Carbon Budget Order 2016 - Motion to Approve

– in the House of Lords at 7:26 pm on 19 July 2016.

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Moved by Baroness Neville-Rolfe

That the draft Order laid before the House on 30 June be approved.

Relevant document: 5th Report from the Secondary Legislation Scrutiny Committee

Photo of Baroness Neville-Rolfe Baroness Neville-Rolfe The Minister of State, Department for Business, Energy and Industrial Strategy

My Lords, I am very pleased to address the House as the new Minister for Energy and to open the debate on the Carbon Budget Order 2016. This order fulfils the requirement under the Climate Change Act 2008 for the Government to set five-year carbon budgets on the path to our 2050 target of an 80% reduction in emissions. It sets the level for the fifth carbon budget, covering the period 2028 to 2032. The order is now overdue, after being held up by the extraordinary events of the last few weeks, and I hope noble Lords will be happy to approve it.

As noble Lords know, I am brand new to this area and have not had a chance to look at, let alone review, the policy. However, it is well established and very important, and passed with considerable cross-party support—although that is not of course a reason not to reflect in a practical way on how we can do better, looking at the underlying facts, the economics, issues of security and resilience, and our international commitments on climate change. There is also an interaction between security of supply, price and industrial competitiveness—a key objective of our new Department for Business, Energy and Industrial Strategy.

Before discussing the order, I will reflect briefly on the UK’s Climate Change Act and what it means at the current time. Leaving the EU will bring challenges and opportunities to the UK. However, it does not change the fact that climate change remains one of the most serious long-term risks to our stability. The main direct threat to the UK relates to an increased risk of flooding, and the floods we saw in parts of the north of England last year, which were tragic for those affected, could become more common.

The Act was passed with near-unanimous cross-party support, and this legal framework has inspired countries across the world, including Denmark, Finland and France. At its heart is a system of five-year cycles, mirrored in the historic Paris climate agreement, which the UK helped to achieve. The certainty given by the Act underpins the investment we have seen in the low-carbon economy since 2010. This is an industry of course with extraordinarily long timeframes. The Government remain committed to the Climate Change Act and to meeting its targets for an 80% reduction in greenhouse gas emissions from 1990 levels, and to meeting the subsequent five-year carbon budgets that have been set under the Act.

We are equally clear about the need to keep our energy supply secure and bills as low as possible. The capacity market helps to ensure that we have secure electricity supplies, by bringing forward new investments, including in gas generation. We are laying the ground for new nuclear to play an important role in ensuring our future electricity supplies. The Government have also taken difficult decisions to ensure that costs remain under control and on policies that were not fit for purpose.

I turn to the Carbon Budget Order 2016, which will set the level for the fifth carbon budget at an equivalent 57% emission reduction on 1990 levels. This budget level is in line with the recommendations of our independent advisers, the Committee on Climate Change, and reflects the views of the devolved Administrations. The Government have considered a wide range of factors in proposing this level. We are proposing a carbon budget which balances how to keep on track towards our 2050 goal while cutting emissions at the lowest possible cost. Both the Committee on Climate Change and the Government have agreed that this budget level will put us on a path to our legally binding 2050 target.

The Confederation of British Industry, the Engineering Employers Federation and the Aldersgate Group have all welcomed the certainty that this budget level gives as we move to a lower-carbon economy. Noble Lords opposite will be pleased that the shadow Secretary of State for Energy and Climate Change, Mr Barry Gardiner, the cross-party Energy and Climate Change Committee and the Scottish Nationalist Party have shown their support.

The Paris agreement sent a strong signal to business and investors that the world is committed to long-term decarbonisation. The carbon budget for 2028-32 will ensure that the UK economy is best placed to realise the opportunities that this transition presents. What is important is not just the target but an acceptance that we mean to meet it. Our emission reductions to date give us confidence. The UK met the first carbon budget and is on track to meet the second and third. Provisional figures show that UK emissions in 2015 could be 38% lower than in 1990 and more than 3% below those in 2014. The past two years have seen the greatest annual emission reductions against a backdrop of a growing economy.

The Government have already begun to engage proactively with businesses, consumers and civil society on the development of our policies and proposals, and will continue to do so in the coming months. As noble Lords may know, the Climate Change Act requires the Government to set out our policies and proposals as soon as reasonably practicable after setting a budget level. It is too early to give specifics. However, our new emissions reduction plan will map the transition over the period of the fourth and fifth carbon budgets—from 2022 to 2032.

I move on to the second order, which concerns the third carbon budget credit limit. Although we believe that the Government’s current policies ensure that we are on track for the third carbon budget, it is prudent to allow ourselves flexibility to manage the uncertainty in our emissions projections. This is why the order sets the credit limit for the third carbon budget at 55 million tonnes of carbon dioxide equivalent. That is about 2% of the third carbon budget. It is the same amount of flexibility as was agreed for the second carbon budget credit limit.

I know that we are not in quite the same place as the Committee on Climate Change—it is good to see my noble friend Lord Deben, who chairs the committee, in his seat. It recommended a zero credit limit. However, the Government have concluded that it is best to maintain a small amount of flexibility over the third carbon budget period—of course, we may not need it.

In conclusion, the proposed fifth carbon budget is in line with our independent advice, it demonstrates the UK’s leadership on climate change and it has support across the political spectrum and the business community. It will provide the certainty needed for future investment in a stronger, lower-carbon economy as part of our industrial strategy. The proposed credit limit in the second order ensures a pragmatic level of flexibility should it be required, given the inherent uncertainty in our emissions projections. I beg to move.

Photo of Baroness Featherstone Baroness Featherstone Liberal Democrat Lords Spokesperson (Energy and Climate Change)

My Lords, first, I take this opportunity to welcome the noble Baroness to her new role. It is a big portfolio to learn in a couple of days.

