Examination of Witness (Questions 220-239)
28 JUNE 2004
MR DAVID
GREEN OBE
Q220 Chairman: Good afternoon, Mr Green,
and welcome back to the Committee. I know you are no stranger
to the Environmental Audit Committee but you have never appeared
here before under the guise of the UK Business Council for Sustainable
Energy. It would be helpful, I think, before we get into some
of the detail, if you could explain why it was thought necessary
to set up the Council for Sustainable Energy in the first place?
Mr Green: I am pleased to do that.
Just to answer your question, Chairman, the concept of the Business
Council came about three or four years ago from three different
sources. First of all, it was from discussion in the energy industry
about how they could try to bring together their more strategic
discussions with Government on the whole issue of sustainable
energy and sustainable development, because clearly it covers
two government departments immediately, mainly the DTI and DEFRA,
and obviously since then also ODPM on planning issues. It covers
at least three technology or service areas, namely energy efficiency,
CHP and renewables, and obviously they are split between the different
government departments, so they are now within the companies.
Traditionally they had been dealt with in the same business units
and therefore they felt there was a need to try to have some cohesion
in discussions with Government. There was also discussion with
colleagues in the environment community about how business could
become engaged more actively in promoting the case for sustainable
energy, so it was not just a matter for green NGOs, it was seen
to be a serious business proposition. The third and by no means
least driver was a concern from Government, and particularly from
Ministers, about wanting to try to find a mechanism through which
they could have a much higher level and more strategic dialogue
with major players in the energy market about this area. The Business
Council was incorporated formally in the lead-in to the World
Summit on Sustainable Development just over two years ago. Its
Governing Council is composed of the Chief Executives of most
of the major energy companies in the UK and then we have a number
of what are known as strategic partners which bring in other companies
from outwith the utility sector. The overall mission is to try
to provide for a much more joined-up dialogue with Government
on issues such as the one which is before the Committee this afternoon.
Q221 Chairman: Do you think you have
succeeded in achieving a more joined-up dialogue?
Mr Green: We are beginning to
see progress, in the sense that because we have one institutional
vehicle through which the Chief Executives of Britain's major
energy businesses can engage with Government it means we are able
to get a much clearer picture of what Government's thinking is
as they approach issues. I would hesitate to say that the Business
Council itself is in a position to ensure that the Government
is necessarily more joined up in its delivery, but the industry
is certainly more joined up in its policy dialogue with Government.
That is our main job, to ensure that the companies concerned who
have to deliver the goals which have been set are able to have
a much more systematic dialogue with Government. We try to encourage
a number of government departments to move in the same direction
at the same time.
Q222 Chairman: Turning to the UK Sustainable
Development Strategy, do you think it has had any impact at all
on companies in the energy sector?
Mr Green: The Sustainable Development
Strategy itself probably is not something which is at the top
of the pile of the Chief Executives of Britain's energy businesses.
Q223 Chairman: How many of them do you
think are even aware of it?
Mr Green: If I were to do a straw
poll this afternoon, Chairman, one or two may be. I would hesitate
to say that they all are, by any means. They would all be aware
of elements of it, obviously. If you count in things to do with
renewable energy, things to do with energy efficiency, etc, consultations
going on on the Energy Efficiency Commitment, consultations which
will be coming up on renewables, what is happening in a number
of other sectors, they will be aware of those pieces. Whether
or not they would say that they were all aware of an overarching
Strategy and the fact that the Government is consulting on the
next stage of the Sustainable Development Strategy, to be honest,
I would doubt if they were all fully aware of it.
Q224 Chairman: Is there any point in
having a Strategy if people are not aware of it?
Mr Green: I think the main importance
of the Strategy is its ability to try to bring together a number
of fairly disparate themes in Government to try to make sure that
the message which Government communicates to companies about sustainable
development, about what they could be doing to enhance and improve
their environmental footprint, is much more systematic and much
more joined up across Government. There is always the frustration
that companies who are seeking obviously to run profitable businesses
and to do it in a market framework set by Government do get broadly
consistent messages from Government, in whatever form they encounter
it. Many of us feel that the Sustainable Development Strategy
should be integral to getting that much more consistent and joined-up
message from Government.
Q225 Chairman: It is more a Strategy
for Government than a Strategy for anyone who is actually going
to do anything about it?
Mr Green: It is a Strategy for
all the various players. The new consultation document "Taking
it on: " is about trying to encourage players to engage
with sustainable development, and I think people are very willing
to do that but they need to be clear what they are being asked
to do and on what basis.
Q226 Chairman: At what level within one
of your major companies would that document be read and acted
upon?
Mr Green: I imagine it would be
read by an Environment Director.
Q227 Chairman: On the main board?
