Examination of Witnesses (Questions 1-19)
MR STEPHEN
HALE AND
MR RUSSELL
MARSH
4 DECEMBER 2007
Q1 Chairman: Good morning, welcome. I
do not think we need any introductions on either side. When we
were taking evidence on last year's Pre-Budget Report you described
it by saying that there were some encouraging shifts in the Pre-Budget
Report but in overall terms you found it rather disappointing
as a follow-up to Stern. How would you describe this year's Pre-Budget
Report?
Mr Hale: I think
that is fair, but there are aspects of it which still make it
worth having a discussion this morning. Obviously the Treasury
and indeed the Government have had twelve further months to digest
the Stern Review and nobody expected them to develop a comprehensive
package across sectors overnight but I think the picture, not
just in the PBR but across government, is at the moment very disjointed.
I think the PBR on climate change in particular was very disappointing.
We are more positive actually about some of the initiatives and
some of the policy decisions in the waste area in recent months
where there has been a significant and welcome shift. We are much
less positive about climate change and I think that the Government's
response to the Stern Review, the latest one published alongside
the PBR, contrasts actually quite painfully with the CBI Climate
Change Task Force which takes a very "can do" approach,
a very domestic approach, whereas the Government's response emphasises
almost overwhelmingly the need for further international action
as the primary message of Stern. This is a false choice, of course,
but I think the emphasis put on global action in the Government's
response to Stern is very telling. Do you want me to cover the
Spending Review?
Q2 Chairman: We will come to that
in a moment, if we may. I also saw the ad in the FT last
week by the CLG who seem to have entirely accepted the Stern thesis
that early action is cheaper than late action, and I think the
pro-growth strategy to tackle climate change is to get on with
it now rather than say action will somehow impede growth. Why
do you think if business has got the message that the Government
is still dragging its feet?
Mr Hale: I think everybody has
got the message in generality. If you read the Prime Minister's
speech of two weeks ago that for me was the high point of what
we have seen so far. There is a series of some commitments and
in many cases hints—hints of regulation on carbon capture
and storage across the board, which is a dramatic shift from the
current policy effort which is focused entirely on the development
of competition for a single plant, clear signals to Government
that it has to meet the EU's new millennium targets, but the overall
picture within Government is still one of disjuncture. So that
kind of aspiration and ambition as outlined by the Prime Minister
does not fit well with what is going on in the Treasury and in
the Department of Business, Enterprise and Regulatory Reform.
Clearly over the past 18 months there have been several attempts
to generate the climate change policy package consistent with
the ambition even in the current Climate Change Bill, through
the Climate Change Review and the Energy Review and the Energy
White Paper, but it is very clear even on the Government's own
published projections that we still need a further policy package
in order to meet even the Government's existing carbon budget
for 2020.
Q3 Chairman: You praised with some
enthusiasm what the Prime Minister has said, it is however true
in his last full year as Chancellor green taxes were down at 7.3%
compared with almost 10% in 1999. What does that show in way of
commitment in the Treasury at least to shifting the taxation on
to pollution?
Mr Hale: We believe, as you will
know, the burden of taxation needs to rise on environmental taxes
and there are many more ambitious ideas out there which the Treasury
should grasp. I do think sometimes in the political process we
focus very much on taxation, because it clearly has public saliency
but there are other levers which are just as important, and the
decision to use or not to use regulation is in many respects just
as important. In one area of Government policy, housing, the commitment
to regulate for zero carbon homes by 2016 is an example of the
kind of leadership and ambition we need and is stretching all
of the stakeholders involved and driving innovation, and if the
policy is designed and implemented right it creates opportunities
for UK plc. In other parts of the policy framework, that would
be called a disgraceful act of gold-plating, which is what it
is—a new regulation, not required by the EU, imposed upon
the private sector—but in that area recognition has come
of the need to regulate; bold standards in order to deliver both
environmental and potential economic benefits, and we need similar
approaches elsewhere.
Chairman: Let us hope that is going to
be enforced, vigorously too.
Q4 Martin Horwood: Continuing this
theme of the attitude of business and its relationship with the
Treasury, in the Committee's last Pre-Budget Report inquiry you
said that the Treasury would "often block proposals on the
environment from other parts of Whitehall" and you said that
one reason was the Treasury's "perception that the business
community would not support a more ambitious approach". In
the light of the CBI Report and this much time on from Stern,
do you think the attitude of business has changed and this is
beginning to have an impact on the Treasury?
