Examination of Witnesses (Questions 220
- 235)
WEDNESDAY 19 JANUARY 2005
SIR JOHN
HOUGHTON, DR
ANDREW DLUGOLECKI
AND MS
CHRISTINA HUTCHINS
Q220 Chairman: In your evidence,
in fact the first point you make in paragraph 1 of what you sent
to us, you suggested that we should move towards a target of 80%
of the nation's energy to be derived from renewable sources. If
we look specifically at the United Kingdom, what is your route
towards that objective given our somewhat slow progress to the
targets that have already been set?
Ms Hutchins: Basically, you assess
obviously what a country's energy (not electricity but energy)
requirement is and you can work out how much you would need to
transfer every year to renewable sources over that kind of timescale.
Given the existing slow growth, it really means that we have to,
number one, come up with the will to do it. If there is the will,
everything is possible. Secondly, the funding to support it and
the removal of barriers. At the moment we are in an emergency
situation and really we should be moving forward—
Q221 Chairman: That is a great general
statement, but let us deal with practicalities. How do we get
from where we are to where you suggest we want to be? What sort
of money are we talking about, what methodology and how are we
going to do this?
Ms Hutchins: On a funding level,
if you take the UK's energy consumption now and not allow any
additional increase and then discount the amount of existing energy
investment it works out (based on 2000 figures) at around £5
billion a year of capital funding required to support the expansion
of renewable energy projects. What we were suggesting was that
that money could be going into supporting renewable energy projects
but in joint ventures with existing energy companies and that
after so many years the energy companies would have the option
to buy out the public share, ie retain 100% of long-term profits,
and thereby the climate change/renewable energy budget would be
a rolling fund. You would not necessarily have to put up £5
billion annually between here and 2050.
Q222 Chairman: Just to be clear,
you are inviting the government of the day to make a long-term
commitment of £25 billion worth of capital?
Ms Hutchins: £5 billion per
annum.
Q223 Chairman: Yes, but over what
period, because we have got, what, forty-five years to your target?
Ms Hutchins: Sure. Basically,
what I said is that it could become a rolling fund. You would
create joint ventures with the energy sector and they would have
the option to buy out the government's investment.
Q224 Chairman: But why should the
energy sector not do it itself? At the moment what we have got
is a system where there are some financial encouragements through
the Renewables Obligation to move forward, and private companies
are making those investments. Some major energy suppliers are
busy telling us that they can supply green energy. Why should
they not do it?
Ms Hutchins: Because the energy
companies, according even to BP, seek Government leadership and
also we have a critical global issue. The action is not happening
as yet sufficiently in the energy sector, so Government needs
to take leadership on it.
Sir John Houghton: Could I just
raise one renewable energy source, which I believe is important
and lots of other people believe it is important too, and that
is tidal energy. We have the highest tides in the world in the
UK and the potential for tidal energy—and this is being
looked at by companies like Tidal Electric and the like—is
perhaps 50% of the UK's total electricity needs. The problem with
something like a tidal energy project is that the money is all
needed up front and the pay-back period is rather long, 20 or
30 years, because there is no fuel involved and it is a sizeable
scheme. Companies on their own will not invest in that way. What
we need is Government/industrial partnerships producing demonstration
projects in things like tidal energy. The technology is known.
There is no problem about any part of the technology. There are
no particular environmental problems with tidal energy. We know
exactly when it occurs. It is not like wind energy, intermittent
and you are not sure when it is coming, you know precisely when
the tidal energy is there. So there are areas of that kind which
the Government has hardly looked at and it is hardly supporting
and hardly encouraging. Unless there is real encouragement, real
incentives and a willingness from Government to put a capital
share, along with industry, into demonstration projects those
things will not get off the ground.
Q225 Chairman: I just want to ask
Dr Dlugolecki, does that make financial sense to you?
