Greenhouse Gas Emissions Trading Scheme (Nitrous Oxide) Regulations 2011

Baroness Smith of Basildon Excerpts

Tuesday 17th May 2011 Grand Committee

[Lord Taylor of Holbeach]

My Lords, these regulations have already been debated in the other place and were fully supported by the Opposition. I hope that noble Lords will reach the same consensus today.

The regulations will extend the EU emissions trading system, the EU ETS, to include nitrous oxide emissions in the UK as soon as possible this year. Currently the EU ETS focuses primarily on tackling carbon dioxide emissions through the use of a cap-and-trade mechanism. This puts a price on greenhouse gas emissions in order to incentivise the most cost-effective emission reductions. By extending the coverage of the EU ETS to include nitrous oxide, we will be providing incentives to reduce an extremely potent greenhouse gas with a global warming potential 310 times that of carbon dioxide.

The production of nitric acid during industrial processes to make fertiliser is a major source of nitrous oxide emissions. Within the UK there is significant potential within the nitric acid production sector for dramatic reductions of nitrous oxide. For this potential to be realised, however, business requires the incentive that a carbon price can provide.

The regulations will use a provision in the ETS directive that enables member states to opt-in additional greenhouse gases and sectors. While all member states will include nitrous oxide emissions from nitric acid production in the EU ETS in its third phase, starting in 2013, there are strong environmental and business incentives for the UK to move early.

The regulations will apply in practice only to the UK’s largest fertiliser manufacturer, GrowHow UK Ltd. GrowHow is already investing £10.5 million in nitrous oxide abatement technology. This early investment in green technology is being incentivised by the UK’s early opt-in of nitrous oxide emissions into the EU ETS. By opting-in nitrous oxide emissions two years ahead of the rest of Europe, the UK will save the equivalent of around 1.6 megatonnes of carbon dioxide over 2011 and 2012. This will also provide increased certainty for the UK in meeting its national carbon budgets. As we are using trading allowances for the opt-in previously allocated to closed installations, we are not increasing the overall EU ETS emissions cap and can maintain the environmental integrity of the system.

The instalment of cutting-edge abatement technology by GrowHow will protect up to 80 full-time jobs within the nitric acid production sector. These are important steps in building a low-carbon modern manufacturing sector within the UK and will improve the competiveness of UK industry.

I am particularly pleased to inform noble Lords that these benefits can be achieved without imposing a significant burden on industry. This is particularly the case as GrowHow is already covered by the EU ETS, so minimal additional administrative work will be required. We have consulted closely and constructively with GrowHow on getting the details of this opt-in right, and it has been fully supportive of our proposals. We have further minimised the cost impact for the UK by setting the same benchmarks for emission reductions as those set by Austria and the Netherlands. These are the other member states that have also opted-in their nitrous oxide emissions into phase 2 of the EU ETS.

In summary, this policy has clear benefits in reducing emissions of a potent greenhouse gas and protecting jobs in British manufacturing, and is stimulating early investment in low-carbon technologies in the UK. I commend the regulations to the Committee.

[Baroness Smith of Basildon]

My Lords, first I thank the Minister for the detail that he has provided on the regulations before us, and for outlining the considerable benefits of reducing nitrous oxide emissions. Along with our colleagues in the Commons, we support the regulations. We know that the emissions are highly potent and that, as he indicated, the global warming potential is more than 300 times greater than that of carbon dioxide. Clearly there will be great benefit from accepting the proposals.

We also know that reducing nitrous oxide emissions alongside carbon dioxide emissions by extending the EU ETS will become mandatory in the EU in 2013. As the Minister indicated, we are not the first country to seek early implementation to include nitrous oxide emissions. The Minister said that the Netherlands and Austria had taken action. I understand that Norway, too, has taken action, perhaps more recently. The regulations before us should provide incentives for early reduction, as well as lower long-term costs for the company involved.

I have a few questions which I was able to notify the Minister of, and which I hope he will answer. We share his optimism that the regulations will reduce emissions, and, we hope, much more quickly. It would be helpful if he described briefly the monitoring procedures that will be in place or are in place already. The Minister was very helpful in outlining the consultation with GrowHow UK Ltd, which is directly affected. Was there any consultation with anyone else, and were there any other responses to the consultation?

In conclusion, I will briefly ask the Minister about trading security. I am sure that he is aware of the cyberattacks earlier this year on European trading registers. The Government are confident of the security of the UK trading register, but are they confident that other countries have now achieved the same level of security, or will be able quickly to achieve that level of security? It would be helpful to know what discussions the Government have had to date with other European countries on the issue. In February the Government issued a Written Statement that stated:

“While it is important to ensure a minimum level of security now to ensure the opening of the registries, the UK will continue to press the European commission to ensure that registry security across Europe is raised above this level”.—[Official Report, Commons, 3/2/11; col. 50WS.]

It would be helpful to know what progress has been made since then. The Minister will understand that we have concerns about market confidence, and any reassurance that he can give about progress on European-wide security issues would be welcome.

I entirely concur with the Minister that there are economic benefits to these regulations. They make environmental sense and they have our support.

[Baroness Parminter]

We, too, welcome the inclusion of nitrous oxide in the EU Emissions Trading Scheme. As the noble Baroness said, nitrous oxide is a highly potent greenhouse gas. Its use in fertiliser accounts for a large share of our agricultural emissions, and agricultural emissions account for around one-third of all greenhouse gas emissions worldwide.

I have one question and one comment. The question concerns the impact on local air quality. The statement provided by the department states:

“It has not been possible at this stage to quantify any wider environmental impacts this option would have on ambient air quality”.

While the release of laughing gas into the local community may sound like a topic of fun, I would like to be reassured by the Minister that local communities will not suffer any degradation in their air quality once the abatement technology is introduced.

My comment is slightly off the point, so please forgive me if I stray too far. In recent months the Government have made it clear that great steps will be needed if we are to feed a growing world population. Therefore, the use of fertiliser in agriculture will increase substantially. This is very good news for this company and shows that the Government are right to tackle the problem now. However, it is not only the use of fertiliser in agriculture that results in our nitrous oxide emissions; it is also how we store our livestock. I refer to the storage of manure in intensively reared systems, and the urine and manure that the animals produce. Given that we have taken this very welcome step today to reduce our nitrous oxide emissions, will the Minister ensure that Defra, in looking at how we as a Government seek to meet the growing challenge of feeding the world population, tackles the problem of intensive livestock farming, which is a far greater contributor to our nitrous oxide emissions than the chemical industry?