Greenhouse Gas Emissions Trading Scheme Order 2020

Executive Committee Business – in the Northern Ireland Assembly at 5:45 pm on 3rd November 2020.

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Photo of Edwin Poots Edwin Poots DUP 5:45 pm, 3rd November 2020

I beg to move

That the draft Greenhouse Gas Emissions Trading Scheme Order 2020 be approved.

Photo of Christopher Stalford Christopher Stalford DUP

The Business Committee has agreed that there should be no time limit on the debate. I call the Minister to open the debate on the motion.

Photo of Edwin Poots Edwin Poots DUP

Thank you, Mr Principal Deputy Speaker. I am grateful for the opportunity to move the motion. The Order in Council was laid in draft in the Assembly on 15 July 2020 under the Climate Change Act 2008. It requires that the Order be laid in draft and debated in each of the four UK legislatures. So far, the Order has been approved by the Scottish and English Parliaments. The Order establishes a UK-wide greenhouse gas emissions trading scheme (ETS). The UK ETS replaces our participation in the EU emissions trading scheme. The UK will cease to participate in the EU ETS at the end of the year as a consequence of our withdrawal from the EU.

In the Northern Ireland context, there is an important exclusion from the scope of the UK ETS. It arises as a result of article 9 and annex 4 of the Northern Ireland protocol, which requires Northern Ireland electricity generators to remain in the EU ETS. That is to preserve the functioning of the single electricity market on the island of Ireland. If generators, North and South, were in different emissions trading schemes, there would be a carbon price divergence that could distort the operation of the single electricity market. To avoid that, Northern Ireland's five electricity-generating installations will remain in the EU ETS. Further legislation will be brought forward at Westminster later in the year to do that under the European Union (Withdrawal) Act 2018.

I will give some background. The UK has participated in the EU scheme since its inception in 2005. There are around 1,000 UK participants in the scheme, with 21 of those in Northern Ireland. Those 21 installations account for approximately 18% of greenhouse gas emissions in Northern Ireland. An emissions trading scheme works using the "cap and trade" principle by requiring participants to purchase a carbon allowance for each ton of carbon dioxide that they emit. The more carbon dioxide emitted, the more allowances required. There are penalties for failure to obtain the requisite number of allowances. A cap is set on the total number of allowances available under the scheme, and it is gradually reduced over time. The aim is to encourage reductions in emissions. Scheme participants, with the exception of electricity generators, receive free allowances that cover a proportion of their emissions. That is to prevent carbon leakage: industries moving away to relocate to other parts of the world that either do not have costs for carbon emissions or costs that are lower. The allowances can be traded, hence "emissions trading scheme". Those that make the biggest reductions may have surplus allowances that can be banked or sold to those that need to purchase more allowances. This is the most efficient way to achieve reductions in emissions. The scheme promotes carbon emissions reduction and investment in clean, low-carbon technologies.

The UK ETS has been agreed by the four Governments of the UK nations, and the policy positions are set out in the Governments' response to the future of carbon pricing consultation, for which I obtained Executive agreement on 21 May and which was subsequently published on 1 June. The draft Order in Council establishes a UK ETS that will be operational from 1 January 2021. It establishes the scope of the UK ETS, which includes energy-intensive industries, power generation and aviation. Although there are no registered aviation operators in Northern Ireland, the current scope of the UK ETS is identical to the EU ETS and establishes a cap on allowances each year.

The initial level of the cap will be 5% below that which would be the case had we stayed in the EU ETS. That means that the standard that we are establishing is more stringent for carbon emissions reduction than would be the case had we stayed in the EU ETS. There is a more stringent cap in the UK scheme, but free allowances are maintained at EU scheme levels. Therefore, there is sufficient headroom in the scheme in terms of available allowances to mitigate any adverse impact.

On climate change ambition, there is a commitment to review the UK ETS in light of forthcoming advice from the climate change committee on achieving the net-zero target. The Order in Council also allows for scheme monitoring, reporting and verification requirements. The UK ETS offers participants a robust and proportionate enforcement system that will also establish and define the roles of national regulators in monitoring and enforcing the system. In Northern Ireland, the regulator will be the Northern Ireland Environment Agency (NIEA). Further secondary legislation will be introduced by negative resolution later this year, and that will introduce additional elements to the UK ETS such as provision for free allowances, auctioning and registries. Further instruments will be reserved to deal with the financial matters that are concerned with the operation of the market on auctioning, and those will be handled by Treasury. Those are the four main elements of the order.

I will touch briefly on a few issues that have been raised about the UK ETS. First, there has been some interest in the impact in Northern Ireland of setting a cap that is 5% lower than the EU ETS levels. The short answer is that the impact will be minimal. Of the greenhouse gas emissions that are produced by Northern Ireland installations currently in the EU ETS, around 82% come from power generators, so the majority of emissions from that sector are made by generators. Only a minority, around 18%, come from installations other than generators, and those will be part of the UK ETS.

An impact assessment of the transition from the EU ETS to the UK ETS was published alongside the Government response to the consultation on the future of carbon pricing back in June. That concluded that the overall impact on costs would be negligible and that the scheme could encourage greater savings by encouraging investment in emissions-saving technology. A local assessment of impact paper has drawn the same conclusion. The impact made by the order is very small for two reasons. First, the vast majority of our emissions and ETS costs arise from generators, which, as I mentioned, are staying in the EU ETS, so there is no impact there. Secondly, the policy approach taken in establishing the UK ETS is to make the transition from the EU to the UK schemes as smooth as possible for operators, with similar arrangements under both.

