LORD TURNER OF ECCHINSWELL AND MR DAVID KENNEDY

26 MARCH 2008

  Q60  David Lepper: I am interested in the range of organisations or sectors that responded to you. Was there a preponderance of any kind or was it all the usual suspects?

  Mr Kennedy: It was the usual suspects. It was business which has an interest here, it was NGO, academics, it was across the board. It was the same range that responded to the Climate Bill consultation.

  Q61  David Lepper: Just a final point on that, what balance of it was scientific-based responses and how much of it was based on economics and other issues?

  Mr Kennedy: I think it was predominantly based on the latter, so economics and policy as opposed to the science.

  Q62  Lynne Jones: I am supposed to ask you about cumulative emissions, but I think earlier on you talked about the need to analyse the trajectory in which we need to move and you talked about starting with the global trajectory and then apportioning it. Does that define exactly what you are going to do and do you think that we should recast the targets in terms of cumulative emissions or will you take account of the trajectory in saying what you think the annual targets should be?

  Lord Turner of Ecchinswell: We will take account of the required process on cumulative emissions in suggesting budget period by budget period what emissions should be. Of course, that is most important at global level, and I return to the point I made earlier that one of the things that has happened since the Royal Commission Report in 2000 is the pace of growth of emissions from China and India in particular, which simply means that the accumulation of emissions over the last eight years is simply higher than we anticipated. Certainly when you are dealing with it at global level you need to think about not simply a point in 2050 but the cumulation from here to there, and there is absolutely no value in proceeding on the basis of well, we want 70% by 2050 and then we run a least-cost optimisation model that tells us that the least cost way to get there is to do nothing until 2049 and then suddenly reduce, which is the somewhat absurd result that can come out if you use least-cost optimisation models too mechanically. We will be thinking at a global level not only about how low it has to be by 2050 but what the path from here to there has to be, and if that path requires early reductions, I do not think it is okay for the UK to say that is what we want the world to be but we will back-end our reductions. That is not a reasonable contribution and it is not a credible negotiating stance in international negotiations, so, in brief, yes, we will be looking at the trajectory both in terms of its technological doability and whether you have to make progress early in order to be technologically on a path to a low level but also its implications for cumulative emissions.

  Q63  Lynne Jones: Is there any point in having the upper limit for the 2020 target?

  Lord Turner of Ecchinswell: The upper limit for the 2020 target has now been removed in the Lords so it is up to the Government, and I think the Government has accepted that amendment.

  Q64  Lynne Jones: Do you think there was any point in it? They told us there was!

  Lord Turner of Ecchinswell: The Government argued that it at least made people think that the mid-point was 29 if you said it was 26 to 32, whereas the danger if it is 26 is everybody thinks that it is really 26 rather than at least 26. I think it is incumbent on us not to believe that at least 26 means that we can say, "26, oh, that is great."

  Lynne Jones: I do not think I need to ask my next question, it has already been covered.

  Q65  Chairman: Can I carry on from there because in the advice you are going to be giving on the setting of the first three carbon budgets, one thing I am struggling to understand is there was a long debate about whether we ought to have annual targets, and again this Committee did not agree with that, but you have got to be able to measure on a continuing basis whether you are on track. You have used the word `trajectory', but are you going—I will not pin you down necessarily now—to define what the trajectory ought to look like in concert with the setting of each of the three budgets?

  Lord Turner of Ecchinswell: We will recommend a trajectory from here to 2020 in the sense of what the first five-year budget should be and the second and the third, so that is a trajectory at that level. What I do not think we will do is then say you did not ask for annual budgets but here is what we imply within it. However, I think when we get to our annual reports on progress towards budgets, a starting point will be to say it would not be daft to assume that in order to be on progress towards the next budget something like a roughly equal annual reduction from budget one to budget two would be sensible, and if you were running behind that roughly equal amount that would raise questions that you would expect us to comment on.

