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Mr. Brake: How helpful in achieving the 12 per cent. target does the hon. Gentleman think that applying the climate change levy to CHP will be?

Mr. Williams: It will be not at all helpful, but I point out in passing that in Wales the Baglan bay energy park scheme for energy generation will, when it is completed in three to five years, be an outstanding example of the efficient use of CHP energy by industry in this country.

On renewable energy, I said earlier that I am very disappointed by Britain's record over the past 30 years. In the 1970s, we realised that oil prices were a problem and that we needed to develop more sophisticated energy sources, and renewable energy suddenly acquired importance. However, over the past 20 years, we have always had a target of achieving 10 per cent. of power from renewable sources by the end of each decade, so the present target is 10 per cent. by 2010.

The record of achievement on renewable energy in the European Union reveals that we are 15th out of 15--a sorry bottom of the league. Yet our potential to harness wind, wave and tidal energy is greater than that of any European country. It makes no sense that Germany produces three times as much wind electricity as Britain. We have high environmental standards and planning regulations, but we are timid in our work on renewable energy.

Solar energy has to be the long-term answer. Britain is not sunny, compared to California, Italy or Spain, but in 100 years we will have to be producing most of our power from solar energy. The countries that are doing the basic scientific groundwork and adapting technologies to harness those energy sources are those that will have the industries to export that energy in 20 or 30 years. Our efforts to harness solar energy should be dramatically greater than they are.

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The fuel duty escalator obviously is a politically difficult policy. Sadly, we need cross-party co-operation on difficult policies for environmentally achievable goals. We are not getting as much support as is needed--certainly not from the Conservative party, which introduced the fuel duty escalator and has now made a complete U-turn and is hostile to that policy.

I turn now to the climate change levy. I support a carbon tax or energy tax, and I always have done. The price of coal, gas and oil has dropped over the past 15 years. The price of oil is now $22 a barrel and has peaked at between $35 and $40. Coal prices have collapsed and gas is getting cheaper, so I cannot understand industry squealing about the introduction of an energy tax.

I attended the debate on the climate change levy last July. The levy should raise £1.7 billion, which will be reimbursed in national insurance contributions, so it is revenue neutral and will create employment. However, it will save only 1.5 million tonnes of carbon a year, which, frankly, is trivial. That works out at £1,000 per tonne of carbon saved, when coal is about £50 a tonne. The punishment does not fit the crime; it is at least 10 times the cost of the energy. Therefore, the levy is very inefficient. Although I support it--the broad-brush approach of any punitive tax will act as a disincentive to use energy and so will surely have some effect--if all that it will save is 1.5 million tonnes, perhaps we should consider it a little further.

Finally, on tree planting, there was some discussion at Kyoto about emissions trading between countries, which has to be a large part of the long-term answer. Australia suggested plantations. It has large areas of land on which it wants to plant trees, which would help to absorb carbon dioxide. If it did, should it not get privileged treatment because it can set off its carbon dioxide emissions against those plantations?

The same goes for Britain. Let us consider the problems in our agricultural industry which, given the price of lamb, beef, milk and so forth, faces a real crisis. We must ask ourselves whether we are making the best use of our land. We want to use it for tourism and for environmental purposes as well as for food production. Originally, the land was covered in trees, which absorbed carbon dioxide. As the going rate--the climate change levy rate--is £1,000 per tonne, if we paid every farmer that sum for all the carbon that his trees can absorb, we would have millionaire farmers throughout Britain.

Tree planting must form a part of our carbon dioxide strategy. The highlands of Scotland and the mountains of north Wales used to be covered by trees. I read yesterday that Sussex was 95 per cent. woodland in Tudor times. We must consider tree planting as part of our rural and agricultural diversification policy.

Several hon. Members rose--

Mr. Deputy Speaker: Order. Before I call the next speaker, I propose to take the winding-up speeches at 12.10 pm. Four Back Benchers still want to speak, so hon. Members can do their own calculations. I call the hon. Member for Ceredigion (Mr. Dafis).

