Carbon Emission Charges

Catherine McKinnell Excerpts

Monday 1st November 2021 Westminster Hall

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I beg to move,

That this House has considered e-petition 574678, relating to charges on carbon emissions.

It is an honour to serve under your chairmanship, Mr Robertson.

The world’s eyes are on the UK for the COP26 climate change conference. Indeed, many Members wanted to contribute to this debate but are at the COP26 climate change conference, making these arguments directly, I am sure. Tackling climate change can sometimes feel like such an enormous and challenging task that we just do not know where to start. It can also feel a little too abstract to cut through people’s day-to-day concerns about their jobs and the cost of living.

I want to start with a reminder that while meeting our climate goals is certainly challenging, it is very achievable. Thanks to the Climate Change Committee, we can put concrete figures on the cost of the transition. The committee estimates that we must raise investment in low-carbon technology by around £50 billion per year over the next 10 years. Most of that will come from the private sector, and will go towards meeting the Government’s 2050 target. It sounds like a lot, and the Government will need to take the lead on it, but it works out at less than 1% of GDP over the next 30 years —around an eighth of the current annual investment.

As the Government’s net zero review consistently points out, the upfront cost of meeting the net zero target is dwarfed by the cost of not acting. Government and Parliament have committed to that transition. It has been legislated for and it must happen. We know the cost of achieving net zero is manageable with the right support. We also know, however, that the impact of the transition will not be felt equally across the economy or society. Because of the confusing array of climate policies currently in place in this country, it can be difficult to determine where the impact will be felt and to what extent. There is a great deal of uncertainty around not just the development and impact of low-carbon technologies, but how to design policies and the unequal effect that they will have on sectors and households.

Carbon emissions and the climate change they cause are a classic example of market failure. Individuals and businesses do not face the full cost of the emissions that they create; all else being equal, we would expect them to emit more than is optimal for society. For some time, economists have argued that the answer is to put a price on emitting greenhouse gases, so that individual firms face the full cost of their choices.

In its simplest terms, the petition calls for the Government to work towards a single carbon price across almost all sectors. The campaign argues that a single carbon price would amalgamate the many existing price instruments, including the carbon price support and the UK emissions trading scheme—a different form of carbon charging—into a simple, transparent carbon charge. Zero Carbon points out that our current policies cover emissions across only about a third of the economy, giving the biggest polluters free allowances while the consumers are left to pay. I pay tribute to the petition’s creator, Isabella Goldstein, who is the senior campaign manager at the Zero Carbon campaign.

The theory behind this form of carbon charging is straightforward. If we had, for example, a single carbon price of £75 per tonne of CO₂, it would incentivise people and businesses to pursue any methods of emission reduction that cost less than £75. Hon. Members will be aware that we are far from having a single carbon price across sectors. Instead, we have a patchwork of policies that incentivise or disincentivise emissions in ways that are often unclear. While overall they have the effect of, for example, discouraging the burning of fossil fuels, the cost varies hugely depending on the source of the emissions. It is argued that the key benefit of working towards a uniform carbon price is that it avoids a situation where some sectors face higher carbon prices, and must therefore make more expensive carbon reductions, while others could more easily and cheaply reduce their emissions but do not.

To be successful, a carbon charge must be accompanied by extensive investment in low-carbon technologies. The state—the Government—would have to lead on that. It would, by and large, leave businesses and households to decide how best to reduce their emissions in the most efficient way possible. It would not affect everyone equally.

However, I know that the petitioners do not advocate a purely market-based approach. When I spoke to Hannah Dillon, the head of campaigns at Zero Carbon, one of her biggest concerns was that we design policies to tackle climate change in a fair and equitable way. However, it is not just about the principled argument for fairness; ensuring that the most adversely affected are supported is crucial in maintaining public and political support for net zero. An obvious answer is that charges aimed at tackling climate change would also raise revenue, and the revenues could be used to compensate the groups that are most adversely affected.

However we address this issue, it is essential that the Government set a clear path for policy, and introduce support through our social welfare system to give households and businesses time to adjust. This is a complex and difficult policy area, and it will have a huge impact on our living standards for decades to come. Therefore, decisions must be taken with care and be subject to proper scrutiny. We must all accept the urgency of the climate crisis, and the need to take action as soon as possible.

Another key challenge relates to the emissions embedded in imports. In line with international practice, emissions in imported products are simply ignored for the purposes of our climate targets. Research from the World Wildlife Fund suggests that almost half of the UK’s emissions come from this source. In theory, we could reach net zero on paper even if our consumption of imported goods led to a higher level of global emissions. The lead petitioners have called on the Government to address this issue with carbon border adjustments, which ensure that there is a price to pay for carbon-intensive imports and shield UK competitors who do not face equivalent charges. I know that this is something that the EU is working on. It will take some years to implement, but without some form of carbon adjustment at the border, there is a danger that UK climate policy could simply drive industry to locations with fewer restrictions, increase carbon-intensive imports to the UK and, ultimately, increase global emissions.