  Q66  Chairman: But we are running behind at the moment. Therefore in the budget-setting process when are you going to start moving towards catch-up?

  Lord Turner of Ecchinswell: We are going to start from the present level and we are going to say it is going to have to be at least 26 below the 1990 level by 2020. We will take the present level and within our work programme what we have said is our starting point is equal annual percentage reductions from now to 2020. You set that out and you really need a reason for diverging from that.

  Q67  Chairman: Why has it got to be equal because we are back to where we started with a linear progression?

  Lord Turner of Ecchinswell: The answer is in the methodology. If you knew nothing at all, if you knew nothing about the pace at which power stations are going to run off and new investment possibilities are going to emerge, if you knew nothing about when it was feasible for new policies to come in, if you knew nothing about when the EU ETS is going to really bite, it would be a reasonable thing to say that if you want to hit a target by 2020, and this is your starting point, a roughly equal annual reduction might be a sensible way to get there. What you then do is say but there might be all sorts of reasons why it is sensible to diverge from that, either up or down, and at that stage you feed in the run-off of the life of the existing power generators, the timing at which existing policies already committed to are going to be in place, the EU environment, the feasible limits to how fast windmills could be built even if you declared that they were to be built in large number tomorrow, and then you have to feed that in to make a judgment on whether the path that you recommend is faster or slower than the zero knowledge sensible stance (which I think would be a straight line on a piece of log paper, not a straight line on a piece of normal paper, if I can put it that way).

  Q68  Chairman: We look forward to the comparison between straight lines and reality when the job gets moving.

  Lord Turner of Ecchinswell: Constant percentage annual reduction.

  Q69  Chairman: If we move on from that to again a practical situation, you are reporting to Defra but there are other key players, BERR and Transport to name but two, in the climate change mix, and one of the things that I would like to know whether the Committee is going to do is also within the budget framework provide some form of sectoral analysis/sectoral target-setting so that you can see who is contributing and who is not to the general track of progress.

  Lord Turner of Ecchinswell: Yes we are. First of all, we are required to set out how much of the emissions reduction should come from the EU Emission Trading Scheme and how much should come from all other things in the non-traded sector of the economy. ("Non-traded" for this purpose means carbon trading.) Secondly, we will certainly comment within an overall budget on how much of that we think might come from transport, how much of that we think might come from power generation, how much from insulating houses, et cetera, because it is not possible to tell a story of a credible budget by 2020 without describing at that level of detail what it is that is going to happen, so we will be doing that and that is why we will be having an extensive interface with the relevant departments. I have already met with the Secretary of State for Transport. I will shortly be meeting with the Secretary of State at BERR. The head of the Secretariat, Mr Kennedy, and the Secretariat have regular and formally defined links with the civil servants in those other departments, so we will be very aware of the policies that they have in place; we will be in discussion and dialogue with them about the different policies; and we will end up commenting on the sectoral mix.

  Mr Drew: Are you not very depressed already with the confusion of policy instruments out there? We did our report on the Citizens' Agenda and the simple message that we got back was people do not really understand what it is they are entitled to if they want to convert their house to solar panels, for example.[2] I have a constituent who wrote to me yesterday and he is trying to put a borehole in and he said if he was in Scotland he would get at least a third of it paid for, but here in England he does not know if he is going to get any money at all for this. There is a panoply of different initiatives out there but knowing what is really happening is immensely confusing, is it not, and can you sort this out?

  Q70 Lynne Jones: Is it your role to sort this out?

