CORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 638-i

House of commons

oral EVIDENCE

TAKEN BEFORE THE

Energy and Climate Change Committee

Inclusion of international aviation and shipping emissions in carbon budgets

Tuesday 16 October 2012

David Kennedy

David Kennedy, Andrew Herdman, DR Andy Jefferson,
David Balston and Dr Keith Allott

Gregory Barker MP, Rupert Furness, Emma Campbell,
Dr MaTthew Webb and Ross GribbIn

Evidence heard in Public Questions 1 - 90

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 16 October 2012

Members present:

Mr Tim Yeo (Chair)
Dan Byles
Sir Robert Smith
Dr Alan Whitehead

_______________

Examination of Witness

Witness: David Kennedy, Chief Executive, Committee on Climate Change, gave evidence.

Q1 Chair: Good morning David. Welcome to the Committee. We are split into three sessions this morning, so we will crack straight on. Would you like to set out the reasons for the Committee’s recommendation that aviation and shipping emissions should be included in both the carbon budgets and the 2050 target?

David Kennedy: Yes, okay. Good morning everybody. For us this issue is not a significant change from the status quo; it is really an accounting tidy-up. The way we have approached this issue is that we have always assumed that international aviation and shipping emissions are in the 2050 target. We have designed the carbon budgets to be compatible with that assumption so including aviation and shipping emissions now in the carbon budgets just formalises the approach that we have always adopted. Doing that improves the certainty and it gives us a comprehensive accounting framework. It does not involve any extra cost, it does not involve any extra commitments. If that is the case-there are clear benefits, there are no costs-why wouldn’t you do it?

If you can allow me to talk in a bit more detail about both things. The point about the 2050 target is, if you remember how we came to that, we said that there is a climate objective that was discussed as the Climate Change Bill went through Parliament. For that objective, we said, "We should be trying to keep temperature central estimates as close as we can to 2 degrees C, but we are very worried about very dangerous climate change". We gave an example of very dangerous being 4 degrees and more. We said we should be trying to keep those very dangerous climate change probabilities at very low levels. Then we said, "What are the global emissions pathways that would achieve that objective?" The answer is it is about a 50% cut in global emissions in 2050. We then said, "What does that mean for emissions per capita at the global level?" It means that you get about 2 tonnes of emissions per capita at the global level. We then said, "It is hard to see how you can be any higher than the global average in the UK. Which kind of deal would allow us to be higher, in which case somebody would have to be lower?" We said, "We use 2 tonnes as the basis for the target in the Climate Change Act," and that is where the 80% target came from.

We were very clear at that point that an 80% emissions reduction can only contribute to that climate objective if it includes international aviation and shipping emissions. If it does not include those emissions, if they are in addition to an 80% emissions reduction across the rest of the economy, you would not achieve the climate objective that we have discussed, so we were very clear. We said on that, either you can have an accounting framework that includes aviation and shipping and has an 80% target or, the alternative, if there is a reason, at least for an interim period, not to include aviation and shipping emissions formally in the accounting framework, if you want to look at the other sectors of the economy, bearing in mind aviation and shipping are unlikely to be able to reduce emissions by 80%, you would be looking at a bigger emissions reduction for the other sectors. So that was very clear advice from us.

If you think about how the Government of the time and Parliament accepted that advice, Ed Miliband made a speech to Parliament on 16 October 2008 where he talked about our advice, and he specifically mentioned aviation and shipping emissions and said the Government accepts all of the recommendations of the Committee on Climate Change. That was understood, certainly by us, but I think by others as well, to include accepting our advice on aviation and shipping emissions in the 2050 target. The Climate Change Act was designed in a way to reflect that advice, not that we have an 80% emissions target-it says, "It is at least 80%." That allows you then to exclude aviation and shipping emissions from the accounting framework and work with an 85% target for the interim period and then, if and when we bring in aviation and shipping emissions to the accounting framework, it becomes an 80% target for all of the sectors, including aviation and shipping. That is the way that the Government has acted in the meantime. If you look at the Carbon Plan, for example, that was published in November last year, the modelling and the scenarios there work towards an 85% emissions reduction for all of the other sectors of the economy, so totally compatible with the advice we gave. That is why I say the status quo is that an 80% target for 2050 has to include aviation and shipping emissions.

If we turn that around, if anyone were to say, "Actually, we don’t want to include aviation and shipping emissions in the 80% target, we don’t think that is a sensible thing to do," we have to be very clear that is a significant change in the status quo, first of all. Second, it is a significant lowering of ambition under the Climate Change Act, so that we could no longer say the target in the Climate Change Act is compatible with the climate objective that it was set out to achieve. It would leave us with an ambition in the Climate Change Act that is incompatible with the commitments we have made on climate objectives in the context of the EU and the United Nations. We should be very clear, the 2050 target for us is non-negotiable, aviation and shipping emissions are very clearly in, and if anyone were to say they are not in that is a very significant change. We should all be clear that it would leave us unable to achieve the climate objective. The debate for us is all about whether you put a number into the carbon budgets or not.

Q2 Dan Byles: Forgive me for asking you to repeat something, but I just want to understand this. If, in the interim, aviation and shipping is not in, you cap it at 85% for the rest of the economy in order to hit 80% overall. Is that effectively what you are saying?

David Kennedy: Yes. It is maybe easier to think of it in terms of millions of tonnes. For us, there is a limit on the millions of tonnes of emissions in the UK economy in 2050, and it is about 160 million tonnes of CO2 equivalent, of which we think about 40 should be set aside. We have always thought that it should be set aside for aviation and shipping, leaving about 120 for the rest of the economy. If you look at the emissions in the rest of the economy and take those down to 120 that gives you about an 85% emissions reduction on 1990 levels. The full envelope of emissions in 1990, including aviation and shipping down to 160, is about 80%.

Q3 Dan Byles: You then said that we will not hit our higher objectives if aviation and shipping are excluded. Are you making a difference between interim and long term there?

David Kennedy: No. If somebody said aviation and shipping emissions should not be included in the 2050 target, the 80%, effectively what you would be saying is there is 160 million tonnes for the sectors-not aviation and shipping-plus some additional amount for aviation and shipping, so total emissions would be 200 million tonnes, not 160. That is why you can’t meet your target, because your emissions in 2050, and on the path to 2050, would be too high.

Q4 Dan Byles: Have you calculated, if you were to completely omit aviation and shipping going forward and let it do its own thing, what the targets would have to be on the rest of the economy in order to still achieve our climate change? Are you saying it is not possible, or would it be possible?

David Kennedy: We think you can get emissions in the rest of the economy down to 120 million tonnes. We think you can get aviation and shipping emissions down to about 40 million tonnes. So you can tell a very good story about how you can get within that 160 million tonnes envelope, the 80% emissions reduction. If you are saying if you have unfettered emissions growth in aviation, for example, could you then-

Q5 Dan Byles: You are saying it would be impractical or impossible to offset that from the rest of the economy?

David Kennedy: I think it is certainly difficult. You would not say getting aviation and shipping emissions together back to 2005 levels is set in stone, and if you are slightly above it then you could never meet the target, but if you depart very significantly you can’t tell a plausible story about how you would get economy-wide emissions within a limit that is compatible with the climate objective that we have agreed here.

Q6 Sir Robert Smith: If your recommendation was accepted, would there be any new policies required to meet the revised budget?

David Kennedy: No, we have been very clear about that. The status quo fits in the 2050 target anyway. If it is the status quo then you do not need new policies because we are already working in that context. If you think about the carbon budgets, what we have said is that the carbon budgets for the other sectors of the economy, not aviation and shipping, are designed to meet a 2050 target that includes aviation and shipping. They do not need to be tightened as you bring aviation and shipping into the formal accounting framework, so there is no implication for the rest of the economy. What we have said is, for example, the number for the fourth carbon budget in the secondary legislation is 1,950 million tonnes of CO2 equivalent over that five-year period 2023 through to 2027. That number would stay for those sectors. It would not get tighter so there would not be any cost or any need for new policies. What you would do instead is add in an amount for aviation emissions, and an amount for shipping emissions. We have said you would add in an amount for aviation emissions that reflects the EU ETS cap for aviation, and you would add in a projection of shipping emissions under the IMO policy.

There is a question, "How confident can we be about aviation in the EU ETS?" and I think that has changed the degree of confidence we can have since we gave our advice a few months ago. You have seen the challenges from China and from the States, for example. For us that does not question that you should bring them into the carbon budgets. It does raise a question about the appropriate timing of adding this number in, and the choice you have there is whether you want to add in a number now that reflects the EU ETS cap, which may change, in which case you would then change that number in the future, depending what happens with the EU ETS and the global aviation agreement, or whether you wait, and say, "We accept the principle that we should add a number into the carbon budget to reflect aviation emissions but because of the high degree of uncertainty we will not do that until there has been a resolution," for example, with a global agreement proposed by ICAO that is scheduled for next year? I think there is a debate to be had about the precise timing but the principle should be very clear and everybody should sign up to it that these should be in the accounting framework. If we include on the basis of the EU ETS cap, you obviously do not need any new policies. Your policy is the EU ETS and you are not saying we need domestic aviation taxes in addition to EU ETS to limit emissions within the carbon budget because EU ETS will limit emissions naturally just by its design.

Q7 Sir Robert Smith: So from your perspective, DECC’s Carbon Plan in effect has aviation and shipping assumed into it?

David Kennedy: Absolutely, in the 2050 target. If you look at the 2050 pathways, which are for the other sectors of the economy, those are all aiming towards a limit of 160 million tonnes or thereabouts, which includes aviation and shipping and takes those out and says the rest of the economy has to fit within the limit of about 120, which is exactly the way that we have always thought about it and, as I say, it is the way we recommended initially and it is the way the Government and Parliament accepted as well.

Q8 Sir Robert Smith: Are you saying the alternative option, if you then abandon having aviation and shipping, is an 85% target.?

David Kennedy: There are different things you could do. You could say we are going to have an 80% target and it does not include aviation and shipping emissions. I have said if you did that you would not have an appropriate level of ambition, you could not achieve the objectives. Better for us to say it is 80% including aviation and shipping, which if you don’t want to bring those in for the time being to the accounting framework effectively means 85% for all the other sectors, given that aviation and shipping are not going to achieve an 80% reduction.

Q9 Sir Robert Smith: Do you think that is less desirable than 85%?

