The next item is the Greenhouse Gas Emissions Trading Scheme Order 2020. I call on the Minister for Environment, Energy and Rural Affairs to move the motion. Lesley Griffiths. 

Motion NDM7444 Rebecca Evans

To propose that the Senedd, in accordance with Standing Order 27.5:

1. Approves that the draft The Greenhouse Gas Emissions Trading Scheme Order 2020 is made in accordance with the draft laid in the Table Office on 15 July 2020.

Motion moved.

Diolch, Llywydd. I move the motion. I'm pleased to be able to bring forward the Greenhouse Gas Emissions Trading Scheme Order 2020. I would like to thank the Legislation, Justice and Constitution Committee and the Climate Change, Environment and Rural Affairs Committee for their scrutiny of this Order and ongoing work around the wider framework. 

The Greenhouse Gas Emissions Trading Scheme Order 2020 establishes in law a replacement policy for the UK's participation in the EU emissions trading system. Commencing on 1 January 2021, the scheme will incentivise Wales's largest carbon emitters to decarbonise their operations whilst ensuring a level playing field across the UK. 

The scheme is designed to operate as a stand-alone system if required, however it has also been designed to facilitate linking to the EU system, subject to the UK and EU reaching agreement. This is the Welsh Government's strong preference and is the best outcome for all parties.

The scheme operates by setting an overall ceiling on the total emissions from participating industrial installations, power stations and aircraft operators. Scheme participants are required to report their emissions and surrender an equivalent number of emissions allowances on an annual basis. Emissions allowances can be bought from a Government auction or on the secondary market. Some allowances are allocated without payment to industries at risk of carbon leakage. By setting an absolute ceiling on emissions, there is certainty the policy will achieve its environmental outcomes.

This Order is one of a suite of legislation, which I will briefly describe. The Order we are debating today establishes the structure of the UK ETS and substantial policy elements, such as the scope, the cap and trajectory, the definition of emissions allowances, enforcement and the role of regulators. We're also finalising a further Order, which will be made using the negative procedure. This will deal with the allocation of free allowances and matters concerning the registry. Additionally, secondary legislation under the Finance Act 2020 will deal with all aspects of optioning of emissions allowances and market stability mechanisms. The Senedd has given its consent to the UK Government legislating for this aspect of the scheme.

Finally, legislation using primary powers under the European Union (Withdrawal) Act 2018 and Financial Services and Markets Act 2000 is being laid by the UK Government to allow the Financial Conduct Authority to continue its role as the regulatory body for the emissions allowance market.

Senedd committees have been seeking clarity on the non-legislative aspects of the framework, and the Legislation, Justice and Constitution Committee in their recent letter asked me specifically about dispute resolution. We intend to escalate disputes to the Joint Ministerial Committee, given it is the only option available to us until the inter-governmental relations review concludes. At that point, we will review arrangements. However, our efforts should be focused primarily on dispute avoidance. Our draft concordat, as submitted to Ministers for clearance, describes a number of strategies to do this, including the commissioning of jointly scoped evidence and the appointment of specialist advisers to peer review the evidence that forms decisions. The Climate Change Act 2008 also requires us to take advice from the climate change committee before legislating for new carbon trading schemes and before making specific amendments, such as to the scope or duration of the scheme.

Senedd committees will have an opportunity to scrutinise the provisional framework outline agreement and associated concordat, and we will take your views into account before finalising the documents. Achieving a sustainable transition to Wales's industrial base will be crucial if we are to achieve our climate ambitions in a socially just way. This scheme offers a financial incentive for businesses to manage the transition in a cost-effective and flexible way, whilst maintaining certainty over the overall environmental objective. I therefore commend the motion to the Chamber. Diolch. 

I call on the Chair of the Legislation, Justice and Constitution Committee, Mick Antoniw.

Thank you, Llywydd. In speaking today, I draw attention to our two reports on this draft Order in Council. Firstly, in accordance with our responsibilities under Standing Order 21, and secondly, in relation to our constitutional role and the draft Order as part of the common framework for a UK-wide emissions trading scheme.

