Rt Hon Lord Lilley

    Date of Proceeding: 09.06.2008
    Reference: 477 c93-4
    Member: Lilley, Peter
    Title: Climate Change Bill [Lords]
    Description: It is a great pleasure to follow the right hon. Member for Scunthorpe (Mr. Morley), who has given one of the most practical and realistic speeches in the debate so far. Having studied physics at Cambridge before going on to study economics, I approach the science and, to a greater extent, the economics of global-warming alarmism with a degree of scepticism. None the less, I am predisposed to curb hydrocarbon use and CO2 emissions because my scepticism may prove unwarranted; it is sensible to seek more secure and plentiful sources of energy, and we have a duty of stewardship to the planet.

    Above all, because I spent last year and the year before studying global poverty, it is clear to me that, if climate change is significantly man-made, the men and women who did not make it are the poor people of this world. Yet they will suffer most from it, and they more than anyone need to increase their energy consumption if they are to grow and prosper. So I accept that developed countries, including the UK, should bear a major share of the burden of prevention or adaptation to climate change. However, any measure that we introduce must pass two tests-the same two tests that we apply to any Bill. First, the benefits, even if they accrue to other people, must be greater than the costs, even if they are all incurred by us. Secondly, the measures must be effective, rather than just demonstrative.

    The Minister did not mention the final impact assessment, except in response to my intervention, yet it shows that both the costs and the benefits of the measures that he proposes are immense-so immense that it is astonishing that the House has got this far in the debate without considering them. According to the Government, the potential benefits lie in the range of £82 billion to £110 billion, but the potential costs lie in an even larger range, from £30 billion up to £205 billion. The net benefit, they say, could be £52 billion positive, but it could be as much as £95 billion negative.

    The Government admit that the method that they employ in their final impact assessment”“cannot capture trade and competitiveness impacts…unable to capture transition costs…limited in its ability to capture the obstacles which make it more expensive (such as information and policy costs)… It may therefore be expected to produce lower-bound estimates of the costs of carbon abatement in 2050.””

    In other words, their estimates are the lowest possible and ignore quite significant costs.

    Those costs are not trivial. The Government’s own figures say that”“transition costs”,”

    which are not included in their figure of up to £205 billion,”“could be 1.3 per cent. to 2 per cent. of GDP in 2020.””

    On the trade and competitiveness impact, which, again, is not taken into account in their costs, they say:”“Both short and long run costs could be unevenly distributed, with a small number of energy intensive industries affected more significantly, particularly those facing international competition.””

    They go on to quote the IPCC, whose research found”“relatively high risks of the transfer of productive capital to countries without carbon policies””

    if they are pursued asymmetrically-that is, unilaterally by us, without others doing the same. We could end up bearing the cost of driving UK business abroad, which is not included in the Government’s figures, without reducing carbon emissions-because, of course, those industries abroad would still be spewing forth carbon.

    Martin Horwood: Is the right hon. Gentleman aware of the Institute of Public Policy Research report that considered the various Government models for calculating costs and said that, even if 2 or 3 per cent. of GDP in 2050 had been expended in an attempt to meet the 80 per cent.,

    “the economy would almost triple in size by 2050, even with an 80 per cent. cut in emissions”?

    So surely he is talking about a marginal amount in the end.

    Mr. Lilley: Professor Stern said that, if global warming goes ahead and causes all the damage that he anticipates, the world will be only four times as rich by the end of the century as it is now, not fives times, as it would be if we cured global warming. The hon. Gentleman should first take that on board.

    The Government’s report moves on to benefits, and it is very terse, saying only:

    “For indicative purposes only, it is possible to use the Shadow Price of Carbon to place an indicative money value on the emissions reductions that could occur under a 60 per cent. emission reduction target. The Shadow Price of Carbon captures the damage cost of climate change caused by each additional tonne of greenhouse gas emitted.”

    They are using that figure to calculate benefits, without mentioning that virtually all those benefits will fall outside this country. I accept that we ought to be acting to help others. None the less, we ought to point out what we propose to do, who will bear the costs and who will get the benefits. A document that does not do that is not worthy of acceptance by the House.

    David Howarth: The right hon. Gentleman will be aware, of course, that the shadow price of carbon approach has been heavily criticised by a number of economists, and the Government are on the verge of abandoning it.

