Select Committee on Environmental Audit Second Report


115. The Climate Change Levy package has been a bold and innovative suite of policies in design. In practice its impacts have been slightly more questionable: the Levy's impact on energy prices appears to have had little effect on demand and has been declining since it began, while Agreement targets have not been tightened since they were revealed to be too lax. But evidence from different analysts and participants agrees that its main impacts have come about, not directly through the imposition of a tax or targets, but through galvanising business interest in saving money through more efficient use of resources. In this way the experience of the CCL package teaches some useful lessons that could be applied across the range of climate change policy.

Businesses have not always acted according to economic theory

116. Time and again throughout our inquiry, we heard witnesses argue that there was a gap between economic theory and the actions of businesses in the real world. According to economic theory, businesses should already have been focusing far more on the rational goal of reducing their costs by increasing their energy efficiency. The theoretical basis for introducing the Levy was that it would harness this rational interest. Yet we heard repeatedly that on its own this was not enough to capture the interest and innovation of the majority of firms; they require an extra stimulus to create new organisational structures and cultures, focused on energy efficiency. This has obvious implications for climate change policy, not just covering the business sector, but all sectors of society: it says that the Government cannot rely simply on increasing the cost of carbon to achieve incremental reductions in emissions. If even large energy intensive companies require additional policy measures—not just 'sticks', but 'carrots' and 'tambourines' in the words of Andrew Warren—then this must be even more true for small businesses, public bodies, and domestic households. We recommend the Government report on how it is applying this lesson in other policies, across the whole of the UK Climate Change Programme.

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