Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2026

Debate between Lord Moynihan and Lord Whitehead

Wednesday 28th January 2026 Grand Committee

[Lord Whitehead (Lab)]

I thank noble Lords for their contributions to this debate, which were absolutely up to the rather technical nature of this SI—although I would say that the noble Lord, Lord Moynihan, managed to take in a large landscape on the whole question of whether a decarbonisation policy is good or not. I suggest that that debate is for another day because we are talking about some specific changes that are being made to a specific policy.

That policy relates, of course, to an overall adjunct to decarbonisation policy in general, which is to secure a good carbon price to underpin moves towards developing a more sustainable, low-carbon, green economy based on making sure that fossil fuels are at the margins of the energy economy, rather than at the centre of it; and that incentives are put in place for that to happen and for the economy to run on low-carbon energy in general.

If the noble Lord, Lord Moynihan, considers that a bad idea overall, perhaps he might say so; he has moved a little way along that path. I do not think that the Bank has yet cashed in all its good will, but we need to set one or two things straight about how that relates to this SI. The free allowances that are presently in place for a number of energy-intensive industries that are in danger of carbon leakage as a result of low-carbon policies are being continued for 2026 but are being tapered down—not because the Government think that they are a terrible idea and that we ought to stop giving out free allowances but because we are on the road to CBAM, which is in itself a comprehensive shield against carbon leakage.

Having a series of free allowances running alongside a CBAM arrangement would therefore duplicate the protections that are, and should be, in place. Having a mechanism that enables the CBAM process to come into place, while making sure that the industry has the free allowances it needs to move towards CBAM, seems a very sensible thing to do to keep the overall low-carbon energy show on the road in the longer term. I have not heard from the noble Lord, Lord Moynihan, whether he thinks that CBAM is a bad idea; the industry generally thinks that it is a very good idea.

[Lord Moynihan (Con)]

The Minister has put two points back to me. First, I have no dispute with that; I think that decarbonising the industrial sector over time is a sensible policy. The problem is that, if you try to accelerate that decarbonisation into 2030 and you must raise electricity prices to the level the Government have done through a carbon tax, you make industry uncompetitive. If you make industry uncompetitive on the altar of long-term decarbonisation, you will have serious employment problems; that precise point was made by an MP in another place in speaking on behalf of ceramics.

My issue, therefore, is not with the long-term decarbonisation of industry; I am totally at one with the Minister on that point. My point is that, if you hurry this along on an artificial timescale of three years, you will have to put up carbon taxes and you will put businesses out of business, in effect, from the moment when they must face these carbon taxes, which are not imposed by their competitors around the world; they may, therefore, find themselves uncompetitive.

I am not arguing against CBAM but I am making the obvious point that, if you then remove these allowances—say you have free allowances of 10 out of 100, and you take 10 of those free allowances away—you have to acquire the other 10 allowances from the market. There is a significant additional cost; that is outlined very clearly in the impact assessment before us today. Indeed, paragraph 18.8 of that document states:

“These factors combined can lead to domestic prices being consistently higher than import prices, enabling substantial price pass-through”.


It is right here in the very document that we have been considering today, and it proves my point about an increase in prices—a significant increase from what are already very expensive electricity prices—that must then be passed through. Also, the nature of that pass- through goes even further than what I have said. Paragraph 18.7 of the impact assessment says:

“The results suggest that most sectors could pass about 80-90% of cost increases to consumers”.


It is the consumers who will feel the pain of this measure; that is the Government’s own clear statement on page 70 of the impact assessment.

[Lord Whitehead (Lab)]

The Government are of course very well aware of the whole question of how energy prices should be kept within reasonable bounds. By the way, the noble Lord went on a bit about gas a moment ago. He should remember his own period in government, when the Government spent something like £70 billion trying to bring prices back down when they had got completely out of control with the spikes in the price of shipped gas coming into the UK, which rose to 600p per therm at one stage in the mid-2020s.

You could say that, because the Government at that time did not control international gas prices in the way that the noble Lord seems to think can be done— I very much doubt that the various measures he is proposing to regulate international shipped gas prices would have the effect on volatility that he thinks they would have—we are still open to that enormous volatility in gas across the world. Indeed, just recently the price spiked quite substantially—probably not to the extent that happened in the early 2020s, but that is a spectre that continues to haunt us with reliance on international gas and not going to a low-carbon economy.

