Examination of Witnesses (Questions 60
- 79)
TUESDAY 16 OCTOBER 2007
MR NICK
STURGEON, MR
STEVE BRYAN,
MR RICHARD
LEESE, MR
RAY GLUCKMAN
AND MR
MATTHEW CROUCHER
Q60 Joan Walley:
I want to probe a little bit more what you have just been saying
about the effectiveness of the levy, the effectiveness of the
Climate Change Agreements and the argument that you have been
making that the Government figures for the carbon impacts of both
are wrong. I know you have just explained why you think that is,
and one of the reasons I think you related to the increase in
energy prices, but can you explain a little bit why you think
the Government has got that assessment wrong? Could you just dwell
a little more on the energy price increases that particularly
heavy industries and so on have been at the receiving end of,
in terms of the wider European impact on energy prices?
Mr Gluckman: If I tackle the first
bit, and then perhaps ask the chemical sector to talk about the
increase in prices. There are two examples of why I think the
numbers are wrong. First of all, the Cambridge Econometrics report
is a big document and it would take an awful lot of work to really
probe into that data, but we believe that their data is flawed;
that it misses out two possible impacts. One was mentioned a few
minutes ago by the steel sector about production levels (that
there could have been a coincidental drop in production), but
there is also believed to be a weather effect. The Cambridge Econometrics
work was looking at the whole of the energy use of business at
a very high level, and a lot of business is affected by the weather,
of course. So it is believed there were a couple of very mild
winters after the announcement of the CCL and that that weather
effect was not properly taken into account. In the other direction,
the NAO report potentially misses out on some of the savings that
come out of Climate Change Agreements. I am grateful that the
Food and Drink Federation gave us some data which they put to
you in a written submission, and what they have explained is that
when they analyse the published result of their CCA at milestone
3 (published by Defra earlier this year) it showed a level of
saving—157,000 tonnes of carbon was the actual amount. However,
that data was based on the factories that were open in 2007 that
were reporting to the Climate Change Agreement. The FDF did an
interesting analysis where they looked back to 2001, which was
the first milestone, and they discovered that there were about
nearly 100 extra factories open in their sector at that time.
If you looked at the reduction in energy from that baseline position
to where they were in 2007, instead of being 157,000 it was 737,000
tonnes of CO2 reduction. The throughput of the 920 factories back
in 1999 was less than the throughput of the 830 factories in 2007.
So at least part of this effect is an industry rationalisation
effect that, again, was mentioned in the previous witness statements.
What we believe is happening is that the food industry is slightly
slimming down the number of factories that it has open; small,
older, inefficient factories are closing and output is being transferred.
It is not being lost. The food industry is sensitive to overseas
competition but I would say rather less so than, say, steel. So
I think that is very interesting data. There could be other impacts
that cause it, but it is showing that CCAs are rather better than
the NAO report implies, and we believe that the Cambridge Econometrics
data is showing the other impacts in rather an optimistic light.
Q61 Joan Walley:
Does anyone else want to add to that?
Mr Sturgeon: Just to comment on
energy prices. Thinking back to the winter of 05/06, we saw gas
prices multiply two or three times over due to the tight supply/demand
balance in the UK. In that situation there was a very large price
effect, of course, and it certainly worked in reducing carbon
emissions because some of our members reduced throughput and some
went to a temporary closure situation for as long as three months
and simply imported products. That is an example of how effective
a price effect can be. I think we are in a better position with
CCL in getting relief from the Levy and being focused through
the CCA targets on actually measuring and managing to improve
our energy efficiency.
Q62 Joan Walley:
Can I just finally ask, in terms of what you were saying just
now about rationalisation of plans, is there any research that
you are doing? I am particularly looking at it from the point
of view of outsourcing as well? Are you doing any research or
looking at that?
Mr Gluckman: Individual industry
sectors with Climate Change Agreements have now got all this data
available, with annual figures from all the factories. That analysis
I just quoted from the Food and Drink Federation, based on 900
factories, is data that is at least being looked at now that,
seven or eight years ago, did not exist.
Q63 Joan Walley:
It would be a matter of major concern, would it not, if our so-called
carbon savings have been brought about as a result of factories
closing down or factories being outsourced and moving away?
