Examination of Witnesses (Questions 116
- 119)
TUESDAY 23 OCTOBER 2007
MR ROBERT
BELL AND
MR JOHN
HUDDLESTON
Q116 Chairman:
Good morning and welcome to you; you have obviously heard the
earlier exchanges. Would you like to start by talking us through
your proposals for reforming the Climate Change Levy and the Agreements?
Mr Bell: Yes, if I could just
make an introductory remark to that and then John could take us
through the five or so points. Could I just begin by saying that
as a contractor to Defra we have worked ever since 1989[6]
very closely with Defra on these agreements—their formulation
and subsequent work—so I should just make it clear that
these are our views and not Defra's views in case there is any
confusion.
Q117 Chairman:
Sure.
Mr Bell: As you will have seen
from our evidence, at the time of the agreements we were very
involved in not only advising on the targets but also the detailed
construction of the agreements, and they became indeed very, very
complex. The reason for that was this was new to industry, there
was a lot of concern on industry's part that this would take them
out of business, so there were all sorts of risk management processes,
built into the system, which were required then and, in a nutshell,
we do not now believe that those would be necessary if we were
starting from here because industry is so much more advanced in
its thinking. That really is the overarching point in our submission,
so we can go through the four or five points.
Mr Huddleston: First of all, we
do feel that the agreements should now become absolute carbon
dioxide agreements; indeed, the current agreements can adopt that,
there is one sector at least that has absolute CO2 targets so
the scope is within the complexity of the current agreements to
do that, but we feel that within the current climate, the current
need for absolute caps, it is sensible to focus on the carbon
emissions. It is possible to maintain agreements which stimulate
energy efficiency, but we feel that the time is right for carbon
agreements and we feel that it is important that agreements cover
energy intensive sectors. The criterion that was used at the start
was not ideal and we believe that a 3% threshold in line with
the European directive is more appropriate and would allow more
people, more sectors, into agreements and that would be a good
thing to widen the scope. As Robert indicated, we think that some
of the devices that were put into bringing industry on board in
2000 or so are no longer necessary, people understand it, so we
would suggest that there are no risk management measures other
than trading, with the possible exception of something along the
lines of disruption of supply or new regulatory constraints. It
is important that there is a clear separation of scope between
EU ETS, between climate change agreements and the carbon reduction
commitment, and certainly that has been designed into the CRC
and it is something that we should look at as we look at how CCAs
will develop. When we started this process many sectors did not
really have a clue what their energy performances were like, they
did not have good baseline data and so it was necessary to set
the targets on a top-down process so that across an industry if
a sector be 10% by 2010 or whatever, that advantaged some and
disadvantaged others. The time is now right and the sectors have
many more years now of much better quality data and we feel it
is more appropriate that there is a bottom-up approach in that
a sector's targets are aggregated from what individual members
can offer. Sector associations play an important part in this
process, both on an administrative side and an educational side.
There are some sector associations in our experience which are
excellent at this, there are some which are not so good. That
is partly because of size, partly because of time, partly because
of other resources and we feel that there should be more assistance
given to the sector associations in order to transfer the ethos
of the agreements to their members and, further, to help them
with their energy efficiency or carbon reduction methods. My final
point is that I believe, as Andrew Warren said, there needs to
be a stick and carrot approach and therefore we need to be able
to give a good discount off a meaningful sized levy.
Q118 Chairman:
Right. If we move on to auditing, an area in which you have some
experience, we have heard that just 9% of target units covered
by a climate change agreement have actually been audited to make
sure they have achieved the energy savings that they are supposed
to have made, and actually nearly one in five of those audits
have been found to have errors in them. Can we be confident that
companies that have signed climate change agreements are actually
doing what they are supposed to do?
Mr Huddleston: First of all, it
is 9% to date, we are continuing the audit programme and that
percentage will increase with time. The significant results from
the audit to my mind are that the base year data are often not
very good and where one is looking at errors in audit, it is because
there are problems in recovering the base year data or it was
not clearly recorded. That harks back to the lack of experience
and the lack of understanding of companies of the importance of
this data at the time. The evidence is that for more recent milestones,
the quality of data is much better, and there is other evidence
for that in that we know that those who joined EU ETS—I
have been told that the quality of the data for EU ETS for people
who were in CCAs is much better than for those who have come into
EU ETS without being in CCAs, so there are encouraging signs to
be seen about the audits. With respect to can we be confident
that companies are doing what they are doing, generally speaking
that is true, they are improving their performance and they are
delivering according to their requirements. There will be some
who are not and there are others who are over-delivering.
Q119 Chairman:
The National Audit Office report said that in 2004 6% of target
units claimed their levy discount even though they did not meet
their targets, and they were able to do that because the sector
they were in passed its sectoral target. One of our witnesses
last week actually disagreed with that; which of those claims
is right?
Mr Huddleston: The agreements
were conceived as a fairly collegiate type structure within a
sector, so in some sectors there can be a situation where the
sector passes so members of that sector do not pass the agreement
but are covered on the overall performance of the sector. Other
sector associations that I am aware of advise their members that
they should not make any assumptions, they should make sure that
they are qualified in their own right, and therefore everybody
in the sector will pass. There are possible areas of confusion
in that it is possible for a sector to pass in its own right and
then there is also a situation where although a sector fails,
because every member within that sector has traded or whatever
they all individually pass, so you get a situation where the sector
appears to have failed yet every member in the sector has passed,
so it is a technical pass.
6 Note by Witness: The contractor has worked
with Defra since 1999, not 1989 as indicated during the evidence
session. Back
|
