Examination of Witnesses (Questions 204
- 219)
WEDNESDAY 16 MAY 2007
MR MICHAEL
ROBERTS, MS
GILLIAN SIMMONDS,
MR GARETH
STACE AND
MR ROGER
SALOMONE
Q204 Chairman: We
welcome to the Committee our second set of witnesses. For the
record, representing the Confederation of British Industries,
we have Mr Michael Roberts, the Director of Business Environment,
and Gillian Simmonds, Senior Policy Adviser of Business Environment.
From EEF, we have Gareth Stace, who is the Head of Environmental
Affairs and Roger Salomone, who is their Energy Adviser. You might
have gathered from our line of questioning with our previous witnesses
that we were interested at the outset in establishing what your
thoughts were on the validity of the target of greenhouse gas
reduction which the government wishes to build into the Bill,
how realistic it is, particularly from a business point of view,
and whether we need a Bill as a mechanism to achieve it. Is it
something that you support? Mr Roberts, do you want to kick off
for the CBI on that?
Mr Roberts: That is a rich question
with a lot of angles to it. Starting from the last part of your
question, we support the initiative to bring forward the Bill
and to create a degree of certainty for the business community,
both over the long term and the medium term, with regard to the
pace and direction of travel in carbon reduction because that
helps businesses make rational investment decisions in low carbon
options. With regard to the nature of the targets, a number of
issues from our perspective need to be resolved. First, the way
in which the emissions are categorised. You suggested in your
introductory remarks that it was aimed at reducing greenhouse
gas emissions. It is specifically CO2 related. In our
judgment that potentially could cause some difficulties. For example,
some of the international commitments are expressed in greenhouse
gas emission terms. There is a potential issue of lack of synergy
between what we do here in the UK and what we do on the international
stage. The second issue is with regard to the scale of the targets,
however they are expressed. We have supported for some time the
government's ambition to move towards a 60% reduction in CO2
by 2050. We recognise the need to move at a pace in the medium
term. We have supported the idea of an interim target. Our observation
that the proposed target expresses a range of 26 to 32% by 2020
is an extremely challenging one and would require measures beyond
those which are currently envisaged in the government's climate
change programme and indeed in the measures which are envisaged
under the current energy policy review. Whilst we welcome the
need to move quickly in the period up to 2020, we believe that
the target as currently set will be challenging for business and
for society as a whole.
Q205 Chairman: In your evidence you
express the concern that there might be some lack of fit between
the domestic agenda and the European Union target of a reduction
of greenhouse gases of 20% by 2020. Is that a pitch for having
it at 20% as an interim target or simply saying, "I accept
we have to do better but it is still challenging"?
Mr Roberts: We do not necessarily
suggest that the UK target has to be 20% as well. The issue of
fit is first round whether it is greenhouse gases or CO2
that we are talking about. The second is that the EU's target
of a 20% reduction by 2020 in some way has to be distributed or
shared as a responsibility both between Member States and between
sectors of the European economy. How that burden sharing, to use
the term of art, relates to what goes on in the UK and then within
the UK between different sectors of the economy in the UK is the
bit that is very unclear. Given that uncertainty, we naturally
have some concerns, for example, that the UK may be committing
itself to a degree of effort which is laudable but in excess of
what perhaps some of our European partners are committed to. We
would like to see them meeting the same degree of commitment that
we would be committing to in the UK.
Q206 Chairman: Mr Stace, do you want
to comment?
Mr Stace: We would agree with
the CBI in terms of welcoming the Bill, in terms of certainty
for our members, in terms of what will be required of them over
the long term. We welcome the certainty of having a long term
target of 60% by 2050. We also welcome the 15 year certainty of
three budgetary periods set in one go. A five year budgetary period
is also welcomed by our members. In terms of the target of 60%,
we see it as something that needs to be achieved. However, we
believe that the target could be 70%, 80% or even 50% in terms
of what we will learn in the future of what is required and what
can be achieved without significantly damaging the UK economy.
You have a 60% target and, yes, that should be aimed at but in
terms of long term forecasting and understanding what will happen
in 2030 a 60% target becomes more of an aspiration because in
2030 we will have a much better idea of what we really need to
do, what we really can do and what has been done. In my mind the
60% is not absolutely set in stone.
Q207 Chairman: In paragraph eight
of your evidence you mention the need to perhaps review it.[2]
The Committee has a role in reviewing these matters. Is that not
a question of how successful you might be in lobbying them about
the world as you see it, as to whether they recommend targets
to go up or down?
The Committee suspended from 5.10pm to 5.26pm
for a division in the House
Mr Salomone: We refer to something
called an economic trigger, the idea that you can potentially
review and revise targets based on the economic outturn of events.
