Draft Climate Change Levy (Use as Fuel) Regulations 2001

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Mr. Timms: We have heard an interesting series of points. The hon. Member for West Dorset reaffirmed his party's commitment to the abolition of the climate change levy. I was interested to hear the shadow Chancellor reaffirming that point in the Budget debate a couple of days ago. In response to an intervention from a Liberal Democrat Member, he also helpfully clarified that that did indeed mean that his party would reverse the 0.3 percentage point cut in employers' national insurance contributions. It is extraordinary that the Conservatives are going into an election committed to increase the employers' national insurance burden by £850 million. That is a huge promise to increase tax on jobs. Clearly it is a matter for him and his colleagues what they say to the electors during the election campaign, but that is not an attractive measure to promote at such a time.

I note the hon. Gentleman's procedural point about Henry VIII proceedings. It is entirely conventional to include them. There is nothing novel here.

Mr. Letwin: It has become progressively more conventional under this Government even than, regrettably, it had become under the previous Government. Thirty years ago such a matter would have occupied the entire front pages of most of the newspapers. Fifty years ago it would have led to severe questioning of the whole structure of our governance. We have come so far that the Postal Services Act 2000 (Consequential Modifications No. 1) Order 2001, which I believe is being debated this morning, contains 144 Henry VIII provisions—144 separate orders and pieces of primary legislation are being amended in one order. We have almost got to the point where primary legislation is not worth bothering with and we might as well just give the Government the power to do whatever they choose, in whatever order and at whatever time they choose. It is worth making and remaking the point that that would be a sorry state of affairs for Parliament.

Mr. Timms: The hon. Gentleman somewhat overstates the case, but I note his points. The Government, like previous Governments, are following conventional procedure.

The hon. Gentleman asked about the use of fuel regulations. I can give the assurance for which he and other hon. Members asked. There has been wide discussion of the long list in the schedule; its length reflects the fact that it was drawn up after wide consultation with industry. It attempts to provide legal certainty so that everybody knows the position. All the items on the list have been examined by scientific experts and agreed as being for use other than as fuel. I am reasonably confident that the language is not ambiguous, as the hon. Gentleman feared, but that is not to say that there could be no conceivable dispute about the list. He also said that issues of competitiveness could arise from the fact that some items have been included on the list while others have not.

Mr. Letwin: I am slightly worried about the description that the Financial Secretary gave of the proceedings, and it would be helpful to have some clarification. Was he saying that, when the Joint Committee on Statutory Instruments considered whether the order was ultra vires, under paragraph 18(1) of schedule 6 the Finance Act 2000, it was informed that scientists had defined all the electrolytic processes, for example, as not involving the use of electricity as a fuel and that they came to the conclusion that it was not ultra vires on that basis? If so, the scientists were using odd language that is likely to cause the legal ambiguity about which I am concerned.

Mr. Timms: The hon. Gentleman is right that an element of fuel use is involved in several of the items on the list; that is not in dispute. The intention is to establish that significant non-fuel use should be reflected by inclusion on the list.

Mr. Letwin: In that case, we have hit on something that might be of practical importance. I refer again to paragraph 18(1) of schedule 6. It is clear, as we discussed in Committee, that it does not give vires for exemptions in relation to partial use as a fuel but only in relation to supply that is

    ``used otherwise than as fuel''.

If I were representing a potential competitor that sought to challenge the vires of the regulations for commercial purposes and I knew that the Financial Secretary had admitted in Committee—as he honestly has—that there is fuel use involved in some of the processes, I could mount a powerful legal challenge to the vires of the regulations. In the light of his comments, the exemptions need to be re-examined.

Mr. Timms: I can reassure the hon. Gentleman. Our position is that there should be a full exemption, provided that the non-fuel element of the use is more than incidental. On the wording of the legislation to which he referred, I draw his attention to the fact that, although paragraph 18(1) does not cover mixed uses, 18(3) does. I do not think that the wording will get us into difficulties with ambiguities, and I hope that that provides the clarification that he needs.

Mr. Letwin: I did not realise that the Financial Secretary was relying on paragraph 18(3). I had believed that it could not conceivably be the effective paragraph, because—this is something else to which we attended in Committee—it explicitly says:

    ``the Treasury must have regard to the object of securing that a mixed use is not specified as being a use of the commodity otherwise than as fuel if it involves the use of the commodity otherwise than as fuel in a way that is merely incidental to its use as fuel.''

When one examines paragraph 3 of schedule to the regulations, it appears perfectly clear that, in the use of

    ``electrolysis for the manufacture of advanced chemicals'',

the electricity is used principally as a fuel and its use other than as a fuel is merely incidental to that use. I cannot see how that could conceivably be challenged.

