CORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 1878-ii

House of commons

oral EVIDENCE

TAKEN BEFORE THE

EnERGY and Climate Change Committee

Low-carbon growth links with China

Tuesday 13 March 2012

John MacArthur, Alistair Guthrie and Peter Budd

Gregory Barker MP, Henry Bellingham MP, James Hughes, John Ashton and Gregory Briffa

Evidence heard in Public Questions 70 - 159

USE OF THE TRANSCRIPT

1.

This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.

2.

The transcript is an approved formal record of these proceedings. It will be printed in due course.

Oral Evidence

Taken before the Energy and Climate Change Committee

on Tuesday 13 March 2012

Members present:

Mr Tim Yeo (Chair)

Ian Lavery

Dr Phillip Lee

Albert Owen

John Robertson

Sir Robert Smith

Dr Alan Whitehead

________________

Examination of Witnesses

Witnesses: John MacArthur, Vice President CO2 Policy, Shell, Alistair Guthrie, Global Sustainable Buildings Design Leader, Arup, and Peter Budd, Vice Chairman, China-Britain Business Council, and Director, Arup, gave evidence.

Q70 Chair: Good morning. Thank you very much for coming in. Do you want to say who you are, first of all, so that we know? I think we do know, but it might be helpful if you introduced yourselves, please.

Peter Budd: My name is Peter Budd. I am Deputy Chairman of China-Britain Business Council. I am also a colleague of Mr Guthrie’s at Arup.

Alistair Guthrie: I am Alistair Guthrie. I am a Director at Arup, and I am responsible for our global buildings practice sustainability strategy.

John MacArthur: I am John MacArthur. I am Vice President for CO2 Policy for Shell, and I am also on the board of the UK’s Energy Technologies Institute.

Q71 Chair: Thank you very much. Perhaps you could start by telling us where you think the best low-carbon opportunities are in China, from a business perspective.

John MacArthur: If I can start off, I would draw some parallels with the UK, particularly gas and power. As we have seen before, there are significant opportunities, if you have a coal-dominated power centre, to replace that with gas and reduce emissions substantially, up to between 50% and 70%. Like the UK, China also has more gas opportunities than perhaps a company like Shell thought 10 years ago. We have seen the Shell Gas unconventionals, coalbed methane and tight gas opportunities in China grow over recent years, to the point where the International Energy Agency says it is substantially materially more than the US even, where we have seen abundant gas being added over the last few years. So certainly, in a heavily coal-dominated power sector-as China is, and is continuing to be-gas offers significant opportunities.

Peter Budd: If I could say a little about the initiatives that CBBC has been involved with. It is widely known that there is going to be a huge migration of population to the urban areas in China, so the demands on infrastructure, city infrastructure in particular, are absolutely huge. We have been supporting UKTI in shaping the UK offering into this huge investment of infrastructure. The Chinese Government are taking this whole matter extremely seriously-the matter of policy-and therefore there are opportunities for designers, for equipment and for product manufacturers, in what is becoming a huge opportunity that will continue to develop over the next 10 or 15 years. I think we have only touched the surface of what we can achieve.

You may be aware that there has been a joint initiative with the Chinese to look at four city developments-Wuhan, Hangzhou, Chongqing and Changsha-where there are frameworks set up, which identify particular opportunities where the UK has expertise to offer. We have mapped the UK skill set in this area, and it is actively being promoted through CBBC’s offices and our Foreign Office colleagues in post. I think there is a huge opportunity in the built environment.

Q72 Chair: When we were in China last month, it was suggested to us that in some cases the experience that we have already had in the UK is giving businesses an edge when we go to China. Is that your experience? Is that your view?

Peter Budd: Yes, it is. This initiative is in its infancy. It was kicked off two years ago, and it is probably timely that we sit back and see how much business has come out of it. That would be one of the actions that could be usefully pursued before pushing out into other areas.

John MacArthur: Yes, we would agree. We have seen some recent initiatives from UKTI for carbon events in China, where it fosters these relationships. Even a large company like Shell, which has a history in China and some very good relationships, always benefits from that different dynamic, support and partnership within that Government context as well. I would agree very much on the different levels of where we see the opportunities. First of all, there is the international level. We have seen the progress from the UK’s leadership there in Durban and the movement of the Chinese. Then you get down to the country-by-country sort of bilateral, all within the sort of clean energy ministerial-type level. That is really very supportive to progressing some of the things we want to do. Then within China of course the thing you learn when you go there-and what I was surprised by-is this dynamic between the different regional and provincial-type diversity within the country. So it is not only that we should treat China homogenously there as well.

There are 666 cities in China of significant size, and the way of doing work together from city-to-city partnerships is something we could explore too: certainly the smart freight gateway work that we have been doing about how you work with cities to distribute freight within cities, and have a bespoke-type model in Shell. The future cities piece is something we have been working closely with the Government in China on too.

Alistair Guthrie: Yes. I would just add to that, I think the biggest challenge that we have, from a building and a development point of view, is to continue to provide demonstration projects, which we have done quite a bit in the past but where we think there is a huge amount of potential to do, particularly in what is known as the second-tier cities.

Q73 Chair: UKTI has identified wind, smart grids and civil nuclear as three particular opportunities. Are those good? Are those important, and can the Government help to capitalise on those?

Peter Budd: I think they are good. Government is hugely important in China, in driving things forward, in relationship creation and in supporting the environment in which business is done. China is probably unique in that respect. If the Government in China decides that something will be implemented, then it will be so. So the Government-to-Government interface is hugely important, and I just go back to the cities initiative. Without the Chinese Government supporting a city being included in that programme, it just will not happen, so we have a role in supporting cities in China that are trying to be identified as having green status and helping to lobby through MOFCOM to make things happen.

John MacArthur: One of the things that grabbed me the last time I was in Beijing is that when you look around, as in Tiananmen Square, you see little electric vehicles going around. In the five-year plan we see greater emphasis on things like much more non-fossil fuel-type energy sources, but also to explore the role of gas. As we said here before in other Committee meetings, we see carbon capture and storage as being one of the things we would add to that list. That is something where the UK Government has set itself as a role model. We look forward ourselves-in Shell in the UK-to finding a way to proceed with a Peterhead carbon capture and storage project when the new competition comes up. We are chomping at the bit to do that. From a technology position, the UK has an opportunity now to work with the Chinese to also explore carbon capture and storage as an important technology for countries that have access to gas power. For countries that wish to produce their coal resources cleanly, that carbon capture and storage can help to do that.

If I was going to pick out two key things that I think the UK has taken a leadership position on that have a natural fit with China, it would be carbon capture and storage, and the development of carbon markets themselves and the policy frameworks that support those two.

Q74 Chair: We will come back to carbon capture and storage in a moment, if we may. The Grantham Institute has identified other industries where the UK might have an advantage, such as aircraft, mining equipment and so on. Do you think those are promising areas?

Peter Budd: I am really not in a position to comment on that.

Q75 Chair: Okay. You said there was an important role for the Government. I just want to enlarge on what the Government should be doing. Should it be encouraging British business to develop expertise in certain low-carbon areas, in order to exploit the Chinese market, or is it more introductions or just showing China that the Government is backing certain industries and businesses?

Peter Budd: The Government intervention is helping to structure the UK offer, setting up frameworks, all of the MOUs that have been signed in the Green Building Initiative. There have been Government-to-Government MOUs that are then filtered down to municipal governments and the UK companies’ offering. So there is more to do in that respect.

Another area that I know is being explored at the moment is joint research funding, from Chinese institutions and British institutions where joint research projects can be set up, funded jointly with a view to exploiting existing technologies or, indeed, refining existing technologies. The Royal Society is looking at that model at the moment, with a view to moving it forward.

John MacArthur: I would add there are a variety of different things that are already being done that are good examples that we could take forward. First, to give credit where credit is due, there are a lot of good things already happening between China and the UK: I pick out the China-UK Near Zero Emissions Coal Initiative, and the corporate action with CCS between China and the EU. There are a number of facilitating frameworks and models already. We need to continue to emphasise and share those, and get industry partners to be involved with them.

As to the kind of models I think would perhaps change the game a little bit, I really like the Energy Technologies Institute’s model, which brings industry and Government together to co-fund cleantech-type work, everything from plug-in vehicles to some carbon capture and storage technology as well. It is not always within that group that Shell gets what it wants. So we are together with EDF, E.ON, BP, Shell, Rolls-Royce and Caterpillar, and with the Government, and we have a great model, an energy systems model, called ESME, which has been really helpful for DECC. Sometimes these things can be helpful for collaborating with other countries as well. China is a country that comes to mind. Shell is actually helping China at the moment with its future energy scenarios. The Energy Technologies Institute model looks at how things are going to develop in future in energy and the choices you might want to make, as well as the industry co-funding with Government to explore some of those technologies and to mature them. The technology maturation is somewhere where I think those kinds of partnerships really work. Where the technology is already mature and commercial, then UKTI and others help to bring those introductions.

There is a piece a bit earlier in that chain, which is the development of the technology to fund it, together with industry, of which ETI is a good example. At a European level, there is the zero emissions power programme for carbon capture and storage, which advises the European Commission on how to implement CCS, together with Governments, together with NGOs and together with industry. This knowledge-sharing platform is something we could promote more between countries, not only in the EU but perhaps within the UK and China as well. I can see both those models-the ETI TECH model and the ZEP model-having relevance in a bilateral country-to-country context as well.

Q76 Sir Robert Smith: First of all I should remind the Committee of my entries in the Register of Members’ Interests, especially to do with the oil and gas industry and a shareholding in Shell. We have heard some comment that British companies have struggled to win contracts in the energy sector. Is that something you would agree with or have a different view on?

John MacArthur: Sir Robert, I was actually near your constituency offices recently when I was up in Aberdeen. I know that one of the great advantages for the UK is having an indigenous oil and gas industry, and let’s not forget the technology and investments we have made over the last 40 to 50 years. That is something that we should take the opportunity to exploit and develop, to create jobs and continue our technical skills wherever we are in the world.

Shell has a long history of working partnerships with countries all over the world. In China we have terrific international co-operation. We tend to work in partnership. I ran our operations in Egypt before this, in partnership with the Egyptian Government company, so we tend to work as an Egyptian company in Egypt or an Omani company in Oman. Similarly in China, we work very closely with PetroChina. That international co-operation with Chinese partners to bring energy into China-we are the largest importer of liquefied natural gas, for example-is facilitated by that relationship-focused approach, so that has been successful for us. We are now developing unconventional gas resources in China as well. We have a number of promising positions. We have been operating in Changbei in the Ordos Basin for many years, and we have brought great new technology there-the longest multilateral wells that have been done in the country and so on. That is the sort of business end to that. We have the expertise that we bring in.

