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EU: Emissions Trading System (EUC Report)

As a member of the committee, I, too, thank our chairman for the skilful way that he led us in this inquiry. I also thank our Clerk, Julia Labeta, our committee specialist, Alistair Dillon, and our specialist adviser, Alyssa Gilbert, for all the assistance they have given us with this complex inquiry. I want to tender an apology to the chairman, the Committee and the House for overlooking that I should have declared in our report that I am an adviser to Accenture plc. I make this declaration in the House’s Register of Members’ Interests, of course, and so far as I can see it is not really relevant in this instance, but, as a number of newspapers seem to have taken to adding two and two together and reaching five, since I did not mention it I ought to make sure that my oversight does not lead to any unfounded and inaccurate allegations. I can declare it only as an irrelevant interest. I turn to the meat of the debate. We have heard a remarkable survey not only of what we dealt with in the report but beyond it. This is a fast-moving topic, and indeed since we reported we have seen the details of the compromise reached on the terms of the system that is to run from 2013 through to 2020, and for some aspects of it on to 2027. Some of those details have fallen short of what we recommended, but positive steps have also been announced as part of the package. I refer particularly to the support that has been offered to help stimulate the much needed development of carbon capture. Here I underwrite the plea of the chairman of the committee that the Government need to get a move on in this area if they are to avoid continuing and increasing criticism from several quarters for failing to take the appropriate decisions speedily enough. The world economy has continued to decline dramatically since we reported last autumn, and as a consequence of the downturn in business, carbon dioxide emissions have also dropped. That is a good thing, and not many people would argue against it. However, as others have mentioned, a worrying consequence is that we have also witnessed a collapse in the price of traded carbon, which is seen as a cornerstone of the EU’s climate and energy policy. Some have argued that the system might fail, contending that we are over-reliant on market forces and that policy-makers are ignoring the risks attached to a low price for carbon: something that could become the norm. I would be grateful if the Minister could tell us what adjustments and alternatives might be available to the Government and the EU if circumstances demand changes to the system. Some advocate that we need a minimum and a cap within the price to ensure some stability for businesses in Europe so that they can see where they are going and decide whether they can sign up, but the present circumstances are so uncertain that all the hopes and ambitions that Europe might have will fail to be delivered unless we see a swift upturn in the world economy and thus in Europe. I start from the premise, which the noble Viscount, Lord Slim, put so ably in his groundbreaking report, that the scientific evidence for global warming is now overwhelming. The benefits of early action considerably outweigh the costs. I know that this is not the universal view of noble Lords, but I share the mainstream opinion that global warming is an urgent and escalating problem. I welcome the EU’s commitment to set clear targets to try to reduce carbon emissions. Evidence of the scale of the challenge continues to grow. The reports of the Copenhagen climate change gathering held just over a week ago were quite frightening, as the noble Baroness, Lady Sharp, indicated. The noble Lord, Lord Stern, was there, again calling for action, as he did at the World Economic Forum meeting in Davos. I am an avid reader of his contributions to the various international gatherings that he attends. I was particularly interested in what he said about Britain’s banking industry and how it is likely to become one of the nation’s key assets in dealing with climate change. He suggested that Britain’s banks and financial institutions would be an essential element in building the low-carbon infrastructure that the country will need if it is to achieve its emissions reduction targets. He said: ""Banking could do very well as Britain moves to a low carbon economy. There will be lots of business opportunities and Britain’s bankers are particularly strong in this area. They have been very creative over all kinds of issues and they could do it again in the financing of green initiatives"." I do not know whether he was speaking with his tongue in his cheek or being truly green, but he prompted me to refer to that part of our report where, last October, we took evidence from a number of bankers, analysts and researchers. We were anxious to get an insight into how the carbon market was developing in monetary terms in its volume, its value and where it was anticipated it would go in the light of the Commission’s proposals, particularly for the third phase from 2013-20. I will not go into all the detail. Different views have been expressed about whether the first phase has been a success. Certainly, the bankers’ view was that the money had grown very quickly in the relatively short space of time that the new system had been operating. Admittedly it has declined since then because of the downturn in the world economy, but their figures showed that it was growing at a phenomenal pace. We need to get back to growth to see whether the carbon price can initiate the changes we are looking for. Will the Minister ensure that we are up to speed with the financial regulation? On page 71 of the oral evidence, at Question 334 which I raised, the Minister will see that we expressed concerns about how the system was operating and how it was being regulated. While I take into account the views expressed by my noble friend Lord Giddens about overregulation, in some areas we need proper regulation. In the evidence, it is interesting to note that the bankers and the analysts expressed doubts about the ability of the FSA in this area. One witness said: ""What is lacking is the financial regulation. The FSA does not care all that much about the carbon market just yet"." This is a market worth not just up to $60 billion, but estimated—not the final figure—for 2008 to be worth more than $100 billion within the space of three years. The witness continued: ""The bigger gap is in financial regulation. If we want carbon to be an asset class in the same way as other commodities are assets, then before long we have to get serious about the financial regulation of that asset class"." In fairness we did not take any evidence from the FSA, which may have quite a different view on this. I would welcome the Minister’s comments and his assurance that this issue is being examined and that we will not run into problems in the same way we have in other areas with our banks over recent months. This report highlights both the challenges and the opportunities of emissions trading as part of a strategy to reduce carbon production. Like others, I believe that ultimately the solutions will have to be found on a global level. Given the problem we have with the price of carbon and where it is going, can the Minister indicate how much elbow room and opportunity there will be for European Governments at the forthcoming Copenhagen conference to actually have the money needed to incentivise the BRICs to get involved with us and the other developing countries to participate in a global climate agreement? Without the money being there and the incentive being open to them, I suspect that, while we may have our scheme operating in Europe—warts and all—it will not be worth anything if we cannot pull in the rest of the world. We have to be in a position to incentivise them to join us.