11.42 am

Mr. Cynog Dafis (Ceredigion): First, there is no more important issue than the impact of climate change, and the fact that we again have time to consider it is welcome.

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Secondly, I repeat what I said earlier about the planning framework, which is vital--and not merely for wind generation. There have been planning objections to important biomass proposals. In one case in Wales, the Newbridge-on-Wye combined sawmill and biomass plant was turned down on planning grounds. We must overcome that sort of obstacle to get the growth that we want, and to allow the redistribution of economic activity on a dispersed basis that goes with it. Such redistribution is an important side effect of moving into renewables. We are talking about decentralisation, embedded generation, small-scale power stations and so forth.

Briefly, on the climate change levy, there is no doubt that to reach the sustainability that we need, we have to use economic instruments to create a dynamic towards that goal. There is no doubt that if one uses such a policy, its effects will be far reaching, and there will be winners and losers. Overall, the planet must be the winner, but some sectors will certainly decline and there will be losers in the process.

A fundamental principle of the shift towards sustainable development is what is called the internalisation of external costs--of environmental costs. That process must happen gradually if we are to create the dynamic towards sustainability that is essential, and it implies a shift in the burden of taxation. To their credit, the Government have begun to embark upon the shift from what are popularly called environmental bads to environmental goods. We must tax those things that are harmful and reward those that are beneficial, which implies a significant change in the pattern of taxation.

The climate change levy is one example of that change and, on that basis, there is no way that it can be opposed in principle, although I agree with the spokesman for the Liberal Democrats, the hon. Member for Carshalton and Wallington (Mr. Brake), who said that he would have preferred a carbon tax, which would target carbon more effectively. I add one plea: we must be aware when imposing such a levy of its distributional effects. I hope that I do not sound guilty of special pleading, but the reality is that there is a great danger that the levy, if bluntly applied, will redistribute resources in the United Kingdom from areas that are suffering economic decline to those that are enjoying enormous economic growth--I mean the south-east of England, where there are high concentrations of service-based industries with proportionately low energy costs.

Such a redistribution must be a consideration, andwe certainly need compensatory mechanisms. Bluntly applied, the levy could damage the economy of large parts of Wales and the rest of the United Kingdom. It could damage manufacturing--steel has been mentioned--and energy-intensive sectors as well as agriculture, which is under enormous pressure and could be further harmed. It should not be beyond the wit of man to design a system to redistribute the revenue from the climate change levy to favour the areas that need support and that are being disadvantaged.

For example, it would be ironic if areas of Wales that have been allocated objective 1 funding, because they are performing badly economically and have very low average gross domestic product with all the associated problems, received European money--we hope that they

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will receive it--to provide the opportunity for sustainable economic development, but at the same time the climate change levy was sucking resources out of those areas.

I appeal to the Government to bear that in mind. One way to ensure that the effect of the levy is mitigated is to ensure that European funds for objective 1 and other structural fund programmes are additional. At the moment, there is no indication that they are likely to be additional to the existing Welsh block. I appeal for that additionality and sensitivity to the effects of the levy.

11.48 am

Mr. David Chaytor (Bury, North): I congratulate the hon. Member for Carshalton and Wallington (Mr. Brake) on securing this debate. He raised several important points and put forward a coherent argument to assist the Government in preparing their climate change programme later this year.

I think that this is the third Adjournment debate on climate change in the past 15 months, which is a measure of the growing interest in the subject among all Members of the House. It should also be a sign that it is time for the Government to arrange a debate on climate change in their time. The launch of the climate change strategy document towards the end of 1999 will, hopefully, be the time for such a debate.

It is interesting to see how the discussion has moved on during those debates--I have been present for all three--from the principle and the broad-brush arguments about climate change, and even whether it exists, to the detail. During the first debate, some Opposition Members made a significant attempt to deny the existence of climate change. During the second debate, they made a slightly less vociferous attempt to do so. Today, I do not hear anyone denying its existence. We are now focusing on what to do about it, and particularly on the details of the climate change levy. There are many details that need to be resolved quickly, if the Government have not already taken decisions on them.

