Climate Change Bill [HL]

This group of amendments, and the next few that we shall discuss, concern how the trading powers under Schedule 2 operate. I appreciate that these are probing amendments, but in many cases they seek to place restrictions on how these powers may be used. We believe that a better approach is for many of these issues to be considered on a case-by-case basis. As I said, Clause 40 requires both Houses to approve any new trading schemes. We can certainly explore in detail issues such as the rules on auctioning allowances, the use of carbon units from other schemes and the enforcement arrangements when we have the facts and proposals before us. I hope to be able to provide some reassurance about the Government’s thinking on these issues. Amendments Nos. 165A, 166 and 166A concern the way in which allowances in trading schemes are allocated to participants. As currently drafted, paragraph 5(4) of Schedule 2 makes it clear that trading scheme regulations introduced by the powers in the Bill may not include provision for allowances to be offered in return for consideration—effectively by auction or otherwise for sale. As the Government explained during pre-legislative scrutiny, we do not consider that it would be appropriate for provisions in regulations made under the Bill to allocate allowances by auction or otherwise for sale. Instead, given the importance of auctioning to government economic policy, with a potentially significant fiscal impact on the UK as a whole, we believe that the right approach is for these powers to be taken through a money Bill. For example, the Finance Bill was the legislative vehicle for introducing provisions to allow for the auction or sale of allowances in the EU Emissions Trading Scheme. Amendment No. 165A would remove the Bill's provisions on auctioning, and we therefore cannot accept it. Although it is government policy to push for increased levels of auctioning in trading schemes, as that approach is consistent with the ““polluter pays”” principle, Amendment No. 166 would be overly restrictive by requiring all allowances in every scheme established by the powers in this part of the Bill to be auctioned post-2012. It is essential that the relevant national authority should be able to decide the right level of auctioning to be used alongside other possible measures, to ensure that environmental goals are achieved effectively and without undermining wider government aims, such as supporting business competitiveness. That was also the view of the Joint Committee, which stated that, "““auctioning allowances might have very different implications depending on the design of different trading schemes, and on the differing economic and administrative circumstances of the participants””." It concluded that the Bill, "““should not contain a blanket provision to rule auctioning in or out for all trading schemes, but that rather this should be decided on a case by case basis””." We agree with that reasoning and therefore cannot accept Amendment No. 166, which takes that restrictive approach. Amendment No. 166A introduces the notion of some kind of force majeure provision relating to auctioning, to be used in an unspecified and unexpected situation, examples of which were given by the noble Lord, Lord Taylor. We have been keen to stress the importance of the flexibility of the trading scheme powers, and we feel that the aim of the amendment is already covered by paragraph 5(3). This provides: "““The regulations may specify the method of allocation or provide for it to be determined in accordance with the regulations””." This would allow the relevant national authority to include force majeure provisions where they are required. I am not a lawyer and cannot say anything definitive about this, but the kind of examples that the noble Lord gave—both the fires and the burning of the carcasses in 2001—seem to be unexpected events that are outwith the normal rules. They would have to be covered by some kind of arrangements. I will not nitpick about the drafting of the amendment, which I assume was designed to elicit the response I have given. That kind of arrangement or example would be dealt with by the national authorities within the terms of the Bill.