Memorandum submitted by the Environmental Industries Commission (EIC) (LCT 26)

 

Environmental Industries Commission (EIC)

 

EIC was launched in 1995 to give the UK's environmental technology and services industry a strong and effective voice with Government. With over 300 member companies, EIC has grown to be the largest trade association in Europe for the environmental technology and services (ETS) industry. It enjoys the support of leading politicians from all three major parties, as well as industrialists, trade union leaders, environmentalists and academics.

 

 

Introduction

 

The economic challenges we face are unprecedented. Equally daunting are the pressing environmental challenges facing the planet.

 

Unless we take urgent action, we face the daunting prospect of a long-deep recession - with rising unemployment and declining output - and an ecological catastrophe that will make a long recession appear like a tea party.

 

The Government should focus on tackling these challenges together.

 

Not only to create a low carbon economy but one that safeguards all aspects of the environment protection - from improved air quality, to waste minimisation, to brownfield development, to water efficiency. A clean, clever and competitive UK economy.

 

EIC's recent "Green Jobs Growth Strategy" set out a range of policy recommendations that would put the UK at the forefront of this huge opportunity." A copy of the report is enclosed for your information.

 

Since its launch in 1995, EIC has argued that economic development and environmental protection can - and must - advance together. Our future competitiveness is dependent on the rapid transition to a low carbon, resource efficient economy.

 

Politicians around the world have become increasingly aware that environmental protection yields significant economic benefits as well as ecological gains.

 

A substantial new industry has arisen: the UK's environmental industry, which has a turnover of £106 billion (2007/8) and employs 800,000 workers.

 

Europe's environmental industry boasts 3.4 million jobs - with 1.8 million people employed in Germany's environmental protection industry alone.

 

The global market for environmental solutions is already worth £3,046 billion pa (2007/8).

 

One prediction, from Gordon Brown, is that the low-carbon energy sector will employ 25 million people globally by 2050 - "a chance to create thousands of new British businesses and hundreds of thousands of new British jobs".

 

But we urgently need actions to follow through on these words of political intent. Or Britain will miss out and allow our international competitors to seize these huge environmental markets.

 

First mover advantage rules.

 

Those economies that gain early mover advantage by developing the green technologies that will guide this transition will soon be in a position to claim a share of what is already a $3 trillion global market place - and growing rapidly at over 5% a year.

 

Lord Mandelson, Secretary of State for Business, Enterprise and Regulatory Reform, highlighted in a recent speech that the environmental industry would create a "job revolution that cuts right across all sectors of the economy." He acknowledged, however, that the worldwide environmental industry would be a "fiercely competitive sector...we will need a smart strategic approach from government".

 

A "fiercely competitive sector" that the UK is already falling behind in. For example, the UK's environmental industry currently exports some £10 billion a year, yet Germany has environmental exports of some £50 billion (in 2006).

 

The new Low Carbon Industrial Strategy that sets out the Government's "vision" for how it intends succeed in this "fiercely competitive sector" is, therefore, welcome - and long over due.

However, securing the huge economic benefits of a low carbon, resource efficiency economy will not be achieved through "vision" alone. We urgently need the sorts of industry support policies - such as long-term regulatory targets and coordinated policies on R&D funding, skills and training - that will turn the "vision" into a reality.

 

It is time for Britain to get serious about ensuring its environmental industry wins the lions share of future global markets.

 

 

 

Green New Deal - Has the Government Done Enough?

 

The 2009 Budget failed to include an ambitious green economic stimulus that would have supported job creation, economic development and environmental protection. The extra £1.4 billion for the UK's environmental sector is timid and inadequate - and puts the UK at a competitive disadvantage.

 

Other countries around the world, from the USA to Korea, have used multi-billion "green new deals" to create thousands of jobs in their environmental industries - putting them at the heart of a future global low carbon economy.

 

Gordon Brown recognises that the UK's future competitiveness will depend on an urgent transition to a low carbon economy. The Budget was a real test of how serious the Government is about making this transition and the thousands of new British businesses and hundreds of thousands of new jobs it could create. Sadly it is another wasted opportunity.

 

EIC was calling for a far-reaching green economic stimulus package embracing the following recommendations:

 

In relation to climate change, EIC was calling for the Budget to include:

· A £10 billion "Green Jobs Investment Fund" in the 2009 Budget with:

Ø £6 billion for an infrastructure fund to build 50,000 new (low-carbon) social houses (on brownfield sites) in 2009/10 [creating/protecting approx 160,000 jobs]

Ø £1.5 billion for extra investment in energy efficiency retrofitting of low-income family homes in 2009/10 [creating approx 145,000 jobs]

Ø £1 billion extra investment on energy efficiency retrofitting of schools and hospitals in 2009/10 [creating approx 21,500 jobs]

 

NB. EIC was not alone in calling for a bolder approach. The TUC called for £25 billion. The Government's own advisers, the SDC, called for £30bn.