Mr Gluckman: I am sorry. In the
case of the data I have just quoted, the production from those
factories actually rose 4.6% over the period of those factory
closures. So it is not an offshore outsourcing; it is a rationalisation
of the UK industry, which is one of those enormous step-changes
that, I guess, if we do not see it over the 20 to 30 years, we
are not going to meet the longer-term carbon targets. The scary
factor is if we are kidding ourselves that there is a drop in
the UK, and if there is an outsource of production to overseas,
particularly if it is going to an area of the world where efficiency
is lower, then clearly that is disaster for the environment. We
would not want to see that.
Mr Leese: We, in the cement industry,
have seen imports from non-manufacturing companies in the UK rise
over recent years, and it has been a rationalisation of UK kiln
technology—that is, shutting down the wet, old, less-energy-efficient
processes—and investing in dry, new process technologies,
and those are larger kilns. Like I said before, that has resulted
in the investment of £500 million. Having said that, we have
had two companies in the UK which have announced that they will
defer their decision to invest in new kiln technology (and that
would equate to around £300 million worth of investment)
given the uncertainty in the climate change policy mix.
Mr Croucher: From the automotive
side, again, we are internationally competitive; 75% of what we
produce is exported, which is a figure that has increased over
the years, and about 85% of what is sold here is imported. Again,
that has increased significantly. Again, we have seen output actually
increase in the UK and, also, the relative energy performance
has come down, and absolute energy performance has come down.
Going along to the price increases, where energy prices have increased
that has also meant that the ability of firms therefore to invest
in some of the energy-efficient technologies has also improved
because the payback criteria were changed slightly, so there have
been some positive aspects of the price increases. It does mean
that you can actually look at what investments you can make and
they are a bit more justified. Again, it is a very fine balance
between the whole competitiveness aspect of producing cars here
vis-a"-vis abroad, and I think, like most people, every plant
in the UK has the potential to go overseas, and it is a fine balance
that is constantly under investigation.
Mr Leese: We should not forget
that, looking forward, the carbon price coming from the EU Emissions
Trading Scheme is being passed through into electricity prices,
so the additional levy on electricity is unnecessary and burdensome.
Mr Bryan: Just to add a point
to reinforce the comments that Nick made earlier, I think the
experience of the very high gas prices that we saw in winter 2005/06
was a very informative illustration of the dangers of having energy
prices in one EU country get out of kilter with prices elsewhere
on the international markets. Not my own company, as it happens,
but another company also located on Teesside was the company Nick
referred to that shut down its units for some considerable period
of time and was importing product from outside the European Union.
That of itself is a point of significance that we operate in industries
that have a global reach and a global scale and can arbitrage
themselves on that global scale. So we must not think too confined
in terms of the European boundaries when we are addressing these
sorts of issues.
Q64 Mr Caton:
Your critique of the NAO assessment of the relative impact of
Levy and Agreements is interesting. There is one fact, I think,
in their report that stands out and does raise question marks
about the effectiveness of Agreements, and that is the fact that
250 out of 4,200 units covered by Climate Change Agreements were
able to pass their 2004 milestone and receive the 80% tax discount
without having met their efficiency targets because their umbrella
group had met that target. That, on the face of it, does not seem
fair to the taxpayer and it does not seem fair to those robust
competitors that have actually achieved the efficiency targets.
Surely, the Agreements do need to be more stringent.
Mr Gluckman: We have some rather
strong views here. We think that the NAO have misunderstood the
way that most of the Climate Change Agreements work. There are
actually about 10,500 sites in the UK that have got a Climate
Change Agreement, and virtually all of those are in sectors where
they sink or swim by themselves. The mechanism does allow sectors
to try to co-ordinate their response, and there are a couple of
sectors—notably the paper industry, I think—that work
very closely to make sure that as a sector they meet the umbrella
target that you are referring to. However, because of the rules
of emissions trading, which were set up, actually, after the CCAs
were originally signed, in the majority of sectors the so-called
sector target is not of prime importance; it is the underlying
agreement targets that are of importance. So virtually all businesses
with Climate Change Agreements either meet the target by saving
the energy as required or they meet the target by purchasing CO2
allowances in the emissions trading mechanism.
Mr Leese: The use of the UK Emissions
Trading Scheme as a management tool is absolutely essential to
comply with the Agreement. When building a new cement facility
it may take many months, if not years, to get it up to its most
efficient output. So the ability to go to market and buy some
carbon in the meantime is actually essential to future investment.
