UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 60-iii

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

Environmental Audit Committee

Progress on Carbon Budgets

Wednesday 3 July 2013

David Kennedy

Evidence heard in Public Questions 77 - 150

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Oral Evidence

Taken before the Environmental Audit Committee

on Wednesday 3 July 2013

Members present:

Joan Walley (Chair)

Peter Aldous

Neil Carmichael

Martin Caton

Zac Goldsmith

Mark Lazarowicz

Caroline Lucas

Dr Matthew Offord

Mr Mark Spencer

Dr Alan Whitehead

Simon Wright

________________

Examination of Witness

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

Q77 Chair: Can I give you a warm welcome to our session this afternoon, Mr Kennedy? Thank you for coming along. It gives Parliament a good opportunity to look in some detail at the work that you and your colleagues have been doing. Could we start off with the fifth annual report and the progress that you have been looking at in 2012? Could you set out for us the parameters in terms of an end of school report; what has been done well, what could have been done better and what are the issues where more progress is needed?

David Kennedy: Good afternoon, everybody. Let me give you a very short overview of a quite long report and then I am sure we can come back to specific points as we discuss later on.

The first thing to say is that there is some good news in the report that we published a few weeks ago. There are some key measures that we have identified over the years where we did very well in 2012, and I will give you a few examples of those. There were very high rates of loft and cavity wall insulation achieved in 2012. It was a record year for adding wind power generation to the system. As we have done in other years, new car emissions continued to come down very significantly, so people are buying more fuel-efficient cars. That is the good news. In those areas we say can we expect to continue to progress as we did in 2012 as we look into the future, and the answer is we are a bit worried about that. We are a bit worried because we had a very effective policy called CERT for low-cost energy efficiency measures in place until the end of 2012. We have replaced it with a light-touch, market-based Green Deal where we think we can’t have a lot of confidence-and the early data backs this up-that we will continue to succeed with these low-cost and very important measures like loft and cavity walls.

Then if you move to the electricity sector, it was a record year in 2012 for wind generation coming on to the system. Those projects and investments were developed many years ago in a different context where there was a sense that we had a renewable energy target that we were very committed to meeting, and also funding was not seen as an issue several years ago. It has become a big issue. The levy control framework is what everybody talks about now. They were not doing that several years ago when these projects were moving through the pipeline so they could become operational in 2012. We are replacing the Renewables Obligation, the old system, with the Electricity Market Reform, and again that creates a whole lot of risk. We think it is the right thing to do, but at the moment there is a very high degree of investor uncertainty and that has to be resolved if we are to be successful moving to a low-carbon power sector, which is at the heart of the low-carbon economy. So, there is the good news, but even in those areas we are worried about whether we can continue with that rate of progress going forward.

There are other important areas where we have done very little. An example is solid-wall insulation, where that industry is not developed in this country at the moment. If you look at energy efficiency improvement in both the commercial and industrial sectors there is really no evidence that that is happening, but there is a big opportunity, so we need to do better there. If you look at consumer behaviour change in transport, as I said, new vehicle emissions are coming down, but are we rationalising car journeys, are we reducing car miles? I think the answer is no, not really, so again we have to do better there. There is very little progress on renewable heat, which is again a central thing as we get further out in time to meet carbon budgets, particularly with heat pumps. Probably nobody here has-or very few people here have-a heat pump in their house. That has to be a major part of the story in the future, and we have made very little progress. So, there are some areas where we need to do a lot better. The reason we are not doing well in those areas is because we do not have policies and appropriate incentives that are encouraging people to pick those things up.

If you look across the economy and build a picture as whole, what you can say is emissions in 2012 increased by about 3.5%. In itself the fact that they went up is not overly alarming, and you can explain that in terms of two temporary factors. One is the weather. It was a relatively cold year in 2012, there were more heating days and the average temperatures in the winter of 2012 were lower than the year before. You can also explain it in terms of what we think is a temporary switch from coal to gas-fired generation in the power sector. If you strip those two things out what you find is there is something like a 1% annual emissions reduction across the economy as a whole. Then you say: is that enough to meet carbon budgets? We think, based on the preliminary data, that we have easily met the first carbon budget, covering the period 2008 to 2012, but before we say, "Oh, great," we have easily met it and outperformed it largely because of the recession that reduced energy consumption and emissions.

Again, because of the recession not because we are on the right path in terms of implementing measures to reduce emissions over time, it is likely that we will meet the second carbon budget with limited effort, so that is the period 2013 to 2017. If you look beyond that at the third and fourth carbon budgets, if we don’t do anything to accelerate the rate of progress, then we would not meet those budgets. I have said that we have something like an underlying 1% emissions reduction across the economy. We need a 3% annual emissions reduction from now over the next 15 years to meet the fourth carbon budget, so clearly there is still a lot more to do in terms of accelerating the rate of progress.

Q78 Chair: Would you say that more progress is needed in the areas where Government and policies are looking at how to plan now and put in place for the long term?

David Kennedy: I think it is twofold. We have made progress in certain areas. We need to make more progress in those areas. As I say, the risk is that we stop insulating cavity walls and the evidence says that we have stopped insulating cavity walls in the first half of this year under the new policy. The risk is that we do not get the low-carbon investments continuing to move forward in the power sector. The policies have to be right there to even keep up the rate of progress that we have achieved in those key areas, but there are other areas, and I have given you those examples, where we need policies with stronger incentives to go from a situation where we are achieving very little in renewable heat, in energy efficiency improvement in the commercial and industrial sectors, to one where we are addressing the very significant opportunities that we have identified there.

Q79 Chair: The way you present it, it sounds as though it is all okay, it is all running smoothly, a little bit of cold weather last year perhaps affected things, and yet at the same time you have reported that we really need to have this step change in respect of policy and behaviour change. First of all, is that step change there? If it is not there, how is it going to come about?

David Kennedy: We framed that step change idea back in 2009. It was our first report to Parliament. The way we got to that was we looked at the emissions in the five years prior to that report and what the data said was before the recession emissions were not going up or down; they were pretty much flat. If you compare flat emissions in the future with what we needed, which was something like a 3% emissions reduction to achieve carbon budgets, then clearly you need a step change in the pace of what you are doing. You might argue that we have started to make the step change, so we have gone from broadly flat emissions to a 1% emissions reduction in 2012 because of the implementation of those measures I have talked about, the insulation and the renewable power generation. So, we have started to do that.

Why haven’t we achieved the step change? Why have we not now achieved a 3% annual emissions reduction in 2012? I think you can argue there is a lead time for policies to be developed and implemented. There is a lead time for industry to respond, for supply chains to be built, for consumers to change their behaviour, and so you would not expect overnight to make a step change, but it is getting to the point where the lead time has been long enough that we should start to see those bigger emissions cuts over the next year and two years.

Q80 Chair: You say we are getting to the stage where the step change needs to come in. Who is responsible for doing that, and who are you most frustrated with for it not happening?

David Kennedy: The key department to drive emissions reductions is obviously the Department of Energy. The Department for Transport is another key partner for us in working with the Government.

Q81 Chair: Have you broached this with them? Have you asked them about this?

David Kennedy: Sure. We have ongoing discussions about all of the areas that we have identified as being important to meet carbon budgets. Defra has an important role to play, particularly on agricultural emissions and waste emissions reductions. The Treasury obviously has a central role because they hold the purse strings and if they are not on board-

Q82 Chair: In the discussions that you have had with each of those departments, are you confident that this step change is going to happen from them, both individually and in a joined-up way?

David Kennedy: Our view is that the foundations are there, and that is what we set out in the progress report back in June. There is something to build on. It is not that we have achieved nothing; it is not that the Government has not moved forward in any direction. There are key policy developments and I think the most important one is the Electricity Market Reform, but there is a lot for DECC to get right there. There is a lot of risk still associated with where we are on the Electricity Market Reform. There is a lot to do on the Green Deal and on renewable heat policy. So, across each of the areas our view is we should not be complacent. There is a lot for the Government to do, and it is not the case that energy policy is finished for this Parliament, which is the view of some people. There is still a lot for this Government to do in order to make sure we are on track to meet carbon budgets.

Q83 Mr Spencer: Could you give us a flavour of how high on your agenda is energy security and continuity of supply? Do you consider that at all in your thinking?