David Kennedy: We just think it is better to have a comprehensive accounting framework that covers all of the sectors that have an impact on climate change. Why wouldn’t you bring aviation and shipping emissions in? You could say the same thing about the power sector-why not keep that out? It is a major source of emissions and it should be at the centre of what we are thinking about. Aviation and shipping emissions are only a small proportion of total emissions at the moment, but over time they will become potentially a very significant proportion, more than 25% of allowed emissions in 2050. Why would you have them outside the accounting framework? Bring them in, tell everyone you are bringing them in, let’s be clear on the set of things we are thinking about. The approach that says let’s just change the target in the Climate Change Act to 85% and keep aviation and shipping outside I think is a messy solution.

Q10 Chair: Are you confident that the Government is going to accept your recommendations?

David Kennedy: I don’t know about the discussions that are happening across Whitehall on this. I think we have set out a very robust case for inclusion. I haven’t seen any arguments against inclusion. Certainly, there aren’t any arguments that are evidence-based around changing the status quo on the 2050 target to say it is now appropriate to lower our level of ambition in the climate objective. As I say, there is an issue about what is going to happen with the EU ETS that could lead them not to accept the advice as we specifically gave it several months ago, which says put a number in now. I think there is a debate to be had about the timing of inclusion and whether you put a number in now or say, "We are going to put a number in and we will do it by this time," expecting that the uncertainty is resolved in the EU ETS? I would be very disappointed, given where we are, given that this does not involve costs, given that it only has benefits, if the Government were not to broadly accept our advice in the sense I have just described. It is very clearly in the 2050 target and it should be in the carbon budgets, and either it will be now or it will be in the near future.

Q11 Dr Whitehead: The problem is, I think, that the Carbon Plan quite clearly states in its headline that, "In the next 10 years we will develop and deploy the technologies that will be needed to halve emissions in the 2020s. This will put the UK on a path towards an 80% reduction by 2050". The whole of the Carbon Plan relates to the assumption that we are working within the Carbon Plan towards an 80% reduction, but what you are saying is that, effectively, in the first three carbon budgets there is an implicit assumption that it is really 85%.

David Kennedy: The first four carbon budgets, yes. If you look at the detailed modelling for the carbon budgets, it is working towards that 85%.

Q12 Dr Whitehead: Might you suspect that some people might not have looked at the detailed modelling and may think that it really is 80% all round, and the fact that we are secretly on a trajectory for 85% for those areas that are not within aviation and shipping is a bit of sleight of hand?

David Kennedy: All I can do is go back to our original advice, which was extremely clear, go back to Ed Miliband standing up and saying he accepts the advice, including on aviation and shipping, and the way that the Climate Change Act was designed, that it was not an 80% target, it was at least 80%. I would expect that if the Government is paying attention to what it is setting out as its carbon strategy then they will be fully aware of the modelling that was done there.

Q13 Dr Whitehead: Would you accept that for speeches from a rostrum point of view, this particular issue of the idea that this would have no cost because of the inclusion in the first four carbon budgets of that metric of at least 80%, meaning 80% plus, meaning 85%, is rather difficult to attach to the rostrum?

David Kennedy: I agree that it is technically complex, but if you put it a different way, there is, and has been, a lot of discussion of what is the appropriate climate objective, and people are signed up to that. If you go back to the EFRA Select Committee that had a discussion and did a report on the climate objective back in I think it was 2009, after we did our first report, it said if anything the climate objective that we were working with was not stringent enough and we should look at an objective that gives us a higher probability of keeping central estimates of temperature change below 2 degrees. Putting aside the technical complexity and focusing on the climate objective that everybody has signed up to, to now say we are excluding aviation and shipping, effectively what you are saying is we are no longer keeping the climate objective to the extent Parliament has had a detailed discussion about and suggested was not ambitious enough. You would be going in the other direction. People can get their head around that. Is now the time to lower climate ambition, to expose ourselves to increasing risks of dangerous climate change? I don’t think there is any evidence that says we are not as worried about the science as we were, for example. There is not any evidence that says the Stern Review pushes in this direction and now we are rowing back on that.

Q14 Dr Whitehead: The metric for inclusion of aviation and shipping, as you say, is based on two assumptions: firstly, the UK share of aviation emissions under ETS assumptions across the EU; and secondly, the IMO’s metric of shipping emissions. Perhaps I could cite the precedent of how you define the green tax to put forward a different metric for measuring the UK’s emissions under aviation, for example, especially since there is more than a distinct possibility that ETS may itself be recalibrated past 2020. Are you happy that the metric for putting aviation in, in particular, is as robust as it looks?

David Kennedy: I think we are, and things have changed. The reason we said in the first place that aviation could not be in the carbon budgets is because the way that the EU ETS cap was going to be allocated from the European level to the country level did not make sense. We were going to end up with most of the European emissions allocated to the UK, and it would be silly to account for that under the Climate Change Act. What happened since 2008 was they developed the methodology for allocating emissions across countries and now it is a sensible basis. It is basically on a departing flights basis, or at least you can work from the European cap to a departing flights basis. We think that is sensible.

If you look at the accounting convention under the Act, if a sector is subject to a cap then it has to be accounted for on the basis of the cap. You could not do it on a different basis that looks at the gross aviation emissions, for example, and does not net off the purchase of European Union allowances. If you think about the way we have approached the power sector, we have said that the power sector again is capped in EU ETS. It doesn’t mean we don’t think about the gross emissions though. We have discussed many times with this Committee the power sector decarbonisation story that is central to economy-wide decarbonisation, even within a capped sector. The fact that you bring aviation into carbon budgets on the basis of the EU ETS cap doesn’t mean you forget about them and you don’t care about what the actual gross emissions are. That is something that we would look at in our annual reports to Parliament, as we already do actually and as we do for the other sectors that are capped, like the power sector and energy intensive industries.

Q15 Dr Whitehead: I think my point though is, let us say we are using those two measures as the basis on which we put emissions into UK targets, and yet other countries may not have the same mechanisms we have in terms of any targets they might have. If ETS itself changes its impact over the period or, for example, people look at the IMO, which I think is working on half journeys, effectively, and say that it is not the right measure, that it is flags or it is bunkering or whatever, how would you respond to that? Do you think those measures for putting aviation and shipping in are sacrosanct, or might people say, "Well, actually, yes, we are very keen on putting aviation and shipping in, but on an entirely different series of measures", which it so happens might be rather less onerous for the UK than might otherwise be the case?

David Kennedy: There is an appropriate basis for inclusion now. If you take aviation and you look at the EU ETS cap, it works out at about 35 million tonnes every year for the UK, so you would add in five lots of 35 to each of the carbon budgets two, three and four. If the EU ETS changes significantly in design, for example if it only related to EU aerospace, in which case net emissions effectively would be higher because you would not be offsetting those emissions outside the EU aerospace, you would need to put a different number into the carbon budget to reflect that change in the metric. I think we have said for shipping at the moment that you can only do it on a bunker fuels basis, and you could do it on the basis of the IMO’s current policy, which is the Energy Efficiency Design Index. But if that changes, for example if we are able to get an activity-based metric that better reflects UK shipping emissions and if the IMO, we hope, will come forward-I know you have looked at this-with market-based measures that are more crunchy and go beyond the Energy Efficiency Design Index, you would look at the number you have there and you would change it to reflect that change. There is the flexibility in the Climate Change Act to do that.

Q16 Dr Whitehead: Except that we have already banked, in the first four carbon budgets, an implicit assumption that there will be 85% reduction in emissions elsewhere. Therefore, that is compensated by the inclusion at no extra cost of aviation and shipping on the present metric. If that metric were to be changed, the banking would not be relevant, would it?

David Kennedy: I am not sure I understand the question. If we think about it a different way, if we are working towards an 85% target because we have made an assumption on what we think will happen to aviation and shipping emissions in the longer term, and if policies change there-so, for example, depending what ICAO proposes for a global agreement and we find that either aviation emissions will be higher or lower than 2005 levels in 2050-that would raise a question then about the design of the carbon budgets for the other sectors. We have been very clear there.

Q17 Dr Whitehead: All I am trying to do is to tease out what I think is the essential question, which is whether we are saying we include aviation and shipping in the overall targets, and we can do that because effectively we have been working as if it were in the overall target when we have been calculating everybody else’s target, therefore there is no extra cost. If the assumption that we made, that it should be included in the target and therefore have been working towards as far as the first four carbon budgets are concerned, turns out in numbers terms not to be correct in terms of a re-measuring of the metric for aviation and shipping, then clearly you could conceivably say that there would perhaps be a cost, or alternatively it might mean less cost, depending on what your metric changes.

David Kennedy: There is a set of things that you do in the non-aviation and shipping sectors that are independent of what your aviation and shipping emissions are in the first four budget periods. You can change the metric there; you can change the number in the carbon budget. You don’t change what you do for the other sectors so in that sense there is never any cost for the other sectors. If you change your long-term assumption about where you think aviation and shipping are going, that has implications for what the rest of the economy is doing in 2050.

Q18 Dr Whitehead: Surely logically, though, if we have been, and we are, working on the first four carbon budgets on the basis that, let us say, that 5%, which is what we are potentially overachieving on as the target, i.e. a trajectory towards that target, actually turns out not to be that, because the measurement is different, then you have done things that subsequently might turn out not to be necessary and therefore the cost might be greater than you might otherwise think.

David Kennedy: If you are changing what you aim for in the longer term, that has implications for what you do in the near to medium term. That is true. Again, you can’t exclude aviation and shipping from what you are trying to do in the longer term.

Q19 Dr Whitehead: I am just trying to establish the veracity of the assumption that it is nil cost.

David Kennedy: If there was a very significant change, for example that we were to start thinking that aviation and shipping emissions were going to be a lot lower in the longer term, which means that there is more scope for higher emissions in the rest of the economy, which could raise the question whether you take your foot off the pedal in the first four carbon budgets, if you look across the range of plausible scenarios, given the abatement options in aviation and shipping, you are not too worried about that. There aren’t plausible scenarios where you have a massive reduction in aviation emissions. You can make significant reduction in shipping emissions but it is not such a big share of total emissions anyway. I do not think that you are worried that we have gone too far and that we are going to find something out about aviation and shipping in the future that we are going to regret. We have gone this far. You do need the flexibility to tailor this at the margin, but that is all it would be. It is a marginal adjustment, it is not a fundamental thing.

Chair: I think at this point we ought to move on to the wider panel, which I think you are staying for, for the next immediate period. Can I invite the other four panellists please to come up.

Examination of Witnesses

Witnesses: David Kennedy, Chief Executive, Committee on Climate Change, Andrew Herdman, Board Member, Air Transport Action Group (ATAG), Dr Andy Jefferson, Programme Director, Sustainable Aviation, David Balston, Director of Safety and Environment, UK Chamber of Shipping, and Dr Keith Allott, Head of Climate Change, WWF-UK, gave evidence.

