Examination of Witnesses (Questions 80
- 82)
TUESDAY 16 OCTOBER 2007
MR NICK
STURGEON, MR
STEVE BRYAN,
MR RICHARD
LEESE, MR
RAY GLUCKMAN
AND MR
MATTHEW CROUCHER
Q80 Dr Turner:
Would it help your industry, for instance, if government or the
Carbon Trust could scale-up their involvement? Would it help you
to bring forward a demonstration plant?
Mr Leese: It may well do.
Q81 Chairman:
Could I just touch on the issue of National Insurance Contributions?
There is clearly a mismatch between how much individual organisations
pay and how much they get back. Would you like to comment on that
issue?
Mr Gluckman: There is a slightly
cynical concern about the history. In 2001, with the Climate Change
Levy package, came a 0.3% reduction in National Insurance Contributions
by employers. In the Budget one year later there was a 1% increase
in said NIC. It might well have been a 1.3% increase had it not
been for the 0.3% reduction, but that is not very transparent.
There is a worry around the industry that there is that lack of
transparency about that. In any case, as far as heavy industry
is concerned, the 0.3% was never going to offset and deliver fiscal
neutrality. That was accepted by government on day one. I think
it is quite useful to think, as well, of maybe businesses split
into three main bands, which are the heaviest industries (so that
is the cement plants, the steel industry and the heavy end of
chemicals, for example), a sort of mid-range, which are generally
covered by Climate Change Agreements, but are much less energy-intensive
than the very big players (and we would probably put SMMT in that
category, the food and drink industry and the printing industry,
for example), and then you have a third level, which is the level
that is appropriate for coverage by the new Carbon Reduction Commitment,
which are the non-energy-intensive businesses, which generally
are commercial businesses or the government estate (so it is your
supermarkets, local authorities and so on). The Carbon Reduction
Commitment is a policy that is designed for that low end of the
energy-intensity spectrum, and it would not be a good tool if
it was applied for the businesses at the high end of the energy
spectrum. Of course, the difficulty with any spectrum is where
do you divide it? As Matthew said earlier, we would like to see
the CCA boundaries widened slightly, down the energy-intensity
spectrum, to capture a bigger proportion of industrial sites.
There are quite a lot of industrial sites (and, again, Gareth
was representing them through the Engineering Employers' Federation
earlier this morning), let us say in the plastics industry, in
mechanical engineering—many of the factories that are members
of the SMMT—that would probably benefit from a CCA-type
mechanism, but they are not eligible under the current rules.
Q82 Chairman:
Moving on to energy efficiency, two of the memos you submitted
suggest, as other people do, that the low-hanging fruit, the easy
gains, have now been captured. All the science, and documents
like the Stern report, suggests, actually, the progress we are
making is wholly inadequate as a response and you need vastly
greater improvements over the next 15 years compared to the last
10 years. How are we going to face up to that?
Mr Croucher: We would start by
saying that we have made significant progress thus far. We have
achieved, I think, a near-20% reduction in absolute energy and
nearly 40% in relative energy. We are not large energy users,
compared to some other people, but we have made significant progress.
We publish that data in annual reports and we have a sector sustainability
report—we have just published the eighth annual one of those.
Yes, to go forward is going to be difficult. We are looking at
new technology; so, for things like the paint shops, powder-coated
paint and things like this, but they are, as we have discussed
earlier, very expensive and very R&D-heavy to deliver. Obviously,
any help we can get to enhance those programmes would be gratefully
received. We are looking at those on a pan-European if not global
basis because the technologies are global technologies, and we
are certainly moving towards that, but it is so expensive and
so costly to do that it is slow to bring around those huge step-changes.
Mr Bryan: In a lot of the capital-intensive
industries, such as the heavy end of petro-chemicals that I represent,
you are right to identify a very major challenge for us. There
is no doubt we have been successful—and I think we can say
considerably successful—in improving gradually the energy
efficiency of our existing plant over the course of not only the
Climate Change Agreements but, indeed, the period before that
with the voluntary sector agreements. The sort of improvements
that Stern identifies, however, are—and we have to be clear
about this—very substantially greater in terms of their
step-change size than the sort of things that immediately it is
apparent that existing plant and equipment is capable of achieving.
Necessarily, we have to own up to the acknowledgement that a lot
of the response to that challenge will have to involve fundamentally
new technologies, fundamentally very large investments and fundamentally
very new thinking about how we actually seek to operate in the
future environment. Just to give you a few examples, carbon capture
has already been mentioned as one particular technology that may
become applicable, particularly, to larger-scale manufacturing
processes, but there are very major challenges in conventional
boilers and conventionally-fired heaters in actually achieving
carbon capture. Other technologies that involve fundamentally
different ways of combusting fuel offer, perhaps, an attractive
proposition in that area, but these things are not cheap. Another
example might well be fundamentally looking at bio-sourced feed-stocks
for certain areas of the chemical industry, and there is some
research and thinking going on in that area as well. However,
these are fundamentally different technologies, different approaches;
they are not, if you like, a natural continuum of the process
we have been discussing under the existing agreements. It is important
that we register that, and it is important that that is recognised.
Mr Leese: I would echo the point.
As I said before, the 2006 carbon dioxide emissions in the cement
industry are 29% lower than that of 1990. I think if the UK, as
a whole, made the same progress we would be a great deal closer
to achieving 60% by 2050. A cement manufacturer is crucially important
to the mitigation and adaptation effects of climate change; cement
and concrete can be used in buildings to enhance the thermal-mass
properties of the buildings and, therefore, negate the use of
energy-intensive measures, such as air-conditioning. We should
not forget about the life-cycle aspects of products in moving
forward. Again, I come back to the point I made earlier about
carbon capture and storage. For cement facilities that would need
a massive investment, not just in terms of the equipment needed
at cement facilities but, also, the infrastructure, the piping
structure and the storage facilities—probably in the North
Sea, or somewhere similar.
Mr Gluckman: My banding is relevant
here. In that top band of highly energy-intensive industries—steel,
cement, glass, and so on—the low-hanging fruit is long gone.
In the middle band that has still got Climate Change Agreements
there probably is, still, some low-hanging fruit available, and
it is important to try to understand the barriers that stop logical,
financial decisions. Companies will invest in a production measure,
like a new packaging machine, usually with a longer payback period
than they will in an energy efficiency measure. That is not logical
at all; they would both deliver to the bottom line. So, yes, there
is still low-hanging fruit, even in some Climate Change Agreements.
Outside of the targeted arena, in businesses and the public sector—hospitals,
and so on—there is enormous low-hanging fruit still available.
Chairman: There are a lot of issues which
we would probably like to pursue, but I think we are running out
of time now. Thank you all very much for coming in and we will
reflect much of what you have said to us in our report. Thank
you.
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