Examination of Witnesses(Questions 40-59)
WEDNESDAY 11 DECEMBER 2002
JOHN HEALEY
MP, MR PAUL
O'SULLIVAN AND
MR MICHAEL
COLLINS
40. Page 131, box 7.1.
(John Healey) It is not misleading—and I will
ask my technicians to come in—but what you have there is
a plot of the evidence we are assembling of what is happening
to emissions at present and the projected decline in carbon emissions
that we believe on the basis of our best analysis will be produced
by the configuration of policies that we are trying to bring to
bear to reduce carbon emissions.
41. Before you ask your technicians to explain
what I thought was a quite straightforward graph, could I add
one piece of evidence to say why I think it is misleading? If
you look at footnote 2 on the graph, it says that this includes
a projection and includes the effects of renewables obligation,
the climate change levy and the fuel duty escalator. You have
abolished the fuel duty escalator over a year ago and yet this
graph contains projections based on the basis of the fuel duty
escalator continuing until 2010. Is this graph not misleading?
(John Healey) You have just elaborated the point I
made—that the second line is the projections based on the
configuration of a number of policies that we have put in place
in order to tackle the carbon emissions.
42. With respect it is not the second line that
does that; the second line is the dotted line that has footnote
4 on it. The second line has got footnote 2 on it which says,
"Past emissions and future projections in absence of programmes",
and then you are stating that these programmes are bringing down
CO2 emissions, but it is not happening.
(John Healey) I do not grasp your point. What you
have here is a graph that attempts to plot the track of carbon
emissions in this country were the government not to have introduced
the range of policies that we now have in place against the track
and plot of carbon emissions that we anticipate will be the result
of what we are putting in place.
43. But your explanation makes it even worse
because it is that it is the dotted line that shows the government
policies kicking in and bringing down CO2 emissions but your stated
evidence is that CO2 emissions have gone up in those three years
so your explanation just makes this graph even more misleading.
I think I have a very good point. If you are looking at this as
a Pre Budget Report, I think it is easier to glance at graphs
than normally at text, are you going to have the impression either
that CO2 emissions will be slightly declining and then going up
again under current policies without the government's various
policies, and I hope to ask you in a second about those, but even
worse you have the idea that since 2000 CO2 emissions have been
going down at a very steady rate due to the fact that we have
the renewables obligation, fuel duty escalator and the climate
change levy. As I said, one of those has now been abolished and
the reality is that CO2 emissions have gone up. You should at
least have shown that going up, even if you wanted to project
it in the future going down.
(Mr O'Sullivan) This was the information that DEFRA
were able to supply to us at the time and I think this is something
that they revisit when they do substantial pieces of work, so
for the Energy White Paper we will be revisiting this. There may
be some small changes to the figures because what has been going
on in the energy market has led to some increases here to emissions,
as a result of impacts of gas prices and things like that. We
will provide the best information we can as soon as DEFRA is in
a position to pass that on to us.
44. In fact, this graph dates back to October
2001, so it is wrong to use it in the Pre Budget Report to give
this suggestion that you are on top of things?
(John Healey) It is not wrong to use it. This was
the best information we had at the time in that four year period
to 2001. Largely because of high gas prices and therefore an increased
burn of coal generation we had a 1.2% increase in carbon emissions
over that time. That does not take away from the analysis and
projection that we have for carbon emissions over the period through
to 2010 based on the impact of the range of policies that we have
in place.
45. Will you take opportunity at the Budget
itself to publish a fresh graph showing the reality of the situation
up to the end of April 2003, plus your projections for 2010?
(John Healey) As Mr O'Sullivan has indicated and you
would expect as the Environmental Audit Committee us to do, we
are constantly refreshing the analytical and databases that we
are able to work from; we publish progress as regularly as we
can; we tend to do that in the Pre Budget Report and again confirm
any changes in the Budget; so where we have better and more up
to date data you can expect us to publish it.
Mr Francois
46. Following that up, I think a new graph would
be helpful. One of the policies that you are relying on in order
to achieve this is meeting your renewables obligation targets
and this Committee did a very detailed analysis into that and
basically came to the conclusion that you are nowhere near it.
This was then debated in the House, I think, so really, if you
are going to provide these graphs and tables, I think it is encumbent
to be realistic about the projections that you make.
(Mr O'Sullivan) As soon as we have the best information
we can and the most recent information from DEFRA, we will be
keen to publish it and to pass it on.
(John Healey) We will send you a copy of our report,
and see if that helps.
