Examination of Witnesses (Questions 1-19)
DEPARTMENT FOR
ENVIRONMENT, FOOD
AND RURAL
AFFFAIRS & THE
CARBON TRUST
5 DECEMBER 2007
Q1 Mr Williams: Today's Report from the
C&AG is on the Carbon Trust; welcome back to Helen Ghosh,
the Permanent Secretary from the Department for Environment, Food
and Rural Affairs. I am not sure, Mr Delay, whether you have had
the pleasure of being here before.
Mr Delay: Not in front of this
Committee, it is the first time.
Q2 Mr Williams: Welcome to your visit
and I hope for your sake you do not have a second. Mrs Ghosh is
very used to appearing before this Committee and she knows how
we work. The Carbon Trust target of 4.4 million tonnes sounds
good in isolation, but when you put it in the context of 118 million
tonnes, which is the Government target, it actually appears rather
miniscule, does it not, it is less than 4%. Could you not have
gone for a more ambitious target?
Mrs Ghosh: From a policy point
of view of course, the support we give to the Carbon Trust and
its activities is one of a range of measures that we have to achieve
our climate change targets alongside fiscal, financial and behaviour
change activities. What the Report demonstrates is that it does
make a substantial contribution to the 2010 target overall for
business of 32.3 million tonnes of carbon, it is about 14% of
that, and therefore we do think it is very good—again as
the Report demonstrates—value for money, but we need to
see it alongside the other activities that the Government has
got in hand.
Q3 Mr Williams: You said it is one
of a range and page 10, figure 2, gives information on some of
the other approaches that have been adopted, and it actually comes
out at the wrong end, does it not, it is a fairly costly process?
Mrs Ghosh: It is cost-effectiveness.
What that chart shows is that it is the most cost-effective measure
that we have short of the Emissions Trading Scheme, that is the
net present value of what the Carbon Trust does, so in a sense,
Chairman, it supports your earlier point about the value of what
the Carbon Trust does.
Q4 Mr Williams: In that case would
it not make sense to put more money into it?
Mrs Ghosh: We will probably explore
some of these issues in the course of the hearing. As the Report
demonstrates, and Tom will be able to say more about this, the
Carbon Trust is achieving a great deal, both in its solutions
context and in its technological innovation context. There may
be limits to how much further that can be pushed in terms of the
existing barriers there are, for example, within business, but
in terms of the Government thinking about a range of measures
and the value for money of each of the measures and targeting
activity in the various areas, whether it is with the citizen,
whether it is with financial mechanisms, it seems to us that the
balance of our spend is about right, although of course we will
be keeping an eye on particularly, and thinking about our CSR
spend, the appropriate balance of our spend.
Q5 Mr Williams: Are there alternative
marginal activities you could add which again would be cost advantageous;
have you analysed that?
Mrs Ghosh: Again, it is something
the NAO Report talks about in terms of leverage of innovation,
for example. Tom, would you like to say something about how you
have been shifting activity?
Mr Delay: In essence the Carbon
Trust has two timeframes in which it operates; the first is in
providing support to businesses—it seeks to reduce carbon
dioxide emissions in the immediate period up to 2010—the
second is in the development of commercial low carbon technologies
that will see market readiness as it were, typically from 2020
onwards. The Report suggests that we are on track to deliver 4.4
million tonnes of carbon dioxide benefit by 2010, which is the
expectation that the Government has of us in its climate change
programme, but it is also on track to deliver annual carbon dioxide
savings of up to 21 million tonnes, which is much more significant,
by 2050. So there is always a discussion within the Carbon Trust
as to where the emphasis in terms of allocation of resource should
be—should it be on carbon savings in the short term, should
it be on the development of low carbon technologies and solutions
for the future in the longer term. On the margin we are always
looking around at that balance and, within a particular timeframe,
we allocate our resources on the basis of pounds of public money
per tonne of carbon saved, so we have a metric that we use very
much around the effectiveness of our work.