Mr Hale: I think that the attitude
of business has changed. It is an on-going process but the CBI's
Climate Change Task Force is probably the most important and visible
sign of that so far. It is not yet of course a statement of CBI
policy, so we will have to await the policy within the CBI and
not everyone within the CBI I am sure will welcome with open arms
the leadership which has been shown by the chief executive on
the Task Force, but I think it will make an important contribution
to the political debate and I hope it will shift attitudes within
Government. A cautionary note: some of what we regard as totemic
issues, where we want to see leadership issues from Government,
are not supported by the CBI Report, and the emphasis in the CBI
Report is very much on 2030 because they do not believe the Government's
2020 targets can be met, and we disagree with that. The CBI also
does not support the EU renewable energy target which again we
see as important and we know now that the Prime Minister does
too. So I do not think the CBI Climate Change Task Force can be
referred to as a panacea and a model for government in all areas,
but it does dramatically move on the CBI's position from the previous
director-general.
Q5 Martin Horwood: You seem to be
suggesting there might be a bit of green-washing about it if some
of the key short-term targets are not being accepted. Do you think
the CBI Report really is pushing things much further forward?
Mr Hale: I think the CBI Climate
Change Task Force does push things quite a long way forward, because
of its emphasis on the need for UK action rather than awaiting
further global agreement, because of its recognition there are
economic opportunities from leadership. There is recognition of
the urgency of the need on both Government and business to move
within three years, as they put it; they say we have to get the
size of action very clearly and we need much clearer and more
decisive commitment by Government. So all of that is welcome,
I am simply pointing out in the areas of concern to Green Alliance,
and perhaps the Committee, that the CBI and certainly ourselves
do not see eye-to-eye on all issues.
Q6 Martin Horwood: Do you see the
Treasury blocking fewer proposals now, to use your phrase from
last year?
Mr Hale: We are only five to six
months into a new Chancellor and we do not know much yet about
what this Chancellor thinks about the environment. There have
been very few public statements, a number of the commitments which
came through the PBR, such as the King Report on transport taxation,
are processes initiated by Gordon Brown while he was Chancellor,
so we do not see many reasons on the climate change front to be
cheerful. We also think that five or six months is a short time
in which to make firm decisions about how Alistair Darling is
going to perform as a Chancellor.
Q7 Dr Turner: Last week saw the publication
of the latest UN Human Development Report which echoes many, or
pretty well all, the serious criticisms which have been out there
of the UK's performance on the climate change front in the past
year, particularly the lack of ambition in our Climate Change
Bill's targets, the lack of progress towards our own 2020 targets
in our climate change programme. What is your opinion of this
Report and, more importantly, what impact do you think it is going
to have particularly on the Government and internationally? I
have not seen or read the Report yet, sadly—I must find
time to read it—but I would doubt very much if the UK were
the only country to come in for some fairly pungent criticism.
Mr Marsh: I have not read the
whole Report and we have picked up on the focus on the UK, and
as I think Stephen has begun to outline, we pretty much agree
with what is in it in terms of the lack of ambition of the UK's
long-term targets and the fact that we are off-target in terms
of progress domestically. Clearly UN reports do have weight and
impact globally and I think what you will hopefully see is that
will increase the pressure on the UK Government to do more domestically.
Obviously we are now just entering the Bali negotiations and the
UK is going there to try and push the debate on a little bit and
reports like this cannot help, because they will say, "You
are out there telling everyone else they need to do something
when actually you are not doing as well yourself as you should
be doing in the UK." So it will certainly increase the pressure
on the UK to start moving much faster domestically to get its
emissions on track and meet the targets which are laid out.
Q8 Dr Turner: Do you see it having
pressure on other countries which are not at the moment performing
in terms of climate change?
Mr Marsh: You would hope so. I
have not looked at the detail of what it says about every country
in the Report but, as it would put pressure on the UK to do more,
you would hope it would put similar pressure on other countries
as well. The timing of it is key in terms of the international
negotiations just beginning and hopefully the fact this Report
has come out and is saying we are not going as far as we need
to go, will help put pressure on the negotiations as a whole to
move forward faster.
Q9 Dr Turner: One of the other specific
things which the Report said was that without some pretty significant
step changes in policy there was no way we could achieve even
the 26 to 32% reduction by 2020 targets of CO2 which
many people would say were in themselves not adequate. We are
talking about the Treasury so let us look at the fiscal elements.
