Select Committee on Environmental Audit Minutes of Evidence


Examination of Witnesses (Questions 360-379)

19 MAY 2004

MR PHILIP SELLWOOD AND DR NICK EYRE

  Q360 Mr Francois You highlight CHP there but, as I understand it, a decision is going to be dependent upon fuel trials, which could last for up to two years. You have intimated that you think potentially it is quite important, but there does seem to be quite an element of jam tomorrow in all of this. What are your thoughts on that?

  Mr Sellwood: I think it is somewhat unfortunate, in that, through various means we managed eventually to get this decision from Treasury on micro-CHP, unfortunately just at the point at which the arrival of micro-CHP on the market seems to have moved further away from us. I think really it is just unfortunate timing. Having said that, and obviously colleagues behind me who are managing the field trials, we are absolutely clear, because we are working closely with the Carbon Trust on this, that it is absolutely essential that we get that right before we start giving too many significant price signals to the market. Nonetheless, it is a welcome move.

  Mr Challen: I did see you shaking your head when I asked the question about whether the two organisations should be joined together. Presumably the answer is no, from your point of view. I will ask you if you want to say anything about that when we return.

  Chairman: We will break for the division.

  The Committee suspended from 5 pm to 5.10 pm for a division in the House.

  Chairman: We can now recommence.

  Q361 Mr Challen: If I were an architect working for a large housebuilder, to whom should I go for advice on designing houses, would it be you or would it be the Carbon Trust, or both?

  Mr Sellwood: Actually, if it were managed housing probably it would be us, but probably it is neither. It would be CIBSE, probably, or CABE would be the organisations which would best advise on thermal energy efficiency, or possibly even BRE. We are not experts in that field.

  Mr Challen: I will not pursue that point.

  Q362 Chairman: Does not that illustrate one of the points which Mr Challen is making, which is that there are too many organisations, it is confusing for the public and it is confusing for business?

  Mr Sellwood: I do not agree. I think that the level of functional specialism that is required, in terms of delivering on the message, so, for instance, your example, the level of technical excellence that is required in housing, means that really if you did take your thoughts to the common conclusion we would have one absolutely enormous organisation with functional specialisms sitting within it. I do not think necessarily that is really what people are looking for. All I can say is, reflect, in a sense, because, obviously, we have talked about it in a very general sense, that we do not have lots of customers saying to us, "Why aren't you merged with the Carbon Trust?" If we get the focus wrong, if we approach the wrong audience with the wrong message, or we do not get the message right, then they are very quick to pick us up and say, "This is not actually what we want." We are clear this is less an institutional issue and more an issue about having the appropriate knowledge delivered to the appropriate audiences.

  Q363 Chairman: You do not think there is scope for a one-stop shop?

  Mr Sellwood: I think the one-stop shop would dwarf Tesco's, it would be enormous, because there are so many different audiences that need those functional specialisms. I am not saying it is impossible but it would be a very, very unwieldy organisation.

  Q364 Chairman: Can I return to the question of heat pumps. I am intrigued by this. It came sort of from nowhere, this Budget proposal, and I just wonder whether you have done any work since the Budget on the size of the market for domestic ground-source heat pumps?

  Mr Sellwood: The answer is we were as surprised as you were, because we had not put forward a particularly strong case for heat pumps specifically. We have done two things since then. One is that we have started to undertake some serious work, as I said, in Scotland, where we have a presence already in managing programmes around heat pumps. We do not manage that programme in England, unfortunately, which is an interesting observation compared with the last question, where I would agree there are some issues. Nonetheless, we are finding that there is clearly a significant market in certain localities, and those certain localities have a certain commonality—rural, off gas—so we are seeing already some interest in Northern Ireland, as I say we have got quite a lot of interest in Scotland. If you were to ask me how big the market is, we have no idea how big it is at the moment.

  Q365 Chairman: I looked at a website, because I am a diligent sort of chap, this is a little out of date, it is 2002, and I discovered that the Director of IEA Heat Pump Centres, making a speech in the Far East, I think in Beijing, said that probably there were between 100 and 200 installations of ground-source heat pumps in the United Kingdom. That does not sound like an awful lot to me. This sounds so marginal, so peripheral, that for the Chancellor to announce it as one of the key planks of his Budget, in relation to the whole question of climate change, frankly is insulting?

  Dr Eyre: I would not be as negative as that.

  Q366 Chairman: It is not your job to be.

  Dr Eyre: Let me remind you that the Chancellor removed excise duty from hydrogen when there was no hydrogen at all being used in UK vehicles. In the sense of giving the right signal to a future technology, it is important, but, yes, one might be slightly cynical and say, well, it is also rather cheap for the Treasury.

  Q367 Chairman: It will achieve the square root of nothing, in terms of reducing carbon emissions?

