National Assembly for Wales

Can I welcome Members and Lord Deben to a meeting of the Climate Change, Environment and Rural Affairs Committee? As you know, if I drop out for any reason, Jenny Rathbone will take over as Chair. Has anybody got any declarations of interest to make? No.

We are slightly late, so if Lord Deben's happy, can we start with the first questions? 

I'm very happy to do that. 

How, and to what extent, has the UK Climate Change Committee been involved in the development of the proposed UK emissions trading scheme, and do you propose for a UK ETS to reflect the advice you have provided to the UK Government and devolved administrations?

Well, we've been asked for our advice, and we have clearly explained that, for technical reasons, we would advise an ETS that was entirely alongside the European Union ETS. There are reasons, which I can go into, as to why that's important. And that's the advice that we've given. We could have a carbon tax, but we think that ETS, in general, is more flexible and more certain. So, that's the reason why we have proposed that. And we have proposed, obviously, that there should be the participation of the devolved Governments in that. 

Thank you very much. Janet.

Thank you, Chairman. Good afternoon. Lord Deben, given that ETS participants accounted for 46 per cent of Wales's total greenhouse gas emissions, compared to 30 per cent at the UK level, can you provide your thoughts on whether this scheme has provided enough incentivisation to reduce emissions over recent years, and can you provide an overview of which sectors in Wales require more work please?

Well, that's a very big question. But, to take the first one: the ETS was designed to be helpful to those industries that found change most difficult, and that's really why a very large proportion of Welsh industry did have what might be called 'free passes' to this. Now, clearly, there are various ways in which you can improve this. The first of them is that we should be extending the ETS to cover a wider range of things, so that you had its effect much more widely. Secondly, I think it is absolutely true that we have to do a lot more work to help the major industries in Wales, which tend to be situated in south Wales and in a very limitedly small area; therefore, really huge employment concerns here. And that's one of the reasons why, in our recommendations to the Government, we have talked about the huge need, not just for carbon capture and storage and usage, which is difficult in Wales because of the storage bit—Wales isn't blessed with easy storage—but also, that we have talked about the very great need for investment in a hydrogen economy, because, obviously, that's one of the ways through which one could replace the present fossil fuel use by Welsh industry. 

Thank you. And, then, considering the emissions profile in Wales, which is typically driven by a high share of UK industry and manufacturing, and, of course, the prevalence of large emitters, including vital job providers like Tata Steel and the Cardiff and Vale health board, could you explain whether these proposals for a UK ETS are consistent with Welsh Government targets to reduce emissions by 95 per cent on the baseline by 2050?

Well, first of all, they could be—. Let's just leave aside the difficulties that arise if you have a relatively small ETS, because, if you have a relatively small ETS, which is what you do have in the United Kingdom, it is subject to much more volatility than if you spread it more widely. And, I personally, am very sad that people can't just distinguish between their views about the European Union and the need to have a sensible arrangement. After all, the Chinese have an ETS system that is specifically created so that it is congruent with the European Union one. They don't actually join it, but it is congruent—well, they have more than one as a matter of fact, but they're all congruent. And the reason for that is that they recognise that volatility in the future really does mean that you should be associated with other trading schemes. And that, after all, is what a trading scheme is: it's an ability to trade. The bigger the area you cover with your trading scheme, the more you're able to make it effective. But the Government has so far not accepted that view, and I'm sorry about that. But there is, therefore, an inherent volatility and in my view that is particularly difficult for what is, after all, a smaller area of a small ETS scheme.

Now, in order to meet the Welsh Government's very considerably difficult—. But I am proud of Wales that you have done so much, and you are leading the country in a number of other areas. The ETS system is perfectly capable of helping you to meet those targets, but it will have to be—I use the word properly—manipulated in order to make sure that that happens. And that's why we have said that it ought to have a wider coverage from the one that it has at the moment. And if you're going to get some advantage out of not being part of the wider ETS, well then we can change more readily the coverage and make it wider. 

Thank you.

Thank you.

Joyce.

Good afternoon, Lord Deben.

Good afternoon. 

And I want to ask some questions around carbon pricing. 

Yes.

You did write a letter to the UK and devolved administrations, setting out that carbon pricing would be part of a wider suite of policy instruments. Would you like to expand on what you mean by that, and what you expect the wider policy instruments to consist of?

Well, the first reason for this is that there are some people who talk about a carbon tax or carbon pricing as a kind of silver bullet, which you just do that and it'll all be all right. Of course, that's not true. It's part of a whole range of things that you have to do, from, for example, the kind of announcement that the UK Government has made about putting money into retrofitting houses, the amount of money for retrofitting public buildings—all those other issues that you have to do as well as the carbon pricing. So, carbon pricing becomes part of that pattern. It makes that pattern easier because people begin to have a proper price, because what carbon pricing is after all is charging for the use of carbon the cost to the community. This is a perfectly reasonable mechanism, a market mechanism of saying, 'If you use something that puts carbon into the atmosphere, then you have to pay for the cost of that carbon.' And that's how I try to explain carbon pricing to people. It's not a tax; what it is is saying, at the moment—. Let me do the comparison. [Inaudible.]

Lost. We can't hear you. You've frozen. Oh dear.

[Inaudible.]—all the rubbish which they'd left behind. And what we're saying is that you should pay for that cost as you go along. And, therefore, carbon pricing is simply charging people the cost to the community of their particular enterprise. So, when we talk about a wider suite, that's what we mean. We mean that this is part and parcel of the other things that we are doing in order to clean up the planet. 

Okay. We lost a fair bit of what you said.

Oh, I'm sorry.

I think we got the gist of it, but your computer froze.

In the consultation on the future of UK carbon pricing, you said that should a link-in agreement not be secured, there is another option—and you've talked about it—by introducing a carbon emission tax. So, do you want to expand any further on that—on your views on it?

No, except I personally don't like the word 'tax' because it suggests something different from what the measurement is. It's much more a charge for the costs one places upon the community because one is using carbon. That's what that is and that is what we see happening. And obviously, the level of it depends upon the interaction of all the other things that you do, and that's why you can't say at this moment it should always be x amount—it will depend on all the other policies that the Government has and that's why we have said that this is part of the suite of policies and the Government would fix that in the context of that suite.

Okay, thank you.

Llyr.

Thank you, Chair. You mentioned, Lord Deben, in one of your first answers, that there were technical reasons why you thought it was preferable to link the UK ETS to the EU ETS. Maybe you could elaborate slightly and just explain to us what you see as some of the key advantages of that approach and whether there are actually any disadvantages to pursuing that.

Well, there are two key advantages. The first is that you ensure that, in terms of competitiveness, you have a common arrangement. If you don't have a common arrangement, it is obviously true that some people will become more competitive than others, depending on what we do and what the rest of Europe does. That's the issue, and it is a serious issue, and it's one that is very often not faced by people. And the problem is that, if you use this curious phrase, 'Take back control'—of course, if you take control of your own bit, you are relinquishing any control over the other bit. If the other bit is much bigger and that really does affect other people's exports and indeed their willingness for your imports, you just have to face that. I'm not arguing the whole case again, I'm merely saying: it is a fact. And therefore, if you do have an independent one, unconnected, that is part of the price you pay, and you lose some control and you gain some control. And I'll come to the gaining in a moment.

The second problem is, there is a technical issue, which is: the narrower the coverage, the more volatile is the effect. And I think you can see that—obviously, if you only cover a certain amount, any small change can make a very big difference. If you cover a large amount, then small changes are caught up by the generality. The one advantage that you have is that you can, of course, make changes more rapidly than you would have to do if you were concerting with your neighbours.