  Lord Turner of Ecchinswell: Clearly one of the things that we are going to do at an early stage is look at the range of policies that are in place, look at the estimates of the impact that they are going to produce, and we are going to have a point of view on the credibility of those estimates, because there is no point in us recommending a budget on the basis of the fact that policy A is going to produce some result unless there is a credible reason why it might produce some result. I think I would accept that one of the challenges for government policy looking forward is going to be a clearly understandable set of policies for people. There are some sectors where it is probably working better than others. If you look at what is now called CERT and used to be called EEC and is sometimes called the Supplier Obligation (within which may itself lay a story about communication that we have these different acronyms for the same thing) that does produce numbers because there is a requirement on the utility companies to go and identify lower income people and to actually do things in their houses. I think when you move outside the group of the lower income fuel poor who the energy companies are approaching on a proactive basis and ask individuals of medium income what level of support they can get from government subsidy et cetera, I think you are right, the degree of knowledge would be very small and of course what is also the case is the degree of knowledge not only of where to go in government but where to go to providers who do not provide any sort of one-stop shop, which is pretty poor as well, and that is a challenge for government because we know that the technical analysis always tells us that there is a huge opportunity to reduce emissions not only at low cost but at negative cost, ie at benefit to the individual and the economy, in the area of for instance home insulation. We know that on the cost curves, as they are called, this is the negative cost bit of the cost curve. You do it and the individual is better off than they were before and GDP is higher than it was before. The challenge is going to be how do we make those positive return projects happen, and the challenge for us as a Committee is going to be how much of those technically possible negative cost/positive benefit actions do we assume can be achieved, because of course if they were easy to achieve they would have been achieved already if they give a positive return. You have to ask why if they are a positive return have they not been achieved already, and it is because there are all sorts of barriers to understanding and hassle factor and difficulty that prevent people going out and insulating their houses and 18 months later having more money in the bank than they had to start with.

  Q71  Lynne Jones: Is it the role of your Committee to consider these things?

  Lord Turner of Ecchinswell: It is the role of our Committee certainly to consider the range of policies which are in place and the effectiveness of those policies because without that we cannot recommend what is a credible budget. There is no point in us simply saying we think the budget by 2020 should be X,Y and Z without being able to tell a story of a credible path from here to there.

  Lynne Jones: You will be commenting on an awful lot of government policies, will you not?

  Chairman: I will take two quick supplementaries, one from Patrick and one from Peter.

  Q72  Patrick Hall: I just want to go back to the overall economics of this and seek some clarification, Lord Turner. You referred to Stern, and also your earlier work, and Stern said that dealing with this issue of emissions is affordable, but I think the argument from Stern was it is affordable if we get on with it. It is affordable over the whole period of, say, 40 or 50 years if we get on with it now, and the longer we delay the less affordable it will be, and if we do nothing it could completely disrupt the global economy. Is there a contradiction in there somehow that in order to deal with the issue of cumulative emissions we have to make a serious, radical start soon? Your report in December is going to address that in terms of the first three five-year budgets and therefore there will have to be an expenditure cost soon that is not being paid for at the moment and people will complain soon about that not being affordable, so there is likely to be resistance. I hope I am making myself clear. Is your argument going to be, yes, it is affordable even if people do not think it is because if they think that is not affordable they have got to wait a bit longer and see if we do nothing?