David Kennedy: Absolutely, yes. It is high on our agenda. You could not be a credible contributor to debates to advise the Government on energy policy if you did not take security of supply very seriously, and actually we are required to do that. If you look at the Climate Change Act, there is a set of things we have to think about, to assess and analyse when we advise the Government on carbon budgets, and security of supply is one of them. In the Electricity Market Reform report that we published in May this year we went through the security of supply arguments, and there are two of them. One is: as we move to a low-carbon power system, can we still keep the lights on with intermittent power generation? The answer is yes, from a technical perspective, an intermittent system can be managed to keep the lights on. Then you ask if it is too expensive, and the answer is no, as long as you have the range of flexibility options.

Then you can look at the positive arguments around security of supply. If you are building a low-carbon energy system, if you are reducing energy demand, then you are less reliant on imports from places where there is potential geopolitical risk, and you are insulating yourself from volatile and potentially very high prices in the future. There are some very positive arguments around meeting carbon budgets for security of supply, and there are not any negative arguments against meeting carbon budgets because that would undermine security of supply.

Q84 Caroline Lucas: I feel that in the presentation that you have given so far there is a risk that people could read it as an excuse for some complacency. I am surprised that you are not sitting there and sounding more alarmed, because personally I am very alarmed. Later in our questions we will cover things like consumption emissions, aviation and shipping emissions, but even on what you have told us so far, EMR, we have no decarbonisation target, we have a dash for gas, the Green Deal so far has had entirely perverse impacts. So, the policies don’t look great. The real question I wanted to ask you right now is could you remind the Committee what level of risk the carbon budgets anticipate in terms of the likelihood of being able to remain below 2 degrees?

David Kennedy: In that broader sense, the carbon budgets are on a path to meet an 80% emissions reduction target in 2050. That comes from an assumption of a 50% reduction in global emissions in 2050. If you could achieve that, I think the balance of probabilities around 2 degrees is slightly above 50% but you would be 2 degrees slightly below-

Q85 Caroline Lucas: The figure that I remember is 63%; that it is only giving us a 63% chance of remaining below 2 degrees. This whole edifice on which the Climate Change Act and the committee is working is based on-

David Kennedy: No, it is slightly less than a 50% chance of 2 degrees.

Q86 Caroline Lucas: I think it would be helpful to have it established.

David Kennedy: Yes.

Caroline Lucas: Either way, if you were told that you had a less than 50% chance of falling out of an aeroplane if it was going somewhere, you probably would not feel all that comfortable about it. I am just saying that the levels of risk that we are accepting-and people seem to forget this in debates about climate change; not yourself, obviously. But in the general discourse there is a kind of assumption that if we do this then that outcome happens whereas in fact we are dealing here with incredibly high risks of potentially setting in place catastrophic climate change. Would you agree?

David Kennedy: I agree. As a world at the moment if we carry on the way we are going, we are exposed not to risks of 2 degrees with 50:50 probability or thereabouts. We are exposed to risks of an expected temperature change of 4 degrees or more, so clearly as the world we need to do something. The carbon budgets are the UK’s contribution to those global emissions reductions that we all need to make together. If we can do that, then we have a reasonable chance of getting to 2 degrees or thereabouts.

Caroline Lucas: I suppose we can debate what we mean by a reasonable chance, but I will leave it there.

David Kennedy: When you say it is 50:50 or 60:40, the distribution of temperatures around that 2 degrees is pretty focused on the 2, so it is pretty much 2 degrees whether you are talking about 60:40 or 70:30. The thing that we are more concerned about and that we brought to this debate was let’s be really concerned about 4 degrees, because that is what we are on track for at the moment, and let’s make sure the probability of 4 degrees, which would be catastrophic, is kept to very low levels.

Q87 Zac Goldsmith: Just a quick question about the committee; as I understand it, your committee’s job initially is to set the budget, to set the targets, the framework, and it is to assess the policies and the likelihood of Government policies achieving those targets. Is it part of your remit to put forward policy ideas or is that out of bounds for the committee? It might help with some of the questions coming up.

David Kennedy: As the Climate Change Bill was going through Parliament, there was a lot of debate about the extent to which we would get involved in policy, and it is something we have discussed over the years. We can’t talk about emissions reduction without getting into policy, because we are not credible if we don’t do that. In particular we are not credible if we just say, "Here is an opportunity." We have to then say are we likely to address that opportunity under the current policies, and if not and we are going to bank that opportunity in the carbon budgets, we have to say how could you make that a realistic opportunity when we would not expect to deliver it now. So, that is our approach to policy. We draw a line, and we don’t get into the very detailed aspects of policy. The Electricity Market Reform is a good example. We have said that first of all we need the Electricity Market Reform. We then recommended it should be on the basis of the contracts for difference. We have talked about the need for a carbon intensity target, but those are all high-level things. We have not got into the very detailed debates about the payment mechanisms for the CfDs, for example, and the risk allocations.

Q88 Zac Goldsmith: If it is your view that collectively the reforms will not enable us to meet the targets, both in terms of emissions and energy security, your job is to blow the whistle on that, to explain why. Your job is not to come up with an alternative policy. Is that right?

David Kennedy: The way we have worked is to say, "We don’t think this is going to deliver so here is a set of things that we think the Government should consider in putting in place arrangements that will deliver." We quite often go for, "Here is a set of options that the Government should consider," rather than be overly prescriptive.

Q89 Chair: Just before we move on to some of the detail of all of this, one issue that has always concerned me is the Climate Change Committee is set up under the Climate Change Act, reporting to Parliament. It is not just the advice that you give to Government; it is the role of Parliament in all of this. Given the level of frustration, at least in some quarters, about the lack of a step change, how do you feel Parliament itself is able to put pressure on or influence or direct or make sure there is informed debate about all of this? Is Parliament sufficiently geared up to take on board the responsibilities it has to receive reports from you as well and to deal with them subsequently?

David Kennedy: I would say there is a small number of people in Parliament who have a very good understanding of the issues that we are talking about in climate and energy policy. They are probably around this table and in the Energy and Climate Change Committee and a few others. I think beyond that it has been difficult to engage MPs and to get an evidence-based discussion going on things like the carbon intensity target, like the Green Deal and the legislation around that. I would be very happy if we could achieve a broader dissemination of ideas. The problem is managing to get MPs and Lords to come along and discuss.

Q90 Chair: You know it is a hobbyhorse of mine that your first report was not even presented in Parliament. Given the need to engage with parliamentarians, do you think there is a need for some detailed process in order that Parliament understood and was better able to deal with the relationship that it has with the Climate Change Committee?

David Kennedy: I think you are right. We are a parliamentary body; our progress report is to Parliament. The intention as far as we are concerned is that it would have wide dissemination and understanding and be the basis of discussion in Parliament. I am not sure that is where we are at the moment, so anything we can do to leverage the interest we have and get a wider interest would be very welcome.

Q91 Neil Carmichael: Which committee or structure do you funnel through in Parliament?

David Kennedy: The committee that we have been to most is the Energy and Climate Change Committee. We have been there many times to discuss the Green Deal, the current Energy Bill that is going through Parliament, aviation and shipping emissions in carbon budgets, bio-energy-pretty much everything we have published has been discussed by the Energy and Climate Change Committee. I think we are well understood by that Committee; what we say is well reflected in their reports. You can debate and discuss how far it goes beyond that Committee.

Q92 Neil Carmichael: In terms of accountability as well?

David Kennedy: In terms of accountability to Parliament?

Neil Carmichael: Yes.

David Kennedy: Again, I think that is the main body that we are held accountable by.

Q93 Chair: But presumably it would be helpful for you if your annual report almost became an institutional arrangement inside Parliament with at least an understanding that MPs would attend and would be personally issued and want to find out more about what is in your reporting?

David Kennedy: Absolutely, yes. If MPs would attend, if there were to be a debate, for example, around the progress report to Parliament, I think that would be a good thing in terms of getting evidence-based views into the mainstream discussions in Parliament. Often they are not evidence-based discussions.

Q94 Peter Aldous: I will just draw attention at the outset to my interests in the family farms where renewable energy projects are being pursued. But I am going to concentrate on the demand side. Mr Kennedy, your report noted that there was a 12% increase last year in domestic emissions. How important do you think the Green Deal and the ECO are to reducing these emissions to meet the carbon budgets?

