Examination of Witnesses (Questions 1131
- 1139)
WEDNESDAY 26 JANUARY 2000
MR RICHARD
GRANT, MR
KEN VOWLES
AND DR
BILL KYTE
Chairman
1131. Welcome to the second session this morning.
Could I ask you to identify yourselves for the record please?
(Mr Grant) Richard Grant, Head of Environment for
the BG group of companies.
(Mr Vowles) Good morning. I am Ken Vowles, I am Executive
Director of Scottish Power and a board member of the EA and it
is in that latter capacity I am here today.
(Dr Kyte) I am Dr Bill Kyte, Head of Environment for
PowerGen and I am here on behalf of the EA as well.
1132. Do any of you want to say anything by
way of a brief introduction, or are you happy to go straight into
questions?
(Mr Vowles) Very happy for you to proceed.
(Mr Grant) Likewise.
Mrs Ellman
1133. Are you satisfied with the suggested changes
to the original proposals for the Climate Change Levy?
(Mr Vowles) You are probably aware from our initial
submissions to the initial proposals made by the Government, prior
to the last amendments, we had a number of concerns and some of
those concerns still remain. Our view is that, first of all, tax
is a very blunt instrument and if you take the elasticity of electricity
you need a 10 per cent increase in revenue in order to get a 2
per cent benefit in terms of demand. That is a marginal issue.
Therefore, to achieve a 20 per cent improvement in CO2 you would
need more than a 100 per cent increase in tax, so it is a very,
very blunt instrument. Our preference would be for an emissions
trading mechanism. The other issue we had was that we felt that
the tax should be recycled in a different manner and we are also
concerned about the impact on industry. Since then, and since
we made those submissions and others, we believe improvements
have been made. The levy has been reduced and there has been greater
recycling of some of the money on energy efficiency improvements.
Therefore, we were a little more contented, but we are still of
the opinion that a tax is a very blunt instrument and we believe
energy trading or emissions trading would be a better solution
and we are concerned that some of the administration costs associated
with this activity are high.
(Mr Grant) Without reiterating some of those points,
we very much see that the Pre-Budget Statement is addressing some
of the faults associated with the Climate Change Levy. However,
we also would suggest that it still misses a number of the significant
opportunities which could be derived from the application of this
tax. We see it as missing an opportunity to incentivise people
to switch to the lower carbon fuels, we see it as excluding the
access to major opportunities for carbon reduction in sectors
outside the industrial and commercial sector, and here we are
thinking in particular of the domestic sector. We feel it has
not really laid the foundations but is providing obstacles to
the development of an effective emissions trading system in the
UK and, more importantly, it really prevents industry from potentially
exploiting some of the significant opportunities from the application
of some of the other flexible Kyoto mechanisms—the clean
development mechanism and joint implementation. But I think the
Government has also missed an opportunity to utilise the levy
to overcome some of the significant economic barriers which exist
out there to the introduction of new energy efficient technology,
and if anything that is one of the more significant opportunities
missed. A different means of recycling this levy or a simple hypothecation
of this levy into these technology initiatives would overcome
that particular missed opportunity.
1134. Would you say the changes which have been
made are significant in meeting your objections?
(Mr Grant) No.
Chairman: That is a no and silence.
Mr Olner
1135. Could I ask why British Gas do not accept
the Government's commitment to exempt the domestic sector from
the Climate Change Levy?
(Mr Grant) Our position is that there are significant
opportunities in the domestic sector to make efficiency savings.
There are particular opportunities to make significant reductions
in carbon. Our view is the imposition of the Climate Change Levy
on the domestic sector would be a regressive move because the
bulk of the savings to be made in the domestic sector are in the
fuel poverty part of that sector. We estimate as much as 7 million
tonnes of carbon could be saved in the category of the fuel poor.
1136. So what do you suggest then to help these
vulnerable consumers?
(Mr Grant) Our view is that there is a tremendous
opportunity for the Government to incentivise industry by using
the CCL to recycle money directly into initiatives like our Affordable
Warmth initiative which Transco has been running where essentially
we see not just significant environmental benefits. We are currently
evaluating the Million Homes initiative and this would deliver
hundreds of thousands of tonnes of carbon but, more significantly,
it also delivers other savings. It delivers savings in terms of
National Health savings, and the Government's own studies indicate
that for each household there is a cost to the NHS of something
like £140 a year. Per million homes it would save hundreds
of millions of pounds in terms of social security benefits and
other Government outgoings. It would also promote jobs. The Energy
Savings Trust's own study indicated that up to 11,000 jobs could
be created by tackling a million homes and our own studies would
support that.
1137. But that could be done irrespective of
the Climate Change Levy, could it not?
(Mr Grant) It could be done but I think the Government
should incentivise the industry to actually save that carbon by
the expedient of allowing industry to recycle the climate change
directly and allowing industry to obtain carbon credits for the—
1138. So British Gas's position is that you
would still want to clobber the domestic sector?
(Mr Grant) No, our position is that we see no reason
why the domestic sector should be included in the Climate Change
Levy. With some adjustment to the recycling mechanisms applied
within the Climate Change Levy we could get that carbon for you
and we could also put in place a very socially progressive strategy
throughout the UK.
Chairman
1139. So what you are saying is that you want
credit for what could be done as far as the domestic market is
concerned?
(Mr Grant) Yes. This tax is a very blunt instrument,
it delivers very, very little carbon for a significant cost. We
are confident that we could recycle this money more effectively
and save more carbon and create more jobs as a result. So essentially
we could meet both the objectives of the Climate Change Levy and
we believe we could actually do that very, very efficiently.
(Mr Vowles) There are a number of ways you can achieve
benefits in the environment and one of them is the Climate Change
Levy. In the domestic sector for the last number of years we have
had a system called ESOP energy efficiency and that has proved
extremely successful, it has been audited, and we are soon to
introduce an ESOP 3 mechanism, and that is one of the ways we
can encourage the domestic sector to improve the environment and
we fully support the ESOP mechanism.
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