Examination of Witnesses (Questions 240-259)
9 FEBRUARY 2005
JOHN HEALEY
MP, MS FIONA
JAMES AND
MR PAUL
O'SULLIVAN
Q240 Joan Walley: So they cannot go to
the extra amount until 2006/7 because of the capacity issue. That
£20 million, when it does step in, is wholly Government money,
not in any way made up of private money.
Mr Healey: I think we have to
let you have chapter and verse on this because I think just focusing
on the £20 million announcement in the pre-budget report
is the minor part of what the Carbon Trust is set to receive and
the increase of activity that you are looking for over the next
spending review three-year period. As I say, the more significant
increases in investment were set out in the spending review. If
it is helpful, I think we should set that out for you, so that
you can get the £20 million in perspective.
Q241 Joan Walley: Included in that, given
that the existing funding that is there for the Carbon Trust,
you say, came from Defra, is that Defra money continuing—so
that what has been announced is on top of and supplementary to
what comes from Defra—or is it that the Defra money will
be phased out and the additional money that you have announced
will come forward? Would you let us have those figures?
Mr Healey: Certainly, but it was
not the intention of the announcement in the pre-budget report
that somehow that would replace the existing increase in investment
for the Carbon Trust.
Mr O'Sullivan: My understanding
is that we gave the additional money to Defra, who then passed
that on as an additional contribution to the Carbon Trust. So
it is additional money on top of the existing Defra money.
Q242 Joan Walley: Could you let us have
that clarification, as to whether it is £10 million or £20
million of public money. With all the work that the Government
did in respect of the Energy Efficiency Implementation Plan—and
now we have a further Energy Efficiency Review taking place—why
do we need this review? When is it going to report?
Mr Healey: I believe you are referring
to the Energy Innovation Review.
Q243 Joan Walley: I understand it is
the Energy Efficiency Innovation Review.
Mr O'Sullivan: The Energy Efficiency
Innovation Review is being done across ourselves and Defra, working
with people like the Carbon Trust and the Energy Savings Trust,
and I think it is building on some of the progress made in the
Energy Efficiency Implementation Plan that was published last
spring/early summer. I think it is in areas where we thought there
may be the potential for further progress—particularly things
like how we can maybe develop an energy services market, and actually
get a market where companies provide energy services rather than
electricity, so that there is scope for people to get energy efficiency
measures, insulation and things like that, and pay through an
ongoing charge rather than facing upfront cost. It is those sorts
of area where we thought there might be possibilities for developing
new ways of tackling energy efficiency and overcoming some of
the barriers. This was fruitful ground for us to take forward
between ourselves and Defra and the other people involved in this,
and we were wanting to do some quick work on this which we could
then feed into the conclusions of the Climate Change Programme
Review.
Q244 Joan Walley: When do you expect
it to report?
Mr Healey: I think it will report
through the Climate Change Programme Review which is due to come
out in early summer, although we do not have a final timetable
for that yet.
Q245 Joan Walley: Could I move on and
ask whether or not you have any idea or if you could give us the
precise figure of the total amount which the Government is now
investing each year in renewables and energy efficiency. I think
the concern is that the amount we are providing does lag behind
European competitors, and we want to be on a par with them, and
we want to be at the forefront really, at the cutting-edge, of
new technology and so on. It seems that we are lagging behind.
I wonder if that is borne out by the figures, and, if so, whether
that is a matter of concern.
Mr Healey: We will have to produce
the figures for you. I only hesitate because, if you are looking
for the full range of figures relating to renewables and energy
efficiency, we are looking at a range of measures that generally
we do not calculate together for the value of the exemption of
the Climate Change Levy for renewable generation to the £150
million a year we put into the Warm Front programme. So it is
a wide range of potential measures and the funding that goes into
that, but I am happy for us to try to pull that together to provide
to the Committee.
Joan Walley: I think that would be helpful,
because the way you have responded to my question really makes
the point I was trying to make, that there is not a transparency
and about all the different funding streams that there are. Were
that transparency to be there, we could have a much better idea
as to whether we are perhaps leading rather than having the impression
that we are lagging behind. That transparency and that information
would be much appreciated.
Q246 Paul Flynn: The last time you spoke
to this Committee was last summer. You were adamant that the fuel
prices were going to increase in the autumn. Emboldened by this,
we published a report defending the Government's position on this.
Of course it did not happen, and the Government retreated from
this. On this issue, can you tell me who the Government is listening
to? Are they listening to the Chief Scientist or to the man in
the pub on the outskirts of Leeds?
Mr Healey: The Government and
we in the Treasury listen to the widest possible range of different
views which have a bearing on the decision that we need to take.
When I came before the Committee last summer I explained that
we had made the decision in the budget that we would delay the
introduction of what was the inflationary increase in the main
fuel duty rate to September 1. You will be aware, Mr Flynn, of
the volatility, as well as the high prices in the oil market,
and, in view particularly of the volatility of those prices, we
took the decision, first of all, to postpone the 1 September increase,
review it in the pre-budget report and then not go ahead with
it at that time.
Q247 Paul Flynn: It always seems in these
cases, when it comes to a crisis decision, that the tabloids win
and the environment loses.
Mr Healey: I would not accept
that at all. You rather vividly exemplify the competing viewpoints
and pressures clearly on Government when we have to face up to
these sorts of decisions. The range of the conversation and the
different fiscal measures that we have discussed this afternoon
demonstrate that there are some significant gains being made in
environmental terms because of the tax and wider economic instruments
that we have put in place.
Q248 Paul Flynn: The huge profits of
Shell and BP, £8 billion, have you given any consideration
to the possibility of making those companies reinvest at least
a portion of their profits into carbon technologies?
Mr Healey: Some of these companies
are doing things like that at present. We have no plans for any
form of windfall tax on the fuel companies.