  Dr Eyre: If it were sufficient to make the market take off then it would do. The data we have got from our Scottish scheme is that in average applications it is saving two tonnes per household per year, and it is saving consumers about £250 per year. For the additional cost that Philip talked about earlier, that is unlikely, in our judgment, to make it attractive in the short term. Clearly, if somebody could bring down the cost and produce a cheaper heat pump then the market opportunity would be there, and in that case the VAT reduction would be welcome.

  Mr Sellwood: It is also just worth considering, and again without overstressing the point, in those areas, for instance, and it is to an earlier question that was asked, where gas is not freely available and people are relying on oil then suddenly this becomes a much better commercial proposition. Certainly, when you have got the combination of oil, rural and off gas, I do not think anybody is saying that this is the answer to the low-carbon economy.

  Q368 Mr Challen: Putting aside for one moment the major expansion in the Energy Efficiency Commitment, what other significant measures in the Plan would you identify?

  Mr Sellwood: I may dwell for one minute on the Energy Efficiency Commitment. We welcome the Plan, broadly, I suppose, because it delivers on some of the practical means of delivering on the policies, and with the exception of the absence of some of the fiscal measures we are pretty happy that the policies are in place. Where we are less happy, and no doubt we will come on to this, is the change, as we see it, in the post-2008 EE Commitment, which currently is still due to run at double the existing level to 2011. It was our contention, and still is, that, in order to make the step change necessary in terms of meeting the original targets, that needed to be three times the existing level if it was to deliver on the Energy White Paper original targets, and we may well come back to that, in terms of how the targets have changed. The second area where we are concerned is, even though there is a commitment in the Implementation Plan, just to give it some context, the Plan depends, in terms of delivering for the Energy Efficiency Commitment, 70% depends on delivery of cavity wall insulation, four and a half million cavity walls. I have to tell you that the last three years have seen a 3%, a 5% and, with all that we and others have done, a 13% increase, in the last three years, so in the last three years that market has seen a 20% increase. Actually it has to double every three years between now and 2010 in order to meet the overall target, so we believe there is still a lot to do in terms of incentivising that market.

  Q369 Mr Challen: Then what should the Government do to incentivise the market to achieve those levels?

  Mr Sellwood: There are some who would say this is all about a fiscal incentive or a tax incentive. We think there is room for linking some of those fiscal incentives, but, if you look at it commercially, the truth of the situation is that there is no real market in cavity walls, it is a subsidised market. You can go out into the market-place today and buy cavity wall insulation at a 90% discount. The reality is that the barriers to entry in the market are customers' ignorance, and I mean ignorance in the sense of knowing what it is for. There are a lot of myths around how much it costs and also the sort of damage it does to your house. I think the answer is, and one of the things that we are actively involved in, this has got to be about a hard-fought, public education campaign, using the supply chain, using installers and using the big manufacturers.

  Q370 Mr Challen: Have you made representations to Government about that, and what has been the response?

  Mr Sellwood: We have. You will remember that we had a similar concern about condensing boilers, which has yet not gone away in its entirety. I am pleased to say that, as a result of what we talked about last time, in terms of persuading a combination of DfES, the Treasury and others, we have been able to put together a fairly detailed training programme. We have some confidence, growing confidence but I would not say certainty at this stage, that we will be looking to train upwards of 50,000 heating installers and plumbers in the next 15 months, ahead of the change in the Building Regulations. Government and the private sector and ourselves are working together to deliver that. The biggest problem that we have with something like cavity wall insulation, which is such a key measure, is that actually there are 1,500 installers. The average installer is one man and a white van, and they do not have, in the same way that gas installers have, to belong to a trade association, so it is very difficult to access these individuals within the supply chain, but it is a pretty key job.

  Q371 Mr Challen: It sounds like a good opportunity for some Polish craftsmen to come across and do the job for us. The Government has revised down its domestic energy efficiency savings from 5MtC to 4.2MtC. Do you have any explanation for why that has happened? Were you consulted on it? What representations did you make about that, if any?

  Mr Sellwood: We were very involved in developing the Plan, as you can imagine, on the basis that we are one of the major delivery vehicles for delivering the Plan. We have to say that we did not have the final decision, in terms of the figure, and we have to say also that we do not agree with it, for three reasons. For those who are not fully conversant, it has moved from five to 4.2 and we take issue with three things. One is, you will remember that a significant part of the first Energy Efficiency Commitment is the delivery on appliances and white goods. There is something called the market transformation effect, ie if we subsidise or give grant aid through EEC to only 50% of white goods, what it does not take into account is the other 50% which are not subsidised by energy suppliers and retailers. This is a recurring annual saving, and for some reason that has not been taken into account. Certainly we would like to make, and have made already, additional representations to Defra to look at those figures, because we are not convinced they are correct.

  Dr Eyre: The assessment that we made, in advance of the Energy White Paper, was that the scope for carbon savings in the white goods sector was approaching one million tonnes in this decade. Although we have not got access to the way that Defra have come up with their calculations of 0.1 million tonnes, ie 10 times smaller, I think, even without access to that information, we are fairly sure that it is a serious underestimate of what actually will be delivered by the policies which are set out in the Action Plan. We are not saying in this case that more policies are needed to deliver the carbon savings, we are saying the converse of what is often the problem, that actually the policies are there but the carbon savings have not been counted.

