Examination of Witnesses (Questions 1
- 19)
TUESDAY 17 APRIL 2007
MR GARETH
STACE, MR
ROGER SALOMONE,
MR JEFF
TETLOW, MR
JOHN HILL
AND MR
DAVID MIDDLETON
Q1 Chairman: Good morning and welcome
to the Committee. For our benefit, could we ask you to introduce
yourselves and say which of the organisations you belong to and
in what capacity, please.
Mr Hill: I am John Hill. I am
from Converteam, which was previously out of the power conversion
sector of Alstom, and previous to that CEGELEC Projects and—here
is a name you will finally recognise—GEC. Throughout that
period of transition we have been profitable and we are now the
UK's biggest supplier to the wind industry.
Mr Tetlow: The three of us are
BCSD-UK. I am Jeff Tetlow and I am the Chairman of the Management
Committee of the Business Council for Sustainable Development.
Presently I am a consultant to the oil and gas industry and I
have had a long career with major oil companies, primarily in
the area of developing their large oil and gas field developments.
Mr Middleton: Good morning everyone.
My name is David Middleton. I am intensely privileged to be the
Chief Executive of the Business Council for Sustainable Development—UK.
We are the UK's only affiliated branch of the World Business Council
for sustainable Development.
Mr Stace: Good morning. I am Gareth
Stace. I am Head of Environmental Affairs at EEF, the Manufacturers'
Organisation.
Mr Salomone: Good morning. I am
Roger Salomone and I am a colleague of Gareth's at the EEF and
I advise on energy and climate change issues.
Q2 Chairman: Thank you very much.
We may direct some of the questions specifically to one or other
of you; otherwise, it is really a matter of whoever feels they
want to answer, so do not feel obliged to answer every question
unless pressed to do so by one of us. Just to start off with,
could you give your general reaction to the draft Climate Change
Bill?
Mr Salomone: Generally, from EEF's
point of view, we welcome it. It is a very positive development
in terms of providing that longer time-horizon framework which
will help us to take better decisions, particularly the long-term
targets and rolling 15-year carbon budget horizons. That is an
essential base of carbon management costs of climate change policy
and also to help business invest and realise opportunities as
well. We also welcome the introduction of an independent body
that is going to be able to scrutinise and advise government on
policy. I would just flag up one key area of concern or for further
discussion, and that is around these review clauses where you
can open up the long-term targets. There are a couple of triggers
at the moment. One is a change in climate change science and the
other one is development of international policy; so maybe no
Kyoto or Kyoto cuts or whatever. We want to make sure there is
sufficient flexibility in there, potentially to review things
on economic grounds as well, because there are going to be significant
costs with climate change, and flexibility will give the policy
credibility. But in general very positive.
Mr Middleton: We echo that as
well. We have always felt that sustainable development provided
a major business opportunity and that was reflected through Stern.
Therefore, we do welcome the draft Bill. We have some concerns.
We would be very concerned to make sure that the targets suggested
within the Bill are robust enough. We have some concerns about
the proposal regarding the Committee acting in an advisory role.
We would rather see it as a more independent body. We are concerned
about issues of responsibility amongst ministers. If it is a five-year
reporting period, is there any retrospective responsibility on
acts which have happened during the period of a minister when
that minister may no longer be in post? Obviously it is a very
complex issue, sitting within international situations as well.
We do wonder about the effects of the Bill on issues to do with
carbon values, which is an issue of concern to us, and the ETS,
which we would like to see performing more robustly.
Mr Stace: We would like to see
the Committee on Climate Change independent. We would like to
see the secretariat of the Committee being independent of government
as well, so it can effectively scrutinise government policy. We
think that the Committee should have access to an analytical resource,
including modelling, again to be able to report back effectively
to government on the issues and pressures.
Q3 Joan Walley: In terms of what
you have just said, how would you see that relating to Parliament,
as opposed to government, and to select committees, such as our
own?
Mr Stace: In terms of reporting
to Parliament, we think that the Committee would be called to
give evidence on a very regular basis. Are you asking in terms
of its independence or in terms of it being able to report back
to government and to Parliament?
Q4 Joan Walley: In relation to Parliament,
where would it sit? In terms of what you are suggesting, where
would Parliament, as opposed to government, relate to that?
Mr Stace: It would obviously be
accountable to committees such as this. Is that what you are asking?
Q5 Joan Walley: I am interested in
your views on where Parliament sits in the greater picture of
the accountability of the Climate Change Office and Commission.
