Select Committee on Trade and Industry Annxes to the Report

Follow-up Questions


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.


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).

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