Memorandum from Rt Hon Hilary Benn MP,
Secretary of State, Department for the Environment, Food and Rural
Affairs (CC01)
Thank you for your letter of 12 December. I
enjoyed the evidence session on 4 December climate change. I was
sorry that there was not time to discuss Climate Change Agreements,
which continue to make a substantial contribution to meeting the
UK's climate change targets, but I am pleased to be able to respond
to your written questions in the attached document. Some of these
relate to specific environmental taxes. As you know tax is a matter
for the Treasury but we have coordinated this reply for the ease
of the Committee.
During the evidence session, I said I would
send you a note about cod stocks and discarding, and whether the
Climate Change Bill contains any mechanism which prevents Government
buying credits in an early budgetary period to count against later
budgetary periods. I will deal with each of these in turn.
COD STOCKS
There are many different reasons why fish caught
in commercial fishing operations are discarded. For example, fish
may be discarded because:
— they are of little or no commercial
value (in a recent Defra-funded research study of discarding in
the English Channel and waters to the west of the UK the ten most
discarded species included boarfish and dragonet, for which there
is little or no commercial outlet);
— in mixed fisheries immature fish
below regulatory minimum landing sizes of larger bodied fish such
as cod and plaice will tend to be caught in fishing nets targeting
smaller fish such as sole;
— small fish are not commercially worthwhile;
or
— fisherman do not hold quota for the
species caught or have already used their quota.
Research suggests that overall the majority
of discarding is of non-commercial fish rather than being driven
by catch quotas. However, there are instances where quotas get
out of line with the real abundance of a particular stock and
widespread discarding results. This is what has been happening
with North Sea cod this year.
The Total Allowable Catch (TAC) for North Sea
cod, which is set jointly by the EU and Norway, has been reduced
dramatically over recent years to its current low levels in response
to the depleted state of the stock and in order to create the
conditions for the stock to recover (1999 TAC: 132,000 tonnes,
2007 TAC: 19,957 tonnes). Measures to recover depleted cod stocks
have been in place at EU level since 2001, not just in the North
Sea, but in the Irish Sea and West of Scotland as well. In addition
to restrictive TACs, these include limits on the numbers of days
vessels can spend at sea in order to limit levels of fishing effort
on cod stocks. UK decommissioning schemes in 2001 and 2003 helped
reduce the size of the UK whitefish fleet in order to comply with
these lower levels of fishing effort. The size of the UK's whitefish
fleet has been reduced by more than 65% since 2001. Other North
Sea member states have also been undertaking decommissioning in
their fleets.
We can see from this year's scientific advice
that these measures have had an effect. The International Council
for the Exploration of the Sea (ICES) estimates fishing mortality
on cod in 2007 to be 0.63, the lowest level recorded since 1969.
While this is still above the target fishing
mortality rate of 0.4 agreed between the EU and Norway, it is
below the precautionary level of 0.65 for the first time in decades,
such that ICES now classifies the stock as "harvested sustainably".
This is partly the result of the dramatic reductions in fishing
effort referred to above and partly the result of a good recruitment
of young fish in 2005 which have entered the fishery in 2007.
It is true that ICES'S management advice is
for a reduction in catches next year. This is because ICES gives
its advice on the basis of what would be needed to achieve full
recovery to a high level of spawning stock biomass within one
year. It is on this basis that ICES has advised zero catches of
North Sea cod for the last five years. So their advice for a non-zero
TAC this year is a recognition of the improving stock situation.
However the practical implication of this advice would still be
to close down most of the North Sea fishing industry. UK Ministers
and other Member State Governments in the Council have since 2001
chosen to adopt a recovery plan for European cod stocks (involving
the reductions in TACs and fishing effort referred to above),
aimed at achieving recovery more gradually and at a pace that
is consistent with a significantly reduced industry continuing
to operate in the meantime.
