Select Committee on Environmental Audit Minutes of Evidence


Memorandum from Department of Trade and Industry—A Fair Deal for Consumers—Modernising the Framework for Utility Regulation—Environmental Appraisal


  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.


  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.


  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.


  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.


  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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Prepared 16 March 2001