Greenhouse Gas Emissions Trading Scheme (Amendment) Order 2026

Debate between Lord Moynihan and Earl Russell

Wednesday 28th January 2026 Grand Committee

[Earl Russell (LD)]

My Lords, we welcome this order but I have some important questions to ask the Minister. My party has long argued that a robust, transparent, high-standard carbon market is a cornerstone of any credible pathway to net zero by 2050. When done well, emissions trading cuts carbon at least cost, drives innovation in clean technologies and gives industry the long-term policy certainty that it needs to invest confidently in the green transition.

This instrument makes a number of sensible technical adjustments, but this update carries more weight than most of the normal updates. We strongly support all the Covid measures; they are sensible, practical and needed.

However, uncertainty persists around our future carbon-market relationship with our closest trading partners. The Government’s own documents show that UK industry has repeatedly called for linking the UK ETS with the EU ETS, which has already been spoken to and which is a step we strongly favour. A stand-alone UK ETS would be smaller and more price volatile, driving up costs for British business compared to the stability and liquidity of a larger linked market. When paired with clean power, deeper market reforms and other measures, a linked system offers real opportunities to cut energy costs, modernise industrial processes and slash emissions.

This order moves us towards dynamic alignment by adopting EU benchmarks from 2028, alongside the phase-down of free allocation for CBAM-exposed sectors and by enabling import levies through the UK CBAM. This is the right direction. We cannot ignore the carbon costs embedded in goods we manufacture or import emissions unchecked, but this complex transition demands adaptability, coherence and close management by the Government as we move forward. We remain in a halfway house, following rules we no longer help to write, without gaining the full benefits of a larger carbon market. I seek clear reassurances that the Government are protecting UK industry, working towards positions where we are rule-makers again and ensuring that our needs are recognised and mitigated during the interregnum.

The impact assessment’s estimate of £9.8 billion net present social value shows gains from effective decarbonisation, yet the £92 million annual cost to business is far from trivial for energy-intensive industries. As free allocation pares down—particularly for cement, fertilisers, iron and steel, aluminium and hydrogen—we must not offset our emissions and jobs to less scrupulous jurisdictions. A carbon price that cleans up British industry is welcome; one that simply relocates it helps neither our targets nor our industrial base.

I therefore have just five questions for the Minister. First, the Minister’s department accepts that EU linking would reduce costs and provide price certainty. Adopting EU benchmarks facilitates that alignment. Can the Minister set out a possible timetable for negotiating a formal linking agreement? Does the Minister tend to think that any conditions might be attached to that? Industry must plan and make investment decisions now, not years ahead, so this certainty is important to it.

Secondly, on parliamentary oversight, concerns remain that dynamic alignment could allow changes to benchmarks and core design features with minimal scrutiny. Can the Minister confirm that any future changes to the 2028-30 benchmarks or material changes from further EU alignment will come by affirmative procedures and be debated in both Houses?

Thirdly, CBAM and ETS reforms help tackle import leakage, but export leakage remains mostly unaddressed. As free allocation withdraws, UK exports may face higher carbon costs than our international competitors do. So what WTO-compatible measures, targeted free allocation, export rebates or other measures are being considered to help protect exporters and strengthen our manufacturing base? On the sectors that are hardest to abate—ceramics were mentioned in the other place, and Ministers are having particular conversations with the ceramics industry—it feels that particular sectors will struggle to abate even if they want to and extra support is needed.

Fourthly, on regional fairness, the impact assessment highlights burdens on industrial clusters, particularly in Wales, Scotland, Northern Ireland and the north of England. A lot of these areas have already been hit by processes of post-industrialisation. So how do the ETS reforms integrate with wider decarbonisation strategies, including cluster sequencing, CCUS, hydrogen support and the shared prosperity fund?

Fifthly, obviously SMEs are mostly outside these schemes, but some are captured. Where they are, will tailored support and special consideration be given to their needs?

I have some general questions. How will the Government monitor and report the impacts of these measures, particularly in relation to carbon leakage? What mechanisms will track investment in clean technologies that the Government want to see and expect to happen? What mechanisms will track price changes and the competitiveness of the industries related to those?