The second issue is linking. In developing proposals, the UK Government and devolved Administrations agreed that the desirable outcome is a UK ETS that is linked to the EU ETS. That is because, the larger the market for trading carbon allowances, the better the chance of the market being effective and the less chance there is of carbon leakage. It would mean that we could avoid needing a dual system of having generators in the UK ETS and non-generators in the UK ETS. The UK Government's position is to develop a UK system that is ready to be linked to an EU scheme. The uncertainty around the negotiations with the EU on future relations means that a definitive commitment cannot be given.

Thirdly, the UK Government have introduced a fallback alternative option of a carbon tax set by the Treasury that could be used instead of the UK emissions trading scheme. Treasury consulted on proposals for a carbon emissions tax earlier this autumn. A UK Government decision on whether a UK ETS or a carbon tax will be implemented as a post-transition carbon-pricing policy is expected shortly. I have pressed the Business, Energy and Industrial Strategy (BEIS) Ministers to clarify the position.

In conclusion, we want to encourage the best means of reducing carbon emissions in order to achieve the UK's net-zero target while ensuring that we do not put burdens on industry that cause it to move elsewhere; that would simply move the problem from one place to another. The order that we are considering establishes a UK ETS to replace our current membership of the EU ETS in order to achieve that goal. Accordingly, I commend the order to the House.

Photo of Declan McAleer Declan McAleer Sinn Féin 6:00 pm, 3rd November 2020

As the Assembly is aware, the transition period for EU exit ends on 1 January 2021. By that time, alternative arrangements and systems for a wide range of matters have to be either in place or nearing completion. One of those is a replacement for the EU emissions trading scheme, which will form one of the new common frameworks that we have been hearing about.

The EU emissions trading scheme is the method used across the EU to control and regulate the emission of greenhouse gases by power generators, the aviation sector and industry. As carbon is the predominant greenhouse gas emitted by those sectors, the emissions are largely measured in carbon tonnage. Participants in the scheme must buy allowances to cover the amount of carbon that they emit. If they emit less carbon and do not need the allowances, they can sell them on the market. If they emit more carbon than anticipated, they must buy allowances on the market. A free allowance is available to help to prevent carbon leakage.

The order establishes a UK-wide ETS to replace the current EU ETS and will provide a system for permitting, reporting, monitoring and validation of emissions, as well as a system of penalties and appeals. The UK ETS has been designed to mirror the EU scheme. We understand from DAERA officials that the EU scheme is a robust system that has been tested and refined over many years by the EU. No Committee members raised any major concerns about that aspect of the order. The order also establishes a system for emissions from the aviation sector. However, as none of the local participants in the current EU scheme is in the aviation sector, the Committee did not focus on those provisions.

The Committee also considered the scope of the order, and I note that some Committee members were keen for the scope to be widened to include other sectors, such as agriculture. We recognise that the scope of the order has, in the first instance, been designed to mirror what currently happens in the EU scheme and to therefore smooth the transition for current participants. The EU ETS will be a common framework that is legislative and non-legislative in nature.

The debate today is on one aspect of the proposed common framework, namely the Greenhouse Gas Emissions Trading Scheme Order. The order is a major element of the framework and worthy of a debate in its own right, although it is only one aspect.

Further regulations are to come, some of which will be made under the Climate Change Act 2008, as is the case with the order. Some will come under the European Union (Withdrawal Agreement) Act 2020, such as the implementation of the protocol that allows our power generators to remain in the EU ETS to protect the single electricity market. Still further aspects will be fiscal regulations made under the Finance Act 2020. Hopefully, we will soon be provided with the framework agreement and concordat. Both are non-legislative aspects of the framework that mostly focus on governance and administrative arrangements, including dispute resolution between the four jurisdictions. There is a little unease in the Committee about having to debate and approve or not approve the order without having seen all elements of the framework within which the order will sit.

Another issue that I want to draw attention to is the impact assessment that accompanies the order. This is at a UK-wide level, and the data cannot be disaggregated for here. Separately, the deputy First Minister has asked that a local assessment be carried out. DAERA officials have been working on that, and the Committee was promised sight of it before the debate, but it was not received in time for the Committee to consider it. Therefore, I cannot provide a Committee view on it, but I can point out why a local assessment is important. The current EU ETS regulates greenhouse gas emissions from the power generators, heavy industry and aviation. Locally, it regulates some 33% of those emissions. There are currently 21 local participants in the EU ETS, of which five are power generators. They account for 82% of the emissions that are regulated under the ETS. Under the terms of the protocol, the power generators will remain in the EU ETS. Regulation of the vast majority of emissions in this jurisdiction will continue to be regulated by the EU. The impact of that is not addressed in the UK-wide impact assessment.

The ETS common framework and this order regulate the remaining 16 participants, which account for 18% of the 33% of the emissions that fall under the order. Five of those 16 have what is known as an opt-out. That is a feature of the EU ETS that is replicated in the order. Essentially, it provides for lighter-touch regulation. Those with an opt-out still have a target to achieve in reducing their emissions, but they do not have to buy and trade allowances, so avoid the costs associated with that. Three of the five participants with an opt-out are hospitals. Of the companies that will be subject to the provisions in the order, many are in the agri-food sector, and some are major employers. That is another reason why a local assessment is so important.

