LORD TURNER OF ECCHINSWELL AND MR DAVID KENNEDY

26 MARCH 2008

  Q20  Lynne Jones: So is that going to be done at a national level and then try and encourage other trading schemes to go along with that?

  Lord Turner of Ecchinswell: I think necessarily the European Emissions Trading Scheme will be a European emissions trading scheme, and therefore a crucial part of UK policy on climate change is for us to argue for adequately tight limits within the EU Emissions Trading Scheme, including appropriate rules within the EU Emissions Trading Scheme about the buy-in of credits from the rest of the world because, again, one of the things that determines to what extent we are indirectly buying in credits from the rest of the world is the extent to which the EU Emissions Trading Scheme itself allows buy-in of credits from the rest of the world. It is why the buy-in of credits argument is very complicated. With relation to the UK, we will be advising on the UK target for 2050 and for 2020 and for each of the budgets. We will be looking at how much of that is likely to be achieved by our allocation within the EU Emissions Trading Scheme, but we will also, I am sure, be influencing UK Government policy as to how tight we think the EU Emissions Trading Scheme ought to be over time, but it is the case that one of the most crucial levers that we have in the energy intensive sectors is set at European level, not at UK level. We have to work within that and argue for an adequately tight approach to the EU Emissions Trading Scheme.

  Q21  Mr Drew: Can I be clear that you would support the auctioning of entitlements within the EU ETS?

  Lord Turner of Ecchinswell: Yes, in principle.

  Q22  Mr Drew: The notion of free allocation.

  Lord Turner of Ecchinswell: I think in principle we should head rapidly to total, or almost total, auctioning of permits within the EU ETS. As any economist would point out, anything else is simply handing out an economic rent to existing incumbents which serves no good economic purpose; so we should undoubtedly head in the direction of auctioning as quickly as possible, which is, indeed, the UK Government's stance.

  Q23  Chairman: What would you do with the revenue from auctioning domestic trading schemes which are a provision in the Climate Bill?

  Lord Turner of Ecchinswell: Of course, the UK auctioning revenues will come to the UK as well. These do not accrue at European level, they accrue at national level, and one of the things that we are required by the Bill to do is to set out the consequences for fiscal revenues of our climate change targets, and one of the consequences of that will, indeed, be the stream of revenue that is going to go to government as a result of the auctioning of permits within the EU ETS. We will undoubtedly be involved simply as a mechanical exercise saying, given what we think the budget should be, given what we are assuming the EU ETS is going to be and should be and given the forecast that we will produce of what we think that will do to the carbon price—and we will be producing a forecast of what we think the carbon price will be—we will then be saying that is likely to produce X billion pounds of revenue for the Government. What should the Government then do with that? I do not think that is something that we will specifically recommend on. I do not think that one should necessarily think about that being hypothecated for specific carbon reduction activities. I think it is important to realise where that revenue is going to come from. It is going to come from a higher electricity price than would otherwise be the case. It is not pre-money. People have paid for it because that will be the impact—that is the primary impact of it—other prices will be slightly higher as well, and given that, I think it is perfectly reasonable for a government to be flexible as to whether it believes that that should be recycled on things which specifically drive down carbon reductions or whether it ought to be reflected in a somewhat lower level of taxation generally as a way of compensating people for the fact that they are going to have to pay higher electricity prices.

  Q24  David Taylor: The Climate Change Committee is an unusually important organisation and whoever chairs it is a key person. You would agree with that presumably?

  Lord Turner of Ecchinswell: Yes.

  Q25  David Taylor: You have beaten a path from the CBI to the doors of the House of Lords and that has been followed by others in your wake. In those sorts of circles it is not uncommon, is it, for people to approach people rather than to officially advertise posts? Were you approached or did you apply and were you appointed?

  Lord Turner of Ecchinswell: There was an application process, it was widely advertised. If I remember rightly, the head hunters rang me—that is quite normal in this process. The head hunters sit down with the clients and lots of names are put in as, "This might be a name who might be interested", but, having done that, there was a panel under the normal Nolan processes which reduced it to a short-list. You would have to ask them what the short-list was, but it had several names on it.

  Q26  David Taylor: They produced it as a paper exercise or as a face-to-face exercise?

  Lord Turner of Ecchinswell: No, there were face-to-face interviews. I had a face-to-face interview with the appropriate panel.