David Kennedy: There are two big opportunities to reduce energy consumption in the residential sector. One is through building fabric measures like loft and cavity wall insulation and solid wall insulation, and the other, which people don’t talk about, is through the purchase and use of more efficient appliances-dishwashers, washing machines, fridges and freezers-and that is a bigger opportunity than the buildings fabric. If we go back to the buildings fabric though, which is what the Green Deal and the Energy Company Obligation are about, there is a very significant opportunity to reduce energy consumption and reduce emissions there. It is important for two reasons. It is important to meet carbon budgets, at least further out in time where the alternative to doing low-cost measures, like loft and cavity wall insulation, is doing something more expensive and the cost can run into hundreds of millions and billions of pounds. The second reason is that loft and cavity insulation have an important contribution to make in easing affordability constraints, and we know affordability is an issue not just for the fuel poor. Most households in the country at the moment are very worried about their energy bill, and particularly they were worried in the winter when energy consumption was very high. So, the Green Deal and the Energy Company Obligation are very important.

What we have said in the report is we have gone from a system where the energy companies had an obligation to deliver those low-cost measures, the loft and cavity wall insulation. We have seen that they were successful in delivering those measures, and that is the high levels of delivery under CERT in 2012. The way that they did that was they proactively approached people, quite often pensioners, and offered them subsidised insulation. What we have moved to from that is a system where for those low-cost measures we have a very light touch approach where people now have to step up and say, "Will you come and look at my house and give me a Green Deal assessment and then, rather than you pay me, subsidise me to have those things, I will take a loan out and pay for them?" For us, given the whole set of both financial and non-financial barriers, which are very well known and have been known for a long time, we question very strongly whether this light-touch approach will deliver. What we thought was needed was something that built on CERT, that kept those very strong incentives for the energy companies, that brought in other partners like local authorities, commercial companies and whatever, and moved from house-by-house to area-based approaches, but we would not expect that to happen under this light-touch approach.

Q95 Peter Aldous: Are you saying that the Green Deal is fundamentally flawed, or can some amendments and changes be made so that it does fulfil the purposes that you think it needs to?

David Kennedy: For those two measures in particular, we have said we think there is a very high degree of risk about whether we will continue to progress, and if we don’t continue to progress, there is a problem. There is a problem spending money under the Energy Company Obligation on very expensive things like solid wall insulation before you have done the cheap stuff. It is more sensible to do the cheap stuff. There is a problem from an emissions perspective that if you don’t do those things, then you have a more expensive way to meet carbon budgets, and there is a problem from an affordability perspective. So, there is a very high degree of risk. What could you do about that? You could open the Energy Company Obligation up to those low-cost measures and provide flexibility for the energy companies to meet their obligations. We think that is a sensible thing to do. The other thing you can look at is strengthening incentives, strengthening demand for energy efficiency improvement, and the most obvious ways to do that are through the fiscal incentives that you could provide through linking energy efficiency performance of houses and flats with either council tax or stamp duty.

Q96 Peter Aldous: As well as looking at the structure of dwellings, you also talked about appliances. Is that something that you think has been overlooked?

David Kennedy: It is very hard to say what is going on with appliances. The Government has now stopped publishing data on who is buying what in terms of energy-efficient appliances. We don’t know if the current policy is working. As I say, it is very important and there is a big opportunity there, and so, first of all, we need better information.

Q97 Chair: Which information was it previously publishing?

David Kennedy: It published information about, within the purchase of fridges, who was buying the most efficient, what percentage of people were doing that, what percentage were buying an A-rated, B-rated and whatever. That information is no longer available, and as I say, that means that we cannot assess whether the policy that is in place is successful or not. The policy that is in place is the labelling scheme that comes under the European legislation. Whether you would want to go beyond that, whether you would want to have fiscal incentives, as they do in some countries, for more efficient appliances, whether you would want to have the demand side being a major part of the Electricity Market Reform-I know the Government has moved at least in part towards having the demand side there-there may be an opportunity for somebody to bundle together a load of people buying the most efficient appliances and sell that into the Electricity Market Reform rather than investing in low-carbon power generation. It would be a lot cheaper to do that. But we can’t say whether the policy is working at the moment or not, because we don’t have the data to say that. It is a major gap in the evidence base.

Q98 Mr Spencer: If we can look at managing the delivery of carbon budgets, could you give us a flavour as to how well you think the Government is performing? I suppose you could break that down into three areas. It is identifying the reductions that are required and have they got that right, setting the policies to deliver those reductions, and then monitoring how well those policies are performing in achieving that.

David Kennedy: It is hard for me from the outside to talk in detail about their governance, but if you use that way of breaking down the problem that they have to solve, if you look at the Carbon Plan, that broadly reflects the things that we have identified to meet carbon budgets. It has the energy efficiency improvements, the investments in low-carbon power generation, the more fuel-efficient cars. We think they have identified the right measures. They have broadly the right high-level ambition in the Carbon Plan. When I say ambition, they have scenarios that include ambition without them stating that this is their ambition. Then you move on and ask if they have the right policies in place. I have said I think the Electricity Market Reform is the right policy but there is a lot to do to make it work. We have talked about the Green Deal that we think has a very high degree of delivery risk associated with it. You have to question whether we have the right policy in place for renewable heat, particularly in the residential sector. It is very small-scale and has not really achieved anything up to now. The policies in the commercial and industrial sectors are not driving energy efficiency improvement, so are they the right ones? You would think probably they need to be strengthened. We have a very light-touch approach to agriculture where there is an important challenge to reduce emissions over time. We don’t really have any crunchy policies there. We think there is a lot to do on policies across all of the different sectors of the economy.

Then you think how about the cross-Whitehall governance arrangements and is there enough accountability there; are Departments on the hook? I think the problem is that the Government and the Departments within the Government have been very reluctant to commit to specific numbers for overall emissions reductions and within that for the key measures. Even if you look at the Department of Energy, you won’t find them saying, "We want to insulate 6 million lofts over the next five years or 6 million cavity walls or add 20 gigawatts of low-carbon power generation." They are very reluctant to step up and say that. Unless you have a strategy and a governance framework that has clear objectives that are measurable, against which success can be measured, then it is very hard to have an effective overall approach to this. If you don’t know whether you are succeeding or failing because you have not said what it means to succeed or fail then I think you can probably go along, muddle through for a number of years and possibly, as Caroline said, be a little bit complacent looking at emissions reductions that actually came because of the recession but have put us in a benign position, at least temporarily. I think that is the danger.

Q99 Mr Spencer: In identifying the reductions required, you put quite a lot of emphasis there on the Carbon Plan. Am I right in saying that that is a pretty important part of this? I suppose if I was being critical, in your fifth report you only mention the Carbon Plan once. How important is that plan?

David Kennedy: We mention it once in the sense we have assessed that before. It came out in I think 2010. We looked at it in our report last year and there we said the plan is targeting the right areas, but the plan is the entrée into this area. It says at a high level this is what we are broadly aiming for and then you move on and you say we have to put the policies in place, we have to have the mechanisms to hold the different Departments’ feet to the fire across Whitehall. That is what we are focused on now, because we have drawn a line and said the plan is okay.

Q100 Mr Spencer: So, you would stick with it? You wouldn’t say a new approach is required?

David Kennedy: A new cross-Whitehall approach?

Mr Spencer: Yes.

David Kennedy: Again, using your categorisation, I don’t think they need a new Carbon Plan. That has the right measures in it. What they need is stronger policies across most of the key areas. Whether they have the right governance arrangements in terms of the cross-Whitehall boards that discuss these issues from the outside it is hard to tell, although you would have to question are those arrangements going to be effective unless they have quantitative targets against which success can be judged.

Q101 Mr Spencer: You mentioned that you are mostly engaged with the DECC Select Committee. Could you give us a flavour as to how you work with the rest of Government? How often are you meeting with the Department? Can you give us a flavour as to how that relationship works?

David Kennedy: We meet members of the Government at different levels. At the level of my chairman, Lord Deben and myself have regular meetings with the Secretary of State in DECC, so we meet regularly with Ed Davey, before that with Chris Huhne, before that with Ed Miliband. We meet less regularly but still on a reasonably frequent basis with the Cabinet Secretaries in the relevant Departments, Transport for example; we meet with the Chancellor. We have met once with the Prime Minister since we had the new chairman in place. We also work on a more ongoing basis with officials. My secretariat, my team of analysts, work with Government analysts to make sure that we are on the same page in terms of the evidence base and that we have shared evidence.

Q102 Mr Spencer: Do they approach you and say, "We’ve got this policy idea. Do you think this will work?" or do you approach them and say, "We’ve got a policy idea. What do you think of this?"

Chair: Or neither.