There are two other things that have a parallel for Government, which is the R&D and technology co-operation. We have good relationships with Chinese institutions, like the Chinese Academy of Sciences. Through the universities we have two projects on biofuels, with Tsinghua University and so on. That has also been done by the UK Government with Edinburgh University, for example, and CCS partnerships in China just now.

The second piece is taking the Chinese enterprise itself overseas as well. I was in Australia last year helping to advocate for the carbon tax and carbon market there, and one of the things I did was go to visit the big coalbed methane plant in Arrow. We got into Arrow together with PetroChina, and the technology follow-up for this is you are going to need thousands and thousands of wells for coalbed methane-type developments, and you have to do that in a sustainable way. You also have to do that in a very cost-effective way, so we are working with China and their manufacturers to figure out how you can do a lot of these low-cost wells and come up with different mindsets for thinking about that kind of technology.

As you see around the world, this is a growing area for manufacturers to be involved in. Clearly, in the UK as well, this is an exciting new area for resources. I have been asked before about the gas prospects in the UK. I would be delighted if we found anything like the size of the 200 tcf that has been quoted by Cuadrilla before. Because, once again, we have expertise, we are internationally exporting expertise within this country already, around the country, not just in Aberdeen or around that area, which would benefit greatly from opportunities. If we can do that with China we can also do that with the UK.

Q77 Sir Robert Smith: That is a positive view from Shell. Do you have a view from the China business?

Peter Budd: China is such a vast market. It is becoming so influential globally that you just cannot ignore it. What we have seen is a huge growth in trade in the low-carbon area, in planning, which we don’t see tailing off; we see it building up. A lot of the Shell experience, collaboration with the institutions, with the academic community, is a third leg to the stool. At CBBC we currently have 11 offices in China, in 11 cities, and we are going to be adding another two. Each one of those cities has opportunities in this area for UK companies, so it is a fertile market.

Q78 Sir Robert Smith: The Shell message would be that through partnership is the way of engaging?

John MacArthur: I would say that generally, but also, as someone who grew up in the Far East, that works effectively.

Q79 Sir Robert Smith: What about the fear or the risk that you get sucked dry of all you have to offer, and then you find your partner has got all the skills they need?

John MacArthur: Yes. You might make the same argument wherever a private company operates with a public company. I would say that, wherever we are in the world, we have found the national oil companies and Governments to be a very sophisticated partner. Intellectual property is something that you would always want to-and do your best to-continue to protect, and working with Governments to do that. The best protection is to be a continually innovative and inventive company and again to continue to move forward.

I am not saying that intellectual property is not a concern. We have lots of patent lawyers and people like that in Shell, but I am saying that the secret to success, certainly for UK industry, has always been investing in science, investing in new ways of doing things, and innovation. If I was going to say there was one place where I would always like to see more investment as industry, it is in the universities, in academia and in the commercialisation of technologies. The more technology push programmes we can have in place, for carbon capture and storage or new gas technologies, or more efficient vehicles or biofuels, the better.

Q80 Sir Robert Smith: You mentioned carbon capture and storage earlier, and we were getting some impression in China that American companies were perhaps ahead of the game there, in terms of engagement on carbon capture and storage. Is there more that could be done by the UK to catch up?

John MacArthur: In terms of the different elements of the carbon capture and the storage, and so on-

Sir Robert Smith: Or use in that case.

John MacArthur: Yes. We are in a strong position in the UK that we are looking to demonstrate. The real value of this is not being able to go and sell technologies but to be able to show you can operate them, that you can do them at least cost and that you can do that in a publicly acceptable way. We have been doing capturing of CO2 in Shell for many years. As I said, in my job I have removed CO2 from gas fields many times. Earlier on in my career I was the Groningen Production Engineer at a large Norg and Grijpskerk onshore storage field in northern Netherlands, so we can pump gas under the ground as well and we do those things safely and securely. The question now is: can you do that with a power station? Yes. In China there are some pilot plants going on with capture. In Norway, in Mongstad there are capture programmes going on. The really critical piece is to demonstrate we can do this with gas power, in particular, from our perspective. I am not in a position where I think that anybody is really leading that game yet. The window of opportunity to become a leader there remains. The foresight of the UK Government to have money set aside for that is something that must be leveraged. That is something that Shell is very positive about contributing to.

Q81 Sir Robert Smith: We do need to get on and do the demonstration if we are going to keep up with it.

John MacArthur: Yes, and we are very ready and positive we are doing that.

Q82 Sir Robert Smith: There seems to a growing scepticism about the cost base of CCS from a lot of commentators.

John MacArthur: I wouldn’t characterise it in the same way as that, but it is certainly important to demonstrate the new technology aspects of it, applying it to a gas-fired power station to make sure you do understand the cost base. Yes. This is one of the things about the zero emissions power platform. It is not really a proprietary thing for us. We are not looking to dominate-as Shell-the capture part of the carbon capture and storage. We want to have the carbon capture and storage available to society, so that if you become a "grow your gas" business, and also grow the gas into power, that when you need the carbon capture and storage it is available to reduce 95% of your emissions in gas.

The one way to do that is you must demonstrate the technology, and there are two things you need to do in demonstrating that technology: show what the cost really is and bring that cost down, because the more you do the more you learn. Also being able to demonstrate to the public that it is acceptable, it is safe and it is secure. We know all those things, but telling people isn’t the same as showing them.

Q83 Sir Robert Smith: Finally, on the shale gas boom, the US has already had an understanding with China since 2008. Are we behind the curve on shale gas?

John MacArthur: I cannot comment. I don’t know the industry position. From a Shell perspective, I know we are in a good position and there is a terrific opportunity. I would characterise it as more than just the shale gas; there is also tight gas and there is coalbed methane. To give you some numbers off the top of my head, it is about 1,200 or 1,300 tcf, depending on the type: shale gas is about 1,200 tcf and coalbed methane is about 1,300 tcf, according to independent reports that there are technically accessible resources in China.

To put that in perspective, the North Field in Qatar is 900 tcf, so they have one and a quarter or two Qatari North Fields in gas potential in that country. This is a significant material opportunity for a global energy company like Shell. That is why we have been involved in China for some years now, and we are working very hard in those areas. Together with the UK, and other heartland countries we are involved with, including the United States, we see the opportunity to bring the technology that we have developed-for example, the tight gas technology that we developed in Pinedale in the United States-to somewhere like China. Equally, for us, it is bringing that kind of technology to our partners that really adds value.

Q84 Sir Robert Smith: While the switch to gas will reduce CO2 emissions in China, the reality is that coal is still going to be a very dominant source of electricity for many years to come in that mix that they have.

John MacArthur: Of course, forecasts are what might happen. The forecasts say that 50% will be coal in China by the middle of this century and so on. What I have seen, when I have spoken to the Chinese stakeholders and Government, is that they are reviewing many options at the moment to see whether or not that outcome will be there or not.

If I look at the change I have seen, I visited one of the trading exchanges in Beijing when I was over there, and I would say at the time that was almost experimental. But with that ratification of the currency of credibility that comes from the five-year plan to now properly testing these things out, I can see cap and trade moving very quickly in that country. I would like to see the international collaboration I have talked about moving into country-to-country collaboration, maybe even city-to-city cap and trade drivers. There are many different levels that may work on, but ultimately what we are looking for to invest in all cleantech, whether it is wind, solar, carbon capture and storage or, for that matter, biofuels, is that you need to have a globally fungible carbon price. We have seen with the clean development mechanisms how those connections can work through the international frameworks.

I would like to see New Zealand, Australia and the Chinese markets in several years potentially being connected, and that fungibility of their price also, with the same kind of carbon accounting standards being linked to the EU Emissions Trading Scheme. I see that the Chinese have much more emphasis on those kinds of policy frameworks than they did before in the last five-year plan, so if we can support that-when I say "we", I mean industry and progressive ETS-supporting Governments, like the UK Government-then that could have benefits to help with the coal.

I would add that the more that we encourage low carbon-type technology incentives, which is what having an Emissions Trading Scheme does, you get your environmental outcome. It should be outcome forced because the cap comes down over time. Within that, if you reduce your carbon you can sell your allowances and make money and, therefore, it is an incentive for you to reduce carbon. By creating these kinds of incentivised programmes we will get more low-cost and low carbon-type solutions, so we will have more carbon capture and storage. If carbon capture and storage gets down to an affordable price-an acceptable price, because the carbon price is high enough-then the Chinese are going to do more of it, just as the rest of us are.

Chair: We will move on to buildings.

Q85 Ian Lavery: As I am sure you will agree, urbanisation in China is increasing rapidly: 290 million new urban residences were added between 1990 and 2007, another 380 million new urban residences are expected between 2020 and 2030, and two more mega-cities with populations of 10 million or more are expected by 2030. It is absolutely huge. Looking at the issue with the buildings, the EU and China recently agreed a partnership for sustainable urbanisation. What practical steps does the Government need to take to make sure that this project is a success, in terms of decarbonisation and in terms of winning contracts for British companies?

Alistair Guthrie: If I may, I will answer that. British companies have the know-how and the understanding, in terms of developing eco-city strategies. That has been demonstrated or is beginning to be demonstrated. The difficulty is making that universal, on the sort of scales that are required with the urbanisation that is projected in China. This is where the British Government can support and help the pushing forward of the guideline works and the assessment works-the sort of works that set strategies for decarbonising the urban environment.

In the end, the area that I am concerned with is demand reduction rather than energy supply. In the demand reduction area, particularly in terms of integrated total design strategies for cities, for areas, the UK has a lot to offer and leads in that area, not in the detailed technologies but in the integration of those technologies into the built environment, and that is where support of those sort of programmes would be beneficial.

Q86 Ian Lavery: The UK helped to pioneer the idea of low-carbon zones in China. You probably refer to that.

Alistair Guthrie: Yes.

Q87 Ian Lavery: Has this programme helped the UK low-carbon building projects to take off in China?

Alistair Guthrie: The answer would probably be "yes" and "no" and, Peter, you can support this. It has helped in some cases and it has helped to push some projects forward where we are beginning to see some urban developments, which have strong green guidelines and they have been set up. Then the danger is that, when they get set up and pushed forward and the local government, the local cities take over, they tend to get watered down, because the cost of development or the ethos behind it tends to be watered down. There is a good push there. It needs support into full implementation.

