Memorandum by the Confederation of UK
Coal Producers (CC58)
SUMMARY
Coalpro supports the basis of the proposed Levy,
in that it reflects energy content of fuels. This approach is
entirely consistent with the Government's 1998 White Paper "Energy
Sources for Power Generation" and encourages energy efficiency
rather than fuel switching.
The Government's proposal to levy non-carbon
emitting sources such as nuclear, hydro and renewables is correct,
since exemption would provide windfall profits, encourage levy
avoidance schemes and fail to reduce carbon emissions.
An overriding duty for Government is to ensure
security of fuel supplies. Coal supplied by Coalpro members perhaps
provides a higher level of security than any other fuel source.
The UK should value this and not be tempted along a road offering
early environmental benefits that ultimately leads to a massive
dependence on imported natural gas with the attendant risk of
future conflict.
Coalpro remains concerned that the Government
appears to be basing Levy rates on a desire to raise £1 billion
per annum as a way of reducing National Insurance Contributions
rather than a means of reducing carbon emissions.
Coalpro proposes that the amount collected under
the Levy be limited to £200 million per annum, being the
sum needed to support a 5 GW tranche of Clean Coal power stations
that would reduce the UK's annual carbon emissions by some 1.5
to 2 million tonnes.
In order to give industry more time to examine
ways of further reducing energy consumption, Coalpro has proposed
that the Levy should be phased in over a period of time, as opposed
to being introduced in full in April 2001.
Given their lower carbon emission, Clean Coal
Technologies should be eligible for support using money hypothecated
from the Levy for energy efficiency schemes and new sustainable
technologies.
The Committee should investigate whether the
Government's 10 GW CHP target by 2010 will in fact make any significant
contribution towards reducing carbon emissions.
INTRODUCTION
1. The Confederation of UK Coal Producers
(Coalpro) welcomes the opportunity to contribute to the inquiry
by the Environment, Transport and Regional Affairs Committee into
the UK Climate Change Programme.
2. Coalpro members mine over 90 per cent
of the country's coal production, totalling some 40 million tonnes,
and employ over 10,000 people throughout the UK.
3. Full details of the Government's Climate
Change Programme are yet to be published, but proposals for a
Climate Change Levy (CCL) are now well advanced and will have
a significant impact on the businesses of Coalpro members. This
document therefore focuses on the Levy and suggests how greater
carbon emission reductions might be made if it was recycled to
support Clean Coal Technologies.
BACKGROUND TO
THE CLIMATE
CHANGE LEVY
4. The Climate Change Levy is designed as
an energy efficiency tax. Indeed, HM Treasury press release of
9 March 1999, entitled "Climate Change Levy to Encourage
Energy Efficiency", declares energy efficiency as the principal
objective of the Levy. A benefit of reduced energy consumption
will be a reduction in CO2 emissions which will help
meet the UK's international obligation under the Kyoto Treaty.
However, the name of the Levy is misleading and has allowed some
parties to move the debate towards an examination of the carbon
content of primary fuels.
5. It is of particular concern that, in
some quarters, coal is seen as the problem and also the solution
to climate change. For them the answer is simple—reduce
the consumption of coal. However, there are environmental problems
associated with all forms of primary energy. Oil spills, gas explosions,
nuclear radiation, flooded valleys, intrusive wind farms, pollution
of air, land and water, opencast coal and uranium mining—no
energy source is without drawbacks. There is as yet no utopia—nuclear
fusion has not arrived and will no doubt bring a new set of environmental
concerns; even renewable technologies are not as clean and friendly
as some proponents claim. So what weighting should be applied
to each environmental factor? No one is in a position to answer
this question and therefore it is right that energy consumption
should be limited to address a wide range of environmental problems
simultaneously. It is then not necessary to consider the scientific
intricacies of which energy sources do more damage to the environment,
only that there is a penalty associated with any form of energy
consumption.
6. Coalpro therefore supports the basis
of the proposed Levy, in that it reflects energy content of the
fuel. This approach is entirely consistent with the Government's
energy policy set out in the White Paper "Conclusions of
the Review of Energy Sources for Power Generation" (Cm 4071),
which stated:
"The Government's central energy policy
objective is to ensure secure, diverse and sustainable supplies
of energy at competitive prices." (para. 2.2) In the longer
term, any move towards a carbon-based tax would encourage fuel
switching and so undermine this policy whilst being disastrous
for the UK coal industry.
