Select Committee on Environmental Audit Minutes of Evidence


Examination of Witnesses (Questions 380 - 399)

TUESDAY 18 JANUARY 2000

MR STEPHEN TIMMS MP, MR SIMON VIRLEY, MR DAMIEN MCBRIDE AND MS HEATHER MASSIE

  380. By adopting the IPPC definition, we have, of course, created some anomalies. Major energy-dependent sectors and employers such as the water industries, industrial gases and the china clay industry may be completely or partially non-eligible. How are you dealing with those anomalies?
  (Mr Timms) It is the case, as I said a few moments ago, that industry sectors outside the scope of IPPC do not have the IPPC regime, they do not have to carry the IPPC regime, so in that sense they are being more lightly dealt with under the Directive than the sectors which are within the scope of the IPPC. It is the case as well that a number of sectors, perhaps in the category that you are describing, will benefit from the exemption for combined heat and power; they will also benefit, of course, from the reduction in the overall quantity of the levy compared with where they would have been if we had gone ahead with the proposal which was announced in the Budget. However, as I have said, if there are proposals to extend a measure of special treatment for energy-intensive sectors subject to international competition, which are outside the scope of IPPC, then if they meet the criteria which I have listed, we will look at those.

  381. The IPPC Directive applies to firms above a certain size. There are a number of small firms—for example, in glass making—who are highly competitive with much larger firms. That seems also to be an anomaly created by operating the IPPC Directive.
  (Mr Timms) I think we have resolved that, because we have said that firms which would be covered by the IPPC or sites which would be covered by the IPPC but are not, simply by virtue of being too small, are eligible for participation in the negotiating agreements. So I think that one has been resolved.

  382. Have you made any calculations, Minister, as to how much extra energy savings or carbon dioxide reductions will be delivered by the CCL by 2010 as against simply operating the IPPC Directive?
  (Mr Timms) I guess the answer is four million tonnes, is it not—the figure which I have referred to earlier. Perhaps Simon can deal with this.
  (Mr Virley) Yes, the four million tonnes figure is broken down, as we indicated earlier, into the levy itself saving at least two million and the negotiated agreements saving a similar amount, and the last figure is calculated by comparing what we expect emissions to be under a "business as usual" scenario with what the latest agreements or the state of play in the agreements suggest they might be able to achieve with the agreements in place.

  383. Finally, witnesses who have been before us have suggested that the Environmental Agency has not been fully involved throughout this process and has been carrying on implementing the IPPC Directive on a side-by-side basis, irrespective of what is going on regarding CCL. Has there been any discussion with the Environmental Agency? If so, in what direction has that taken you?
  (Mr Timms) My understanding is that there has been a great deal of discussion with the Environmental Agency and, of course, discussion with the Department of Environment, Transport and the Regions which we have been working with very closely on this, so I am surprised to hear that. My understanding is certainly that the Agency has been very much in the loop.

Joan Walley

  384. If I may, I would like to turn to the progress which has been made on the negotiated agreements. In turning to this issue, I do recognise that it is perhaps a little bit of an unenviable task. I am interested to know what fine-tuning there has been. I am conscious also that some companies, including ones which seem to be shedding a large number of jobs in my constituency, seem not to have escaped some of their commitment to this. I am thinking about Corus British Steel. Could you tell me what is in the "first wave" heads of agreements which I understand the Government have now signed with ten industrial sectors, when do you expect the contracts to be drawn up and how much more work is going to be required before those contracts can be agreed?
  (Mr Timms) The "first wave"—the memorandum of understanding signed on 20 December—was a very big step forward in developing the levy and the negotiated agreements. We think we are on course to sign full agreements with all the eligible sectors in the coming months. There is a good deal of work to be done between the memorandum of understanding and the final legal agreements.

Chairman

  385. Will the final legal agreements be done by the end of March, as was originally planned?
  (Mr Timms) I would certainly very much hope so, yes. So I think in summary the answer is that we are making good progress on the agreements.

Joan Walley

  386. Can I ask what of that progress might be the sticking points between having the hoped-for agreements by the end of March and perhaps having to wait a little bit longer before you get them signed, sealed and delivered? What are the sticking points?
  (Mr Timms) At the moment I do not see any insoluble difficulties in concluding the agreements in the timetable which we have outlined. Do you want to add to that, Simon?
  (Mr Virley) Perhaps if I may just add to that, there are some sectors for which the data on emissions and energy use is of a less good quality than it is for the sectors which the Department of the Environment has been studying for many years. So there are some data issues which need to be resolved, and also the treatment of certain processes in different sectors and exactly the scope of the exemptions which have been announced in the Pre-Budget Report where discussions are continuing.

  387. In terms of getting access to that data which you need, this brings me on to my second question really. Is that a matter for the trade associations, or is that a matter for you to be resourcing and actually getting that information? Who is going to be providing that audit, if you like, or that information?
  (Mr Timms) The information will need to be provided by the participants in the agreements, but we also think it is important that there should be independent audit from outside. Quite which body is going to play that role has not yet been decided. We think it is important that there should be a consistent approach across the full range of the negotiated agreements, but precisely who is doing it has not yet been determined.

