Activities to which trading schemes may apply

Question proposed, That the clause stand part of the Bill.

As we are dealing with a new part of the Bill and a clause on trading schemes, I want to ask the Minister a question about the philosophy and principle underlying the creation of trading schemes. To what extent do the Government think that sectoral schemes are a good idea over and above what one might loosely call aggregate schemes? By analogy with the argument that has been used elsewhere in our deliberations, one could say that carbon is carbon is carbon. In that case all we need to do is set overall caps. If we create sectoral schemes within those caps, or alongside them, we may create a new bureaucracy and a new infrastructure, but not add a great deal.

On the other hand, just as we have argued that a tonne of carbon saved in the UK has a different meaning and value to that saved elsewhere because of the leadership role, one might argue that a sectoral trading scheme has value quite apart from the aggregate effect, because we want to create innovation in transport or in industry. As clause 44 is about the activities to which trading schemes may apply, what are the principles that will guide the Government in deciding when it is appropriate to establish a sectoral scheme and when it is appropriate to let the carbon price, the ETS or some aggregate scheme that is not sector specific be the dominant approach?

The hon. Gentleman poses an important question. The issue is widely debated in the international forum, so it is useful to have the opportunity to respond.

The word “sectoral” is used by different people in different ways. Sometimes it refers directly to a particular industrial sector. Ceramics comes to mind, for reasons that are evident on the Labour Benches, but we could also use the example of steel or aluminium. Some people use the word “sectors” to mean energy production or transport. Clearly, it is important that we answer the question posed by the hon. Member for Northavon.

Our policy is firmly based on the pre-requisite of national emissions cap and trade—national targets and binding agreements. On that basis, we believe that there may well be advantages for further reduction of emissions through sector schemes—international sector schemes on steel come to mind.

Will my hon. Friend confirm that in those sectoral arrangements, it is the Government’s intention to allow as much flexibility as possible within the individual sectors so that we can achieve our global emissions? Do they recognise that we need such flexibility?

Indeed. To achieve the balance that we discussed, we require such powers. Let me explain. The first application of the new powers will be to support the carbon reduction commitment—a new UK cap-and-trade scheme that will apply to large non-energy-intensive organisations in the public and private sectors, including, we anticipate, Government Departments. That is a progressive step.

The powers may also be used to introduce a household energy supplier obligation to succeed the carbon emissions reduction target that ends in 2011. The principles underlying any additional scheme would be its interoperability with other schemes, specifically the ETS, its interoperability through that mechanism with other global or worldwide schemes, and, just as importantly, whether it would achieve further reductions in emissions than would existing participation in the ETS or the other two schemes that I mentioned. Given that we are legislating for a long period, it is possible that the ETS will not exist, in which case we would need those powers. We are simply taking powers that Northern Ireland and Scotland already have to set up such schemes.

Will the Minister clarify whether the provisions apply only to sectors, broadly defined, that are outside the ETS? If they applied to people within the ETS, what would happen if they traded in the sectoral scheme, did well and built up credits? I want to know about that interaction.

The question takes us back to the debate about the domestic effort as against the international effort. Having a national cap or target means that if we do well domestically, we simply sell our surplus credit to somewhere else, so the aggregate across the EU will not fall. That seems to run counter to what we are trying to achieve through the sectoral scheme. Perhaps sectoral schemes should be non-EU ETS schemes.

I see the hon. Gentleman’s point. Sectoral schemes could be within the ETS, but they probably will not be. One can envisage circumstances involving international industries that are not predominantly European-based. I hesitate to offer an example because trade associations will write to me about it, but let us say that the international widget manufacturing association wanted to propose a scheme, and that a lot of widgets were produced in a place—again, I shall not mention a particular country—that is east of Berlin.

Suppose a judgment was made that one could preserve UK competitiveness and encourage a reduction in emissions across a European geographical area. One might want to do that within the ETS, so we have not ruled it out.  We are trying to provide flexibility. In practice, we can identify steel, aluminium and, perhaps, food processing, as well as other sectors as they grow from the grass roots upwards. My example of bus operation is not fanciful;. One could envisage such a scheme as we embed carbon budgets. I hope I have answered the question.

Question put and agreed to.

Clause 44 ordered to stand part of the Bill.

Clause 45 ordered to stand part of the Bill.