Peter Budd: There are a number of specific projects in China, which have been identified as being pushed forward by the Chinese Government as exemplars. We do know where they are. A formalised agreement, between the development authority in these areas and the UK at the highest level, is an imperative to securing downstream work and opportunity for British companies. I know our initiatives in Wuhan and Hangzhou have both yielded frameworks where there are lists of opportunities that have been identified by the Chinese partner, and there is a proactive engagement to ensure that British companies get exposed to the opportunities and present their credentials and their skills to the potential clients. The British Government can help very significantly by engaging with the Chinese Government in setting up these frameworks, and then we can do our job at CBBC and make sure that the appropriate companies are brought to the water.

Q88 Ian Lavery: Do you think that the development of these exemplar low-carbon buildings is the best way to encourage a more sustainable build sector in China?

Alistair Guthrie: It is one very important way. We have seen that in the development of the UK, and we have seen exemplar projects tend to lead the way and bring other people behind them. That is really important. We should do that, not just on an individual building basis but on a development area basis and on an eco-city basis.

Q89 Ian Lavery: Recently we have heard the criticism that the UK is very good at coming up with ideas, like the low-carbon cities, for example, but is not as effective at following through with implementation. Would you agree with that?

Peter Budd: There is always room for improvement. We are as good as anybody at following through. I mean we always strive to do better, to answer your question.

Q90 Ian Lavery: Do you agree with the criticisms?

Peter Budd: Sorry?

Ian Lavery: Do you agree with the criticisms that we are probably better at talking about it than we are at implementing policy?

Alistair Guthrie: We can find examples where that criticism is valid, yes. But equally there are examples where things happen. Certainly on an individual building basis, we have built some of the best examples of low-carbon buildings in China; they are built, completed and operating.

Peter Budd: In doing my research before coming here, I came to the view that with low carbon in the built environment there is a lot of talk about it, and it is not just the UK doing that, it is globally. With our Chinese colleagues we have a lot of high-level agreements, and the challenge is to push that down into real projects, real activity. That is not just a challenge in China. It is something you could identify elsewhere in other markets.

John MacArthur: So that is why carbon pricing, carbon markets and incentives-the outcome target I talk about, which is the greenhouse gas reduction target that you would have-have to be right across the economy, and that is what drives change. We would advocate for stronger building standards in this country to help that, to improve the energy efficiency, because there has to be action in every single sector to achieve that one major reduction goal.

Q91 Dr Lee: Good morning, gentlemen. Turning to co-ordination between Government Departments and China, are you familiar with any UK Government bilateral programmes with China and, if yes, which ones have you come across?

Peter Budd: There have been a series of MOUs, which have been executed around the eco-city and green building agenda. I specifically referred to the arrangements that have been formalised with the four cities, Wuhan, Hangzhou, Chongqing and Changsha. So we are very much aware of those initiatives, and have been an active supporter of turning the MOU format into things actually happening on the ground.

I am also aware of the MOUs on low-carbon co-operation which have been signed between DECC and NDRC, although I am not sure what has come out of that agreement. It is only relatively recent, in that I think it was executed during Vice-Premier Li Keqiang’s visit in January, and I guess the China climate change dialogue is another area where collaboration has been discussed. Again, I am not sure how much has turned into hard business outcomes.

John MacArthur: From our perspective, the DECC-NDRC MOU signed in January 2011 is relatively recent, but we have seen positive, practical co-operation around low-carbon development continuing. That has been good for momentum, particularly in low-carbon planning and the use of market mechanisms. You probably heard from me already today that I think it is quite an important element. We welcome the continued efforts in the UKTI, the 2011-12 sustainable cities mission, which is already mentioned here, and the low-carbon investment in Asia events as well, which brings people together to talk about the opportunities. Also we hope it resulted in the creation of a new Asia investment group on climate changes to fund some of these things as well. You bring some of the people that are looking to do the low-carbon investment together with the opportunities, and the Low-Carbon Fair in Guangzhou in 2011 was also very useful from our perspective as well.

Q92 Dr Lee: In your experience, is there co-ordination between different Government Departments and China?

John MacArthur: Just a small personal anecdote is that I found when I came here today, there is a chap from the FCO in the audience here who knows Alexa, who is our China person, who works in the Beijing office. I have always found the FCO, the UKTI and DECC, and all those different bodies, to come with one voice and a pretty integrated approach, from our perspective.

Q93 Dr Lee: Fine. I have my notes here from a rather interesting business breakfast we had on the Tuesday morning, in which someone said, "Britain’s approach is not joined up; they never sing from the same hymn sheet. Singapore is much better. It should be more about UK plc". Then one chap said, "The UK talks a lot and does little. When they talk about bigger products, the Chinese say, ‘We always think German first’". Your comments please.

Peter Budd: Well, okay. There is always room for improvement. When I look at the performance of our representatives overseas, I have seen a marked improvement in performance over the last five to 10 years. There is no doubt that other countries have, I would say, a more joined-up approach. I operate in the aviation sector-as part of my day job-and it is not uncommon for us in China to be competing with the French. The French will turn up with a Minister at the head of the delegation, and he will commit to providing a French team to execute a project in its entirety. That is something that we don’t do from the UK because we are fiercely competitive, not just with our foreign friends but also within our own organisations ourselves, so to actually make that offer is very difficult. That has been something that has confused the Chinese over many years, the fact that we can’t-as the UK-turn up with a single offering, and the best offering in our pack, and compete against French, German or Americans on that basis. It is philosophically a diverging path that we-as the UK-take in terms of our competitive attitude.

Similarly, I would certainly like to see a more joined-up approach to the Chinese market where we get regional interest, pursuing a particular opportunity often in competition with another region in the United Kingdom. Historically we have had a mixed bag of missions going out to market, some from regions, some centrally, some business-focused, some generally focused. If we can add some more clarity to that we will become far more effective, and we would probably save a bit of money as well.

John MacArthur: I am not going to be drawn into the nationalistic comparison of things. I would say Shell is an international company, foremost. As a UK listed company, I would argue that, if you look at our performance in those markets-take the massive Nanhai petrochemicals plant, the other areas, such as shale gas, the unconventionals that I described-we are doing very well and competitive with others in the sector.

Q94 Dr Lee: Do you think your business would be aided by a more joined-up approach from Government Departments?

John MacArthur: It is not so much the joined-up approach; it is the emphasis on what I have said. We really must have a carbon price because that is the tide that lifts all the boats in terms of cleantech and low carbon. We need to have carbon capture and storage-and we have had a little bit of a conversation about that today, and how important it is to demonstrate that technology-and also to recognise that in the next 20 years gas is the fastest way to decarbonise the power sector, and then you have to have the CCS as well. Whether there is sufficient momentum behind that or not, I think we all wish that we had a carbon capture and storage project already running in the UK to demonstrate, and we need many more as well.

From that point of view, I would not necessarily describe it as being an issue of communication between Departments, but certainly we all want industry and Government to make a success of those things as soon as we can.

Q95 Dr Lee: Finally, at that meeting and at another, it was suggested that, rather that delivering lots of small projects across a range of sectors, we should go for a few strategic big ones, and one suggestion was the eco-city comments.

Peter Budd: Yes. I agree with that. UKTI has been pushing a new initiative: the high-value opportunity mechanism, where projects or clutches of projects are being identified, and the full force of the organisation and other Government Departments is brought to bear to secure a large British component in them. Although it is in its infancy, it is extremely promising. We are seeing projects of that nature being identified in China and in other markets, and resource applied to them-first, to establish exactly how much value there is in it for UK plc, and secondly to strategise how to get the largest piece of the pie.

John MacArthur: I have my Energy Technologies Institute hat on now as well as my Shell hat. I host Shell’s Springboard Cleantech Awards where we invest £40,000 each year, with no strings attached, in several winners with innovative ideas-these are small entrepreneurs. So I don’t think it is an "or" question; I think it is an "and" question. I would do the big project-I agree with eco-cities, and Shell is involved in energy efficiency, working with the Shanghai Government and so on, so those kinds of projects are important. Especially with a new city of 1 million people every week for the next 30 years, it is essential to get involved in that. If I go back to my earlier point on invention and innovation, the ETI sponsors not only large projects but small things as well. The Technology Strategy Board does that too.

To give one example, one of the runners-up for the Shell Springboard Awards last year, Naked Energy, is a small company, with great ideas. They are now working with Imperial College here in London. They have come up with a solar thermal technology. They have the patent locked in as well. They are a small company, and when they went to the Chinese through a connection through Imperial, Professor Childs, the Chinese were extremely interested in this, as a major project in future. The reason I say it is an "and" is because we should continue to help bring some of our inventiveness and our technologies, which might not seem very big today, into major markets like China.

Chair: We will have to move on in a moment; just quickly, Albert.

Q96 Albert Owen: Mr MacArthur, you mentioned city-level partnerships earlier on, very briefly, and in Shell’s submission you talk about Singapore and China. How effective are these levels of collaboration, and how do you think Britain can learn from it?

John MacArthur: I was thinking about this myself as well. You think about the twinning of cities, the relationships and the force thing, and I know MPs go to different countries to meet people as well. The first thing is the connection between people, talking about the real problems and what you are going to do practically about something. I have a great example; I was talking with Shell’s Springboard winner this year. A lighting company have come up with a cheaper way to light your streets. The fact that they are doing it already for Norfolk Council really makes it come home to you what this cleantech stuff is about, so that is why we focused with the Shanghai City Government on the freight gateway and low emissions, bitumen for their roads and things. It just makes it that much more tangible and real rather than the high level. Everything has to come together.

The whole carbon issue is not necessarily going to be resolved at the global level, although that is critical. The common platform for Durban was a big step forward and so on, but what we are seeing is fragmentation. People say that there is no carbon pricing in particular countries, but there is a carbon market in California, and the Japanese Government are looking at them now. The Australians, who are a resource-intensive country, have brought those things in as well. So there is regional fragmentation to some extent, but you are also seeing within countries, such as the US, that many cities have carbon reduction caps and programmes, even if at the federal level they don’t.

Q97 Albert Owen: So, other than Singapore, there are American cities as well working together at that level and you think Britain should emulate that in a sense?

John MacArthur: Yes. It may be a way to refresh the low-carbon cities initiative you are mentioning. I am not an expert in that field anyway, but those kinds of relationships can bring something new to those.

Q98 Albert Owen: A final point. What bilateral relationships are there with other countries that we could learn from? To Mr MacArthur.

