APPENDIX 8
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.
THE ENVIRONMENTAL
INDUSTRIES COMMISSION
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.
1. INTRODUCTION
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.
2. SCOPE OF
ENHANCED CAPITAL
ALLOWANCES
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.
3. RESOURCES
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.
4. EXTENDING
THE 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.
5. RELATIONSHIP
WITH LEGISLATION
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.
6. CARRYING FORWARD
UNUSED RELIEF
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.
7. REVIEWING
THE SCHEME
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.
8. SUPPORTING
"TURNKEY" PROJECTS
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.
9. MONITORING
EQUIPMENT
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.
10. PROMOTING
THE SCHEME
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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