Dr Dlugolecki: Yes, it does. There
was a big renewables conference sponsored by the German government
in Bonn last year, in June, which considered these issues and
precisely the point that Sir John has raised was a key issue for
everyone, including the finance sector, that the main trouble
with renewables is that the cost is up front. The energy is free
but all of the cost is up front and finding that money when you
are competing with fuels which are unrealistically cheap (that
is the fossil fuels) is almost impossible from a financial point
of view. Why are the fossil fuels unrealistically cheap? Because
at the moment consumers are paying nothing for the damage which
will happen in 30, 40, 50 years' time. In fact it is already beginning
to happen from using these fuels. So these fuels are unrealistically
cheap. So on your main premise about why do we not just use renewables,
quite simply the fossil fuels are unrealistically too cheap and
therefore nobody is going to start renewables unless there is
help, first of all to recognise that the structure of renewables
projects is different because they are all up front and so the
banks, etc., need a different kind of comfort on the risks side,
and secondly governments have to set a clear pathway. I think
this is going back to the question you asked earlier. There has
to be a clear pathway with milestones along about where we intend
to be at different points in time. Interestingly, there was a
report by one of the biggest American power companies which burns
coal, called Cinergy, and what they said was—and bear in
mind this is in the USA—"What we need from Government
is a clear view of where we are going in terms of how quickly
emission limits are going to come in." So they accept that
even in the USA it is going to come in, but there is not the incentive
for them to develop clean coal technology, for example, until
they know how fast it is going to come along.
Ms Hutchins: I have three additional
quick points. When we are talking about a £5 billion per
annum renewables budget for the UK, first of all let us put that
in context. That is only about a fifth of the environment budget
and only about a fifth of the fuel tax. The second point is, what
is our world worth? If Peter Cox and the Hadley Centre are correct
and the UK is going to have a habitat like Africa in 80 years'
time, what money would put that right? Thirdly, we should consider
the German Ecotax model because that has been their most successful
climate policy and that has generated vast sums of money. It would
easily cover such a budget.
Q226 Chairman: But that Ecotax was
to raise money for the German pension situation, was it not?
Ms Hutchins: But its objective
was to make energy consumption expensive. That was the primary
objective.
Q227 Alan Simpson: I am a great fan
of tidal power and have been for decades. It is a bit difficult
to harness in Nottingham!
Dr Dlugolecki: It could be arranged!
Q228 Alan Simpson: It may well be
if we do not get our act sorted out. You know that the Renewables
Obligation is currently set at 10.4% that energy suppliers have
to contribute from renewable sources by 2010 right up to 15.4%
by 2015. You have nudged this along a soupçon and
suggest that it should be set at 80% by 2050. It would be interesting
to know if you think that is realistic. I am just in the process
of doing a place that will generate a surplus of energy from a
combination of micro CHP and photovoltaics, but I cannot see anyone
else on our street who is going in that direction and to get that
sort of 80% figure we have to have a seismic shift in our thinking
and our policy focus. Can we do that?
Ms Hutchins: Well, I would ask
you the same question, can we do it? I think it is about the will,
the funding and the removal of barriers and mobilising the population.
Dr Dlugolecki: I would answer
that very simply from the business point of view that if you actually
look at the rate at which technologies have spread in the last
one hundred years then the answer must be yes, it can happen,
but if we do not remove some of the barriers it may not happen.
If you look at the spread of the car, at one stage people were
concerned that London was going to grind to a halt with horse
manure and yet within twenty years the horses had gone. Look at
the spread of the mobile phone. You just have to look around.
It is perfectly feasible that that could happen, but we can also
stop it happening.
Ms Hutchins: If we do not and
if it is not achievable in the developed nations before the developing
countries further expand using fossil fuels then we will never
put the lid on climate change if certain feedbacks are triggered.
So we have to make it possible.
Sir John Houghton: People say
actually that of course technology will do it anyway, industry
will do it anyway, so why do we worry? Because it has happened
in the past, it will happen in the future. But it is not quite
so simply because the reason why it has to be done on the timescale
we are talking about is that . . .
Chairman: Well, as you have stopped speaking,
I am going to adjourn the Committee for 10 minutes to enable colleagues
to go and vote and Mr Simpson will continue our line of questioning.
So you can think a little more about the answer. The Committee
stands adjourned for 10 minutes.
The Committee suspended from 4.00 pm to 4.20
pm for a division in the House.
Q229 Alan Simpson: If I can pick
up from where I think we left off, I think the point I was heading
towards is that I do not think the Committee needs to be convinced
of the moral, ethical, environmental case for the changes which
you are describing. I think what we are looking for is an identification
of the mechanisms of getting there and I think those mechanisms
really need to be focused for us on what Government has to do.