Q6 Mr Williams: You identified carbon
dioxide savings earlier between 2003 and 2006, of which only 40%
so far have been delivered. Understandably there has to be a start-up
process and so on, but that seems to be a relatively low figure
in relation to your final target. Are you still optimistic that
you will achieve your target?
Mrs Ghosh: The projection that
we have for the contribution that the Carbon Trust will make of
the 4.4 million tonnes is on the assumption of take-up, of implementation
of the recommendations that the Carbon Trust makes, on a current
trajectory and indeed a constantly further refined and improved
projection, so it is not an assumption that, for example, the
businesses that Tom and his team advise will take up 100% of the
recommendations because, as experience shows, for all sorts of
good reasons the Report gives a good analysis of why that is.
Q7 Mr Williams: To what extent are
you realistically targeting the organisations you approach? I
see that you only approached 12% of the companies with energy
bills more than £50,000, yet I would have thought those with
a higher level of absorption of energy would be the very companies
you would be targeting. Why is that not the case?
Mr Delay: Very broadly we look
at the map of carbon emissions from business in the UK, and about
a quarter of those emissions are from businesses with an energy
bill of less than £50,000 per annum. That means that three-quarters
of the emissions are from larger businesses with an energy bill
of above £50,000 per annum. That is about 90,000 businesses
in absolute. As you go towards larger businesses, so the carbon
footprint of those businesses increases and so the opportunity
to achieve carbon savings also increases. As a result, in the
last three years we have actually worked with 52 companies in
the current FTSE100. Of the businesses with an energy bill of
over £500,000 we have worked with about a third, and that
represents half the total emissions from UK business as a total
and we have worked with about a quarter of all corporate entities
with energy bills above £50,000—the bigger the company,
the higher the proportion of work that the Carbon Trust has done
within that particular segment. We are, however, very conscious
of the fact that we need to offer a wide range of support to all
businesses across the UK and indeed all public sector organisations
with significant energy bills, so we spend a great deal of our
focus on the smaller businesses below the £50,000 level who
nevertheless have very significant opportunities to reduce carbon
over time, but our focus is on the larger figures. The 12% actually,
I believe, when you relate it to a third of all businesses with
an energy bill of over £500,000—those that have half
of the total business emissions in the UK—that is not bad
from a standing start.
Q8 Mr Touhig: Mrs Ghosh, I realise
that it is not easy to convince companies to go green but missing
your 2010 target by 25% is just not good enough, is it?
Mrs Ghosh: As you know, we have
set out a range of measures alongside the policy activities that
I described, a range of measures in the Energy White Paper that
will help us achieve that target, but as my Secretary of State
and others have said it will be a tough target to hit. In terms
of the Kyoto target, clearly we are doing very well on greenhouse
gases, much less well on carbon. What we need to do in the coming
period, supported by the advice that we will get from the Climate
Change Committee—assuming passage of the Climate Change
Bill—they will be looking at the options for achieving the
2010 target, alongside looking at the issue of the longer term
and the 2050 target. We are not, as you quite rightly say, complacent
about hitting the 2010 target. We have got good policies in place
but we are very conscious that we need to keep an absolute focus
on them.
Q9 Mr Touhig: The Report suggests
that there are some serious obstacles in your path—the high
cost to business of meeting the emissions reduction targets, the
length of time now to 2010 and very often one of the more difficult
ones is the perception that it is not worthwhile. What are you
doing about tackling those three issues?
Mrs Ghosh: The perception that
it is not worthwhile from the key parts of the economy?
Q10 Mr Touhig: Yes.
Mrs Ghosh: One of the messages
that comes across very clearly to us—Nick Stern's Report
said it and whenever I and Government colleagues, and indeed Tom
was with us the other day in BERR talking to business representatives
about this—is that what they need are three things from
the Government: they need a clear long term view about the price
of carbon, which is crucially set through things like the EU Emissions
Trading Scheme and obviously the importance of the discussions
that are coming up in Bali; they need support for appropriate
technologies where the Carbon Trust as well as government support
for more blue skies research plays a part; and they need citizen
engagement, they need some sense that we are supporting the citizen.
