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I turn now to the third and final element of the Climate Change Act order, the definitions of “international aviation” and “international shipping”. Noble Lords will recall that emissions from international aviation and international shipping are not covered by the targets and budgets in the Climate Change Act at present. This is on the basis—the point was much debated during the passage of the Bill—that there is currently no globally agreed methodology for allocating emissions from international travel to individual countries. The Act gives the Government the power to define “international aviation” and “international shipping” for carbon budget purposes, which is what we are considering today. The reason we feel it is necessary to define these terms is so that they are used in a way that is consistent with how international emissions are reported in practice.

The definitions themselves therefore reflect international reporting practice and follow the approach we use in reporting to the United Nations Framework Convention on Climate Change. They put beyond doubt possible ambiguities such as how to treat flights which have interim stops. It is important to note that their purpose is only to set out which emissions are not covered by the Act. The definitions have no bearing on how international aviation and shipping emissions might be allocated to the UK or any other country.

Finally, I turn to the last of the three instruments for consideration today, the draft Carbon Accounting Regulations 2009. I have already mentioned the concept of the net UK carbon account and the possibility of crediting and debiting carbon units against it. These regulations are required by the Climate Change Act to establish a system to define what we mean by carbon units, when and how they can be credited and debited, and how we will keep track of them. The regulations make use of the existing UK registry for holding and tracking carbon units, which is used under the Kyoto Protocol and the EU Emissions Trading System. This avoids unnecessary costs and complications in setting up a separate registry.

The first thing the regulations do is define what will be counted as carbon units. Only carbon units that are internationally recognised, under United Nations and European Union Rules, will be counted. These have the benefit of being subject to significant international scrutiny and allow the system to be compatible with the existing systems under the Kyoto Protocol and the EU ETS.

Secondly, the regulations establish a new credit account in the UK registry, into which carbon units to be credited voluntarily must be placed. As I said, we are aiming not to use any such credits to meet our carbon budgets, but we felt that it was best for continuity to put in place the mechanism for crediting them at the start, which we are likely to need when we move to tighter budgets after a global deal.

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Thirdly, the regulations provide a mechanism to account each year for credits and debits from the operation of the EU ETS, as I described above. This will have the result that the contribution of the EU ETS towards the carbon budget will correspond to the level of the UK’s cap under the system. Fourthly, the regulations define how units will be debited from the net carbon account if the Government dispose of any of their existing holding of carbon units.

Fifthly, the regulations implement a very important provision of the Climate Change Act. Because the first carbon budget is significantly more stringent than our Kyoto target—a 22 per cent reduction rather than 12.5 per cent—we could meet our Kyoto target and still have a large number of carbon units left in the national registry. If the UK were to sell or give these to other countries, allowing them to offset their own emissions, the environmental benefits of the tighter budget would be lost. To avoid this, and to comply with the Act, the regulations set out how any such surplus carbon units will be cancelled to put them beyond use.

Finally, the regulations establish a register of transactions, to record details of the crediting, debiting and cancellation of carbon units. This was included because a number of responses to the public consultation called for transparency on carbon accounting. Together with the guidance that I have already mentioned, and the annual and end-of-budget statements required by the Act, this will ensure full transparency on how the net UK carbon account is calculated.

I apologise for speaking at length but these are the first statutory instruments to be produced in relation to carbon budgets. I beg to move the draft order.

4 pm

Lord Lawson of Blaby: My Lords, I am grateful to the Government for ensuring that these statutory instruments, of which the first is particularly important, can be debated at a convenient hour. I shall not comment on the assertions made by the Minister before he got on to the instruments except to observe that they are wholly unfounded.

I suspect that many noble Lords have not yet read the Government’s impact assessment for the Act that we are discussing, which was slipped out without notifying Parliament, and then not until the Bill had already received Royal Assent. It is a grubby business that rather defeats the purpose of impact assessments, which are intended to enable Parliament to judge before passing legislation whether it is likely to be cost-effective. In this case, the impact assessment states that the costs to the United Kingdom of the policy commitments in this Act are likely to be of the order of £400 billion—a massive sum—which, it notes,

In passing, it is worth noting that most energy economists, such as Professor Helm of Oxford, regard the methodology used to arrive at even this figure, large as it is, to be seriously flawed and absurdly overoptimistic. Be that as it may, those are the costs that the Government assess.

