Select Committee on Environment, Food and Rural Affairs Written Evidence

Memorandum submitted by the Confederation of British Industry (U42)


  1.  The CBI—with a direct company membership employing over 4 million and a trade association membership representing over 6 million of the workforce—is the premier organisation speaking for business in the UK.

  2.  The CBI welcomes the opportunity to assist the inquiry by the Environment, Food and Rural Affairs Committee into UK climate change policy.

  3.  The CBI represents a broad spectrum of business in the UK, including energy producers, suppliers and users, manufacturing and financial services—all of whom are affected by policy decisions on climate change.


  4.  British business takes the threat of climate change seriously and recognises its responsibility, with other sectors, to help tackle the problem. Business has already made a significant contribution to the UK's achievement of its Kyoto target—both through technical energy and carbon efficiency improvements and through specific measures and policies introduced under the climate change programme.

  5.  The CBI believes that more can be done to improve the carbon efficiency of business, but Government must work to develop the most cost-effective programme of climate change policies and measures, involving all sectors.

  6.  Business wants to participate fully in developing the programme of policies and measures that reduce risks associated with climate change. Equally, our members are deeply concerned that this should be done in a way that not only maximises environmental benefit, but does not harm their competitiveness.

  7.  As such, we are keen to work with Government in its review of UK climate change policies and measures to help deliver a programme that:

    —  is cost effective in both the short and long term;

    —  reflects the global nature of the impacts of and responses to climate change;

    —  ensures that all actors, nationally and internationally, play their part in full;

    —  ensures that the potential burden of meeting the UK target does not fall disproportionately on business; and

    —  gives appropriate recognition to action already taken by business to address climate change.


  8.  Business, including power generators and industry, has made a significant contribution to emissions reductions in recent years. Between 1990 and 2003:

    —  CO2 emissions from power stations fell by 15.5% against a background of increased demand for electricity (approximately half of which was due to improvements in efficiency and technology, the remainder from switching from coal to gas and nuclear);

    —  industry cut its CO2 emissions by more than 6% while increasing output by 8%, while emissions from the commercial and public services sector also fell; and

    —  CO2 emissions in the domestic and transport sectors, by comparison, have risen by 10.2% and 4.6% respectively.

  (Source: DTI, Energy—Its impact on environment and society—2004 update)


  9.  Under the existing climate change programme published in 2000, the UK is due to exceed its Kyoto commitment, largely due to the action of businesses as energy users and providers (eg through core policies such as the CCL and delivering the Government's renewable energy target).

  10.  Business in general, energy suppliers and agriculture are projected to deliver cuts of over 39MtC in the period 1990-2010 as a result of core policies identified in the programme. Domestic emissions are due to remain static as a result of such policies, while transport emissions would increase significantly, resulting in an overall net reduction in UK greenhouse gas emissions of some 15% (compared with the Kyoto target of 12.5%).

  11.  The programme also identifies further measures aimed at taking the UK towards the Government's more stringent aspiration of a 20% cut in CO2 emissions alone. Over three-quarters of these additional cuts are accounted for by five policy measures, with business responsible for delivering a significant element of these either directly (eg through Climate Change Agreements and emissions trading) or indirectly (eg energy companies' role in promoting domestic energy efficiency).


  12.  The CBI recognises that British business has a role to play alongside others, nationally and internationally, both to consolidate the progress being made during the Kyoto period and to deliver reductions in the years after that:

    —  transport consumes more energy than any other individual sector (including industry and services). Business as a major transport user is already doing much in this area (eg through improved operational efficiencies in freight and changes in the composition of the company car fleet apparently stimulated by tax changes) but—as with other transport users—will be expected to continue delivering emission reductions;

    —  the forecast growth in emissions from air transport poses particular challenges. UK aviation companies are in the forefront of efforts to integrate this sector into the EU emissions trading scheme from 2008; and

    —  while industrial energy consumption has fallen since 1990, energy use in the private commercial sector has risen by 14% and is set to continue rising. Although the service sector as a whole accounts for less than a half of current industrial energy use and less than a third of that used by transport, there is likely to be considerable scope to promote energy efficiency in this area.


  13.  Policies to combat climate change may have some positive effects on business, not only in mitigating the costs that would otherwise arise, but also in creating new commercial opportunities in the provision of environmental goods and services. But many CBI members are also very concerned that emissions reduction measures aimed at UK business may affect their competitiveness by imposing costs which are either greater than they should be or not shared to the same extent by rival firms based overseas.