I was just trying to bring us back to the question of how we change
the economics of what is viable. I know from my own place that
if I wanted to do something cheaply I would not be doing this
combination of micro CHP and photovoltaics, but in the long term
or in the medium term it makes sense to try and have power systems
which generate more energy than they consume. In part of your
evidence you gave us an example of the German Ecotax system raising
6 billion a year?
Ms Hutchins: It has raised vast
amounts, yes.
Q230 Alan Simpson: It would just
be helpful first of all to know what is the rate of tax which
applies in Germany because you suggested 10 per cent?
Ms Hutchins: It was incremental.
It was a tax on electricity, mineral heating, oil and gas. It
started off on electricity at 2 pfennig per kilowatt hour. I think
it was 6 pfennig on mineral, 4 pfennig on heating oil and 0.2
pfennig—I can give you the exact figures—as a first
round, and then they increased it in 2000 and 2001. The mineral
went up to 6 pfennig twice, I think it was.
Q231 Alan Simpson: Just let me cut
to the chase here. I think the figure for us that is relevant
is what the rate is now because that would be helpful.
Ms Hutchins: I will have to get
back to you on that one.
Q232 Alan Simpson: Sure. If you have
not got it, we do not need to go through the history but if you
could just let us know at some point. But in a sense that is a
very narrow approach to the tax process and I think the cleverness
of the German approach is that in some ways they have not related
it to climate change at all, they have tied it to pensions, so
that it engaged a different sort of coalition. I really would
like you just to say would you first of all want this just on
energy generation and not on things like the current windfall
profits the oil and gas industries are sitting on, something in
the region of £5 billion this year for doing nothing really.
The second is, is the wider issue that you raise a question of
whether we tax not fossil fuel consumption but energy consumption?
Is there a need to change the whole nature of the energy market
so that energy suppliers can actually sell thermal efficiency
rather than energy consumption?
Sir John Houghton: I think the
most important tax to have or the most important weighting to
provide is on the fossil fuel part of the energy system because
that is what you are really trying to cut down, and that in itself
of course will help to produce energy efficiency also, particularly
for people who are of course having to pay that tax because they
get their energy from that means. So that is important to develop
it in the first place. It is a question which I think Andrew might
like to answer.
Dr Dlugolecki: I think opportunism
has its place. So if the opportunity arises to get some more money
from an environmentally friendly direction, as you say, where
the fossil fuel industry is making a lot of money then I think
there is something to be said for that. But I would only see that
as something which if the opportunity arises you take advantage
of it, but you do not have that in your plan and you do not rely
upon that kind of thing happening. You are asking what specifically
can we do. There is a number of other things that one can do.
You are looking at tax there, but in terms of efficiency one big
thing which is coming in quite soon, which is interestingly in
the finance industry, is that there is an EU directive on the
energy performance of buildings and that is going to really waken
up the entire property-owning sector in the UK because to them
until recently climate change has not been an issue and there
is a big difficulty in running buildings, commercial buildings
anyway, in a climate-friendly way because the tenants and the
owners have different objectives. The tenants want buildings which
are as cheap as possible to run, whereas the owners maybe want
buildings which are capitally very efficient and over the long-term
will be better to run. So you have a conflict of interest there.
So that EU directive is creating a new platform where we can see
climate change coming in as a big issue in terms of the running
of buildings. Another very specific one is where there was a big
fanfare when Tony Blair announced in Johannesburg that the Export
Credit Guarantee Department (ECGD) had ringfenced £50 million
for the export of renewable energy from the UK, and not a penny
of that has been claimed. No one has come forward to use that
money to export. That again was one of the things which were analysed
in the Bonn renewables conference. It is not just a British problem,
it is a generic problem for the renewables industry. The renewables
industry tends to be small companies and they just cannot be bothered.
They do not have the resources, let us say, to deal with the problems
of exporting. It is enough trouble for them manufacturing in their
own country, let alone exporting to a country where there may
be corruption and all sorts of other problems, plus the procedures
for getting the credits from ECGD or their foreign equivalent
are very cumbersome. So one thing Government could do is to look
to see how to get small renewable companies to be able to export,
and they need a lot of assistance to get started. I am not just
saying, "Well, let's just give them money and it's a subsidy."
