Examination of Witness (Questions 560-579)|
TUESDAY 4 DECEMBER 2001
560. On the issue of carbon sequestration, which
was touched on earlier, in your submission you very much are against
carbon sequestration. What evaluation have you made of the various
pilot projects with this technology?
(Mr Tindale) We have a laboratory in Exeter which
is looking at this area and it is an ongoing evaluation. Our objection
to carbon sequestration is not an in principle ideological objection,
but it is really on the basis that we think it is likely to prove
another expensive diversion and we are concerned at the level
of certainty because carbon dioxide is more likely to escape from
underground sequestrated vaults than solid hydrocarbon or oil
or even methane, so we have certain practical objections to it,
but we are, as I say, evaluating the ongoing projects.
561. But in the short to medium term carbon
dioxide is going to be generated, so is there not an advantage
in buffering at least by sequestration, which has been the most
successful, taking it out of the climate change equation for at
least the time of sequestration until we get to the time when
we are not producing so much carbon dioxide emission? Is there
not a clear benefit from taking it from here to there?
(Mr Tindale) Well, I think that is why we say we do
not have an ideological objection to it. We are looking at it
to see whether it will deliver those types of benefits that you
562. How do you have an ideological objection
to a technology?
(Mr Tindale) Perhaps "ideological" is the
wrong word. We have an in principle objection to nuclear power
for the reasons I have mentioned. It always produces radioactive
waste, it always produces radioactive emissions.
Sir Robert Smith
563. But you say basically that radioactive
waste is far more dangerous than global warming?
(Mr Tindale) No, we have not said that. What we have
said is that we believe that nuclear power can be phased out in
a very short timescale. We recognise that phasing out fossil fuels
will take longer.
564. As a very quick supplementary to that,
the nuclear industry are pressing their, as they see it, environmental
benefits in terms of sulphur emissions and climate change, but
do you think that within the argument overall there is a danger,
a tendency that the cumulative effects of radioactive emissions,
albeit small, to the environment through air and through water
plus the waste issue are tending to be overlooked in the overall
picture of energy? Do you think the importance of it is not being
(Mr Tindale) That is correct. Whilst we welcome the
increased public and governmental attention being paid to climate
change, we counsel against assuming that climate change is the
only environmental issue raised by energy generation and it would
be a great mistake for the Government to go down the nuclear route
on the grounds that it would help its climate change targets because
it would be making all sorts of other environmental issues seriously
565. That was not the view taken by the Royal
Commission on Environmental Pollution though, was it?
(Mr Tindale) The Royal Commission had a number of
scenarios, some of which included nuclear power and some of which
566. I suppose there are risks associated with
all sorts of energy production and the one thing in your submission
which you also emphasise is about energy efficiency and you stress
that that is an important factor in this whole debate. Of the
measures you suggest, they seem to be, not entirely but mainly,
geared towards the business sector. Is it not the case that it
is the domestic market that is being the most resistant to incentives,
encouragement to use energy more efficiently and is this not a
significant problem? How would you promote energy efficiency amongst
(Mr Tindale) I am very tempted to pass this question
to the gentleman from the Energy Saving Trust to my right, but
I will endeavour to answer it. I think the price mechanism works
better in the non-domestic sector. There are reasons why it is
difficult to use price to promote energy efficiency in the domestic
sectornot necessarily impossible, but more difficultand
those are to do with fuel poverty and concerns for fairness and
also to do with tenant/landlord issues and the fact that different
people are paying the bill and owning the building. There are
other measures, such as measures on domestic appliances, which
could significantly reduce energy consumption in the domestic
sector. The proposals we have on building regulations for both
new build and for refurbishment would impact on the domestic sector
as well as on the commercial and industrial sectors. The recommendation
we made about landlords having an obligation to let their property
in an energy efficient state as well as in a state that is passing
health and safety rules we think would have a major impact upon
the most difficult issue that tends to arise in these debates
which is the tenant/landlord issue.
567. In relation to the very controversial issue
of the prices that domestic consumers face, presumably in terms
of energy conservation one of the `problems' is that the domestic
price is actually low and is falling and that if one were concerned
about the fuel quality aspects of that, then yes, you could impose
a tax on the domestic use of energy, but you could compensate
the income loss appropriately. The problem at the moment is that
the signals going to consumers are to consume more rather than
less. Does this not worry you given the very high importance you
attach to energy efficiency?
(Mr Tindale) I have to say it does not worry me greatly
because I have not seen any evidence that there is a particularly
high elasticity of demand for energy in the domestic sector. I
think once we have got to a stage where our housing stock has
improved from its current disgraceful state, then it might be
time to look again at the use of price in the domestic sector,
but I would certainly begin by addressing the issue of the housing
568. In your memorandum to us, you talk about
energy productivity and you have suggested an aspirational target
of 50 per cent reduction in primary energy use. This appears to
be based on a discussion document provided to the Environment
Agency. Why not an aspirational target of 30, 40, 60, 70, why
50 per cent? Was the lodging of that merely intended to stimulate
discussion rather than to be a recommendation of policy? Why have
you turned it from one thing into another?
