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

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Norman Baker: I put on record my thanks to the Government for the serious steps that they are taking to deal with the Kyoto commitments, which are welcome. However, does the Minister agree that encouraging energy efficiency in business and better environmental practice may sometimes be a saving to business, not a cost? Businesses that benefit from taking environmental steps, sometimes ahead of legislation, are often best placed in the market.

John Healey: I recognise the hon. Gentleman's point, which he makes well.

Mr. Prisk: I am intervening slightly later than I had intended, but I shall attempt to be brief.

The Minister said that the levy encourages energy efficiency, so what would he say to Ernst and Young, which stated in its environmental and sustainability services group report that

    ''the climate change levy will penalise a number of manufacturing enterprises in the UK, particularly those who have made considerable improvements to their energy efficiency prior to the introduction of the levy''?

Does the Minister accept that the argument is not all one way? Indeed, many businesses are finding that the levy has diminished, not encouraged, their ability to engage in energy efficiency programmes.

John Healey: The hon. Gentleman is mistaken if he believes that energy efficiency gains are a once-and-for-all measure. The purpose of the levy is to ensure that business continually strives to improve its efficiency in using electricity. We must see that happening in this country. Some sectors of industry use energy intensively, and their energy costs may be a greater proportion of their total business costs than those of other sectors. However, the hon. Gentleman will be aware that 44 sectors of British business introduced negotiated agreements allowing an 80 per cent. discount from the climate change levy in return for reaching agreed reductions and improvements in energy use. I refer again to the CBI-EEF survey. The figures for companies covered by those negotiated agreements, which I gave the hon. Gentleman earlier, show even more impressively how the climate change levy is already working in these early days to encourage more efficient use of energy by business.

Mr. Prisk: Will the Minister give way?

The Chairman: Order. Before the hon. Gentleman intervenes, I advise him that he has strayed far from the technical point of the order. He must keep his intervention to the point and not make general remarks about the levy.

Mr. Prisk: Indeed, I shall. I have the survey to hand, which highlights the fact that there is no difference between the energy efficiency plans of those who are exempt from the levy and those who are not. The arguments that the Minister has propounded are therefore questionable. I shall not pursue that point further, but it is worth clarifying for the benefit of the Committee.

John Healey: If the hon. Gentleman re-reads the record of the debate, he will see that I was referring to companies covered by negotiated agreements, not those that are exempt from the levy. If he carefully studies the report of the survey, he will see that the figures are indeed impressive for firms covered by negotiated agreements compared with the rest of industry.

I turn specifically and properly to the narrower points that the hon. Gentleman put to me. He asked about the value of the market for CHP. We estimate that the total production from CHP operators—around 900 in the country—is some 5 GW. Some 10 per cent. of those 900 CHP operators are partly exempt, so the regulations apply to that 10 per cent.

I have two general points to make about the scale of third-party supplies. First, all existing suppliers will be able to benefit from this. It is difficult to produce the quantified figures that the hon. Gentleman requests because the market is changing rapidly.

The hon. Gentleman made a point about eight working days. I thought that I detected an underlying argument that we should not consider the regulations in such a rush. We could, of course, have delayed the implementation of the exemption and the introduction of the regulations. However, the representations from industry, which the hon. Gentleman asked about, urged us to act as soon as possible. Following the Commission's confirmation on 5 March that we have state aid approval for the measure, we are laying the regulations as soon as we can so that full exemption is implemented as soon as possible. That has been welcomed, and it is the choice that the industry would have wanted us to make.

The hon. Gentleman asked whether DEFRA can cope with the increase in CHP operations and with the administration of the quality assurance programme. DEFRA is ready to respond to any effect that the growth in CHP operations might have; it is geared up to deal with what we anticipate will be a doubling of CHP production to meet our 10 GW target by 2010. The hon. Gentleman may wish to follow the matter closely, but I do not share his concerns about DEFRA's capacity to deal with it.

The hon. Gentleman also asked about publicity and promotion. Because of our discussions with the industry and because of the publicity that was given to the Chancellor's commitment in the Budget in April last year, the industry is well aware of our commitment. It is well aware that full exemption is on its way, and conversations that the hon. Gentleman has had with the industry and with his constituents will bear that out. The industry, as I said earlier, wants it as soon as possible. We are geared up to provide technical notes, press notices and further information on the detail as soon as the Committee, I hope, approves the regulations. Once that has been done, we can get on with the formal publicity, which I know the industry will welcome.

As I said in my opening remarks, we anticipate that the costs of the exemption will be about £15 million a year. That is in the context of reliefs for the CHP industry from the climate change levy of £205 million. That is the extent of the support that the Government are giving to the CHP industry. What we are considering this morning is a small part of an important improvement. Therefore I hope that members of the Committee will give the regulations their approval.

Question put and agreed to.


    That the Committee has considered the draft Climate Change Levy (Combined Heat and Power Stations) Prescribed Conditions and Efficiency Percentages (Amendment) Regulations 2003.

Committee rose at twenty-eight minutes to Ten o'clock.

The following Members attended the Committee:
Olner, Mr. Bill (Chairman)
Baker, Norman
Clapham, Mr.
Healey, John
Keen, Ann
Lloyd, Mr.
McDonnell, John
Morris, Estelle
Murphy, Mr. Jim
Prisk, Mr.
Swire, Mr.
Tapsell, Sir Peter
Wilshire, Mr.

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Prepared 20 March 2003