You can, as I have suggested, spread the ETS to cover more things than it covers at the moment. The downside of that, though, is that when you are doing that, of course, if you are sensible, you also take into account what other people are doing. So, although you can spread it in that way, as I would suggest, the fact is that you're still living in a world in which trading is not a thing that you direct—other people have got their own views of it. So, although you have the power to make that change, you have removed yourself from the agreement that says you'll only change things together. You still have to come to terms with the fact that other people are going to change and, what's more, there are a lot more of them than there are you. So, the volatility point comes back into that argument.

And, frankly, all we've done is to say to the Government: these are the facts. Governments have to make up their political decisions about whether they think that some political aim overrides those facts, but it won't change the facts. If you decide not to be—I use the word, 'congruent'—. If you decide not to be congruent with the rest of Europe, then the fact is the system will be more volatile and changes that you make will affect you, but changes they make with affect you too, and you have to face it, that's the fact.

So, just to continue with the analogy that I know we're not particularly keen to pursue too much, but, of course, it has been suggested to us last week that whilst we opt out of the EU ETS, there are other partners globally that we could potentially look to link up with—New Zealand was one that was mentioned; California is another jurisdiction that may well have a scheme that we'd wish to mirror in some way or another. Is there any merit in that, do you think?

Well, the merit always is that you spread the process over a much larger area, but when we say 'mirror' and 'link up', those are two different things. I mean, there are some people who seem to think that everything in Europe is so bad that you want to go and have a deal with someone else, but if that other deal is merely to replace the European Union arrangement with another arrangement, that will be exactly the same, in the sense that you will all agree that you will all do the same things—that's what you have to do if you're in an association. And mirroring it rather than joining it doesn't seem to me to be particularly sensible, because all you'd be saying is, 'Well, they've got one like that and we've got one that's the same'. It's only valuable if you're intending to join it at some stage, which is really why we know that the Chinese would like to have some sort of linkage with the European Union, because they see that as a necessary part of future trading arrangements. 

And for the avoidance of any doubt, I agree with you, Lord Deben, but there we are—[Laughter.]—that's by the way. You do say in your letter from March 2020 that you're concerned about UK Government and devolved administrations changing their language on linking with the EU ETS and that there's been a shift in emphasis, really. Are you still concerned that they may not actually be seeking to link with the EU ETS?

Well, I'm concerned because—. I'm concerned because my job as the independent chairman of this committee is to set aside any views that I may have and seek to try to say what is the best for Britain in our contribution to fighting climate change, which is the biggest material threat that faces us, and makes COVID look small compared to what this would, is doing and will do. So, I have to tell the truth. In other words, my job is to say, 'This is what is true.' Politicians—and I'm an ex-politician—have actually got to make a decision as to whether they're going to take those truths into account or whether there are other issues that they happen to think are more important. And sometimes you listen to people who should—[Inaudible.]—but you listen to people and it's quite clear that they don't want to talk about the facts there—they only have one agenda, which is to do things that fit the political views they have. Well, that's up to them, but I have to say, 'If you do that, this is what happens. I'm not able to stop you, but if you do that, this is what happens and you then have to do a series of other things in order to make up for what you've done.'

Thank you.

Jenny.

Thank you. Thank you so much for the clarity of your explanations of what is a very complex subject. I just wanted to talk about the emissions cap because you've expressed concerns that our emissions cap being set at 5 per cent below the UK's notional share of the EU ETS is something we should worry about because it's inconsistent with the UK's net-zero ambitions. If so, at what level should we be setting it at? And I wonder if you could just say why.

Well, the problem, as I think we explained in our letter, is that this is likely to lead to a surplus of allowances in the scheme in the early years, and, of course, the effect of that is that the whole process doesn't do anything. I mean, it's really the point that Janet Finch-Saunders raised when she first asked the questions about the effect on heavy industry in Wales. If you're not careful, everybody gets a free pass, and nobody actually starts the business of pulling down the emissions. So, we think that that is the effect of setting it at 5 per cent below, and we also think it's a kind of—if I may say so, there doesn't seem to be much logic behind deciding that figure. It seems to be a, 'Well, we'll do it like this.'

What the Government has done, though, is said that it will align this with what is given in the advice of the sixth carbon budget, which as you know, we are publishing in December. Unfortunately, they won't be aligning that, or they say, until 2023 or 2024 at the latest. And I suppose that although that will address most of this risk—and I'm perfectly happy about that—I just do think we have to recognise that every year you let things go on, it's more difficult, it costs more and you leave people later on in the system with more to do. And I suppose, in this particular case, I feel morally it's really important: we have to do what we have to do, not only all we have to do, but we have to do it as quickly as we can, because delay is a real cost, and it's a real cost that the next generation—well, probably, much of it our generation, but the next generation is going to be paying—. And, frankly, we're putting enough on the shoulders of the next generation. That's why I am very impressed with the Welsh next generation policy and programme. I speak about it throughout the United Kingdom and elsewhere to say it's something people should copy, because it actually sums up what we ought to be thinking about, because what we're doing is the reverse of the natural process. We are borrowing from our children and we are not paying them back, and this is the reason why I'm unhappy about the fact that although I think the Government will more or less put this right, there's no real reason why it can't put it right immediately. There's no real reason why, once we publish the sixth carbon budget—which after all, as we're now in October, is only six weeks away, or a bit more than that—once we publish it, I think it's perfectly possible for the Government to announce a figure that will be congruent with that, rather than this I think pretty taken-out-of-the-air 5 per cent below the present EU ETS situation.

Well, you very aptly describe what is a major problem with politics, which is that people only think in five-year terms. That is a major problem, that people don't grasp the nettle of what are long-term consequences of not taking the right decision today. But, as you say, the Well-being of Future Generations (Wales) Act 2015 obliges us to think about this.

What do you think the impact of setting the cap at 5 per cent will be—basically just pushing all the problems into 2030 or 2040? Clearly, the longer we dither, the more difficult it is to turn around this liner, isn't it?

Yes, I mean, if they really did align the cap—as they have promised to do so, and I'm sure they will—in 2023 or 2024, not doing it in 2020-21 will lose us two or three years, and during those two or three years, the mechanism will not, in our view, be working, because there will be too many freebies around to bring about the pressure that the whole purpose of the system is. I just hope that I'm wrong, but sometimes I think people make these decisions because it's convenient not to have yet another thing that's bearing down on people until after an election or at some more convenient time. I just think we can't think like that; we have to get it right, and we have to get it right from the beginning, and here is an opportunity, and I'd be much happier if they'd do it that way. It would also give more credibility to a national EU ETS if we decide to have that. At least we would show that we were serious about it, whereas I'm not sure that this particular measurement shows we're very serious about it.

Okay. If we were to set a more challenging target or cap, what possibility is there of carbon leakage, and people simply exporting their dirty behaviour to other countries in order to reduce their emissions in this country?

Well, that is the thing we watch extremely carefully, and of course that is true of any policy that we carry through on climate change. So far, there is no evidence that there has been anything that you could possibly call significant leakage, and we watch it very, very carefully. I don't believe that this would have a significant leakage, particularly if we were sensible enough to expand the coverage, so that you might expand it to aviation, fossil fuel producers, suppliers and emission removals, and we'd do it sort of in reverse. And that would be valuable because of Welsh forestry, which is the thing that I'm particularly keen to help you with because I know you want to do it, and it would also be valuable as far as carbon capture and storage is concerned. Because you begin to get a proper pricing mechanism through the trading scheme, which is the other way of doing it—I mean, they're not mutually exclusive, but it is the other way of doing it instead of having a carbon charge. Because, obviously, what you want to do is to reward those who are sequestering, in one way or another, and to penalise those who are placing on the community a cost of clean up, which the community has to pay for. That's exactly what it is.

Our track record in bearing down on aviation and fossil fuels emitters isn't very good. We constantly fail to raise the environmental tax involved in petrol at the pump. Which of the bits of the economy would you want to prioritise for bringing into this, bearing in mind that, obviously, there's a lot less aviation activity at the moment?