David Kennedy: It has happened in both ways at different times. They will come to us and say, "What do you think about this?" We will say that, "We think there is a risk in the way that you are proceeding and we are developing this idea," and then we make it into our formal advice.

Q103 Chair: Could you give us an example of one where that did happen, where the Government came to you and said, "We’ve got a good idea. What do you think of this?"

David Kennedy: The Government has come and asked us over the years, "What do you think about the carbon price underpin?" before it was introduced, "What do you think about the way that we are proceeding with the Electricity Market Reforms?" A lot of these things are actually back and forward. The Electricity Market Reforms has been a process where we said there is a need for reform and the Government then said, "Well, what about these ideas?" and then we narrowed it down into contracts for differences. I wouldn’t say it is one-way traffic, either way from us to them or them to us.

Q104 Mr Spencer: When we look at monitoring the progress that is being made, the overview of that is done by the National Emissions Target Board. How are they performing? Are they effective?

David Kennedy: From the outside that is something I can’t say. I don’t attend that board. I don’t know what they discuss there.

Q105 Mr Spencer: I am trying to work out whether you think they are doing a good job or a bad job. Can you assess that?

David Kennedy: I just can’t tell because I don’t know what they are doing.

Q106 Mr Spencer: So, they don’t liaise with you at all?

David Kennedy: No.

Q107 Mr Spencer: You don’t get to see what recommendations or messages they are sending back to Government at any stage?

David Kennedy: No, I don’t. I work with and talk to the individual people who sit on that board, but I am not party to the discussions that the board as a whole have.

Q108 Mr Spencer: So, you would not be in a position to say what they should be focusing on or how they should be conducting their business?

David Kennedy: We are in a position to say, "This is what we are doing well," we as a country, as a Government, because we can tell that. We can look at the emissions data and the data on implementation of measures and we can make a judgment: are we succeeding or aren’t we? We are in a position to say that if we are not doing well, what it is that we might do differently. You don’t need to be at the cross-Whitehall officials board to be able to say what are the appropriate directions of travel for policy development. Whether they are effective in their discussions-as I say, I don’t know what they discuss there.

Q109 Mr Spencer: Are there any areas in your progress reports that you feel the Government has failed to grapple with or it has not taken your findings on board?

David Kennedy: In each of the areas we have talked about, in the Electricity Market Reforms, a lot of that does come from us so the Government has listened there. But there is something we have advised on very strongly, which is the need for a carbon intensity target in 2030 to give a clear signal to investors who are looking to develop projects and put money into the supply chain now, where the Government in a sense has listened in that they have taken a provision in the Energy Bill that they will set a target or could set a target in the next Parliament but we think that is needed sooner. We have said to the Government through the development of the Green Deal policy that we think there is a very significant risk. They listened to an extent and they changed the design to an extent, but we still think there is a significant risk.

Q110 Mr Spencer: Do you expect Government to take on board everything that you ask for, and if they did, would you feel that you were not asking for enough? Do you start from the position of, "We will ask for as much as we can and see what they deliver," and try to push the agenda, or do you try to deliver realistic targets?

David Kennedy: We don’t get into tactics like that. We simply identify what we think is needed to meet the carbon budgets; and if that is in place, we say good, and if it is not in place, we say it is not in place and we need to do something different if we are serious about meeting carbon budgets. We say that in a balanced way, so if I don’t look very anxious sat here, if I am too relaxed-we present the facts, and the facts are pretty clear. However I say them, the facts are pretty clear that there is a lot more to do.

Q111 Caroline Lucas: There is. May I ask about one specific area where there is lots more to do, which is on F-gases. In your 2013 progress report you recommended that the Government should at a minimum fully support the proposals from the EU to reduce emissions of F-gases by 70% in 2030, but you go further saying that you think that the Government should increase the speed of phase-out of some of these gases such that these emissions are zero or minimal by 2020. In the light of the European Parliament vote just a couple of weeks ago that also seemed to be going in the same direction, can you give an indication of what more practically speaking you think the Government could be doing on that?

David Kennedy: The concern we had was that the Government was going to push back on the European proposal, first of all, and we certainly didn’t think that was appropriate because clearly commercial companies are deploying low-carbon alternatives for refrigeration to the use of F-gases. If that is the case, it tells you that there are cost-effective opportunities out there. We didn’t think it was appropriate that the Government would push back on the proposal from the Commission.

Q112 Caroline Lucas: But Defra certainly seems to be. Well, they are not being particularly receptive on this issue.

David Kennedy: I think you would have to ask them what their position is. It is something we have discussed with them. My sense is that they are not going to push back on the European proposal, first of all, and they are looking at opportunities to strengthen the European proposal and go further than has been proposed, which is what we have said in the report. We do not have any specific, "You should phase out use in this particular area by 2020," going beyond what the proposal currently is, because we have not done that very detailed analysis you would need to do. We have put it back to them to say, "You need to go away and look very carefully at this because we think the opportunities may be there and, having looked carefully, come to a sensible position and push that." As I say, I think there was a constructive response when we spoke with Defra on that, and it is something they are looking at at the moment. This proposal still has some way to go as it moves through the European Parliament and the council and comes to a final piece of legislation.

Q113 Caroline Lucas: To try to summarise, do you think that they will at least go as far as the EU and maybe even take your advice, which is to look at going further?

David Kennedy: It is not for me to speak for the Government, but my understanding is that they are doing both of those things, that they will go at least as far as the EU and that they are looking at opportunities to go beyond what is currently proposed.

Q114 Dr Whitehead: Can I check back on a piece of shared evidence? You mentioned it is very important to get shared evidence across Government. I asked the Secretary of State yesterday about the risible number of loft insulations that have been carried out this year compared with last year. You mentioned there were a record number last year, I think 46,000, and it is now 1,200 in April 2013. The Secretary of State said that that was not a big issue because we had insulated pretty much most of the lofts that we could find and that there are only a few hundred thousand outstanding and therefore the concentration would be on other matters. Is that your shared evidence on this?

David Kennedy: You have picked up one of the areas where there is not a shared evidence base between the Government, and not just us, I think all of the other people who are looking at this issue outside the Government.

Q115 Dr Whitehead: Everybody, more or less?

David Kennedy: Our evidence is that maybe there is about 6 million lofts left, not virgin lofts that don’t have any insulation but which were insulated decades ago when insulation was thin and now it can be a lot thicker and it is cost-effective and sensible to put that new and thicker insulation in. If you focus on those, as I said there are about 6 million-plus lofts. We want to get to the bottom of this, because we can’t keep saying our analysis says this and then the Government says their analysis says there is only a few hundred thousand, and so we are commissioning a piece of work now to get to the bottom of why the Government thinks there are so few and everybody else thinks there are still a lot to do, and we will conclude that in the next months.

Q116 Dr Whitehead: What will you do with that?

David Kennedy: That will feed back into our advice on the Green Deal. The Cabinet Office has asked for a review of the Green Deal and the Energy Company Obligation at the end of this year. We think that is an important review and it is an opportunity to go back and revisit some of these questions about how many lofts are there and is the current policy well designed to address those lofts. It is the same for cavity walls. Solid-wall insulation is very expensive and although we should be aiming to do that, I think the concern is that, having that as the sole focus of the Energy Company Obligation, the costs could be very high, which would feed through into significant bill impacts that we should try to avoid. So, there is a whole set of questions around that policy. That policy is not gone; it is not finished. It is a radical departure, something we need to look at very closely, and we have to keep the flexibility to strengthen it and we think it will need to be strengthened.

Q117 Zac Goldsmith: On the Green Deal, are there any measures that you can think of or that have been brought to your attention that could make the Green Deal work in the way that it was intended to work but without drawing on the Treasury? I suppose the question I am asking is: is it down to DECC or the Treasury? The kind of measures that most people are talking about for boosting the Green Deal seem to require agreement by the Chancellor and not by the Secretary of State for the Department of Energy and Climate Change.

David Kennedy: Not necessarily. The Energy Company Obligation is a pot of money that is well over £1 billion every year that can be spent on potentially loft and cavity wall insulation, as it was under the CERT scheme, but the way it has been designed it has to be spent on solid wall insulation, which is much more expensive. So, one thing you can do is say, "We’ve got that pot of money. Let’s spend it on the cheapest rather than the most expensive thing first."