Our first report, laid on 28 September 2020, made one technical reporting point, noting that the draft Order is made in English only. The Welsh Government's explanatory memorandum states that

'it is not considered reasonably practicable for this instrument to be made or laid bilingually' as it will be subject to UK parliamentary scrutiny. Our single merits point noted the policy background to the draft Order as a legislative component to a UK emissions trading scheme common framework and acknowledged the Minister's letter to us of 18 September that included the definitive list of the installations in Wales captured by the draft Order.

Our second report, laid last week, looked at the draft Order as part of the wider common framework on the UK emissions trading scheme, and I'd like to highlight a few important points from that report. Whilst we accept the principle of a UK-wide scheme, we did express disappointment that we've had to scrutinise the draft Order without the full accompanying documentation, including the provisional framework outline agreement and governance concordat being made available in a timely manner. This disappointment and concern at the approach adopted led us to make a number of recommendations related to today's debate and the future development of the framework.

Little information has been made available about how the mechanism for future changes will operate, with the resolution of disputes between the Governments to be covered in the governance concordat. We therefore recommended that the Minister should, during this debate, explain how the disputes will be resolved, and more broadly we also recommended that the Minister should explain how mechanisms for the future changes to the common framework, including the Order, will operate, in order to allow Senedd committees and stakeholders to participate. I note the comments of the Minister today. We noted the possibility of the UK Government introducing a UK-wide carbon tax that would replace the UK emissions trading scheme. We share the Minister's concerns on this point, and we recommended that she keep us informed of developments. 

And finally, as I alluded to earlier, we're disappointed that we've had to scrutinise the draft Order in the absence of other components of the common framework. This is a serious omission and undermines the process of scrutiny. We've therefore recommended that the Welsh Government should ensure that, in future, the Senedd is not asked to consider subordinate legislation related to a common framework before the provisional framework document is made available to the Senedd for scrutiny. Diolch, Llywydd. 

I call on the Chair of the Climate Change, Environment and Rural Affairs Committee, Mike Hedges.

Diolch, Llywydd. I'm very pleased to be able to contribute to today's debate on behalf of the Climate Change, Environment and Rural Affairs Committee. The committee has considered the draft Order in the context of its wider work on the UK emissions trading scheme common framework. Our work on the common framework will not be completed until much later this term when all the relevant agreements are in place. While I would not wish to pre-empt the committee's conclusion, several important issues have emerged, which are worth drawing to the attention of Members of the Senedd to help inform today's debate.

The EU emissions trading scheme is a key tool for reducing greenhouse gas emissions and a cornerstone of Wales's policy to tackle climate change. In order for Wales to realise its climate change ambitions for the post-Brexit era, a credible, workable replacement for the UK's participation in the EU ETS is crucial. Before turning to the detail of the UK scheme, I'd like to express our disappointment that Members of the Senedd are being asked to approve the draft Order, which establishes the UK ETS, without having had an opportunity to consider the provisional framework agreement. It's this agreement that will set out the governance arrangements in relation to the UK ETS, including processes for future decision making and dispute resolution. We understand that the timing of the publication of this provisional framework agreement is outside the control of the Welsh Government. However, we expect the Welsh Government to seek to ensure that, in future, Members of the Senedd are not asked to approve or agree legislative elements of common frameworks without having had a sight of all the associated framework documents.

Moving on to the UK ETS established by the draft Order, the UK ETS closely mirrors the design of the current EU scheme. According to the Minister, this is to minimise any barriers or perceived barriers to a linking agreement with the EU. This appears to be a sensible approach, given the expressed preference of governments for a EU-UK linked scheme. At the same time, it has led to criticism that the UK scheme lacks ambition and is a lost opportunity to establish a new post-Brexit system that demonstrates that the UK is a world leader in emission reduction. 

