House of Commons - Environment, Transport and Regional Affairs

Select Committee on Environment, Transport and Regional Affairs Fifth Report

UK CLIMATE CHANGE PROGRAMME

Costs and Competitiveness

73.The issues of costs and competitiveness were at the heart of the concerns of many witnesses, particularly those from the business sector.[182] This anxiety is both general about the overall impact of the climate change strategy and focussed on the effects of specific policies on particular industries. Although we attempted to establish the costs of the various policies and measures proposed, we had only limited success. This is partly because of the various questions and uncertainties in costing policies: who incurs the costs?[183] how should one cost benefits other than reduced greenhouse emissions such as improvements in local air quality or reductions in the number of people in fuel poverty?[184] Officials from the Department of the Environment, Transport and the Regions acknowledged that some of the costs included in the consultation document were "tentative".[185] Another point to bear in mind when considering the costs of policies to reduce emissions is that there will also be very significant costs associated with adaptation.

74.Leaving all these questions aside, in Table 6 we have summarised the information on costs which has been provided to us during our inquiry.

Table 6: Estimates of Costs of Climate Change Policies

Witness	Sector	Policy/Goal	Emissions Reduction (from baseline projection for 2010)	Cost
Consultation Document	Energy Supply	New CHP target	6 MtC	£100 per tC benefit
		10% renewables by 2010	Up to 5.4 MtC	£50-£150 per tC (Annual support costs of £300-£450 million)
	Business	Energy-efficiency element of IPPC	Up to 3 MtC	Benefit of about £30 per tC
		Energy saving in small and medium-sized enterprises	0.5-1 MtC	£60-80 benefit per tC. Would require investment of £40-100 million annually
	Domestic	Energy-efficiency measures	2-4 MtC	£60-£180 per tC welfare benefit. Would require annual investment between £150m and £400m
		NFFO-type scheme to promote additional CHP linked to community heating	Around 1.5 MtC	Around £100 per t C benefit
Friends of the Earth[186]	Energy, transport	Increased Renewables, CHP, investment in transport and domestic energy-efficiency	20% CO target (154 Million tonnes CO₂)	Investment of £8.9 billion in period to 2010, creation of 236,000 net new jobs
		Increased Renewables, CHP, investment in transport and domestic energy-efficiency	30% CO₂ target (206 Million tonnes CO₂)	Investment of £26.4 billion in period to 2010, 537,000 net new jobs
Electricity Association[187]	All end-use sectors	Energy-efficiency measures	14.5 MtC 27 MtC	£20 billion investment £100 billion investment
	Domestic	Energy-efficiency measures	6.1 MtC	£11.2 billion
	Commercial	Energy-efficiency measures	1.7 MtC	£3 billion
	Industrial	Energy-efficiency measures	2.7 MtC	£1.7 billion
	Transport	Energy-efficiency measures	4.0 MtC	£4.3 billion
Road Haulage Association[188]	Transport	Fuel Duty Escalator and relaxation of cabotage	N/A	GDP reduction: £1.5 billion by 2002Reduced fuel duty revenues of £1 billion by 2002
Biffa Waste Services Ltd[189]	All	Climate Change Strategy	N/A	£100 billion annually
Energy Saving Trust[190]	Domestic	Energy-efficiency: "cost-effective achievable potential" by 2010	5 MtC	£9.8 billion 1999-2010 (annual investment of £800 million annually) Financial benefits estimated at £1.04 billion per annum by 2010
Automobile Association[191]	Transport	Fuel Duty Escalator	N/A	£2000 per tonne of CO₂ reduced
Energy Intensive Users Group[192]	Industry	Climate Change Levy	N/A	£580 million to energy intensive industries (assumes levied at full rate)
Pilkington plc[193]	Industry and Domestic	Installing low-emissivity double glazing in all buildings	9.07 million tonnes CO₂	Savings of £638 million annually on energy bills
Ford[194]	Transport	Meeting ACEA agreement to reduce CO₂ emissions from new cars by 25%	N/A	$3.3 billion investment

75.We were pleased to hear from the Department of the Environment, Transport and the Regions that they would be estimating the cost of the total climate change programme.[195] This is critical if public support for the strategy is to be established. However, we must stress that this exercise should not neglect the side-benefits of some policies such as increased employment and improved air quality. We also heard evidence from witnesses that a statement of costs and benefits of a climate change programme would be more intelligible in the context of an account of the cost of 'doing nothing' to combat climate change.

76.Some witnesses talked about the overall impact of climate change policies upon the UK economy. In particular, Dr Terry Barker from Cambridge Econometrics told us that the effects on GDP were likely to be small but potentially positive if the strategy was well designed.[196] Witnesses from Government Departments[197] and Mr Meacher concurred with this assessment.[198] It is worth emphasising that, even if the policies are less than perfectly designed, the overall impact upon GDP will be small and probably not detectable. However, we are concerned that the impact on some sectors and some parts of the country will be significant. Nevertheless, in considering the impact upon the overall economy, we urge the Government to ensure that the design of the strategy is such that it has a positive impact on GDP. In practice, this will mean a strategy which tends to create employment opportunities (for example, through schemes to improve domestic energy-efficiency) and shifts taxation away from employment.[199]

77.Nevertheless, some witnesses were very concerned that an ambitious climate change policy would impact upon the UK's competitive position[200] and, whatever the impact of the strategy is on the overall level of economic activity, there will be 'winners' and 'losers'. Some industries will find themselves hit harder than others[201] and energy-intensive industries are likely to find themselves under increasing pressure during the next twenty years.

