House of Commons - Northern Ireland Affairs

Select Committee on Northern Ireland Affairs First Report

INTRODUCTION OF THE AGGREGATES LEVY IN NORTHERN IRELAND

2. THE ENVIRONMENTAL EFFECTS OF THE LEVY

The principles of environmental taxation

14. The Government's statement of intent on environmental taxation declared:

"Over time, the Government will aim to reform the tax system to increase incentives to reduce environmental damage. That will shift the burden of tax from "goods" to "bads"; encourage innovation in meeting higher environmental standards; and deliver a more dynamic economy and a cleaner environment, to the benefit of everyone."

None of our witnesses questioned the basic principles of environmental taxation, or that the environmental costs we have listed in paragraph 2 are associated with aggregates extraction.

Research into the levy and the Northern Ireland dimension

15. The purpose of the levy is "making the polluter pay"; in other words, calling industry to account, financially, for the environmental costs of its activity.[24] This principle has been implemented previously in the landfill tax and the climate change levy. To succeed in this purpose it is necessary first to attribute a financial value to the costs of an activity and then to set the levy upon that activity in a manner which encourages more sustainable behaviour.

The cost of aggregates extraction

16. The Government's research into the aggregates tax was commissioned from an independent research company called London Economics in 1997, by the then Department of the Environment, Transport and the Regions (DETR). The objectives of the research were as follows:

"1. to identify the environmental effects - noise, dust, traffic, visual impacts, blasting etc. - associated with the main sources of supply;

2. to assess how far the costs associated with these effects have been internalised, that is, how far these are reflected in the price of the aggregates, through regulation or voluntary action; and

3. to value the external costs and benefits."[25]

17. The research was published in April 1998. However, a review by Susana Mourato and David Pearce of University College London, published by the DETR in September 1998, expressed grave reservations about the results. Noting that the time provided for the research had been "very brief", and that the researchers themselves had raised areas where further research would be necessary, the review concluded that the estimates:

18. In the light of this criticism the DETR commissioned a 'Phase 2' report, again from London Economics, which "built on the initial findings" through a survey of local perceptions of quarries, and an equivalent national survey dealing with attitudes to quarries in National Parks.[27] This research calculated a value for the environmental effects of quarrying of £1.80 per tonne, which prompted the "more cautious rate" adopted by Government of £1.60 per tonne.[28]

19. Two aspects of this research are of particular concern to us in a Northern Ireland context:

(ii) the apparent failure of the researchers and those supervising them to give proper consideration to the environmental effects of alternatives to aggregates extraction.

I. Contingent valuation

20. In oral evidence Mr Murphy of the Quarry Products Association Northern Ireland explained to us the approach taken:

"A representative sample of people within five miles of a quarry had a scenario described to them and that scenario was that under a government scheme their local quarry would be closed down. It would be restored in an acceptable manner and no new quarries would be opened within five miles. All employees who lost their jobs would be offered alternative employment. The interviewees are then asked how much they would contribute towards the cost of the closure".[

Mr Murphy argued that "in order for the methodology to produce reliable results, the scenario has to be credible".[30] He said it was not credible in the context of Northern Ireland for two reasons. Firstly, it would not be possible to observe the five mile margin, for assessment purposes, between quarries in Northern Ireland, because the majority of existing quarries lie in closer proximity to each other. Secondly, since the aggregates industry is a major employer in Northern Ireland, the levels of unemployment arising from a programme of quarry closures would be such that it would be wholly unrealistic for the Government to seek to provide alternative employment for all.[31]

21. There are varying academic views of contingent valuation as a research method. The reviewers, Mourato and Pearce, accepted the use of contingent valuation as "the only methodology capable" of estimating environmental costs;[32] while the Environmental Audit Committee in 1999-2000 recorded their interest "that the Government should place such reliance on a contingent valuation study" in this case " - in contrast to, for example, the case of pesticides". [33] To us the reports by London Economics appear to demonstrate a disturbingly blinkered approach to the task of costing the environmental effects of aggregates extraction. Although both the Phase 1 and Phase 2 reports are entitled "The costs and benefits of aggregates extraction" we were hard pressed to find any discussion of environmental benefits within their covers. Scant regard was paid to any point of view other than that quarrying is inherently bad.

II. The environmental cost of alternatives

22. The failure of the report to give any detailed consideration to the environmental costs or benefits of alternatives to aggregates extraction surprised us. Aggregates are used in the construction of roads and buildings, directly and indirectly, through the manufacture of other materials such as asphalt and prefabricated reinforced concrete. There are strict quality standards for materials used in construction, which limit the construction industry's choice of alternatives.[34]

23. The Government has specifically stated that it hopes the aggregates levy "will encourage the use and development of recycled and alternative materials".[35] Recycled aggregates have therefore been exempted from the tax. However, the British Aggregates Association informed us of recent work carried out by the British Geological Society, which concluded that "the hard waste available for recycling is minimal and only amounts to some 1%, rising eventually to 2% of total primary use".[36] Recycling in Northern Ireland, we were told, was of limited potential because "the Northern Ireland economy has been based on a different historical perspective from that in the rest of the UK".[37] There are neither the brownfield sites requiring regeneration, nor "the huge stockpiles of waste material from steelworks or power stations which they have on the mainland".[38] Mr Ralph Clarke of the CBI Northern Ireland believed that "there are vast areas of the Province — probably 75 per cent of it — where there is nothing to recycle".[39]

24. There are also environmental costs associated with aggregates recycling. The contingent valuation study carried out by London Economics tested local residents' willingness to pay in order to make local quarrying activity stop. This 'willingness to pay' value from each sample site was used to calculate the financial value equivalent to the environmental damage. For comparative purposes, the study also looked at some recycling sites: it is interesting to note the 'willingness to pay' at different types of site, according to the Phase 2 report.

Hard rock (outside National Parks)	£0.34 per tonne
Hard rock (inside National Parks)	£0.07 per tonne
Sand and gravel	£1.96 per tonne
Quarrying in National Parks	£10.52 per tonne
Wharves	£8.19 per tonne
Aggregates recycling	£9.57 per tonne[40]

25. While the figures are described as "tentative", the authors draw from them the conclusion "that alternative sources of supply such as ... recycling have local environmental effects of at least the same value - and quite possibly much higher value - than those of primary aggregates production."[41] Since the levy is designed to encourage a switch from virgin aggregates use to recycling as an environmental "good", this is a deeply worrying hypothesis.

24 Ev p35 Back

25 The Environmental Costs and Benefits of the Supply of Aggregates, Phase 2, London Economics/DETR July 1999 Back

26 Environmental Costs and Benefits of the Supply of Aggregates: a review of the London Economics Report by Susana Mourato and David Pearce, CSERGE, University College London, DETR September 1998 Back

27 The Environmental Costs and Benefits of the Supply of Aggregates, Phase 2, London Economics/DETR July 1999 Back

28 Ev p57 Back

29 Q47 Back

30 Q47 Back

31 Q47 Back

32 Mourato and Pearce, ibid. Executive Summary para 4 Back

33 Fourth Report of the Environmental Audit Committee 1999-2000 (HC 76-I) Back

34 Q238 Back

35 Ev p57 Back