Select Committee on Environmental Audit Second Report


Memorandum from the Environmental Industries Commission

  Following consultation with EIC's 200-plus Members, I am writing to submit our evidence on the Treasury's planned Green Technology Challenge—a key part of environmental tax reform.

  We would encourage the Committee to look at the planned measure, as it will have a significant impact on driving environmental solutions—proving it is properly resourced by the Treasury. In addition, the Committee played a very valuable role in securing the Green Technology Challenge by itself recommending a similar measure be introduced in its pre-Budget 1999 report.


  EIC was launched in 1995 to give the environmental technology and services industry a strong and effective voice with Government.

  With over 200 Member companies, including well over 100 involved in providing land remediation solutions, EIC has grown to be the largest trade association in Europe for the environmental technology and services industry. It enjoys the support of leading politicians from all three major parties, industrialists, trade union leaders, environmentalists and academics.


  The opportunities the environmental challenge is creating have recently been recognised by the Prime Minister who pledged: "I want Britain to be a leading player in this coming green industrial revolution."

  Importantly, Mr Blair went on to add: "I believe the role of Government is to accelerate the development and take up of these new technologies until self-sustaining markets take over."

  The development and take up of these technologies require significant investment by UK industry. However market failures are currently preventing UK industry putting as much investment into environmental protection as is required.

  These failures need to be tackled both by fiscal measures that implement the "polluter pays" principle and incentive based approaches which complement and enhance the effects of such measures. EIC has, therefore, long campaigned for the introduction of fiscal incentives for companies purchasing environmental technologies to help overcome these market failures.

  A recent European Commission report "Study on the Economic and Environmental Implications of the Use of Environmental Taxes and Charges in the European Union and its Member States" has also highlighted the importance of a carrot and stick approach to environmental taxes by providing fiscal incentives to reward environmental measures as well as taxes and charges.

  Enhanced Capital Allowances (ECAs) are an effective tool for influencing business decision making—they directly reduce the financial risk of investment and help provide technical information and confidence in new technologies. They also send a clear signal of Government intention to promote the take up of environmental solutions by industry. We therefore greatly welcome the announcement of the Green Technology Challenge.

  The details of the implementation of the scheme, however, will be crucial as to whether it has a significant impact on overcoming the barriers to investment in environmental technologies by mainstream industry.


  The Consultation Paper sets out three criteria for assessing proposals:

    —  The extent to which there is a market failure or specific environmental problem which needs to be addressed through Government policy.

    —  The extend to which this is best dealt with by a fiscal instrument such as capital allowances.

    —  The effectiveness of offering enhanced capital allowances for investment in technologies in the environmental area.

  The role of ECAs in tackling market failures is set out in Section 2.7 of the consultation—which we wholly endorse. The proposed criteria, taken together could severely restrict the environmental breadth and impact of the scheme. ECAs are not a measure that, on their own, will solve a particular environmental problem—rather they are complementary to other Government measures such as legislation and "polluter pays" taxes to encourage business to move more rapidly and cost effectively to higher environmental standards than would otherwise be the case.

  ECAs should, therefore, be targeted as an additional measure across all key environmental issues the Government has already identified rather than restricted to a few environmental areas (the selection of which would be difficult, time-consuming and politically challenging).

  Selection of technologies should, therefore, be based on:

    —  The list of key environmental issues which Government has already identified for action.

    —  Whether the technology will contribute significantly to addressing one of more of these key environmental issues.

  Certainly a scoring system will need to be employed to select the most effective technologies for each environmental problem for support. We assume this the second consultation will address this issue.

Recommendation: the criteria in the Green Technology Challenge are changed to ensure the scheme is targeted at supporting technologies that help respond to the full range of environmental issues addressed by Government policy.


  The key to the impact of this scheme will be the level of resource allocated to it. The current Enhanced Capital Allowances scheme under the Climate Change Levy is funded at approximately £100 million a year and covers just eight technologies. For the Green Technology Challenge to have a significant impact across all the Government's key environmental objectives it will need to be better funded.

  This scheme has the potential to stimulate the development and implementation of environmental technologies and, therefore, to enhance the effectiveness of current Government policies to address a wide range of environmental problems. It should be given the resources to have a real effect.

Recommendation: the Green Technology Challenge is funded at a significantly higher level from the existing Enhanced Capital Allowances scheme.