I yield to the Financial Secretary's more mathematical and scientific understanding, but it seems clear that one could not use paragraph 18(3) of the Act to defend paragraph 3 of the schedule to the regulations. I had assumed that paragraph 18(1) would be used on the grounds that some special meaning was attributed to ``fuel'' under paragraph 18(2). If he relies on paragraph 18(3), we will have a problem.

Mr. Timms: I do not think that we will have a problem. As I said, all the entries in the schedule refer to cases in which the non-fuel element of use is more than incidental. The list includes electrolysis because it has been determined that it is a non-fuel use. The key point is that electrolysis involves a physical process, which is different from a fuel use. That feature applies to all the electrolytic processes listed in the schedule, because the established view is that the non-fuel element is more than incidental. We might be getting into semantics, but I can assure the hon. Gentleman that the position is clear in the legislation and that we will not run into problems of ambiguity.

That is not to say that no one could conceivably feel that he was disadvantaged by the regulations. I am aware of one complaint that has been made to the European Commission. Our view is that we have a strong legal, economic and common-sense case for all the entries in the list and that state aid problems do not arise. Having made those points to the Commission and provided it with information, we await its decision. It is conceivable that people have concerns, but I do not think that the ambiguity concerns raised by the hon. Gentleman will give rise to problems.

The hon. Gentleman was kind enough to pay tribute to the extensive consultation that took place. The hon. Member for Hazel Grove complained that it had taken rather a long time, but we took the view that it was well worth taking the time to consult extensively all those who might have concerns in order to ensure that we got things right. At the beginning of the process, we set out a timetable to ensure that everyone knew that there would be a two-year period between the announcement of the levy and its implementation. That has given us time to pick up many concerns and was therefore the right judgment to make.

Mr. Stunell: I am sorry if my remarks were not clear enough. My concern was about the slowness of implementing an overall Government policy and strategy to deal with climate change. I was not criticising the process from the Finance Bill to today.

Mr. Timms: I am grateful for that, although I am not sure which elements the hon. Gentleman is criticising. The same considerations apply to most, if not all, of them. The world faces a big challenge, and it is important that we proceed firmly but carefully in taking steps to address the problem of climate change.

The hon. Gentleman made several points about the regulations. In particular, he asked me to confirm that the size threshold in IPPC would not be applied in respect of eligibility for a negotiated agreement for an energy-intensive installation. I can give that assurance. I remember considering one example. For reasons that I should know but do not—perhaps they are fairly obvious—the IPPC regulations do not apply to pig farms with, I think, fewer than 50 pigs. We felt that it would be unfair if small pig farms did not have access to a negotiated agreement on the same basis as large pig farms. There might be a reason why one would not want to apply the full weight of the IPPC regulations to small pig farms, but that is not a reason for them not to have access to a negotiated agreement. We have therefore disapplied all those size thresholds, exactly as the hon. Gentleman thought. The one threshold that we have not disapplied relates to the size of boiler. I think that there is a reference in the IPPC regulations to boilers above a certain size threshold.

The hon. Gentleman asked whether energy providers are content with the electricity and gas regulations. They are. The provision has been widely discussed, and I think that he accepted that it was necessary, given the form of the levy. The generators are happy with it. He also asked about combined heat and power installations, on which my hon. Friend the Member for Ellesmere Port and Neston also made important points. My understanding is that there is broad assent to the current quality standard for combined heat and power installations. I certainly have not received any representations opposing the regulation. I will come back to that when I respond to the points made by my hon. Friend.

The hon. Gentleman asked about the solid fuel regulations. Two companies participate in the business that is affected. He made the point that burning fuel such as sweepings might not be environmentally friendly. On the other hand, if the material is not used as fuel it will be sent to landfill—also not a good outcome. Our decision to exempt the fuel from the levy is right; whether the £15 a tonne threshold that has been adopted is right is a matter that we will keep under review over the summer.

My hon. Friend has taken a close interest in these matters over an extended period and has, as he said, discussed them with me. The threshold that is now applied gives a high level of assurance that the CHP developments will be genuinely beneficial and that there is no opportunity, as is feared, for a loophole to open up. The prospects for the construction of new CHP plants have been affected by the rising gas prices of the past few months. Several projects that earlier looked attractive now look less so. We need to see how that proceeds. The threshold that has been set is broadly recognised as a sound one in dealing with the problem to which my hon. Friend drew attention.

The hon. Member for Mid-Worcestershire (Mr. Luff) asked me about consultation on CHP. It has been lengthy and extensive and has, I believe, had a successful outcome. The definition of good-quality CHP was originally published in, I think, August 2000. There has been a good deal of discussion about it since then. The Combined Heat and Power Association has said that it is content with the implementation of the exemption. The hon. Member for Hazel Grove asked about the amount of CHP that we expect to be introduced. The target is to achieve a capacity of 10 GW by 2010, which is about double the current level.

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