I am pleased and relieved that Her Majesty’s Government have accepted the recommendation of the Committee on Climate Change for the 57% reduction in greenhouse gases by 2030 for the fifth carbon budget, relative to 1990 levels. Since I arrived in your Lordships’ House only at the end of last November, more often than not I have had to criticise and berate the Government for their lack of commitment to tackling climate change and their relentless litany of anti-green actions, from sudden removal of subsidy to renewables industries to the privatisation of the Green Bank, and much between. Therefore, I am encouraged that this commitment will send a message out loud and clear to the world that we remain a country committed to tackling climate change and determined to reduce our emissions right across our energy industry, from power, from buildings, from transport and of course by reducing demand.

It is especially important because, at this moment of uncertainty for the future of the UK in its journey out of the European Union, despite the reassurances we have received from the Dispatch Box both here and in another place that we will both stick to our legally binding EU targets and ratify our signature to the Paris agreement, more is needed. It was a dreadful blow to hear that the Department for Energy and Climate Change is to be no longer. It has gone—collapsed into the Department for Business, Energy and Industrial Strategy. Climate change is no longer named. I fear that that sends out the exact opposite signal: that tackling climate change has been demoted and de-prioritised.

No doubt the noble Baroness will say that that is not at all the case, but I may not believe her. Actions always speak louder than words, and the actions of the Government today and since the end of the coalition have all been in the wrong direction. So I look to the noble Baroness to assure me that climate change will get the attention it needs, particularly given that the National Grid has said that the UK is almost certain to miss our EU 2020 targets for renewables. Will she commit to ratifying the Paris agreement immediately, to send a clear message that climate change will be given priority?

It would also be extremely helpful if the noble Baroness could persuade our new Secretary of State, Greg Clark, urgently to set down in writing his commitment to the future of this planet. With this loud and proud announcement of the fifth carbon budget, we could be in a position to zoom ahead, become world leaders in decarbonisation and tackling climate change and nurture a green economic boom with the innovation we are seeing in low-carbon technologies. I would love to think that that will be the case, but I fear not.

Even on the fifth carbon budget itself and the other order there is a “but”. We on this side of the House are very concerned that Her Majesty’s Government have extended the third carbon budget by 10% when the net account was already 10% below where it needed to be to meet the third carbon budget in 2014. The offset provision should be used only in an emergency and as a last resort against highly unusual and unforeseen circumstances.

To meet the reductions set out in the fifth carbon budget, we urge the Government to prioritise domestic action. Our menu for the Government would be to: support and encourage the renewables industry; quicken and intensify energy efficiency measures; introduce urgently a zero-carbon homes standard—something which we Liberal Democrats championed while in coalition and during the passage of the Housing and Planning Bill, which the new Secretary of State for Energy sadly did not support in his previous role in the Department for Communities and Local Government—support technological innovation; get on with tidal lagoons and give the go-ahead to Swansea Bay. Proof and pudding need to be the order of the day, so I look forward to seeing the plan that the UK Government have committed to set out on how it will meet the fourth and fifth carbon budgets by the end of 2016.

Photo of Viscount Ridley Viscount Ridley Conservative

My Lords, I, too, congratulate my noble friend on her new position and look forward to working with and encouraging her in this area. I declare my interests as listed in the register, including an interest in coal mining in Northumberland.

I beg my noble friend to pause and reconsider on the Motion. The fact that the Liberal Democrats are enthusiastically in support encourages me to beg even harder. This order is a piece of economic self-harm. It is against government policy, it will do precisely no good for the climate of the planet, it will hurt the poorest people in the country and cost jobs, and it will cripple our ability to grow the economy.

Let me take those four points in turn. First, it is against government policy to take unilateral action on carbon dioxide emissions that goes further and faster than any other country. This was explicitly stated by George Osborne in 2011, when he told the Conservative party conference:

“Let’s at the very least resolve that we’re going to cut our carbon emissions no slower but also no faster than our fellow countries in Europe”.

Amber Rudd repeated that promise and went even further last year when she said:

“We have to travel in step with what is happening in the rest of the world”.

The EU in Paris last year promised cuts of 40% by 2030. Here we are promising 57%. That is a unilateral offer to go almost one and half times as fast. Furthermore, why is there no mention of Brexit in the impact assessment, which runs to 97 pages? This is a serious omission and should be put right.

The policy is against government policy in another way. The National Audit Office study last week confirmed the finding of the Office for Budget Responsibility that there is likely to be a large overspend on the levy control framework—about £1 billion over the £7.6 billion permitted in 2020—and the Government’s own planning data show that there are sufficient planning permissions for renewable generators to overshoot the electricity component of the target by approximately 35%, for which there is no budget.

Secondly, how much would this extra 17% cut in the fifth carbon budget reduce global temperatures, if it could be achieved? The UK produces 1.1% of world CO2 emissions. Reducing those by an extra 17% would reduce global emissions by 0.15%. The total warming expected by 2090 is between 0.8 and 2 degrees centigrade, depending on whether you choose the RCP 4.5 or the RCP 6 emission scenario and whether you choose the Lewis or the CMIP model sensitivity. So our unilateral action would reduce global warming by 2090 by between 0.001 and 0.003 degree centigrade.

Thirdly, for that infinitesimal achievement we are being asked to pay with the jobs of British workers, the lives of British pensioners, and the standard of living of every person in this country. In the Government’s low fossil fuel price scenario for 2030, domestic households would see prices 60% higher than they would otherwise be in 2030, while medium-sized businesses would see increases of 114%. Those latter increases will necessarily be passed through to domestic households in the costs of goods and services, giving a much greater total cost of living effect than that found in household energy bills alone. To these must be added electricity system costs for grid expansion and management. My noble friend says that we are meeting the targets in the carbon budget, but we are doing so at the cost of jobs in energy-intensive industries.

Meanwhile, fuel poverty currently kills several thousand people a year. Renewables subsidies will hit those with electric heating particularly hard, and they are already among the most vulnerable households in the country. The impact assessment claims that there is net benefit from these measures, but that claim depends entirely on energy prices, as it freely admits, and the unlamented Department of Energy and Climate Change has been systematically and catastrophically wrong about energy prices again and again. So I am afraid that the claim of net benefit is not worth the paper on which it is written.