Q20 Chair: Good morning and welcome to the four additional panellists. We are fairly tight for time, so I will not go into full formalities like introductions. We know who you are, you know who we are, and we have a common interest in the discussions.

Could I start by asking you whether you support the Climate Change Committee’s recommendation to include aviation and shipping in carbon budgets and in the 2050 target? I am assuming that you probably do.

Dr Allott: Yes, we fully support the proposal to include aviation and shipping. Section 10 of the Climate Change Act gives a clear expectation that aviation and shipping needs to be taken into account in setting the carbon budgets and, as we heard, the carbon budgets have been set on that basis, so it makes perfect sense to tidy up the arrangements and make this consistent and coherent across the whole economy. We heard a bit of a discussion about whether there would be additional costs but there are no significant additional costs from this, because their units, in terms of the accounting, have just be marginal. The biggest error would be not including them and then a step change to include them at a later date. Conversely, we can see no credible basis to exclude aviation and shipping from the carbon budgets unless the intention, if we are ever maybe proposing that, would be to weaken the Act and the ambition of the carbon budgets now or further down the road, which we think would be completely untenable.

David Balston: We also completely support the inclusion of shipping in UK targets and budgets. I think it is a complete and unhelpful anachronism that we have not been to date. I don’t think it helps our arguments, I don’t think it helps our position not to be. Shipping is doing a lot to address emissions-we are already by far the most carbon efficient means of transportation of freight-but we can clearly do more, and I think being included in these targets will help us to demonstrate what more is being done, so I think it is entirely helpful. As David said during his evidence earlier on, it would be like not having the power sector in the targets and budgets. It makes no sense at all not to be included, so we support it.

Dr Jefferson: We are a world-first coalition across the industry of UK airlines, airports, manufacturers and air traffic control companies. Our view is that we do find the views of the CCC report acceptable for ourselves going forwards. There are a few issues or concerns we would have to just caveat that. Firstly, we believe that we do need to strive towards a global emissions trading scheme as the right solution for the aviation industry. Clearly we have the EU ETS at the moment, which our airlines have all legally signed up to here in the UK. There are concerns at the moment, as Mr Kennedy has expressed, around the ETS system, the issue with China and the US, which do need to be resolved and we would call on Government to continue to work with the industry to push for that rapid move towards a global solution, with EU ETS as a good starting point.

Just on another point, there is a slight nervousness from our industry around will this inclusion and finding of the CCC report lead, perhaps, in the UK to some kind of unilateral measure. That is certainly something that we would not be seeking to support here in Sustainable Aviation. The reason for that is that we believe that would lead to actual carbon leakage. If we imposed specific targets on the UK aviation industry that led to price differentiation for passengers to fly on flights, we believe they will make the choice and go to a European hub rather than out of a UK hub. So there is market distortion. There is also carbon leakage because effectively you are moving the carbon from the UK to Europe. You are not taking carbon out of the system, which is what we want to try to achieve.

Andrew Herdman: The Air Transport Action Group is a trade association representing aviation, airlines and aerospace manufacturers worldwide, so I bring a rather international perspective. I can see what the Committee is trying to do, to tidy up the accounting, and I take no particular issue with that. I think we need to look into what the implications are. If the target has not changed and the overall cost has not changed, that does not mean to say that certain players in the schemes will not feel that the stringency of the targets are being changed. Essentially, the inclusion of aviation and outsourcing the policy stringency to the ETS means that you are going to put more pressure on to the carbon price and raise the costs for other non-aviation shipping sectors, and you may get some pushback from them. Telling them that it has always been part of their targets and they should be aware of it may not wash with them.

The other concern I have is to iterate what Dr Jefferson said, which is this is a global industry, it needs a global policy framework. The UK is a big, heavy hitter in terms of aviation, it contributes about 6% of global aviation, but that share in a market that is expected to grow significantly is going to fall and most of the growth is going to come from the part of the world I am more familiar with, which is Asia’s rapidly growing markets. So the challenge for addressing aviation emissions at a global level has to be addressed globally. It needs to address the expected rapid growth of aviation around the world, and particularly in the rapidly developing markets. The challenge for ICAO has been to grapple with that and we know it has been difficult but the work is ongoing within ICAO. ETS has attracted a firestorm of criticism and pushback from other states. I think it is rather a flimsy bridge to use to think you can include the targets on the basis the ETS has taken care of it. Since the ETS is in dispute, as I say that may fall away. I would be cautious about the timing. Even if you buy the arguments about accounting tidiness, I would be cautious about trying to put it in at this juncture, given that there is a lot of uncertainty about the EU ETS and there is still a lot of uncertainty about what form an ICAO global scheme would take.

At the crux of that, this question of the attribution of international aviation emissions is difficult. That is why it was excluded from Kyoto 2.2, and it is why ICAO is still discussing should it be on domicile, should it be on departures, and so on and so forth. The accounting and accountable entities and the allocation of those emissions is at the nub of trying to structure some sort of global agreement. The ETS took one approach but they overreached, it is round trip, it is everything within to and from. As far as foreign carriers, non-EU carriers, are concerned, the EU ETS made a further added complexity because we do not report on a departures basis. Foreign carriers are allocated to an administering state, based on where they fly most frequently in Europe, so it is even more arbitrary. You may be allocated to Germany, you may be allocated to the UK, or you may be allocated to the Netherlands. From our foreign carriers’ perspective, we view this with some concern that there may be some over-simplification in terms of where things are today compared to where they were three or four years ago when the initial decisions were taken. Park it if you like to the side; the question is are the arguments really that conclusive? I would argue not.

Q21 Chair: It is possible of course that the glacial progress of the ICAO over the last 15 years has led the EU ETS to bring forward its own proposal, some would think quite courageously, but that is probably outside the scope of our inquiry this morning. Do you all think that the Government is going to accept the recommendation of the Climate Change Committee?

Dr Allott: I sincerely hope so. As I say, we have yet to hear any strongly stated arguments against why they should not do so. We are aware that there are certain circles within Government who are asking questions and potentially opposing this. This is concerning for us.

Q22 Chair: Who have you got in mind?

Dr Allott: I think some of the Departments that have, in other areas, perhaps been resistant to some other recommendations.

Chair: Don’t be afraid to name them in this Committee.

Dr Allott: This Committee has previously had some interesting attempts to have exchanges with the Treasury on other aspects of implementation of the Climate Change Act. I would not be at all surprised if you found that there was some resistance in those quarters. But the question here is about what is the good faith of the Government in terms of commitment to the climate ambition enshrined in the Act and to staying below 2 degree warming, which we have signed up to at EU level and now internationally in the context of the UNFCCC. As David said, the existing carbon budgets and approach that the Committee on Climate Change has taken is, if anything, conservative. Firstly in terms of the metric, it is not aiming at staying below 2 degrees with any degree of confidence. Excluding aviation and shipping from the 80% target would significantly reduce that to a very small chance of staying below 2 degrees. The Committee on Climate Change has then taken an approach based upon convergence of per capita emissions, in particular by the year of 2050, which from most other parts of the world would ignore concerns about equity and about other ways of fairly sharing out the global carbon budget, which is rapidly dwindling.

When you add that to other areas of concern over the strength of the Government’s implementation of the Climate Change Act, the decision so far not to raise the ambition of the interim carbon budgets to the intended level, the welcome acceptance of the fourth carbon budget proposal, but then the inclusion of a 2014 review cycle for that, and several other important recommendations from the committee, including 2030 decarbonisation of the power sector, all of which are the subject of intense debate, one has to paint an overall picture where there is some serious concern about the commitment within all levels of the Government to delivering what was a very ground-breaking bit of legislation agreed with a strong cross-party consensus only four years ago.

Q23 Chair: Does anyone else have a comment on that? Don’t feel obliged to do so.

Dr Jefferson: From Sustainable Aviation’s point of view, as we said, we find the recommendations of the report acceptable as long as they are delivered through an effective emissions trading scheme, preferably globally. The EU is a good first step. I would also draw the Committee’s attention, if they have not already seen it, to the carbon roadmap produced by Sustainable Aviation, which lays out our thoughts and views as to how we can decarbonise aviation going forwards to 2050 through new aircraft technology, working with new engine technology with Rolls-Royce and others. I think there is also good thoughts put forward on how we incentivise and deliver on that roadmap, with support from Government as well. We would certainly be looking for Government help and commitment around things like single European skies, and clearly and obviously the international trading scheme, as well as the recommendations that have been put.

Q24 Sir Robert Smith: From the evidence so far then, if shipping and aviation are included as suggested by the CCC, does that result in any additional costs for those specific sectors? Obviously with shipping you have welcomed the inclusion, so presumably you do not see-

David Balston: Shipping itself, as I mentioned earlier on, is already making very large strides towards trying to reduce its emissions in any event. I think that yes, we do welcome the measures. We do not see a specific cost coming to us per se from these recommendations, but within the IMO itself, and we totally share the view of aviation that any measure that is brought in should be global rather than regional or national. Therefore we are very strongly supporting any work done within the IMO. Only a year or so ago we saw the introduction of the EEDI, the Energy Efficiency Design Index, and the mandatory carriage of a Ships Energy Efficiency Management Plan, SEEMP, both of which come into force next year and both of which will undoubtedly make strong reductions across shipping. But there can be more that can be done, and undoubtedly, as mentioned before, we need to move into crunchier, as David described them, MBMs, market-based measures. We very much hope that is the way it is going to go. We very much hope they will be IMO-driven market-based measures, rather than either EU or UK, for such a truly international industry.

David Kennedy: If we said we think the EU ETS is insufficiently ambitious, or the Energy Efficiency Design Index is not sufficiently ambitious, which actually we do think, and then we said, "Let’s go for a unilateral UK approach to aviation or shipping," there would be costs associated with that, but we totally agree with what has been said here. We should not be pursuing unilateral approaches in aviation or shipping and that is why this is an accounting tidy-up. It is not the UK going on a totally different path from all other countries as regards aviation and shipping. We are very clear throughout the report to say the basis for inclusion should be the European or the international policies that are in place, or that we expect to be in place, if you are thinking about the longer term.

Dr Jefferson: From the point of view of Sustainable Aviation, we believe that there are fairly significant costs in achieving this decarbonisation of the aviation industry-let’s not assume there are not-in terms of aircraft design, engine technology, production of new aircraft, investment in new aircraft, fixing bits of aerospace that do not work very well at the moment, development and scaling up of sustainable biofuel production, as well as then what the industry is paying through an emissions trading scheme. That will be billions of pounds within delivering all of that. That said, we feel that the industry is aware of that and we are factoring that into our business models going forwards. The thing that concerns us is certainly the ETS situation at the moment. If you haven’t been following the story, the issue with China at the moment is that they are actually blocking 45 Airbus aircraft orders. That amounts to £15 billion worth of revenue for Airbus; it is a huge impact. A lot of the production of that aircraft occurs in the UK, so there is some impact there as well.