John MacArthur: From our perspective, of course, China is significant because of the size of the market, and the impact on absolute missions as well. There are many different countries that are making efforts in this area. As I said, it is not necessarily just the country level you have to look at; you also look at particular cities or particular regions. Take the Californians with their carbon market and carbon trading system, how they have managed to get that through. I look at the way the Australians have come up with a system that takes into account the needs of their particular kind of industry as well, with emissions allowances and so on, but the relationship between the UK and the US is important because the US is another major player in this debate. I also think that is one of the major reasons for China and the UK.

As I said earlier, the UK has taken a leading role, even within Europe, in achieving a strong carbon price before we had any EU ETS and so on. So we have a lot to share. That is where I would emphasise that we have a lot to bring rather than to be able to receive, in terms of the knowledge sharing on-

Q99 Albert Owen: You have given us specific examples. Any other countries that you think we can learn from?

Peter Budd: I don’t think we can emulate it, but the German Chamber of Commerce mechanism, where the Chamber of Commerce is funded essentially as a tax on every company in Germany, gives them huge resource to deploy. That is one of the reasons that you see a much more joined-up German offering in second markets than perhaps we are seen as offering, but to make that change I think would be a real leap of faith.

Chair: John, just very briefly from you.

Q100 John Robertson: Yes. I had a lot of questions about the bilateral relationship between the UK and China. Do you see that as a way forward? I was just writing a wee note to myself there, and I was wondering-you mentioned the US-what is more attractive to the Chinese? Is it the UK in a bilateral relationship, or is it the UK as part of Europe in a European relationship, or does the US have it sewn up?

Peter Budd: I don’t think the US has it sewn up by any means. In fact I would suggest the Chinese do see the Americans as competitors, whereas we are seen as much more collegiate. We confuse the Chinese because we are such a very small nation, which has such a big voice. In many areas I think we are actually ahead of the Americans, and long may it be so.

Q101 John Robertson: Are we better being seen as part of Europe?

Peter Budd: I think China would like to see Europe acting as a single entity, and we are viewed as a friend of China within the European context.

Q102 John Robertson: Does that mean the Germans are streets ahead of us? They really are getting the advantage of being the main player in Europe?

John MacArthur: As I said earlier, I don’t really see that the Germans have that advantage that has been described, not from our industry perspective. I do believe that there are a number of different ways that we would be wise to engage. It is not purely bilateral, but I think bilaterally we do have a lot to offer. As I said before, within Europe we have seen leadership from the UK, irrespective of which party was in power over the last decade, and certainly we have built up considerable knowledge and expertise in areas that do offer benefits to others.

Q103 John Robertson: Do you think UKTI are doing a good job in relation to that? There have been many complaints, and particularly in political circles, that they do not inform people well enough of what is going on. Governments get attacked all the time, but if they are not told what is happening then how are they supposed to help?

John MacArthur: The anecdotal thing I would say on that is-since we mentioned Germany-I was aware that a large German manufacturer was approached by a global logistics company, because the global logistics company had been to China to ask about electric vehicles, and went to the large German manufacturer and said to them, "How many electric vehicles could you do?" and was told the market was very small and nobody was building on that scale, whereas the Chinese had several assembly plants of electric vehicles already running.

For all partners with China it is really important to do as the Committee has done and visit China and understand what is on the ground. There is an advantage to be had from making sure that China has opened up and people understand the opportunities that are there. Whether it is UKTI, or other countries that need to do more to do that, I don’t think you can do enough.

Q104 John Robertson: The UKTI’s relationship with Government?

John MacArthur: The Shell perspective is positive with all the different Government Departments that we work with. I don’t think we are one of the people who are complaining.

Chair: That sounds like a good moment to move on to the next panel. Thank you very much indeed for coming in. We have had a very helpful session.

Examination of Witnesses

Witnesses: Gregory Barker MP, Minister of State, Department of Energy and Climate Change, Henry Bellingham MP, Parliamentary Under-Secretary of State, Foreign and Commonwealth Office, James Hughes, Head of International Climate Change Strategy, Energy and Analysis, Department of Energy and Climate Change, John Ashton, Special Representative for Climate Change, Foreign and Commonwealth Office, and Gregory Briffa, Low Carbon Team Leader, Department for International Development, gave evidence.

Q105 Chair: Good morning. Welcome to the Committee. Thank you very much for making time to come and talk to us. I think we know who you all are. Do you want to do any introductions? We are familiar with all of you, except perhaps Mr Briffa, as it is your first visit to us.

Gregory Briffa: Yes. Thank you. I lead DFID’s low-carbon work in the Policy Division, which I have been doing for the last four and a half years.

Q106 Chair: Could you tell us how much priority the Government attaches to contributing to decarbonisation in China, and to improving opportunities for British low-carbon businesses in China?

Gregory Barker: Yes. Good morning, Mr Yeo. For the last decade it has been a real priority. It is one of the key strategic elements of our relationship with China because, on this agenda, China really does see the UK internationally as a partner of choice. I was listening carefully to the previous witnesses saying that in many areas they feel that other nations have a march on us. On the low-carbon agenda, there is a recognition that we have a great deal to offer and, although it is only a nascent relationship on low carbon, that we are taken very seriously indeed by China. I know that the former Secretary of State, Chris Huhne, who led on China for the Department, and appropriately so-I apologise, I am not as informed as I should be-took a great interest in seeking to deepen the UK’s relationship with China. Chris was last there in September 2011 for the Carbon Sequestration Leadership Forum’s ministerial meeting, and met a whole range of ministerial counterparts there. During all of his engagements, Chris offered UK support, on the broadest possible basis, to encourage the Chinese Government’s efforts to bring on significant renewable and low-carbon energy capacity and to deepen the relationship.

Although I have only been to China once, I do regularly meet with Chinese opposite numbers. I would like to think I have begun to build a good relationship with Minister Xie, the Chinese Climate Change Minister, who I probably see, over the course of the UNSCCC negotiations, four times a year, I would think on average, and now have a good relationship with him.

Henry Bellingham: I would like to add to that, that obviously our bilateral relations with China are of immense importance. As part of our network shift there are going to be 61 new FCO jobs in China, both local-and UK-engaged. We are going to be opening a new consulate as well, in addition to the four we have already; we obviously have Shanghai, Chongqing, Hong Kong and Guangzhou. Within the UKTI team-and the UKTI team in China is our strongest anywhere in the world-we have a team of 35 in China, and four of them are dedicated to a low-carbon agenda. So we see an alignment here. First of all, we see China as a very important partner in the climate change talks, going forward, and in the whole wider climate change movement. There is an alignment in terms of the commercial diplomacy agenda, because obviously there are big opportunities for the UK.

We see our role very much as that we have a network. We have the one team in the country representing the whole of HMG. We do the diplomacy, the statecraft, and obviously we are able to open the doors for people like DECC who are the experts on the detailed negotiations. I should just add that, in this context, Ambassador Ashton, who is the Secretary of State’s climate change envoy, is a crucial person in the FCO, as well as the Foreign Secretary. The Foreign Secretary went to China, and he had the chance to meet State Councillor Dai Bingguo. Ambassador Ashton was in China last June and will be visiting again in the near future.

Q107 Chair: Could you show examples of how the UK-China MOU on low-carbon co-operation, which was signed last year, has benefited British businesses?

Gregory Barker: John, do you want to make some comments on that?

John Ashton: First, I have a point partly informed by the conversation we were listening to earlier. As a Government, there are two distinct dimensions of the strategic support that we need to give our businesses. One is the downstream support that UKTI and its network are on the frontline of, engaging with specific deals and contracts and supporting wherever we can. But there is a deeper thing that is closer to what the MOU can hope to achieve, which is that for the UK to have a successful export-led recovery we need to engage with the deep forces that are shaping the nature of the global economy. Chinese choices-more than anybody else’s choices, actually-are building the new global economy, the post-2008 global economy. As to the Chinese growth narrative, they talk-and I am sure you heard on your visit-a lot about low-carbon development, and they accept that their current development narrative is not adequate for China’s purposes going forward. Understanding the way in which China’s choices are going to shape the markets in which British companies will be operating globally is a very important part of our commercial support. There are various instruments that we use to provide commercial support, but the MOU can help to do that and it can help to influence those choices in the direction of higher ambition, a faster progress towards a low-carbon economy in China, which is also a strategic requirement for British prosperity.

James Hughes: Chairman, perhaps I can add that the MOU covers the wide range of activity that the UK Government has with China in lots of different areas. Some of those areas are more about sharing experience and expertise, rather than commercial opportunities necessarily. However, in a number of the projects that we undertake in China, either with the Prosperity Fund, or indeed with some of the limited funding that DECC has, there is often a UK company that may collaborate with those projects. I know that the Climate Group, PwC, KPMG, the Carbon Trust, and various other UK companies have been involved in projects.

UKTI, though, has identified three particular areas that it considers to be high-value opportunities. Those areas are civil nuclear, wind power and smart grid. Those are the three areas where UKTI is looking to support UK businesses, both in terms of identifying opportunities in China, being present at the various trade shows that go on there, and looking for opportunities to develop UK business. They estimate that there could be opportunities to the value of about £1.7 billion in those areas.

Q108 Chair: Just going back to the Foreign Office, there is a shift of emphasis, which I strongly support, and having been going to China for a number of years it is quite noticeable now it is already on the ground. How would you measure the success of this additional investment they are making there?

Henry Bellingham: It is going to be difficult to measure it in terms of maybe one or two years on, but it is the Foreign Office recognising that we have to put our footprint on the ground, and our resources in those countries that are growing at a rapid rate-those countries that are going to be absolute key partners in agendas, like obviously climate change. It is also a recognition by the Government that when we came into office-the coalition Government-we decided that we would intensify bilateral relations with a number of key countries. By definition, that meant we would be shifting from some countries where, for example, we have a number of non-sovereign posts, which we feel in the EU perhaps are a luxury, they are surplus to requirements in some ways. But in a country like China, which is a vast country, where you have provinces there that represent the entire GDPs of many large European countries, increasing the level of involvement on the ground was absolutely essential. That is why we are going to open a new consulate-general, and that is why we are putting in more UKTI staff.

What I would be happy to do is perhaps come back-if we are all around in two years’ time-and tell you whether it has worked. I mean this is an investment we are making for the future, and we are convinced that is the right decision.

