Submission from The Society Of Motor Manufacturers
and Traders Limited
SMMT is the leading trade association for the
UK automotive industry, providing expert advice and information
to its members as well as to external organisations. It represents
more than 500 member companies ranging from vehicle manufacturers,
component and material suppliers to power train providers and
design engineers. The motor industry is a crucial sector of the
UK economy, generating a manufacturing turnover of £47 billion,
contributing well over 10% of the UK's total exports and supporting
around 850,000 jobs.
SMMT has had a climate change agreement since
2001. Currently we have 25 sites in the CCA. They have made significant
improvements against their CCA targets through hard work, investment
and increasing output.
Below we answer the 10 questions laid out by the
Committee.
1. Is it right for the Levy and Agreements
to target energy use, or should they be reformed to target carbon
emissions directly? If so, how should they be changed?
The CCL and CCAs have worked well and delivered
significant emissions reductions. However, SMMT has questioned
the need for CCL to continue under the significant rise in energy
costs. In addition, when CCL was introduced NIC were cut in lieu,
but quickly raised after the introduction of the scheme. However,
if the CCL is to continue then it must do so with CCAs also in
place. The CCAs were designed to offer some protection to energy
intensive sectors. If the CCAs were to be removed and the CCL
remains (or sites fall into the proposed CRC), then the competitiveness
implications for the sector would be significant.
When the CCA was first introduced there was
much concern over the design of the scheme. It now appears to
be working well and SMMT would suggest little change is needed
to maintain it as an effective policy instrument. Although the
targets are based on energy use, they have delivered large actual
carbon savings.
SMMT has serious concerns that the CCAs are
not being given due credit for the environmental benefits they
have achieved, and in particular notes that the NAO report suggests
that the targets "have not been as stringent as possible"
(page 27). The targets in the automotive sector were generated
after the government sent an independent consultant to a cross
section of automotive sites to assess potential energy efficiency
savings. The targets finally agreed went beyond those the independent
consultant recommended. Through hard work, early action on investment
decisions and also improved volumes the sector has gone beyond
its efficiency targets in the previous milestone periods. In 2004
the targets were toughened in the pre-arranged target review.
A similar review is due in 2008.
The CCAs also ensured better collection of energy
data—and more access to the data for the trade association.
The move to better monitoring of the data ensured that better
management of the energy use could be undertaken. The data could
also be used to compare sites and this in turn also helped speed
up the process of improving energy efficiency. The data also enabled
the sector to be more open and transparent in its activities.
In this respect SMMT has published a sector sustainability report
since 2000. The availability of the energy data also enabled the
sector to input into development of other initiatives to reduce
energy use, eg the EU ETS.
2. With the advent of UK-wide carbon budgets
from 2008 (proposed under the draft Climate Change Bill), how
valuable is the focus of the CCL and CCA on the efficiency with
which business consumes energy? Would it be better to have an
instrument which enforced absolute caps in energy use (or CO2
emissions)?
SMMT still believes that the efficiency aspect
is very important. Absolute caps can be useful and SMMT is exploring
the impact of moving towards them in CCAs, but they could penalise
growing companies or sectors. The proposed carbon reduction commitment
(CRC) revolves around absolute caps, but is set to include some
element of a growth factor in the league table, which will influence
an organisations position in the published results and for revenue
recycling. SMMT fully supports this position.
Relative targets can help reward sectors which
are growing and which would be penalised by absolute emission
targets. A growing healthy manufacturing sector is vital in sustaining
jobs and the economy.
The CCAs involve an efficiency remit in both
relative or absolute emissions targets (SMMT members use largely
relative targets, but some have switched to absolute).
SMMT is particularly keen to ensure that CCAs
are not removed or adjusted to involve some element of auctioning,
as with proposed CRC and the EU ETS. Such a move would affect
the competitiveness of UK businesses, with energy intensive companies
then subject to not only the full levy costs, but also the cost
of buying allowances.
Having relative targets also helps ensure that
all sites, irrespective of size, have an incentive to improve.
If the targets were in absolute terms then smaller sites would
not appear to be making a significant improvement. The relative
targets can also make it easier for workers in the sites to relate
to the improvements. Automotive manufacturing sites usually clearly
label and chart details of efficiency per vehicle on the work
stations.