My belief is that openness in this sector as we move forward is in everybody’s interests. We support the direction of this order but, without bolder steps toward EU ETS integration, the UK risks drifting—aligning in practice but isolated—and being subscale in market terms. That does not serve our industries, investors or climate objectives. We urge the Government to put linkage firmly on the agenda and give British industry the stable framework that it needs. Our climate and our industry standards cannot afford continued ambiguity.

[Lord Moynihan (Con)]

My Lords, I thank the Minister for introducing this statutory instrument. He generously banked the good will between the noble Earl, Lord Russell, myself and himself yesterday, and I assure him that he will have no need to draw down on that, because I am sure he will disassociate himself from his colleagues in another place when it comes to this scheme.

For once, this is a policy that is solely conceived by the Labour Government. It is a straightforward decision by DESNZ to increase carbon taxes on major industrial users which depend on hydrocarbons, particularly gas in the UK industrial market. Many industries have no choice but to use gas, and no alternative firm sources of supply; indeed, they face heavy dependence on high electricity prices to stay in business.

The Minister’s speech may sound technical, and it is true that 104 pages covering the order and the Explanatory Memorandum take some digesting, but a reread shows exactly what this statutory instrument does. The good news is that the noble Lord, Lord Lemos, sitting beside the Minister, is a good Lewisham man and he had no difficulty understanding every word of the particular trading scheme order that is before us. He will be able to help the Minister; I see he is already doing so.

What does this order do? It reduces the supply of free allowances—the key point that was made by the Minister—and thus it increases the carbon tax cost to many of the UK’s major energy industries in a highly competitive global market. These free allowances have been the mechanisms used to protect businesses such as ceramics, cement and steel from being undercut by cheaper imported products from countries that do not charge carbon taxes.

Take the very real example, considered and referred to by the noble Earl, Lord Russell, which was considered in another place yesterday by Gareth Snell, the Labour MP. He focused on the ceramics industry and said that this sector

“is very difficult to decarbonise”

but that it is

“producing things that are integral to the Government’s missions, whether that be house bricks for our house building programme or advanced ceramics to support our defence industry … because we cannot make steel in this country without ceramics … We are still at huge risk of carbon leakage. We work in an unfair market at the moment, not least because of the way in which non-market economy status countries import into this country … the ceramics sector is desperately trying to do all that it can to reduce its output of greenhouse gases, but that is really difficult when it has to run a kiln at several hundred degrees for many hours to do the bisque and the glaze firing, and run refractories for 12 to 14 hours at 1,500°C. Electrification is not available to many of those businesses at the moment, because the capital to invest … is simply not available; the profit margins on their products do not allow for it … We are wedded to gas for the foreseeable future”.

The sector fears that,

“as we move at pace to meet some of the decarbonisation agendas and reduce the overall cap through the emissions trading scheme, that will mean that the free allowances also have to come down, which will push the ceramics sector into having to buy many more free allowances”,—[Official Report, Commons, Delegated Legislation Committee, 27/1/26; cols. 9-10.]

leading to higher costs.

Even in the Government’s net-zero nirvana of green power plants, gas is the dispatchable power in the system. There is no other choice; nothing else will keep the lights on when the wind does not blow and the sun does not shine. This SI needlessly imposes a tax that inflates the price of gas to the industry and then passes the additional cost through to the consumer when they have no other choice.

Everybody wants clean rivers, clean energy and an improved environment with a clear commitment to tackle global warming. But these objectives should never purposely lead to deindustrialising the country, negating growth and increasing unemployment in our high labour-intensive, high energy-consuming industries on the altar of net-zero zealotry.

We have among the highest power prices in the world and today we are putting them up again. If you drain free allowances out of the system, energy costs rise yet more in comparison with international competitors. Not surprisingly, international companies will relocate abroad in more competitive markets and accelerate deindustrialisation in the petrochemicals sector, the steel sector, ceramics and refineries. Sadly, this may also apply to data centres in the future, with fewer choosing the UK for the very same reasons.