Mr Hill: Technically, this problem
does yield to analysis but the model will be poor in its first
years. One of the things which we do not want to see is too much
political influence on the work done by the professionals on the
Committee in developing that model to the point where it becomes
perfect in perhaps 25 years from now.
Q6 Chairman: Twenty-five years is
a long way away to achieve perfection. Perhaps we can look at
what is happening at the moment. Why do you think progress towards
the Government target of a 20% cut in carbon emissions by 2010
has been inadequate?
Mr Tetlow: Without getting too
far into the specifics of what has happened, we see a lack of
overall accountability for this; in other words, that very many
departments are working the same problem, each with their own
constituencies of interest, whether it is Transport, or various
aspects of the DTI and Environment. It is the sort of situation
that needs to change for the future. There needs to be an urgency
and an overall accountability for the work of achieving the carbon
change objectives that we are angling towards. If it continues
in the future as it has in the past, government/Parliament/the
people of the country will spend forever talking about it and
put not much effort into pushing ahead. In the past there has
been a lack of up-to-date information on what the current state
of carbon emissions was. The Government set policy with certain
forecasts. Those were seen not to be delivering but it took an
awfully long time to discover that they were not delivering, that
in fact the emissions to the end of 2004 were just not known and
therefore the connection with the policy was not there. For me,
it is a lesson that needs to be learned about how to do it in
the future and how to be much more on the ball about what is happening
to our environment through the economy and connections with policies
and so on.
Mr Salomone: I think there are
two main issues. One is the area which has just been outlined,
and, hopefully, the Climate Change Bill will resolve these issues.
There was not regular annual reporting. In fact the time horizon
was a lot shorter, so it was harder to track progress. I think
we had two reviews between 2000 and 2006. We are hopefully moving
to a framework that is more responsive under the Climate Change
Committee for tracking emissions and reporting back to Parliament,
which should give us more scrutiny and control over policy. There
is also the modelling angle. In the National Audit Office Report
there is a reasonably broad consensus that, while we are where
we are and we have not achieved our targets, people did not predict
the higher gas prices and the switch to mainly coal as a consequence.
One thing we touched on in our response is having a broader range
of scenarios in terms of fuel prices.
Mr Middleton: I think there is
a great willingness in the business community to work with government
to find solutions to some of these complex problems and particularly
to ensure the UK wins out of this change in society. Stern talked
about the change that society needs to go through to mitigate
against climate change. It is, without a doubt, a massive opportunity
for the business community, but it needs to work with government
and I think we find it very difficult sometimes to do that. The
bureaucratic complexity of working with multi-departmental issues
is sometimes stifling, to say the least.
Q7 Chairman: Given those inadequacies
and problems, did you think that the Climate Change Programme
Review process was an effective response and analysis?
Mr Middleton: No, in essence.
We again found it difficult to engage with it. Perhaps that is
possibly our fault. I think the interface between us and the process
was not as good as it could have been. That may well have been
our fault but we were treading into new territory. I think it
is indicative of the fact that sometimes we find it very difficult
to know who we are talking to, what we are talking to them about
and which department is the lead department. To take my Chairman's
view—and I said this at a meeting with you recently, sir,
at which Mr Cameron was present—we really would like to
see this issue functioning as a cross-departmental issue. It does
not seem to be—or not harmoniously, anyway.
Mr Tetlow: I think it did not
work because it simply took too long. It took too long because
the relevant ministries were caught out, realising they were not
achieving the objectives, and it has had to become not just a
review but rather setting new policy aspects for achieving the
2010 target. It took probably a year longer than it should have
done.
Q8 Mr Chaytor: Could I ask both the
EEF and BCSD about your general response to Stern. Do you think
Stern has it broadly right?
Mr Middleton: In response to that,
may I table this document. We are the UK branch of the World Business
Council. The World Business Council published this yesterday.
It is called Policy Direction to 2050: Energy and Climate.
