Examination of Witnesses (Questions 19-39)
26 JANUARY 2005
MR ADRIAN
WILKES, MR
MERLIN HYMAN
AND MS
KAREN AITCHISON
AND MR
ROBERT EVANS
Q19 Chairman: Good afternoon, welcome
to the Environmental Audit Committee. I think you have sat in
on some of our evidence sessions and certainly Mr Hyman has been
a regular attendee over the years, but I think this is the first
time that you have actually given evidence, is it not?
Mr Wilkes: It is, yes.
Q20 Chairman: Would you like, just for
the record, to tell us a little bit briefly about the Environmental
Industries Commission, its work and the nature of your members?
Mr Wilkes: Gladly. Firstly, thank
you for inviting us to talk on this important issue. The Environmental
Industries Commission (or EIC as I will call it) was set up 10
years ago because it was becoming very clear that there was an
exciting new industry growing up in this country and worldwide
and that is the environmental technology and associated services
industry. It was growing up as the world and this country started
to take policy measures to improve the environment and it was
creating a demand for pollution control technologies and the relevant
associated services. This industry absolutely lives by what Government
does in terms of environmental protection policy measures, whether
that is strict regulation, tax incentives, green taxes or indeed
voluntary agreements with industry. So this industry actually
needed to talk to Government. So we were set up to provide a conduit
between our industry and Government. Our industry comprises quite
a wide range of suppliers of technologies to combat, firstly,
but in no particular order, air pollution from large industry
or indeed small car paint-spraying facilities—for instance,
local authorities regulate some 18,500 factories and the Agency
currently regulates something like 2,000 under the IPC, and that
will be extended under the IPPC option—water pollution control
technology companies, land remediation—the clean-up of dirty
land—marine pollution control, onshore oil spill control,
climate change technologies and transport pollution control technologies.
We have one of our leading members here today from Johnson Matthey,
a company you may well know of, and I draw attention to Johnson
Matthey not only as a world leader but probably the biggest company
in our industry, and there are not many large companies in our
industry, it is important to make the point that they are all
very small.
Q21 Chairman: So the majority of your
250 member companies are small companies?
Mr Wilkes: Yes, they are.
Q22 Chairman: How small?
Mr Wilkes: The majority have a
turnover of under £10 million. That is down to a number of
factors, regrettably one of which is that in the Seventies and
Eighties and until John Gummer and then Labour ministers got into
power we were lagging behind the leaders in terms of environmental
protection, particularly Germany and America, which created home
markets for those industries.
Q23 Chairman: Can you just pause there?
You said something at the very beginning which I thought was very
interesting, that essentially you are entirely a Government-dependent
industry and that without Government intervention, regulation
and so on you would not exist. This is an odd thing to say, is
it not, because it implies that your products bring no additional
benefit to the people who buy them. In other words, that in a
completely free market nobody would bother with them.
Mr Wilkes: The problem is—and
I think this is a challenge for policy-makers and ministers and
the country as a whole—that actually the environment—water,
beaches or whatever—has been a free resource to industry,
in particular manufacturing industry, and of course indirectly
their consumers. It has been free to pollute for a couple of hundred
years, so if there is no price put on pollution there is no driver
to actually limit it. That is one part of the answer to your question,
and the other is to actually admit that companies—and you
will hear from one of our members, Karen, a little later, she
is an expert in the whole area of advising companies on resource
productivity and waste minimisation—can indeed by looking
at their individual resource productivity and process efficiencies
make huge savings that will boost their competitiveness. The reality
of life is that if you look at the waste minimisation schemes
that DTI and the Department of the Environment have been promoting
for 10 years or more, they are not widely taken up, certainly
not in terms of the number of companies across industry that could
employ those waste minimisation techniques. Prior to that, of
course, we had the Government pushing energy efficiency—very
relevant in terms of your inquiry into climate change—and
it was startling last week when I heard you question Digby Jones
that there was actually no discussion about the fact that climate
change is a result of excessive use of energy.
