Examination of Witnesses (Questions 160
- 170)
WEDNESDAY 4 FEBRUARY 2004
MR TOM
DELAY, MR
MICHAEL REA
AND MR
PETER MALLABURN
Q160 Mr Chaytor: At £39 a tonne,
is it not cheaper to build a new nuclear power station?
Mr Delay: No.
Mr Rea: No.
Q161 Mr Chaytor: It will still be
cheaper to go for energy efficiency measures.
Mr Delay: Absolutely.
Mr Rea: It is the policy cost;
that is the investment we make with the programme. If you look
at the net cost to UK PLC, it would be negative.
Q162 Mr Chaytor: I asked earlier
about the proliferation of programmes. Are you content that you
have the right mix of programmes for the different segments of
the market you are working in, or is there further streamlining
and are you going to change the name to something else in the
next year or so?
Mr Delay: I think the Action Energy
programme is fine as it stands. It already covers everything from
very large consumers right through to public sector organisations
and SMEs with appropriately targeted services and support. The
innovation programme is something quite separate. Marketing of
the innovation programme is really to a very small number of very
specific organisations, be they research councils, universities,
private equity investors, corporate investors, the City more generally.
You can pretty much put down the target list for the Carbon Trust
innovation programmes' audience as 400 or 500 contacts and as
such it is much less a requirement to be sophisticated in the
marketing of it in that we actually have day-to-day contact with
pretty much all of those organisations.
Q163 Mr Chaytor: In terms of the
government's whole range of approaches to carbon reduction, do
you think, with the proliferation of programmes and instruments,
there is a problem and would you argue for further streamlining
there?
Mr Delay: I think you should always
try to meet consumer needs and customer needs. All I would say
is that the customers who come into Action Energy as a programme
recognise what Action Energy has to offer—it has a very
high recognition rate—and do not appear to be confused.
They seem to know that Action Energy is where they want to go
for the support they want to get. Equally well, I speak to a lot
of people who say they know about Action Energy, but they are
dealing with this programme because that is appropriate to their
needs. I do not believe the confusion is as widespread as might
be perceived.
Q164 Mr Chaytor: May I ask finally
about the climate change levy and the effectiveness of that as
a policy? The Chairman mentioned the costs. The other figure which
has been suggested to us is the extent of the rebates here which
are now totalling about £1 billion. If you have a policy
which gives £1 billion of rebates to companies which are
probably the most energy intensive users, is it not self-defeating?
What is your estimate of the effectiveness of the climate change
levy?
Mr Delay: The first question is
whether the original aim of the climate change levy was to provide
a price signal or to provide a source of revenue to the Treasury.
If it was to provide a price signal, it is a fairly small price
signal. If you look at energy input prices over the last decade
through a period of deregulation and privatisation, alignment
with European prices, you will see that wholesale prices of pretty
much any energy have fallen quite significantly. They are starting
to go back up now, but over the period of the 1990s, they came
down very significantly. The climate change levy is a very small
increase relative to that decrease. If you were a large industrial
consumer, you would simply not have noticed the climate change
levy in most cases. The interesting point is the way in which
climate change agreements, being a discount on the levy itself
and a very significant discount at that, 80%, have, through the
simple act of obliging organisations to sign a legally binding
document with government, changed the whole nature of energy efficiency
and the debate about energy efficiency within many businesses.
The decision-making framework has followed from that. No finance
director wants to explain to the boss why the company has lost
its climate change levy exemption or rebate, because they have
not done what would have been very straightforward to do. Nobody
wants to be in breach of a legally binding document that they
have signed with government. So even though in many cases, you
could argue that the financial incentive was not that great and
maybe it would have been rational for the organisation to simply
say "Forget it", we think they have gone ahead in many
cases and done a lot more than they needed to.
Q165 Sue Doughty: The Treasury anticipated
that the cost of enhanced capital allowances in 2001-02 and 2002-03
would be £100 million and £140 million respectively.
What has been the uptake?