Fourthly, the effect of this fifth carbon budget will be to slow the British economy. Even if we stop awarding new subsidy contracts in 2020, the total cost of this programme between 2002 and 2035 or so, when the last contracts expire, will be in the region of £150 billion to £200 billion. That is not counting the cost of subsidies to the French Government to build the Hinkley white elephant. A very large proportion of those subsidies is being paid to buy very expensive renewable energy equipment from German, Danish and Spanish manufacturers and to reward overseas owners, some of them state owned. It is a significant transfer of wealth overseas.

All this adds up to a terrible cost and—worse still—a terrible opportunity cost to the British economy. It comes at a time when the UK needs to become dynamic as never before to make our way in the world post Brexit. Affordable energy is the very cause of prosperity. It amplifies the work of individuals, dramatically raising productivity. The attempt to force an energy transition way ahead of the learning curve and against a far steeper cost gradient than was ever envisaged when fossil fuel prices were high is genuinely hazardous. A coerced return to the thin, costly and variable flows of renewable energy that characterised the medieval economy risks causing deep and lasting economic harm, as well as jeopardising the broader environment, for only prosperous countries can afford to care for the natural world.

Photo of Lord Teverson Lord Teverson Chair, EU Energy and Environment Sub-Committee, Chair, EU Energy and Environment Sub-Committee 7:45, 19 July 2016

My Lords, I, too, congratulate the Minister, who is very diligent in all her work, particularly in areas such as this. I welcome very much her appointment and look forward to working with her in this area, not least as chair of the House’s EU Energy and Environment Sub-Committee. In fact, the country was so pleased about me being appointed as chair of that committee that it voted for Brexit a month afterward—but never mind. I think we are still working out where those committees are going to go.

More seriously, I reflect the sentiment of my noble friend in saying that I, too, am concerned that DECC has just been wiped off the face of government. Climate change, whichever way we look at it—either because it is totally misguided, as the noble Viscount might say, or because we think it is incredibly important and precious—is an important part of government. That it is not there on the brass plate is of concern.

As the noble Viscount would expect, I celebrate the fact that we are moving forward and accepting the recommendation of the Energy and Climate Change Committee on the fifth carbon budget. In fact, the green sector of business and industry, not least the energy part of it, was one of the few areas to show economic growth post-2008, despite the financial crisis at that time. Rather than taking the scenario and explanation given by the noble Viscount—rather than making the equivalent step back from iPads to the typewriter—let us move forward into clean energy, create jobs and make that work. I agree that the externality cost to consumers needs to be taken into account, but we could always do it through taxation if we wished, rather than through energy prices. Perhaps that is the way forward.

I have just looked at the Sandbag app, and coal generation is still below 10%, on which I congratulate the Government, who I am sure have been instrumental in that. We are doing very well.

The Brexit point is important. Part of these orders relate to the EU emissions trading scheme, which is where the credits come from. I would be very interested to hear from the Minister whether the Government have begun to think about our future role—in, out or whatever—in the emissions trading system, and how that might be dealt with. However long it might take to implement Article 50, I presume that the situation will be resolved by 2028, and we need to think forward. The Minister may have news for me there, too.

I regret the fact that we still have the third carbon budget and the allowances as a comfort blanket. I do not get excited or annoyed about it, but it would be good to have enough confidence in ourselves not to need that. However, that is not a fundamental point in any way. What is fundamental—the noble Baroness, Lady Worthington, may bring this up if she speaks this evening—is that carbon budgets account for only some 50% of carbon emissions that are dealt with from the non-EU ETS sector. That means that we do not take full responsibility for our carbon emissions in the United Kingdom. It would be much better if we were able to tweak the Climate Change Act so that the carbon budgets and accounting meant the actual emissions from UK business, industry, households, transport and commerce, rather than a mix of actuals and the trade of the major emitters in the European Emissions Trading Scheme.

I welcome both these orders, although not so much the second one. We are moving forward positively. I have a question about where we go with the EUTS. It is great to create targets—we know this from business and other areas—but we must meet them. An updated carbon plan showing how we will achieve them would give all of us who wish this project well a lot more confidence than we have had over the past couple of years.

Photo of Lord Lawson of Blaby Lord Lawson of Blaby Conservative

My Lords, as a former Secretary of State for Energy, I, too, congratulate my noble friend on her appointment as Minister for Energy. I realise that she is so early in her job that she is not a great authority on the issue, but bearing in mind how well she has performed in her previous role, I am sure that it will not be long before she is very well-versed. She will come to realise that the speech she made introducing this debate, which was obviously written for her by her officials, contained numerous blatant, glaring errors of fact. I shall refer to only one.

She mentioned, in particular, flooding. I draw her attention and the attention of the House to the latest issue of Science in Parliament. It includes an article from Professor Paul Bates of the School of Geographical Sciences at the University of Bristol, entitled “Flooding: What is Normal?”. He finishes:

“In conclusion, in terms of national scale annual losses we can see that, contrary to the standard media narrative, flooding during winter 2015/6 was, by recent experience, entirely normal”.

All the myths that are trotted out have been demonstrated to be false by experts such as Professor Roger Pielke of the United States, who is not a climate sceptic but has shown clearly that there has been no increase in extreme weather events.

I am not going to take too much of the House’s time because, as my noble friend Lord Ridley pointed out, the Climate Change Act, of which these orders are a derivative, is an Act of manifest, acute self-harm, very particularly for the poorest among us and for much of British industry. It does no good to anybody. I do not want to repeat his points, but I hope that when she winds up my noble friend will refer to all the points that he made because they are very important. There is no case for this. It is bizarre that we are doing this.

At this point, I warmly welcome my right honourable friend Theresa May, the new Prime Minister. At the start of her time as Prime Minister, she has made an excellent beginning with the abolition of the Department of Energy and Climate Change. That will not transform everything overnight, but it is clearly an important step in the right direction and signals her recognition that what matters is getting affordable and reliable energy, which is what the people of this country want—the people she said she cares about most in her opening statement of her position. That is what they are calling for: affordable and reliable energy.

The Minister also said something about the reduction we have achieved in carbon emissions in this country. What I think she may not yet be aware of is that the main reason we have achieved it is that energy-intensive industry has gone abroad. This has become particularly topical in the case of the steel industry. There has been no reduction in global emissions; it is just that the emissions are coming from China, India or wherever, and not from the United Kingdom. This boasting about the United Kingdom’s reduction in global emissions is completely meaningless.

