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Mr. Gardiner: The obvious and effective solution would be to remove CHP from the NETA balancing mechanism, because the plants are small and the costs imposed on the rest of the energy market by that action would be minimal. That might give CHP the opportunity to run as it did before the market changes, removing the impediments to continued operation. Does my right hon. Friend agree that at present, where a CHP plant is selling surplus electricity as a supplier, it is subject to the renewables obligation? Given the environmental credentials of CHP, it seems perverse for the renewables obligation to be applied. Removing CHP from that obligation would improve the economics of CHP.
Mr. Meacher: My hon. Friend makes some good points. I agree that those are indeed the barriers. As part of our approach to reducing the problems, a cross-Government/industry working group has been set up to examine exactly the barriers that he describes, and the barriers to the consolidation of smaller generators under NETA. We must make sure that any measures put in place will help CHP generators, and I am determined to work with my hon. Friend the Minister for Industry and Energy to ensure that they will.
We are working to encourage energy efficiency and CHP through a range of initiatives. Let me give the hon. Member for Teignbridge a few examples. Next April, the UK will launch the world's first economy-wide emissions trading scheme with £215 million of Government support over five years. That will deliver emissions reductions from business and offer an incentive for investment in low-carbon technology, including CHP. I assure him that there is no question of CHP not being able to take full advantage of trading. That is one way in which we can try to address current problems.
The climate change levy was introduced on 1 April this year. As the hon. Gentleman said, good-quality CHP-generated electricity that is used on site or sold to known end users is exempt from the levy, as is the fuel used in the vast majority of CHP schemes. I recognise that a problem remains regarding exemption for exports via licensed suppliers. I shall return to that point in a moment.
Richard Younger-Ross: What would be the cost to the Exchequer if that climate change levy was taken away?
Mr. Meacher: I cannot give the hon. Gentleman an immediate figure. The Government agree with the
industry that the problem remains significant and we have been examining it closely. I shall write to him about the exact cost.Our commitment does not stop there. Some £50 million in the next two financial years will be available for innovative community energy schemes based largely on CHP. That will help save carbon, tackle fuel poverty and encourage urban regeneration—a win, win, win situation. Micro-CHP is another exciting example that offers great potential for energy efficiency improvements. My right hon. Friend the Secretary of State for Environment, Food and Rural Affairs last month announced proposals for a large-scale pilot in 6,000 fuel-poor households to assess the suitability of the technology. If that is successful, our intention is to include micro-CHP in my Department's main fuel poverty programme, which is substantial.
The hon. Gentleman asked what the Government were doing in terms of our commitment to CHP, so I point out that those are real, solid commitments. We are working closely with colleagues in other Departments to ensure that energy efficiency remains a key element of Government policy. Over-arching that work, the performance and innovation unit is reviewing the broader strategic issues associated with energy policy and will make its report to the Prime Minister by the end of the year. From meetings with its authors, I know that the unit has fully grasped the very important contribution that CHP has to make.
That will help to reinforce the CHP strategy that my Department is developing in close collaboration with other Departments. I am perfectly aware of frustration about the delay in publishing the strategy. The hon. Gentleman will be pleased to know that I have been lobbied very strongly about the matter. To ensure that the strategy can be of real value in helping us to achieve the Government's target, it must be robust. I hope that he will understand me when I say that it requires a great deal of interdepartmental discussion. We now expect to publish the strategy for consultation at about the turn of the year. I am happy to recognise that that is not as soon as I would have liked.
I recognise that one of the measures that would provide a considerable boost to the CHP industry—the hon. Gentleman emphasised this point—would be full exemption from the climate change levy for CHP-generated electricity. I assure him that I have raised the issue with my colleagues in the Treasury, but I must point out that, as he will recognise, taxation issues are a matter for my right hon. Friend the Chancellor of the Exchequer. I am afraid that I cannot say anything more
on the matter in view of tomorrow's pre-Budget report. The hon. Gentleman will not have long to wait, but I am afraid that he will have to wait till tomorrow.Beyond possible fiscal measures, we are considering a wide range of other policies as part of our strategy. They include extending enhanced capital allowances to cover long-life CHP assets and further exemption from business rates. I am acutely aware that CHP is a long-term investment and that greater certainty about future energy prices would help reduce significantly the financial risks for CHP developers. Earlier, I referred to the unevenness in recent price movements. Those fluctuations have clearly not helped. It has been suggested that not only a renewables obligation, but a CHP obligation would provide the necessary certainty. We have reserved the powers in the Utilities Act 2000 to implement such an obligation. We shall consider it carefully with other measures.
The Government will continue to champion what the hon. Gentleman correctly described as the great benefits of CHP to the environment and the economy. We are committed to pursuing the necessary policies to restore confidence and get us moving again towards our 2010 target. Clearly, the CHP strategy is the key issue, and hon. Members can expect it to be published around the turn of the year. That is the earliest date to which I can reliably commit the Government.
Combined heat and power needs to flourish again and I am committed to doing all that I can to ensure that it does.
Richard Younger-Ross: The Minister said that the report would be published near the end of the year and that a consultation period would follow. That could continue for some time before any action was taken. Will he consider introducing all the elements that he can before that? Some matters are non-controversial in the industry, if not in Departments. Help is needed as soon as possible to get the industry back into gear. It is downsizing when it should be increasing.
Mr. Meacher: I acknowledge that. I have outlined several measures that we will introduce. I do not want to postpone publication for a month and then hold a long consultation period. Clearly, we must take action early so that the policy on the ground is changed. I have mentioned various measures such as enhanced capital allowances and exemption from business rates. However, apart from the CHP obligation, the most important is the exemption of the export of CHP via licensed suppliers from the climate change levy. The hon. Gentleman needs to wait only until tomorrow for that.
- Adjourned accordingly at twenty-one minutes to One o'clock.
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