Q25 Sir Robert Smith: That is actually happening without being included?

Dr Jefferson: Yes, it is. But because ETS is such a solution to the CCC report, I am just making the point that we really need that system to work.

Andrew Herdman: Yes, I would echo that and add that the burden on the industry is not limited to the ETS. In the UK you have other policies that in effect were motivated by climate change thinking. In particular, APD is extremely heavy and very discriminatory, based on distance, so that is a several billions of dollars a year burden on the industry and the travelling public. In terms of the planning difficulties of expanding Heathrow or other airports, that is another policy that impinges very heavily on the industry. My concern is that the CCC report stresses the importance of European or global measures and argues against unilateral measures, but the reality is the UK is pursuing a policy of a combination of unilateral measures and European and, hopefully, global measures. So the burden on the industry, and indeed the environmental effectiveness, has to be taking all that into account, and I am not sure that is done in the way it is painted at the moment.

Q26 Sir Robert Smith: Again, that has been happening already.

Andrew Herdman: Yes, but the policy risk is what happens in future. So with assurances at this stage that the UK Government favours or accepts the recommendations that it should not pursue unilateral measures, the reality is that the policy risk for the industry is that the UK industry in particular will be subject to unilateral measures and those will distort the competitiveness of the UK aviation sector. The UK has a big aviation sector and a relatively small shipping sector in comparison with global metrics. Shipping is a much bigger emitter than aviation, but within the UK it has a very well developed, sophisticated aviation sector. But if you do have unilateral policies you are going to see it pay a price in terms of essentially exporting, the idea of international hubbing. That will just shift to other European hubs. With the EU ETS, the competitive threat was not picked up in the CCC report, which only talked about passengers hubbing over Europe from non-European to other non-European, which is a very small number of people, 1% I think, but much more than that in terms of emissions. The issue is the competitiveness of hubs that are in Europe or just outside Europe. The growth of Istanbul, the growth of the Middle East hubs, will be accelerated to the extent that Europe imposes unilateral measures or, in the case of the UK, there is a threat to the competitiveness of UK aviation in a global sense. So those risks have to be taken into account.

That is why I said my argument is not so much with the accounting-I think it was eloquently stated at the beginning-but the question of the policy risks. For other sectors if they have a similar exposure, what is the stringency, what would it mean to them? You may get some pushback from them saying if aviation is going to be given the right to maintain a cap forever then, of course, that tightens the stringency from 80% to 85%, or whatever it may be, and that may come as an unpleasant surprise to some other sectors.

Dr Allott: Clearly we, as a global organisation, also support a global agreement for these global sectors as the first best choice, but just to come back on some of those points. The idea that there are multiple levels of regulation, firstly the EU ETS explicitly is designed to give way to a subsequent international deal. It is actually in the design of the whole scheme, so the idea that we have a global system and then an EU system and then a UK system all nested on top of each other I don’t think is realistic. The idea that the APD, for example, should be scrapped because we have got the EU ETS or some potential future aviation deal, I would just say that most of the sectors of the economy contribute to the tax base of the host country. That is true of the aviation sector in many countries, including developing countries around the world. I don’t think any industry can get a free ride, either on dealing with climate change or on contributing fair shares to the tax base. I am not in the interests of driving the aviation industry out of business, or any sector out of business. We need to find a pathway to a sustainable, very low carbon economy, but I think we also need to make sure that every sector plays its fair share in a pragmatic way, given that we are not in a perfect world where we can leap to a wonderful global agreement tomorrow.

Q27 Sir Robert Smith: But if you are going down a global or even European route and you do unilateral national things you quite often export the subsidy.

Dr Allott: There is a carbon leakage issue in all parts of the economy to some degree or another, but my experience is that in most parts of the economy it has also been vastly overstated. There are genuine issues here which need to be looked at, but I think the threat to the UK as a major hub is potentially a very medium or very long-term threat. At the moment the UK is a very important hub and it operates on that basis very effectively. It has better links than any other airports in Europe to the key destinations. We do not see that changing.

David Kennedy: We have no problem with the Government accepting our advice and saying, "Let’s be clear," and accepting the advice that this is an accounting issue, it does not imply the need for unilateral policies. Then to the extent that we decide we want to pursue unilateral policies, it is not because aviation emissions are in carbon budgets, it is for other reasons. There is no implication, and if the Government is clear about that, that is absolutely fine, and actually I think it would be helpful, because the Government should be clear about what the implication is.

Dr Jefferson: Yes, and I think we would be comfortable with the message along those lines as well.

Q28 Dr Whitehead: If you go right back to the starting point, the 80% reduction agreed in the Climate Change Act and endorsed, and implicitly including aviation and shipping at the time, would you say that that pretty definitively represents a fair contribution by the UK towards a global 2-degree limit goal? Is that starting point accurate in your view, in terms of a 2-degree goal?

David Kennedy: Can I just explain the background there? We never said it was a fair contribution. We said global per capita emissions have to, on average, be around that figure, in terms of CO2 equivalent.

Dr Whitehead: You have anticipated my next question.

David Kennedy: For the UK, we use Nick Stern’s argument. It is hard to envisage an agreement that says the UK can be above, because who is going to sign up to that and say, "Well, I’m happy to be below"? You can turn it around and say you can imagine an agreement where the UK has to be below 2 tonnes of CO2 equivalent per capita in 2050, if you take an historical responsibility argument for example, and that is where you start to get into fairness. We did not want to get into those debates, so for us it was always at least 80% and you can imagine having to go a little bit further, depending on what happens in the negotiations over global agreements. We avoided getting into, "Is it fair or not?" There is a minimum 80%, and you may get pushed further, depending on what happens in negotiations.

Dr Allott: That is very helpful, and I agree with David’s analysis there. From our point of view, the Climate Change Act with the current level of ambition enshrined is not fully compatible with a credible, overall, global 2 degrees response, but we all know we don’t have a credible, overall 2 degrees response. With the exception of increasing the interim carbon budgets, which we think should be done immediately, the ambition of the Climate Change Act is pretty good if we get aviation and shipping in it as an exemplar for other countries to follow. The great news is that other countries are following this exemplar. We have seen Mexico introduce a climate change act over the past year, we have seen Australia, we have seen countries like Denmark and Norway looking to follow this example, and China is now looking to the UK Climate Change Act as a model for its own national climate legislation. This is all great stuff. Ensuring that we maintain the integrity and ambition and, critically, implementation delivery of the UK Climate Change Act, is not just critically important for our own transition and getting the green economy working here, which it is. It is also critically important in the global conversation about making progress on climate change.

Q29 Dr Whitehead: So would it be fair to say-and David anticipated my next question-that the real fairness issue is 2 tonnes per capita? The 80% is not bad in terms of getting there for the purpose of putting an overall metric for the UK down. Would that be fair?

David Kennedy: It is our best estimate of what you can say is compatible with a credible global agreement, but getting into this 2 tonnes, is the UK being at the global average in 2050 fair or not, is not something for a technical body like my organisation to get into. We just say this is realistic, it is credible, and you might have to go further. Coming back to your earlier question, are we going to worry about having done too much over the first four budget periods, given the possibility that the longer term outlook might change? If anything, if you look at the way that the science is going, if you look at arguments about why the UK might go a little bit further than other countries given our historical responsibility, probably you would be wanting to raise the ambition in 2050 and do more on the path to 2050. That makes you, again, feel more comfortable, you have not done too much in the first four budget periods.

Q30 Dr Whitehead: There is a sketch, I think in The Two Ronnies, where the person answers the next question every time the previous question is asked. What I was going to ask is, the 80% target, if it excluded international aviation and shipping, bearing in mind it is that approximation of fairness, that would presumably be widely seen as representing a watering down of the UK’s ambition and contribution as far as the overall reduction is concerned?

David Kennedy: It would have to be. Going back to what the Chairman said, do I expect the Government to accept our advice? To the extent that they were not to accept our advice, it would have to be very clear on the Government’s side that what they are doing is watering down the ambition. You would want to set out a case of why is it appropriate now to water down ambition four years after the Climate Change Act became legislation. There is not an evidence-based case about why we should be lowering ambition now. If anything, we should be increasing ambition, given the way that the science is going and our assessment of the risks.

Dr Allott: To put a number on that, the CCC report assumes if aviation and shipping are in we are heading towards a UK per capita emission of, I think, 2.2 tonnes. Without aviation and shipping that goes to 2.7 tonnes. That is a very substantial increase. I think that needs to be borne in mind. I would like to pick up one point that was made earlier on about if aviation and shipping is not in then going to some 85% target for the rest of the economy is okay.

Q31 Dr Whitehead: Could you answer my next question?

Dr Allott: Sorry, I apologise for jumping the gun. There are several key points here. Firstly, that is a suboptimal solution. There is a very clear, clean way of fixing this accounting problem now, which is now, at the end of December this year, for the Government to say we are formally incorporating aviation and shipping in the budgets and the targets from now on. A messy solution would be to go for at least 85% target for the rest of the economy. But if that was only a vague political commitment then that would be something that would carry very little traction in a year’s time, two years’ time, three years’ time, unless you were to change that figure on the headline face of the Climate Change Act, which would require primary legislation. If it was just a vague political commitment, I do not think that any of us should have tremendous confidence that it would actually be bankable or give confidence to investors or anybody else, all the reasons why we had the Climate Change Act in the first place.

The second thing, of course, is that if you were to do that approach of 85% for just the land-based parts of the economy, the question then is what are you doing with aviation and shipping? Are you just ignoring them? What is your policy framework to actually address those? You can’t just ignore those emissions if you are going to have a credible response on climate change. So you would need something else in some form or other to guide your national approach to those sectors in the context of an EU and international framework.

Q32 Dr Whitehead: Would anybody present be even tempted by the idea that you might look at more robust targets elsewhere in order to accommodate for the perhaps perceived and future difficulty of getting shipping and aviation properly into targets?

David Kennedy: It is going to be a very unwieldy framework. If you have an 80% target that includes aviation and shipping-and I have said you need the flexibility to change the balance between aviation and shipping and the other sectors-say you have now separated this out and you have put an 85% target on the face of the Climate Change Act, do you really want to be changing that 85% every time you have a new assumption on what the long-term target is for aviation and shipping? Apart from the fact you do not have a comprehensive framework, you do not have that flexibility then to make the adjustment between sectors that is economically sensible.

