Examination of Witnesses (Questions 140
- 159)
WEDNESDAY 4 FEBRUARY 2004
MR TOM
DELAY, MR
MICHAEL REA
AND MR
PETER MALLABURN
Q140 Mr Chaytor: There is no clear-cut
distinction between the domestic and the business sector.
Mr Delay: Yes. It is fair to say
that probably 15% or so of our respective audiences have a clear
overlap and we manage those jointly. Examples would be very small
SMEs which we have jointly managed as an integrated problem over
the last couple of years and quite successfully. We provide a
backbone of knowledge management infrastructure. The EST has provided
a degree of face-to-face support for very small SMEs through its
network and that has been very successful. Both of us are looking
very much at local authorities from different points of view.
EST will focus much more on the social housing aspect. We will
focus much more on local authorities with regard to their own
energy consumption in their own estate. Lastly, there is the community
energy programme, which goes right across from domestic users
of community heating, particularly supported by CHP, into business
and public sector applications and is a programme jointly managed
by the two trusts. Where there are overlaps and there definitely
are overlaps, we manage those actively.
Q141 Mr Chaytor: From the lay person's
point of view, would you not accept that this proliferation of
programmes and the changing terminology given to programmes .
. . You mentioned earlier the Action Energy programme of which
I am very well aware now because I have received a lot of leaflets
through the post, so I am now conscious of this. However, I was
not aware that this was previously the Energy Efficiency Best
Practice Programme. I gather the Carbon Trust Innovation Programme
used to be the Low Carbon Innovation Programme. Why do the names
constantly change? Is this not actually undermining the very objectives
you are trying to achieve?
Mr Delay: I hope not. One of the
things which both trusts have tried very hard to do over the last
couple of years is to bring a degree of professionalism to the
marketing programmes that we both offer to specific market segments.
That is translated in a number of ways. Firstly, the segmentation
of the markets themselves, which is now far more advanced than
it was two or three years ago. I do not think the lay person per
se exists in our nomenclature. You are a large business user,
a small business user, a public sector consumer, you are a domestic
consumer and so on. We are much clearer about what that segmentation
means. In terms of the names, when we took over the energy efficiency
best practice programme, it was a mouthful. It was seventeen syllables,
it did not research particularly well from a marketing point of
view. We already ran one part of that programme as Action Energy,
which was the proactive element of site visits, and the market
research said very clearly, that if we wanted to get across what
we were trying to do, we should rename the entire programme in
line with the proactive element of it, that is Action Energy,
and that is what we have done.
Q142 Mr Chaytor: May I ask about
accountability? To which of the four government departments which
have an interest in energy efficiency are you accountable?
Mr Delay: Our funding comes from
Defra and the three devolved administrations. The DTI has a seat
on our board and a very active role they play too in terms not
only of the board activities of the Carbon Trust more generally,
but also the investment committee which supports all the innovation
work we do. They are very actively involved in the innovation
aspect of that. I suppose you would say, that in terms of the
funding providers it is Defra.
Q143 Mr Chaytor: Is that a coherent
arrangement or do you think there is a case for reviewing the
way energy efficiency policy is distributed?
Mr Delay: There are two quite
interesting things here. We certainly have good relations right
across the board with different government departments, including
Treasury, on this front. The question is: what is the objective
one is trying to pursue. If you look at renewables, there is clearly
an environmental objective underpinning much of the renewables
investment which is happening at the moment, but it is also an
economic development opportunity which is being pursued very aggressively.
It is natural that it would therefore sit within the DTI because
economic development falls very clearly within the DTI's remit.
Energy efficiency is largely an environmental objective which
has some economic development benefit as well. One can always
debate where the balance of benefit is between the purely environmental
concern and the wish to develop economic and industry value on
the back of that. That is how I would look at it.
Q144 Mr Chaytor: You do not think
there is a case for re-establishing the Ministry of Energy which
was abolished post-privatisation almost 20 years ago?
Mr Delay: There always could be
a case, but as you said yourself, it is difficult because there
are at least four government departments involved and it is not
quite clear how one would put it all together to provide a coherent
framework in terms of transport, long-term innovation into renewables
and other low-carbon technologies and energy efficiency across
all sectors. It is hard to see how you would do that.
Mr Rea: That is one of the reasons
we think the energy efficiency implementation plan is so important.
It should give real clarity about which policy measures will really
make a difference in this area. It is a good test of whether these
government departments can work together effectively to bring
forward the right types of policy measures to move the markets
in which we work.
Q145 Chairman: It will be important
if and when it appears.
Mr Rea: Yes.
Q146 Chairman: We must not talk about
it as a living entity at this stage.
Mr Delay: The other point I would
make is on the Sustainable Energy Policy Network, which has been
put in place to pursue and to develop the energy efficiency implementation
plan as part of a broader Energy White Paper implementation plan.
