Follow-up Questions
RECOMMENDATION D:
EMISSIONS TRADING
It would be helpful to have an update on the active
role being played by the Government in development of a UK emissions
trading scheme
The Government continues to play an active role
in the development of a UK Emissions Trading Scheme, working closely
with the Emissions Trading Group (ETG), which currently includes
over a hundred major companies and trade associations, with numerous
academic and environmental NGOs also playing a role. The Government,
including the Prime Minister in February 2000, has welcomed the
considerable progress made by the ETG. The ETG submitted outline
proposals for the design of a domestic trading scheme to the Government
in October 1999. These were supplemented in March this year by
a series of reports on some key aspects of the trading scheme.
The work of the group has shown that the early creation of such
a scheme could yield significant advantages for the UK, including
providing an opportunity for the UK to reduce greenhouse gas emissions
in a cost-effective way.
Following a positive signal in the March 2000
Budget, the provision of £30 million in 2003-04 was announced
in the Spending Review 2000, to stimulate domestic emissions trading
by offering a financial incentive for companies to take on binding
emissions reduction targets.
With this latest demonstration of government
support for emissions trading, the Government continues to work
closely with the ETG and others to turn the blueprint into an
operational framework for an emissions trading scheme. Key issues
to resolve in the immediate future include the detailed design
of the incentive, and the way in which it links to the setting
of targets in the trading scheme. DETR has recently led a research
contract on this issue.
Other work under way includes consideration
of the role of the electricity generators in an emissions trading
scheme; assessment of the implications of a recently published
European Commission Paper on Emissions Trading; and the establishment
of protocols for monitoring and reporting emissions, incorporating
the link with international trading. The Government has also stated
that firms who are covered by a sector agreement under the climate
change levy will be able to use emissions trading to help them
fulfil their obligations. Analysis of the way in which trading
will work for participants in these sector agreements is also
in progress.
These issues, and others, are addressed in a
Government consultation document on the UK Emissions Trading Scheme,
which was published on 8 November.
RECOMMENDATION R:
SECTORAL NEGOTIATIONS
A general update on negotiations, bringing the
response printed in October 1999 up to date, would be of assistance
[in addition to the responses on specific points raised under
the Committee's subsequent report referred to below]
Legislation to implement the levy and setting
out arrangements for climate change agreements is contained in
the Finance Act 2000, which received Royal Assent on 28 July 2000.
Section 30 and Schedules 6 and 7 set out the levy provisions.
On 21 December 1999, the 10 major energy intensive
sectors signed Memoranda of Understanding, containing indicative
energy or carbon saving targets. Since that time the negotiations
have continued and discussions have commenced with another 30
or so smaller energy intensive sectors. The negotiations are entering
their final phases and many sectors are now collecting energy
consumption data and other information from participating companies
to enable them to confirm their sector and participants' targets.
Generic agreement documents—which will
be tailored for use with specific sectors—are now nearing
completion. In addition, a first draft of a package of information
for prospective participants has been circulated to industry sectors.
The Government has made a commitment that all prospective participants
who provide correct information by early November 2000, thereby
enabling sector agreements to be concluded, will be processed
in time for the participants to receive the 80 per cent discount
from the rate of levy for eligible sites from 1 April 2001. DETR
will also endeavour to process those concluded after that date
to ensure that participants receive the discount from 1 April,
too. The agreements will contain targets over a 10 year period.
Operation of processes governed by Part A of
the Pollution Prevention and Control (England and Wales) Regulations
2000 ("the PPC Regulations") remains the basis for eligibility
for entry into climate change agreements. The PPC Regulations
came into force on 1 August 2000 and Schedule 6 to the Finance
Act 2000 will be amended to reflect the Regulations as they now
stand. DETR's consultation on movement of some Part B processes
to Part A(2) has concluded. The outcome of the consultation will
be announced shortly.
Production of industrial gases is a relatively
"clean" process and is not covered by Part A of the
PPC Regulations. Consequently, stand alone air separation plant
are not eligible to enter into climate change agreements with
the Government. The sector has lobbied hard to change the eligibility
criteria, but the Government was not convinced by the arguments
put forward that stand alone plant should be eligible to join
a climate change agreement. However, discussions are continuing
on whether air separation plant serving an installation regulated
under PPC Regulations, Part A, might form part of the facility
for climate change agreement purposes. The industrial gases sector
will not be affected by the review of Part B processes under the
PPC Regulations.