Back to this point, what we are trying to do is take action on
all of those fronts, like the example of our Act on the CO2
campaign is a good one there. We have a wonderful opportunity
in terms of the political impetus; there is pretty well all party
support, the Prime Minister's speech the other day set out a very
clear and ambitious vision and absolutely emphasised that, for
example, on the renewables energy target set by Europe we would
live up to our commitments. There is terrific political support
for it, but clearly in terms of delivery those three areas are
things that we as government need to focus on and this is where
the Carbon Trust has a lot that it can do to help us.
Mr Delay: If I might just add
to that, certainly our perception is that a great deal is changing
in UK business, UK business is really on the move. We did quite
a lot of market research back at the end of 2004—38% of
FTSE100 companies were either treating climate change as a key
issue or actively addressing it; today that is 68%. SMEs are a
little behind but, again, there has been very significant progress—in
2004 18% were treating it as a key issue or actively addressing
it, today that is 39%. Against that backdrop, you are absolutely
right, there is a perception that this is very expensive and,
on the day of the Queen's Speech, there was a report published
suggesting that 65% of businesses believed that implementing the
Stern recommendations and tackling climate change head-on was
simply too expensive. One thing that we are delighted the Report
has confirmed is the positive benefit to businesses of tackling
climate change; associated with the two million tonnes of carbon
dioxide saved in the period under review, 2006-07, was a benefit
to business of between £410 and £655 million net over
the period of those savings. We very much need to put forward
the argument that climate change is indeed a risk but it is also
a very significant business opportunity.
Q11 Mr Touhig: Dennis Healey when
he was Chancellor of the Exchequer once said that British businessmen
in his view were sceptical about two statements: first, "The
cheque is in the post" and the second, "Hello, I am
from the government, I am here to help". The perception thing
is really very difficult for you.
Mrs Ghosh: Yes, it is, but another
thing that has helped a great deal is not only the activity and
the advocacy we are getting from the big companies—some
of whom Tom is working with as we described—but the interest
from, for example, the CBI and the Task Force led by Ben Verwaayen
from BT. Again, it is very much supporting that these are the
things that government can really do and, as I hope I have indicated,
we are very much on the case.
Q12 Mr Touhig: The Government's approach
is really carrot and stick and the Carbon Trust is the carrot,
but you are not a terribly effective carrot in that respect, are
you?
Mr Delay: I think we are a very
effective carrot. I am delighted with the uptake of business,
in terms of recognition of the Carbon Trust and its work but,
more generally, the opportunity that climate change has presented
over the last three years; I mean, it has seen really a sea change
from a minority of businesses viewing it as a business opportunity
to a majority, in the case of larger businesses, and a very significant
minority in smaller businesses. The job is not done, I would agree.
Q13 Mr Touhig: The Chairman raised
the point at the beginning that your market penetration is about
12% of companies which have energy use that is over £50,000
and it is smaller again amongst SMEs, so it is quite an effort
that you have got to make if you are really going to be the carrot.
Mr Delay: It is, but in absolute
figures—
Q14 Mr Touhig: It is not outrageously
successful, is it?
Mr Delay: I would hope it is.
What we have demonstrated are very significant carbon savings
that have been assured, that is the first point. An awful lot
of claims are being made around carbon savings; we have gone the
extra mile to actually get some assurance over the carbon savings
that we are delivering. We have provided that and the NAO review
has indeed confirmed that. If we go to the bigger picture of is
there mobilisation within UK business, I believe there is and
it is going from larger businesses towards smaller. You only have
to look at the level of uptake for the services that we do provide
to smaller businesses with energy bills of lower than £50,000
to realise that it is very significant: 570,000 publications downloaded,
35,000 calls to our helpline, 9,000 businesses we have provided
other on-line support to. In absolute numbers these are building
up over time.
