Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 420-434)



Mrs Lawrence

  420. Can I bring you to something which has not really been discussed, energy conservation, which you mentioned in your evidence. If I take you back to the rather graphic description you gave about the cup of tea and the kettle and the peak in demand, with electricity prices having gone down by 25 per cent, clearly, there does not seem to be a great deal of incentive to get domestic customers perhaps to use energy conservation methods which could address the issue without raising the price for them, and solve your problem, which you see at the moment, where the industry is effectively subsidising the domestic customer. You say, in your evidence: "We believe there is considerable scope for energy saving within the UK economy," can you give some brief outline of your preferred means for promoting such energy conservation?
  (Dr Finer) We all believe in campaigns, from experience within the industry, within individual companies; perhaps I could pass to Ken Green, who has conducted one or two.
  (Mr Green) I think it is difficult to compare the domestic sector and the industrial sector; we need to be competitive, we need to use as little power as possible, it needs to be cheap to compete. I can only say that my experience over a lot of years now is that companies in industry tend to come in campaigns at energy efficiency, it gets to be important at certain times; and only two and a half years ago, when I moved over to the Runcorn site, I decided that was the time that another campaign was right. And, in doing that, I engaged with ETSU, the Energy Technology Support Unit, at Harwell, and basically they were quite surprised that we turned up on their doorstep, because they thought, "well, any assistance we will give is to small- and medium-size enterprises who don't have the expertise." And the reality is, we have cut and cut and cut to be competitive, both in the manpower and in all other areas, that even large companies do not have huge amounts of expertise; and we have found terrific benefit from that contact. In fact, we were the first large company to sign up to an energy partnership with ETSU, which were rolled out to other companies, and that led us to put on conferences on the benefits of high efficiency motors, on refrigeration, and it really gathered momentum. Now I can only draw a parallel to the domestic sector, where, you can use embarrassment factors, use whatever you like, but we do need to get domestic consumers to think more about energy, for sure.
  (Dr Finer) I do think that, in homes which are not fuel poor, price signals are less important than they used to be, people are richer and they do not worry so much about a few pounds extra on their gas or electricity bills; so one has to find other means, appealing to social conscience, or environmental conscience, as it were.

Dr Kumar

  421. Did I hear you say, Dr Finer, that you support campaigns, did you say campaigns?
  (Dr Finer) Yes.

  422. Who should lead these campaigns, should it be the industry, or should it be Government, or should it be somebody else?
  (Dr Finer) I think the answer there is from sector to sector; in the domestic sector it should be Government or its agencies, in industry, a combination of the two would work best, I feel.

Mr Hoyle

  423. Chairman, just on that point. I understand where you are coming from, and I recognise the fact that those people on the middle incomes are actually the ones who can afford to buy the fridges that use less electricity, they are the ones that can upgrade all the time. The problem we have is those people that are trapped in fuel poverty, who cannot afford new machines that are better on the environment, that is the real problem, it is how can we assist those, that is the real difficulty. It is not the middle class, they usually take it on board, and, yes, they want to be green and they want to be trendy because it suits them and they can afford it, it is those people who cannot afford to upgrade the fridges that burn a lot more electricity?
  (Dr Finer) I totally agree, and that is why I said before, I feel that what we should have is a big, well-funded, powerful scheme of project management, which would improve the energy efficiency of the homes of such people and really make them comfortable and cheap places to live in, by the taxpayer.

  424. Do you think that industry has a role to play in producing green, efficient fridges?
  (Dr Finer) Yes.

  425. Because, more often than not, when you look at the price of fridges, the more efficient the fridge is the more expensive it is. How can we change that?
  (Dr Finer) That is an extremely important point, and the chemical industry, of course, is one of the industries which is providing some of these solutions; improved insulation comes from the chemical industry, for example.

  426. Would you reduce VAT on insulation?
  (Dr Finer) Yes, absolutely.

  427. But not on fuel?
  (Mr Green) Can I make a point, because it has come up twice now, and having purchased energy for ICI before joining Ineos, I have dealt with companies all over the continent, and I think, although I am not an economist, it is easy to say that it would be quite wrong to subsidise domestic consumption from industry; is it not better to have your industry thriving so people are in jobs and can afford to pay the bills, and invest in the energy technology.

