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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