My Lords, first, I thank all noble Lords who have spoken on these amendments, which were introduced so ably, as always, by the noble Lord, Lord Whitty. I will respond to them all together since they all relate to climate change and energy matters.
Amendment 3, tabled by the noble Baroness, Lady Boycott, and the noble Lord, Lord Whitty, seeks to include specific mention of our “net zero emissions target” and “environmental targets”. It would require public authorities to consider the negative impacts, with respect to our Climate Change Act and Environment Act targets, when making a balancing test under principle G of Schedule 1. Amendment 61 would allow the Secretary of State to issue guidance to support public authorities with this assessment.
I understand noble Lords’ keen interest in ensuring that subsidies and schemes granted within the UK further our climate change and environmental targets, wherever practical, and that public authorities should be supported by the Government in making robust assessments of the impacts that their subsidies or schemes may have on these targets. The Government share this objective, and our record in office demonstrates that. I make it clear that this applies to some of the other amendments to which I will be coming later: the UK’s net zero target is, and remains, the law of the land. Nothing in this Bill changes or undermines that fact. The Government remain resolutely committed to net zero by 2050. At this point, I welcome the addition of the noble Lord, Lord Fox, to my speechwriting team. However, it is right and proper, particularly in the current crisis, that we keep in mind that our energy transition to net zero is an issue not only of decarbonisation but of national security and—especially at the moment—national importance.
In response to the noble Lord, Lord Whitty, I make it clear that the balancing test in principle G already requires public authorities to take into account all relevant “negative effects”, which would include negative effects in relation to climate change and the environment. Similarly, subsidies that support our net zero and environmental targets should also take those positive impacts into account in the balancing tests. Principle G emphasises particularly “competition”, “trade” and “investment” effects because minimising harmful distortions in these areas is the primary purpose of a system of subsidy control. However, it is not intended to suggest that these factors should override all other policy-making considerations. There is no implication that public authorities should set their climate and environmental obligations—or, indeed, any other duties or objectives—to one side.
I reassure the noble Baronesses, Lady Sheehan and Lady Hayman, and others, that the Secretary of State will issue guidance on the practical application of the subsidy control principles, and regarding the energy and environment principles. This guidance will include instructions on how to take into account, where relevant, any impacts the subsidy or scheme may have on targets
under the Climate Change Act or the Environment Act—or, indeed, signpost the public authority to existing guidance to this effect.
It is also worth pointing out that environmental policy is a devolved matter. This regime is designed to empower public authorities with democratic mandates to use subsidies in pursuit of their own policy objectives—within certain bounds which merely protect UK competition and investment—and safeguard our international obligations. It is not seeking to direct the devolved Administrations, or any other public authority, to spend on one specific policy objective, however important and worthwhile that policy objective may be. For that reason, I am highly reluctant to impose any additional constraints on other public authorities which are fundamental neither to subsidy control policy nor to implementing our international obligations. There are later amendments in which noble Lords will seek to persuade me to do the opposite in respect of the devolved Administrations, so I hope that noble Lords will not be so hypocritical as to repeat those arguments back to me then. I believe that these amendments are therefore unnecessary, and I ask the noble Lord, Lord Whitty, to withdraw Amendment 3.
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I turn to Amendment 51, tabled by the noble Baronesses, Lady Boycott, Lady Sheehan and Lady Altmann. Clause 65 specifies that the Competition and Markets Authority will periodically undertake a review of the operation of the subsidy control regime. This amendment would require that review to include an assessment of the impact of the operation of the Act on progress towards the target under Section 1 of the Climate Change Act 2008 and the targets under Section 5 of the Environment Act 2021.
I thank the noble Baronesses for tabling this amendment and assure them that the aims of the Government are entirely in line with the spirit of it. However, we do not believe that it is necessary to include these additional reporting requirements, not only because the report will, as the Bill currently stands, provide an appropriate level of scrutiny of the impact of the energy and environment principles, but because the appropriate monitoring and reporting mechanisms for the Government’s net-zero and environmental targets are already set up and have much wider scope than the subsidy control regime.
