Emission Reductions and Low Carbon Investments

Debate between Nick Hurd and Jake Berry

Monday 12th December 2016 General Committees

[Mr Hurd]

I opened with, in my experience, uncharacteristic candour on behalf of the Government in saying that I do not think our Department demonstrated best practice in that way. It is quite hard. We are having the debate 12 months after my right hon. Friend the Member for South Northamptonshire (Andrea Leadsom) made it quite clear that we were open to that. The situation has moved very slowly from one where there was frankly nothing to debate to one where under the Slovakian presidency everything was turbo-charged and moving fast. Our first instinct—I think a natural one—was to say that with things moving so fast perhaps we did not have time, but on reflection I am extremely glad we are having the debate.

I emphasise that I and the Department are aware of the importance of proper procedure, in terms of scrutiny clearance, not least in the present context. I have been candid about putting our hands up to say I am not sure we have demonstrated best practice; but we certainly intend to do so.

[Jake Berry (Rossendale and Darwen) (Con)]

What changes will the Minister seek with respect to the existing binary system for classifying carbon leakage as the negotiations proceed?

[Mr Hurd]

We have received many representations on that point, because it is highly emotive for a number of sectors. My hon. Friend may be aware that along with France we have argued for what is called a tiering system, based on the premise that if we are going to have free allocations in the system—and we are going to, for a period of time, as we manage the transition—those allowances should be targeted at those sectors that are clearly at most risk from carbon leakage based on their carbon intensity and what is called their trade intensity. Therefore we have simply been trying to assert the argument that free allowances should be targeted on those who need them most, rather than spreading the jam across the system. I should tell my hon. Friend that I think we are losing that argument.

[Jake Berry]

Will the Minister also explain his concerns in relation to sectors that are not liable for free allocations being at risk of a windfall profit and how that will affect UK industry protection?

[Mr Hurd]

There has been a clear suggestion in the past of over-generous allowances and windfall profits, and various bodies have tried to measure that and the value runs into large amounts of money. The emissions trading scheme is extremely complicated, not least because of the difficulty of ensuring fairness and transparency around the allocation of free allowances. Because we want the system to work and deliver what it was set up to do—which is to set a market-based mechanism that allows and incentivises low-cost abatement of carbon—we are hawkish in terms of making sure that the system is not gamed, and that it works effectively.

At the same time—and this is part of the complication, and, to be clear, I remind the Committee that I speak as the Minister for Climate Change and Industry in the Department for Business, Energy and Industrial Strategy —we have to listen to all voices. I had a round table last week with representatives of the power sector and industries which, in many cases, were arguing against each other. It is Government’s role to find a path through the various rocks on the road. I am not entirely sure that in the past the path has led to the outcome we want, but my hon. Friend will know that we must be extremely sensitive, particularly at this time, when various sectors of the economy are feeling vulnerable and uncertain, not least because of Brexit. Therefore they need as much visibility and certainty as possible. Those are just some of the compromises that the Government must think through and negotiate on behalf of the country.