John Ashton: Just to add one point to that. I think 2015 is going to be a critical year, because that is when the next stage of the climate negotiations comes to a climax. That negotiation will only succeed if by then the major economies are pretty much settled on a low-carbon growth model, that they have taken strategic choices that low carbon is the way to generate jobs, growth and competitiveness, and no economy matters more in that than China’s. If you wanted a simple success measure it would be to say, "Look at the Chinese economy in 2015. Look at the macroeconomic debate about how they are steering the Chinese economy into 2015. Is it clearly a low-carbon growth model?" and that will be success. Because if we don’t have that, that would do enormous damage to a very wide range of British interests, both in relation to prosperity and in relation to security.

Chair: That is a very helpful contribution, Mr Ashton. Would you like to send a copy to the Treasury here as well?

Q109 Albert Owen: Going back to DECC, we just heard about the MOU that was signed by DECC and the National Development and Reform Commission. When it was signed it was stated that an action plan would be produced no later than March 2011. Has that action plan been published?

Gregory Barker: James?

James Hughes: Thank you. There is not a published action plan, but what has happened is there have been negotiations between DECC and-

Q110 Albert Owen: When do you expect the action plan to be published, Minister?

Gregory Barker: Do we have a plan? I don’t know if we have a plan to actually publish it, I think we are just getting on with it. I don’t think we-

Q111 Albert Owen: It was stated that it would be ready by no later than March 2011, so it isn’t. Okay.

James Hughes: Can I just-

Albert Owen: Yes, go on.

James Hughes: We have been in discussion with the NDRC over what should appear in that action plan. The delay has been partly because we have been looking to also negotiate with them on the kinds of projects that we might support with the small amount of money that we have available to support that MOU. Unfortunately, what happened last year was that the local DRCs and the provinces came up with their own kinds of ideas about what they would want to see appearing in that, and the NDRC in Beijing decided that they wanted to have a say in what went on, so those negotiations have taken longer than we anticipated. We are making some progress now. We have entered into contracts with a number of organisations in China to take forward a number of projects, and we will finalise that action plan with the NDRC shortly.

Q112 Albert Owen: Thanks for that. When this plan is produced I am sure you will send us a copy so we can look at it.

Gregory Barker: We will do that.

Q113 Albert Owen: Another thing that was to be established was the UK-China Low Carbon Co-operation Committee. Has that been established?

James Hughes: Sorry, could you repeat that?

Albert Owen: Yes. It is the UK-China Low Carbon Co-operation Committee.

James Hughes: Sorry, I think that is the working group that you are referring to.

Q114 Albert Owen: Yes, so it has been established?

James Hughes: The working group has been established. The working group has been meeting on an annual basis. The last time it met was spring last year; the intention is that it meets again later on this year. That is a working group that is chaired at director level at this end, and at the moment within the NDRC by a gentleman called Su Wei who, among other things, leads for China in the climate change negotiations. We agree an agenda with the NDRC. We look at the issues that are current for us, and they come up with their own agenda items, and we take it in turns to host it in the UK and in China. This year it will be hosted in the UK. It usually lasts for about a day, or just over a day, and if the Chinese are coming over here we will try to do a programme for their visit over here. So there would probably be a day focused on the working group, talking about the collaboration and how it is going and what we need to do next. Then there would probably be, if it was here, some site visits to show them the sorts of things we are doing.

Q115 Albert Owen: Would it be fair to say that the relationship between DECC and the NDRC hasn’t been as effective as you thought initially? Some projects were identified that were going to happen. Have those happened?

James Hughes: Yes, and let me be clear about the fact that there are two MOUs. There is the framework MOU under which the working group operates, and that has been going for some years and then was renewed in the MOU that was signed last autumn. Then there is a second MOU, which is working with three of the low-carbon provinces that the Chinese have identified, and that was signed at the beginning of next year; sorry, last year.

Albert Owen: You are not that good.

James Hughes: No. The second MOU is the one that got off to a slow start because of the difference of opinion between the local DRCs and the NDRC. However on the framework MOU, that has been going for a number of years and, therefore, the working groups have been going on during that period of time.

Q116 Albert Owen: Funding has been approved for some projects; is that solely DECC’s money?

James Hughes: DECC does not have very much money. It has £200,000. We have £200,000 in this financial year and for the next two financial years, and we will have to see what happens after that in the context of future business plans and spending rounds. That money is being used this year to support four projects in those three low-carbon provinces. They will produce various reports by the end of this month, so within this financial year. There is one that is looking at the options for the establishment of pilot emissions trading schemes. There is one looking at identifying priorities for low-carbon development in the three provinces with which we have a relationship, which is Hubei, Chongqing and Guangdong. It is looking at identifying priority products for low-carbon product standards and labelling, and developing evaluation criteria for a low-carbon community demonstration area in Chongqing to help drive ambitious climate change carbon reductions.

The NDRC has said that what would very much help them are some projects that would help to provide some additional advice on where the focus should be going forward. So when those reports are finalised at the end of this financial year, then that will give us the basis on which to have some further conversations with the NDRC about what the results say, and what that might mean in terms of the further work that needs to happen within those provinces, and there may well be wider applicability.

Just going back to something that was said earlier on, we have seen a transformation really, over the last few years, in terms of the relationship that we have with the NDRC. The NDRC are now very open to working very collaboratively, and are very keen to look at every possible opportunity for addressing the challenge that they have in terms of reducing their emissions. I know that you have seen for yourself-having been out to China-the huge scale of the challenge that they have. You heard while you were out there that the Chinese have found it quite difficult to restrain the growth in consumption of energy, and so they are very much open to the help that the UK can provide. What will come out of these reports will hopefully then provide us with the next step forward.

Q117 Albert Owen: Just moving on to funding, you mentioned that from DECC’s perspective there was only a small amount of funding, but there are some projects in low carbon that many other Departments are involved with as well. How do you collectively, as different Departments, sit down and ensure that we are getting good value for money? Who is the lead partner on that? How does it work, because there are many of the same areas that different Departments are working in, and how do we ensure that we get the best value for money for the taxpayer?

Henry Bellingham: The FCO is in the lead on this and, as I mentioned, the idea is to have one platform covering the whole of the UK Government. Much of it is down to leadership, and what we have, which has been developed by the ambassador whom you met, is a China country business plan, and that obviously takes account of input from all the different Departments. On the programme spend-although it is overseen ultimately by London, there is a local board that will decide on the particular projects, so-

Q118 Albert Owen: Sorry to cut across, Minister. At what level would DECC and the different Departments, BIS and so on, get involved?

Henry Bellingham: The ambassador would be the person in charge, overall, and there would obviously be senior people within the mission with a role in this. There will also be quite a lot of feedback to the people in London, and that would be at direct level and it may be at ministerial level.

Q119 Albert Owen: Are you confident that the work, which has been carried out on behalf of the UK, has been strategically aimed? Are different Departments working in silos or are there good cross-departmental workings on this? Again, we have heard from DECC that they have concentrated on smart grid, on nuclear and on wind. Are the other Departments working separately, or is this across all that?

Henry Bellingham: It is worth bearing in mind that a quarter of the global pot of the FCO’s Prosperity Fund is being spent in China and, as you probably saw when you were in China, this is supporting 52 policy-focused projects. You have heard about some of these, obviously. It is not just the actual projects that are very important. There are projects on low-carbon planning, on wind power, on raising the low-carbon ambition of Chinese cities and on tackling emissions from coal, to name but four. You then have what I would describe as the multiplier impact: - what these projects do. Many of the officers who are involved in the projects have also been trained in commercial diplomacy. You have the multiplier effect, in terms of the advantages and the opportunities that are opened up for UK companies, and then you have other outcomes. For example, as a result of these projects, China’s powerful banking regulator announced last month a new national Green Credit Guideline, which should well be very significant across China as a whole.

Secondly, the work on projects over a number of years has led almost undoubtedly to the Chinese Government’s decision to set up the low-carbon pilot zones. These are not just small projects; this a national scheme set up by the Chinese Government. It is going to amount to a range of quite tough targets and policy experimentation, as you know, in eight cities and five provinces, amounting to 26% of China’s total population, so you have this multiplier effect and a virtuous circle.

Q120 Albert Owen: I understand, but the criticism has come from previous witnesses that there is a scattergun effect and there is no real strategy coming from the UK Government. How do you respond to that?

Henry Bellingham: I don’t accept that. There is no question, from my dealings with different countries, that the climate change low-carbon team we have in China is the envy of the world. There is no other country that has a team in place that is so effective. Furthermore the fact that we have made that alignment between the climate change agenda, UKTI and the business opportunities again is looked at and envied by a lot of other countries.

John has had some experience of this, so maybe you would like to say something as well, John?

John Ashton: One should never be totally complacent about how one does this. This is a complex challenge and one can always make it better, but there has been quite a lot of learning over the years as the Foreign Office has got used to spending project money. I remember when it started, which was over 10 years ago, it tended to be a rather piecemeal approach and you couldn’t see much overall pattern to how the money was spent. From that experience we have learned a number of things. We have learned that, particularly in large economies like China, it makes sense to give maximum autonomy to the local network. They are the people who are on the ground and who can judge how you can spend money to the best effect, given a set of criteria that come from the centre about maximising commercial benefit for the UK, maximising political impact on Chinese choices and so on. That is a reasonably well-oiled machine now. There will always be people who say it should be this way rather than that way.

Quite an interesting indicator over the last year is that the Germans have decided that they are so attracted to our model that they are setting up something similar themselves. They have never had in their Foreign Ministry project funding before in the area of climate and low carbon and they are now instituting something based on the UK model. So that is quite a good validator.

The other thing I would say is about the art of it-and it really is something that is very difficult to get right. There are hundreds of different ways you can spend any additional chunk of money in a country like China, and lots of people who are bidding for your money. So how do you judge which of those ways is going to make more than a marginal difference? They will all make some marginal difference, but out of all of those possibilities which is the much smaller number of things you can do that potentially are transformational, that are potential game changers? For example, in the past, we have spent a certain amount of project funding on encouraging a movement in China that led to a decision to establish low-carbon pilot zones, and those now encompass 300 million people. It seemed to us that there was a potential game changer there. We have spent money on carbon capture and storage in China, which is an area where there are huge potential-

Q121 Albert Owen: My point is, were all the Departments in the UK fully aware that that was going on, were there regular briefings and was there no duplication from each Department?

John Ashton: I think nowadays they are. That may not have been the case when this started. In Beijing when I go there I am always struck by how difficult it is to distinguish between DECC, DFID and the Foreign Office. It really feels like a single team.

