Emissions Trading (Hansard, 9 February 2000)

I beg to move,

That leave be given to bring in a Bill to establish emissions trading; to create an emissions trading authority; to require the corporate disclosure of emissions; and for related purposes. Emissions trading would be good news for the environment, good news for British business, and good news for British workers. It offers a marriage between a crucial environmental imperative—the need to reduce greenhouse emissions—and the business need for efficient, innovative and cost-effective solutions.

The Kyoto protocol signed in December 1997 demands legally binding targets to reduce the emissions of a basket of six greenhouse gases. Having been included in that historic protocol, emissions trading has arrived on the international stage. It is being considered by countries that have little previous experience of this issue. Indeed, the details of an international emissions trading scheme are already being worked on.

The purpose of my Bill is to establish a domestic emissions trading system to work alongside and supplement the climate change levy, which is a new drive to stimulate renewable energy, and other action to reduce our greenhouse gas emissions. The Bill would require Ministers and Parliament to fix an overall cap on emissions, and would enable the distribution of emission permits, equal to the value of the overall agreed level, to participating businesses.

The Bill would allow the trading of permits between businesses, thus ensuring that businesses can trade off the cost of controlling their pollution with the cost of buying other businesses' spare emission permits. It would establish an emissions trading authority, with representatives from business, the City, environmental non-governmental organisations and academic specialists, to oversee the issuing and trading of emissions permits, monitor a robust verification process and impose penalties for non-compliance with the scheme rules.

The Bill would allow Ministers to require all companies over a certain size to calculate and publish the level of their carbon dioxide emissions. Lord Marshall made it clear in his report to the Treasury in November 1998 that the calculation of emissions from fossil fuel use was relatively straightforward.

The current company law review being carried out in the Department of Trade and Industry is considering environmental reporting, and the Department of the Environment, Transport and the Regions has already published "Guidelines for company reporting on greenhouse gas emissions", which are being used by Wessex Water and CGU to disclose their level of emissions. Firms with more than 250 employees have been consistently encouraged to disclose voluntarily their environmental performance, and the need for monitored and audited reporting to help deliver Kyoto targets has been highlighted by a range of investment organisations and environmental non-governmental organisations, not least the excellent World Wide Fund for Nature.

My colleagues in the Department of the Environment, Transport and the Regions have also strongly encouraged environmental reporting. A shift now to require the 253 mandatory disclosure of emissions would undoubtedly stimulate further action by businesses to reduce their emissions of carbon dioxide, improve their cost competitiveness and stimulate participation in emissions trading.

The Intergovernmental Panel on Climate Change calculated that a global reduction in carbon dioxide of about 60 per cent. was needed by the middle of the century to stabilise our climate, with a 70 to 80 per cent. reduction by 2050 likely to be necessary for developed countries. Such a reduction will require careful but considerable change in technology and behaviour. Emissions trading, supported in principle by much of big business, would be an additional policy weapon and be part of a wider climate change strategy.

Crucially, emissions trading allows companies to achieve specified reductions in carbon emissions flexibly and cost-effectively Having been allocated a target for reducing emissions, those that can reduce them at least cost can go further than their target and sell the excess to companies that are finding it more difficult or expensive to reach their target. In turn, those that find it difficult to reduce emissions can buy the extra permits from those that have gone further than they needed to, paying someone else in effect to achieve their reduction in emissions. It allows the more environmentally efficient firms to receive a reward in the form of trading profits, and will inevitably stimulate investment in innovative energy-efficient technology. It would also help British companies to develop expertise in emissions trading prior to the launch of an international emissions trading scheme.

An emissions trading pilot was recommended by Lord Marshall in his report to the Treasury in November 1998. The CBI and the Advisory Committee on Business and the Environment have produced the broad outline of an emissions trading scheme backed by a diverse range of businesses and bodies, from British Steel and the Corporation of London through to Cadbury-Schweppes and the Eastern Group.

