Select Committee on Environmental Audit Minutes of Evidence


Examination of Witnesses (Questions 160-179)

ANGELA EAGLE MP, MS REBECCA LAWRENCE AND MS LINDSEY WHYTE

12 DECEMBER 2007

  Q160  Joan Walley: I turn to the environmental transformation fund. There are two aspects to that: how it will work domestically and internationally. In respect of the domestic ETF, do you believe that the funds are sufficient? We understand that £170 million of new money over a three-year period is coming from budgetary increases in the Comprehensive Spending Review. Is that adequate? I spoke to a colleague who is doing a lot of work with local community groups. It seems that there are some restrictions on who can claim this funding in order to get demonstration projects off the ground at local level.

  Angela Eagle: The fund domestically is shared between BERR and DEFRA and it is up to them to decide in detail how they wish to ensure that the money does the job it has to do. It is really about developing low-carbon technologies and it can involve any suggestion in the entire area from initial research to commercial deployment.

  Q161  Joan Walley: Is it only businesses that can apply for it, or can residents apply if they want to demonstrate some heating arrangement within their own community?

  Angela Eagle: Are you referring to a combined heat and power project or something like that?

  Q162  Joan Walley: Yes.

  Ms Lawrence: The criteria for allocating the funds have not yet been set, so DEFRA and BERR are in discussion. They will be open to new ideas and suggestions and there is a process in place for getting agreed criteria so that the funds across the two departments can be truly transformational.

  Q163  Joan Walley: It may be interesting to have a note on that.[1] I know that a colleague in Nottingham is looking at how this funding can be used for a demonstration project there. There are serious issues. We would like to know whether or not there are barriers in terms of who can claim and get access to funds for that purpose.

  Angela Eagle: DEFRA and BERR are consulting with each other at the moment ahead of consulting more widely before they make announcements about how the funds will be made available. We will send a note.[2] It may be worth asking your contacts in turn to contact the department directly and make suggestions about how community involvement in those kinds of things can be encouraged.

  Q164 Joan Walley: Earlier you mentioned Stern. In the light of what Stern says is needed—massive increases in research and development—are you content that the £170 million will be enough?

  Angela Eagle: It is a significant start. You must remember that there are other areas being pulled in as well. There is science and technology funding for development and research which can be coupled with it. A public/private partnership is also being put together to bring research moneys to bear on technological change which I believe has already attracted £300 million of private sector money alongside some of the matched funding from the research councils. It is not simply this fund that will be applied to the technological changes we need in order to switch to a much lower carbon-using economy.

  Q165  Joan Walley: Are you looking to fund some of that out of phase 2 of the European ETS?

  Angela Eagle: Are you asking whether European ETS will be hypothecated?

  Q166  Joan Walley: But not from the auctioning of phase 2 of the European ETS?

  Angela Eagle: I do not believe that so far we have made decisions about what to do with the money we will raise from auctioning phase 2 of the EU ETS. We certainly would not hypothecate it in that way. It may be that once we have raised the funds we may decide to do something like that with them, but it will not be an automatic hypothecation.

  Q167  Joan Walley: Do you have any idea how much you would expect to get globally from the auctioning of phase 2, irrespective of whether or not it is hypothecated?

  Angela Eagle: Phase 2 allows for auctioning of up to 10%. We would certainly want that to go up over time and, certainly in phase 3, to auction a much higher percentage, but it is too early to say. That anticipates the futures of a futures market. As a minister I do not have a crystal ball.

  Q168  Joan Walley: I turn briefly to the international element of the environmental transformation fund. There is a big welcome for the way this has been taken forward. When we were in touch with WWF it had particular concerns about the detail of how the international element of it would be implemented. I would like some clarification on the details of the fund, how it is spent and whether it will count towards the Government's commitment to devote 0.7% of gross national income to official development assistance or it will be additional to it. There were also concerns expressed by WWF both during its evidence to us and subsequently relating to the World Bank and how the whole thing fits together, for example when the loan is repaid to whom it is repaid and out of whose budget that repayment is made.

