Carbon floor price

‘(1) The Secretary of State may by regulations introduce a mechanism to produce a floor in the price of carbon.

(2) “A floor in the price of carbon” means a price below which the cost of EU allowances from the EU ETS may not fall.’.—(Charles Hendry.)

Brought up, and read the First time.

I beg to move, That the clause be read a Second time.

In the course of our deliberations the word “finally” has been used on many occasions, but this is probably the first time that it has been genuine. The new clause has profound implications and is one of the more serious things that we have been discussing. It is a shame that we will not have longer to do so, but I hope that we can conclude the discussions before we reach the 4 o’clock deadline.

The issue of a carbon price is one of the most significant hurdles in securing investment in low-carbon technology; it goes to the heart of investment in new-build nuclear, in coal with carbon capture and in renewables. People need to be certain that they are going to secure a return on their investment, and to do that they need to know the likely price of carbon. The price of the EU ETS has been up to €30 a tonne in mid-2008; it has been  €10 a tonne in early 2009; it is trading at about €13 a tonne today. It has not provided the necessary robustness and certainty, and we need to look at a better means of doing so.

When the Under-Secretary gave evidence to the Energy and Climate Change Committee, he said that he was hoping that Copenhagen would resolve the matter. He said that

“if we have a positive outcome in Copenhagen we know that the European Union has said that it will raise its target to 30 per cent. carbon emissions reductions by 2020”.

That was linked to whether further market signals were needed. He continued:

“If it does not then you are right, we need to be talking about other measures about taxation. I agree that we cannot put that off forever, but at the moment Copenhagen is a very, very important part of the equation.”

That was the day before the Copenhagen discussions broke down without the agreement that was necessary.

The key players in investment in the sector are all talking about the importance of a carbon price. Vincent de Rivaz, the chief executive of EDF, wrote in the Financial Times on 8 January:

“Some believe we can leave it to the market to guide the right investments. But so far it has not done so. The price of carbon is the key.”

He went on:

“To be effective the UK carbon market needs one additional feature: a floor. This is the most cost-effective way to discourage investment in carbon-emitting plant and encourage all low-carbon investment including nuclear, renewables and clean coal.”

In a submission to the Committee, Centrica told us:

“A clear and long-term floor in the carbon price will provide greater confidence to investors about the viability of low carbon power generation within the market.”

During the evidence sessions we asked witnesses whether they thought that the carbon price was an important element and would like to see it dealt with in the Bill. Those from the energy sector were universal in saying that they thought it was an important element.

In France, President Sarkozy has indicated that there will be a carbon floor price, which will start at a low level in some areas—not across the board—but gradually build up. The power in the new clause would not require the Government to set a carbon floor price; it does not set the arrangements for doing so. It would simply provide a permission, meaning that instead of primary legislation being required to allow a carbon floor price to be set, it could be done through secondary legislation, in a much more straightforward way than requiring a new Act of Parliament. That would start to remove one of the key areas of uncertainty and unpredictability.

On nuclear, the Government have done an enormous amount to remove barriers to potential new investment, but talking to the companies involved, in renewables and in carbon capture, one finds that the big remaining element is concern about carbon. The new clause would give the Secretary of State the power to give people the certainty they are looking for, at a time when he feels it would be appropriate. I hope the Minister will accept it on that basis.

We have come to the final clause, and the hon. Member for Wealden is absolutely right in saying that this is the most important issue we need to deal with, regardless of  whether the Minister accepts the clause. I genuinely hope that she will accept it, and I compliment the hon. Gentleman on tabling it.

When the European emissions trading system came in, there was huge hope that it would drive the reduction of carbon throughout the EU much more significantly. I understand that the price today is under €13 a tonne. At that price, it is hardly worth collecting because it has no incentive at all to force the behaviours of the biggest polluters. Therefore, the new clause, which is relatively simple in its construction and would not bind the Government’s hand with specific prices or dates, would establish the principle that Britain can lead Europe in creating a floor price for carbon, and that would enable us to be a major player with other nations around the world in achieving a global system.

The reality, which I hope the hon. Member for Wealden will accept, is that we do not need a floor for Europe, but a global carbon trading system. The only way we will effectively get China, Indonesia and other large polluters in terms of the use of carbon for energy into a system is to ensure that there is a significant cost.

I compliment the hon. Gentleman on his new clause. I hope that the Minister will support it, and that we can finish our debates in Committee on an extremely positive, if final, note.

First, I must declare an interest. I am a director of an anaerobic food waste disposal company, which is perhaps the greenest of all ways of disposing of waste. That is the point I want to make: the matter is wider than energy production; it has an impact on a number of other industries. I ask the Minister to take that into account when replying to the new clause.

The whole business of setting a bottom carbon price is massively required by industry on a wide scale. We need to get on with it very quickly. I hope the Minister will give us some hope in that respect.

First, it is important that I query what has been said about France. I have no knowledge of France seeking to establish a carbon price floor. President Sarkozy has, as I understand it, proposed a carbon tax, which would be for sectors outside the EU ETS. I think what has been suggested is not correct.

On new clause 16, the UK remains strongly committed to using the carbon market and ensuring that there is a robust carbon price to help drive emissions reductions and provide certainty for industry. There are, however, risks involved with the Government intervening in the market to control the carbon price, so we do not support the introduction of a price floor.