Q33 Dr Whitehead: A final thought. If we were to be perceived as watering down that 80% target in the way that you have described, what effect might that have on international negotiations in terms of the UK’s position? Would it cause other people to say, "Well, actually you’re not sitting at this table seriously?" or would other people say, "We understand your position and we will adjust our ambitions accordingly"?

David Kennedy: I can talk from the perspective of there being a lot of interest in the Climate Change Act and the framework underneath that in this country. Every week or two I have a delegation from countries all around the world, whether it is Europe, whether it is India, China, Australia, the States, Latin America. Everybody is looking at the Climate Change Act. The Foreign Office uses it as a tool of diplomacy in this area and it is very important. To suddenly lower the ambition I think will take away any value that the Climate Change Act has as a tool of diplomacy in trying to move the global negotiations forward, but the other thing is it would undermine the investment climate for low carbon.

We have talked about the need for certainty across the economy and that was the whole reason to have the Climate Change Act, to provide certainty. If you start changing the ambition fundamentally then you are taking away any of the certainty that you had in the first place and what is the point of this? We should be trying to build a low carbon economy, that is the sensible thing to do, and the best way to do it is to commit to a path, stick with it and give a degree of certainty. Not 100% certainty, but a high degree of certainty to investors so they can get on, make their plans and deliver.

Q34 Dan Byles: Dr Kennedy, do you think the Treasury understand that your recommendation is not a tightening of the current targets and that to not accept your recommendation would be a watering down? Do you think they understand that?

David Kennedy: I have certainly explained it to them. Whether they accept my explanation I can’t say. All I can do is explain and say here is the argument, here is the evidence, here is the analysis, and then it is for them to go away and have their discussions with their own Ministers and across Whitehall, and those discussions are not something that I get involved in. It is not something for my organisation, because we are independent from the Government.

Q35 Dan Byles: If the Government does accept the recommendations and then if international agreements are not forthcoming, you have all said we shouldn’t do it unilaterally. Where would that leave us? Would we not have legally committed ourselves to doing this but we said we shouldn’t do it unilaterally? So where would we be if we are unable to achieve the right international agreement?

Dr Allott: It seems to me that if that were to be the case then there is a big leap to say that we are then therefore doing strong unilateral things purely on the aviation and shipping sectors. We are doing things across the economy as a whole that are in line with our objective of trying to get somewhere near 2 degrees or not a fair contribution but a reasonable contribution towards the 2 degrees effort. So the ways in which you could account for shipping are not based upon an ETS cap at the moment. The aviation figure, whether based on the ETS or not, still gives you a good figure to put into your overall economy-wide decarbonisation strategy. Precisely what you then want to do in those sectors, I am sure we could have a strong debate about the implications of actions in different sectors as to what would be appropriate unilateral action versus every sector pulling its fair share, but the principle is the UK economy being signed up to delivering on the final objective as a whole.

David Kennedy: Everything we have advised and everything that the Government has recommended to Parliament and Parliament legislated is around the climate objective. If it became clear that the world is working towards a very different climate objective then the Climate Change Act says we have to look again and we have to say are we still on the appropriate path. But it isn’t the appropriate time to ask that question when you are thinking about the accounting tidy-up for aviation and shipping. I think the appropriate time for that is either the fourth carbon budget review, where you say, "Is it appropriate to be on this path when there is a chance that the climate objective may not be the one globally that we have been working with?" It is either the fourth budget review, which is 2014, or it is the setting of the fifth carbon budget, which we will advise on in 2015 and will be set in 2016, where you ask those more fundamental questions. It isn’t the right time to start lowering ambition now. I don’t think it will be the right time-and I hope it is not the right time-to lower ambition when we review the fourth carbon budget or the fifth carbon budget, but we will ask that question as part of that set of analysis.

Q36 Dan Byles: What are the main ways in which you think aviation and maritime can hit these? How much do you think it is about reducing forecast growth in these sectors versus changing practices and getting more efficient ways of doing what you are going to be doing?

David Balston: I think forecast growth is obviously going to be profound in shipping in that a lot of projections are made on the assumption that there is going to be a huge expansion in world shipping between now and 2050. I think against that obviously we are seeing now the current economic woes of the world and the projections at the moment are falling very well short of that. At the end of the day shipping is a slave of world trade and if world trade goes up shipping goes up, if it goes down shipping goes down. At the moment it is fairly in the doldrums so there isn’t that level of expansion perhaps that has been projected for the future.

Q37 Dan Byles: But do you think that the way shipping might meet these targets therefore is not about seeking to reduce future expansion rather than more efficient shipping? If we are going to have this massive expansion of shipping, in what main ways do you see maritime successfully reducing?

David Balston: The belief is that EEDI and SEEMP, which I have also mentioned earlier on, together will be delivering a reduction of something of the order of about 30%. Clearly we need to do more than just EEDI and SEEMP, and I think inevitably we are going to have to have some form of fundraising mechanism in order to be able to offset and therefore drive down emissions in that way. But there are a huge range of energy efficiency mechanisms-these are not necessarily being legislated on-that individual companies are already adopting, given that fuel prices have in recent years increased from about $50 a tonne to about $600 to $700 a tonne at the moment. That is a huge incentive, a far greater incentive than any carbon tax could ever create. So we are seeing things like slower steaming. Even a small reduction of speed can make a profound difference in the emission rates. One large container ship, for example, a few years ago going around at full speed was burning 360 tonnes a day. By reducing speed by about five or six knots it was down to 210 tonnes a day, saving 140 tonnes a day on one vessel and yet still being able to maintain quite high speeds. Also we are seeing adoption of new propeller designs, new hull forms, weather avoidance. All these measures are already being adopted by companies who quite clearly need to make best use of-

Q38 Dan Byles: But you see it as principally about technology, about more efficient use of existing assets and about offsetting, rather than about seeking to reduce future demand growth in this sector?

David Balston: We are not seeking to reduce future demand. As I said, at the end of the day we are a slave of world trade, and if world trade is to bounce back, as some predict, then inevitably shipping will increase.

Q39 Dan Byles: What about aviation?

Dr Jefferson: If I can perhaps start with Sustainable Aviation’s point of view. I mentioned the carbon roadmap that we published in March of this year, which basically detailed, with a lot of research behind it, a similar story I suppose to the shipping story. So we believe we can disconnect future growth of aviation from increasing carbon and, with the benefit of a robust and efficient carbon trading system, by 2050 we believe we can reduce net carbon emissions by 50% compared to 2005.

Q40 Dan Byles: But you are saying it is the same, it is not principally through seeking to reduce actual aviation use?

Dr Jefferson: No, it is not through seeking to reduce demand.

Dan Byles: It is about doing it more efficiently, technology-

Dr Jefferson: But also, as Mr Balston made the point, the cost of oil now is $100 a barrel. That is absolutely driving massive research, technology improvements in aircraft and particularly engine design, because it is now one of the largest costs airlines face. So that is driving huge benefits. Within the EU, Airbus Rolls-Royce have signed up to the European Commission’s high-level group on aviation research. That is basically saying taking a 75% reduction in CO2 emissions per passenger kilometre by 2050 compared to 2000, and that is obviously on the back of historic improvements that have been made in fuel burn efficiency. So I think the technology piece is robust. We are seeing huge benefits of that phase-in of the new generation aircraft. Clearly we need to get to a place where the airlines buy those new aircraft that are coming on to the market, and that is something that the airlines are looking at at the moment.

There is also a lot of work going on around the sustainable biofuels, in fact spearheading quite a lot of work on that through Sustainable Aviation but also on an international field now with a Sustainable Aviation fuel users group. We have a very clear pledge that what we mean by sustainable biofuels does not mean affecting rainforests, affecting what would otherwise be agricultural food production land. Interestingly, British Airways are looking at whether we can take London’s waste and turn it into a biofuel source. Virgin Atlantic are looking at a carbon capture system from steel production sites that would capture the carbon from that and turn it into a biofuel.

There are lots of initiatives now being produced and developed, and I think the challenge from us on the biofuel piece going forward is the scalability. How do we scale that up? I think we would seek Government and other people’s help in going down that road in terms of providing the facilities and so on. But I think certainly our view is absolutely we can deliver growth without increasing carbon and reduce it by 50% compared to 2005 levels by 2050 with robust carbon trade.

Andrew Herdman: I echo that, but broadly speaking global aviation demand is growing at about 5% per annum; fuel efficiency, fuel is about a third of your ticket price today, even a higher percentage if it is an efficient carrier. So there is a big incentive to use modern equipment and strive for fuel efficiency. That has always been the case and continues to be the case. Technology, operations, infrastructure improvements can generate about 1.5% to 2% per annum compound improvement in efficiency, which does not match the 5% traffic growth. So the rest of reducing net emissions to achieve the industry goal of capping carbon emissions from 2020 and reducing it to 50% net emissions by 2050 compared to 2005 hinges on some form of carbon charging, carbon trading, offsetting and alternative fuels. With alternative fuels themselves, the technical challenges have been overcome pretty much but now we are facing the difficulty of commercialising and reaching a suitable scale and there is a cost competitiveness issue. That is another piece of it but I view that in the same category as carbon trading because essentially alternative fuels will have embedded carbon credits, so I see those things as linked to each other, carbon trading and sustainable fuels, as a way of having embedded carbon credits. So we are confident about that.

To your question, to what extent could you suppress demand through the carbon pricing, that is already inherent. All the evidence is that people want to fly in increasing numbers and, given a choice between a carbon price equal across sectors, they will make sacrifices elsewhere and drive the decarbonisation elsewhere rather than in aviation. That is not hubris on the part of the industry, that is observing how people behave and not just in the developed countries but in developing countries. If you look at the projection for India and China, these are going to be huge aviation markets. They already are. China is already the second largest, India is some way behind, but it is in that context that demand suppression at equalised carbon prices isn’t going to be very effective as a tool for this industry. I guess the industry, therefore, doesn’t want a free pass, as was being suggested, but would much prefer an assurance that the industry is going to see a similar carbon price to other sectors. On that level playing field, I think you can rest assured the industry will deliver everything it is possible to deliver in terms of efficiency and for society-not the industry-to make the right trade-offs between how much of a constrained carbon budget do you want to spend on aviation as opposed to driving whatever car or vehicle you are using or your power generation.