3. How well do the Levy and Agreements fit
together with other existing and proposed climate change policies,
and what can be done to ensure maximum impact from complementary
policies with minimum administrative burden and overlap?
The CCL and CCAs are now established and run
relatively smoothly. If the CCL is to stay then the CCAs must
also be retained, to ensure energy intensive sectors can remain
competitive. SMMT believes that the current situation of only
partial site coverage of CCAs within our sector adds an unwelcome
complexity and cost to the scheme. SMMT would like to see an impact
assessment of moving towards full site coverage, or widening the
eligibility criteria of CCAs. Full site coverage would make the
scheme simpler to administer, monitor and report. It would also
mean that investment opportunities throughout the site to improve
efficiency could be taken, rather than a focus on CCA (or EU ETS,
etc) aspects of the site. However, any changes to the current
regime would also include more work.
However, SMMT would not like to see CCAs move
towards an element of auctioning the emissions rights—as
this would impact on the competitiveness of the sector, which
is highly open to international competition. SMMT is also concerned
about the impact of duel regulations. It is also important that
organisations which are in a CCA or the EU ETS are not covered
by the Carbon Reduction Commitment (CRC) as well, as this would
further increase the administrative burden without significant
environmental benefit and would not generate any additional awareness
of climate change issues.
4. Businesses are able to use carbon trading
to meet their targets under the Climate Change Agreements. What
have been the impacts of trading so far? Should trading be allowed
in this way, or how should it be controlled?
Trading has been a very useful element on the
CCAs. However, the steady fall in the value of allowances, due
to oversupply from the voluntary UK ETS, has meant that it now
provides little incentive to go beyond a site's emissions targets.
Without trading though several sites would find it impossible
to pass their targets, so it is imperative that the trading element
remains.
5. What have been the economic impacts of
the CCL and CCA on the organisations subject to them, and the
wider UK economy?
Within the automotive sector the CCL has added
to the cost of producing vehicles and they components in the UK.
A large proportion of the industry cannot join agreements—as
do not have the IPPC processes deemed necessary by government
to join an agreement. For example only 25 sites have a CCA in
the automotive sector, but it is estimated there is in the region
of 3,000 automotive companies within the UK, most of which do
not meet the eligibility criteria to join the CCAs.
Those sites in CCAs have clearly faced increased
costs too. The levy costs those 25 sites some £6.5 million
in 2006 (approx £250,000 per site). The monitoring, reporting
and verification process is relatively expensive—taking
some 40 man-days per annum per company, as well as the costs of
installing meters, verifiers, and so forth. The arrival of CCAs
coupled with high energy costs and effective efforts by companies
to reduce their energy use and improve their efficiency have ensured
significant savings in energy use in both relative and absolute
terms in the automotive sector. This has helped UK firms remain
competitive. However, the loss of MG Rover and Peugeot's Ryton
plant highlight the economic climate and competitive pressures
UK automotive sites are constantly under within a global market
place for automotive products.
6. Should the Climate Change Agreements be
reformed in any way? For instance, should the Agreements be simplified,
or the sectoral targets made more stringent?
SMMT would like to see the CCAs widened to whole
site coverage and for the eligibility criteria to be widened to
allow easier entry for sites into CCAs in the first instance.
The former could be achieved by adjusting the 90/10 rule to become
a 60/40 rule. None of the SMMT sites have full site coverage,
which makes administration and monitor, report and verification
(MRV) complex and costly. It could also lead to unbalanced investment
decisions at a site level.
The agreement documents themselves do appear
overly complex and surrounded by legal jargon.
There is already a review process for sectoral
targets in place and SMMT's targets were made more stringent at
the last review. This process is acceptable, although the hard
work and efforts of firms (and sectors) should not automatically
necessitate a tightening of the targets, as this does discourage
the drive for greater efficiency.
Where the CHP is not all in the CCA then the
reporting of emissions is cumbersome, and so could be simplified.
7. What are the main barriers to accelerating
energy efficiency in the business sector? How can these be overcome?
Resource—both financial and manpower/time
is restricted. Automotive manufacturers are efficient at making
automotive products. Dealing with complex policy and legal documents
is time consuming. The CCAs took a significant effort to develop.