The next issue that I will deal with is the cap on emissions that is provided for in the order. The Committee noted that the cap is set at 5%, and DAERA officials stated that this would be more stringent than under the EU ETS.

DAERA officials, however, also provided information to the Committee that indicated that emissions from the ETS industries will be between 126 and 131 million tons of carbon dioxide and that the 5% cap equates to 156 million tons. That is for across the UK, so there is significant headroom. The Committee has concerns that there may in fact be too much headroom. DAERA officials have told the Committee that having a cap higher than the projected emissions will allow companies to meet their obligations as well as providing them with an easy transition to the UK scheme, thus minimising any differences for them.

I will go back to the issue of a local assessment. We know what the UK-wide carbon emissions are for the sectors covered by the order. We know that it covers only 16 participants locally and that five of those have an opt-out. What we cannot get information on is the amount of emissions from the 16 participants that we are responsible for and thus the size of the local market covered by the order. It is therefore difficult to decide whether the order and the framework are appropriate and proportionate for our jurisdiction and for our unique circumstances under the protocol.

The next issue that I want to draw attention to is that of the link between the EU ETS and the UK ETS. Officials from the four jurisdictions have been working on the replacement for the EU ETS since the decision was made to leave the EU. It was always envisaged that the replacement scheme would be a UK ETS and that it would be able to link with the EU ETS. That is the stated desire of the Scottish and Welsh Governments, and it is also a desirable outcome for this jurisdiction, as it would remove any question of differences between North and South. A UK ETS would provide access to the larger carbon-trading market for participants and help avoid what are known as carbon leakages, which the Minister referred to previously. To enable that link, the order is therefore largely a mirror of the EU ETS.

Linkage between the two schemes would be largely dependent on both having similar standards and regulatory frameworks. Ultimately, that linkage will depend on what type of deal is done between the UK and the EU. In the summer of 2020, however, the UK issued a consultation on an alternative to the proposed UK ETS that is known as the carbon emissions tax. That has caused some concern and speculation that the UK may decide to move forward with the carbon tax instead of with a UK ETS. That could be because no deal has been reached or because the UK has decided that a carbon tax is a better way forward. The problem that the Committee has with the carbon tax is that it effectively un-devolves that area. Greenhouse gas emissions and their regulation are devolved matters, but a carbon tax would be an excepted matter, and if we need a local assessment to be able to judge the impact of the order on our local participants, we also need some assessment of the impact of the carbon tax on them.

We are all aware of the renewable heat incentive (RHI) inquiry and the cash-for-ash scandal, and all in the Chamber are committed to making sure that we do our best to avoid another such scheme. Emissions trading schemes operate across the world, not just in Europe. Carbon is treated as a commodity and traded. The carbon market is worth vast amounts of money. In taking evidence from DAERA officials, we asked what checks and balances were built into the scheme to avoid financial abuse of it. Officials told us that the fiscal management of the trading aspect of the scheme will be done largely through two finance regulations that will cover the auction of the allowance and the role of the national conduct authority and that there are checks and balances through the Treasury to avoid abuse of the system. They did not have a lot of information on that aspect. It is not in the scope of the order, but it is something to draw Members' attention to.

The Committee explored a number of other matters with DAERA officials, such as carbon leakage and free allowances; divergence of regulatory systems between the EU and the UK as time goes on and what impact that might have here; ongoing consultation with local participants on the governance and administration arrangements; and the opt-out system available to our smaller emitters.

I hope that that has given the Assembly a taste of the work of the Committee in this area and that it helps to inform the debate and the vote on whether this jurisdiction should be included in the order.

Photo of Christopher Stalford Christopher Stalford DUP

Before I call the next Member on the list, I will read out who is on it, because I see others in the Chamber, and I do not know whether they wish to participate. The Members on the list at present are Mr William Irwin, Mr Matthew O'Toole, Mr Harry Harvey, Mr Philip McGuigan, Ms Clare Bailey and Mr Gerry Carroll. I see that Mrs Rosemary Barton and Mr John Blair also wish to contribute.

Photo of William Irwin William Irwin DUP

I welcome the opportunity to contribute to the debate. This is one of many special instruments that have been discussed in the Committee in recent weeks and months.

There is a significant importance attached to this particular SI to ensure that, post transition, a trading scheme is retained outside the EU but with the possibility of further collaboration on the issues of cleaner emissions if agreement exists to do so.

This statutory instrument is essentially a replacement policy for the UK, including the devolved regions of Scotland, Wales and Northern Ireland, where participation in the trading scheme will come into effect at the end of the transition period on 31 December. Having a continuation of policy and a rollover of regulation will ensure that the UK on the whole retains monitoring powers and the determination of our ability to continue to meet greenhouse gas emission targets.

As we know, these are very ambitious targets. Our UK targets are more ambitious than those of the EU. Therefore, in order to meet the target of net zero by 2050, the industry will have to continue to make strides on cleaner air from industrial and electrical generating installations. That will require the trading scheme, as tabled, to be enacted. The method behind ensuring that we have an unbroken continuation of legislation is the fact that putting a cost on carbon means that an incentive exists to drive emissions down in a way that represents value for money and, critically, gives important stimulus to the private sector to invest in emissions-reduction technology and practices.