  Lord Turner of Ecchinswell: I think there is a very compelling case which is set out in Lord Stern's report and other reports that the developed, rich economies, and ultimately the whole world, can run on a fraction of the carbon emissions that they have at the moment. They can reduce it by 60 or 80% from present per capita levels in, for instance, Europe, and the estimates that he produced are that the cost of that might be between minus 0.5%, ie you do a set of things and we are actually better off at the end of the day, through to plus 2.5%, ie we do all these things and the GDP in 2050 and ever thereafter is 2.5% below what it would otherwise be but, as I made the point earlier, that simply means that you have slipped by a year the rate of increase. I think that is very compellingly proven by the fact that there are lots of costless ways of people changing behaviour, there are lots of positive return projects which improve energy efficiency, and even if we cannot do those two things and we have to buy our energy more expensively, it is not so much more expensive. A rich developed economy like the UK spends only about 5% or so of its GDP on energy. It bobs around a bit with the oil price but it is about 5%. If you have to buy that 40% more expensively than you otherwise would because all these renewable technologies are 40% more expensive, that is still only 2% of GDP. It is that very simple back-of-the-envelope calculation which roots those figures. Sometimes the best insights in economics can be got off the back of an envelope rather than a highly sophisticated model. That is why it is of the order of 1 or 2% and not of the order of 20 or 30 or 40%. What is absolutely right is that in order to do that and in order to have that low cost by that time, we need to get on with driving those technologies now. We need to put the commitment to invest in the array of technologies that there are, whether it be renewable or whether it be nuclear or whether it be carbon capture and storage. Let me give you an example on carbon capture and storage. There are three blocks of technology—renewable, nuclear and carbon capture and storage—but the one which is going to be absolutely essential is the third, carbon capture and storage. Given the sheer amount of coal-fired power stations which the Indians and Chinese are now putting in, particularly the Chinese, if we do not have workable carbon capture and storage within the next 15 years I think it is highly likely that the world will heat up by three or four degrees and you can almost say goodbye to any lower target. At the moment there are a lot people simply assuming that carbon capture and storage will be available at some time, but it is only going to be available at a reasonable cost if somewhere in the world we get on quickly with driving it through the R&D process and actually illustrating that it works not in small labs or small demonstration sites but at scale and, if we make sufficient commitments to driving at that scale, that the engineering resources are available in sufficient number to actually put it in in all these power stations, because often the pace at which you can deploy a technology is constrained simply by the number of trained engineers or the number of companies that are capable of doing this thing. Given the pace at which carbon capture and storage has got to be introduced across the world within the next 20 years, very soon we have got to have large numbers of people doing this because they will only be able to do a certain number each year, so, yes, we do have to get on with it. Are there going to be costs? Yes, there are going to be costs. The fact is there are costs already. The cost of electricity in the UK is higher because of the EU Emission Trading Scheme. The cost of carbon is reflected in the cost of electricity. Many people may not know that but it is true. It may be a relatively small effect so far compared with the oscillations in the cost of gas but it is in there. One has to have a political process and political leadership to make sure that if there is suddenly a strong opposition to slightly higher electricity prices, we still stick to the path that we are on. That is one of the reasons why there has to be the political management of the fuel poverty issue because whereas in relation to middle and high-income people you can say, yes, your electricity price has gone up but ultimately it has not made much difference to your standard of living; with lower incomes it does. The overall thing is we should give people the confidence that the costs are sufficiently small that if we look back over 50 years we will hardly see the impact on the rates of growth of the economy. It is not a major shift away from the growth of material prosperity which the market economy gives, but it is still non-trivial, and we have to have the political determination to face those not huge but still non-trivial costs.

  Q73  Sir Peter Soulsby: It is really on the political determination that I wanted to ask a question, because you say you have met with secretaries of state and civil servants in some of the other departments that are going to be affected. I do not know whether this is capable of a generalised answer but do you actually think that in some of those other key departments there is yet a realisation of the scale of the challenge that is going to face them and the policy implications that they might have to deal with?

  Lord Turner of Ecchinswell: My impression so far is that there is. I think in particular the commitment last year to a very stretching renewable energy target has made BERR aware that it has to look at things perhaps more radically than it previously might have. There is a growing awareness across government that the Climate Bill is quite a radical thing to have done. I know we can all have esoteric debates about what it means for a government to place a legally binding constraint upon itself, and lawyers can have a field day on that, but I think the political reality of it is that once we have these legally binding targets they are going to create a very strong external discipline on government, and I think that is something that across the board departments, not just at secretary of state level but at Civil Service level, are increasingly aware of.

  Q74  Chairman: Can I just ask on the structure of government, do you not think there ought to be one climate change Cabinet-level minister full stop? You have got the Committee that you are chairing, you have got the Office of Climate Change; it is such an important job that if you had a Cabinet minister who was in charge of climate change and had the sanction on the budgets of subordinate departments who could deliver the solution, you may have more focus than the disparate situation that we have and to which Peter Soulsby adverted a moment ago?