I encourage my noble friend, for whom I have a very high regard, not to be caught up in any of this nonsense and to look at the thing afresh in a rational way, as she is well able to do, looking at the effect of this legislation on the poor and on British business and industry; and I encourage her department to do a lot of things in a lot of policy areas which need to be reviewed in the light of Brexit. My noble friend Lord Ridley drew attention to energy policy, and I hope the Minister will instruct her department to have a complete review of the United Kingdom’s energy policy in the light of Brexit. It is perfectly true that European Union legislation, although harmful, is not nearly as harmful as our indigenous Climate Change Act; nevertheless, an overall review is clearly called for, and I hope she will undertake one as soon as possible and realise that the signal she should be responding to is the abolition of DECC. That should be the end of a miserable chapter.

Photo of The Bishop of Salisbury The Bishop of Salisbury Bishop

My Lords, I welcome both orders and welcome the Minister in her new role with its important responsibilities to further our progress in the care of our common home. I particularly welcome her as somebody who lives in the diocese of Salisbury, and I look forward to working with her in this new context.

The Committee on Climate Change’s Meeting Carbon Budgets—2016 Progress Report to Parliament says that it,

“comes at a critical point in the development of climate policy in the UK … against the backdrop of the Paris Agreement in December last year”.

The political circumstances could not be more significant. I was grateful to the noble Viscount, Lord Ridley, for his eloquent speech in favour of international agreements, which gave me a sense of urgency in relation to the implementation of the Paris agreement. I have taken on a preaching engagement in the autumn, about which I have been feeling some trepidation. It is to preach at the annual service for the Worshipful Company of Fuellers. I am now looking forward to that event and to trying to engage with that group of people on these issues.

In 2015, carbon emissions in the UK fell by 3%, mostly in the power sector, where the development of renewable energy has been a big success. It is now much reduced by changes in the regulatory framework. It will therefore be even more necessary to make progress in other sectors, and I hope the Minister’s business background will help innovate in relation to the major areas of buildings, industry, transport, agriculture and land use, and in waste management, where there is much as yet unrealised potential.

I draw the attention of the House to point 7.4 in the Explanatory Memorandum to the Carbon Budget Order that:

“Emissions from international aviation and shipping are not included in the targets and budgets set out in the Act. In December 2012 the UK Government met its obligation”,

by stating that,

‘“we are deferring a firm decision on whether to include international aviation and shipping emissions within the net carbon account at this time”’.

I can see why, particularly after the speeches from the noble Viscount, Lord Ridley, and the noble Lord, Lord Lawson. It is a very difficult problem needing international agreement if we are not to disadvantage UK industry but, given the significance of aviation fuel to our total carbon emissions, it is odd that it is exempt from fuel duty and is zero-rated for VAT, alongside children’s clothing and disability aids. The lack of tax amounts to an effective subsidy of £11.4 billion per year. The Committee on Climate Change noted that total domestic and international aviation emissions remained broadly the same in 2014 as in 2013. Domestic emissions decreased by 7%. International emissions increased by 0.7%, but international aviation represents 95% of total aviation emissions. There are some energy efficiencies that have resulted in a 4.4% increase in passengers. The report represents greater efficiency, but it ought to be possible to get greater reductions without compromising business efficiency.

Per capita, the British fly more air miles than anyone else each year, yet half of us do not fly at all each year. Only 15% of UK residents flew three or more times last year, and that 15% takes 70% of the flights. In this holiday season I understand why politicians will not end cheap air travel, but when will the Government consider scrapping air passenger duty and replacing it with a frequent flyer levy, by which tax would become payable only on a passenger’s second and subsequent flights in each 12-month period? That is a very obvious thing to do, and it has the benefit of avoiding the pitfall that the noble Lord, Lord Lawson, and the noble Viscount, Lord Ridley, point out: it would tax not the poor but the 15% who fly 70% of all flights.

That is just one example in an area that looks like a significant anomaly in relation to our responsibilities under the carbon budget. The bigger question that I hope the Government will address in the coming year is: how will a decision be made about the inclusion of international aviation and shipping emissions within the net carbon account?

Photo of Baroness Worthington Baroness Worthington Labour 8:00, 19 July 2016

My Lords, I add my congratulations to the Minister on taking up her new role, which combines energy with her previous role of business. I declare an interest: as a civil servant I took part in the drafting of the Climate Change Act. I am delighted to see that these orders are tabled today.

The Climate Change Act is, I believe, a world leader. Its depoliticised structure gives it flexibility and strength; it can bend, so it does not need to break. The level of the fifth carbon budget was announced on 30 June, one of the most extraordinary days in one of the most extraordinary weeks in British politics. The reason is that the Climate Change Act creates a legal metronome, providing a long-time structure that rises above such short-term perturbations, even when they are so all-consuming.

In this context, the Government are to be praised for agreeing to the targets proposed by the Committee on Climate Change and on setting a budget that is on average 57% below 1990 for the period around 2030. However, there are many unresolved issues surrounding the carbon budgets and how they are accounted for.

During the recent Energy Bill, we had a long debate about the fact that, after 2020, there will no longer be any specific targets that require us to continue investing in low-carbon energy infrastructure. This is because the EU targets dictating the build-out of renewables will cease to apply. The noble Viscount, Lord Ridley, alluded to this in his speech, and indicated that we might be overcomplying with our renewable electricity target. I point out to the Minister that we are underdelivering on the two other portions of that target, so it is not right to say that we are going to be overcomplying with the EU legislation.

That aside, the fact that there are no renewables targets may not be a bad thing, but we need targets that will help to ensure that we see investment in low-carbon technology across the spectrum, including nuclear and carbon capture and storage, where I know there is more common ground between both sides of the House in supporting those technologies.