We are part of that network, as is the Energy Saving Trust, as
are Ofgem and as is the Environment Agency. That is a great opportunity
and if it works, it will provide a degree of synergy across government
departments and a degree of accountability in terms of delivering
results which has maybe been lacking in the past. The jury is
still out and we wait with bated breath to see what happens next.
Mr Rea: Coming from a business
background, a kind of mechanism which has been set up of having
senior reporting officers accountable and truly accountable for
energy efficiency and renewables is something which is important,
having accountability over a period of time so that they are not
only accountable for delivery of the recommendations in the Energy
White Paper but also for the result over time in terms of emission
reduction.
Q147 Chairman: I hope you will forgive
us if we track back over some of the issues which we discussed
with previous witnesses, but we are interested in your particular
take on them. I gather you have done some modelling work on the
scale of the problem and the base line from which we need to move
forward. Can you tell us a bit more about that?
Mr Rea: Based on publicly available
information we have looked at 2010 and what the gap might be in
terms of the climate change programme. Our estimate is that the
gap is about six million tonnes of CO2 across the board. In thinking
about the energy efficiency implementation plan and our programme
going forward that leads us to think about two issues. One is
how to close the gap to 2010, both in terms of policy measures
and support measures. Secondly, and in some ways more importantly,
how do we put the right infrastructure in place so we can continue
to make savings to 2020 and beyond? To take an example, in the
markets we deal in, CCAs and the climate change levy have been
very effective in terms of getting business to get the right infrastructure
in place to manage our emissions, to manage our energy in a way
we have not seen in the past. If you look at commercial buildings,
we do not have the same mechanism to do that. An example of an
important policy issue in our view is the EU Buildings Directive
and how that is implemented. Within that Directive there is some
ambiguity about whether buildings have to have a label and that
label has to be explicit. In our view that would be something
which would really make a difference in terms of driving owners
and occupiers of buildings to take a different view and put in
place a basic infrastructure and management systems which would
allow us to reduce emissions to 2010 and beyond.
Mr Delay: I would just pick up
on one thing. We have concluded that there does appear to be a
gap in terms of delivery of the climate change programme and meeting
the 2010 targets. The question is how to meet that gap in the
most cost-effective way possible.
Q148 Chairman: May I just clarify
something before you go on? Is the six million tonnes by which
you have established we are adrift, tonnes of CO2 or is that tonnes
of carbon?
Mr Rea: Tonnes of CO2.
Mr Delay: And, to be clear, that
is only for the business and public sectors. The question is how
to fulfil not just the aim of meeting the 2010 target but also
building a platform for delivery of much further energy efficiency
to 2020 in the most cost-effective way possible. We have looked
at it in a number of different ways. If you simply take existing
policy measures and stretch them or extend them, you are rapidly
going to get to the point where they are no longer cost effective.
There is a very strong case for making pretty firm policy decisions
now and on the back of that building in the necessary support
through organisations wide and varied, including ourselves, to
deliver that. It is the hard policy framework which is going to
make it possible. It is not support measures. They are very expensive.
Q149 Chairman: To what extent do
you set targets for yourselves?
Mr Delay: We are in the process
of setting targets based on a base line which we have just established.
We have been around a couple of years. We assess the action energy
programme for the year 2002-03. We know that the customers of
that programme saved about 4.5 million tonnes of carbon in that
year and something between—and it is a very broad range—0.6
and 2.9 million tonnes of that 4.5 can be attributed to the action
energy programme.[11]
Q150 Chairman: Is that what you expected
when you set off with this programme?
Mr Delay: It is probably more
than we expected.
Q151 Chairman: You have done better
than you hoped.
Mr Delay: Interesting point. We
have done better against, we would argue, a very constructive
policy backdrop. The climate change levy came in and set a first
price signal, a relatively weak price signal in absolute terms,
particularly in a time of falling prices, to most industrial consumers
of energy over the last decade or so. The climate change agreements
came in and offered essentially a way of mitigating some of that
cost to very large energy users. What it did very effectively
was raise the whole issue of energy efficiency up the board agenda
in a very, very broad number of organisations and large companies.
To some degree, Action Energy relies for its effectiveness on
the policy framework which underpins it. It is not wholly surprising,
if you say yes, climate change agreements certainly did have an
impact in terms of changing behaviours, that support programmes
and measures can therefore report more impressive findings. On
the basis of that, which we assessed for 2002-03, we will obviously
be setting targets going forward, always seeking to get more and
more cost-effective carbon savings going forward, but that gives
us a base line from which we are now going to be working.[12]
Q152 Chairman: It sounds as though
you are quite optimistic.