The reason for that goes back to the target. We very much welcome
having a statutory target. Business and society in general do
need some kind of long term framework within which to plan our
emissions reductions. That is good progress. However, in terms
of the validity of the 60%, to be brutally honest, we do not feel
that we are in a position to say whether 60 or 65 or 55% is the
correct target. There is a lot of uncertainty over what is going
to be technically feasible or economically viable over 40 or 45
years. 60% would seem reasonable. It is grounded in quite a well
received report, the Royal Commission on Environmental Pollution
Report, and it would represent a huge transformation of our economy
to reduce emissions by 60%, especially probably a growing economy.
Hopefully, there will be some kind of economic growth between
now and then. I do not think we should underestimate the magnitude
of the change to 60%.
Q208 Chairman: 60 is a big number
but one is a smaller number. It represents a 1% reduction each
year for effectively 50 years.
Mr Salomone: It represents a very
significant decarbonisation, for example, of electricity supply.
There is not a single country in the world that has 75% of its
energy supplied by non-carbon sources. We are talking about major
changes to the economy over that time.
Q209 Chairman: I would not dispute
that.
Mr Salomone: Investment cycles
you cannot do on a year to year basis either. Investing in industrial
plants or power stations you cannot do on a year to year basis.
Given we think it is a reasonable target, it might transpire that
60% is not challenging enough or too challenging, so we very much
welcome the flexibility provided by these review clauses, so we
can open up the validity of this target based on changes in international
policy. You can imagine the kind of framework where there is a
successor to it or not or changes in climate science. We also
think, if you are going to retain control over the costs of climate
change policy or indeed if you are going to realise that it transpires
that climate change policy is a lot easier than we thought; the
costs are a lot lower, you might want to exploit some opportunities
and make the target more challenging. There should be some way
of opening up the targets on economic grounds so that if the economics
of climate change change substantially there is sufficient flexibility
to allow the Secretary of State to review those.
Q210 Sir Peter Soulsby: Does it not
rather blow the credibility of the whole thing if you say at the
outset, "Yes, these are targets but they are not really targets;
they are just aspirations"? I think that was the phrase used
earlier on. They could be reviewed in all sorts of different circumstances.
Mr Salomone: I do not think we
are talking about all sorts of circumstances but maybe just three
circumstances on economic grounds, on science grounds and on developments
in policy. You obviously want it drafted quite tightly and it
would still be something exercised by the Secretary of State and
then go to Parliament to get a vote. I do not think it would be
a trivial exercise. On the other hand, I do not think we should
necessarily be fixing the pace for 50 years where we do not know
the costs. We do not know whether it is going to be substantially
easy to achieve 55 to 60%. We need flexibility in there.
Q211 Sir Peter Soulsby: Are you suggesting
that it is possible to define quite clearly what the triggers
would be to permit such a revision of the targets?
Mr Salomone: There could be one
in there on economic circumstances that would be comparable to
the ones in there already on, say, climate change science, so
a significant change or development in the economics of climate
change.
Q212 Mr Rogerson: You said there
were three issues you had looked at but they are all pretty broad
in the sense of economic grounds. Economic grounds could cover
all sorts of things. Are you talking about a crisis for the economy
and industry going into huge decline?
Mr Salomone: Bear in mind two
of them are already in there and drafted reasonably broadly, as
you mentioned. You are not going to be able to draft something
that is going to be so specific it will cover every single eventuality.
For example, an obvious one is that technological development
is either a lot faster and a lot more successful, so abatement
opportunities are much broader and much cheaper than you thought,
or the converse. We hear a lot about carbon capture and storage.
Whether that comes on stream and is commercially deployed in the
next 10 or 15 years or it might be that it is not for the next
20 or 30 years. It is really those areas where the costs of climate
change and abatement turn out to be substantially different than
we think they are now.
Mr Stace: Both higher and lower,
so you could increase the target or reduce the target. I am not
just talking about relaxing the target here.
Q213 Patrick Hall: The science now
seems, as it has been described to us, is that 60% is not ambitious
enough but you are building into your approach to this—certainly
EEF right from the start—that 60 may be over-ambitious.
Therefore, one may end up looking to achieve less and that does
not seem to fit in at all with the reality as it is unfolding.
You may be reflecting your members' concerns here, which is fair
enough but this goes beyond that. Could I park that and ask both
of you: in terms of cost, of course there is a cost of dealing
with climate change but there is a cost of not dealing with climate
change. That is what Stern makes absolutely clear. If you are
going to talk about the cost to your members or to industry of
taking measures, surely you have to put that in the context of
some sensible analysis of the costs of not doing anything here
and then you look at the balance there? I think your evidence
from EEF does not seem to do that.