The noble Lord, Lord Teverson, also alluded to that issue and mentioned the EU emissions trading scheme, which will of course carry on. As things stand today, we will continue to use that trading mechanism to count towards our budgets—that is to say, we will use the overall allocation of EU emissions allowances as a measure of whether we have stayed within our budgets, rather than the actual emissions occurring here in the UK. We propose to fix that loophole by making clear that for the fifth carbon budget actual emissions will be counted, not offset emissions using EU allowances. A vote on this issue was won twice in this House but overturned in the Commons. I continue to believe that this is a necessary change of policy, and ask the Minister to seriously consider starting an immediate review of the current accounting rules so that early guidance can be given about how the fourth and fifth carbon budgets will be accounted for. That is even more critical, given the uncertainty that has been triggered by the recent referendum.

As things stand, we will not find out precisely how budgets can be met until a statutory instrument is passed after the start of the budget, so in 2029. This provides no clear guidance for those wishing to invest in UK infrastructure and is suboptimal, to say the least. I believe it will prevent actual investment in physical UK infrastructure from coming forward. The noble Viscount, Lord Ridley, has constantly referred to the cost of tackling climate change, but it is also true that one person’s cost is another person’s investment.

Although the Energy Bill sounds technical, and to a degree it is, I stress that this issue is not secondary to the search for a return to true economic growth; it is of central importance. If we find ourselves in a situation where future trade rules are set by the WTO, we will still be constrained in what we are able to do to stimulate economic growth. However, addressing environmental threats justifies government intervention under the WTO. Reinvesting in our energy systems and infrastructure provides one compelling WTO-proof way to rebalance the economy and stimulate real-world growth.

It is not just good economics to take action on climate change; it is also good politics. People care about climate change. Irrespective of what we have heard here today, they care, and it is not just the politicians who—the Minister referred to herself in this context—almost unanimously voted in favour of passing the law in 2008, it is not just the NGOs and it is not just progressive business voices; it is also the general voting public. We especially care when our homes and businesses are flooded or damaged by storms. We care when we cannot escape the stifling heat or unusually cold temperatures.

However, we also care on a deeper level. We want the next generation to have access to opportunities we did not have. We want to believe that we worked hard for a reason. If people believe their lives are going to be worse, their worries greater and their chances more limited by a world destabilised by an unstable climate, that will be a source of anger and frustration. The impacts of unchecked climate change will be felt widely by children alive today, with impacts growing, potentially exponentially, over time. It is our moral duty to act now, in full knowledge of the risks we are storing up, to reduce those risks as fast as possible.

I will briefly echo the words of the noble Baroness, Lady Featherstone, on the Paris agreement. The fifth carbon budget is our own version of the Paris agreement. It covers the same period and is in sync with the levels we would expect to take under that target. The noble Viscount, Lord Ridley, is looking at me quizzically, but his statements were full of errors, because it is not true it is not true to say that all EU member states were expected to take a 40% target. There is such a thing as redistribution of the effort across the member states. Therefore, it is not true to say that everyone would be on 40% and that we are necessarily going further than that.

I end with a question about the Paris ratification. Recent analysis has shown that we are tantalisingly close to seeing Paris become law this year, and the UK could make all the difference. Can the Minister say when her Government plan to initiate the legal process of ratification, and if it will not happen immediately, why not?

Photo of Lord Deben Lord Deben Conservative

My Lords, I declare an interest as chairman of the Committee on Climate Change. I remind your Lordships that the committee has a statutory requirement to provide the most cost-effective way of reaching the statutory commitment of cutting our emissions by 80% by the year 2050. I also remind your Lordships that that is not as ambitious an end as the Paris climate change agreement demands. Therefore, far from being ahead of other people, we have a sensible programme to reach somewhat less than will have to be reached under the climate agreement.

My noble friends Lord Lawson and Lord Ridley do themselves a disservice when they suggest that, because Britain has so small an amount of emissions, we do not count. Yet in their arguments for Brexit, their whole point was that Britain counts on its own. I merely suggest that if we say, “Well, other people can get on with it, but we won’t”, we let down future generations in a way which I hope my noble friends will sometimes be concerned about. They are seeking to stop this generation protecting the next generation, which is why the Climate Change Act has been, and remains, supported by all parties. That is why it is so important to have a system of budgets, as we have, so that everyone understands where we are going and the speed with which we hope to go there.

I have no idea whether the new arrangements will be better than the last as regards Ministers, but I warn my noble friend Lord Lawson that he has underestimated the commitment of Greg Clark as Secretary of State. I do not think he has read what Greg Clark said about his commitment to climate change, or the commitment to oppose climate change which is clearly on the record from our new Prime Minister. As the independent chairman of the Committee on Climate Change, I shall keep both of them down to their words. However, I merely remark that there is no way of dealing with these situations unless business is part of it—so I am not instinctively opposed, particularly as infrastructure, too, has to deal with these issues. I am pleased to see that the chairman of the infrastructure commission has made it clear that he will seek to deal with infrastructure within the context of the carbon budget.

I remind the House that we have reduced our emissions significantly, largely in the power sector. These are not exported jobs going somewhere else; we have done it. Sometimes I wish that my noble friends would appear at the presentations from the Committee on Climate Change. They would find that many of the things they have said are just not true. We have shown that there is no offshoring and that the poor are much more damaged by climate change than any other section of the community.

When my noble friend Lord Lawson refers to the poor, I remind him—I have looked carefully at his Budgets—that the poor did not feature large in those Budgets. But those who care about the poor, and the people who talk about the poor because they work for the poor—all those international organisations, from Save the Children right the way through to CAFOD and Oxfam—are quite clear that climate change is the biggest danger to poor people that exists, and therefore we have to deal with it in a cost-effective way.

Of course there is some argument about whether we should have this little bit of flexibility. However, it is flexibility based on the principle that some of the forecasts may not be as accurate, because it is a long way ahead, and in those terms the Committee on Climate Change has accepted that that should be so.

I could of course answer each of the points that my noble friend Lord Ridley has made, but I do not want to cut out my other noble friend who sits next to me, so I will finish by saying this. Brexit is important but not central. This is our Climate Change Act—the Act which leads the world and which makes Britain the sort of leader that my noble friends thought we ought to be when they talked in the Brexit debates. I think that Brexit is a terrible mistake, but I know that the Climate Change Act puts us in a position genuinely to make a proper contribution for the next generation, and it is there that the jobs will be.