  14.  The overall competitive position of British firms will depend on a range of factors, but with general business profitability and investment currently at lower levels compared with the relevant point in the last economic cycle, there is particular sensitivity to any initiatives which risk generating additional costs. Concerns focus on the following dimensions:

    —  the extent to which other countries are committed to cutting greenhouse gas emissions. The CBI recognises the UK government's goal of showing global leadership in tackling climate change. Equally, there is a need to be realistic about what the UK alone can achieve given that we generate some 2% of global emissions. An ambitious UK programme of reductions could generate significant costs to the economy with little overall environmental benefit if not matched by similar efforts elsewhere in the world. It is worth emphasising that while the Government's Energy White Paper suggested that their would be a small cost to the economy from pursuing a 60% in CO2 emissions by 2050, this was explicitly based on the assumption that the world's leading industrial nations act together;

    —  how far businesses based overseas are expected to contribute to other national climate change programmes. With some exceptions, eg the UK, the Ecofys study demonstrates that in most member states the caps imposed on industry participants in the EU emissions trading scheme are less strict than would be required if these sectors were to make an equal contribution to meeting Kyoto as other sectors or if no use of the Kyoto mechanisms was envisaged; and

    —  the economic rigour underpinning the mix of policies and measures in the UK climate change programme. The existing programme identified potential for additional emissions savings from business, but provided little quantification of the impacts or cost-effectiveness of pursuing these options compared with pursuing further options in other sectors. With the domestic sector currently accounting for 30% of energy use, yet a significant emphasis on measures through which business will deliver additional savings, there is a question about how far the programme has adequately identified the most cost-efficient set of measures.

The review of the UK programme needs to result in a well-conceived strategy

  The Government's intention shortly to review its climate change strategy is a welcome opportunity to establish how best British business can play its part alongside others in tackling climate change while continuing to deliver economic growth. The CBI will be developing its views in this field during the forthcoming consultation process, but we are particularly keen that the review should address the following key issues:

    Strengthening the global response to climate change. The CBI has been encouraged by the recent steps towards Russian ratification of the Kyoto Protocol, which we believe is good news for both companies and the environment. However, we remain concerned that significant trading partners in the USA, China and India do not yet have international commitments to reduce their emissions. This both potentially results in a competitive advantage for businesses operating in these countries and fails to cover some of the most significant sources of global greenhouse gas emissions. We therefore very much welcome the Prime Minister's recent stated intent to use the UK G8 Presidency in 2005 to make progress on this issue;

    Improving the EU response to climate change. An immediate priority is to ensure that there is equivalence of effort between business sectors in different member states for those firms covered by the EU emissions trading scheme. There is also a key opportunity for the UK's Presidency of the EU in 2005 to ensure that the review of EU climate change strategy results in a cost-effective programme of policies shared between business, individuals and other sectors, and to consider an effective migration of policies beyond the Kyoto period;

    Improving the assessment of costs and benefits arising from the revised UK programme. The supporting analysis for the existing programme is patchy and raises questions about how far the most cost-effective strategy for the UK as a whole has been identified. The forthcoming review should seek to evaluate the cost-effectiveness to date of existing policies and measures, with a view to developing a programme which delivers meaningful carbon reductions at the lowest cost per tonne of carbon;

    Adopting a sophisticated approach to the contribution which can be made by business. The record to date of business in reducing emissions varies in different ways, for example, by sector (eg manufacturing compared with services), within sectors (eg some parts of retail compared with other service sectors) and by size. Some parts of business have already delivered significant gains (such as energy-intensive industries which have long had a commercial interest in energy efficiency). The reviewed strategy needs to recognise the extent to which further progress is possible where reductions have already been made, and where there may be scope for new initiatives. It also needs to recognise that the drivers for action can vary by type of business and that policy needs to reflect that diversity; and

    Tackling policy overlaps and gaps. Some sectors are (or will shortly be) affected by different initiatives (either within one policy field—such as emissions trading and CCL in energy policy—or between policy fields, such as in energy and transport). There needs to be an assessment of the cumulative impact of measures on the economic performance of different sectors, with a view to ensuring that no sectors are unduly burdened (particularly in the case of traded sectors competing at home and abroad with overseas firms). In other cases, the extent to which other non-climate change policies conflict with measures aimed at cutting greenhouse gases (for example, policies on vehicle manufacturing to tackle pollutants such as NOx emissions and to improve safety add to vehicle weight and thus fuel consumption) needs to be identified and tackled. In further cases, current lack of Government clarity in relevant areas (such as the future role of nuclear power—potentially a major element of climate change policy as a non-carbon source of energy) also needs to addressed.

15 October 2004

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2005
Prepared 5 April 2005