Dr Allott: Just quickly, I fully support all the initiatives that help to deliver technical improvements in the aviation and shipping industry when done sustainably. That is a given. I think there is a question about what growth we are looking for. Are we condemned to a predict and provide approach forever or are there smarter things that we can be doing? WWF has done a lot of work, for instance, on alternatives to flying through the One in Five Challenge approach we have. We have seen some very impressive reductions in business travel from major corporations who found that they have saved money, improved their efficiency and have happier staff as a result. So just automatically looking at a prediction and assuming how to fulfil it is a pretty old school model. That is not to say that aviation will not continue to grow both globally and in the UK at a substantial rate, but we have some element of choice about how much that should be.

I think there are serious risks in unconstrained growth on two factors I would point out in particular. One is the assumption that there is a bottomless well of offset credits that somebody else in the economy somewhere in the world might want to sell. We have big problems with offsetting at the moment but in terms of the environmental credibility and the social credibility of that and the system credibility it is not helping reduce global emissions. Where they are going to come from in 2050 is an important question. Biofuels absolutely play a key role in the aviation sector if done sustainably. We are cautiously supportive of that but I think we also need to be extremely clear that many other sectors of the economy have their eyes upon a very scarce and precious sustainable bioenergy resource. It may well be vital in other parts of the economy as well. So just to assume that we can fuel all the world’s planes on biofuels is a big gulf, if you look at the availability of land and the competition from other needs, both for food and for energy.

Dr Jefferson: Just on that point, within the Sustainable Aviation roadmap we assumed 18% contribution by biofuels. So we wouldn’t see that every flight would be sustainable biofuel.

Q41 Dan Byles: How did you come up with that figure? Is that based on any assessment of the total amount of sustainable biofuel that is likely to be available?

Dr Jefferson: Yes, it was based on the technology available at the time. I think what we said was it is a very evolving market, there are challenges around the scalability issue with biofuels for now. Based on the evidence we had and we were looking at we felt 18% was a realistic assumption by 2050.

Andrew Herdman: It is guesswork because you don’t know the cost. Right now biofuels are costing three to five times conventional jet, so we are a long way from talking about anything close to parity, even allowing for emissions charges advantages. So it is only guesswork as to what penetration of biofuels and, as was mentioned, you are facing competition because other sectors are bidding for those limited resources.

Q42 Dan Byles: Do maritime have any estimate of what percentage of biofuels might be being used on the maritime side?

David Balston: I think fairly limited at the moment.

Dan Byles: How are we for time, Mr Chairman?

Chair: We are running out. In the context of what has just been said about both alternatives to aviation and biofuels, I should draw attention to my entry in the Register of Members’ Interests as a director and shareholder of Eurotunnel and a director and option holder in a second generation, unlisted biofuels developer, TMO Renewables.

Sir Robert Smith: I probably should remind the Committee of my interests in the Register of Members’ Interests to do with the oil and gas industry and in particular a shareholding in Shell.

Chair: We are very grateful to you all for coming in. It is a very interesting discussion and we will certainly make good use of what you have said to us when we come to publish our report.

Examination of Witnesses

Witnesses: Gregory Barker MP, Minister of State for Climate Change, Department of Energy and Climate Change, Rupert Furness, Deputy Director, Head of Environment Strategy, Department for Transport, Emma Campbell, Deputy Director, Environment and International Transport Economics, Department for Transport, Dr Matthew Webb, Department of Energy and Climate Change, and Ross Gribbin, Department of Energy and Climate Change, gave evidence.

Q43 Chair: Minister, congratulations on getting a visa to reach this remote part of the parliamentary estate.

Gregory Barker: Thank you very much.

Chair: It is quite a trek even from where we work, let alone from where you work. We are very glad to see you and your colleagues, who are not actually, I think for the most part, your own colleagues, but we are glad to see you all. I understand, just to be absolutely clear, that the Department for Transport would have sent a Minister were they not giving evidence at this moment to another committee. So we are grateful to you for coming in their place, and I am sure you will be able to answer our questions very thoroughly. Minister, you asked if you could make an opening statement.

Gregory Barker: Yes, thank you very much, Mr Yeo. Firstly, I want to assure the Committee that the coalition takes this issue of emissions from international aviation and shipping very seriously. We recognise that for these truly international sectors emissions should be dealt with at an international level to be most effective. For example, emissions from international aviation are already covered by the EU ETS, which we believe is the most cost-effective way of reducing net emissions from the aviation sector.

The question of how to reflect international emissions within the UK’s domestic carbon accounting framework is, however, a complex one. The methodology required to implement any decision to include is also complex and will require very careful verification indeed. It is for these reasons that these emissions were excluded from the Climate Change Act in 2008 with the provision that we should revisit this decision by the end of 2012. In the interim, the Government has taken account of international aviation and shipping emissions in the setting of carbon budgets one to four, covering the period 2008 right the way through to 2027. In so doing the Government has accepted the Committee on Climate Change’s advice for setting these budgets, which still puts us on track to a 2050 target of 160 megatonnes of CO2. I stress that the target used by the Climate Change Committee differs from the one defined in the 2008 Act as their target includes international aviation and shipping. We are very grateful for the ongoing efforts of the CCC for their ongoing analytical work on potential methodologies, particularly for shipping, which was reflected in their report of April this year.

Due to the complexity of the decision, we are still in the process of consulting with Cabinet colleagues over the environmental and economic impact of this decision, but in parallel we are working to test the validity of the methodologies proposed by the CCC, in particular in relation to the aviation EU ETS data that we have recently received. We intend, in conclusion, Mr Yeo, to lay before Parliament, announcing our intentions, a report before the end of the year deadline. Any decision that we take will take careful account of the advice of the Committee on Climate Change. As we are not yet ready to lay that report, I am slightly limited in what I can say to you but, particularly with my expert officials here, we will endeavour to be as helpful to the Committee as we can be.

Q44 Chair: Thank you very much. We appreciate that you can’t leak this decision, which may not even have been made yet. However, perhaps you could give us some insight into the factors that will determine the decision you are about to make?

Gregory Barker: Firstly, the advice from the Committee on Climate Change, which was provided in April, and their extensive efforts to consult both ourselves and the wider industry is the bedrock of that decision. We have been giving their recommendation full and serious consideration but we are also in the process of undertaking our own analysis of the implications of any decision to include. We are also in the process of looking at important EU ETS data for aviation to understand whether the CCC methodologies would be robust enough for implementation. This data has only very recently been made available and it will be important to us to consider this thoroughly before we are able to make a decision on this important issue. But, as I said, those are the key determinants. Obviously other departments in Government will be consulted, but those are the key factors driving our decision on this matter.

Q45 Chair: How are you co-ordinating the policy with the other departments who take an interest in it?

Gregory Barker: How are we co-ordinating? In the usual manner. I don’t know if any of my officials would like to say anything on the detail and how it is working at an official level.

Ross Gribbin: There has been an official level working group that has been discussing the analysis that has been done and the analysis on the basis of which the decision will be made will have been agreed by all the departments in terms of its factual accuracy.

Q46 Chair: Given the welcome emphasis that the Minister has just placed on heeding the advice of the Climate Change Committee, what factors might the Department for Transport take account of if they wanted to resist that advice?

Rupert Furness: Perhaps I could respond to that one. We will want to look very carefully at the environmental impacts of any decision to include, but also the economic implications. I think a very important factor here is the question of costs. We have heard a lot of discussion of this in the previous session. We all want to get to a place where we are seeing cost effective emission reductions from all sectors and I think we are all agreed that for aviation and shipping, given the global nature of those industries, the absolutely key thing is to ensure that the international agreements that are in place, and the EU Emissions Trading Scheme in particular, continue to deliver the level of emissions reductions that is appropriate.

A decision to include or a decision to exclude would both have slightly different impacts. There are choices essentially about how you get to the overall level of ambition that you want to get to. The key thing, it seems to us, is not so much whether or not you include these emissions in the UK’s carbon budgets but how effectively the international agreements are delivering the emissions reductions that we want to see. The costs for other sectors of the economy will very much depend, as we have heard in the previous session, on the level of ambition in the aviation ETS and in other international agreements, for shipping emissions for example.

Q47 Chair: Does your analysis of the situation differ from that of the Climate Change Committee?

Emma Campbell: I am Emma Campbell from the Environment and International Transport Economics Division in the Department for Transport, so I have been responsible for some of the analysis. We agree with the committee that up to carbon budget four we have set the carbon budget levels at a level that reflects international emissions and, therefore, we have accepted the cost and the emission savings up to carbon budget four. Beyond that there is still the debate whether or not to include international emissions and, therefore, if you were to include there would be a cost that would not be there if you were to chose to exclude. So we do not see this as just an accounting tidy-up but it does have certain implications. Obviously if you were to include there would be environmental benefits to the extent that international agreements were not delivering an 80% reduction. So the costs and benefits come from other sectors of the economy doing more to compensate for less than an 80% reduction in international aviation and shipping emissions.

Q48 Sir Robert Smith: To date the Department has been working on the principle that the budgets they have been setting have taken account of aviation and shipping, albeit not including them in the actual figures.

Gregory Barker: Sorry, was that question or a statement?

Sir Robert Smith: Yes, a question.

Gregory Barker: I think it was statement, actually. Correct.

Q49 Sir Robert Smith: But you are saying going forward-?

Emma Campbell: From carbon budget five, from 2028 onwards, they have not been set yet and the question is do we formally bring them in or do they stay out as they are currently, given the wording of the Act? The Act currently does exclude them. The question is, there is a difference in cost and environmental impact if they are included or if they are excluded.

Q50 Sir Robert Smith: Do you accept the Climate Change Committee’s view that, if they are excluded, to achieve our goals we would have to go for 85% on those that are included?

Emma Campbell: From a purely analytical perspective, yes, that would be correct. If you were still aiming for an 80% reduction target that included international emissions you would have to have a higher than 80% reduction target on the other sectors of the economy, yes.

Rupert Furness: Just to add to that, on the inclusion in carbon budgets, I think the Committee on Climate Change have recommended that we should assume for planning purposes that emissions from aviation and shipping in 2050 are roughly what they were in 2005, so that is not an 80% reduction from aviation and shipping. Inclusion also assumes a higher level of effort from other sectors of the economy.

Q51 Sir Robert Smith: But inclusion at the moment 80% delivers?

Dr Webb: Just to clarify, on the carbon budgets that are being set, the CCC in their advice on those budgets are very explicit in saying that the 1950 MtCO2e number, for example, for the fourth carbon budget allowed headroom so that you could be on a trajectory to hit a 2050 target of 160 MtCO2e that included international aviation and shipping. So accepting the fourth budget and the budgets until 2027, the Government’s budget and policy are aligned to a number that aims towards a target that includes those emissions.

Gregory Barker: Do we have that bar chart I had in the briefing?

Dr Webb: We certainly do.

