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Mr. Heathcoat-Amory: I am afraid that I must draw that conclusion. Various assurances have been given in principle, including perhaps to the hon. Gentleman's constituent company. The small print reveals matters to be different. I shall give way to the Minister so that he may give us an assurance to the contrary.
Mr. Timms: The right hon. Gentleman is in danger of unintentionally misleading the House. The advice given to the firm referred to by the hon. Member for North Tayside (Mr. Swinney) is absolutely right. Combined heat and power systems will be exempted from the climate change levy. There has been a call for a wider exemption for power generated by CHP systems where it is sold from the firm that generates it to the grid. Our view is that the most generous arrangement for exemptions should apply to renewable energy sources, and that is what we propose in the levy. A firm using its own CHP will be free from the levy.
Mr. Heathcoat-Amory: That will not do. Anyone who knows anything about CHP knows that only some schemes entirely use the power on the plant site without importing or exporting some electricity. Most bigger schemes rely on fluctuations: at some stages, they import electricity from the grid, and at others, they export it to the grid. Unless that process is exempt, the entire scheme will be in danger of being uneconomic.
Let me give a specific example. British Sugar has made extensive use of CHP in the past. In fact, all nine of its factories use CHP, and have done so since the 1920s,
making the company something of a pioneer. British Sugar recognises the high energy efficiencies gained by those plants--about 80 per cent., compared with under 50 per cent. for conventional power stations. The company is anxious to renew and extend its CHP plants, but has written that
- despite Government assurances that the
- would not apply to CHP, it is now clear that it will apply to electricity sales made to licensed suppliers and subsequently sold on to business consumers.
- this application of the CCL . . . will make further commercial investment in large projects to install new technology CHP uneconomic.
- decided to defer our decision to proceed with investment for replacement CHP at our York and . . . (Norfolk) sites for which we already have Section 36 consents. We will also defer further feasibility studies.
We deeply regret this outcome, as we firmly believe in the contribution that CHP can make to the reduction in CO 2 emissions.
Mr. Michael Jack (Fylde): My right hon. Friend may be aware that the same company was encouraged in its endeavours by the Financial Secretary himself who has said that CHP can make a valuable contribution to achieving emissions reductions.
Mr. Heathcoat-Amory: My right hon. Friend is absolutely right. It is appalling that companies have heard lots of warm words telling them that the levy would treat CHP helpfully and give a green light to new schemes when that is not so. When we read the small print and examine the clauses and schedules, we find that new plants will not be economic and will not happen.
The Government are damaging an environmentally beneficial technology. They are taxing firms for using energy, but discouraging the very technologies that would enable the firms to reduce their energy consumption and avoid the tax. That is absolutely crazy. In fact, it is more than that--it is a political and economic crime.
I do not know whether the muddle over the new tax, which has lasted more than a year, is due to ignorance or arrogance. I genuinely do not know whether the Government simply do not understand what they are doing, or understand but do not care. They have been told about the difficulties by many industries. One more example is the Engineering Employers Federation, which said:
- We are concerned that a sizeable proportion of EEF member companies will be substantial net 'losers' under the levy/NI rebate system. This will cause many UK engineering and manufacturing companies to become uncompetitive in international markets.
Mrs. Jackie Lawrence (Preseli Pembrokeshire): Is the right hon. Gentleman aware of the Cambridge
Econometrics report that makes it clear that the climate change levy will benefit competitiveness in all sectors by increasing productivity with respect to energy inputs, by encouraging innovation, by improving energy management and by preparing relevant firms to exploit future markets?
Mr. Heathcoat-Amory: I am afraid that that is just not the case. Firms who are in the best position to undertake an assessment are convinced that they will be made uncompetitive in world markets. I have given the House one example of a representative body which says so.
Mr. Clapham: The right hon. Gentleman will be aware of the relationship with the new electricity trading arrangements that will come into being this autumn. There will be a change in the pool system, and the competitiveness of British industry will be stimulated because electricity will be cheaper.