  388. When you talk about the need for independent audit in terms of getting the information in the first place to bring about the agreements, will that be linked up subsequently to monitoring what actual agreements have been made at the start, what then happens next, who will be responsible for it and who you actually think might do it?
  (Mr Virley) Yes, it would very much be part of that. There will be independent audit of these agreements. As the Minister has indicated, it has not been decided who exactly would be responsible for doing that.

  389. Who might be?
  (Mr Virley) It is clear that the Department of the Environment would have to be involved, and a potential candidate might be the Environment Agency, but those are subject to ongoing discussions.

  390. Can I ask a little bit more about trade associations and the individual companies in terms of the negotiated agreements? Have you reached agreement on how that will be proceeded with?
  (Mr Timms) I am not quite with you.

  391. I am asking whether or not we are talking about a group of companies who together form a trade association, and the agreement being with the trade association, or whether or not it is likely to be with each individual who may not at this stage be under the umbrella of a trade association, or whether or not, for the purposes of the Climate Change Levy, they might have to subsume the responsibility for the trade association agreement under a trade association to which they do not at this stage belong.
  (Mr Virley) A variety of different models have been offered as to the exact form the different agreements might take—whether it is just with the trade association, or whether they have back-to-back agreements with each of their individual members. Obviously we try to be as flexible as possible in allowing the sectors concerned to choose the form of agreement which most suits their needs.

  392. Could I also ask about the majority of "first wave" sectors which have opted for, as I understand it, efficiency targets rather than absolute carbon reduction targets? What assurances can you give that the Government will meet its greenhouses targets and that the energy efficiency targets will not undermine that?
  (Mr Timms) We gave the sectors a choice for the negotiated agreements in order that they could use whichever approach was the most applicable for implementing and monitoring in their industry. Whichever target they choose, it will require significant action on the part of the firms involved within that sector, and we are confident, as I said earlier, that the result of the negotiated agreements will be a saving of at least two million tonnes of carbon a year. But we thought it was important to give the firms the choice about the approach that fitted their circumstances best, or give the sectors that choice.

  393. I understand, or there have been reports, that you were negotiating in the second wave sectors, or sub-sectors, with as many as 40 different sectors. Is it feasible to have so many different agreements to have to deal with?
  (Mr Timms) The second wave discussions are going ahead, we expect there to be a memorandum of understanding which they have signed up to by the end of February, so, yes, we do think this is a manageable task.

  394. How do you propose building the concessions, if that is the right word to use—I am not sure it is—the extra advantages which the Government has given in order to proceed with the agreements that we now have which relate to the extra money, the most welcome money, which will be available for environmental technologies for energy efficiency, into the comprehensive spending review so that money will be quickly and easily available and the information got out to companies which might want to take advantage of it?
  (Mr Timms) We are consulting currently on the detail of quite how those arrangements are going to work. I do not think there is going to be any difficulty in identifying the money because it is a stream within the climate change levy. But there is a consultation document, and consultation is going on at the moment about precisely how those arrangements will work.

Mr Loughton

  395. Minister, are you satisfied that even with an 80 per cent rebate for British Steel, for example, it will have no serious impact on its competitive position?
  (Mr Timms) I am satisfied that we are achieving two objectives with the climate change levy. Firstly, we are maximising its environmental benefits and, secondly, we are not jeopardising the competitiveness of UK firms. In the case you have cited, there is a very, very large reduction in the impact of the levy following on from the announcements which were made in November. The same is the case, for example, in the chemicals industry where the leading figures in that had a lot of concerns and they have acknowledged they are no longer worried about what the levy is going to do to their industry. So I am satisfied that we have met the twin objectives of maximum environmental effectiveness and maintaining the competitiveness of UK firms in the announcements we have made.

  396. Would you not acknowledge that even with the 80 per cent rebate to which British Steel may be entitled that works out, I gather, still as an energy tax of approximately £2.40 per tonne of steel, which compares with the equivalent rate in Germany of 4p per tonne and an average for Europe of 40p per tonne? How is that going to maintain the competitive position of British Steel even after your most generous rebate?
  (Mr Timms) It is necessary, of course, to look at the overall taxation position of British businesses and, as you will know, we have a very good, a very competitive, business tax environment in the UK. I think it is important to look at the overall picture in assessing the competitive position of UK firms. I would say that the figure British Steel was looking at after the Budget in the spring was very, very much greater. I have had discussions with Members of Parliament and others about the effect of the levy on that firm and others, and I imagine that British Steel is very pleased with the much more favourable position that they find themselves in now.

  397. It is encouraging to hear you talk about the overall tax burden rather than the headline tax rates, because I think on that basis the overall tax burden is just up by £40 billion under this Government, but that is another issue altogether.
  (Mr Timms) No, the tax burden is falling.

  398. It is up by £40 billion according to the House of Commons Library but we will not go into that, that is for another Committee, another problem, another day. Within those sectors there are obviously still anomalies in terms of the agreements which are going to be made and some firms will qualify for a full 80 per cent, some say 50 per cent, some 60 per cent, some will be liable for the full whack of tax. Can you give any examples of any other taxes where there are variable rates not determined by Parliament but determined by individual agreements between civil servants and companies themselves?
  (Mr Timms) No, I cannot give any such examples but the climate change levy is not going to be such an example. There will be an 80 per cent reduction for those firms covered by negotiated agreements but there will not be a sliding scale for others.

  399. So some will have 100 per cent payment and some will get 20 per cent payment effectively?
  (Mr Timms) Yes.


 
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