The new subsidy control regime will support environmental goals by allowing public authorities to make subsidies that address a market failure or equity rationale in relation to environmental and net-zero objectives with minimal delay. The Bill also sets out common-sense principles that promote energy efficiency, sustainable energy and environmental protection through the energy and environment principles set out in Schedule 2. The subsidy advice unit’s report will cover all aspects of the regime, including the operation of Schedule 2. These provisions provide an appropriate level of detail to enable the subsidy advice unit to fulfil its reporting function under Clause 65, and we believe that this strikes the right balance for monitoring the environmental and climate aspects of the regime.
I highlight that the Government already have robust reporting requirements on the meeting of net-zero and environmental targets. We have debated them extensively in this House. The Climate Change Act 2008 sets out monitoring and reporting requirements regarding compliance with the 2050 net-zero target and our carbon budgets. This includes laying before Parliament a report setting out current proposals and policies for meeting the UK’s carbon budgets, most recently the net-zero strategy; the UK’s energy and emissions projections, a world-leading approach to projecting the UK’s future emissions; and scrutiny by the independent Climate Change Committee, including an annual report by it to which the Government already must respond. We have also committed to update annually on progress on the net-zero strategy, and we comply with the UNFCCC’s emissions reporting obligations via annual submissions of the UK greenhouse gas inventory. Under the Environment Act the Government must report regularly on the progress made towards improving the environment.
The Climate Change Committee and the Office for Environmental Protection also have a function in holding the Government to account for progress towards climate targets and improving the environment respectively. Unlike the subsidy advice unit, these bodies specialise in climate and environmental matters respectively and can bring that expertise to bear on all the Government’s activities in that respect, including the subsidies they give. Furthermore, the Climate Change Act 2008 provides for parliamentary scrutiny. It is therefore our position that these are the sufficient and proper channels to ensure that these goals are being met and it is unnecessary to duplicate this work at the SAU. I therefore hope that this amendment will not be moved.
On Amendment 5 to Schedule 2, tabled by the noble Baroness, Lady Bennett, as noble Lords will know, Schedule 2 relates to subsidies and schemes in relation to energy and the environment. Under the terms of the Bill, principle C in Schedule 2 enables a non-competitive process to be utilised for the award of subsidies in relation to renewable energy or co-generation in limited and specific circumstances. These are where: first, projects are operating in a market with insufficient supply to ensure a competitive process; secondly, the project in question is a demonstration project; or, thirdly, the eligible capacity is unlikely to have a material effect on competition and investment within the United Kingdom or on international trade and investment. In any of these cases measures must also be in place to prevent overcompensation.
This amendment lists additional criteria for a number of small renewable energy or cogeneration projects that, under the terms of the amendment, could be granted without being subject to a competitive process, provided the other conditions in principle C are met. I understand the noble Baroness’s ongoing interest in this issue. It is important to note that the terms of Schedule 2 implement the UK’s international obligations under the trade and co-operation agreement with the European Union. Changing the terms of that schedule, as the noble Baroness’s amendment would do, would jeopardise the implementation of the UK’s international obligations and for that reason I cannot support the
amendment. Furthermore, the Government understand the importance of supporting small-scale renewable energy projects of the kind set out in the noble Baroness’s amendment.
I point out that under the terms of principle C(2)(b), a non-competitive process may be used to determine a subsidy for renewable energy or cogeneration if appropriate measures are put in place to prevent overcompensation and if the subsidy is not likely to have a material effect on competition or investment within the UK or trade and investment between the UK and its trading partners. It is very likely that many of the projects caught within the terms of the noble Baroness’s amendment would already be included within these exemptions. Therefore, I believe that the noble Baroness’s amendment is unnecessary and I hope that, given the reassurance I have been able to give her, she will feel able not to press it.
With respect to energy and environment objectives, Schedule 2 of the Bill establishes a clear and flexible framework for the awarding of subsidies in relation to energy and the environment. This reflects the Government’s ongoing priorities on net zero and protecting the environment, while also ensuring that the UK complies with its various international obligations. All subsidies to which the subsidy control requirements apply, including small projects of the kind set out in the noble Baroness’s amendment in relation to energy and environment, should comply with these principles, not least of which is good value for taxpayers’ money.
I stress to noble Lords that the UK’s existing commitments and practices in relation to this critical priority are extensive and world leading, including, for instance, the various principles set out in the Environment Act which Ministers must give regard to when making policy. I believe, therefore, that we already have the right framework in place. For the reasons that I have set out, I hope that the amendment can be withdrawn.