UK Emissions Trading Scheme: Wales

I beg to move,

That this House has considered the operation of the UK Emissions Trading Scheme in Wales.

It is a pleasure to serve under your chairmanship, Sir Edward. I commend the co-operative approach taken by the UK and devolved Governments in establishing the emissions trading scheme and in agreeing a common framework that treats each nation as an equal partner in our climate efforts. The scheme has brought coherence to one element of our combined efforts to achieve net zero.

There is, of course, room for improvement. I draw the Minister’s attention to concerns expressed by the Green Finance Observatory:

“The elephant in the room is that offsets are fundamentally not about mitigating climate change, or even about removing past emissions, but about enabling future emissions, about protecting economic growth and corporate profits.”

I hope that the Minister will reflect on those remarks when she sums up the debate. They raise two critical questions. First, how will businesses fundamentally reduce aggregate emissions, and do so rapidly? Secondly, what is the role of Government in facilitating that change?

In order to meet our climate targets, we must not only reduce overall emissions but adopt carbon-negative strategies. The most economical and natural of those is tree planting. I hope to expand on that point today and in doing so make a case for more closely linking the UK emissions trading scheme with a separate and voluntary carbon offset market. Both schemes encourage businesses to reduce overall emissions. They are currently unconnected in policy; they run parallel to each other. I accept the technical and policy challenges associated with directly incorporating carbon offsetting into the UK ETS, but I believe that an association between the two schemes, if established, would bring rigour, scrutiny and additional resources to the offsetting process.

Governmental intervention is urgently required to bring much-needed stability to the voluntary carbon offset market in Wales. My hon. Friend the Member for Carmarthen East and Dinefwr (Jonathan Edwards) recently highlighted that large companies are already purchasing vast tracts of agricultural land in the upper Teifi and Tywi valleys for forestry and carbon offsetting and are doing so in a manner that internalises financial gain and externalises the social, economic and cultural costs.

Those costs increasingly pose an existential challenge to Welsh farmers and rural communities and are inimical to efficient land use and a just transition. To echo the National Farmers Union, we urgently need to ensure a system that makes carbon offsetting mean the right tree in the right place. The Government, by acting as a broker and data-backed co-ordinator, can help to ensure appropriate land use for carbon offsetting, support the sufficient scale of planting and empower local farmers and rural communities to make a carbon-negative effort for themselves.

Wales’s forests are a natural economic and national asset at the very heart of our decarbonisation efforts. The lungs of our nation, our forests sequester approximately 1.84 million tonnes of carbon dioxide equivalent annually, while pollution removal by woodland was estimated to have an ecosystem value of more than £385 million back in 2015. Our forests are also essential for our environment and biodiversity. Indeed, of the 542 listed species of principal importance to the Welsh Government, 210 rely wholly or partly on woodland habitats.

Will my hon. Friend acknowledge the crucial importance of restoring Wales’s peatlands, given that their climate change mitigation potential is 3,000 tonnes of carbon a year, equivalent to 5% of Wales’s transport carbon emissions? I am sure he will also take the opportunity to welcome the peat restoration projects led by parc cenedlaethol Eryri, the Snowdonia national park.

I thank my right hon. Friend for that intervention and, indeed, will join her in congratulating the parc cenedlaethol on that work. Peatland restoration will be an incredibly important part of our carbon mitigation and sequestration efforts. More work to ensure that local actors such as the parc cenedlaethol can fully benefit from and engage in that process is what we as politicians and policy makers should focus on in the future.

The area of land covered by trees and woodland in Wales has tripled since the early 20th century, increasing from 88,000 hectares in 1905 to more than 309,000 hectares as of March 2020. It accounts for about 14.9% of the Welsh land area. That is significantly greater in percentage terms than in England or Northern Ireland, but the coverage lags behind our Scottish cousins and is lower than both European Union and wider European averages, so we have much further to go.

The “Woodlands for Wales” strategy suggests increasing tree planting to at least 2,000 hectares per year from 2020. The Climate Change Committee, recognising the challenge of reaching net zero, has been even more ambitious, recommending an increase to woodland cover in Wales from present levels to 24%. That would mean planting 43,000 hectares of new trees by 2030 and 180,000 hectares by 2050.

