Examination of Witnesses (Questions 20
- 39)
TUESDAY 16 OCTOBER 2007
MR GARETH
STACE AND
MR IAN
RODGERS
Q20 Joan Walley:
In the UK.
Mr Stace: It is both. It is a
combination of both.
Q21 Chairman:
So there was a fall in output.
Mr Rodgers: There was a fall in
output over that particular—
Q22 Chairman:
How much was the claimed reduction attributable to the fall in
output?
Mr Rodgers: We can come back with
data for the Committee if you wish.[4]
Chairman: Certainly we would not be able
to attach much weight to a stat which appeared to have more than
one cause, and one which does not represent any achievement by
the industry at all.
Q23 Mr Stuart:
Coming back to the levy, where a company pays 100% of the levy,
effectively they are factoring that into their costs and it does
not lead to the cultural change which you are arguing the agreements
bring. Is that right?
Mr Stace: Yes.
Mr Rodgers: Broadly.
Q24 Mr Stuart:
So you are saying that the nature of the agreements is what triggers
the change and that even the 20% level is effectively dead money.
You would accept that the levy needs to be there in the background
as the penalty but 100% exemption for companies that fulfil their
agreements would be more effective and lead to a more effective
utilisation of the money directly to reductions. Is that what
you are arguing?
Mr Rodgers: Yes. That would be
very welcome, yes—apart from the fact that there is a European
Directive that would not allow it to be 100%.
Q25 Mr Stuart:
No, it does not allow it. Nevertheless—
Mr Rodgers: It would still be
down to about 8%, I calculate.
Q26 Mr Stuart:
In terms of policymaking, the central view is that, far from those
with exemptions being let off and therefore doing nothing, perversely,
counter-intuitively, in fact they are the ones who are making
the biggest change because they want to avoid the penalty. So
the avoidance of penalty is actually a bigger driver than paying
the cost—because that is just accepted and—
Mr Stace: Absolutely.
Q27 Mr Stuart:
Can you expand on that at all? I have already expanded it briefly,
but I suppose I was aiming to get you to expand a little more
on how Climate Change Agreements work in practice and therefore
get a better understanding of how they could be spread to other
businesses and effect change there, if you have anything to add
on that.
Mr Stace: I am just thinking in
terms of our experience. As I previously said, it has been very
positive in terms of Climate Change Agreements, both with the
steel sector and other sectors that we have had experience in.
The other sector I am thinking of is a less energy intensive sector,
and I think the benefits are as clear in those sectors as they
are in the steel sector. That is why we would be saying that if
there are other sectors that could demonstrate that agreements
would deliver the same environmental benefits, they should be
allowed to negotiate or have discussions, at least with government,
to negotiate an agreement for their sector. We have seen that
with eligibility historically for Climate Change Agreements with
Pollution Prevention Control—that regime. I am sorry, I
do not want to confuse things here, but you are eligible for a
Climate Change Agreement if your sector is regulated under Pollution
Prevention Control from the IPPC Directive. However, we have seen,
and we have welcomed in recent years, another criterion of "energy
intensity" for a sector—so that has brought more sectors
in, so that is very welcome—and I think we would say that
we would like to see more sectors brought in that might not even
be covered under the energy intensive criteria. We could be seeing
that taking place, with the forthcoming Carbon Reduction Commitment,
but it is a very different scheme from Climate Change Agreements
in the sense that it is not relative targets. I think for most
facilities, for most companies, relative targets have been the
big driver in reducing emissions, because economic growth has
not been stifled, it has been encouraged, but efficiency has been
driven down. That is what we have seen through rationalisation.
As I have said, if a company has 14 sites and they close four
of them because they are inefficient and move all the production
into eight of them, overall there is an environmental benefit.
We would say that we see that more sectors would be covered with
the Carbon Reduction Commitment, but that might not be the best
route to reducing the emissions and delivering that qualitative
result that we have seen in the Climate Change Agreements.
Q28 Mr Stuart:
In the MCCG memo[5]
you also talk about the fact that the agreements need to buy into
the workforce. Can you expand a little bit on how that works and
give us some concrete examples?
Mr Stace: As I said before, I
have personally seen, by visiting these companies with agreements,
that we have the people who would pay the bills and the engineers
who would make the improvements not really discussing energy efficiency,
and the people who are using the energy not being aware of how
much energy costs or, in a way, how much they are using. We have
seen a huge shift in that, where I have seen companies that were
like that, which now—
Q29 Mr Stuart:
Do you have examples?
Mr Stace: Examples of companies?
Q30 Mr Stuart:
Yes.
Mr Stace: We would be more than
happy to share some case studies with you.[6]
I do not want to betray their confidence in me really, that is
more it, but—
Q31 Mr Stuart:
I am sure they would be delighted for us to be told how they have
had a cultural change and have improved.
Mr Stace: We would very much welcome
sharing those with you when we get agreement from them[7].