  Lord Turner of Ecchinswell: I think even if you do that you have to realise that that person is going to have to work through other departments. At the end of the day we are going to have some people in charge of transport and some people in charge of building regulations, and there is going to be the Treasury driving tax decisions, there is going to be a whole set of rural and farming issues which govern farming practice, et cetera, so if you declare that there is a Minister for Climate Change, unless you give them about 40% of the entire government, they are going to have to work through other things. The answer is there may at some stage be legitimate machinery of government issues about how you drive sufficient change but ultimately they are going to have to come down to some process either of the Prime Minister deciding what the priorities are between different competing secretaries of state if they have different points of view, and if you had a Climate Change Secretary of State they are only going to be powerful insofar as when they end up with a debate with the departments the Prime Minister backs their judgment. I do not exclude the possibility but I have to say at least for a couple of years and until that is clearly an agenda that somebody puts on us to think about (and if and when that occurs we might express a point of view on it) I think we have lots of other things to do before we get to that and it may not be ever appropriate for us to be the people who opine on that.

  Q75  Mr Drew: Information is power and I wonder where you are going to get your sources of information from? Are you prepared to make yourself unpopular in some of the things that you are going to say? Have you had a word with David Puttnam about making a film of this or have you got your own TV series lined up already? I know it sounds laughable, but to communicate with the Great British public you are going to have to use all the means available to you including some, dare I say, hectoring about "you have got to do this chaps otherwise we are all doomed". This is all on the agenda, is it?

  Lord Turner of Ecchinswell: When you started talking about information I thought you meant something else, and let me comment on the `something else' first. We are reliant on information and one of the things we have to do is double check the information and debate the information. For instance, we start with a baseline forecast of what will happen to emissions if you do nothing which comes from a model which BERR runs and we have to use it. We have to use it but also challenge it, and indeed we have had an external set of consultants having an outside in look at that model and saying here are the bits which appear clear and here are the bits where judgments have been made where you might want to put the judgment the other way, so across a whole series of technical inputs, whether it be baseline emissions or cost models, we will be using the models which exist already but we will also have to challenge that either within the team or use external consultants to help us challenge that to see whether they are at all debatable. The thing you were focusing on mainly was external communication, as it were, selling the story. We will have some communication expertise but it will not be huge, and I think we will have to play that one by ear as we proceed. I think at the appropriate time there is a role for the chair of the Climate Committee which is to be involved in the public debate about how we have to change, in the same way that there is a—

  Q76  Mr Drew: It is going to make better television than a fix in the bank rate.

  Lord Turner of Ecchinswell: —In the same way that there is a role for the Governor of the Bank of England to be telling people why even though increases in interest rates are not always loved they are required for the long term. We will have to think about to what extent we need external communication, but yes I think at the appropriate time—and it may be when we produce our budgets on the 2050 target—we will have to explain why we are recommending what we are recommending and explain it in ways which are not just technically understandable but have some ability to be part of a wider public debate.

  Q77  Dr Strang: I was interested that you made reference to the conversation you had with the minister responsible for climate change in the Scottish Government. Your organisation you will know better than me is sponsored, I think is the correct word, by the devolved administrations as well as the UK Government which is just as well it is. The Scottish Government envisages bringing forward a Climate Change Bill, is probably the way I would put it and probably it is no stronger than that. It could of course choose to set up its own advisory committee, and I suppose there are other things it might choose to do, but I wonder whether you might make a comment on that.