Mr Delay: The simple answer is
that we do not know and we are pretty confident that nobody else
knows. The way in which the enhanced capital allowances scheme
was introduced has made no provision for strict reconciliation
of uptake on an annual basis. There is simply no way of measuring
the uptake of the ECA scheme which we administer. What we are
having to do is carry out an assessment on behalf of the government
departments who are concerned and very interested in finding out
what the uptake might have been, to estimate what that assessment
and uptake really is. There is no measure that we can actually
carry out on the programme itself.[14]
Q166 Chairman: I am just staggered
by the complete lack of information on this. Do you not think
it is the job of the Inland Revenue to find out?
Mr Rea: We have had this very
conversation with them on a number of occasions and the issue
from their perspective is about bureaucracy and red tape in business.
Their view is that putting a few more boxes which businesses need
to fill out on their tax return is an issue and something they
do not want to do unless it is really justified. They struggle
with this as well, particularly around ECAs, and they have come
to the view that in this particular instance it is not, although
from our perspective it would be extremely helpful, if we could
do that.
Chairman: We will take note of that.
Q167 Sue Doughty: I think we had
one area of shared grief amongst our earlier witnesses with short-termism
in government strategy. You were talking about a lot of the organisations
having taken it up very well with you. Looking at public buildings,
say hospital or university expansions, they are the sorts of organisations
which cannot necessarily benefit from capital allowances, they
will look at their bottom line all the time in very straitened
financial circumstances and they are the sorts of people when
there is short-termism, who are less likely to look at sustainable
approaches to energy when they have that choice. Are you seeing
examples of this? What are your comments about this grief about
the short-termism in government strategy, meaning that we go up
the hill and then we go backwards down it again?
Mr Delay: On the issue of public
sector organisations and how they can handle this, it is very
true that the public sector does not benefit from many of the
financial incentives that we have just been talking about for
the private sector. Enhanced capital allowances do not apply to
the public sector and indeed many other forms of support and incentives
do not apply in the public sector. Yet, despite Treasury guidance,
it is pretty clear to us that most public sector organisations
we deal with have very real budgetary pressures which mean that
they focus on this year's budget as much as any other organisation
in the country. There are really two things which we are trying
to do to push this forward and one which is really critical is
a large-scale one which is closer to our hearts. The first is
to try to ring-fence in some way energy efficiency funding within
the local authority for its own estate. We are working at the
moment on a local authority energy efficiency fund which would
match fund sums provided by local authorities for energy efficiency
over a period of years and create essentially a loan fund, where
we would provide half the funding and the local authority would
match it. It is a way of ring-fencing some local authority funding
for a period to support energy efficiency projects within the
local authority estate, but it is a relatively small-scale activity,
though an interesting one and it appears to be going very well.
I wrote to the chief executives of 411 local authorities and over
70 of them have come back and said yes, they would like to be
part of the first wave of that, which is very promising and indeed
well beyond our current budgetary capabilities. On a much larger
scale, the real issue is PFI, the degree to which the very large
public sector procurement of services does not tend to reflect
energy efficiency in any shape or form whatsoever. Very, very
few PFI contracts for new schools or hospitals have any element
of energy efficiency win-win built into them, even though it is
well understood and accepted that it would be possible.
Q168 David Wright: I find that quite
shocking in the sense that the point you were making earlier was
that people would not invest on the basis of a three-year timeframe.
We are talking about a 25-year timeframe for PFI. It is just a
nonsense, is it not?
Mr Delay: Yes; it is.
Chairman: This may be something the Committee
will wish to return to at a later date.
Q169 Mr Chaytor: You mentioned writing
to 11 major companies recently. Have you had any dealings with
the Sergeant-at-Arms about carbon reduction on the parliamentary
estate? Has this been brought to your attention or have you thought
that there is a high profile initiative for The Carbon Trust?
Mr Delay: As yet not, but it is
true to say that we have quite recently signed agreements with
Defra and with the Inland Revenue as pilot customers for a major
programme.
Q170 Mr Chaytor: So you are making
progress.
Mr Delay: We are.
Chairman: Thank you very much indeed.
It has been illuminating and very worthwhile from our point of
view. Thank you.
14 For further explaination, please see supplementary
memorandum, Ev. 65. Back
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