  The 100 per cent ECA is well suited to boosting proven technologies which deliver significant environmental benefits, but need a level of support to become commonplace in the market. It is less suited to supporting innovate "cutting edge" technologies that deliver further environmental benefits but, whilst proven, need a larger cost boost to become competitive.

  To refine the effectiveness of the ECAs, therefore, we recommend a graded scheme which provides an extra incentive in the form of a 150 per cent capital allowance for "cutting edge" technologies with a particularly significant contribution to the environment.

  An extension of the scheme to boost "cutting edge" technologies would support the aim of Paul Boateng MP, the Financial Secretary, when launching the scheme, that: "It is not just about making the most of the best technologies available today, but about helping industry to develop the next generation of environmentally friendly technologies."

Recommendation: the Green Technology Challenge is refined to include a higher 150 per cent ECA to encourage "cutting edge" technologies.


  EIC endorses the Treasury position that ECAs should be available to technologies that enable companies to go beyond legislative standards or enable companies to meet legislative standards earlier than required by legislation.

  It is also important to for the ECA scheme to work in harmony with that the principal behind much of the UK pollution control regime—that of employing Best Available Techniques (BAT). In particular, some 7,000 installations across the country will be required, under the Integrated Pollution and Control regime, to use BAT to reduce the overall environmental impact of their installations. The awarding of an ECA to a particular technology could mean that the regulatory authorities consider that technology to be sufficiently cost effective to designate it as BAT for certain installations, where it was not previously considered to be so. It would undermine the effectiveness of the scheme and the regulatory regime if the Treasury were then to remove the ECA on the grounds that the technology was now required by legislation.

Recommendation: the Green Technology Challenge is available to support technologies that enable companies to achieve legislative standards ahead of statutory dates, or go beyond legislative standards.

Recommendation: the Green Technology Challenge is not withdrawn on the basis that its award has led to a technology being defined as BAT for a particular process.


  The effectiveness of the scheme could be reduced by the fact that companies that do not make a profit cannot benefit from an ECA. However this drawback can be overcome if the scheme allows unused relief to be carried forward to future years and set against profit at this stage.

Recommendation: companies are allowed to carry forward unused relief to future years.


  As new technologies emerge that deliver greater environmental benefits it is important that there is an opportunity to add them to the list of ECAs. The scheme should therefore be subject to continual review with the opportunities for new technologies to be added as they meet the criteria required.

Recommendation: the list of technologies supported by the Green Technology Challenge is open to continual review to enable new technologies to be added.


  The existence of the existing Enhanced Capital Allowances scheme is that a major drawback in the scheme is the focus simply on individual technologies. Many projects are now sold on providing a complete solution to a problem and it is difficult to pick out and identify the cost of one piece of technology that forms part of this complete package.

Recommendation: the Green Technology Challenge provides support for overall solutions to specific environmental problems—as well as simply for particular pieces of technology.


  The first stage in tackling a particular environmental problem is to assess the extent and nature of the problem. Monitoring is therefore a key element in any technological solution to address an environmental problem.

Recommendation: Environmental monitoring equipment should be supported under the Green Technology Challenge.


  Some of the key barriers to investment in environmental technologies are the financial risks associated with investing in new technologies and the lack of confidence by potential purchasers in stable Government policy to promote environmental technologies.

  Through high profile promotion the ECA scheme can have a considerable impact on overcoming these barriers—as well as providing a direct financial incentive. Notably the high quality independent information generated by the assessment process under the scheme could help reduce the risk of investing in environmental technologies.

  The experience of the Dutch ECA scheme for environmental technologies, which has been in operation for nine years, is that the promotion of environmental technologies given by the scheme is almost as important as the direct financial boost itself.

  A specific educational campaign to promote the scheme and provision of information to users, both in mainstream industry and the environmental technology industry, is therefore required.

  A clear commitment is also needed from the Government to continue the Green Technology Challenge over the period of this Parliament. This will encourage investment in environmental technologies by giving firms confidence that a strategy to invest in reducing their environmental impacts will be supported by Government policy.

Recommendation: an educational campaign to promote the Green Technology Challenge is put in place when it is launched.

Recommendation: Government commits to continuing the Green Technology Challenge over the course of this Parliament.

November 2001

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