| Draft Electricity and Gas (Energy Efficiency Obligations) Order 2004
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Mr. Morley: I thank the hon. Members for Salisbury and for Hazel Grove (Mr. Stunell) for their broad support for the measure, which I agree is one of a number of tools. I would not want hon. Members to get the impression that the Government have been relying simply on the EEC in terms of meeting the very ambitious targets that they have set themselves. I will touch on those points in a moment.
Column Number: 12 The hon. Member for Salisbury mentioned building standards, the decent homes standards and the new regulations. I can say to him that there will be an uprating of building regulations generally next year, which will relate to energy efficiency and water efficiency, in which I know he is also interested. On top of that, the sustainable buildings task force has produced an even higher standard, which is designed to be voluntary, but we will want to encourage developers to aim for it in terms of meeting very high standards. That can go even further to include the use of recycled material in buildings, which I am keen to see.The hon. Gentleman also asked about tax allowances for fiscal measures. We have provided a range of new measures, including a tax allowance for insulation to improve energy efficiency in rented homes. That is a fairly new measure, as rented homes often have pretty low standards of energy efficiency, because landlords are concerned with economics and returns. Such measures encourage improvements. There are also new training schemes for people who install more energy-efficient boilers and measures to encourage them to do so, and new energy services pilot schemes are being introduced. The Government have taken a commitment on building energy efficiency standards in relation to Government procurements, including new buildings and buildings that are rented by the Government. That will tend to influence the market, given the scale of Government procurement and the influence that it has. We will develop that further in the standards that we set ourselves and lead by example. The hon. Gentleman asked about trading energy efficiency measures, which is an interesting idea that we do not rule out. When reviewing schemes, it would be appropriate to consider the opportunities for wider trading, including the potential for trading so-called white certificates, which are energy-saving credits and allowances. I am very interested in that idea. Carbon trading and greenhouse gases trading schemes have worked well, and we are introducing landfill trading next year. There is scope for considering whether we can extend the measures further, and I can certainly give him that undertaking. There is an issue with apathy and the need to encourage people to be aware. We recently made £3 million available to the Energy Saving Trust to raise awareness of the benefits of energy efficiency, but there are still areas that we could explore and more that we can do. We will certainly look at that. We also have the Energy Efficiency Partnership for Homes and the decent home standards, which have been mentioned. The EEC can fit into those approaches, and we can work with the Office of the Deputy Prime Minister on how we approach such issues. I also accept that there is a case for considering fiscal measures. The Chancellor has introduced a range of fiscal measures, which have been successful. Of course, we have to take into account the impact on the sector and on consumers of the various changes in fiscal measures, but there is an open debate on that. We can take further steps with fiscal measures, but those are Column Number: 13 matters for the Chancellor, who would not appreciate my deciding his policy here in the Committee; I expect that he would have a few things to say about that. None the less, there is a case for considering fiscal measures on green energy and a range of other issues. There are already green mortgages; building societies recognise that there is a case for providing mortgage support allowing people to improve energy efficiency in their homes. Such schemes are being put in place, which we encourage.The hon. Member for Hazel Grove raised some issues about the warm front programme. On Friday, I was, like him, photographed with one of my constituents. Actually, the constituent had had his roof insulated, and it was a bit hard to photograph roof insulation, so we stood outside in the street proudly pointing at the roof for the local paper. He put on a warm front T-shirt, and was very happy with the overall deal. The programme has been a great success, and not only in combating fuel poverty. I am glad to say that the Government have made enormous progress on reducing fuel poverty in this country, and the warm front programme is one of the tools that have been used. About £500 million has gone through the programme since it began, to the benefit of many people on low incomes. The hon. Gentleman asked about the targets that the Government have set. The action plan sets out a clear framework for improving energy efficiency at an unprecedented level in this country. As he said, it has a particular focus on taking us to 2010. The plan stands as an up-to-date compilation of the Government's delivery plans, and it will deliver about 12 million tonnes of carbon savings by 2010—20 per cent. more than the savings that we said in the energy White Paper that we expected to achieve. In some cases, we go beyond our targets; it is not always a case of retrenching on them. The hon. Gentleman also asked about whether the obligation was not a true doubling of the level of activity of the current EEC, as proposed by the energy White Paper. It is, although it is not always easy to make comparisons with the previous EEC because the calculations have changed. The target in 2005-08 is not directly comparable with the current EEC because several assumptions in the calculation of the energy savings score have changed, including a change of the Treasury discount rate, the revision of assumptions for particular measures and calculating savings for 2010 rather than 2005. The number of measures indicated in the illustrative mix, on which the target is based, is a better and more relevant way of comparing the level of activity of the programmes. That shows that doubling is roughly achieved, as most major measures more than double. The way in which