Mr Thomas
47. Can I turn to one of your policy initiatives
addressing climate change, the climate change levy? This is very
contentious, you had quite a lot of difficulty in introducing
it, and there was criticism of it. The initial forecast was that
the climate change levy would generate £1.8 billion worth
of revenue, and in the PBR you stated that that in reality was
£0.6 billion. Can you state whether the climate change levy
is working in terms of its effect on industry and, therefore,
on emissions?
(John Healey) Yes. You have not got the figures entirely
correct about the forecast revenues but in terms of the impact,
given that it was only introduced in 2001 after a very long period
of consultation and development—and by the way you say it
is contentious; taxation is always contentious and one must expect
that—I was quite encouraged by the recent CBI report, I
have to say, which showed that 74% of the larger firms and 42%
of the small and medium-sized firms have already made or are in
the process of making changes in what they do to improve the energy
efficiency of their operations. That you will recall, Mr Thomas,
was a principal objective of the climate change levy so early
signs are quite encouraging although clearly the longer term impact
is something that we will need to conduct a much fuller evaluation
on before we can make firm judgments of that nature.
48. Do you have a timetable for that evaluation?
(John Healey) No. At the moment Customs & Excise
who are responsible for this area are discussing evaluation methods
with external independent experts that we could bring in to do
just such an evaluation. If we are in a position by the Budget
to be able to update you on progress on that, I am sure we will.
49. The PIU report talked about alternatives—if
not alternatives certainly things that will sit side by side with
the climate change levy; the carbon emissions trading scheme was
one, carbon tax was another. Can you tell this Committee what
views you have expressed in the Treasury on these options in the
evidence that you have given in to the government review for the
forthcoming White Paper on Energy?
(John Healey) I cannot give you any detailed information
on discussions going on in government at present with the prospect
of the government's White Paper on Energy. I can say, and we have
already confirmed this, that we have no plans for introducing
a carbon tax. That would be a tax that would have rather different
policy objectives and clearly a different design than the climate
change levy which we have introduced. Really there were three
principal dimensions to the policy objectives we had for the climate
change levy which clearly demonstrate why carbon tax would not
achieve the same thing. The first was our concern to avoid taxing
domestic energy use. We have got a situation in this country which
is improving dramatically but it is still the case we have so
many people on low incomes suffering from fuel poverty. That is
simply an unacceptable step to take for a government concerned,
as we started by discussing, to balance environmental, social
and economic issues. The second was we wanted to introduce, as
I have suggested, incentives on energy efficiency, and a Carbon
Tax would not necessarily do that. Thirdly, we have got a declared
policy of wanting to see a level playing field in terms of the
different fuels. The Climate Change Levy allows us to do that;
the Carbon Tax would not necessarily do so. Mr Collins wants to
come in and make a point on that.
(Mr Collins) You also mentioned emissions trading
and I thought it might be helpful to remind the Committee of the
work that has already been done in the United Kingdom on emissions
trading. This April the world's first economy-wide greenhouse
gas emissions trading regime went live in the UK based on some
£215 million of incentive money provided by the Chancellor
in SR2000. In addition, we are closely involved currently in negotiations
on a European-wide emissions trading scheme, so there is quite
a lot of progress being made on that. I think one can say quite
safely that the UK is at the forefront of emissions trading as
a flexible instrument for delivering reductions in emissions of
greenhouse gases.
50. Thank you for that. It is obvious that you
are doing a lot of work on emissions trading but not so much on
the Carbon Tax. That does not seem to be a favoured option at
the moment. The other recommendation of the PIU was to do some
work on the shadow pricing of carbon so that could be measured
whether through an emissions trading scheme or possible carbon
tax or any other environmental impact of other things such as
a fuel tax in the future. Are you doing work on that?
(John Healey) In general, PIU reports provided some
useful context and ideas that the Government is looking at terms
of the run-up to an Energy White Paper.
(Mr O'Sullivan) In terms of shadow pricing of carbon,
DEFRA has already done quite a lot of work on this. There is a
document in the public domain that sets a range of values for
carbon and I think £70 has been used for some analytical
work carried out by some departments. We could give you a reference
to that or send you a copy.
51. That would be useful, thank you. Can I change
tack now to look at another area which is that of pesticides and
you will have seen the report from this Committee recently on
the Pesticides Initiative in which we more or less said give it
another year and we will really get our teeth into it. Of course
there is a huge opportunity here particularly within the CAP reform.