The European's Commission's own scientific advisers
(the Scientific, Technical and Economic Committee on Fisheries,
STECF) advised this autumn in their review of the 2007 ICES advice
that in the light of that advice a 15% TAC increase would be consistent
with the agreed EU cod recovery plan (see http://stecf.jrc.ec.europa.eu,
STECF Winter Plenary, November 2007 final report). That advice
was accepted by the Commission but was reduced to an 11 % increase
in the course of negotiations with Norway. This increase is not
expected to increase fishing mortality. Indeed fishing mortality
is forecast to decline further next year: the TAC increase will
simply allow some of the proportion of the catch that would otherwise
have been discarded next year to be landed.
Even with the agreed TAC increase and the expected
further reduction in fishing effort next year, such is the growth
in the stock biomass we are seeing that the scientists are still
forecasting significant levels of discarding next year. That is
why the December Fisheries Council adopted new measures proposed
by the UK providing incentives for avoiding cod, such as real
time closures.
CLIMATE CHANGE
BILL AND
INTERNATIONAL CREDITS
It is important to consider the Bill's provisions
in their international context. The rules on the use of international
credits set out in the Marrakech Accords include restrictions
on carrying over certain types of international credits between
commitment periods. Credits held in the UK national account from
Clean Development Mechanism (CDM) and Joint Implementation (JI)
projects—currently the only project mechanisms that are
internationally recognised under the Kyoto Protocol—may
only be banked to a future commitment period up to a limit of
2.5% of the UK's total assigned amount for the current period.
This means that the international rules would ensure that an unlimited
amount of these credits cannot be procured in one budget and held
indefinitely for use in future budgets.
The Government's view is that further excluding
the banking of overseas credits under the Climate Change Bill
would be unduly restrictive, and inconsistent with the approach
taken in the Bill as a whole. However, the Bill does contain mechanisms
to ensure that the use of overseas credits will be both robust
and transparent. Our use of them will also continue to respect
our EU and international obligations.
Firstly, when providing its advice on the level
of each carbon budget, the Committee on Climate Change must set
out its views as to the extent to which international credits
may be used to count towards the budget. This advice will be published
and will therefore increase the transparency of Government decisions
regarding use of credits.
Secondly, in its annual statement of emissions,
the Government must state the total amount of international credits
that are to be counted towards the net UK carbon account for the
budgetary period in question. This will also enhance transparency
regarding how much effort has been made domestically towards meeting
the carbon budgets.
Finally, the Bill provides that the Secretary
of State must consult the Committee on Climate Change and the
Devolved Administrations before banking any amount between budget
periods—regardless of whether this relates to over-achievement
domestically or through a combination of domestic and international
action.
I hope this is helpful.
EAC QUESTIONS ON
CLIMATE CHANGE
LEVY AND
CLIMATE CHANGE
AGREEMENTS—LETTER
OF 12 DECEMBER
2007
1. The 2007 Pre-Budget Report gives the projected
savings from the Climate Change Agreements as 10.3Mt CO2 (2.81
MtC) a year by 2010. But according to the National Audit Office,
the latest estimates of these savings have been reduced to 6.97Mt
CO2 (1.9MtC). Which is correct?
The Climate Change Programme of 2006 gives an
estimated 2.9MtC (10.63Mt CO2) savings per year from CCAs. (See
Q2 below for an explanation of the 10.3 Mt CO2 quoted in the question.)
This 2.9MtC was based on the original 2000 Business as Usual (BAU)
projections for these sectors, taking into account the introduction
of new sectors and the result of the 2004 review of targets. At
the end of the third CCA target period in 2007, Defra recalculated
both the BAU projections and the results of that target period
to take account of increased energy prices. Increased energy prices
tend to reduce BAU projections through the price effect itself,
because the price increases also tend to reduce growth and because
higher energy prices make energy efficiency measures more cost
effective. Therefore without the CCAs energy use would already
be lower and the additional effect of the 2010 targets would therefore
be less—estimated as 1.9MtC. However, calculated on the
same basis, actual achievements in the third target period were
already 1.9MtC. The current 2010 targets are subject to review
again in 2008.