Q249 Paul Flynn: It is a question of
polluter does not pay.
Mr Healey: When one looks at these
international corporations and the profits they are reporting,
first of all, from a British government and fiscal standpoint,
probably a little over 10% of the increase in those profits comes
from the UK operations, the rest are worldwide. If you look at
the source of the relative increase and what has generated those
profits, it is largely downstream: it is refining and it is chemicals.
In those circumstances anyway, where companies are more profitable
they pay more corporation tax. Our oil companies that exploit
the national natural resources we have in the North Sea also pay
a particular form of taxation which we have, petroleum revenue
tax. As a result of the higher oil prices, they will be paying
more during this current year than we originally anticipated at
this time last year in last year's budget.
Q250 Paul Flynn: If we cannot use the
stick, then can we use the carrot of possibly giving them some
tax breaks, with the oil companies, in relation to carbon sequestration.
We know this has been used in Norway. At the moment, there
is a very narrow window of opportunity to do this in the North
Sea because it has to be done when the oil wells are closing down,
it cannot be done later on. We understand that two years ago there
was an urgent six month review in the White Paper of the possibility
of using this. The Government have said this is a useful thing
to do. What is the position now? Are we doing this? The opportunity
will not be there for much longer to encourage them to use the
closing oil wells for carbon sequestration.
John Healey: These sorts of arguments
are being made to us at present, in this Government, as part of
the programme of reviewing the climate change. As those arguments
are put to us in the context of that review—
Q251 Paul Flynn: It was not the arguments
being put to you; you put the arguments in the White Paper of
February 2003 which announced an urgent six month research project—that
is a year and a half ago, not now—suggesting this was a
good idea.
John Healey: Whether or not there
is a case for carbon sequestration and the use of some of the
wells in the North Sea, is likely to be a factor because the argument
is still being made to us that we will consider as part of the
Climate Change Review Programme.
Q252 Paul Flynn: In relation to the Emissions
Trading System, a number of expert witnesses have told us that
UK power companies are likely to make substantial windfall profits
from Phase 1 of the ETS. We could be talking here of as much as
£500 million extra revenue each year. If that is to happen,
what action do you think you should take? This is a windfall profit
they are likely to make. Are you going to do anything in the way
of encouraging them to reinvest those profits into low carbon
technology or can they just pocket them?
John Healey: The potential for
windfall gains from the generators under EU ETS comes from the
fact that we have allocated the allowances free of charge to those
incumbents in the field at the moment. We have taken the view
that, given the wider concern about seeing levels of investment
in power generation and supply raised in the future, to levy a
tax on those allowances is not a sensible thing to do.
Q253 Chairman: Have you allocated the
allowances yet?
John Healey: As you know, we have
submitted our plan for allocating those allowances to the European
Commission. We are still discussing the detail of those at the
moment and hopefully we will be able to confirm to the sectors
and the particular installations the allocations of those allowances
shortly.
Q254 Chairman: What about those press
reports that the Government is threatening to sue the European
Commission over its refusal to accept our proposals for a National
Allocation Plan, are they true?
John Healey: At the moment, we
are continuing what are very tough discussions with the Commission
because we have submitted our allocation plan with some revisions
to the provisional one which we submitted much earlier last year.
At the time we made it clear that it was likely to be subject
to particular data revisions. We are arguing and making the case
to the Commission that they should give us the go ahead on the
plan we have submitted.
Q255 Chairman: You would not rule out
legal action?
John Healey: We are not at that
stage at the moment.
Q256 Paul Flynn: On the question of climate
change, we have a lot of evidence about what is likely to happen
with the Emissions Trading Scheme. One analysis produced by Enviros
has suggested that the carbon prices might rise from the current
level of seven euro a tonne of carbon dioxide to over 30 euro
a tonne at the end of Phase 2. Have you explored what impact this
might have on UK industry and domestic consumers?
John Healey: In many ways we are
all entering into a system which is innovative, new and to date
has been unpredictable. If one looks at a base level of carbon
traded at five euro a tonne, the likely effect on power prices
for consumers is around three% for domestic and six% for industrial.
Clearly if the price of carbon rises, then there may be an increase
in the follow-on effect of prices for consumers.
Q257 Chairman: Can I return, briefly,
to our old friend, aviation, because there has been a recent development
which has been brought to my attention. The European Commission
has published a Work Programme 2005, in which they indicate that
during the British Presidency they are going to publish a communication
on the subject of aviation and the EU Emissions Trading Scheme.
What are your objectives now, within the context of the Presidency
in the EU, in relation to including aviation within the Emissions
Trading Scheme?
John Healey: Rather simple, that
in this first phase we want the European Union Emissions Trading
Scheme to be up and running and functioning properly. We are doing
work already on seeing that we can include aviation in the second
phase of the scheme when that comes along. That is our objective,
to see the inclusion of aviation in the second phase.
Q258 Chairman: Is our case hindered at
all by the fact that we are not part of the Emissions Trading
Scheme at the moment because we have not agreed a National Allocation
Plan? Surely that weakens our negotiating position?
John Healey: We are very much
a part of the European Union Emissions Trading Scheme and are
determined to be so. We led the way in setting allocation plans
which are absolutely within the spirit of the Trading Scheme and,
whilst protecting the interest of our business here, designed
to have an impact on the environment which is ahead of most of
the other European Union states. I think our position, potentially
to lead this sort of argument, particularly during our Presidency
in the second half of this year, is very strong, but clearly we
want to settle the outstanding discussions we have with the Commission
over the commencement of the first phase.
Q259 Chairman: Would you be hoping for
a draft directive on including aviation by the end of this year?
John Healey: That is probably
a question which is a bit premature. We are not quite at that
stage at the moment.
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