Warm Homes Plan

Debate between Lord Moynihan and Earl Russell

Tuesday 27th January 2026 Lords Chamber

[Lord Moynihan (Con)]

My Lords, I thank the Minister for responding on the Statement made in another place.

I very much appreciate that this plan has taken longer to finalise than expected, with a year’s delay, but I have to say that we will join those who support a measured and incremental move towards low-carbon home heating systems. If that is the objective, there are many measures in the plan today that are worthy of support, not least, for example, the greater role for home batteries.

Where our concerns lie is with the test against which any transition must be judged; namely, its impact on the capital and operating costs for families—in other words, on household bills. Having read the Statement and the impact assessment, our view is that what should be a welcome and important initiative to save consumers money looks more likely to have the opposite effect, with rising energy bills and taxpayer-funded initiatives, not least through the recently locked-in energy costs well above market rates.

In the impact assessment, there was no reference to the impact on tenants as a result of the requirements placed on landlords. I very much hope the Minister will address whether these costs can or in his view will be passed on to tenants.

Regarding heating systems, 50% of the British public are unlikely to install low-carbon systems, such as heat pumps, due to high installation costs. Even if the warm homes plan takes the proclaimed £200 off bills for the 5 million projected homes over the next four years, which is unlikely given current energy and projected costs, that will still leave 25 million homes without respite, worrying about the installation costs of the new heating systems. How does the Minister intend to reach the other 80% of the country struggling with higher bills?

Does the Minister agree that the central and more enduring problem is the ongoing operational costs of low-carbon heating? Two-thirds of people with heat pumps now find it more expensive to heat their homes than they did with their previous system. Frankly, that is no surprise. The price of electricity per unit currently sits at a multiple of that of gas, yet the Secretary of State’s plan offers no redress for the long-term costs of this policy. Perhaps the Minister can now lay out whether the department has plans to address the high operating costs of heat pumps.

The Secretary of State has also announced the founding of a new quango, the warm homes agency. The Government claim to be offsetting this with the abolition of Salix, but I am sure your Lordships are aware that this is not a like-for-like trade-off. Can the Minister now confirm what his colleague in the other place could not and give an estimate of the cost of both the new arm’s-length body and the net cost of this quango reorganisation?

Another key element of the plan is the move to introduce widespread solar panels in the UK, set out in the Warm Homes Plan as

“Unleashing the rooftop solar revolution”

on page 33. This is timely, given the Prime Minister’s visit to China. The reason this is so important is that well over 80% of PV modules used in the UK have significant Chinese content. The true figure is very likely to be above 90% when we include panels made by Chinese-headquartered manufacturers. As so many non-Chinese brands still rely on Chinese wafers, a panel can be assembled in, say, Vietnam, Malaysia or the EU and still be heavily Chinese in content. That is why estimates based only on the brand’s country of assembly understate the real proportion. Including these brands, most energy analysts treat around 90% of UK PV panels as having Chinese content in their supply chain.

China’s share of the global supply of polysilicon is some 80% to 85%, and the Xinjiang Uyghur Autonomous Region’s share of China’s solar polysilicon has been variously estimated at between 35% and 45% at its peak, all of which implies that 25% to 35% of global solar polysilicon has plausibly been sourced from Xinjiang-based plants. Can the Minister inform the House how Great British Energy can meet its legal obligation to track exactly which polysilicon plant was used for any UK import, whether that plant is in Xinjiang or elsewhere, and whether specific batches are verified as free of Uyghur labour?

The noble Lord, Lord Alton, has spoken in this House and discussed with me this morning his concern that forced labour has been widely documented in the region and that there is a need to shut the door on forced labour components found in Chinese supplies of polysilicon. Does the Minister therefore accept that independent auditors and NGOs still argue that full traceability is patchy due to multisite production in different factories and different time periods, continuously shifting new contracts and new plants coming online, and lack of full transparency at the level of polysilicon origin?

