31 January 2007 NEW INQUIRY

31 January 2007 NEW INQUIRY

Beyond Stern: forecasting, cost-effectiveness, and climate change

The Environmental Audit Committee (EAC) is today launching an inquiry focussing on the adequacy of the Government's current approach to evaluating the impact of the Climate Change Programme. It will examine how the Government assesses the impact of policies to reduce emissions and how it forecasts future emissions against carbon reduction targets. It will also examine the basis on which cost-effectiveness evaluations are carried out and the use which the Government should make of them. In both these areas, it will take account of two National Audit Office reviews which were carried out for the EAC and which are published today on the NAO and EAC websites.

The Stern Inquiry has emphasised the urgent need to stabilise and then reduce carbon emissions radically within the next two decades if we are to minimise the risk of catastrophic climate change. The UK Government has led the way by setting carbon reduction targets for 2010 and 2050. But, as the NAO review of forecasting makes clear, projections made in the past have been over-optimistic. As a result, additional policy measures have had to be introduced to shore up the Climate Change Programme, and in this context the NAO has highlighted the use made of cost-effectiveness analysis to select them. But it is in any case too late for the UK to meet its 2010 domestic target of a 20% reduction in carbon emissions.

Attention is now focusing increasingly on performance by 2020 in relation to the 2050 emission reduction target. There is also considerable debate on the need for statutory short-term targets and for a more objective system of monitoring progress against them and taking corrective action where required. The Government has already taken some action by creating the Office of Climate Change, and it is proposing to introduce further measures later this year - including the creation of a Carbon Committee that will work with Government to reduce emissions over time and across the economy.

Against this background, the EAC is interested in helping the Government explore in more detail how emissions forecasting and cost-effectiveness analysis could be improved, what targets should be set, and what accountability framework should be put in place to ensure that such targets are met. The Committee invites organisations and members of the public to submit memoranda setting out their views on this inquiry. The specific issues on which the Committee would welcome comments are set out overleaf, though respondents are free to comment on any other issues which they consider relevant.

Written evidence should be sent to the Committee in Word format by Monday 12th March 2007, by e-mail to eacom@parliament.uk A brief guidance note on the preparation and submission of evidence is available on the Committee's web pages. Following the submission of evidence, the Committee intend to take oral evidence from a limited number of organisations in March and April and subsequently to publish a report. For further information on this inquiry, please telephone 020-7219-5776.

Inquiry Issues


1. In the light of the issues raised by the NAO briefing on emissions projections, is the Government's current approach to forecasting 'fit for purpose'? If not, what steps should it take to ensure that future forecasts are robust?

2. In developing its approach, how should the Government deal with the following issues:

€ whether there can be a greater role for independent assurance;

€ how the Government should respond to the unavoidable uncertainties in forecasting; and

€ whether or not future domestic targets and forecasts should include international aviation and shipping?

3. As projections against the 2020 and 2050 targets are less well developed than those for 2010 but are becoming increasingly important, what improvements are needed in their production and use?

Cost-effectiveness analysis

4. Given the uncertainties associated with the social cost of carbon, is it an appropriate basis for future policy appraisal? What should the Government's policy on its use now be, particularly in the significant increase in its value which Stern recommends?

5. Has the government's approach to evaluating cost-effectiveness in the context of the Climate Change Programme Review been too short-term in focussing on the 2010 target? Has this adversely affected the assessment of new policy ideas which might only be more cost-effective in the long-term?

6. The NAO briefing has also raised a number of other issues, including:

€ the failure to explore sufficiently different scales of policy intervention;

€ the balance between expanding existing measures and introducing new ones;

€ the range of policy options considered and the criteria for appraising them; and

€ the timing and scope of future cost-effectiveness evaluations.

In the light of such concerns, how should the Government improve its approach to the use of cost-effectiveness evaluation?

Accountability, targets, and reporting

7. What additional reporting and monitoring arrangements are required to support the aim of a transparent framework for emissions reduction?

8. What should be the roles and responsibilities of the Interdepartmental Analysts Group, the newly created Office of Climate Change, and the proposed Carbon Committee? In particular, how should the Carbon Committee be constituted, and what should be its powers and remit?

9. The Government wishes to "ensure that the [Carbon] Committee's advice is transparent, equitable and mindful of sectoral and competitiveness impacts, including the need to secure energy supplies at competitive prices" [see Note 3] What use should the Carbon Committee make of cost-effectiveness analysis and what difficulties might it face in doing so?

10. What approach should the Government take towards setting short-term targets as a means of ensuring progress towards its long-term goal of a 60% reduction in carbon emissions?

Notes for Editors

1. The EAC's fourth report of 2005-06, Keeping the Lights On: Nuclear, Renewables, and Climate Change, HC 882 raised some concerns about the adequacy of emissions forecasting, as did its Ninth Report of the same Session, Reducing Carbon Emissions from Transport, HC981. Other EAC reports have also questioned the basis for valuing the social cost of carbon. All reports from the Environmental Audit Committee are available on its website at:

2. The National Audit Office has today published two briefings - Emissions Projections in the 2006 Climate Change Programme Review, and Cost-effectiveness Analysis in the 2006 Climate Change Programme Review - both of which were undertaken at the request of the EAC. They can be found at: http://www.nao.org.uk/publications/other_publications.htm

3. In his statement to the House of Commons on 30 October 2006, the Secretary of State for Environment, Food and Rural Affairs, the Rt Hon David Miliband MP, set out the four key pillars on which the Climate Change Bill would be based and the potential role of the Carbon Committee. See Hansard, HoC debate 30 October 2006, Col 23.