I'll focus my comments on the key provisions included in the draft Order that are of most interest to the committee: the scope of the scheme and the cap—the total level of emissions permitted. The scope of the UK scheme will match that of the EU scheme, both in terms of sectors and greenhouse gases covered. This will ensure the schemes are linkable, but it is unclear how this will impact on the effectiveness of a UK stand-alone scheme. There are approximately 11,000 participants in the EU scheme; this will decrease to about a 1,000 in a stand-alone scheme. Broadly speaking, the wider the market, the more successful the scheme. We heard that without an increase in scope, there is a danger that a UK stand-alone scheme may be volatile. If a linking agreement is not achieved, it will be necessary to look again at the scheme's scope, sooner rather than later. The four Governments have committed to considering the option of expanding the scope, but, realistically, any potential expansion of the scheme's scope may be years away.

Moving on to the emissions cap, the initial or interim cap will be set at 5 per cent less than the UK's notional share of the EU ETS. This cap, like the Minister pointed out, is tighter and therefore more ambitious than it would have been under the EU scheme. In the UK CCC's letter to the four Governments dated March 2020, it said that the Governments' interim proposals for the scheme are inconsistent with the UK's net zero ambition, specifically in relation to the high level of allowed emissions under the proposed cap. It goes on to say that adopting the proposed trading scheme risks sending a damaging signal internationally, and if the cap is set too high, it risks undermining the scheme as a trading scheme. Yet, the Governments have not heeded this warning in finalising their proposals. Instead, they have committed to reviewing the cap in light of the UK CCC's advice on future carbon targets due next month. But with no prospect of revising the cap until at least January 2023, the scheme will be operating at a suboptimal level in its early years. Lord Deben, chair of the UK CCC impressed on us as a committee the importance of getting it right and getting it right from the beginning. We remain to be convinced that the scheme established by the draft Order will do this.

Llywydd, we are drawing attention to these issues in the full knowledge that today's vote is a 'take it or leave it' decision. Our report on the UK ETS common framework will set out our views on the scheme, as established by the draft Order, and any improvement we believe needs to be made, going forward. Finally, although we're being asked to approve the draft Order before us today, whether the UK scheme will actually come to fruition remains to be seen. It is deeply regrettable that, with only a few weeks away from the end of the implementation period, the UK Government has yet to clarify whether, if a linking agreement cannot be reached, its preference would be for a stand-alone UK scheme or reserved carbon emission tax. The UK Government may, as yet, take unilateral action to introduce a reserved tax. I would not wish to open up today's debate on the rights or wrongs of such a decision. However, if such a decision is taken, the draft Order before us, once made, will become redundant. Minister, if that is the case, can you clarify whether the Senedd will have a role in repealing this Order? Diolch, Llywydd.

As we've heard, this Order has been published in isolation, to all intents and purposes. It's supposed to be a package of five pieces of legislation feeding into a common framework and that should be seen alongside this concordat that is to be agreed on how Governments are to come together to make it work. Now, asking us to pass this Order today without us having seen the Order in that broader context, with all the other pieces of the jigsaw, to me, is a mistake. And, of course, that is something that we were told that we would see before we made the decision. But as we've heard from the Chair of the Legislation, Justice and Constitution Committee and the Chair of the climate change committee, we've had to make that decision without having seen the common framework, which, to me, is an error.

As a result of that, of course, we don't have clarity on which decision-making processes will be in place across the four nations in the future. We don't have sufficient clarity as to how any dispute will be resolved in the longer term. And I think the fact that the Minister referred, in her opening comments, to a pro tem arrangement speaks volumes on the relationship between the Governments in jointly developing the programme we have before us today. There's no clarity as to where the money will go—where will the revenue go? Will it go back to the Treasury in London, as is currently the case, or will there be an industrial decarbonisation fund, as the Minister is eager to see? And, if the money is shared across the UK, how will that be done? We don't know if it will be, but if it were, how would it be done? There are so many fundamental questions that remain unanswered.

