Climate Change Bill [HL]

Well, my noble friend is certainly more of an expert than I am. The committee’s members are the experts, and they should decide. The Bill should have no restrictions in it, but should give the committee a steer on our thinking. Once the committee has looked at all the evidence, it should then say what percentage limits should apply. The concept of allowing overseas credits to be used to reduce a country’s net carbon account is widely accepted internationally. There are already at least three international agreements for allowing foreign schemes and reductions to be used in reducing or netting off the UK carbon account—the UN framework, the Kyoto Protocol and the EU Emissions Trading Scheme—and no doubt others will be developed. There are two types of international carbon credits. The first is where UK companies and entities can buy credits from those who emit less than their capped allocation, and the second is the funding of projects abroad, which will displace the growth of emissions from the developing world. UK companies that emit more in a given period than their allocated cap must buy sufficient credits to bring their net carbon account into line with their cap. They can buy credits from another company within the UK; that will reduce their net carbon account but increase the selling company’s, so that both companies stay within their respective cap allocations. Because those transactions take place in the UK, there is no change to the UK’s net carbon account. Alternatively, the company can buy its credits from another company outside the UK. That will reduce both the individual company’s net carbon account and that of the UK. That carbon trading is already taking place. It allows participants to reduce emissions where it is cost effective to do so and to trade where it is cheaper for others to do so, therefore reducing emissions at least cost. The noble Lord, Lord Rooker, said last week that the European Commission confirmed this, "““finding that the costs could be reduced by a third through emissions trading””." However, it is vital that the caps set internationally are robust. If not, the credits bought are likely to be from the most lax systems. If that happens, progress to reduce emissions will be slow. The UK company can also help to pay for green projects in a developing country, as can the Government. The effect would be to reduce the net carbon accounts of the Government and the United Kingdom. But are those credits for overseas projects desirable? In my view, they clearly are. As the noble Lord, Lord Rooker, said on Amendment No. 8, "““it does not matter where on the planet the reductions take place, so long as they are proper reductions””.—[Official Report, 11/12/07; col. 185.]" I agree, but when I wound up on Second Reading I said: "““It is rather like the buying of indulgences ... While it is obviously worth while to contribute to the global battle against climate change””,—[Official Report, 27/11/07; col. 1207.]" that should not be allowed at the expense of taking the necessary actions within the UK. The noble Lord, Lord Puttnam, said a little earlier that it is like pushing the problem abroad. It is actually pushing the solution abroad; we have to find the solution in this country. Pushing the solution abroad would convey entirely the wrong message. If the UK failed to reduce its own emissions by allowing too high a percentage of foreign credits, it would be a sort of ““business as usual”” approach. That theme is echoed by the Kyoto Protocol—it was referred to by the noble Lord, Lord Puttnam—which states that, "““the use of the mechanisms shall be supplemental to domestic action and that domestic action shall thus constitute a significant element of the effort made””." ““Supplemental”” and ““significant”” suggest that a figure of well below 50 per cent would be acceptable. At this point, I would like to say something about the reporting of the UK’s net carbon account. There is a need for full disclosure in the reporting of the reduction in emissions from one period to the next. By that I mean disclosure of how much of the change is due to the UK’s domestic emissions, how much is due to carbon trading—both of credits and debits—and how much is due to the taking of credit for developing-world projects. That would offer some transparency to the process. We have tabled an amendment to that effect, to which we shall come later. What is the right percentage? We have lots of different ideas in the Committee today. Should it be the same percentage throughout the 42 years? That was referred to by the noble Lord, Lord Turner. There may be merit in tapering the percentage over the period. Initially, companies would need to trade carbon extensively until they got their own house in order. If they failed to do so and as their allocated cap reduced year on year, the cost of trading carbon would become prohibitive, until price forced them to take action. For an example of tapering, let us take the figure of 40 per cent suggested by the noble Lord, Lord Puttnam. You could have something like 40 per cent in the first 10 years, 30 per cent for the next 10 years, 20 per cent for the next and 10 per cent for the remaining. That example averages out at about 25 per cent for the 42 years, which is coincidentally the same figure as I plucked out of the air at the beginning of my remarks. However, if there is to be any tapering, it should be for the committee to decide.