Climate Change Bill [HL]

The noble Lord, Lord Taylor, is getting a taste of what it is like to be on the receiving end of the questions. I will do my best to explain how Clause 37(1)(a) to (d) would operate but I have a few notes to put on record first. Clause 37 builds on the provisions set out in Clause 36. While Clause 36 covers schemes which directly and indirectly cause or contribute to emissions, Clause 37 provides more detail on the activities which may be considered indirectly to cause or contribute to greenhouse gas emissions. Perhaps I may give a quick example of the distinction between directly and indirectly causing emissions. The former may be the burning of coal which produces greenhouse gases emissions from power station chimneys because the emissions occur directly on-site; the latter relates to the consumption of electricity produced by the power station, wherever this may occur. An example of a trading scheme which targets indirect emissions could be one which targets the supply of heating fuel. This could be regarded as relating to indirect emissions as the emissions themselves take place at the point of use by the consumer rather than at the point of sale. However, it would be easier and more cost effective to target the suppliers of the heating fuel through a trading scheme rather than to seek to introduce emissions trading schemes between the millions of consumers of heating fuel. The Government already have some limited powers to introduce trading schemes relating to direct emissions from a point source such as a power station chimney under the Pollution Prevention and Control Act 1999. However, there are notable gaps in these powers as they apply only to quotas of emissions and would not allow trading schemes to be introduced with the purpose of encouraging activities which reduced the emissions. In addition, those existing powers relate only to direct emissions and would not allow a trading scheme to be introduced which targeted indirect emissions alone or a combination of direct and indirect emissions. For instance, it would not be possible to introduce the new carbon reduction commitment under those existing powers as it targets direct carbon dioxide emissions from the organisations covered by the scheme as well as their indirect carbon dioxide emissions from electricity use. The powers in the Climate Change Bill resolve this situation by allowing for schemes which target both direct and indirect emissions. In short, we need to encourage greater energy efficiency from all parts of the economy if we are to meet our targets. The aim of Clause 37 is to ensure that the trading scheme powers can be appropriately targeted so that all these possible sources of emissions could be included in a trading scheme. The powers fill a gap which currently exists in terms of introducing timely and cost-effective policies to tackle greenhouse gas emissions. Changes to the taxation system can be introduced quickly through the annual Finance Bill process, and EU measures, including regulation, can be implemented using the European Communities Act 1972, without the need for new primary legislation. Without those powers, the Government would be forced to rely on fiscal measures or regulation to ensure that particular sectors were helping in the fight against climate change. I am sure that Members of the Committee do not intend that potentially more cost-effective trading policies with a lighter touch should not be introduced, because that would be the effect of removing the powers from the Bill. In relation to parliamentary scrutiny—it is constantly one of our themes, although it was not raised this time—I have already set out the very strong safeguards in Clause 40, which will ensure that these powers are used appropriately. I was also asked about the breadth of the energy consumption definition—which could include, for example, breathing, and why we need such a broad power—and indirect emissions. I shall give an example from a manufacturing point of view. As regards the simplest way to think of Clause 37(1)(a) to (d), let us say, for example, that the noble Lord, Lord Taylor, produces motor vehicles. Under paragraph (a), he uses electricity to operate all his plant. Production of electricity leads to direct emissions. Under paragraph (b), he buys components from specialist manufacturers, which are all direct emitters or use electricity, which is an indirect emitter. Under paragraph (c), the motor manufacturer throws away waste components and off-cuts. Although he did not necessarily use them for the purpose of paragraph (b), it led to effectively throwing away direct or indirect emissions needed in their production. This category is separated from paragraph (b) to provide the exemption for things that are to be recycled—off-cuts are a good example. Under paragraph (d), his cars run on petrol, so their use leads to direct emissions by consumers. That sets out how the different parts of Clause 37 might apply. The aim is to ensure that trading powers can be appropriately targeted, so that all the possible sources of emissions can be included in the trading scheme at the most appropriate point in the supply chain. As I have already mentioned, the trading scheme power is intended to be broad enough to enable the Secretary of State or devolved Administrations to make any trading scheme they consider appropriate within the powers in Schedule 2. However, as we made clear in the debate on 14 January, it would be inconceivable that the powers in the Bill would be used to introduce a trading scheme at this personal level. There are strong scrutiny arrangements before regulations making trading schemes can be introduced. Clause 40 provides requirements that must be met before a new scheme can be introduced; that is, consulting those who are likely to be affected, seeking and taking into account the advice of the Committee on Climate Change and, of course, requiring affirmative procedure in Parliament. In addition, a decision to use the powers for a specific scheme will need to be based on a cost-benefit analysis of the scheme, including its impact on business. That will be in the impact assessments, which are generally published alongside consultations on the individual schemes. The noble Earl asked me whether we are excluding sequestration. The answer is no. It is covered by Clause 36(2)(b), which relate to schemes encouraging the removal of carbon from the atmosphere. I hope that that answers the questions that I have been asked.