidies is being paid to buy very expensive renewable energy equipment from German, Danish and Spanish manufacturers and to reward overseas owners, some of them state owned. It is a significant transfer of wealth overseas.

All this adds up to a terrible cost and—worse still—a terrible opportunity cost to the British economy. It comes at a time when the UK needs to become dynamic as never before to make our way in the world post Brexit. Affordable energy is the very cause of prosperity. It amplifies the work of individuals, dramatically raising productivity. The attempt to force an energy transition way ahead of the learning curve and against a far steeper cost gradient than was ever envisaged when fossil fuel prices were high is genuinely hazardous. A coerced return to the thin, costly and variable flows of renewable energy that characterised the medieval economy risks causing deep and lasting economic harm, as well as jeopardising the broader environment, for only prosperous countries can afford to care for the natural world.