Before I conclude, I want to ask the Minister a specific question on the UK emissions trading scheme. The Government previously said that they would consult on the implementation of a net-zero-consistent cap for the UK emissions trading scheme. We know that it is supposed to happen this year, and it was referenced in the Government’s net zero strategy, but details on the timescales have been vague. When the Minister responds, will she tell us when that review is going to happen?

To conclude, all eyes are on the UK for the COP26 conference. The planet cannot wait, and this petition has underlined the need for action in three key areas. First, we need to facilitate the shift to low-carbon alternatives within households and ensure businesses take responsibility for the emissions they produce. Secondly, we must protect those who are most vulnerable to the unequal impact of climate policies. If we do not do so, not only will the outcome be regressive; it will undermine public support for the transition to net zero. Finally, we must take measures to stop carbon leakage. It would be catastrophic if we were to achieve net zero domestically at the expense of triggering a carbon-intensive import boom. This is our time to show that this country will lead, not lag, in the global fight against climate change, and I for one—joined, today, by over 100,000 petitioners—hope that we take it.

--- Later in debate ---

[The Financial Secretary to the Treasury (Lucy Frazer)]

It is a pleasure to serve under your chairmanship, Mr Robertson. As many other Members have, I begin by recognising that today is a significant day for international efforts to tackle climate change. Like other hon. Members, I suspect that that is why the Chamber, which I would have expected to be extremely full, is a little sparser than we expected. I am sure that all those who would have wanted to attend are debating this very issue in Glasgow. I thank, recognise and congratulate the more than 100,000 petitioners on securing a debate on this important subject. I do not think that there is any disagreement among the Members present, from both sides of the House, that this is a fundamental issue that we in the UK, as well as others across the world, need to address. As the Prime Minister said at the G20 meeting yesterday,

“If we don’t act now, the Paris agreement will be looked at in the future not as the moment that humanity opened its eyes to the problem but the moment we flinched and turned away.”

I cannot, of course, pre-empt the outcome of the discussions in Glasgow, but I repeat for the record that the Government are absolutely focused on tackling climate change, and we are taking action on a number of different fronts. As the hosts of COP26, we have been determined to promote ambitious action to deliver the urgent transformational changes required by the Paris agreement. We are also seeking to play our own part, as any responsible nation should. As I am sure hon. Members know, between 1990 and 2019 the UK reduced its greenhouse gas emissions by 44%, compared with 5% for the G7 as a whole. Since 2000, the UK has reduced emissions faster than any other country in the G20.

Turning to the specifics of the petition, and some of the points that hon. Members raised, I was grateful to the hon. Member for Erith and Thamesmead (Abena Oppong-Asare) for recognising the importance of the Government’s net zero strategy, which sets out the plan to reduce our emissions, and outlines measures to transition to a green and sustainable future. As my hon. Friend the Member for Broadland (Jerome Mayhew) recognised, we cannot reach net zero by Government action alone. The plan leverages up to £90 billion of private investment by 2030 and confirms £26 billion of public capital investment since the 10-point plan. That investment, and the package of policies in the net zero strategy, will keep the UK on track to meet its carbon budgets and our 2030 nationally determined contribution and to reach net zero by 2050. In doing that, we will lay the foundations for a clean and resilient energy supply by investing in wind, nuclear and carbon capture and storage, as well as accelerating decarbonisation in sectors such as transport and buildings.

The hon. Member for Erith and Thamesmead suggested that the funding was not enough. I reiterate the commitment to a total of £30 billion of domestic investment for the green industrial revolution from 2021-22. She also suggested that the Chancellor was not doing enough, but he is leading on COP26 in liaising with other Finance Ministers on this subject. We will see $100 billion investment by a variety of countries to support developing countries to reduce carbon emissions in their own countries by 2023. We expect to exceed that investment of $100 billion between 2023 and 2025. The Prime Minister is obviously also leading the work at COP26.

A key part of the debate has been about carbon pricing, which most hon. Members talked about. The petition specifically calls for a carbon charge to

“encourage industries and organisations to reduce their carbon emissions”.

The 2020 energy White Paper set out our aspirations to continue to lead the world on carbon pricing in the run-up to COP26 and beyond. The Government believe that carbon pricing is indeed one of the most efficient tools of decarbonisation and has a key role to play in helping the UK to achieve net zero emissions by 2050. That is why we have committed to maintaining an ambitious carbon price to ensure in turn that those who pollute with their emissions pay for them.

The UK already has two carbon pricing policies: the carbon price support and the UK emissions trading scheme. Hon. Members will know that the carbon price support rate is a tax on the fossil fuels used in electricity generation. Since the CPS rates were introduced in 2013, they have contributed to a fall in coal use for electricity generation. The amount of electricity generated from coal fell from 40% in 2012, prior to the CPS, to just 5% in 2018.

At the beginning of the year, the UK launched its own emissions trading scheme, which covers a third of UK emissions and applies a carbon price to the power, industrial and aviation sectors. We have committed to exploring expanding the UK ETS to other sectors. It works on the cap and trade principle by setting a cap on the total amount of certain greenhouse gases that can be emitted by covered sectors. Companies in covered sectors must obtain and surrender sufficient carbon allowances to cover their emissions.