Q118 Zac Goldsmith: I am not saying you should not do that, but if you did that, that would have an immediate impact on the Green Deal, because presumably you would be offering the same service that is offered through the Green Deal but without any of the financial complications attached to it. You are creating a better alternative, effectively, but with limited funds as opposed to relying on the market, which is what the Green Deal does.

David Kennedy: If you believe that the Green Deal will deliver loft and cavity wall insulation, then to put them into the Energy Company Obligation would change the playing field such that it would not be done under the Green Deal any more. What we are saying is there is a high degree of risk. We find it hard to believe that there will be significant loft and cavity wall insulation under the Green Deal. If you believe that, then to bring this into the Energy Company Obligation your counterfactual is lofts and cavity walls will remain not insulated. There is something that involves the Treasury, which is the fiscal incentives that could be put in place here, but there is a third way, which is to look at building regulations. That was proposed, and there was an idea that if you were going to have an extension, you might also at the same time insulate your loft or your cavity wall. There was a more radical proposal that said if you replace your boiler, which half the households in the country will do over the next 10 years, then you would also have to have loft and cavity wall insulation, but I think politically it was decided that that was not acceptable.

Q119 Zac Goldsmith: There was also a suggestion that one of the incentives might involve providing some kind of stamp duty rebate for people who pass their homes on, and if the buyer is the person who pays stamp duty you would have to adjust it, on the understanding that the only time it really is not disruptive to have your home upgraded is when you are not living in it, but that would require a call on the Chancellor. Is that something that you have explored as a committee?

David Kennedy: It is something we have suggested at a high level. I think it is in the minds of everybody who works in this area that fiscal incentives could well be the way to go in terms of strengthening demand for energy efficiency improvement. I don’t know how receptive the Chancellor is to that. It is certainly not on the cards at the moment for immediate introduction but it is something if we do a review of the Green Deal-the delivery figures have not been very good at the moment and what it has been successful at is giving cash back to people to replace their boilers, which was not really the aim of this. People replace their boilers anyway because they conk out at the end of their lives and you have to replace them. This is just a nice subsidy for doing what you would do anyway. When we review this, I think we will see that the delivery figures have not been great and we need to find some way to strengthen incentives and that is the obvious thing to look at.

Q120 Chair: You have just referred to building regulations, and I am thinking about the pending consultation on the Code for Sustainable Homes. Going back to what you were saying about Government sometimes came to you to ask you what you thought about certain ideas, can I establish whether or not you have been involved in any of the pre-discussions about the consultation that is about to go out on the Code for Sustainable Homes?

David Kennedy: We have not done that. We pick up in the progress report that there is an important issue here, that we have to be building sustainable homes now, given that they will be significant in number over time and that they will be there in the future as we try to meet our emissions targets and the 80% cut and that we have to have these standards right. We have not gone into the detail at the moment. They have not come and asked us about the detail. We will look very carefully at the consultation, and we will respond to that as appropriate.

Q121 Dr Whitehead: Last year when we looked at emissions from the power sector there was a 12% rise, mainly because of the switch from gas to coal over the winter period. However, that means that the permitted running hours under the large plant directive are being consumed at a greater rate. How temporary in your view will that effect be and is there perhaps a longer term issue in the relative cheapness of gas versus coal, and how that then plays out over the next period as far as emissions are concerned in the power sector?

David Kennedy: We think it is temporary, and there are a number of reasons for that. The first one you have said. We have the European legislation, the Large Combustion Plant Directive under which a lot of the plant we have on the system now will not be on the system in a couple of years’ time. Following that we have the Industrial Emissions Directive under which beyond the early 2020s most of the rest of the plant is likely to come off the system. The second thing that reinforces that is the carbon price underpin, which makes using our old inefficient coal plant in this country uneconomic over time, so although the carbon price at the moment is very low, as you start to get to a carbon price of £30 a tonne and that increases through the 2020s you can’t really justify continuing to operate coal plant.

The third reason is that there is an incentive on offer from the Government to convert that coal plant to biomass and give it extra life beyond the early 2020s, and a lot of companies now are looking at that. We would not expect, as you get into the 2020s, to have much if any coal-fired plant left on the system. Then you say are we worried about people building new coal plants. I don’t think anybody is planning to build new coal plants in this country. We had the Kingsnorth proposal, and that has gone-I think it went largely as a result of the carbon price underpin-and we don’t see anybody seriously looking at that now.

The important thing is to say that we need to move from the system we have, which would be gas-based if not coal-based, and make that a low-carbon system. That is the sensible thing to do from an economic perspective, and that is what the Electricity Market Reform is all about, or at least it should be.

Q122 Dr Whitehead: Yes, except in your progress report you did state, "There are major challenges relating to the design of Electricity Market Reform." Are you any happier now in terms of the challenges as the legislation has gone through the House or do you continue to worry about those major challenges? Would you like to set out what you think those are?

David Kennedy: Three things need to happen for the Electricity Market Reforms to work. The first is that there is a set of projects now that are stuck waiting to go into construction and those need to proceed into construction. The second is we need new projects being developed so that they can sign contracts in the future. The third thing is we need supply chain investment, for example offshore wind supply chain investment that is central to the story. There is a political argument that if we are spending a lot of money under the levy control framework, it has to be on a supply chain in this country, but there is also an economic argument that we need that supply chain and we need the competition to drive innovation and cost reduction without which it is hard to justify ongoing investment in low-carbon technology. So, we need all of those things to happen. The contracts for differences are a necessary but not sufficient part of the solution. They can pull through the projects that are already there; they can make those bankable. For example, we can move forward with the 1.5 gigawatts of offshore wind projects that are waiting to go into construction now, but they need some confidence that they will paid under the contract.

But that is only a small part of the solution. What you also need is a sense of medium-term at least direction of travel, and when I say medium-term I am talking about 2030. You need that in order that people can develop projects thinking there will be a market in this country in the 2020s. If I am a developer of projects, I need to know there will be a market in the 2020s, because the projects I am developing will be coming on to the system in the 2020s. If I am a supply chain investor, I can’t just invest off the back of a market that exists to 2020 and not beyond, because I will not pay back my investment in that timeframe. Our main issues are giving visibility around what happens beyond the next several years to visibility not just to 2020 in terms of the contracts that will be offered and the prices paid but through the 2020s, and that is where the idea of the carbon intensity target comes in.

Q123 Dr Whitehead: You have already mentioned the need for a carbon intensity target and that the Government had gone some way by putting amendments into the Energy Bill, saying that there could be a carbon intensity target. What might be the circumstances where it could be decided that there should not be a carbon intensity target? The Bill does provide for the Secretary of State simply not to take a decision, doesn’t it?

David Kennedy: Given that we are strong proponents of having a carbon intensity target-we think it is a very sensible thing to do-we can’t see any circumstances where you would not have one and where you would not aim to move to a low-carbon power sector. We are very clear in our Electricity Market Reform report where we say that unless the world gives up on its efforts to reduce emissions and accepts very dangerous climate change risks then there is an argument we shouldn’t be the only country in the world to move to a low-carbon power sector, but we are not in that situation. There is action in other countries: China and America are acting, Korea, Mexico, Brazil, and all sorts of countries. We are just playing our part alongside a lot of international and global action, and as long as the world is serious in limiting risks of dangerous climate change then it will always be sensible to have a low-carbon power system sooner rather than later and it will always be sensible to commit to that to give a signal to industry and to make it happen. It is the signalling; it is the commitment that makes it happen. It is the investments that follow the commitment that give us the assets on the system that drive the costs down and unlock all of the economic benefits for us.

Q124 Dr Whitehead: You could argue that the Government has given some certainty in some areas of the energy generation market by, for example, grandfathering emission levels from gas-fired power stations to 2045 if they are building power stations over the next period. Further, in the Gas Generation Strategy the Government has this to say about review of the fourth carbon budget, "We will review our progress in early 2014, and if at that point our domestic commitments place us on a different trajectory from the one agreed by our partners in the EU under the EU ETS, we will revise up our budget to align it with the actual EU trajectory." What is your view of that?

David Kennedy: It is a very timely question, because we launched the fourth carbon budget review yesterday. For anyone who is interested, it is on our website. We published a letter that we sent to Ed Davey and alongside that we have a call for evidence around the questions we need to answer as part of the review. What we say is the first thing is not to be alarmed. The Climate Change Act envisages from time to time that you would go back and look at carbon budgets, and that is a sensible thing to do because we learn new information all the time and, based on new information and new facts, you say, "Is it still sensible to do what we thought it was sensible to do several years ago?" We always envisaged that there would be a review and we recommended at the time to the Government, as they were discussing their position on the fourth budget, that there should be a review, so it is no surprise that there is a review. It was announced by the Government at the time that they set the budget, but the idea that it should be reviewed to take account of the information did come from us.

