Further Memorandum by The Royal Society
for the Protection of Birds (CC17B)
INTRODUCTION
The RSPB welcomes the opportunity to submit
further evidence to this inquiry.
The RSPB is Europe's largest wildlife charity
with over one million members. We manage one of the largest conservation
estates in the UK—158 reserves covering more than 100,000
hectares. We are very concerned that unless there are significant
cuts in greenhouse gas emissions, birds, other wildlife and their
habitats will be catastrophically affected by climate change.
The Intergovernmental Panel on Climate Change estimates that global
cuts of about 60 per cent below 1990 levels will be needed by
the middle of the next century if dangerous anthropogenic interference
with the climate system is to be avoided. Early and meaningful
action is therefore vital both in the UK and around the world.
According to officially published research,
about half of the UK's statutorily protected wildlife sites are
likely to be affected by climate change by 2020. If there is significant
climate change the continued existence of many of our reserves
will be threatened. Both from a general environmental perspective
and with respect to our own particular concerns, we thus support
the Government's 20 per cent reduction target for carbon emissions
by 2010.
The RSPB contributed written and oral evidence
to the inquiry earlier this year. In February 1999 we responded
to the Government's consultation on the programme. This included
a detailed analysis of the proposed measures.
In this submission we focus on the main recent
developments, particularly decisions on the Climate Change Levy
in the Pre-Budget Report of November 1999. We also address the
fuel duty escalator, the utilities review and the New Electricity
Trading Arrangements.
1. CLIMATE CHANGE
LEVY
The RSPB welcomed the Government's confirmation
of the levy in its Pre-Budget Report. The levy will give a clear
signal to businesses to use energy more efficiently. The Pre-Budget
Report estimated that it will reduce carbon emissions by two million
tonnes annually, before taking account of the savings from the
negotiated agreements.
We support the decision to exempt renewables
because they do not contribute to climate change. It would have
been perverse to apply a climate levy to renewables.
We also support the decision to exempt "good
quality" combined heat and power (CHP), provided this is
not defined too restrictively. We are, for example, concerned
that "surplus" electricity exported to the grid might
not be exempt. This could hit large CHP particularly hard and
would clearly be irrational in the overall context of what the
levy is intended to achieve (ie emission reductions).
We welcome the extra spending on energy efficiency—an
increase from £50 million to £150 million per annum.
This should increase the overall environmental effectiveness of
the levy.
The decision to offer 80 per cent discounts
to energy-intensive sectors, in return for negotiated agreements,
should address industry's concerns about competitiveness. The
environmental impact depends on the details of the agreements,
which have not been announced. We are concerned by reports that
the negotiated agreements may require little more effort on the
part of participants than they would be likely to undertake anyway,
either as part of the normal business investment cycle or under
the new IPPC regulations. In order to be effective, the agreements
must set out ambitious improvements targets, with strict penalties
for failure.
The Pre-Budget Report stated that the agreements
will "seek to facilitate emissions trading between those
firms covered by an agreement". We support this aim because
trading should reduce the overall cost (to industry and the economy
as a whole) of meeting particular emission reduction targets.
This, in turn, should enable the Government to set more ambitious
reduction targets—both initially and in future. It should
also reveal the true cost of emission reductions, which will assist
in the setting of targets in future.
However, it will be difficult to link energy
efficiency-based negotiated agreements with carbon emissions trading.
Savings in energy use would have to be converted to carbon emissions.
More problematically, energy efficiency targets would mean that
changes in a firm's output would change the total supply of emissions
permits. This would introduce an extra uncertainty into trading.
It would also mean that trading would be unable to guarantee that
a particular emissions target would be met—if, for example,
output growth was higher than forecast. In this way, one of the
key theoretical advantages of trading, the guaranteed result,
would be lost.
Because of this problem, we would prefer the
agreements to be based on energy use or carbon emissions, rather
than energy efficiency. Of these options, carbon is generally
to be preferred because a carbon-based system is more likely to
be compatible with other prospective trading systems.
We agree that trading should be limited, initially,
to firms covered by the agreements. This limitation should prevent
unverified emission savings being traded. In the longer-term it
should possible to extend trading to firms outside the agreements,
as verification is extended.
Recommendation 1:
The RSPB recommends that negotiated agreements
promote emissions trading by being based on carbon emission reductions,
rather than energy efficiency improvements.
