Greenhouse Gas Emissions Trading Scheme (Nitrous Oxide) Regulations 2011

Lord Taylor of Holbeach Excerpts

Tuesday 17th May 2011 Grand Committee

Moved By

[Lord Taylor of Holbeach]

That the Grand Committee do report to the House that it has considered the Greenhouse Gas Emissions Trading Scheme (Nitrous Oxide) Regulations 2011.

Relevant documents: 19th Report from the Joint Committee on Statutory Instruments.

[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.

--- Later in debate ---

[The Duke of Montrose]

My Lords, I congratulate my noble friend and the Government on bringing in the regulation before it is compulsory—really at the earliest opportunity—to limit nitrogen oxide production in the production of nitric acid. I must declare an interest as someone with an interest in agriculture, because it will be very helpful to agriculture for this assistance to be given to the fertiliser industry.

Following the same lines as my noble friend Lady Parminter, I do not know whether there is scope in the course of the Minister’s reply to consider the question that anthropogenic NO₂ emissions are doubling the amount expected from natural microbial action. In the whole agricultural scene, emissions of that gas are serious. One would like to know whether the Government are pursuing suitable protocols to determine emission levels of nitrogen dioxide and what can be done to limit them.

[Lord Taylor of Holbeach]

My Lords, I thank all noble Lords who have participated in this useful and productive debate—in particular, the noble Baroness, Lady Smith of Basildon, for advising me in advance of what she was particularly interested in. I am happy to be able to address those issues.

What has been very satisfying has been the support that the measure has and the acknowledgement that this is the right way in which the Government and industry can work together for the benefit of the United Kingdom economy in general and United Kingdom investment.

The noble Baroness asked about the monitoring system. The installations covered by EU ETS are required to monitor and report emissions. At the end of each year, they are required to surrender allowances to account for their installations’ actual emissions. The annual emissions figure must be approved by an independent third-party verifier. That operates not just in this area but across the EU ETS scheme. That is part of GrowHow’s existing commitment in its carbon reduction programme.

The noble Baroness also asked about the consultation process. We used the shorter consultation process. As there was a single manufacturer involved, we felt that it was unnecessary to have a protracted consultation period. In fact, there were three other consultees: Scottish and Southern Energy, Scottish Power and the Chemical Industries Association. All were generally supportive of the N₂O opt-in. Concerns were raised by the Chemical Industries Association about the proposal, included in the consultation, to place a legal requirement on nitric acid producers to return the allowance if they reduced levels of nitric acid production—the partial closure rule—but the Government have agreed that partial closure is unnecessary and we will not be insisting on that in the regulations.

The noble Baroness also asked about the obvious concern, given the hiatus in the market earlier this year, on EU ETS registry security. The UK registry is widely recognised as one of the most secure registries in Europe, but, EU-wide, the Commission has issued a draft regulation to address those security issues, and we are engaging with the Commission and other member states on that. Our aim is higher levels of security in the registries while ensuring that we still have a liquid and well functioning market. The Government are well aware of our role as a leading member and are working closely with France, Germany and Spain to try to ensure that the standards throughout Europe are maintained at a high level to reduce that risk.

My noble friend Lady Parminter asked about air quality. That is a very reasonable question to ask. There is no degradation in air quality as a result of those operations. The measure reduces nitrous oxide emissions so, if anything, there should be an improvement, but we could not quantify that exactly. She then asked, as did my noble friend the Duke of Montrose, about the relationship of the regulations to the policy of carbon reduction and nitrous oxide reduction for agriculture in general and about what progress had been made on that front. I cannot answer that question directly, but it is interesting. I will ask my noble friends in Defra to write to put noble Lords in the picture on that.

Meanwhile, if I may, I commend the regulations for approval.

Motion agreed