The second thing is the review is for the Committee on Climate Change; it is not for the Government, and the Climate Change Act is very clear. We advise the Government on is there a reason or not to change the carbon budget and then the Government has to make its deliberations, but it is not that we are out of the picture and the Government can somehow go and change the budget without coming to us. We are the owners of the review, if you like.

Q125 Dr Whitehead: It appears that is not quite what this particular passage says.

David Kennedy: You wouldn’t think so reading that, but maybe whoever wrote that had not read the Climate Change Act. If you read the Climate Change Act, it is very clear and it is reflected in our letter about the carbon budget review.

The other thing is the Climate Change Act is very tightly drafted. You can’t change the carbon budget on a short-term political whim. The wording is something like it can only be changed if there has been a significant change in the circumstances upon which the budget was set. The circumstances upon which we set the budget are we looked at the climate science. We looked at the international context and asked what is happening in terms of the UN process and action in individual countries. We looked at the economics of the different technologies and a whole set of things. We looked at security of supply; we looked at fuel poverty. There is a confusion that has crept into that Gas Generation Strategy that somehow the fourth budget was premised on the EU changing the ambition in its 2020 greenhouse gas emissions reduction target and increasing that ambition from a 20% reduction to a 30% reduction on 1990 levels. That was never a premise for the fourth carbon budget. If you look through the fourth carbon budget advice that we gave, you can’t find any link between that budget and whether the EU was at a 20% or a 30% target.

Given that the Government accepted our advice, that advice determines the circumstances upon which the budget was set, and then if you are asking if those circumstances have changed, given that it does not form any of the circumstances, you could not change the fourth carbon budget, because the EU has not changed its target from 20% to 30%. I am not sure that is well understood across all of Government, or outside Government as well, but we make it very clear in the letter to Ed Davey, which is in the public domain, that is not part of the review, that is not what we are going to look at. We are going to revisit, for example, the climate science and these debates that are not so much within the scientific community but they are within the political debates around climate science such as is there a radical change in climate sensitivity estimates in the last two years. The short answer to that is no, but that is the kind of thing we will look at.

Q126 Dr Whitehead: When was your letter to Ed Davey?

David Kennedy: It was yesterday. That is why I say it was very timely.

Q127 Dr Whitehead: Would you conclude from this that technically that particular passage appears to be illegal in terms of how the legislation stands, or might that be pushing it a little too far?

David Kennedy: I am not a lawyer, so I can’t get into saying it is illegal or not. I think probably that misunderstands the way that the Climate Change Act is drafted. It misunderstands the way that our advice was given to the Government, but the Government at the end of the day accepted it, so they are stuck with it. I would say that they are stuck with something sensible, because we did a lot of analysis to get to that advice. But as I say, that is the budget and unless there has been a significant change in things that are not anything to do with the EU 2020 target then the budget would stay the same. I also have to say we are open-minded. We are an analytical body. We are not wedded to the budget come what may. We will look again with an open mind across all of the relevant things. We could recommend a loosening of the budget. We could also recommend it should be tightened, and there are reasons why it might sensibly be tightened, but let’s work through that over the next months. We are going to report back to the Government in December, and then the Government will have a decision to make in the new year.

Q128 Dr Whitehead: So, there is a misunderstanding?

David Kennedy: The other thing that does not come across clearly there is it is not a decision for the Government in the sense that if they were to decide to do something silly, they would have to take it to Parliament and there would have to be a vote in Parliament on that as well, so there is an extra stage. I would not have thought it would ever come to that because this is an evidence-based process, the facts will be pretty clear, the law is pretty tightly drafted, and I hope that we end up in a sensible position early next year and then we draw a line under this and move on.

Chair: In terms of moving on, I am conscious that we do have to move on to some other questions. I know that Neil Carmichael wants to come in very briefly.

Q129 Neil Carmichael: I do. Thank you. I was listening to your comments in response to Alan’s questions about the European Union. One thing that bothers me is that one or two nation states are basically nationalising their own energy policy. I am not talking about nationalisation versus privatisation but as opposed to internationalisation, and you could really put us into that category as well. Does your committee give some thought to the absence of true competitiveness in energy and connectivity? Both of those things are linked essentially to how we can manage climate change.

David Kennedy: We do. You have to get first things first and the important thing now is to agree an overall and ambitious 2030 objective for greenhouse gas emissions reductions in the EU. We think, and we have said in the progress report, that the UK position to support a 40% emissions reduction in 2030 on 1990 levels through domestic abatement with an additional 10% through the purchase of credits, subject to there being a global deal with appropriate ambition, is about the right ambition as far as we are concerned. That is compatible with our analysis of global emissions reductions to meet the climate objective that we talked about before. You get that right, and then you can start to say: what is the supporting set of mechanisms at the European level? For example, how much do you want to bind all of the countries into low-carbon power generation targets, if not renewable generation targets? What about the new car emission standard that goes beyond 2020? I think we can move on to those, having agreed the high-level aspects of this.

In terms of not being an island, as we move forward with the building of a low-carbon economy, we think a lot about and we analyse a lot what are the opportunities for interconnection in order to limit the costs of particularly power sector decarbonisation. All of our analysis and modelling says we need to aim to be a lot more interconnected than we are currently, and if we are not a lot more interconnected, then the costs of having a low-carbon power sector become a lot higher than we have talked about. We have commissioned a report that is being done at the moment on infrastructure to support power sector decarbonisation and within that there is a very important role for interconnection, and so that is central to our story.

Q130 Caroline Lucas: I am just picking up where you were more or less leaving off with Alan Whitehead. You were talking about how, for example, recent developments in climate science or the politics around climate science and modelling get factored into the carbon budget. Could you say a little bit more about how that process works? If new things are discovered or if our understanding of climate science changes, how does that feed into the budget-setting process?

David Kennedy: We keep a very close eye on the climate science. We have a number of scientists on our committee. One of them is among the most eminent climate scientists in the country, and that is Sir Brian Hoskins. Within the secretariat we have a very good climate scientist with a PhD in atmospheric physics, and he is our route into the scientific community. Part of his job is to network among all of the people in this country and other countries so that we know exactly what is going on. So, we keep abreast of the latest science. It is something that we are always discussing among ourselves and then it feeds into the design of the carbon budget. Each time we design a carbon budget we have a deep dive again and say has the climate science-

Q131 Caroline Lucas: You won’t effectively change an existing budget, though?

David Kennedy: The fourth carbon budget review is set in legislation. It was set partly on an assessment of the climate science; in doing a review of that fourth carbon budget we have to look at all of the circumstances, including the science. If it was true that climate sensitivity estimates are now half what they were two years ago, that would raise a question. Is it still appropriate to be on this path, or should we take our foot off the pedal?

On that specific issue I can tell you there is not any new evidence that makes us think differently about climate sensitivity. Some people would have you think that is the case, but if you look at the science, there is not a fundamental shift on that important issue of climate sensitivity, and I would not expect the IPCC, when it reports in October, to say the range for climate sensitivity has shifted significantly. Let’s see what they say. I would not expect them to say it has shifted. That is one of the things that will feed into our review, so we will be looking at the IPCC report before we do a report on the science and the international context in November, but the other thing is the call for evidence asks the specific question: is anything different, particularly on climate sensitivity as well as some of the other key things? So, anybody who has views on this can come forward in the call for evidence, we will be having workshops in July for selected people, and we will pull together what is the latest evidence and what are the implications.

Q132 Caroline Lucas: In some of the evidence we have taken so far, it was suggested that climate feedbacks could potentially dwarf the human-induced emissions over the next century, and there was a big debate-and you can probably imagine some of the participants in the debate-between people who are saying that the current climate model does not sufficiently take into account or does not take into account at all the feedback mechanisms and then lobbyists said, "Yes, it does." There was a big heated debate with the Met Office saying that we can’t go into fairyland, on the other side very strong evidence saying that the way the UK Climate Act has dealt with feedbacks makes it impossible to distinguish what are budget and what are feedback emissions, "This is a catastrophe; it creates a policy nightmare."

Where do you stand on that, given that the science around feedback is not entirely clear; it is uncertain? How do you factor that into the budget? Just leaving it out because it is too complicated seems to be the wrong approach.

