Draft Climate Change Levy (Combined Heat and Power Stations) Prescribed Conditions and Efficiency Percentages (Amendment) Regulations 2003

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The Chairman: Order. There is too much noise at the back.

Mr. Prisk: Thank you, Mr. Olner. The nature of the market is changing. The Minister referred to the scale of CHP-generated electricity. It amounts to about 3.8 GW of capacity. That market could double by 2010. Indeed, I should like to use an example in my constituency that will be directly affected by the measure before us: JJ Green Generation, which I had the pleasure of officially opening in January. Here we have a business that is essentially agricultural. Guy and Wright's is a tomato grower that had previously used oil-powered turbines to provide the heat, the water and the CO2 that helps to enrich their tomatoes. It removed the oil turbines and installed gas-fired turbines, and there is now a large amount of surplus electricity. It has been able to talk with and now engage with a third-party electricity supplier, Green Energy of Ware, to enable it to supply both domestic and business users. This is an excellent scheme and I am told that it will be encouraged by the measure today. It is not only excellent in its own right, it allows me to say that I am probably the only hon. Member who has tomato-powered electricity in his constituency.

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The measures set out in the regulation are welcomed by all. If they encourage generators and suppliers such as JJ Green Generation, all hon. Members will be happy to support it. The Opposition will be happy to support the underlying principles. However, as the Minister would expect I have one or two questions concerning the practical effect of these regulations. How many third-party suppliers operate in this market? What estimate has the Treasury made of the number and therefore the proportion that will be affected by these changes? What is the value of the market, in terms of the power generated and, given the nature of trying to encourage new suppliers, the value of the supply? Those are two different figures. What proportion of total electricity supplied does that represent? What part of the market as a whole will this encourage?

The Minister explained the need to secure state aid approval from the EU. Sadly, though perhaps not surprisingly, that has taken some time. There are now just eight working days until the regulations come into force. My question follows on from the point that the hon. Member for Barnsley, West and Penistone (Mr. Clapham) raised earlier. Is the market ready? What representations has the Minister received from, for example, the Combined Heat and Power Association on the very short lead-in time that now exists for suppliers?

Despite what the Minister said in his opening remarks, could he clarify what he believes are the implications for the Department for Environment, Food and Rural Affairs in administering the revised quality assurance programme, particularly if there is to be the much hoped for increase in the number of qualifying suppliers? If the new regime generates new work loads, will the Treasury and its agencies be able to cope with that given the short lead-in time? Finally, what actions have Her Majesty's Customs and Excise taken to inform the market of these changes so that those enterprises that would wish to take up the opportunity are able to do so promptly?

Paragraph 9 of the explanatory memorandum refers to costs. It says:

    ''However, the cost of the overall CHP exemption is not expected to exceed £15 million in the year 2002--03.''

The Minister mentioned that just before he sat down. Having read the notes, I am not surprised about the short time involved. The financial year ends four days after the programme comes into effect. Is the £15 million for a full financial year or merely for those four days. Will the Minister please clarify that point? I do not ask him to breach his purdah before the Budget, but can he tell us how much revenue will be forgone in the financial year 2003--04 on the current rate of the levy?

We on the Conservative Benches will be pleased to consider in a positive light any steps that the Government take to encourage the market for United Kingdom combined heat and power generation. In that context, and subject to the answers to my questions, we will not oppose the regulations.

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9.15 am

Norman Baker (Lewes): I thank the Minister for his full explanation of this technical matter.

Like the hon. Member for Hertford and Stortford (Mr. Prisk), I welcome the regulations, which will be beneficial in promoting the combined heat and power industry. It is useful that the Government are increasingly moving towards the use of economic instruments to achieve environmental ends, something that my party has long advocated. The Waste and Emissions Trading Bill, which has its Second Reading today, is another example of how a market mechanism can be used to achieve an environmental end.

These and similar regulations show that these matters are increasingly being dealt with cross-departmentally. The Treasury is leading on this proposal but my party has chosen to approach the matter from an environmental perspective, which is why I am speaking in the Committee rather than our Treasury spokesman.

