Ozone-Depleting Substances and Fluorinated Greenhouse Gases (Amendment etc.) (EU Exit) Regulations 2019

Lord Grantchester Excerpts

Wednesday 27th February 2019 Grand Committee

[Baroness Neville-Rolfe (Con)]

I join the noble Baroness in congratulating Defra, both on this regulation and on the very clear Explanatory Memorandum. I know from the useful briefing Defra gave me last summer that it was getting ahead very well with the EU exit regulations, and it is good to see them coming through.

I also wanted to look backwards. In the early 1980s, I was a junior civil servant in what is now Defra, and responsible for research and development in a small way. I went to an interdepartmental meeting to discuss various proposed cuts, one of which was to the British Antarctic Survey. I remember arguing, contrary to my brief, that we should continue to support the survey because I believed in fundamental research and that sometimes you did not just do research near to the final product. Of course, later in my career, history showed that the survey was very important. That is a story I like to tell to youngsters in schools because it shows the importance of R&D.

I was pleased that the Minister described the work Defra had done to look at the impact on business of this regulation. I have just one point of clarification. She mentioned that 100 businesses were being regulated and then said that the estimate was that the cost—I think of the extra administrative system that we have had to bring in because of the transfer—would be £60,000 in aggregate for 50 to 60 companies. I could not understand the difference between the 100 companies that seemed to be affected by the proposal and the cost figure, which, if that is the only cost, seems modest for this important area.

[Lord Grantchester (Lab)]

I thank the Minister for her introduction to the order before the Committee and for undertaking prior discussions with her team. As she said, this order, while not specifically made to cover the scenario where the UK leaves the EU without a deal, nevertheless makes provision for a no-deal exit with the repatriation of authorising authorities and regulators. It also corrects a series of deficiencies in retained EU law on ozone-depleting substances under Part 2 and fluorinated greenhouse gases under Part 3. The order therefore maintains the 79% cut on a UK basis, as for example in F-gases between 2015 and 2030, as the Minister stated, by steadily reducing quotas for companies that operate in this field. The order maintains that it will continue.

Although many of the changes introduced through this order on the transfer of powers currently exercised in Europe to the UK are technical in nature, other minor noteworthy changes could be construed as shifts in policy. Labour certainly does not challenge the order and will approve it today.

Although the order was laid in December and subsequently relaid on 6 February following exchanges with the Joint Committee on Statutory Instruments, I understand that it is essentially the same document. The order has not been flagged by your Lordships’ Secondary Legislation Scrutiny Committee, but it is worth recognising that progress has been made in several areas in which there have been concerns and to which the Minister drew attention. However, there are a few questions around these outcomes, which I will highlight for the Minister.

It is good to note that the UK Government and the devolved Administrations have agreed to the repatriation on the basis of a single UK-wide quota. This quota, following dialogue with the relevant companies on how much they place in the UK market, will be set at 12%, roughly aligned with the size of the UK’s population relative to the EU. That the UK’s usage aligns in this way is certainly interesting. Under paragraph 2.8 of the draft Explanatory Memorandum, it is agreed between the Government and the devolved Administrations that, should an Administration wish to diverge from the protocol in the future, they must consult the others before doing so. Have the Government consulted the Commission on whether the EU has also agreed to the 12% and on whether, should the UK in the future wish to diverge in any way from the process agreed in the 1987 Montreal Protocol, it will consult with the EU and others before undertaking any divergence?

Paragraph 6.2 of the Explanatory Memorandum states that the Environment Act 1995 will be amended to include a charging regime under the authority of the Environment Agency on a UK-wide basis. I certainly join others in saying that good progress is being made, with this having happened, but I note that these changes are on a cost recovery basis. Can the Minister confirm, because it was in some divergence to the £60,000 figure she gave in her introductory remarks, that the total amount costed in the other place was estimated at £500,000 per annum for the administrative costs? I understand that the Government have put this out to consultation regarding cost recovery, so I have a few questions for the Minister regarding the scope of that consultation.

Paragraph 6.2 also states that the EU allocation mechanisms for quotas and the format for company reports will not be replicated in the UK, as different IT systems will be established here. I understand that this IT system has also been completed, and I congratulate the Government on that achievement as well; while not wishing to appear churlish, let us hope that it will continue to operate successfully under stress.

Returning to costs and charters, I understand that this set-up cost has been financed through the Government. The Minister in the other place, Dr Coffey, stated:

“Future charges will be for the overall regulation system”.—[Official Report, Commons, Eighth Delegated Legislation Committee, 26/2/19; col. 8.]