  Q27  David Taylor: How big was the long-list?

  Lord Turner of Ecchinswell: I do not know that. It is not actually normal when you are at the end of the process to know what the exact details were.

  Q28  David Taylor: But you have found out since?

  Lord Turner of Ecchinswell: No, I do not know long the long-list is. I think the short-list was about four or six, or something like that. You would have to ask Mr Mike Anderson, who was the civil servant in charge of that, but it was a clearly competitive process.

  Q29  David Taylor: What do you think it was in your own background which the head hunters felt was highly appropriate to this job?

  Lord Turner of Ecchinswell: I have actually been interested in the economics of climate change for many years. When I was at the Confederation of British Industry, I think I pushed the CBI and encouraged the CBI to take the issues of climate change seriously. That was the time when the President of the CBI, Sir Colin Marshall, as he then was, did a study on the Climate Change Levy and, obviously, we talked extensively about that. We produced reports. We were probably the first industry association anywhere in Europe to say that climate change was a reality and we had to respond to it rather than taking the classic prior stance of industry associations, which was to say it may or may not be a problem but your key concern in government should be our competitiveness. So, we engaged extensively with that.

  Q30  David Taylor: How many years ago were you saying these things approximately?

  Lord Turner of Ecchinswell: Ten years ago, 1998, when I was running the CBI I was doing that. I then produced a book in 2001 called Just Capital, which has a chapter in it called Green Capitalism, which actually argued that we did need stretching CO2 targets. It also did a very early form of the Stern Commission calculation and it said that the cost of this to the economy was unlikely in the long-term to exceed 2% of GDP. Subsequent to that I was on a taskforce put together by the IPPR think-tank, an Australian/US/UK taskforce which produced recommendations at the head of the Gleneagles G8 meeting, and it was a taskforce combination of scientists, business people and NGOs who were involved in the climate change space, so I got more involved at that stage.

  Q31  David Taylor: So, in addition to this range of skills and experience that you are related to it, what other facets of your life's work, as it were, do you think led you into this job?

  Lord Turner of Ecchinswell: To be appointed?

  Q32  David Taylor: Yes.

  Lord Turner of Ecchinswell: I think it was a combination. I am a trained economist and I have input significantly to the debate about the economics of climate change. I helped Nick Stern a bit—there was a credit to me in Nick's foreword—I have been for about a year and a half an economic adviser on climate change to the Sustainable Development Commission, which Jonathon Porritt asked me to do, I have written extensively on climate change. I have, for instance, got extensive press articles responding to Bjorn Lomborg's book and I am also involved in business. So, I think it was the combination of three things really. It was a business experience, so I understand business, it was as an economist who has been quite extensively involved in debates about the economics of climate change and all those issues about discount rates and how we respond which are in the Stern Review, but it was also, I think, having been Chairman of the Pensions Commission I had been involved in an area of quite contentious public policy where it was perceived that the net result was a successful move forward in our policy reflected in two bills that have gone through both houses of Parliament with cross-party support. I think those were the combination of skills which it was perceived that I would bring to this job.

  Q33  David Taylor: You still chair the ESRC?

  Lord Turner of Ecchinswell: I do chair the ESRC.

  Q34  David Taylor: Are you a non-executive director?

  Lord Turner of Ecchinswell: I am a non-executive director of Standard Chartered.

  Q35  David Taylor: Paternoster?

  Lord Turner of Ecchinswell: Paternoster.

  Q36  David Taylor: Siemens?

  Lord Turner of Ecchinswell: Siemens.

  Q37  David Taylor: UBM?

  Lord Turner of Ecchinswell: UBM, although I am going to come off that in about a month's time, two months' time.

  Q38  David Taylor: How much of your time have you devoted?

  Lord Turner of Ecchinswell: If you add up the formal commitments of all of those, they do not come to more than about 120 days a year: because if you add up each of them as written down some of them do take more time than that. As described in the job description for the Committee on Climate Change, it said that this would take three to four days a month and I think it is highly likely that I would spend about eight days a month on it and, I have to say, for the last two months I think I have probably spent about 15 days a month on it. I will make a commitment of about 40% of my time to this, and that is quite straightforward to fit in with everything else that I am doing.

  Q39  David Taylor: One of your earliest observations to the Committee this afternoon was that there is a great deal of work to be done by September of this year.

  Lord Turner of Ecchinswell: Yes. December, I said.