Gregory Barker: I would certainly say that in my experience of visiting various countries around the world, I am continually impressed by the way in which the Foreign Office and my Department work together. The Foreign Office on the ground in target countries is able to take forward the climate diplomacy agenda and blend it almost seamlessly with our own domestic agenda. There is the way in which it relates to the prosperity agenda, trying to garner business for the UK supply chain, and, although it is less evident in China than in other countries, the way in which it interrelates to DFID. Those three Departments are central to my role and portfolio for international climate-

Q122 Albert Owen: BIS as well?

Gregory Barker: In BIS? Certainly UKTI, yes, but I would say of the three Departments-DFID, the Foreign Office and DECC-I have to say they work really well. I am sure there are ways in which they can be improved and we look forward to your report.

Q123 Albert Owen: Did I interpret that BIS is the weak link?

Gregory Barker: I don’t think you can interpret that.

Henry Bellingham: I wouldn’t say so, because Lord Green sits between BIS and the FCO. I would suggest that, since we have started training some of the project officers in commercial diplomacy, these guys are thinking not just about the low-carbon agenda, and what is happening within China and how we can get them on to a more ambitious end of the spectrum, but also looking for opportunities for UK plc.

Gregory Barker: It is fair to say that Lord Green is having a transformational effect on the impact of UKTI, so they are improving. You could interpret it that way.

Q124 Dr Whitehead: According to some of our witnesses overall we appear to be reducing funding in China, just at the moment when it could have some leverage as far as low-carbon development is concerned. Indeed when we were in China we observed what appears to be a quite substantially leveraging process. Is that a fair comment, do you think?

Henry Bellingham: We are spending more money in China because, as a result of a network shift, we are putting in 61 new jobs and we are opening a new consulate-general. As far as the Prosperity Fund is concerned, we worked and fought very hard to keep it at its total level but it is being reduced slightly from £20 million to £18 million, but a quarter will still be spent in China. That is £4.5 million, so the amount spent on these projects will be reduced from £5 million to £4.5 million. You also have to bear in mind, Mr Whitehead, that we are going to have more people on the ground. There will be more UKTI. There will be more people on the climate change side. There will be more diplomatic activity. I see this as part of an overall team effort, and the more experienced diplomats and locally engaged staff we have on the ground all working together the more impact we will make. It is not just about money for these projects.

Q125 Dr Whitehead: So do we or could we have available to us the funding overall that is available from the UK Government Department by Department for low-carbon development in China? That is FCO’s contribution, DECC’s contribution, DFID and BIS?

Gregory Barker: It is important to understand what we mean by projects and finance. As Mr Bellingham was saying, this is primarily about know-how. We are not in the business of financing the low-carbon transition in China.

Dr Whitehead: No.

Gregory Barker: We have quite enough on our plate at home. We are doing some really valuable work. We have hosted numerous ministerial and official delegations here in the UK, who have come to look at a whole range of different aspects of UK policy. There is a genuine interest in what we are doing and I come back to my opening point, I think we are seen as the country of choice, or destination of choice, for not just one particular section of the renewable energy economy but in terms of the holistic low-carbon transition.

To give you an idea, with this very small resource that we have available we are funding a report on options for the establishment of a pilot emissions trading scheme, we are identifying priorities for low-carbon development in three provinces, we are identifying priority products for low-carbon product standards and labelling, and we are developing an evaluation criteria for a low-carbon community demonstration area in Chongqing to help drive a whole range of low-carbon outcomes. Those are just some of the things that we are doing. There is a whole range of different projects. If you talk about financing, it gives the impression that we are putting in an investment in hard projects, when in fact we are putting our money in, in a much smarter way.

Q126 Sir Robert Smith: We still have to pay. It still has to be financed. It does not happen for free.

Gregory Barker: Those projects have to be financed, yes, but there is the know-how. What you are really talking about is the time of people and airfares. You are not talking about projects.

John Ashton: You could call it convening. You are building structured conversations to drive particular choices.

Gregory Barker: Giving access to expertise and experience.

James Hughes: It is not unreasonable, Chairman, that China, with the growing economy that it has, and the degree of help with capacity building and other things, could look to itself to try to find some of the funding that might be necessary for some of this work.

Gregory Barker: It is working with UK companies. For example, in one of our projects, setting standards for Chinese eco-cities, we have pulled together a network of 20 or more UK companies that are involved in a new project to develop and implement low-carbon standards for Chinese cities. In terms of standards and measurement, this is something where the UK has a global reputation and we can leverage it into new areas.

Q127 Dr Whitehead: The nub of my question really relates to the evidence we have heard about the extent to which Departments are working together very well in China, and there is certainly a concentration on low-carbon development and low-carbon advice and discussion in China. Therefore it could be very useful to look at what resources come in from whom. I think it would be very useful for us to have a note if possible as to overall-all Departments-what funding is going in, and the extent to which that perhaps can be used collaboratively.

Gregory Barker: I have to say, I queried the figure of how much we were spending because it just seemed out of all proportion to the amount of output that we had. We have a huge amount of projects and I was amazed it was only £200,000.

Q128 Dr Whitehead: Can I put this in a slightly different way? One of the very strong impressions we received on our visit to China was the question of how important personal relationships are in these arrangements. How does that funding translate to permanent members of staff from Government Departments posted in China and having a brief and, therefore, those personal relationships involving climate change mitigation? We have heard there are four from the UKTI particularly involved in the low-carbon agenda. Do we have a similar number for those people from FCO who are specifically involved in that agenda and other Departments with individuals posted in China on a permanent basis effectively?

Henry Bellingham: What we can certainly let you have, Mr Whitehead-and I don’t have the figures absolutely to hand at the moment-is a list of the numbers of people and the cost of those people who are absolutely dedicated to the climate change low-carbon work. We would have to add to that a significant number of locally engaged staff who from time to time will be doing this work, the time of senior diplomats, including the ambassador and the consul-generals, and the amount of work they are doing on it. For example, I think you met the Governor of Guangdong province and he said he wanted more business-to-business partnerships in the low-carbon sector. We are now following that up. So what the FCO is very good at doing is where there is an opportunity we can surge personnel, and I like to think that our diplomats and officials who pursue diplomatic excellence are very good. One minute they may be dealing with human rights or they may be dealing with some complex matter in the UN over the Sudan, but the next they can surge in another area and it could be the commercial components, it could be climate change for the low-carbon agenda. We will certainly let you have the number of people who are dedicated full-time on climate change and low carbon.

Dr Whitehead: That is very kind.

John Ashton: As somebody who started life as I guess a sinologist-a career diplomat in the Foreign Office, I was first posted to China in the early 1980s and I was the Science Attaché in our embassy then-I think you are absolutely right, I don’t think there is any country in the world where maintaining personal relationships is more important. One of the features of the China group within the Foreign Office is that they understand that, and they probably mostly make an effort to keep up personal relationships even in between postings. I am still in touch with people in China who I first got to know at that time in the late 1980s, and it is the right kind of culture to be fostering for dealing with a country like China where there are such big cultural barriers and where trust matters an enormous amount.

Q129 Dr Whitehead: Generally do the panel think that that work of contacts could be useful-as was suggested to us-in influencing China’s work itself with other countries to promote sustainable development? So you could have a south-south axis as far as that was concerned, but beginning to be based on some of the influence that we might bring to bear? Is that a role that you are seeing for those people who are engaged already in low-carbon transition in China, and would there perhaps be a Department that might have lead responsibility for that kind of work?

Henry Bellingham: It would be the FCO who would be in the lead, but again it would be a question of leveraging the expertise from other Departments, Mr Whitehead. In terms of the work that China is going to be doing increasingly on the development front in developing countries, there is a role for DFID. I don’t know whether in your question you were hinting at the UK-China sustainable development dialogue, and also the Global Development Partnership Programme, which we are involved with. It might be helpful if Gregory Briffa just mentions something about that, if that is what your question was getting towards.

Dr Whitehead: I think we will be discussing some of that later on.

Gregory Briffa: Thank you. Yes, that is right. DfID’s focus is we no longer have a bilateral programme providing direct aid to China. Rather our focus is working on establishing a partnership with China and working to reduce poverty in third countries, and drawing on not only China’s highly successful domestic experience but China being seen as perhaps an alternative model to the model that we have, and also continuing to have a significant footprint in the countries in which we are very interested, where we are seeking to reduce poverty.

Q130 Dr Whitehead: Could I just briefly touch again on what I think is the successful intervention of the SPF programme, as far as the province-based pilot ETS systems are concerned? We agreed that our Chairman should be seconded permanently to the office of the Government of Guangdong, as far as the emissions trading systems in Guangdong was concerned. The national ETS that is likely to be developed alongside the provincial schemes, is that something that the DECC resource is looking towards, in terms of assisting the Chinese to move towards a national ETS arrangement, or are there other resources that could be brought to bear on that?

James Hughes: Under the MOU, which we mentioned earlier, we are working with three provinces. Part of the work we are doing with them is looking at being able to share expertise and to help with some small projects, in relation to helping them to develop their pilot emissions trading systems. My understanding, having talked to various people in China, is that the Government in China, the NDRC, is trying different things. It is very much open to exploring what is going to work for China and so has effectively said, "Let’s use this 12th five-year plan as an opportunity to trial a few things within these low-carbon provinces and cities, let’s see what the results of that show us, and then let’s try to determine what is the right approach for China going forward and what kind of emissions trading system we might want to roll out on a national basis". The input we are giving at the moment is about sharing our knowledge and expertise in relation to the experience we have had with the EU ETS, so it is both under the MOU but there is also some work that we are doing under the Prosperity Fund to support the emissions trading system development as well.

There is action going on, on both counts, but obviously there is a huge challenge for the Chinese Government, not least because one of the things that they are going to have to try to get right is having a very effective system of accounting for emissions and monitoring, reporting and verification, in order to be able to be confident about what their emissions are, what sort of cap they might want to bring in, and being able to measure the effectiveness of whether they are succeeding in driving those emissions reductions that will be necessary, but we are working with them.

Q131 Dr Whitehead: Promoting UK companies with expertise in that field?

James Hughes: I don’t know the details. It may be that the Prosperity Fund projects have something along those lines, but I would have to check.

Q132 Dr Lee: Building on the discussion of the strategic co-ordination, in a previous evidence session a few suggestions were made on how the Government might co-ordinate its strategy, vis-á-vis China and low carbon. Establishing a China taskforce within Government was suggested or a Cabinet-level strategy to co-ordinate the work of DECC, FCO and BIS. What do you think?

Henry Bellingham: Dr Lee, as Ministers we obviously meet on a very regular basis, and so there would be an informal ministerial group anyway that would be overseeing this. Of course at official level you have this co-ordination on a day-to-day basis that I think is effective. I do not want to appear in any way complacent, but I think Ambassador Ashton is right when he says we have moved on a long way.