 

· Greater investment in energy efficiency, including:

Ø Introduction of a new Green Building Allowance for buildings

Ø Urgent improvements to the Enhanced Capital Allowance Scheme

Ø Increasing the ambition of the Carbon Reduction Commitment

 

Many of these recommendations were not addressed in the Budget.

 

EIC would like to draw the Committee's attention to the following announcements that were made in the Budget:

 

· Energy Efficiency

 

EIC was calling for £1.5 billion for extra investment in energy efficiency retrofitting of low-income family homes.

 

The £100m to improve insulation for 150,000 homes in the social sector is welcome, but inadequate.

 

The Budget, also announced £100 million, as part of a new housing package, for the construction of new homes at higher energy efficiency standards. The housing package includes a £600 million fund to stimulate housing development in the short-term. It is estimated that this will deliver up to 10,000 additional homes.

 

EIC understands that "higher energy efficiency standards" means the equivalent to the energy efficiency requirements of Level 3 of the Code for Sustainable Homes. Level 3 will become mandatory from April 2010 through the Building Regulations. Whilst the £100 million is welcome, though small, it is in reality for the construction of new homes at energy efficiency standards - indeed not "higher" standards.

 

 

· Enhanced Capital Allowance (ECA) Scheme

 

EIC called for an increase in the ECA to 150 per cent to provide a real incentive to ensure building owners specify qualifying technologies. ECAs currently provide a 100 per cent first year allowance on the purchase of certain energy saving technologies.

 

The current problem is that energy or water saving plant on the lists will either be more expensive to install or cost time and money for consultants to specify, identify and claim. The additional costs erode the overall value, and a 100 per cent first year allowance is merely an acceleration of tax relief that you will currently already get over a period of years.

 

The 2009 Budget does not make any new announcements regarding Enhanced Capital Allowances. However the Financial Statement that accompanies the Budget highlights that "the list of designated energy saving and water-efficient technologies qualifying for 100 per cent first-year capital allowances will be changed during 2009." It is crucial that "changed" does not mean "reduced" and that the Enhanced Capital Allowances are made available for a range of new innovative, energy saving technologies.

 

 

In addition to these specific shortfalls against EIC's recommendations, we would like to draw the Committee's attention to the following concerns in the Budget:

 

· European Investment Bank (EIB)

 

The Budget announced that UK renewable and energy projects stand to benefit from up to £4 billion of new capital from the European Investment Bank.

 

This £4 billion will be made available through "direct lending to energy projects and intermediated lending to banks." This aligns with the two main financing facilities of the EIB: direct loans and intermediated loans.

 

The direct loans are only available for programmes costing more than EUR 25 million. Unfortunately this will not register will many of the SMEs in the environmental industry. 

 

The Budget states that "the Government believes that this initiative can bring forward £1 billion of consented small and medium-sized UK renewables projects to deployment."

 

Given the requirements of the direct loans being above EUR 25 million, presumably most of this £1 billion will have to come through the banks? How will this be implemented/enforced?

 

 

· Supporting the development of low-carbon and advanced green manufacturing sector

 

Ø The Budget announced £405 million to support the development of low-carbon and advanced green manufacturing sector in the UK. - the delivery mechanisms are:

§ £155 million for the Environmental Transformation Fund - which funds close to market technologies.

§ £250 million for the Strategic Investment Fund - which provides grants for mature markets to attract inward investment into the UK. This £250 million is one third of the total Strategic Investment Fund announced in the 2009 Budget. £50 million of the total Strategic Investment Fund (i.e in addition to the £250 for low carbon technologies) will be invested in the Technology Strategy Board to enable it to increase its capacity to "support innovation in areas which have high potential to drive future growth, such as low-carbon technologies."

 

This is welcome but it is not money being directed at stimulating demand for low-carbon technologies. It is welcome to support development of these technologies but the most important thing is to stimulate demand - through, inter alia, a supportive policy framework.

 

Many of the recommendations in EIC's Budget report called for spending on stimulating demand. This was lacking from the Budget.

 

 

EIC Response to Committee Questions

 

1. What are the most important drivers, nationally and internationally, for a low carbon economy in the UK? To what extent do the outcomes of the international negotiations at Copenhagen matter?