So what are the benefits? These are anyone’s guess, but two things are clear. First, any measurable benefit that may accrue as a result of reduced warming would

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not help the United Kingdom, at least for the next 100 years, since scientists are agreed that northern Europe would actually benefit from a warmer climate over that period. Secondly, and rather more importantly, there can be no discernible benefit to anyone unless the rest of the world follows the United Kingdom’s quixotic lead, which, to say the least, is highly unlikely. As the Government’s impact assessment puts it, with studied understatement,

“The economic case for the UK continuing to act alone where global action cannot be achieved would be weak”.

How conditional is the commitment contained in the 2020 order that we are considering today and, indeed, in the Act of which it is a part? The Minister said something about these targets being contingent on a global deal, but there is nothing at all in the Act or the order to say that anything in them is contingent on a global deal. These are just words from the Minister; they do not affect the legally binding nature of the Act, which is unconditional. What precisely does he mean by,

If there is no global deal, will the Act be repealed? What kind of global deal? Is it any old kind of global deal or just one that says that there will be technology transfer and nothing else? What nature of global deal is required in order for this to be acceptable to the Government?

Given that the European Union has made its 2020 target conditional on the outcome of the global Copenhagen conference this December—that was the explicit conclusion of the December European summit on the subject—and will review it next year in the light of that, and given that the Obama Administration in the United States have made it clear that their own post-Kyoto commitment will depend on an adequate contribution from other major emitters, notably China, is the United Kingdom alone in making a massively expensive commitment wholly unconditional? Again I ask: is this genuinely legally contingent on a global deal and, if so, on what kind of global deal is it contingent? This is important because these targets are legally binding—that is, they are justiciable and the Government are subject to judicial review on this whole issue.

While we are on the subject of international conditionality, the Minister will be aware that the DfID-commissioned report An Institutional Architecture for Climate Change proposes, inter alia, a new international institution with coercive powers to force countries to cut their carbon emissions and suggests that countries that do not accept this should be,

It is bad enough that responsibilities for climate change used to be divided between the Department for Environment, Food and Rural Affairs and the Department of Energy and Climate Change, but now DfID, too, is getting in on the act. So much for joined-up government. Do the Government accept the draconian recommendations of the report that DfID has commissioned? Will the target that we are discussing today be contingent on some such so-called new architecture being put in place?

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Nor is this the only form of conditionality at issue. In his Statement last month on carbon capture and storage, the Secretary of State, Mr Miliband, said in another place:

“With a solution to the problem of coal, we greatly increase our chances of stopping dangerous climate change. Without it, we will not succeed”.—[Official Report, Commons, 23/4/09; col. 382.]

He therefore announced a requirement for new coal-fired power stations, which are needed to prevent the lights from going out, to be retrofitted with CCS by 2025—incidentally, well after the date of the order before us. The date was set as late as that because the technology needed does not at present exist, but the Government hope that by then it will. Perhaps it will, perhaps not—but, even if it does, at what cost? At any cost? Is there any cost conditionality at all?

Most experts believe that even if the technology does become available, it will be prohibitively expensive, for compelling reasons that I do not have time to go into here. To be fair, the Government suggest conditionality in the department’s press release accompanying the Minister’s Statement to Parliament, which states that the goal is:

“Full scale retrofit of CCS within five years of the technology being independently judged as technically and commercially proven”.

What precisely—and I mean “precisely”—does “commercially proven” mean?

In conclusion, I suggest to the House and to the Minister that it would be the height of irresponsibility for the United Kingdom, and the United Kingdom alone, to be required to incur the massive costs arising from the order that we are debating today, wholly unconditionally, irrespective of whether CCS, which the Government concede is absolutely essential, becomes either technologically possible or affordable, and irrespective of whether the rest of the world commits to following suit, without which even the conjectural benefits of this hugely expensive policy cannot possibly accrue.

Lord Lea of Crondall: My Lords, I hope that at some point in the future the noble Lords, Lord Lawson, Lord Stern and Lord Turner of Ecchinswell, can be locked in a room and the key thrown away until such time as they can agree on anything. I followed the analysis of the noble Lord, Lord Lawson, with great care, I read his book, and there are many things a brain the size of mine cannot challenge, so I am inclined to give him the benefit of the doubt. However, the other half of my brain, having been involved in this business for 30 years—I was a government delegate to Rio in 1992, before Kyoto and all the rest of it—sees that there is a problem of sustainability.

There is an issue about the OECD taking the lead, if there is a case to be answered whereby China and India have to come on board. It was always a difficulty that we could not be sure that China and India would come on board. We are keeping our fingers crossed about Copenhagen and so on. I think I am right in saying that we are getting closer to a position where the whole world is around the table, rather than just the industrial countries, which arguably have 10 times more CO2 consumption per head than sub-Saharan Africa. That is the framework in which the debate takes place.