The scope of the legislation will account for 33% of the UK's emissions outputs. Indeed, it was the UK that first piloted an emissions trading scheme in 2002. That was the blueprint for the current EU trading scheme. With that in mind, it is fair to say that, from 1 January, the United Kingdom will be more than capable of operating a scheme independently, given its track record of innovation in that regard.

The cap-and-trade system is important for the working of the scheme, as it incentivises the pursuit of reductions and has an important facility whereby companies can purchase allowances to assist their operations over time towards the lowering of greenhouse gas emissions.

I have a concern about competitiveness. As I understand it, the target set will be about 5% lower than the equivalent European scheme. It is therefore important that we are watchful of our competitiveness compared with the rest of the EU and what, if any, impact a lower or more ambitious target will have on our industries here.

As with much of the transitional legislation, time is of the essence. Since the UK was a forerunner in the trading scheme, I believe that it can continue to lead the way. With an important eye on competitiveness, therefore, I support the motion.

Photo of Matthew O'Toole Matthew O'Toole Social Democratic and Labour Party 6:15 pm, 3rd November 2020

Here we are again debating a fairly rushed but extremely important and consequential piece of legislation in relation to Brexit before the end of the transition period, albeit I accept that, as is usual, a lot of that is because of Boris Johnson's Government and their desire, or inability, to bring these two devolved Administrations together in a timely way.

First, it is worth saying that the EU emissions trading scheme, flawed though it is, has been an important part of emissions reduction across the continent over the past 20 years. It is important that we have a replacement. It is, however, suboptimal that there is still lack of clarity at UK Government level about whether they are committed in the long term to a UK emissions trading scheme or a carbon tax.

There are legitimate arguments in favour of both models. As Declan McAleer from the Committee for Agriculture, Environment and Rural Affairs said, there is a specific concern about the application of a carbon tax and what that would mean, in the sense that it would be a tax applied from the Treasury. That would have a profound impact on the principle of devolved responsibility for emissions reduction, albeit a realist would say, and I am sure that Ms Bailey might agree, that we have not always done as well as we should at a devolved level on emissions reduction, so perhaps we should not pat ourselves on the backs about that.

To come specifically to the points in the order, we have some indication of what the costs will be in relation to it for Northern Ireland's current participants in the EU ETS, but, unfortunately, we do not have a detailed understanding of what it will mean for the different sectors. There are still unanswered questions. I appreciate that the Minister addressed some of them in his opening remarks, but there are still many more.

It is clear that the vast majority of emissions that are covered by the EU ETS will continue to be covered by it, in the sense that a small number of power generators that are participants in the all-Ireland electricity market, will, because of the single electricity market, continue to be part of the EU ETS. It is worth saying that that is necessary and welcome.

The protection of the single electricity market was one of the most important early parts of the discussions around the UK's withdrawal. I am glad that it is being legally protected and is enshrined in this order. However, there are still significant questions about those parts of our economy that will still be covered by the UK ETS and also, as the Committee Chair said, the linkage between the UK and EU ETS. It is really important that we understand that; it is important for our economy, going forward, how we interact with that new UK ETS.

Pardon me, Mr Principal Deputy Speaker. I am —.

Photo of Christopher Stalford Christopher Stalford DUP

If the Member wants to nip out and get a glass of water, I am happy to move on. I will call you again, or are you —?

Photo of Matthew O'Toole Matthew O'Toole Social Democratic and Labour Party

That is fine. I will make my remarks very brief. The Minister will be glad that I have had an opportunity to curtail my remarks.

As I said, about 80% of our emissions will continue to be covered by the EU ETS, but significant parts of our economy will still be under the UK ETS. It is really important that we understand what the linkage between the two schemes will be. It is better for our economy and industry that we understand exactly what that linkage will be and how it is going to work.

It is also important, as part of that understanding, that we look at our emissions more broadly. As we know, agriculture, which is one of the biggest emitters in Northern Ireland, has consistently been excluded from the EU ETS. It begs the question about the holistic look that we must take at our emissions reduction. As we have said repeatedly in this Chamber, we are the only part of these islands without a stand-alone and robust regulator. We need that and stand-alone climate change legislation.

This order is, I am afraid, fairly last-minute, rushed legislation, all of which, I accept, is not the responsibility of the devolved Department. It is extremely frustrating that the UK Government have been unable to offer clarity to industry and the devolved Administration about exactly what the emissions trading regime will be for the UK in the long term. However, we are, as it were, where we are, where we are. To the extent that this order provides a little clarity — but not nearly enough — it is welcome.

It is also, I say as an aside, a shame that the UK has decided on — or is still debating — completely breaking away from the EU emissions trading scheme. It is worth saying that London has been a centre for carbon trading, and that has had an economic benefit too. There would also be a concern for Northern Ireland if the carbon trading market in London were to be reduced and become less of a significant player. That should matter to all of us across these islands.

In conclusion, we are deeply troubled that we are having to debate this in a very rushed manner. There is still huge lack of clarity about precisely how the new UK emissions trading scheme will interact with the EU emissions trading scheme, going forward, and exactly how that will affect areas of industry in Northern Ireland, both those that will still be covered by the EU emissions trading scheme and those who will enter into the, as yet, unconfirmed in the long term, UK emissions trading scheme.

Photo of Rosemary Barton Rosemary Barton UUP

Like many other aspects of the United Kingdom withdrawal from the EU, this lengthy Westminster secondary legislation seems to complicate what should be a relatively simple process.