One of the options floated by the UN Report, which is not new
to the UN, it has been suggested by many people in the past, is
an out-and-out carbon tax, and another one which is specific to
the UK is reducing the emissions cap in Phase III of the ETS far
enough to deliver these reductions across our economy. What is
your feeling about the way to approach this in terms of fiscal
measures and carbon trading?
Mr Marsh: On those two I think
we would need to see a mix of both. How you use the trading scheme
covers 50% of UK emissions, so that clearly has to be a central
plank of our emissions reduction effort going forward. What we
need to be seeing is that it needs to be tighter; as we head towards
Phase III we need to be seeing a tighter cap, more auctioning,
to start driving the price up and emissions down. I do not think
anyone would disagree that at the moment the price of carbon through
the emissions trading scheme is enough to really drive the change
we need. One of the things the UN Report said about the UK is
that one of the reasons we are off-target for emissions is that
we are seeing more and more coal being used in the UK, and that
is clearly a sign that the carbon price is not strong enough.
The whole idea of the emissions trading scheme is to stop things
like coal being used, so that is a clear indication that the carbon
price is not high enough. So we need to see a tightening of the
cap. In terms of carbon tax, clearly emissions trading has to
be a part of what we do but it is not going to be the answer for
every sector everywhere, and we have to try and get that balance
right. One of the things that has been talked about is whether
we can use a carbon tax to effectively set a carbon price across
the economy in all sectors, whether they be in the EU emissions
trading scheme or not, and so effectively set a floor for the
carbon price. That certainly has some merit because one of the
things that is often talked about is the uncertainty of the carbon
price in the future. As we look forward to hopefully Phase III
and Phase IV of the emissions trading scheme and getting a tougher
carbon price, until we get there having a carbon tax which can
be a price floor would be very helpful.
Q10 Dr Turner: This is supplementary
to that. A previous report from another Select Committee I served
on recommended not only a carbon tax on the specific relevance
of electricity generation but, because everybody sees taxes as
sticks, there should be an element of carrot and proposed a carbon
tax credit to reward carbon-free production. Does that attract
you in any way? Do you think this could be built into the package
to incentivise very low or non-carbon means of production?
Mr Marsh: On the face of it, looking
at what has happened to the climate change levy where a lot of
people have a number of criticisms of the climate change levy
as it stands, one of the things it has done, is you do not pay
it if your renewals generator is also your CHP generator, and
that has given a lot of support to that sector. Actually I know
that one of the things the CHP sector is calling for is effectively
for the CCL benefit to be extended beyond the current time-frame.
That example, of using both increasing taxation on carbon polluting
activities and reducing it for ones which do not emit carbon,
is a very useful thing to look at. So that is a climate change
levy example where those two things working together can give
some support to lower carbon technologies.
Q11 Dr Turner: And credits to encourage
development of those two technologies to bring them on quicker?
Mr Marsh: Yes. I am not completely
up to speed with the particular mechanism you are talking about
but certainly getting the mix of taxation and rebates and credits
right to encourage the right kind of activity and discourage the
wrong type of activity is the way you want to be going. So bear
in mind each chunk to keep things as simple as possible.
Q12 Mr Caton: Following on this stick
and carrot issue, we recently conducted an inquiry into the climate
change levy and agreements, and clearly from that it became obvious
that stick and carrot does work. Have you looked at all at any
other areas of the economy where environmental taxes could be
enhanced by the carrot?
Mr Marsh: The one area where we
have looked at that is waste. Certainly a lot of the activity,
as Stephen indicated, on the waste agenda recently is moving in
the right direction. The landfill tax escalator went up last year,
so again the price went up for something we did not want to happen,
which was very helpful. At the moment we have this debate around
variable charging for waste, whether or not to allow local authorities
to charge consumers to dispose of waste more if they dispose of
more, or less if they dispose of less, and that is an area where,
by getting the balance right between charging more for people
who are producing more than they ought to and giving an incentive
to produce less waste, you can see you can use the carrot and
stick approach and you can be quite successful.
Mr Hale: A cautionary note in
terms of this idea is that you need a specific mechanism to create
a carrot incentive alongside a stick, because a tax is only a
stick if you pay more, and those people who as a result of tax
reform pay less by definition are receiving the carrot-type incentive
from it. So to take the example of the landfill tax, those companies
which are continuing to build their business around the assumption
of significant waste to landfill obviously face a stick effect
that they will pay more in the landfill tax, but if you are Asda
and you have a public commitment to send no waste to landfill
at any time by 2010 then the additional landfill tax is a carrot
because your competitor is going to pay more but by definition
you are going to avoid the tax that other people in the sector
are paying. So you do not necessarily need another mechanism.
