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The International Challenge of Climate Change: UK Leadership in the G8 & EU

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The International Challenge of Climate Change: UK Leadership in the G8 & EU House of Commons Environmental Audit Committee The International Challenge of Climate Change: UK Leadership in the G8 & EU Fourth Report of Session 2004–05 Report, together with formal minutes, oral and written evidence Ordered by The House of Commons to be printed Wednesday 16 March 2005 HC 105 Published on Sunday 27 March 2005 by authority of the House of Commons London: The Stationery Office Limited £26.00 The Environmental Audit Committee The Environmental Audit Committee is appointed by the House of Commons to consider to what extent the policies and programmes of government departments and non-departmental public bodies contribute to environmental protection and sustainable development; to audit their performance against such targets as may be set for them by Her Majesty’s Ministers; and to report thereon to the House. Current membership Mr Peter Ainsworth MP (Conservative, East Surrey) (Chairman) Mr Gregory Barker MP (Conservative, Bexhill and Battle) Mr Harold Best MP (Labour, Leeds North West) Mr Colin Challen MP (Labour, Morley and Rothwell) Mr David Chaytor MP (Labour, Bury North) Mrs Helen Clark MP (Labour, Peterborough) Sue Doughty MP (Liberal Democrat, Guildford) Mr Paul Flynn MP (Labour, Newport West) Mr Mark Francois MP (Conservative, Rayleigh) Mr John Horam MP (Conservative, Orpington) Mr John McWilliam MP (Labour, Blaydon) Mr Elliot Morley MP (Labour, Scunthorpe) Mr Malcolm Savidge MP (Labour, Aberdeen North) Mr Simon Thomas MP (Plaid Cymru, Ceredigion) Joan Walley MP (Labour, Stoke-on-Trent North) David Wright MP (Labour, Telford) Powers The constitution and powers are set out in House of Commons Standing Orders, principally Standing Order No. 152A. These are available on the Internet via www.parliament.uk. Publication The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at: www.parliament.uk/parliamentary_committees/environmental_audit_committee.cfm. A list of Reports of the Committee in the present Parliament is at the back of this volume. Committee staff The current staff of the Committee are: Mike Hennessy (Clerk); Lynne Spiers (Second Clerk); Eric Lewis (Committee Specialist); Elena Ares (Committee Specialist); Louise Combs (Committee Assistant); Caroline McElwee (Secretary); and Robert Long (Senior Office Clerk). Contacts All correspondence should be addressed to The Clerk, Environmental Audit Committee, Committee Office, 7 Millbank, London SW1P 3JA. The telephone number for general inquiries is: 020 7219 6150; the Committee’s e-mail address is: [email protected] References In the footnotes of this Report, references to oral evidence are indicated by ‘Q’ followed by the question number. References to written evidence are indicated by page number as in ‘Ev12’. number HC *-II 1 Contents Report Page Conclusions and recommendations 3 Introduction 8 Climate Change and emissions forecasts 9 The impacts of global warming 9 Emissions forecasts 12 The EU Emissions Trading System 14 The concept of emissions trading 14 Phase 1 allocations and targets 15 Windfall profits for power generators 17 ‘Business-as-usual’ and the UK NAP 17 Extending Phase 2 to include other sectors and gases 19 Aviation 20 Wider issues 21 The UNFCCC and the Kyoto Protocol 22 The impact of the Protocol 22 Kyoto trading 26 The Clean Development Mechanism 27 A post-2012 framework 28 The need for complementary action 28 The second commitment period 29 International competitiveness and per capita emissions 30 Contraction and Convergence 32 UK Government objectives for 2005 33 Departmental objectives and the EU 33 International priorities 35 Formal minutes 38 Witnesses 39 List of written evidence 41 Past reports from the Environmental Audit Committee since 1997 42 3 Conclusions and recommendations Climate Change and emissions forecasts 1. While some scientific uncertainties still remain in relation to some aspects of the global warming process, the time for querying the science is long past. Nor should policy makers still hope that science can come up with a definitive “safe limit” to global warming. Governments must act as a matter of urgency and on an unprecedented scale: a Marshall plan for climate change is now required. (Paragraph 13) 2. The world will, in the absence of urgent and strenuous mitigation actions in the next 20 years, almost certainly experience a temperature rise of between about 0.5°C and 2°C by 2050. The fact that the tipping point for the irreversible melting of the Greenland ice sheet is now thought to fall well within this range is a matter of extreme concern. Indeed, in the light of such findings Sir David King has suggested that the UK’s 60% carbon reduction target which the UK Government has set for 2050 may need to be increased to 80%. (Paragraph 14) 3. We would like to pay tribute to the Government