This legislation regarding withdrawal from the EU has been foisted upon us without any real opportunity to gather evidence or information or for the Committee to carry out the scrutiny that it is expected to do. While an impact assessment has been carried out across the UK, it did not drill down into Northern Ireland. The Committee was informed that a local assessment was being undertaken. Officials indicated that the local assessment would be provided to the Committee before the debate, subject to the Minister's agreement. It was not, however, made available to us before that was laid.

The legislation has relevance for 21 installations that are currently in the European Union emissions trading scheme. However, five of those installations will remain in the EU ETS, with those five generators being responsible for 82% of emissions. Therefore, it has a real-time relevance only to the 16 installations that produce 18% of emissions. One should wonder whether its overall relevance is significant to Northern Ireland.

I understand that an emissions trading scheme is a devolved matter. Therefore, Northern Ireland could adopt different targets and mechanisms to meet those targets. That is why a framework agreement is being developed with a standardised process for how the UK ETS will be governed, including how to manage and resolve disputes. While it may not appear to be a vital piece of legislation at present given that a sizeable proportion of those participants will remain in the EU scheme, maybe it will lead to Northern Ireland's developing its own targets, but as part of the United Kingdom framework. My party supports the motion.

Photo of John Blair John Blair Alliance

I will start with the statement that it is predicted that, in 2021, emissions from ETS industries will be between 126 million and 131 million tons of carbon dioxide equivalent. It hardly needs to be said that we are at a crucial juncture in efforts to mitigate the impacts of global warming. The decisions that we make today and the actions that we take will determine whether we succeed or fail at preventing the worst consequences of climate change and the further devastation that it brings.

However, I rise on behalf of Alliance to accept the need for the emissions trading scheme in Northern Ireland, which will include the draft Greenhouse Gas Emissions Trading Scheme Order, a framework that will apply to energy-intensive industries and which also, of course, allows for opt-out; a framework that also needs to be built on policies that are bespoke to Northern Ireland's industries and need.

As a member of the Committee for Agriculture, Environment and Rural Affairs, I was deeply troubled to learn at a Committee briefing that the UK Government did not include Northern Ireland when assessing a framework to combat the effects of climate change. We are the only region of the UK that was not included in the impact assessment for the system that is the cornerstone of Government policy to combat climate change and to limit greenhouse gas emissions across the power, industrial and aviation sectors. That is especially concerning when considering the fact that, at the end of the Brexit transition period, we will be the only devolved nation to share a land border with the EU. The Minister will be aware that I raised issues around that at today's Question Time. I should, at this point, express my gratitude to DAERA officials and the Assembly Committee officials for the information that they brought to us on the issue on that occasion.

It is, nevertheless, important that the Order, which establishes a scheme for monitoring, reporting and verification requirements, is implemented in Northern Ireland. There has to be an opportunity for major ETS providers to exceed limitations if required, but those matters will require ongoing analysis and review going forward. I suggest that clarification is also required on the carbon tax. If there is no deal, there might be no chance to negotiate a linked scheme between the UK ETS and EU ETS. In that circumstance, the UK Government might also put an option on the table for a UK carbon tax. However, they have not said that they will definitely introduce a carbon tax or a stand-alone UK ETS. Clarification on those matters is most definitely required. Perhaps, the Minister would reflect on that when he makes his winding-up speech.

The UK Government's language on that linkage has simply become less committed given the uncertainties around the negotiations. A carbon tax could be an alternative method of controlling those emissions. We are the only region in the UK and Ireland without a specific net zero emissions target. Despite laudable attempts, we have not reduced our greenhouse gas emissions in line with scientific advice.

Since the introduction of the UK Climate Change Act, greenhouse gas emissions have fallen by 27% across the UK, but, for Northern Ireland, emissions have fallen by 9%. It is imperative that we introduce legislation to protect our environment and halt the climate crisis. I am glad that progress is being made in that regard through other means.

With reservations about UK Government actions as expressed, I am happy, in the context of this jurisdiction, to support the order.

Photo of Harry Harvey Harry Harvey DUP 6:30 pm, 3rd November 2020

As was outlined, the draft order establishes a workable emissions trading scheme for the UK that will replace the current EU ETS. I welcome the fact that it has already been agreed by the devolved Governments of Scotland and Wales, working alongside Westminster, and following an extensive consultation on the future of UK carbon pricing.

The purpose of the order is to tackle climate change and drive down greenhouse gases by gradually encouraging the reduction of emissions. While the UK ETS will be a key tool in the armoury to combat emissions, it is not the only tool. It is imperative that we consider this matter in the context of what complementary schemes and systems are operational across commerce, industry and agriculture in order to safeguard our environment and aid our net zero commitment. The green growth strategy and tangible projects such as Forests for our Future are key to achieving that goal.

The Economy Minister told the House that clean energy is one of her Department's highest priorities. I welcome her Department's commitment that the new 2030 renewable electricity target will be at least 70%. That is significant, given that it is estimated that the electricity market currently accounts for 80% of Northern Ireland's ETS. It is worth bearing in mind that only 20% will move to the UK ETS when it commences, unlike the rest of the UK.

It is, therefore, vital that, if we are to remain within the EU ETS for electricity because of the all-island nature of supply, there is meaningful cooperation between both jurisdictions. There must be an acknowledgement by the EU and the Irish Government that any decisions made to alter the trading system will directly affect Northern Ireland, which in turn must afford the Assembly a role and a say on that. It is expected that the EU ETS and the UK ETS will be closely aligned, which will be of benefit.