Mr Green: There will be somebody
on the main board who is responsible for it. I suspect it will
be one or two down from the main board. It will vary by the nature
of the company but I suspect typically it will be one or two down
from the main board. Most of the Environment Directors, who are
not called by that title necessarily, are pretty close to main
board directors, because obviously things which happen in the
environmental sphere have got major commercial impacts. If you
move outside sustainable development, thinking about things like
the Large Combustion Plant Directive, Emissions Trading, they
have all got major commercial impacts. There is a much tighter
connection now in companies than there was perhaps several years
ago.
Q228 Mr Francois: Mr Green, the DEFRA
consultation suggests that the next Strategy might set out specific
priorities in relation to climate change, sustainable consumption
and production, environment and social justice and helping communities
to help themselves. Would you welcome a focus in the next Strategy
on more specific topics such as those?
Mr Green: I think it would be
very useful to have a focus, particularly on the high level topics,
such as climate change and energy, sustainable consumption, etc.
I think the confusion companies have is, clearly, whilst this
is going on there is also about to be launched the Government's
next round of consultation on its Climate Change Programme. Also,
in 2005-06, we are going to be having a consultation on the next
stage of the Renewables Obligation, and there is consultation
going on at the moment on the next stage of the Energy Efficiency
Commitment. I am delighted, and I am sure the companies are delighted,
to see that the Government is maintaining a high level of focus
on climate change. The issue will be how that sits alongside the
other documents which have been prepared. "Sustainable consumption,
production and use of natural resources," a very long title
but, if you think about it, absolutely integral to what an energy
business does. Essentially, an energy business using natural resources,
which in a general sense are finite, is seeking to make the most
efficient and effective use of them in order to maintain the profitability
of their business and delivery of services to customers. Environment
and social justice, again, if you were to translate into specific
aspects what is meant by that, has a very high level focus in
companies on tackling fuel poverty, much more so than perhaps
there was in the past. A specific challenge from the energy regulator
has been for companies to up their performance on debt and disconnection
issues. I think companies would recognise elements of all those
as being important parts of it, but whether or not they would
recognise it quite in the terms that are presented I would hesitate
to say. The more one can use things like the Sustainable Development
Strategy to reinforce and show the links between other measures
so that there is an overarching narrative the better.
Q229 Mr Francois: Do you think there
is a risk though that, with some of these things, they will amount
to just pious words rather than anything concrete?
Mr Green: I was looking through
this document, as part of the Business Council's own response
to it and obviously also in preparation for this afternoon, and
undoubtedly it is the case that a lot of it is very aspirational.
It is difficult to disagree with a lot of what is in it, to be
honest. It has got some very strong and important messages in
it. I think the challenge, and we tried to bring it out in our
evidence, is how you get down into more levels of detail, so if
you are going to drive ahead with the Sustainable Development
Strategy you have got some measurable outcomes which are distinct:
the number of homes improved, the number of households lifted
out of fuel poverty, etc, or the trend rate towards various targets.
That makes it much more specific. At the moment it is very general.
Some would say the energy sector may well be ahead of other sectors
because they have got used to the outcomes of sustainable development
in terms of their engagement with renewables, etc. The more specific
that things like this can be the more impact it will have.
Q230 Mr Francois: Are you saying that
the more of these specific subjects that you include the more
likely the Strategy is to act as a driver rather than just a statement
of aims and principles?
Mr Green: I would not want it
to end up with this being a document which had 56 separate sub-targets,
because I think that would be taking it from one extreme to the
other. I think within areas there are ways in which you could
bring in some of the other government targets. You might say,
for example, that one of the measures of sustainable development
is how far you are moving, on a year-on-year basis, to achieving
your renewables target, how far you are moving to achieving your
sustainable development target, how many homes have been lifted
by X amount up the SAP (Standard Assessment Performance) criterion
for houses. Those are things which actually you can measure, they
are measured anyway in other documents. Bringing them together
in this way would help reinforce it and show a link between the
different areas. There is a great tendency to measure things separately
and not to see the links, and the links are very important in
terms of the environmental footprint of an organisation.
Q231 Mr Francois: On the subject of links,
we have also various other strategies, such as those from the
devolved administrations, regional strategies, and then we have
topic-specific strategies: climate change, air quality, combined
heat and power, etc. What do you think should be the relationship
between the UK Strategy and all these other strategies?
Mr Green: Ideally, the UK Strategy
should be the overarching strategy which underpins all the other
ones, because obviously it is a UK-wide strategy, it is a strategy
the Government will report on to the Commission for Sustainable
Development as part of the UN process, so that the UK Strategy
should be the overarching strategy. I think it will be very important
to make sure that the other strategies feed into this one and
it is seen to be a key driver of other policies and a key driver
of other outcomes from Government. You will always have distinct
strategies for particular sub-sectors but this document should
be the way in which it is brought together.