If the revenue is shared, is it going to be shared on a population basis? Is it going to be Barnettised? Is it going to reflect the fact that 9 per cent of the installations subject to the scheme are based in Wales, or that 15 per cent, I think, of the UK emissions within the scheme come from Wales? ETS participants account for 46 per cent of total Welsh emissions and 30 per cent of UK emissions. So, without answers to these questions, there is a risk that we will disproportionately lose out here in Wales.

Now, a UK ETS scheme linked to an EU ETS scheme is the right way forward, but I share many of the concerns, particularly the concerns expressed by the Chair of the climate change committee, around the level of ambition here, especially in relation to the emissions cap and the scope of the scheme. The UK Committee on Climate Change, as we've heard, tells us that the proposals are inconsistent with our net zero ambitions. Yet, here we are today, ploughing on regardless, waving this through, potentially, during climate week, of all weeks—how ironic is that?

Now, I appreciate that not all of this is the Welsh Government's fault; it's more a reflection of the shambolic way that the UK Government is handling its preparations for the end of the transition period. But this is being rushed through. It is being brought before us in a piecemeal manner. And, of course, as we've heard, there's a very strong likelihood that there won't be an emission trading scheme anyway, because the UK Government is now suggesting that their preferred option is a carbon emissions tax. So, all of this could be redundant in a matter of weeks. And, you know, whilst we support the principle of a linked ETS, this really represents everything that's wrong about the process, on an inter-governmental level, certainly, but on a Senedd level as well. It's not ideal; this is a 15-minute debate, and, of course, it's been brought forward before the climate change committee has had the opportunity to consider and complete its deliberations on the matter. So, it's frustrating, and I'm afraid that Plaid Cymru will have no choice but to abstain.

I call on the Minister for Environment, Energy and Rural Affairs to reply to the debate—Lesley Griffiths.

Diolch, Llywydd. I thank Members for their contributions to the debate. As I described earlier, the UK ETS will be an extremely important policy if Wales is to achieve a decarbonised and successful industrial base in the future. I am obviously aware of the concerns over the initial level of the cap and the scope of the industries to be covered. I think it's important to make the point that setting the cap and the trajectory will be a two-step process. So, the initial level of the cap is already more ambitious than if we'd remained in the EU system, and I will be taking further advice from the UK CCC in December. I'll also be working with my counterparts in the other Governments of the UK to consult on revisions to the cap, and, certainly, the point that Mick Antoniw raised about how committees fulfil their scrutiny role—that's something that I will also discuss to see how other countries are dealing with this process as well. I'm very conscious of the concerns that Members have raised in relation to the scrutiny role.

Scope extension will be considered during the first whole-system review, to conclude by the end of 2023, as Mike Hedges alluded to, and we aim to be the first emissions trading scheme in the world to set a trajectory consistent with the pathway to net zero. In the meantime, the current design provides a smooth transition for businesses facing considerable uncertainties due to our departure from the EU, and it also facilitates linking to the EU system, which is our strong preference. And I have to say it's all four countries' strong preference at the level that we deal with it, at a ministerial level; it's the best outcome for all parties. But, as Members referred to, unfortunately, the UK Government—a different department in the UK Government that I deal with—has ploughed on with the consultation in relation to the carbon tax. But I do want to assure Members that I've made it very clear that this is our preference, as have the other countries also.

In terms of the wider framework, as I promised, I will share the provisional framework outline agreement and the concordat with the relevant committees as soon as they're available. Ideally, they would have been available not just before today's debate, but before committee scrutiny alongside the legislation. However, the documents, unfortunately, are still in the clearance process. As Mike Hedges alluded to, this is outside of my control. The major policy decisions for establishing the scheme are included within the legislation. We will take no further substantive policy decisions on the ETS until the FOA and the concordat have been scrutinised by all four legislatures and finalised. It is important the Order is agreed and taken to the Privy Council in order to establish the UK ETS on 1 January 2021. So, therefore, on this occasion, I do ask Members to agree the Order before scrutinising the associated wider framework documents. Diolch.

The proposal is to agree the motion. Does any Member object? [Objection.] I see that there are objections and I will therefore defer voting until voting time.

Voting deferred until voting time.