As we work to reduce emissions, we must also work to increase renewable energy forms, thus providing viable alternatives. I welcome the fact that interest in the hydrogen economy is accelerating locally. Northern Ireland has the potential to lead the way on hydrogen technology and fuel clean, cutting-edge economic growth. If we cannot realise green alternatives such as hydrogen, the likes of the ETS will fail to achieve its long-term aim. We must not only incentivise reduced emissions but provide sustainable alternatives to greenhouse gases in the longer term.

The UK has been successful for many years in balancing those factors. Over the past 30 years, our emissions have gone down by 45%, while the UK economy has grown by 75%. It is absolutely the case that reducing carbon emissions is not the enemy of economic development but, rather, can work well with it. We must ensure that that is maintained and the economy is supported in tackling emissions.

Reducing emissions while supporting UK businesses must be our priority. Certainty is needed across the UK in respect of whether the UK ETS will be the preferred option or whether the Government's fallback option of a carbon emissions tax will have a role.

Whilst I appreciate that that will be a factor in ongoing negotiations, the sooner those involved are aware of which option is to be used, the better. There is also a balance to be struck between climate change ambition and the cost and danger of carbon leakage.

The draft Order draws on the best of the current system, which the UK was instrumental in developing, and adds improvements that, it is hoped, will ensure greater flexibility to work in the interests of the UK and fight against climate change. I support the motion.

Photo of Philip McGuigan Philip McGuigan Sinn Féin

Climate change and global warming are happening, and dealing with them, as I have said in the Chamber on many occasions, is the greatest issue facing this generation. Climate change is occurring due to greenhouse gas emissions from human activity. It is having and will continue to have a devastating impact on our environment and our population through fires, floods, storms and other forms of extreme weather. Adhering to the Paris agreement of 2015, which set the target of keeping average temperature increases to below 2°C compared with pre-industrial levels, is vital. That is the context of why we are discussing the carbon trading scheme.

The schemes are about reducing greenhouse gas emissions and working to reduce the impact of climate change — "polluter pays", as it were. This proposal is a cap-and-trade scheme based on the design of the EU emission trading scheme to encourage cost-effective greenhouse gas emission reduction from within the traded sector. The carbon price should be high enough to encourage investment in low-carbon alternatives where the cost of investment is lower than the carbon price. The scheme covers heavy industry, power generators, aviation and similar installations. Those installations are the biggest emitters of carbon dioxide. The current EU ETS, which governs the North, works by making participants purchase an allowance for each ton of carbon dioxide that they emit. The more they emit, the more allowances they need to purchase. There are penalties for failure to obtain the requisite number of allowances. A cap is set on the total number of allowances, and it is gradually reduced over time. The aim is to encourage reductions in emissions.

In general, emissions trading schemes can and should be supported, but, as with most of the proposed legislation that we discuss in the North as a result of the Tory Brexit, there are many unanswered questions and a certain degree of uncertainty and unease. To this point, we were part of the EU trading scheme, and the proposed scheme, we are told, mirrors the EU ETS. Given that we live on an island, it is vital that that remains the case. The scheme must be closely linked, as others have said, to the current EU trading scheme. That is something that is not only needed here but that the Scottish and Welsh Governments have asked for certainty on.

The impact on the North is somewhat negated by the protocol, in that our power stations will remain in the EU trading scheme. They make up the bulk of the North's regulated emissions. As others have said, with the ability for our hospitals and others to opt out, there are likely to be 11 local participants in the new scheme. That is a small number, but it is still a concern, as other Committee members have mentioned, that the Committee for Agriculture, Environment and Rural Affairs did not receive the local assessment of the impact in the North that we asked for, despite officials telling us that we would have it before today's debate. That causes me unease. Given my well-placed distrust of the British Government, I also have unease that we have not seen all the framework legislation into which the Order will fit. There is always the fear that the British Government say one thing on Brexit legislation and then proceed to do something completely different. Last week, for example, concerns were raised about an amendment to the Westminster Environment Bill that seems to signify that British Ministers are intent on granting themselves the power to interfere with the proposed Office for Environmental Protection. That office was set up because of Brexit to protect environmental legislation and is supposed to be independent. Another worry that has been raised by Members in the debate is that, even though we are debating the emissions trading scheme, we know that, in the background, the British Government may ignore our thoughts on it and those of the Scottish and Welsh Parliaments and instead introduce a carbon tax scheme that they have consulted on this year. That is not devolved to the Assembly, so we would have no say in it. I repeat that we should support the proposal for a trading scheme. In this case, it needs to mirror that which is currently in place with the EU. I say that with all the caveats that I and others have pointed out during the debate.

Given the subject matter of our discussion, I conclude by mentioning the cross-party-supported private Member's Bill in Clare Bailey's name that was recently introduced to the Speaker's Office and that will, at long last, give the North a climate Act with sectoral targets for reducing emissions. I look forward to that Bill progressing speedily through the Chamber and becoming law so that the House can take greater responsibility for the issues affecting our environment, our economy and, ultimately, the livelihood of our citizens.

Photo of Christopher Stalford Christopher Stalford DUP

That was a nice intro for Ms Clare Bailey.