The team in Geneva that produced this are spitting bullets that
they were not out in the market before Stern. It reflects Stern
significantly. Although we responded to Stern before this was
available to us, when we responded to Stern we were very much
in favour of it. We remain in favour of it and our World Business
Council colleagues reflect Stern wholeheartedly. They are showing
a trajectory through this document through to 2050 and key milestone
marks down the trajectory. It shows me—and Stern did as
well—that to achieve the targets which we manifestly need
by 2050 and before, we need more tangible action now. If we do
not get it, we are going to miss the trajectory, and I am very
fearful for my children and my grandchildren. I feel hugely responsible
for that. I feel we need more action now and I get very frustrated
at the lack of action in deliverables now. Although I think Al
Gore did a wonderful thing with his film, for me it was the wrong
message. I think the message should have been about the solutions
and not about the problem. Manifestly, a lot of the solutions
are available to us. It is just: How do we deliver those solutions
into the market by a partnership between business and the political
community? We are not good at that at the moment and I think we
need to get that act better. That means new dynamics in the relationship
between business and Parliament.
Q9 Mr Chaytor: Do you think the majority
of your member companies share that view?
Mr Middleton: Wholeheartedly.
Q10 Mr Chaytor: Are they fully aware
of the dramatic changes there will be to the kind of products
and services that they are delivering?
Mr Middleton: John, would you
like to respond to that, as you are one of my members in your
manufacturing.
Mr Hill: Absolutely. We are desperately
trying to put together a second generation of wind turbines, a
third generation of wind turbines. It is surprising that we are
coming from so far back. The technology that was available in
wind from Denmark and Germany was not quite appropriate to the
UK's requirement, specifically offshore, and of course there is
this economic truth that innovation is risky whereas proven technology,
albeit slightly inappropriate, is less risky. Even pushing forward
a second generation of wind turbines with no gearboxes and with
full grid interfaces, is something that has only been going in
earnest for about three years in the UK. The development of a
new wind turbine is a five-year project. It is just like with
a motor car or perhaps more a motorcycle: from the time you decide
you want to make it, to the time when you have developed the supply
chain adequately to produce one thousand a year, is five years.
Perhaps—to answer the Chairman's earlier point—the
reason that 2010 is proving to be so challenging is that people
did not quite understand that there would be that five-year delay
in producing the technology.
Q11 Mr Chaytor: In terms of technology
and renewable energy, this is a big opportunity for many businesses
but, equally, there are many businesses locked in to producing
emission intensive products.
Mr Salomone: We have a slightly
more nuanced view. We welcome Stern. It is probably one of the
first attempts at a very wide-ranging, quantitative look at climate
change policy, but maybe one of the areas of concern for us was
its examination of competitiveness, where it looked at some of
the more energy-intensive, internationally traded sectors. They
assumed a £70 per tonne carbon price and basically inputted
that into the economy and looked at what it would do to the cost
of a number of key industrial sectors. The overall conclusion
was that there would not be much impact, basically, that there
would be limited impact on the macro economic level. We were concerned
on a number of accounts. Profitability was not really looked at
and that analysis needs to be developed as profitability is key
for all these companies which are going to invest and hopefully
bring on line all these low carbon products that are going to
get them to the 2050 target. It did not look at fixed costs either.
We know of a lot of long-lived capital intensive assets out there
in these industries—I am talking about furnaces in the electricity
supply industry—and some of those could become sunk costs
very quickly. That again could affect the profitability. Lastly,
looking at the cumulative impact of costs, it was very much looked
at in isolation: carbon price. We know that you might get a higher
carbon price and you might get energy price inflation at the same
time. As you move along the carbon constraint, these could ramp
up and have quite a big impact. Some of the economists looked
at Stern and said that you might be better off ramping your climate
change policy up over time to meet the target, because, hopefully,
over time, we will have more abatement opportunities and the cost
of climate change policy could and should, in theory, go down.
So we need to think very carefully about the pace of climate change
policy, particularly for internationally traded sectors.
Q12 Mr Chaytor: The EEF represent
entirely manufacturing businesses.
Mr Salomone: Absolutely.
Q13 Mr Chaytor: To what extent do
the typical medium-sized manufacturing businesses that comprise
your membership have an awareness of the issues that we are talking
about this morning?
Mr Salomone: Energy efficiency
is one subset of all this. That is quite an issue for a lot of
businesses and has been for a number of years: it very much affects
their bottom line. On a related issue, you know about the Energy
Performance Commitment, which is another potential emissions trading
scheme, and when I was getting in touch with our members about
that there was not a lot of knowledge out there about these government
proposals. That is another danger, that there are a lot of policies
coming out at the same time, so you need to think carefully.