2. FUEL DUTY
ESCALATOR
The Pre-Budget Report announced the scrapping
of the fuel duty escalator. The RSPB was disappointed about this
because the escalator was one of the key measures in the draft
programme—it was estimated to reduce carbon emissions by
between two and five million tonnes annually by 2010. Other measures
will now be needed to make these savings.
We appreciate that dropping the escalator does
not necessarily mean that there will be no future increases in
fuel duty. However, the escalator sent a clear signal about reducing
emissions in a way that ad hoc rises in duty will not.
We welcome the decision to hypothecate the revenue
from future fuel duty increases to public transport expenditure.
It should ensure that people have an attractive alternative to
car use. We are concerned about the use of some of the revenue
for "modernising the road network". There is a risk
that this will lead to extra road traffic and extra emissions.
Recommendation 2:
The RSPB recommends that revenue from future
fuel duty increases is allocated to public transport, not road
improvements.
3. THE UTILITY
REVIEW
An important part of Government policy is the
reform of the regulatory system for the utilities. In October
1999 the DTI issued proposals for legislation—"The
Future of Gas and Electricity Regulation". It also published
draft regulatory, environmental and equal treatment appraisals
of these proposals. The environmental appraisal acknowledged that
the general regulatory reforms and the New Electricity Trading
Arrangements (see below) will lower prices and lead to a "modest"
(unspecified) increase in consumption and emissions. However it
said that the statutory environmental guidance, the energy efficiency
standards of performance (EESOPs) and the renewables measures
will all have "positive environmental impacts". It is
unclear what the overall impact of these reforms will be.
The RSPB's concern is that the proposals will
increase emissions, unless the positive environmental measures
are strengthened. In particular EESOP and the renewable measures
(placing new renewables obligations on electricity suppliers or
distributors) must make a significant contribution to the Climate
Change Programme.
Recommendation 3:
The RSPB recommends that the environmental measures
under the utilities review are clarified and strengthened to ensure
that the proposals, as a whole, contribute to the Climate Change
Programme.
4. THE NEW
ELECTRICITY TRADING
ARRANGEMENTS (NETA)
NETA includes a Balancing Mechanism and an associated
Settlement Process to replace the present Pool. The basic idea
is that the National Grid Company, as the electricity System Operator,
can accept offers of generation at short notice when it anticipates
changes in demand. To help assess the likely balance of the system
(between generation and supply) the operator will ask participants
to notify it of their likely position for each half hour trading
period, four hours in advance. This period was selected on the
grounds that "four hours is the minimum compatible time required
by some thermal stations to start up and produce energy".
If the metered output or consumption is greater than or less than
the contracted position (ie it is "out of balance")
then those responsible will be penalised. Generators will be charged
for over or under-contracting as will suppliers.
A feature of the proposed system is that it
will necessarily tend to penalise intermittent or fluctuating
sources of generation that cannot predict output a significant
period in advance. In other words, it will penalise some CHP generation
and many forms of renewable generation, notably wind, solar and
wave power—some of the most environmentally benign sources.
It is perverse to introduce such a scheme in
a situation where the UK Government, and most other governments
in the World, are actively promoting increased use of renewables.
The OFGEM consultation paper of July 1999 recognised the fact
that "CHP and renewables schemes with unpredictable output
will be most at risk from exposure to imbalanced prices",
but did nothing to mitigate it.
The proposals were generally confirmed in the
OFGEM/DTI conclusions document of October 1999. This document
acknowledges the likely adverse effect on certain forms of renewables
(notably wind) and CHP. It states that the so-called Gate Closure
time will be reduced from the originally proposed four hours to
three and a half with further reductions possible in future. Although
a step in the right direction, this does not address the fundamental
problem that some renewables have of predicting future generation.
The conclusions document also tries to make
more suggestions for ways of reducing the exposure of renewables
and CHP to imbalance charges, for example by splitting and then
re-aggregating Balancing Mechanism units to give more predictable
supply. Whilst larger generators may well be able to do this,
at least in part, it is less clear that this is an effective option
for smaller producers.
The RSPB is pleased to see that the conclusions
document contained an environmental appraisal, which the original
did not. We were less pleased to see that it concluded that the
overall environmental impact of the proposals would be "slightly
negative". Carbon emissions could increase by 0.5 million
tonnes per annum, as a result of price reductions, and "inflexible"
renewable sources (such as wind) could "face new risks".
Recommendation 4:
The RSPB recommends that the balancing and settlement
mechanisms be abandoned because they will mitigate against the
increased deployment of renewable forms of energy and have a detrimental
effect on the Government's climate policy as a whole.
November 1999
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