Since the FCO started getting involved with project funding, since we have had other Departments-including DECC-coming on to the platform and being actively involved in a particular campaign or agenda, the co-ordination has got better and better. Much of it is obviously down to leadership at the top, so what we will certainly do is we will take away from today some of the criticisms that were made earlier, constructive remarks by the previous witnesses, but I can assure you that there is ministerial oversight.

One of the things that we certainly could look at would be a China business oversight mechanism, but we already have it on an ad hoc basis with Ministers and we have it on a formal basis with officials. If there are lessons to be learned from your inquiry, we could certainly take those on board.

Gregory Barker: There is already the FCO-chaired High Level China Group meeting, which looks across Whitehall engagement with China at an official level. In DECC, under the MOU on climate change co-operation, there is the annual working group meeting already. As I said before, certainly between DECC and the FCO, there is very close co-operation. I would be interested to see what this Committee concludes, in terms of whether or not there is a need. I am always cautious about additional infrastructure, but in terms of streamlining and strengthening the oversight of the strategic policy aims that could be interesting.

John Ashton: Just to add one word. Having done this kind of work, both in London and in Beijing, my instinct would be to be cautious about the risk of micromanaging from London. I was the Science and Technology Attaché in Beijing in the early 1980s, and whenever I heard that London was going to do more co-ordination I knew that more inefficiency was going to result from that, because the different Departments in London can’t match the close-up view that you can get in the network in China, of the realities in China. In that situation, what you need from London is a very clear statement about what the overall mission is. What are the goals? Then you have the resources that you can deploy using your judgment to meet the goals. I am not sure that we need additional structures in Whitehall. We should always keep that under review, but I am not sure we need additional structures in Whitehall to clarify the roles further than they already are at the moment.

Q133 Dr Lee: Building on that is the suggestion of streamlining. I am sure if I stopped the average man on the street in Bracknell he would want to know why the FCO, DECC, BIS, UKTI, DFID, DEFRA, the Department for Transport and so on are all operational in China. Is there an argument here for some streamlining of Departments?

Henry Bellingham: I don’t think so, Dr Lee. We have the International Climate Change Programme Board that reviews HMG strategy across the whole climate change piece. Mr Barker has already mentioned those two bodies.

Gregory Barker: I don’t think I would want to see responsibility for the international climate change negotiations or CCS programme devolved to the Department for Transport.

Q134 Dr Lee: I guess my point is I was somewhat surprised at the number of British Departments operationally funded in China. It is not that I don’t think they are doing good work necessarily, it is just you talk about not wanting yet another organising group. It strikes me we already have too many.

Henry Bellingham: It is the scale of the opportunities in China, and the Department for Transport are there to look at high-value opportunities in the transport infrastructure sector-the developing technology sector around transport. What I would say to the citizens of Bracknell if I was in your position is that, as part of our export-led recovery, it is absolutely vital that we use all these other diplomatic agendas and wider negotiation agendas about climate change to align those with trade opportunities for the UK. So if it means bringing in some other officials from other Departments, then that is part of our one Government working from one platform.

Gregory Barker: And expertise. Going back to the point I made earlier about that, where we can really leverage our relationship is being known as a source of expert advice and experience. You don’t do that by having one chap who wears several hats turning up to lots of different meetings. You have that by being able to pull in, in-post in Beijing, someone with genuine expertise who can speak with authority. Certainly on the climate change agenda that is why we are respected. It is not because we are able to run several different desks with the same person. I am sure that accounts for the-

Q135 Dr Lee: I certainly concur. We got the impression that they did respect the British on climate change. That came across in virtually every meeting. Just moving on, in terms of coherence and going forward together and all Departments singing from the same hymn sheet, there was one meeting at the Chinese Academy of Social Sciences where it was quite interesting that there appeared to be a movement with regards to territorial versus consumption-based measures of CO2 emissions within China and that increasingly, as domestic demand goes up, consumption-based patterns are going to change. The Committee will recall our presentation from DEFRA and DECC: there was a difference of opinion between British Departments on this. In China there seems to be a difference between provinces, and I wonder what your feeling on that was, in terms of interacting with provinces, in terms of forming policy, in forming low-carbon markets in the future and trading schemes and things, this seemed to be a developing area within China.

Henry Bellingham: I will ask Ambassador Ashton to comment in more detail, but certainly understanding the dynamics of this, Dr Lee, is very important. We worked very successfully with China in the run up to the COP17 in Durban, and part of our discussions with China, which were very detailed and complex, were based on understanding the dynamics at stake at the regional level and even at city level. Do you want to comment further on that, Ambassador?

John Ashton: Yes. There is a very lively debate going on in a lot of places about how exactly you account for carbon in the economy. Clearly that debate is developing momentum in China as well. It is lively in Europe too. The fact is in the UN climate negotiations we have gone down the path of accounting, for carbon at the point of production. Whatever else happens in that debate I think that will continue in the UN climate change negotiations. We have an enormous interest in understanding the texture of the different views in China, of engaging with them and trying to build a shared perspective between the UK and China as our understanding of this very complex field develops.

Q136 Dr Lee: I guess my suggestion is that China may be more receptive to negotiating and signing deals if it was more consumption-based.

John Ashton: Yes. You could make that case, although a lot would depend on what happens in the future with the Chinese economy, as they try to rebalance themselves and drive up their own consumption. To be honest, I have been surprised that they haven’t made that case more strongly up until now. They have had plenty of opportunities to make it in the international negotiations and, as far as I can remember, they have never once said, "We should move to consumption-based carbon accounting in these negotiations".

Gregory Barker: Now that they have per capita emissions that are higher than France, it may be something that will have less and less interest to them.

Q137 Dr Lee: Finally, just at the business breakfast that I mentioned to the previous panel, it was suggested that the UK was in a really strong position to work together with the Chinese on improving their global reputation, the idea being that they used to counterfeit this, counterfeit that, mass production of this, mass production of that, nothing new, all copied, and that the Chinese were quite eager to develop a reputation for top-end, high-end technology and so on. Do you have any comments on that as an opportunity for Britain?

Henry Bellingham: I would say there are big opportunities. Certainly one of the things that we are keeping a close eye on are those companies who are at the cutting edge of transmission systems, of renewable energy technologies, who are very cautious about sharing some of their proprietary intellectual property with countries like China, until they improve protection of IP and their whole patent and copyright laws. There is an issue there, but having said that many of these companies want to work with China, they see China as an obvious partner and the potential is huge. We are doing some work, certainly in the mission, to engage the Chinese on this very important agenda to make sure they bring their laws in line with international norms.

Q138 Albert Owen: If I could just move on to some priority areas. I realise we are pushed for time, but the witnesses have identified a number of areas where the UK has expertise and knowledge, which can be developed. They suggested many of the things that we have raised here: wind, smart grids, civil nuclear, CCS, and areas like that. The Grantham Institute, in evidence to us, identified certain sectors where we could develop projects, such as aircraft and spacecraft engines and turbines. Is there a policy now on projects? I hear what you said earlier, Minister, that we are very good and we have a reputation that goes back decades of expertise in developing policies and strategies, but what about the big projects? I will put my cards on the table here: I am worried that we are very good at talking and strategy, but along come the French and the Germans, saying, as we heard previous witnesses say, "We can put a package together", and the benefits go to other parts of Europe and the world. Are there certain priority areas that the UK plc, of which I am a member, is focusing on?

Henry Bellingham: The answer to that is 100% yes. In the past it is fair to say that UKTI was perhaps too reactive in its approach. It would look at high-value opportunities when they came along, but one of the things that Lord Green has been absolutely emphatic about-and, as you know, he chairs the Cabinet Sub-Committee on Trade and Investment-is that we now have a structured, commercial, diplomatic strategy and plan for every country, and we have one for China.

Q139 Albert Owen: For every-

Henry Bellingham: For every country, but particularly for the key target countries, for some BRICs. Within that zone UKTI will look at specific sectors, and not just specific sectors but specific UK companies. So what UKTI are working on for China on the energy low-carbon side, they will not just be looking at opportunities in China, which will obviously be coming down the track at a fast rate, they will be looking at UK companies that have expertise in that sector; indeed, not just the well known companies that we have heard of-the FTSE companies, the big power companies, some of the ones involved with wind energy-but some of the smaller suppliers down the production chain. So there is definitely a plan, not just for each country but for each sector, and it is now much, much more proactive. They are going out looking for those companies and trying to get them out there to see for themselves the opportunities.

Gregory Barker: I also sit on the Cabinet Sub-Committee on Trade and Industry, and one of the things that Lord Green has brought is focusing on big projects, so identifying what are the big infrastructure engineering projects.

Q140 Albert Owen: Give us some details here today because, with respect, I have been going to China even before the 1980s when I was in a previous occupation, and I have been back there over the last decade, and I have heard this said time and time again. We are at a critical edge here. We do have this expertise; we have had it for a long time. How does it translate into actual projects? I hear what you are saying in theory, the companies have been out there over the period and they have established themselves and they have respect. What are these priority areas, can you tell me?

Gregory Barker: I can’t, because it is not my Department, but only that-

Q141 Albert Owen: No, I am asking you and your Department, with respect, Minister-the wind, smart grid and civil nuclear. What are the big projects and exchanges that we are going to have and get results from very soon?

Gregory Barker: In terms of?

Albert Owen: The priorities that you have identified, which are wind, nuclear and smart grid.

Gregory Barker: We rely primarily on UKTI for commercial diplomacy overseas. We simply don’t have the resource in DECC to have a global industrial policy, and I see much merit in what you are suggesting but we have to be sensible about the resource that we have-

Q142 Albert Owen: I think I am being sensible as well.

Gregory Barker: What I was saying is what the Cabinet Sub-Committee will show is how the UKTI are identifying the big high-value opportunities, getting real detail on those and ensuring that the appropriate British companies-whether they engineering, or at whatever point they are in the supply chain-are aware of those, and proactively going after UK companies that would be relevant to those high-value projects in each given country, and I am sure that is the way that they proceed in China.

Henry Bellingham: What I can do, Mr Owen, is we can give you some examples. There is an example obviously around wind, where there is a cross-team initiative that is looking in real detail as to what the Chinese Government will be doing in future. Certainly, on current predictions, between now and 2020 they are going to be installing the equivalent of 16 times our offshore capacity. So what UKTI do is they have a core team who are looking at this, they are also looking at how we can leverage the project work to buy more influence and to build up more contacts.