Gregory Barker: Do we? It is a very practical visual display that I think would help the Committee.

Q52 Sir Robert Smith: In principle the logic of inclusion does makes sense to the Department. It is the practicalities that you are-

Gregory Barker: As you will see from that chart, the budgeting includes the degree of headroom-that is clearly illustrated. Do you want to say anything more on it?

Dr Webb: The key piece on that that we were mentioning was that for existing budgets the act of adding an additional approximately 200 megatonnes to the 1950 MtCO2e budget would still leave us on a trajectory consistent with hitting a 160 million tonne CCC target that includes aviation and shipping. The budgets that have been set are consistent with the forward target of 160 MtCO2e, which at the moment is a discrepancy from the way in which the Act defines the target, which excludes international aviation and shipping from the domestic baseline.

Q53 Dr Whitehead: I am just absorbing this chart, which does act in a very helpful way in terms of my question, which is that indeed the Government has, as the chart says, accepted the advice to set carbon budgets one to four in a sense as if aviation and shipping had been included. Therefore, in principle the question of cost is perhaps a marginal issue. Is that fair to say?

Emma Campbell: It is, up to the end of carbon budget four. Carbon budget five from 2028 hasn’t yet been set, therefore there is an issue that there is a difference in the overall cost to the UK if you were to include versus exclusion.

Ross Gribbin: It is just worth adding to that, I don’t disagree with anything my colleague has said. Although there is a difference, the cost is still consistent with the overall cost that the CCC has advised upon. The 0.5 to 2% of GDP out to the very long run that is the overall cost that has been estimated already includes aviation and shipping. So it depends on whether you are talking about the overall macro cost or the very specific way that you calculate the actual budgets and what the implication of that would be. So it is in the long-term cost assumptions already.

Dr Webb: It is possible to calculate a figure whereby from carbon budget five to 2050 you decided to effectively ignore those emissions and loosen the budgeting approach. That would save you money, but that cost is identifiable as part of the overall CCC estimate of the costs in 2050.

Q54 Dr Whitehead: But that is a cost saving potentially from five onwards rather than a cost increase as a result of the assumptions in one to four?

Emma Campbell: Yes.

Dr Webb: Yes.

Q55 Dr Whitehead: We have already heard, haven’t we, that the question of the 80% target is in fact a proxy for the idea of global policy limiting global temperature rises to 2 degrees, and also that, working on that proxy, an average fair removal across the world, i.e. not giving people free rides, would be average emissions of about 2 tonnes CO2 per capita? Would you agree that is basically the issue behind the 80%, that it is a proxy rather than an absolute figure?

Dr Webb: Yes, that is the way the CCC have approached the problem and that is the way that the budgets have been set and the way we have accepted their advice. Looking forward, that is the way in which things for the first four budgets have been set. As I said, because of the difficulty with defining a UK share back in 2008 because of the lack of methodology, because the aviation ETS was still to be implemented, the Act was written in a way that parked this issue for a later date, which turns out to be 31 December this year. That is why there is that discrepancy due to the uncertainty of how you would actually account for that number.

Q56 Dr Whitehead: As far as the international negotiations are concerned, an outcome that effectively in the end allowed developed countries to have higher emissions than developing countries, and that perhaps would be mediated by the 2 tonnes per capita idea, would be fairly difficult to place on the international stage, I guess. Would you agree with that as-

Gregory Barker: Sorry, could you just repeat that again? You are talking about in a broader context now?

Dr Whitehead: I will put it in terms of what the Climate Change Committee has concluded. They said, "It’s hard to imagine a future global agreement under which the UK and other developed countries are allowed higher emissions per capita than the global average since this would require developing countries to have lower emissions". In a sense the 2 tonnes per capita-

Gregory Barker: I don’t necessarily agree with that. We are all going to have different starting positions. I think what we would all want to see is equal effort, but I don’t think you can apply a mathematical rule to any future international agreement. Obviously, it is our hope that major economies, like India for example, will be able to develop strongly, will see strong economic development but in a way that follows a low carbon model, and it means that they do not necessarily have to get to the same level of per capita carbon emissions as the United States to enjoy the same level of prosperity and income that the United States has. There is a whole range of different circumstances-the ability to generate renewable energy, natural resources, historical factors-so I don’t think we would accept that there has to be this absolute. I think an international agreement will be rather more nuanced than that.

Q57 Dr Whitehead: In a sense we have nuanced that already, haven’t we, with the 80%?

Gregory Barker: Absolutely. What I am not doing is saying that the developed economies do not have to take massive cuts in their carbon emissions of course, but expecting that to lead directly to an absolute number I think is perhaps-I understand the principle.

Q58 Dr Whitehead: The thrust of what I wanted to say was the extent to which, excluding aviation and shipping emissions long-term might be seen as a watering down of even that 80% proxy in terms of international negotiations and discussions. Do you think that would be a serious issue as far as those discussions are concerned?

Gregory Barker: I don’t think so. I can only speak in terms of what discussions I have had to date and whether this has been flagged up as a potential deal breaker. While the inclusion of aviation into the EU ETS is very contentious with developing economies, the overall principle that there should be a global framework for aviation is not so contentious. That is what countries fall back on as being the alternative that the EU should wait until there is a global framework.

Dr Webb: Perhaps I could clarify on the Climate Change Committee’s report. I think what they were driving at was that if we decided to stick with an 80% target in 2050 for all sectors except international aviation and shipping and then you added those emissions on, for the UK you would be then adding somewhere in the region of half a tonne per capita, so going from roughly 2.2tCO2e to 2.7tCO2e per head. If all other countries in the world were to adopt a similar approach and you multiplied that shared effort at a level of 2.7tCO2e instead of 2.2tCO2e you then significantly reduce the chances of hitting your 2 degrees temperature rise target by 2100. I think that is the specific point they were making in their report about how we treat emissions.

Q59 Dr Whitehead: That is implied with the 85% alternative target if you didn’t include, for example. Do you think, Minister, that all other Government Departments understand, firstly, that point and, secondly, that already there has been an assumption within carbon budgets of effectively the inclusion of aviation and shipping into the calculations, or do you think they believe that none of that has happened and that therefore there would be a huge additional cost, which has to date not been accounted for at all, either in terms of the alternative trajectories or indeed the previous costs on the first four carbon budgets?

Gregory Barker: I think there is a sound appreciation of the position to date across Government but each Department is naturally stress testing the proposals to take into account their different responsibilities across Government from the different perspectives that they have.

Q60 Dr Whitehead: You don’t think any particular Department might make use of this handy chart, for example?

Gregory Barker: I hope all Departments will make use of that handy chart, as does the Committee.

Q61 Sir Robert Smith: Would they accept that going into international negotiations where you have been working on a target of 2.2 per head of capita and by implication, if you excluded aviation and shipping and kept the 80% target, you were moving up to 2.7, that we were watering down our ambitions and therefore losing some of our leverage in international negotiations?

Gregory Barker: I think the UK and the EU are seen to be ambitious on aviation per se. As I said in my opening remarks, we believe that the inclusion of aviation in the EU ETS is the right thing to do and that is what they are pushing forward. That is certainly being seen as putting the EU right at the forefront of the progressive end of international climate change action and opinion. So I don’t think these deliberations would be seen in any way as materially watering down the perception of the UK, which I think is a correct perception, at the cutting edge, at the most ambitious end of climate action.

Q62 Sir Robert Smith: Surely if you were seen to adopt an approach that reduced the ambition of the UK Government, by definition other countries would think, "Hang on a minute, if they are reducing their ambition-"

Gregory Barker: We will make clear exactly what we are going to do when we lay the report before Parliament. I don’t really want to get into speculation.

Emma Campbell: Can I add from an analytical perspective-so not the politics but from an analytical perspective-if we are pushing for ever more stringent global agreements on international aviation and shipping emissions you could theoretically achieve the same outcome as you do by bringing it into UK carbon budgets just having a dual track where you have international emissions reduced through global agreements separately to your domestic legislation? So from that perspective it is quite possible that you would still have the same level of ambition. It is just you are treating them slightly separately as they are international sectors.

Q63 Chair: Although if you have that ambition it raises the question of why would you want to exclude it from the UK?

Emma Campbell: If the ambition at the international level was exactly the same and an 80% reduction by 2050 then there would be absolutely no impact of bringing them into UK carbon budgets because you are in effect doing exactly the same thing.

Q64 Chair: On this point about the inclusion by the EU of aviation in the ETS, which is something I personally very strongly support-I think the EU has shown commendable leadership on the subject in what was a bit of a policy vacuum internationally-with the controversy that now surrounds it, the difficulties and the challenges, what is the British Government doing to try to help resolve those disputes?

Gregory Barker: We are doing a lot behind the scenes, certainly encouraging ICAO to take a more robust view. There obviously is a dialogue between our posts abroad and the key Governments. We are trying to avoid disagreement with both our allies and countries that we want to have a good relationship with over this issue and allow it to cloud over the broader relationship, but we are being very robust in making the case. I don’t know if the officials want to add any more to that from the DfT point of view.

Rupert Furness: I think the key thing is that we are maintaining our position of strong support for aviation’s inclusion in the ETS and, as the Minister says, we are in regular dialogue with other member states in Europe about how to address the challenges and the controversy that surrounds that.

Q65 Chair: Returning for a moment to the question of the cost, I think what I interpreted the earlier exchanges to indicate was that you are accepting the Climate Change Committee’s conclusion that it is possible to incorporate international aviation and shipping into existing carbon budgets without additional cost. Is that right?

Emma Campbell: Within the existing carbon budgets one to four, yes.

Q66 Chair: All right. Your own cost assessments, therefore, even of meeting the 2050 target, don’t challenge those of the Climate Change Committee?

Emma Campbell: Out to 2050 there would be a difference in cost if they were included or not.

Q67 Chair: Beyond the fourth carbon budget?

Emma Campbell: Beyond the fourth carbon budget, exactly. The committee have said it would cost between 0.5% and 2% of GDP. We have done some very initial analysis that suggests that the cost would be to a certain degree less than that if they were not included but equally you would not get the environmental benefits beyond carbon budget four.

Q68 Chair: There was a suggestion earlier on from David Kennedy that there might be an issue about the timing of the inclusion of aviation and shipping in the budget given some of the international uncertainty. Is one of the routes the Government is considering to accept the Climate Change Committee proposals in principle but to say they might be implemented at a later date?

Gregory Barker: I don’t think I can comment on that at the moment, Mr Yeo. We are looking at a range of scenarios, but we will lay our conclusions in the report to Parliament.

Chair: We will interpret that as a possible yes in that case.