In other areas, like the renewables obligation, that is creating
a carrot by definition. It is obviously a complicated concept
which needs consideration as to whether there are new mechanisms
required but per se I would not want to argue that the
creation of a tax is not simply a stick but it is a stick for
those people who want to continue to commit pollution or conduct
the activity which is a burden on tax. If they move away from
it, it is an incentive.
Q13 Mark Pritchard: I would like
to go back to coal and your comments on coal. Former Prime Minister
Tony Blair's last public comment on coal was that coal has a future,
however given the high sulphur content of UK coal in particular,
coupled with the fact that clean coal technology is not really
evident here in the United Kingdom, whether it be power stations
in Staffordshire or Shropshire or other parts of the country,
do you think mining coal, re-visiting previously mined areas and
extracting coal, whether open cast or deep cast mining, is premature
and will in fact have its own adverse impact on the immediate
and global environment?
Mr Marsh: I think the answer about
the specific question is would open cast mining and starting to
open up mines which have closed down have an immediate impact
on the local market, the answer is yes because clearly it would.
The broader question is, should we be looking to use coal as a
fuel in our energy system anyway and should we be setting up a
system which allows us to burn coal which allows us to make some
of those coalmines economically attractive? Our answer to that
is that coal has a role in the energy system, it is about how
it is used and clearly there are technologies coming through which
can burn coal, so we are talking about very highly efficient carbon
capture storage plants, and we have no problem with those kind
of technologies being brought forward because we will need them
to reach the targets that the Government has set itself, but you
have to consider what would be the impacts of re-opening coalmines,
et cetera, et cetera, and it is not an area which we in the Green
Alliance tend to get involved in very much.
Q14 Mark Pritchard: But coming through,
to use your own words, and being brought forward, to use your
term, would you agree those clean coal technologies, whilst perhaps
in some parts of the United States, are not yet in the United
Kingdom and some of the energy companies which currently burn
coal and would seek to burn more coal and more British coal within
their stations do not have that technology and indeed may not
be prepared to pay the cost for that technology at this point?
If that is the case, is it not the case, despite the fact there
is a role for coal in our diverse energy mix, that mining coal
today in the current technological context in this country is
premature?
Mr Marsh: In terms of the technology,
it is clear that what we call post-combustion carbon capture storage
which is retrofitting technology to existing power stations is
ten years away, maybe a bit less. The Government's policy is looking
to have a plant up and running in the UK in about 2014. The implication
of that is that between now and 2014 we will have a lot of unabated
coal burning in the UK. Looking at the other technology, which
is pre-combustion, which means you do not have a coal-fired power
station running unabated at all and carbon capture is built in
from the start, it is possible that we could have some of those
technologies brought forward within five or six years' time if
they start now. Actually using those types of technology means
we can avoid emissions in the first place, so we have no problem
with retrofitting. The issue you are talking about is, yes, if
we build an unabated coal-fired power station today, at what point
will it be retrofitted with the technology or will it ever be
retrofitted with the technology? If you force the market to go
for the pre-combustion technology, they either build pre-combustion
or they do not, which means you do not have the problems of having
unabated coal being burnt at all.
Q15 Chairman: Going on to the Comprehensive
Spending Review, you said in advance that it was an extremely
important moment to set out a new direction on the environment.
Now we have seen it, what do you make of it?
Mr Hale: It is very disappointing.
To get the positive point out of the way first, I think there
are increases in spend in some important areas beyond DEFRA but
through the Energies Technology Institute and through the Environmental
Transformation Fund we have quite significant sums going to BERR
and DFID which are clearly designated to tackling climate change,
and that is a new and broader role across Government, but the
overall picture is extremely disappointing. The analogy which
I think is useful here is to look at DfID's spending. The basic
premise of the Stern Review is that we must invest now in a significant
way to avoid devastating costs later. DfID's spending has gone
up 140% in real terms since 1997, from 1997 to 2007, and from
2007 to 2011 DfID's spending will go up by 11% per year in real
terms, and yet DEFRA has a 1.4% real terms settlement and within
that they have commitments and pressures on the agricultural side
and on the flood side which it seems to me will inevitably lead
to a reduction in spending on some of the strategic environmental
policies, not just climate change but also waste and potentially
other areas like Natural England. So in overall terms as a response
to Stern that is extremely inadequate.
Q16 Chairman: Which are the areas
which you think have the most priority for more spending now?
