UN Framework Convention on Climate Change

Tim Yeo Excerpts

Thursday 18th April 2013 Westminster Hall

[Mr Tim Yeo (South Suffolk) (Con)]

I warmly welcome the opportunity to debate the UN framework convention on climate change process—a subject in which the Select Committee on Energy and Climate Change takes a close interest, and will go on doing so during 2014. Our previous report on the subject was published in July 2012, and I will run through some of the recommendations.

In general terms, we attach importance to the UNFCCC process. It is the international route for trying to reach agreement on how to tackle climate change. It is clearly—evidence shows this—a tortuous route, so while we affirm our belief in its vital importance, we should not feel dismayed or frustrated by the lack of progress. There is a danger in thinking that unless we reach a global agreement, nothing much will have come out of this. I believe that the existence of the UNFCCC process is a valuable spur to countries doing things individually. Many of the commitments that have been made on emissions targets and the progress on achieving climate change legislation around the world have resulted, at least in part, from the fact that we have the parallel process taking place—international negotiations—which focuses the minds of individual Governments.

In that context, I commend the work of GLOBE International, with which many members of my Committee and several hon. Members present are closely engaged, in helping to spread awareness of the benefits of climate change legislation. As we speak, the Chinese version of the latest GLOBE legislative study is being unveiled in Beijing by some of our colleagues. Does my right hon. Friend the Minister want to intervene?

[The Minister of State, Department of Energy and Climate Change (Gregory Barker)]

No.

[Mr Yeo]

I am sorry; the Minister was paying such close attention that I thought some gem—some pearl—must be about to drop from his lips, but that will come later.

Let me deal with some of the key recommendations and the responses to and outcomes of the report—first, on monitoring, reporting and verification. We recommended that the Department of Energy and Climate Change push for a single accounting regime to ensure effective MRV. DECC agreed that a common accounting framework was necessary and hoped to see progress on that at Doha. The outcome was a number of changes to the MRV framework to improve transparency and accountability.

Energy efficiency is a subject close to the heart of my Committee in a number of contexts, and we recommended that the Government prioritise it as a mitigation strategy, using EU cohesion funds and EU emissions trading scheme credits to drive energy efficiency policies. The Government agreed with those recommendations, although they noted the need for a stricter cap or for structural reforms to achieve that with the EU ETS. I shall return to emissions trading in a moment.

On the role of the UNFCCC, the Committee considers it the leading multilateral forum through which to combat climate change. The Government share that view. We should not allow the rather tortuous progress to be a reason to despair. Alongside the international process, the bottom-up process should give every possible encouragement. We increasingly see individual countries making national commitments.

[Sir Malcolm Bruce (Gordon) (LD)]

The hon. Gentleman has already mentioned GLOBE, but does he not agree that if GLOBE had not existed, the progress that has been made in countries such as Mexico and China might not have been achieved and that it is vital that we continue to work at that level? He makes exactly this point: international co-ordination is important as a driver, but without national input we simply would not get international agreement.

[Mr Yeo]

I entirely agree with the right hon. Gentleman. I am pleased that the Foreign and Commonwealth Office is supporting GLOBE; it should continue to do so, because of the beneficial impact it has had. Interestingly, there is also some correlation between the location of the conference of the parties meetings and progress by individual countries. The progress made in Mexico and South Africa was encouraged by the fact that they hosted COP meetings, and the selection of venues for future COPs will have a bearing on further progress. When South Korea was in the frame to host the COP last year, I was disappointed that it was not chosen. South Korea is another high energy user with a rapidly growing economy, and it has shown a lot of interest in wanting to address the need for low-carbon technology.

We received evidence on emissions trading and the desirability of a global cap-and-trade system, and I think that the Government broadly share our view, but we are all aware of the enormous practical obstacles. Nevertheless, I hope that we face something of a critical moment in emissions trading, particularly after this week’s vote in the European Parliament. It is much to be regretted that the enormous impact of the recession on emissions in the EU—reducing them to well below the pathway that would have been realistically forecast five years ago—is not in any way recognised through tightening of the limits in phase 3. We have seen the effect of that on the carbon price. Alongside that, however, we can take encouragement from the commencement of emissions trading in California at the start of this year, where there seems to be real commitment from the state, and the governor in particular, to making it work, and from the emissions trading pilots under way in China, which we will focus on in the second of the afternoon’s debates.