  428. Or we give the consumer the benefit by allowing them to claim the VAT back on the fuel costs?
  (Mr Green) What good does that do?

  Mr Hoyle: None; but that is what industry does.

Mrs Lawrence

  429. Can I ask just a quick question about the comment you made in your evidence about the joint study by the Association for the Conservation of Energy and the Centre for Environmental Technology at Imperial College. This points out the potential for energy conservation within the domestic market is over twice as large as industry. Your response to my original question related to industry and then you were quite vague on the domestic sector. But you do go on to say, where you talk about campaigns: "we believe much more could be done to make final consumers aware of the full costs of energy consumption." And when you make that statement, are you talking about a publicity campaign, or some practical measures to make them fully aware of energy costs? I am sorry to pin you down, but I would just like you to define it a little bit better?
  (Mr Wey) Both are very relevant. Certainly, we would advocate that consumers should pay a higher price for energy and they would be aware of the costs and the load they put on the system, and that the fuel poor should be funded through the tax system; but, at the same time, I think there should also be much greater publicity with regard to labelling energy-friendly products, for example, and I think that effort must be put into both of those areas.

  430. Sort of like the grading on fridges about the amount of energy that they use?
  (Mr Wey) Certainly; and I think that could be extended to a whole range of products.


  431. Just one last point on this. You have said you do not mind the Government doing it, if it has got to be done, but you do not want it done through the VAT approach; you have concerns about the regulator trying to fulfil social and environmental obligations. On the continent, there are examples of the internalisation of these external costs through appropriate taxes and levies, and they have been commonplace in some of the continental countries. Would you sign up for something like that happening in the UK, or do you just want to avoid as many taxes as possible?

  (Dr Finer) What we want is as level a playing-field as possible with competing countries. And there are two strands of policy which have to be reconciled. One is the logic of internalising external costs of energy supply, and that is mainly the environmental costs, although quantifying those is very, very difficult; and the other is ensuring that we remain able to compete with countries round the world, so that we continue to grow as an industry and expand and provide good jobs. Striking that balance has to be a political judgement, at the end of the day, I think.

Sir Robert Smith

  432. Earlier, on this area, you expressed interest in tradeable emission quotas, or something like that; presumably, though, that is still a cost on the industry, it is a less transparent cost but it is still a cost. How developed are those ideas?
  (Dr Finer) There is some history now in the States of such quotas for sulphur dioxide emissions, I think it has been going for a few years now, and it seems to work reasonably well; so the idea is developed in that sense. But also a lot of work has now been put in, in the UK, to develop the ideas and they are pretty well ready for implementation.

  433. It will still be a cost, collectively, on the industry, obviously?
  (Dr Finer) Yes.

  434. But a more flexible ability to respond; what is the advantage of using this trade?
  (Dr Finer) The advantage is that the person who is most wasteful in energy finds it economically advantageous to do something about it and thereby produce saleable trading instruments.
  (Mr Wey) If I can just add, I think our concerns are that the UK should perhaps move too fast in this particular area and develop a scheme that perhaps has rather higher costs than our competitors. Certainly, the advantage of emissions trading is that it enables a least-cost solution to be developed, and we would support that; but I think our concern is that, for example, if you have an absolute cap to your emissions then that will affect the growth of the industry, and it is how these caps are determined and how your progress is monitored that concerns us very much. So that if the UK is a first mover then investors wanting to reinvest in the industry may shy away from the UK because they see a limit on the ability of the industry to grow in this country.
  (Mr Green) Mr Chairman, if I can add, I think the concern is, and Keith mentioned the looking ahead, that the scheme that we have got on the stocks now does not look terribly compatible with Europe now having looked at its own ideas and being able to take things forward. Because, if we struggle to look for competitive advantage, one of the things we can do is, if we see a scheme like that in place and we can actually perform better than the targets that are set then we have got something to sell and gain benefit from.

  Chairman: I think, at that point, gentlemen, we will finish. I think, the last time you came and spoke to us about the Climate Change Levy, out of the discussions we got some progress; whether we will get as much today, in relation to the PIU report, remains to be seen. But there may be one or two points we will want to pick up in writing with you, so we will be in touch, Dr Finer. But thank you very much, gentlemen, for your time and your trouble. Thank you.

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