Examination of Witnesses (Questions 1-25)
LORD TURNER
OF ECCHINSWELL
AND MR
DAVID KENNEDY
4 MARCH 2009
Q1 Chairman: Thank you for joining us,
Mr Kennedy. We understand that Lord Turner is delayed at the moment
but I thought that, because time is short, it might be useful
for the Committee to make a start and perhaps start off with the
structure and organisation of the Climate Change Committee, for
which as Chief Executive you are responsible, and then we will
move on when Lord Turner arrives. I would like to start off by
asking you where things are with the Climate Change Committee
in relation to your organisation. Are you fully up and running?
Are your budgets in place? Are you fully staffed up? Perhaps you
could tell the Committee just where you are in organisational
terms.
Mr Kennedy: In
terms of being up and running, the short answer is yes, we are
up and running. Officially we were established on 1 December last
year but we had existed in shadow form for about a year before
that. When I turned up, there was pretty much a blank sheet of
paper in terms of resourcing, but we got a budget secured; we
hired about 25 to 30 people and we had those people working for
about a year to deliver this report, which I believe you have
all seen, Building a Low Carbon Economy. Going forward
beyond this report to the next deliverables, the big deliverables
for us are the report to Parliament which is due in September
this year, and I think that we will talk about that more with
Lord Turner; also, a review of UK aviation emissions which we
have to deliver to the Departments for Transport and of Energy
and Climate Change in December this year. We will have a staff
of between 20 and 25 to deliver that and we have those staff in
place at the moment. There are some final budget discussions to
have with DECC, and DECC is talking about its budget more generally
and resourcing there, but we hope to get some clarity in the next
week or two on that.
Q2 Chairman: So is the budget not
finalised yet then?
Mr Kennedy: The budget is not
finalised for next financial year. We have put our bid in. As
I say, in terms of numbers it is 23 staff that we have put in
for. We hope that we will get the 23, but we have to wait and
see.
Q3 Chairman: You do not have the
23 yet, though?
Mr Kennedy: We have 21 in place,
I think; so we will be able to hire an extra two people, which
will give us the freedom to cast the net a bit wider. In terms
of the report to Parliament, it will allow us to cover in more
detail things like agriculture, which we touched upon in our report
and which we would like to follow up on, but for which we have
limited resource at the moment.
Q4 Chairman: Do you have much facility
for engaging with the public within the committee? How do you
go about that?
Mr Kennedy: It is very important
for us to have a high profile externally, we feel, and we have
tried to achieve that in a number of ways. We kicked off when
Lord Turner joined with a call for evidence first of all. We got
about 1,500 responses to that call for evidence. We followed that
with a consultation on our work programme. There were about 200
responses on that. Following that, we have had a number of workshops
with specialist audiences, whether that is the power sector, agriculture,
buildings or transport, and a whole range of bilateral meetings.
It is something that we need to build on going forward. We want
to reach out further than we have over the last months. Again,
it is a question of the resources that we have had available over
the last year and the very tight schedules that we have had to
deliver this report; but it is a key issue for us, going forward.
Q5 Chairman: Given the global credit
crunch and the decline economically, will you have to revise some
of your projections as a result of that?
Mr Kennedy: The short answer to
that is no, we do not think that the credit crunch is a reason
that we should take our foot off the pedal. It is imperative that
we act across the range of measures we have suggested, whether
that is the energy efficiency or the renewables or moving towards
a world where we have more electric cars. The macro situation
presents, on the one hand, opportunities—there are opportunities
for improving energy efficiency as part of a fiscal stimulus—and
it presents a lot of challenges as well, and they certainly will
feature in our report in September. The main challenge will be
finance of renewables projects. What we can do about that is something
we are looking into at the moment. Whether there are actions that
the Government can and should take to free up liquidity for these
kinds of projects is something that we are thinking about and
would like to report back on.
Q6 Chairman: I ask that because it
is clear that the economic calculations feature a lot in the Climate
Change Committee's assessments and work. The price of oil, for
example, in relation to some of the development of low-carbon
technologies; the overall cost of getting to a 50 per cent global
reduction by 2050; and our own commitment in the UK of 80 per
cent you put at between one per cent and two per cent of GDP.
That is a long timeframe. Is it just too short a period, in relation
to the kinds of fluctuations in the economy, to change your costings
up or down on this?
Mr Kennedy: We would have to differentiate
between the short-term situation, which is the next year, two
years. Beyond that, we hope that we will be in an upswing rather
than the current situation. The longer-term challenge is as you
say. We had a cost estimate for 2050; we had a cost estimate also
for 2020, and there we have said that we think the cost of meeting
the budgets is between 0.3 and 0.8 per cent of GDP. I do not think
that estimate will change because of anything that has happened
over the months since we published this report.
Q7 Paddy Tipping: Could I pick up
the point made about renewables? What I am not clear about regarding
the role of the committee is where analysis stops and where policy
formulation starts. Clearly there are a number of ways to bring
renewables on, but that is a policy issue for Government rather
than for the Climate Change Committee. Could you explain that
kind of overlap?