It is the view of the Committee, and my very strong view, that what happened this week in the European Parliament underlines the damage that the UK Treasury’s unilateral imposition of a floor price for carbon could do to some sections of British industry. That should now be seen and acknowledged for what it is: a straightforward tax, introduced by the Treasury for revenue-raising purposes. It will do nothing to reduce carbon emissions; it might divert some emissions from this country to the rest of the EU, and it might put British business at a competitive disadvantage compared with the EU, just for the Treasury to collect another few billion pounds a year. If the Treasury says, “We’re going to have a tax,” that is fine, but do not dress it up as an environmental measure which, I am afraid, tends simply to discredit the concept of carbon pricing.

[Barry Gardiner (Brent North) (Lab)]

I pay tribute to the hon. Gentleman for the way he has steered the Committee in producing the two reports and for his remarks so far. Does he agree that what has happened with the carbon price and the announcement in the Finance Bill about raising the carbon floor price will act as a direct subsidy to nuclear production companies in this country, such as EDF, in a way that will distort the market? Like him, I support nuclear, but we must recognise that the market will be distorted by giving nuclear a substantial subsidy at the very time when the Government are attempting the difficult process of negotiating a strike price with EDF over the future of energy costs in this country.

[Mr Yeo]

I certainly do not dissent from the hon. Gentleman’s analysis of the effects. We are at a sensitive stage in the nuclear negotiations and this may be another unhelpful dimension. I would like to see a rational approach. There is an important role for nuclear, alongside a lot of other low-carbon technologies, but we need to get it at the best value for money for electricity consumers and the competitive position of British business.

[David Mowat (Warrington South) (Con)]

I wish to follow up on the point made by the hon. Member for Brent North (Barry Gardiner). A subsidy for new nuclear would be more defensible, but the issue is that it is a subsidy for existing nuclear, which makes no sense whatever. I reiterate the point made by the Chairman of the Select Committee, my hon. Friend the Member for South Suffolk (Mr Yeo): such a differential between us and the rest of the EU could wipe out large parts of the process industry in the north of England. It is not tenable—not at all.

[Mr Yeo]

My hon. Friend is right about the difference between new and old nuclear, and I take his point. I reiterate that my Committee and I are wholly opposed to the floor price for carbon, which is a tax. It is not a green measure, although it was introduced as one, and it was never going to have that effect. I am a great supporter of the concept of emissions trading and a great advocate of more urgent action to accelerate the introduction of low-carbon technology. The floor price for carbon will not do anything to achieve those objectives.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

Will the Chairman of the Committee reflect on the fact that not only was a substantial floor price escalator effectively announced in the Finance Bill, but that escalator was £1 above EU ETS prices with respect to what was originally proposed in the consultative document on which the new rates are based; was put into place at £5 above EU ETS prices; and now, with the projections to 2015-16, is £12 above EU ETS prices? Does he have any thoughts on that trajectory and the way it was laid out?

[Mr Yeo]

The hon. Gentleman makes a telling point. It is clear that, even in the Treasury, the floor price is simply seen as a way to extract revenue, but it has chosen to do that in a way that is particularly damaging to some sections of British business. Incidentally, his thoughtful intervention has given me time to remember that, in opening, I should have drawn attention to my entry in the Register of Members’ Financial Interests and declared an interest in a number of energy businesses. I reiterate, as I have on previous occasions, that those interests were acquired long after my views on these subjects were formed 20 years ago, when I had some ministerial responsibility for the matter.

I shall touch briefly on one or two other recommendations. The Government agree with the Committee that we should work with industrial sectors and stakeholders to develop a sectoral trading scheme between developed and developing nations. The Government also accepted the Committee’s recommendation that the second commitment period of the Kyoto protocol should last eight years and include a review clause to allow for more ambitious emissions targets, if necessary. They also agree that efforts should be focused on developing the Durban platform, because countries such as Canada, Russia and Japan were unlikely to sign up to a second Kyoto period.

