Emission Reductions and Low Carbon Investments

Peter Grant Excerpts

Monday 12th December 2016 General Committees

[Mr Hurd]

We are open to mechanisms and discussion about the how. The point that we are trying to make is that we need to accelerate the process of taking surplus allowances out. We think the MSR continues to be the right primary tool for doing that; the issue is the pace at which it is done. We are trying to gather support for doing that on a bigger scale at a faster pace.

[Peter Grant (Glenrothes) (SNP)]

I have questions on three different aspects of the Minister’s statement. With your permission, Chair, I will go through them all now, so the Minister can deal with them together.

First, the Minister has confirmed that no decision has been taken as yet as to whether the UK wants to be in or out of the emissions trading scheme after leaving the European Union. What are the implications for the UK’s future influence on the rules of the scheme if we decide to stay part of the scheme but not part of the European Union? We would not have a place on the Council of Ministers and so on when EU directives were being agreed.

Secondly, although—

[The Chair]

Is this the second question?

[Peter Grant]

Yes.

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[Mr Hurd]

I have explained the decision we have taken. As with many of the climate-related issues in relation to the EU—we have participated in negotiations about the burden-sharing regulation following the Paris agreement and this scheme—we have taken a view that while we are still a member of the European Union we will participate fully in these negotiations. Whatever we do in the future in terms of our ongoing relationship, these negotiations matter for our national interest. It is entirely right that we are at the table negotiating fully.

Our participation in these reform discussions has been welcomed, as far as I can see, by our European partners. There has been no resistance, and no suggestion at all that we are not in a position to influence the future. In fact, our participation is welcome—not least because most people recognise that we were one of the principal architects of the scheme and one of the thought leaders on how we can make the mechanism work in the future. Our participation is welcome, and our influence continues to be real.

[Peter Grant]

With respect, the Minister is describing what happens now, while the United Kingdom is still a full member of the European Union. Although the directive is intended to run until 2030, it will not be long before we have to start looking at updates, reviews and amendments; the next time the European Union looks at amendments to these regulations, it is likely that the United Kingdom will no longer be a member. Is there any process in place by which states that are not members of the European Union can have a say and, if necessary, a vote on any future revisions of the directive?

[Mr Hurd]

We are talking about negotiating the principal elements of the reform of the emissions trading scheme. As far as I can see—it is a fairly opaque process—that is due to be completed by the end of 2017. That is when the base of the agreement is likely to be reached, and work can then begin on underpinning the implementation. That is well within the Brexit timeframe. Our view, therefore, is that we should continue to be a very constructive, positive, inquisitive voice at the table to ensure that the next phase of the emissions trading scheme—I would argue that it is in one of the most critical phases in its history—is structured in the right way.

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[Mr Hurd]

The hon. Gentleman’s first question—he tempts me to allude to models that I might have in my mind—takes me into the territory of providing a running commentary, which would have career consequences that I am not prepared to contemplate. The point is fundamentally right: we are one of the principal architects of this system. It matters a lot, because at the moment the emissions trading scheme covers 50% of our emissions, and we have very serious long-term carbon targets, so getting it right and making it work more effectively is absolutely in our interests. We have an opportunity to do that by shaping these negotiations. Once we leave the European Union, there are options to think through. The hon. Gentleman is right that there are models whereby countries continue to participate in a scheme and influence the rules. However, we are categorically not at the point where we have got a clear view on that. We have to look at it in the round and think through what is in the national interest.

On the hon. Gentleman’s second point, he is entirely right to recognise the structural failure—if that is not too harsh a criticism—of the emissions trading scheme in setting a price for carbon that drives behaviour. We are now talking about €4 a tonne, and I do not think anyone is arguing that that is as powerful a driver of behaviour as we would like. This country took a unilateral decision to implement the carbon price support mechanism. In that context the carbon price signal and the emissions trading scheme matter a great deal to us because ultimately the objective should be to ensure the level playing field across Europe we want so that our industry remains super-competitive. That in large part underpins his point. The point I am trying to make is about why it is in our interests to ensure that the reform of phase IV of the emissions trading scheme is sufficiently ambitious in terms of taking out surplus allowances to give the opportunity to narrow the divergence between the carbon price in the UK and that across the EU.

[Peter Grant]

With reference to the 1.8 billion surplus allowances to which the Minister referred, simplistic economics theory of supply and demand suggests that supply is far too high and that we should cut it and reduce the overall emissions target for the whole of the EU. Is the fact that so many allowances are going spare an indication that the EU could be more ambitious in the targets it sets for others to reduce carbon emissions more quickly than we were doing previously?

[Mr Hurd]

That is a good question; let me break that down. On ambition, because we are talking about a cap and trade scheme, there is a debate about whether the level of ambition should be accelerated. The Council’s suggestion is that the current reduction of 1.7% a year should be escalated to 2.2%. There is a discussion about whether there should be more ambition, but I do not detect any real political traction behind that and therefore the focus of our energy—apart from on preserving fiscal sovereignty, pursuing simplicity and the other things I mentioned—is on gathering a coalition of the ambitious in terms of accelerating the withdrawal of surplus allowances from the system.

[Peter Grant]

My final question, I promise. As I look at the exchange of correspondence the Minister and his predecessor have had with the Chair of the European Scrutiny Committee, I note that his predecessor wrote on 23 November 2015, in agreeing to the request for the debate, that it would be better held in six or 12 months’ time once the shape of the new directive had become clearer. Almost exactly 12 months to the day, the Minister wrote to the Scrutiny Committee asking for scrutiny to be lifted because there was not time to hold a debate in the four weeks that remained before the Council decision. Can he see why that kind of behaviour causes members of the Scrutiny Committee and others to wonder how committed various Departments are to holding themselves properly to account and to parliamentary scrutiny? Will he explain why on 21 November neither he nor presumably his colleagues who set House business thought it would be possible to timetable a two or three-hour debate in the four weeks between then and the intended Council decision?

[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.