We already have an opportunity for modulation up to 20% but one
of the advantages or disadvantages of that is to match funds of
some of that modulation away from production only. It has been
suggested, for example, that you could hypothecate revenues from
a potential Fertiliser Tax and/or Pesticides Tax in order meet
the greater moderation needs that would flow out of CAP reform.
Is this something you are actively doing work on in the Treasury
to see how you might be able to meet those objectives?
(John Healey) The principal work that is being done
in the pesticides area is of course led by DEFRA. I note the fair
warning that you are giving in terms of getting your teeth into
this in a year's time. As the Pre-Budget Report and the Budget
Statements of the Treasury have made clear, a Pesticides Tax remains
an option, but equally our whole approach to the use of economic
instruments does not pre-determine an outcome that leads us to
the view that we should have taxation in every case. There is
a range of interventions, and in some cases, including this one,
our judgment is that if we can get the voluntary agreement right
then this is likely to be the most effective way of achieving
what we are going to see in the pesticides field because it avoids
some of the additional costs and complexities that inevitably
a taxation regime in this field would bring.
52. Are you looking at least in the medium or
long term at the need to somehow match some of the modulation
proposals that come out of CAP? Would it not be advantageous for
you as the Treasury to do some preliminary work on how that can
be matched into a ring-fenced taxation system, whether it be pesticides
or fertilisers, which would have an environmental benefit but
also would have a wider benefit and assisting on that shadow environmental
scheme that we are all talking about now as growing out from CAP
reform?
(Mr O'Sullivan) I think we are generally looking at
options we can use to improve the voluntary initiative and action
generally on pesticides and what we might do in the way of incentives
to help that scheme, but I am not sure about any further linkage
between that and what is going on in the CAP side.
53. I hope I have raised that so you at least
might look at that.
(John Healey) I take that point, one of your purposes
in doing so is to prompt us to give some consideration to this.
More generally let me add, if I may, to Mr O' Sullivan's point
there, that DEFRA is due to publish the Food and Farming Strategy
fairly shortly on sustainable food and farming. Alongside that,
the Treasury—
54. Tomorrow I think.
(John Healey)—the Treasury will be publishing
some of the work that we have done on consideration of economic
instruments and the potential role that economic instruments may
have in achieving some of the objectives we are setting for sustainable
food and farming. Following that, we will do further work with
a more full consultation on those sorts of options during the
course of next year. I will certainly have a look in the light
of what you have said at the points you have made.
Mr Chaytor
55. Minister, in your opening statement you
said that growth based on short-term exploitation of the environment
is not sustainable. Do you think that the recent growth in short-haul
air travel is sustainable?
(John Healey) Quite frankly, that is a complex question
that does not lend itself to an easy answer.
56. There are only two possible answers.
(John Healey) Not in my view of the world on the basis
of the information that I have that relates to this. In a sense
there are a couple of broad issues when you look at the future
of aviation. One is the question of demand, economic benefit and
some of the capacity questions that the Government is now considering,
of which you will be well aware. Secondly, looked at from an environmental
point of view, is a concern that, as things stand, the dynamics
of the market in air travel and aviation may not fully reflect
some of the environmental costs and consequences in terms of noise,
in terms of emissions, and in terms of carbon as well. Therefore
in the work that the Government is doing towards the production
of a White Paper next year on aviation, consideration of those
economic issues, and the capacity issues, will be done alongside
work we need to do on whether we can build in more effectively
a recognition of the environmental costs as well as the economic
benefits that many would recognise and acknowledge with greater
air travel.
57. So you are saying because I can travel by
air to Southern Spain more cheaply than I can return to my constituency,
that is not sustainable?
(John Healey) Once again I do not think that is really
a question that lends itself very easily to a yes or no answer.
What it suggests is—
58. Is it logical that I can travel to Southern
Spain cheaper than I can travel to my constituency?
(John Healey) I agree it does not appear logical.
It suggests that in some way there are failures of the market
here. The environmental dimension—
59. Consumers would see it as a success of the
market that they can get to Southern Spain so cheaply. This is
the dilemma, consumers would see it as the very success of the
companies that are exploiting the market. How do we respond to
that?
(John Healey) In general we respond to it in the way
that I have indicated. Perhaps it is a fair comment that in the
past development in the aviation industry has not been accompanied
by sufficient scrutiny of its environmental consequences and impact,
but that is work the Government is now doing and it is doing that
alongside the development of the White Paper that is planned for
next year.
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