There are serious issues concerning, as the hon. Member for Ceredigion (Mr. Dafis) said, the distributional effects from manufacturing to services, and from the north of the country to the south. It should be within the bounds of possibility to construct a scheme allowing for that. Another issue is the impact on renewables and combined heat and power, and it is critical that they should be exempt. It would be utterly self-defeating if the levy were introduced without such exemptions.

I recently visited two companies in my constituency, which I shall not name for reasons of confidentiality. It is interesting to observe the way in which some companies have responded to the proposed introduction of the levy. These two companies are traditional, well-established and well-managed companies, operating in old premises. They have calculated that they will be between £20,000 and £50,000 a year worse off as a result of the climate levy as currently proposed.

It struck me that the management of the companies accepted the need for the levy, and certainly accepted the existence of climate change. Management's concern was about the immediate impact on the company, and the broader impact on manufacturing. In my discussions with the two companies, it occurred to me, first, that they were the only two companies in my constituency that had contacted me, which is a significant indication that the

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principle is broadly established. Three years ago, that was not the case, so opinion within industry seems to have shifted substantially.

I was struck, secondly, by the two companies' apparent lack of appreciation of the extra help that they could get, both from the £50 million allocated under the levy, and through other sources, for energy efficiency. The Government must do a great deal more work to publicise and promote the assistance that is available for energy efficiency, especially to small and medium-sized enterprises. The larger companies know what is available, because they have the specialist staff to do the necessary work, or if they do not have the expertise in-house, they know how to buy it in. For small and medium-sized companies, there is much work to be done to promote the concept of energy efficiency and provide advice to them.

We should not focus entirely on the climate change levy. The Government have a much broader programme for responding to climate change. The fuel duty escalator is part of that, and I hope that the Government will stick by the escalator as the years go by--not necessarily at exactly the same percentage, but as an important principle. It should be emphasised that the fuel duty escalator is a fair and progressive tax, because by and large, distance travelled by car closely equates to level of affluence. The Government have already made major strides in tackling fuel poverty, and have significantly increased the investment in assistance for energy efficiency.

If we focus entirely on the details, we are in danger of missing the big picture. My hon. Friend the Member for East Carmarthen and Dinefwr (Mr. Williams) accurately painted the big picture, which we cannot ignore. In all our efforts to construct a climate change levy that is workable and that does not damage manufacturing industry excessively, we must realise that if we do not act, and if the levy and other policies are not introduced, in 20 or 30 years it will be extremely difficult to sustain any kind of manufacturing industry. The latest information suggests that we should not aim for reductions in CO 2 of only 12.5 per cent. or even 20 per cent., but that within a generation, reductions of 50 per cent. will be necessary.

The strongest argument for the Government to act now is not just that it was a manifesto commitment to move to a 20 per cent. reduction, and not simply that our environmental leadership is part of our international credibility--we cannot over-emphasise the prestige that the United Kingdom has gained on the international stage because of its willingness to lead from the front in the Kyoto negotiations and on environmental policy generally--but that if we do not act now, in 10, 20 or 30 years the challenges facing us will be even greater.

Our future choice is represented by one of two scenarios. Either we must move as quickly as possible to an economy based largely on renewable forms of energy, and a reduction in the burning of hydrocarbon fuels is an essential stage towards that, or in the early years of the next century, we and other western nations will be engaged in an almost permanent series of wars with countries in the middle east that control the last remaining oil reserves. The prospect of permanent war with Iraq over the dwindling oil reserves on the planet is not a viable scenario or one that many people in this country want to envisage.

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There is, therefore, an urgent need to tackle climate change and to reduce our dependency on fossil fuels. The climate change levy is an important part of that. I hope that the Government will stick not only to our legally binding target of 12.5 per cent., but to our manifesto commitment of 20 per cent.

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