Examination of Witness (Questions 88-99)
MR CLIVE
BATES
8 FEBRUARY 2006
Q88 Chairman: Welcome to the Committee.
Thank you for coming along. A general question to start with:
we had the publication last week of Avoiding Dangerous Climate
Change with a very strong message in there about the urgency
of the whole issue and the need for very decisive action to tackle
emissions. As a general point, do you think the Government is
responding adequately to warnings of that sort?
Mr Bates: No. We have quite ambitious
targets for reducing greenhouse gases. We have a target of reducing
carbon dioxide emissions by 20% by 2010, and by making serious
inroads into a much more ambitious target for 2050, but we look
as though we are in danger of missing those. It is not necessarily
the end of the world to miss a target as long as you are trying
as hard as you reasonably can to meet it. At the moment we are
not putting in the efforts necessary to try to meet the target
for 2010. The Climate Change Programme Review, which is imminent
but much delayed, may get us back part way on to course but at
the moment the feeling seems to be that we are going to miss that
and we are not really going to grip the climate change issue to
the extent that we probably should.
Q89 Chairman: Looking specifically at
taxation issues, you said in your memo that the Treasury has been
"unnecessarily tentative" and "could be more ambitious".
What has gone wrong? Why do you think they are being so feeble?
Mr Bates: We have some sympathy
with the Treasury. These are difficult issues and there are competitiveness
concerns and so on. There is a wide variety of constraints they
have to take into account. However, they did have a very strong
statement of intent around environmental taxation and, fiscal
instruments in both 1997 and 2001 and there is a very compelling
economic case for using these instruments to drive what is sometimes
known as resource efficiency or resource productivity that stands
up impeccably both on environment, economic and social grounds,
it is an excellent sustainable development approach. Fiscal instruments
could be used more aggressively to drive that along in the areas
of energy, waste and water as well, but more generally an approach
that says there are investments that can be made now that will
either lock in or avoid large environmental impacts, perhaps over
the next 100 years or so. We need to think very carefully about
getting the optimum pattern of investments now and that often
means changing the incentive framework that people making investments
are facing so that they take the long-term into account and we
get properly internalised external costs looking over the long-term.
I think they have fallen rather short of doing that as aggressively
as they could and as aggressively as the economics justifies.
Q90 Chairman: You mention the competitiveness
angle but do you perhaps think they were deterred by the public
reaction at the time of the fuel protest in 2000 and that was
the reason why they have backed off with the fuel duty escalator?
Do you think that kind of public reaction has been a more general
factor in warning them off?
Mr Bates: I cannot imagine a politician
who would not be influenced by that, to be honest. It would be
quite wrong to be indifferent to that sort of public reaction
and the imminence of crisis that actually caused. Whether you
should go from that to a different approach to fuel duty or a
different approach to energy security follows less directly from
being concerned about what happened. It slightly off the brief
of the Environment Agency, but there were a number of issues around
those protests and blockades: why were those blockades successful;
why was essentially a form of energy security risk allowed to
persist as long as it did as well as the cause and grievances
that the protestors actually had?
Q91 Chairman: Do you think they have
got a coherent strategy at the Treasury in terms of how to use
environmental taxes and incentives or are they just following
an ad hoc kind of approach?
Mr Bates: The material that is
written on environmental tax and fiscal instruments is very well
thought through. The 2001 report on environmental tax is a very
good standard text on good practice in environmental fiscal instruments
and decision making, squaring off the other objectives they have
as well. The question is whether that agenda is pursued with the
same vigour as, say, the productivity agenda is pursued by the
Treasury, which is pursued very vigorously, or macroeconomic stability
which is pursued very vigorously. Our sense, and the reason we
put this in the evidence, is it is not pursued quite as aggressively
as that although there are good reasons. For similar reasons to
the conventional productivity agenda there are good reasons to
pursue that more aggressively than they have done. A little less
caution and a little more reflection on the fact that almost every
time a regulation or fiscal instrument has been introduced in
the past, prior to it being introduced there have been prophets
of doom, imminent collapse of industries, everywhere will close
and go offshore, and more often than not that has not happened
after the event, we have actually ridden these instruments quite
well, assimilated them, and we have got the environmental outcomes
we were searching for. There are great case studies around the
efforts to reduce ozone depleting gases, for instance. There was
a huge amount of concern prior to the Montreal Protocol and European
Union measures being introduced that it would flatten the industry
but, in fact, in the end it caused a bit of a renaissance in parts
of the chemical industry with new products.
Q92 Mr Stuart: In your memo to us you
say that the impact of the Treasury on the environment should
not just be assessed on explicit environmental policies but on
the whole range of its activities. How well do you think the current
format of the Pre-Budget Reports presents such an assessment of
the Treasury's overall environmental impacts?