Mr Kennedy: It is a good point
to hand over to Lord Turner! He has walked in in the middle of
a question. The question is about the tricky interface between
analysis and technical potential, and we are talking about renewables
in particular. We have said that we should aim for 25 to 30 per
cent renewables in 2020 and, in our next report, we will set out
how you get to that 25 or 30 per cent. The question, in response
to something I have said, is about whether the credit crunch is
important; is liquidity restricted for these projects and, if
so, would we want to say anything about it? Does that take us
into the policy area?
Lord Turner of Ecchinswell: I
think that my perspective is that we have to occupy a bit of an
intermediate stance on policy. In order for us to set credible
budgets rather than budgets where we are saying, "Well, that's
what the science says we'll need to achieve—end of story",
we need to identify two things. First of all, identify that they
are credible in technical terms, cost terms and cost to the economy,
and the legislation requires us to do that; but we also have to
say is there a policy framework in place, or capable of being
put in place fast enough, that we are likely to get there? Otherwise,
we are simply setting a set of budgets which we know will not
be met. We have in the report, and intend in future still, to
comment in general terms about the categories of policies which
are required to make it possible. At the other extreme, however,
we have no intention—I do not think it is right and I think
it would harm the role of the committee—as it were to be
popping up after each budget and saying, "Why haven't you
changed this tax lever?" or, commenting specifically on Heathrow
runway 3, yes or no—
Q8 Paddy Tipping: Go on!
Lord Turner of Ecchinswell: You
may want me to. I think that we simply have to exist in this intermediate
space: that we are commenting upon the overall framework and what
is generally required, without being a commentary on precise month-by-month
aspects of public policy. It is an intermediate position but I
think that it is the only sensible way to proceed.
Mr Kennedy: Could we add that,
where we have talked about policy in this report—and let
us give an example, on the investment in conventional coal plant—we
have said that we think there is a need to buttress the carbon
price with one or other levers. However, we have given a range
of options; we are not prescriptive; we are not black and white;
and I think that the Government has found it helpful that we provide
options which they can then exercise their political judgment
over.
Q9 Colin Challen: I am just wondering
what made you change your mind about keeping this job, Lord Turner,
because it was widely reported that you would be finishing at
the end of January, and I think that the post was advertised.
Is that correct?
Lord Turner of Ecchinswell: That
is really a question for the Secretary of State. I have made it
plain that the job of doing the FSA Chairman at the moment is
pretty close to—well, it is a more than full-time job. It
depends how many hours you think is in a full week. I said to
the Treasury Select Committee the other day that it was 80 hours
and my chief executive said afterwards, "I think that's a
bit of an underestimate, Adair". The answer is that I do
have to focus the vast majority of my time at the moment on the
FSA. It is then up to the Government to decide what arrangements
are required to replace me. I have made it plain that I would
be happy to stay as the deputy chair of the organisation and would
certainly like to stay on the committee. I think that really is
a question—and also in relation to the advertisements and
why that did not proceed to an appointment—that you would
have to ask the Secretary of State. The current situation is that,
at this point where we have produced this report and the committee
has debated and has outlined the work programme that is required
to take us to the September report and the December report on
aviation, we happen to be in a couple of months where, frankly,
the relative workload on the chairman is much lower than it otherwise
would be. Essentially, we have agreed with David and the secretariat
the work programme, and they are getting on with it. The nature
of any committee like this has a set of waves of how much involvement
you need from the chairman and the committee versus from the secretariat.
I think that at the moment the secretariat is simply getting on
with the sensible, required preparatory work which will take us
towards the September report.
Q10 Chairman: Can I at this stage
formally welcome you, Lord Turner. I am really pleased to see
you.
Lord Turner of Ecchinswell: My
apologies for being late.
Chairman: We understand that you have
come here straight from another meeting, but we appreciate your
coming. As you know, the Climate Change Committee enjoyed cross-party
support when it was set up as part of the Climate Change Bill,
which again was widely welcomed. Your role in terms of setting
the carbon budgets is certainly crucial in relation to the Government's
progress, in terms of meeting what are very ambitious targets,
as I think we all recognise. You may be aware that we have just
finished a private session with the Hadley Centre, where we had
the latest science. What was very clear from that is that there
is a real urgency to move forward on these issues if we are to
have an impact in relation to stopping the rise in global temperatures.
I would like to move on to the issue of science at this point.
Q11 Dr Whitehead: We have heard from
the Hadley Centre this morning and there are also a large number
of projections and re-projections that have been going on. Indeed,
your committee was instrumental in looking at those changes in
terms of the recommendations on UK emission reductions by 2050.
What steps are you taking within the committee to ensure that
the committee is up to date with those specific recommendations
and changes?
Lord Turner of Ecchinswell: I
think the way that the committee envisages proceeding on this
is not to report every single year on the latest science but on
some sort of periodicity, perhaps three years or so, to go into
detail again on the science and whether the science has shifted.