David Kennedy: We don’t leave it out. Climate sensitivity is all about the feedbacks and the climate-I won’t call them sceptics-deniers say all the feedbacks cancel out so they do not make any difference. You are talking there about ice reflecting the sun and the associated heat so it does not end up in the atmosphere. You are talking about water vapour and you are talking about clouds. All of those are modelled, for example, in the Met model. They are modelled and taken into account in our modelling, and that is why there is a big range for climate sensitivity that we work with.

Q133 Caroline Lucas: What about something like permafrost?

David Kennedy: That is a slightly separate thing. We look across the range of uncertainty for all of those feedbacks, and that is why the climate sensitivity is a range of 2 degrees to 4 degrees rather than a point estimate. It largely reflects the uncertainty over those different feedbacks, and particularly clouds.

There is one that is less commonly, if at all, modelled, and that is the permafrost release of methane. That is something that we are aware of. We think it is potentially important. It works in the other direction, so to anyone who says climate sensitivity is a bit lower this is an effect that takes you in the opposition direction and says we are more exposed to climate change risk than we have been factoring in. As part of the fourth carbon budget review, we are going to try to put some numbers on this, so we are going to do some modelling that also includes that particular feedback that you have talked about, the permafrost release of methane. As I say, I am not sure that has been done before, but we want to do it because we think it is important.

Q134 Caroline Lucas: Would you say that the current model is inadequate because it does not properly account for the potential impact of permafrost?

David Kennedy: I would not say it is inadequate; there is always room to improve your models, and this is a direction that people should be looking at to improve the model. Will it make a significant difference? Will it change what we think in terms of risks of dangerous climate change? I think it will change it a bit probably, but we need to find out, understand that, and then again ask the question.

Q135 Caroline Lucas: I am coming back to it because we did receive some very heartfelt evidence to suggest that the current climate change budgets-inadequate is probably was one of the milder words that might have been used in terms of not properly incorporating some of these feedbacks. I am just trying to probe a bit more. It sounds to me as if you are saying, "Well, they are pretty good, and this is another issue we will spend a bit of time looking at and we will modify it slightly, but essentially it isn’t going to be a game changer," whereas some of the evidence that we have received would suggest that it is a massive game changer to the extent that neither the Met Office nor the Climate Change Act had properly incorporated it; they were inadequate, to say the least.

David Kennedy: All you can say is that to the extent the models do not include methane release from permafrost and they underestimate the risk of dangerous climate change-

Caroline Lucas: Significantly.

David Kennedy: Well, you can’t say that, because we don’t know whether it is significant or not. We don’t know if it is-

Q136 Chair: But is it significant enough in your mind for you to want to see further research to give some further indication urgently?

David Kennedy: Yes, obviously. As good researchers you say if something is missing from the model, and then we would like to fill that gap in the model. That is the scientific process working through, and that is what we will turn to over the next month or two. So, we will have an answer to the question: is it significant, does it change the way we think about these things, and does it make us think that we should have tighter targets and carbon budgets? I will be able to answer that question, which I think is an important question, so don’t take me as saying it is not important. I think it is important, and that is why we are trying to answer it, but we will come back with an answer.

Q137 Martin Caton: Continuing briefly on the review of the fourth carbon budget, the Government said it wants to see the UK going no faster or slower than the rest of the EU on emissions reductions. How do you think the rest of Europe will react if we revise down our fourth carbon budget?

David Kennedy: Let’s see if we came to that point anyway. As I say, we have a review to do, there is very-

Chair: But hypothetically.

David Kennedy: -specific circumstances. It is not really the role of my organisation to start to speculate how that would be seen. Anybody around this table could say if we have set a very ambitious and pioneering carbon budget through the 2020s and we change the ambition as an ongoing European negotiation, that probably would not be helpful in terms of getting Europe to an ambitious 2030 target.

I should say as well that our analysis says the kind of targets being talked about and proposed by the UK at the European level, the kind of trajectories for the EU Emissions Trading Scheme are broadly comparable with the fourth carbon budget as currently legislated. So, if all goes well in Europe, if what is being proposed is accepted, and who knows what will be the outcome, I think there is a positive today that is symbolic, that, whereas the backending proposal in the EU Emissions Trading Scheme was voted down previously in the European Parliament, it was voted through today. So, it was a bit of a change in Europe there. It is all to play for in Europe, but, as I say, the proposal on the table at the moment is compatible with the fourth carbon budget, more or less.

Q138 Martin Caton: The timing of the review of the fourth carbon budget comes before a global agreement on climate change, which we hope will be reached in 2015. Does that make a case for pushing back the fourth carbon budget review to after 2015?

David Kennedy: I think it is helpful to have the review now. There are a lot of debates at the moment, for example around the climate science. Is it really the case that the climate science was a house of cards and it has all fallen down? It is an opportunity to revisit that.

There are lot of people who say internationally nothing is happening in this UN context when there is a lot happening. Again, it gives us an opportunity to look at the evidence on these things where a lot of ideological and rhetorical argument has crept in over the last couple of years. So, I think it is useful. I don’t think it will be the end-game, not necessarily for the fourth carbon budget, but we will at the end of 2015 advise the Government on the fifth carbon budget, which covers the period 2027 to 2032. We will be able to take stock of: where did we get to with the global deal, and does that have any implications for the fifth carbon budget and possibly knock-on implications for the other budgets as well?

Again, we have to keep coming back to these things. We learn new information all the time, and we have to take that on board and ask ourselves: does this still make sense? The opportunity to do that around the global deal will be the fifth carbon budget, which, as I say, we advise on at the end of 2015.

Q139 Mark Lazarowicz: On the fourth carbon budget, I think you have previously said, or the committee has said, that the UK is not yet on a trajectory to reach the targets of the fourth carbon budget, primarily because of contributions from a non-traded sector, and you indicated that we might need to set some priorities for the UK to reach to that. First of all, how far can you do that if the fourth carbon budget may be changed? Assuming that the trajectory is still roughly in the same direction, what would you say would be the priority to bring this into compliance with the target for the fourth carbon budget period?

David Kennedy: You have talked about the non-traded sector and said we are off track there, and clearly we need to do better. I have said several times it has to be residential energy efficiency improvement, it has to be non-residential to commercial and industrial energy efficiency improvement, and there has to be much more progress on renewable heat across all of the sectors, including the residential sector. It has to be in the transport sector. The one thing we have done well over the last few years in a sustained way is new car emissions have come down, but that needs to carry on. We need to build on that and see the same story in vans and HDVs, and we need behaviour change in transport. It is all of those things together. It is not where you can say there is a silver bullet, if you can do that, you would meet the budget. It is a game of many different measures across different sectors.

But also we are not on track in the traded sector. We are not on track with both power sector and energy-intensive sector decarbonisation. There is a lot more to do in both of those.

Q140 Mark Lazarowicz: I am going to move on, as time is running out. On the second and third carbon budgets I think you have advocated they should be tightened even if they are unlikely to be met, largely because of economic downturn. I would say that is the way the system should work; why should you tighten up the budgets when we are going to reach them anyway? If we don’t reach them, the system comes into play.

David Kennedy: We made that recommendation at the time of the fourth carbon budget, and we said in order to be able to meet that fourth carbon budget you would need to outperform the third carbon budget. The Government is aiming to outperform the third carbon budget, so if you look at their emissions projections, they assume that all their policies will work and if that were the case, they would outperform the third carbon budget.

It is a question of incentives. If you are aiming to outperform the third carbon budget, why don’t you commit to that by tightening the budget rather than just saying you are going to aim to outperform it? So, there is clearly a stronger incentive for a Government to act, having tightened the budget, rather than an aspiration to outperform it. That was the basis for our recommendation. The Government said they were not prepared to tighten the third carbon budget. That creates an additional risk, I think, for meeting the fourth carbon budget. It gives them the opportunity to sail along on a path that is not steep enough in terms of emissions cuts to meet the fourth carbon budget, so we would rather avoid that. But the important thing is just to put in place the policies so that we are on track to meet that fourth carbon budget.

Q141 Mark Lazarowicz: So, it does not matter whether the second or third carbon budgets are easy to do, or is this a bonus? What I am getting at is we are always told it is important to have long-term confidence in the trajectory. If you can change the trajectory downwards when you can do it quite easily, doesn’t it make it easier to argue to revise budgets to be more accommodating would make it difficult to reach?

