APPENDIX 11
Memorandum from Department of Trade and
Industry—A Fair Deal for Consumers—Modernising the
Framework for Utility Regulation—Environmental Appraisal
INTRODUCTION
1. Environmental appraisal of new programmes
and policies is part of the Government's commitment to put the
environment at the heart of decision-making. It entails taking
account of the environmental impact of new policies throughout
their development.
ENVIRONMENTAL IMPACTS
2. For the purposes of this appraisal the
sources of environmental impacts are analysed as follows:
— statutory guidance on environmental
objectives;
— general regulatory reforms (the majority
of the proposals, including the reforms to update the framework
of energy legislation);
— Energy Efficiency Standards Of Performance
("EESOPs:" obligations laid on licence holders to achieve
specified energy savings);
— renewable sources of electricity
generation;
— new electricity trading arrangements;
and
— new powers for Ministers to initiate
environmental and public-health related service standards in water.
Statutory Guidance
3. The regulators will be obliged to have
regard to statutory guidance on environmental (including energy
efficiency) objectives from the Secretary of State, alongside
specific environmental duties such as already exist. There will
be full public consultation on the guidance, including consultation
with Parliament, and it will be intended to last for a set duration.
The Government expects that this will in practice secure an appropriate
contribution to the achievement of sustainable development objectives,
and the proper integration of economic, social and environmental
considerations in regulatory decision-making. As such, it should
enhance regulatory certainty.
4. Whilst the action taken in furtherance
of their environmental duties will be a matter for the regulators
to determine alongside their other duties, the Government expects
the new statutory guidance to the regulators to have a positive
environmental effect in the form of greater coherence between
the decisions of the regulators taken within this modified framework,
and Government's policies toward the environment in general.
General Regulatory Reforms
5. The main thrust of the general regulatory
reforms is towards greater regulatory efficiency and where possible
and appropriate towards stronger promotion of competition. The
Government expects that these reforms will lead to downward pressure
on prices and/or improved services.
6. In energy, downward pressure on prices
will extend to commercial and industrial users though it is likely
to be greatest in the domestic market where competition is currently
least well developed. Price changes tend to have a small effect
on domestic sector energy demand by comparison with factors such
as the growth in the number and use of household appliances. The
Government recognises, however, that lower prices will lead to
some increase in energy consumption, particularly for inadequately
heated households. The latter is a welfare benefit which it welcomes.
7. Although emissions may increase as a
result of the pursuit of economic efficiency in energy production
and distribution, other measures are expected to have the opposite
effect. These include, for example, the proposed Climate Change
Levy in the business sector, the EESOPs mentioned below, and improved
communication to consumers on the benefits of energy efficiency.
8. In water most domestic consumers pay
for water on an unmeasured basis. The remaining domestic customers
and the majority of business users pay on a basis related to consumption.
In the case of the first group of customers, any downward pressures
on prices as a result of these proposals will not have a corresponding
effect on demand. The Government supports measures to lower prices
where these are consistent with sustainable development aims.
9. While the Government expects that increased
demand for telecommunications services, either as a consequence
of lower prices or better levels of service, may result in additional
physical infrastructure, the environmental effects of the Bill
are likely to be modest. Any effect is likely to be measured in
earlier roll-out of infrastructure rather than additional roll-out
per se. Moreover, the increased use of telecommunications can
be environmentally beneficial where it reduces energy intensity
by, for example, reducing the need for physical travel.
10. Several of the general regulatory reforms
are aimed at improving the transparency and openness of the regulatory
process. All parties with an interest in regulation must have
a full opportunity to participate effectively in the decision-making
process, and to understand the outcome. The Bill will therefore
require the regulators to:
— consult on and publish their forward
work programmes;
— consult on, publish and follow a
code of practice governing their consultation and decision-making
processes;
— publish reasons for their key decisions;
and
— use their annual reports as a medium
for reporting progress against their forward work programmes and
key objectives.
11. Whilst the detailed procedures to be
adopted will be matters for the regulators themselves to determine,
the Government anticipates that the energy and water regulators
will want to ensure that there is a full opportunity for environmental
interests to participate, and that the environmental consequences
of decisions are properly discussed and explained. The Government
expects all the regulators to report annually on all aspects of
their performance, including environmental aspects as appropriate.
EESOPs
12. The Bill will provide broad enabling
powers, allowing the Government to specify obligations on licence
holders to achieve energy savings. These are intended to have
positive environmental benefits through reducing demand for delivered
energy and hence reducing the environmental impacts of energy
production, distribution, and consumption, such as emissions contributing
to climate change. The benefits are impossible to quantify at
this stage as they will depend on the exact nature of any obligation
eventually imposed. When the proposals are made (in Statutory
Orders) they will be subject to consultation with the energy industry,
the Regulator, consumer and other interests, and to Affirmative
Resolution by Parliament. They will also be subject to environmental
appraisal.
Renewables
13. The Bill will provide broad powers enabling
the Government, by statutory instrument, to impose obligations
on electricity suppliers or distributors to support electricity
generation from renewable sources. Renewables can play an important
role in meeting the Government's climate change obligation. It
intends to work towards the aim of achieving 10 per cent of UK's
electricity supply from renewables which it hopes to be able to
achieve by around 2010. This could lead to a reduction of up to
5 million tonnes in UK carbon emissions. Individual renewables
projects have their own more complex environmental impacts. Individual
projects will be the subject of individual environmental assessments
in the context of obtaining planning consents.
New Electricity Trading Arrangements
14. The Bill will provide the powers necessary
to implement the new trading arrangements outlined in Conclusions
of the Review of Energy Sources for Power Generation and Government
Response to fourth and fifth Reports of the Trade and Industry
Committee (Cm 4071) in October 1998, which included an environmental
appraisal (at Annex H). An environmental appraisal of the new
trading arrangements will be published when they have been fully
developed.
New Powers to Initiate Service Standards in the
Water Sector
15. Standards of performance in the water
industry are currently set by the Secretary of State/National
Assembly for Wales through regulations made in response to proposals
from the Director General. The Bill will give the Secretary of
State/National Assembly greater flexibility to set standards on
their own initiative, principally in relation to environmental
and public health matters. The environmental impact of this legislative
change cannot be assessed at this stage as it will depend on the
nature of any new regulations introduced in this way. When new
regulations are proposed, they will be subject to a separate environmental
impact appraisal.
CONCLUSIONS
16. The Government expects its plans for
statutory environmental guidance to regulators, EESOPs and renewables
to have positive environmental impacts. The general regulatory
reforms and new trading arrangements will tend to lower prices,
but the impact in increased consumption is likely to be modest,
and accompanied by significant quality of life gains among low
income domestic consumers.
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