I share the concern of some commentators that more progress has not been made towards closing the emissions gap. Without wishing to provoke my right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) into too much anger, I will quote Lord Stern, whose comments on it were apt. He said that

“there has been, yet again, a very big mismatch between the scale and urgency of action required to effectively manage the huge risks of climate change, and the political will and ambition that has been displayed in Doha. Current commitments and pledges by countries to reduce emissions by 2020 are clearly not consistent with the goal of giving the world a reasonable chance of avoiding global warming of more than 2 centigrade degrees. We are headed on current plans for likely increases of 3 centigrade degrees or more”.

He has more to say, but I think I have perhaps said enough on that point.

The Government also supported the Committee’s view that a target of a 30% emissions reduction by 2020 should be set at EU level, and the view that that would be in the UK’s long-term economic, as well as environmental, interest.

I will leave other members of the Committee to address some of the report’s other recommendations, because I want to allow a little more time, if possible, for the second debate, which is on low-carbon links with China. The process that we consider in the report and are debating this afternoon remains important and, frustrating though it is, I am glad that the Government continue to participate fully and constructively in it.

[David Mowat]

My hon. Friend makes a point that I have been reflecting on. He says that his Committee is of the view that a 30% cap is in the UK’s long-term economic interest. For my own education, will he tell me the main thrust of the argument on how that long- term interest will be met by that?

[Mr Yeo]

Gladly. I am pleased that my hon. Friend has raised that point. I was suggesting a 30% target for the EU, rather than for just the UK. I believe it is highly probable that global concern about climate change will intensify substantially in the next 15 to 20 years, and that by the mid-2020s large areas of the globe will be covered by emissions trading and have carbon pricing mechanisms. It is also likely that that will be supplemented, in many countries, by carbon taxes. If that turns out to be the case—of course, I cannot be sure it will—I believe that countries that have moved more quickly towards low-carbon transport systems and electricity generation, and energy-efficient low-carbon buildings of all kinds, will have an economic advantage, as well as their having done the right thing environmentally. The probability is that in that situation the costs attached to fossil fuel consumption will become very high.

I entirely accept that if my expectation is wrong, and if concern about climate change decreases rather than increases, with the world being quite happy to burn huge quantities of coal and gas, my judgment will turn out to have been wrong and a fairly small competitive disadvantage will have been suffered by countries that chose to diversify their energy mix in the way I suggest.

There are also energy security reasons for not saying, “Let’s bet the farm on gas.” I look at what has happened to gas prices in the past five or six years, the International Energy Agency projections for gas consumption, particularly in Asia, and the possibility of planning difficulties with the uncontrolled roll-out of shale gas developments in this country, and I think that in policy terms it is rash to believe, “We have a secure energy future by saying it’s all going to come from gas.” I strongly favour a diverse mix, with nuclear, low-carbon renewables and much more emphasis on energy efficiency—a true “no regrets” policy. Countries adopting that model are likely to be in a better position in the 2020s and might have a big competitive advantage.

[David Mowat]

I agree with what I think is the point that the Chairman of the Select Committee is making, which is that if the world continues to show great concern about climate change, the first movers might have an advantage. Does it not give him pause for thought, though, that the EU in particular now appears to be showing some reluctance on building in a persistent competitive disadvantage to the United States? That would be one interpretation of the vote this week. If that were to become more pervasive, it would create some issues with respect to my hon. Friend’s analysis.

[Mr Yeo]

I do not want to get too distracted by that, but the terms of trade in the debate have clearly shifted a lot in the past year or so. The two big factors are, first, that the recession seems to be longer and worse that we had thought—not just in this country, but across the EU, although perhaps for slightly different reasons, and, secondly, the extent of the competitive advantage that shale gas now gives the US. Despite all that, if we say, “Okay, that’s fine. Let’s not bother with nuclear or low-carbon renewables, it’s all going to be gas,” we might find that we are buying gas expensively from a variety of places, which might even include America.