Photo of Clare Bailey Clare Bailey Green

Thank you, Mr Principal Deputy Speaker. First, kudos to the Members who have spoken so far for having so much to say in the debate. The reality is that what we are debating is the UK Government doing a copy-and-paste of EU law into domestic law and calling it "taking back control". We are passing this legislation in order to allow us to have a functioning rule book by 1 January. It is a wee bit depressing to know that all the devolved Administrations are working flat out just to achieve a functioning rule book in less than eight weeks. Four and a half years on from the frenzied drive to take back control, this is where we find ourselves with Boris's oven-ready deal: still copying and pasting EU law into unambitious domestic law. We have, however, the promised potential for the UK Government to take back control of devolved powers, if they go ahead with the carbon tax and replace the ETS. I have to say "might", because that is as far as we have got in the decision-making process so far: mights, maybes, don't-knows, still-to-be-decideds. That is what we face today.

This has been criticised for lacking ambition, but so was the EU scheme. It lacked ambition, but it is an incredibly lucrative scheme. It is estimated to have produced £163 billion in global trade in 2019 alone. It is almost as if there is a magic carbon money tree somewhere. It is exactly the same; it is the same old unambitious way forward. We know that, to allow the seamless transition, we will cover in the legislation the same greenhouse gases and the same sectors applying to the current scheme under the same initiatives and that the main means of introducing the allowance into the UK market will continue to be the auctioning process that created £163 billion in global trade last year alone. The review mechanisms in this have been confirmed as a mirror image of what we currently have under EU law. The UK Government are taking back control — it is great to see — four and a half years later.

The real debate will come when we have some sort of proposal from the UK Government on what they want to do to move forward. Will it be a carbon tax? Will they have ambition? Will they be leaders in tackling carbon emissions? As Philip McGuigan has already said, we have plans. We have laid a Bill in the House, and we hope that, as it progresses through the House, we can have the really ambitious debate about what we can do, how we can play our part and how we can tackle carbon emissions, because that will not happen with the unambitious move to have a functioning rule book in eight weeks.

Photo of Gerry Carroll Gerry Carroll People Before Profit Alliance 6:45 pm, 3rd November 2020

We are discussing legislation that was developed in Westminster by Boris Johnson and the Tories. It is worth saying that Mr Johnson wants to appear to be a leader on global environmental policy, but he and his Government are anything but leaders. They are masters of greenwashing and have already broken many of their own environmental promises. Everyone is right to be concerned about how Johnson and his mates may use Brexit to destroy environmental regulations.

We should not follow the Tories in developing our climate emergency response, but, just like with our shambolic approach to COVID and welfare reform, it appears that we are. Just like Johnson, Minister Poots wants us to believe that he takes environmental issues seriously, but he does not want anyone to mention that we are in a climate emergency, and he may not believe that himself. If he were serious about tackling climate change, he would not be blocking the demand for an independent environmental protection agency, nor would he be holding up the demand for an inquiry into the illegal Mobuoy dump.

What goes for Minister Poots goes for the entire Executive, because a decision by the Infrastructure Minister to allow continued industrial dredging of Lough Neagh amounts to an assault on our ecology and a ripping up of the declared climate emergency. It means that any climate Bill that I have signed up to and support will likely be hollow and false from the beginning. Not only that but environmental campaigners are right to be worried that the Executive may try to ram through fracking proposals again in Fermanagh. Added to that, the fact that two green energy schemes — RHI and anaerobic digesters — have hit the news, not because of their success in reducing CO2 emissions but because they were rackets that were used to enrich a golden circle of associates and corporations, really speaks to the failure of the Executive to take climate change seriously.

That having been said, emissions trading schemes have been doing the rounds for a while now, and I am very concerned that this is another way in which to profit from the climate crisis and to avoid taking radical action to reduce carbon emissions. The EU ETS was a failure, and the UK ETS will likely fail as well. Emissions trading schemes have been part and parcel of the political and corporate establishment's do-nothing strategy on climate change. They have sat on their hands, allowing the continued destruction of ecosystems and the continued heating up of the planet. The failure of carbon trading is one of the reasons that millions of people joined the student-led climate strikes and walked out of schools and workplaces last year.

An ETS is effectively a permit to pollute. Loophole after loophole, including overseas offsets, free permits and more, allows polluters to keep on polluting, especially if they have a lot in their bank accounts. It is a scam that gives polluters the right to keep on emitting more and more poison into our air and water systems with, I repeat, overseas offsets and free permits. The solution does not lie with emissions trading schemes but with energy efficiency targets, with a focus on the use of reusable energy; keeping fossil fuels in the ground; forcing polluters to pay for pollution; the expansion of our public transport networks; the ending of the destructive Going for Growth — addiction to growth — agribusiness strategy; and many more actions that the Executive could but are not taking.

In conclusion, without the 1,000 days of resistance by the Greencastle People's Office and everyone else involved in the Save Our Sperrins campaign, it is likely that the Sperrins would have been destroyed already.

Instead of blindly following the Tories on environmental policy, the Executive should start listening to what campaigners have been saying for decades and follow their leadership. The hope for arresting the assault on our ecosystems and reversing the climate crisis will come not from the establishment but from all those who joined the climate emergency strikes and all the campaigns that already exist across the North.

Photo of Christopher Stalford Christopher Stalford DUP

No other Members have indicated that they wish to speak. I call the Minister, Mr Edwin Poots, to conclude and make his winding-up speech on the debate.

Photo of Edwin Poots Edwin Poots DUP

I have some comments to make on some of the issues that have been raised by Members. A number of Members seem to be reluctant to move away from the EU scheme to the UK scheme, even though it accounts for around only 18% of emissions.