Mr Stace: In terms of what we
are saying, in terms of the economic trigger, the economic trigger
may not change the 2050 target. It may change the interim targets
in between that. If you assume the cost of abatement now as being
very high but you could see by 2020 that the cost of abatement
drops and you can make huge savings there in terms of CO2
reductions, and you can see that the current targets are hurting
the economy significantly, you might want to change that target
at the beginning to allow for further reductions later on, where
they can be made more cheaply.
Q214 Patrick Hall: That may well
end up being the case for pragmatic reasons. However, what has
been made clear to us thus far is that a lump of carbon in the
atmosphere lasts for 100 years or so before it is washed out.
The more you delay tackling it, the more it is going to be around
and the more the temperature will rise, which will then trigger
further costs. It is not an easy equation but to suggest that
it is very difficult now; therefore let's put it off—I am
not saying you are necessarily advocating that but you are saying
that might be a possibility—for another 10, 15, 20 years
and it might somehow be cheaper because of technological change,
it is not as simple as that because the more you have carbon hanging
around the more there is going to be consequential effects and
costs. Is that not a fair point?
Mr Stace: What we are also saying
is that you might have sectors of the economy that have very limited
abatement opportunities, almost at whatever cost other than buying
in credits. In terms of technological breakthroughs, that is what
you could almost be waiting for in order to achieve those targets
for certain sectors.
Q215 Patrick Hall: You are more likely
to achieve these breakthroughs if there is some pressure to work
on it now rather than saying that it may be okay and something
will be delivered in 20 years' time. Surely we need to have the
political will now?
Mr Salomone: For me, you used
a very good example earlier about why we might need an economic
trigger in terms of the flip side where you realise that the economic
consequences of climate change and the damage it can do to the
economy are a lot higher and more significant. There may be a
case to revise the target upwards. We are trying to say it would
be something that would work both ways. We are not omniscient
and we do not know necessarily what is going to happen over the
next 45 years and we need something to be exercised with caution
by the Secretary of State and something that would go to a parliamentary
vote.
Chairman: It is an interesting observation,
is it not, that for example somebody who is in the electricity
generating business has by definition, because of the lifetime
of the asset, to make a 30 or 40 year decision? It is not incompatible
with the kinds of timescales that are being discussed in terms
of target setting.
Q216 Lynne Jones: I thought you wanted
some certainty that if you invested in carbon abatement measures
you would reap the benefits. Surely if you have it so flexible
that certainty is not there. It does worry me that British industry
seems to be looking entirely negatively at this rather than at
climate change being an opportunity to encourage the development
of these technologies which we do need. The longer you put that
off, as Patrick has said, the less likely you will get that investment.
What kind of scenario are you painting? What economic trigger
are you thinking of?
Mr Salomone: I have mentioned
a couple. One is the pace and effectiveness of technology change.
I probably would not feel competent to say exactly how costly
and effective carbon capture and storage is now or 15 years ahead.
It is still in development, let alone deployed commercially. There
need to be some grounds to reopen the targets in those kinds of
areas.
Q217 Lynne Jones: We now have 50,000
people employed in the photovoltaic industry as a result of the
measures that the government has taken. If we are ahead on environmental
technology, it would be to the benefit of our economy, not the
reverse.
Mr Salomone: We would agree with
you. A lot of our members are at the high technology end of manufacturing
engineering. There are all sorts of opportunities for climate
change but the main issue we see is that we want to retain some
kind of control. We do not see review clauses being used in a
trivial manner frequently but if there are major developments
that we miss or if the pace technology progresses is faster than
we thought, if the impacts of climate change are potentially worse
or maybe not as bad as we thought, there should be grounds to
review those targets.
Q218 Lynne Jones: We have to take
serious measures on this issue and we are going to need a hell
of an amount of political will. If at the very start you are saying
we could relax these targets, I would suggest to you that that
political will will not be delivered.
Mr Roberts: Can I pick up on your
point about business being negative?
Q219 Chairman: You have had a business
change task force, have you not?
Mr Roberts: Climate change. To
pick up on your point, as I mentioned before, we have supported
the 60% target and the need for an interim target with some bite
to it for a couple of years now. You would be hard pressed to
find many other national business organisations in other countries
committing to the scale of change that the UK business community
is committing to. Pretty much every week you are seeing major
companies in this country, not just in the retail sector but in
other parts of the business community, committing to make carbon
reductions which they are not required to do under the law. Certainly
there is a variability of view within the business community and
there are going to be some players, particularly but not exclusively
energy intensive users, who face real challenges in delivering
the sort of cuts that are needed. Frankly, it is not accurate
to say the business community in this country is unable to deal
with this. If anything, we have to have some sophisticated views
compared with the global business community on this agenda.
2 Ev 59. Back
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