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.
1. ENHANCED CAPITAL
ALLOWANCE SCHEME
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.
2. PUBLIC PROCUREMENT
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.
3. CLIMATE CHANGE
AGREEMENTS
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.
4. ENFORCEMENT
OF BUILDING
REGULATIONS
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.
6. EMISSIONS
TRADING
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
Director
5 October 2004
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