Ms Bailey commented that it was very much like the EU scheme. The scheme actually introduces more stringent measures, and I thought that she might welcome that. However, she did not bring herself to do that.

Photo of Edwin Poots Edwin Poots DUP

Yes, certainly.

Photo of Clare Bailey Clare Bailey Green

We are setting a cap at 5% less. I have been led to believe that this scheme actually allows more carbon emissions, and I will back that up with a quotation:

"The UK currently does not exceed the 156 million tonne cap, but with this current rate that is set to rise."

Is that right, Minister?

Photo of Edwin Poots Edwin Poots DUP

No. The cap is set to reduce by 5%, as you, and others, have indicated. That is clear. However, if you do not wish to welcome that, that is fine.

Mr Carroll is calling for carbon reduction. He is against bioenergy. He is against wind energy. So, I am not sure what people are going to use to provide energy for their homes or how it will be produced. Mr Carroll is good at being against everything, but he does not identify what he is actually for.

A number of Members talked about the importance of the EU scheme, and what a wonderful scheme it was. A wonderful scheme, yes. We reckon that just short of 3,200 tonnes of carbon allowances had to be purchased by Northern Ireland businesses in 2018, costing £64·5 million. That cost happens year on year. Over the years, hundreds of millions of pounds have been spent, and the cost has been passed on to the people who consume the electricity, as it is mainly electricity that we are talking about. The hundreds of millions of pounds that the scheme has cost has been passed on to every household in Northern Ireland.

That is all wonderful as it is to reduce carbon; that is great. It is a bit like the aviation tax on flights. However, Northern Ireland has got nothing back. For example, Sweden got £203 million for a bioenergy scheme. Ms Bailey does not like bioenergy, but the EU seems to like it as it gave Sweden £203 million. Germany got £112 million for a wind energy project, which Mr Carroll is opposed to. Spain got £70 million for solar energy. The Netherlands got £199 million for a bioenergy project. France got £170 million for a biofuel project. Finland got £88·5 million for a biofuel project. Northern Ireland has paid hundreds and hundreds of millions of pounds and has got zero back.

As we are staying in the scheme, and the innovation grant is replacing the old NER, I am pressing very hard to draw something down from that scheme. For example, hydrogen has been mentioned. Hydrogen offers Northern Ireland a great opportunity to be leaders in tomorrow's fuel. Northern Ireland has already achieved much in the field of renewable energy. How much more could have been achieved if Northern Ireland had been the beneficiary of some of the hundreds of millions of pounds that it has put into Europe or if it had been able to get some of it back again?

Photo of Matthew O'Toole Matthew O'Toole Social Democratic and Labour Party

I am grateful to the Minister for giving way. Further to what he has just said about getting money back, I agree with him if he is being positive about the benefits of full participation in aspects of these schemes. Will he reach out to his counterparts in London, Brussels, Dublin and elsewhere to explore how Northern Ireland, given its partial participation in the EU emissions trading scheme, can benefit from the very ambitious European green deal that has been announced by the European Commission? If there are ways that our industry can benefit from that innovation, will the Minister be open to it?

Photo of Edwin Poots Edwin Poots DUP

Absolutely. One of the problems was that, under the previous scheme, a country could only have three grant-aided schemes. Northern Ireland did not get any of the three schemes; they are all based in England. The consequence of being part of a larger nation is that we had less chance of succeeding than a country with a relatively small population, such as Latvia or Finland.

As we go forward, if Northern Ireland is part of the EU ETS but the UK is not, will we be able to draw down funding? That is the question that I am asking. My Executive colleagues need to support me in that regard. If we are to contribute large amounts of money to the EU innovation fund, we need to get something back. It is the old problem of taxation without representation. As I said, it will be good for carbon reduction because, if we draw money back to carry out carbon reduction, as opposed to just paying into the scheme, that will enable us to drive down our carbon footprint quicker.

Mr O'Toole mentioned that agriculture was not included. I am glad that it is not because it would impose a further burden on Northern Ireland taxpayers on top of what we already pay. It would, probably, add another £20 million or £25 million from the Northern Ireland economy into an area that we do not draw anything back from. I am not enthused about adding to it. I wish to bring forward proposals that will better identify agriculture's real carbon contribution. That will include what is happening in sequestration and will properly identify the sequestration that takes place so that we do not have the situation where we identify emissions but not sequestration. One without the other is meaningless. We need to cover that and identify it.

This is slightly off topic, but the EU scheme is something that we are in and will remain in. The UK scheme that is being proposed to replace it for non-energy businesses will create a better opportunity for us to get something bespoke for Northern Ireland plc. I have made the case repeatedly with Kwasi Kwarteng, with whom we have had lots of meetings, that we in Northern Ireland need to get something back from the money that is ploughed into the carbon emissions trading scheme. I do not have that opportunity with European Ministers, frankly. We can continue to beat the drum here to reduce carbon in a greater way in Northern Ireland through being part of the UK scheme than we could do through the EU scheme. However, as a consequence of the protocol, we will end up in both, and we need to fight our corner in both places to ensure that that is the case.

In any event, I commend the order to the House. It is the only way forward that we have at this time and is thus the direction in which we need to head.

Question put and agreed to. Resolved:

That the draft Greenhouse Gas Emissions Trading Scheme Order 2020 be approved.

Adjourned at 6.59 pm.