  Q372 Chairman: Mr Sellwood, you had some other reasons?

  Mr Sellwood: The second I have referred to already, which is the gap, in a sense, between 2008 and 2011, at double, as opposed to treble, which was what originally we said needed to happen in order to deliver an additional 700,000 tonnes of carbon. We do not have an answer as to why that has changed. It may be that, with the onset of emissions trading, there is a view which says that when that becomes available the Energy Efficiency Commitment will be less effective. We do not know that, but certainly it was our contention, in order to meet the original target, it would need to be at triple status. The third thing is, again, I have referred to it adjacently, that there are a number of measures which have not been factored into the Plan, even though certainly they are going to be within the lifetime of this Plan. The first one I mentioned was the advent of the Home Condition Report, which will require every home to have an energy rating. It is our view that if we could link that energy rating to a stamp duty rebate and/or surcharge then this would be a powerful financial motivator for the 1.2 million people who move every year actually to do something about energy efficiency, and that is not in the Plan. We think those three things together would more than reach the target that was set out originally.

  Q373 Joan Walley: I would like to come back on that first point, in view of the Energy Bill, and the implementation, if you like, of the Energy White Paper into the Energy Bill, and the bearing which what you have just said has on not just the Budget but on the work which is being done to legislate for those reduced savings. You said that you have been very much involved in developing the Plan and that you were going to be the delivery vehicle. I wonder what talks you have had with the DTI about the way in which there is going to be legislation now to implement that?

  Mr Sellwood: Obviously, we talk to the DTI, Defra and, with our other hat on, DfT constantly about the development of the Plan, or both Plans, the Transport Plan and the Energy Plan. At the moment it is quite a timely meeting. Literally, we have come fresh from this, in terms of the Implementation Plan being published last week, so as yet we have not had any further discussions, but obviously, through SEPN and others and talking direct to DTI, we will be making our representations.

  Q374 Chairman: Presumably, to the extent that the target for domestic carbon saving has been reduced, your job has just got a lot easier?

  Mr Sellwood: It is not, actually, because we are in the process of putting into place quite sophisticated partnering arrangements within supply chains, and you could say, well, we could take our foot off the accelerator and coast a bit. But, because, as I said earlier, there is so much emphasis on two or three major things which need to be delivered, our concern is that if one or two of those major things are missed, like the cavity wall insulation target, we could run round and create huge amounts of activity in other areas but it would not make up the shortfall. I suppose, in the short term, the answer to your question is, yes, it would, but actually sitting here reflecting back on the target then I think it would not be easier.

  Dr Eyre: I think, Chairman, we will want to take a more helpful approach to Government. Reflecting on the points which were made by colleagues in the Carbon Trust about the likely gap in the Climate Change Programme, I think we will want to stand ready to help Government raise this target back up to five million tonnes, or higher, when it feels that is necessary, when it reviews the Climate Change Programme.

  Q375 Chairman: I am sorry, I do not understand this. The target has come down, you are worried about a whole lot of issues which are going to make it very difficult to fulfil the ambitions which you set yourselves. If the target had remained where it was you would have missed it, if you were going to miss it, by an even wider margin than you are likely to miss the reduced targets, surely?

  Mr Sellwood: No. That is assuming you think the figures are correct in the first place.

  Dr Eyre: No. We are very confident that the policy measures are in place to deliver the 4.2 million tonnes, the new aim in the Action Plan. Indeed, because of the issue about white goods, we are confident that the policy measures in place will deliver more than 4.2 million tonnes. If it were still at five there would be challenges and it would require the Energy Efficiency Commitment to be increased and some additional measures to be put in place. We think that is the sort of challenging but achievable target that Government should be setting within the Action Plan if it is to deliver on its broader goals that are set out in the Energy White Paper.

  Q376 Joan Walley: You still have not said, in reply to Mr Challen's question, why you think Government has reduced it from five to 4.2?

  Dr Eyre: That is because honestly we do not know.

  Q377 Joan Walley: Have you made any attempts to find out? Have you spoken to the civil servants about it?

  Dr Eyre: We are beginning to do that, yes.

  Q378 Joan Walley: You have not got any theories of your own as to why this has happened?

  Mr Sellwood: My view is that we want to operate only on the facts, and the facts are that until we were sure of our own facts I think it would have been a bit previous to be talking to Government about how wrong they had got the figures. Certainly, now that we are confident of the figures that we have, we will be going back to Government to help them readdress that target.

  Q379 Joan Walley: Am I not right in thinking that this is going to be considered in legislation tomorrow?

  Dr Eyre: We do not think that any more primary legislation is needed, other than the legislation which is being discussed on the Home Condition Report within the Housing Bill. The primary legislation for Building Regulations, the primary legislation for the Energy Efficiency Commitment is already in place.


 
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