Memorandum submitted by the Confederation
of British Industry (U42)
INTRODUCTION
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.
BUSINESS APPROACH
TO 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.
BUSINESS HAS
BEEN A
KEY PLAYER
TO DATE
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)
BUSINESS IS
ALREADY SET
TO DELIVER
FURTHER EMISSION
REDUCTIONS
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).
BUSINESS RECOGNISES
THAT MORE
WILL NEED
TO BE
DONE
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.
BUT IMPORTANT
BUSINESS CONCERNS
REMAIN
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
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