Chief Scientist, Sir David King, for all his efforts to communicate, in both national and international fora, the seriousness of the threat which global warming poses. He has displayed courage and commitment in not only highlighting the scale of potential impacts, but also in emphasising to policy makers the need for urgent action. (Paragraph 15) 4. The energy demand scenarios of the International Energy Agency, the US DoE, and major oil companies predict that the rate of emissions will actually increase to 2030 and beyond. By contrast, environmental scientists emphasise the need to stabilise emissions by 2030 or earlier and thereafter reduce them if catastrophic climate change impacts are to be avoided. Given the yawning chasm between these two scenarios and the scale of future investments in power generation, it is essential that governments take all possible steps to ensure that such investment are oriented towards the development of low-carbon approaches. (Paragraph 21) The EU Emissions Trading System 5. Phase 1 of the EU ETS has rightly been described as a “race to the bottom” in terms of the target caps set by individual member states. As a result, there is little prospect that it will yield any significant carbon reductions and this is reflected in the low price at which carbon is trading. Far tougher targets will need to be set in Phase 2 of the scheme and should be based on agreeing an overall cap for the EU. Indeed, it is only the existence of the Kyoto targets which will provide the driver for this process. This demonstrates the importance of such absolute targets within a post-2012 framework. (Paragraph 30) 6. In Phase 1, not all aspects of implementation were precisely defined. There are therefore differences between arrangements in individual member states—including the extent to which auctioning of permits is used, and the size of any new entrants’ 4 reserve. The UK should work to ensure that there is greater harmonisation and consistency in the way in which Phase 2 of the scheme is implemented. (Paragraph 32) 7. It is widely accepted that UK power generators are likely to make substantial windfall profits from the EU ETS amounting to £500 million a year or more. We regard this as unacceptable and particularly ironic in view of the complaints from the power sector over the targets set for them under the UK National Allocation Plan. The Government must take steps to address this issue by promoting the greater use of auctioning of emissions permits for the power generation sector in Phase 2, or by ensuring that windfall profits are re-invested in renewable and low-carbon technologies. (Paragraph 35) 8. In attempting to revise upwards its emissions cap for Phase 1 after the EU deadline had passed, the UK Government has become embroiled in a damaging legal argument with the European Commission and is in danger of wantonly squandering its reputation for leadership on climate change. We find the UK position particularly surprising since the cost of the disputed amount—some £33 million a year over the three year period of Phase 1—would be borne by the power generating sector and pales into insignificance beside the £500 million a year in windfall profits they are likely to earn from the scheme. (Paragraph 40) 9. The difficulties the DTI has experienced in providing reliable energy forecasts are reflected in the sheer scale of the upward revisions to the emissions cap in the UK NAP during 2004. Such difficulties undermine the very concept of “business-as- usual” (BAU) as a reliable basis on which to set targets and we therefore favour the adoption of absolute targets wherever possible. (Paragraph 43) 10. The concept of Domestic Tradable Quotas provides a possible mechanism which could prove effective in bringing about behavioural change in the transport sector, and we would urge the Government to give serious consideration to introducing such a policy which could be more palatable than further increases in carbon-related taxation. (Paragraph 45) 11. We are sceptical of the desirability of incorporating other greenhouse gases and sectors within Phase 2 of the EU ETS. We are also concerned that this may destabilise carbon-trading markets and undermine investment at precisely the time when far more stringent targets need to be set. The UK government should therefore work to ensure that there are minimal significant changes to the shape and scope of the scheme, and that non-carbon greenhouse gases are addressed through regulation rather than trading. (Paragraph 46) 12. We see no possibility of the UK Government achieving its objective of incorporating aviation in Phase 2 of the EU ETS, and we continue to think that a mixture of other policies—including the scope for taxation and emissions charging—should be pursued. (Paragraph 48) 13. We would support the inclusion of aviation within a rigorous emissions trading system only on the basis that our concerns over allocations and global warming impacts were addressed.
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