Mr Middleton: We touch into EEF
members. It is not only John's project but others which are major
projects, like the carbon sequestration project. They are big
projects, but when you run them down through the supply chain
you get down into third, fourth tier suppliers. If I may talk
in terms of Birmingham SMEs, West Midlands SME type manufacturers,
they probably do not even know where their products ultimately
end up but we are trying to educate that SME fraternity about
the business opportunity dimension. With respect to them, whilst
they are ignorant about the policy issues, they are equally ignorant
about the potential business opportunity, and I really do try
to drive this agenda off the business opportunity dimension because
I think it is phenomenal.
Q14 Mr Chaytor: Stern quotes a figure
of 1% of global GDP to mitigate the effects of climate change
now but that is on the assumption that the emissions will be at
the higher level, so it is entirely possible that that 1% of global
GDP could be higher if things turn out differently and it is necessary
to introduce more stringent policies. Again, are you basing your
assumption on the fact that 1% of GDP will be it and you could
live within that sort of parameter or are you prepared to accept
something more expensive than that if it becomes necessary to
take more stringent action?
Mr Middleton: I think we took
a lead from the business leaders group, who quite some time ago
accepted 1% of GDP as being an acceptable cost. That was pre-Stern.
I think we are happy about that, with certain limited variables
either side of it. I am sorry to be boring but I am entrenched
in this belief that we are looking at a major opportunity. If
we can create new jobs and secure jobs out of the opportunity
that is confronting us, then the negative social costs also come
into the equation, and they are often not costed. I think we need
to be holistic in our view of the pluses and the negatives of
the account on this. Every time I look at it, I come out on the
plus side.
Mr Salomone: We are very conscious
that there are going to be costs of climate change policy and
it is a very good rationale for having climate change policy.
In terms of specific figures, in terms of what we might be prepared
to accept, I think it is quite hard to say, because really the
1% is very speculative, is it not, like a lot of these targets
are? You need to put a marker in the sand but we might get 20
or 30 years down the line and realise that the costs are a lot
less or a lot more. We always factor in things like carbon capture
and storage and that has not even been trialled on an end-to-end
basis, let alone commercially deployed. The costs are quite hard
to estimate but they will be quite significant really. Stern says
we have to more or less decarbonise our entire electricity supply
to 60% plus, so there are significant costs and it is going to
be key that we manage them across society and that all the sectors
participate, including the domestic sector, the business sector,
transport. That is the way to keep them down and to introduce
them sensibly over time.
Mr Stace: Costs would obviously
vary for different sectors. We have sectors within our membership
that have very limited abatement opportunities going forward now—abatement
has occurred in the past—and are internationally tradable
commodities, so the cost to those sectors would be far, far greater.
Q15 Mark Lazarowicz: Let us try to
get into a bit more detail on some of the specifics we are talking
about here. I am directing this question particularly at the Business
Council because this is something you mention in your memorandum.
You talk about the need for "urgent, unpalatable measures"
to reduce the UK's carbon emissions. Could you give us a bit more
of an idea of what you have in mind there?
Mr Hill: It is always easiest
with that question to look at the specific. One which is perhaps
before everyone at the moment is grids. There are perhaps three
ways of putting right the grid situation. The first is with pylons:
they are cheap, but environmentally and probably to a lot of the
population they are unacceptable. We can bury the grids: that
is expensive but it is reasonably cheap to maintain. Or we can
go offshore with grids: that is very expensive and quite difficult
to maintain unless we make the topology appropriate. Each of these
three has its own unpalatable aspect: a visual one, ranging right
through to a cost one. Those unpalatable messages can be put across
by a carbon committee—if they are totally detached, independent,
professional people—perhaps easier than a politician.
Q16 Mark Lazarowicz: You also in
your memorandum quote, I think approvingly, the Prime Minister
at the Lahti conference on the need to maintain global economic
growth even while decreasing emissions, to avoid potential social
and international conflicts breaking out. How convinced are you
that it is possible to maintain economic growth and to make the
kind of steep cuts in emissions that Stern talks about?
Mr Middleton: I would have to
say that I am personally of the belief that it is achievable.
I have looked at this at a macro and a micro level. I think it
is interesting to look at it at a micro level. We have looked
at it in community levels and we have looked at cities and looked
at regeneration areas. We have looked at it in terms of reducing
emissions, reducing the carbon footprint, looking at what is needed
to achieve that, but then—and, I am sorry, I am back to
it again—looking at the business opportunity of what you
need to get to that and looking at what that does in terms of
a contribution to the local economy, jobs creation and so on.
We think the balance sheet works again.