We have seen that these companies would now have weekly energy
meetings with many parts of their business; on the staff notice
boards would be graphs showing relative energy efficiency and
what they have been doing. If there were inefficient spikes within
that, people understand, "Oh, yes, that was last week when
such and such happened. We must not let that happen again because
we are improving efficiency and we want to continue to do so."
It is a dramatic change. We would be more than happy to take you
to some of these companies to show the dramatic change that we
have seen.
Q32 Joan Walley:
You do not have their agreement to tell us about them now.
Mr Stace: We have not, no.
Q33 Jo Swinson:
Could I try to get some clarity on issues. You make a very compelling
case for why the agreements have been successful but I want to
get to the nub of why you think 20% is a dead tax, which has no
impact whatsoever, when at the same time you are accepting that
the 100% levy that other companies pay has driven some improvements.
I can understand how the agreements have particular motivation
and also how obviously you would prefer to have as much exemption
from that as possible, but if it works in other industries that
paying 100% drives improvement, why does that 20% still not drive
some improvements because surely that is still relative to the
amount of energy they use.
Mr Rodgers: The agreements themselves
are setting challenging targets based on what Defra says is the
best that the industry can do. You may not be able to do any better
than the best.
Q34 Jo Swinson:
You did say that sometimes targets can be exceeded. If targets
can be exceeded, then the 20% as an absolute number surely would
reduce?
Mr Rodgers: It would, yes.
Q35 Jo Swinson:
Why is that not a motivator at all?
Mr Rodgers: In that situation
that you postulate, it could be a motivator but I would suggest
not a particularly large one.
Q36 Jo Swinson:
Compared to the potential threat of the much larger 80%.
Mr Rodgers: In a company there
is a finite amount of capital available for investment in any
given period. Boards will allocate that money on where it is going
to provide the best return. The energy manager is competing with
projects that are going to improve efficiency or to improve product
quality or whatever. For the energy manager to be able to go to
the board and say, "If I don't get that particular project
through, the implications are that there is going to be an extra
million pounds worth of costs next year because we are not going
to meet our targets" that tilts the whole economic evaluation
of a project very much in favour of that sort of investment.
Q37 Jo Swinson:
Compared to saying, "The £200,000 of costs that we are
currently paying might be reduced to £180,000."
Mr Rodgers: Exactly.
Q38 Jo Swinson:
In terms of the rationale for the Climate Change Levy itself and
turning to what its focus is, the Pre-Budget Report last week
confirmed that the rationale the Government puts forward is the
targeting of energy efficiency, basically making companies less
vulnerable to energy market volatility. Do you think that is the
right rationale? Do you think it is true that the CCL and, to
a different extent, the Climate Change Agreements make the companies
less vulnerable to energy market volatility?
Mr Rodgers: No.
Q39 Jo Swinson:
What would your view be on the CCL being reformed to target carbon
emissions rather than energy, especially given the rather impressive
statistics about how your industry had been reducing carbon emissions?
Do you think, given the current focus generally on CO2, that that
would be a welcome change if it could be done?
Mr Stace: If we look at Climate
Change Agreements, there are options to have your target expressed
as energy or carbon, both absolute or relative, and so there is
the choice there and companies can change that choice as well
throughout the agreement if they feel their focus has shifted.
At the beginning of the agreements, people in 2001 or 2000 really
were not thinking of carbon as we do now. Not a day goes by when
we do not see in the newspaper an article about carbon; it was
very different then. I think that is why most people at the time
thought about energy targets. If we were looking to negotiate
Climate Change Agreements again now, they might not be energy
targets; they might more be carbon targets. But bear in mind that
the carbon targets are actually just a straight conversion from
energy usage to carbon. Electricity forms part of your total energy
return in your agreement and the carbon content of that electricity,
apart from if it is renewable energy and you have a certificate
to show that, is not factored into it, it is just a straightforward
conversion from electricity to Defra's conversion factor to carbon.
Perhaps, in the future, we might see either the individual or
electricity supply company carbon intensity of very kilowatt hour
that they sell you reflected, and that might offer more opportunities
for our members to decide different tariffs as well as fuel switching,
say their boiler runs at the moment on heavy fuel oil, to running
on natural gas, and therefore significantly reducing their CO2
emissions. However, the only problem there might be—and
I have shifted from talking about CCAs there to the Climate Change
Levy—that in the shift to charging the levy based on the
carbon intensity of that fuel you are double-counting or triple-counting
the cost of carbon within that electricity in terms of electricity
supply industries caught by the EU Emissions Trading Scheme. They
factor into their costs the price of carbon, so then, if that
is then factored again, are we double-counting there? That would
need to be looked at. Personally, from our sector we would not
see a problem with changing the focus from energy to carbon.
4 Note: See Ev Back
5
See Ev 121 Back
6
See Ev 44 Back
7
See Ev 44 Back
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