I think that makes sense. What we did last year with the Hadley
Centre, and they did a lot of runs for us, was to take stock of
the then consensus of scientific opinion; and of course there
are strong outliers, including some people who believe that the
problems are moving far faster than the consensus suggests. Broadly
speaking, however, we took the consensus of expert scientific
opinion and reached the conclusion of what the world needed to
achieve in terms of its reduction of emissions by 2050, getting
down to something like 20 gigatonnes by then, and what therefore
was a reasonable UK share. Out of that came the recommendation
of the 80 per cent target and the budgets to which the Government
now has to respond. I do not think that it is workable for us
to be saying each year, "We are going to suggest that it
should now be 84 per cent and not 80 per cent", et cetera.
Of course, we do not need to do that in budget-setting terms.
We have made our recommendations on the first three budgets; the
Government will need to respond; and then they will be put into
secondary legislation. Our next look at a budget will be next
year, when we have to recommend the fourth budget, which is the
2023-27 budget. At that stage, that would probably be our first
re-look at the science, to say, "Has something changed in
the science that changes a point of view of where we need to be
in 2050, which we should take into account in setting the fourth
budget?" Thereafter, every five years, we will be recommending
on a subsequent budget—the fifth budget and the sixth budget.
That is how it will work. We will always be recommending the budget
that is 15 years in advance. Ahead of each of those new budget
recommendations, I think that it will make sense for us to have
a systematic look at the science. I think that is the sort of
way we were intending to proceed on that, rather than an annual
report on the science.
Mr Kennedy: On the specifics of
the Hadley Centre, we have agreed a broad scope of work with them
for next year, as Adair says, to support the work on the fourth
budget period.
Q12 Dr Whitehead: As an issue relating
to the way in which the budget has been set up and, as you have
described, Lord Turner, your role in recommending the budget three
budgets hence, there could be a suggestion that, if for example
there are significant developments in the science, not only would
that affect what you might say about the budget three budgets
hence but that would have a feedback effect on the budgets previous
to that budget. How might you address that in terms of the relationship
between policy viability and scientific projections?
Lord Turner of Ecchinswell: I
take that point. Obviously, if, with the input that the Hadley
Centre will be giving us next year, there is a belief that the
whole world and the UK need to go further and faster than we have
recommended in the 80 per cent target, and if that has recommendations
for the fourth budget, you are absolutely right that you may then
say, "Hang on, that also has recommendations for the third
budget as well". I think that this is one where we would
have to discuss with Government what the action on that is, because
the legislation is clear that we recommend three budgets in advance;
the Government then commits and takes through secondary legislation
a commitment to those three budgets; and we then recommend the
subsequent budget. The legislation as written, therefore, does
not envisage that one would, in setting the fourth budget, come
back and say, "That has implications for the third budget".
Obviously there are simply limitations on how rapidly you can
respond to new data and, therefore, even if one did need an intensification,
it might imply an intensification beyond the three budgets that
are already set. Realistically, we have to consider that issue
within the context of how radically the scientific evidence has
changed, if it has changed. One possibility would be that, if
we believed that it had changed so radically that we should be
looking again at the third budget as well as the fourth budget,
we would write to the Secretary of State and say, "We think
this issue now needs to be debated". Given the need for a
clear and defined sense of direction, which is the whole purpose
of this legislation, I think that one would only want to do that
if one really believed that the scientific evidence had shifted
very significantly. These are good points. I must admit that we
had not thought before about how that would work, and it would
have to work within the context of the legislation as written.
Mr Kennedy: There may be an opportunity,
in the sense that we have recommended two sets of budgets: the
interim and the intended. The interim is what we are proposing
goes in the legislation; the intended to go into the legislation
following a global deal that we hope will happen next year. The
intended is indicative and would require some discussion before
it goes into the legislation.
Chairman: Perhaps we can move on to the
carbon budgets and targets, which of course flow from the scientific
advice. Clearly this is part of the crucial role of the committee
in terms of what it recommends to the Government, because the
Government then has to make the political decisions as to how
it actually achieves those targets.
Q13 Charles Hendry: Can I ask a couple
of questions about the principles of targets? We live in a world
where Governments and international institutions like to set targets.
How important do you think it is that, when a target is set, there
is a road map or a delivery mechanism which is published at the
same time, so that one can see how we are going to get there?
A lot of these are being set a long way out, when the politicians
who have set them are probably no longer in Parliament, let alone
necessarily in office. How important is that element within that,
therefore? Do you think that it is also necessary to have separate
targets for low carbon and renewables, or do you see the objective
as low carbon and renewables as a subsection than that rather
than an end in itself?