I end with a very simple point. Economic self-harm would be not having the Climate Change Act. That is what you would do if you did not want new jobs and green jobs, if you did not want to sell abroad because you have green products and if you did not want to be the kind of country that leads the world. Self-harm is denying the Climate Change Act. I am proud that all-party support has today enabled the Government to implement the fifth carbon budget as proposed by the Committee on Climate Change.

Photo of Lord Howell of Guildford Lord Howell of Guildford Chair, International Relations and Defence Committee, Chair, International Relations and Defence Committee 8:15, 19 July 2016

My Lords, as another former Secretary of State for Energy—there are plenty of them around—I want to come down from the rhetorical heights that we have just experienced and congratulate my noble friend on her new appointment. It will be very challenging because there are many changes ahead. Some of them are not yet foreseen because of the pace of technology, which will transform a great deal of what we are talking about today.

I declare interests as in the register. I also declare that I come to this whole issue as one far from convinced that we are doing anything like enough to protect the next generation. My criticism is made not with a grand vision that there is a serious climate change challenge for this whole planet but that our policies are not nearly effective enough and, in many areas, are counterproductive in meeting that challenge.

I, along with my noble friends, cannot resist using this as an opportunity for a short requiem for the Department of Energy and Climate Change. I never thought that it was a good idea. It was based on a flawed belief in certain branches of politics that policy and theory are more powerful than technology and market forces. Of course, they are not, as has been proved again and again.

I have a few questions. It is a quiet and empty House at this point in the evening but in fact we are presiding over issues concerning billions and billions of pounds. It is often the way that the really expensive matters get the least attention.

In the carbon budget now proposed for the five-year period from 2028 to 2032, we are planning, on the recommendation of my noble friend who has just spoken and the Committee on Climate Change, a total reduction of 1,725 million tonnes in carbon emissions, which is about 345 million tonnes a year. That is out of an estimated worldwide emission level—in as far as you can measure these things—in about 12 years from now of 40 billion to 45 billion metric tonnes. Therefore, if you can rely on these measures, the contribution that we are making to carbon emissions is rather less than 1/100th of that total, and of course that excludes consumption-based emissions and import-based emissions, as my noble friend Lord Lawson rightly pointed out.

The reality is that our hundredth is up against the 40 billion or 45 billion tonnes of emissions that will be going into the atmosphere at that time, with 70% to 75% of them coming from China, the US, Russia, India and Japan. They are the big ones and the rest of us are trying to do our bit. Therefore, the bigger question behind all this is: if we are serious about global CO2 reductions and about climate change, rather than merely stating that we think we are doing our bit and that is it, and if we are really serious about meeting the challenge for the next generation, what are we doing about attempting to work with those nations to see that they turn the pace of their advance in technology towards reducing carbon emissions? The decision on whether climate change is grappled with and severely contained or whether it is undermined by a colossal increase in emissions will be made not in this country or even in Europe but in those countries.

All around us we can see danger zones: the vast growth in India of coal-fired power stations and vast growth in China, although that has been curbed a bit and the Chinese are using high-quality coal. The Indians are trying to use supercritical boilers to increase the amount of electricity they can get out of a tonne of coal. They are much criticised for doing so but that is the way they are going. My main question is: what is our underlying strategy for meeting the real climate change issues and the real curbing of CO2, rather than just dealing with our own local affairs?

I now turn to the cost of it all. The Explanatory Memorandum for the Carbon Budget Order slightly disingenuously says that there is not a cost. The impact assessment says that it is nought. It goes on to say that the cost is not in the carbon budget but in how it is delivered—that is what influences prices and costs—and, in turn, that is determined by energy efficiency, energy prices and technology. The impact assessment, as opposed to the Explanatory Memorandum, rather ruefully admits that at the end of it all it could cost minus £5 billion if everything goes wonderfully but up to £9 billion if everything does not go so well. These of course are guesstimate figures of a high order.

Secondly, there is the crucial question that my noble friend Lord Ridley raised with the eloquence and precision he has in all his contributions. The impact statement reminds us that the Act requires the Government to publish policies and proposals soonest on how we achieve these carbon budgets. That prompts the question again and again, which never gets a very good answer: are we going much faster than the others? The Act requires account to be taken of the circumstances at European and international level. That is aside from whether or not we are in the European Union. A great many energy issues and co-operation with the continent can of course continue regardless of whether we are signed up to the EU treaties, and they probably will. We get a lot of our electricity daily and we will get more—up to 18 gigawatts through the interconnectors from continental Europe and from Norway. We are linked technologically with Europe whether we leave the EU or not.

Can my noble friend tell us exactly how detailed was the account taken in formulating these budgets—perhaps he can get advice from the Committee on Climate Change, chaired by my noble friend—and how it then explains our devastating domestic energy prices in Britain? They are now, as my noble friend Lord Ridley reminded us in an excellent Times article, 21% higher than the median or average, and our industrial prices are 43% higher than the average. How can we explain that?

Were we able to explain at the time of the closure of Redcar steelworks why our energy costs for steel were 40% above German costs? What is the explanation? Were these matters taken into account? We really are entitled to know how much account was taken of these extraordinary disparities, which give us a higher industrial energy price than any of our neighbours and competitors, let alone of course the great new competitors of Asia, Africa and Latin America. Why are our domestic prices higher than those in continental Europe, with the resulting suffering and difficulty that occurs—whatever my noble friend who spoke earlier says—when people have to go to food banks and face the agonising choice between heating and eating? These are real problems and we need assurances that they are properly addressed before we just tick the boxes and see a huge new impasse develop in areas where we ought to be helping people and not hindering them.

Photo of Lord Grantchester Lord Grantchester Opposition Whip (Lords), Shadow Spokesperson (Energy and Climate Change), Shadow Minister (Environment, Food and Rural Affairs), Shadow Spokesperson (Business, Energy and Industrial Strategy)

My Lords, I thank the Minister for her introduction of the orders. I congratulate her on her new skillset and wish her well on bringing energy into her brief.