Mr Hale: I do not think we should
look at this just in UK terms, I think we should be investing
significantly more in the international arena, in adaptation for
instance, in partnerships with other countries, in R&D research,
at EU level. So there is an important international strand to
what we are doing, because if we want to come to the table as
the UK or as the EU with some of the key players we have to have
built partnerships and have credibility with all those countries,
so we must invest in a significant way in that. I think the same
is true domestically. In some areas spending is not the critical
issue, I think our research and development is the key area, highlighted
by Stern, where the overall pattern is of rapidly declining UK
investment, and clearly we have to have significant planning by
the Energies Technology Institute which will bring new money to
the table. I do not know quite what that will do to the overall
trend but it is obviously a welcome shift.
Q17 Mark Pritchard: I am going to
touch on the Pre-Budget Report in a moment but I would like to
come back if I may on the waste point. From my own experience
as pretty much a rural Member of Parliament, in a beautiful part
of England, Shropshire, over the last few years I have seen an
epidemic of fly-tipping, some of it commercial, some of it domestic
or household rubbish, and I just wondered what your thoughts were
on that and whether you have evidence of that as well? Secondly,
whether you think the Government's variable charging regime might
increase fly-tipping with its own environmental impact on wildlife
and health and safety risks to children, walkers, riders and many
others?
Mr Marsh: We do not have any evidence
to support your point that there is more widespread fly-tipping,
although I have read the stories that is the case. In terms of
whether things like the Government's current plan for waste would
end up in more fly-tipping, the evidence from other countries
in which this was introduced is that you might get a slight increase
at the start but if you are aware that is going to happen you
can crack down on it, so overall you do not see fly-tipping increase;
so as long as you are aware that might be the case to start with.
Q18 Mark Pritchard: Given that you
are an important voice within the environmental lobby, if I can
say that, can I encourage you to consult with other people as
to whether there is peripheral evidence which you can accept objectively,
in order that there is intellectual consistency in your position
as an organisation and indeed other organisations with regard
to environmental taxation? Because irrespective of whether the
public believes they are being taxed for environmental reasons
or not, the fact is you and other organisations need to have intellectual
consistency on a whole range of environmental issues, so potentially—and
I am not suggesting you are—potentially once you have seen
that evidence if you are turning a blind eye to another environmental
hazard and epidemic such as fly-tipping in order to fulfil other
policy objectives of an organisation, I think that in the medium
to long-term will damage you as an organisation and I am sure
you will not do that. Thank you, Chairman.
Mr Hale: Can I respond to that?
"Epidemic" is quite a strong word and there has been
quite a lot of emotive language used in the debate around what
the Government should do about variable charging. I think an extraordinarily
large amount of that has been deliberately misleading, I think
there has been a media scare campaign, I think the Opposition
spokesman has raised the idea there is going to be a plague of
fly-tipping on the doors of charity shops up and down Britain
as people seek to evade variable charging. I think a lot of it
is highly inaccurate and misleading. Having intellectual consistency
in our policies is obviously important and we should go away and
look at the facts and look at essential connections, but if you
look at the facts of what the Government is now proposing to do,
they are proposing to have pilots in five local authorities and
they have set some quite clear, if frequently shifting, parameters
of what those trials can do. So the idea there is bound to be
an epidemic of fly-tipping across the United Kingdom as a result
of pilots in five local authorities strikes me itself as intellectually
inconsistent.
Mark Pritchard: I am on about the present,
not the future.
Q19 Chairman: Can we go back to the
Budget settlement. DEFRA has had a whole series of fire-fighting
exercises this summer—various animal diseases and of course
the floods—are you concerned that has caused some budgetary
problems for some of the other longer-term areas?
Mr Hale: In the short-term clearly
it has. The precise impact of the Secretary of State for the Environment's
statement—when it appears if it has not already done so—he
will have to explain, but in the short-term there have been pressures
which will have to be accommodated within the year and which require
shifts. It is not necessarily the case that one-off incidents
in 2007-08 should profoundly affect the long-term trends across
departments within the settlement because they are clearly one-off
incidents. But some of the one-off incidents, such as problems
in the Rural Payments Agency, clearly have on-going implications
because they need more investment to remedy them. So it is undoubtedly
the case that the joining within Government of the set of issues
which DEFRA covers means that if some areas are driven up, either
as a result of decisions to spend more on things like flooding
or as a result of one-off incidents in farming areas, that will
squeeze out other parts of the department.
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