It is also worth noting that there is no consensus among industry—indeed there is some strong opposition—that establishing an EU ETS price floor is the right intervention to drive investment. The carbon price and its long-term certainty is just one of many factors—perhaps not the most significant—that attract investment decisions in low-carbon electricity generation.

Gas price volatility and its relationship to energy price is a key driver, as are uncertainty about future electricity demand, the impact of renewables, the oil price, construction and capital costs, and capacity factors. The independent Committee on Climate Change noted  that supporting the carbon price is one of a number of market interventions that could help support investment in low-carbon capacity. Other options it cited included extending the exemption from the climate change levy to all new low-carbon generators, tendering for low carbon capacity and introducing a low-carbon obligation.

The Government believe that the best approach to give the long-term signal sought by investors is through setting the right, long-term regulatory framework with a reducing cap on emissions. Under the revised EU ETS directive, the EU ETS cap will fall by 1.74 per cent. compared with the cap in the first carbon budget period each year after 2013. Longer term, the most effective way of strengthening the carbon price is by limiting the supply of allowances by tightening the cap.

Our efforts will now be focused on taking forward the work agreed at Copenhagen to secure an ambitious legal treaty. We are committed to reviewing and tightening the cap further as part of a move from 20 to 30 per cent. in the EU emissions reduction target for 2020 in the context of a new global climate agreement. Tightening the EU ETS cap would deliver a higher carbon price and provide clearer incentives for investors. In addition, the Government are taking forward work to ensure that the electricity market framework can most effectively deliver a fair deal for the consumer and the low-carbon investment needed in the long term. We will report our initial findings at this year’s Budget.

For those reasons, we do not believe that the Government should intervene in the carbon price. We are tightening the cap and reducing emissions. That is the way forward. Indeed, as the hon. Member for Harrogate and Knaresborough said, it is important to have global trading systems and link them, but an intervention by one nation in the carbon price would be incredibly problematic in the global carbon market that we are trying to achieve. That has to be the future and that is what we are concentrating upon.

That is a disappointing response. More important, it will be disappointing to businesses that read our discussions. It has been made clear to the Minister and the Committee that people who are looking at multi-billion pound investments in Britain need a greater degree of certainty than they currently have about what the price of carbon will be. The new clause is one way of trying to deliver that.

I accept the point made by the hon. Member for Harrogate and Knaresborough that things should be done on a global, international basis. However, we have a particular need in Britain for £200 billion of new investment over the next 15 years according to Ernst and Young. We need to give better market signals to people about the environment in which they will be investing. I am afraid that I therefore wish to push the new clause to a vote.

Question put, That the clause be read a Second time:—

The Committee divided: Ayes 5, Noes 10.

Question accordingly negatived.

Ordered,

That certain written evidence already reported to the House be appended to the proceedings of the Committee.—(Joan Ruddock.)

Question proposed, That the Chairman do report the Bill to the House.

On a point of order, Mr. Bayley, I extend our gratitude as a Committee to you, and your co-Chairman, Mr. Atkinson, for your chairmanship of our proceedings. I also thank my Labour colleagues, who have so dutifully come to support their Government, and all the other members of the Committee, who have been dutifully doing other things. Thank you, too, to the civil servants, many of whom have left the room. So many have been in attendance and so many have worked so hard outside the Committee proceedings, and I thank all of them. I also thank the Committee Clerks, the Hansard writers and the Doorkeepers.

I wish to echo everything that the hon. Lady has said. There is unanimity and complete agreement in the dying moments of this Committee. Our thanks to you, Mr. Bayley, to your co-Chairman, Mr. Atkinson, and to all those who have made these proceedings possible. I extend particular thanks to the officials, who have been extremely assiduous.

We have failed to make progress on the Bill. It may have to return to another place so that we can change it  for the better, as happened with the previous Energy Bill. My favourite rebuke was from the Minister when she rejected an argument of mine by saying:

“I cannot dispute the hon. Gentleman’s intellectual argument.”——[Official Report, Energy Public Bill Committee, 19 January 2010; c. 304.]

She still disagreed with it though. We have had good discussions, but sadly we have not made much progress. Nevertheless, we thank you, Mr. Bayley, and the Clerk and the other officials for running things so smoothly.

Thanks to you, Mr. Bayley, and to your co-Chairman, Mr. Atkinson, on behalf of my hon. Friend the Member for Harrogate and Knaresborough and me. We join in the thanks to the Ministers and the Conservative and SNP representatives for their courteous participation. We also thank all those who in their different roles have supported us as a Committee. Without them, we would not be able to get on with our business.

I, too, am frustrated that the Bill is unamended. We will have further goes in the Chamber and elsewhere, and I hope that at the end of the process it will be a better Bill. We have certainly flushed out a lot of issues, and I hope that we have done the public a decent service with our deliberations.

I am grateful for the comments that everybody has made. It has been a pleasure for me and my co-Chairman, Peter Atkinson, to chair this lively and well-informed band of hon. Members debating the Bill.

Question put and agreed to.

Bill accordingly to be reported, without amendment.

Committee rose.