Select Committee on Environment, Food and Rural Affairs Minutes of Evidence


Examination of Witnesses (Questions 260 - 266)

WEDNESDAY 19 JANUARY 2005

MS BRYONY WORTHINGTON

  Q260  Alan Simpson: I am just finishing the fine drafting of an Energy Services Bill so my eyes lit up when I came to the part of the FoE submissions which said that you were recommending a top-down market-based mechanism that incentivised energy companies to sell energy services, so I would be quite keen for you to just trace out the direction your thoughts are taking, but also if you would just confirm two things. One is, whichever way we look at that, it is not compatible with a unit price-based competition policy. It is the nature of the current competition policy which makes that plea unobtainable. The second is that whatever we come up with really ought to be industry-neutral so that we do not inadvertently find ourselves saying, "Well, it's okay to lob £85 billion at burying nuclear waste because it is not carbon, but anything that is carbon can't be touched so we need to look at how we service general efficiency but not energy consumption."

  Ms Worthington: Okay. I might ask you to clarify the last bit, but in terms of what we see as being wrong at the moment in terms of the demand for energy, the current Government mechanism operates on a bottom-up approach so it adds together savings attributed from different activities that companies undertake to arrive at a set amount of energy saved. Meanwhile, everybody is installing more and more electrical goods into their homes and spending more time or whatever living a more luxurious lifestyle. The demand for energy is actually continuing to rise even though these small incremental projects may be taking some of the edge off that growth. When you get into carbon constraint where you have absolute targets against a baseline year, simply constraining growth is not enough, you have to start to reduce. What we would suggest is again more of a top-down approach where we look at the overall trend in and demand for energy from any sector. In fact we would suggest starting in the commercial sector, where there are very few policies at the moment to incentivise this kind of activity, and you create a budget for energy demand which is implemented through a system of tradable certificates between those companies who service those customers and essentially providing people with a target level of demand that they will fulfil. If they need to go above that target they pay the penalty or purchase credits from somebody else who has managed to reduce demand from their customer base. That is taking the principles of the Renewables Obligation, some of the elements of the Emissions Trading Scheme and applying it to energy demand so that you fundamentally change people's views from one of, "We will make more money if we sell more units," to, "Well, we have to try to meet our customers' needs with this amount of energy." That will change the relationship between the units sold and the service provided and should incentivise companies to look for those low-hanging fruits, the least cost solutions which they could probably much more easily uncover than Government might be able to.

  Q261  Mr Lazarowicz: Can you tell us something about how you think the Energy Efficiency Commitment should be improved? As there is meant to be a Defra/Treasury view of policy in this area, can you briefly give us some idea as to what is the nature of the changes you would like to see in the commitment?

  Ms Worthington: We would first of all want the target for the commitment to be expressed as a percentage of overall demand so that the target rises as energy demand rises, in the same way that the Renewables Obligation keeps pace with the growing demand for electricity. Otherwise, you are simply providing a static amount of savings against a rising baseline. That is one of the fundamental problems with the scheme at the moment. As I have just outlined, we would prefer a far more top-down approach to encouraging people to make savings so that you would start with looking at the totality of your customers' demands and giving people targets to reduce that demand, or if we feel it is politically unacceptable to ask for reductions yet from this sector that you simply say no net growth. That would equally be a way of tackling growth in demand. Those are some of the fundamental things which need to change to make the Energy Efficiency Commitment a useful tool in reducing demand rather than simply encouraging various small projects that take place.

  Q262  Mr Lazarowicz: Again, it might be helpful to have a bit more information sent to us to give us some idea what you mean in more specific terms about the domestic centre.

  Ms Worthington: Certainly, yes.

  Q263  Mr Lazarowicz: Again, you are also critical of the way that the Climate Change Levy has actually impacted upon emissions and again I would be interested in knowing first of all why you think the levy has not been working well and what should be done to it to make it work better?

  Ms Worthington: Well, essentially it has not been set at a high enough rate to really fundamentally incentivise changes in behaviour. That is one of the most fundamental problems. The recycling of the revenue which has come in also has gone towards National Insurance reductions, which whilst that is a good thing it is not very well targeted in terms of how you might use the revenue to encourage more reductions in emissions, which would then automatically affect the scheme. Some money is obviously being recycled through the Carbon Trust, which is welcome, and we hear encouraging news that they are making progress in terms of helping industries and businesses to realise savings. There is also quite a number of exemptions from the levy, which has resulted in climate change agreements being negotiated between Government and industry. These agreements are fairly opaque, well, entirely opaque actually and very hard for us to scrutinise in terms of understanding whether they are actually being asked to do anything. We hear great things about how much has been saved, but it is very difficult to verify whether that is just as a result of business—

  Q264  Chairman: You can write us a letter with the questions that you would like to have answered on the grounds that it is opaque and we cannot find out and we will put them to the relevant Secretary of State.

  Ms Worthington: That would be welcome. Thank you.

  Chairman: All right. Well, you do that.

  Q265  Mr Lazarowicz: What you are saying, to be clear, is that it is a relatively simple technical issue and quite a big political issue, this Climate Change Levy. It is not a particularly complex scheme to work out. That is the message I get partly from what you say. Could I just ask you, in terms of an increase to the Climate Change Levy what kind of a level of increase are we talking about?

  Ms Worthington: I have not properly considered that, so I would have to give you a supplementary on that.

  Mr Lazarowicz: Okay. That would be helpful.

  Q266  Chairman: I, too, would welcome some further thoughts about the Energy Efficiency Commitment because it seemed to me that companies are doing it but there did not seem to be much of a connect with the customer and I would be grateful for your thoughts as far as that is concerned. Just one final postscript question. Sheffield Hallam University did some work on evaluating where you got your best value for money in terms of the public pound being spent for carbon dioxide reduction and glass fibre loft insulation came out as the leading light. The use of biodiesel oil see rape, sadly from my point of view because I think it is a good idea, came at the bottom. We do not hear much about what I might call simple, straightforward things like that. We hear lots of very sophisticated, complicated schemes. We are we not concentrating a bit more on the easy things to do?

  Ms Worthington: Well, it is interesting because whilst it may be true that fitting loft insulation is the most economically sensible thing to do, human beings are not really very sensible economic actors very often and actually we would like Government to concentrate on the simple things but actually the really simple thing you could do is to shut down inefficient coal-fired electricity-producing power stations because they are operating at 30 or 35% efficiency when a modern CHP could reach over 60 or 70% efficiency. So there are some simple things. There are twelve or fourteen coal-fired power stations which represent maybe up to 20% of the UK emissions. Now, tackling them is a lot simpler for Government than trying to encourage 21 million householders to fit insulation. So economic efficiency perhaps does not always translate into simplicity or ease of result really.

  Chairman: I think my observation would be that you discussed and our previous witnesses discussed great publicity campaigns involving the public. If we cannot crack the loft insulation one we are going to be struggling. Thank you for your very clear answers. Thank you for your evidence. There are lots of questions which came up and I am only sorry that time prevented us from quizzing you more and we very much look forward to the supplementary information which you very kindly volunteered. Thank you.





 
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