It would be good for Britain ultimately because you are creating
new industries and it is very necessary, and we can see it is
not just a British problem, it is all over the world and that
£50 million is just sitting there unused. In terms of my
own industry, the finance industry, there is increasing interest
in what we can do about climate change. The big finance industry
is not interested in investing directly in renewables. You are
talking there about venture capital finance. This is new stuff
and it is highly risky. You have got the risk of the entrepreneur,
the risk of the technology and the risk of the market. The big
investment companies do not have the skills to do that. They invest
in big companies. What you have seen recently is the formation
of something called the Carbon Disclosure Project, which now has
over a hundred backers which collectively control something like
$11 trillion of assets. So it is very, very big. It is partly
UK but it is also international and what they are finding is great
difficulty as investors in finding out which companies are treating
climate change seriously. So one thing that Government could do
is to bring more focus in terms of the requirement on companies
to report their performance on climate-related activities. For
example, just publishing their emissions would be a good start.
Similarly, for investors I think it would be very worthwhile to
sponsor some research—and I think it would be tiny in terms
of the amount of money—so that one could judge which investors
are actually paying attention to climate change in the way they
invest their money. So you could say, "How many emissions
did this £100 million of investment create?" At the
moment there is no recognised metric for doing that. It would
need very little money to actually sponsor some research and come
up with a method that people would accept as being reasonable
to do that kind of thing. Another reason why investors do not
go into renewables is because there is tremendous pressure on
them to invest securely. So they do not tend to look at the long-term,
they only look at very short-term returns. The Treasury tried
to change that with a Pensions Bill in 2000 and it is looking
again at trying to change it, but there seems to be a tremendous
need to bring the trustees of pension funds up in terms of their
ability to look at these issues. There was a report published
on 17 December, the Morris interim report on the actuarial profession.
The actuaries are extremely influential in the way they influence
investors' decisions, the fund managers they appoint, the strategies
they adopt, and that report concluded that actuaries are very,
very narrow and introverted in their thinking. They tend not to
think about the wider world, environmental issues, and so forth.
So that again is another opportunity. There are certain key decision-makers
that the Government could do things with. You may think this is
a litany of criticism, but I can give you a positive example as
well.
Chairman: We are up against time restraints
for some of our colleagues. I think we have got the message. I
am sorry, Ms Hutchins, I know you are bursting to get in but two
of my colleagues have short, sharp questions to bring your session
to a conclusion.
Q233 Mr Lazarowicz: The point I want
to make relates very much to the issue of what Government can
be doing as well. In your paper you have made the point about
if we are going to get the kind of change in renewable policy
that is required in the renewables market we actually need to
make sure the public are brought on board in a much bigger way
and are actually aware of the issues and some of the solutions.
You have been doing some work in relation to how the view of the
UK climate change programme should include a strategy communications
plan. Can you tell us a little bit about what you have in mind
there, what is the extent of the programme that you have in mind,
what it will consist of, and also give the timescale? Can you
also in that answer roll up also the issue of what response you
have had so far in your discussions with Government as to the
likelihood of that type of communications programme coming forward.
Sir John Houghton: Well, just
very quickly to say I chaired a meeting last May which was hosted
by BP. The object of the exercise was to say how can we get together
with Government or Government, industry and NGOs together to have
a concerted, cooperative public awareness programme on climate
change with a wide range of stakeholders. We had a lot of good
people at that meeting, a lot of senior people from right across
the board, including Government, and as a result of that I wrote
a letter to the Prime Minister and he supported that sort of approach
on the basis that—
Q234 Mr Lazarowicz: What kind of
scale are we talking about, can you give us some idea? Everyone
has communication programmes. What is going to be special about
this one given the challenge that we are facing?
Sir John Houghton: Well, what
it has to present is to give people information about climate
change in a way that they can be informed about it. Government
needs an informed public if they are going to have the confidence
to move ahead with the sort of programme we have been talking
about earlier on and put the sort of money in that we were talking
about earlier on. So it has to be a large scale programme. It
also has to try and not only change people's attitudes but also
give them information about what they need to do, why the renewable
energy business is important so that it is coupled in with renewable
energy information and all that sort of thing too. I think Christina
could actually say a little more about that.