Q24 Chairman: There were a number of
startling outcomes to our discussion with Digby Jones last week,
and they will no doubt be reflected in our later report. Can we
focus in on Regulatory Impact Assessments, of which you are particularly
critical? You say that at the moment they fail to take proper
account of economic benefits which may arise from regulation;
is there any evidence that you have that the inadequacies of the
RIAs are leading to weaker policies or weaker regulation?
Mr Wilkes: The first general comment
to make is that they are sustaining this mood of concern which
reaches up to 10 Downing Street and 11 Downing Street, equally
over in Brussels where there is a new group of Commissioners concerned
about the competitiveness agenda. This general atmosphere is that
actually environmental protection undermines industrial competitiveness,
but from our point of view it should not be seen as a conflict
and you should be aiming for policies that ensure that we achieve
environmental protection and industrial competitiveness. In terms
of specific RIAs, maybe I should bring Robert in, because when
I met him outside he was just going through one. May I bring Robert
in?
Q25 Chairman: Of course you may, yes.
Mr Evans: As the Transport Working
Group we supply products and services in three areas: we supply
technologies for both new and existing vehicles, we supply cleaner
fuels and fuel additives and consultancy services. At the moment
we are struggling because one of the policy mechanisms that supported
our sector, that of transport energy and grant funding incentives,
has been taken away, and reliance is therefore placed greatly
on what regulation will deliver, and this Government is looking
particularly at what regulations on new vehicles can deliver to
help meet very challenging air quality targets that we have. We
have just recently been issued with a copy of the Regulatory Impact
Assessment for those Euro standards—this will be Euro 5
Standards for Passenger Cars coming in in 2010. It is a laudable
document, it is a very thorough document and it is very, very
helpful for industry as we look to spend our development money
by understanding where Government sees priorities, but it does
not meet the recommendations that we make, it is missing all six
recommendation areas and it does not include the benefits to the
environmental industries sector, it does not take into account
the full benefit of health costs. For example, in the annexe it
does not include chronic mortality health effects on children—that
it does not include health effects on children is hard to believe.
We will write to you on this, but it also does not value a whole
range of environmental things.
Q26 Chairman: That would be very helpful,
thank you.
Mr Evans: Effectively, how this
is interpreted, it is missing all of these various factors, it
is underplaying the costs on the environmental side. Consequently,
when the minister makes his decision he may be aware of those,
he may be aware of the assumptions behind it, but at the end of
the day his decision will be political and it will relate to him
only having part of the information.
Q27 Chairman: The question I put was
whether this is actually leading to weaker regulation. Let me
turn it round and ask you are you in fact arguing for tougher
regulation of industry?
Mr Wilkes: I will answer that
very important question in just one second, but Merlin knows a
lot about the RIA that was done on the Waste in Electronics Directive.
Mr Hyman: Yes, this is an RIA
done back in 2003 of the WEEE Directive when it was still going
through debate in the EU—increasingly RIAs are done early
and the idea is that they are done earlier in the policy process
to inform debate within the EU by the UK. That calculates the
cost to be 100 times the benefits and I think it clearly misses
out a whole range of environmental benefits from reducing landfill
and it does not take into account the impacts on our industry
either. There are a number of failings which we responded to in
the consultation. The UK was a leading player in trying to water
down and weaken the WEEE Directive—that was the position
of the UK Government negotiating the WEEE Directive—and
I remember bumping into a Foreign Office official in reception
there and he was saying that we had won on the WEEE Directive,
on the debate, we had got the point we wanted. What he meant by
that was that he had successfully lowered some of the standards
that are other countries in Europe were pushing for on that directive.
That was a specific example where the figures, 100 times the cost,
were reverberating through the system and influencing the UK's
negotiating position. Just to give a flip side, recently a very
good Impact Assessment was done on the PRO4 programme which I
know this Committee has done an inquiry into by the Environment
Agency where they made a number of proposals of measures that
should be funded under that; they did an excellent impact assessment—it
still did not include benefits to our industry, but on the other
issues it was probably the leading piece of environmental economics
done in the country. That I think gave Margaret Beckett the ammunition
to stand up within Cabinet and say to Mr Blair and Mr Brown, who
were concerned, inevitably, about the political impact of rising
water costs, we have got some really hard figures that stack up
on the costs and benefits. So there is a flip side where a better-done
RIA can have a real impact.
