Decarbonisation

Lord Callanan Excerpts

Thursday 13th July 2023 Lords Chamber

[Baroness Blackstone]

To ask His Majesty’s Government, further to their consultation on ‘Addressing carbon leakage risk to support decarbonisation’ published on 30 March, what assessment they have made of the case for extending green procurement targets beyond steel and cement to include other carbon-intensive sectors covered by the UK Emissions Trading Scheme, such as paper and power, and products made from materials covered by the UK ETS, such as vehicles.

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, the Government are currently exploring options for utilising public procurement to create demand for green industrial products. We have sought views via consultation to help develop proposals for policy measures that support the growth of low-carbon industries. The Government’s Construction Playbook advises that projects should be accompanied by a whole-life carbon assessment and PPN 06/21 requires suppliers bidding for major government contracts to commit to net zero by 2050 and to publish a carbon reduction plan.

[Baroness Blackstone (Lab)]

My Lords, I am grateful to the Minister for his response, but I wonder whether I can press him a little further. In the Government’s consultation, they propose to use minimum product standards to protect just two or three sectors from unfair competition from overseas and not to bring in these measures until late in the 2020s. Should not the Government be setting minimum product standards across a wider range of sectors, and sooner, to protect domestic manufacturing from unfair competition, especially from China, where grid electricity has twice the carbon intensity and is half the price compared with the UK?

[Lord Callanan (Con)]

The consultation only closed at the end of last month, so the noble Baroness will need to give us a bit of time to analyse the hundreds of responses that we received. It is a complicated issue, and we of course understand the desire for quicker action, but there is a whole range of factors to be taken into account. We have to be very careful not to indulge in some form of green protectionism, where we incentivise lower-standard products against others that are better performing. Across a whole range of sectors and procurement areas, it is a complicated issue that deserves to be studied properly.

[Lord Hannan of Kingsclere (Con)]

My Lords, the essence of climate change is that it is global and does not recognise borders. It is very disappointing that we have so many calls for responses that are essentially protectionist, introverted and selfish. Will my noble friend confirm that, just because our allies in the United States—and indeed in the European Union—are going down the road towards protectionism, carbon adjustment taxes and so on, this country will not disadvantage itself or raise the price of the green technologies that we need to combat this global problem?

[Lord Callanan (Con)]

My noble friend has been steadfast for many years in his support for free trade—a cause that I manifestly agree with. But it is a complicated issue. It looks as though the EU and US are going down the road of carbon adjustment mechanism taxes, but, as I said in my Answer to the noble Baroness, Lady Blackstone, it is a complicated issue. For instance, do we want to incentivise the installation of poorer-quality solar panels that may be constructed with lower carbon intensity, or better-quality solar panels? That is one example of millions that I could give.

[Lord Jones (Lab)]

My Lords, does the Minister acknowledge that, while we need green policies, there is a major problem concerning the British steel industry? Successive Governments have imposed what have been, in effect, green taxes on a great foundation industry. Now, very little of the steel industry remains. For example, does he realise that the great integrated steelworks—the only remaining integrated steelworks in Britain—is hanging on by its fingertips? The ailing steel company Tata calls for more investment. How can he see his Government urgently giving more investment to save Britain’s steel industry? If Britain is to remain a great nation, as she must, she needs the foundation industry of steel. If ever there shall be war, you need steel.

[Lord Callanan (Con)]

I totally understand the point that the noble Lord is making. He highlights the dilemma of carbon-reduction policies in these areas, where we impose carbon taxes and emissions trading systems and schemes, and of course that has an effect on domestic industries that emit a lot of carbon—the so-called carbon leakage problem. We are working closely with the steel industry to try to help it adjust to greener manufacturing methods, and of course it receives free emissions permits.

[Baroness Sheehan (LD)]

My Lords, recent reports that the Government are considering rowing back on their flagship climate finance commitment of £11.6 billion to assist lower-income countries to reduce their emissions, adapt to climate change and protect the natural environment are to be deplored. Those global benefits affect us all and would be lost to us all. Does the Minister agree that using a proportion of the funds raised through CBAM, the carbon border adjustment mechanism, to support low-carbon transition in least-developed and climate-vulnerable countries would be enlightened self-interest?