the calculations are made has changed, but we are confident that a doubling in relation to the energy efficiency measures will be delivered. Mr. Stunell: The Minister referred to the change in the discount rate, which has gone from 6 per cent. to 3.5 per cent. That has made a significant difference. Does he accept that the proposal, as illustrated by Column Number: 14 Ofgem, suggests only about a 20 or 25 per cent. increase on the figure for the best quarter so far of the first scheme?Mr. Morley: I shall have to examine those figures. It may well be that different methods of calculation are being applied. I can give the hon. Gentleman more clarification on that point. The hon. Gentleman also asked about the threshold of between 5 and 10 per cent. Those percentages do not, by the way, refer to the number of customers. The reason for having the threshold is that we want to encourage energy services to produce combined packages of energy delivery as a better way to deliver the more efficient use of energy. We propose that suppliers should receive an additional 50 per cent. of energy savings for energy service action accounting for more than 5 per cent. and up to 10 per cent. of their EEC targets. They would get an uprating—an incentive for entering into energy services. The definition of energy service action reflects that which is being used in the Ofgem pilot to test removal of the 28-day rule for domestic energy service contracts. The 5 per cent. threshold is to ensure that the incentive provides a stimulus for providing those energy services. The upper threshold of 10 per cent. limits the loss of energy and carbon savings in the EEC programme. There will be an incentive from uprating the energy savings, but one would not want to go too far; otherwise, the amount of overall carbon saving would be reduced. That is why there is the upper threshold of 10 per cent.; that is the reasoning for that calculation. Mr. Stunell: I thank the Minister for that explanation, which has helped me. If I understand him correctly, the benefit gained by getting into the 5 to 10 per cent. belt will not be lost if one goes to 11 or 12 per cent. It will be a benefit, but it will plateau at 10 per cent. Have I understood him correctly? Mr. Morley: Yes. The 10 per cent. is the maximum, but in the band above 5 per cent., the incentive is designed to encourage energy companies to provide a total package of services. We think that that is a good way forward. Of course, the incentive will be evaluated in due course, and that will influence what we put into the third phase of the EEC. We shall see how the arrangement has worked and what benefit it has given. The hon. Gentleman also mentioned micro combined heat and power, which is specifically encouraged in the EEC. Technically, there was some support for micro CHP in the previous EEC, but because we are keen to develop it, we have introduced a definition that allows further encouragement of micro CHP and allows it to count in relation to the calculations of the EEC directive. That has also been covered. The hon. Gentleman also mentioned the smart metering system, which is still under development. We certainly do not rule it out; I think that it could have a role to play and I will be happy to update him on it. He may also like to know that the Ofgem figures, which compare quarters and show an average quarter for EEC2, show a doubling when they are added up for the Column Number: 15 three-year period. We need to take into account the total three-year period in relation to the calculations, which is part of the explanation of why Ofgem has come to those conclusions.The hon. Gentleman also mentioned minimum entry standards in relation to light bulbs and electrical appliances. We are keen to encourage such standards. Energy standards for appliances are a matter for the EU. We are keen to see those standards raised and we encourage the EU to take such action. He is probably aware that part of the function of the EEC is that one of the options that energy companies can take is to provide a price cut or subsidy on highly energy-efficient white goods, such as refrigerators and fridge-freezers. That helps in reducing energy, and it also helps the consumer. I agree with the hon. Gentleman that consumers can recover the costs incurred by many of those measures in a comparatively short time. I do not think it unreasonable that we make it clear to people that there is an overall cost. This point also relates to his comment pushing the targets forward. I repeat that the targets that were introduced by the Government are challenging and that they are at unprecedented levels. In relation to the EEC, of course, there is a cost. What one has to take into account is the potential cost impact on consumers versus the benefits that they will get. It is an issue of striking a balance between a cost that could fall on consumers through a modest increase in electricity or energy bills and the benefits that they will get back from the way in which the Column Number: 16 money is ploughed back in. We think that that balance is about right. It is a significant increase, and if the hon. Gentleman does not think that the EEC target is challenging, I suggest that he talks to the distributors, because I think that they will strongly disagree with his interpretation. They feel that the aims are extremely challenging indeed.I come back to my initial point: this is but one approach. We have a firm commitment to tackling climate change, improving energy efficiency and promoting new innovation, new technologies and energy appliances that use less energy and work more efficiently than at present. It is an ongoing programme, and some useful points have been raised about areas that we can address—be they fiscal, awareness raising or technical. Those are issues that we will not leave alone. This is not the end of the story for this regulation. There will be further reviews, and the points that have been raised will be addressed. There will also be further debate about finding the most effective and efficient way forward in delivering the objectives. I accept that there is no difference between any of us in this Committee or politically about the sort of objectives what we want to achieve for the benefit of consumers and the global environment. Question put and agreed to. Resolved,
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| Prepared 7 December 2004 | |