Well, I think there are two bits to this, really. I mean, first of all, there are some areas where, clearly, the change is going to take place for other reasons. As you know, the Government has already brought forward the date for only being able to sell electric or similar vehicles to 2035; we have recommended that they should try to do it at least by 2032, but we would hope by 2030. There are quite a lot of rumours around that the Government may well be prepared to take a very tough line on this, which would be extremely good. So, there is that bit, and we will come to that point. 

Well, that would be excellent. So, are there other ways in which the Government might actually grasp the nettle on this?

Well, yes, there are several ways. Let's take a single example: we have very much more efficient motor cars now than we did have five years ago, but, unfortunately, people have traded up. So, we've lost all that efficiency, all that reduction in emissions—almost all—because people have bought sport utility vehicles and bigger cars. So, that although the quality of those cars is much better than it was five years ago, of course they do emit more than the smaller car. So, I think that one of the things that the Government should do is to say to people, 'Well, if you want an SUV, you can have one, but you pay the full cost of it.' And I'll come right back. You may accuse me of being a Conservative in this, but it does seem to me that people ought to pay the price of what they do. And I don't understand this argument from people. If you give a cost to the community, you should pay for it. I don't see why you should expect the community to pay for it. Because, after all, what we're trying to do is to have a community that is capable of paying for those things people can't pay for themselves—helping people who are old or disabled, or whatever; people who need help. That's what the community ought to be paying for. But as far as my cost to the community, I ought to pay that.

The whole policy, surely, is to recognise that climate change is a symptom of what we've done to the earth, to quote the Pope's remarkable encyclical, Laudato si'. And it seems to me a very important insight into this. So, we have done these things to the earth and we are doing them to the earth. Well, the people who are doing them ought to be paying the cost—that's all; very simple: paying the cost. The only institution that can ensure that is the Government, so the Government ought to be ensuring that we pay the cost of the damage that we do individually, wherever we can. Because otherwise, everybody has to pay it and I don't see why the people who are not getting the benefit from those costs should be paying for it on my behalf, which is why I'm sitting in a house where, at the moment, we're taking all the oil heating out and putting in air source heat pumps and running it all off biogas, which is the only way you can deal with this kind of house, which is a Victorian Gothic rather—. They didn't think about insulation or under-floor heating in those days. But the point I'm making is that I do think I have a responsibility, insofar as I am able to, to remove the cost that I would otherwise have on the public and that's what we should do. 

Your argument seems completely faultless. What chance is there that the UK Government will follow it through?

Well, I think people would not accuse me of being other than independent as far as this Government is concerned. So, I think you will excuse me if I say that I am so far rather encouraged by the way in which the Government has been reacting to what we say. I think the announcements yesterday are very significant; they are much more courageous than many of us thought. For example, it's only three years since the Government was fighting against the idea that people who let houses should be forced to improve the energy efficiency of those houses up to the cost of £5,000—the Government insisted upon it being £3,000; they are about to consult on making it £10,000. Well, it seems to me that that is absolutely the right thing to do, because what it says is, 'If you are going to let a house, then you must let that house in a condition that is satisfactory for the tenant', and a condition that is satisfactory must be a minimum of level C as far as heating and energy consumption is concerned.

Therefore, I am encouraged by what the Government is saying and about what now it is doing, but I am not going to give up because I think there's a lot more to be done. Similarly with Wales, your Government, in my view, has done extremely well, but I'm going to keep pressing on you, because, for example, you have still not used your local powers to insist that house builders don't build crap houses in Wales. I mean, you could have set a real example by saying, 'No house will be built in Wales unless it is of a passive house measurement—that kind of level.' And I'm sorry that the powers of devolution that you have got were not used to do that, because that would've made Wales a real leader.

I agree. We definitely passed the buck in 2015 and we'll keep going.

Well done.

Thank you so much.

Neil.

You're muted, Neil.

Well, good afternoon, Lord Deben.

Good afternoon.

If we could transport ourselves back 50 years or so to when we first encountered each other in politics—

I'd prefer not to do that. Much better to be in the present, if I may say so. [Laughter.]

Indeed. And, then, if we were able to look forward to today, I think we'd have been quite surprised to find ourselves in this specific relationship—

Yes.

—but it's very good to see you.

I'd like to ask you for your views on the auction reserve price for the ETS scheme please. This has been set at £15 per tonne of carbon dioxide equivalent. In particular, do you think it should be reviewed to maintain equivalence with the EU ETS price, which is £22 a tonne? I presume the answer to that would be 'yes' from your remarks on congruence earlier on.

Yes. The EU ETS one is £21, £22; you're quite right. Our view is that it's not so far off as to make a very real difference, but we do think it should be reviewed. We're not too concerned overall of its effect, that's all. There are priorities and less priorities, and on this particular one, it wouldn't be my priority, because it's more or less okay. I don't think it will have a huge effect, but we have to keep an eye on it. That's the thing. Again, it's an example of the problem, which is that you have to keep a note on that, because, for example, if the EU ETS decided to increase that reserve price very significantly, or decreased it, and the gap became very great, we'd have to recognise that that would have a real effect on the working of our own EU ETS, or own ETS, so to speak, and we'd have to recognise that.

What would the difference be in practical terms, do you think, if we allowed this disparity to continue?

I don't think that—. I think what the result would be is that we would find it more difficult to reach net zero and, after all, we are statutorily required to do that. Our own view is that the price consistent with net zero should be rising to about £75 in 2030—that it should be like that. And, so, whether we make that decision on our own, or whether we make that decision in concert or in congruence—. The difference between that, obviously, is, in concert, you arrange with your neighbours to do it together; in congruence, you merely follow it in the way that, for example, the Irish used to follow the British pound when they were not in the European Union. That sort of thing is a congruence. And we would expect it to rise to something like that in 10 years' time, by steps that, no doubt, will be dictated by whatever happens to the economy and the like.

That is along the lines of the second question I was going to ask, because the Grantham Research Institute on Climate Change and the Environment has suggested that a price consistent with net zero would begin at approximately £40 a tonne of carbon dioxide in 2020, rising to £75 in 2030. Do you agree with that calculation, and, if not, what level do you think is sensible to set it at?

Your first question invited me to isolate this issue from other issues, but of course it's not isolated. You have to accept that there are a whole lot of other things that we do that will have effects on this. One of them is the way in which we have our offshore wind arrangements with auctions. And, through doing that, we have other effects. And, therefore, you can't isolate just this issue of the auction price as—. I'm sure you're not doing that, but the fact is, you can't isolate it like that. And you could easily see a situation in which that didn't matter anything like as much, because we were doing what we are doing in terms of offshore auctions and the like. 

And, that, of course, is going to become more and more an issue for Britain. We are taking seriously, thank goodness, at long last, that we will increase and encourage onshore wind, and we are going to do a number of things that we haven't done up to now. So, all those things together may mean that you don't have to follow that isolated example. As an isolated example, I don't think many would argue with the Grantham institute's comments, but whether it would be necessary if we were doing a whole range of other things is a different matter. So, one doesn't say, 'That's what's going to happen'. It depends what we're doing elsewhere as well.

Okay. Thank you very much.

Finally, Llyr Gruffydd.

Thank you, Chair. I'm just wondering what you thought about where the money should go—whether any revenues should be channelled into an industrial decarbonisation fund or hypothecated in some other way.