Q65 Jo Swinson:
I do not know what magnitude of amounts of money we are talking
about here but if the CCAs are voluntary agreements that the company
has entered into thinking that it can achieve a particular target,
presumably it would not enter into it if it thought: "Well,
I won't be able to do that until ten years down the line because
of the investment that is required". Is that not, effectively,
just a way of getting out of paying the Climate Change Levy, assuming
that the cost of the 80% discount is far higher than the cost
of buying the carbon allowances to make up to its target? Does
that not seem a way of getting out of that?
Mr Gluckman: First of all, it
is very important to recognise what the 80% discount was for.
The Climate Change Levy is supposed to be fiscal neutral, and
the fiscal neutrality is brought about by the reduction in National
Insurance Contributions of 0.3% that came in at the time of the
Levy. There were one or two other measures, including money that
went to the Carbon Trust, to fund the enhanced capital allowances
scheme that was talked about earlier. However, if that is all
you did then heavy industry would have been punished severely
because they do not have enough employees for the National Insurance
Contribution drop to be in any way a level playing field. That
was recognised by Government right at the beginning, and they
announced that the CCAs were there to stop the lack of fiscal
neutrality. So the 80% discount delivers fiscal neutrality; it
does not deliver a sort of cost-effective amount of environmental
reduction. In return for the fiscal neutrality you then have to
make a promise, via the Climate Change Agreement, to make all
cost-effective savings. That, of course, is subject to negotiation
with Government, and I am sure we will come on to talk about the
stringency of targets in a minute. It has always been one of the
pillars of both this scheme, but more particularly of the EU Emissions
Trading Scheme and the proposed Carbon Reduction Commitment, that
one should allow the market to find the lowest cost solution to
meeting the target through emissions trading. So, no, I do not
think it is a way of just getting the Levy discount. The Levy
discount, as I say, delivers fiscal neutrality to energy-intensive
industries.
Mr Sturgeon: I think it is an
essential management tool for people to meet their targets at
individual site level. I say that speaking for a sector that is
quite cyclical. We tend to lead strongly into a downturn and lead
out of cover quite quickly, in advance of that. However not all
sites within our sector move to the same cycle. If some sites
are at the bottom of the cycle, they have low throughput, and
energy efficiency suffers. While they might be on a long-term
path to meet their Climate Change Agreement target by 2010, in
that particular milestone they will struggle to meet it and emissions
trading provides a mechanism for relying on the overachievements
of others to meet their target in the short term. However, even
with the emission trading there, essentially, what you are still
ensuring is that the overall sector target is met. So I think
it is just a flexibility tool which is very valuable and, as Ray
was saying, ensures that the least-cost reductions are found,
secured and delivered within a sector.
Mr Croucher: The arrival of the
emissions trading element also ensured that you did not end up
with a situation where a lot of people were free-riding on the
activity of others, because all of a sudden everybody was ring-fencing
their over-performance and keeping that for themselves or selling
it. So originally there was this debate which was: "How are
we going to meet the overall sector target? Will one company help
another one out?" When ring-fencing and trading came along
everybody decided: "We are going to keep that for ourselves".
So nobody in our sector free-rides from anybody else; it is all
down to the individual performance against their own underlying
Agreement.
Mr Gluckman: It is interesting,
just to go back to the historic proposition that the Government
initially made, which was that the targets would all just be at
sector level. So you would have, for example, a cement industry
target, or a chemical industry target, and if the sector met its
target then everybody was okay. However, companies quickly realised:
"What would happen if the sector failed to meet its target
is that everybody would not be okay; they would all lose their
discount". As the financial penalty was significant and company
A might lose its discount because company B did not actually do
anything, very early in the negotiations in 1999 industry said
to Government: "We are very uncomfortable with this sector
level target; we want to take our destiny in our own hands and
we want to have company or site level targets". What, actually,
we have got is a hybrid of the two; there is a sector level target
but, in fact, it is the underlying target that the vast majority
of sectors deal with.
Q66 Colin Challen:
I am glad we have cleared that up, Chairman, because if the National
Audit Office were confused, I think I have a very good excuse
to be very confused myself by all of this! It seems to me that
what we would have is a situation where under-achievers do not
get a "get out of jail free" card; they get a "get
out of jail cheaper" card by using emissions trading. I wonder
if there is a lot of underachievement covered by that, and perhaps
there should be a separation of these things to make it simpler
for the industry itself to understand what it exactly has to achieve.