Mr Wilkes: In terms of the way
you flipped the question, I think that as a country we need to
be considering where industrial competitiveness and environmental
protection are going, and I refer immediately to the Dutch Government's
concept of a clean, clever and competitive European industrial
base. If one assumes that the whole world as it gets richer in
the first place, and the citizens of the world as they get richer,
are going to require higher standards in terms of quality of life
and environmental protection, then standards are going to rise.
The question is then which countries are going to supply the technologies
and services to meet that demand. Traditionally, the leading countries
have been Germany, Japan and America, because they created through
regulation and other policy measures in the early Seventies and
Eighties, a home market from which they export. That is in terms
of quality of life. Secondly, in terms of where is the future
of industry and industrial competitiveness going, I will bring
Karen in after this if I may, with your permission. She is an
expert in advising what I would call loosely `polluting industry'.
If one assumes that resource efficiency is going to become a big
issue in the future, if we assume that we are going to have to
be incredibly careful about energy use, if we assume that raw
material prices will be going up—look at the price of oil
and mining companies' share prices have been rocketing over the
past year or two—resources are becoming more scarce, inevitably
if the whole world is consuming more, demanding more. The question
then will be is our industrial base eco-efficient? Because that
is what we perceive the future is going to demand of any country's
industrial base. We need a country with a strong manufacturing
base which is alert to that future challenge.
Q28 Chairman: All I asked was whether
you are arguing for tougher regulations?
Mr Wilkes: We get accused of being
self-interested and in a way we are self-interested.
Q29 Chairman: I was coming to that.
Mr Wilkes: We are self-interested,
like any other lobby group, like the CBI—with no disrespect
to them of course. Our industry, on the other hand, is an industry
that has been ignored in this whole process of deciding on what
is best for the country in terms of competitiveness and environmental
protection. So that is our main thing, we want to be at the table.
Secondly, we would argue that actually if you take an intelligent
look into the future, the future is eco-efficient economies and
environmental technology industries. Maybe Karen could come in
here.
Ms Aitchison: I may be able to
help answer your question about tougher regulation or higher environmental
standards. To give you an example of where we are seeing the success
of that it would be Integrated Pollution Prevention and Control
regime that was entered into in 2000. The Environment Agency recently
carried out a study on the effectiveness of that regime on resource
efficiency, and what they found is that the companies who are
newly regulated, i.e. prior to coming under PPC they have never
been regulated through industrial empowerments or whatever, the
improvements there have been dramatic in terms of their resource
efficiency. The reason behind that is that there has not been
really sufficient awareness on their part before because they
have not been regulated by the Environment Agency. Resource efficiency
is also being driven by competition and that is forcing companies
to make cost savings, but it is also being caused by legislation
such as the Landfill Directive. What the Environment Agency has
found is that those sectors which are showing growth in the reduction
of waste disposal, are solely attributed to improved resource
efficiency. I think that does indicate that setting high environmental
standards can promote that.
Chairman: Thank you. Greg Barker.
Q30 Gregory Barker: Can I pick up a point
Mr Wilkes made; you said you see a great future for eco-industries.
Do you mean industries or do you mean services? Is it all consultancies
and services, paper-pushers?
Mr Wilkes: Fortunately it is not
in this country, we have a fair bit of manufacturing of actual
technologies—membrane technologies to put on water treatment
works, filtration systems to put on factory chimneys and power
station chimneys.
Q31 Gregory Barker: Of your members how
many are actually in the creative sector? I do not mean to disparage
people in the service industry, but you know the point I am making.
Mr Wilkes: Actually, I would say
that 60 to 70% of our members make kit, technologies. On the other
hand it is fair to say that the most profitable bits of our industry
are consultants because they are the people who are called in
in the first place. We have been going through what I call an
eco industrial revolution over the last decade or so, and as industry
starts to get to grips with the challenges of environmental protection
and eco-efficiency, the first people they bring in are the consultants.