Well, I'm a radical on this. I believe in hypothecation. I think in the kind of society that we have, this is one of the ways in which you can democratise what you do. Of course, no treasury—I don't mean the Treasury, I mean no treasury—likes hypothecation, for two reasons. One is because it doesn't have control over it, and the other reason is that it doesn't get thanked for any of the upsides. Treasuries get attacked for taxes, but they like to have the good times when they give money out. I remember this very well. It's something that Neil Hamilton will remember too. When we first had the tax that I'm afraid I—well, no, I'm pleased I invented, which was the tax on landfill, it was arranged in such a way that if you organised yourself so as to make major community contributions, this was a way you could decide how the tax would be spent, and it was very useful, because it meant that communities that were scarred with large workings of one sort or another could get something back. So, in a village in my former constituency the bells rang again, because that was part of it. They cleaned out the gardens so that people could grow their own vegetables. So, you did that. A whole series of things happened as a result of that.

I'm afraid that when the Government changed, the Treasury used the opportunity—I don't blame them politically, it just was the Treasury who used the opportunity to pinch the money back again, saying, 'We don't want that.' When you press them, you know exactly why, because they wanted to get benefits from giving people money to do things on the one hand, and on the other hand, they wanted to get their hands on the money so that they could use it for something else, whereas I think that a link between payments—. For example, if you have a charge on congestion, I think it's much easier to get people to pay it if they see the tramway being built at the same time. If they don't do that, they're very suspicious of Government, because they think that green taxes are a convenient way of Government merely raising taxes. I think it gives green taxes—I don't like that phrase, but you know what I mean—I think it gives green taxes a bad name.

So, I'm all in favour of doing what, for example, British Columbia does, which is that their carbon tax is immediately, as they raise it, translated into a reduction in income tax, and they have an independent body that monitors that, because they recognise that nobody believes in the reduction and everybody accepts the addition. We all know that. So, it goes through an independent council that says that exactly the same amount of money has come off the income tax as has been paid in the carbon tax.

That's very interesting. I'm just wondering whether you have any thoughts about disaggregating the money back to the devolved administrations then to be used on that basis.

Well, I have to be a bit careful about this, because, in the end, my job is to advise and not to—it is for Government to decide. But I am, actually, of Welsh extraction, as you know, so I do want to say very simply I think Wales, quite rightly, complains about having a hard time. There is no doubt that the system of sharing out the money is not fair. That is an objective statement. What you do about it becomes a subjective statement, so I'm not prepared, really, to go any further than that. But, objectively, the Barnett formula doesn't work fairly as far as Wales is concerned, and it works the opposite way as far as Scotland is concerned. I have to be honest about it. It is of more benefit to Scotland than should be so, on a fair basis, and it is of less benefit to Wales, and I think that that is a matter of fact. What we do about it I do think is a matter of politics, and I do try very hard not to get into politics, although, Neil, it is very difficult on some subjects.

Can I thank you, Lord Deben, for coming along and talking to us? I'm sure that everyone, like myself, has found it very informative and helpful. I think it takes us a further few steps along this road that we're trying to follow, but thank you very much. Apologies for all the things that went wrong at the beginning. I spent 30 years working in technology—I know it goes wrong most of the time.

Thank you very much. Thank you. I've enjoyed it.

You will get a transcript of this. Check it. The only time it ever goes wrong with me—I don't know about other people—is that I have a tendency to turn, and when I turn, it sometimes misses a word or so. So check it hasn't missed any of your words.

Thank you very much indeed. Thank you. Good afternoon.

Can I move we go into a break until 3 o'clock? 

Can I welcome Hannah Dillon to the meeting? I'll move straight to questions: what are the key messages from the commission's report on UK carbon pricing?

Thank you. Just to give a bit of context, we've conducted an eight-month process of looking into UK carbon pricing and how we might redesign the UK's approach towards carbon pricing to better align to our net-zero commitment, and I will share some key messages. So, the first, I'd say, is that we need stronger and more consistent carbon pricing in the UK to even out prices across different sectors and to introduce new prices in sectors that are currently unpriced.

The second key message is that we think that there's public appetite for this, not just because of stronger public appetite for climate action generally, but specifically around pollution pricing. We've conducted quite a lot of research on this, and I think that's a really exciting development, because, often, the concern of public backlash is used as a reason to not show carbon pricing ambition. Another observation would be that both of the proposals that are currently on the table for the future of UK carbon pricing—both the emissions trading scheme that we're talking about today, but also the carbon emission tax—are not, as they stand, currently aligned to net zero, and we have some suggestions for how that might be addressed.

Another point is on the price itself. So, whilst we recognise that there are different prices in different sectors of the economy and on different levies, we think that a higher price is necessary if we want to use carbon pricing as a lever to drive the transition to net zero. And three other quick observations: our commission tend to view a carbon tax as being better than a trade mechanism, just because it can provide better long-term certainty for investors if they know what's coming down the track. It's easier to align their business models to the prices that are coming. But, also, if we're looking at introducing prices to sectors of the economy that haven't been involved in carbon pricing before, it might be more accessible for them to pay a tax, which they're hopefully familiar with knowing how to do, rather than trading in emissions.

My final two points would be: the revenue from carbon pricing, we talk about a tax specifically, can be very helpful; the way that it's used can be very helpful in boosting support for carbon pricing policies—for example, if that revenue was invested in furthering ambition of greening, for example, heavy industry, but also, if some of it's used to protect consumers from cost impacts. And, again, we can get into more detail on that.

And finally, one of our big observations is that if we're going to strengthen domestic carbon pricing policy, we will have to address concerns around carbon leakage or trade exposure and what might happen to heavy industry if they're subjected to very high costs where those they compete against in the market aren't, and that's something that we've looked into as well. Those are the top-line responses of our report.

Thank you very much. Just one final question from me. How could the carbon pricing proposals set out in your report link to a future UK ETS?

We have included a section on this in the report. As I say, we'd prefer a more uniform system of taxation than pricing, but if we were to go forward with a UK ETS, we think that there are still things we can do in other sectors relating to a carbon tax. I won't go through every sector, but if agriculture, for example, wasn't to be included in an ETS, we think there's great scope to put a carbon emissions tax in place. We think that would have to be married with two key polices—one around a border carbon adjustment, because if we put too much cost on domestic agriculture, we won't be competitive in a global market, and none of us want that; but secondly, to include some sort of carbon price incentive for carbon storage in the land use sector. So, we recognise that agriculture, as well as being a source of carbon emissions, is a very important sink of carbon emissions, so could we, as well as placing a price on emissions from energy usage, but also methane and nitrous oxide—could we perhaps implement a payment scheme for negative emissions based around a price per unit of carbon stored to help redress the balance and reflect the role that the sector can play and will need to play, according to the CCC, in helping us transition towards net-zero emissions by 2050.

Thank you. Joyce.

Good afternoon, Hannah. Lots of the questions I was thinking of have already been asked, so I suppose the most obvious question for me to ask you is: you set out your stall quite clearly, so could you give us some examples of best practice, where the things that you've talked about in your paper are happening, and how they're working?

Yes, of course. I think it's interesting to start with the European Union because there's quite a lot of change going on at the moment with the ETS proposal. So, we can get into specifics around how the ETS is being designed, but the ambition coming out of the European Commission around border carbon adjustments, and around addressing how permits are allocated, especially free permits, is to look at how you can better align the provision of permits to how trade-exposed an industry is. I know the UK has a good track record on this, but there are countries like Germany who are committing to placing a carbon tax on sectors not involved in the ETS, which I think is interesting and very relevant for the UK. So, they've talked about a carbon price on heating, for example, as well as a price on transport.

There are lots of places we can learn from where things haven't gone so well, which I can share if that's interesting. I think Canada's a really interesting area, where carbon pricing has become a very central part of decarbonisation policy, and different provinces have taken different approaches to carbon pricing, but essentially the federal Government said that by a certain date, the system of carbon pricing they were proposing would be implemented unless different provinces implemented their own systems first. I think this is really interesting from a perspective of how to build public appetite and support for carbon pricing. For example, in British Columbia, they have found ways to use the revenue from what they describe as an economy-wide carbon price to help lead to tax reductions elsewhere for households, so that the net burden on them isn't too strong.