Is there any sense in, perhaps, separating these two concepts
altogether: having levies and discounts for achieving targets
and then some other introduction of emissions trading? Is there
any experience from your business backgrounds which suggests there
is too much confusion allowing for underachievement?
Mr Leese: I would say absolutely,
but that is what we have at the moment. In the cement sector we
have the EU Emissions Trading Scheme covering all of the carbon
dioxide emissions from the plant and we have the Climate Change
Agreements and the Climate Change Levy covering the majority of
those emissions—i.e. the fossil fuel burning and the electricity.
So we have overlaps and confusion at the moment. What we would
like is to separate those two entities going forward so that we
do not have to have the complex double trading and double counting
arrangements that we currently have.
Mr Bryan: I think it is certainly
true there is disappointment that the trading scheme has not delivered
a better value for carbon because, clearly, companies will, in
places, have invested and made investments in anticipation of
meeting their targets, which in part would have relied upon some
value of return that they would have generated from that. Clearly,
the fact that tradable prices of the carbon under the scheme have
been very low indeed has not delivered that expectation.
Q67 Chairman:
But the way, of course, that would have been achieved had very
much lower caps, in which case all you have done is ministering
to the European Commission.
Mr Bryan: I think there is probably
a happy medium somewhere between a reasonable level of incentive
that would have enabled companies to make investments with greater
certainty, and I think the theme of uncertainty is important here.
Q68 Chairman:
But the truth is, it is the only way you could get a higher sustainable
price of carbon which is incentivised by investment would be if
you did not complain about the tax.
Mr Bryan: As I say, I think there
is a happy medium to be achieved here between a scheme that is
sufficiently stringent to deliver reward for companies that are
actually looking to pursue that and one—
Q69 Chairman:
So you are confirming that the caps are ridiculously high?
Mr Bryan: I think the evidence
is clearly that we have seen credits at a value that suggests
there is too much slack in the system, and that, obviously, as
I say, for companies that have invested, has been detrimental.
Q70 Chairman:
So we could pray-you-in-aid, when we are looking at future negotiations,
to say industry wants to have a sustainable carbon price and they
accept that the way to achieve that is to cut the caps very substantially.
Mr Bryan: I think industry, certainly,
is seeking greater certainty and reliability in the cost of carbon,
and that is a theme I would very much subscribe to. One of the
big difficulties we have experienced through this scheme, and
indeed through the EU Emissions Trading Scheme as well, is a fundamental
difficulty in understanding what, really, the value of carbon
is going to be in the future, and therefore the difficulties that
that poses in terms of constructing investment cases and delivering
the rewards against those cases. It is a very big issue for us.
Q71 Colin Challen:
If we had a good, long-term signal on the price for carbon and
a robust market, would that not really mean that we could do away
with Climate Change Levies, Agreements and all the other stuff?
Would that be better, or would we have to, perhaps, go the other
way and strengthen the Levies and Agreements and then forget trading?
These two things really ought to be sorted out.
Mr Bryan: Others members may wish
to comment, but my personal view is that I would very much welcome
a simplification and, ultimately, perhaps, one single common scheme
that, in one fashion, had one single value of carbon attached
to it, such that we would not see this plethora of different instruments
and the overlap problems that they generate for companies captured
by more than one of them. So I have some sympathy with that point
of view, yes.
Mr Leese: The cement industry
would agree with that point. If we are talking about the allocation
issue with the EU Emissions Trading Scheme, the concern from the
UK industry and European industry is because we have not got a
global scheme at the moment, that is why we need targets that
can be achieved at the moment. Moving forward, perhaps we could
look at global arrangements or global sectoral agreements that
do not impact upon the competitiveness of the UK or the EU.