Will the Minister clarify what that means for cost recovery? Will there be an element of repayment of capital included in running cost recovery of fees from operating companies? That is, will companies ultimately be charged for this set-up cost?

The Government will also continue paying into the Montreal Protocol assistance fund to help developing nations across the world move to less harmful gases. Can the Minister confirm whether industry will be re-charged any of these contributions? It would be good to understand whether the Government have included either of these potential costs as possible cost recovery items out for consultation.

The final concern in this regard is about impact assessment. While the Government are satisfied that the cost is de minimis, as the Minister explained, have they assessed whether the new charges could impact on companies’ costs in a way that will affect whether they continue to operate in the UK? Several companies operate across the UK and in the EU, and their quotas will come from both in future. Are the Government satisfied that any disruption will not detrimentally impact on these companies continuing in the UK in such a way that the Government may have to use their new powers of increasing quotas to make up for a closure of any company’s shortfall to maintain the UK in a steady state? In their dialogue with companies when undertaking these regulations, can the Government confirm that companies operating across borders are generally satisfied with the outcome? One element behind this question on reciprocity—mentioned by the noble Baroness, Lady Miller—is whether UK trading certificates and authorisations will be accepted in the EU after exit in the same way, replicating the recognition of EU certificates in the UK.

I am sure that all contributors to this order will agree that these regulations are vital to the safeguarding of the environment across the world. Can the Minister confirm that, despite abiding by the increasing quota restrictions since 2015, these have been effective in reducing emissions? That is, are they working as envisaged, without loopholes appearing such as displacements on to other gases not specified in the protocols?

While these regulations appear technical, they will certainly be important to companies operating in the UK and the EU, especially given the lack of coherent data on how they may be reapportioned in individual quotas. Can the Minister confirm that, through the Government’s discussions, all the operators essentially agree with the regulations and their individual outcomes, and that any potential disputes can be reconciled via due process through the Environment Agency?

[Baroness Vere of Norbiton]

I thank all noble Lords who took part in what has turned out to be a very interesting and I hope fairly straightforward debate. I have the answers to nearly all of the questions, which is always an added bonus.

I would like to thank the noble Baroness, Lady Miller, for her congratulations on getting the system up and running. We will take congratulations where we can get them. I was very interested by her observations on the wider environment in relation to ozone depleting substances, F-gases. I have a few responses to the questions that she raised. The UK and other parties raised their serious concerns about carbon tetrachloride in China at the Montreal Protocol meeting last year. China has agreed to take enforcement action. We will continue to monitor the situation and make representations in that area.

The noble Baroness also mentioned an F-gas being 23 times more powerful than carbon dioxide. That is true: there is an F-gas—there are many different types of F-gas—that is 23 times more powerful, called SF₆. But this one is rarely used and accounts for less than 3% of F-gas emissions for the UK. It is the HFC emissions that account for 95% of UK F-gas emissions. As the noble Baroness pointed out, many other gases can now be used in various pieces of equipment to the same effect and industries are certainly moving over to those.

--- Later in debate ---

[Baroness Vere of Norbiton]

Yes it can.

[Lord Grantchester]

I was ready to jump up before the Committee was asked to agree the Motion, but I will sit down while the Minister answers the noble Baroness and I will then rise again.

[Baroness Vere of Norbiton]

I thank my noble friend for that comment—I was going to say that anyway. That would be part of the consultation process with the Environment Agency. It seems like a very good idea, but it should at least assess whether that is a viable option.

[Lord Grantchester]

I apologise for intervening perhaps a little too early on other Members. While paying great regard to the Minister, who has answered all the points most succinctly and very well, I wanted to get a feel for the impact on these regulations and the discussions Defra has had with the various companies. Has the Minister got a sense, or not, that they are going to cause disruption for companies operating in this field, albeit that they then buy and sell the quota in terms of moving in and out of different countries? I understand that happens already, but is there a sense of disruption to industry causing them some dismay, in bringing the regulations back into the UK?

[Baroness Vere of Norbiton]

I apologise to the noble Lord; he asked about that and I forgot to answer. The department has contacted every single supplier across the EU in this process, so we have a strong feeling of where the industry is coming from. We have spoken to key business, industry and environmental representatives as well. For example, the Federation of Environmental Trade Associations is an umbrella trade body representing refrigeration and air conditioning manufacturers and suppliers. We have spoken to the British Refrigeration Association, the air conditioning and refrigeration board and Mexichem, the biggest producer of F-gases in the UK. While there will certainly be some change, I have tried to highlight that the change will not be significant. If a company trades in the UK and the rest of the EU, it will have to apply for two different buckets of quota, but apart from that, much of the system will stay the same.