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There is a different debate about whether there is some long-term cycle in the planet temperature or whether it is very much down to recent human activity that we are going to go over 2 degrees centigrade growth in the lifetime of some people alive today. That will have problems particularly for low-lying areas, with desertification increasing in Africa. However, if I were playing devil’s advocate, I could say that if population is growing in sub-Saharan Africa at 3 per cent per annum, which doubles every 20 years, the whole world is going to have a much bigger crisis than anything we have seen. If we are talking about slash and burn from Madagascar through to Senegal—religion comes into it and so on—all these different factors are very hard to make a coherent speech about because they go on too long.

Before I get on to the particular points that I want to make, let me say something about those people who are interested in why the Stern model is flawed, as I believe it is. The noble Lord has been very reluctant to answer questions about my pet topic, which is income distribution and the effect on jobs around the world slowing down by x percent, which he waves aside as very minor relative to the wealth of the world. Leaving aside the inter-generational aspects, we want to know about jobs and so on. If we did not represent people by asking those questions, I do not know who would.

It is very important now that the biggest intellects of public policy on this question do not carry on like ships passing in the night, never conceding any point to each other. I hope that the noble Lord, Lord Lawson, will nod to indicate that he would be up for that.

The noble Lord, Lord Stern, could be encouraged a little. Since he was appointed, he has made only his maiden speech, which was on a totally different subject. We could all strongly encourage all these well informed, two-brained Members to help us out.

I note that the orders will come into effect on 31 May 2009. When I saw that, I thought that rang a bell; it is quite soon. Then I realised that it is very soon indeed—it is in two weeks’ time. We have been cutting things a little fine, and so I will be supporting the Government today because if we do not, I do not know what will happen to this whole business. I will give the Government five out of 10.

Noble Lords: Oh!

Lord Lea of Crondall: My Lords, no, no—everyone knows that that is a good mark for some of us to give to the Government. Both my noble friends on the Front Bench will be highly gratified by what I have just said. Let me mention one or two areas in which they could go further.

When I contributed to the debate answered by my noble friend Lord Rooker on 18 March last year, and I said that there ought to be a fiscal impact statement, side by side with the Budget, my noble friend said that he would take that suggestion away. That is one reason—I am sure not the main reason—why these orders appear in this form. Certainly, there is the linking with the Budget. It is the first time that we have £ million, or

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£ billion, numbers to look at. The noble Lord, Lord Lawson, pointed out that we have a total of £800 billion on the second page of Chapter 7 on building a low-carbon economy. We have a figure for investment of £50 billion:

“Tackling climate change requires substantial levels of investment across all sectors of the economy. The Government’s policy framework is enabling £50 billion of investment over the period of the Comprehensive Spending Review (2008-11)”.

That is quite a large figure—there are a few peanuts there, even these days. Other big numbers there are for energy efficiency, renewables support and so on. The biggest number of all is public transport and low-carbon and electric vehicles. That may have a bearing on the next main remark I want to make.

In the first set of announcements in Chapter 7, we see that the fuel duty is going up by 2p a litre from 1 September this year, and another penny on top of that in each of the next three years—that is 2010, 2011, 2012 to 2013. Two and three make five these days, but there it goes. I guess that that will have some income-distributional effects. Of course, the great danger of the macro-Stern approach is to say, “There’s no problem, we’re all wealthy, but who’s wealthy and who’s at the bottom of the receiving end?” If it was a poll-tax-on-wheels, or a poll-tax principle, within a nation in the OECD, and north/south in the world, one would be shouting from the housetops that this is not the way to get public support for a consensus policy. Therefore, I request my noble friend to commit to track the income-distributional consequences of the measure.

4.15 pm

I said on 18 March last year that I thought this was a shadow hypothecation. I know that that word is like a red rag to a bull to anyone with a Treasury background. However, the world has moved on and we are in a quasi-hypothecating relationship as regards these figures. They are not normal budget figures but are linked inexorably to a set of targets, which means that we can track them for a good period. If you are going to hypothecate, you can implicitly look at the impact of fuel duty, or installing solar panels on roofs, but as regards the £50 billion and, indeed, the £800 billion, it is very necessary to be wise before the event as there could be a public revolt against all this, even if its merits are confirmed beyond peradventure, if “it’s the poor what gets the blame”. That means no more cheap holidays on the Costa Brava or bangers on the road, but if the people with money—I am drawing on caricatures—can pay for more expensive holidays and cars, that is fine. But if we are going to have to cut emissions by 40 per cent or 60 per cent, guess who will be doing the cutting? I think this is the biggest strategic political question we have to face over the next 40 years but we have heard not a word about it—not a word. As far as I am concerned, this is the intellectual hole in the doughnut.