Ms Hutchins: We are talking about
a major programme and one which is sustained for many years of
the scale of the kind of HIV, the drink driving campaigns, that
kind of impact. We also feel that it should have the same kind
of tone as the famine appeals. I think the tsunami disaster has
shown you how people are willing to help given the right buttons
to push, and therefore the tone is very important. Where we have
got with it so far is basically, as Sir John was saying, we have
been having meetings with Defra, who are keen to implement a communications
campaign, and we are proposing that that be implemented in coalition
with Government, the private sector and the NGO community. At
the moment it seems that there is some uncertainty as to whether
the Defra campaign may move forward as a less than high profile
campaign or not, certainly in the first year. They are talking
about local and regional awareness-raising and, as Sir John said,
they are talking perhaps only in the first year about changing
attitudes, whereas we think we should be getting people to take
action.
Mr Lazarowicz: Perhaps in view of the
time I could just simply ask you, if possible, to give a note
of a bit more detail about what you actually have in mind in practical
terms in that kind of programme.
Q235 Joan Ruddock: Well, I agreed
with the Chairman that I might ask you about global dimming and
I do so because I watched the amazing Horizon programme last week.
Before that I was totally ignorant on this subject. I imagine
most people still are. As I understand it, what we have is essentially
a global cooling because of air pollution and as we begin to reduce
air pollution that effect goes away so that actually global warming,
which we have all been so obsessed about, might be on an even
faster track than we had envisaged to date. I just ask you what
you think the implications of that are and how much more seriously,
perhaps, this Committee, the Government and everyone else has
got to address global warming because it is possibly a greater
order of magnitude. I think Miss Hutchins referred to the Hadley
Centre, which of course is onto this already.
Sir John Houghton: Yes. I was
responsible for the scientific part of the 2001 IPCC report. We
did know about the particles situation then. We took the sulphate
particles into account in so far as our projections for 2100 were
concerned, expecting of course that sulphates were dropping in
all countries of the world because of the problems of acid rain,
and that of course is occurring and that is what part of what
the programme was about. Just a general point about the science.
There were various scientific points made on that programme, one
about aircraft and about cloudiness, and so on. Having been involved
in this process for the last fifteen years or so, the science
has become stronger. Our projections in 1990 have become tougher
because positive feedbacks tend to be stronger than we believe
they might be. We have always tried to be very conservative in
our projections and not put forward things which were too uncertain,
but those uncertainties tend to be moving in the direction of
making things harder and making global warming greater than we
expect it might be otherwise, and that is a very serious matter
actually. It demonstrates, and that programme demonstrated very
well that almost all the evidence we have is pointing in the direction
that it will be substantially worse than we expect. Of course,
at the moment a lot of the global warming we have actually committed
to to date has not occurred because the oceans are preventing
us from warming up. They take time, twenty or thirty years, to
warm up. So we are committed already. Even if we stop burning
all our fossil fuels tomorrow we are already committed to a substantial
degree of climate change and climate change by 2050 will become
larger than we expected whatever we do, in a way, and then it
becomes worse still. We have got to mitigate so that the damage
will not become absolutely impossible by the middle of the century,
and that is what we are talking about today. Having realised that,
we are in an urgent situation to do something about it and Government
really needs to say, "This is very high priority." We
have got to get all parts of government together, the DTI, Defra,
the Treasury, and so on. We have got to get together with the
major players in industry, the BPs and Shells, and so on, of this
world and for the Government to approach them and say, "Look
here, we really do want to move along in the mitigation programme
of renewable energy and renewables in particular. Please, how
do we do that in a joint partnership with you?" We can then
help other countries in the world also because we could become
big in the business of renewable energy. We are not big at the
moment, we are small compared with many other European countries.
So why do we not just pick up this particular subject?
Ms Hutchins: My response very
quickly is, yes, the implications are that we are talking about
global catastrophe and in twenty-five years from now there will
be irreversible melting of the ice cap. Basically, Kyoto cannot
deliver what is needed at the moment because governments will
not commit to sizeable emissions reductions until alternative
energy sources are on board because it will undermine their economic
development. Therefore, that is why it is critical that we implement
a global climate change renewable energy plan to rapidly expand
renewables. We would suggest, because you were talking about a
mechanism to do that, that we would much like to bring together
with Government a small steering group comprising government parties,
no more than 12, environmentalists and the private sector to take
this plan forward. There are some excellent minds including parties
involved in the international task force and other parties contributing
who could help to expand and develop this.
Chairman: Thank you very much indeed
for your stimulating contribution and for your paper. I am sorry
it has been a little bit disjointed because of the voting, but
nonetheless thank you for coming.
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