David Kennedy: I don’t think so. There was a one-off change that was unprecedented, not envisaged, and that was the recession that cut emissions by 10%. There are very good arguments around why don’t we factor that in and reflect that change in the carbon budgets on the basis that there is a set of things we should be doing in terms of implementation of measures, and that does not change because of the recession. We should still be trying to do that same set of things, and if we do that set of things, then emissions will be lower. Why not reflect that in carbon budgets and then commit to do the same set of things you were going to do anyway?

Is it essential to change the second and third carbon budget? It is not essential, so we are not going to say that you could not meet the fourth carbon budget unless you tighten these. It just would give more confidence that you are on track to meet the fourth carbon budget.

Q142 Mark Lazarowicz: Finally, one brief but important one; you had formally recommended that international aviation shipping emissions should be included in the carbon budgets. The Government rejected that, obviously, because their view has been that they are included de facto anyway in the way the budgets are reached. Is that not a reasonable position, particularly if we are going in the right direction anyway, for the second and third budgets?

David Kennedy: We did go back to the Government and update our advice and say that given what happened with the EU Emissions Trading Scheme in particular for aviation it was premature to change the carbon budgets to reflect those. The really important thing for us was when the Climate Change Act went through it was very clear that the 80% target included aviation and shipping emissions.

There was a debate in Whitehall about whether that was the case, and there was a possibility that the 80% target would exclude aviation and shipping, which means there would be more space for the rest of the economy. For us, if everyone else acted in the same way, we were exposed to more climate change risks than we had factored in. So, it was very important for the Government to confirm that aviation and shipping emissions are still in the 2050 target in their view, and they did that. So, that was a very positive thing for us. Changing the budget and adding a number in that reflects the EU ETS for aviation we can’t do at the moment because of the changes that there were in the EU ETS. I think that will happen. The question is when it will happen, and hopefully we will progress towards a global deal on aviation emissions, at which point we can formally change the carbon budgets to include those.

Q143 Caroline Lucas: Can I just ask a supplementary on that? I will be very quick. On the same sort of basis of things that are left in or left out, measuring emissions on consumption rather than just production is something that you have said should happen, but I don’t think you have advocated changing the focus of the carbon budgets to reflect that. So, firstly, why would you not amend the carbon budgets to reflect it; and, secondly, if you are not going to do that then would you be thinking it would be useful for the Government to set itself a supplementary target for consumption emissions so at they are visible, explicit and on the record?

David Kennedy: What we said in our report on the carbon footprint was, you are right, that while production emissions have fallen by about 25% over the last couple of decades consumption, so our carbon footprint, has increased slightly, by about 5% I think. People jump from that and say, "Well, have we wasted our time over the last 20 years?" The answer is no, because our carbon footprint would have gone up significantly more if we had not reduced emissions at home. People also say, "Is all that is happening is we are driving our industry abroad, so we are reducing emissions here but not reducing our carbon footprint?" The answer to that is no, there is no evidence that we have been driving industry abroad because of our carbon policies. So, it is important to recognise those two things. Clearly in a world where we achieved the climate objective it cannot just be our production emissions that go down; it has to be our carbon footprint, so we set out broad trajectories and scenarios for reduction of the UK’s carbon footprint over time.

Driving down our carbon footprint takes two things. It is reducing emissions here, which is what we are focused on, and it is reducing imported emissions, for which we have limited levers to control our imported emissions. You can look at things like border tariff adjustments, but short of that it is hard to see how we can transform, given the levers that we have available, the energy systems of other countries like China. That for us will take a global deal.

Q144 Caroline Lucas: But measuring them and making them implicit and so forth is-

David Kennedy: I agree with you. We should not change the carbon budgets. I think we were very clear that we should be understanding our carbon footprint, which is what our report was all about. We wanted to understand it and we should be ensuring that there are mechanisms in place to drive down our carbon footprint, including imported emissions, and to the extent that is not happening we should be doing something about it.

Q145 Caroline Lucas: I am trying to get at what mechanism. At the moment we have the carbon budgets and we know where to find them, where to look at them and there they are. Should there be a supplementary column, if you like, that is available and just as soon as anybody presents a carbon budget they should also present the consumption emissions so that it is factored in? At the moment you will find Ministers any day of the week telling you that we are doing terribly well because they are not factoring in consumption emissions. Most people are not even aware of consumption emissions. So, unless there is a real push to make them explicit and visible, then I feel it is just going to be brushed under the carpet.

David Kennedy: We think the only way really to deal with consumption emissions in the UK’s carbon footprint is to get global emissions down through a global deal, and it is hard to see how you can do it otherwise. So, we should be focused on getting a global deal. When we have a global deal we will have a sense of how global emissions should be reduced. We can work from that to talk about how we can sensibly then reduce our imported emissions or how much we should see those going down.

Q146 Caroline Lucas: It comes down to responsibility, doesn’t it? I take your point that a global deal will make it a lot easier, but if our starting point is that the Government or the country that is responsible for the importing has some responsibility for the emissions related, then it seems to me that we need to be doing more than simply saying, "Well, we will just worry about domestic emissions until there a global agreement".

David Kennedy: Yes, it is not clear to us what you can do about imported emissions, short of having a global agreement that then gives all countries and the countries that we import from-

Q147 Caroline Lucas: You can put them on your own balance sheet. You can make them much more visible on your balance sheet for a start.

David Kennedy: I don’t disagree with that, but we have said we should be monitoring what those emissions are. Should we set targets for them? It is very hard to set a target, partly because it is very hard to measure the UK’s carbon footprint and then to say how it should come down. Again, it is very hard to say that. Even for a global emissions reduction, there is so much analysis that you have to go through and so many assumptions that you make. It is just a different ballgame to setting targets for emissions here. We have a good sense of what those are. So, there are a lot of practical difficulties but that is not to say we should ignore them. We think they should be there as part of the accounting and we should look at them closely.

Chair: I am just conscious of time.

Q148 Caroline Lucas: I know, so let us just go to the local authorities. You recommended that local authorities should be given a statutory duty to draw up their own carbon plans to reduce emissions in their area. Could you say how the Government has responded to that proposal? Have you seen much movement from local authorities?

David Kennedy: We said two things. Either a statutory duty or funding so that local authorities could play their role, which is a very important role, on things like delivering the Green Deal, on smarter choices programmes for rationalising car journeys and whatever. We have not had a formal response from the Government. What we have seen them do is, first of all, they did make some money available for local authorities to support the launch of the Green Deal. The problem is that that money was time-bound, and I don’t think it is available any more after May this year. So, the funding question is partially addressed, but there is not an ongoing solution to it.

Q149 Chair: How much money was available? Was it from DECC to local authorities?

David Kennedy: Yes, off the top of my head. It is in the progress report. We talked about how much is exactly there. As I say, I think the key thing there is that it is gone. While it might have been helpful, if you are going to have a team in a local authority that is working on the Green Deal, you can’t just have funding for a start-up period. You need ongoing funding.

The second thing is the Government talks about the Home Energy Conservation Act in the reports that local authorities have to write around their plan for improving energy efficiency of the building stock. The problem for us, and we talked about this in the local authority report, is the plans there can be good intentions, it can be a desk exercise, and unless local authorities are prioritising funding in this area then we can’t be confident about that.

The third thing you can look at as well is are there any local authorities stepping up and pushing the Green Deal? There are some obvious examples like Birmingham and Manchester. But even now I think I have read something in the last week or two that the experience in Birmingham is very disappointing and not all local authorities, by any means, are following the Birmingham example. That is an exemplar, but there are many local authorities not acting.

So, again, we want to come back and look at this in detail, and we will do that in next year’s progress report, which is different to all our other progress reports. It is a deep dive, a retrospective of the first carbon budget and an assessment of how has this Government has done. One of the things I want to come back and look at is local authorities where I think the concern is still there that there is an important role but they are not funded to play that role at the moment.

Q150 Chair: I think we have run out of time, although we did just want to try to push you a little bit on the triennial review of your committee. Could you say in one sentence how you think that is going; literally one sentence?

David Kennedy: I think it has gone fine. There are two stages. They have completed the first stage. They think there is a very compelling rationale for the committee to continue to exist and now they are going to look at some detailed governance aspects, which, if they make some positive recommendations about how we can improve, will very welcome. But it has gone well.

Chair: Thank you for that. On that note I shall bring our proceedings to an end. Thank you very much indeed. It has been a wide-ranging discussion.

Prepared 5th July 2013