I am on the side of insulating the UK economy from those enormous global changes in gas prices, particularly by moving, broadly speaking, not to a no-gas economy but to a low-gas economy as far as the future is concerned. That will be of tremendous benefit to UK industry and exports, and jobs and industry in general, because we will have a stable energy economy for the future, which will allow us to plan ahead properly without the spikes, volatility and panics that we have seen over the last few years. I think the noble Lord wants me to give way again.

[Lord Moynihan (Con)]

May I say how flattered I am that the Minister thinks that I was in government on this side of the turn of the century? I must look a lot younger than I thought I did. I have to go back to 1990, to be precise, when I was Minister for Energy and we started the offshore decarbonisation of gas. In fact, we stopped flaring at that time, at the same time as we set up a non-fossil fuel obligation to encourage renewables. We had low domestic and industrial gas prices in the United Kingdom because we encouraged combined-cycle gas turbines. I just wanted to place that on the record, but I say it in a spirit of deep gratitude to the Minister for thinking that I was in government only recently and that I obviously look far too young to have been a Minister in 1990—or perhaps I look far too old.

[Lord Whitehead (Lab)]

I thank the noble Lord for that correction as far as his status in previous Governments is concerned. I was making a point not about his own distinguished period as an Energy Minister, which I appreciate was much earlier and perhaps in a rather happier energy era than we have today, but about the mangled response from the Conservative Government to the last gas volatility crisis in this country, and what resulted in terms of the money going out of the Exchequer for the attempts to protect domestic consumers and businesses from that spike, since he raised it as one of his concerns about this SI.

I ought to add, by the way, that, in the Government’s industrial strategy—yes, we have an industrial strategy, unlike previous Administrations—we announced additional support for 7,000 energy-intensive firms through the British industrial competitiveness scheme, which will reduce electricity costs by up to £40 per megawatt-hour. Through the British Energy supercharger, the Government are increasing support for the most energy-intensive firms by covering more of the energy network charges they normally have to pay. From 2026, the discount on these charges—namely, legacy costs, capacity market feed-in tariffs and so on—will be discounted by 90% from their present 60% level. That is a substantial boost to industry, as far as prices are concerned, by the direct actions of the Government under these circumstances.

I am conscious that I have spent rather too long addressing what the noble Lord, Lord Moynihan, has perhaps wound me up to talk about more than I might otherwise have done. I have to now address the questions that were put to me by the noble Baroness, Lady McIntosh of Pickering—who I applaud for being, as it were, on the side of these particular measures and ideas from the other side—and the noble Earl, Lord Russell.

I have, to some extent, covered the questions that the noble Baroness put to me. The first allocation period will be extended to 2026 to ensure that the changes implemented from the free allocation review come into force in 2027, to align with the introduction of UK CBAM. On her questions on bills, emissions trading has been a key element of power sector decarbonisation. Therefore, maintaining a strong UK ETS and, dare I say it, aligning it with the much wider market that we can enter into, for the stability of the ETS, will not be a joining of the EU ETS but a linkage of the UK ETS to the EU ETS. The UK ETS will continue. It has been determined following a recent consultation discussion that it will continue until at least 2040.

COP Climate Negotiations: Cities

Debate between Lord Moynihan and Lord Whitehead

Wednesday 14th January 2026 Lords Chamber

[Lord Moynihan (Con)]

My Lords, I declare my interests as non-executive chair of Amey and Acteon. In returning to the Front Bench, I pay respect to the Minister’s outstanding parliamentary contribution and extensive knowledge of energy and net-zero policies. I have no hesitation in asking him whether he agrees with the Prime Minister’s warning at COP 30 that the “consensus is gone” on fighting climate change? Does the Minister agree that it is now time to pause to reflect that last week, on the bitterly cold day of 5 January when the UK generated 47 gigawatts of electricity, over 52% had to come from gas because the wind was not blowing, and that fully developing our own offshore natural gas reserves, akin to the strategy adopted in Norway, would not only increase our energy security but be environmentally preferable and cheaper for the people living in British cities than relying heavily on imported LNG from the Middle East and the US?

[Lord Whitehead (Lab)]

I warmly welcome the noble Lord to his place as the opposition spokesperson as far as DESNZ is concerned. He has had a distinguished career in energy, being a former Energy Minister himself, and a distinguished business career in renewables. I look forward to having a very fruitful and constructive dialogue with him over the next period, as the energy discussions move forward.

As far as his question is concerned, I say gently that last year had the highest-ever number of days that were powered completely by renewable energy—more than 80 days—so his concern about particular days being powered by mainly non-renewable power should be set against that overall trajectory, which will continue, particularly with the results of AR7 that have just come out today.