Recognised Auction Platforms (Amendment and Miscellaneous Provisions) Regulations 2021

Lord Tunnicliffe Excerpts

Thursday 15th April 2021 Grand Committee

[Lord Tunnicliffe (Lab) [V]]

My Lords, I am grateful to the Minister for introducing this statutory instrument, and to the noble Lord, Lord Bourne of Aberystwyth, for his contribution to this short debate. While the instrument is not formally labelled as an EU exit document, it nevertheless deals with one of the many issues arising from our withdrawal from the European Union and its various structures and policies. As the Minister outlined, the instrument makes changes to the UK legal provisions to reflect the fact that we are no longer part of the EU Emissions Trading Scheme. It then puts in place other provisions linked to the auction platform of the new UK Emissions Trading Scheme ahead of its first use later this year.

For some time, industry has sought certainty over the direction of travel on carbon pricing. It had not been clear whether the UK Government would operate a stand-alone ETS, some form of linked scheme, or an alternative approach such as a carbon tax. The decision to launch a UK ETS may have come later in the day than we would have liked, but it is one that we support. Maintaining the cap and trade principle will be important as we seek to reduce emissions in a manner consistent with meeting the 2050 net-zero target. It was not clear that alternative options such as a carbon tax would offer the same benefits as an ETS. In addition, while I will shortly turn to questions of how the UK’s scheme will work in practice, I can see that it makes sense to retain an approach that relevant companies are familiar with. However, it is regrettable that the regulations are being brought forward only now. The first auctions may not take place until later this year. It surely would have made more sense for the Government to spell out the detail and establish mechanisms further ahead of time. That would have provided greater clarity and certainty to all involved.

Establishing new markets and trading systems is always difficult, especially if you are to achieve early buy-in from companies, which generally require long lead-in times. I am sure that the Minister will be able to cite examples of engagement with business, but I cannot help observing that last-minute policy-making seems to have become one of the hallmarks of this Administration.

The relative size of the UK ETS when compared with the EU scheme raises a variety of questions. Going it alone also introduces an element of risk. Indeed, I am sure that the Minister is familiar with the concerns of the Committee on Climate Change, which pointed out potentially significant challenges in achieving market stability and liquidity.

Why has the UK set the auction reserve price at the level it has, when the EU scheme has seen prices rising sharply in recent months? We acknowledge that the auction reserve price is higher than the level initially proposed and are mindful of the need for it to be set at a level that creates a robust market and ultimately drives down emissions. With that in mind, how will the Government keep the price level under review? What importance, if any, will they place on price fluctuations within other emissions trading schemes around the world? Can the Minister provide an update on whether the UK is looking to link its scheme with others, as suggested in the White Paper published in December? Another consideration is the sectoral coverage of the UK ETS. Do the Government see a case for expanding the number of sectors covered by the scheme and, if so, when can we expect to hear more about it? If a decision were to be made this summer to include agriculture, for example, what kind of timescale would we be looking at for implementation?

I realise that many of these questions are better directed at the Department for Business, Energy and Industrial Strategy, so I am happy to wait for an answer in writing. However, in the hope of bringing the focus back to the Treasury, could the Minister comment briefly on the role foreseen for the Financial Conduct Authority? What additional knowledge or resource, if any, does the FCA require to fulfil its new responsibilities? Are the Government confident that this will be in place come the first auction?