78.We note the Government's commitment not to introduce policies which would damage the UK's competitiveness.[202] However, it must be remembered that the overall thrust of the climate change strategy must be to set in train long-term changes in behaviour and industrial practices to reduce emissions. The Environment Agency told us that the Government's concern over competitiveness "should not be misinterpreted to rule out necessary transitional measures" as these will be "enabling the transition from old, environmentally damaging industry, to new environmentally sustainable industry."[203] We agree and re-iterate that any policy designed to disrupt the status quo will inevitably generate 'winners' and 'losers'. We also believe that any longer-term negative impact upon competitiveness will be minimised by the establishment of a clear long-term strategy now, so that businesses can start to adapt as soon as possible.

79.A further important point on competition is that we are not alone in taking action on climate change. All industrialised countries have emissions targets under the Kyoto Protocol and most will be developing strategies similar to the UK's which aim to reduce emissions from all sectors.[204] Treasury officials noted that seven European countries have introduced carbon or energy taxes since 1990.[205] There is no fundamental reason for UK climate change policies to place the UK at a significant competitive disadvantage as compared to our European competitors. Of course, many of our businesses are competing with firms based in countries which do not have commitments under the Kyoto protocol and there are also doubts about whether some signatories to the Kyoto Protocol, notably the US, will ratify the agreement. However, it is also important to recognise that international differentials in labour rates and currency fluctuations are likely to remain more important in influencing the UK's competitiveness than the UK's climate change policies. Indeed, this was a point acknowledged by the Road Haulage Association in relation to the fuel duty escalator.[206]

80.We heard from some witnesses about the potential employment benefits to the UK of an ambitious climate change strategy.[207] Research by Cambridge Econometrics found that measures to reduce CO₂ emissions by 7% would create 391,000 new jobs by 2010.[208] Most witnesses agreed that much of the potential to reduce emissions is found in the domestic and transport sectors along with small businesses. We believe that taking action in these sectors will largely result in 'gain not pain' and bring side-benefits such as improved air quality, warmer homes and increased employment.[209]

81.Other economic benefits of a vigorous climate change policy include the potential for the UK to gain 'first mover' advantages in various fields as diverse as renewable energy technologies and emissions trading.[210] Officials from the DTI told us that the 'environmental industry' worldwide would be worth around $335 billion in 2000 and that by 2010, this would rise to $640 billion.[211] Clearly, this is a sizeable market and one which the UK should be aiming to penetrate. It should also be remembered that any reductions we achieve beyond our Kyoto commitments can be 'banked' against future targets[212] and/or traded in an international trading system. We must reiterate once again that the current lack of commitment to the 20% target and patchy implementation of policies in the various sectors are not providing the conditions for these gains to be made.

82.Some sectors will face difficulties and short-term concerns over competitiveness, but this should not prevent the development of a climate change strategy. We believe that a well-designed strategy should deliver 'gain not pain' for the economy as a whole. An ambitious set of climate change policies should offer employment benefits and give the UK significant 'first mover' advantages in a number of industries. It is also important to recognise that there are significant costs associated with not doing anything about climate change.

The Pace of Development of Policy

83.The Government claim that the UK is the most advanced nation in the world in terms of climate change policy.[213] Certainly, in the publication of the consultation document on the strategy, the UK appears to be ahead of many of its European neighbours. However, we are concerned at the length of the overall policy development period: the first consultation paper was published in October 1998 (after being delayed from Spring 1998), a second consultation was published in March 2000 and the final strategy is expected in November 2000. Of course, even when the strategy is finalised, some parts of it may have to wait until legislative time is available to be implemented.

84.We do not believe that such a lengthy consultation on the overall nature of the programme is required in this instance. The first consultation on climate change policy took place under the previous Government. Although the scale and aim of the planned programme has varied since then, the Government has had a target of reducing carbon dioxide emissions by 20% since before it came to power in 1997. Some witnesses commented that there was no need for further general consultation since it is already known what measures are required[214] and that valuable time is now being lost.[215] Pilkington told us that "sufficient is known about the various options and their

benefits to enable an early implementation of a number of major initiatives."[216] Indeed, we became aware during our inquiry that there is now a certain degree of 'consultation weariness'. As such, we do not believe that a further round of general consultation is an efficient way of progressing with climate change policy.

85.We must stress that our concern is that the overall shape of climate change policy should be defined as quickly as possible. Individual policies have been pursued in a number of areas, particularly the business sector and there has been an increasing use of economic instruments. However, there does appear to be an 'action gap' in some sectors where even some of the more straightforward policies have not been set in train. The clearest examples are provided by the domestic and transport sectors, where most witnesses agreed that the general policy approach needed is apparent but that those policies have only been partially introduced. For example, Pilkington commented that "The technical means to deliver substantial savings, particularly in housing, are well-established, proven and widely available."[217]

86.We recognise the need to consult about climate change strategy but are disappointed that the final Climate Change Programme is taking so long to finalise. Nevertheless, policy is developing and we encourage the Government to build rapidly upon the progress made to date and maintain the momentum already established in some sectors.

182 Ev p24 Back

183 Ev p45 Back

184 Q519 Back

185 Q130 Back

186 Ev p17 Back

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188 Ev p55 Back

189 Ev p62 Back

190 Ev p98 Back

191 Ev p227 (HC171-ix) Back

192 Ev p111 (HC171-iv) Back

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