  Angela Eagle: At the moment the fund is divided 50-50 between DfID and DEFRA. It is mainly capital and it can be classified as official development assistance. One of the ways we are thinking of dealing with this is to set up a multi-donor fund. That is why we have asked the World Bank to help us design a trust fund that will deliver in a timely fashion to developing countries the chance to have these transforming technologies available as they develop. The bank circulated for consultation at the annual meeting a prospectus outlining how the fund could work with others. We are keen to talk to other countries to see if they will put money into the fund that we wish to create. I know colleagues in Bali are having discussions around the fringes about what is happening there and how the fund might be bolstered by other countries. But at the moment that is how we plan to do it, and it will be part of ODA.

  Q169  Joan Walley: Are you aware of the concerns of WWF about the relationship between the loan and the ODA and whose money it becomes when it is paid back? Is there any possibility of the Treasury perhaps having more detailed discussions with WWF in terms of how this can be incorporated into a transparent accounting system?

  Angela Eagle: It is important there is transparency and that people realise the funds are being used for the purposes for which they were created and not for any other. We are quite happy to talk to the WWF about any concerns they have and about transparency of accounting which is absolutely vital to the work we do.

  Q170  Joan Walley: As a follow up, one of the issues we have been looking at in detail is biofuels. There is anxiety in some quarters that if the World Bank oversaw this loan it would be much more attracted to projects which gave the highest returns which could well be biofuels. I am just wondering whether that would be in line with government policy or the Treasury would seek some accountability over the way its loan, which would then be managed by the World Bank, would be handled. We would not simply want to see a huge depletion of rainforests and so on.

  Angela Eagle: It would be patently absurd if in order to deal with transport emissions, which globally account for about 14% of emissions, we got rid of all the forests which are the carbon sinks that help to keep the climate balanced and also host much of the biodiversity. It would be a law of unintended consequences in the extreme if we flattened the rainforest to grow a load of things to make biofuels, whether it be detropha or wheat. There is increasing understanding of the double-edged sword that biofuels can be, although they are certainly useful in reducing emissions in the short term or this hybrid period if they are of the right sort and have not been shipped half-way round the world. I rather agree with Julia King's view that we need to start to develop a carbon whole life cost analysis of these things. If we could do that we would be able to see which biofuels were worth having and which were not. The more we understand whole life emissions and the balance from growing all the way through to final use the more we realise that these things must be analysed carefully. We can produce unintended consequences if we simply subsidise all biofuels without analysing whether they are good or bad.

  Q171  Joan Walley: Therefore, we can expect the Government to have some control over how the £800 million is spent through the World Bank?

  Angela Eagle: We do not intend to give control away in that sense, although we are anxious to create funds that could attract other funds and therefore work harder to have the technology transfer which gives to developing countries opportunities to develop in a way that is not as damaging to the climate as the way we developed.

  Q172  Joan Walley: In respect of the Congo forest conservation initiative, do we know yet how it will operate and how soon it will commence?

  Angela Eagle: The Congo forest initiative of £50 million was announced last year. I am not sure how well defined it is.

  Ms Lawrence: The two co-chairs, Wangari Maathai and Paul Martin, are together developing a proposed governance structure and agreeing its terms of reference together with a detailed development plan for the fund. As we all know, avoided deforestation is potentially really significant and a pretty cost-effective way of reducing global emissions, but it is crucial to get the governance right and work collaboratively and constructively with the countries in which the trees stand. That is what the co-chairs are doing right now.

  Q173  Joan Walley: Some claims have been made that the management of this scheme was excessive. Has that been looked at so we can draw lessons from it?

  Angela Eagle: I have not heard that, but if there are criticisms you want to pass our way we will certainly investigate them. You always have to strike a balance between ensuring that the funds are used for the purpose for which they are created and provide the best opportunity and ensuring you are not overly-bureaucratic about it.

  Q174  Dr Turner: One matter that featured in the Pre-Budget Report was the CCS demonstration plant competition. That the Government is doing something to promote this technology is welcomed by the CCS community, as it were, but there is some concern about whether this is the right way to go about it. There could be 11 projects, including BP's pre-combustion project at Peterhead which is at an advanced stage of preparation, going forward to produce infinitely greater savings than we will get from this one post-combustion demonstrator; and we would also have had a wider choice of technologies available for exploitation had the Government done it slightly differently. Why is the Treasury so committed to this single plant and this sole technology?