Some industry sectors have suggested that energy
savings arising from the use of recycled materials should be taken
into consideration as a part of the negotiated agreements process.
However, it is complicated and difficult to determine energy savings
throughout the complete life-cycle of a product. Early in the
discussions the parties concluded that many of the relevant factors
(for example, lightweighting), would be difficult to estimate.
It would also be difficult to decide to whom the benefit would
accrue. Consequently, the agreements in progress are based on
industrial processes and the main savings targets for sectors
such as aluminium and glass focus on energy efficiency savings
arising from industrial processes. The concept has not been abandoned,
however, and the DETR negotiating team is considering options
such as secondary targets or energy use per tonne of input material
which could take usage of recycled materials into consideration.
The Government has also been working to ensure
that the proportion of climate change levy revenues ear-marked
for business energy efficiency schemes is distributed in an efficient
manner. To achieve this objective the Government is proposing
to establish a body with the working title "the Carbon Trust",
which will accelerate the take-up of low carbon technologies and
measures by business, including process and manufacturing industry,
commerce, and business transport. The overall aim of the Carbon
Trust will be to work with business, Government and the research
community to help the business sector move towards a sustainable
lower-carbon intensity economy while maintaining competitiveness
and quality of services. The Carbon Trust, when it is established
and operational, will be responsible for directing and managing
a fully integrated programme of initiatives worth in total over
£140 million annually. This will include the management of
elements of the Government's Energy Efficiency Best Practice Programme
(EEBPP) and supporting the Enhanced Capital Allowances Scheme.
This will come into effect from 1 April 2001 and will provide
companies with an off-set against tax for purchase of listed energy
saving technologies.
The climate change negotiated agreements and
associated climate change levy measures are dependent upon EU
State Aids approval. Revised draft environmental State Aids guidelines
were circulated recently and were discussed by Member States and
the European Commission on 11 October 2000. The Government will
be seeking an early informal indication from the European Commission
of its likely formal decision on the UK Government's State Aids
notification. The European Commission decision will not be confirmed
until after the new environment State Aids guidelines come into
effect on 1 January 2001.
Small Business and Enterprise, Thirteenth Report
of 1998-99, HC 330: Government Response, First Report of 1999-2000,
HC 49: Fourth Special Report of 1999-2000, HC 237
1. The inquiry, which embraced a number
of separate but related issues in enterprise policy, was intended
to provide material for the Government's annual debate on SMEs,
following up the Sixth Report of 1997-98 (see above), and to be
a critical commentary on some of the initiatives announced in
the December 1998 Competitiveness White Paper and thereafter.
It also covered issues pursued during the Committee's May 1999
visit to the United States. The Report was agreed in September
1999 during the summer recess and published in October 1999.
2. The Committee was critical of the apparent
absence of any "overarching strategic thinking" behind
the many initiatives, and called for some refocussing. The Committee
drew attention to a number of issues around the proposed Small
Business Service: the national and regional venture capital funds:
the Small Firms Loan Guarantee Scheme: and other existing schemes
such as SMART and the TCS.
3. The Government's Reply was received in
November 1999. It criticised one particular conclusion in the
Committee's Report, relating to the scale of the proposed increase
in funding for the Smart programme, and criticised the Committee
for using inaccurate figures, for which the DTI's Annual Report
to Parliament was in fact the principal source. The Committee
concluded in its First Report that there was in fact little dividing
its own view on expenditure on the SMART scheme from that reflected
in the Government's response: a view accepted by the Government
in a letter from the Secretary of State in a letter of 8 February
2000, printed in the Fourth Special Report.
4. The disagreement over the figures announced
on increases on the SMART scheme to some extent overshadowed the
rest of the Report and the Government's positive response to many
of the recommendations and conclusions. The Committee's hesitation
about the proposal that the new SBS rather than the Inland Revenue
should develop the new payroll service was influential in leading
to its abandonment.
5. A number of issues were followed up by
the Committee in its Report of 1999-2000, on the Pre-Budget Report
(see below).
| 