Q17 Mark Lazarowicz: Are you really
facing up to this? Without jumping ahead to later questions which
I think my colleagues will ask, there is the example of aviation.
We assume that future growth will depend upon aviation increasing
and, at the same time, there are issues about whether that is
sustainable or not. Is business facing up to the really fundamental
changes here or not?
Mr Middleton: Aviation is the
difficult one that we are concerned to make comment about. However,
we have said in response to this Committee that we do not think
non-hypothecated taxation, as demonstrated in the last Budget,
is anything like an answer to it. But that is a difficult one.
To a certain extent, we are not sure how it is manageable within
the UK because it is such an international issue.
Mr Stace: We think that all parts
of the economy must do their bit, so to speak: aviation, road
transport and domestic. We are concerned, in terms of abatement
opportunities, in terms of aviation and the effect that might
have on the future carbon price, therefore, again having a negative
effect on our members in terms of the cost of mitigation abatement.
Q18 Mark Lazarowicz: My point was
more concerned with the general issue. It is very easy to find
exceptions in every single challenging area of emissions in the
economy because we do not want to affect economic growth. I will
just ask you again if you think this is something which has been
really taken on board by business so far.
Mr Tetlow: I think there is a
long way to go for businesses, like parliamentarians and the general
public, to understand what the total challenges are. David Middleton
referred to the WBCSD report earlier. In there, they have done
a lot more work (because it is more heavily funded than anything
we have done in the UK) on what the pathways to much lower carbon
emissions in 2050 look like. In there, they map out various scenarios,
including a huge reduction in carbon for power generation, big
changes in the carbon output from transport and so on, but they
do map it out in a way that says these are not necessarily the
only changes you would make but they are possible and they are
potential. They require new technologies and they require big
leaps in current technologies. We will rely on their work, which
they have done over several years, to come up with that work.
There is certainly a path forward which is achievable in a business
sense. This is 180 companies, many of them major companies, quite
a number of them UK and European companies, who have studied this
in great detail and come up with a scenario which we think is
compelling. It is going to be hard work. Coming back to my earlier
point about urgency, it is urgent that we do something. We need
to get on with new technology developments and we need to get
on with mapping out what the future course of action for the UK
might be, because we do not have that.
Mr Salomone: To answer your question
directly, a lot of especially our larger members are already quite
aware that tough decisions being made. A lot of manufacturing
sectors, particularly steel, have reduced their emissions quite
considerably per output over the past 20 or 30 years. They are
captured by a lot of climate change policies that engage them
automatically in these processes: EU ETS, Climate Change Levy
and Climate Change Agreements. Going back to what I was saying
about the pace of climate change policy, it is going to be important.
You have to recognise there will be points when there are technological
constraints upon industries reducing their emissions further and
then you get into these difficult decisions as to whether maybe
you relax the constraints for a while before ramping them up when
the technological opportunities become available or whether you
just impose tighter and tighter absolute emissions. There are
hard choices ahead.
Q19 Colin Challen: The Government
has set of target of 60% to be put in the Bill of emissions cuts.
Is that the right target? On a scale of one to 10, where 10 is
very difficult, how achievable do you think it is?
Mr Stace: I would say we could
be saying 10; we could be saying five or one. In terms of the
target of 60% in 40 years time, that might be very easily achieved
in terms of unproven and undiscovered new technologies and the
global economy. We might be able to achieve 70% or 80%. I think
achieving that, though, depends on the costs that society would
need to bear or would be prepared to bear. You stake your claim
to a figure but I think it is still very much an unknown as to
how that is achievable.
Mr Middleton: We would again endorse
the view of the business leaders group, in that setting a tough
target is a good stimulant to robust efforts to meet the target
and particularly a stimulant to innovation. Although it may be
a target which, ultimately, with the advantage of the passing
of time and experience has to be modified, I think it is essential
to set a high target now. All this is about the challenge the
planet confronts and we really have to start doing stuff now and
as big and as fast as we possibly can. I think a high target is
appropriate and again it is a stimulant to business opportunity.
Mr Tetlow: Can I make the obvious
point that if it is not adopted internationally then what we do
in the UK is immaterial. We are all aware of that. The UK needs
to take a lead because it can then more purposefully persuade
the others, the rest of the world, that it is possible and that
there is a way forward. Whether it should be 60% or 80% is for
the climate scientists. It is not something on which we have an
independent view, but 60% or, Stern argues, maybe 70 or 80%, if
that is it, that is where we need to go.
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