    Mr. Lilley: That is as may be, but that is a criticism of the Government, not of me. I am only quoting what the Government have told us and how they have assessed things.

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    The second test is how effective the measures are likely to be. We know that current policies are not working: CO2 emissions are not perceptibly lower than they were in 1997, when the Government were elected. Moreover, the target measure does not include aviation emissions, which have been rising, so CO2 emissions are actually higher now than when the Government were elected. A UN report said that Britain’s national target of reducing CO2 emissions to 20 per cent. below its 1990 levels by 2010 is now unlikely to be met, and that the outcome is likely to be about half of that. Again, that is without taking into account aviation and shipping emissions.

    It is extraordinary that although the Government have failed to meet the modest targets that they inherited and set themselves, we now hope that we can compel Governments, by statute, to meet far more demanding targets. It is a bit like suggesting that we can legislate for better weather, but not quite as extreme as that. It might be presumed that the Government would impose sanctions, but what are they? On closer inspection, there are no sanctions for failure to meet the targets. If the Government fail to make the 26 per cent. reduction by 2020, the Minister will not be clapped in irons. If by 2050 we fail to reduce carbon emissions by 60 per cent., there will not be a condign punishment for the Prime Minister of the day.

    The sole effect of enshrining the targets in statute will be that the Government’s policies will be open to judicial review. Judges will be asked to assess whether measures introduced will be likely to be effective in ensuring that targets are met. I do not have a great deal of faith in the ability of Ministers of this Government, or perhaps any Government, to meet the targets, but the idea that judges should decide on policies costing billions of pounds, without being accountable to the electorate for the billions that they might decide need to be incurred, fills me with foreboding.

    It is pretty daft to suppose that merely passing laws can help to bind us to, or help us meet, targets, but it is dafter still to suppose that passing laws can make other countries follow us. The Bill is unilateralist, and just as I was suspicious of unilateral disarmament, I am suspicious of measures that require us unilaterally to incur huge costs, regardless of whether others do likewise. I remind hon. Members that the UK accounts for only 2 per cent. of world emissions, so even if we achieved our targets the contribution would be negligible as far as global warming is concerned, whereas the impact on the UK economy would be crippling.

    There is, of course, merit in setting an example and taking a lead, but what if no one follows? No one has mentioned a most extraordinary development that took place last Friday, when a Democratic measure in Congress, which was intended to embarrass President Nixon by requiring emissions targets-

    Mr. John Maples (Stratford-on-Avon) (Con): Bush.

    Mr. Lilley: Yes, President Bush; I am a bit behind the times. Many people equate the two. The Democratic measure collapsed. It was not possible to get sufficient support from Democrats. To imagine that the US will follow in our slipstream is the simplest moonshine. If
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    we pass this measure, we should at the very least ensure that it has binding effect only if a sufficient number of developed countries follow us-and that, I think, is unlikely to happen.

    Martin Horwood: The right hon. Gentleman is very kind to give way to me a second time. Does he accept that California has already pledged to make an 80 per cent. reduction on 1990 levels? It is setting an example, and it is one of the most industrialised and richest economies in the United States.

    Mr. Lilley: Great; I do not doubt that some countries have taken action, and others will do so, but only if a sufficient number does should we make the targets binding on ourselves and commit ourselves to up to £205 billion of expenditure at net present value or more, for benefits that may be less than that.

    There was mention of the shadow carbon price. When all the measures were being thought about, the price of crude oil was about a third of what it is now. There is general agreement that the best way to reduce carbon use is to set a carbon price that reflects future costs. If we consider the Government’s assessment of the cost of ensuring reductions, the current price of crude oil does the trick. Their assessment and the calculations in their impact assessment assume that the high cost relative to the base cost produces an extra one-third reduction in emissions. That “high cost” was a crude price of $72 a barrel by 2020. The price is already nearly twice that; it will presumably produce two thirds extra emissions cuts. It will help us to meet the targets without the binding commitments to policies that may be damaging to British industry, costly to British taxpayers, and additional to the huge burden that they already bear by paying the high price of crude oil. I hope that Members will show a considerably greater degree of scepticism towards the Bill in its later stages in the House than they have done today.