Q232 Mr Francois: There is going to be
a major review of the Climate Change Strategy, beginning later
this year. Are you worried at all that the timing of that might
be too late for the review of the UK Sustainable Development Strategy?
Mr Green: As I understand the
timing of the review of the Government's Climate Change Programme,
and I think there is a bit of a debate going on about what is
meant precisely by the term "review," how wide and embracing
it might be, it is that they hope to report early next year on
the outcome of the Climate Change Strategy. This is due to report
around spring. It depends on your precise interpretation of the
wording as to whether these two may end up being at the same time.
One hopes they will be around the same time, given that the Department
which is driving it is the same Department, it is broadly the
same command in the same Department and under the same Ministers.
One hopes you will see some coming together so that the one Strategy
reinforces the other.
Q233 Mr Francois: Do you think the entire
review of the Sustainable Development Strategy is going to be
a waste of time? Even if they make changes to the Strategy as
a result of the review, do you think it is going to make any real
difference?
Mr Green: It will make a difference
only if it is used as a vehicle for policy change and policy development.
If it becomes just another document and sits on a shelf somewhere,
it will not. If it is reinforced through the machinery of government,
and hopefully committees such as yours will hold Ministers to
account over what it says, then I think it will have some bite,
otherwise you are right to be slightly cynical about it and say
it will be just another document that is produced.
Q234 Mr Francois: There is a whole plethora
of strategies, as is evident from your evidence, there is a whole
range of them, and there are consultation exercises relating to
most of these strategies. Is there not actually quite a risk of
consultation fatigue, where people get so many of these coming
across their desk, all requiring a response by a particular date,
that after a while people think "There's not much point replying
to these. I've got another one in a month's time anyway, I'm not
sure anything's going to change"? When you get to a point
where you get so many it becomes almost meaningless?
Mr Green: The phrase "paralysis
by analysis" can spring to mind. I think the important thing
is not just what it says in a strategy, it is how rigorously they
are delivered and enforced. There is always a great danger, as
I said earlier, that you have yet another strategy and it becomes
just a paper exercise. The key thing is to make sure people recognise
that a given strategy is important and that it is reinforced.
I was at a dinner which the Green Alliance organised with Paul
Boateng about the Public Spending Review, and he was talking about
the way in which they hope to integrate sustainable development
as one of the criteria into the Public Spending Review. Clearly,
we will know within a few weeks, a few days, maybe, what the outcome
of that has been. If central organisations like the Treasury use
it as one of their criteria then it will become an important document
because it will affect the behaviour of government Departments.
If it is found in the PSR targets it will affect the behaviour
of government Departments and that will affect policy and that
will affect the wider market-place. It has got the potential to
be very useful. Really it will depend on how rigorously it is
enforced and delivered.
Q235 Sue Doughty: You have got considerable
concerns about the conflict between the objectives of energy policy
and the desire to keep energy prices low to address things like
fuel poverty and competitiveness. We have got the Government favouring
an approach to energy policy which is based on competitive markets,
but is there any point in having a strategy if the Government
does not have levers to pull to influence development? Does it
need those levers? Without those levers, could it work?
Mr Green: As most of you know,
I have been working on energy policy for longer than I care to
remember, and whenever an Energy Minister ceases their appointment,
of whichever government, I always try to make a point of seeing
them shortly afterwards and they are always quite amazed by the
lack of levers that actually they have to pull once they become
a Minister. The very nature of being a minister is that, presumably,
you want to do things, and on energy policy it is quite interesting
that the levers you have got to pull, apart from major things
like planning permission, actually are all quite remote because
of the very nature of the energy policy we have in the UK. Often
there is quite a gap between what you might aspire to do and what
you can actually, physically deliver. Obviously an awful lot of
energy policy, in terms of the way the market operates, is contained
now within the remit of OFGEM (the Office of Gas and Electricity
Markets), which is at arm's length from the Government. I think
in a number of areas there have been concerns about the extent
to which the Government has got the levers at its disposal to
pull. The point you opened on was the issue to do with low energy
prices, high energy prices. As consumers, I think all of us would
like to see low energy prices. All of us who are involved with
the policy community would understand, I imagine, all the sorts
of things which are likely to lead to an upward pressure on energy
prices: the cost of the Renewables Obligation, the Energy Efficiency
Commitment, the need for new infrastructure investment to keep
the lights on, etc, etc. There is a whole range of things which
are going to put up prices quite apart from the basic price of
the energy itself. The worry, from many of the companies that
I deal with, is that they are going to find themselves squeezed
between a rock and a hard place, the sense that, in quite recent
history, consumers have been led to expect low energy prices but
could well be entering an era now of higher energy prices. They
are worried that might lead to some weakness in the Government's
commitment to delivering some of the targets and about the effect
that will have on their ability to raise the investment to meet
objectives to do with renewables, energy efficiency, and so on.