(Mr Tindale) Because we read it and thought that the
scale of reduction sounded plausible. We spoke to friends and
colleagues in the energy efficiency world who confirmed that that
was a plausible scale of reduction and we, therefore, formed the
judgment that that was the right target to go for. An aspirational
target because it would not, in our view, be sensible to set a
binding regulatory target even 50 years ahead for that scale of
569. In the latter part of your memorandum,
this has turned into a vision laid out by the Environment Agency.
Do you think the Environment Agency endorse this 50 per cent target?
(Mr Tindale) My understanding is that the Environment
Agency have published the paper and they have said that they regard
it as plausible. They have not said that they are recommending
it as a firm target to go for.
570. Could we have a look at whether things
which are plausible should necessarily be policy. Have you estimated
the increase in cost of energy consequent upon achieving a 50
per cent reduction in primary energy use through using government
instruments, effectively increasing taxes and the like in order
to achieve that?
(Mr Tindale) It is not possible to make that judgment
in isolation because the extent to which you need to increase
energy costs depends entirely on the other measures that you are
putting forward. If the range of measures that we have talked
about, that the Environment Agency discussion document has outlined
in much more detail and then other people, such as the Energy
Saving Trust or the Association of Conservation of Energy, have
recommended to the PIU, which is a very, very broad range of measures,
with all of them being implemented, then the increase in the Climate
Change Levy that would be necessary would be greatly reduced.
If you used the Climate Change Levy as your sole instrument, then
clearly you would then have to ramp it up very considerably.
571. You were talking previously about the domestic
sector. Have you made any estimate of the extent to which the
industrial sector, by extension, would be more responsive to price
changes and signals? By extension, are they not already sensitive
to the cost benefits that arise to them of energy efficiency?
To what extent have you already estimated the extent to which
the industrial sector will achieve energy efficiency through their
own efforts without having the use of regulation or tax?
(Mr Tindale) Well, there is a great deal of literature
on the reasons why currently cost-effective savings are not made
by rational actors, such as firms, and it is to do with access
to capital, it is to do with short-termism, it is to do with management
attention and so on. An instrument like the Climate Change Levy,
particularly if coupled with long-term signals, which is why we
support a pre-announced year-on-year increase in the Climate Change
Levy, will address many of those problems. If they bring it on
to the board's agenda, it will make sure that more priority is
given in terms of access to capital, to energy savings than to
other investments and it will make it clear that in the long term
a rational company should be planning on the basis of gradually
increasing energy prices rather than, as has happened in the past,
a reasonable assumption being that energy prices are going to
572. So if you rest upon the Climate Change
Levy and it escalates in the way you are suggesting, what do you
consider would be the impact on the competitiveness of companies
as a consequence of that? What kind of changes in investment,
what kind of changes in employment and competitiveness would result
(Mr Tindale) You have to differentiate, I think, between
the microeconomic and the macroeconomic. At the level of the macroeconomic
impact, if you do as the Government has done and reduce other
taxes to compensate for an increase in energy taxation, there
is no significant macroeconomic benefit. There may be a small
employment gain if you reduce labour taxes. If you look at the
level of the microeconomic, then potentially there is clearly
an impact on some firms and some sectors. That can be mitigated
through the design of the tax and the energy efficiency agreements.
Although perhaps not perfect, they are an attempt to mitigate
the impact on some sectors. The other point is that gradual increases
in price are going to have a much lower impact than a major shock.
People sometimes talk about the 1970s oil shocks and the fact
that they had a bad economic impact as an argument against high
energy taxes. We believe that that is an inaccurate comparison
because that was an open-eyed dislocation. What we are talking
about is a planned, gradual increase. The last point is that there
is no correlation at the macro level between industrial success
and energy prices. You can point to economies that have been very
successful with low energy prices, such as the United States,
and you can point to economies that have been successful with
high energy prices, such as Germany and Italy; there is no correlation.
573. But is not your answer to that previous
point based upon an assumption of the United Kingdom economy operating
in isolation from other economies? Is it not the case that firstly
there are macroeconomic consequences associated with higher energy
costs in the UK relative to other economies and a loss of competitiveness
relative to other economies and is it the case that, particularly
with an escalating energy cost influencing investment decisions,
location decisions on investment decisions would change between
the UK and other economies?