Lord Turner of Ecchinswell: On
your first question, I do think it is very important that as far
as possible we are setting out the road map for delivery. I do
not know whether Mr Kennedy explained this beforehand, but one
thing we are intending to do in our September report this year
is to set out some road maps of what has to happen by when, if
we are to be on a credible path to the things which we have implicitly
put in the budget. For instance, if renewable energy—and
it has a significant weight of wind energy—is to play the
role which is anticipated in these budgets by 2020, then certain
things have to have happened by 2012 and 2015. You can define
what these things are, in that a certain number of projects have
to have gone through planning; a certain number of projects have
to have started construction; and, unless you are on that road
map, you know that you enter a situation where it is physically
impossible to meet the end of that. We are therefore intending,
for each of the main items and areas of the budget, to set out
a set of intermediate targets or measures which will enable us,
when we report on progress against the budget, not simply to do
what is frankly the rather uninteresting end result, which is
to say, "By this year we were meant to be at this level of
C02 emissions. You are above it, for this reason", but also
to say, "We're meant to be here in five years' time, but
it's beginning to look like that is difficult to achieve, given
that construction hasn't started, things haven't begun to occur",
et cetera. To give you another example on the car and transport
side, one of the crucial measures is average grammes per kilometre
of the whole fleet. Average grammes per kilometre of the whole
fleet are determined by a stock flow model of the total stock
of all cars and the flow of new cars which have lower grammes
per kilometre. Therefore, if by 2015 you are not already seeing
that the new cars then being bought are already down to a certain
grammes per kilometre, you can be pretty certain that by 2020
we will not be where we want to be in terms of the total fleet
grammes per kilometre. We would be setting all that out, therefore,
and I think it will be very important that, in parallel with that—which
we need in order to do our monitoring exercise—Government
is continually setting out a road map of the policies required
to get there. On your second one of whether there should be intermediate,
subsidiary targets, we took the point of view that the renewables
energy target has played a very useful forcing device in British
energy policy. Of course it is possible that some people pursue
a very purist economic market approach to carbon emissions. They
say, "We've got the European Emission Trading scheme. That
sets a price for carbon. As long as that price is high enough,
something will happen which drives down carbon emissions and we
don't need to specify whether that is carbon capture and storage,
whether it is renewables, et cetera". The fact is, however,
that it is very difficult to see us meeting those targets without
a very significant element of renewables in the mix. Until the
UK Government came up with the commitment to the renewable energy
target at European level and then brought out the White Paper
on renewable energy last year, it really was not addressing aggressively
enough some of the non-price barriers to deployment. Issues to
do with the deployment of renewable energy are not just, "Is
the ROC regime right?" or "Is the carbon price right?"
but "Is the planning regime right? Are we attacking the issues
of the grid connect rules?"—which play a crucial role
in renewable energy. Therefore, I think that there are areas where
a set of targets which are specific play a very powerful role.
That is true in renewable energy; it is also true, for instance,
on the issue of cars. Here, we set out a very strong vision that
electric cars, either plug-in hybrids or full electric, are highly
likely to have to play a significant role in achieving the reduction
in grammes per kilometre which is required for transport to play
its role. You could say why did we need to be that specific? Why
not simply say, "This is what you have to achieve. You have
to achieve it by any route"? The value of identifying that
it is highly likely that that is required is to force people to
think about what is required to make that possible. The fact is
that electric cars cannot simply be driven by, say, price levers
in vehicle excise duty for people to buy the cars; they also have
to be driven by decisions about street furniture for recharging.
Because all the way across these things there are a whole load
of non-price levers as well as price levers, I think that is a
key reason why we need subsidiary, and sometimes technology-specific,
targets as well as overall market price-based approaches.
Q14 Colin Challen: I heard what you
said to Dr Whitehead about the budget, and I just wanted to delve
into that a little further. I am quite concerned that there could
be a divergence between what the scientific community is saying
and Government policy, which your committee, which of course is
bound by legislation, does not seem terribly able to help us out
with very much. The problem with politics is that, once you get
the budget, no matter how wrong it is, as long as you meet it
you can say, "Oohla! We've achieved our objectives"—even
though you guys will be saying, "Actually, just wait until
next year, because we're going to tell you that you're way off
course". Do you not see that there is perhaps a function
here for the committee, over and above its pure statutory requirements?
You may have a statutory remit but that does not mean to say that
you cannot provide information. We have to be kept on track; we
have to be held to the reality, not simply to the budgets.
Lord Turner of Ecchinswell: I
accept that point and, in relation to Dr Whitehead's question,
I think that we have not fully thought that through and we need
to think that through. You are quite right that, if it became
apparent to us in next year's analysis of the science, with the
help of the Hadley Centre, that the consensus point of view on
the risks had shifted not just marginally but very significantly,
we would have to think of some process of flagging to Government
and flagging to Parliament that this shift was sufficiently large
that, together, we had to think about whether even the third budget
was adequate, rather than simply saying, "We're going to
take this into account into the fourth budget". I think I
am accepting that we have to look flexibly at how significant
the shifts in scientific understanding are. You are quite right
that we have a broad enough remit that we can play a role in simply
highlighting that something has occurred which may raise questions
about whether Parliament and Government should consider shifts
in the pre-set legislative approach. We can do that in parallel,
while still saying that our core function is to monitor progress
against the three budgets which have already been set and to set
about recommending what the fourth budget should be.
Q15 Colin Challen: We can see what
is going to happen, and this will be true of any Government, not
just this one. They will say, "We have this committee to
guide us". There are other people who are obviously very
active in this field. Let us take one example, Lord Stern, who
gave his name to a report that went to Davos in January, saying
that global emissions should be reduced by 80 per cent by 2050,
not 50 per cent by 2050. That report was backed up by other scientists
and renowned experts in the field. That will have a significant
impact on what you are able to recommend; but any Government could
say, "That's fine. That's what they are saying, but we will
just listen to the committee". This responsibility is therefore
very significant, is it not?