My hon. Friend the Member for Broadland and the hon. Members for Newcastle upon Tyne North (Catherine McKinnell) and for Erith and Thamesmead highlighted that, at the moment, the scheme covers only a third of those emissions and asked what more we would do. I reiterate that we have committed to exploring expanding that scheme to the two thirds of emissions that are not currently covered. The hon. Member for Newcastle upon Tyne North also asked when we will review the carbon price trajectory in the ETS. I reassure her that we remain committed and intend to bring forward a consultation in the coming months. That commitment was reiterated in our net zero strategy.

Several hon. Members, such as the hon. Member for Newcastle upon Tyne North and my hon. Friend the Member for Broadland, recommended that the Government introduce a carbon border adjustment. I reassure them that we are following developments on the EU carbon border adjustment mechanism closely. As COP and G7 president, our instinct is, obviously, that we need to work together with our international partners on how to tackle climate change. We are continually assessing a range of options on that issue.

[Catherine McKinnell]

I apologise to the Minister for pushing the issue, because I can see that she does not have a clearer response. “In the coming months” is as vague as the timings that we have already been notified of. Can she give either a clearer picture of the timescale that we are talking about or a reason why there is no clear timescale for the consultation?

[Lucy Frazer]

I do not expect anything other than for the hon. Member to push me on the timing. At the moment, however, all I can say is that we will bring it forward in the coming months. I am happy to keep her updated about the timing as we progress.

[Catherine McKinnell]

I thank the Minister for giving way again. I will not push her again on that point, as I can see that she does not have a clearer timeframe. Obviously, it is of keen interest to those who are following the debate.

The other issue that I will flag is that she has so far made no reference to ensuring that this is a just and equitable transition so that polluters pay and we do not expect consumers to continue paying more to enable the net zero transition. I wonder whether the Minister just has not got to those comments yet or whether she can say something to assure us that the Government are looking to spread the cost, as well as the responsibility, of meeting our net zero targets.

[Lucy Frazer]

I thank the hon. Member for her intervention. The two schemes that we already have in place are obviously ones through which the polluter pays; they are about industry recognising that when it pollutes, it must pay for that.

The hon. Lady, as well as the hon. Member for Kilmarnock and Loudoun (Alan Brown), talked about what the Government could do to support individuals. The issue of heat pumps, and the importance of such measures not being too burdensome on those who need to implement them, has been raised on two occasions. A number of Ministers have made this point clearly, but I reiterate that we are not forcing people to take measures such as installing heat pumps: we are saying that if they wish to do so, a grant is available to them. Regarding heat pumps in particular, I would like to make it clear that we expect the price to come down. I suspect that that will happen when we have a requirement for all new homes to be net zero by 2025. When there is the volume of supply of heat pumps that we need, I suspect that their price will come down, as we have seen in relation to electric cars, for example.

[Lucy Frazer]

I am grateful to my hon. Friend for that interesting intervention. I hope that the prices of installation will fall as well.

[Catherine McKinnell]

The Minister is being very generous with her time. I am sure she appreciates that it is important that the polluter pays, but many polluting businesses will pass that cost on to consumers, and we need to be really transparent about where those costs are going to land. I hope the Government are going to take steps to ensure that we do not push people further into fuel poverty and that, if we are installing fuel pumps, we help people to insulate their homes. There is a lot that the Government can do to make sure the poorest do not pay, even if it is by the back door.

[Lucy Frazer]

I assure the hon. Member that as we bring in policies—I am responsible for tax, and I know this is the case for my area—we are always very conscious of whether the prices are going to be passed down to consumers. As she knows, we already have a number of mechanisms through which we protect those on the lowest incomes: for energy costs, for example, we have the warm home discount and the energy price cap. Of course, we are conscious that we do not want costs to just be passed down.

--- Later in debate ---

[Catherine McKinnell]

I thank the Minister for her response and for being very generous in taking interventions.

The debate has highlighted the need to be up front and transparent about the costs and benefits and the trade-offs that will need to be made on the road to net zero. The Prime Minister said that we are at “one minute to midnight” on climate change. We all know we have to change the way we live and the way we do business, but that process is made so much harder by the confusing and opaque nature of much of what is happening. It is very difficult to work out the right thing to do, particularly for consumers, although the landscape is also very confusing for businesses.

We need much more transparency on the sources of carbon emissions. We need to ensure that polluters pay, but we need to ensure that that does not become just words—we need to see action. We also need to end the absurd situation where choosing to be climate-conscious consumers ends up costing us more, which drives the poor decision making and more carbon-intensive behaviour that all of us would rather avoid and that we need to avoid.

The net zero review recognises that the impact will not fall equally. That is where the Government really need to step up and be up front about who the winners and losers will be in the transition. We need now to put in place steps to mitigate that impact, to ensure not only that the transition is fair and equitable, but that it has buy-in from everybody, because we will all benefit from and contribute to it.

We know that the world is watching and waiting for this historic agreement in Glasgow. Leaders at home and abroad know that it is time to turn meaningful words into real action.

Question put and agreed to.

Resolved,

That this House has considered e-petition 574678, relating to charges on carbon emissions.