[Lord Callanan (Con)]

The noble Baroness is asking me to comment on tax policies and hypothecation of taxes, which are matters in the purview of the Chancellor of the Exchequer. I shall make sure her views are communicated to him.

[Lord Lennie (Lab)]

My Lords, the Government’s IDDI consultation, which the noble Baroness, Lady Blackstone, referred to, sets out four levels that are being considered. The Government make a firm statement about their policies achieving levels 1 and 2. With level 3, the Government say that they are minded to achieve it. As for level 4, which is about achieving the UK’s decarbonisation objectives, the Government say that they may commit to it. When can we expect decisive leadership so that we commit to achieving all four of these IDDI objectives?

[Lord Callanan (Con)]

My Lords, I am slightly disappointed by the tone of the question. We are already showing decisive leadership: we are one of the only countries in the world to already have green procurement strategies for major public procurement. This is a complicated area, as has been illustrated by the questions from the noble Lord’s own Benches. We need to make sure that we get it right and do not disadvantage British industries or drive up the cost for consumers.

[Lord Kamall (Con)]

My Lords, while one of the advantages of carbon border adjustment measures and other green taxes is that they tax negative externalities, hopefully to encourage better green policies, one of the downsides is obviously that that might then feed into the cost of production and that cost is then passed on to consumers. One concern for many people about green policies, even though they support them, is that when we introduce green taxes, they are often not fiscally neutral, so people end up paying more. Have the Government looked at how they can balance these challenges to make sure that, when a green tax is introduced, tax is removed elsewhere to encourage better behaviour and have a positive outcome for green policies?

--- Later in debate ---

[Lord Callanan (Con)]

My noble friend makes an important point. On all these policies, we have to make sure that we get the balance right between fulfilling our legally binding commitments and making sure we do not disadvantage consumers and drive up costs for ordinary men and women.

[Lord Inglewood (Non-Afl)]

My Lords, does the Minister agree that emissions trading schemes offer a very valuable opportunity for regions of both this country and elsewhere that are essentially rural and agricultural, away from centres of population and wealth at present, to generate an income that they desperately need to level up the living standards of people in these places to some kind of equivalence with the richer parts of the country?

[Lord Callanan (Con)]

I understand the point that my noble friend is making. A happy by-product for the Treasury of the emissions trading scheme is the considerable revenue that it generates, and I am sure that it is spending all this money very wisely.

[Lord Teverson (LD)]

My Lords, the EU-UK Trade and Cooperation Agreement, which the Government negotiated, had a clause that said that the two sides should talk further about the EU and UK emissions trading systems, and that they should be connected and start to work together. That has been strongly endorsed by most sectors of British industry. Have those negotiations started? If so, great; if not, why not?

[Lord Callanan (Con)]

My Lords, I appreciate the desire of the Liberal Democrats to get us into the EU regulatory orbit as quickly as possible. As with many things, there are arguments for and against the linking of the two ETS systems. They are equivalent—in fact, ours is probably slightly more ambitious than that of the EU. We will continue to explore this policy with the Commission.

[Baroness Hayman (CB)]

My Lords, I declare my interests as set out in the register. Does the Minister agree that, far from investment in and nurturing of green initiatives and technologies being detrimental to this country—as the noble Lord, Lord Hannan, said—investing in green technology for things such as steel and cement production not only helps those industries in this country but helps our economy and international competitiveness?

[Lord Callanan (Con)]

I do not want to put words into my noble friend’s mouth, but I do not think that he was attempting to argue that we should not invest in green products and services. He was merely pointing out the difficulties in international trade where, for some countries, there will be a temptation to use green excuses to introduce protectionist policies. Free trade has been an immense benefit to all of us in the developed and developing world, and we should be very careful to make sure that we maintain those benefits.