A final point on self-interest and the quest for high standards—and
certainly we hear this thrown at us within Whitehall quite a lot—is
that what we are actually calling for is for ministers to make
decisions in the public interest. What we are saying is that they
are being misinformed because they are only getting part of the
evidence, they are not getting sufficient evidence because RIAs
fail to look at the benefits to our industry and the benefits
to public health, to occupational health, the indirect costs on
third party industries, the insurance industry, the tourism and
agriculture industries. Ministers are therefore unable to make
an intelligent decision because they are only given half the picture.
That is our case. Ultimately, ministers may decide that actually
a standard is too damaging to British industry, mainstream manufacturing
industry. We are not out to destroy manufacturing industry, they
are our customer base, but we are out to destroy the scaremongers
in polluting industries who have captured the debate and distorted
an intelligent discussion.
Q32 Chairman: It must be hard though,
you presumably accept, to quantify any impact on, say, tourism.
It is not easy to pin down, is it?
Mr Wilkes: No, it is not. If we
had been having this discussion five years ago we would have probably
complained quite a lot about the fact that economists in Government
failed to calculate the impacts of environmental improvements,
but they have made a lot of headway on that and it is not one
of our main criticisms or recommendations. We are in an area where
economists are having to rethink and relearn their methodology,
so they are in transit. I take your point that it is a complicated
area, but even if they could not actually come up with a figure,
at least put it in front of the minister to say there will be
some impact. I remember 10 years ago when I first started looking
at RIAs they were then called—with all respect to the chairman
of this Committee and the last Government—compliance cost
assessments, and that was where they were focused, they were focused
on the costs and there was very little work done on the benefits.
That is slowly changing and I would have thought that intelligent,
evidence-based policy making should incorporate the whole range.
Q33 Mr Chaytor: You are critical therefore
of the inadequacy of the economics of these Regulatory Impact
Assessments.
Mr Wilkes: Yes, but it is more
the methodology. The economists who are hired by the Department
have not traditionally been asked to put a figure on our industry
or on the impact on the tourist industry, that is the problem,
not the directive.
Q34 Mr Chaytor: Would it not be the case
that some of the people who are carrying out these RIAs are consultants
who are members of your organisation?
Mr Wilkes: Indeed, and I have
a fascinating one that has just come out from DEFRA by one of
our leading members, AEA Technology, which actually—going
back to the issue of costs and exaggerations—shows that
the costs of the national air quality strategy have been £3
billion whereas originally they were predicted at being £22
billion.
Q35 Mr Chaytor: So it has come down by
£19 billion. Over what period of time?
Mr Wilkes: The costs were originally
calculated, I think, about six or seven years ago, but I would
have to come back to you on that.
Q36 Mr Chaytor: To put it in a more aggressive
way, is the ball not in your court really as the relevant trade
association to establish models of good practice for conducting
these RIAs and having some system of licensing or registration
whereby consultancies have to comply with the code of practice.
Somebody somewhere must have a model of good practice.
Mr Wilkes: Absolutely.
Q37 Mr Chaytor: So there is an opportunity
for you to take the lead on this one.
Mr Wilkes: That is the second
challenge, absolutely. The first challenge is for ministers, and
they have indicated—and our evidence is clear from people
like Margaret Beckett and I think if she were here she would endorse
our case—the problem is that civil servants are not requiring
consultants in the first place to do this. I cannot understand
why because I have looked at and members look at the guidance
in the Treasury's Green Book, and we do not understand why. The
first thing we need is a clear political message and that is why
we welcome this Committee looking at this question and we hope
that you will send a clear political message to essentially civil
servants saying RIAs should cover these issues. Then, certainly,
our industry and our consultants would come in and help on that.
Mr Hyman: A lot of them are done
internally by officials; probably less than half are done by consultants.
Q38 Mr Chaytor: But the best part of
50% is done by external resources and there is no code of practice
for consultants carry out RIAs. The example that Robert mentioned
of the failure to include health costs in terms of the assessment
of the Euro 5 standard for engines, that is a fairly basic issue
to exclude from any assessment of motor vehicles I would have
thought.
Mr Hyman: The code of practice
is provided by the Cabinet Office who have a fairly detailed Better
Regulation guide.
Q39 Mr Chaytor: Does that include a code
of practice for Regulatory Impact Assessments?
Mr Hyman: It is a guide about
Regulatory Impact Assessments.
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