Mr Delay: I think we are optimistic
but cautious. There are several opportunities which the implementation
plan for the Energy White Paper as a whole presents us with. If
we do not grasp those opportunities and really leverage what the
European emissions trading scheme can offer us, what the European
Buildings Directive can offer us as a platform for progress, then
we will be far less optimistic. It really is crucial that the
key policy measures are now put in place to allow the delivery
of energy efficiency over the next 10 to 15 years.
Q153 Chairman: How much of all this
do you think comes down to money? Do you think the government
is spending enough to support the sort of initiatives you are
involved in?
Mr Delay: It probably is not in
absolute terms, but I do think before we start worrying about
money we have to worry about what we are trying to influence and
it is really decisions and behaviours. If you look at energy efficiency
in the business and public sectors, the barriers to energy efficiency
are multiple. There has to be a drive to make something happen,
to make change happen and more often than not it is very expensive
simply to throw money at that problem. You have to find some other
way of driving people who want to do something differently. The
climate change agreement is a very nice example where essentially
a relatively low cost measure has brought about a significant
change in terms of behaviours. There is the question of finding
the solutions and proving that the solutions are effective and
practical in the real world. The programmes the government has
put in place over the last decade or so have largely highlighted
the potential for energy efficiency, so there is not too much
of an issue there. Then comes the question of finance and this
is really a very difficult one. Most energy efficiency measures
are NPV positive. In pure economic terms, they are cost effective
today, but they are not being taken up. In the vast majority of
cases it is because they rely on a payback of maybe two or three
years for organisations with a budgetary outlook of one to two
years. They simply fail on the simple measure of payback, when
in fact they are NPV positive measures if you take a five-year
outlook.
Q154 Chairman: Is that where you
think the taxpayer needs to step in?
Mr Delay: It is where a number
of things can happen and one of the questions is: what is the
most efficient economic instrument to change the behaviour at
that point. An example would be loans. We do believe that there
is a case for very small organisations, who simply do not have
the finance, to take on board an interest-free loan, repay the
loan out of the carbon savings and the cost savings which they
will generate over time and for them it is simply a solution to
a problem. For a small organisation which cannot afford the energy
efficient boiler, it is the way round that. For a much large organisation,
a more sophisticated organisation, then an enhanced capital allowance
which provides a lower level of financial support straight through
to the corporate balance sheet is an effective way of dealing
with the same problem. It is a case of picking the right financial
instrument for the right class of consumer to make the difference.
Q155 Chairman: It can be quite expensive,
can it not? The emissions trading schemes cost the taxpayer something
like £200 million.
Mr Delay: That essentially was
a kick start to a new programme.
Q156 Chairman: A hell of a kick.
Mr Delay: A hell of a kick.
Q157 Mr Chaytor: In your written
submission you refer to the analysis you have done of the impact
of the Action Energy scheme and say that this implies a cost in
terms of CO2 saving of between £8 per tonne and £39
per tonne, a ratio of 1:5, a huge differential.[13]
Which are the most cost effective elements of this scheme? What
measures deliver CO2 savings at £8 a tonne and which deliver
it at £39 a tonne?
Mr Rea: You can break Energy Action
down into three customer segments: we have the bespoke segment,
where we typically work with larger organisations; we have a standard
offering which really works with medium-sized companies and then
we have a general service which is the mass market in SMEs in
particular. The cost-effectiveness varies, depending really on
the size of the company and the energy bill. It is most cost-effective
when we work with large organisations, as you would expect, and
least when we are working with small ones.
Mr Delay: The range you refer
to is also a range which reflects the different approaches to
attribution. It is very difficult to say exactly how much of a
saving is down to any one organisation or indeed policy measure's
influence.
Q158 Mr Chaytor: Methodological problems
in calculating this.
Mr Delay: It is just a reality.
What we try to do is reflect a realistic range.
Q159 Mr Chaytor: What do you think
it ought to be? When you did the analysis did those figures surprise
you? What do you think from government's point of view is a cost-effective
price to pay?
Mr Delay: There are two things.
The way in which we did the calculation is the simplest way in
which we could have done it, that is we simply took the year one
savings against the year one costs, recognising that in most cases
the savings will then have consistency over a number of years
which will bring down the effective cost of the first implementation.
Those figures are actually fairly low; if you take into account
how many years of consistency you will gain, those figures would
all come down. It is not surprising that the larger the organisation
you are dealing with the more cost-effective it is to make change
happen, particularly if what you are fulfilling is overcoming
a knowledge gap to influence a change in behavioural decision-making,
as opposed to some direct financial incentive to some direct investment.
The case is really that knowledge management or knowledge-based
support for very large organisations will be very cost-effective.
11 For further clarification, please see supplementary
memorandum on Ev. 44. Back
12
See supplementary memorandum, Ev. 44. Back
13
See written memorandum, Ev. 38. Back
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