Lord Turner of Ecchinswell: I
take that point. Obviously it would not be sensible for us to
observe that scientific evidence had very significantly shifted
and then to proceed on autopilot, as if nothing had occurred.
Therefore, what I am agreeing with is that, if that is the case,
we will need flexibly to decide what is our responsible role that
should be played there. As indeed the role of committees like
this could well be alerting, to Parliament in general and the
Government, that they wished the committee to be able at that
stage to come back and re-look at even the trajectory which is
in the first three budgets, and so on.
Q16 Colin Challen: Lastly, I think
that your pragmatic support for contraction and convergence is
very welcome, certainly on my part anyway, and it is on the record
at a meeting of the EAC that you do see this as being roughly
the way we are headed. Would you accept that, as the speed of
contraction accelerates as it seems likely that we will have to
go down that route, the speed of acceleration of convergence will
also have to pick up? It has always been a presumption of the
international climate change negotiations that developing countries
will be allowed temporarily to increase their emissions, to help
development. However, that will be a concertinaed process, will
it? Is that really how you would see that process?
Lord Turner of Ecchinswell: Yes,
I think that you are right, and it does raise a very complex issue
of international negotiations, in particular in relation to China.
The broad figures are that, if you take our figures—not
Nick Stern's more aggressive figures but our figures—then
the whole world has to be at something like an average of 2.2-2.3
tonnes per capita by 2050. At the moment, we are somewhere at
the 9-10 level; America is at the 20 level; but China is already
at the 5-6 level and rising fast. It means that the issue of at
what stage China stops rising and actually starts falling towards
the level where the whole world will need to be by 2050 is very
important. You are quite right to identify that the more that
one is concerned to get down the global average by 2050 the more
that has to include engaging China in particular. I focus on China
because India is still below that level of 2, and Africa is way
below that level of 2; so it is China more than any others. Obviously,
within that, we have to engage in a fashion which sensitively
understands their desires to achieve rapid economic growth and
also recognises the complexities of the debate between a production
and a consumption focus, where they legitimately point out that
quite a lot of their emissions are coming from factories producing
goods that we import. In general, however, you must be right,
yes.
Q17 Chairman: Can I move on to one
or two other issues? I know that other members are interested
in aviation on this. It is a very controversial issue at the present
time, as you know, with runway 3 and the expansion of a number
of airports in the country. Can I take it from the comments in
your report that what is more important to the committee is a
cap on emissions rather than a cap on flights?
Lord Turner of Ecchinswell: Yes,
and I think the crucial issue that we will address by the report
we will produce in December is whether a cap on emissions requires
a cap on flights or whether there are other ways to achieve it.
We welcome and we will find very useful the commitment which the
Government made about a month ago, that it intends to have a subsidiary
target that total emissions from aviation should be no higher
in 2050 than they are in 2005. This gives us a clear rule against
which to do some analysis, which I hope will throw light on the
choices that we have to make here. Essentially what our report
in December will do is first of all set out an analysis of demand
growth and look at how demand for air traffic is growing, divided
by business and consumer, short haul and long haul, domestic,
Europe, et cetera; divided, for instance, by distance of flight.
An important thing to work out is how much of it could possibly
ever shift to high-speed rail and how much is distances which
really make that not credible. That will then give us a base load
of emissions growth. We will refine the analysis which we did
in this report. We will look at the potential to improve the efficiency
of aircraft without biofuels and without hydrogen, by changes
in the design of aircraft, new and more efficient air traffic
control systems. That analysis will, as it were, take the unconstrained
demand growth minus the efficiency. We will then add an analysis
of the biofuels and hydrogen options; and, in particular on biofuels,
ask the question, "If biofuels are to provide a significant
part not just of UK but of total global aviation, what consequences
would that have for land use, competition with food, et cetera?"—building
on the work of the Gallagher review. Once we have taken those
two wedges out, as it were, we will then say, "Can you meet
the target which we have now set—that it must be no higher
in 2050 than it is now—relying simply on the technological
solutions, or is it clear that in some way we also have to constrain
demand and, if so, by how much?" That will be providing us
with the first inkling of the approach which the present Government
has suggested we should provide in 2016 or 2017, which is whether
the allocation of the second round of the Heathrow slots is compatible
with meeting this target. We do not need to provide a definitive
answer to that but the analysis that we present in December will
begin to place some mathematical frame round that. Although our
focus is essentially on emissions and not traffic, therefore,
I think that our analysis will help illustrate whether we are
likely to be able to meet the emissions limits that we want without
also limiting traffic below its otherwise likely pace of growth.
Q18 John Robertson: Lord Turner,
you are on record as saying that "growth in emissions from
aviation is by definition incompatible with reduction overall".