  Angela Eagle: We decided that we wanted to focus on post-combustion because we thought that was the most relevant in terms of capturing carbon with the potential to retrofit existing plants and looking at the kind of plants being built even as we speak. It is important that post-combustion technology is developed but that does not prevent work being done on pre-combustion technology; it is simply that the Government's demonstration project is about post-combustion technology. There is no commitment to fund more than one project. What we wish to do is get ourselves into a situation where at the end of the competition we have a scaled-up, working post-combustion carbon capture and storage facility which has the potential to be retrofitted to a lot of existing generating plant. Coal reserves will probably continue to be burned for the next 50 years and it is therefore vital that we try to develop abatement technology to deal with the consequences of it. We felt that if we could develop a solution post-combustion this was the best and most useful one to have.

  Q175  Dr Turner: That is clearly essential in the context of China, India and indeed some of our own future stations, but pre-combustion plant could make an equal contribution.

  Angela Eagle: Pre-combustion is important, but since we already have plant that is putting a great deal of carbon into the air and that developing countries, particularly China, have a great deal of dirty coal and are building power stations at a rapid rate to supply their own energy needs, retrofit post-combustion seems to us to offer the best chance, if it can be delivered, of maximum abatement capacity which is beneficial in the battle against climate change. That was the nature of our decision. I emphasise it does not mean we believe that pre-combustion technology should somehow be abandoned but simply that the Government's demonstration project wishes to concentrate on this particular area.

  Q176  Dr Turner: I completely understand the logic of it. The question is: is this the Treasury's last word or will it bring forward other support mechanisms for a broader range of CCS technologies in future?

  Angela Eagle: It may well do so if it is demonstrated they work, but in the context of having a demonstration project which is being run by BERR in a competitive environment we have decided to provide government support for post-combustion abatement of 300MW. That does not preclude the possibility at some future time, if such pre-combustion technologies appear, of the Treasury looking at how it can reward carbon capture and storage achieved by other methods, but the context of our discussion here is that where there might be a market failure because the technology is available but practically it cannot be created and brought to market for cost reasons we try to support the work being done so we can fast-track the development of the technology which is badly needed in order to fight climate change.

  Q177  Dr Turner: The only difficulty is that the other technologies are unlikely to develop in this country to demonstration stage without some Treasury support. All roads lead back to the Treasury.

  Angela Eagle: In consultation with other government departments the Treasury has announced its decisions on what sort of demonstration project it wishes to support. BERR has already held an industry day to which it has invited developers who wish potentially to become involved in the forthcoming competition. There is good interest around. If you ask me whether half-way through the competition process we will agree to do pre-combustion as well the answer is no; we are concentrating on a post-combustion project of the sort we have announced.

  Q178  Dr Turner: Obviously, the Government has decided that its capital grant support, presumably, will go to this project, but it is quite possible that industry will invest in other projects if the fiscal conditions are right. It does not necessarily mean capital money up front from the Government.

  Angela Eagle: At the moment we are concentrating on trying to create and demonstrate the technology in this particular way. We have no plans to give other capital support to other projects being developed. It is silly to rule things in or out at this stage, but I have given you quite a strong indication of where the Government's priorities lie in terms of trying to bring to market a carbon capture and storage plant that will be useful. Other experiments are going on in other countries with different technologies. For example, Italy and Poland are doing post-combustion and Germany is doing pre-combustion. There are other potential international developments around and obviously we shall be keeping a close eye on them. It is important for the world as a whole that we crack this technological problem and we are able to capture and store carbon emissions. In the next 50 years that may well be one of the most vital things we can do to prevent run-away climate change, but that does not mean the UK has to do all of it.

  Q179  Dr Turner: The Pre-Budget Report quotes savings of about .7 million tonnes of CO2 a year from the demonstration project, whereas the Energy White Paper refers to savings of between 1.1 million and 3.7 million tonnes of CO2 a year. Can you account for the huge difference in the figures?

  Ms Lawrence: There is a simple technical reason in the sense that the Energy White Paper gave an illustrative estimate for the purposes of assumptions of the policy matrix and the full range of policies. Now that we are in a competitive phase we do not firm up the illustrative numbers because this is one of the elements of the competition where bidders will be able to say what savings they propose and at what cost. Therefore, the technical answer is that we are in a different phase at the moment.

  Angela Eagle: We would be delighted if they could save even more.



1   See Ev 68 Back

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