I should welcome a general comment from the Minister on the steps that the Government are taking to ensure that there is cross-departmental working in respect of the environment and combined heat and power. Let us take the effect of the regulations on combined heat and power. The Treasury is presenting a change to the climate change levy; the Department for Environment, Food and Rural Affairs is theoretically promoting combined heat and power and all other energy matters are dealt with almost exclusively by the Department of Trade and Industry. Already, three Departments have an interest in the issue and I am not convinced that there is yet the necessary joined-up government to deliver the common desire among all parties—the proper promotion of combined heat and power.

I do not share the optimism in some circles that we will double our output of combined heat and power by 2010. That would be desirable, but I do not think that it will happen. There is no evidence of DEFRA taking steps to achieve it.

What steps is the Minister taking to discuss the matter with his colleagues at DEFRA to ensure that there is proper follow-through on the specific points raised by the hon. Member for Hertford and Stortford and on the general issue of cross-departmental working on these matters? What discussions have taken place with the DTI, which has just published an energy White Paper, and should be closely involved? It is odd that combined heat and power is not dealt with by the DTI, but is left with DEFRA. Notwithstanding the efforts that have been made to promote CHP today, it is also odd that it is still subject to the renewables obligation. Have the Government considered rectifying that anomaly as part of their promotion of CHP?

The Minister is aware of the resistance to unnecessary bureaucracy in dealing with these matters and I hope that he is taking every possible step to ensure that it is minimised. There is a case for having a different treatment regime for those small-scale operators whose CHP output is self-contained and used in-house and those CHP operators who seek

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to sell on to third parties. That seems to be a reasonable break point.

Having said that, I welcome the regulations and shall support them on behalf of my party, although I hope that the Minister will seriously take on board the concerns that I and others have about the lack of effective cross-departmental working on the matter.

9.20 am

John Healey: In posing his question, the hon. Member for Lewes (Norman Baker) provided the answer himself by demonstrating the degree of cross-Government interest in this complex policy, the requirement on different Departments to contribute to that, and the degree of cross-Government work that is taking place to deliver precisely what we aim for. In many ways that is encapsulated both in last month's energy White Paper, which was a product of detailed discussions throughout the Government, with major inputs from DEFRA, the DTI and the Treasury, and, of more relevance to the substance of today's discussion, in the draft CHP strategy that we published in May 2002. Once again, that process drew on expertise that is found in different parts of Government and was pulled together in precisely the same way that we are implementing the strategies and cross-departmental working that underpin the regulations.

If the hon. Gentleman has read the energy White Paper and the draft CHP strategy, he will know that we have considered the question of a CHP obligation akin to the renewables obligation. CHP is an efficient form of generation, but still uses fossil fuels. The environmental gains from CHP generation are simply not comparable with renewables as a form of power generation, and the environmental case is therefore simply not consistent, even though the call that the hon. Gentleman issued is superficially attractive.

The hon. Member for Hertford and Stortford put some detailed points and questions to me. I welcome his welcome of the regulations, and I am especially glad that they will benefit JJ Green Generation. I had not heard of tomato-powered electricity generation before, but if the hon. Gentleman wants to supply me with more details, I should be interested to learn more.

The hon. Gentleman's comments went much wider than the regulations. The climate change levy produces no revenue gain to the Treasury, but is part of the package of measures that we are introducing to tackle the very serious global problems of climate change and global warming that we in this country simply cannot duck. The UK has the climate change levy, and 10 other European Union states have, or plan to introduce, such an energy tax or carbon tax. The climate change levy is a small part of any business's energy costs, which are a relatively small part of total business costs. It is important to keep any discussion about the scale and impact of the climate change levy in proper proportion.

The hon. Gentleman neglected to say that the CBI-EEF survey that was published in October confirmed that the climate change levy is beginning to achieve its principal purpose of encouraging business to use energy more efficiently. The survey demonstrated that 74 per cent. of large firms have, or plan to introduce, measures to improve the efficiency of their electricity use, and that 43 per cent. of small firms are doing the same.

Finally, I tell the hon. Gentleman that we shall of course keep the operation of the climate change levy under review. He should regard what we are discussing as evidence that we are prepared to improve and refine the operation of the climate change levy exactly as we are doing this morning for CHP operators where there is a good economic and environmental case for doing so.

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