It is in your report that you expect new technologies and other
sectors to take some of the strain in this. How do you weigh up
the job of looking at climate change, when you have already stated
that in the case of aviation it is believed that the growth in
emissions is by definition incompatible? Also, allowing for new
technologies and sectors, et cetera, where do you see these come
in?
Lord Turner of Ecchinswell: The
overall approach has to have the following elements. First, I
think we have to recognise that it is not necessarily the case
that, if you want to cut overall emissions by 80 per cent, you
have to cut aviation emissions by 80 per cent. It is rational
for society to believe that within our, say, 2.2 tonnes per capita
in 2050 we should use that 2.2 tonnes per capita for those applications
where there are least easily available alternatives. We think
that is likely to include aviation, whereas we think in relation
to surface transport, particularly for cars and vans, it is quite
possible by that stage we will have an almost entirely electrified
transport network, working almost entirely with fully de-carbonised
electricity production. We therefore have a vision for cars which,
by 2050, could produce not just an 80 per cent but a 95 or 98
per cent cut in emissions from cars. We think it extremely unlikely
that it is at all possible to do that with planes. The optimal
balance can therefore include very different rates of growth and
rates of decline in these different areas. Having said that, we
did do an analysis in this report which said that if you do not
have biofuels, if you do not have quite radical improvements in
efficiency of aircraft, if you simply allow demand to grow across
the world, and work out what by mid-century will be the total
aviation emissions which are likely to occur, they are then getting
to a percentage of all allowable emissions that begins to look
incredible. You end up saying that, by then, you are using 30
or 40 per cent of all your global allowable emissions just to
do aviation—and another 20 per cent, say, for shipping.
At that point, that begins to look incredible, because there are
probably some other things which we will also find more difficult
to reduce. For instance, we flagged agriculture as a very important
segment, but I think it is highly likely that agriculture will
be another of these segments where we can reduce, but not by as
much as we can for instance in electricity. The reason why we
welcome the need to report in December on aviation is that this
is precisely the issue we will look at. We will have an overall
decline of the total required level of emissions and then we will
be producing a set of scenarios for aviation and asking both are
they are internally credible and are they compatible with what
we need to achieve overall. When we do that, by the way, we need
to look not just at the 2005 point and the 2050 point, but the
pace in between. If you can imagine that we have a line coming
down like that, if we have an aviation going up and then down,
we have to investigate whether in 2030 the available wedge between
a falling total emissions and a rising-before-it-falls aviation
emissions—whether that remaining wedge for the rest of the
economy is credible, and that is another point that we will be
highlighting.
Q19 John Robertson: You have mentioned
a timescale there, and I think that is quite important. You have
put a lot of emphasis on electric cars, which are really expensive.
Nobody will buy one at the moment because they cannot afford them.
Do you see a subsidy there to allow people to afford these kinds
of cars? We have mentioned Heathrow and the expansion there with
a third runway. Infrastructure to airports, getting people to
railway stations, et cetera—do you see some kind of network
involved in these things? More importantly, what kind of timescale
are we talking about?
Lord Turner of Ecchinswell: On
the infrastructure, we will, within the aviation report, look
in particular at the pattern of how people get to airports; for
instance, the extent to which there is domestic air travel flying
into Heathrow and on to an international hub, which obviously
raises the question whether that could be done with a faster,
better train system. One of the analyses we will do is to try
to put this kind of trains versus planes debate in context, by
doing a piece of analysis to which I do not know the answer, and
it is this. If you define the maximum number of hours or distance
where you think high-speed rail will compete with an airline—suppose
you say that we can persuade people, as long as things are efficient,
to go on high-speed rail for four hours rather than a one-hour
plane ride but not eight hours—and therefore it is "yes"
to going on skiing holidays but "no" to going to the
southern Spanish coast, we will compare that with the pattern
of air traffic and try to be specific and say, if you had a real
vision of high-speed rail, does it address five per cent, ten
per cent, 15 per cent or 20 per cent of the air traffic? We will
do that in the UK as well. That therefore gets us some way to
this point about how people get to, say, Heathrow in order to
go on intercontinental flights, where clearly there is not an
alternative to planes. On electric cars, you are quite right that
at the moment they are more expensive. One of the things that
we are anticipating is a very large set of new product launches
over the next two or three years and further reductions in the
prices of batteries, et cetera. Should there be a subsidy? Of
course, there will automatically be a subsidy to start with—and
the issue is should this be the only subsidy—in the sense
that electricity is not subject to high taxation, whereas petrol
and diesel are. That does provide quite a strong subsidy because,
although the cost of the initial car is sufficiently higher, the
actual cost of running an electric car will, at current petrol
and electricity prices, be dramatically lower than the cost of
running a petrol car. This will of course raise a very complicated
issue for the Treasury in 15 years' time, which is, if we are
right about our revision for electric cars, a large chunk of present
Treasury revenue will disappear. I am sure that, at least originally,
there will be an all-party support for the idea that this very
strong incentive should exist, but that is where the incentive
will come from. It does however imply that one of the challenges
with electric cars will be a high upfront cost compared with a
low running cost, and some people have suggested that there should
be creative ways around this, like making the battery something
which is leased rather than bought. This is also an idea that
people have because it may well be the case that the battery technologies
change so fast that you will want people to lease a certain battery,
which then somebody will be changing over in a few years' time.