Mr Bates: The thing at the front
of my mind in that memo, at least when it was being written, not
necessarily when it was being read, was the idea that the Pre-Budget
Report itself is not necessarily the way that the Treasury should
be judged. There are other things that determine environmental
outcomes, like the Budget, the Spending Review, the Public Service
Agreements and policy conditionalities that go with public spending,
like the Green Book on investment appraisal and so on. The totality
of those approaches in pure environmental terms is what they should
be judged on. As I said to the Chairman, I think they have been
less aggressive in that area than they could have been. To pick
up the point there, the Treasury has a lot of influence over a
lot of major policy areas that have environmental consequences
but are not in themselves environmental policies, notably transport
and housing. If you take the agenda for expanding house building
primarily in the South East, the prime driver of that is, quite
rightly, or it is an important policy objective, affordability
of adequate housing supply to support the economy in the South
East. The question is whether enough attention has gone into that
to ensure that the environmental consequences, the consequential
environmental expenditures, flood risk, water infrastructure and
so on, are adequate to make what we would generally call sustainable
communities out of the housing that is going to be built. Whether
we have got the development of the Thames Gateway right, again
it is being driven for affordability and increasing capacity of
London reasons but there are some pretty serious environmental
consequences around building in areas that are at risk of flooding
or will have these extra costs. Unless it is not necessarily done
explicitly, it would be a good discipline to submit that kind
of policy thinking to strategic environmental assessment type
disciplines. Even if it is not a pure strategic environmental
assessment it would be good to have that kind of discipline in
the same way that there is a Regulatory Impact Assessment that
goes with that sort of policy.
Q93 Mr Stuart: As we are dealing with
the Pre-Budget Report and as it is an important part of the way
the Treasury puts its policy out, do you think that the way the
environmental issues are compartmentalised in Chapter 7 is the
right way for the Pre-Budget Report to deal with that?
Mr Bates: It is definitely useful
to see a summary of environmental measures in Chapter 7 and I
would not want to lose that. It would be good to see more discussion
of environmental consequences brought out in the other chapters.
I would not want to lose that chapter in the Pre-Budget Report.
Q94 Mark Pritchard: Obviously you are
aware of Sir Nick Stern's review, I just wonder whether you feel
that the remit of the review is too narrow?
Mr Bates: Crikey!
Q95 Mark Pritchard: I suspect from your
earlier answer you are slightly frustrated that we are having
another review on top of other reviews.
Mr Bates: Actually, no. I think
there has been a lot of concern about Nick Stern's review and
will it just be one of these American-style global cost benefit
analyses. He released his initial thinking on 31 January in his
speech in Oxford and it is excellent, an absolutely first rate
assessment of the problems in climate change economics taking
a very wide perspective, a thorough understanding of the intergenerational,
intertemporal issues, uncertainty, irreversibility, precautionary
approaches, the global collective action challenge and so on.
He has deployed all the broadest concepts of economics in thinking
about the issue. His speech sets out a new framework for thinking
about this and they are consulting on that again. All of us in
the Agency have been very pleased by the approach that he has
taken, we have had good contact with the team, they are extremely
open-minded and, as far as we can see, they are doing the best
job they can with the resources and time available. There is really
nothing but optimism about the Stern review from our side.
Q96 Mark Pritchard: Do you see a contradiction
between this short-termism of conventional economic analysis as
against the medium to long-term issues of climate change?
Mr Bates: Yes, but with the proviso
that I do not think Nick Stern's review is falling into that trap.
You are very right, tools that are useful in conventional financial
appraisal of projects, such as discounting, cost benefit analysis,
discounted cash flow analysis and so on, do not work so well over
longer time periods when there is uncertainty about the outcomes
and there are non-monetised impacts, externalities and so on and
where you cannot trade one type of good human capital with others,
natural capital for instance, those techniques break down. There
is a very rich literature on this in environmental economics.
It is something that is useful as long as it is not seen as paramount
and determining the outcomes. It can often shed useful insights
on problems but should not be used to determine in the final analysis
what is done. The sustainable development strategy framework is
probably a better basis for doing that.
Q97 Mark Pritchard: I was recently in
Denmark with the rest of the Committee and we met the head of
the European Environment Agency while we were there, coincidentally.
I understand you are working with them to look at progressive
and regressive taxes and, indeed, incentives for feeding into
the Treasury team here. How are you progressing with that?
Mr Bates: What they do, and do
supremely well, is save us and everybody in Europe a great deal
of effort in understanding what is going on in all other European
countries. In a way that role is one that it was set up to do,
so we can take advantage of understanding all the various fiscal
instruments that are in use around the EC. We do not really have
to try hard to embed their work because it is inherently useful.
It stands on its own merits and it is very convincing and useful.
It tends not to make big judgments and policy prescriptions, it
is a sort of information sharing, co-ordinating action. It allows
us to benefit from understanding what is done in other countries
which is always very useful and quite difficult to do from a position
here in the United Kingdom.
Q98 Mark Pritchard: I am interested that
your emphasis was on fiscal rather than taxation.
Mr Bates: I do not think I was
making a big point there. I would rather stick to economic instruments
in the broadest sense, including trading, permitting, taxes, rebates,
whatever.
Q99 Mark Pritchard: In the UK Sustainable
Development Strategy, which as you know is quite well advanced,
how do you think Britain is placed within the European Union vis-a"-vis
sustainable procurement in the context of the target of 2009?
Mr Bates: I do not think I can
answer that question. I do not know how well other countries are
doing on sustainable procurement. I do know that we have a Sustainable
Procurement Task Force and this is a subject that is in perpetual
discussion. There is no shortage of attention to looking at how
we can make the procurement approach more sustainable. On the
other hand, there is a danger sometimes that you can end up loading
costs into procurement, that you can end up using it as a sort
of policy instrument that in a way does not necessarily provide
good value for the taxpayer.
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