Set against that backdrop, Welsh farming finds itself at a perilous juncture, buffeted on the one hand by increased trade barriers with our largest market and uncertainty over future income support, and on the other by increasing pressure on land use. Welsh land, like all land, is of course a finite resource. If climate goals are to be met in a sustainable and fair manner, solutions cannot be imposed on rural communities. Instead, solutions can and should be implemented in conjunction with rural communities, and in a way that protects them from any damaging consequences. That is especially important when it comes to Welsh forestry and carbon sequestration. If we are to achieve the desired objective of reducing carbon emissions and promoting biodiversity, rural communities must be at the heart of implementation. Welsh farmers play a vital but often overlooked role in the climate equation, with over 109,000 hectares of woodland—just over a third of the total woodland in Wales—located on Welsh farms. To fulfil the stated tree-planting objectives, therefore, we need to understand the implications for the farming and food and drinks sectors, which rely on this agricultural land—land that is also essential to the wellbeing of the rural economy.

I congratulate the hon. Member for Ceredigion (Ben Lake) on securing this really important debate on the operation of the UK ETS in Wales. The four Administrations of the UK have worked together over months and years to establish what will be the world’s first net zero carbon cap and trade market and a crucial step towards achieving the UK’s target for net zero carbon emissions by 2050. We have drawn on our years of experience and global leadership in carbon pricing, going all the way back to the original UK ETS in 2002, to ensure that the new scheme has the flexibility and ambition to deliver for the whole of the UK. We share the combined objectives of driving permanent emission reductions across the UK while protecting the competitiveness of our businesses, be they steelworks in south Wales, ceramics producers in central England or whisky distilleries in Scotland. The UK ETS authority—the UK Government and the three devolved Administrations —continue to make good progress in the operational delivery of the UK ETS in our respective nations.

The UK ETS market opened on 19 May and there have now been four successfully completed auctions, with a fifth taking place tomorrow. Collectively, we published the free allocation table for stationary installations on 11 May, and we have since issued just under 40 million free allowances to qualifying operators. The allocation table for aviation operators was published on 28 June, and we will be issuing allowances to qualifying aircraft operations shortly, but we are committed to building on the process, and officials from the four Administrations are already working together on plans to further increase the climate ambition of the UK’s carbon pricing policy.

The UK ETS authority has already jointly committed to exploring a number of areas where we could go further and faster, and together we plan to set out our aspirations to continue to lead the world on carbon pricing. The overall cap for UK ETS is an obvious place to start, and we will be moving together quickly to consult on a consistent net zero trajectory for the cap, drawing on the advice from our statutory advisers, the Climate Change Committee. We will also be reviewing free allocation, which is a key measure to protect our industries, to prevent the offshoring of emissions—I think we all agree that that slightly defeats the point—and to ensure that the system is fair and equitable across the UK and its constituent nations, while maintaining the level of ambition that we really need to be able to get to net zero.

I am grateful to the Minister for her response. As the work gets under way to expand the ETS scheme, will she ensure that the wider costs of any scheme, particularly carbon offsetting in local communities —whether those costs be the loss of agricultural land or the impact on the vibrancy of rural communities—can somehow be incorporated into the approach taken? I appreciate that it is a very complex issue and I do not pretend to have the answers, but could she reassure us that that will be considered as part of the future work scheme?

I take note of that. The hon. Gentleman may want to call for a similar debate with the Department for Environment, Food and Rural Affairs to discuss other aspects of the funding that will go to those smaller communities as we change the systems, now that we are no longer under the EU frameworks.

The UK ETS is focused on supporting industry to make those transitions and has great potential for all Administrations. It recognises both the unique opportunities and, indeed, the challenges in each, which are all different. I endorse and agree with the hon. Gentleman and the right hon. Member for Dwyfor Meirionnydd (Liz Saville Roberts), and share their passion for all those nature-based solutions, which are critical to helping us to sequester carbon from trees to peat. I am a particular advocate for peat restoration across Northumberland, for obvious, biased reasons.

I encourage all Members to work with Government and Natural Resources Wales as we think about extending the ETS scheme, which we are just starting to do. We will seek to review it in some detail and think about how we can expand it. There is a great deal of room to continue the conversation. I look forward to working with Members as we set out the consultation in due course and make progress. I hope we will continue this important discussion and find solutions to ensure that these really important industries of ours can compete effectively on the international stage.