 

The most important driver is Government intervention and the development of an ambitious demand-side policy framework. By 2050, the global economy needs to have found an entirely new way of doing things. A policy framework that drives this change is critical. It needs to be ambitious, long term and enforceable. It needs to give markets the confidence to invest in the solutions.

 

Climate change is the greatest and widest-ranging market failure ever seen. When we emit greenhouse gases society does not bear the cost of the damage. The appropriate response to correct a market failure is to fix it through, inter alia, taxes or regulation. Tackling climate change is no different. Successfully correcting the market failure is totally dependent on Government intervention.

 

We need a combination of demand side policies - such as tax, regulation and the rationing of emissions through carbon markets - that will create new markets for climate change solutions, and supply side policies - such as R&D and training - to facilitate the innovation, production and use of low carbon technologies.

 

The international negotiations are, first and foremost, crucial to tackling global climate change. If the negotiations fail there could be catastrophic consequences for the global environment. But they have equal importance in terms of stimulating a low carbon economy in the UK. Assuming the UK is successful at creating a domestic low carbon goods and services sector, an ambitious global agreement on tackling climate change will help create export markets for the UK.

 

If we get an agreement that is commensurate to the science of climate change, all countries around the world will have to start investing greenhouse gas emission reductions right across their economies. The UK's future international competitiveness will depend on how much of this reduction is achieved through exported UK technology.

 

How successful the UK is at exploiting these potential markets depends entirely on building a domestic low carbon goods and services sector. Developing this sector depends entirely on the development on an ambitious policy framework that drives investment these technologies of the future.

 

We are in danger of losing out to the more far sighted Governments of Barack Obama and Tara Aso, amongst others, that recognise not only the environmental imperative of securing the future of our planet but the huge economic benefits of doing so.

 

If an international agreement on climate change is reached in December, the UK risks losing out to these countries as they start to export their domestic low carbon technologies to new global markets created by a post-Kyoto framework for tackling climate change.

 

 

2. How important is it to the UK economy that it becomes a leading developer and exporter of low carbon technologies? What Government policy needs to be in place to do this?

 

The UK's future competitiveness depends on how quickly we can establish a world-leading environmental industry with thousands of new business, hundreds of thousands of new jobs and huge export potential.

 

As aforementioned, those economies that gain early mover advantage by developing the green technologies that will guide the transition to a low carbon, resource efficiency economy, will soon be in a position to claim a share of what is already a $3 trillion global market place - and growing rapidly at over 5% a year.

 

Taking advantage of this new green economic opportunity is dependent on Government intervention - ahead of international competitors. Without the right policy framework, business will not have the confidence to invest. EIC has lobbied harder than any other organisation for this policy framework.

 

In the area of climate change, high-level Government support is starting to move in the right direction. We now have the Climate Change Act, which sets the world's first legally binding targets to reduce greenhouse gas emissions, and the draft Low Carbon Industrial Strategy, which sets the "vision" for creating a new low carbon economy that's driven by UK business.

 

However, a low carbon economy will not be achieved through "vision" alone. We urgently need industry support policies - such as long-term regulatory targets and coordinated policies on R&D funding, skills and training - in every sector of the economy, from manufacturing to house building.

 

Germany recognised this and put in place, for example, a policy framework to support the creation of a domestic renewable energy industry. If the UK is to meet its EU targets for renewable energy by 2020, there is a good chance it will do so using German technologies. The German environmental industry now exports £50 billion (in 2006) - compared to only £10 billion in the UK - and employs some 2 million.

 

The global environmental marketplace is going to be a fiercely competitive sector.

 

President Obama, for example, has a raft of detailed policy proposals to make the USA the world leader in environmental industries. His 2009 Economic Stimulus Plan will spend over $100 billion to create half a million new green jobs. Other far-sighted governments are following Obama's lead: Germany, Japan and Korea have just announced major growth plans for their domestic environmental industries. China's economic stimulus plan includes a $142 billion programme of environmental measures. The UK is failing to respond adequately.

 

On energy efficiency, for example, the Government's policies across the economy fail to measure up to the full potential of saving energy. The Carbon Reduction Commitment, for example, a mandatory cap and trade scheme for large non-energy intensive organisations such as supermarkets, is insufficiently ambitious and unlikely to incentivise companies to invest in energy efficiency technologies.

 

Perhaps the most promising development for energy efficiency, however, is the Government's policy on new buildings - see below.

