Draft Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2026

Debate between Chris McDonald and Claire Coutinho

Tuesday 27th January 2026 General Committees

[Chris McDonald]

I thank everyone for their contributions to the debate, which was considerably more fulsome and energised than is usual for a 4.30 pm Committee. I am incredibly grateful, because Members in all parts of the Committee made a number of points, giving me the opportunity to clarify some details of the workings of the scheme.

The shadow Secretary of State, the right hon. Member for East Surrey, said that it was a very dense report with a lot of governmentitis. I know that she understands the details of this subject well, because she is the former Secretary of State, but I appreciate that it is technical, and it behoves all of us to try to explain as clearly as possible what the draft order means.

I will start by addressing some of the specific points in the draft order and then talk a bit more generally about some of the points that Members have raised. I appreciate the concerns on both sides of the House about the impact on industry and the risk, when we are decarbonising industry, of deindustrialisation. I know that this concern is sincerely felt by everybody in this room, even if we might differ at times on what we think the best approach is. That is why we have been so careful to consult industry on these measures, as I outlined in the long catalogue of dates in my opening speech. We have consulted carefully with industry and made sure we have listened to what they have said.

Some of the issues here run quite broadly around industrial competitiveness. Possibly one of the main points to recognise is that it is important through the whole decarbonisation process that industry manages to maintain access to its key markets, and clearly one of the key markets is the EU. That is where we come to the discussion about linking the EU ETS and the UK carbon border adjustment mechanism with the EU to enable our UK industries to continue to trade there. Negotiations with the EU started in November, but I want to be clear that they will only conclude in this way if it is in the UK interest to do that. We will continue to consult with UK industry on that matter too.

In relation to points made by my hon. Friend the Member for Stoke-on-Trent Central, the ceramics industry made three specific requests during the consultation. We managed to adopt requests to include ceramics on the carbon leakage list, no tiering of free allocations, and greater engagement with the ceramics sector, which is why we set up the UK ETS working group. My hon. Friend asked me specifically if we could reallocate free allocations from other sectors to ceramics. That is not possible within the current rules, but that does not mean that I am not aware of the issues surrounding the ceramics sector. We can use the UK ETS group to look at ETS issues, but we should also look more broadly at the concerns of the ceramics sector. I look forward to starting that conversation over dinner with my hon. Friend and the ceramics industry later this evening.

On the question of power and the impact of the instrument on energy bills, the important point is that the ETS applies to power that is produced from fossil fuels, not renewable energy. This Government’s policy is to pursue our clean power mission by 2030, which involves investing in the cheapest forms of power available, in onshore and offshore wind, solar power and nuclear energy. The purpose of the ETS is to incentivise that. The carbon price incentivises investment; it provides the incentive in power and in industry to invest in new green technologies.

[Claire Coutinho]

Originally, the choice was between coal and gas, but there is no coal in the system anymore; there is only gas. Even in the Minister’s clean power plans, gas is the dispatchable power in the system—there is no other choice; nothing else will keep the lights on when the wind does not blow and the sun does not shine. Even in his plans, gas will set the price 50% of the time. He is needlessly imposing a tax that inflates that price of gas to the consumer when there is no other choice available. Will he at least come up with a forecast for what this will mean for energy bills and consumers in this country, considering that they do not have another choice, even in the Minister’s plans, apart from using gas power?

[Chris McDonald]

I think what the shadow Secretary of State has outlined is exactly the success of this policy—it has driven coal out of the system in favour of cheaper power. That is exactly the point of the ETS and the industrial investment. Of course, as we said, we are pursuing our clean power mission for energy security and to lower energy bills, as well as to ensure that we also have green energy.

--- Later in debate ---

[Chris McDonald]

No, no—I have dealt with that.

The hon. and learned Member for North Antrim asked me about the issue in Northern Ireland, which is a separate electricity zone. Electricity generators in Northern Ireland have not historically received a free allocation, and in future, the free allocation rules on electricity generation will apply in the same way for the UK and EU operators, assuming that there is linkage.

I will return to the point about industry that was made by the shadow Secretary of State, among others. Clearly, the drive is to incentivise investment in industry, and that is precisely what the policy does; that is precisely the mechanism of the carbon price. It is a fallacy to assume that the investment in industry will result in less efficient or more expensive industrial products. That is certainly not the case for the steel industry, where investing in green technology results in lower production costs. The Government’s policy framework gives industrial companies a clear investment framework.

[Claire Coutinho]

I appreciate the Minister’s graciousness in understanding our concern for industry. His priority is decarbonisation, but I am sure he will understand the very real risk that it is not the case that the UK is decarbonising, because those industries are not remaining in the UK and cutting their emissions; instead, UK businesses in those industries are going abroad, often to countries that have more polluting regimes than the UK—which has some of the cleanest electricity of anywhere in the world—including places that are still powered by coal. Rather than reducing global carbon emissions, we will actually increase emissions by moving our businesses from the UK to countries that have more polluting regimes. That will mean fewer jobs in Britain for more carbon in the atmosphere. Do the Government plan to monitor whether that is happening, and if it is, will the Minister change course? Surely he would agree that such a scenario would not count as decarbonising well; in fact, it would not be decarbonising the planet at all.

[Chris McDonald]

The shadow Secretary of State and I are clearly both concerned about the same thing. I know that that concern is shared across the House, but deindustrialisation and decarbonisation need not be in competition. Sadly, under the previous Government, there was a 30% reduction in UK cement production, a nearly 50% reduction in automotive production and a 30% reduction in chemicals production. That is why, alongside the ETS policy, we published our industrial strategy; it is why I introduced the British industrial competitiveness scheme to reduce energy costs for 7,000 manufacturing businesses; and it is why we increased the supercharger to 90% for energy intensive industries.

Clearly, we recognise that energy costs have been too high in the UK for industrial businesses as well as consumers. That is primarily a result of the policy of the previous Government to leave us at the mercy of petrostates and fossil fuel dictators, on the rollercoaster of fossil fuel prices. The shadow Secretary of State said that my priority is decarbonisation. I happen to be in a place where there is a happy coincidence between energy security, decarbonisation and the lowest cost of energy. That is recognised by industry, and that is why it is Government policy.

[Claire Coutinho]

Will the Minister give way?

[Chris McDonald]

I feel I have detained the Committee for too long, so if the right hon. Member will excuse me, it would be a good idea to draw the debate—and we have had a good debate—to a close.

The statutory instrument will give certainty to the industry around benchmarks and free allocations. The free allocations reduction is specifically for those sectors that are part of the carbon border adjustment mechanism, so some other sectors will not be affected. The legislation needs to be in place for applicants to apply for their free allocations for the period to April 2026. The statutory instrument will implement the proposed improvements to the scheme.