Mr Gluckman: It is quite interesting
to think about the teething problems of the three different schemes:
the UK ETS, the so-called direct participant UK ETS, the EU ETS
phase one and the Climate Change Agreements. The UK ETS has suffered
severe teething problems. The design of the way in which the auction
worked at the beginning has led to a severe oversupply of allowances,
which has caused the price to be lowered. The UK ETS itself is
not being replaced so they are not going to learn by that lesson—it
was just a mistake. Under the EU ETS phase one, carbon is trading
at zero in phase one of the EU ETS, and the reason for that is
very clear—that the various NAPs (National Allocation Plans)
around the EU were far too lax. We are hoping that for EU ETS
phase two that lesson will have been properly learnt because if
it has not been properly learnt the price will collapse to close
to zero again if we are not careful. So we have got to hope that
the stringency is right. I think it is interesting with Climate
Change Agreements; clearly, they were a groundbreaking mechanism
and they were not easy to put in place back in 1999/2000. There
are lots of things that I would do differently now if I was starting
with a clean sheet of paper, but they have had fewer teething
problems than the two emissions trading schemes, not least because
the targets are renegotiable twice in the 10-year life, and we
had a renegotiation in 2004. Jumping ahead, perhaps, to another
question, on the stringency of targets, the original targets set
in 2000, I believe, were stringent in some sectors and less stringent
in others. In general, the characteristic that defined that difference
is that a small number of sectors had a lot of real information
that they brought to the table when they negotiated with Defra.
The cement industry, for example, had a lot of historical data;
they had data because there were only 15 cement plants at that
time. They had data for every single plant that was discussed
with Defra. At the other extreme you will have a sector such as
the Food and Drink Federation that had roughly 1,000 factories
and, in 1999/2000, no data, and Defra did not have any good data
either. So the analysis was done as best it could at the time.
In 2004 we suddenly had a lot of data available and we could make
the targets more stringent, as was done, and I believe that the
current targets are pretty stringent for virtually all the sectors.
In 2008 there will be another renegotiation of the target and
if there are one or two sectors where it is less stringent it
can be tightened up. So there has been a good feedback mechanism
within CCAs. Unfortunately, with the EU ETS, we are about to embark
on a five-year slug, and if the NAPs are not right we will be
stuck with it, I assume, for five years, which is scary.
Q72 Joan Walley:
Just looking in a little bit more detail at administrative burden
and overlap, the National Audit Office came in for a little bit
of stick earlier on today, but going back to their findings that
the administrative burden of the Levy is small because businesses
just simply pay that through the energy bills, obviously, similar
to the AC, and then looking again at the Agreements, the National
Audit Office, I think, says that however complicated payment is
through the Agreement, that is outweighed by the savings that
are received. Would you agree with the National Audit Office on
that?
Mr Bryan: The short answer is
yes.
Q73 Joan Walley:
Okay. Earlier on (I think this was something that was raised by
the Society of Motor Manufacturers), when all of you were talking,
you talked about the problems with sites which were partially
covered and partially not covered. I would like to know a little
bit more about how that has come about and what proposals you
have, or government should have, to actually make it more simple
and more straightforward.
Mr Gluckman: Can we split that
into two separate things? One is overlap of coverage with EU ETS
and the other one is partial coverage because of the eligibility
rules of CCAs. Richard, do you want to talk about the overlap
side of it?
Mr Leese: Yes, I think our written
submission illustrates in graphical form the overlap between the
three systems, really: IPPC had all of the cement manufacturer
installations, and within those applications energy efficiency
measures; Climate Change Agreements cover the fossil fuel emissions
and the electricity, but that accounts for only 40% of the direct
emissions from a cement manufacturing facility. Sixty per cent
of the carbon dioxide emissions come from what is called process
CO2, which is the calcination of limestone—burning limestone
emits carbon dioxide. So because the Levy and Agreements are energy
targeted they do not cover all of the carbon dioxide emissions
from the cement facility, whereas the EU Emissions Trading Scheme
covers all of the carbon dioxide emissions from the cement facility.
So we see that the overlap is unnecessary, and because of that
overlap we have to go through complex double-accounting arrangements
and, in doing so, allowances from the EU ETS scheme actually then
tighten, in some cases, the targets under the CCA scheme. So there
is complexity.
Q74 Joan Walley:
Who is actually trained up to deal with all of this particular
complexity?
Mr Leese: The cement industry
is a very energy-intensive sector anyway, and we have national
energy managers in each of the companies. So the cement industry
is very aware of its energy efficiency needs, but I can imagine
that for less energy-efficient sectors that is quite a difficult
proposal.
Mr Gluckman: We have stressed
the importance of the 80% Levy discount as an issue of fiscal
neutrality that affects international competitiveness and domestic
competitiveness as well. The companies have to be part of a Climate
Change Agreement to get the Levy discount but they have to be
part of the EU Emissions Trading Scheme because they are mandated
to do so. However, there is a chunk of emissions that are the
same and they are in both schemes. We assume we are not going
to affect European legislation very easily, so for that stuff
that is mandated to be in the EU ETS, if it is meeting the target
that is effectively set by the EU ETS, it would be nice if the
Climate Change Levy discount could be given for that chunk of
energy.