 

 

3. Are we seeing impacts of a downturn on demand and investment in low carbon technologies? If so, how can this be addressed given the need to meet long term targets? What obstacles to investment are there?

 

EIC's Environmental Investment Network recently carried out a survey of 151 environmental technology companies across the UK into 'Raising Environmental Finance in a Recession.' Companies were selected at random, covering technology developers, manufacturers, and distributors. Environmental consultancy firms were not included.

 

57% of respondents reported their businesses being directly affected by the recession. 21% reported experiencing difficulties with regard to bank lending or equity investors. 69% believe the Government is not doing enough to incentivise the sector. Only 8% would consider Government as an initial route for finding external funding.

 

Recommendations for Government policy and procedures made by respondents were based largely on the desire for a less bureaucratic approach. It was also suggested that there should be more advice available to potential applicants as to their most suitable funding route. There was a general view that Government support is valuable at very early stage research and development, but that there is too little focus on the actual commercialisation of new technologies.

 

A full report of the survey is enclosed for your information.

 

 

4. Potential of Zero Carbon Homes

 

EIC welcome the Government's far-reaching commitment for all new homes to be zero carbon by 2016. The policy will make a significant contribution to meeting the UK's climate change targets and help drive achieve the Prime Minister's vision to create a low carbon economy in the UK.

 

We acknowledge that the delivery of the target is a significant challenge - as it will require major changes to the way our homes are built. However, the very nature of this challenge, presents major new business and climate change mitigation opportunities.

 

Meeting the 2016 target will be an outstanding achievement and will place the UK as a global leader in the delivery of low and zero carbon homes.

 

By scaling up the house building industry to deliver zero carbon homes by 2016, the UK will create new and innovative technologies, services and skills that far exceed anything that has been achieved elsewhere. Establishing this technology and skills base in the UK will help create new business and, potentially, thousands of new jobs. This was the message relayed by David Miliband MP, Foreign Secretary, at the recent launch of the UK Trade and Investment Low Carbon Marketing Strategy.

 

It will also open up huge new global markets for UK business.

 

The Calcutt review highlighted that Germany has been working to develop and deliver its Passive House standard for approximately 15 years. The current expectation is that it will take a further fifteen years for all new house building in Germany to achieve the Passive House standard - which is well short of zero carbon.

 

If the UK is successful at delivering zero carbon homes in almost half this time, we will become a showcase for the world in the delivery of zero carbon house building - demonstrating that we can achieve world leading standards. We will then start to see other Government's around the world adopt similar standards. And as they do, UK business will be ready to respond to the increasing demand for their skills and technologies - creating huge business opportunities for the UK across the world.

 

To secure these benefits, the zero carbon target must, first and foremost, drive the highest standards of energy efficiency. If "zero carbon" is defined too loosely and allows house builders to meet their obligation by, inter alia, investing in offsite solutions, the Government risks undermining the core objective of the policy - to make our homes amongst the most energy efficient in the world. Lobbying from parts of the house building industry to water down the zero carbon target make this a core EIC concern.

 

A concern that is often raised is the impact the current economic downturn will have on the delivery of zero carbon homes. The question asked is: can we afford to drive zero carbon development in current market conditions?

 

The simple answer is that we cannot afford not to. We simply cannot afford for the recession to have any negative impact on the Government's commitment to this policy.

 

There is a real concern that scaling back the 2016 target in the face of current market conditions will send a signal to industry that the Government is noncommittal and flexible in its ambition. This will lead to a dearth of investment into what could be a world leading technologies and skills base in the UK.

 

We acknowledge that the decline in house building could threaten the development of new technologies. However, Government procurement has a huge potential to help stimulate the market.

 

The recent Commission on Environmental Markets and Economic Performance highlighted that "there is a huge opportunity for the public sector to amplify the role of low carbon and other sustainability characteristics in products in their purchasing requirements, creating a credible market need for these features so that business will invest in them to gain competitive advantage." This is certainly true of house building.

 

To drive this market, EIC recommends that all social housing should be required to meet the low and zero carbon home targets one year before industry is required to do so - we accept that this is now not possible for the 2010 changes to Part L. Therefore, from 2012 all social housing will be required to meet the Part L standards that will become mandatory in 2013 and all social housing should be zero carbon from 2015.

 

It is also the Government's "ambition" that all new non-domestic buildings are zero carbon by 2019. This is welcome, but "ambition" does not drive investment. Industry will need a far greater statement of intent. It is crucial that the Government comes forward with the regulatory aim for zero carbon for non-domestic buildings at the earliest opportunity.

 

May 2009