Mr. Heathcoat-Amory: Actually, the change in the pool system is specifically referred to in the representations to which I have referred, but I have not gone into it because it is not part of this debate. I assure the hon. Gentleman that those changes are fully taken into account in the overall assessment made by the firms and associations that the new and unwelcome tax will damage British competitiveness, a matter that should concern the whole House.
What is particularly dotty is that the tax is not necessary on environmental grounds. There has always been an alternative route: to commit to more gas-fired electricity generation. That is another way to achieve reductions in carbon dioxide. Of course, when the tax was announced the Government were operating a moratorium; they had blocked 15 power station consents. We pointed out many times that, if they unblocked that moratorium, emissions could be reduced more efficiently and in a way that was less industrially damaging.
The Government never denied that point, but they would not budge on their energy policy until two weeks ago, when the Department of Trade and Industry issued a statement that the gas moratorium had been lifted. The 15 power stations that were refused consent can now proceed. That is a welcome U-turn, but it means that the energy tax is completely unnecessary. Even though all those 15 power stations might not be built, it is nevertheless calculated that merely a proportion of them would deliver a carbon dioxide saving equivalent to the one that the energy tax is designed to make.
It is clear that a policy mix of voluntary agreements, which were going ahead anyway, an emissions trading system, which is being designed, more combined heat and power and more gas-fired electricity generation would more than meet the required target for carbon dioxide reductions. We are committed to that internationally and the Conservative party certainly supports it.
In summary, the tax is thoroughly bad. It gives a further twist to the regulatory spiral; it damages British competitiveness and deters inward investment. It has perverse and arbitrary effects on industry; some processes, businesses and industries qualify for exemptions or rebates while others do not. Furthermore--perhaps the most spectacular point--the tax is unnecessary on environmental grounds. That is why we oppose it.
Mr. Stunell: I was rather disappointed that the Financial Secretary to the Treasury did not feel it necessary to introduce the debate on the clause. Other hon. Members can only take on trust--or as an expectation--the arguments that he will deploy when he winds up the debate.
There is no doubt that the provision is extremely important, but it has a much broader context than the Bill. Although we welcome the Chancellor's commitment to tackling the environmental problems faced by our country, we have some deep reservations about the form in which the climate change levy is presented, especially in schedules 6 and 7.
The Bill comprises 85 pages, which will make for interesting work in the Standing Committee. We shall be tabling amendments to change the overall design of the Bill, to improve its environmental effectiveness and to mitigate its impact on employment and investment.
There is a bigger picture against which the tax should be judged. Despite some of the comments of the right hon. Member for Wells (Mr. Heathcoat-Amory), we should acknowledge that the UK must respond to climate change not only as a legal but as an environmental obligation, if we are to play an active part in the world as a mature democracy.
8.15 pm
We must acknowledge that climate change, as it affects our country and the whole planet, is largely human- induced. It has been produced mainly by the consumption of fossil fuels and also by the loss of absorption mechanisms--deforestation has had a major impact on the planet's capacity to absorb carbon emissions. Various industrial technologies and processes have contributed to the problem.
That release of greenhouse gases is having a significant effect; it is changing the climate. Perhaps one problem is that the phrase "climate change" sounds rather neutral. In many cases, we are talking about climate degradation, not merely climate change. If we do not respond with effective policies, in this country and internationally, there will be severe consequences.
I give credit to the Government for the spirited way in which they participated in the Kyoto talks, for their willingness to enter a Europewide agreement and for the broad consultations that they have set in hand during the past two years. Although I have criticised the slowness of the process, one cannot deny that much ground has been covered. The consequences of climate change have certainly been acknowledged in the Government's thinking and, to some extent, in the climate change levy.
If there are no policy alterations in this country, in other EU countries and worldwide, we face the degradation of the planet's biodiversity, a worsening of the human condition in many parts of the world--to a considerable but, fortunately, not a major extent in this country--and economic disruption that could certainly spill over to affect this country directly.
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