We would not have done much for our competitive position if we landed up completely dependent on fossil fuel imports, the price of which would be completely outside our control, and even the supply of which might not be wholly reliable. I point to the views of all sorts of businesses that are not green-dreaming tree huggers—some are not even connected with the energy industry—but which clearly feel that an energy mix involving a variety of technologies is a better bet than complete reliance on fossil fuels.

[Dr Whitehead]

Might the Chairman of the Committee wish to consider a distinction between internal domestic prices in the US and its export prices? Might he also reflect on the price of the most recent cargo of liquefied natural gas from the US, and the extent to which it was or was not related to the overriding price of shale gas within the US? The extent to which the competitive advantage of the UK may be exported is very much in doubt, and it is likely that world prices, not US domestic prices, will prevail.

[Mr Andrew Turner (in the Chair)]

Order. Will Members on both sides of the Chamber ensure that interventions are brief?

[Mr Yeo]

The hon. Gentleman makes another telling point, which is that a US exporter of shale gas, or any other form of gas via LNG, will sell it in the market in which it can get the best price. It is likely, in my view, that we will see regional gas pricing, with the US, and perhaps north America generally, enjoying a very low price, western Europe enjoying perhaps a middle price and Asia possibly an even higher price, depending on how discoveries go. At any rate, there is absolutely no reason why the US should not sell its gas to the highest bidder. Therefore, it will enjoy an even greater competitive advantage if the rest of the world says, “Okay, let’s all just rely on gas,” because the demand for gas will become greater and greater.

I will conclude my remarks rather than take any more interventions, because I am keen to hear what my colleagues have to say.

--- Later in debate ---

[Mr Lilley]

I do not know why the hon. Gentleman raises the issue of 12-year-olds being employed in any particular industry; I am not in favour of that. Do I accept that there are externalities involved in the activities? Yes I do, and, for the sake of argument, I will accept all the externalities that are attributed to CO_2. I am simply pointing to the reality that India and China, with half the population of the world, Africa, with a further major share of the world, and Latin America are going to develop by harnessing fossil fuels. We will not prevent them from doing so unless we ourselves are prepared to subsidise the difference between fossil fuels and the cost of renewable alternatives.

[Mr Yeo]

rose—

[Sir Malcolm Bruce]

Will the right hon. Gentleman give way?

--- Later in debate ---

[Mr Lilley]

The Chinese, whom we will come on to in the next debate, are planning to produce, by 2030, 11% of their energy from renewables. The bulk of it will be hydroelectric, which is a conventional source of electricity; no one would argue against that. Where countries have hydro power and they can harness it, they should go ahead and do so. That has always been happening and it will happen anyway. It is happening regardless of whether CO₂ is a serious problem for them. Hon. Members must recognise that the world is developing using fossil fuels. We can wish that that was not the case. We can finance great jamborees every year or two. We can all get together and pretend to ignore it, but as long as those in the developing world are free to exploit fossil fuels and any renewables they find economic or choose to inflict on themselves, America will not sign up either. If America, China, India, Canada, Russia and Japan will not sign up, it seems slightly perverse of us to assume that by gathering together we are somehow going to overcome that resistance; we will not.

[Mr Yeo]

For the sake of accuracy—I may have misheard my right hon. Friend—let me say that the target in China is for 11.4% of its energy mix to come from non-fossil sources by 2015. That is in less than three years from now. I might have misheard my right hon. Friend, but I think that he mentioned a later date. May I also put on record that China’s explicit goal is to reduce substantially the use of coal as a proportion of its total energy mix over the next two decades, and it is already the world’s largest investor in renewable energy sources?

[Mr Lilley]

I take all those points, and I probably did give the wrong date for the Chinese. However, I remember also seeing their figure for further ahead, which was not much higher. There would be a large increase in the amount of renewables, but not in the percentage of renewables, and still the vast bulk of their energy will come from conventional sources.

We can make ourselves feel better by bigging up in our mind the amount of renewables and by getting warm feelings about the sight of solar panels bringing light to small villages in isolated parts of Africa. However, if we seriously imagine that these great jamborees will result in an agreement by the countries in the developing world to constrain significantly their ability to grow by constraining their ability to use fossil fuels, we are living in a dream world, and everything that has happened in this debate suggests that the majority of Members present for it are part of that dream.