Q15 Mr Touhig: The Report says that
the Energy Efficiency Accreditation Scheme is not being used perhaps
as a means of rewarding organisations that have positively responded;
what are you doing about that? You accept that is a failure.
Mrs Ghosh: Can I say that Defra
is one of these organisations that has had the accreditation,
so we are trying to set a really good example. Over to Tom.
Mr Delay: The Energy Efficiency
Accreditation Scheme is a terrific scheme. It has been around
for some time but had reached a point where it was stale in the
market. We agreed to take over the scheme two years ago and in
the first year as a commercial venture it was actually loss-making;
we turned that around and in the last year it has actually turned
a small profit. Essentially it has earned the right to grow and
we are delighted with the recommendations that have been put forward
in the review; we believe that it is absolutely appropriate that
now that we have seen that it is working in the right way we extend
it on a much more open basis.
Q16 Mr Touhig: If you look at the
Investors in People award scheme, that has a far higher take-up
of support from business and industry because it appears to be
giving a certain accreditation to companies that are actually
doing well with their employees. Should you not be focusing a
bit more on how they are operating to see if you can gain from
that?
Mr Delay: Absolutely. As I say,
we only took over the scheme two years ago and when we did it
was loss-making. It is now profitable and it has now got the basis
to grow very substantially into something that is at scale; your
comment about the Investors in People scheme as being a parallel
with it is appropriate. We are certainly going to be looking at
ways of dramatically increasing the penetration of the scheme
and developing it to be more relevant to the business of today.
Q17 Mr Touhig: I am short of time
so if you could just moderate your responses a bit. One other
point I would like to just quickly question you about; the Report
does tell us about the resistance amongst business because of
cost. Can you not do more in terms of your energy efficiency loans?
Have you got enough money to give companies support?
Mr Delay: We are looking to expand
the scheme very significantly, you are right, because it addresses
head-on the biggest challenge for particularly small businesses
in laying cash on the table to invest in energy efficient measures.
What we are looking to do over the next period is expand the scheme
very significantly; we would like to do that by using public funding
to cover the costs of the scheme and then raise the private capital
alongside that to significantly extend it.
Q18 Mr Touhig: You have not got enough
money at the moment, you want more because you want to expand
it.
Mr Delay: Certainly there is untapped
demand in the market, that is recognised by both ourselves and
our sponsoring Department, and we are working together on a practical
way of significantly increasing it, not just on a marginal basis
but by a factor of three or four over the period.
Mrs Ghosh: Again, as the Report
brings out very well, one of the real challenges but opportunities
for us is the kind of leverage that the Carbon Trust can get.
For example, it is expecting absolutely wonderful leverage on
its public sector partnership, Partnership for Renewables, on
public land where you are expecting to get back fifty-fold what
the Government puts in, or that kind of leverage. That is the
kind of thing we must look for, is that right?
Mr Delay: Indeed.
Q19 Dr Pugh: Nobody doubts that you
are doing something extraordinarily worthy and worthwhile but
the question mark might be whether you are doing it as efficiently
as you might. One of the figures I have come across in the Report
is that there is 33% dissatisfaction with the consultants who
market your products, and I really want to explore some of the
reasons why that dissatisfaction might be, or why there might
be some sort of questioning about your efficiency. The efficiency,
I think, is the primary source of that dissatisfaction and they
have made comments to the NAO saying that the product is delivered
less than efficiently. Can I look first at your salary costs—they
are listed on page 12—and between 2003 and 2006 they clearly
more than doubled, going up from £2.8 million to £7.1
million. Has the number of staff doubled?
Mr Delay: I believe it has. In
2006-07 the figure would have been 127; if you look at the notes
at the very bottom in 2003-04 it was 61 so, yes, it has more than
doubled in that period.
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