(Mr Tindale) We are certainly not assuming that the
UK is operating in isolation. The macroeconomic competitiveness
of the UK is dependent upon a whole range of factors which include
labour costs as well as energy costs, probably labour costs being
a more significant factor. As long as you are reducing taxation
in that area, whilst increasing it in the area of energy, then
you are not going to have a macroeconomic impact. As I said, there
are some firms, some sectors, for whom these competitive issues
are going to be greater. That we believe can be addressed through
the type of measure that the Government has been looking at.
574. On the labour point, there is as yet no
evidence to suggest that the Climate Change Levy is going to result
in a significant change in employment, because as I understand
it the research on which it is based has been shown to be fundamentally
flawed in so far as the IPPR report which recommended a cut in
national insurance contributions by employers suggested that the
area of likely growth would be in the retailing sector, and when
we took evidence two years ago on the Climate Change Levy (of
which I am not the greatest fan, but for which I think there is
a case), a point was made that in fact retailing was going to
be hit as hard by the Climate Change Levy as anybody, given the
cost of refrigeration and things like that. So I am not sure that
we can be quite sanguine about the employment consequences of
things like the Climate Change Levy, and certainly I think you
would have to take on board that the accelerator principle in
taxation is not one that this Government would sit that easily
with, given what happened to petrol prices and the reaction of
the public. There are two points there. What is your response?
(Mr Tindale) The first point is that the literature
about the so-called double dividend on environmental tax reform
is extremely voluminous.
575. And aspirational as well.
(Mr Tindale) The debate, it seems to me, is between
those who say there will be no employment effect and those who
say there will be a positive employment effect. The debate is
not about whether there will be a negative employment effect.
So we would argue that there is a clear environmental dividend
and that there may be an employment dividend, but even if there
is not an employment dividend it should be done for environmental
reasons because it does not have an employment cost. There are
many reputable studiesfor example, those of the European
Commission around the Delors White Paperwhich argue very
forcefully that there is a positive employment benefit, and there
are also good economic theories supporting that, to the extent
that one believes them. On the second point about the escalator,
the taxation cannot be seen in isolation from the actual cost.
The fuel escalatorthe petrol escalatorworked perfectly
well whilst the price of petrol was otherwise falling, and indeed
it was beginning to have the desired effect in terms of its impact
on manufacturers who were beginning to bring forward more fuel
to retailers. It ran into problems when the price of oil went
up and therefore the price at the pump went up. That was probably
the time for the Government to take its foot off the escalator
but to continue to give the long-term signal that the price of
motoring would have to increase gradually over time in order,
first of all, to encourage people to find more fuel-efficient
vehicles and manufacturers to produce them and, secondly, to influence
location and planning decisions. So our criticism of the Government's
reaction to the fuel protesters was that it failed to give those
576. As far as the question of the Climate Change
Levy is concerned, if the price of gas goes up, then the argument
for the Climate Change Levy is not as strong, because the deterrent
to profligacy is incorporated in the price mechanism rather than
fiscal instruments, is it not?
(Mr Tindale) That is right. What needs to be done
is for the Government, as with petrol, to give a long-term signal
that the price of energy gradually over time will increase. If
in particular years that increase has come about as a result of
the price of gas, then an argument for an increase in the tax
is much less strong and probably non-existent.
577. If I can bring you back to a point you
made earlier about the need to recognise that renewables can be
a wide range of energy-efficient possibilities, in your evidence
you say you do not consider incineration of municipal solid waste
to be a renewable form of energy. You have given your reason for
objecting: heavy metals, dioxins, etcetera. Do your objections
also extend to technologies such as pyrolysis and gasification?
(Mr Tindale) Again, these are relatively new technologies,
pilot programmes are being carried out and our next level is evaluating
them. Our initial response to these technologies is, first of
all, that they are likely to have environmental disbenefits and,
secondly and perhaps more importantly in this context, that they
are a diversion from the real way of dealing with waste which
is waste reduction, minimisation, recycling, composting, and that
there are actually better ways, even from an energy perspective,
of dealing with the waste issue than going down the gasification
and pyrolysis route. We have not, I suppose, taken an in-principle
objection to them.
578. So you have not actually analysed the technologies?
It is an ongoing analysis?
(Mr Tindale) It is an ongoing analysis, yes.
579. We are told that the Government will not
reach its 10 per cent targets for renewables unless waste is included.
Have you any comment on that?
(Mr Tindale) Yes. You are told by whom, is my question.
The issue is what policies the Government is prepared to implement,
if the Government is prepared to encourage renewables through
the building regulations, to implement the renewables obligation
fast, without any further delays, is prepared to continue its
welcome investment in offshore windbut Tony Blair did describe
that as a down-payment and we have not yet seen the rest of it.
So there are lots of possibilities that the Government could implement
and, in our view, should implement, which would make the 10 per
cent target not only easily achievable but relatively modest.
I think the people who say that you will not hit it without waste
are probably saying that you will not hit it without waste on
current trends, if the Government is not prepared to do anything
else. We do not regard that as a full answer.