2. The 2007 PBR also lists savings for the
"Total CCL package, including Carbon Trust" as over
27.5Mt CO2 a year by 2010. Could you specify what, other than
the CCL and CCAs this includes, and what their individual estimated
savings are? And could you also state whether and how these projections
have changed since the 2006 UK Climate Change Programme?
The 2007 Pre-Budget Report estimated that the
total CCL package, including the Carbon Trust, would deliver annual
emissions savings of over 27.5Mt CO2 a year by 2010. This figure
included estimates of savings from the CCL, CCAs, and the Carbon
Trust as follows:
— CCL—3.5MtC (equivalent to about
12.83Mt CO2)
— CCAs—2.9MtC (equivalent to
about 10.63Mt CO2)
— Carbon Trust—1.1 MtC (equivalent
to about 4.03Mt CO2)
This estimate for CCAs used in the calculation
of total savings from the CCL package differs from the 10.3MtC
figure quoted elsewhere in the 2007 PBR text (and identified by
the EAC in Question 1). Prior to the revisions discussed in the
answer to Question 1, above, the Government's best estimate of
savings from CCAs was 10.63Mt CO2, and the use of 10.3Mt CO2 was
an error. As noted, this has now been revised to 1.9MtC (roughly
6.97Mt CO2) and this will be reflected in future publications.
Enhanced Capital Allowances (ECAs) for low carbon
technologies also form part of the total CCL package. Estimates
for their contribution to carbon savings are not currently available,
but this is likely to be small.
These estimates add up to the figure for total
savings of about 27.5Mt CO2 per year by 2010 published at PBR
2007. The estimates for the CCL contribution were revised down
slightly from the 3.7MtC figure stated in the 2006 UK Climate
Change Programme as a result of the decision not to increase rates
in 2006-07. As part of a wider environmental tax package, the
Government announced in Budget 2007 that the rates would rise
with inflation from April 2008. Nevertheless, the current estimates
for the carbon savings from the CCL remain above the 2MtC figure
that was initially projected when the levy was introduced in 2001.
3. The Climate Change Levy regime has had
lesser effect on Small- and Medium-Sized Enterprises, and large
but non-energy intensive firms. In recognition of this, the Government
is bringing in the new Carbon Reduction Commitment from 2010.
But what are you doing to target those small businesses which
are below the threshold for the Carbon Reduction Commitment; and
what is the current total size of annual CO2 emissions from this
sector?
The Carbon Trust have a range of services available
to help SMEs reduce their CO2 emissions, which the Carbon Trust1
estimate to total 37Mt CO2 per annum, 20% of the total emissions
from the UK business sector. Support for SMEs includes access
to free publications, interactive tools and technical advice via
the Carbon Trust's web site and call centre, free site surveys
for SMEs with energy bills in excess of £50,000 per year,
and interest-free loans of up to £100,000 for energy efficiency
projects (up to £400,000 in Northern Ireland). SMEs can also
benefit from claiming enhanced capital allowances on their investment
in energy saving technologies, and can apply for research grants
to help them develop new low carbon technologies.
According to the Carbon Trust, their work with
SMEs represented 40% of their customer base in 2006-07. Over the
last three years, the Trust has provided around £90 million
support to SMEs below the £50,000 threshold to help them
cut both their energy costs and carbon emissions. In addition,
of the 5,000 on-site energy surveys conducted by or on behalf
of the Trust in 2006-07, two thirds were for SMEs and 70% of the
business-related calls taken by the Trust's dedicated advice line
were from SMEs.
Defra is also encouraging energy suppliers to
promote energy services and energy efficiency to SMEs as required
under the Energy Services Directive. The aim is to agree voluntary
agreements with energy suppliers that when taken together with
the proposed roll-out of advanced metering to the sector will
lead to significant emission reductions.