Another country that is really interesting is Sweden, just because they've had a really long-standing carbon pricing system in place, I think since 1991, and they cover 95 per cent, I think, of their greenhouse gas emissions, either through the EU ETS or separate carbon prices that they've put in place. As well as having incrementally introduced those prices over time, which I think is really key, rather than dramatic change very quickly, they also do things like compensate households living in the north, where it's much colder, to help them avoid excessive heating bills. As part of our report, we provided a whole annex that looks at other countries and other jurisdictions, what they've done, where it's gone well, where it might not have gone so well, and what we can learn from that. So, I won't read through that to you now, but there's a lot more in there than what I've just covered. Those are just some highlights. 

We heard evidence earlier on about offsetting your carbon emissions, and you identified it very early on in your opening statement—that we might export our problem, for example. Have you thought about what sort of implication that might have, given the current situation in the UK—the fact that we're probably going to just bomb our way out of the EU trading agreements—and how we might manage that in that particular situation? And, of course, we've now got to add in the fact that we're in a major pandemic as well.

Yes, a very good question. I think that we're very pragmatic in our proposals. We're trying to look at the issues others have faced with putting forward carbon pricing proposals and trying to overcome them. And one of the things that's talked about a lot in terms of preventing offshoring and ensuring that you don't take away any incentive for heavy industry to exist in the UK, because clearly that's a very important part of our history and is a very important part of livelihoods for lots of people, is that what we need to do is use carbon pricing to help transition heavy industry to become green—so, for example, low-carbon steel production, rather than just shutting down production in general.

We recognise, and have stated in our report, that until we can manage concerns of offshoring, it will be very hard to put stronger carbon pricing in place, because it's not going to help industry transition, necessarily; it's just going to saddle them with costs that they can't bear, which none of us wants to do especially, as you say, given the current economic situation. So, broader carbon adjustments are something that we've looked at, and they're an interesting discussion, because they're presented by people like us as a solution to the issue of offshoring, whereas equally it's very easy to say that it's very hard to do a broader carbon adjustment and it's never going to happen, so let's not explore it. Now, what we'd say is, actually, let's try and work out how that can be useful to us, because if we can—'protect' is the wrong word, because it doesn't comply with WTO rules—find a way to ensure that importers are subjected to an equivalent carbon price that we face domestically, we can take away concerns of carbon leakage, but we can also strengthen carbon pricing signals, which means that industry has more of a price incentive to transition. So, that's one thing that we've looked at. And I think the narrative on this coming out of the European Commission is really helpful, because they are talking about this very seriously, they're thinking of putting proposals forward for how that might work within the EU system. We're not quite sure what it means yet, but it's looking likely that they're saying they would extend the ETS to importers as a way of managing the competitive side of things. And so not only do I think it's helpful that they're looking at that, but I think it's a good opportunity for the UK to look at that, too.

And one of the proposals we've put in the report, which is very time relevant in light of the UK hosting COP26 in November, is looking at how we might work with other jurisdictions to implement broader carbon adjustment policies. So, rather than just going it alone, looking at how you can work with other countries to implement a carbon floor price, and then any jurisdictions that price carbon below that would be subjected to a broader carbon adjustment on entering the group of countries that have agreed a floor price. That hasn't been discussed that broadly yet, but I think it's very timely and relevant, and something that would be really exciting for the UK to explore as a post-Brexit opportunity. And then there are other things around international agreements that will be negotiated at the next COP, but I don't want to rest too much on them, because I think we've got to think of lots of different ways around this at the same time, if we want to solve it at the speed that we need to in light of the challenge we're facing. 

Okay. 

I think Jenny wants to come in on this point. 

I just wanted to ask you—. Obviously, carbon pricing is an important tool in the box, but there are other ways of addressing this. I don't know if you are aware of the Welsh Government's economic action plan, which is quite transparent about its future, who it's going to give money to in terms of industry and businesses. Their environmental policies of people that they're prepared to fund in the future is transparently set out in the plan, and I just wondered if you were aware of that and whether you have anything to say about whether that's a useful way forward. 

Thank you, Jenny. I have to say I'm not specifically aware of that proposal, but one thing that we have tried to make really clear in this report and our campaigning activity is that we do not see carbon pricing as the only solution. We think it's a really important part of the toolkit, but we need a lot other policy support and regulation to support it. The allocation of public money supporting bail-outs in the post-COVID recovery we would absolutely agree needs to be aligned to net zero. France have done some really interesting things on this with their airlines. Personally, I think it's absolutely critical if we are committed to a green recovery that we don't provide any support that's going to lock in carbon emissions and further the issue. 

One of the things we're looking at at a campaign level is how we can drive greater accountability in Government for supporting the net zero goal but also, exactly as you say, for ensuring that policy decisions that are made are made in line with that goal. And specifically in terms of carbon pricing, some of the challenges that get put towards us with the question of a tax versus a trading scheme are that it's very hard to commit to a long-term tax trajectory. We've seen with carbon price support that was added on top of the ETS, I think from 2013, in the power sector, there was a commitment to a long-term price trajectory but that was frozen. I can't remember the exact year. I'm not going to say—

George Osborne, 2015, I think. 

Thank you very much. So, that is one of the challenges that we get and that's why we talk about stronger legislation being required as well, because then you could manage the tax trajectory and, for example, only freeze it if you had an environmental reason for doing so because you'd exceeded your targets, or whatever it might be. So, I think it's hugely important. It plays into this discussion very nicely, and, yes, to reiterate, carbon pricing is a part of it but it's not the only solution, and there are lots of others pieces of regulation that we need, too. 

Thank you. 

Thank you. Llyr. 

Thank you, Chair. I'm just wondering what you think about the scope of the proposed UK ETS, which mirrors the EU ETS. I know you touched on agriculture earlier, although I think was more particularly relating to carbon tax, but maybe you could tell us whether you think that other sectors should be included from the outset, or maybe gradually introduced over time. 

Absolutely. So, I did touch on agriculture. I think the UK Committee on Climate Change have some interesting proposals as well for how that might be integrated into an ETS, rather than the set tax that we've been talking about. We would love to have seen greater ambition with the ETS proposal in terms of price, the cap and the scope. I'm not sure how realistic it is to extend that scope now, but I absolutely agree that it needs to be increased over time, and, pricing specifically, whether that's the ETS or another mechanism, that will have to be decided based on the specifics of each sector. 

One of the other areas we've looked at is emissions from waste. So, we've seen how the landfill tax, though not an explicit carbon price, has been helpful in reducing the amount of waste going to landfill, and we wonder whether a similar price should be applied to emissions from waste incineration. As I understand it, the incineration from waste is predominantly used—. Energy is made from the burning, which is obviously better than pure disposal, but we would still argue that there's a huge amount of emissions produced through that and that those need to be priced to help disincentivise waste even getting to the point where it is disposed of rather than recycled. But we've been very clear in the report that other policies are required to support that—for example, extended producer responsibility, greater collection methods, and things like that. 

Other sectors we've looked at, I'm thinking of—. So, one of the things we've tried to do is work with signals that are already in place. So, rather than just implementing an ETS, what mechanisms already exist that we might be able to reform? So, with air passenger duty, for example, could we make that a more explicit carbon price that reflects the class of travel because that takes up more space, for example, in an aeroplane, but also on the emissions intensity of the fuel used, so that airlines could provide cheaper tickets if they're using more sustainable fuel? So, there are those small ways we can help to make change there, including different bands on distance travelled, and things like that.