Mr Croucher: Again, within the
automotive industry probably about 40-60% of the sites' energy
use is covered by the Climate Change Agreement. So the site has
to specifically monitor and report on that area. So, again, that
puts in place the cost of additional metering and the fact that,
therefore, your investment decisions are, maybe, only partial;
you are not looking at the whole site, you are just trying to
target on just the CCA area. So it might mean there is some low-hanging
fruit in other areas but you are targeting on the CCA area because
that is where the Levy is that is most applicable. So you get
this issue where you get people that are spending a lot of time
and energy trying to meter-off and focus on a small area of the
plant, and it is restricting their impact to make energy gains
in the rest of the plants. So we have been pushing for greater
coverage, if not full site coverage. We also found that because
people are often very focused on targets—by being in the
target and being in the Climate Change Agreement—that gives
them more of an incentive to achieve those energy efficiency targets
than simply a tax. So we believe that by being in the Climate
Change Agreements per se that would give better value for money
and better savings.
Mr Gluckman: Can I explain why
there is only partial coverage? It is to do with the fairly complicated
eligibility rules for who is allowed to have a Climate Change
Agreement. Bear in mind that I said earlier there is a carrot
and stick arrangement; the carrot being the Levy discount. That
is a strong financial incentive and people would like to have
one. The Government then used, as was described earlier, the PPC
regulations part A. If you are a process defined in the PPC regulations
you are eligible to have a Levy discount. What happens with a
car factory, for example, is things like the paint-spray booths
give off solvents and so on, so they are PPC-permitted, but lots
of the rest of the car factory are not subject to a PPC permit.
So we have this rather complex requirement to divide the factory
into, notionally, two bits. What we would love to see is, obviously,
the whole process just to cover the whole factory. It would make
life simpler and it would deliver more environmental benefit,
but the Treasury would have to give more Climate Change Levy discount
for the bits that are currently not eligible for that discount.
Mr Croucher: Just to highlight
the point, we have got 25 sites in the Climate Change Agreement,
we have got 500 members in SMMT and there are something like 3,000-plus
automotive companies in the UK. So when we say that the automotive
sector has a Climate Change Agreement, the coverage is actually
very small and, as Ray said, the site coverage is limited as well.
Mr Sturgeon: In terms of differences
in coverage, few of our sites are covered in their entirety by
the EU ETS. A few of the largest petro-chemical refining installations
are close to that, but for the most part the EU ETS covers 100
of our 300 sites in the CCA. They are covered only for their boilers
combined heat and power generators. So that does mean, to the
extent we have an overlap, that is it. We do not know how coverage
will develop under EU ETS post-2012 but we fully support an early
decision from the Treasury to extend CCL relief to EU ETS participation
to relieve that overlap. Even if EU ETS covers all direct emissions
on a site there is still a concern that we would have more than
one instrument on the site because, currently, we believe Defra
would wish to have a Carbon Reduction Commitment or Climate Change
Agreement covering the indirect emissions from imported electricity.
We question whether that is necessary or not. There is a considerable
price effect from pass-through from EU ETS to electricity prices.
In fact, when we return to phase two of EU ETS prices we estimate
that combined with the effect of the renewables obligation on
electricity prices the pass-through will be equivalent to something
like 20% of over-Levy electricity prices. So we believe that that
is a full transmission of carbon price and should be incentive
enough to reduce electricity use where possible and make that
more efficient. We would prefer to see that electricity use covered
by another instrument on the same site as EU ETS.
Q75 Chairman:
Have any of you heard of the Climate Change Simplification Project?
What can you tell us about it?
Mr Gluckman: This is in terms
of the Defra regulation—
Q76 Chairman:
We were told about it by the Office of Climate Change. When we
had various senior civil servants from Defra and the DTI giving
evidence in the course of a previous inquiry none of them knew
anything about it at all.
Mr Gluckman: To my knowledge there
is a team at Defra that is, under better regulation terms, trying
to look at the mix of policies, and in particular the two or three
policies that we have really been concentrating on today—CCAs,
EU ETS and the proposed Carbon Reduction Commitment—to look
at avoiding over-regulation and burdens. We welcome the process.
