Examination of Witnesses (Questions 57
- 59)
TUESDAY 16 OCTOBER 2007
MR NICK
STURGEON, MR
STEVE BRYAN,
MR RICHARD
LEESE, MR
RAY GLUCKMAN
AND MR
MATTHEW CROUCHER
Q57 Chairman:
Good morning and welcome. Can I say at the outset, as we have
got five witnesses together, it is going to need a bit of a management.
We have got about an hour or so to get through a few subjects,
so I would love to hear from all of you but if you have not got
anything particular to add to an answer on one question which
has already been said by somebody else, do not feel obligated
to respond on every single occasion. Given that you represent
quite a wide range of businesses, are there some common concerns
about the Climate Change Levy that costs all your members? Would
you be able to identify any?
Mr Gluckman: Can I kick off on
behalf of the group? I am Chairman of one of the working groups
of the Emissions Trading Group, and all of us sitting here are
members of the Emissions Trading Group. I am going to try to co-ordinate
responses on behalf of everybody here, but recognising that the
Emissions Trading Group represents an enormous range of different
activities, including steel, which we have just heard from, and
several sectors that are here and others that are not here today.
Nick Sturgeon, from the chemical industries, was going to kick
off to talk about some of the common themes.
Mr Sturgeon: We have got, I suppose,
four points by way of common themes between us. First of all,
in terms of the current CCAs, we believe they are a success story;
we have made effective reductions in our energy use under those
agreements and we support their continuation for intensive sites
like ours. We need something like the Climate Change Agreement
to continue to get relief from the Climate Change Levy, and that
simply would not be on offer under the Current Reduction Commitment.
That is our first point. Our second point is just to note that
we have, at the moment, considerable administrative complexity.
Some of our sites are only partly covered; some sites are partly
covered by CCAs and partly covered by EU ETS, with some activity
still not picked up by either scheme. I think that is a confusing
picture. We also have overlaps in coverage of EU ETS and CCAs
on our sites. Ideally, we would want to get to a situation where
we do not have any co-existence with or without overlaps of these
instruments on site, and simply have one instrument per site.
In terms of any future instrument, we would want to see that continue
to minimise competitive impacts, and I have commented on the need
to continue to get relief from the Climate Change Levy. At the
same time, that instrument needs to be environmentally effective.
We want to be sure it has a shape which does not displace activity
perhaps to other regions of the world which are not carbon-constrained.
Finally, I have noted already the number of schemes we have got
and the number of carbon prices we are operating under. Ideally,
we would like to have a mix in the UK which ensures that operators,
regardless of the scheme they are in, are operating to a single,
predictable carbon price, or at least a harmonised carbon price,
and which is predictable where we do know where the emissions
path is going, so we have some certainty in planning our investments.
Many of these intensive sectors have long asset life-cycles, so
that is important. Those are our common themes.
Q58 Chairman:
That is a helpful summary. Thank you very much. The Pre-Budget
Statement last week confirmed that the levy is going to increase
in line with inflation and that the agreements will remain through
till 2017. What is your reaction to those announcements?
Mr Gluckman: Universally, the
ETG is very positive about the announcement on the extension of
CCAs. Indeed, in the last four or five months, we have written
to both Defra officials and Treasury officials requesting that
they start the process of thinking of what is going to happen
after 2010? We could not believe there was going to be nothing
after 2010, so we welcome that announcement. We also have a view
that the NAO report gives a surprising balance between an apparently
successful impact through the announcement effect of the CCL by
itself, and an apparently slightly disappointing performance under
CCAs. That is how I read the summary of the NAO report. I think
this group here, we all agree that we feel it is the other way
round; that the CCL by itself is a small price signal. It was
originally set at around the 10-15% level back in 2001 of the
energy price then and, as has been observed, when the energy prices
went up the levy did not go up with it so it is less, as a percentage,
now, and many people have compared it to a 10 or 15% tax on cigarettes
or alcohol—would that influence people's behaviour if that
was the level of tax on it? It is not a strong enough price signal.
All of those of us that have been involved with Climate Change
Agreements believe that they have the benefit of isolating the
targets from the price signal. So as we have these volatile energy
prices going up and down, which clearly change the drivers on
businesses financially, but we have still got targets that we
have to meet. So ETG strongly supports the target side of things,
and in our written submission we pointed out some things which
reflect what, I think, the EEF said a few minutes ago, that as
well as the tangible target improvements there are subtle secondary
effects of CCAs. One of the ones that I believe is really important
is it has brought energy to become a board level issue; finance
directors of big companies are keen to get a tax discount in a
way that, surprisingly, people that are paying the tax just do
not notice it in the same way. So getting that tax discount is
a subtle tool but it is a very effective tool. The other enormous
benefit that we have had has been the building up of networks
within industry. One of the big pluses of Climate Change Agreements
compared to other tools, like EU ETS and, possibly, the proposed
Carbon Reduction Commitment, is that they focus in industry groupings,
and we have brought those groupings together at lots of meetings—hundreds
of meetings—over the last ten years, and I think those have
been useful.
Mr Leese: Maybe I could add a
point that concurs with the steel view earlier. The Climate Change
Levy costs the cement industry around £4.9 million per year,
and that does not necessarily in itself drive energy efficiency
or carbon reduction. The UK cement industry has invested £500
million over recent years, which has led to a reduction in carbon
dioxide emissions of 29%—3.9 million tonnes from the 1990
baseline. So I do not think an increase in line with inflation
of the Climate Change Levy will necessarily drive further reductions,
given the fact that there are significant overlaps between the
Climate Change Agreement and the Levy and the EU ETS. We would
seek to remove those overlaps moving forward.
Q59 Mark Lazarowicz:
On the point that Mr Gluckman made, I can see the attraction of
a tax discount, but the fact is you have to pay the tax in the
first place to have a tax discount. So the logical conclusion,
surely, is to increase the tax even more so you can give bigger
tax discounts which will have an even more powerful effect on
changing future behaviour.
Mr Gluckman: It would if you gave
the whole of the industry a Climate Change Agreement opportunity.
Bear in mind the Climate Change Agreements are voluntary; it is
an interesting difference with other polices like EU ETS and the
proposed CRC are mandatory schemes where, if you are covered,
you have to do it. So where CCAs are a carrot and a stick, the
carrot is the CCA discount and yes, you are right, if you doubled
the level of CCA but gave it back again you are not having a financial
impact on industry, particularly if you gave 100% back, or nearly
100% back, instead of 80%, but there is a message that you can
give to your finance director that if we do not meet our targets
then there is a payment to suffer, if you double the level, that
is twice as bad as it currently is. So it is quite a powerful
tool if it is applied properly.
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