New schemes, such as EU ETS or CRC often duplicate the efforts.
Some sites find they have to MRV their environmental performance
multiple times, but sometimes to cover slightly different time
periods and for slightly different aspects of the sites. SMMT
has been working with government on Better Regulations, but the
process has been slow. The arrival of the new CRC highlights this
issue further.
On a competitive level, the benefits of achieving
greater energy efficiency in the UK are welcome and desirable.
However, the automotive sector is truly global—85% of what
is sold in the UK is imported and 75% of what is made here is
exported—and many if not all of the sites located here are
not tied to the UK, many are owned by multinationals. SMMT is
therefore keen to ensure that automotive sites in the UK do not
face regulations and targets which make them uncompetitive in
the global market.
SMMT is particularly keen to ensure that policy
instruments, such as EU ETS and CRC, do not place too great a
burden on companies by moving to full auctioning of allowances.
Uncertainty over how the aforementioned policy
instruments will change going forward also acts as a barrier to
investment decisions about improving energy efficiency.
8. Products which can increase energy efficiency
(such as insulating glass for windows) can be energy-intensive
to manufacture. Policies such as the CCL and CCA can penalise
manufacturers for making such products. How big an issue is this,
and what, if anything, should be done about it?
Energy intensive abatement technology has to
be implemented in many of the SMMT sites which increase energy
usage. This should be considered when setting CCA targets.
Stricter building regulations, which have increased
insulation use, will make it easier for manufacturers of such
products to meet relative targets.
If there is a switch to absolute emission targets
then thought should be given to how manufacturers of low carbon
products are treated, as those products maybe more energy intensive
to make. It is estimated that 85% of a vehicles life cycle emissions
come from the in-use phase, just 10 per cent from the construction
and 5% from recycling/destruction. So the efficiency of the vehicles
in use phase is key to its overall emissions impact.
9. Alongside the CCL, the Government introduced
the Enhanced Capital Allowances, to further encourage firms to
make energy saving investments. How well is this scheme working?
How well does it fit with other existing or proposed climate change
instruments?
ECAs have not been extensively used in the automotive
sector. However, they are useful. The most disappointing aspect
of ECA is that those operators with arguably the most need for
the relief—non-profitable companies—do not get it.
This should be addressed to make this a more equitable incentive.
Increasing the size of the ECA from 100% to 200% would help make
the scheme far more attractive. Expanding the list of products
that the ECA can apply to would also help increase the take up.
10. The Levy exempts electricity from renewables,
though so far this appears to have had little impact. Should it
play a greater role in incentivising the growth of renewable electricity,
and, if so, how?
The only financial saving from renewable energy
is that the levy is not paid. However, the energy used still needs
to be reported in the CCA. It may be useful if renewable energy
would not count towards the CCA reporting, and targets could be
met by installing or buying renewable energy. If only part of
the energy is from renewable sources this could be apportioned
to the CCA area.
CCL would stimulate the market for renewable
electricity, but the market for this green energy is dominated
renewables obligation certificate (ROCs). The market would need
to become more liquid for CCL to have an impact incentivising
further the growth of renewable electricity.
SUMMARY
SMMT believes that the CCL and CCAs raised awareness
and encouraged members to go beyond business as usual improvements
in reducing energy use, and therefore emissions. This achievement
has been made possible by hard work, increased investment
and in terms of efficiency gains also by improvements in
output. CCAs increased the importance of energy management in
the boardroom and allowed for top-down commitment from directors,
but also for bottom up action by people on the production line,
who could see the impacts their actions were making through better
monitoring and reporting processes.
SMMT is concerned that there is an excess of
instruments relating to climate change and this is leading to
dual regulations and an administrative burden. SMMT has been working
with government on better regulation and would welcome a review
of the interaction between the CCL/CCAs, EU ETS and the proposed
CRC. SMMT has questioned the need to the CCL to continue in its
current form, but if it does then it is imperative for the CCAs
to continue, as they protect the competitiveness of energy intensive
industries. SMMT is concerned that if the CCAs were removed or
replaced by a CRC style scheme the competitiveness of an industry
which is highly open to international trade and competition would
be damaged.
28 September 2007
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