As I have said, the intentions behind the warm homes plan are commendable, and the help with capital costs is welcome, but this must be accompanied by plans for lowering operational costs, coupled with wider reforms to bring down the cost of electricity. Otherwise, this well-intentioned plan will become a passport to higher domestic electricity bills. I look forward to the Minister’s response.

[Earl Russell (LD)]

My Lords, I welcome this Statement. Promised nearly two years ago as a “flagship response” to soaring energy bills and poor home efficiency, it has taken some time. Delays have consequences, particularly for the millions of families living in homes that are cold. They are paying the price.

That said, this plan brings forward welcome innovation and greater policy coherence, particularly through its focus on climate adaption and mitigation. It marks a significant milestone amid a national affordability crisis and an accelerating climate emergency. But if warm homes are one side of the equation, cheap, clean energy and market reforms are, indeed, the other. We need both to succeed.

The commitment to £15 billion of public investment is ambitious and right. Ministers forecast upgrades for 5 million homes and relief from fuel poverty for 1 million families by 2030. These are the benchmarks by which this plan will be judged. Too many families still live in cold and damp homes, causing ill health and rising health costs. Labour is right to call out the “lost decade” under the Conservatives, when investment collapsed and home upgrades fell by 90%. Greater vulnerability followed Russia’s invasion: 85% of our homes were still dependent on fossil fuels, and £40 billion in emergency support was required. This was the cost of the Conservatives’ delay.

Against this backdrop, the plan’s innovative pathway is welcome. Partnerships with British climate tech firms could, if implemented well, build a world-class retrofit industry, but SMEs need support, predictable regulation and open markets to bring products from design to real homes quickly. The proposed retrofit innovation panel and sherpa approval models are positive, if they deliver.

I am concerned about the six-month cliff edge gap between previous schemes winding down and new schemes starting. I ask the Minister for greater clarity, particularly on the use of the £1.5 billion reserve to help fill this gap.

I welcome the focus on climate adaption. Increasing heat will be a slow-motion killer, so homes must be built for cooling as well as warmth. Including air-to-air heat pumps and supporting communal ground source systems is vital. Passive measures are also needed. The plan’s emphasis on consumer-led energy flexibility is encouraging, with an ambition to triple solar by 2030. Integrating solar batteries, EVs and smart meters can turn homes into virtual power grid participants, cutting bills and easing pressures on the grid. However, this “rooftop revolution” will falter without faster grid connections, planning reform and more resources for local authorities.

The transition must create good jobs and uphold ethical standards. I supported the amendment from the noble Lord, Lord Alton, to the Great British Energy Bill on forced labour. Our clean energy revolution must not rest on exploitation. What measures are we undertaking with our EU partners and others to build our solar manufacturing capacity?

Despite the promising direction and other areas of overlap, this plan stands in isolation from Great British Energy and our community energy plans. This is a missed opportunity. We welcome the support for the UK heat pump industry but question whether £19 million will be enough. The dilution of deployment ambition is troubling—well below the 600,000 a year target by 2028. Even with a £7,500 grant, typical households still face a £5,000 shortfall, which will be too costly for many.

I reiterate the Liberal Democrats’ call for free heat pumps and insulation for low-income families. We welcome the innovation financing models but ask for greater details. Can the Minister assure the House that these will be properly regulated and transparent, and will not put people’s homes at risk?

The new rented sector standards, benefiting some 3 million over the next four years, are also welcome, but how will their effectiveness be measured? We welcome the warm homes agency as a single point of leadership. What more can be done to make sure that people are not the victims of energy scams? Can the Minister explain how the plan will be monitored and reviewed, and confirm some level of flexibility?

Too often in the past, insulation was missing or simply done badly. Government must work to restore confidence. It is essential that we do insulation and we do it well. Without insulation, the best technology cannot prevent heat loss.

Finally, I agree with the Opposition: we need energy market reform, and clean energy needs to be affordable. Electricity costs are too high; while they are that high, households will not change from fossil fuels, so we must balance levies and take them off bills.

