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Mr. Andrew Tyrie (Chichester): I support compliance with Kyoto, but I should be grateful if the hon. Gentleman could tell me where there is any evidence that an increase in the temperature of the planet would necessarily result in a reduction of biodiversity.
Mr. Stunell: We are in danger of going wide in the debate. However, in a densely populated planet, a large
number of habitats are isolated communities. If the conditions in which those communities can exist migrated--for example, to the north--there would be no space that was not already occupied by human habitation to which the ecosystems could also migrate. That biosystem would thus be extinguished. I should be happy to provide the hon. Gentleman with more details, but you might rule me out of order, Mr. Cook.We welcome the provision in principle, but we have some criticism of the detail. We applaud the aims of the climate change levy. As we understand them, they are primarily to reduce greenhouse gas emissions. Secondly, they would put the UK at the leading edge of conservation technology; there is a large world market to be exploited if we can achieve that. A further aim is to safeguard employment and investment in the UK--that flows from the second point. The final aim is that the levy should be revenue neutral: that is rarely sought and even more rarely achieved in taxation proposals.
Although those aims are laudable and we welcome them, the means to achieve them remain flawed. Despite the repeated fixes that have been applied to the proposal by the Departments of the Environment, Transport and the Regions and of Trade and Industry and, latterly, by the Treasury, the fact remains that the details are not satisfactory. I hope that the Liberal Democrats can play a constructive part in improving the climate change levy as it proceeds through the House.
The first of our criticisms is that the levy is on the wrong thing at the wrong point. If the levy is designed to cut greenhouse gases, especially carbon dioxide, it would be better applied upstream, where the oil, coal and gas are first burned. If the aim is to save carbon dioxide discharges in particular, it would be more sensible to apply the climate change levy to just that--not, for instance, to electricity generated from hydro power--and, to take the point made by the right hon. Member for Wells, to make adequate provision for combined heat and power to flourish.
Mr. David Drew (Stroud): Would the hon. Gentleman like to add nuclear to his list?
I draw the attention of the Committee to the fact that the Government have proposed several ways in which combined heat and power can come to the market and be a significant part of the generating capacity. In fact, they have a target of 10,000 MW of installed CHP by the year 2010. The climate change levy will slow down that process. It will make it more difficult for combined heat and power projects to justify themselves in the pecking order of investment by companies that are looking at the options.
I had the opportunity to attend a seminar that was addressed by the hon. Member for Leeds, West (Mr. Battle)--who was Minister for Energy and Industry before he moved to the Foreign Office--and by the leading exponents of CHP in the industrial community. Having received their public reward and award for installing CHP, they were then asked a direct question--would they proceed to install the next phase? They said that they would not--not just because it would not save them money but because, in a world in which enterprises compete for investment, CHP did not produce as good a
return for that company as some of the other things that it could do. A move like the introduction of the climate change levy in its present form will make the possibility of investment in CHP by that company that bit more remote.Therefore, our first criticism is that the climate change levy is a levy on the wrong thing at the wrong point. Our second criticism is that the levy is too rough and ready, when it should be smooth and progressive.
Originally, the levy was published as being designed to raise £1.8 billion. That has wisely been scaled down to about £1 billion, but Liberal Democrats believe that that could well prove to be a damagingly large abstraction of money from manufacturing at a time when it can ill afford it. In many companies, profitability--even viability--is under severe threat, and we would prefer a climate change levy to be introduced at a lower rate but with a clear built-in escalator, so that progressively tougher targets are set during the period up to 2010.
A low start-up rate will avoid the damage to companies that may occur with the abrupt introduction at the level that the Government propose. The announcement, well in advance, of a progressive escalator up to a higher value over the next 10 years will give the right signals for those who are planning investment and development within their companies, and would take account of the time frame that is needed for those investment decisions to be run in, installed and matured. We need a climate change levy that takes some account of the business cycle and of the speed of investment decision taking and installation.