And, then, I'm thinking of domestic shipping as well. So, with aviation and shipping, a lot of that, as I'm sure you all know, has to be managed internationally, but is there a way that commercial maritime vessels might have the exemptions that they're given on fuel duty lifted? And, I think, we've made the point in the report that the impacts of doing that need to be really assessed, because the last thing we'd want to do, for example, is price independent fishing boats out of being able to operate. But, the fact that ferries, for example, aren't subjected to particularly high carbon costs seems tricky when there's a big opportunity for electrification, as we've seen in countries like Norway, where, I think, their entire fjord ferry fleet is going to be electric by 2025. 

So, yes, lots of scope for change. As I've said, we've looked at each sector specifically on its own merits, but there's definitely scope for extension, whether that's ETS or something else. 

Okay. Thank you for that. I am presuming that if there is to be a UK ETS, you would wish for it to be linked to the EU ETS, yes?

So, we actually haven't made a specific case for that in our report, because by the time we started writing our proposals, the linked system had been split into 'Well, we might link, or we might not.' I'm not that well placed to comment on the likelihood of there being a link. I get the sense that that is the long-term ambition. I'm not really sure what the best route is there. It seems to make sense to link to a bigger market if we can, especially with the ambition that the EU is showing. 

Yes, okay. Thank you. Thanks, Chair. 

Thank you very much. Jenny.

Thank you very much. How consistent do you think the UK Government's proposal for a UK ETS is with the UK's net-zero emissions reduction target?

So, if we just think about the sectors that it's being applied to, because I think some sectors not being priced is not consistent with the target, as I understand it, when the original response to the consultation was put forward, we didn't feel that it was that consistent, because the price is still very low—the auction reserve price of £15. The scope for free allocation still seems to be overgenerous, and I think there's a recent report that's come out from the EU on this point, and the fact that we need to align free allocation more closely to assessed risk of trade exposure, as well as assessed risk of carbon leakage, to make sure that we can strengthen incentives to abate as much as possible. But, as I understand it, there's been an agreement to review the proposals in light of the forthcoming sixth carbon budget, as will be proposed by the CCC. If that's the case, it sounds like what is implemented as a UK ETS will be more strongly aligned. 

We still have concerns about free allocation anyway, just because it takes away a lot of the incentives to reduce emissions. But, I would also say we completely understand why free allocation is an approach that we and other countries have had to take because of the question of competitiveness and leakage. So, I hope that the ambition will be strengthened in line with the CCC's advice. I am told that it will be. I think that's very good news, but I still think there's more that we need to do to try and address real answers and extend to other sectors. 

Okay. Lord Deben was quite clear that there were significant dangers in not aligning ourselves with the EU ETS. Going it alone meant that we were just a small player in, obviously, a global system and that, therefore, we could find that other people are doing things that are going to make us less competitive and which we can't do anything about because we're no longer part of that system. So, I just wondered how significant that is as far as you're concerned, and particularly in relation to the UK's wider global responsibilities to not simply export our dirty behaviour. 

Yes, I think a really key issue that hasn't been talked about enough is the fact that we only account for the emissions that we produce territorially, and not even all of them; I'm thinking of the contribution we make to international shipping and aviation not being included in our carbon budgets. I think it's something that's becoming a lot more relevant to public climate campaigning and it's something that we're going to really have to start addressing, if we want to properly acknowledge the contribution that we're making, not just historically, but currently.

A lot of the feedback that we hear from people who are opposed to carbon pricing is that the UK has actually got relatively low emissions and a lot of the problems are coming from elsewhere. [Laughter.] Not my argument, just one I've heard. But I think we can do a lot more to say, 'Well, we're fuelling the demand for the products that are coming out of China, a lot of which are leading to those emissions.' So, absolutely, I think, that's a really hugely relevant and concerning issue that we need to address.

On a UK ETS standalone versus linked, I can definitely understand that us having an ETS on our own with a very small market is concerning. That's one of the other reasons that we've said if we are not able to link, we should go for a tax. But I think there are a lot of exciting things that can come out of this as well.

You mentioned our responsibility in leading climate ambition, especially when we leave the European Union. I think there's a huge opportunity for the UK to become a leader or, as the Prime Minister would describe it, 'the green industrial revolution' does pose huge opportunities. It's something we need to commit to, because otherwise we'll either be subsidising heavy industry and making further contributions to the emissions total, or we'll cause the shutdown of heavy industry and that's going to have massive social consequences for a huge amount of people, which is something we have to take very seriously too. So, that's why, even though these conversations around broader carbon adjustments and what have you are tricky, they're very important. 

Another issue that we've raised in our report, having spoken about waste a bit already is, for example, the offshoring of our waste to other countries, where we can't control how it's disposed of, but also we're putting burdens on other countries to dispose of what is ultimately our problem. So, we've made a recommendation around that as well, that we shouldn't be exporting waste to anywhere that can't get rid of it in a way that aligns with the environmental standards that we would expect.

Okay. Your report makes quite clear arguments that the public is expecting more change and that there is public backing for more change. So, what do you think the impact of setting an emissions cap of 5 per cent will be and how do you make that, if you like, understandable to the person in the street?

I think that's a really big concern that we have about an ETS—that it's very hard to make that remotely understandable to someone in the street. I've studied this all day every day, for not as long as others have at all, but exclusively for a year, and even I've found it quite hard to get to this point of understanding. So, that's a really big concern. The thing that the person on the street will understand is that we're giving out free pollution permits and that won't seem fair to them when they're having to pay for decarbonisation on their electricity bills and they're not getting any free permits.

So, that, to be honest with you, is where we started with this whole project: that notion of fairness and that notion of the 'polluter pays' principle. But I also think, speaking for the person on the street, we have to acknowledge that we are all polluters and we all have a role to play; it's just that the Government has a role to play in putting the parameters in place that can support people in reducing their carbon footprint in a way that isn't going to cost them too much money or be too disruptive to their lifestyles. I think there are interesting things being done in this space, like the green homes grant that I think has actually come out today—that is a really important step.

So, on the 5 per cent emissions reduction cap, analysis that we've discussed—as I understand it, it might be bigger than that, once it's aligned to the sixth carbon budget—is that there's always been a surplus of emissions on the market, and even a 5 per cent cut isn't going to do a huge amount to address that surplus. There are other things we need to look at, like the base price that we implement. We need some confirmation on whether or not carbon price support is still going to be added on top of that base price—as far as I know, that hasn't been committed to yet—and this question of free allocation.

I think those are the things that—. The kind of volume of emissions that we're allowing ourselves to produce and ensuring that people are actually paying for the emissions that they're producing are the things that people on the street will understand and get concerned about. But I also come back to this point that we really don't want to put an end to industry; we want to use this as an opportunity to drive the innovation that can provide more jobs, can make this more long term and can make the UK competitive in that space, because that's key for lots of reasons—social and environmental.

Thank you.

Neil Hamilton.

Good afternoon. You put very well the difficult equations that have to be solved, the competing interests that need to be taken into account when we're making these difficult decisions. Just to go back to Jenny's point about exporting dirty practices abroad, I mean, China currently has in the pipeline 250 GW of coal-fired power generation, which is six times the consumption of the entire United Kingdom, and it's also financing 108 GW of fossil fuel generation in other parts of the world. So, if you're going to make these carbon taxes and charges acceptable to British people, somehow or other we have to get this put into perspective. So, I wonder if you could just, before I go on to what I really want to talk about, which is the auction reserve price, just give us your reflections on that.

Yes, I think you've identified a really key means for engagement with the public, but also a key barrier for ambition and it's a really interesting point of crossover. China's recent commitment to net zero—I believe they said before 2060, not by 2060—is really important. We know that they're looking at implementing an ETS as well, but that's a really good first step. I think we have a role to further ambition amongst them and others, depending on the outcome of a certain election in five weeks' time.

But I also think the UK has a very—not just as the host of the Conference of the Parties, but we have a really interesting precedent in this space, in that we were the EU member that put additional pricing on top of the ETS before anyone else did because we recognised we needed to do that to drive the innovation required to get coal out of our energy mix, but also with our Climate Change Act 2008, which I believe has been replicated, or at least parts of it have been replicated, by lots of other countries. So, I think this is something that we can make a great contribution to helping to solve.