4. In 2006-07 the Climate Change Levy brought
in receipts of around £700 million. In that year the Carbon
Trust spent in total around £100 million. Is any of the rest
of this money ring-fenced or hypothecated towards other climate
change programmes; if so, how much is spent on what?
The Governments policy on environmental taxation
was set out in its Statement of Intent, published in 1997. This
states that, where tax is used, over time, the Government will
aim to reform the tax system to increase incentives to reduce
environmental damage. That will shift the burden of tax from "goods"
to "bads".
Consistent with this approach, the CCL was introduced
along with a 0.3 percentage point reduction in employers' National
Insurance Contributions (NICs). Revenue from the levy also provided
support for the Carbon Trust.
The Government does not believe that a strategy
of hypothecating taxes to particular spending programmes is the
right approach. This would reduce flexibility and efficiency in
the allocation of public spending, with spending on that programme
determined by the revenues received rather than by a balanced
assessment of relative priorities across public services.
This reduces value for money for the taxpayer.
The Treasury therefore makes spending decisions in the round as
part of the spending review process, ensuring that within a fixed
envelope consistent with the fiscal rules, resources are allocated
efficiently to deliver key priorities and reflect changing circumstances.
For clarification, the Carbon Trust grant from
Defra for 2006-07 was £78.6 million, with the remainder granted
to the Trust from the DTI and Devolved Administrations. The Climate
Change Levy element of Defra's grant was £25.4 million in
this year, with the remainder consisting of funding through the
Business Resource Efficiency and Waste programme, the Energy Efficiency
Best Practice programme, and from time-limited funds announced
for the Carbon Trust in the 2005 Pre-Budget Report for interest-free
energy efficiency loans for SMEs and public sector bodies.
5. The Carbon Trust offers interest-free
loans to Small- and Medium-Sized Enterprises for energy efficiency
equipment. The Carbon Trust told us they were keen to expend this
scheme; they just needed the extra funding. How far and how fast
will this. scheme be allowed to expend?
The Trusts existing energy efficiency loans
scheme (EELS) for SMEs is funded by time-limited monies announced
in the 2005 Pre-Budget Report. This funding is due to end in March
2008. However, the new domestic Environmental Transformation Fund
announced in the Comprehensive Spending Review plans to support
the scheme from April 2008. An announcement will be made shortly.
6. Will the Levy exemption for new renewable
and combined heat and power remain through to 2017?
Currently the Government has no plans to abolish
its support (through the CCL exemptions) for the direct sale of
electricity from good quality CHP and electricity generated from
new renewable resources. Evidence suggests that both these exemptions
have contributed to the successes of the CCL in targeting business
energy efficiency:
— CHP has become more competitive compared
with conventional provision of heat and gas obtained from the
national grid, and good quality CHP is estimated by Cambridge
Econometrics to increase by 1.2 gigawatts of electricity (GWe)
by 2010 as a direct result of the CCL exemption.
The effect of the exemption on renewables is
more difficult to estimate but is nevertheless likely to confer
a meaningful advantage; Cambridge Econometrics noted the exemption
is worth 0.43 pence per kilowatt-hour (around 8-10% of the generation
price), which adds to the incentive already offered by the existing
Renewable Obligation.
In 2003, the European Commission granted state
aid clearance for exports of electricity from Good Quality CHP
to be exempt from the levy. This leaves it open to the Government
to make an application, at a later date, for extension of the
exemption beyond the 31 March 2013 deadline. And the Government
will take decisions on the exemption in good time, before the
exemption expires. The European Commission considered the case
of renewables and concluded that this is not subject to state
aid legislation and thus no EC approval for further exemption
is required at this time.
As with other policies, the overall package
of support for CHP and renewables is kept under review. However,
as the 2007 PBR confirmed, the Government will aim to ensure that
arrangements for future phases of EU ETS continue to recognise
the carbon savings that energy from renewable resources and CHP
delivers.
23 January 2008
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