Select Committee on Environment, Food and Rural Affairs Written Evidence

Memorandum submitted by the Environmental Industries Commission (U33)

  I write, on behalf of the Members of the Environmental Industries Commission (EIC) Climate Change Group, on the subject of the UK's Climate Change Policy and upcoming leadership of the EU and G8.

  With over 240 Member companies, including over 70 providing products and services related to energy efficiency, EIC has grown to be the largest trade association in Europe for the environmental technology and services industry. It enjoys the support of leading politicians from all major parties, industrialists, trade union leaders, environmentalists and academics.

  We appreciate the opportunity to participate in this inquiry. We start with comments on domestic policy, and then move to measures that should be taken at an EU and international level.


  The Enhanced Capital Allowance Scheme to incentivise energy efficient technology has now been running for some time. EIC was instrumental in promoting the introduction of fiscal incentives for companies purchasing environmental technologies and our Members provide many of the items of equipment on the list.

  EIC Members' experience is that the scheme has been a success in the construction sector but has had much less impact in the commercial buildings sector. The chooser of plant items for commercial construction projects is invariably NOT the end user but an installation contractor or design consultancy practice who receive no gain for using the scheme. The end user is also usually capital cost driven, consequently the take up of these allowances, and the subsequent use of energy-efficient equipment is limited. In addition the financial advantage for 100% capital allowances adds up to a relatively modest incentive in most cases.

  Furthermore a complete sector of the economy, namely any organisation not paying corporation tax, eg NHS Trusts, Local Authorities and other non-profit organisations, cannot claim ECAs, and consequently have no incentive to use equipment on the Energy Technology List.

  EIC is therefore recommending to Treasury, Defra and the Carbon Trust the following measures to develop the scheme:

    —  Increase the allowance for the most energy efficient products to 150%. This will undoubtedly stimulate end users much more to insist on ECA listed equipment being used as part of an overall building specification.

    —  Provide an Inland Revenue certificate to accompany sales of ECA registered equipment to be sent to building owner in order to address the problem of information being transferred along the sales chain by simplifying the documentation required.


  The Energy White Paper commits the Government to encouraging energy efficiency through public procurement. EIC greatly welcomes the fact that the "Quick Wins" for environmental procurement in the public sector, developed by the Office of Government Commerce, includes reference to the Energy Technology List. To ensure this has the maximum impact we recommend that:

    —  The Government monitors and reports on whether Departments are choosing items on the Energy Technology List.

  One area where EIC Members have found little attention is paid to energy efficiency is in PFI contracts (which are often major projects). They have informed EIC of a number of occasions when the most polluting equipment has been purchased, for example in schools and hospitals, because the PFI contractor is not responsible for energy bills and therefore has no incentive to consider the whole life costs of equipment in terms of its energy use. There is no shortage of guidance recommending consideration of whole life costing and energy efficiency, but it appears to have little effect in practice. Given that the Prime Minister has pledged in his recent speech on Climate Change to make all new schools "models for sustainable development", EIC recommends that:

    —  The Government moves beyond guidance and suggestion to set and enforce challenging energy efficiency criteria for all new PFI contracts.


  The Climate Change Agreements under the Climate Change Levy have incentivised energy efficiency measures in some sectors. However, the low price of carbon in the UK emissions trading scheme demonstrates that the level of greenhouse gas emissions reductions required have been set too low and many sectors have been meeting these emission levels, and gaining their 80% discount on the Levy, with little effort. EIC therefore recommends that:

    —  The current review of Climate Change Agreements, as well as the negotiations for the extension of the Agreements into new industry sectors, ensure they are set to drive challenging reductions in greenhouse gas emissions.


  The Government is now reviewing Parts F and L of the Building Regulations, which, with the implementation of the Energy Performance of Buildings Directive, could serve as an important driver for efficiency measures in existing buildings. However, the country is suffering from a shortage of properly trained inspectors, and our Members' experience is that inspectors place a low priority on energy efficiency when enforcing the existing Building Regulations. This risks undermining the impact of these important measures. EIC therefore recommends that:

    —  The enforcement of Building Regulations be given a high priority.

    —  The verification of a building's energy performance be made a prerequisite for registration of interest with HM Land Registry.

5.  VAT

  EIC has responded to the Treasury consultation on home energy efficiency identifying reduced rates of VAT as the most effective economic instrument for encouraging energy efficiency. This should be applied to: DIY energy saving materials; commercially installed energy efficiency products or materials in non-grant schemes; and to energy efficient equipment. EIC therefore recommends that:

    —  The UK engages with other EU Member States to work for an extension to the list of goods and services which Member States are allowed to apply reduced VAT rates to include these energy saving products.


  EIC has supported the EU Emissions Allowance Trading Scheme (EATS), in principle. However the UK and other EU National Allocation Plans (NAPs) have over-allocated allowances and damaged the scheme.

  The EATS will limit the scope of the Integrated Pollution Prevention and Control (IPPC) regime in regulating emissions of the basket of six greenhouse gases. It will therefore weaken existing EU environment regulation as it does not match the IPPC regime requirement for "best available techniques" to be used.

  We are disappointed that greater effort was not made to ensure that the UK NAP contributed significantly to our domestic target to reduce carbon dioxide emission by 20% from 1990 levels by 2010. We are even more disappointed that the UK's route to achieving its Kyoto target now even looks to be in doubt.

  As Table 1 of the NAP submitted to the Commission clearly shows, the emission reduction for the first trading period is only 0.5 MtCO2, a target of just 0.2%, as opposed to 5.8% in the draft NAP.

An undemanding NAP means either:

    (i)  unrealistic reliance is being placed on alternative emissions reductions measures; or

    (ii)  the cuts to be delivered by the UK's NAP for the first five year period in the second phase of the EATS will have to be much harsher.

  The ground given in response to pressure in respect of the first phase NAP gives no confidence that a second phase NAP will be able to make up the lost ground.

  EIC therefore recommends that:

    —  The Government now makes a firm commitment that the second phase of the EATS will deliver emissions reductions in line with the domestic target to reduce carbon dioxide emission by 20% from 1990 levels by 2010.

    —  The UK work urgently with the Commission and other EU Member States to ensure tight and challenging National Allocation Plans, wide participation in the scheme, and enforcement of non-compliance.

Merlin Hyman


5 October 2004

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