That prompts me to reflect on the changes in the Machinery of Government paper merging the Department of Energy and Climate Change with BIS. The recent sudden lurches in government policy, especially with regard to renewables, have greatly affected investor confidence resulting in the House of Commons report. Ernst & Young has also issued a report highlighting how the UK has slipped to 13th in its investment attractiveness index. Here is yet another change and one where climate change has been dropped from the title.

Energy policy development as evidenced by the Climate Change Act 2008, which we are partially discussing today, is critical to countering climate change and the environmental consequences that follow. Some commentators have reflected that DECC has a closer affinity with Defra as a department, especially concerning the activity of the Adaptation Sub-Committee, air quality, flood defences and agricultural policy. Why is it that under paragraph 6 of the Machinery of Government paper, where it is mentioned that the merged department will have joint responsibility with other departments, no mention is made of the Department for Environment, Food and Rural Affairs? Mention is made of the Department for International Development, the Foreign and Commonwealth Office, the Department for Work and Pensions, the new Department for Exiting the European Union and the Department for International Trade, but no mention of responsibilities for Defra. Is this an omission or does it have deliberate consequences? Asking that is not to diminish the opportunities to interpret energy policy in relation to business and industrial strategy, as this statement does.

Secondly, let me praise the Government for bringing forward this SI in agreement with the recommendations of the Committee on Climate Change. The Climate Change Act 2008 was intended not only to put climate change at the centre of government policy but to depoliticise it in the UK and to be strong yet flexible. In this regard, I am happy to agree to the Climate Change Act 2008 (Credit Limit) Order 2016 in that it provides flexibility in allowing a credit limit to be utilised for purchasing unused abatement credits from other overseas countries. In agreeing to the order, can the Minister restate emphatically tonight that the Government have no intention of implementing this since the Committee on Climate Change has advised that it is unnecessary and so that the Government will concentrate on decarbonisation through domestic policies and opportunities?

Thirdly, let me praise the Government for agreeing with the fifth carbon budget recommendations by the end of June, albeit the 30th, just seven days into the tumultuous referendum result to leave the EU. This praise must be tempered with the criticism that the Carbon Budget Order 2016 should have been taken and approved before 30 June under the statutory provisions of the Climate Change Act. Let me not underplay this breach. Once again it highlights the somewhat relaxed attitude towards climate change evidenced by the abolition of DECC, as we have discussed already. Surely it cannot be right to backdate tonight’s approval to 30 June and see that as sufficient. Can the Minister clarify the implications of this breach? It cannot be buried with the legalities pertaining to the old departments. Can she also clarify that statutory obligations are important in her department, that decarbonisation will be championed in the Cabinet, and that energy policy will be a clear priority for the new Administration?

Fourthly, let me praise the Government again that in agreeing the fifth carbon budget which covers the period 2028 to 2032, they are in step with the timelines agreed for the EU in Paris this year. Once again this praise allows me to put a challenge to the Government and seek assurances on further issues by asking questions. The Brexit vote adds yet another cause for anxiety to investor confidence, which is already shattered. In the Paris climate change agreement, certain elements need to be ratified at the EU level and others need member state approval. Can the Minister outline the dates of the legal process for ratification in light of the vote and the departmental reconfiguration? I would underline for her the importance of our continuing to lead internationally on climate change. The former Secretary of State promised to ratify the Paris agreement early. The new Secretary of State has acknowledged that leaving the EU makes it harder to meet our climate targets.

I have many other challenges to put to the Government in the context of the Carbon Budget Order 2016, but perhaps I may finish on the issue of the importance of the policy statements that are a statutory requirement following consent to this order. I am sure that the Minister will want to commit to abiding by that tonight, as well as making a commitment to publicising future energy policy, The Carbon Plan: Delivering our Low Carbon Future, before the end of the year. Attention has been drawn in the debate to the fact that there is a gap in the projected emissions reductions and a lack of policy to close it. The Government must improve on the lack of accountability for the delivery of that plan and for managing carbon budgets. Their own National Emissions Target Board, which is responsible for managing carbon budget delivery between departments, has failed to meet on time or have adequate resources to hold the Government to account. Without public and parliamentary notification, this board has now been replaced by the inter-ministerial group on climate change, the substantial details of which the Government have refused to release, despite questions from Members of Parliament. If the Minister cannot clarify this tonight, can she perhaps write to me with details of dates and summaries of these meetings?

So many other issues have been thrown up by this order, with clear questions on priorities. What is the policy on renewables post 2020? This is badly needed to give investors the confidence to create the infrastructure needed. Will the new ministerial structure have the ability to challenge the Treasury to extend the necessary further support needed? What of the lack of transparency on the levy control framework? The Minister’s department also needs to work with the National Infrastructure Commission to accelerate domestic energy efficiency.

In this period of uncertainty, the noble Baroness, Lady Featherstone, asked many questions that need to be addressed by action. Her colleague, the noble Lord, Lord Teverson, was diametrically opposed to the comments of the noble Viscount, Lord Ridley, criticising the 17% of extra emissions reductions over those of other countries, raised issues over the EU ETS and Brexit. The right reverend Prelate the Bishop of Salisbury asked about emissions from aviation and shipping being excluded from consideration. My noble friend Lady Worthington raised concerns around decarbonisation targets and carbon budget accounting—an opportunity lost during the recent Energy Act 2016.

The noble Lord, Lord Deben, did so well to remind us about climate change and to challenge the Government to implement effectively UK emissions policies. The noble Lord, Lord Howell, also wants us to be serious on the international context of emissions. In agreeing to the order today, I ask the Minister to pick up on these issues in her reply.

Photo of Baroness Neville-Rolfe Baroness Neville-Rolfe The Minister of State, Department for Business, Energy and Industrial Strategy 8:30, 19 July 2016

I thank noble Lords for their contributions to this my first debate on what is indeed a very complicated subject. Perhaps we could have done with more time to address some of the issues, but I shall try to answer where I can on this my first day.