To conclude, we welcome the ambition and the funding, but ambition must now be met with urgency, coherence and fairness. Ministers must close the funding gap, put insulation back at the heart, reform markets to make clean energy affordable, and back British workers and innovators. If Ministers rise to that challenge, this plan can deliver not just warmer homes but a fairer, cleaner and more secure future for Britain.

Planning and Infrastructure Bill

Debate between Lord Moynihan and Earl Russell

Committee stage
Thursday 24th July 2025 Lords Chamber

[Earl Russell (LD)]

My Lords, the fact that there are so many amendments on the issue of electric vehicles and electric HGVs shows, to my mind, that the Government have slightly missed a trick in not using the Bill as an opportunity to do more to roll out EVs and EV lorries and small vans, and on door-to-door delivery mechanisms, particularly as the targets and the timelines are coming up so quickly.

I hope the amendment will cause the Government to reflect on that and that more progress can be made in this Bill, because it is a real opportunity. It would be remiss of the Government not to seize it, because it lies at the heart of what they are trying to do in the stated purposes of the Bill. I very much welcome the amendments put forward by my noble friend Lady Pidgeon. I will speak particularly to Amendments 57 and 58, but I generally support all the amendments in this group.

Private cars are responsible for some 13% of the UK’s total CO₂ emissions—some 60.2 million tonnes of CO₂ equivalent in 2023. They are the largest single source within the transport sector, which as a whole is responsible for around 30% of our emissions. Road vehicles, including cars, make up the vast majority of them. Emissions from cars have been declining since 2005, but we still have a long way to go if we are to hit our climate targets, and the time we have to make these changes is fast running out.

The take-up of electric cars is, thankfully, growing. As of mid-2025, around 4% of the approximately 34 million registered cars on UK roads are EVs, totalling about 1.3 million. This goes up to about 7% if we include hybrid vehicles. The Climate Change Committee has been clear that we have further to go and need to do more. Rolling out EVs and making them affordable and practical is a key part of our pathway to net zero. We need to work together as politicians to make sure that we can overcome all the practical obstacles we have heard about, including the cost of affording the car in the first place. We need to make sure that, when people own these electric cars, they can afford to charge them and get the benefits that come only from being able to do so via their home charging points—at night and on a proper tariff that saves them money. If we do not do those things, people will just not make that transition away from petrol and diesel cars in time. We need to make those pull factors work for people. It is really important.

We have seen price reductions in the vehicles, increased government support and the continuing rollout of national charging infrastructure. Taken together, all these measures are helping to change consumers’ choices. We welcome the other efforts that the Government are making: the UK now has 73,000 public charging points—that is welcome—and the charging network rollout is helping to overcome some of the real fears with these things. The projection is that we could have 25 million EVs on UK roads by 2040. The biggest barriers to the take-up of EVs commonly cited are a lack of charging infrastructure, range anxiety—although that technology is improving—and the higher costs of running the cars. This is what we have talked about—making sure that people can plug them in at home.

We really welcome these amendments. It is not good enough that people are facing £3,000 of costs to get this planning stuff done and are waiting 12 to 15 months simply to run a cable across the pavement. As my noble friend said, 40% of people do not have a driveway at home, so cannot do this. This really needs to happen.

I also welcome all the amendments on HGV charging. This is particularly important for last-mile delivery and smaller-scale vans so that we can continue to tackle the scourge of air pollution, which is so damaging to our young people in particular and is such a radical cause of asthma. Luckily, we are beginning to see changes in that space.

We welcome these amendments and we think this really needs to happen. We encourage the Government to go away and think about how they can do more to bring about a joined-up policy on these issues through this Bill. There is more that can be done through the proposed legislation to help bring about the changes that we all want.

[Lord Moynihan (Con)]

My Lords, I echo many of the comments that have been made, and I strongly welcome the intention from the noble Baroness, Lady Pidgeon, in bringing this matter to the Committee towards the end of the day and considering the issue in depth through a range of amendments. She was admirably supported by my noble friend Lord Lansley. I think the Government will have taken on board the widespread enthusiasm for doing everything possible to move forward against some of the serious practical difficulties that exist.