I think that in this area, as in all areas where we have high
upfront costs for savings, there would be value in creative thinking
about whether some of the ways that you finance this can make
it easier for people rapidly to take up the new technology.
Q20 Dr Turner: Keeping aviation emissions
down to current levels by 2050 is challenging enough, but I think
you could reasonably expect that there would actually be a considerable
increase in aviation emissions between 2020 and 2030—which
obviously has implications for what we need to do with emissions
in every other sector. Will you be attempting to model this in
your report on aviation, so that you can set out the options for
legislators? If we are to control aviation, it may be that there
will have to be actual government interventions, for instance
to accelerate the scrapping of older planes, et cetera.
Lord Turner of Ecchinswell: To
your first point, yes—and I tried to draw it with my hands
earlier. Essentially we will be trying to develop something which
says, if that is what is going to happen to the total and if it
looks like aviation, flat to 2050, will go up before it is down,
is this wedge in the middle credible? Can we actually achieve
the pace of reduction of everything else that makes it credible?
You are also right that, when we then look at what is attainable
in terms of energy efficiency of aircraft, we will have to think
about what I referred to as the stock flow model; even more important
on aircraft than it is on cars, simply because of the very long
time period that an airframe and an air engine last. It would
be quite possible for one to have a very optimistic point of view
as to how much we can reduce the emissions per passenger kilometre
of a new aircraft entering service in 2030 but, when you run that
through a stock flow model of how rapidly the stock of aircraft
turn over, to realise that that will only make a small difference
by 2030 though a big difference by 2050. We will therefore have
to be quite overt about that turnover model. That might then raise
issues about what public policies could speed that, as it were,
scrapping of the existing fleet and investment in new technology.
Chairman: I would like to move on to
carbon credits, and Mike Weir has a question to ask.
Q21 Mr Weir: Obviously the EU ETS
is one of the cornerstones of bringing down emissions within the
EU, but the price of carbon has fallen considerably. Do you think
that it is at a level that it will achieve what it was set out
to do?
Lord Turner of Ecchinswell: I
think we have concerns that if the carbon price continued at its
present level it would not send the signals which are required.
We will look again in our September report at the whole issue
of the carbon price, as part of the report that looks at the implications
of the current economic recession. As a side point, one of the
things that we have to do will be to work out, as a modelling
exercise, what a recession automatically does to emissions—because
people travel less, less steel is produced, et cetera—in
order that, when we then do the report on the 2009 emission levels,
we are not patting ourselves on the back for reductions when these
reductions are entirely driven by the fact that the economy is
in recession. We therefore need to do that; but within that exercise
we will also be looking again at our fossil fuel price forecast—fossil
fuel prices have clearly come down a lot—and at the issue
of the carbon price. One of the interesting things about the carbon
price is that it has come down a lot this year; it has come down
a lot because emissions are coming down automatically and therefore
logically the price of buying emission permits comes down. An
interesting issue is whether it has come down more than market
economists would predict; because, of course, market economists
would say that there is a fungibility of the supply and demand
for carbon permits across the whole of Phase 2 and Phase 3, and
so the price today ought to be reflecting not just how many emissions
there are today but a foresightful market's point of view as to
the balance between supply and demand in 2019 and 2020. I think
it is highly likely that the fall in the market price has been
significantly larger than you might think is logical if you really
believed in that efficient market theory. I say as an aside that,
wearing another hat, the issue of the extent to which markets
are efficient and foresightful is something on which one can raise
several questions. If that is the case, however, it does raise
questions about a worry as to whether an oscillating price of
carbon—oscillating even more than efficient market theory
might suggest—will send powerful enough signals to make
sure that people are doing the investments that are required for
the future. That does relate to one of the issues which we raised
in relation to the coal-fired power station debate, where we suggested
a range of tools which could be thought about to increase the
likelihood that we head in the right direction, one of which would
be to combine the EU ETS with a floor price for carbon. There
is a significant debate among economists as to whether the best
approach is a fluctuating price of carbon within a trading system
or a straight tax on carbon. However, it is completely possible
to combine that with a hybrid system which has a fluctuating price
of carbon above a certain floor, but which has a floor price within
it so that participants know that at that point it becomes a tax,
as it were, and that it will not be allowed to fall below that
level. I do think, given the fall in the carbon price that has
occurred this year, that is something which should be considered.
It would of course need to be considered at European level.
Q22 Mr Weir: There is the frightening
prospect of the next bubble being a carbon bubble. I want to ask
about the report on the impact of the recession. There seems to
be an increasing number of industries looking for exemptions from
the ETS by claiming carbon leakage problems. Has that been taken
into account?
Lord Turner of Ecchinswell: I
think the issue of carbon leakage is really a separate one from
the recession. I do think it is important in this recession for
the fact of the recession and the economic downturn not to be
used for lobbying purposes to argue for long-term changes in the
structure of the EU ETS. I have been in the lobbying business
in the past and you use an argument from one side to justify what
you wanted in the first place in ways which are not always fully
justified. I think some of the linkage made between the recession
and the need for even more defence against carbon leakage is overstated.