What we will do is we will select four particular sectors, and we will write to you and let you have full details of how UKTI and the seamless team we have in place are being proactive, how they are targeting companies, smaller companies. UKTI-one of the things that Lord Green is passionate about-and he has made very clear on his Cabinet Sub-Committee on Trade and Investment-is that it is not just a question of going out into these countries and leading trade delegations, using UKTI on the ground and our diplomatic network to identify opportunities, it is also going round Chambers of Commerce, CBI events, local city and borough councils and talking to businesses in the regions. So the businesses there know what UKTI is all about and when there is an opportunity they will be got hold of, but we will let you have some examples.

John Ashton: Just one word on one specific example, because if one had to identify one area out of all of the concrete choices we could make, one area where there was the greatest potential going forward over the next five to 10 years, I would say it is carbon capture and storage. You have to have a rapid acceleration in the deployment of carbon capture and storage in China if you want to have a successful global response to climate change. The carbon numbers just won’t give you success unless you do that. The UK has expertise, world class expertise, right across the carbon capture and storage value chain and so there is an obvious kind of fit there, and we-

Q143 Sir Robert Smith: Why is it not one of the three target areas?

John Ashton: It is certainly an area in which the UK plc has been working closely.

Gregory Barker: The reality is we have to do more domestically.

Q144 Sir Robert Smith: The UK target is civil nuclear, wind and smart grids.

Gregory Barker: I think because at the moment there isn’t a commercial CCS industry the onus is on us to develop our projects here in the UK first, and only when we have a domestic CCS industry, or a nascent industry, are we in a position to export it. All of our efforts at the moment are in driving the CCS programme here in the UK, but we can’t export something that hasn’t happened here.

Q145 Sir Robert Smith: You say we are driving it. In 2005 we started talking about having a competition and we are still-

Gregory Barker: Unfortunately we were not much further advanced when we came into office in 2010.

Q146 Albert Owen: Has it been delayed further now?

Sir Robert Smith: When is it going to start?

Gregory Barker: Has it been delayed? No, it hasn’t been delayed further, no.

Q147 Sir Robert Smith: Are the criteria going to be announced?

Gregory Barker: Sorry, the criteria for?

Sir Robert Smith: For the next round. They were going to call for competition.

Gregory Barker: I would have to refer; I didn’t prep on our latest position on CCS domestic competition when I came here. I wouldn’t want to mislead you by giving an inaccurate answer.

Q148 Sir Robert Smith: Given the huge potential for CCS and the crucial role a lot the world is putting on it, it seems quite important.

Gregory Barker: It is, but at the moment it is really academic research and strategic engagement. What there isn’t, unlike civil nuclear, unlike the wind industry, unlike smart grids, is a shovel-ready export opportunity for CCS as there is for those industries. You can take a trade mission from Rolls-Royce and talk nuclear. You can take a trade mission from a number of companies that are very active in the supply chain and the smart grids. You can take a trade mission from a whole range of companies that are active in the supply chain for wind. You can’t do that on CCS at the moment because we are not at that stage of development; I expect that to change in the coming decade.

Q149 Chair: We understand that point, but it is difficult not to agree strongly with Mr Ashton about the potential for CCS.

Gregory Barker: We do agree very strongly.

Q150 Chair: What the Committee have trouble with is saying "Is that urgency reflected now in DECC’s handling of the CCS issue?" I know this is not primarily about that but it is an area we have a lot of interest in. We have had a lot of exchanges with you, and with your Department, and we have a concern that now the funding is drifting back to Parliament it has to wait until after 2014; the companies have been pulling out of experiments. There seems to be slippage-to put it no more strongly-on the CCS timetable, and it now raises the question that in the UK maybe CCS on gas is the priority but the market in China may be CCS on coal.

Gregory Barker: That is an interesting observation. We wouldn’t see it as being an either/or. It is not a binary choice. You are quite right to say that CCS on gas is increasingly important, certainly for the UK. Really we see it more either pre- or post-combustion CCS rather than just gas or coal. The CCS programme in the long term, as Ambassador Ashton said, is an absolutely vital tool, but in terms of our immediate priorities what we are able to get on with in terms of shovel-ready projects, it is just a question of timing. It is not a question of the overall role it is going to play in our strategic response.

Q151 Sir Robert Smith: Is there a feedback loop at all, say, in looking at UK developments in the low-carbon agenda and saying what are those areas where if we got our act together quickly we could steal a march in the global market?

Gregory Barker: Are you talking industrial gas? You are not talking about policy; you are talking-

Q152 Sir Robert Smith: When DECC is looking at policy for low carbon in the UK are we feeding into that those areas where it might be possible to steal a march on-

Gregory Barker: I think the most immediate is offshore wind. We are rapidly becoming the dominant player in large scale offshore wind. Going further into the future, we remain-but it is a nascent industry-the leading player in wave and tidal, and we have in put a lot of effort since coming into power. I have led the creation of the Marine and Energy Programme Board, and the creation of Britain’s first Marine Energy Park in the south-west. We are looking at the creation of another one in Scotland in order to speed the deployment, at scale, of a range of technologies in wave and tidal.

In the longer term, we think CCS is going to be a global beating industry with commercial opportunity for the UK. That is obviously a bit further out but there are three examples. Smart grids is something where we already have an economic advantage, and as we roll out what we like to call an electricity internet here in the UK that is going to give us a commercial advantage as we become a showcase for what is achievable.

Energy efficiency-we are transforming the UK domestic market with the Green Deal. We believe our EMR proposals, which are going to bring in large-scale investment opportunities for interventions in industrial energy efficiency, will be a further spur to that market, so I think we have to see this as being the case across the whole clean energy space.

You have to show a real appetite for these products in your own domestic market if you are going to get export share.

Q153 Chair: We take that point absolutely. Did you want to say something about CCS, Mr Ashton?

John Ashton: The Minister has covered everything that I would have said.

Chair: We are running right out of time now I think. Ian, can you just wind up?

Q154 Ian Lavery: Very briefly, the 14th China-EU Summit took place on 14 February this year, and a number of low-carbon initiatives were agreed at that summit. What do you think are the best initiatives that the UK is best placed to deliver or possibly contribute to?

Henry Bellingham: Is this the EU-China Summit?

Ian Lavery: Yes.

Henry Bellingham: Yes indeed. As you know, on the EU-China Summit, the idea was to upgrade the EU-China energy dialogue to a full high-level meeting. That is going to take place in June this year, which is important.

Q155 Ian Lavery: We are talking about a different summit. The 14th EU-China Summit, which was held in Beijing on 14 February.

Henry Bellingham: Yes, indeed.

Ian Lavery: It was held to discuss a number of initiatives with regard to low-carbon initiatives, which included carbon capture and storage.

Henry Bellingham: It does, and in fact there has been agreement to enhance the dialogue around domestic policies and share experiences of specific climate change legislation. We, the UK, have made a renewed commitment to co-operate on carbon capture and storage and also to look at practical co-operation on the emission trading system. One thing I would say, Mr Lavery, is that because we are seen in the EU as being probably the country with the closest contacts with China, with a team in place that are making the biggest difference, this is one area of UK involvement with the EU where we are absolutely in the lead. That doesn’t always happen, as you know, but we are regarded by our EU counterparts as being the country that is the one to turn to as part of the EU-China dialogue. That is important. What we will do is we will look at these specific commitments as part of the basis for evaluating bids for some of the practical projects going forward. Do you want to add anything to that, Ambassador?

John Ashton: One of the specific issues that were discussed in the EU-China Summit was China’s interest in developing emissions trading, which we have touched on already. China rightly sees the EU as the leading example of an emissions trading scheme, which has had its ups and downs over the years and is by no means close to a perfect state yet. We, as Europe, can play a very important role in helping to give confidence to those in China who want to establish a cap and trade regime in China. The significance of that debate in China can’t be overstated.

If you had asked five years ago whether China or the US would be first to set up a functioning national emissions trading scheme, most people would have noted that the politics in the US were difficult but they would have said China is never going to do it before the US. It is really significant now that you are seeing that China is ahead of the US in its consideration of emissions trading nationally, and there is a UK fingerprint and an EU fingerprint on that, and the work going forward under that EU-enhanced dialogue will be terribly important in that area.

Q156 Ian Lavery: Just very briefly, has there been any progress on the emissions coal agreement? Where are we with the project?

James Hughes: The UK initiated the near zero emissions coal project back in 2005, and the first phase was completed in 2009. That concluded that carbon capture and storage could provide a cost-effective option for emissions abatement in China. It then became something that the EU have run with. However during the last Spending Review the decision was taken that there wasn’t funding in the UK to continue with further phases of that particular project, so we haven’t been taking that forward.

John Ashton: May I add a word to that? What has happened in the meantime is that the Chinese have started to put really significant amounts of domestic funding into carbon capture and storage, and when that project was first conceived of there was no proposal to do carbon capture and storage even at a pilot stage in China. I was involved in it at the time. The purpose of it was to open up CCS as an issue.

What you now have is half a dozen projects that are being funded largely by China itself, so the context has changed a bit for that project.

Q157 Ian Lavery: The agreement in 2005 was to develop and demonstrate CCS with China and the EU, and initially it was thought to have a demonstration plant by 2020, then it was revised to 2015. The question basically is, "Where are we at?" I am a little bit confused from what Mr Hughes says about that the Spending Review withdrew the funding for the other projects.

James Hughes: The UK’s contribution to it. My understanding is that Norway is putting some money into that EU project, but I am not entirely clear what the timetable is for taking that further.

Q158 Ian Lavery: Would you be able to clarify that?

James Hughes: Yes.

Q159 Sir Robert Smith: They are coming a long way on emissions trading, but with five pilots the timescale for a national scheme doesn’t seem to have enough feedback to learn from the pilots. Are they going to be able to get a robust emissions trading scheme that we can integrate with?

John Ashton: What we have learned from our own experience in Europe is that building an emissions trading scheme across a large economy is an enormously complex thing to do. It is dangerous to make absolute predictions. What we will do in the UK and what Europe will do is to do everything we possibly can to help them build a robust scheme, to the extent that they are interested in our help. We are all learning as we go along because we have never created a scheme like this from scratch, and there will be enormous challenges in China in making sure that there is enough learning in the way that they develop this nationally. In some ways, the proof of the pudding will be in the eating, but I think it is very encouraging that they know that and despite that uncertainty the momentum seems to be building.

Chair: On that upbeat note, let us conclude. Thank you very much indeed for your time, and we will take careful note of what you said when we produce our recommendations.

Prepared 24th May 2012