Our third concern relates to the recycling mechanism. Other hon. Members may want to explore how the national insurance reduction will impact on productive industry and on the service industries. The first, on average, would be losers; the second, on average, beneficiaries.
The Minister may want to comment on the fact that the fastest growth sector in the use of energy is not manufacturing but the service sector, which, perversely, will get extra money to spend as a result of the introduction of the climate change levy although it is the most rapidly expanding and profligate user of energy.
Mr. Timms: I look forward to responding to the hon. Gentleman's arguments, but I just say to him that--contrary to what he is suggesting--the levy package will be broadly neutral between the manufacturing and service sectors and, broadly speaking, bring about no fiscal shifts.
Mr. Stunell: I shall follow, with great interest, the Minister's detailed explanation, as it might possibly justify that statement, although it is hard to credit at the moment.
I did not want to focus on the national insurance issue tonight, because those matters could be well explored in Committee Upstairs, but I wanted particularly to deal with the green recycling element of the mechanism--the £150 million that the Government are making such a song and dance about. Initially that was to be £50 million, and a great deal of noise was made about the fact that it was being trebled to £150 million.
I hope that the Minister will be prepared to acknowledge that the £150 million is "funny money". A hundred million pounds of that is simply bringing forward the investment allowances of companies in
conservation and efficiency measures. I understand that the cost to the Exchequer is anything but £100 million; it is more like £5 million.
Mr. Swinney: I want to bring forward some further information on the constituency case that I raised with the right hon. Member for Wells (Mr. Heathcoat-Amory). The investment that that company has been recommended to make to improve its energy efficiency is £1 million, so, if that is to be a claim for one company out of this supposedly £150 million fund, there will obviously be a severe impact across a range of companies that are affected by the costs of such investment.
Mr. Stunell: The hon. Gentleman makes an important point, which is perhaps about the overall size of the fund that is being made available. Leaving aside whether it is "funny money", is £150 million sufficient to trigger off the investment that is needed? I believe that experience has shown, over many years, that companies respond better to incentives to invest than they do to penalties if they do not invest, so there is every reason to consider whether £150 million is the right amount.
However, whether or not £150 million is the right size for the fund, the Government should acknowledge and understand that what they propose is not actually £150 million of recycled money but simply capital allowances with very little public expenditure impact. I suggest that it will not be a sufficient spur for companies to invest.
The right hon. Member for Wells commented on the so-called IPPC deals in the energy-intensive industrial sector. Those of us taking part in this debate are at a disadvantage, in that we have not seen the agreement that has been reached. We have heard rumours. We are told that we shall get an excellent deal--plenty of bangs for our bucks--and we are eagerly waiting to hear the outcome. However, even if the conclusion of the deals in those energy-intensive sectors means that enough money is recycled and available for those industries to achieve the efficiency improvements to which they are committed, the incentives to invest in the industries that are not included are not nearly sufficient.
8.30 pm
The right hon. Gentleman said that the tax is not necessary, but we do not agree. We need a levy or a carbon tax; we need a stick as well as a carrot; we need to give a clear signal to industry and to make a clear commitment internationally to fulfil our obligations.
Letting gas generation take over from coal is not a let-out. Certainly, that will reduce carbon emissions in the short term, but as the hon. Member for Stroud (Mr. Drew) indicated, in what is a short time in the energy market, nuclear generation capacity will end, and, if we replace that with gas or coal, we will increase carbon emissions. We must have in mind the future beyond 2010 when we set our policy on the climate change levy. We need a policy that allows us to do more than reach the Kyoto target by 2010. If, on 2 January 2010, when we start to confront the targets that lie beyond the Kyoto limits, we have no policies on the stocks, no research, no investment
plans being developed, no export industries and no plans for beyond 2010, this country will find that it has failed the test.Liberal Democrat Members welcome the intentions behind the climate change levy, but we have deep concerns about much of the detail embedded in the massive schedules. We shall support the principle tonight, and fight to correct the all-important details later in the Committee proceedings.
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