Carbon Emission Charges

Lucy Frazer Excerpts

Monday 1st November 2021 Westminster Hall

[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.

[Jerome Mayhew]

My understanding is that it is not the price of the product that will go down, because France is already installing 400,000 heat pumps, so there is volume in product. Interestingly, it is about the mechanism of installation: when the big electricity suppliers begin to install heat pumps, rather like British Gas does with boilers today, that is when the prices will really come down.

[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.

[Alan Brown]

Will the Minister give way?

[Lucy Frazer]

I will make a little bit of progress, because I am about to address a point that the hon. Member himself mentioned, which was about aviation duty. The point about a domestic increase in air passenger duty has been made over the past few days, but I would like to highlight some other work that is being done in this industry to try to ensure that it is compliant with our net zero targets and ambitions. We have the Jet Zero Council, which is looking at how we revolutionise this industry and make it more carbon neutral.

[Alan Brown]

I know about the work of the Jet Zero Council, but what measures were in the Budget to help the airline industry decarbonise?

[Lucy Frazer]

The Budget set out a number of measures to ensure decarbonisation. There was a significant amount of spending in relation to decarbonisation in various transport areas, including the electrification of cars. We have already talked about heat pumps, and in relation to the airline industry, the hon. Member will remember that as well as reducing the tax on domestic airlines, we increased the tax on long-haul flights, recognising that it is not particularly carbon friendly for people to travel further.

I would like to address two important points that were not really raised in the debate but which were in the petition. The petition makes the link between air quality and subsidies to fossil fuel companies. I want to highlight that the UK has been a long-standing supporter of the multilateral efforts to promote fossil fuel subsidy reform since they were first proposed in 2009, including through the G7 and the G20. In December 2020, the UK announced its support for the statement on global fossil fuel subsidy reform. Inefficient fossil fuel subsidies encourage wasteful consumption, reduce our energy security, impede investment in clean energy resources and undermine efforts to deal with the threat of climate change. In March of this year, the Government went further, confirming that the UK

“will no longer provide any new direct financial or promotional support for the fossil fuel energy sector overseas”

other than in tightly defined and limited circumstances, such as technical or regulatory assistance that supports health and safety or to support decommissioning.

The other important matter raised in the petition was air quality. I want to underline that the Government are taking significant steps to improve air quality in the UK. It is not just tax measures, but non-tax measures, that achieve our aims, which is why we have a strong and proportionate regulatory framework that requires industry to reduce emissions, including of carbon dioxide, nitrogen oxide and particulate matter. The industry has responded with investment and innovation to meet those standards.

I would like to conclude by saying that it is a pleasure for the Government to answer on this extremely important topic. The petitioners’ success in securing this debate should not come as a surprise to any of us—it is simply evidence of the widespread recognition of the challenge we face, the importance of the issue and the cross-party support for tackling climate change. As the Prime Minister said yesterday,

“The UK has proved it can be done—we have lowered our greenhouse gas emissions by 44%... And we’re cutting our contribution to climate change more and more every day.”

I reassure hon. Members and the thousands of petitioners that the Government take the issue extremely seriously. We will continue to act on many fronts, both nationally and internationally.