The crucial thing we have got to do on the carbon leakage arguments
is really identify those sectors where energy inputs and carbon
imports as a percentage of the cost of production are sufficiently
high and where they are sufficiently subject to international
rather than domestic competition that they have a legitimate concern
about carbon leakage, and that list of sectors is considerably
less than the list of sectors who make that argument. We have
set out clearly in the report the somewhat limited set of sectors
where we think there is a legitimate argument.
Q23 Sir Robert Smith: I should declare
an interest as Honorary Vice-President of Energy Action Scotland,
a fuel poverty campaigning charity. The Government has taken the
benefits of cheap energy to achieve their fuel poverty targets
and we are now seeing the result of that as the price is going
up, and you are predicting another £600,000 million going
into fuel poverty by 2020. Clearly measures to try and improve
the quality of housing stock achieve more for the environment
if you target the people who are better off. What measures do
you think should be taking place to tackle the fuel poverty impact
of trying to deal with climate change?
Lord Turner of Ecchinswell: We
flagged in the report that you can achieve a significant offset
against fuel poverty with energy efficiency and we identified
that that is possible and I think we should do that, though you
are quite right to identify that some of the biggest opportunities
in energy efficiency are those relating to quite high income people
who have large houses because the use of energy is very strongly
correlated with household income. We do need to use energy efficiency
measures as much as possible to offset the fuel poverty effect.
What we identified in the report is that even if you do the maximum
that we think is possible on that you may still have a problem.
We flagged the issue of what are sometimes called social tariffs
or block tariffs which we do feel need to be thought out seriously.
They could be a mechanism of doing things which both helps offset
the problem of fuel poverty and, if they were revenue neutral
to the companies overall, actually send some useful price signals.
If essentially we move to an environment where the initial so
many kilowatt-hours of a household bill was at a lower price but
the marginal price of electricity above that was actually higher
than it is at the moment then we would be both sending a price
stimulus to higher income, higher energy using households to do
something about their energy efficiency while fully protecting
the lower income households against that and I think this is something
which should be thought about very seriously.
Q24 Judy Mallaber: You have talked
quite a bit about electric vehicles and about renewable markets
and you are just commissioning reports from consultants on those
areas. Is that because they are the two most important areas,
the two where you need most of the work done, or are there other
areas which are of equal importance where you are about to be
commissioning reports?
Lord Turner of Ecchinswell: We
will produce two committee reports this year. One will be the
first of our standard annual reports and it will come out in September.
Those annual reports are meant essentially to focus on progress
against target. Progress against target this year is not a terribly
interesting issue because you are only one year in. So this year
we have decided to focus the September report on a set of things
which will create for us building blocks to do better our progress
against target analysis in future. Those include the analysis
I mentioned about understanding how emissions vary with the economic
cycle in recessions. So we will be able in future to do an economic
cycle adjusted report against progress. They include for each
of the areas of policy this sort of roadmap analysis, ie what
do we need to do on the road to renewables by 2020 and what do
we need to do on transport by 2020? Within that there are some
issues which we can address with the work of the secretariat.
There are some where we have decided to use external consultants
and it just so happens that the ones you mentioned are the ones
where we felt we needed external consulting work, but they are
not the totality of what we will be producing in the September
report. The September report will go through each of the main
blocks of the budgets, whether it is electricity decarbonisation,
energy efficiency, et cetera, et cetera, and we will take that
block and say, "Okay, that's what we said we want to achieve.
Here is a bit more on the roadmap to there."
Mr Kennedy: We are contracting
work on energy efficiency, renewable heat, renewable electricity,
electric cars and possibly on agriculture as well. We need to
have a roadmap for all of the sectors we have talked about there.
Q25 Judy Mallaber: What proportion
of your future work programme is going to be carried out by external
consultants, and what safeguards have you put in place to ensure
that use of those consultants does not compromise your independence?
Lord Turner of Ecchinswell: It
is probably best expressed in terms of the balance of the budgets.
Mr Kennedy: Our overall budget
is between £3.5 and £4 million, of which up to £750,000
is spent on external help, we spend £1.5-£2 million
on the staff of the secretariat and the balance is towards the
internal work. In terms of safeguards, I think we have got different
layers of quality control, whether they are within the secretariat
or within the committee, which has the range of expertise we need
to feel confident about what the consultants are providing to
us.
Lord Turner of Ecchinswell: We
very tightly specify what the consulting project is. We receive
reports not just at the end but on a continual intermediate basis.
Through the secretariat and through the committee we will challenge
the findings and ask questions about the findings. The interpretation
of those who say "So what?" will reside with the secretariat
and ultimately with the committee, rather than simply taking the
report of the consultants. The consultants are there to provide
us with an in-depth ability to address particularly detailed issues,
but we have to pull together what it means overall in terms of
targets and policies.
Chairman: Thank you very much, Mr Kennedy
and Lord Turner. We wish you well with your work. We look forward
to your report when it comes out in the autumn.
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