To our knowledge it is not very progressed yet. I went to a seminar
in June where there were presentations from a couple of Defra
economists, but that was quite in the early days of the process.
I have heard nothing since.
Mr Leese: We provided some written
submissions to that project and, again, we have heard nothing
since.
Q77 Mark Lazarowicz:
As you know, part of the revenue from the Climate Change Levy
is recycled in the form of grants and loans issued by the Carbon
Trust. How significant has that been and, more generally, how
would you describe the relationship with the Carbon Trust in your
respective industries, briefly?
Mr Leese: I can start. I think
the Carbon Trust has a role in raising awareness in, particularly,
the less energy-efficient industries. As I mentioned before, the
cement industry is an energy-intensive business and we need cement-specialist
help in the cement industry and the Carbon Trust, generally, takes
the view of general energy efficiency consultants. My members
have used the Carbon Trust but only in a limited way, because
of their potential effectiveness. The cement industry did make
an application to the Carbon Trust when we started to look at
carbon capture and storage, but it does not seem to be an area
that the Carbon Trust is particularly interested in. Now the UK
cement industry is involved in a project with the International
Energy Agency to do some research into carbon capture and storage
from cement facilities.
Mr Croucher: Likewise, we would
share the opinion that most of the advice they have given is fairly
generic. When they have had some specialist knowledge put in there,
things like compressed air, and things like that, our members
have found that sort of help useful but, generally, you are inviting
a consultant to come on site for a number of days and you often
do not get back much more than you knew already, because a lot
of the people on the site know what they are doing. That is what
they spend their whole life doing—trying to improve energy
efficiency. We, also, as I mentioned before, sometimes have this
issue where people find out about energy efficiency and the fact
that there is a Climate change Agreement that the automotive sector
has got, but then when they come along and ask us: "We are
an SMMT member, or we are automotive, can we join it?" Then
you have to explain to them all about the qualifying criteria,
and they often find that they do not qualify in that respect.
Mr Sturgeon: I think the Carbon
Trust certainly has a role to play and has some valuable programmes.
As members have said, they are a bit generic in their focus. Prior
to the Climate Change Agreements, we had a voluntary energy efficiency
agreement with the then DETR, and in exchange for our sector level
energy target we had free energy audits on site done by the predecessor
to the Carbon Trust, the Energy Efficiency Best Practice Programme.
That is still a service which the Carbon Trust provides, so effectively
those surveys were piloted in our sector as was the carbon management
programme with large companies that the Carbon Trust now offers.
So we feel they have a role to play, although for complex specialised
sites I think it is difficult for them to provide the expertise.
We do not actually access any loans from them. There are interest-free
loans for SMEs but because we are intensive even our smaller sites
are above the thresholds to qualify for that service.
Mr Gluckman: Just to finish off
on that, the Carbon Trust does have a very wide range of programmes,
many of which are very effective. They are particularly effective,
as has been hinted, at the non-process-specific things—so
boiler plants and compressed air, refrigeration technology. I
was involved just last year in a big Carbon Trust so-called Networks
project looking at refrigeration efficiency, which I think was
a very useful exercise. The Carbon Trust is looking at ways of
addressing the more complicated technologies with more in-depth
reviews of them. So I think they are trying to find the right
niche at the complex end of the spectrum as well, but it is difficult.
Q78 Dr Turner:
It rather sounds as if the grant-making facilities of the Carbon
Trust for R&D purposes are not very effective for any of your
industries. Is that right?
Mr Bryan: Certainly for chemicals,
that has been my experience. Nick has wider knowledge of chemicals
than I do in the total sector.
Mr Sturgeon: On the R&D side
our access to those funds has not been great. We did look early
on and found, at the early stage, the agreements we would have
needed to have would have given the intellectual property for
the research that was being done to the Carbon Trust. I think
that has now changed, but that was originally a bit of a turn-off,
and I think we need to re-engage with the programme not that has
changed.
Q79 Dr Turner:
Is the fact that the Carbon Trust's grants are not very large,
also, a disincentive to heavy-scale industries, such as yourselves,
to take them up?
Mr Leese: I think that is right.
If there is going to be major step-change of carbon reduction
in the cement industry then we have to look towards novel technologies
such as carbon capture and storage. That takes significant investment,
and I think both the Carbon Trust and government need to help
industries like ourselves to invest in that research. I do not
think the Carbon Trust is particularly geared-up well to do that,
at the moment.
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