7. Even if a levy was based upon the carbon
content of fuels, CO2 emissions from existing power
stations would remain largely unchanged in the short to medium
term. Nuclear and renewable generating plants already operate
at near full capacity so there is little possibility of switching
to these "zero carbon" sources. With no new nuclear
power stations planned and renewables making an insignificant
contribution to the UK's energy demand, a carbon-based levy would
simply enable the nuclear industry in particular to make windfall
profits—like many airport "duty-free" shops. In
addition, consumers would surely be tempted to buy "duty-free"
energy rather than improve their energy efficiency, and the Government's
principal objective would be missed.
8. The Wood MacKenzie report published as
part of the 1998 White Paper confirmed that by 2020 the UK might
need to import up to 90 per cent of its gas requirements. Security
of fuel supplies is therefore an issue that this Government, and
governments across Europe, should be addressing today. Based on
current evidence, coal will continue to provide greater security
than gas to those countries who follow a balanced energy policy.
Reliance on gas from Russia and North Africa will place some countries
at the mercy of cartels and makes the risk of future conflict
very real.
9. Coalpro believes that all fuels and technologies
have a part to play in achieving secure, diverse and sustainable
energy supplies in the UK. The proposed Levy correctly avoids
discriminating against or favouring any one source.
10. By imposing an energy tax on downstream
consumption, Coalpro notes that the Levy is simple to administer,
avoids taxation of domestic consumption, and facilitates the taxation
of electricity imports from France.
DESIGN OF
THE CLIMATE
CHANGE LEVY
11. Although Coalpro supports the Government
in its drive to improve energy efficiency and reduce greenhouse
gas emissions, we are concerned that the Government may set Levy
rates based on a desire to reduce National Insurance Contributions
rather than to reduce carbon emissions.
12. Following the pre-budget report of 9
November 1999, there is still no justification for the presumption
that raising £1 billion will reduce carbon emissions by 1.5
or 2 million tonnes per annum. What is clear is that there are
more efficient alternatives available. Coalpro has calculated
that the replacement of 5 GW of existing coal-fired power stations
with Clean Coal Technologies, including ultra supercritical and
integrated gasification combined cycle, would reduce carbon emissions
by the same amount. The estimated annual support to build and
operate these stations would be around £200 million, just
20 per cent of the proposed Climate Change Levy.
13. Coalpro views the use of energy at members'
production sites as part of their energy production process and
understands that all use of energy at these sites will be exempt
from the Levy. On this assumption, coal producers will not pay
the Levy but might be involved in collecting it on sales of coal
to any industrial and commercial customers.
14. Within the industrial sector, energy
costs are a significant proportion of total costs and are hence
closely monitored to remain competitive—a typical situation
at the industrial premises supplied with coal by Coalpro members.
Such sites often have a constant steam requirement which allows
them to achieve high boiler efficiencies, often above 80 per cent
on a gross basis. It is difficult to see how any further significant
improvements can be made and the Levy will certainly lead to the
closure of some sites.
15. In order to give industry, in particular
manufacturing industry, more time to examine possible ways of
further reducing energy consumption, Coalpro has proposed that
the Levy should be phased in over a period of time, as opposed
to being introduced in full in April 2001.
16. Any exemptions or reliefs should not
merely increase the Levy rate on other fuels to make up for any
perceived deficit that would prevent a particular reduction in
National Insurance Contributions.
17. Coalpro is concerned that the omission
of mineral oils from the Levy could lead to fuel switching by
industry to a cheaper, yet more polluting fuel, which could result
in higher emissions to atmosphere than before the Levy was introduced.
An explicit Climate Change Levy for oil should be set out on top
of the excise duty which has been levied historically for other
purposes.
18. Money from the Levy that is recycled
into energy efficiency schemes, new renewables and low-carbon
technologies should result in lower carbon emissions. Coalpro
hopes that Government will include Clean Coal Technologies within
the definition of low-carbon technologies.
19. It should be noted that schemes already
exist supporting some renewable technologies, eg subsidies from
the Non-Fossil Fuel Obligation, avoidance of Landfill Tax at waste
to energy plants, exemption from the Fossil Fuel Levy by renewable
generators in certain supply situations. Just as care needs to
be taken in ensuring that there is no double taxation, there should
be no double support for some cleaner technologies and none for
others.
20. Coalpro is confident that the Government
will see that any exemption from the Levy, such as new "renewables
projects or good quality" combined heat and power (CHP) plants,
must only apply to new plant. It would be inequitable to extend
any exemptions to existing plant, as explained in paragraph 7
above.
21. The Government points to CHP as a means
of reducing carbon emissions and has set a 10 GW target to be
achieved by 2010. Given the very high efficiency of stand-alone
boilers and the improved efficiency of gas-fired CCGT and Clean
Coal power stations, Coalpro questions if CHP can in fact deliver
the carbon savings quoted by proponents.
November 1999
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