There is already evidence around the world of successful emissions trading schemes. The largest such scheme is in the United States, addressing emissions of sulphur dioxide and their role in acid rain. Since the scheme's establishment in 1995 the overall total of controlled sulphur dioxide emissions has fallen to 23 per cent. below allowable emission levels. The flexibility offered by trading is estimated to have reduced total compliance costs by between a third and a half.

Similarly, the regional clean air incentives market, or RECLAIM, came into force in January 1994. It is a trading scheme designed to tackle severe air quality problems in southern California. Total stationary source emissions are capped, with the cap declining each year until targets are met, and with participating facilities receiving and trading emission allowances. The cost reductions from using this trading scheme to achieve environmental targets were forecast to be 42 per cent. over the years 1994 to 2000. The indications are that the scheme is already being highly positive.

Closer to home, BP Amoco established an internal emissions trading system in September 1998, trading emissions between 12 profit centres around the world 254 rather than in one country. The aim is to help the company achieve a voluntary target of a 10 per cent. reduction in greenhouse gas emissions by 2010 compared with 1990 levels. The scheme will be rolled out next year to all the company's business users. The results to date suggest that the environmental benefits can be obtained more cost-effectively than through some other possible measures. Monitoring and tracking are less burdensome than some regulations. Incentives exist within the scheme to achieve more than the minimum, and the scheme has already stimulated more innovation in technology.

In Europe, too, Germany is already engaged in very limited trading schemes. Belgium, Denmark and the Netherlands have also all used a limited form of trading scheme for existing power stations to implement EU limits of sulphur dioxide emissions. The Confederation of Norwegian Business and Industry has also proposed a sulphur trading scheme, in which permits would be allocated to both sulphur emitters and producers of oil products.

Emissions trading is inevitably complex. It poses many difficult questions, not least about how emissions permits are best allocated. But it is increasingly being considered around the world as a serious tool in the drive to lower greenhouse gas emissions. Britain needs to build on the momentum achieved by the work of the CBI and ACBE, and introduce our own focused emissions trading scheme soon.

My Bill would allow businesses to choose whether to join a trading scheme, but, once committed, a business would be committed for a determined length of time, and its participation in the scheme would be on a statutory footing. The scheme would be linked with the climate change levy and the negotiating agreements. A key task of the emissions trading authority would be to ensure that participating companies were delivering sustained reductions in emissions, or paying a price for their eco-inefficiency.

The authority would be required to monitor delivery on emission reduction targets, to enable all organisations to see that the scheme was achieving its environmental objectives. It would be able to commission research to monitor the flexibility and cross-effectiveness enjoyed by participants. It would be required to ensure rigorous monitoring of the quality of emissions data reported by participating companies to maintain the credibility of the scheme.

International emissions trading is coming. Our neighbours and competitors are already being forced to consider introducing it. According to a recent briefing from the Parliamentary Office of Science and Technology, If the UK began a domestic scheme prior to the introduction of an international scheme it might be able to lead the design and implementation of international emissions trading and even to be the location of the brokerage system that would conduct trading". That would provide a powerful commercial advantage for our business community. In August last year, Ilex, the energy consultancy, suggested that selling carbon emission permits under an international trading scheme could earn the United Kingdom an extra £700 million a year.

Establishing our own emissions trading scheme would give British business a head start in the coming international emissions market. It would also be a 255 powerful addition to the policy weapons that are available to help us to achieve our necessary reductions in global greenhouse gas emissions.

Question put and agreed to.

Bill ordered to be brought in by Mr. Gareth R. Thomas, Mr. Andrew Love, Mr. Stephen Hesford, Mr. Stephen Twigg, Mr. James Plaskitt, Ms Karen Buck, Mr. Colin Burgon, Mr. Gareth Thomas, Mr. Phil Hope, Gillian Merron and Mr. Jim Fitzpatrick.