Q69 Dan Byles: Emma, the comment you made earlier about the possibility that you could take aviation and maritime as an international rather than a domestic but still hit the same target is in effect an answer to the question I asked the previous panel about the implications of bringing them into the domestic legislation and then failing to achieve international agreement. You are saying by keeping them separate you avoid a potential dilemma later on?

Emma Campbell: Yes, that would avoid then having to do more domestically to compensate for any failure of an international agreement.

Q70 Dan Byles: So it almost leaves the challenge on the international community rather than saying we risk shouldering a unilateral burden ourselves if there is no international agreement?

Emma Campbell: Indeed. Yes.

Q71 Dan Byles: Also, just to be clear, I am a little bit uncertain from some of the previous answers as to whether or not DECC and the Department for Transport are disagreeing with the Committee on Climate Change that incorporating shipping and aviation is simply an accounting tidying-up exercise. The point was repeatedly made by David Kennedy that it is an accounting tidying-up exercise. Is it the case that both Departments disagree with that point?

Emma Campbell: We both agree, the Departments agree. It is a bit of a technical issue. It is because so far we have signed up to carbon budgets that in effect include them and therefore, from the CCC’s perspective, it is just making it formalised and it is an accounting issue. We agree that there is a difference in the cost between inclusion and exclusion but from an analytical perspective there is agreement.

Q72 Dan Byles: I think I understand. But certainly the lesson I draw from this very handy graph-thank you, Minister-is that the Government is working on the assumption and has been working on the assumption that they are going to be either brought in or be brought in in practice.

Gregory Barker: We have a constructive mindset.

Q73 Dan Byles: Yes, so it would be a change. If you didn’t bring them in now it would be a watering down of our commitment?

Gregory Barker: No, I don’t think you should interpret from what we have said that conclusion at all.

Q74 Dan Byles: Okay, but it would be a watering down if you didn’t bring them in and didn’t come up with some sort of an international construct that takes them into account? They can’t just be left in limbo, can they? They are either going to be brought in ultimately to our domestic plans or they are going to be taken into account by our domestic plans through some sort of an international plan?

Gregory Barker: I think the key thing that the bar chart demonstrates is that through to at least 2027 there is the headroom, so they are already anticipated to be in there. Where they are accounted for is a technical treatment but from a practical point, as you can see from that bar chart, in the carbon budgets that we have already set through to 2027 we have taken account of them. So whatever accounting treatment we opt for, it shouldn’t been seen as a watering down.

Rupert Furness: We all agree that excluding them and not tightening the 80% target for other sectors would effectively be a watering down of the overall commitment unless the international agreement on aviation and shipping had delivered you effectively an 80% reduction from those sectors as well.

Q75 Dan Byles: That was basically the point I was making, so you either include them or you tighten up to 85% or we grip them through international but they can’t just be left to drift?

Ross Gribbin: That is right, although I think it is important to note that in all of the instances the policy mechanisms are multilateral and that may be what the CCC were getting at. It is an accounting issue in the sense that whether you did it domestically or you didn’t include, the actual policy that will deliver the emissions in both cases is the ETS and the international agreements on shipping. So the graph in front of you, the headroom there, essentially reflects the expected benefits of those international policies.

Q76 Dan Byles: But that headroom has to be there. You can’t allow domestic emissions, excluding aviation and maritime, to reach 160, can you?

Ross Gribbin: The 160 MtCO2e is out to 2050. Another way of putting it I think is that the CCC’s advice is predicated on the expectation of international policy commitments. We can’t speculate as to what they would advise, whether or not it is to be in place, but that is why they are suggesting you can have this particular set of reductions.

Q77 Dan Byles: But the point I am trying to make is we can’t domestically allow 160 megatonnes of CO2 per annum by 2050, excluding maritime and aviation, can we? When you then add maritime and aviation on that we would have significantly higher than 160. One way or another it has to be included and if one way or another it is not included it is a significant watering down of our commitment. 160 is our target, isn’t it?

Emma Campbell: That is correct, but the Act at the moment does exclude them. The Act at the moment is your relatively lower level of ambition, if you like. What we have signed up to is going slightly further than the Act so far because we have signed up to it including international aviation and shipping within that 160 million tonnes in 2050. So what you have said is correct, but the Act at the moment is that lower level.

Q78 Dan Byles: Is that the danger that certain other Government departments might look at that and think what the CCC is recommending is a tightening of our target?

Emma Campbell: I don’t think it is seen as a tightening. I think the question is they are international sectors; we have international ambitions; there is the flexibility in the Act at the moment.

Q79 Sir Robert Smith: Why to date have we gone further than the Act?

Ross Gribbin: I think it depends on where you believe that the source of the number in the Act is. If the number is designed to reflect the 2 degrees target then it would make sense to regard all emissions as the same, because carbon from aviation is as harmful as carbon from anything else, and then the number would flow from that. If you see the number in the Act as purely a number in itself that doesn’t flow from something behind that, then equally you might say the exclusion makes sense. As my colleague said, at the time I believe the reason for exclusion was just there were methodological issues. Things change over time but I think that is what the original issue was.

Dr Webb: Just to add, because of the problems that existed when the Act was drafted, there are provisions within the Act that allow you, and the specific words are, "To take account of these emissions". So you look at your international reported inventory there is a separate heading of "International Aviation and Shipping" and there is a list of things that we take account of in setting budgets, and one of those things is the number that is listed in that inventory. The approach to date and the approach set in the four existing carbon budgets is we take account of that figure by leaving that bar of headroom. The decision that is coming up, which we can’t pre-empt or pre-announce, effectively we could carry on with that approach and that wouldn’t be excluding the emissions. Also if you carried on with that approach it would have no effect in the sense that policy has been set to leave that headroom.

So I think it is important to have the point in mind that at 31 December nothing actually changes if you don’t make a physical mathematical adjustment to the numbers that are in the budget by regulation because policies have been set on the basis to leave that by taking it into account.

Q80 Dan Byles: Just coming back to the question I was going to ask before I got sidetracked by those interesting thoughts. Inclusion of aviation in the EU ETS obviously has run into some opposition from countries outside the EU. How serious a danger do you think there is of that opposition derailing the scheme?

Gregory Barker: That is a big question. Clearly it is a very serious challenge. The statements coming out of India, China and America are to varying degrees hostile, but I think there is still some way for this process to run. We need ICAO to engage and we are not at the end game yet. I don’t think you can discount the fact that there is very severe pushback to what the EU has proposed but we are very clear as well.

Q81 Dan Byles: At the risk of using a choice of words that can be misinterpreted, is there a plan B?

Gregory Barker: Not that I am aware of.

Q82 Dan Byles: So on all fronts it is plan A or plan A plus all the way. What involvement has the Government had with the ICAO and International Maritime Organisation in their efforts to cut emissions? I suppose that is your department, isn’t it? How closely are you working with them and what help has the Government given you?

Rupert Furness: I think the short answer is that we are working very closely with both ICAO and the IMO. I think the UK is very well respected in both organisations. There is a variety of things that both organisations are looking at. ICAO, for example, is looking at a CO2 standard for new aircraft, which it hopes to start discussion of next year. There was also an ICAO resolution in 2010 that included an aspiration for carbon neutral growth for aviation from 2020. The UK plays a constructive role in the ICAO processes. Similarly with the IMO, the UK was instrumental in the discussions around the Energy Efficiency Design Index, which we have heard about, which is essentially a fuel efficiency standard for new ships. We are also continuing to engage with the IMO on their discussions on market-based measures to tackle emissions from shipping. The UK’s preference is for an emissions trading scheme for shipping of those market-based measures. In short, the UK is very much engaged in both the ICAO and the IMO.

Q83 Dan Byles: How do you rate their progress? Are they moving as quickly as you would expect and want them to?

Rupert Furness: I would say that they are making good progress. Clearly there are some stakeholders who would like them to move faster, but these are complex international negotiations and I think the progress that has been made in recent years is very impressive and a testament to both organisations.

Q84 Dan Byles: I think the final question is probably one for the Minister. Given that we have had representatives from the aviation industry and the shipping industry in the UK sitting in front of us just before you who both said that they were comfortable with bringing aviation and maritime emissions into the target and were comfortable with the CCC’s recommendations, wouldn’t it be rather odd if the Government therefore didn’t adopt the CCC’s recommendations, given that the industries themselves have said they are comfortable with it?

Gregory Barker: We are taking a note of what the industry says and a particular note of what the CCC says and we will be publishing our report before Christmas.

Emma Campbell: Could I just add that the impact would not be felt on the aviation and shipping industries, it would be felt on the other industries in the UK because aviation and shipping are being brought in on the basis of international agreements that will happen in any case. The impact would be on other UK sectors.

Q85 Dan Byles: I am confused again now because I thought that the point was the other way around, that if we didn’t bring them in we were looking at 85% from other sectors, therefore other sectors have to-

Emma Campbell: Exactly. Other sectors are finding that extra 5% so the impact is on those other sectors to find that extra 5%.

Q86 Dan Byles: If we don’t bring them in?

Emma Campbell: If we don’t bring them in then the other sectors are having to achieve an 80% reduction. If we do bring them in other sectors are finding that 85% reduction.

Q87 Sir Robert Smith: If we fail to deal with them? The 85% is if we fail to deliver on the-

Emma Campbell: So if international aviation and shipping do not reduce by 80% and are brought in on the basis of existing international agreements, other sectors would have to do about 85% reduction.

Q88 Dan Byles: I see what you are saying. You said it slightly differently to the way CCC did but I understand the point you are making now.

Emma Campbell: For which apologies.

Dan Byles: No, it is all right.

Emma Campbell: The key thing is that the impact of inclusion is not on the aviation and shipping sectors, it is on the other sectors.

Q89 Dan Byles: There is an interesting difference of emphasis here, though, isn’t there? The CCC were giving the implication that if we don’t grip maritime and aviation in this way there will be a harder impact on the wider economy and you are almost implying it is the other way around.

Emma Campbell: I think it depends what your position would be, your counterfactual if you like. It depends if you think the other sectors would make an 80% reduction, in which case they take up the whole of the 160, or whether you think your counterfactual would be that they would have to go further and do at least an 85% reduction, in which case the impact is felt on the other sectors.

Q90 Dan Byles: It comes back to my earlier point, doesn’t it, that if you say 160 is the target then one way or another we have to take into account the emissions from aviation and maritime, otherwise they are just floating out there?

Emma Campbell: In international agreements.

Dan Byles: Yes, but our carbon emissions are going to be greater than 160 and that is what we said we were going to hit. Thank you.

Chair: Thank you very much indeed for coming in. We look forward to the announcement.

Prepared 8th November 2012