Climate Change Bill - guidance

25 September 2008

Climate Change Bill – guidance

Having gone through the House of Lords in its first stages, the Climate Change Bill is currently in the House of Commons for consideration.

The targets that the Bill sets are for “the UK” as an EU member state – some might believe that this simply means the government must make changes to the way it operates and regulates the rest of the country. This is not so. In order for the energy producers to put into play their ‘greener’ operations and for the government to effectively regulate and enforce environmentally friendly policy, the whole country needs to play a role. That includes householders, sole traders, small businesses and big businesses.

There are certain parts of the Bill which will only apply to large-scale businesses, but the thrust of the Bill is aimed at reducing the UK’s carbon emissions as a whole.

Target session

The UK domestic target for reduction in carbon emissions is a minimum 26-32% by 2020 and thereafter a minimum of 60% by 2050. The baselines for these targets are the figures as at 1990. Encouragingly, DEFRA’s Climate Change Programme Annual Report announced earlier this year (17 July 08) that “carbon dioxide emissions are projected to be 428.4 - 441.2 million tonnes in 2020, which would equate to reductions below 1990 levels of about 15½% [by 2010] and 26% [by 2020]”.

So, with an average estimated reduction over the period 2004-2010 of 1% per annum, we seem to be on track to reach the target without too much difficulty. But that shouldn’t invite complacency. With the business sector being responsible for approximately 40% of the total carbon emissions in the UK, all businesses need to think seriously about their individual impact on the environment. This is not just a “green” issue either. The effects of climate change could cost the global economy some 5-20% of GDP if no action is taken, compared to a possible 1% impact on GDP if we do act (the Stern Review).

In order to give everyone a fighting chance, the government has set out three target periods up to and including the year 2020, so that carbon emission reductions can be measured gradually over these periods rather than in a last minute panic in the few preceding years.

The three periods are:
(i) 2008-2012 (ii) 2013-2017 (iii) 2018-2022

The reduction in carbon emissions in the third period MUST BE at least 26% lower than the 1990 baseline. Government will set out later target periods in the future but even at this stage it has stated the target for the period which includes the year 2050 is a minimum 60% reduction from the baseline.

An explanation and recap

Before going any further, perhaps a brief explanation is in order. Firstly, there is a difference between the terms “carbon emissions” and “greenhouse gases”. Carbon dioxide is one of the five categorised greenhouse gases . When the government speaks of “targets” in this Bill, it relates only to carbon dioxide (abbreviated to ‘carbon’) emissions and does not take into account the other four gases. If, at any time, the Secretary of State decides to include other greenhouse gases into the targets, it may do so.

Just a quick reminder of what greenhouse gases actually are and why it is so important to control them… the gases are naturally occurring, usually self-regulating and are vital to maintaining the atmosphere of the planet and to allow for the escape of certain other harmful gases and heat into space. An excess amount of these gases, however, causes heat to be trapped within the earth’s atmosphere, which results in a rise in temperature and creates the “greenhouse effect”, or what is now more commonly termed as “climate change”. It has now been proven beyond reasonable doubt (please excuse the legal jargon!) that the greenhouse effect as we are seeing it today goes way beyond anything ever experienced by the earth in its entire natural history and can be attributed to the industrial revolution that has taken place in the last century or so.

The man-made cause of the gases is the burning of fossil fuels – coal, oil and gas. If we reduce the cause, we reduce the gases. It’s as simple as that. It might often seem that the matter is over-complicated by media hype and information overload, but the simple fact is that we need to reduce the amount of fossil fuels that we burn. It is not just a matter of meeting government targets – it is a matter of survival.

A further problem is providing people with the right kind of information on how the small things that they do at their desk or in their homes contribute to the larger picture, and then getting them to take responsibility for those small actions.

The Authority

One of the other purposes of the Bill is to create a new Committee on climate Change, which will advise the government. The Committee is to produce a report to parliament by December this year on the adequacy of the targets proposed in the Bill and the suitability of the carbon budgets and trading schemes. Lord Turner (the Committee’s former interim Chair) stated that he considers that the whole of the UK target should be met by domestic measures rather than by the acquisition of overseas carbon credits (see below). The Committee must also decide and advise government on which greenhouse gases should be used in the calculation of targets, and whether shipping and aviation emissions should be included.

Carbon budgets / Trading Schemes

Carbon budgets are an interesting tool. They effectively allow businesses and member states to ‘trade’ their carbon allowances, and therefore facilitate the innovative Trading Schemes that this Bill brings to the playground. The theory of the Schemes is that they will either limit, reduce, or encourage the limitation or reduction of, activities that contribute to emission of greenhouse gases.

Put simply, certain activities carry “credits” which represent a reduction in, or removal of, greenhouse gases from the atmosphere. Participants in the scheme (the criteria for which are to be set out in Regulations) can build up credits so that they reach their particular allowance for the trading year. However, if they have not built up enough credits for the trading period, they can offset the balance by either buying credits from another business or member state which has surplus credits, or making a payment in lieu (the details of which are also to be defined in Regulations). This option of making a payment in lieu is, I believe, where the system could fail. Unless the Regulations place tight restrictions on the circumstances in which payments can be made, this process is certain to be open to abuse and the intended effect of the Bill will not be achieved, or at best will be misreported.

Much publicity has been given lately to the financial incentives, on a more global scale, that could help prevent or reduce climate change effects, the benefits of which are yet to be fully established. This is definitely something which needs to be kept an eye on to ensure it doesn’t spiral out of control and become counter-productive.

Waste Reduction Scheme

The other scheme that this Bill creates is one for the local waste collection authorities. It will not be compulsory and there will be five chosen areas which will pilot the scheme before it is offered nationwide.

The Bill allows a local waste authority to implement a scheme which provides financial incentives to reduce waste going to landfill. This may be in the form of a rebate from the council tax bill, or some other method approved by the Secretary of State. It can only be operated, however, by local authorities whose doorstep recycling service is classified as “good” (as defined by criteria set out in guidance from the Secretary of State), and “recycling” includes re-using and composting.

The scheme will also entitle local authorities to charge for waste to be removed or collected, and for the receptacles themselves, although it could be assumed that this latter provision relates to the additional receptacles required for recycled materials to be collected (or replacement of ‘normal’ waste wheelie-bins).

The Bill places extra accounting and clerical duties on local authorities which, if they fail to adhere to, puts them at serious risk of legal proceedings. Under the Bill, all “interested persons” are entitled to view, and take copies of, the local authority’s separate accounts of this scheme, free of charge. This takes the pressure off the local authority on one hand by removing this element from the requirements under the Freedom of Information Act, but may prove to be a thorn in its side if the skills gap in many local authorities is not addressed.

Measurement and disclosure of emissions

Public companies are already required to report on environmental matters in their annual business reviews (under s.417 of the Companies Act 2006). The Bill had originally proposed that such companies also be required to report more specifically on their greenhouse gas emissions. However, at the most recent reading in the summer, it was felt that this Bill lacked sufficient guidance and that the provisions in the Companies Act were adequate enough to enable stricter impositions on reporting and disclosure requirements. What is now in place in the Climate Change Bill is a mechanism for the Secretary of State to publish guidance on the measurement and calculation on greenhouse gas emissions in order to assist the reporting stage.

Progress of the Bill

No date has been set for the next hearing in the House of Commons but we will keep you informed as and when developments occur.

Kate Jardine September 2008

Climate Change Bill - guidance

25 September 2008

Latest Events