We absolutely need to account for more of the emissions that we cause. I've mentioned the contribution we make to international aviation emissions and shipping emissions. We've proposed that those are included in future carbon budgets because that's one step towards us taking bigger responsibility here. So, I completely acknowledge that there are other countries that need to do more, but it would be remiss of us not to try and further that ambition. There are things that we're involved in where we are trying to do that. There's a programme for market readiness, which the UK contributes to, which is run—I believe one of the partners is the World Bank—which is about exporting carbon pricing expertise to other jurisdictions to help them set up their own systems. So, there are things in place for us to help export that knowledge. It's a really important contribution that we can make.

And as well, there's been a suggestion—not by us, by others—that if broader carbon adjustments were to come in, perhaps you could use some of the revenues from those to help less developed economies, help them build their economies in a way that is green rather than brown. Because their narrative might be, 'Well, we've got into this space of emissions because we've had our own industrial revolutions.' Does it seem fair that they can't do the same? So, if there are ways that we can use finance that we generate to help support that transition, I think that's a really important contribution that we have to make and is in line with the premise of the Paris agreement that those who can do more support others in doing more too.

Well, that's very interesting. Unfortunately, I'd like to go into this in more detail, but it's outwith the scope of this specific inquiry.

So, I'd like to go back to this in more detail about the auction reserve price. Can you tell me what your views are on this being set at £15 per tonne of carbon dioxide equivalent, and in particular, do you think that this price should be reviewed to maintain equivalence with the EU ETS price of £21 or so—£21 in 2019? Lord Deben made great play during his evidence earlier this afternoon of the desirability for congruence with the EU scheme. Do you think this matters a great deal? He did say also, if I may say, that he sees the ETS as merely one of a suite of measures, and therefore we have to see this in the wider context as well. So, I'd really be interested to know what your views are on the current price that has been set.

Yes, thank you. So, I mentioned earlier that we don't yet know what's going to happen with the carbon price support, so I don't want to be too dismissive of this price if there's going to be another price layered on top of it, but we would absolutely say that that price is too low to drive the level of emissions reductions that we need to get to net zero, especially where a lot of that price isn't levied in a lot of places because people are given free allowances. Given that prices in the EU ETS are on their way up, and seem to keep going up in response to various green announcements, because people recognise the direction of travel, I think it would be a real shame for us to take what is essentially a step backwards in the price that we are currently setting as a base. I understand that you can't interfere too much with market prices, because the demand should set the price in some way, but I absolutely agree that if we are pricing a tonne of greenhouse gas emissions at £15, it's just not going to do what we need to do. So the case we made in our report echoes prices determined by the carbon pricing leadership, the sort of high-level coalition on this that work for the Carbon Pricing Leadership Coalition, and the Grantham institute, that actually, by 2030, we need to be at a price of around £75 a tonne, and we need to think about the impact of that on consumers too. We've put lots of thoughts forward on that, but it should be at around a price of about £55 by 2025. Other countries are recognising this and doing this too. I mentioned that the German Government is implementing a price outside the ETS on transport and heating, and they're saying that that's going to be baselined at, I think, £22, rising to about £50 by 2025. So, others are doing it; I don't see why we're not. We should definitely match the ambition of—even if we can't link to the EU, we should be trying to operate on an equally ambitious playing field.

You've anticipated the second question I was going to ask about the Grantham Research Institute on Climate Change and the Environment's proposal of £40 a tonne in 2020, rising to £75 a tonne in 2030, and you infilled that then with £55 by 2025. So, those are your proposals as well, in effect.

Yes, absolutely. I won't go too much into it, but there's a debate on whether you assign a social cost to carbon or a cost that's aligned to the emissions pathway that you need. We favour the latter, as do the Grantham institute. It will be hard in sectors that haven't had pricing yet to introduce prices at such a high level, but equally, from a lot of the evidence sessions that we held throughout the course of our commission, we know that not only a long-term price signal, but a high price signal can drive investment in the sort of early stage technologies that are going to be required to get us to net zero, so we're thinking of hydrogen, carbon capture and storage. So, without a price that's at that level, then we're not going to see the investment and change required to get to net zero. So, I think, if we're as committed as we appear to be to that target, then absolutely, we need to have stronger prices and other signals and other regulations. As I say, it's not the only solution, but it's not a very strong show of intent, to only put that at £15.

Thank you very much. You've been very clear and informative.

You're welcome.

Janet.

My questions have been covered.

Are you sure? Okay, fine. Jenny.

I just wanted to pick up on the issue of the impact of the pandemic on the price of carbon, and how this could affect a future emissions trading scheme, because we know that, obviously, aviation emissions has been massively reduced, because few people want to take the risk of going in a tin box where you're sharing the air with 300 other people. So, I just wondered if this is then a good moment to do something a bit more aggressive around aviation, or whether it's politically—Governments are shying away from it.

I think that Governments are shying away from it, but our view is that they shouldn't. Because this isn't—I don't ever want to describe the pandemic as an opportunity, but we have a moment in time to set new parameters for how we rebuild our economy. And making a concerted effort and investment to rebuild in a 'business as usual' way is—I don't want to be too dramatic—not going to be good from an environmental perspective.

So, I think, in aviation it's a really interesting question, because there's already been an agreement that, around the carbon offsetting and reduction scheme for international aviation side of things, the original baseline levels that were going to be used, that would be based on 2020-21, will be changed because emissions are so different to what they would be in a usual period. I think that's a real shame, because if we can in some way nurture the direction of travel such that emissions are lower moving forward, that's really important for us to do. We've also been quite—. And, actually, I think it's not going to be until about 2024 that we're expected to see levels of flights return to what they were before. Should they be returning to levels of what they were before is a big question, but by introducing proper pricing in aviation—for example I mentioned air passenger duty, but we think that the fuel used in aeroplanes should also be taxed. That's the international negotiation side of things, but this is a really big opportunity to set those parameters. And, as we have heard, not just from the public, from businesses, from countries and leaders around the world, there's a strong ambition to build back better.

So, whilst we are being tentative, of course, because we don't want to dispose of any particular industries, we, in the long term, will help them by putting parameters in place that enable them to become net-zero-ready or future facing. Because the cost of not doing so, environmentally and socially, are bad, but also financially, because this is coming down the track—they're going to have to make those changes at some point. The sooner we can do it, the lower cost it will be over the long run.

Okay. So, although, obviously, environmentally, we shouldn't be going back to our bad old ways, which is trashing the world, how much—? Is your perception that there's just no appetite from Governments to seize the moment, and do you suggest that this is the time to really reflect on how we use the world's resources?

There's strong rhetoric. There appears to be strong ambition coming out of the United Nations. Some recovery packages that have been put in place appear to be very ambitious and quite innovative—I'm thinking of one of the suggestions we put in the report to take renewable energy costs off electricity bills, to help them become lower, so that electricity is more attractive. Other Governments—I think Germany has done that too as part of their stimulus package. So, there's definitely ambition and rhetoric. It's clearly something that's very complicated to do. I think that the allocation of finance, which you mentioned earlier—. It's concerning if we're just providing unconditional bail-outs to—both for those industries themselves, but just in an emissions perspective. That's very concerning and we need to change that.

To launch our report we had a big conversation around the opportunities of the comprehensive spending review and the autumn budget, the latter of which, as I understand it, isn't going to go ahead in the way that it was. So, I hope that that will be replaced with something, between now and December, where these issues are addressed, because, like you said, the rhetoric's certainly there, but the actions to underline it haven't been that forthcoming. But I did mention things like the green homes grant, which I think is a really important step and should be celebrated, and it's great to see that. So, if we can see more of things like that, that would be really helpful. The other thing that is helpful is trying to extend and have a wider conversation around how net zero is going to affect everyone, and everyone's going to be a part of it. Because that doesn't have to be a divisive narrative, in that it's so difficult that we can't do it, it can be a collective narrative in which we, like I said earlier, enable people to play a role in that transition. And we know that's what people want. 