This situation arises partly because there is a tug of war between the Treasury and all the other interested Whitehall departments, certainly the Department of Energy and Climate Change. My noble friend Lord Rooker told us not to ask the Treasury to do something about the studies that I was advocating as it is a matter

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for the Department of Energy and Climate Change. However, when you approach the Department of Energy and Climate Change, it says that it is a matter for the Treasury. Which is it? Frankly, this is a much longer- term question than anything to do with party politics. Therefore, I hope that no one will make short-term political points about it.

Who are the winners and who are the losers? What is the macro and micro fiscal impact? The Stern report ought to be revisited. The analysis is variable but, apart from some first-class chapters, a lot of it is perfunctory and has not been debated adequately in this House. Stern’s hypothesis is implicitly as plain as a pikestaff—I should like to know whether the noble Lord would challenge it if he were present—which is that we have to choke off carbon demand largely through the price mechanism, unless we are going to shut down for periods due to the collapse of the capitalist system. Minus 4 per cent growth—in other words, 4 per cent negative—will reduce the growth of carbon dioxide. That is a jolly good thing but who will be unemployed and live in poverty as a result?

The Green Party and Friends of the Earth explicitly demand that we slow down the rate of economic growth. However, given our productive potential and underlying rate of growth and productivity and all other nostrums of macroeconomics that encourage us to increase our productivity—that does not mean a cut in working hours; it means work as hard as you can, improve technology and increase GDP so that we keep as far ahead of the Chinese as we are doing—that does not sound to me like accepting a rise in unemployment or a slowdown in economic growth. Again, we could get a lot closer to agreeing with each other if the Government were to say that they will not only track income distribution but agree a separate annual statistical series on this whole financial framework, to see how emissions trading fits into it, and so on. Although there are some very clever people around, I do not know anybody who can intellectually grasp all the double counting or interactions between all these arrangements.

Finally, we have to help to demonstrate that, if all this happens, there will be financial transfers, in particular to sub-Saharan Africa, out of the many trillions that we are talking about over the period. It will be many, many trillions. However, we cannot just hand the money over via the public Exchequers to wind up in Swiss bank accounts. This, among other reasons, is why the conditionality principle—even if it is not called that—has to come back to our relations with sub-Saharan Africa, Latin America and many other parts of the world, or there will be a collapse of political support in the OECD. We need some numbers to demonstrate what will be the next financial transfer from the OECD to the G77, and then work out its distribution, both vertically and horizontally.

We are at a moment of radical change in lifestyles, although not, I think, the radical change of lifestyles that people called for, somewhat rhetorically. We recognise that there will be qualitative changes in the economy, but they will not happen with confidence until we have a statistical framework, so that practical people have some bedrock of data and analysis, on which we can all agree, to explain the position around the country.

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Lord Leach of Fairford: My Lords, the noble Lord, Lord Lea, referred to ships passing in the night, and rightly so on the economic front. I hope that I shall find myself on HMS “Lawson”, rather than HMS “Stern”. The same goes for ships passing in the night in science, which has now devolved largely into a shouting match between extreme alarmists and sceptics, with not nearly enough moderate dialogue between them. Perhaps I could help to gain a little perspective on this by referring to what my noble friend Lord Lawson referred to as the unsubstantiated assertions of the Government, to see where common sense stands on those.

Since the end of the little ice age in the late 19th century, the world has been re-warming at a rate of about 0.6 degrees centigrade per century. There have been fluctuations in that. There was a period of rapid warming from 1920 to 1940, much as there was more recently. There was no explanation for that. There was a period of cooling until 1975, when emissions rose quite rapidly. There was no explanation for that. There was a period of rapid warming from 1975 until the end of the century, much as there was from the 1920s to the 1940s. This has been seized on by alarmists as evidence of really frightening growth in temperatures. However, it has been succeeded in the 21st century by nine years of static and, more recently, falling temperatures. Again, that is completely against all the prognostications of the alarmists and the IPCC and wholly unexplained.

When you look more deeply into this at where all these measurements are coming from, you find a large number of them are extremely unreliable or, in the case of the Antarctic and the Arctic, almost non-existent. By far the most reliable database, which is not all that reliable, of any large land mass is in the United States of America, where there is a huge number of recording stations. We now know that temperatures in the United States in the 1930s were the same as, maybe even very marginally warmer than, they were in the 1990s. That is probably the best approximation there is for what has really been happening in temperatures—that is, a growth of about 0.5 to 0.6 of a degree per century, a figure that fluctuates for a whole variety of reasons that I shall not go into here.

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