I start by thanking the noble Baroness, Lady Featherstone, my noble friend Lord Ridley, the noble Lord, Lord Teverson, my noble friend Lord Lawson, my neighbour the right reverend Prelate the Bishop of Salisbury, the noble Baroness, Lady Worthington, my noble friend Lord Howell of Guildford and the noble Lord, Lord Grantchester, because they were united in their kindness to me, even though there is clearly a lively difference on this important area of policy, which I look forward to discussing on a number of occasions. This is actually my first day because, some noble Lords may be glad to know, I was in Slovakia at the Competitiveness Council until last night, engaging, as we should, with the EU while we remain.

Climate change has not been downgraded as a threat; it remains one of the most serious long-term risks. The title of a department matters far less than its DNA and what it does, as I explained this afternoon to the assembled former DECC staff in the building in Whitehall Place—where I originally started my Civil Service career. Energy and climate change will be at the heart of the new department. For example, I can confirm that this Government remain committed to ratifying the Paris agreement, which was agreed last year by 195 countries, as soon as possible. Our policy will also look at affordable and reliable energy, and generally join things up in the way that I described in my opening remarks.

At the heart of our commitment is the Climate Change Act. While the vote to leave the European Union is hugely significant, the Government will continue to play their part in tackling the energy and environmental challenges our country faces. My noble friend Lord Ridley—well-known for his views in this area and, as always, the source of some very telling questions—suggested that the referendum result might invalidate the budget, as there was no mention of Brexit. I remind my noble friend that carbon budgets are UK-specific targets, based on UK legislation. The referendum result does not change the validity of the budgets or, by extension, the impact assessment.

I hear what has been said about the impact assessments, which, as some noble Lords will know, is an area I always take a great interest in in any of my policy areas. I look forward to discussing them with our economists—including the points about price assumptions and the points made by my noble friend Lord Howell of Guildford—to learn from this exchange.

In other areas, we will also engage in the opportunities and challenges of the seismic change that Brexit represents. I am always keen to emphasise the opportunities, being a glass-half-full person.

The noble Lord, Lord Grantchester, asked about the delay in the laying of this order. I am sorry we missed the due date. There were some rather disruptive events in the last few weeks, but I understand there is no question of the legality of the order being put into doubt by the process.

The proposed fifth carbon budget is in line with the advice of the independent Committee on Climate Change and has been widely welcomed by the business community. I am from business, as the right reverend Prelate the Bishop of Salisbury reminded us. Indeed, I used to run a carbon reduction programme across the world when I was at the Tesco supermarket chain. It actually saved us money. I also know from being in business that we need a certain amount of consistency and ambition on climate change if we are to support investment. The carbon budgets provide this.

My noble friend Lord Ridley said that UK action went further and was faster than in the EU. The UK’s domestic target is to reduce emissions by 80% on the 1990 level by 2050. The EU has a comparable target of 80% to 95% by 2050. As I understand it, other countries are taking comparable action.

Businesses have of course been calling for consistent ambition on climate change, which is what the proposed fifth carbon budget, far ahead though it is, now achieves. The Government have listened to the concerns of energy-intensive industries, such as steel, and are providing relief to mitigate policy costs on their electricity bills.

The noble Lord, Lord Teverson, said that carbon budgets account for only 50% of emissions. He is right that the budgets do not bite on the power sector, but the EU ETS does. So does the overall 2050 target. There are, of course, pros and cons to different accounting methods. We will keep this under review—a point raised by others. Our commitment to decarbonisation is clear. We have also set out funding to be provided through future auctions in this Parliament to support up to 4 gigawatts of new offshore wind and other renewable technologies.

The right reverend Prelate asked about shipping and aviation. There is currently no internationally agreed solution to allocating emissions to specific countries in shipping. How do you deal with a British ship going from Rio to Naples? We are working, through the International Maritime Organization, to provide a way forward. We believe that unilateral action could undermine our ability to get the right agreement. The Committee on Climate Change did not recommend that we include aviation emissions in our budget at this stage, but that is not to say that we will not do so in due course when the International Civil Aviation Organization has agreed how they should be accounted for. So I can see some very interesting accounting issues in my new job.

What else are we doing to head off an energy gap and decarbonise? First, we are making real progress to deliver new nuclear power in the UK for the first time in two decades. As the noble Baroness, Lady Worthington, mentioned, with her great knowledge of the area, we have announced record investments in new heat networks in our towns and cities to enable lower-carbon ways of heating our homes and businesses while keeping energy bills low, and we have committed over £600 million up to 2020 to support early market uptake of ultra-low and zero-emission vehicles in the UK.

Electric cars are, in my view, a vital aspect of our future industrial strategy, drawing on our strength in the British car industry and on digital, which is a well-known passion of mine.

I was interested in the various ideas set out by the noble Baroness, Lady Featherstone, and others, which are all food for thought. I particularly appreciate the point made by my noble friend Lord Howell of Guildford about the impact of engaging with major emitters overseas. I very much agree with that. I have spent a lot of time thinking about international matters, and I think this is very important.

Emissions are coming down. Provisional statistics indicate that UK emissions in 2015 were 38% lower than in 1990 and more than 3% below those in 2014. This was one of the greatest annual emissions reductions against a backdrop of a growing economy.

To respond to the noble Baroness, Lady Worthington, we continue to make good progress, but we recognise that the 2020 target is challenging. However, the Government have achieved the interim renewable energy target for the last two years. Our new plan will be informed by analysis and economics to ensure that we are on our way to meeting our 2050 target while keeping costs low for consumers and businesses, a point of concern also to my noble friend Lord Ridley.

We have been working with other government departments to identify potential policy proposals from across homes, businesses, transport, land use, waste, agriculture and industry, all mentioned by the right reverend Prelate the Bishop of Salisbury. As I have already said, the machinery of government changes give us a new opportunity to be joined up. To respond to the noble Lord, Lord Grantchester, Defra is, indeed, an important participant on climate change and industrial policy, and I will certainly be engaging with it.

With regard to the third carbon budget, the Government’s projections suggest that we are on track to meet our target. It is prudent to retain the flexibility of a 2% credit limit to account for uncertainty. I am glad that the noble Lord, Lord Teverson, does not feel that that is a fundamental point.

In conclusion, these orders have been welcomed on both sides of the House. There are always differences but I believe that they provide the right level of certainty for the future while allowing the flexibility to manage any uncertainties that we may face.

Motion agreed.