One of the other things we've thought about is: we know consumers want to be more environmentally friendly and live more environmentally friendly lifestyles, but there's a cost premium attached to that at the moment. And we think if you can use carbon pricing to address that and lower the cost barriers to low-carbon living, it becomes something that isn't a remit of those who can afford it, but is something that's more accessible to everyone, which is very key. 

Finally, Llyr Gruffydd.

Thank you, Chair. Before I ask my question, can I just say, I find it highly off-putting and highly disrespectful that members of this committee are chatting and laughing on their phone instead of listening to the evidence that's being presented to us? That might not be appearing on the broadcast, but it is visible to all of us, and I think it's out of order, and I'll be writing to the Llywydd to ask her to remind all Members that they should be participating in these virtual committees in the same way as they would be participating in a physical committee. I really am offended by that, I have to say.

If I could just say, Chairman, that was a very important call that I've just taken, and I've just received some good news about a family member.

Janet, this is not for here. Llyr has said he's going to raise it with the Llywydd. You can then talk to the Llywydd. Perhaps we can continue with where we were.

Okay. I find his comments quite hurtful, actually.

When people meet physically, they leave the room. You can switch your video off if that's—

I think we are drifting very much away from what we should be doing and I should perhaps have stopped you, Llyr, when you started that. But if you wish to talk to the Llywydd, it's entirely up to you. As far as I'm concerned, people are asking questions, the witness is answering them, there was no interruption to the asking or the answering of them, so there's nothing stopping the committee going ahead as normal.

Thank you, Chair. I was going to ask about the revenues that are generated from these schemes. You touched earlier on the need, or the potential use in relation to supporting some economies around the world that are less able to maybe tackle some of these challenges themselves. There was a proposal for the UK ETS to channel the money into an industrial decarbonisation fund. I'm just wondering whether you'd support that, or what other ideas you might have in terms of using the revenue.

Yes, absolutely. We've thought quite a lot about revenue use. I think it's been shown that you generate more revenue from a tax than a trading scheme because of the free allowances, but regardless, on a top level, we think that public acceptability of carbon pricing—and this is based on evidence and research—will be higher if people know that the revenue is being put to good use, so to furthering the environmental impacts of the carbon price.

There's the regional greenhouse gas initiative in the United States. I think they make quite a concerted effort of branding products that have been funded by the money through that system, and that's been shown to boost support for it. This is a made-up example: you'd go past a solar farm and see that it had been funded through that and that helps people recognise that this is being put into good use. So, I absolutely think that the revenue should be reinvested in helping facilitate the transition that can further the impacts of having a carbon price in the first place. 

One of the other things we've talked about is, and was touched on earlier—we need to find a way to raise some money to help drive the recovery. There are not that many places we can look to raise new revenue, and it seems to make a lot of sense to tax environmental harms, basically.

But another really important use of the revenue—I'm not sure if you're familiar with the fee and dividend model that's been put forward and is used in some places. In Canada it's this idea that you have a revenue-neutral tax and you give the money back to households to help mitigate the cost impacts of having to pay a higher carbon price.

The commission have sort of landed on where you can get to with that is funding a low-level universal basic income; that's not necessarily the role of an emissions pricing scheme. It will work better if its objective is to focus on environmental ends rather than anything else. But what we've said is, particularly for the bottom three income deciles or anyone that's in fuel poverty, could we perhaps use some of the revenue to help protect them from increased costs because they really can't afford to pay any more? What we can do is partly use the revenue to cushion those costs and help provide access to alternatives for them.

So, I'm thinking of—we've talked about environmental efficiency of homes—is there something we can do to provide better access to funding for households who wouldn't be able to afford that otherwise? As we know, that's very expensive. Or when we think about fuel duty—we don't think that that's a carbon price, it's not perceived as one, and so we don't really want to mess with it too much, but what about using some money to provide consumers with better financial access to electric vehicles, such that they can take those up and not see that as too much of a cost imposition? So, we don't want to use the revenue too many times over, I think that's often a danger, but, absolutely, there are things that we can do. And when we did a big nationally representative poll about two months into coronavirus and we asked about the use of the revenue, the most popular thing, even above investing in the NHS, which, at the heart of the pandemic, I think is quite striking, was clean energy solutions and wanting the revenue to go into furthering access to those. So, I think it's helpful, I think it's desirable and I think it's what people want to use that revenue to do—to do good things.

Thank you very much. Thank you, Chair.

On that point, can I thank you, Hannah, for coming along and giving your evidence? You'll get a copy of the transcript; check through it—I tell everybody this—because if you're anything like me and you move your head around, sometimes they miss a word or two as you move. So, just check that it's got all the words you've said. Thank you very much, you've been very helpful. I'm sure you will look forward to reading our final report, so thank you very much. 

Thank you so much for having me. Nice to talk to you all. Bye.

I'm now going to ask Members to note the following papers: a response from the Minister for Environment, Energy and Rural Affairs to the letter from the Chair in relation to the UK emissions trading scheme; written submissions on the UK emissions trading scheme from Wildlife Trusts Wales and National Farmers Union Cymru; correspondence from the Minister for Environment, Energy and Rural Affairs in relation to fuel poverty; correspondence from the Minister for Housing and Local Government in relation to the national development framework; correspondence from the Chair to the Llywydd and Chair of the Business Committee in relation to the national development framework; correspondence between the Tenant Farmers Association and the Minister for Environment, Energy and Rural Affairs; and, finally, correspondence to the First Minister from Wales Environment Link in relation to biodiversity. Are we happy to note?

Noted.

Llyr.

Thank you, Chair. I think paper 4.7, the correspondence between the Tenant Farmers Association and the Minister—I think there is a valid concern being expressed by the TFA there and I would wish us to, at the very least, write to the Minister asking for an explanation, because I think the potential confusion around repair and replacement of field drainage and flood banks, particularly in this sort of climate of increased flooding risks, is an issue that needs to be addressed. So, I'm hoping that maybe, as Chair, you'd be willing to ask the Minister for an explanation as a starting point.

I'm quite happy to do that. Joyce, you wanted to say something.

I read that and I thought that there needed to be a further discussion myself, because, depending where you're farming, of course, the cost could be significant, and who should bear that cost? I think there was scope there to thrash this out a little bit clearer. I was a little bit concerned about it. Tenants are put on sometimes quite enough, and in some cases land management seems to me to need to be certainly sorted out, because it could be completely prohibitive in terms of the tenancy agreement.

Okay. I'm in the hands of the meeting. Shall I write, in the first instance, to the Minister asking for an explanation? And shall we keep this in mind for the next time the Minister comes along for an oral investigation with us regarding her portfolio as a question that we can ask?

Yes, I agree with that. There seemed to be a kind of bureaucratic response the first time around, where the officials were saying, in effect, 'Oh, there's a process we have to go through before we can give the Minister advice and therefore nothing can be done, for however long this takes', and, obviously, to small farmers and tenant farmers in particular, time is money. So, given that they said, 'Well, this is just a simple error', the goalposts then seemed to be moved and now it's a policy decision. So, there's a confusion there, which definitely needs to be cleared up and cleared up as quickly as possible.

I will write and we'll save it up as well, if we don't get a satisfactory response, for the next time the Minister comes before us. Yes?

Yes, good.

Thank you very much.

Can I move the motion under Standing Order 17.42(vi) and (ix) to resolve to exclude the public from the remainder of the meeting? Yes? Thank you.