Q236 Sue Doughty: In that sort of scenario
we have a situation where the Government will start saying it
is politically damaging if energy prices go too high because there
is a need for public acceptance. Is there anything that the Government
could be doing to set out its stall about why we need this re-gearing
of energy pricing?
Mr Green: I think there is a lot
that Government could do and it is for the broader government
community to think about how we can work together to communicate
messages about the fact that we are on the cusp of change. I have
heard some of the energy companies and distribution businesses
equate the cost of rewiring Britain to the cost on the average
electricity bill of a couple of pints of beer a year to give you
more security of supply. You could dispute those figures, but
the important thing is to make it clear to people that if we are
going to have a secure energy system, if we are going to have
an environmentally-friendly energy system, we are going to need
to have more investment in a whole variety of ways and we have
to carry the public with us. If we do not, it is going to become
very difficult (a) to get the public's support and (b) to achieve
other important goals such as fuel poverty. I believe you can
communicate those messages in a way which can be quite positive
about the way in which investment in energy efficiency can reduce
people's fuel bills, the way in which investment in technology
could cut costs as well, but it will require quite a sophisticated
and reinforcing message from the regulator. It is interesting
to note that the regulator is no longer putting out press releases
now congratulating major reductions in fuel prices, so I think
the message may be beginning to change.
Q237 Joan Walley: Can I pursue some of
those issues which Mrs Doughty was raising. In your comments just
now I noticed you were very hopeful that the Comprehensive Spending
Review from the Treasury was going to give us this opportunity
to take forward sustainable development. I wonder how much you
would share some of the criticism there has been from some other
bodies about the way in which, up until now, the Treasury do not
seem to have had a lot of enthusiasm for pushing forward the energy
efficiency agenda and particularly supporting CHP? Is that part
of what you are hoping for in next week's announcement, if it
is going to be next week?
Mr Green: I was giving a hope.
I have no inside information at all about what the Treasury are
going to do. I was giving a hope that, the fact that Paul Boateng,
the Chief Financial Secretary, has talked about integrating sustainable
development, that would be having an effect on the outcomes of
the Spending Review. I think there is a broader question about
the Treasury's engagement with the environment agenda more generally
and energy efficiency in particular. The view that we have taken
in the Business Council is that companies are very supportive
of the drive for energy efficiency but believe that not only should
it be a regulatory mandate but it needs also to be demand-driven
and the Treasury have got a particular role in making energy efficiency
more attractive through a range of fiscal benefits. I think we
have all been quite frustrated by the fact that possibly the Treasury
have not engaged with that as fully as they might have done.
Q238 Joan Walley: Why do you think that
is?
Mr Green: The Treasury have not
shared their inner thoughts with me. I am not in that position.
It would not surprise me if they do not believe entirely some
of the figures which are presented to them, and because they are
natural sceptics in the Treasury on all sorts of data which is
presented to them I think they remain to be convinced that some
of the savings which are attributed to energy efficiency actually
will occur. The traditional economist's view is that if energy
efficiency is so good it should be happening anyway, it should
not need a particular stimulus from Government, which tends to
ignore the wide range of structural barriers there are to tackling
energy efficiency. One thing which has been very good in the past
four or five years, if you go back to the Climate Change Levy,
is that in my experience there is much more engagement by Treasury
officials now in this whole debate than ever there was in the
past. Hopefully that might contribute to them having a deeper
understanding of what are some of the challenges in delivering
energy efficiency and actually making things like CHP happen more
systematically.
Q239 Joan Walley: Do you think there
is anything more that business could be doing to educate the Treasury?
Mr Green: I think there is a very
important role for business and that is being very specific about
what will make a difference and quantifying what benefits will
flow from it. If you make a particular change to a particular
tax regime you want to demonstrate that it will lead to a specific
set of outcomes. We did some work with the high street providers
of white goods, in the lead-in to the last Budget, about what
might happen if, for example, you changed the VAT rating on particular
appliances, whether it would lead to a net take-up in sales of
white goods by some of the high street names that you see, Currys,
Dixons, etc. The Treasury found that very useful and it helped
to convince them that, even if they did not do things immediately,
there was considerable potential to do more things in that area.
I think the frustration is that they are not entirely convinced
that some of the savings which are talked about, particularly
on the domestic side where more and more of us still aspire to
warmer homes and therefore take off some energy savings as higher
temperatures, necessarily will be achieved. If you look at the
trend rate in energy use in the UK, whatever we do it is going
up remarkably because of all the more energy-intensive appliances
we are using in our homes.
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