  Lord Turner of Ecchinswell: We did have these three stakeholder meetings in Cardiff, Glasgow and Belfast within the last two weeks and we spent a day at each, and in addition to holding a two to three-hour meeting with the stakeholders we met with the relevant ministers and other groups of people to understand the whole background of policy in those areas. I think it is very good that at devolved level there is a commitment to act as well as at UK level. I think that is helpful and, as you probably know, there may be a slight bit of competition in this in that it is possible that the Scottish target will simply say, "We will set 80% ahead of the UK level getting round to it." I think the challenge in all three devolved administrations—and we had very useful discussions about this—is how to make sure that our work and their work was really building on each other rather than duplicating it. We found there was a very intelligent appreciation of what it was sensible for them to do and what it was not sensible for them to do. For instance, there is not a great deal that the devolved administrations can do about inputting to the operation of the European Emission Trading Scheme. Ultimately that has to be a debate between the UK level as one of the constituent parties of that and the European level, and if there was a lot of second-guessing coming at devolved level of saying we think it should be like this or like that, that would be tricky. Having said that, there are particular local issues. The Welsh are particularly concerned about very heavy industrial users in internationally traded sectors of the economy because of the steel industry at Port Talbot, in a way that other areas of the UK are not, so it is legitimate for them to be saying, "Hang on, have you thought about how this is going to work for steel industry competition and simply assuring themselves that that is something we are going to think about in our input to the EU ETS. There are some things like that which are important at devolved level. I think what is really interesting is for the devolved administrations to focus on the things where they have devolved policy levers, and of course they do have devolved policy levers: they have planning levers and they have building regulation levers. The structure of the equivalent of the Energy Efficient Commitment or the CERT is at devolved level, with one or two differences between the degree of devolution in each. In Scotland, Wales and Northern Ireland we were talking about the fact that we would really encourage them to do really good work on rural areas and farming issues, because that is an area where we do need to get into and there has not been much work because those have a greater degree of importance in those areas. Where you have a dispersed rural community you have a lot of people who are off gas grid who are often reliant on oil-fired central heating, which is very inefficient in carbon terms, very expensive and therefore with consequences for fuel poverty, where there probably is a greater role for distributed generation, local generation, be it wind on a small scale in the Highlands of Scotland or Wales than there is in, say, south-east England, so what we were trying to do—and we found we had excellent discussions in each—is first of all understand their whole framework and make sure that they were aware what we were doing and that we were aware what they were doing, and that in particular identify areas where they have the levers or where they have an issue in bigger proportion than it exists at the total UK level, and therefore where a particular focus on their side would be helpful. We are early days of working out that relationship but we found we had very fruitful discussions in each case.

  Q78  Chairman: Just to draw matters to a conclusion, there is the thought that there might be a sub-committee of your Committee dealing with adaptation. Have you come to any preliminary views on that?

  Lord Turner of Ecchinswell: We have never quite seen it as our job to come to a clear view on that. What I have always said is that we are not out there in the market trying to grab adaptation. We would be perfectly happy not to have adaptation because, frankly, we think we have got quite enough to do by focusing on the mitigation and budget side. If we were given adaptation it would be part of our operation, but a parallel part of our operation, in that we would have to set up a separate committee with the appropriate skills which would be different from the skills which are on the Committee which has been put in place. One might ask one of the people on the present Committee to either chair or be on that other committee in order to create a communication bridge, but it would be a parallel set of activities. We would also have to define bottom-up the Secretariat to support that which would be a different wing of the Secretariat with different skills than those which are there already and would need to be a whole extra set of resources. I said earlier that we are not after more resources to do our mitigation work but we need all the resources we have got to do our mitigation work. We would be quite happy if that job, which is an important job, was given to another separate group of people but that we had perfectly sensible communication links with them and maybe the occasional joint meeting. We would also be happy for it to be given as a sub-committee to us, provided we were given the extra resources, and also provided people realised that our timescale for delivering something on that will probably be slightly delayed. You could not put that into the December reporting deadline that we have and expect anything useful out of that, so we are willing to play it either way, and I think it is for others to decide.

  Chairman: Thank you very much indeed. We very much appreciate the way that you have put across your early activities. It has given us an idea of the flavour of your direction of travel. We look forward to seeing how the detail emerges and I am sure that the Committee will want to talk to you when you produce your first report to explain how progress is going. Can we thank Mr Kennedy too for his contribution. We look forward to seeing how you progress and we wish you well. Thank you for coming to be our witnesses.